Information, communications & Ireland
Roy Green, James Cunningham, Imelda Giblin, Mike Maroney & Leo Smyth
As an emerging knowledge-based economy, Ireland has one of the highest concentrations of information and communications technology (ICT) activity and employment in the OECD. This activity comprises primarily electronics hardware manufacturing, such as personal computers (PCs); software products and services, especially business application products and "localisation"; and call centres. It has largely been driven by foreign direct investment (FDI), although recent evidence suggests that indigenous firms are now growing at a much faster rate than the multinational sector. It is also a major factor in high-skill, high-wage job creation since the early 1990s and comprises a key element of Ireland's national innovation system, which is also a regional one in the European context. Significantly, policy accompanying progress towards a single market in the European Union (EU), far from stifling innovation and diversity in the regions, has mobilised it as a powerful new source of competitive advantage.
This paper identifies the main characteristics of the Irish ICT sector, with particular reference to the apparently spontaneous development of a software cluster in and around the city of Galway, and evaluates the respective contributions of public policy and local initiatives. The paper suggests that this regional cluster is "boundaryless", in the sense that its global character defies traditional stereotypes of domestic rivalry and collaboration. However, we also find that this is not inconsistent with Michael Porter's observation that "the enduring competitive advantages in a global economy lie increasingly in local things - knowledge, relationships, motivation - that distant rivals cannot match".1 Finally, the paper reflects concern that while Ireland is a leading exporter of ICT products and services, it is a net importer of new technologies with an historically weak but improving innovation performance in key areas, most notably research and development (R&D), as well as in the take-up and diffusion of ICT across the economy as a whole.
Clusters in context Over the past decade, Ireland has experienced the fastest growth rate of output and employment of any country in the OECD, with annual average growth rates of 8 per cent and the number of jobs across the economy increasing by nearly 50 per cent between 1990 and 20002.While the services sector was the main source of this increase, manufacturing employment also grew rapidly, for the most part in high-value-adding, knowledge-based activities.The scale and composition of this growth have given rise to the term "Celtic Tiger", and initial doubts about its sustainability have been met with evidence of far-reaching cumulative structural change and adaptation.3
Ireland has the fastest employment growth in the OECDIrish growth is essentially export-led, with over 90 Irish growth is essentially export-led, with over 90 per cent of GDP sold abroad and an average increase in export volumes of more than 12 per cent a year during the 1990s. Indeed, export growth shows signs of accelerating even further this year, despite the worldwide slowdown. Ireland has consistently recorded a trade surplus over this period in excess of 10 per cent of national production, due to a very large extent to the impetus provided by a world-scale, export-oriented and increasingly sophisticated ICT sector. This surplus has been a key ingredient in Ireland's improved capacity to overcome the balance of payments problems that characterised its disappointing performance in the 1980s.
For the purposes of analysis, the ICT sector in Ireland may broadly be disaggregated into: i) a large electronics hardware industry, which produces a standardised output of PCs, PC components and office machinery (NACE 3002, 313, 321, 322, 323); ii) a smaller but more rapidly growing computer software industry, which combines elements of standardisation and differentiation in a constantly evolving product mix (NACE 72); and iii) a teleservices or call centre industry associated with PCs (NACE 30) and software (NACE 72), providing a spectrum of services from routine inquiries to advanced problem-solving with a reach across domestic and European markets. These elements of ICT are increasingly related through producer-user linkages as well as shared innovation processes and skills pools. There are also a number of content sectors relating to software and multimedia developments in the areas of entertainment, education and tourism (NACE 221, 222, 74.4, 92.1, 92.2, 92.4, 92.51) and related telecommunications services (NACE 64.2). However, these areas are more difficult to quantify due to data limitations, and are discussed in this paper in conjunction with the software industry.4
Ireland is now the fifth largest exporter of computers in the world, despite its small size.5 These account for more than a third of Irish exports, with a third of the PCs sold in Europe manufactured in Ireland. Recent data also indicate that Ireland has the highest proportion of high technology industries represented in its manufacturing exports of all OECD countries.6 In addition, with 34 per cent of the global market, Ireland is the biggest exporter of software products in the world, having overtaken the United States in 1998. Over 40 per cent of packaged software and 60 per cent of business application software sold in Europe is produced in Ireland, and, while much of this localises or simply replicates software originating in the United States, an increasing proportion is research-intensive, high-value-added production. International demand is the main factor in continuing export growth not only for multinational companies in Ireland but also for the indigenous software industry which exports almost 60 per cent of its output.7
The key drivers of Ireland's trade performance in ICT have been the immense-scale, high-quality and local "embeddedness" of inward investment, with FDI accounting for two-thirds of manufacturing output and over 80 per cent of manufacturing exports. This has been a deliberate strategy of the Industrial Development Agency (IDA), at least since the influential Telesis report of 1982, supplemented by the role of Enterprise Ireland in the promotion of indigenous supply chains.8 In 1998, Ireland attracted FDI inflows of US$6.8 billion, which makes it one of only four countries in the OECD - along with Finland, Sweden and the Netherlands - where FDI amounts to more than 8 per cent of GDP. Moreover, with only 1 per cent of the EU population, Ireland gained 23 per cent of all FDI projects in Europe in 1997, covering manufacturing, software, teleservices and shared services projects. This is a remarkable achievement, but one which, as we shall see below, is not wholly positive.
