Ireland in danger of being ‘too expensive’, ISA warns

15 Nov 2004

Ireland’s economic success has been based upon getting foreign direct investment (FDI) technology projects to Ireland, but as we become a high-cost location then we run the danger of many multinationals leaving our shores in pursuit of lower cost and less bureaucratic locations, the chairman of the Irish Software Association (ISA) warned at the organisation’s annual awards on Friday night.

ISA chairman Cathal Friel quoted Irving Berlin: “The toughest thing about success is that you’ve got to keep on being successful. Talent is only a starting point.

“Ireland has done a wonderful job over the past 15 years building an IT industry from its humble origins to one that is today a world leader. But Ireland today is at a crossroads in it evolution.

“As a large part of our success over the past 15 years has been our ability to attract mobile FDI technology projects to Ireland, but if we become too expensive a lot of this mobile FDI will seek locations of lower cost.

“This is an issue that we all have to acknowledge and accept as a business reality. We have to be careful or very quickly our industry could return to its humble origins, as our multinationals friends depart our shores to lower cost locations with less bureaucracy. The only way to guarantee a sustainable long-term IT industrial base in Ireland is via the development of a strong indigenous IT industry. We have more than 150,000 people working for our multinationals in comparison we have less than 20,000 in indigenous IT companies,” he added.

Friel drew a parallel with Israel, which with a similar population as Ireland, has developed a large and successful indigenous software industry. “For a country of comparable population yet much further way from all markets, it has built an industry with almost the reverse to what we have in Ireland. Its multinational sector has only over 20,000 employed. Its indigenous IT sector has more than 150,000 employed.

“So how did Israel do this? Well one of the primary drivers was that it supplied its start-ups with an ocean of seed funding and thus encouraged huge numbers of entrepreneurs to try their hand at a start-up. Between 1998 and 2003 the Israeli venture capital (VC) industry invested more than US$10bn in IT start-ups. Whereas in Ireland, over the same period, we invested less than US$1bn in IT start-ups. The result – Israel 150,000, jobs Ireland 20,000 jobs.

“Now take this statistic: over the same period Irish people have invested more than US$40bn dollars in property both here and abroad. I feel strongly that we need some tax-based mechanism to free up large amounts of venture funding for start-ups, where by individuals are encouraged to reinvest some of his or her property profits into the IT industry. This should be done via the existing VC industry as it is the expert in nurturing companies,” he said.

Also present on the evening was the Government’s chief science advisor, Barry McSweeney, who reminded the audience that research and development (R&D) was key and said that an Action Plan for Promoting Investment in R&D to 2010 has been developed.

McSweeney acknowledged Ireland’s track record in attracting foreign direct investment and said that the Government’s high investment in R&D raises a number of expectations. He said: “We must not falter in our continued investment in research and accept that we still lag behind competitors with regard to both private and publicly funded research. A key objective must include raising Ireland’s reputation internationally as a good place to do research. The attraction of Bell Laboratories (R&D arm of Lucent) to Ireland recently is a very encouraging sign that the strategy is working; also the attraction of internationally recognised researchers and their teams to Ireland has gained attention.”

McSweeney will present Ireland’s programme in R&D at a top-level international meeting in Kyoto, Japan next week and will continue to Bangalore, India, later in the week to analyse possibilities of collaboration with one of the fastest growing high tech regions of the world.

By John Kennedy