Intel turned Leixlip into Ireland’s Silicon Valley

Intel was a step-change because of its scale, which would require massive buildings and infrastructure

Wed, Nov 13, 2013, 13:30

In the late 1980s, when Intel indicated it was interested in establishing a plant in Ireland, with the likelihood of employing thousands of skilled technicians, many recognised the project would fundamentally shift the perception of foreign direct investment (FDI) in Ireland.

“The biggest multinational in Ireland at that time was Fruit of the Loom, which had 4,500 employees making T-shirts and underwear,” notes Barry O’Leary, chief executive of IDA Ireland. “Ireland was still in the game of attracting clothing and textiles companies.”

Though other multinational technology companies already had operations in Ireland – prominent among them, firms like Digital Equipment Corporation (DEC), Apple, Wang, and IBM – Intel was different.

“Intel was a step-change because of the scale. It would require massive buildings, and massive infrastructure,” O’Leary says. It also would be doing more complex, skilled work than the low-level manufacturing carried out by other existing information-technology companies.

But the project also would need big support grants. Intel’s activities “are hugely capital-intensive”, says Dr Louis Brennan, director of the Institute for International Integration Studies and professor of business studies at Trinity College Dublin. “The fit-out is costly, with very specialised equipment. My understanding is that the actual decision for the site to go ahead was a very close call.”

This was in part because of the influential 1982 Telesis report, commissioned by the government to advise on industrial policy. “The report was critical of the focus on foreign inward investment, and lack of attention to the domestic economy and the growth of domestic firms.”

So directing support to such a huge project must have seemed like it risked placing a lot of financial eggs in one basket. Nonetheless, the project was approved. Intel arrived in 1989, initially producing motherboards – the main chip and circuit board of a computer – and systems.

O’Leary recalls that finding the first employees was a challenge. “We had to trawl around the world to help find those initial 250 engineers, encouraging people who had emigrated to come back.”

But this too signalled the start of a trend that would be the fuel of Ireland’s economic lift in the 1990s on into the new century – the back and forth flow of skilled Irish technicians, engineers and business graduates, who would go out for training or work in the US and other locations, and bring back high-level technology and management abilities to Ireland.

Brennan agrees that the company’s arrival was “a seminal event in terms of inward investment in Ireland. It was a very bleak time, with a substantial rate of emigration, and the unemployment rate was very high. Intel’s arrival was a huge boost and a huge confidence statement.”

Even the buildout had a major upside, employing thousands of workers and giving Ireland an expertise in constructing such demanding, high-technology facilities.

Now, the government also had a major showcase “demonstrator” company. As the IDA went after other prospective FDI projects, it could bring corporate visitors to see the high-spec, 360-acre Intel campus and its highly skilled workforce.

And as the home and business computing market exploded, it could target an emerging industry of rapidly evolving, fast-growing information-technology companies, mostly American and based out of California’s Silicon Valley.

“Intel would have been that statement [of Silicon Valley’s arrival]. It was a calling card. The brand had such high global visibility,” says O’Leary.

What happened next, has become the government’s preferred template for all FDI projects: as with many technology and pharmaceutical companies before and since, Intel began to add to its Irish activities, build new facilities, and move jobs up the value chain.

“Irish managers, encouraged by agencies like the IDA, would have recognised that unless they expanded the mandate of the local [multinational] subsidiary, the lifespan of that operation would be limited,” says Brennan. For that reason, a key factor in the development of a multinational’s Irish operations “has always been played by local irish management”.

And this in turn, helped develop a fresh business culture in Ireland. As companies such as Intel expanded and deepened the complexity and value of their Irish activities, Irish employees honed business skills.

The IDA makes no bones about how important that expansion of activities in Irish-based multinationals is. “The transformation of the existing companies we have, takes up a huge amount of our time and budget,” says O’Leary. “There’s constant reinvestment, and technology and skills uplift.”

The Irish educational system itself was gradually transformed by the arrival of information-technology and other knowledge economy sectors. In the case of Intel, the curriculum at the technology institutes was reshaped to match the company’s specialist needs, and Intel would absorb these graduates every year.

At the universities, where once a master’s degree or PhD in computer science or engineering effectively educated a person out of the Irish job market, now those abilities were valued and highly marketable here.

In the past decade in particular, companies such as Intel have forged R&D relationships with many of Ireland’s third-level institutions.

“Intel has been particularly proactive in developing links with the educational sector. That’s been very valuable because it has upped the game in terms of research activity within the universities, and increased funding, but it has also given graduate researchers a place to go,” notes Brennan.

Most valued had been the gradual move by Intel and other companies to increase research and development activity, because such work, more than almost anything else, helps anchor a company in a location. Once high-level expertise is bedded down, it is awkward to move it elsewhere.

Over the years, Intel has built several multi-billion euro chip fabrication plants on its site in Leixlip, investing €7.5 billion. More than 4,500 people work at its facility – the company’s largest outside of the US – and another 200 at Intel Communications Europe in Shannon, the product development arm of the company’s Communications Product Group.

The company has confirmed it will manufacture its next-generation 14 nanometre chips in Leixlip, requiring the buildout of a new plant, a project that was hotly contested with Intel’s site in Israel.

“The intra-firm rivalry between different sites is intense, really intense,” says Brennan. “So the calibre of management of the local site, and the support from local agencies, is critical when opportunities arise.”

Issue of tax incentives
The IDA as a matter of policy does not disclose the terms of its grants and supports to multinationals, says O’Leary. The arrangements made on behalf of multinationals here, especially tax incentives, has become a matter of international scrutiny and controversy in recent months, the subject of Parliamentary hearings in the UK and Senate hearings in the US.

But are tax rates and structures the most compelling draw for multinationals such as Intel, Google, Apple and the rest? And will they go elsewhere if, as promised by the government in the recent budget, some of these structures are changed?

“I think [the role of tax] is substantially exaggerated,” says Brennan. “If you look at companies that operate globally, and what they’re looking for, number one is talent.

“And Ireland is seen as possessing a very attractive body of human capital. Does the tax regime matter? Of course it does. But would changing it cause an exodus of companies? I don’t think so.”

O’Leary says if companies prioritised tax, they’d choose a zero-tax locale such as Singapore.

“Typically, multinationals would have 10 or 20 items they’re scoring you on. Tax is important – it’s one part of the equation. But it’s not the only part.”

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