By Robert McGarvey

“Ireland looks so prosperous. Isn’t it a very poor country,” said my mother with thick disbelief as she thumbed through snapshots from a recent trip to the Emerald Island. But the photos don’t lie. Everywhere nowadays there are gleaming Mercedes, homes selling for upward of $1 million US, and glitzy restaurants serving up goat cheese salads, imported wines, and with cups of cappucino to close the meal. The “Celtic Tiger” is what the government mandarins in Dublin call their country, and while the Asian tiger economies have collapsed, Ireland continues to roar. The fuel is high-tech – with over 300 companies doing everything from wafer design to computer assembly. There are the big name multinationals who have set up Irish outposts -- Microsoft and Gateway, for instance – and in their wake have emerged high-growth indigenous Irish start-ups, from middleware leader Iona Technology to encryption boutique Baltimore Technologies. And this is no paper tiger: Irish growth in real GDP has averaged over 8% per year from ’95 through ’98, compared to about 2% in the United Kingdom, France, and Germany.

Piles of statistics give more proof of Ireland’s role as a tech heavyweight:

· 60% of all PC software sold in Europe is manufactured in Ireland

· Nearly one-third of all PC’s sold in Europe come from Ireland

· Exports account for 80% of Ireland’s GDP

But probably the most telling statistic is this: since 1980, 25% of all US new manufacturing investment in Europe has gone to Ireland, a tiny country whose population (about 3.5 million) is scarcely 1% of the European Union’s. In fact, in the last 10 years, only one US tech company (Packard Bell) pursued by Ireland went elsewhere in Europe, says Martin Cronin, executive director of the Irish Development Agency (IDA) in Dublin, the lead agency in recruiting multinationals. “The ‘Celtic Tiger’ isn’t an overnight success,” says Cronin. “For 25 years, we have followed a conscious government policy to stimulate creation of tech jobs – and we have been succeeding.”

From the start, the Irish mandarins figured the fastest, surest way to spike economic growth was to woo deep-pocketed multinationals. That’s why, in any tour of Ireland today, there are constant and vivid proofs of the country’s appeal to US tech giants. In Leixlip, about 12 miles from Dublin, what once was a sprawling stud farm in bucolic County Kildare now houses two Intel fabs that collectively cost about $2.5 billion. Between them, Intel Ireland Limited employs 3400 workers on production lines that run 24 hours a day, 364 days a year. “We are Europe’s largest semiconductor factory,” says Liam Cahill, media relations manager.

One-hundred and fifty miles south, in Cork, Apple opened up what was one of the first PC operations on Irish soil in 1980. About 75 employees were on hand for start-up. Today there are 750 employees, mainly involved in assembling iMacs and G3 PowerBooks. In Silicon Valley, Apple oftentimes may seem an irrelevancy, but not so on Ireland’s southern coast: “We’re a very big fish in a small pond,” smiles Liam Donoghue, external affairs manager.

Back up in Dublin, a genuine big fish, Microsoft, runs a sprawling, 1500 worker operation that includes software localization and manufacture. In ’97, sales out of Ireland hit $2.56 billion, according to Kevin Dillon, managing director – European Operations. He projects that ’98 sales will eclipse $3 billion. This is a large enough piece of change to win notice from the big guy himself – “Gates was here in ’95 as part of the Win ’95 launch,” remembers Dillon. A few years ago, adds Dillon, Microsoft recognized the need to dramatically expand European operations and it looked hard at locations in the Netherlands and the United Kingdom. “But we chose Ireland – it’s a cost-effective location, and it’s now widely viewed as a cool place to live and work.”

Just what besides “cool” has lured foreign – primarily US-headquartered – tech businesses to set up in Ireland? Donal Connell, a 3Com (Nasdaq: COMS) vice president and general manager of its Dublin operations, which employs 1500 workers and manufactures a range of networking products including Sportster modems, ticks off the reasons for 3Com’s large presence:

· “We’re closer to our customers. Europe contributes 35% of 3Com revenues,” says Connell. And, as a member of the EU, Irish exports to Europe are duty free.

· “The Irish government offers financial incentives,” says Connell. Such incentives can be generous -- including outright grants (usually about $7500) for every job created as well as additional monies for employee training (typically 100% of costs) and varying levels of assistance (extending into seven-figures) for building and equipping a new facility.

· “Favorable tax policies,” says Connell. For many companies, this is the deal clincher: Until December 31, 2002 profits made in Ireland by most tech manufacturers are taxed at 10%. In 2003, the rate goes to 12.5%.

· “Lower costs of doing business,” says Connell, who adds that employee salaries run 80% of comparable jobs in Silicon Valley, “and turnover is 9%, which is far below Silicon Valley’s.”

“Our productivity and quality in Ireland are competitive on a worldwide basis,” adds Connell. “This operation alone accounts for 25% of 3Com’s global revenues, and we are very profitable. Ireland just is a good place to do business.”

Home-Brew

Multinationals may get the predominance of attention in accounts of the Irish tech scene but, meantime,“a strong government emphasis is development of Irish-controlled tech businesses,” says Alan Dixon, head of corporate communications for Enterprise Ireland, the state agency charged with nurturing homegrown talent and which now has a kitty totaling over $100 million in seed money for start-ups and small businesses. That cash, says Dixon, turns the government into “a benign VC,” meaning Enterprise Ireland will make “soft loans” (payable only out of revenues) and take an equity stake in young businesses, but won’t badger the founders for early cash-out. “Six years ago, a government report criticized the failure to help indigenous businesses. That’s changed. Enterprise Ireland now has stakes in about 500 businesses,” says Dixon.

