IT companies lead economic boom in Ireland

IT companies lead economic boom in Ireland

Forget Guinness, wool sweaters and smoked salmon - the new Republic of Ireland is rapidly becoming famous worldwide for its production of PCs, semiconductors, routers, hubs and software for the global market . . .

Smack in the middle of a green field dotted with sheep, rippling streams and stone fences sits a $US2.5 billion Intel manufacturing plant, whose 3600-strong workforce has turned out 29 million Pentium chips along with millions of motherboards and other components. Intel is building a new fabrication plant right now - it's slated to become the largest worldwide producer of Intel's next generation chips, "whatever that may be", according to Intel Ireland spokesman Liam Cahill. The company expects to hire 2000 more people in the coming year, Cahill added.

The Republic of Ireland's economy is undergoing a transformation, led in large part by the investment of billions of Irish Punts (pounds) by overseas IT companies, including Intel, Bay Networks, ICL, Oracle, Philips Electronics, Microsoft, Dell Computer, Compaq Computer, 3Com, Gateway 2000, Motorola and IBM. However, Ireland is also spawning many of its own IT stars, such as Iona Technologies and Silicon & Software Systems. While Dublin tops the list of locations where companies have located manufacturing plants or centres for sales and support - due to its advanced infrastructure - companies have also set up shop in locations such as Limerick, Cork and Galway.

"Ireland automatically appears on people's radar when thinking of where to locate in Europe now," said George Bennett, new business manager in the electronics division of the Irish Development Agency (IDA), a non-profit group set up to attract inward investment into the Republic of Ireland.

Large tax breaks, cash incentives, a high-quality telecommunications and transportation infrastructure and a US-style working environment rank high as reasons that multinational companies want to set up shop in Ireland.

People power

But other countries offer similar incentives and have even more developed infrastructures, so what attracted the likes of Intel, Microsoft and Compaq to a small island with a population of 3.6 million people in the first place? If there was one overriding reason why Intel decided to build its fabrication plant in Ireland, it was the seemingly endless pool of highly-educated young engineers and workers, Cahill said.

"By the time Intel looked at this country, we were convinced we'd get a large supply of educated graduates," said Cahill.

The fact that there seems to be almost an interminable source of young workers was the most important reason to locate on the Emerald Isle, echoed several other IT companies. In total 44 per cent of the population is under 25, and 60 per cent of university-level students study engineering, science and business, the IDA said.

"We were always able to meet recruitment demand," agreed Shane Creegan, director of manufacturing engineering at 3Com Ireland, which is rapidly expanding its operations in the area. Right now, the Dublin-based plant (the company's largest manufacturing plant in the world) employs 1000 people, but is busy expanding to a new site next door and will be hiring at least 1000 more in the coming year.

Though birth rates are now rapidly tapering off, up until the 1980s family sizes remained very large in the Republic. In the past five years, this has led to a large population of young people - many of them educated in the country's top universities - entering the workforce at twice the rate of older people who have been retiring, according to Terry Baker, a research analyst at the Economic and Social Research Institute in Dublin.

"The biggest reason companies want to come to Ireland is the English-speaking, educated workforce," Baker said.

Coming home

Today, many graduates are opting to stay in Ireland instead of emigrating to the US, the UK or mainland Europe. Historically a nation of emigrants whose people had to leave in order to find work, Ireland is now calling back many of its expatriates to a world of increased prosperity, bountiful jobs and improved social conditions, Baker said.

Between 1991 and 1996, 3500 Irish emigrants returned to Ireland, according to the IDA. Though this number may seem small - compared to losing 600,000 residents between 1986 and 1991 - it proves that expatriated Irish residents have caught wind of the economic boom and are coming back to apply the skills they learned abroad, according to the IDA.

"The Irish are great for travelling, but they are also great for coming home," said Ray Bulger, managing director of Silicon & Software Systems, an Irish hardware, software and silicon-design firm based in Dublin which employs 210 people.

