FYP

CAN IRISH MANUFACTURING
TRANSITION TO A NEW LEVEL OF
COMPETITIVENESS?
ERIC HAYES
12052817
BACHELOR OF ARTS IN ECONOMICS AND SOCIOLOGY
SUPERVISOR: PROF. BERNADETTE ANDREOSSO
2016

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Title Page
Programme of study: BACHELOR OF ARTS IN ECONOMICS AND SOCIOLOGY
Year of Submission: 2016
Authors name: ERIC HAYES
Student ID Number: 12052817
FYP Title: CAN IRISH MANUFACTURING TRANSITION TO A NEW LEVEL OF
COMPETITIVENESS?
Word Count: 11,072
Supervisor: PROF. BERNADETTE ANDREOSSO
Authors Declaration:
THIS PROJECT IS SOLELY THE WORK OF THE AUTHOR AND IS SUBMITTED IN PARTIAL
FULFILMENT OF THE REQUIREMENTS OF THE DEGREE OF BACHELOR OF ARTS IN
ECONOMICS AND SOCIOLOGY.
AUTHORS SIGNATURE: ________________________________

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Abstract
The title of my FYP is ‘Can Irish Manufacturing transition to a new level of
Competitiveness?’ This research looks at the competitiveness of Irish manufacturing and
observes how price competitiveness has been eroded with the emergence of low cost
economies in China, Eastern Europe, and so on. As a developed country Ireland can longer
compete at this level. The study seeks to find a way for Ireland to transition to a new level of
competitiveness. Convergence of regional technological and management capabilities
provides Ireland with an option to transition to a new level. There has been evidence of this in
the Medtech sector in Galway which has led to the growth of a strong indigenous export-led
sector, which could prove vital for sustainable future economic growth.

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Acknowledgements
I would like to acknowledge my supervisor Professor Bernadette Andreosso for all the
assistance and guidance she has given me throughout my research. I would also like to
acknowledge the many lecturers I have had in the past 4 years of my Degree. The knowledge
I have gained has helped me immensely while carrying out my research. Finally I would like
to acknowledge my family, my parents Susan and John, and my brother Jason and sister Aoife
for the support they have shown me throughout my final year as I conducted this FYP.

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Contents
1. Introduction
2. How can we define Competitiveness?
2.1 What is Competitiveness and how can we measure it?
2.2 Price Competitiveness
2.3 Non-Price (Structural) Competitiveness
2.4 Performance Indicators:
2.4.1 Profitability
2.4.2 Productivity
2.4.3 Efficiency
2.4.4 Technological Advance
2.5 Performance, Potential and Management Process
2.6 Conclusion
3. Irish Manufacturing and how it became Competitive? (1950-2001: End of
the Export led Boom)
3.1 Introduction
3.2 Manufacturing in Ireland
3.2.1 Modern and Traditional Manufacturing sectors
3.2.2 Ireland’s comparative advantage
3.3 How Irish Manufacturing became Competitive

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3.3.1 IDA
3.3.2 Corporation Tax
3.3.3 European Membership 1973-2001
3.3.4 Social Partnership
3.3.5 Education and Labour Force
3.4 Conclusion
4. The loss and recovery of manufacturing competitiveness
throughout the Irish Property and Global Credit Crisis
4.1 The end of the Export-led boom and the Loss of competitiveness in Irish
Manufacturing
4.2 What factors caused the loss in competitiveness?
4.2.1 Dot.com crash and the deterioration of the Irish ICT
manufacturing sector
4.2.2 A Period of low productivity in Manufacturing: 2001-
2007
4.2.3 Monetary Union and the Fiscal Policies of the Irish
Government
4.3 The Irish Property Crash and the Global Credit Crisis: 2008-2010
4.4 Post-Crash Recovery in exports 2008-2015

