Surviving the shift from manufacturing

14 Oct 2003

Hardly a fortnight passes these days without news of a factory closure or the decision by an overseas electronics manufacturer to move its operations to a lower cost economy. In the midst of this, policy advisers, state agencies and government appear to be in a state of paralysis or shell-shock and mouthing the same mantra: if manufacturing is Ireland’s past then R&D is its future and to embark on this remarkable voyage we must ‘move up the value chain’.

With only a vague hint at what this latter phrase actually means, the boffins talk of a ‘balancing act’ between getting jobs for graduates in the midst of a skills surplus and ensuring we can field larger numbers in anticipation of a skills shortage in three years’ time. In the absence of any clear leadership on the subject, it is clear that the answer lies with the companies and industries themselves for inspiration and direction.

Nortel Networks, which invests on average some 14pc of its revenues in R&D per annum, this year celebrates 30 years in Galway where it employs 300 people. The C$2bn company, which pioneered the introduction of PABX phone systems and claims 95pc of Ireland’s top 1,000 companies as customers, also has a multifunctional 34-acre facility in Newtownabbey, employing 900 people in services from design to distribution and is the headquarters for Nortel’s EMEA supply chain operations.

The Galway operation, which began life as a manufacturing facility in 1973, has survived numerous cutbacks and changes throughout the Nortel Networks corporation, is now a frontline R&D operation for the company, developing advanced contact centre systems and the latest voice over IP technologies. The operation’s ability to transform itself from traditional manufacturing to a state-of-the-art R&D operation is regarded by multinationals in Ireland as a template for survival.

The Galway facility’s site leader Mike Conroy (pictured) is one of the best known figures in Ireland’s €30bn ICT sector. He sits on the board of the IBEC-supported ICT Ireland as well as the board of the Atlantic Technology Corridor (ATC) project, a group of local employers which aims to increase spending in the West’s ICT sector by 50pc 2006 as well as growing total jobs by 10pc every year by creating an unassailable technology cluster between Shannon and Galway. The ATC group has brought significant broadband capacity into Galway/Shannon region, where some 16,000 people are employed by the ICT sector.

Conroy has no doubt that manufacturing has become a thing of the past for many of these companies, where empires of the mind are what are needed to be established instead of low-paying, blue collar turnkey operations. Nortel’s position on the West coast of Ireland in Conroy’s view is less a position of a location on the periphery of Europe but dead centre between the North American and European corporate worlds.

In this way he has turned the facility into one of the company’s key sales hubs in terms of more than 150 corporate customers visiting the operation every year to look at the next generation of enterprise and contact centre VoIP applications in action. Some 220 of the operation’s 300-strong workforce are graduates engaged in researching and developing the telephone systems of the future.

Facing industrial shifts that began in the 1980s, the local management of the Nortel operation in Galway pressed to engage in R&D activities, beginning with improving the supply chain and manufacturing activities. “Things evolved considerably and we kicked off the outsourcing of electronic manufacturing ahead of the global trend in that direction”, Conroy recalled. “We realised we needed to build up our capabilities and expertise as a value-add operation within the Nortel group. We also focused on developing a reputation as a leader in software development within the company. After 18 years of this initiative the local operation here is responsible for securing more than 21 patents a year and we invest heavily in making sure that value-added intellectual property is available to the rest of the corporation from here.” As well as R&D, the Galway operation is responsible for Nortel’s global professional services operations such as sales, technology consultancy, financial services and critical aspects of its supply chain operations.

Conroy continued: “From an Ireland Inc perspective, the country is in the in middle league. It’s a good thing that we are well positioned from a geographic position, we find that we support can support 60pc of customer base in North America. We’re well placed to provide 24 x 7 R&D. Cost competitiveness continues to be important, and it’s important to have supports within broader political environment for R&D tax credits. The focus on investment so far for multinationals has been direct grant aid. However, there is a shift in the boardrooms of the world whereby corporation tax plays less of a role. Canada, Israel and the UK have begun implementing innovative tax mechanisms based on the level of R&D and profits declared. We feel strongly that this should be a stronger part of Irish Government policy.

“Local R&D companies like Storm and CyberNet have proven critical to Nortel’s growth in Ireland and it is a shame that there are no incentives or tax breaks to encourage such companies to reach new heights,” he said.

“It is a question of Ireland gaining critical mass in terms of innovation. There is a rare opportunity for Ireland to take a leadership position in R&D. Across the entire ICT world, there is an ongoing debate about which geographies are the ones to watch.

“Another issue is that Ireland is not a strong play in terms of international sales and marketing and business development focus. This needs to change. You can be innovative and produce great products, but what needs to be strengthened is the ability to penetrate new markets globally. From an indigenous perspective, R&D needs to be incentivised and business development and sales and marketing needs to be improved,” Conroy warned.

By John Kennedy