Plotting a post-manufacturing future

4 Jun 2008

A new report highlights the volatility of Ireland’s tech sector but provides clues as to its continued success.

The two most striking insights in a recent report on computer manufacturing in Ireland were the speed at which it came and went and how surprisingly unscathed the workforce emerged from the experience. In The Decline of the Computer Hardware Sector: How Ireland Adjusted, Professor Frank Barry (Trinity College Dublin) and Dr Chris van Egeraat (NUI Maynooth) give a fascinating account of a turbulent period in Ireland’s recent economic history.

Zenith and Wang had production lines up and running in the mid-Eighties that were to close down in the early Nineties. What could have been a catastrophic loss of foreign investment was offset by the arrival of Dell, Gateway and AST. By 1999, 33pc of PCs sold in Europe were assembled in Ireland. But no sooner had the new wave reached a peak than it too crashed to the ground. By 2002 only Dell and Apple remained, with Apple having dramatically downsized its operation.

But despite how the hardware sector contracted, short and long-term unemployment remained low. “Virtually all of these adjustments came at a fairly low cost to the workers involved and that was an exciting finding,” says Barry. “The buoyancy of the economy was undoubtedly a factor as well as the level of skills picked up by people in their original hardware employment.”

Their skill sets were valuable enough to ensure redeployment for the displaced workforce, according to the report. Some were employed in the burgeoning services industry – call-centre workers simply took their skills across to other sectors – while others found themselves in new technology companies that had risen with the tide of IT investment that the multinationals had brought to the country. The indigenous software sector was thriving.

“When a textile company moves overseas it leaves the workers with redundant skills; it wasn’t like that,” comments Barry. “They still had value.”

The report is a thorough piece that transcended its academic background to find its ways on to the editorial pages of the Irish Times. Part of the reason was Barry’s comments at the launch. He said it would only be a matter of time before Dell followed the trend, packing up its machinery and moving its manufacturing eastwards.

“My comments were based on analysts at University of California, Irvine, who are experts on the IT industry. They argue that if the central and eastern European countries had been liberalised and part of the EU at the time when Dell came to Ireland, then it is highly unlikely that it would have chosen Ireland. Shortly after I read that, Dell announced it was opening a manufacturing facility in Poland, so I thought that yes, the writing was probably on the wall. We’re not saying its departure is imminent but it won’t be here forever.”

Should Dell leave, or other IT multinationals, it is hard to believe that the current economic climate would be so hospitable to the newly unemployed. “If the current downturn that we’re entering into is as deep as some people expect then it won’t be a good time to be laid off,” says Barry.

The big hope is that Ireland’s indigenous software sector will continue to thrive. Rumblings that it is already starting to pale in comparison to a country like Israel are unfair, according to Barry. “It’s nowhere near as strong as Israel but that’s no surprise when you think about the defence expenditure and huge venture capital availability from American finance. It would be very difficult for Ireland to replicate anything like that but what we’re doing here is still extremely successful. [High tech] is the only sector in Ireland where we have a strong indigenous sector so I wouldn’t be talking it down.”

Knowledge economy
Another key strategy for Ireland Inc is the pursuit of the knowledge economy, where high-value jobs fill the void left by manufacturing. In the old Ireland labour was cheap and it was a cost-effective place to do business. Now we have to move up the value chain, a journey that began when the IT multinationals closed down their factories.

“A lot of the companies may have shifted their hardware manufacturing out of Ireland but they kept up a presence. Apple and Dell are good examples, maintaining high-end jobs and reconfiguring its staff to go into sales where the English language is more important than it is in manufacturing,” explains Barry.

He is optimistic about Ireland’s ambition despite fierce competition from other countries that are also looking to lead the knowledge economy. “Investment here would still be supported by factors that drew manufacturers – the low corporation tax rate, the English language and the common law environment that is attractive to US multinationals.”

He identifies the National Development Plan of 2000 as the turning point, when the government made a fivefold increase in science technology and innovation. “Our share of EU spending in this area has increased considerably and that’s true of business spending as well, which is a sign that the realigned policy is working. Almost every week you hear of new R&D labs being set up in Ireland.”

The organisation that has been so adept at steering Ireland on this course has been the IDA. Having set the ball rolling and attracted the first wave of high-tech manufacturing in the Eighties, it was quick to spot the sea change and as early as 1996 was discouraging certain manufacturing operations from setting up shop here. It began switching the onus to software development and subsequently high-value technology businesses like Google and Amazon.

“It is a terrific organisation that has learnt from experience,” says Barry. “In international comparisons it always does very well and one of the reasons is because it has the ear of government in the way equivalent IDAs don’t.”

He points out that it was the IDA and Department of Enterprise that encouraged government to increase spending in science and technology. “They drove it because they were aware that a big new trend in foreign direct investment over the Nineties was going to be in offshore R&D laboratories.”

To ensure that the workforce remains immune to the changes that come with a shifting economy, Barry and van Egeraat state at the end of the report that the “labour market will be enhanced by the increasing educational attainment of the workforce and a concurrent expansion in the share of modern higher-technology sectors”.

Does Barry think education is meeting this requirement? “Third level is producing a very large number of graduates and if you include the institutes of technology it is higher than average in western Europe. The problems are at second level. There is a high dropout rate from kids who aren’t taking their Leaving Cert. There is a social dimension to this; we’re losing a chunk of second-level students who are never going to be part of the modern economy.”

By Ian Campbell