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5. Future competitiveness of Irish manufacturing
5.1 Introduction
5.2 Case study - Boston Scientific
5.3 Convergence
5.4 The Requirements and Future Prospects for Irish Manufacturing
5.5 Conclusion
6. Conclusion

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List of Tables and Figures
Table 4.1: Estimated Emigration (Persons in April)(Thousand) by Nationality, Sex and Year
Figure 4.1: Industrial Production Index (Base 1995=100) by Industry Sector NACE Rev 1
and Year (Base 1995=100)
Figure 4.2: Value of Exports (Euro Thousand) by Year, Office machines and automatic data
processing equipment (75)
Figure 4.3: ILO Unemployment Rates (15-74 years)(%) by Quarter, both Sexes
Figure 4.4: Estimated emigration (Persons in April)(Thousand) by Year Irish, Both Sexes
Figure 4.5: Irish Food Sector Wage Competitiveness and Export Performance
Figure 4.6: US GDP Growth 2006-2015
Figure 5.1: Value of Exports Medicinal and pharmaceutical products 1994-2014

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Abbreviations Page
B2C Business to Consumer
CSO Central Statistic’s Office
ECB European Central bank
EEC European Economic Community
EPTR Exports Profit Tax Relief
EU European Union
FDA Food and Drug Administration
FDI Foreign Direct Investment
GDP Gross Domestic Product
GNP Gross National Product
ICT Information and Communications Technology
IDA Industrial Development Authority
IMF International Monetary Fund
MNC Multi National Corporation
NACE Nomenclature Generale des Activites Economiques dans l’Union Europeenne (The
European Classification of Economic Activities)
NPD New Product Development
OECD Organisation for Economic Cooperation and Development
OEEC Organisation for European Economic Cooperation
PNR Programme for National Recovery
R&D Research and Development
RCA Revealed Comparative Advantage
RD&I Research, Development and Innovation
REER Real Effective Exchange Rate
STEM Science, Technology, Engineering and Mathematics
ULC Unit Labour Costs
VET Vocational Education Training
WEF World Economic Forum

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Can Irish Manufacturing transition to a
new level of Competitiveness?
1. Introduction
The aim of this research project is to look at how the Irish manufacturing sector can continue
to be competitive on the global stage. The emergence of low cost economies in Eastern
Europe, China and so on have meant that Ireland will struggle to compete in sectors in which
cost/price competitiveness plays a major factor. The aim is to find a new way in which Irish
manufacturing can remain competitive in the future. Ireland has already moved towards
manufacturing in high-technology sectors and holds a competitive advantage in the areas of
Pharmaceuticals, Chemicals, Medical Devices and Technology, and also ICT Software. My
research question asks,
In the face of increasing cost competition from emerging economies can Irish Manufacturing
carve a new path to competitiveness through Integration and Innovation of Technologies in
order to compete on the Global Stage?
Can the integration of high-technology sectors with which Ireland already have a competitive
advantage in propel Ireland to a new level of competitiveness?
The study will be structured as follows. The research will begin by trying to define what it
means to be competitive, by looking at both price and non-price competitiveness and also the
different performance indicators which may suggest how an economy may gain

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competitiveness. The following two chapters will outline the Manufacturing Sector in Ireland.
Examining how Ireland gained the manufacturing competitiveness which led to the export-led
Boom from 1995-2001. Ireland’s competitiveness deteriorated post 2001 and the research will
try to investigate what triggered this loss in competitiveness. Competitiveness however
recovered after 2010 and the external factors which led to this recovery will be explored.
Finally the research will examine how Ireland can improve competitiveness going into the
future. A case study of Boston Scientific will observe their performance throughout the crisis
and the potential for the Medical Devices and Technology sector for the future. Following this
will be a study investigating the effects of the convergence of capabilities and technologies in
this sector in both Galway and Massachusetts. Finally there will be a review of the
requirements and future needs of the manufacturing industry in Ireland as set out by the
Government.

