Committee Reports > List of Committees > Joint > 1987 > Committee on Small Businesses > Report No. 07 - New Technology and the Small Business

FOREWORD

This Report represents the completion of the second phase of the Committee’s programme of work.

This Seventh Report on New Technology and the Small Business is laid before both Houses of the Oireachtas in accordance with paragraph (6) of the Orders of Reference of the Joint Oireachtas Committee on Small Businesses.

INTRODUCTION

During 1984 and 1985 the Committee published four sectoral reports as the first phase of its work:-

(i)Manufacturing Industry - 10 May, 1984.

(ii)Retail and Distribution - 17 October, 1984.

(iii)Tourism, Catering and Leisure - 3 April, 1985.

(iv)Construction - 28 November, 1985.

The Committee decided to publish reports on the following topics for the second phase of its work:-

(i)The Insurance Problems of Small Businesses - published 26th March, 1986.

(ii)The Development and Management of Small Business Co-operatives - published 15th July, 1986.

(iii)New Technology and the Small Business.

We selected New Technology as a topic for a Report by the Committee because small firms in both the manufacturing and services sectors need to be made aware that, in many cases, their future survival and prosperity will depend on their abilities to come to terms with changing technology.

Developments in technology, particularly Information Technology, will make a wider range of Irish small firms than ever before more open to international competition.

Conversly, these changes will also offer small firms a wider range of opportunities than were previously available.

This Report addresses the changes that need to be made to enable Irish small firms to make effective use of new technology to ensure their competitiveness into the 21st Century.

In some instances the expression Science and Technology is used in this Report as they are often interlinked. However, the primary concern of the Committee is with Technology, which is defined by dictionary as “the systematic knowledge of industrial arts”.

The Committee wishes to thank all those who made submissions, gave evidence to the Committee, or who have in any other way helped with the production of this Report.

Chapter 1

BACKGROUND

1.1 From the Industrial Revolution to the Computer

When people talk of New Technology they mean usually the application of computer based technology to modern industrial economies. However, modern economies are themselves the consequence of the momentous technological changes that we have seen since the advent of the Industrial Revolution. A consideration of New Technology and its impact requires an understanding of technological development since the Industrial Revolution and of its effects.

Until the 18th Century all economies were based on Agriculture. Such manufacturing activities as existed were largely rural, often cottage based and were geared towards meeting very basic needs. For example, textiles were often woven in workshops attached to dwellings and finished in mills worked by horse or water power, and in dyehouses. Similarly, iron of very basic quality was produced in limited quantities at charcoal-fed blast furnaces located in wooded areas, because charcoal was made from wood.

From 1750 onwards the means for modern industrial production came about gradually through a series of technical innovations such as advances in spinning and weaving equipment, improvements in iron and steel technology, and the development of steam power.

International trade expanded, developing both new markets and sources of raw materials.

The development of canals and, more particularly, the railways made possible the mass transportation of fuel, raw materials and finished goods.

Displacement of people from the land, due to more efficient agriculture, and falling mortality provided the workforce for an expanding manufacturing sector.

Throughout the 19th Century technical advances continued at an increasing pace. Electricity was developed. New metallurgic processes resulted in higher quality steels with more flexible applications. New products such as the telephone, the typewriter, and the motor vehicle were invented, all before 1900.

The growth of industry and of industrial employment provided a massive impetus to urban expansion. Economic expansion was matched by advances in the social field including education, health, and housing.

These technical, social, and economic changes resulted in a consistent increase in the standards of living of the broad mass of working people and therefore, the conditions for a market place based on mass consumption.

However, the needs of a mass market required systems of mass production for the manufacture of cars, and other consumer products becoming available. It was this requirement that led to the planned flow of industrial processes, resulting in the conveyor belt, the assembly line, and the specialisation or division of labour by individual task.

The division of labour represented an analysis and breakdown of human skills at each stage in the production process and was very much inspired by the need for the most efficient use of labour as a relatively scarce factor of production.

The principles of assembly line production and the division of labour were valid for a whole range of finished products and components. They were valid for standard factory consumer products, from cars to shoes.

A whole range of new mass-produced consumer products was developed as the 20th Century progressed including, radios, telephones, vacuum cleaners, refrigerators and washing machines.

Mass production itself led to major reductions in unit costs, which in turn brought more products within the price range of the average person and provided a continuing impetus for new product development.

Although these changes have resulted ultimately in the multinational corporations that we know today, small manufacturing and service firms have also flourished as component suppliers, producers of speciality products or, goods for local markets, and as providers of retail and other services.

Another major technical breakthrough in the early part of this Century was the invention of the aeroplane, which provided the means for Tourism to become the biggest international service industry and facilitated enormous growth in business travel.

All of these changes have come about as a consequence of technological advances which had no previous parallel. Yet, the expression “New Technology” which has attained widespread usage in recent years refers to none of these developments.

New Technology has come to mean principally applications of microelectronics and computer related telecommunications technology. The use of the term “New Technology” in this context is a recognition that computer technology is bringing about changes in both the Manufacturing and Service sectors, changes that are as revolutionary as anything ever before seen in these sectors.

However, New Technology also covers other areas of manufacturing activity, particularly Biotechnology and New Materials, which are dealt with separately in this Report.

What is different and most significant about computer technology is that, while being a major industry in itself, it has applications in virtually every business sector. Yet the changes being brought about by computers are still not widely understood.

1.2 The Computer and how it has developed

1.2.1 What is a Computer?

A computer is essentially a counting machine that can receive and store data, and process it to provide information in a form required by the user, but only in accordance with a sequence of given instructions known as a program.

Computer processing operations are carried out by the use of a binary code or ‘language’ consisting of two symbols - 0 and 1, which are added or subtracted at great speeds by electrical impulse, literally at rates of thousands or millions of calculations per second. A rough non-numerical analogy would be the dot and dash symbols of Morse code, again a form of language using only two symbols.

A computer installation is made up of two essential elements:-

Computer hardware usually comprises:

a Central Processing Unit (CPU) which carries out the actual calculations or transaction;

the Main Memory which holds the data on which the CPU is working;

a Banking Store where the bulk of the data in the Computer is maintained on magnetic disks or tapes;

Peripherals, which are the means by which a computer communicates with the outside world. A keyboard is a peripheral device through which data may be fed into a computer. A visual display unit (VDU) is a peripheral device through which the computer may convey information to the user and a printer will provide this information on paper.

Computer software represents the sets of instructions for a computer. It is important to realise that a computer itself has no independent intelligence. Therefore every single step in its operating procedure must be written out in sequence and in computer language. A set of operating procedures or instructions is known as a program. A program may be written on a disk or cartridge which is inserted into the computer memory. Operating System software tells a computer how to work and Applications software is designed for specific tasks required by the user.

1.2.2 From the First Computer to the Present

Although the concept of computing was developed as far back as the 1830’s it was not until 1946 that the first fully automatic computer ENIAC - Electronic Numerical Integrator and Computer - was developed at Pennsylvania University.

That computer covered 3,000 cubic feet, weighed 30 tonnes, contained 18,000 valves or tubes, and used 140 kilowatts of power. Those 18,000 valves controlled the electric pulses that did the work of the computer. They used a lot of power, got very hot and one valve, on average, had to be replaced every seven minutes.

The limitations of valves and the sheer size of the equipment restricted the development and application of computers until about the mid-1950’s.

The first major breakthrough was the development of the transistor, made from silicon, in the late 1940’s and of its progressive application in the 1950’s. Silicon is a material which can conduct or reject electricity i.e. carry electric pulses. As a constituent of sand, it is available in abundance.

Transistors were smaller and more durable than valves. Computers, though still large and expensive, became a feasible option for large public and private organisations that processed a high volume of transactions of a repetitive nature. By 1964 some 18,000 computer systems were installed in the U.S. compared with 244 in the mid-1950’s.

Computer technology progressed throughout the 1960’s. In the mid-1960’s mini-computers, small computers with limited facilities, were introduced. These computers became progressively more sophisticated and it became possible for smaller firms and organisations to apply computers to their data processing requirements.

However, it was the development of micro-electronics and the miniaturisation of the transistor to the extent that thousands of them could fit on one tiny integrated circuit, an electronic device with no moving parts, that has brought about the greatest revolution in computer technology. These integrated circuits are known as micro-processors or silicon chips.

A chip usually has a surface area of 3mm² and a thickness of 0.1mm. Yet each chip contains more electronic components than the average room sized computer of 30 years ago.

The development of the chip resulted in the first commercial micro-computer in 1971. Micro-computers are physically much smaller than other computers and the entire hardware will fit comfortably on one desk.

Throughout the 1970’s the cost of computer hardware fell by 40% annually. Computers became an option for small businesses. Indeed computers had become so cheap, relatively, that it was feasible to launch home computers for personal domestic use. In 1985 there were 10m. micro-computers in the U.S. and the estimate for 1986 is 13m.

So, today we have three basic types of computer:

(i)Main frame computers which are medium to large size computers of considerable power. They are capable of handling very large volume repetitive tasks or the centralised handling of a number of systems of large organisations.

(ii)Minicomputers, which are a scaled down version of main frame machines but still capable of a wide range of businesses applications.

(iii)Microcomputers, also known as personal computers, are generally slower and more limited than other computers, but can be a significant management aid in even the smallest firm.

Again, advances in computer technology are making it more difficult to retain clear distinctions between these definitions. The simple fact is that enormous computer power is available to small firms at low cost. For example the sum of £10,000 would now buy the same computer power as had a mainframe computer installed for £1m. at the Guinness Dublin brewery twenty years ago.

Developments in computer hardware have been matched by the growth in computer software, to the extent that software has become a major services industry in its own right.

1.2.3 Computers and their Wider Use

Until the early 1970’s computers were confined to high volume data processing in large public or private organisations. Examples in Ireland would be the Revenue Commissioners, the Department of Social Welfare and the ESB.

Falling hardware costs and the development of the chip, together with a variety of new software packages, have greatly widened computer applications.

Today computers are used in industrial production and product design.

They have a growing role in the design of buildings and other construction projects.

In offices they are used for word processing, i.e. the input, storage, editing and output of text to provide letters and other documents in standard form.

There are wide areas in the non-technical aspects of Business where computer technology can now put the small firm on an equal footing with the large. These go right across all the functional areas of a business, and would include, for example:-

In fact computer technology is valid for all types of businesses in all sectors. The major exceptions would be cash businesses such as restaurants, public houses, and some small retail outlets. Other exceptions would be small builders and manufacturers of ‘one off’ products.

Moreover, the relative price of computer hardware is still falling. Very adequate micro-computers and peripherals may be obtained in a price range as low as £1,500 to £3,000. Software packages covering such applications as wages, sales/debtors and, stock control may be obtained for £200 to £300 each.

All of these developments are highly significant for many firms, including small firms. However, they are confined within a firm. What is equally important is the parallel development of computer and telecommunications technology which has resulted in the capacity for communication between computers by telephone line.

1.2.4 Telecommunications and Computers

The telephone was invented in the 1870’s. Exchanges operated on mechanical switchgear until the 1960’s and 1970’s. However, in most countries these exchanges are being replaced by digital switching systems. Voice and non-voice communications are now sent along telephone lines in discontinuous pulses similar to the digital form in which computers accept information. Telecommunications have therefore become more dependent on computer control and more integrated with computer technology.

An everyday example of non-voice communication by telephone line is the Automatic Teller Machine (ATM) or hole-in-the-wall bank, which is itself a computer terminal. A bank customer who wants to withdraw (say) £50 cash from his account inserts his ATM card into the terminal and keys in the relevant details - personal identification number, withdrawal request, current or deposit account, and amount sought. The information that a specific customer wants to withdraw £50 in cash from his account is carried in digital form along a ‘dedicated’ telephone line, leased by the Bank, to a central computer which processes this data, and refers to its own storage to confirm that the account is sufficiently in credit, and then instructs the terminal or ATM, again by telephone line, to dispense the £50.

This fusion of computer and telecommunications technologies has given rise to the term “Information Technology” or IT. A recent study for the Sectoral Development Committee defined IT “as a collective term to describe a range of activities which are concerned with one or the other, or both of the following areas:-

(i)Computing, involving the storage, processing, and presentation of information by electronic means.

(ii)Telecommunications, involving the transmission of information by means of electro-magnetic spectrum”.

IT has applications in communication within firms, between firms, and between businesses in different countries.