"A graduate used to have to go to the US when graduating from Trinity, now they can come to Iona," said David Clarke, a product manager at Iona Technologies in Dublin. The company - which has grown from a few campus programmers at Trinity in 1989 to a 415-person worldwide corporation traded on the NASDAQ stock market - hires about 45 graduates a year. The average age of the workforce is 26 - a figure that is matched, or in some cases lower, at four other Dublin-based companies, Intel, Silicon & Software Systems, Gateway Computers and Dell.

However, the pool of available workers is already beginning to be siphoned off and in a few years time, companies will have a lot fewer candidates from which to choose, Baker said.

"It's getting harder to get engineers," Bulger agreed.

Money talks

However, it isn't only the educated young workforce that attracts IT companies to Ireland. There is another huge incentive - a 10 per cent corporate tax for all companies involved in manufacturing and international services. The tax, in operation since 1981, will continue at the 10 per cent rate until 2010, when it will most likely rise to 12.5 per cent, according to the IDA. Because companies can pay rates of up to 50 per cent on mainland Europe, the 10 per cent rate is one of the largest draws, said Finn Gallen, a spokesman for the IDA.

"The 10 per cent tax is an extremely good advantage," confirmed Silicon & Software Systems' Bulger.

The IDA also provides incentives to IT companies by negotiating a cash bonus for locating in the Republic of Ireland, Gallen said.

Still, several companies were quick to point out that even with the incentives and the 10 per cent tax rate, they would have taken their business elsewhere if Ireland had a shortage of graduates.

The cash incentive was important initially, but in the long run, the potential workforce and the ability to maintain an efficient business were more important in Dell's decision to set up in Ireland, said Andrew McNeile, sales director at Dell's Dublin-area call centre which employs 400 people. In addition to the quality of education in Ireland, Dell found the Irish people "charming", which is important for customer service operations, McNeile said.

Dell was one of the first companies to locate in Ireland when it opened a PC manufacturing plant in Limerick in 1990. The factory is now the largest exporter of PCs in Ireland and employs 1300 people. The direct sales PC company was so impressed with the efficiency of the workforce and the low tax rate that it decided to locate its call centre for the UK and Irish markets in the Dublin area in 1993.

"At the end of the day, it comes down to your workforce," agreed Mike Maloney, director of marketing for Europe, the Middle East and Africa at Gateway 2000 in Dublin. Nowhere in Europe is there a pool of labour like there is in Ireland, Maloney said.

Gateway 2000 went one step further than some of the other IT companies investing in Ireland - it located all of its European manufacturing, customer support, sales and marketing operations on one site in Dublin. The company employs 1500 people, 800 of which are on the phone taking care of direct sales, technical support and customer support. While 80 per cent of Gateway 2000's employees are Irish, the company also hires foreign nationals to staff its call centre, especially for obscure languages that Irish nationals may not speak.

Employees from Ireland and mainland Europe field calls in most European languages and some Middle Eastern ones, said Maloney.

Walking around the call centre floors - whose walls are covered in flags from European countries, sales incentive posters and the classic Gateway 2000 cow print - you hear Swedish, French, German and English mixing together. Ditto for the manufacturing floor which employs another 600 people.

Pay day

While graduates in Ireland make less than many of their European, American and Australian counterparts, being able to work at all is a big change, said one employee at Gateway 2000. She wanted to stay in Dublin, but didn't think she would be able to find work near home. "It was brilliant when we heard about this big American company coming round to hire people," said Helen, a customer support manager at Gateway 2000 who started with the company four years ago.

Other companies that employ people in the gruelling, low-paid jobs of customer support and sales, such as Dell, give incentives - such as free vacations and the ability to move around from sales to marketing to customer support every year or two. Higher-level engineers are in such demand that salaries at that level are rising and employees can move from company to company, said representatives at Iona, 3Com and Silicon & Software Systems.

But on top of the fact that locating in Ireland gives multinational IT companies access to a stellar labour force and brings with it financial incentives and large tax breaks, there are subtler reasons for choosing the scenic location.