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2. How can we define Competitiveness?
The current literature shows many conflicting views on the definition of competitiveness.
As the pace of globalisation increases, the reality is that governments are in
competition with each other. This means that the primary role of government is to
establish and foster the conditions for an economy that can compete effectively with
the rest of the world.
(Hawkins 2006, p.1)
The measures used to gauge competitiveness often concern matters such as employment
generation, quality of employment and distribution of income (Buckley et al. 1988, p. 177). In
1988 Fagerberg defined Competitiveness as “the ability of a country to realize central
economic policy goals, especially growth in income and employment, without running into
balance of payments difficulties” (Cellini and Soci 2002, p. 74).
Competitiveness may be defined as the degree to which, under open market condition,
a country can produce goods and services that meet the test of foreign competition
while simultaneously maintaining and expanding domestic real income
(Cellini and Soci 2002, p.74)
2.1. What is competitiveness and how can we measure it?
We will look at competitiveness in terms of both price/cost and non-price (structural)
competitiveness. There are different indicators of performance which might explain how a
firm/industry/nation may arrive at competitiveness, such as profitability, productivity,
efficiency, technological advance.

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2.2. Price Competitiveness
Price competitiveness is defined by a firm using all its factors which enable it to price its
products at prices below that of its competitors. When measuring this internationally we use
the real exchange-rate, whereby the ratio of prices between countries is measured in a
common currency. For example if the real exchange-rate of the Euro were to increase
(appreciate) Ireland would lose its price competitiveness. However if the real exchange-rate of
the Euro decreased (depreciate) we would gain price competitiveness (Andreosso and
Jacobson 2005, pp.357-358). While this applies in the short-run, the law of Purchasing Power
Parity states that in the long-run real exchange-rate will find parity. This would imply that any
loss of competitiveness would be self-correcting in the long-run. The problem here is when
economies improve and begin to innovate they lose price competitiveness, however this may
not negatively affect their overall competitiveness (Hawkins 2006, pp.7-8). Cost
competitiveness is similar however it does not guarantee competitiveness as a firm may have
poor market position or product image (Buckley et al. 1988, p.186).
2.3. Non-price (Structural) competitiveness
Structural competitiveness refers to all the non-price factors of competitiveness such as the
factors which contribute to product and process differentiation, product quality, technological
advantage, industry specialisation, efficiency of sales networks, etc. (Andreosso and Jacobson
2005, p.357; Giordano and Zollino 2014, p.14). Andreosso and Jacobson (2005, pp.358-359)
state that Structural competitiveness is more important for an economy in terms of long-term
competitiveness and they provide us with 3 key determinants. (1) A firms management
practices and its organization of relationships between themselves and other firms are
important. This is where we see the importance of industrial districts such as Shannon
Development. (2) Innovation is extremely important and the firm’s ability to adapt to new

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patterns of demand and new higher-technology products. (3) A favourable macroeconomic
infrastructure including desirable public expenditure, tax systems, regulation and favourable
industrial policy. Quality competitiveness can be seen as non-price and in this context a lower
price may be reflective of poorer quality which may negatively affect sales (Buckley et al.
1988, p.189). Evidence from Benkovskis and Worz (2014, p.25) state that non-price factors in
China, Brazil, Russia and India played a significant role in them gaining international
competitiveness over the past decade. Correcting for non-price factors such as quality
improvements has contributed to the price of Chinese goods on international markets falling
by approximately 40 per cent. While it is believed China’s dominant role in the global export
market is mainly due to a large and cheap labour force, non-price factors have played a major
part also however their competitors may have overstated the impact of the exchange rate in
explaining China’s competitive position (Benkovskis and Worz 2013, pp.14-16)
2.4. Performance Indicators:
2.4.1. Profitability
Profitability is defined as the excess of revenue over cost, including the cost represented by
the income forgone from using the capital in the firm rather than in the best alternative use.
This is measured by dividing profits by total real capital employed. This can vary due to the
firm’s valuation of assets in terms of their initial cost or the cost of replacing these assets with
new capital. This is important as these assets can be undervalued giving us inflated profits.
Profitability is not always an indicator of competitiveness, for instance monopolies are
profitable but this would not indicate competitiveness in the market. The Demsetz efficiency
argument is important in this regard as it determines whether these profits are a result of either
the superior efficiency of the firm or market dominance (Andreosso and Jacobson 2005,