The combination of telephone, computer with keyboard and VDU, facsimile transmission, and computer led advances in telex, are changing the whole environment for information and communication. The extent of the changes taking place is reflected in the following services now available from Telecom Éireann:-

Computer Access: A firm may now transmit information by telephone line from its own computer to another computer or terminal linked to the Telecom network or overseas. It may also source information in the same way. The Telecom service is known as Eirpac and was introduced in April, 1985. Eirpac is a dedicated data network which can cut cost access for users by as much as 90% because it is distance independent. There are now 550 customers for this service.

Electronic Mail enables anything from a message to a large report to be posted by computer linked telephone line to other electronic mail subscribers. It is, in effect, correspondence without a paper requirement. The Telecom Éireann service is known as Eirmail and access is through the Eirpac network.

Facsimile or Fax: Facsimile is photocopy transfer by telephone line. The number of Fax machines in Ireland is estimated at between 2,000 and 2,500.

Telex: Telex is an older form of telecommunications, and originally unrelated to computer technology. However recent advances include additional capabilities such as broadcast telex with a facility to send up to ten messages simultaneously, together with the ability to connect with computers and word processors. There are 8,000 telex machines in Ireland.

CHAPTER 2

MANUFACTURING INDUSTRY AND COMPUTER TECHNOLOGY

2.1 How the Computer is changing Production

A manufacturing firm can use computer facilities as an aid to efficient administration and for the rapid organisation of information in the same way as any other firm.

However, computer technology is radically changing the face of production itself. Indeed, the manufacturing process is changing to such an extent that the concept of the automated inflexible assembly line for one product only which is the very basis of much of 20th Century manufacture, is becoming obsolete.

A number of systems based on computer control are taking over the manufacturing process from the design to final product stage, particularly in the engineering manufacturing and electronics industries. The generic name for these systems is Advanced Manufacturing Technology (AMT) and the terminology to describe aspects of AMT includes:-

Computer Aided Design (CAD).

Computer Aided Manufacture (CAM).

Computer Integrated Manufacture (CIM).

Robotics.

Flexible Manufacture.

Computer Numerical Controlled (CNC) machines.

New production plants now coming into use combine the highest levels of automation together with the flexibility to make small batches of different products on the same production line.

A Computer Integrated Manufacturing Plant automates not only the flow of production through a plant, but also the total flow of information for managing the enterprise, from ordering materials to the despatch of the finished product.

The application of computerised systems to materials and inventory control, the organisation of production, and the control of production processes, contributes enormously to the reduction of waste in the production process. Ready access to computer information with regard to all of the production stages means major savings in management time. Another consequence of this new production is a dramatic reduction in delivery times.

The centre of a CIM plant is the flexible manufacturing area which can turn out a variety of different products, simply because the computer controlled production line can be reprogrammed and retooled very quickly. Changing a flexible production line to accommodate the manufacture of a different product or component can now often be achieved in minutes rather than in days, as in the past.

The use of computers in product design work speeds up design and improves its quality, facilitates accelerated product development and more frequent product changes. The ability to directly transfer computer-based information produced during the design process to computer controlled production equipment is resulting in major savings and improvements in delivery.

The use of computer controlled robots is replacing manual workers in welding and paint spraying and, machine loading and unloading.

Computer controlled inspection equipment, including the use of machine vision systems, is becoming a major aid to quality assurance.

It may appear that these innovations are relevant only to large manufacturing firms. The reverse is true.

2.2 Advanced Manufacturing Technology and the Small Firm

AMT is applicable to practically all types and all sizes of manufacturing companies. The only possible exception is the jobbing shop which is involved in ‘one off’ production, but even here computer controlled machines can provide very considerable benefits.

It is now recognised that in many instances it is impossible to compete with AMT by conventional methods.

The flexibility of the new equipment and the shift from large volume to batch production is allowing small firms to operate in areas previously occupied mainly by large companies.

The increasing application of flexible manufacturing systems and the use of the “Just in Time” concept will have a major impact on those companies engaged in sub-supply to main manufacturers. The JIT concept aims at reducing work in progress and stocks to an absolute minimum, with suppliers and sub-contractors delivering materials and components just as they are required. The use of programmable production equipment will enable sub-suppliers to meet these requirements.

Most small manufacturing firms will, therefore, have use for at least some AMT related equipment and it is increasingly coming within their price range. Computer Aided Manufacture (CAM) is particularly valid for small firms.

For a very small manufacturing firm a micro-computer can be used in materials planning and control of stocks, in addition to administration.

The relative cost of Computer Numerical Controlled (CNC) machines, such as drills and milling machines, is falling and their flexibility and sophistication are improving. Formerly, these machines were available only to large engineering firms, because of their costs and the high skill levels needed to operate them. Now, they are coming increasingly within the reach of smaller engineering firms, giving them increased capacity, greater market flexibility and more efficient production.

Computer controlled machines are as valid in the clothing industry as in engineering. For example, a small knitwear manufacturer can now avail of micro-processor controlled knitting machines, which have major advantages over traditional machines in:-

-simpler set-up procedures;

-easier and cheaper pattern changes;

-more flexible production scheduling, leading to more efficient production of small orders;

-greater cost efficiency generally;

-easier and cheaper maintenance procedures;

-greater ability to produce sample ranges, which assists the marketing effort.

Although Computer Aided Design (CAD) and Computer Integrated Manufacturing (CIM) Plants require larger computers costing tens of thousands of pounds, the smallest of firms can have access to CAD facilities, for example in certain AnCO centres. Again, small manufacturers of components could have access to the CAD facilities of their large industrial customers.

2.3 Advanced Manufacturing Technology and Industrial Employment

Although new technology has resulted in millions of new jobs in computer and computer related industries and services, the net effect of technological innovation on industrial employment is firmly downwards.

The following figures for manufacturing employment in Japan, West Germany and, the U.S., the three major market economies, show the trend:

Employment in Manufacturing Industry and as a Percentage of Labour Force

(Source: Labour Force Statistics 1963-83, OECD 1985).

It must also be remembered that these three countries have enjoyed the fastest rates of growth among the developed economies, but that this growth has been insufficient to prevent sharp declines in the proportion of their labour forces employed in manufacturing industry.

The decline in industrial employment and the failure of other sectors to fully absorb displaced industrial workers is reflected in the unemployment percentages for these countries.

Unemployment as a Percentage of Labour Force

Even Japan, until now a full employment economy is facing 6% to 7% unemployment levels for the first time in 1987, if the same criteria were used for determining unemployment, as in Western countries.

There are factors, other than automation, behind job losses in manufacturing industry, such as changing trade patterns, lower growth rates than in the past, and a tendency for labour intensive industries to locate in newly developing countries. However, automated production due to the newer computer technologies is the major reason.

The attrition in manufacturing employment is expected to continue with predictions that by the year 2000, manufacturing industry will account for between 3% and 5% of those at work in the U.S.

Technological change means that manufacturing industry as a source of employment in developed countries will become much less significant.

2.4 New Technology and Irish Industry

2.4.1 The Dual Manufacturing Sector

The pattern of Irish industrial development and the fact that we have a dual manufacturing sector has been well chronicled by various reports including Telesis, NESC, and the White Paper on Industrial Policy.

On the one hand, we have a modern foreign owned sector providing 78,000 jobs, heavily involved in chemicals, electronics, and pharmaceuticals, with the U.S. as by far the largest single source of investment.

Output from electronics and computer related products in Ireland is now valued at £2,500m. annually, most of which is exported, and indeed accounts for 35% of our total manufactured exports. There are about 300 electronic companies in Ireland employing 20,000 people. However, this sector of manufacture is almost entirely foreign owned.

On the other, we have an indigenous sector which is heavily involved in traditional product areas and which has essentially failed to lift its horizons beyond a small home market. Profitability is low and sufficient funds for re-investment are not being generated.

2.4.2 The Technological Capabilities of Indigenous Manufacturing Firms

All available material on the technological capabilities of indigenous Irish manufacturing firms point towards deficiencies on a scale barely compatible with a developed economy.

In 1985 the Sectoral Development Committee published a report entitled the Technological Capacity of Indigenous Irish Industry, which paints a pessimistic scenario.

This Report concluded that:

(i)even in the growth areas such as electronics, plastics, chemicals and pharmaceuticals, and mechanical and electrical engineering, the indigenous component mainly comprises small firms producing low value added products, and with a medium to low technological capacity. Growth is confined to companies of overseas origin and there is no sign of improvement in favour of indigenous firms;

(ii)traditional sectors such as clothing, textiles, printing and packaging are dominated by indigenous manufacturers and these sectors are in decline. The technological capacity of these firms is low to medium and the indications are that their decline will continue;

(iii)the innovative capacity of indigenous firms is low with a consequential negative outlook for future expansion;

(iv)there are major technological gaps, particularly in those technologies with the greatest rate of change such as engineering technologies resulting from electronic developments e.g. computer aided design and manufacture;

(v)there are major skill deficiencies in our indigenous firms, particularly with regard to the newer technologies but also in design, quality assurance and knowledge of materials;

(vi)the lack of skills in the technological and technical areas is mirrored by similar deficiencies in market intelligence and information systems, poor marketing performance, lack of equity capital and lack of strategic planning.

Some 90% of all Irish manufacturing firms employ less than 100 people. Fewer than 5% of indigenous firms carry out any Research and Development work. In addition the skills within many of these firms are so limited that it is extremely difficult for them to assimilate New Technology or to develop new products.

The situation in the Engineering and Clothing sectors (1983 figures) is representative.

There are 1,500 Irish owned Mechanical and Electrical engineering firms employing 24,000 people. The level and application of process technology is low in all sub-sectors, only 0.6% of total net output was spent on Research and Development, only 4% of the total number of firms undertook R & D in 1982, and technology gaps exist on a widespread basis.

There are 430 indigenous clothing companies employing 11,500 people. Research and Development in the sector is low at 0.5% of sectoral output and there are technological gaps in all the main production areas.

2.5 Technology - How Irish Industry Compares Internationally

The level of Research and Development by Irish industry is low when compared with most developed countries. In 1985 industrial Research and Development in Ireland accounted for £62m. or 0.4% of GDP compared with 1.9% in the U.S., 1.8% in Germany, and 1.0% in the Netherlands.

Roughly half of Irish R & D expenditure is on process development and improvement, rather than product development.

A major factor in the disparity between the Irish R & D effort and that of other countries is that the structure of Irish manufacturing industry, particularly the indigenous component, is very different from that of most developed countries:-

-most Irish firms are very small by European standards;

-as a consequence, the necessary investment in marketing is constrained by limited resources;

-most firms produce undifferentiated products and, at the same time, the Irish market is generally too small and unsophisticated to support the development of new products and processes;

-the resources available to most firms are inadequate to acquire or develop new technologies; and

-unlike the situation in competitor countries, Irish manufacturing and services firms have too few large firms around which they can develop.

The Sectoral Development Committee Report stated that “low technological capacity, inadequate marketing and difficulties in strategic management are all consequences of this structure. The situation in Ireland contrasts with that of other European countries where the tendency is for a small number of large firms to undertake most of the R & D, to provide training for new graduates and high-technology specialists and to help develop a group of high quality, competent sub-supply firms.”

The European Management Forum Report, published in August, 1986, which dealt with competitiveness in the 22 OECD countries ranked Ireland a low 17th in terms of overall competitiveness. Several smaller European countries were in the first ten - Switzerland 3, Denmark 5, Sweden 7, Netherlands 8, Norway 9, Finland 10.

The contrast between Ireland and Denmark, the EEC country nearest in population and economic structure to ireland, in the technology and related areas is shown in the report:

In the crucial areas of Technology, Management, Marketing and Finance, Ireland ranks near the end in the company of Portugal and Greece.

2.6 Advanced Manufacturing Technology Proposal

In 1984 the IDA and NBST submitted a proposal to Government for the establishment of six AMT units in third level colleges, with each unit specialising in a specific area of technology. This proposal is still under consideration by the Government.

CHAPTER 3

BIOTECHNOLOGY AND NEW MATERIALS

3.1 Widening the Definition of New Technology

Although “New Technology” is commonly identified with microelectronic and computer related technology, the definition can be broadened to cover two further areas, which are having a major impact on manufacture:

(i)Biotechnology: the use of living organisms or parts of organisms to make or modify products, by using new genetic techniques.

