IDA - The Chips are Down
The decision by Fujitsu of Japan to base its European micro-chip manufacturing venture in Ireland has put the IDA on the spot. With two of the world's leading chip makers Mostek and Fujitsu - established in Ireland, the Industrial Development Authority will now have to really concentrate on encouraging the down stream activities, the spin-off from the import of overseas electronics. Brian Donaghy has more.Integrating the circuits to mesh the interfaces between the natives and the know-how might be one way of putting it. If they don't and if Irish industry doesn't get involved in micro-electronics on its own initiative, the IDA might yet find that to a large extent Ireland has done little more than sell clean air and a willing workforce to absentee landlords.
Martin Lowery says "It's a beautiful industry". It's labour intensive, with a good mix of skilled and unskilled jobs, divided about 50-50 between men and women. It brings in high technology and is not that capital intensive - about the same as the food industry, and less than chemicals. Getting Fujitsu, the world's biggest microchip company, to set up a factory in. Tallaght, is only the latest success in the IDA's drive to bring the electronics industry to Ireland.
Lowery, IDA manager for electronics, Far East and health products industries, faintly disapproves of the dramatisation of such success. "There's no magic in it. It's a hard slog."
Fujitsu took 18 months to make up its mind which is slower than some, but then it was building in San Diego
at the same time. The Japanese company itself approached the IDA's office in Tokyo early last year and said it wanted to set up a plant in Europe. But by that stage the IDA had already done the groundwork. The IDA men know the kind of companies they want to attract. They contact these firms about every three or six months "for a general chat" to get to know them, in the belief that they will eventually have a project for a European factory. Fujitsu had been on their visiting list.
Once a company is considering a project, the first major step is to get a few executives to come on a site visit. Such a preliminary visit will typically cover everything the country has to offer, from urban and provincial sites to remote locations. Such a visit takes a week or two, and the Japanese tend to send a largish party. Electronic firms are always taken to NIHE or the universities to be suitably impressed by the calibre of Irish technical understanding, and all such preliminary visits will include trips to other companies already operating here. The aim is to establish the credibility of the country. The detailed negotiations come later.
Fujitsu "site visited" at least three other European countries, but the IDA was never given any indication at any stage that the firm might decide against Ireland. In this country, they looked at six or seven sites before settling on Tallaght. Feeling out what they really want is the art in the job - it would be impolite for a Japanese manager to say bluntly that such and such a site was unsuitable. In the Fujitsu case it gradually emerged that for technical reasons the quality of the water supply was important, and that the firm did not want to be in a damp or salty environment. The IDA, in showing them a couple of seaside locations, had been wasting its time.
The IDA decided to go for the electronics industry in a big way in 1974. They "identified" it as a sector likely to show continuing real growth despite recession, and rapid growth in following years. Apart from its job creation potential, it's a clean industry, using little fuel, providing good working conditions and virtually no environmental problems.
To attract the industry the Authority drew up a detailed plan, summarised under six headings in a speech last December by the IDA's managing director, Michael Kileen:
* identification of key technologies selection of target sectors
* determination of geographical locations
* ensuring adequate research and educational back-up
* encouraging entry of Irish firms in to electronics sector
* maximising spin-off.
In practice they have concentrated on leading companies in the micro chip business, deliberately shunning some of the consumer electronics and components firms, because they were judged too sensitive to the cost of labour or to have products likely to have a short life cycle.
The statistics of the achievements over the past five years are impressive. By the end of August this year there were 13,500 people employed by the industry in this country, a 20 per cent increase on the same time last year.
This represents five per cent of the total labour force. It generated exports worth £404 million last year - a 29 per cent increase. Electronics account for 25 per cent of IDA job approvals last year. One of every two US investments in Europe comes to Ireland. Twelve of the top US companies are already here. The world industry is expected to grow by ten to 15 per cent in real terms each year over the next ten years. By 1985 it is expected employment here will have reached 30,000, of which some 11,500 will involve some level of skill. The statistics flow on and on. Dessie O'Malley, on his forthcoming American trip, will have plenty to impress his listeners with.