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pp.350-352). Cellini and Soci (2002, p.80) use the measure of unit labour-cost (the ratio
between nominal wages and average labour productivity). An increase in this cost can have
both a positive and negative effect depending on the circumstances. If the increase was caused
by a positive technological shock this would improve competitiveness. If it was caused by
political action such as increased unemployment benefit this would have a negative effect on
competitiveness. There are problems however with this measurement as some firms may
forego their profits in the short-term with the objective of long-term gains. However with the
absence of these profits it may seem that the firms are uncompetitive rather than gaining
competitive advantage within the market. These long-term gains may have many social
benefits such as increased employment, innovation and the development of new technology.
When looking at the industry level there is also the problem that some high performing firms
may cover the fact that some firms are uncompetitive (Andreosso and Jacobson 2005, p.355;
Buckley et al. 1988, pp.177-184).
2.4.2. Productivity
Productivity is defined as the ratio of one unit of output to one or more units of the inputs
necessary for the production of the product. There are problems however in measuring
productivity (quantity/ (labour + capital inputs used in production)). Firstly we look at factor
inputs, if two firms have the same number of workers (labour input) they may have different
productivity due to hours worked. Therefore which is the more appropriate measure of labour
input? The second problem is with capital productivity, should this be measured using the
initial cost of the capital or the cost of replacing this capital? And lastly unmeasured inputs
such as natural resources may bias measured Total Factor Productivity upwards (Andreosso
and Jacobson 2005, pp.355-357).

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2.4.3. Efficiency
An efficient firm is a firm which produces its goods on time and with a minimum of waste.
Productive efficiency incorporates both technical and factor-price efficiency. Technical
efficiency measures the maximum level of output for any amount of inputs using current
technology. Factor-price efficiency entails using the best combination of inputs given their
relative prices. Together they measure the optimal level of output that can be produced at
minimum cost for any given technology. The optimal allocation of resources and income
distribution is determined by a competitive market, this is known as Allocative efficiency.
Firms that produce at the lowest average cost are said to be X-efficient. In the absence of
competition monopolies can be X-inefficient. The lack of competition allows them to charge a
higher price in order to cover the cost of being inefficient. Industries protected by the
government are often said to be X-inefficient. This has led to the idea that deregulation will
eliminate inefficiency. Hence we have seen more deregulation and privatization by European
governments since the 1970’s. Dynamic efficiency takes into account changes in technology
which allows us to improve our products and processes (Andreosso and Jacobson 2005,
pp.359-363).
2.4.4. Technological Advance
Technological advancement is a result of dynamic efficiency. The Technological Intensity of
a country can refer to the percentage of output which is exported that can be attributed to
high-technology firms or industries. It can also be measured by the volume of high-
technology firms within the industrial structure (Andreosso and Jacobson 2005, p.363). Other
measures include R&D expenditures, number of patents, number of scientists and engineers
employed and percentage shares of research personnel per industry/country (Buckley et al
1988, p.189).