In computer software, Ireland has the largest market share of FDI in Europe with 55 per cent of the total, more than twice the market share of the next most successful country (France at 21 per cent). Similarly, Ireland's market share of FDI in teleservices (over 28 per cent in 1994-97) and in shared services such as back office activities (37 per cent over 1996-97) is also the highest in Europe. In electronics, Ireland's market share is second only to the United Kingdom at around 22 per cent, and the gap is closing. In the manufacturing sector, too, Ireland's market share of FDI increased to 13 per cent of the total by 1997, behind the United Kingdom and France. Finally, it is noteworthy that 19 of the top 25 computer firms in the world have manufacturing operations in Ireland, with Microsoft recently committing itself to major European "hub" facilities in Dublin.
While the tax regime, telco facilities and EU membership have all played their part in attracting high levels of FDI, Ireland's human resource base has also been an important factor for the ICT sector.9 This goes beyond use of the English language. It is recognised that "the ability of a country to attract, successfully absorb and benefit from foreign direct investment, and the transfer of technology which it may bring, depends to a large extent on its own technological capabilities, of which the skills and technical knowledge of its workforce are critical components".10 In the 1998 IMD World Competitiveness Report, Ireland was ranked first in the world for the "fit" between its educational system - with its high output of third-level graduates in computer science and engineering - and the needs of a competitive economy. According to recent analysis, "[P]ast national strategies for investing in education and training have paid off in terms of faster productivity growth and higher levels of productivity at the aggregate level, and higher earnings and employability at the individual level".11
Yet the economy's dependence on FDI has also encouraged the use of imported rather than locally generated technologies. This is reflected in the very large deficit in Ireland's "technology balance of payments", which measures flows in knowledge and "disembodied" technologies between countries and which in turn is due to Ireland's traditionally low R&D intensity, as indicated by low levels of business expenditure on R&D as a proportion of GDP (at 1.5 per cent) and a low government share of R&D spending of 5.5 per cent compared with an OECD average of 8 per cent. It is only in the most recent phase of ICT expansion that this problem is being addressed, with significant support from EU programmes targeted at Research, Technological Development and Innovation (RTDI).12 R&D business spending as a proportion of GDP has more than doubled over the 1990s, with ICT industries now contributing a third of the total.13 The major part of this contribution is in electronics, but software companies, especially in the indigenous sector, are making up ground, with companies undertaking R&D allocating 20 per cent of the value of sales to this function.14 Some recent developments suggest that a "critical mass" has been reached in indigenous private sector R&D, although the latest economy-wide data have yet to be released. The public sector is also increasing its investment in research, as we shall see below, through the National Development Plan 2000-2006.
ICT cluster characteristics Ireland's participation in global ICT activity was characterised at the initial stages of development by relatively low-value-adding manufacture and assembly of electronics hardware, as well as by call centre investments, but these have been overtaken by more complex integrated manufacturing and software operations, including those of a "boundaryless" indigenous software industry cluster as assembly operations relocate to lower-cost countries. During the 1990s, indigenous firms achieved growth rates of 11 per cent a year for employment, 25 per cent a year for the value of sales and almost 40 per cent a year for the value of exports.While the electronics sector continues to be dominated by large multinational companies - with significant technology and skills transfer - employment in software products and services is more evenly divided between overseas and Irish companies, which consist mainly of small and medium-sized enterprises (SMEs).
During the 1990s indigeneous Irish firms achieved annual employment growth rates of 11 per centIreland's ICT cluster is primarily a self-contained group of producers Ireland's Ireland's ICT cluster is primarily a self-contained group of producers rather than a significant market for ICT products. The Irish ICT market is very small at 0.18 per cent of the OECD, and ICT intensity - measured by ICT expenditure as a proportion of GDP - is low at 6 per cent, compared with an OECD average of 7 per cent. However, this is changing rapidly with the increasing importance of e-business, which builds on Ireland's production capabilities. At the opposite end of the spectrum, Australia's ICT intensity is 10 per cent but it ranks poorly as a producer with ICT, accounting for only 1 per cent of GDP, thus severely restricting its global options.15 Ireland is also ranked sixteenth out of 19 OECD countries for diffusion of ICT equipment, such as number of phone lines per 100 inhabitants and use of PCs. It is only recently that the historical underinvestment in advanced telecommunications, including fibre optics, has begun to be addressed. Previously, the take-up of ICT in the "old economy" was seen as a spill-over effect of globally targeted production rather than as a strategic objective in its own right.
