Tech sector blues - a passing phase?

09-03-2007

by Ciara O'Brien

Have recent job losses in the tech sector damaged public perception of the Irish economy?

Ireland Inc has stumbled a little in recent months, with the tech sector experiencing a purge in jobs. A number of high-profile job losses have hit the headlines, with industry stalwarts such as Motorola, Creative Labs and Xerox all announcing restructuring or reviews.

Looking at the recent trends, you would be forgiven for getting a little nervous.

Creative Labs cut 90 jobs before Christmas at its Blanchardstown plant, and announced in December that it planned to cut 140 more in 2007. While the Dublin premises once had the job of manufacturing the Creative Zen music players, the assembly lines have now been shipped out of expensive Ireland and off to a cheaper location. Despite the drastic cutbacks, Creative is not planning to jump ship entirely -- it has confirmed that it plans to keep its European headquarters in Ireland, employing about 200 people in the provision of Europe-wide support for activities, including marketing, IT, finance, HR, and customer services and support.

Meanwhile strategic reviews of Irish operations are also being undertaken by a number of companies, including Xerox and mobile network Vodafone. Both of these reviews are expected to result in job losses.

The run of bad news has caught the attention of politicians, particularly the opposition parties who are currently waging some pre-election wars in the hopes of wrestling power from the current Fianna Fail-PD government.

Fine Gael finance spokesperson Joan Burton noted in February that the job losses were no longer confined to the manufacturing side of the business, where competition from lower-cost economies has seen Ireland losing out on the employment front. Instead, some positions have been cut from the valuable research sector, an area that the Government is depending on to transform Ireland's economy from a manufacturing dependent one to a "knowledge" economy.

Whoever wins the election will have a tough time on their hands, according to Fergal O'Brien, senior economist with employers' lobby group IBEC, who said the first thing the incoming government needs to do is tackle Ireland's high rate of inflation.

Productivity is another area that needs to addressed, he said. "We need use of technology, more R&D, greater innovation and better R&D supports," said O'Brien. "We need to spend more time to improve them."

Energy efficiency is another concern, according to O'Brien. "Even though world oil prices have slipped, electricity and gas are still exceptionally high here," he said.

It's not all doom and gloom, however. While some companies are pulling out or scaling back their operations in Ireland, others are investing further in the country.

Software firm Percana announced in December that it plans to create some 27 new jobs as part of its EUR1.5 million investment into the company's Dublin headquarters. While virtualisation software firm VMware, also announced plans to expand it operations in Ballincollig, Co Cork, where it is to create some 300 new jobs -- a major boost to the area.

For its part IDA Ireland said that given the level and quality of investment it has seen in Ireland in recent times, it isn't concerned about the recent spate of redundancies. "We have attracted a high level of knowledge-based investment and will continue to do so," said IDA spokesperson Ruth Croke.

"The recent spate of job redundancies are mainly corporate decisions, based on markets and product trends on a global level."

However, even these new jobs won't reverse the considerable damage the tech sector has sustained in recent months -- if only to its public perception. In Cork alone, 330 jobs were slashed at Motorola's facility, electronics firm FCI is shedding 240 jobs at its Fermoy plant and Bourns Electronic announced it is to shift its manufacturing facility to the lower-cost economies of Mexico and Hungary, with the loss of 80 jobs. In addition, Thomson Scientific, which is based in Limerick, also announced its decision to re-locate its patent and literature editorial production processes to India, with 200 jobs lost as a result.

But Croke said there had been a net increase in the number of jobs created in IDA-supported companies, and that the organisation's focus was firmly on knowledge-based activities.

While O'Brien said the recent job cuts need to be taken seriously, he pointed out that the media interest was unusual. "It is an interesting situation in Ireland that there is a lot of comment in the media on individual announcements," he said.

Rather than focus on the individual job announcements, he said it was best to consider the statistics overall. "Figures published last week in the National Quarterly Household Survey showed that unemployment was at a five-year low." He said he believed this indicated that although people were losing jobs, they were getting employment elsewhere in the economy.

This may not necessarily mean that the tech sector is reabsorbing these workers though. Despite the Government's hopes and plans, the future of the sector is by no means guaranteed in Ireland. Rising wage costs, and simply the cost of doing business in this country, has made low-cost economies a more attractive proposition for high-tech firms.

And while Ireland currently attracts a certain level of investment due to the skilled workforce and low taxation rates, exactly how long this will encourage tech companies to stay on our shores remains to be seen.