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2.5 Conclusion:
Ireland’s comparative advantage in terms of manufacturing is in high-skill and technology-
intensive manufactures (Murphy et al 2013, p.2). This would suggest that Ireland should be
more concerned with non-price/structural competitiveness which is more long-term. Ireland is
ranked first in the KOF Index of Globalisation, this measures a countries rank in terms of
economic, social and political globalisation (KOF, 2010). As an open economy Ireland should
be wary of concentrating on price competitiveness alone. Ireland is also a member of the Euro
Zone a condition of which is to relinquish monetary powers to Europe. Therefore Ireland has
less control over the exchange rate and subsequently price/cost competitiveness. The 2009
global crisis had more of an effect on price competitiveness as exchange rates and consumer
prices tend to react quickly to changes in global demand. Whereas changes in non-price
factors are affected more by the changes in structural or long-term factors (Benkovskis and
Worz 2013, p.15). Profitability may not be the best indicator as monopolies may distort the
view of the competitiveness of an industry or economy. Productivity and efficiency can be
good indicators of competitiveness within a firm or industry. Cassidy and O’Brien (2005,
p.88) show that Irelands improved manufacturing competitiveness from 1990-2004 was due
to strong productivity growth influencing cost competitiveness. Technological advance can be
a good indicator of the stage of competitiveness an industry or an economy is currently at.

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3. Irish Manufacturing and how it became
Competitive? (1950-2001: End of the Export-led
Boom)
3.1. Introduction
The first section of this chapter will look at the economic impact of manufacturing in Ireland
today. The next section will look at the sub-sectors of Modern and Traditional manufacturing
and will also talk about Ireland’s comparative advantage. The following section will examine
the period from 1950 when Ireland opened up to International trade until 2001 the end of
Ireland’s export led boom. Section 3.3 will investigate the various factors which made Irish
manufacturing competitive during this time.
3.2. Manufacturing in Ireland
While manufacturing has seen a decline in recent times in comparison to another sector such
as Services it still remains a vital component of the Irish economy. As of 2015 there was
222,400 people directly employed though manufacturing (Central Statistics Office 2016d). It
is believed that there is approximately a further 200,000 employed indirectly due to
manufacturing. Exports as a result of manufacturing were €78.5 billion in 2012. Since the
onset of the global economic crash in 2008, manufacturing exports have remained
considerably resilient and have been the only positive contributor to GDP growth since 2009.
The manufacturing sector is also a key driver for RD&I, contributing 39 per cent of private
expenditure, approximately €718.5 million, in 2011 alone. Another positive characteristic of

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manufacturing is that it creates employment in many different regions in the country
(Department of Jobs, Enterprise and Innovation 2016c). The output of the manufacturing
industry in Ireland increased by 8 per cent per year from 1958-2001. With productivity
increasing at 6 per cent per annum during this period, Ireland saw an increase in
manufacturing employment of 2 per cent per annum and 24 per cent of the value of output in
the economy in 2009 was produced by manufacturing (The Irish Academy of Engineering
2016). Inward Foreign Direct Investment is of vital importance to the Irish manufacturing
sector. In 2011, 80 per cent of the output and 48 per cent of the employment in manufacturing
could be attributed to foreign-owned firms. Of the output produced by foreign-owned firms in
that year 95 per cent was exported in comparison to 55 per cent of output exported by
domestic owned firms. FDI create a positive externality through the spillover in knowledge
and technology to the domestic industry. Evidence suggests that the modern sector benefits
more from productivity spillovers from FDI (O’Hagan and Newman 2014, p.253). Barry and
Bergin (2012, p.20) find evidence that the presence of leading foreign medical devices
companies in the west of Ireland have benefitted domestic firms through intra-industry
spillovers.
Barry and Bergin (2012, p.16) reveal that during the recent global economic crisis Ireland’s
share of pharmaceuticals, chemicals and medical devices as a percentage of EU15
manufactured exports actually increased proving them to be somewhat less vulnerable to
downturns in the economy. In fact they believe it was Ireland’s Revealed Comparative
Advantage (RCA)1
in this area of the modern manufacturing sector which helped stabilise the
economy by increasing exports. Conversely if Ireland had an RCA in transport equipment
there would have been a negative effect as this sector performed poorly within the EU15 and
1
Balassa’s revealed comparative advantage formula attempts to identify industries in which a
country has a comparative advantage (Andreosso and Jacobsen 2005, p.364)