(ii)New Materials: a range of new materials, mainly glass or ceramic in nature with properties previously not available which have now wide application in industry.

The technologies are relevant to a whole range of industries, including pharmaceuticals, food, plastics, electronics and engineering.

Research and development requirements, and market opportunities, in the use of these technologies vary enormously. Some products may require enormous research expenditure and be relevant only to the largest multi-nationals. Other product areas offer opportunity niches for technologically oriented small firms.

3.2 Biotechnology

3.2.1 What is Biotechnology

Biotechnology is an important new area of high technology, the future importance of which has been compared to that of microelectronics. Indeed, it is now at a similar state of development as microelectronics in the 1950’s.

It may be defined as the application of biology to industry. Indeed biological organisms have been used for centuries in activities such as baking and brewing.

However, Biotechnology differs from Microelectronics in that it consists of a number of different technologies, both in traditional areas such as fermentation and in new areas such as genetic engineering, which have been developed since the early 1970’s.

3.2.2 What is Happening Abroad

Although these powerful new technologies have a wide range of applications in various product sectors, most initial developments are occurring in the area of healthcare, with more long term innovations expected in food and agriculture.

Over the past seven years, large amounts of venture capital have been invested in the US and elsewhere in new biotechnology companies. There have also been large investments by the major chemical and pharmaceutical companies. These investments have included such activities as establishing large research and development programmes, building production plant and acquiring small companies.

The first wave of new products from biotechnology is now beginning to appear. Three new drugs developed by genetic engineering are now on the market; human insulin, growth hormone and the anti-cancer drug interferon which is produced in Brinny, Co. Cork by Schering Plough Corporation, the Irish subsidiary of a major US pharmaceutical company. Many new diagnostic products have been introduced for use in the clinical laboratory or for home use. There have also been important innovations in the food industry including the development of new protein sources, the use of industrial waste streams and applications in the dairy industry.

In the research and development pipeline there is a much wider and more dramatic range of products and processes; new drugs to combat cancer, heart disease, arthritis, senility and parasitic disease, the ability to target drugs to where they are needed in the body, improved and new diagnostics tests for hospitals and the home, more cost effective processes for the chemical, food and pharmaceutical industries, new products and processes in the dairy, cheese, beer, fruit juice and meat industries, and the development of new varieties of crops with such features as resistance to herbicide and pests.

3.2.3 The Situation in Ireland

Ireland posesses a number of companies involved in Biotechnology including both indigenous and overseas companies.

In the area of specialty chemicals the most notable company is the Irish company Biocon, which makes enzymes and has many overseas subsidiaries. In the diagnostics areas companies include Noctech, Flemming, Nourypharma and Biocon. Noctech was established several years ago following research carried out in UCG. In the food industry a number of companies are active in biotechnology including Carbury Milk Products, Kerry Co-op and, Guinness.

There is also considerable expertise in the higher education sector in such areas as food biotechnology, genetic engineering, immunology, diagnostics, animal physiology and fermentation and processing.

Ireland is therefore in a reasonable position to join the Biotechnology race which is still in the early stage of development.

However, the overall picture with regard to Biotechnology in Irish industry is less reassuring:-

A 1984 survey by the National Board of Science and Technology of 160 companies in the food and drinks sectors, found that:

-the level of expertise in the Irish food industry is low and needs urgent attention;

-the food industry will have to consider the employment of biotechnology related graduates;

-the commitment of some companies to invest in biotechnology is strong if a suitable niche could be identified;

-the number of companies that see Biotechnology as a main factor in expansion and increasing profitability is sizable;

-unlike countries such as the U.K. there has been little entrepreneurial activity to date in Biotechnology.

3.2.4 A Biotechnology Initiative for Ireland

The Institute for Industrial Research and Standards already has a Biotechnology Unit at University College Galway, which currently provides a development facility for small or emerging firms going into the manufacture of new biology products.

However, in 1984 the Industrial Development Authority and the National Board for Science and Technology submitted a joint plan to the Government for an Irish Biotechnology Initiative.

These proposals, which are still being considered by the Government, envisage five Biotechnology facilities as follows:-

These industry oriented research facility proposals are based on existing centres of expertise in the Higher Education Sector.

These facilities would be established as limited companies with the majority ownership residing with the Higher Education institutions but they would be managed by a Board of Directors which would be independent of academic structures. Preliminary business plans including financial estimates have been prepared and agreed with the Higher Education colleges. The Facilities would become self financing after five years. The purpose of the Facilities would be to engage in technology transfer to Irish industry and to assist in the attraction of overseas investment in Biotechnology. They would carry out contract Research and Development on behalf of Irish companies and would also develop their own technology, which they would market on a commercial basis in association with other companies.

The total cost of establishing and running the Facilities over five years was estimated at £11m. The NBST and IDA estimated that this investment in technological infrastructure would result in considerable job creation in Irish industry in addition to 140 direct jobs in research and development in the Facilities.

The Initiative would be financed through a number of sources including:

The plan envisages investment by a consortium of about 10-15 companies in the Facilities. These companies would consist of both indigenous companies and the subsidiaries of overseas pharmaceutical companies located in this country. The consortium would be represented on the boards of Directors of the facilities which would also contain representatives of the academic institutions and the State. However as the academic institutions would have a minority of voting rights, the industrial interests would play the key role in the management of the facilities. The companies participating in the consortium would have a variety of rights including special rates for contract R & D services, the training of their staff members in the facilities and options on the commercialisation of the technologies developed in the Facilities.

3.3 New Materials

New Materials Technology is reflected in high technology products composed of materials with specialised properties and have the characteristics common to products in the other areas of New Technology. They require relatively low capital investment, they are produced in low volumes with high value added, and are aimed at particular niche markets. They are particularly suited therefore for exploitation by small high technology firms.

Some examples of these materials and their applications are:

-Ceramic components for the electronics industry.

-Speciality glass for optical fibre applications.

-Core magnet materials for small electric motors.

-Specialist joining materials.

Although there are a few Irish small firms using these materials, the impetus for their development will tend to remain with larger more advanced countries. Their development here would not have the same priority as automation within our existing industry or a strategy for Biotechnology.

CHAPTER 4

NEW TECHNOLOGY AND THE SERVICES SECTOR

4.1 The Services Sector in Ireland

The Services Sector comprises four principal sub-sectors:-

Although employment in Services has increased here in recent years, Ireland still lags behind most developed countries in the proportion of civilian employment accounted for by Services. The figure of 49.7% for Ireland in 1981 compares with 68% for the U.S., 66% for the Netherlands, 64% for Sweden and Denmark and, 63% for the U.K. West Germany is exceptional in being a highly developed country with only 51.8% employed in Services, however a comparatively high proportion of the German workforce is still employed in manufacturing. The proportion of Services employment in Ireland relates more to less developed EEC countries such as Spain, Portugal and Greece, which still have relatively high agricultural employment.

Wealthier countries generally have higher Services employment.

Most services have been less open to competition from outside of national boundaries than has manufacturing industry but, Information Technology and EEC deregulation are bringing about considerable change in this area.

4.2 Information - The Fifth Factor of Production

Economists have traditionally regarded the four factors of production as Land, Capital, Labour and Enterprise. To these four factors there is now a tendency to add a fifth - Access to Information.

The telephone is the largest single means of accessing information and the ability of telephone lines to carry communications to and from computers, and VDU’s, has made information itself a major international business. Indeed in this regard it is possible to use the domestic television set as a VDU.

In Britain, home banking services are being introduced. One such service already exists in Nottingham and, from 12 January 1987 customers of the Clydesdale Bank, Scotland, will be able to get information about their accounts, pay bills, and make inter-account transfers using a terminal connected to their television and telephone. It is expected to take 15 seconds to get information on an account.

The availability of this technology has led to the development of database services, which allow subscribers to access information of a general or a specialised nature.

There are now literally thousands of computer databases covering just about every field of knowledge. DIANE is the abbreviation for the Direct Information Access Network for Europe, which includes over 600 databases spread throughout the European Community.

These data bases are managed by public bodies or private companies which act as wholesalers of information. Established data bases include agriculture and agri-business, biology and medicine, engineering and technology, physics and chemistry, energy, law, environment, business, and social science. Information can also be found on topics as varied as ways of saving heating, balance of payments of OECD member countries, or public tenders within the European Community.

In evidence to the Committee representatives from Telecom Eireann stated that their own Eirpac system, which includes data base access among its capabilities, was especially suitable for small firms but that these firms underutilised the facilities. This comment applies to both manufacturing and services firms.

Another development is Videotex, which is the provision of a selection or ‘menu’ of data base services by either ordinary telephone lines or data networks. These videotex services may be general or specialised, for domestic or business users.

British Telecom offers 300,000 pages of information on its Prestel videotex service, including 500 pages under the heading ‘Ireland in View’ carrying services such as information on business, a news digest, and hotel reservations. A telephone subscriber must arrange for his own hardware if he wishes to avail of Prestel services.

In France, the telephone authorities have adopted a more systematic approach in that they have distributed micro-processor based terminals free to telephone subscribers. To date, some 2.6 million terminals have been distributed and there are over 800 different services including home banking, news, small advertisements, and retail. The objective is that the increased telephone traffic generated will pay for the distribution of free hardware to subscribers.

In Ireland there are now five or so videotext services on offer. Telecom Eireann is at present installing a new videotex communications system which will facilitate a range of these services, to eventually include previously inaccessible European services.

4.3 The Role of Software

Software is the means by which computers are given their instructions. As the power of computer hardware has increased massively, its costs have fallen and personal computers may now be obtained for hundreds of pounds. As computer use becomes more widespread, the variety of applications grows and becomes more complex. The result is a huge growth in the demand for software, often of great sophistication.

Indeed the overall relationship between hardware and software costs has been totally reversed in recent years. In the 1950’s software accounted for only 20% of total computer costs, now it can exceed 70%.

Recent advances in software technology include:

decision aid systems which enable the user to solve assessment and forecasting problems i.e. the future under different assumptions;

expert systems which are still at a relatively early development stage and are designed to stimulate the intellectual processes of a human expert in dealing with different problems;

the one shot program which is designed and written to meet just just one requirement, with a lifetime of just one or two runs.

The channels for acquiring software are:-

(i)In-House which means that several Government Departments and large commercial organisations produce their own software requirements.

(ii)Hardware Manufacturers have been providing software since the 1960’s. It was originally very much an ancillary activity undertaken to support hardware sales. However, many hardware manufacturers now adopt a marketing approach to software in its own right.

(iii)The Computer Services Industry, which includes independent software suppliers, has grown very rapidly in most countries since the early 1970’s. The services provided include time sharing, consultancy and engineering, turnkey systems, customer software design and writing, and software packages.

Although the Computer Services Industry accounts for a minority share of total software production it constitutes the most vigorous component.

The following extract from Software: An Emerging Industry (O.E.C.D. 1985) illustrates the growing importance of independent software houses:-

“This (the Computer Services Industry) has been the most rapidly growing industry in the U.S. in recent times. The United Kingdom has 3,000 firms in the industry, most with under 20 employees. In Japan, 70 per cent of software houses are under ten years old.

Governments are also very interested in the job creation potential of this sector. In 1982 the U.S. computer services industry was employing some 450,000 people, the French industry 34,800, the U.K. industry 33,900 and the German industry 23,600”.

In Ireland, according to a survey by the international market research from IDC, the market for software and computer services was estimated at £96m. for 1985, an increase of 23% on 1984, of which hardware manufacturers had £21m.

4.4 International Trade in Information and Computer Services

The White Paper on Industrial Policy (1984) stated that Information Technology, including computer services would be the fastest growing industry for the remainder of this century and the value of the world market was forecast to reach US$500 billion by 1990.

4.5 New Technology and the Office

While jobs in Information Technology and Computer Services are themselves essentially office jobs, it is important to understand that computer and computer related technology are changing the nature of general office work itself.

Changes in the way offices are run because of New Technology are reflected in the expression ‘Automatic Office’.

The introduction of desk top computers, desk top terminals, and wordprocessors is reducing routine clerical work and drastically replacing the volumes of paper involved in office tasks.

The introduction of electronic mail services within and between firms enables the electronic transmission of information including:

-inter-company messages and information transfer;

-overseas communication for multi-nationals, exporters, importers and trade organisations;

-in-house communications;

-office memos and circulation of information;

-communication between branch offices, head office and field personnel;

-access to and from the international Telex system.