It is as a producer, however, that Ireland has constructed the foundations for long-term growth, both domestically and in international markets. In the period 1991-97, turnover in electronics hardware increased by 25 per cent a year and numbers employed in the sector by 14 per cent a year to more than 35 000, taking it beyond chemicals and pharmaceuticals to become Ireland's largest manufacturing employer. Although there are still three times as many people working for the Irish subsidiaries of multinationals as for indigenous companies, the latter are expanding considerably faster, at over 17 per cent a year. The electronics sector is almost entirely geared to exports, with three-quarters of all firms exporting and more than 80 per cent of turnover accounted for by exports. These comprise mainly PCs, computer components and office equipment, and their value more than doubled in the period 1990-98 to IEP 13.4 billion - just lagging the United Kingdom and the Netherlands, but ahead of Germany and France.
While the low level of business expenditure on R&D generally in Ireland has been a matter for concern, at least until more recent favourable data began to emerge, the electronics sector is increasing its own contribution, already the largest of any industry, by almost 30 per cent a year. This reflects the trend for MNCs to devolve the R&D function to "nodes" of creativity and expertise in established clusters encompassing their subsidiaries, their suppliers and even in some cases their competitors as shorter product life cycles, "virtual" proximity to markets and the seemingly insatiable demand for high-level skills redefine first-mover advantage in the industry.
A similar trend is discernible in the Irish software sector which is experiencing even more spectacular growth, with exports of IEP 3.3 billion in 1998. In the period 1993-97, the number of firms in the sector increased by over 60 per cent, employment doubled to 18 000 and revenue more than doubled to IEP 4.5 billion. In software, by contrast with electronics hardware manufacturing, indigenous firms not only account for 83 per cent of all firms in the industry but also more than half of total employment. However, the firms are generally small, with just 27 in 1997 employing more than 50 people, and they generate only 12 per cent of total revenue. The MNC subsidiaries are again much larger and, given the limited size of the domestic market, it is not unexpected that they would export their output, in some cases in a close and evolving association with computer hardware manufacturers. On the other hand, 80 per cent of indigenous firms are also exporters, creating new benchmarks of global penetration and competitiveness.
While call centres employ 6 000 people in Ireland, only a small proportion of these operate in the ICT sector. They draw upon local skills and infrastructure but have no significant impact on innovation, value adding and cluster development within the sector. Over 60 global companies have established pan-European teleservices operations in Ireland in recent years, including large ICT firms such as Gateway and Dell, and these focus mainly on sales, technical and customer support for computer system hardware and software. Although English remains the dominant language for these operations, they also employ a range of other European languages. What impetus exists in relation to the cluster is not so much through direct employment or company expansion as through the generation of local supply chains with expertise in call centre technologies and skills. Certainly, call centres have had neither the creative input or the impact of software growth in Ireland over the last ten years.
Most of the software multinationals in Ireland are packaged software or product companies selling to mass markets, although the growing emphasis on localisation and product development, especially in the financial sector, requires a higher level of software engineering skills and is more reliant on outsourcing and indigenous supply chains, including translation, fulfilment, packaging, manual printing, transport and technical support. Irish public policy has recognised that "the full benefit of the presence of foreign production firms depends on the extent to which they can be integrated into their environment. Such relationships are not only beneficial for local suppliers that benefit from technology transfer ... Foreign firms will be anchored to the regional economy, merging local and global interests, and making sudden divestiture less likely than before".16
As a result, indigenous software producers tend to be more specialised in terms of both types of products and types of customers. According to a recent survey, half or more of the sales of about a third of these firms go to the Irish subsidiaries of multinationals.17 However, a further third have little or no linkage with the MNC sector and have targeted niche markets both locally and globally. Indigenous firms also provide software services such as programme development, consultancy and technical training, which tend in many cases to lead to the development of new software products. Irish software start-ups, particularly Iona, SmartForce, Baltimore Technologies, Trintech, Parthus and Riverdeep, have contributed to the "critical mass" achieved by the industry, but they have now been joined by an array of dynamic new operators such as Datalex, Flexicom, Macalla, Piercom, Managed Solutions Corporation and Peregrine Systems.
