Why Ireland’s knowledge industries will lead the nation to economic recovery

30 Apr 2009

Ireland is not the sick man of Europe that some commentators would have you believe. Astute global investors – including the elite of Silicon Valley – still believe Ireland has the fundamental qualities for investment. Ireland is not only alive and kicking, it is open for business.

At the end of March an article appeared in the Sunday Times Magazine that seemed to lampoon Ireland’s rags-to-riches-to rags story and how we blew the boom.

The article described how with generous helpings of Guinness, flutes of champagne and insight from the Doheny & Nesbitt School of Economics we embarked on the worst kind of binge, a property binge. The article read: “The Celtic tiger that transformed a beer-soaked backwater into the envy of every small nation with a thirst for a makeover is dead, and its cubs are looking to emigrate because they see no future.”

While the article may be construed as xenophobic in tone, employing ‘Oirish’ stereotypes wickedly beloved across the water, it did hit on some uncomfortable truths – that our misuse of money during the good times was grotesque. But hey, we had a ball.

The article also gave the impression that Ireland was in a worse-off economic condition than the UK and belied certain fundamentals that still make this country a place to envy.

In recent weeks Goldman Sachs International and BP chairman Peter Sutherland said on RTÉ News that despite the negative media reporting at home, Ireland’s recent Budget decisions are being applauded in financial circles, and that now, more than ever, it is important to project a positive image of the country.

He pointed out that Ireland’s GDP per capita, if 100 was taken to be the EU average, was 135, ahead of Germany at 117, the UK at 114 and Japan at 107. While Irish exports are forecast to decline 5.9pc this year, this pales in comparison to declines of 16.5pc in Germany, 15.9pc in Italy and 9.8pc in the UK.

Writing on the same subject in the Financial Times in mid-April, Sutherland admitted the housing slowdown and associated budget deficit created a major challenge, but gave a distorted picture of the underlying health of the Irish economy.

“The economy has been a phenomenon since the Eighties. From a relatively poor country on Europe’s periphery, Ireland has risen to become one of the richest economies in the world in 20 years. Even after an anticipated 8pc fall this year, its GDP per capita in terms of purchasing power, will remain significantly higher than that of the UK or Germany. And, while unemployment has risen, there are still 80pc more jobs in Ireland today than 15 years ago.”

Looking out his window on a sunny Friday afternoon as traffic builds up along the canal on Mespil Road, the man charged with one of the most vital economic missions in the country puts it another way. “In the early Nineties, Ireland’s technology industries consisted of just 19,000 people. Today, they employ 91,000 people,” says Barry O’Leary, chief executive of IDA Ireland.

In recent months, Ireland has been successful in attracting substantial inward investment from giants such as Intel, which employs 5,000 people already in Ireland, and which is investing a further US$50m to create 134 jobs in Limerick.

HP, which employs over 4,000 people in Ireland, followed this up with a plan to create 500 jobs at a global services desk. The project has the potential to grow to 1,500 people in the coming years, sources say.

Other notable technology investments include Facebook, which is creating 70 jobs in Dublin, and Big Fish Games, which is creating 100 jobs in Cork. In terms of digital media, players such as Blizzard/Activision are recruiting 500 people in Cork.

Recent investments in R&D by players such as Helsinn, which is investing €13m, as well as a €3m investment in R&D by communications giant Cisco with NUI Galway’s DERI lab, highlight the growing cluster of R&D investments in Ireland. It is understood that 45pc of all of IDA Ireland investment wins last year were in R&D projects.

O’Leary says that in 2008, the IDA had brought in over 130 investments, 43pc of which were R&D projects. “That was against a target of 122 companies. Many of these companies were first-time arrivals to this country, including Facebook.

“There has been a major transformation in the nature of projects we are attracting, to put it mildly. When Microsoft first came to Ireland in 1985 it was a pure manufacturing operation. Today the local operations employ 1,500 people and the company is building a US$500m data centre in West Dublin to handle future cloud computing services.”

Microsoft Ireland’s Paul Rellis lends credence to this: “When I joined Microsoft Ireland nine years ago, the then managing director, Kevin Dillon, pointed out that Microsoft spent less than 1pc of revenue on manufacturing or costs of goods, but 16pc a year on R&D. That focused our minds and, today, if you look at Microsoft, there’s not much manufacturing left in software anymore, it’s all online. We decided to get ahead of that trend and not be fearful for the future.”

Fear of the future, Rellis says, can have a paralysing effect on an economy, and Ireland needs to remember that there are one million more people at work in the country than there were 10 years ago.

O’Leary said the nature of R&D projects that Ireland is winning is also fundamental to future growth of the nation and its ability to emerge and capitalise on the expected upturn. “PayPal already employ 900 people in Dublin and in recent weeks invested €15m to employ 35 people in R&D. The idea of R&D being about men and women in white lab coats is dated. There’s actually a huge amount of R&D applicable to business services, so many of these people would be business analysts.”

Highlighting the level of competition Ireland faces, O’Leary said that before Christmas the country faced tough competition from Switzerland and Singapore for a major €30m R&D project from insurance giant Aon, and won.

“The fundamentals of Ireland’s young population – 40pc of people here are under 25 – and supportive tax infrastructure are key,” O’Leary said.