If a printer is attached to a terminal, a paper copy of any message sent can be produced. However, messages can also be filed within a computer as long as required.

4.6 New Technology and Retail

Computers have limited application in the management of smaller retail businesses, the customers of which pay in cash and whose stocks are provided by a limited number of suppliers.

The situation is of course vastly different in multiple chains, be they in grocery, clothing, furniture or, hardware, where computer control of stocks and microprocessor controlled cash registers are vital components in managing stocks and providing accurate departmental sales information.

However, the technology to change the whole point of sale system for both multiples and the larger independent retailers, already exists.

This system is based on “bar codes” and it has two fundamental characteristics:

-computerised codes are affixed to the product packaging at manufacturing stage;

-these codes can be read automatically or scanned at the retailer’s checkout points.

The advantages of the system are that;

(i)the coding system makes it possible to identify the product at any stage, which facilitates product recall where necessary on health or safety grounds;

(ii)it cuts administrative costs through standardized, simplified procedures;

(iii)facilitates better communication between producers and retailers through simplification, faster procedures, better stock control, preparation and dispatch of orders, deliveries, and, entering and payment of invoices;

(iv)permits the abolition of marking prices on individual products;

(v)eliminates checkout errors caused by keying mistakes;

(vi)enables a complete bill to be given to each customer describing item, unit price, and total price.

The main obstacle to the widespread introduction of bar coding at retail level is the retailers perception, based on surveys, that customers wish to see the retention of pricing on individual items.

Lack of progress in bar coding is not just confined to Ireland. In the U.K. there are only 650 retail scanners, although 95% of products are bar coded at the production end. In Sweden there are 500 scanners but Consumers Associations still insist on dual pricing. In Germany the equipment is regarded as too expensive and not viable for shops under 5,000 or 6,000 sq. ft.

However, in the Netherlands 5% of total turnover was done by scanners at the beginning of last year and was expected to grow to 10% for 1986 as a whole. Denmark is expected to have 2,000 stores using bar coding in a few years.

Not one of the 7,000 Irish independent retailer grocers has this equipment, although a very few branches of the main grocery multiples now use it.

Another technological development affecting retailers is an extension of the ATM banking system referred to as Point of Sale or POS banking. Some 23 of these scrip machines have been installed on a pilot basis in high volume retail outlets (garages, supermarkets, and department stores). This machine works by ATM card and will produce a voucher suitable for paying the account in store; 25% of the voucher may be exchanged for cash. The purpose of the POS machine is to:-

(i)reduce pressure on cheque clearance at shop customer service;

(ii)minimise bank administration;

(iii)reduce exposure to fraud.

This pilot scheme will not be completed until the end of 1988.

Other developments will include Electronic Funds Transfer (EFT), teleshopping, and changed ordering routines between independent retailers and wholesalers. In its submission to the Committee the National Board of Science and Technology states:-

“Predictions vary as to how soon point of sale terminals in retail outlets will, as a norm, be on-line to a banking network. It is accepted that the technology is available and customer acceptance is awaited. In addition to Electronic Funds Transfer, firms will be moving along the IT road with teleshopping. In the future the ordering routines between independent retailers and wholesalers will be a logical target for an on-line system as will the dealings between multiple chainstores and small suppliers. By their nature such networks are large and so are unlikely to be created at the initiative of small businesses. Thus, such firms will usually be reacting to the establishment of networks by external organisations”.

CHAPTER 5

STATE INVESTMENT, SERVICES, AND INCENTIVES

5.1 The Evolution of Industrial Policy

In this chapter we look at the role of the State investment in Science and Technology, and how it relates to small firms, particularly in manufacture.

However, in the first instance, it would be helpful to outline the development of State policy for manufacturing industry, before considering policy towards technology.

From the 1930’s until well into the 1950’s the main thrust of State policy for manufacturing industry was the maintenance of high tariff barriers to preserve a relatively unsophisticated Home market for Irish manufacturers.

There was a gradual change from the early 1950’s with the Industrial Development Authority Act 1950 and the Undeveloped Areas Act, 1952, which for the first time introduced policies for the attraction of foreign industry to Ireland and, from 1952, direct assistance in the form of grants.

Export Sales Relief (ESR), a major tax concession was introduced in 1956 to relieve manufacturing profits attributable to exports from corporation tax. In 1981 ESR was replaced by a 10% corporation tax on the entire profits of manufacturing companies, whether arising from export or home market sales.

There was a series of industrial development related Acts throughout the 1950’s and 1960’s, which widened the range of incentives for manufacture.

With regard to indigenous industry, the main developments were the introduction of Adaptation grants in 1963, to fund 25% or 35% of the cost of capital expenditure deemed necessary for Irish manufacturing companies to prepare for free trade and, the Small Industries Programme in 1967.

In 1970 the Industrial Development Authority was established as an autonomous State Agency, outside the Civil Service structure, and given the role as primary agency for the development of manufacturing industry.

Between 1952 and 1985 a total of £2,370m. was approved by way of grants under all IDA programmes, of which £1,253m. had been paid by 31st December, 1985.

Although a number of programmes such as Research and Development Grants, Licensing and Joint Venture, Product Identification, and Import Substitution, were introduced by the IDA during the 1970’s, the main emphasis was on grant assistance for the purchase of fixed assets by both Irish firms and firms of overseas origin.

The main objective of industrial policy was the provision of direct employment in manufacturing industry.

The White Paper on Industrial Policy, published in 1984, outlined a change in emphasis on Industry from being a provider of jobs to being a provider of wealth, although between 30,000 and 60,000 net new industrial jobs were projected between the mid-eighties and the midnineties.

The White Paper recognised that there was increasing international competition for overseas investment and that our indigenous sector had unresolved structural weaknesses. One of the major objectives set out in the White Paper was “to develop a strong and internationally competitive industrial sector in Ireland made up of both Irish and foreign owned industry”.

The future directions of industrial policy were outlined in the White Paper as follows:-

“(i)industrial incentives and State advisory services will be applied selectively; this will entail the concentration of resources on internationally-traded manufacturing and service industries, particularly Irish-owned firms;

(ii)there will be a shift in State resources from fixed asset investment to technology acquisition and export marketing development;

(iii)priority will be given to the attraction of foreign projects which will perform the key business functions in their Irish factories;

(iv)through tax incentives, a risk capital market for investment in internationally-traded manufacturing and service industries will be developed;

(v)the Government will take all the measures within their powers to improve the business environment with the aim of increasing the competitiveness and profitability of industry and other productive sectors;

(vi)they will promote effective education, training and worker mobility measures; and

(vii)will seek to retain within the economy wealth generated by industrial development.”

The White Paper projected a shift in the pattern of State aid to Industry as follows:-

The Industrial Development Act 1986 consolidates all previous industrial development legislation and gives legislative effect to certain of the proposals contained in the White Paper.

In the remainder of this chapter we focus, in the first instance, on the allocation of State resources for Science and Technology, with particular reference to manufacture, and then go on to distinguish between services to industry such as those supplied by the Institute for Industrial Research and Standards, and incentives supplied directly by bodies such as the IDA or through the taxation system. However, in some cases it is difficult to make a clear cut distinction between a service and an incentive.

5.2 Total State Investment

The total allocation to publicly funded Science and Technology in 1985 was £363.6m. or 6.1% of the total estimates for the public services, made up as follows:-

(State Investment in Science and Technology - NBST 1985).

The Education and Manpower sectors accounted for £161m. or 44% of the total funds allocated, followed by Health with 17% and Manufacturing with 13% or £46.1m. The Manufacturing expenditure includes R & D (£18.8m.), information and advisory services to firms (£5.1m.), scientific and technical services (£3.1m.), technology transfer (£12.7m.) and, other activities (£6.4m.)

The Statutory responsibility for advising the Government, through the Minister for Industry and Commerce, on policy for Science and Technology rests with the National Board for Science and Technology (NBST). The NBST has defined its overriding objective as developing a cost effective national effort in Science and Technology, emphasising their application to industrial and economic development. The NBST operates a number of its own programmes in this regard. It also provides technical representation to the European Community, the European Space Agency and the OECD.

5.3 State Services

In this section we outline and examine the technology related services provided by the State through a number of bodies ranging from IIRS to the Patents Office.

5.3.1 Institute for Industrial Research and Standards

The principal functions of the IIRS are to assist the use of science and technology in industry. The main task of the IIRS was defined in 1984 as the seeking out of companies and sectors where product and process improvements will lead to significant growth in output and better product quality.

Its main activities are industrial research, the provision of consultancy services, technical information and advice to industry. All the main manufacturing product areas are covered by these activities.

A breakdown of expenditure by main headings for 1985 is:-

The Institute receives a general grant-in-aid and a capital grant-in-aid through the Department of Industry and Commerce. Some 40% of current expenditure is accounted for by fees.

From January to October 1986 the IIRS carried out 741 fee paying jobs for small and medium sized service firms (employment levels 1-200) including construction companies. The corresponding figure for manufacturing industry is 2795 fee paying jobs.

The breakdown is as follows:

In evidence to the Committee the IIRS stated that it charges £260 per day for consultancy services and saw a need for a mechanism which would bring its services to small companies which could not afford them.

The IIRS sees the problems facing small manufacturers as:-

(i)cost of technology, e.g. the introduction of automated mechanical handling systems to reduce unit manufacturing costs;

(ii)quality of product e.g. the introduction of computer based automatic testing and monitoring systems;

(iii)new product development which may involve the use of computer based evaluation techniques.

The IIRS laid particular emphasis on the critical importance of product quality, in line with the concern expressed in the White Paper on Industrial Policy.

In 1985, a new Standards Authority with an independent Board was set up based on existing IIRS standards activity, and new standard specifications are being produced. This Authority is funded from the grant-in-aid to the IIRS.

With regard to standards, the IIRS is also concerned that there is dumping of products from developing countries, products that carry no quality or standards mark. The IIRS favours product testing at point of import to ensure that these products meet Irish or EEC standards.

The IIRS sees its own role in relation to new technologies and small firms as being significant for two reasons:

(i)These technologies are developing and changing quickly, and it is difficult for a non-specialist to keep up with current progress.

(ii)Most of the new technologies involve low-volume high-value products aimed at relatively small, sometimes fragmented niche markets. Small firms are best placed to exploit these products but need considerable assistance to be able to do so.

IIRS services to small manufacturing firms include technology acquisition, product development, applications development, materials selection and sourcing, and manufacturing design.

The IIRS also runs an Information Desk service which deals with 15,000 technical enquiries annually. This service, which is backed by extensive library facilities and access to data bases, is free unless the time taken by the Information Officer dealing with the request exceeds one hour. Some 50% of requests come from firms employing fewer than 50 people.

There is also an IIRS data base of Irish companies from primary producers through manufacturing, construction and the service industries. This data base is a source of listings of companies, their staff and products, location, and size by numbers employed. The manufacturing aspect of this data base has recently been enhanced to enable searching by specific product for all product areas except manufacturing engineering.

IIRS staff involved with the provision of information are of the view that small firms generally do not directly request the use of data base services, and are unaware of the methods used to obtain information requested.

The IIRS has a staff of 600.

5.3.2 Kilkenny Design Workships (KDW)

KDW was established in 1963 to advance good design in industry and consumer standards. It also operates retail trading outlets.

Its services to industry comprise:

(i) Design Advice and Practice

Design advice is offered to firms to help them audit their design requirements, which entails consultancy related to product development, policy strategy and management.

Practical design and technical support services including product design, graphics, model making and prototyping are also provided. The main focus is on industrial design which is primarily concerned with appearance and customer appeal. This expertise compliments the IIRS engineering design services.

(ii) Designer Development

This programme provides practical work experience for design graduates and is related to the needs of industry.

(iii) Design Promotion

This programme involves seminars, talks, audio-visual display and publications demonstrating the benefits of good design to both manufacturers and customers.

KDW employs 74 persons in its non-trading activities and these activities were funded in 1985 through Exchequer grant-£702,000, and sale of design services-£511,000.

5.3.3 National Board of Science and Technology

The NBST itself operates two programmes which are directly relevant to small firms:

(i)Teaching Companies which is a scheme to place highly qualified science and technology graduates in industrial firms, especially small firms, on a subsidised salary basis for a term of up to three years with the aim of bringing technical expertise into firms.