Probably Enterprise Ireland’s brightest star is Iona Technologies (NASDAQ: IONAY), a middleware company founded in 1991 by several members of the computer science department at Trinity College, Dublin. When it went public in February, 1997, shares sold at $18. Today’s quote is $28, making Iona – with a market cap above $500 million – a big win for the Irish government, which went into the IPO with an equity position amounting to 7%. “We’re the exact opposite of a Silicon Valley start-up,” says Annrai O’Toole, an Iona co-founder and Chief Technical Officer. “We had no venture capital, no debt, and we have always been profitable. We weren’t in the Valley, we were in Dublin, so we knew no other way to do it,” says O’Toole, whose personal stake in the business is worth more than $50 million.

Although Iona has shifted many key staff to its Cambridge, MA offices – “70% of our sales are to the U.S.,” says O’Toole, “and we need to tend to that market “ – the hub of the business’s software development will stay in Dublin. “The pool of engineering talent in Ireland is exceptional,” says O’Toole. “Certainly, around the time of the IPO, we considered moving to Cambridge, but we chose to stay in Ireland.”

There are plenty more Enterprise Ireland base hits. A case in point: Aldiscon, a Dublin-based developer of specialty software used by mobile telcoms. Founded in ’88, Aldiscon kept quietly building its business (current revenues: approximately $65 million) until, finally, in ’97 British IT services company Logica (London: LOG) bought it for about $90 million, says Larry Quinn, who had headed Aldiscon and now is chief executive of the newly christened subsidiary, Logica Aldiscon. He adds that Enterprise Ireland had a 10% stake at the buy-out. “The Irish government has been genuinely good to us,” says Quinn. He adds that “being Irish is rather a plus when doing business anywhere in the world. We’re a small, friendly, non-threatening nation. Everybody likes the Irish.”

About the only cloud on the local tech scene is educational software developer CBT Group Plc (Nasdaq: CBTSY), which saw its stock tumble from $60 to $10 in just a few weeks last fall. That sell-off was triggered by faltering profits, sales that didn’t meet expectations, and a shuffle in the executive suite (chairman Bill McCabe stepped aside in 1996 but returned to the position in ’98 as the stock went into free-fall). Even so, CBT scarcely qualifies as an Irish company anymore. Four years ago it shifted its headquarters from Dublin to Menlo Park and, although it maintains a 400-employee development staff in Ireland, it’s now an American software company (albeit a troubled one).

That’s the exception, however. Elsewhere in Ireland, small tech companies exude optimism, sometimes even chutzpah that can rival Silicon Valley’s most brazen. Case in point: when Baltimore Technologies CEO Fran Rooney heard that President Clinton and Irish Taoiseach (pronounced tee-shock, it means prime minister) Bertie Ahern would be jointly signing an e-commerce pact during Clinton’s September ’98 visit, Rooney – whose 85-employee Dublin-based company is a player in cutting-edge IT security solutions – knew this was too good to pass up. He persuaded Ahern to go to the White House with a request that the document be “signed” using Baltimore’s smartcards containing digital signatures. The White House had no opposition and on September 4^th, e-commerce history was made when the two heads of state digitally did the deal. “The Irish government is very supportive of its own tech companies and, between that and the high quality of Irish programmers, this definitely is the place to be,” says Rooney, who says privately-held Baltimore’s ’98 revenues will hit $10 million, “with $50 million projected for 2000.” Will he make those marks? Who knows – but try to picture the White House going to bat for a speck of a Silicon Valley company. It wouldn’t happen and because such things do happen in Ireland, Rooney just may propel his business into the e-commerce leadership role he craves.

Can life in Ireland be that rosy? In a week spent meeting with Irish tech executives, only one worry was heard and that’s that the burgeoning tech scene is triggering labor shortages. “When we came here in ’91, the supply of labor was very high. Now the boot is on the other foot. We have to sell employees on working for us,” says 3Com’s Connall.

While Ireland is a young country – in the year 2000, 40% of the population will be under 25 (compared to 32% in the UK and 29% in Germany) – and heavy emphasis has been put on tech and business education, with 60% of “third-level” (university) students majoring in engineering, science, or business, the nation is straining to meet the booming needs for tech workers. At storage maker EMC (NYSE: EMC) in Cork, for instance, strong demand has seen operations expand from a 45,000 sq. ft. facility in ’86 to 500,000 sq. ft today. Irish revenues alone amount to $1.4 billion, says Bob Savage, director of engineering, but he concedes that recruiting staff (currently around 900, projected to climb to over 1000 in ’99) has become a challenge. “We’re now focusing on the Irish abroad who want to come home. Last Christmas, we manned a booth at a recruitment fair in Dublin and hired 20 people who had been living in the US, UK, and Europe. That kind of recruitment is becoming more important to us.”

For its part, however, the Irish government is delighted that suddenly jobs are plentiful: “The highest priority for every Irish government is to find work for all the young people,” says IDA’s Cronin. For generations following the potato famines in the mid-19^th century, young Irish routinely fled, but that’s changing. “Last year, 30,000 young people left Ireland to seek employment abroad. But 40,000 who had been working abroad returned here,” says Cronin.

Still, does the tightening labor supply presage the declawing of the Celtic Tiger? “It’s becoming difficult to get good tech people here, but it’s no different elsewhere,” says Cronin, who adds with a smile that bespeaks the contentment of a government official who knows he has triumphed: “Companies initially located in Ireland for cost reasons. Now they are finding there are other benefits to doing business here – the workforce is among the world’s best, government policies are very flexible, wages and operating costs here remain lower than any developed nation in Europe, and the business climate is one of Europe’s strongest. There’s no shortage of companies interested in locating here.”

Word Count: 2075.

Bionote:

California-based Robert McGarvey holds Irish citizenship and, after a fourth glass of Black Bush, he usually begins surfing sites selling Irish real estate and scheming ways to tap into Enterprise Ireland’s funds for start-ups.