His comments were given credence by the head of online operations at Facebook, Colm Long, whose company is creating 70 jobs in Dublin. “The supply of people, and Dublin’s ability to attract young, talented professionals to work and live here, is vital.”

While a doom and gloom atmosphere pervades Irish life at present, Long says the country is still consistently punching above its weight.

“The markets Ireland is competing with for foreign direct investment (FDI) are primarily European ex-communist countries with inherent bureaucratic infrastructures. Ireland doesn’t have that hurdle.

“The country has always managed to surprise and demonstrate resilience and entrepreneurship. We have almost no right to attract the level of FDI we have, but we do. When Intel came here, it was on a promise to just let us show you what we can do, and it’s still investing in Ireland.

“Another factor that is underplayed in Ireland is the sheer talent of the local software development community – I cannot underline how well-regarded it is internationally.”

IDA Ireland’s O’Leary points out that tough decisions still need to be made for the future of the economy, but keeping momentum is central. “Competitiveness is the No 1 issue as I see it, but that is the price you pay for moving up the value chain. But we have other nations biting at our heels and the current scenario will help in that there’s a much looser labour market now and salaries are definitely lower than they were a year ago.

“While the British press are having a right go at Ireland, the outlook for the UK is not good and its deficit will hit 11pc.”

O’Leary said that while the local industry has been hit with bad news in the shape of Dell pulling manufacturing out of Limerick with 1,900 job losses and Xilinx doing the same in Dublin with 130 job losses, the country must stick to its guns on the road to higher-value projects.

“In the early Nineties the ICT was all about putting chips in boxes, today it’s about higher-value activities. The same can be said for medical devices and life sciences. In the Nineties the industry was making plastic tubing, today it is about new cures and drugs and drug-alluding stents.”

O’Leary’s counterpart at Science Foundation Ireland (SFI), Frank Gannon, said at a recent briefing that the nation needs to focus not only on new job creation, but job conversion. “The skillsbase in multinationals is changing all the time and a key strategy is job conversion. If we can’t match these trends there will be job losses.

“Last year 43pc of announcements were in the R&D area, but the point that was important to SFI was the fact that 58pc of those announcements were in existing companies. The figures from IDA Ireland show that we are achieving this transformation in Ireland.

Gannon urged that Ireland holds its nerve on future science investments and said that Ireland needs to demonstrate greater performance in business R&D in the years ahead. “90pc of all R&D in Ireland is strategically focused, rather than blue sky, which will encourage future inward investment. We’re in the scrum and we’re getting the ball so the IDA and Enterprise Ireland can score,” he said.

To illustrate this point, major wins such as Smith & Nephew have been gained on the back of excellent local research in the area of bone marrow.

“Human capital is Ireland’s cachet,” O’Leary reminds me. “In the US, the downturn is leading more and more people into technology and that is happening here. The property bubble diverted people’s attention away but the technology industry is coming to the forefront again.”

O’Leary argues that not only has Ireland the indigenous talent but the country’s ability to attract talent is also vital. “If a 100-person operation employed 40 local people and 60 non-nationals you have to realise the 40 local people wouldn’t be there if not for the fact that the country was capable of attracting the non-nationals to work and live here. We have long accepted that to win projects you have also got to win people. Google would have 800 Irish people out of its 1,500-strong workforce in Ireland.”

But honing indigenous maths ability, O’Leary warns, is key to the future. “I suppose what we need is an Irish Mark Zuckerberg; young people need leaders they can look up to. While there are programmes in the schools aimed at making science and maths more fun and engaging, more has to be done to boost maths performance.”

He pointed to 20-year-old Steven Troughton-Smith, a student of digital-media engineering at Dublin City University, and also a successful developer of iPhone applications for Apple’s iTunes App Store, as an example of the kind of savvy needed.

Multi-disciplinary third- and fourth-level degrees, O’Leary adds, are also important to the future skills mix needed. “Accenture ran a scenario for graduates around running a grocery store and while an IT graduate showed great technical knowledge, he hadn’t an iota of commercial sense. Mixed-degree programmes will have to be the future. Just having a one-track degree is not what the business world demands nowadays.”

The need to boost the multi-disciplinary skills of third-level graduates is supported by Iona Technologies co-founder Chris Horn, who is involved in the Bell Labs and Lucent-backed Centre for Telecommunications Value-chain Research (CTVR) at Trinity College, Dublin (TCD).

Horn says that the strategic R&D link-up between UCD and TCD will have a vital change embedded in future degree programmes. “Their plan is that every science and engineering student will get training in commercialisation. This will bring about a major culture change in Irish universities.

“We need a seismic change in college/business culture and this is happening. Ireland needs more world players. The one thing they teach you in business schools is never waste a good crisis. Ireland’s learning that now.”

Looking ahead, Barry O’Leary says this is a tough time for Ireland but if we keep our heads the country will emerge stronger, perhaps even before the world’s upturn.

“The one thing the country needs to keep focused on is the fact that there is business to be won. You saw the IDA performance last year. Continuing into the first quarter of this year we had more than a dozen investment wins from the crème-de-la-crème of bluechips including HP, Intel, Merck Sharp and Dome and PayPal.

“The most important thing to remember is this is a long-term game – you don’t take your foot off the gas in a downturn.”

By John Kennedy