Local charm

Many companies said they chose to locate in Dublin because there is a quality of life that is hard to find in overpopulated, overpriced mainland Europe. And walking down the streets of Dublin, it is difficult not to be caught up in the youthful buzz of success. New cars are parked in front of trendy tapas bars, lofts are being built on the river Liffey and people are hurrying about to shops in the city centre.

Though Iona's Clarke admits it can be difficult to miss out on "the right cocktail parties in Silicon Valley", he wouldn't want the company to be located anywhere else except Dublin. After work, the shorts-and-tee-shirt clad employees spill out to the local pubs and enjoy the energy of the "new Dublin", he said. "We wouldn't want to be located out in some industrial park," Clarke said.

"The common ground is that people come here to experience the Irish way of life," said Nathalie, an employee of Gateway 2000 who moved to Dublin from France three years ago. "It's not hard to get people to come to Dublin," agreed Phillip Brennan, an employee of Silicon & Software Systems. "Dublin feels like a mini Silicon Valley now."

In addition to the workforce and the cash incentives, companies were attracted to Ireland's impressive infrastructure of roads and telecommunications networks, said ESRI's Baker. Ireland has put its money from the European Union to good use to build up its infrastructure and to invest in education, he said.

With the economic boom in full swing, housing prices are shooting sky high and Dublin is getting more crowded and expensive, the ESRI's Baker said. However, the population is still small enough that Dublin has little possibility of turning into a second Silicon Valley in terms of overcrowding and an exorbitant cost of living. In other words, the boom is young enough that people are still enjoying their success, said Iona's Colin Newman. "Ireland needed a boom and at last it's happening," he said.

Multinational IT companies employ currently some 30,000 people in the Republic of Ireland and last year contributed heavily to the total $US19.8 billion worth of products that were exported out of the country, according to the IDA. Over the past ten years, Ireland has attracted 28 per cent of all new software development investment in Europe and 30 per cent of all first-time electronics investment in Europe, according to the IDA.

However, it isn't just the Irish economy that is benefiting from inward investment - the IT companies themselves are reaping huge profits from investing in the Emerald Isle.

Kissin' cousins

One of the draws of Ireland that applies specifically to American companies - which account for 45 per cent of inward investment into the country and employ 66,000 people across all sectors - is that the lifestyle and working environment is much like it is in the US, said many company representatives.

"We parallel very much the American culture," Gateway 2000's Maloney said. Indeed, the work force, whose average age is just 24, is dressed in jeans and sneakers and organises social events where groups of young people hang out late into the night.

"There is an understanding between the Americans and the Irish," said the IDA's Bennett. Since the US has strong Irish roots, many companies are interested in locating here when they think of coming to Europe, he said.

Iona, an Irish company that has been focused on the US market since the beginning, believes it has an edge over other European companies because of its close ties to Sun Microsystems and other Silicon Valley companies that have invested in the startup. "If you win in the US, you can win in the rest of the world," Newman said.

Ray Bulger, like many Irish computer professionals, spent several years working in the US and when he returned to head up Silicon & Software Systems, he wanted to run the company in "the American way".

The flip side

Still, there are several drawbacks to locating in Ireland. First off, being a small island located quite far from the shores of mainland Europe means shipping is more expensive than between destinations on the continent. Secondly, some companies in Europe prefer to deal with a company that has a base on the mainland or in the UK, said Baker.

"It was quite a challenge setting this thing up in Ireland away from the UK," Dell's McNeile said.

However, these small drawbacks haven't stopped the multinational IT companies coming in droves, Baker said.

For Irish companies, locating only in the Republic without having offices in the US can pose the challenge of lower visibility on the continent.

"We were too small and far away" before Sun backed us up, Iona's Newman said.

An economic boom of this magnitude will undoubtedly taper off in the next three to five years due to a squeeze on the labour force - as companies continue hiring large numbers of graduates, while the young population begins to shrink. But the roots of success have been planted in the Irish mindset, which is something that has never happened before, Baker said.

Whatever happens in five years time, the consumer and business confidence present in the country now will cause the economy to keep moving forward, even if at a slower pace, Baker said.

"There's a lot more optimism in terms of looking forward," Gateway 2000's Maloney said.

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