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globally during the recent Global Crisis. As we can see the manufacturing sector is of vital
importance to the Irish economy in terms of creating employment and contributing to GDP in
both good and bad times. It is also important to have an RCA in areas that are more resilient
to downturns in the economy.
3.2.1. Modern and the Traditional Manufacturing sub-sectors
Manufacturing in Ireland can be divided into two sub-sectors the Modern and the Traditional
sector. The Modern sector tends to consist of high-technology companies which are mainly
represented by foreign Multi-National Corporations (MNC’s). It covers areas such as
chemicals and chemical products, basic pharmaceutical products and pharmaceutical
preparations, medical and dental instruments and supplies, computer, electronic and optical
products and electrical equipment (O’Hagan and Newman 2014, p.245). There is less
employment in these areas as they tend to be less labour-intensive (Pina 2011, p.19). The
Traditional sector consists of more low-technology industries, the majority of which are
indigenous firms. They tend to be more labour-intensive. They cover industries such as food
and beverages, textiles, clothing, leather products, wood products, pulp and paper, rubber and
plastic and fabricated metals (The Irish Academy of Engineering 2016). CSO figures for 2011
show that the modern manufacturing sector produced 68 per cent of the gross value added to
the sector and accounted for 34 per cent of the employment. When compared to 2008 we see
that output in the modern sector has increased by €4billion and output in the traditional sector
has decreases by €1billion. Although we do see a decrease in employment in both sectors, the
decrease in the traditional sector is more pronounced (O’Hagan and Newman 2014, pp.245-
246).

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3.2.2. Ireland’s comparative advantage
Ireland’s comparative advantage2
shifted in the 1970’s from low-skilled labour-intensive
industries to more high-skilled capital-intensive industries (Andreosso and Jacobson 2005,
p.364). Post 1973 Ireland began to move towards more high-technology sectors such as
computers and electronic components, pharmaceuticals, and medical and optical products.
This was driven by factors such as a more educated workforce and the entry of more low
wage countries from Asia into the global market (Barry and Bergin 2012, pp.4-5). Many
indigenous labour-intensive industries such as clothing and footwear found it difficult to
compete with such lower wage countries, wage inflation in Ireland also became a problem as
the economy developed (Addison-Smyth 2005, p.105). Manufacturing is a key driver of
economic development, initial increased employment will eventually decrease as the
economy develops and wealth increases, a move to more high-technology industry is a natural
progression (The Irish Academy of Engineering 2016). After the oil shocks of the 1970’s the
IDA began to move away from promoting labour-intensive industries and began to focus on
industries which would be less vulnerable to competition from low wage countries (Barry and
Bergin 2012, p.21).
3.3. 1950-2001: How Irish Manufacturing became Competitive
Kirby (2002, p.13) defines Ireland as a Newly Industrialised Country as it shows a similar
development trajectory to the economies of Latin America and East Asia. When assessing
manufacturing in Ireland and how it gained its competitiveness one must first look at the
change in industrial policy in the 1950’s towards a more outward-looking export orientated
policy. While Western Europe was experiencing a period of economic growth due to post-war
2
Comparative advantage implies that each country, to remain competitive, should specialise in the
product it can produce with the factors of production with which it is well endowed (Andreosso and
Jacobson 2005, p.364).

