Alcatel a bellwether for 'smart jobs' plan

AGENDA:A pitch for State aid for an expanded Bell research centre shows the tough fight for FDI, writes ARTHUR BEESLEY, Senior Business Correspondent

ALCATEL-LUCENT chief Ben Verwaayen was in Dublin this week for meetings with the Taoiseach, Brian Cowen, and Barry O'Leary, head of IDA Ireland. He was seeking State support for a big expansion of his company's research centre at Blanchardstown, west Dublin.

ALCATEL-LUCENT chief Ben Verwaayen was in Dublin this week for meetings with the Taoiseach, Brian Cowen, and Barry O’Leary, head of IDA Ireland. He was seeking State support for a big expansion of his company’s research centre at Blanchardstown, west Dublin.

A Dutchman resident in Paris, Verwaayen led telecoms operator BT before he was headhunted last summer to take charge of the telecoms technology company.

Having led telecoms operator KPN when it took a minority stake in Eircom many years ago, he has a long familiarity with the vicissitudes of the Irish economy. Clearly, the current turmoil isn't holding him back.

Hence the possibility that Alcatel-Lucent might expand the operations of its Bell Labs research unit here - other unnamed countries are also in the frame - highlights the fact that the flow of inward investment opportunities has not stopped altogether.

Yet the overall challenge is daunting. In the first six months this year, the rate of job losses in IDA Ireland-backed companies was more than twice the rate of job creation.

Styled as global centre of excellence for Bell Labs work in the area of fundamental research, the initiative would be in keeping with IDA Ireland's oft-stated objective of bringing inward investment at the very pinnacle of the value chain into this country.

It also chimes well with Cowen's ambitious "Smart Economy" policy, which sets out a route for Ireland to take a prime role in international research and development and efforts to harness green technology to reduce dependence on carbon fuels.

Still, it remains unclear whether the Government will provide the grant assistance Verwaayen is seeking. While he won't quantify that aspect of the plan, the project would be a significant one with substantial State assistance a prerequisite. But the proposal, described by an informed Irish source as a "tough nut to crack", would not necessarily create a vast number of new jobs.

Rather, Verwaayen says, it would bring a higher calibre of "brains work" to Ireland, with potential for big spin-off benefits. "I'm not selling this on employment terms. If we bring it back to employment, we're going the wrong way . . . It's not the number of people, it's the importance of the people. Sometimes a handful of people make the difference."

But given the clear need to create a very large amount of new jobs to replace tens of thousands of posts lost in the deluge of redundancies this year - with many more still to come - it may well be that a stronger rationale can be made for the State to support investment proposals with greater employment potential.

This assumes, of course, that companies actually come forward with investment plans.

Although conflicting signals about the position of the international economy imply that the worst may now be behind us from a global perspective, the Irish economy is still contracting and external conditions remain exceptionally tough. In addition, the market for foreign direct investment remains under pressure.

This is critical for Ireland, whose capacity to continue winning such investment will be an important lever in the drive for recovery.

Crucial, too, is clear evidence that the cost of investing in Ireland is coming down, a factor that could mean Ireland being in contention again for mid-level projects previously beyond its grasp on cost grounds.

Publishing his annual 2008 report this week, O'Leary pointed to downward trends in labour, energy and property-related costs.

He also disputed the contention in a recent IMF report that "Ireland has become the most expensive location in the euro zone" for foreign investors with the possible exception of Luxembourg.

However, the cold-eyed findings of the IMF cannot lightly be dismissed. "Ireland has lost market share in the global and eurozone flows of foreign direct investment (FDI)," the fund said.

"FDI inflows into the euro zone have tended to fall as a share of world FDI flows. However, Irish FDI shares have fallen faster . . . The transformation from a location for low-cost manufacturing to a centre for high value-added production and services is ongoing. However, research shows that FDI flows to a country are highly influenced by recent momentum - increased global competition for FDI implies that the task for Ireland is increasingly harder."

Ireland faces yet more pressure in the form of Barack Obama's clampdown on the use of tax havens by big multinationals.

The irony is that the White House move has benefited Ireland to a small extent because some US groups are moving their place of incorporation here, a transparent jurisdiction when compared with zero-tax havens.

However, Obama's citing of Ireland as one of three locations accounting for a major portion of foreign profits made by American corporations serves to dim the lustre of the 12.5 per cent corporate tax rate on Irish profits.

While the Obama plan will not take effect until 2011, the long-term run-in on many FDI projects means it must now be taken into account when US groups plot their FDI strategy.

Given the totality of Ireland's challenges at home and in the international world, news of Alcatel-Lucent's approach to the Irish authorities represents a positive development in difficult times. As O'Leary and Tánaiste Mary Coughlan pointed out this week, damage to Ireland's reputation as a result of the disruption in the domestic economy only adds to the burden.

But Verwaayen, a respected player of rank in global business, says the international world has not written off Ireland. Nevertheless, he still adopts a cautious tone when asked what is said about this country's difficulties in his circle.

"I think there is a lot of admiration in the world for Ireland and there is a lot of sympathy for Ireland. Those are two important elements to preserve because it's not necessarily [ so that] they will stay around," he says.

"People say [ the Irish] are hit hard, very hard by what's happening and it needs a new formula. I think people will recognise what has been done but also realise that what has been done in the past may not necessarily be the same remedy for the situation the country is in right now."

While he liked what he heard from Cowen, he says action must flow from words. "Here again, conversation is conversation. At the end of the day, it's the result that counts."

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