A major source of competitive advantage for a growing number of these firms is ingenuity and speed of adaptation. They have demonstrated a capacity to meet these requirements and in most cases to sustain their momentum, not only by benefiting from technology transfer but also by originating software applications, including for e-business. This capacity is based on institutional support, training and education, workplace flexibility, increased venture capital availability and the remarkable growth of R&D expenditure in the software sector during the 1990s of more than 40 per cent a year, with over three-quarters of this growth accounted for by indigenous firms. The ICT share in total business expenditure on R&D is at 35 per cent much higher than any other country apart from Finland. However, this may also reflect to some degree the lower levels of R&D in other sectors. Nor is very much known other than on an anecdotal basis about the nature, quality and direct and indirect outcomes of R&D in the ICT sector and the social organisation needed to foster "collective and cumulative learning" in this context.18
Galway regional cluster While manufacturing employment, including electronics, tends to be widely dispersed in Ireland, the software industry is concentrated largely in the Dublin area, with smaller regional clusters in Cork, Limerick/Shannon and Galway itself.19The Galway regional software cluster comprises three large North American companies, the biggest being Nortel, and over 50 small and medium-sized companies, many of them indigenous start-ups.20These companies span a range of activities from localisation to multimedia, and competitive advantage is driven by factor conditions specific to Ireland, such as English-language proficiency and the high level of computer and engineering skills. While domestic demand is important for many indigenous companies, predominantly through linkages to major software, computer and telecommunications firms, the multinational sector itself and an increasing proportion of indigenous companies are oriented almost entirely to global markets. These companies specialise in niche products and services and are less likely to face local competition.21 The origins of Galway's software cluster lay in the closure of a large computer manufacturing facilityThere is now a policy commitment to "foster the development of clusters of new knowledge There is now a policy commitment to "foster the development of clusters of new knowledge-intensive enterprise in regional centres" in recognition of the increasingly accepted finding that "clusters of industries [...] are the driving force behind economic development [...] Their mutually reinforcing character energises innovation, fosters upgrading, spawns new companies and new industries, and stimulates demand for local industries".22 This finding has been incorporated into both EU funding guidelines and the operational methodology of Enterprise Ireland. Indeed, over the 1990s, they first became interdependent and then mutually reinforcing. The cluster dynamic is supplied in the case of Irish regions by a unique mix of inter-firm collaboration, interaction and rivalry, by the development and constant replenishment of common pools of skilled labour, by the localised support of research and educational institutions, by the commitment of local business organisations and unions and by the strategies of national and regional development agencies.
This dynamic also broadly follows the pattern identified by previous OECD research which found that "industrial clusters with links to local and regional innovation networks have been associated with accelerated diffusion of technology and know-how. The pace at which technologies are diffused within national innovation systems depends on the country's industrial structure and technological specialisation, institutional set-up, corporate governance regimes, degree of economic openness and the flexibility of firms' organisational and managerial structures".23 This "holistic" interpretation of regional growth may be illustrated by the development over the past decade of the Galway software cluster, which had its origins not so much in conscious policy making, although ultimately policy and planning played a role, but in the closure of a large computer manufacturing facility owned and operated by the Digital Electronics Corporation (DEC).
Digital established its manufacturing operation in 1971 and, by 1977, employed 1000 people in the production of the PDP 8E computer, mainly for the European market. The numbers employed rose to 1800 in the 1980s with further expansion of the operation, the development of Digital's first European Software Distribution Centre (ESDC) and the establishment of European Systems and Support Engineering. The role of the ESDC was to redistribute and "localise" software products sourced in the United States to Europe, including both software programs and technical documentation. At this point, Digital had become not simply the major employer in the local economy, with an estimated "net worth" to local business and the community of IEP 100 million a year, but also a provider of advanced training and development for its workforce, a large employer of third-level graduates and a source of broader research linkages and collaboration. For example, Digital contributed in the early stages to a high-profile research project on Computer Integrated Manufacturing with Renault, Compaq, Poletecnico di Torino and NUI Galway.24
During the 1980s and early 1990s, Digital was the focus, perhaps an overly dominant one, of a shallow but functional regional innovation network in Galway. Its closure in 1993 decimated this network, including at least 40 direct suppliers to the company such as Pulse Engineering (Tuam) and Cable Products (Castlebar), but it may be seen in retrospect that it also facilitated the development of a new, more open and diversified set of linkages.25 The closure resulted in 760 redundancies in the Digital operation itself, after a period of already severe downsizing, whose scale and impact became a focus of national as well as local concern. The reasons for closure were complex, but included: i) the worldwide economic downturn; ii) intense competition in computer manufacturing, with Nixdorf, Wang and IBM building their manufacturing presence in Europe; iii) failure to manage the shift in technology and consumer preferences from large mainframes to personal desktop computers; iv) a preference, in contrast with Microsoft, for "closed" rather than "open" operating systems; and v) lack of support within the company for local R&D initiatives such as a powerful new microprocessor chip which was ultimately sold to a competitor, Intel.26