(ii)Co-operative research visits which are designed to strengthen the links of Irish researchers with international science and technology and thus raise the level of indigenous expertise. The scheme funds travel and subsistence expenses of participants.

A major activity of the NBST is the development of links between the third level colleges and industry. The NBST regards these links as particularly important in the development of high-tech indigenous companies and instances the Biotechnology Initiative as an important example in this regard.

5.3.4 The National Micro-electronics Research Centre

This facility was established in Cork in 1982 as part of the Electrical Engineering Department of UCC. The principal aim of the Centre is to serve as a centralised research and development laboratory in micro-electronic component technology. It carries out research and development contracts on a commission basis for Irish and foreign based firms, State bodies, EEC, and other organisations. It also provides post-graduate degree courses in micro-electronics and some under-graduate courses.

5.3.5 The Innovation Centre

The Innovation Centre, Limerick, is an autonomous unit of SFADCO which was established in 1980. Its main function is to provide comprehensive product development services for small industry, with a strong bias towards more advanced technology and the creation of projects capable of commercial viability in international markets. The resources of the centre include 20 workshops, business services, and market and technical data. The Centre has a staff of 8 and its 1985 funding came from SFADCO (£496,000), ESF (£340,000) and client fees (£70,000).

5.3.6 The National Micro-electronics Applications Centre (MAC)

The National Micro-electronics Applications Centre Ltd., was established in 1981. It is controlled by a board of directors comprising IDA, SFADCO, NBST and NIHE. The main function of the Centre is to promote an increased and more effective use of micro-electronics by industries in Ireland thus improving their competitive position.

The resources of the Centre include a team of design engineers and technicians, with a comprehensive range of electronic development equipment.

Activities are concentrated on the applications of micro-electronics in new products and automated processes, with ancillary services such as equipment rental and general technical consultancy. The activities extend from specification, through design, component sourcing, prototype building, tooling, technical literature, sub-contractor sourcing and field trials for production start up.

MAC employs a total of 13 permanent staff, together with a varying number of short term contract personnel.

MAC’s income comes from client fees, with the shortfall made up by SFADCO. The objective is self sufficiency. Estimated expenditure for 1985 was £431,000 and fee income was £282,000.

5.3.7 National Software Centre

The National Software Centre was established by the IDA at Pearse Street, Dublin, 2, in 1984. The aim of the Software Centre is to improve the technical capability of Irish software companies and the image of the Irish software industry.

The Centre has a range of computer facilities. Charges for the use of available equipment are £25 per hour for the first 10 hours with a reducing scale down to £10 per hour after 61 hours. The use of micro-computers is charged at the rate of £30 per half day.

5.3.8 The Patents Office

The Patents Office is the oldest State service in this area, dating back to 1927. The principal functions of the Office are the granting of patents, the registration of industrial designs and trade marks and to provide information in relation to patents, designs and trade marks.

The office is staffed from the Department of Industry and Commerce and the total number is 95.

The Exchequer funds the office. Fees from registration of patents and trade marks, and the sale of publications are transferred to the Exchequer. In 1985 the surplus from fees and sales over costs was £1.05m.

5.3.9 Graduate Recruitment Programme

This programme, funded by the Youth Employment Agency, provides a grant of £3,600 for the first year in the case of each new graduate recruited by a company in the following functional areas

(i)Science and Technology, operated through NBST and IIRS.

(ii)Marketing, operated through Irish Goods Council, CTT, and CII.

(iii)Finance, operated through IPC and SFADCO.

Manufacturing or internationally traded service firms employing fewer than six graduates are eligible to participate.

Persons who hold a degree or diploma in science, engineering, commerce, or business studies, and who are unemployed or were in employment outside their discipline field for at least three months are eligible for recruitment.

5.4 Incentives

The State assists the development of technology in industry by incentive, in two eays:-

(i)direct grants from State agencies;

(ii)tax incentives.

5.4.1 Direct Incentives

Direct incentives are provided by the Industrial Development Authority, SFADCO, and Údaras na Gaeltachta. These incentives, which are grouped under the following headings, reflect to a considerable extent the policy shifts outlined in the White Paper on Industrial Policy:-

(i) Technology Transfer

(a)Equipment Grants

New technology is transferred indirectly from abroad through grants for equipment. A notional 10% of the IDA’s equipment grant expenditure is attributed to technology transfer. The 1985 notional figure comes to £10.5m. and is included in the public allocation of £46.1m. for Science and Technology in Industry.

(b)Licensing

New product opportunities are sought by IDA overseas staff with a view to arranging licensing or joint venture agreement with suitable indigenous firms. In 1985 a total of 50 technology transfer agreements were signed by Irish companies with overseas partners.

(ii) Technology Acquisition Grants

Technology Acquisition Grants will assist firms to directly acquire new product or process technologies. Grant assistance at 50% of eligible expenditure, subject to a maximum of £250,000, is envisaged. This is a new scheme provided for in the new Industrial Development Act and is complimentary to the Technology Acquisition activities of IDA overseas offices. Eligible expenditure includes:-

(a)acquiring or an option to acquire a licence or knowledge of a product or method of production;

(b)the payment of fees or other remuneration to technical advisers consulted in connection with the acquisition of the technology; and

(c)the salaries and wages paid to, and the travel and subsistence expenses of persons engaged in the acquisition of the technology.

(iii) Feasibility Study Grants

These grants are provided to enable individuals, groups, and firms to seek out and evaluate product ventures including licensing, plant, and costings. The maximum grant is 50% or £15,000. Total Feasibility Study grant payments for 1985 amounted to £1.824m. compared with £1.068m. for 1984.

(iv) Research and Development Grants

Grants are provided in support of product and process development projects carried out either in-house or by sub-contractors, e.g. IIRS, private consultants. Grants are subject to a maximum of 50% of eligible expenditure or £250,000 - whichever is less.

A total of 573 grants was approved in 1985 and total grant payments came to £10.27m. compared with £6.3m. in 1984.

A new component of the Research and Development Grant Scheme is the Cooperative Research and Development (CRDP). This scheme, which is promoted by the NBST for the IDA, is to foster product and process development work in colleges for eligible firms; its objectives include encouraging college-industry links.

Eleven CRDP projects were approved in 1985. The estimated funding approved for these projects was £0.58m; the grants are included in the total £10.27m. above.

The R and D grants scheme has been extended to cover the salary and overhead of a staff member employed in seeking new product opportunities, in the case of companies that have a reasonable potential for development.

The 1986 Act provides that the IDA may, in the case of small industrial undertakings, make payment of up to one third of an R and D grant prior to the costs being incurred.

5.4.2 Taxation Incentives

(i) Extension of Business Expansion Scheme to R & D

The 1986 Finance Act extended the Business Expansion Scheme to facilitate investment in industrial research and development. An individual investing in a qualifying research company may claim tax relief at the marginal rate subject to a maximum annual investment of £25,000. The company must be engaged solely in carrying out or commissioning research and development, including the development of new products, processes and, methods.

The three main participants in the scheme of relief are the sponsoring company (SC) on whose behalf the R & D is carried out; the research and development company (RDC) which is the vehicle through which the investment is made, and the R & D carried out; the investor who provides the money for R & D by buying shares in the RDC.

To get full tax relief:

-The minimum required investment is £200.

-An investor (or his spouse, or direct relatives) must not be an employee, partner or paid director of the SC; he must not own more than 30% of the SC and the SC may not hold more than 49% of the RDC.

-There are no constraints concerning the relationship of an investor with the RDC.

-A qualifying RDC must be resident in the State and exist solely for the carrying out of the R & D project.

-A qualifying SC must be resident in the State, be eligible for the 10% corporation tax rate for manufacturing companies, and satisfy the Revenue Commissioners that the results of the R & D will be applied by it wholly or mainly for the purposes of a manufacturing trade carried on by it.

(ii) Patent Income

An Irish resident is exempt from income tax on any income from a patent in relation to which the research, designing or similar activity leading to the invention, which is the subject of the patent, is carried out in Ireland. In this context income from a patent means any royalty or other sum paid in respect of the use of the invention, including any sum paid for the grant of a licence to exercise rights under such patent. It is immaterial where the patent is registered.

CHAPTER 6

INTERNATIONAL DEVELOPMENTS

6.1 Japan and the U.S. - the Leaders

Although technological development in Ireland will depend to some extent on EEC programmes, it is important to understand that Japan and the U.S., and, not Europe, are the leaders in technological innovation and development.

The U.S. share of world trade has fallen from 21% in 1960 to 14% in 1985, the volume of its manufacturing exports has fallen by 32% since 1980, and, it now has an enormous balance of payments deficit estimated at £170bhn. for 1986.

However, the U.S. is still the world leader in technological development, although Japan is catching up. Although the U.S. had a trade deficit of $ 150 bn. in 1985, it had an actual surplus in high technology products.

With regard to microchips themselves, U.S. manufacturers still have 64% of the world market and the Japanese have 27%.

An indication of the relative decline of Europe, is that European chip manufacturers supply only about 38% of total European requirements. The rest are imported from the U.S. and Japan.

6.2 The European Community Dimension

6.2.1 The European Technological Community

The failure of Europe to keep pace with Japan and the U.S. in the field of technological innovation, and its market application, has become a major cause for concern at European Community level.If this imbalance is not redressed, economic development in Europe will fail continually to match that of Japan and of the U.S. with consequent negative effects on standards of living and employment.

The effects on Ireland, as a peripheral economy and as a net beneficiary from European Community funds, would be relatively greater.

Concern to ensure the presence of Europe at the forefront of technological innovation led to the adoption by the Community in 1985 of a policy memorandum entitled ‘Towards a European Technology Community’. The priority attached to this issue is underlined by the fact that Research and Technological Development is one of seven specific themes addressed by the Single European Act now being adopted throughout the Community. Article 130F of the Act sets out the Community’s aims and objectives with regard to Research and Technological Development:-

1. The Community’s aim shall be to strengthen the scientific and technological basis of European industry and to encourage it to become more competitive at international level.

2. In order to achieve this, it shall encourage undertakings including small and medium-sized undertakings, research centres and universities in their research and technological development activities; it shall support their efforts to cooperate with one another, aiming, in particular, at enabling undertakings to exploit the Community’s internal market potential to the full, in particular through the opening up of national public contracts, the definition of common standards and the removal of legal and fiscal barriers to that cooperation.

3. In the achievement of these aims, particular account shall be taken of the connection between the common research and technological development effort, the establishment of the internal market and the implementation of common policies, particularly as regards competition and trade.

Agreement has not yet been reached by Community Ministers on the overall budget under this heading.

However, there are a number of EEC technology programmes which are relevant to Ireland and to Irish small firms.

EEC technologically related programmes include:

Information Technology: This programme known as ESPRIT aims to support the competitiveness of European industry, research institutions, and universities.

In 1985 some £190m. was allocated under this programme to 93 projects, 15 of which have Irish participation.

Industrial Technology, Basic Research: Last year the EEC launched its Basic Research in Industrial Technology for Europe (BRITE) programme. The funding for this programme over 4 years is £90m. The objective of the programme is to support the application of new technologies to more traditional industries. To date 9 projects involving Irish and other European partners have been approved for funding.

Telecommunications and IT: Some £600m. has been proposed for this particular programme known as RACE. The purpose of this programme is to develop the technology to transmit voice, data, and moving or video images through the same medium at high speed and at an economic cost. It is expected that the programme will have considerable spin-offs for smaller firms in supplying hardware, software, and a variety of services.

Improved Access to Advanced Telecommunications for less Forward Regions (STAR): This programme introduced in October 1986, under which Ireland qualifies, will advance EEC funds of £37.5m. to provide advanced telecommunications in peripheral regions of the Community and to assist these regions to avail of information technologies to the same extent as the more advanced Community economies.

Co-operation in Technology Transfer: This programme (SPRINT) has a small budget of £8m. and is designed to promote co-operation and technology transfer across Community borders.

In Ireland these programmes are co-ordinated by the NBST, which advised the Committee that there are particular difficulties for Irish firms, due to their small size, in qualifying for this EEC funded research.

Most of this research is pre-competitive, which means that it is long term and related to solving problems relevant to the products of the future i.e. products that may be on the market in five or ten years time.

Again, it is an EEC requirement that each participant would have a partner in at least one other member State.

While a programme like STAR would be an exception, the fact that most EEC assistance is for pre-competitive research and the requirement for a partner in another member State preclude the vast majority of Irish firms from participation. Irish firms are simply too small and under-resourced.

