To print: Select File and then Print from your browser's menu.
|
Rhonda Cornell considers the success story of Ireland's electronics industry For more than a century, the Republic of Ireland's most notable export was its people as generations of Irish workers fed the industrial development of countries around the globe. This is no longer the case. With a population of 3.8 million, Ireland currently produces almost one- third of all PCs sold throughout Europe and is vying for the top position in Europe's e-commerce broadband markets. Most of the US's electronics industry leaders are in Ireland and it seems that they are all expanding, whether it's in Dublin or along the country's west coast. In contrast to the Japanese and Asian Rim industries, US multinationals dominate the electronics industry in Ireland, and they are mostly fulfilling European requirements. Since 1980, 40% of all new US investment in European electronics has come to Ireland. Brian Coll, director of business development at Manufacturers Services (MSL) in Ireland, said: "The companies that come here want a European presence." For a couple of decades now, Ireland has offered US companies a non- threatening route into Europe, with US-friendly government initiatives, similar labour laws and an English-speaking population - although Gaelic remains the official language. Analysts state that Ireland's `Celtic Tiger' economy - a title earned by outpacing all other European economies for the past six years, recording a growth rate three times the EU's average - is the result of heavy investment by US electronics companies. With more than 300 electronics manufacturing companies employing over 30,000 individuals, industry growth in Ireland has averaged 9% a year during the past three years and 15.7% last year, according to Enterprise Ireland. Similarly, electronics exports grew 23% in the past year. Close to $250m-worth of electronic components are exported from the Republic of Ireland every year. This accounts for around 70% of the country's manufacturing output, mostly landing in Europe. An efficient distribution system means product can leave Ireland and be anywhere in Europe within 24 to 48 hours. The electronics industry's growth has been impressive. But boom-time stresses are beginning to show, analysts warn, as the Irish labour market tightens and the impact of a weak euro and rising inflation threatens economic growth. The Republic's inflation has crept up to more than 5% since the middle of last year, the highest rate in the euro zone, and labour shortages and higher wages have been earmarked as major domestic risk factors by industry and government alike. A relatively low-cost, young, well-educated Irish labour force combined with a 10% tax rate - the lowest manufacturing tax rate in Europe and about one-third of that in the US - has been attracting multinational manufacturers to Ireland for some time. And plans for a standard corporate tax rate of 12.5% by 2003, applying to all trading profits in all sectors, not just manufacturing and international services, is expected to attract further industry interest from companies not involved in manufacturing, which currently pay a corporate tax rate of up to 28%. |
|
The list of companies in the Irish Republic reads like a who's who in global electronics. In 1996, IBM opened its European strategic operating site in Ireland, a $350m investment. Other major OEMs, including Dell Computer, Hewlett-Packard, Microsoft and 3Com, have major operations in Ireland. Intel also has roots there, opening its first 0.25 micro m microprocessor facility serving Europe. In August, Cisco Systems announced plans to set up a development and test centre in Cork - and the industry was buzzing with rumours that the company will establish its European, Middle East and Africa (EMEA) headquarters in Dublin. Industry sources expect Cisco to set up its EMEA manufacturing centre in Dublin as well. Perhaps the ultimate endorsement of Ireland as a high-technology centre was the recent announcement by the Massachusetts Institute of Technology (MIT) that it had chosen Dublin as the European location for its MediaLab research centre - the first time the MIT MediaLab has set up a centre away from its home base. But as more companies base themselves in Ireland, economic strains are starting to show. Lately, the country has been suffering labour shortages that are reaching crisis conditions, particularly in Dublin, according to a recent survey by London-based recruitment firm Elan Computing. Companies are increasingly drawing on labour from non- European economic areas, notably eastern Europe, Russia, and the US, to meet demands. As part of the drive to retain employees, 70% of companies in Ireland provide further education and 50% offer employees stock and stock options. Solectron in Dublin, which expects to add 150 employees in the next few months, is trying to counteract aggressive tactics from competitors trying to recruit its staff, such as handing out leaflets to employees on Solectron's manufacturing site. The