Impressing them is half the job. When Mostek took the Irish option the IDA pulled out all the public relations stops and achieved coast to coast coverage. (The IDA didn't know it until the ink was dry on the contract, but there was a significant "caucus" inside Mostek lobbying for Ireland.)
Industrial incentives are expensive. Average fixed asset investment per job last year was £14,500. Grant aid in the designated areas - basically west of the Shannon - cannot legally exceed 60 per cent of investment and in other areas the top is 45 per cent. Whether the top rate is paid depends on the number of jobs to be created, on the strategic significance of the industry, and the area it chooses for its location. The actual terms negotiated with each company are a closely guarded secret, but for a project like the Fujitsu plant the State's involvement is likely to be close to £20 million.
In 1979 the average grant cost was just over £7,000 a job. Yet in a study of the period 1968 - 1977, when grant costs averaged £4,450 per actual job created, the IDA calculated that it takes the exchequer less than 2 1/2 years to recover its investment.
Lowery acknowledges that the IDA's reputation as "a one-stop shop" is a distinct advantage. Firms know that the IDA has the confidence and full backing of the Government for whatever they negotiate. But he insists money is not a big element. Lowery reckons it takes perhaps five per cent of the time involved in attracting an investment. Firms planning a project can get the leaflets and do their own sums on grants and tax advantages. But don't they then use the IDA's relative autonomy to try to squeeze even more? "Part of my job is to see that they don't".
Political and economic stability is far more important than bigger grants, and being able to take prospective clients to meet those who have already come and prospered is a great advantage. The name of the game is "credibility" rather than "cash".
Despite the dramatic success so far, Ireland's dash in to electronics is still at a very primitive stage. Even by 1985, of 30,000 projected jobs, only 2,500 are expected to be programmers or systems analysts, and another 2,500 electrical engineers. With the development of increasingly "intelligent", self-testing equipment, many of the jobs for skilled technicians will be replaced by electronics.
The National Board for Science and Technology, is currently working on a major study of the implications of microelectronics for Ireland. In the first phase of the report it argues that Ireland now has firms operating at all levels in the industry and in all three main sectors - components, consumer and capital equipment, and systems design. It declares "It is sometimes believed that the firms involved with the technology in this country are only involved in low-skill assembly-type operations, but this is not true."
Industrialists do agree that the subcontracting scene has expanded and improved, though one commented that he "couldn't foresee buying components in Ireland" and another that "if some of the (foreign companies') quality control procedures rubbed off on us it would be beneficial."
More than one remarked that young people were now more willing to consider a job in industry - technology has a certain glamour. But it is still difficult to find enough talented Irishmen who are willing to put up with the travel and unsocial hours involved in selling abroad. The Irish market is so small that almost every company will have to “think international” from the beginning.
The IDA has already organised one conference to encourage Irish industry to supply components to new foreign companies - a market the Authority estimates could be worth £45 - £50 million by next year.
And it is not above leaning discretely on those foreign firms which keep too many nationals too long in the top jobs in Ireland. (Up to the first half of this year, just over half the companies established in Ireland had appointed Irish managing directors within their first two years here. Fujitsu's plant will initially be run by ten Japanese executives, but it is intended that only one will remain by 1985.)
What the IDA has done is get a handle on electronics, the world's fastest growing industry. The European market this year has been estimated at a massive 60,000 million dollars. For integrated circuits alone (like those to be made here by Fujitsu), the European market is worth around 1,600 million dollars. Ireland has proved it is willing and able to provide a base for the US and Japanese firms anxious to get inside the EEC's common external tariff. The long term benefit for Ireland - a country so short of engineers that there is a special cabinet sub-committee on the problem - will depend largely on education.