6.2.2 The Internal Market

A further response to competitive pressures from the U.S. and Japan is the commitment by Community Governments to the establishment of a full internal market by the end of 1992. The objective is that there will be free movement of goods and services, including professional services, across national frontiers without having to face either technical trade, regulatory, or educational barriers.

It is intended that the completion of the internal market will result in the achievement of a true Common Market within the Community.

The parallel development of the internal market and computer related communications technology means that information, financial, insurance, architectural, engineering and other services from other member States will be freely available in Ireland.

6.3 European Space Agency

European co-operation in space has been in progress for over 20 years. Thirteen European states are involved in this co-operation, Ireland became the eleventh member of the Agency in 1976.

The ESA organisation was established to direct and co-ordinate this co-operation to ensure that Europe would develop and maintain an industrial capability in space related technologies. Practically all the work required to design, develop, manufacture, launch and, control satellite systems is carried out by the industries of member states. The success of the European space effort is now established.

The main motivation for Ireland’s participation is to stimulate and encourage technological development within industry through involvement in ESA programmes. The main benefits are substantial gain in know-how, skills, experience and technological credibility. The NBST is responsible for promoting and co-ordinating Ireland’s industrial and scientific involvement. This is done by providing an active interface between ESA, its overseas contractors and, Irish industry.

During the first ten years of ESA membership it is possible to claim with justification that Ireland’s involvement has been highly successful. To date more than 20 companies and technological organisations have been involved in contracts valued at over £6.4 million. Ireland’s contribution in the same period has been £4.6 million.

It is important to note that the main Irish beneficiaries have been small indigenous companies, including three companies which have been developed entirely on the basis of ESA R & D work. In one instance Ireland now has the leading company in Europe in one aspect of very high technology, this company employs 17 very highly qualified people.

Currently, two indigenous companies make parts for the Ariane launcher. In the future it is likely that a number of small companies will be involved in the Hermes (Space plane) and the new Ariane 5 launcher.

6.4 The Technology Effort in Smaller European Countries

The OECD has commented that Research and Development data for countries becomes available only at irregular intervals. Subject to this qualification, we set out briefly the situation in a number of smaller European countries.

Austria

In 1972 a Government report identified R and D shortcomings in Austria as:-

(i)absence of research awareness;

(ii)insufficient information, coordination and communication;

(iii)too much traditionalism;

(iv)unsatisfactory manpower policy;

(v)insufficient means;

(vi)no overall research concept.

Since that time there has been a rapid growth in R & D expenditure which is now running at levels 400 % higher, at current prices, than in the 1970’s. Expenditure is roughly shared in equal portions between the public and private sectors.

An Act of Parliament on Organisation of Research was passed in 1981 which provided for two science policy bodies - one which would act as a consultative body to Government and the other to act as a forum for Government and private sector interest groups.

Parallel to the Act on the Organisation of Research, an “Austrian Research Concept 80” was established which contains the medium and longterm perspectives for Austrian Science and Research policy for this decade. Basic principles and objectives of Austrian research policy, infrastructure required for science research, financial considerations and aspects of international co-operation are formulated, and the priority areas of national research promotion are defined.

The priority areas in the field of the national economy and technology include micro-electronics and data processing, raw materials and materials research, recycling, energy and agricultural research, biotechnology and genetics, as well as space research.

Denmark

With a population of 5.2m. Denmark spends slightly less than 1% of GDP on R & D. The manufacturing sector consists primarily of small and medium industraly sized firms with less than 200 employees. Eighty three firms, only have more than 500 employees. While Danish industry rapidly assimilates technology produced elsewhere, its own independent domestic research effort is less advanced.

The Ministry for Industry has set up a number of different schemes to promote technological advance in Danish trade and industry. The schemes are administered under the National Agency of Technology and the total budget for 1985 was 1.1bn. Kroner (IR£100m.). The principal sub-agencies and programmes are:

The Industrial Liaison Council which has the principal function of informing Danish firms of the public sector’s plans for new products, to give firms the opportunity to participate in developing these products.

The Productivity and Consultancy Scheme to promote consultancy services in trade and industry.

The Industrial Research and Development Fund which provides interest free loans to help firms develop new products.

The Council of Technology functions in a wider sense to promote technological development in both Danish trade and industry and the community as a whole.

The Council of Technology initiates large-scale planning projects aimed at forecasting development within the various sectors of the community and of industry, and defining the nature of future technology. Planning input is obtained primarily from the potential users of the new technology.

On the basis of this planning, the Council of Technology provides economic support for a number of technological service institutes and specific R & D projects.

The technological service institutes are private foundations approved by the Minister of Industry to receive economic support from the Council of Technology to carry out technological service and R & D - especially in the field of technology - and to make the information available to the users. At the present time there are 29 approved technological service institutes (for instance the Technological Institute of Copenhagen, the Jutland Technological Institute, and institutes affiliated to the Academy of Technical Sciences).

Finland

During the 1970’s both industry and Government financed R & D expenditure grew steadily in Finland. Growth was particularly pronounced in the late 70’s and into the 80’s. The objective of Finnish Science and Technology policy was to achieve an R & D expenditure of 1.8% of GDP for 1986 and 2.1% by the end of the decade.

It was envisaged by the Science Policy Council of Finland in 1980 that R & D for the promotion of technological development and industry should be further sponsored via public funds, although the high rate of private R & D support was expected to continue. State support was to be directed towards high-risk and innovative R & D projects with longterm effects and towards R & D in small-scale industries. According to the assessment of the National Technology Committee in 1980, the following industrial areas were to be considered as priority during the 1980’s: micro-electronics, telecommunications, data processing, process control and automation technologies, together with biotechnology and material technologies.

Sweden

Sweden devotes 1.9% of GDP to industral R & D, which is high. The Government is advised on research policy by the Swedish Council for Planning and Co-ordination of Research established in 1979.

However, individual Government Departments have traditionally had a high degree of autonomy in determining and pursuing their own R & D priorities but the main R & D effort is funded by Industry itself.

Sweden, with a population of 7.5m., has a very advanced industrial economy including companies such as Volvo, Saab, L.M. Ericsson, and Electrolux, which have a high R & D commitment.

Swedish R & D priorities for 1982-86 were:

-R & D activities to follow-up important technology programmes launched in the 1970’s, including the Energy Plan and the Industrial Development Programme of the National Board for Technical Development (STU) (see below);

-R & D within the important sectors of health and social welfare (including epidemiological and biomedical R & D, and R & D related to various aspects of modern life);

-Ecological R & D, notably basic research on soil ecology, for agriculture and forestry, and also on large-scale production of biomass for energy purposes;

-R & D related to the “public sector” (management, economy and transformation);

-Generally increased national volume and competence within the fields of the social sciences and the humanities.

The STU efforts (representing near 1,750 million kronor (IR£175m.) for 1982-’86 were concentrated in a number of areas of present and future strategic importance to Swedish industry, including:

-Electronics and information technology;

-Biotechnology;

-New materials;

-Manufacturing technology;

-Chemical technology;

-Wood processing;

-Pulp and paper making;

-Health and medical care technology;

-Other fields of increasing priority in the 1980’s for Swedish technological R & D are off-shore technologies and space activities.

Switzerland

The Swiss devote a very high 2.4% of GDP to R & D, but this effort is generally concentrated in a few major companies and 75% of the national R & D is funded by the private sector.

The Swiss Science Council is the national body charged with advising the Government on overall science and technology policy. Among its recommendations for 1981-85 were

-Research potential of universities should be kept at at least the 1980 level.

-The share of research projects and programmes in operating expenditures at universities should be increased.

-Federal universities should give priority to “strategic” basic and applied research.

-Swiss National Funds should be maintained by Federal government at at least the 1980 level in real terms in order to guarantee a sufficient and continuous basic research effort of the universities.

-The promotion of applied research, transfer of knowledge and exploitation of scientific results should be intensified.

-The establishment by stages of a Swiss data bank on research projects should improve statistical documentation.

-National Funds and Science Council should set up a working group for the earliest possible detection of developments relevant to the future.

-Research activities should receive continuous evaluation in order to check the effectiveness of R & D funding.

-The results of research deserve increased dissemination and evaluation.

CHAPTER 7

CONCLUSIONS

7.1 A Central Focus for Technology

Effective use of modern Technology is one element in the successful operation of a business. Management and marketing strengths within a firm, and a strong capital base, are just as important.

Moreover, New Technology is different in that it is bringing about enormous changes in Public Administration, Education, Communications as well as within Business itself, both large and small. The pace of change is going to accelerate, as will its effects on the Irish Economy, indeed on all economies.

Although Technology is an issue of fundamental importance to the Irish Economy and to the totality of Irish Business, it still tends to be treated as a marginal topic.

The competitiveness of Irish firms in both the industrial and service sectors, and their capacity for growth, will be largely determined by their ability to keep abreast of technological change and to apply it effectively.

Failure to understand this fact and to respond positively will result in a further widening between standards of living here and in other EEC countries.

We believe that the implications for our Economy arising from New Technology are such that it should have a central part in all economic policy formulation.

However all the evidence suggests that we are still well behind the more developed European countries in this regard. While there are positive developments such as our modern telecommunications system, there is not any central focus for bringing together all of the Public, Educational and Business interests involved to develop a co-ordinated policy for Technology, in a way to fully benefit the Economy.

Indeed, if we do not have an effective policy for Technology, particularly in Business, the optimum prospect for the Irish Economy is solvency with relatively low levels of income. And, that scenario presumes eventual rectification of imbalances in the Public Finances.

There is therefore a crucial need for mechanisms within Government, the Oireachtas, and within Business to ensure a co-ordinated and effective application of New Technology throughout all sectors of the Economy.

The relevance of technological developments to businesses will vary according to sector and size. The objective should be that all businesses would be in a position to make an intelligent assessment of their own requirements and act accordingly.

7.2 Technology and Employment

The effect of “New Technology” on manufacturing has been described as a “second” Industrial Revolution. However, if the “first” Industrial Revolution related to the efficient organisation of labour in the context of assembly line production, the ‘second’ Industrial Revolution means the progressive replacement of Labour by Advanced Manufacturing Technology on the factory floor.

Automation in the factory and the office mean that less skilled and repetitive industrial and clerical jobs will become much fewer in number.

To some extent these jobs will be replaced in the new technological areas themselves such as computer services and software, the provision and management of information, industrial automation systems, microelectronics, biotechnology and new materials. However, these jobs will require a high degree of skill and high levels of education.

Those countries that have invested the most in the “New Technologies” have generated the wealth to maintain the highest levels of employment. Among larger countries the UK has a total population of 3,500 robots, has lost one fifth of its industrial base since the late 1970s, has avoided a chronic balance of payments problem until now due to oil revenues and has 11.3% unemployment. On the other hand, West Germany with a similar population to the UK acquired 3,500 additional robots in 1985 alone, has a chronic balance of payments surplus surpassed only by that of Japan, and 8.7% unemployment which is by far the lowest rate of any of the large European economies.

Among smaller countries Sweden and Switzerland have virtually full employment, although there are special circumstances such as an enormous investment in training in the case of Sweden and, a major all year tourism industry in Switzerland. However, both of these countries are among the most committed to Research and Development.

Indeed, other small European countries with a heavy commitment to investment in New Technology have unemployment rates in the 5%-10% range including Austria, Denmark and Finland. Ireland has 18.3% unemployment.

If we fail to match the Research and Development efforts of these countries not only will we not generate jobs in the new technological areas but neither will we earn the wealth to provide employment in such job intensive growth services as tourism, catering, transport, and leisure services. Indeed, we may lose even more jobs.

In this regard we are not just talking about today’s jobs, an area in which we are already well behind; but if we do not have a major commitment to the development of our Technology we will add to our existing difficulties, perhaps to the point of no return.

The technological changes that are taking place internationally are irreversible and there is a fundamental trend away from Industry as a major provider of jobs. However, a successful economy must have a strong technologically advanced industrial base.

We must also recognise that there are 15m/16m unemployed in the EEC, in contrast with a situation of full employment ten years ago. In the light of technological change it is difficult to see a significant increase in employment in the sense in which it has been traditionally understood. Economic and social policies will therefore need to address such issues as job sharing, part-time work, earlier retirement, more flexible working hours, career/training breaks, and young people spending more time within the education process.

