The economic story over recent years owes much to a series of national strategies in respect of fiscal and labour markets. However, the purring feline that is the Celtic Tiger has also been nurtured by a steady diet of silicon from foreign and indigenous sources.

The overseas information technology sector now employs more than 60,000 people with two of the largest companies, Dell and Intel, accounting for 8,000 of these jobs.

The indigenous sector has also been a strong performer and there are now more than 20,000 people employed in the exported-oriented software, communications, semi-conductor and Inter net sectors. While this gives us much to commend, it is important to acknowledge that Ireland technology Inc faces challenges and opportunities in equal measure.

The continuing vibrancy of the US economy has been driven by the high-tech industries and it may well be that a reflection on some of the ingredients responsible for Silicon Valley's sustained success provide us with some food for thought.

The reasons for the valley's achievement are numerous and inadequately understood, but what can be said with confidence is that it owes as much to cultural issues as it does to any specific technology or financial factors.

Silicon Valley is underpinned by world-class education and research with the universities of Stanford and Berkeley, and Xerox's famed Palo Alto research facility to the fore.

Stanford alone has been responsible for more than 1,000 start-ups in one form or another. Here we have seen companies such as Iona, Trintech and WBT evolve out of post-graduate research environments in Trinity and UCD, but the impression remains that the sector is underperforming due to insufficient funding and the lack of a coherent strategic vision.

The arrival of MIT's Media Lab has been criticised by some within the tertiary sector, but this is to neglect the stimulus that this institution's profile can give to advanced research in Ireland.

Rather, it should be grasped by the educational sector as demonstrating that partnerships with leading international institutions can provide the basis for the establishment of further international research centres in the future.

Collaboration between companies, as well as with third-level organisations, has been an important element of the Silicon Valley model, resulting in a constant stream of new venture spin-offs.

While sub-supply linkage programmes have been a feature of Irish economic policy for many years, industry collaboration (the work of the National Microelectronics Research Centre in Cork being a notable exception) and the volume of new companies springing from the US-domiciled high-tech cluster has not been especially noteworthy.

Interestingly, a review suggests that the most successful case-history in respect of overseas spinoffs was initiated as a result of the closure of a number of Digital's operations in Galway in the early Nineties, and from this incubator have emerged a number of notable Irish high-tech entrepreneurs.

The reasons for the relatively low number of companies from these sources may reflect the logistical and support services nature that the Irish wing undertakes in many of these operations.

This is not to suggest that these operations have low value added or are especially mobile, but simply that increasing the level of Irish-based research and product development should continue to be an objective of the overall industrial strategy for these companies.

Many Irish companies would not thank me for advocating further pressure on the already short supply of computing talent that expanding the engineering component of the overseas sector suggests.

However, there needs to be an acknowledgement that if it is a national objective to have a meaningful high-tech sector in an increasingly competitive international environment, immigration (beyond the Irish diaspora) will need to be a fundamental plank of policy with associated initiatives for implementation.

The United States currently attracts between 12,000 and 15,000 of India's annual crop of 50,000 students in the computer-related industries and the cultural diversity of Silicon Valley is pointed to as one of the intangible factors contributing to its success.

In the past, a lack of early and development-stage finance was cited as an inhibitor of sectoral development. The case for this statement would appear to be diminishing daily. The market for the provision of tech-sector finance has never been healthier with state sources, venture capital, institutional providers, angel and other private investors all actively participating in financings of various hues.

The Silicon Valley model is characterised by a disparate base of providers, including many entrepreneurs willing to invest the proceeds of their successes in the next generation of product developers in addition to providing access to important industry networks.

The number of successful companies has created a more sophisticated Irish environment including increasing sectoral focus in the venture capital and institutional markets.

Ultimately product innovation and product cannibalisation have to be a feature of successful hightech companies and it has been encouraging to see innovators such as Apion in wireless Internet access, Baltimore in Internet security, and SSL in advanced semi-conductor design, receive considerable international attention during 1999.

Smartforce's radical decision to completely cannibalise its own product suite and Iona's more subtle shift in product strategy has seen marked appreciation in their share prices as the markets responded positively to their respective corporate decisions.

The addition of Trintech and Horizon to the register of quoted technology companies has also been encouraging and I will leave it to others to speculate which companies will join their ranks in 2000.

Owing to the historically small market for IT services in Ireland, ambitious Irish companies have moved to develop intellectual property related products relatively early in their life cycles.

Some commentators have highlighted the emerging trend for organisations to rent rather than install software products (from third-party companies known as applications services providers ASPs) as a model that will challenge the traditional economics of software development in Ireland. It provides us with an example of how current success cannot be assumed to naturally extrapolate into the future.

Organisations such as the National Software Directorate and Irish Software Association among others have played an important role in terms of sectoral development but now may be the opportune time to examine whether the ambits of these organisations should embrace the activities of companies in other areas of the technology industry.

Fostering the development of Irish companies with online business models looking to tap the European and international market opportunities is one specific area of opportunity.

Silicon Valley, too, faces challenges, not least in terms of infrastructure and house price inflation with which we are all too familiar. However, the US tech industry is not confined to southern California - Silicon Hills (Austin), Silicon Desert (Utah), Silicon Alley (New York) and Silicon Forest (Seattle/Portland) are all important regional clusters characterised by strong education and research relationships, which have benefited from the pressures on Silicon Valley.

The Irish story in relation to high-tech outside the Dublin area is patchy; parachuting in all the lower value added electronics operations in the world into the west will have limited long-term value without other meaningful initiatives and investments.

Indeed, the overall environment for mobile high-tech investment (across the value chain) has rarely been more competitive from nearby locations in Britain, such as Cambridge, Thames Valley, and Silicon Glen as well as more far-flung territories including Malaysia, Singapore and Scandinavia, who are pinning their colours very firmly to an electronic commerce mast.

Prof Joe Lee has observed that "small countries, unless they be exceptionally rich in natural resources, must rely solely on the quality of their thinking to adapt to changing international circumstances". The challenge for government is to take further actions that build on recent successes, and in parallel, stake Ireland out as one of the best environments in the world for the online revolution under way.

Tomas Jones is an equity analyst with Davy Stockbrokers covering the technology sector