Ireland angles for computer companies with a future
Padraic A. White came to New York last week and saw his first Fifth Avenue St. Patrick's Day parade.Skip to next paragraph
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For the past year, Mr. White, who is managing director of the Industrial Development Authority of Ireland, has been watching a different parade: US companies setting up shop in Ireland.
Mr. White and the IDA have had an excellent year using grants and tax credits to entice US companies to operate factories in the Emerald Isle. In 1981 the development authority could boast that one US company established operations in Ireland every week. And 1 out of 2 new US investments in Europe, Prime Minister Charles J. Haughey noted recently, was made in Ireland. ''Over the past four years,'' said the prime minister in a speech in New York, ''the average annual increase (in US investment in Ireland) has been 41 percent -- three times as great as the average increase in the European Community as a whole.''
Most recently, the Irish have successfully attracted electronics companies, which manufacture, test, assemble, and package products they want to sell in the European market. These companies included Apple Computer, making personal computers; Mostek, manufacturing integrated circuits; and Wang Laboratories, producing word processors.
Early this year, American Telephone & Telegraph Company, in its first strategic move outside the US, bought a 45 percent interest in Telectron, a private telecommunications company. And in October 1981 Gene Amdahl, founder of Amdahl Corporation, decided to build a manufacturing facility in Ireland for his new company, called Trilogy. By 1984 Mr. Amdahl expects Trilogy to be producing the largest main-frame computers in the world.
For the most part, however, electronics firms in Ireland stick to manufacturing. They are not involved in research and development or marketing. This has prompted some observers to denigrate headlines touting Ireland as Europe's version of ''Silicon Valley.''
The latest push at the Industrial Development Authority is to get companies to integrate more in Ireland. This means the IDA is trying to attract service companies, research and development arms of companies, as well as testing labs, film studios, and data-processing departments. Over the longer term, the authority would like to begin recruiting robotics and biotechnology companies.
Its success at luring US companies has a price tag attached. For example, of the $500 million in new factories announced by US companies last year, the development authority itself directly paid $150 million to $250 million. In addition, it offered ''tax shielded lending'' so that interest costs were reduced to 10 percent (compared with a market rate of 20 percent). It also offered training grants which pay salary costs until employees reach a ''reasonable state of productivity.'' Once a company is making a profit, the maximum corporate tax rate is 10 percent.
All of these tax holidays for business -- supported by both major political parties -- reduced government revenues at a time when the country's budget deficit was $1.5 billion. In the last 10 years the development authority's budget has tripled and today the government pays out $2,575 as industrial aid for every existing job in manufacturing.
Furthermore, a study made by a US consulting firm, Telesis Consultancy Group, found that the Irish weren't as efficient in making use of their grants as the Scottish and the Puerto Rican development agencies. The Telesis study, which was first made public last August by the magazine, Irish Business, discovered that both the IDA and the companies it recruited had inflated the job prospects of their proposals. Telesis found only 30 percent of the jobs approved by the IDA over the period 1970-78 actually existed in 1981. In short, corporations exaggerated the potential job impact of their facilities in order to get the grants, which were considered by business, ''a real steal.'' The study found that 80 percent of the companies locating in Ireland did so because of the grants and to gain access to the European Economic Community markets.
Mr. White counters that the Telesis study did not take into account the long-term recession that has struck Europe. Had there not been the recession, he maintains, companies would have expanded, providing more jobs.
Not all the companies locating in Ireland have found access to the EEC that profitable. For example, Fieldcrest Mills Inc. recently abandoned its 50 percent stake in a towel manufacturing facility in County Kilkenny. Fieldcrest blamed Ireland's inflation rate (22 percent), currency valued too high, and the sluggish markets in Europe for its decision.
However, IDA's Mr. White says Fieldcrest was unsucessful in cracking the European markets. Fieldcrest had asked the development authority for additional funds in November. But the IDA decided to base its decision on a study by the US consulting firm of McKinsey & Co. Mr. White says the study did not turn out positive and both the IDA and Fieldcrest decided not to invest more funds. Fieldcrest's problem, Mr. White said, was that it was not selling even half of its production and consequently was not making any money.
Mr. White says he believes the prospects for another textile firm, Burlington Industries, which has had earnings problems in Ireland, are brighter. ''Burlington has decided to stick with it,'' he commented, ''and make further investments. They have added the chairman of their Irish subsidiary to the board of the parent company. They are looking to the long term.''