However, the response of Digital, the local business chamber and national and regional development agencies to the closure of the manufacturing operation set the pace for European regional policy. In particular, it created new opportunities in the Galway region for the pool of skills and professionalism within Digital's workforce. In addition to provision of generous redundancy packages, Digital itself established in-house programmes for job search, career change, new business start-ups and relocation. This approach was supplemented by an Inter-Agency Task Force established by Minister for Enterprise and Employment, Mr Ruairi Quinn TD, comprising the IDA, FAS (Foras Aiseanna Saothair - national employment agency) and Enterprise Ireland as well as local government, business, trade unions, Udaras na Gaeltachta (development body for Irish language area) and WESTBIC (business innovation centre) with the support of the National University of Ireland, Galway, and institutes of technology. The most significant outcome of these discussions was the establishment of Galway Technology Centre, the provision of additional training support and advisory services and funding for business start-ups, including via the conversion of tax on redundancy pay into a seed capital grant.27
No single measure could be identified as responsible for the subsequent growth of Galway's software cluster, but business support, training and "incubator" facilities together with informal networks among key ex-Digital staff all played their part, and continue to do so, in an ongoing transformation of the local economy.28 Nor did all ex-Digital staff enter the software sector. It required some high-profile successes, however, exemplified by Toucan Technology, to create the momentum necessary to encourage other start-ups and to attract major new investors such as Siebel Systems while at the same time persuading existing ones such as Nortel and Compaq (which absorbed the software and computer engineering areas of Digital) to expand their operations. These investors have in turn generated local supply chains, and have had to co-operate as well as compete for skills, infrastructure and market opportunities, both with each other and with the simultaneous emergence in Galway of Europe's leading medical instruments cluster, which is anchored by the presence of Medtronics AVE and Boston Scientific.
On the other hand, there are also impediments to the future growth and sustainability of the Galway cluster, some of which relate to the ICT sector as such and others to its regional status. While, in principle, distance from markets should not be an obstacle to ICT companies, especially in the software sector, the reality remains that scale and proximity are factors in competitive advantage. These problems can be addressed to some degree by the cluster approach which combines the positive attributes of scale with small-firm flexibility and which creates "virtual" proximity through "international recognition associated with establishing a world-leading position in the market".29 However, in the short term, the problems are compounded by poor access to venture capital, and the propensity of "dotcom" firms to position for a buy-out of intellectual property rather than expansion through an Initial Public Offering (IPO).
Other impediments, common to ICT worldwide, include shortages of high-level skills. Employment in the Irish software sector, for example, is expected to double by 2003. Recent estimates indicate a supply of 6 100 employees a year but an average demand of 8 300, leaving a shortfall of 2 200.30 Even if the demand for core technological capabilities can be met, the ICT cluster generally has a narrow skill set and is weak in functional areas of sales and marketing, management of human resources, corporate finance and strategy. This is an area where business and engineering schools, including those at NUI Galway, will be required to play a more active role as part of regional innovation systems. Finally, there are still severe infrastructure deficits in the Border-Midlands-West (BMW) region, mainly affecting transport and communications, although high bandwidth is in the process of being rolled out and connected with the new Global Crossing transatlantic cable.
Innovation processes and policies The Galway ICT cluster comprises attributes that are unique to the regional innovation system and others with a more universal application. The unique attributes include the withdrawal of Digital from the region, with the loss of many previously secure jobs, and the precise configuration of the response of policy makers, development agencies and the local community. While these are instructive, there are also broader processes of regional business growth and innovation at work which have major implications for national policy frameworks across the OECD.
The first point to make in this context is that the Porter "diamond" model of competitive advantage, particularly the requirement that it comprises only indigenous firms, may not be applicable to ICT cluster formation in a small regional economy.31 The globalised nature of Irish ICT, the influence of the multinational sector and the niche operations of indigenous firms suggest the need for a new, more outward-looking theoretical approach to the advent of the 'boundaryless' cluster.32
The benefits depend on the policy environment.Second, Second, Second, the presence of at least one large ICT operation provides a useful catalyst and focus Second, the presence of at least one large ICT operation provides a useful catalyst and focus for cluster development, even when, as in the case of Galway, the operation withdraws from the region at a later stage. This presence affords the opportunity to build local capacity in new technologies and skills both within the operation itself and more widely in the emerging cluster through outsourcing, vertical supply chains and, ultimately, horizontal inter-firm linkages. However, the extent to which the potential benefits are realised in practice will depend not just on company strategy but also on the policy environment created by the national and regional innovation system. The greatest benefits flow from global, high-value-adding, research-intensive investments that are nevertheless embedded in the location; while the least are associated with low-value-adding operations, such as assembly manufacture and call centres, which also tend to be more "footloose".