company has engaged in banner advertisements, radio announcements and mail drops as part of its own recruitment drive. Offering some relief, the Industrial Development Agency (IDA) in Ireland points to a trend of reverse immigration, which is expected to continue, given the country's much-improved economic climate in recent years. But whether returning Irish nationals will help alleviate the labour shortage remains to be seen. Key to the success of the Irish Republic's electronics industry has been its chameleon-like ability to adapt operations and climb up the value chain. Intel, for example, recently `morphed' its operations by abandoning all assembly and test of motherboards and systems in Ireland in favour of ramping up its next-generation technology. The company has invested around $2bn to build a chip fab at its Irish mega-site, that will produce 200mm wafers using 0.13 micro m process technology by the fourth quarter of this year. The chip giant's transition from cartridge formats with small surface- mount PCBs to organic land-grid arrays at its Irish operations eliminated a major step from its production process. |
|
Bill Riley, an Intel spokesman in Ireland, said: "This gave us the opportunity to consolidate the chip packaging process into our Far East factories, and to transfer people to the ultra-high value-added semiconductor wafer manufacturing, which is expanding strongly in Leixlip, [Ireland]." Similarly, in Galway, Nortel Networks recently ripped out all three of its manufacturing lines for voice products to make way for its evolution to systems engineering, integration and test for next- generation wireless products, according to Mike O'Flynn, vice-president at Nortel's EMEA operations. And as OEMs in Ireland migrate to higher-value operations, contract electronics manufacturers (CEMs) are moving with them. Brian Brown, Solectron's vice-president and general manager for Ireland operations, said: "Customers are looking at the total supply chain and want us to manage a full turnkey operation." Solectron is adding capability in all stages of the supply chain, including development, acquisition and back-end operations such as warranty support. Most major CEMs are experiencing dramatic growth, with around 20% of OEMs outsourcing in Ireland, according to Coll of MSL. Ireland's market concentration for the electronics industry is greater than anywhere else in the world. The CEM market reached critical mass in the late 1990s, according to Tony Boyle, MSL's vice-president of Ireland operations: "The market is exploding. In the past five years, it has accelerated at a tremendous rate." Key to the success of CEMs has been having 100 or so industrial parks in Ireland, notably in Dublin. Donal Casey, Celestica Ireland's general manager, said: "Having a cluster of OEM customers on the doorstep serves as a huge advantage to contract manufacturers, although the Celestica facility is not dependent on the Irish market." For Celestica, only 15 to 20% of product is shipped back to the US, a typical percentage for most electronics manufacturers in Ireland. The recent influx into Ireland of CEMs with strong demand-fulfilment requirements has helped bolster a growing distribution market, according to Barry O'Halloran, director of global customer management for EMEA at Avnet. "This is a key difference from other geographies for us," said O'Halloran. "Our ability to support the logistics department for customers is far more important than our ability to create demand." The furious pace of OEM and CEM growth in the Irish Republic has meant that Avnet's customers are increasingly demanding greater supply chain management support from distributors than in other regions, O'Halloran said. "Our emphasis on supply chain management capabilities is far greater in Ireland than in other countries." And as manufacturers expand design services in Ireland, industry leaders Avnet and Arrow Electronics are expecting to staff more FAEs there. Arrow's customers in Ireland drive harder than other European customers to reduce supply chain costs and increase efficiency, says Richard Huxley, Arrow's strategic segment director of the UK and Ireland. The level of understanding of the supply chain among customers in Ireland is far greater than in many other European countries, which has fuelled efficiencies for distributors, he says. |
|
