Celtic Tiger ready to roar again with aid of R&D

Ireland is powering ahead once again and foreign IT companies are fuelling the boom

The Celtic Tiger may be ready to roar again. Ireland earned the nickname when its economy underwent a dramatic boom during the late 1990s, fuelled largely by foreign investments from high-tech companies. Now the economy appears to be booming once more.

Last week the Irish government reported that 2005 had been the best year for foreign investment in Ireland since 2000 in terms of job creation, the development of Ireland’s research capabilities and capacity, and the range and quality of investments. As in the late 1990s, ICT companies made up a significant portion of the new ventures started up during the year.

Still, some onlookers are reluctant to predict the next great boom just yet. “The year 2005 was an exceptional year but there will still be challenges [in the future],” says Stuart McLaughlin, business development director for Accenture in Ireland.

The conclusion from the Irish Development Agency (IDA), the government department responsible for attracting overseas companies to locate operations in Ireland, is that its strategy of attracting research and development projects, as opposed to manufacturing or call centre initiatives, is working.

Fifty new research and development projects supported by the IDA were initiated in 2005, bringing in more than €260 million. Both the number of research and development projects and the total value are records in Ireland. Microsoft, Palm and Dell are among the companies that announced new research and development projects in Ireland during the year.

Overall, the IDA helped bring in 71 new business projects, involving a total investment over the coming years of €745 million (NZ$1.4 billion). In 2004, the most recent year for which the IDA has complete results, IDA-supported companies spent €15.5 billion in Ireland.

Other ICT companies that opened new operations or expanded existing businesses in Ireland include Yahoo, Amazon, Google, DC Studies, Siemens Business Services, OHG and Qlogic. Other companies that have set up new research and development ventures in Ireland include biomedical companies such as Pfizer, Bristol-Myers Squibb and Genzyme.

While the news is good for Ireland, experts concede that a banner 2005 doesn’t necessarily indicate increasing success in the future.

“The features of the Irish economy, which would have been clear maybe ten years ago when things really started picking up, have changed dramatically. This is no longer a low-cost location,” says McLaughlin.

The boom happened when overseas companies recognised that Ireland was a good location for manufacturing and call centre activities because it was a low cost place to do business. It also had an educated workforce, with good language skills, and a low corporate tax rate. But Ireland is now an expensive place to do business, with everything from electricity to telco services costing more than in most other European countries.

With that change, the IDA has switched course to try and attract higher-end business functions that may not be so reliant on cost. For some types of operations, such as research and development or certain financial activities, the quality of the workforce and operation may outweigh the higher cost of executing the operation, says McLaughlin.

In the future he expects internationally recognised brands to continue to be represented in Ireland, but new initiatives will continue to involve, for example, 50 to 100 researchers in a new operation, as opposed to a 300-seat call centre.

Another future challenge is a potential shortage of graduates with technical skills, says McLaughlin. When the high-tech market began to slow down, around the turn of the century, fewer students began pursuing technical careers. That shortage is just beginning to be felt now.

Also, the good news about new research and development projects ought to be balanced with other factors affecting the overall economy, says Nick Forbes, managing director for Capgemini in Ireland.

“The IDA is doing a fantastic job in terms of moving R&D but how much of the economy is focused around consumer confidence and construction?” he asks. A slowdown in the current construction boom and a drop in consumer confidence could outweigh the benefits of the new research and development wins.

Still, Forbes expects that, at least for the next four years, the IDA will continue to be able to leverage the benefits of doing business in Ireland in order to keep on attracting new investment.