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reconstruction, Ireland saw mass emigration with approximately 400,000 leaving the country
during the 50’s. Government’s prior to 1950 had advocated Protectionism as an economic
policy with the intention to gain economic independence (Donnelly et al 2010, pp.29-47). The
government came to the realisation that protectionism was leading to stagnation and high
emigration and there was a need for change. The problem for indigenous firms dealing with a
protectionist policy is that the domestic market is too small and profits are too low. And it’s
too hard to compete in the export market as tariffs increase the price of raw materials making
their export price uncompetitive (MacSharry and White 2000, pp.187-188). From 1949-56
GNP grew by only 8 per cent in comparison to 42 per cent for most OEEC countries
(O’Malley 1989, pp.78-79). Unemployment, emigration, and deterioration of the balance of
payments and the overall inefficiency of protectionism meant by the late 1940’s the
government was under pressure to make a change (Donnelly et al 2010, p.47).
3.3.1. IDA
In 1949 the government set up the Industrial Development Authority (IDA) as an autonomous
body within the Department of Industry and Commerce, tasked with initiating proposals for
industrial development through investment sources both domestic and foreign. The 1958
Programme for Economic Expansion spelt the end of the Protectionist era as the government
favoured export-orientated production in order to seek economic development (Donnelly et al
2010, pp.44-51; MacSharry and White 2000, p.227; Smith 2005, p.105). The 1969 Industrial
Development Act allowed the IDA control over its internal operations such as full autonomy
over the provision of capital grants, promotions, and the development of industrial estates,
advance factories and R&D (Donnelly et al 2010, p.55 and MacSharry and White 2000,
pp.190-191).

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The oil crisis of the mid 70’s and early 80’s prompted a rethink in strategy by the IDA. The
IDA Strategic Plan 1982-1992 was to target high technology-intensive industries that could
produce high output growth. It was believed that these industries would be less vulnerable to
economic shocks. The IDA began to target what they considered to be high-growth industries
such as computer software, electronics, biotechnology and healthcare (MacSharry and White
2000, p.207). Attracting companies who were world leaders in their industry required
investing large amounts of capital and therefore making it more likely a company would have
a longer-term commitment in comparison to industries which were more labour-intensive and
more price volatile (MacSharry and White 2000, p.276; Pfizer 2016).
Barry and Bergin (2012, pp.20-22) believe Ireland’s competitiveness in attracting FDI can be
attributed to factors such as EU membership, low rates of corporation tax, an upgrading in
human capital and physical infrastructure, development of which was driven by the IDA. Also
Irelands close geographical proximity to America, shared language, similar common law
traditions and shared cultural connections helped in attracting many US firms in using Ireland
as an export platform for the European Market.
3.3.2. Corporation Tax
The Finance Act of 1956 was a milestone in that it created a tax incentive for industrial
development. This was seen by Donnelly et al (2010, p.30) as a precursor to the low
corporation tax we have today. The Exports Profit Tax Relief allowed companies to receive
50 per cent tax relief on exports for a period of 15 years. This would be increased to 100 per
cent in 1958. It would become a pivotal tool when competing with other nations for FDI
(MacSharry and White 2000, p.187). In 1978 under pressure from the European Commission
concerning discrimination in favour of exports the government abolished EPTR and
introduced a standard 10 per cent corporation tax for the entire manufacturing industry. In

15
1998 under further pressure from the European Commission the corporation tax was increased
to 12.5 per cent, however this was applicable to all companies across all sectors which meant
a reduction in the standard rate from 28 per cent (Laffan and O’Mahony 2008, p.230;
MacSharry and White 2000, p.227; O’Malley 1989, p.76; Smith 2005, p.111).
3.3.3. European Membership 1973-2001
Accession to the EU in 1973 complemented the industrial policy and economic strategy
which Ireland embarked on in the 1950’s. A more outward looking policy led by exports was
enhanced by gaining access to a larger European market. This also meant we could move
away from our dependence on Britain as an export market. In 1973, 50 per cent of our exports
went to Britain, this fell to 25 per cent by 2000 (Laffan and O’Mahony 2008, p.231;
MacSharry and White 2000, p.151).
The Single European Act implemented in 1993 had a major impact in terms of
competitiveness in Irish manufacturing. This offered 4 main freedoms, the free movement of
people, goods, services and capital. The Act prevented governments from providing state aid
or non-tariff barriers in order to protect their domestic industries (European Commission
2016a). Ireland’s industrial strategy formed by the IDA allowed it to capitalise on a major
influx of investment from the US. In 1997, as a destination for US investment Ireland ranked
5th
in the world. The Act also doubled the transfers from the Structural and Cohesion funds,
from which Ireland would benefit as it was considered a periphery country. By 2002 our
exports accounted for 94 per cent of GDP, whereas in 1973 this figure was 38 per cent
(Donnelly et al 2010, pp.381-382; Laffan and O’Mahony 2008, pp.231-232).
Funding from the EU also had a major impact on manufacturing by helping to fund
infrastructure in the late 80’s when the government lacked the resources to increase public
expenditure (Laffan and O’Mahony 2008, p.42). European aid to Ireland from 1989-99