Indigenous companies, such as independent distributor Connect Electronics, have thrived in the face of competitive giants like Arrow and Avnet. By forging a niche business in fulfilling orders for obsolete and hard-to-find parts for US customers in Ireland, Connect is flowing business back to the US, having recently expanded its operations in Florida and Ireland. Sean Carty, Connect's MD, said: "The key reason for our success is that we look after customer requirements, regardless of the size of the order." The cornerstone of Connect's expansion has been stocking end-of-life and older-generation parts for large manufacturers when they update product lines, says Carty. Such parts range from resistors and capacitors to Pentium processors and hard drives. Connect procures and holds them until the manufacturers' board and repair centres require them. Still, some pundits see the glass as being half empty. An export industry based on foreign direct investment and lacking a strong home- grown presence is, by nature, vulnerable, says Malcolm Penn, an analyst at Future Horizons, a market research firm based in Kent - but only if the euro stabilises or starts to strengthen, or Ireland dampens economic growth by subduing the country's rising inflation to keep the price of its crucial exports competitive. But Ireland cannot hike interest rates because, by being in the euro zone, it falls under the jurisdiction of the European Central Bank, which says higher Irish interest rates will have disastrous catalytic effects on Germany. From the whole euro zone perspective, Germany has the most to lose because the Deutschmark was the strongest of all currencies going into the single currency conversion in the late 1990s, a financial analyst says. Other countries, like Ireland with its high inflation rate, cannot be allowed to live off the back of Germany. Also, as a member of the EU, Ireland is obliged to strive for a target inflation rate and maintain it through fiscal and monetary policy intervention. Jitters about the euro's stability aside, the Irish Republic's electronics industry is positioning for the future by aligning itself with one of Europe's highest growth areas - broadband. The Irish government recently began a six-year investment programme in broadband infrastructure with a network that is 98% fibre-based. This enables considerably higher data transmission speeds when compared with copper-based networks. The programme includes services at the end of the line, such as asynchronous switching systems, that will bring together voice, data and video to be transferred simultaneously at high speed. It also includes some of the most e-commerce-friendly regulatory measures in Europe. For example, Ireland was among the first countries to introduce and enforce comprehensive e-commerce legislation, including validating that electronic signatures and documents have the same legal effect as non-electronic documents. This is vital in promoting an openly competitive environment, "because that's what it's all about - the Internet being freely available at reasonable costs," said Penn of Future Horizons. |
|
By 2003, Ireland's Internet economy is expected to be worth more than $5.5bn, a 15-fold increase in value from today. It is expected to employ some 35,000 people, triple the number employed today, according to e-business recruitment firm Mitchell James in Dublin. A case in point: Siemens announced last year that its Irish subsidiary SSE will become its global centre of competence for secure e-business. A $5bn telecoms investment in recent years by a consortium of 15 companies has seen Ireland emerge with Europe's third-cheapest call costs to the UK. Along with low telecoms tariffs and an available multilingual workforce, this investment has helped spawn a growing call centre industry for the likes of Compaq, Dell, Gateway and IBM. With a fully deregulated telecomss marketplace, the 15-member consortium represents the lion's share of Ireland's telecoms market. Costs are kept competitive because they are all vying for business, according to IDA Ireland. The completion of a transatlantic fibre optic cable project by GlobalCenter, headquartered in Sunnyvale, California, has made the Republic the e-commerce centre for many companies, with an additional transatlantic cable to Ireland to be built next year by Canadian company 360networks. And the government-funded GlobalCenter project means virtually unlimited bandwidth for Ireland to some 33 European cities, capable of transferring data at around 1Tbit/s - which equates to about 25 million people phoning in and out of Ireland at the same time. This pan-European city-to-city connectivity allows software companies, for example, to digitally distribute content throughout Europe instantaneously, eliminating the cost of physically shipping software. Already, a fledgling industry of system design houses and Internet start-ups has emerged. More than 40% of all PC packaged software - including 60% of business application programs sold in Europe - is produced in Ireland by industry leaders such as Corel, Lotus, Microsoft, Novel and Symantec. Many of these companies, including Microsoft, are ramping software development capabilities in Ireland. With about 25,000 people working in Ireland's software industry, the country is expected to generate around $2.8bn in software exports this year. Nigel Deighton, telecoms research director at Gartner Group, said: "There are a number of countries vying to be the e-commerce hub for Europe. There's no reason why Ireland won't have at least a medal- winning place in that race." Copyright: United Business Media Ltd. |
| COPYRIGHT 2001 Miller Freeman UK Ltd in association with The Gale Group and LookSmart. COPYRIGHT 2001 Gale Group |