Third, the development of the regional skills base is cumulative and parallels the scale and sophistication of the industry cluster, whose growth patterns are themselves path dependent. The large ICT operation may act as a catalyst, establishing a demand for skills that are met through graduate employment, attraction of skilled personnel and through the creation of complex networks which supply training, consultancy and proprietary products and services. As well as employing skills, however, the operation may also play a role in the diffusion of research and technological competences which in turn become a springboard for entrepreneurship and participation in global niche markets. This was the experience of the Galway software cluster, which, after the closure of Digital's manufacturing operation, was required very rapidly to demonstrate an independent capacity to participate in these markets. The regional skills base was a necessary but not sufficient condition for doing so.33
Fourth, the Galway experience would suggest that appropriate regional business support structures are the final major local ingredient in successful cluster development. Without such structures, skilled personnel would be unemployed or underemployed, or alternatively would emigrate. As previously indicated, the traditional concept of "regional aid" has been superseded by more cost-effective approaches to the promotion of long-term growth and jobs, including business start-up assistance, industry network brokering and incubator facilities and collaborative approaches to new technology, R&D, training and project management. In Galway, a key role was played by Enterprise Ireland, in association with WESTBIC and the Technology Centre, in developing new enterprises with ideas, products and technologies that contribute to critical mass in the ICT cluster. Indeed, the demand for its sliding-scale fee for service facilities is such that the Technology Centre can impose a rigorous system of entry and review, ensuring high-quality outcomes that feed into future demand for the facilities and generate the resources to improve them.
Fifth, the policy framework (and to some extent the funding) for regional business support and innovation are settled at national and, increasingly, EU level.34 There is wide recognition in Ireland of the need for inward investment but, given the success of the IDA in attracting MNCs in recent years, especially in global growth sectors, the emphasis is now shifting to the quality and location of investment. This approach has been complemented over the last decade by Enterprise Ireland in "developing an indigenous, entrepreneur-driven technology sector", with a newly announced commitment to "clusters of new knowledge-intensive enterprises in regional centres".35 The most recently developed instrument of intervention will be a series of technology hubs known as "Webworks", whose task will be to "generate a critical mass of high potential start-ups in the regions - companies that are high R&D and export performers".36 The first Webworks facility is to be established in Galway.
Sixth, the sustainability of the ICT cluster will derive from constant innovation, which in turn must be based on leading-edge research and research training. This has been a weakness in the past. However, it is now being addressed not only by firms themselves but by government through increased support for third-level education and expansion of research funding as part of the National Development Plan 2000-2006. In particular, the RTDI strategy is based on the recognition that "there is a strong link between investment in the research and innovation base of the economy and sustained economic growthÂ… [T]he accumulation of "knowledge capital"Â… will facilitate the evolution of the "knowledge-based economy".37 Substantial resources have been earmarked for internationally peer-reviewed research on ICT and biotechnology to be administered by a new body, Science Foundation Ireland, and further rounds of third-level research funding are also in preparation as part of a total allocation of IEP 1.9 billion.
The evolution of Ireland's ICT sector has been driven not only by market forces but by the conscious design and implementation of public policy in the context of EU framework and cohesion programmes and, over the last decade, social partnership.38 This has comprised measures to attract knowledge-intensive inward investment through IDA Ireland, support for indigenous companies and networks through Enterprise Ireland, promotion of education and training at all levels, especially universities and technical colleges, development of a world-class telecommunications infrastructure, increased funding support for research in third-level institutions and strengthened linkages between companies and the education sector. A major feature has been the emergence of internationally competitive clusters that are positioned to take advantage of local skills and expertise, on the one hand, and global scale, on the other.
"This is the approach of the flexible developmental state."However, the experience of the Galway software cluster also demonstrates that the However, the experience of the Galway software cluster also demonstrates that the presence of a dynamic skills base is a necessary but not sufficient condition for success in international ICT markets. There is also a role for active industry and regional policies that contribute to business growth, technological innovation and cluster development - with an increasing emphasis on capacity-building in research and commercial applications. This is the approach of the "flexible developmental state", which is "defined by its ability to nurture Post-Fordist networks of production and innovation, attract international investment and link these local and global technology and business networks together in ways which promote development".39 It is this strategic approach to the role of government and markets in conjunction with a unique evolution of the boundaryless cluster that lies at the heart of Ireland's knowledge-based economy and the broader canvas of European regional innovation policy.
Roy Green is Professor of Management at the National University of Ireland, Galway, a former member of the Evatt Foundation's Executive Committtee and a contributor to the Evatt Foundation's new book, Globalisation: Australian Impacts, (UNSW Press). This paper was first published as a chapter in Innovative Clusters: Drivers of National Innovation Systems, OECD, Paris 2001.