7.3 A Technology Oriented Industrial Sector

7.3.1 The Declining Overseas Option

The Annual Reports of the Industrial Development Authority show the following patterns of planned capital investment in Ireland by new overseas companies:-

The 1984 figure includes a provision of £180m for one U.S. sourced project, which has not yet gone ahead, leaving £100m for the remainder of new overseas projects attracted here in that year, nor do the figures include planned expansions by overseas companies already established here - £161m for 1984 and £155m for 1985.

By and large, the trend in investment here by new overseas companies is at a much lower level than the 1970s or early 1980s. Moreover, there are international factors which are making dependence on the location of new plants here by overseas concerns less of an option than in the past.

Patterns of industrial trade and production are changing. U.S. trade with the countries of the Pacific region, such as Japan, Korea and Taiwan, has exceeded trade with Europe since 1980. Production itself has become as international as trade, with U.S. multi-national corporations increasingly confining themselves to core activities and making greater use of sub-contractors on an international basis.

Moreover, U.S. and Japanese multi-nationals locating plants overseas are as likely to locate plants in Asia and Latin America, as in Europe. Indeed by 1985 it was North America that accounted for 32% of Japanese cumulative direct overseas investment, followed by Asia with 23%, Latin America with 19% and Europe with 13% or $11bn. (Ministry of International Trade and Industry of Japan).

Although U.S. direct cumulative investment in Europe at $107bn still greatly exceeds that of Japan at $11bn, the level of new U.S. investment is falling rapidly (very much reflected in Ireland) and that of Japan is increasing, to the extent that it is now running at a rate equal to one third of the level of investment by U.S. firms.

The European market for this inward mobile investment has also changed and competition is intense. Until the mid to late 1970’s direct financial inducements for the location of industrial plants were largely confined to peripheral European countries such as Ireland. Now, the more prosperous areas of the European Community are offering incentives to attract this type of investment

Indeed, this competition has become much sharper in the last few years as the following quotation from the Financial Times of 10th November, 1986 illustrates:-

“The competition to win internationally mobile projects is undoubtedly becoming much stiffer throughout the EEC. It began about three years ago and we have really noticed it in the past year” (Spokesman for Locate in Scotland, UK Government Agency).

While incentives in more developed European countries may not be as generous as those in Ireland and are subject to some EEC limits, they can help swing investment decisions when other factors, such as proximity to the market place and highly developed infrastructure, are taken into account.

There are also factors specific to decisions by Japanese companies to invest in Europe, which are to Ireland’s relative disadvantage. Much of this investment is a response to EEC anti-dumping measures, direct import controls by individual countries, and political pressure from Europe to redress trade imbalances. From a Japanese point of view this response might be best made by investment in the larger European countries.

The IDA is placing major emphasis on the Far East in its promotional programmes and is significantly strengthening its Japanese office.

We support the continued vigorous promotion of Ireland as an attractive location for overseas firms. However, the clear lesson is that our future dependence will rest in the main with our indigenous industry. The lower level of overseas projects should free State funds for investment in strategic areas such as technology for indigenous industry.

7.3.2 The Potential of Indigenous Industry to Perform

The dependence on our indigenous sector for our future industrial development is not matched by the ability of the sector to undertake that role.

The lack of technological capacity in the indigenous component of our main industrial sectors is parallelled by similar deficiencies in marketing, finance, and management generally.

There is also no significant commitment to the newer product and process technologies such as Biotechnology.

It is important to realise that the new computer related technologies are as relevant to traditional products as to any other kind of manufacture. We are talking about better designed, more efficiently made, higher quality clothing and footwear, furniture, and household goods.

We would stress that there are many small Irish firms now using the newer technologies to good effect and quite capable of competing on an equal basis with the best of international competition.

In addition there are now some twenty small Irish companies involved in special automation - either making equipment or producing systems software relevant to automated manufacture.

However, the general picture of our indigenous manufacturing sector is still one of small undercapitalised firms locked into traditional products for local markets. Their management skills are inadequate and marketing horizons often confined by county boundaries. Many are just marginally profitable.

Awareness of New Technology and how it could improve business efficiency are largely unknown.

Yet, it is from among these companies that part of the solution to the problem of providing a technologically advanced modern indigenous industrial sector must be found.

7.3.3 Evolving from a Fixed Asset based State Aid Policy

The thrust of the White Paper on Industrial Policy in projecting a shift in State Aid from fixed assets to ‘soft’ assets such as training, marketing, R and D, and technology acquisition is correct. However, we believe also that the projected breakdown for 1988 of 31% for factory construction, 36% for machinery and 33% for soft assets needs to be developed further in favour of ‘soft’ assets.

The White Paper on Industrial Policy provided for a review at three yearly intervals, the first of which is now under way.

We feel that there is much more scope for investment in technological capability and management and marketing strengths generally.

We believe that by 1990 grant aid to indigenous industry should have up to 50% of expenditure devoted to the critical non-fixed assets areas including R and D, Technology Acquisition and Marketing and Management Development. Moreover, we believe this objective should be reflected in planning industrial policy objectives for the next three years.

A shift in State Aid in the direction of ‘soft’ assets need involve no additional Public expenditure. It is unlikely that the same level of funding will be required for new overseas projects as in the past, due to the lower volume of projects. Furthermore the State agencies had 4.149 million square feet of vacant factory space on hands as at 31 December, 1985 and the uptake seems to be of the order of 0.5 million square feet per annum, indicating a low requirement for new factory space.

In the context of a further shift towards soft assets we believe that it should be a national priority to achieve an annual total allocation of £150m or 1% of GDP in Industrial R and D by 1990, from both public and private sectors, compared with £62m in 1985.

7.3.4 Developing a Technology Infrastructure

We can get Technology into our indigenous firms by obtaining it from abroad and by developing our own capabilities.

The IDA’s network of overseas offices is now heavily involved in technology transfer to, and technology acquisition for, indigenous Irish companies. Indeed, this role is as become as important as seeking new overseas industries.

The EEC pre-competitive research programmes, linked through the NBST, are important in that they bring small Irish firms more towards the cutting edge of future technology and, just as importantly, they give these firms the invaluable experience of research partnership with European companies.

However, we need better mechanisms to overcome the structural weaknesses which prevent Irish firms participating fully in the programmes.

We were also struck by the fact that more developed countries ranging from Japan to Denmark place a major emphasis on the acquisition of technology information and of its dissemination to firms.

In Ireland apart from the important IDA role in bringing technology from overseas to specific indigenous firms, there is no active focus for disseminating information on technology to firms. This should be a natural role for the IIRS, which provides information on demand, but is otherwise pre-occupied with a consultancy role for individual firms.

We believe that the issue of getting technology and information into firms is of such importance that IIRS should deploy or be provided with the necessary resources for this role.

Again, R & D work in Ireland, to the extent that is carried out, is done by a firm on its own behalf and kept within that firm. There is no transfer of that technology. This situation is again in contrast to that of most developed countries.

A crucial part of a developed technological infrastructure is strong Industry/Higher Education links. They have not been developed in this country to anything like the required extent.

7.3.5 Deeper Links between Higher Education and Industry

The White Paper on Industrial Policy recognised the importance of links between Industry and Education, particularly at third level and outlined a number of initiatives, which were unfortunately not proceeded with.

The White Paper stated that “Co-operation in technological activity at national level between State agencies, industry and higher education sectors has not yet been effectively developed” (Paragraph 4.24) and referred to an IDA/NBST pilot scheme:

(i)to make the specialists’ technological skills in the higher education sector available to industry; and

(ii)to make this sector more aware of, and more responsive to, the requirements of industry.

In referring to the crucial role that Universities in the US play in industrial development the White Paper stated:

“We must follow this example and ensure that the expertise in Irish Universities is harnessed by industry. To encourage developments of this nature, £2m. will be allocated to the Vote of the Minister for Industry and Commerce in 1985 for funding additional research in product innovation and development by third level institutions”.

Monies were to be allocated only on the basis of worthwhile proposals received and the scheme was to be terminated after two years unless worthwhile results were achieved.

The thrust of this proposed scheme was excellent in that it would have put the Universities on their own mettle to come up with viable projects. We regret that it was not implemented for budgetary reasons. We also regret the lack of support to date for proposals for centres of excellence in biotechnology, as outlined in Chapter 3 and also the proposal for six centres of excellence in Advanced Manufacturing Technology which would have required £600,000 in support for year 1 and £800,000 for year 2, as outlined in Chapter 2.

The approval of these initiatives would give us the beginnings of a network of technology related campus companies from which technology could be transferred into Industry.

We also believe that deeper links should be forged between Higher Education (Universities, NIHE’s, and RTC’s) and manufacturing firms at local level. Much of the equipment in these colleges is underutilised for several months of the year and could, together with staff, be put much more effectively at the service of manufacturing firms.

The pattern of post graduate work also needs to be assessed to establish the extent that much work is relevant to the Irish Economy, and what changes in direction could be put in place.

We believe that the Higher Education sector has to be brought more fully into the area of industrial development, with a strong emphasis on technology.

However, it will take more than lip service to forge these links.

7.3.6 A Technology led Industrial Sector

Although the implications for Industrial employment are negative it is crucial that our traditional firms automate to survive.

For example Computer Numerical Controlled machines must become a way of life for our hundreds of indigenous engineering firms.

Most small firms do not have the expertise within them to determine their correct automation and general technical requirements.

We believe that every manufacturing business approved for grant assistance should include an assessment as part of its business plan, to determine its AMT requirement, and that portion of the allocated grant be devoted to this purpose.

What we have in mind is a scheme similar to the Support for Productivity scheme operated by the Department of Trade and Industry in Britain which provides for 8 to 15 days of consultancy, with no charge for the first two days and one third of the cost charged for the remaining duration, the balance being borne by the Department of Trade and Industry. The consultants are appointed by the Department from a panel of over 800 consultants, research organisations and technical centres approved for this purpose.

The Management Placement Programmes funded by the Youth Employment Agency (Section 5.3.9) are being expanded and we welcome this development. However, we believe that there is a strategic requirement to get highly qualified and experienced staff into Industry. In this context we believe that the NBST Teaching Companies Scheme (Section 5.3.3) must be expanded.

Another factor inhibiting the development of our indigenous industrial sector is the traditional negative image of manufacturing as a career held by most of our more able young people, particularly at entrepreneurial level.

There are no overnight solutions to this problem, but there is a need for a sustained and targetted campaign to attract qualified young people towards industry.

It needs to be got across that New Technology is changing the face of industry and that the manufacturing environment will more closely resemble that of the office or the laboratory. The incentives both direct and by way of tax concession for manufacturing industry here are considerable. They need to be harnessed more strategically towards well managed firms open to change, outside equity where necessary, and with built in marketing and technological strengths.

The expression ‘picking winners’ is now used frequently in advocating a more selective industrial policy and we support this concept.

We believe that the newer technologies are an opportunity for Irish small firms to “leap frog” into the new generation of product and manufacturing technology.

7.4 Towards an Information and a Technologically Oriented Services Sector

7.4.1 The Information Opportunity

The information industry, aided by computer and telecommunications, is growing rapidly. There are now data banks on virtually every business, economic, scientific, and general topic.

Although the Irish market is small in itself, we have other major advantages in that we have a modern digital telecommunications system with a growing capability for coping with Information Technology.

In addition, English is the principal international language of commerce and most of the World’s data bank information is in English.

Ireland is therefore well placed to avail of the opportunities offered by Information Technology and to direct Irish Business towards the active use of this technology.

However, there is a chicken and an egg situation. The size of the Irish market would not justify the type of approach adopted in France of giving a free terminal to a subscriber.

There is, however, an enormous amount of computer information within the Public Sector which could be converted into data bases to assist Business and at the same time give an impetus to the use of data base services for product, customer, supplier and market information. Such services could be particularly useful to retailers seeking to source products made in Ireland.

We believe that as many businesses as possible should use interactive communications and have an ‘on line’ terminal on the premises.

The EEC STAR programme is designed to encourage communications technology in less developed EEC regions and the facilities of this programme should be used to draw up a National plan for electronic communications for Business.

7.4.2 Exploiting the Computer Services Market

All the indications are that the Computer Services market, particularly software, will continue to grow rapidly in all countries. Although dominated by U.S. producers, the market is highly fragmented and thousands of small firms are able to flourish, including small one and two person operations.

In Europe, there are still difficulties in international trade due to linguistic barriers, and also due to different rules, standards, and practices in different countries.

On the home market there is considerable growth, but this is inadequate in relation to the requirement to get many more firms to avail of computer technology.

Computer services provide high quality and highly skilled jobs and we believe that the existing high VAT rate of 25% for these services is not compatible with their job potential.

We acknowledge that IDA and CTT are placing major emphasis on this area in their Services programmes and suggest a closer focus on opportunities in Europe in the context of the Internal Market.

7.4.3 Changing the Office and Retail Environment

(i) The Office

The completion of the Internal market within the European Community by the end of 1992 is going to put more professional services on an internationally trade basis.

A full range of services which have until now operated in a sheltered home market environment, to a greater or lesser degree, including financial and accounting, insurance, architectural, engineering, and legal, will become subject to competition from other Community countries.

However, the successful sale of Irish services expertise very much depends on the ability of Irish services firms to effectively automate their own office procedures and use the full range of telecommunications services.

With the exception of the Insurance sector, there is not much evidence of awareness among the professional services of the impact that the Internal Market combined with new Technology could have on services here.

New Technology and the Internal market offer opportunities in a market of 320 million people for Irish professional and service firms e.g. computer services, technical consultancy, information services, and mail order.

What is needed to meet the challenge of this market is a lifting of horizons by services firms and a full use of New Technology where possible. There is a major task here for trade associations and professional bodies in raising the awareness of their own members.

(ii) Retail

On the the retail front we endorse the comment by the Sectoral Development Committee that “retailing is one of the problem sub-sectors”. Many applications are desirable (and many others feasible) but the retailers have been slow to take the initial steps. Even in the case of mature technologies such as basic stock control progress has been very gradual.”

The emergence of multiple supermarket chains as the dominant element of the grocery trade, with a strong U.K. owned element, is spilling over into other retail areas.

Ireland is now a net importer of retail outlets with branches of UK chain stores in clothing and household, furniture, and now, record “megastores”.

In addition, mail order business is highly developed in the UK and other European countries and, the facilities offered by the new interactive technologies could make the Irish market more accessible for UK mail order firms. At present the major UK mail order houses are planning their structures for the 1990’s very much based on the use of the telephone and home VDU’s.

Most of what we have said applies to larger independent retailers rather than ‘corner shops’. However it is crucial to understand that major change in how the retail trade operates is inevitable.

In Britain, a National Plan for Electronic Shopping is being developed by the major clearing banks and retailers associations. A similar sense of urgency is required in this country. The retail organisations and the banks should develop a similar plan for Ireland.

There is also a major training requirement for the retail trade in these technologies. In our Second Report which dealt with Retail and Distribution we advocated a Retail and Distributive Training Committee within the AnCO structure to provide comprehensive training programmes for these trades.

We understood that this recommendation has been accepted in principle by AnCO which is looking at ways in which it could be implemented.

We believe that training and developing an awareness of changes in retail, due to technology, must be the major priority.

7.5 A National Commitment to New Technology

We believe that we have set out in comprehensive terms why a full National commitment to new Technology is critical to our overall economic development and to attaining a secure position among the more advanced economies.

If we fail to make that commitment the long term future outlook for the Irish economy is bleak. Not only will we not have economic prosperity but we will not have the means for developing effective social policies to deal with social issues including employment.

Properly directed investment in New Technology will give a real return and provide a launching pad for the Irish Economy to prosper into the 21st Century. We believe that the experience of those countries that have already made that commitment strongly supports that view.

CHAPTER 8

RECOMMENDATIONS

8.1 The Structures for a Technology Policy

8.1.1 Ministerial Responsiblity

There is a need for a Ministerial focus with regard to Science and Technology Policy, in order to bring the educational and training, the research, the telecommunications and the business strands together as part of a policy for Science and Technology.

We recommend that a Minister for State with responsibility for Science and Technology be appointed within the Department of Industry and Commerce. This Minister for State would have a co-ordinating role in ensuring that the Science and Technology activities of different Departments and State Bodies would be in harmony with overall economic objectives.

A primary objective would be to ensure that Irish manufacturing and service firms would be fully aware of the likely future impact of Technology on Business and that State policies would be geared towards gaining the maximum benefit from the opportunities provided.

8.1.2 Oireachtas Committee on Science and Technology

To facilitate a fuller understanding of the impact of Technology on Business and on the Community generally over the next number of critical years, an Oireachtas Committee on Science and Technology should be established to examine and report on:

(i)a national policy for Science and Technology;

(ii)the impact of New Technology on Business and the consequential impact on economic development, efficiency, competitiveness, and employment;

(iii)institutional, education, and funding arrangements for the development and application of Science and Technology.

8.1.3 Technology Forum

There should be a national Technology Forum representing Government, Business organisations, Trade Unions, and Higher Education to ensure an understanding of the economic benefits of New Technology and a consensus as to its application. This Forum should have a small secretariat.

8.1.4 National Board for Science and Technology

The National Board for Science and Technology should have the central role as independent expert advisor to the Government on National Policy for Science and Technology to assist in the objective of ensuring that all State expenditure in this area is determined in accordance with economic priorities, and co-ordinated outside the confines of individual Government Departments. Ministerial responsibility for the NBST should remain with the Minister for Industry and Commerce.

8.2 Getting Technology into Industry

8.2.1 A Shift towards Investment in ‘Soft’ Assets

We recommend that the review of the White Paper on Industrial Policy should indicate a shift in the allocation of State Aid to the extent that 50% of the total would be devoted to management, marketing, training, Research and Development, and technology transfer by 1990.

A major priority for 1990 should be a National target of approximately 1% of GDP or £150m. devoted to Industrial Research and Development compared with a total of £62m. in 1985 for in-house R & D.

The achievement of this target would involve manufacturing firms in the public and private sectors, the National Development Corporation, large dairy co-operatives and selected small firms, together with campus companies such as those proposed under the Biotechnology and Advanced Manufacturing Technology initiatives.

The State commitment to support for Industrial R & D, including scientific and technical services, specific technology transfer, information and other services should be increased from £35m. in 1985 to £90m. or 60% of projected expenditure by 1990. The £35m. for 1985 excludes the notional allocation for technology transfer attributed to equipment grants.

Increased expenditure on grant assistance and State Agency technological services to Industry, and Higher Education links could be met in part by a lower funding requirement to support new projects of overseas origin, a low requirement for grants towards building costs, greater selectivity in approval of grant packages as related to the track record of the management and company development plans, and guiding companies towards the Stock Market to meet a greater proportion of their funding requirements.

8.2.2 Allocating and Assessing State Investment in Technology for Manufacturing Industry

The National Board for Science and Technology should have particular responsibility for co-ordinating the direction of State support for technology in industry to streamline in as far as practible the activities of the State Agencies and to avoid duplication. The NBST should publish an annual National Technology Report to review and assess performance.

8.2.3 The IIRS as National Focus for Technology in Industry

The Institute for Industrial Research and Standards should have a central developmental and active promotional role in raising the technological capacity of Irish manufacturing firms through:-

(i)ensuring that information on New Technology gets to small firms, on a sectoral basis;

(ii)being a contact point for information on where the service most useful to the needs of firms is available, be it within the IIRS, Higher Education, Industry or private consultancy firms;

(iii)bringing about a more open attitude on the part of technologically advanced firms in demonstrating their technology to other firms in the same sector, as in other countries;

(iv)harmonise the product and process developments of groups of companies within the same sector by identifying suitable companies and matching them with the resources of the State technical services.

The necessary resources should be made available to enable the IIRS to fulfil this role.

8.2.4 Teaching Companies Programme

While welcoming the extension of the graduate placement programmes, co-ordinated by the Youth Employment Agency, we regard it as of fundamental importance that the NBST Teaching Companies Programme aimed at placing highly qualified staff in selected companies for a period of three years be extended to ensure that at least 10 highly qualified staff be placed each year on a strategic basis, thus achieving technology transfer into the selected companies. The estimated cost of placing a graduate for three years is between £15,000 and £20,000..

8.2.5 Building Design Capabilities

To encourage the development of product design capabilities within selected companies, the IIRS should allocate a small number of staff to spend a day per week or month with these companies.

8.2.6 Technology Assessment

As part of any grant aid package for a company there should be provision for technological assessment within the company. This assessment would be carried out by the IIRS or designated consultant. While ‘free’ in itself the value of the assessment should be reckoned within the limits of the overall grant package.

8.2.7 An Advanced Manufacturing Technology Capability

To develop a full AMT capability within Irish Industry we recommend approval of the AMT proposals submitted to Government by the IDA and the NBST.

8.2.8 Achieving a Place in the Biotechnology Race

To achieve and maintain a competitive position for Ireland in the emerging Biotechnology field we recommend Government acceptance of the IDA/NBST Biotechnology proposals.

8.2.9 Stimulating Specific Projects and Higher Education Sector Involvement

We recommend that the NBST be given an annual allocation of £1m. to stimulate specific research projects, where a positive economic benefit is determined.

So that research projects from the Higher Education sector may be encouraged, we recommend a specific ‘once off’ allocation of £2m. to the NBST for viable research projects initiated by third level colleges.

We also recommend an annual prize fund of £100,000 for a national competition in product innovation to be operated by the NBST in conjunction with the Higher Education Sector.

8.2.10 Bilateral Links and Pre-competitive Research

In order to enable more Irish firms to avail of ESA and EEC pre-competitive research programmes, appropriate measures within EEC rules, in support of industrial research activities of small firms should be established. The objective would be that R & D in advance of immediate market place needs would be performed by such firms so that the lack of such R & D is not an obstacle to the growth potential of the firms.

8.2.11 Facilitating Pre-Competitive Research in Peripheral Regions of the EEC

To facilitate greater involvement in pre-competitive research by firms in the peripheral areas of the EEC and to help offset the adverse effects for these regions from competition for mobile industrial investment from more developed regions, we recommend that the definition for a Small to Medium sized Enterprise be lowered to a point at which the sizes of firms that qualify are representative to the optimum extent of firms in these peripheral regions. This recommendation applies to pre-competitive research only.

8.2.12 Training of State Agency Staff

The non-specialist staff of all the State Agencies dealing with small manufacturing firms need to have a grasp of what New Technology means for manufacturing. All training programmes should have this objective in mind.

8.2.13 Guiding Young People towards Industry

In order to encourage a greater awareness among more able young people of manufacture as a career - particularly in an entrepreneurial or managerial capacity - a sustained campaign targetted at students in second and third level institutions should be initiated by the Department of Education, in consultation with the Department of Industry and Commerce.

8.2.14 Product Testing at Point of Entry

In order to ensure that inferior products are not dumped on the Irish market, we recommend product testing at point of entry for products from third countries, which are not certified as meeting EEC standards by the IIRS.

8.3 Information and Services

8.3.1 Getting Public Service Data Bases ‘On-Line’

We recommend that the NBST prepare a study under the auspices of the EEC’s STAR programme to devise an action plan for electronic business communication with particular reference to getting public service data bases, particularly those in the State Agencies and Companies Office ‘on line’ to manufacturers, retailers, and professional firms.

8.3.2 VAT on Computer Services

VAT on computer services should be reduced from 25% to the low rate, now standing at 10%, as resources permit but by not later than 1988.

8.3.3 New Technology and the Internal Market

Each trade association and representative body for the service trades and the professions should prepare a report for its members, on the likely effects of New Technology combined with the Internal Market.

8.3.4 Meeting the Technological Requirements of the Retail Trade

We urge the urgent implementation of the recommendation contained in our Report on Retail and Distribution for a Retail and Distributive Training Committee within the AnCO structure.

A major objective would be the development of awareness and training programmes in the newer technologies within the retail trade, including Point of Sales systems and Electronic Funds Transfer, to facilitate independent retailers in identifying their own technology requirements.

8.3.5 A National Plan for New Technology in Retail

The Associated Banks and trade bodies such as RGDATA should formulate a national plan for the development of Point of Sale and Electronic Fund Transfer within the retail trade.

8.3.6 Action by the Retail Trade itself

We draw the attention of the retail trade to the comment of the Sectoral Development Committee that the trade “has been far slower than its counterparts abroad in the adoption of point of sales systems and is all-prepared for the orderly introduction of electronic funds transfer”.

We recommend that retailers associations, as a matter of urgency promote the introduction of New Technology, where relevant, to their members.