NOTES 1. Porter, M. (1998), "Clusters and the New Economics of Competition", Harvard Business Review, November-December, p. 78. 2. Green, R. (2000), "Unemployment: Perspectives and Policies", International Journal of Manpower, Vol. 21, No. 5, September. 3. The evidence is not yet conclusive. Ireland is now ranked fifth by the World Economic Forum, after the United States, Singapore, Luxemburg and the Netherlands, in terms of "growth competitiveness", which measures factors contributing to growth. However Ireland remains 22nd in the world for "current competitiveness", encompassing factors in the continuation of growth, mainly due to infrastructure deficits in a number of areas (Irish Times, 7 September 2000). 4. NACE codes have been used wherever possible to generate data, but in some cases alternative sources, such as the National Software Directorate, have been preferred. 5. OECD (2000), Information Technology Outlook 2000, OECD, Paris. 6. OECD (1999), "The Knowledge-based Economy", Meeting of the Committee for Scientific and Technological Policy at Ministerial Level, OECD, Paris, June. 7. Travers, J. (1999), "The Role of Information Technology in Attracting Foreign Investment, Creating Industrial Zones and Developing Human Resources: Case Study Dublin", paper presented to World Competitive Cities Congress, World Bank, Washington, DC, May; Clancy, P., E. O'Malley, L. O'Connell and C. van Egeraat (2001), "Industry Clusters in Ireland: An Application of Porter's Model of National Competitive Advantage to Three Sectors", European Planning Studies, Vol. 9, No. 1. 8. Forfas (1996), Shaping our Future: A Strategy for Enterprise in Ireland in the 21st Century, Forfas, Dublin. 9. Gunnigle, P. and D. McGuire (2000), "Why Ireland? A Qualitative Review of the Factors Influencing the Location of US Multinationals in Ireland with Particular Reference to the Impact of Labour Issues", University of Limerick, paper presented to Conference of the Irish Academy of Management, 7-8 September. 10. ILO (1999), World Employment Report 1998-99, International Labour Organisation, Geneva. 11. OECD (1998), Technology, Productivity and Job Creation, OECD, Paris. 12. Grimes, S. (1999a), "The Information Society in Ireland - A Late Developer Catches the Wave", National University of Ireland, Galway, paper presented to the European Regional Science Association Conference, Dublin, August. 13. OECD (2000), Information Technology Outlook 2000, OECD, Paris. 14. National Software Directorate (1998), Irish Software Industry Survey 1997: Results, National Software Directorate, Dublin. 15. Green, R. and R. Genoff (1998), "What is Industry Policy?" in Manufacturing Prosperity: Ideas for Industry, Technology and Employment, Federation Press, Sydney. 16. OECD (1998), Inward Investment and Regional Economic Growth, OECD, Paris. This cluster dynamic may be further reinforced by leading-edge research, such as that envisaged for the MIT's MediaLab Europe facility to be sited in Dublin. By contrast, the lack of "embeddedness" in local supply chains may a factor in disinvestment by MNCs, even if not the catalyst for it, as we shall see below in the case of Digital in Galway in the early 1990s. 17. O'Gorman, C. and M. Kautonen (2000), "Developing Clusters of SMEs in New Knowledge-intensive Industries: The Cases of Dublin, Ireland, and Tampere, Finland", seminar paper presented at National University of Ireland, Galway, October. 18. O'Sullivan. M. (2000), "The Sustainability of Industrial Development in Ireland", Regional Studies, Vol. 34, No. 3. 19. O'Gorman, C. and M. Kautonen (2000), "Developing Clusters of SMEs in New Knowledge-intensive Industries: The Cases of Dublin, Ireland, and Tampere, Finland", seminar paper presented at National University of Ireland, Galway, October. 20.These figures are derived from unpublished databases held by Enterprise Ireland and the Galway Chamber of Commerce and Industry. 21. Clancy, P., E. O'Malley, L. O'Connell and C. van Egeraat (2001), "Industry Clusters in Ireland: An Application of Porter's Model of National Competitive Advantage to Three Sectors", European Planning Studies, Vol. 9, No. 1. 22. Enterprise Ireland (2000), Opportunities for Ireland's High-Technology Internationally Traded Services (ITS) Sector to 2007, Enterprise Ireland, Dublin, p. 2; Porter, M. (1991), The Competitive Advantage of Nations, Macmillan, London (respectively). 23. OECD (1997), National Innovation Systems, OECD, Paris. 24. Building on this experience and a complement of former Digital staff, Compaq's super computing engineering team subsequently designed the Alphaserver SC in Galway, which integrates Alpha processors in a "massively parallel system" to deliver super computing power (used, for example, to sequence the human genome). 25. WESTBIC (1999), WESTBIC Activity Report, WESTBIC Business & Innovation Centre, Galway. 26. Needham, L. (1999), "The Impact of the Closure of Digital Equipment Corporation International Ltd, Galway on the Workers and the Local Economy", research dissertation, Faculty of Commerce, National University of Ireland, Galway, Chapter 4. 27. Keating, S. (1994), The Galway Task Force Report, Galway Task Force, Galway. 28. A survey conducted in 1999 found that 90 per cent of the redundant staff had returned to full-time employment, with 10 per cent starting their own businesses in Galway and 70 per cent of these earning the same or better pay than prior to redundancy [Needham, L. (1999), Chapter 7]. There are parallels here with closures in more traditional areas of manufacturing, but also substantive differences [O'Neill, P. and R. Green (2000), "Global Economy, Local Jobs", in P. McManus P. O'Neill, R. Loughran and O.R. Lescure (eds.), Journeys: The Making of the Hunter Region, Allen & Unwin, Sydney]. In retrospect, it may be seen that the prospects of the Galway workforce would prove more favourable due to the nature of their skills, the emerging opportunities in the ICT sector and the coherence of national and regional intervention, which matched available skills to the opportunities. 29. Enterprise Ireland (2000), Opportunities for Ireland's High-Technology Internationally Traded Services (ITS) Sector to 2007, Enterprise Ireland, Dublin, p. 5. 30. Expert Group on Future Skill Needs (1999), Ireland's Information Technology Skill Requirements, Forfas, Dublin. 31. O'Donnell, R. (ed.) (2000), "The New Ireland in the New Europe", in Europe: The Irish Experience, Institute of European Affairs, Dublin; Green, R. (1999), What Makes Global Regions: The Role and Significance of Regional Innovation Systems, National Innovation Summit, Federal Department of Industry, Science and Resources, Canberra; O'Gorman, C. and M. Kautonen (2000), "Developing Clusters of SMEs in New Knowledge-intensive Industries: The Cases of Dublin, Ireland, and Tampere, Finland", seminar paper presented at National University of Ireland, Galway, October; Clancy, P., E. O'Malley, L. O'Connell and C. van Egeraat (2001), "Industry Clusters in Ireland: An Application of Porter's Model of National Competitive Advantage to Three Sectors", European Planning Studies, Vol. 9, No. 1. 32. According to a recent study, "the suggestion that foreign-owned MNEs should be included as potential contributors to the competitive advantage of host-country industry clusters seems likely to have merit in the Irish case ... Even in the absence of fully developed Porterian clusters, there generally are appreciable benefits ... arising fromÂ… groupings of connected or related companies or industries, and from interactions between them". [O'Malley, E. and C. van Egeraat (2000), "Industry Clusters and Irish Indigenous Manufacturing: Limits of the Porter View", Economic & Social Review, Vol. 31, No. 1, January]. 33. In this sense, Robert Reich's thesis in the Work of Nations [Vintage Books, New York, 1991] is incomplete and even misleading. The futility of a world-class skills base without relevant and expanding local employment opportunities has been demonstrated in many places, including Ireland itself in the 1980s, as well as in industrial and rural regions elsewhere [Green, R. and R. Genoff (1998); ESC (Employment Studies Centre) (1999), Clever Region: Using Knowledge and Skills to Compete in the Global Economy, report for Department of Employment, Workplace Relations and Small Business, University of Newcastle]. 34. Grimes, S. (1999a), "The Information Society in Ireland - A Late Developer Catches the Wave", National University of Ireland, Galway, paper presented to the European Regional Science Association Conference, Dublin, August. 35. Enterprise Ireland (2000), pp. 2, 13. 36. Ibid., p. 17. 37. The objectives of the RTDI are to: i) develop intellectual infrastructure to "root" overseas companies here through more extensive use of research based in Ireland; ii) persuade and encourage companies to develop their own research activities; iii) develop a world-class research environment in our higher education institutions and state research institutions; and iv) ensure a vibrant and dynamic pool of high-quality, technically literate graduates from the graduate to postdoctoral levels to service the needs of these companies and to start their own companies [Government of Ireland (1999), Ireland: National development Plan 2000-2006, Stationary Office, Dublin, para. 6.35]. 38. O'Donnell, R. (ed.) (2000), "The New Ireland in the New Europe", in Europe: The Irish Experience, Institute of European Affairs, Dublin. 39. O'Riain, S. (1999), "The Flexible Developmental State: Globalization, Information Technology and the 'Celtic Tiger"', unpublished manuscript.
Green, Roy, Cunningham, James, Giblin, Imelda, Maroney, Mike and Smyth, Leo, 'The boundaryless cluster', Evatt Journal, Vol. 1, No. 1, December 2001.<https://evatt.org.au/post/boundaryless-cluster>