16
amounted to 3 per cent of GDP per annum or approximately £17bn. Funds were directed
towards improving Ireland’s physical infrastructure such as roads, public transport, ports and
telecommunications. Ireland had huge unemployment in the 80’s and many workers had to be
retrained. Foreign companies seeking to invest or expand in Ireland could receive ample
training grants to upskill workers without sacrificing their own profits. The funds came with
strict guidelines which would help foster more long-term thinking in terms of economic
planning rather than short-termism that comes with the political-cycle (Laffan and O’Mahony
2008, p.233; MacSharry and White 2000, pp.154-180).
Entry to the EMU also provided economic stability as the Maastricht criteria demanded
Ireland to commit to a low budget-deficit, low inflation and interest rates (Laffan and
O’Mahony 2008, p.45). Removing the uncertainty around exchange rate movements helped in
attracting long-term investment from abroad (Leddin and Walsh 2003, p.265).
3.3.4. Social Partnerships
Another key ingredient in Irish manufacturing competitiveness was Social Partnership
agreements. Social Partnership entails an understanding of economic and social objectives
across sectors including government, state, trade unions, employers and farming. Crucially for
Ireland there was strong cross-party political support for the idea (Kirby 2002, p.40).
In October of 1987 a 3 year agreement was made known as the Programme for National
Recovery (PNR) (Laffan and O’Mahony 2008, p.228). The aims of PNR were to correct fiscal
adjustment, reform of taxes, and social equity through better pay and increased sectoral
development policies. The major trade-off in this agreement was wage restraint through
moderate increases in wages in return for tax-cuts which would compensate by increasing real
take-home pay for workers (MacSharry and White 2000, pp.125-132). From 1987-1999 real
average industrial earnings have increased 10.5 per cent however the effect of tax-cuts has

17
meant that the average worker has seen their take-home pay increase by 22.6 per cent (Kirby
2002, pp.135-136).
This also created a lower likelihood of industrial disputes. Wage certainty enables firms to
take a longer-term view towards investment. This was attractive especially for foreign firms
looking to invest in Ireland. There were four successive Social Partnership agreements from
1987-99, an era which saw unrivalled prosperity in the Irish economy (Cassidy and O’Brien
2005, pp.77-78; MacSharry and White 2000, pp.134-141).
3.3.5. Education and Labour Force
A highly educated workforce has had a major impact on the decision of foreign companies to
locate in Ireland particularly US companies in sectors such as electronics, pharmaceuticals
and medical devices. A report in 1965 Investment in Education prompted the government to
improve the level of education and also the poor participation rate in secondary and third
level. In 1967 the government introduced free secondary school education and provided rural
areas with free transport. They also introduced Regional Technical colleges (Institutes of
Technology) and expanded science and engineering in universities. An OECD report in 2005
showed that 137,000 students attended third level in Ireland compared to 21,000 in 1965. The
strategy was in line with the type of high-tech industries the IDA was procuring during this
period. Our highly educated workforce helped fuel the economic boom of the 90’s however
this was also helped by a large increase in the workforce which increased by 46 per cent form
1992-2000. The workforce was boosted by a reversal of the high unemployment rate and
emigration of the 1980’s. Also the participation rate of women which had been poor
compared to European standards. Women only made up 25.4 per cent of the workforce when
Ireland joined the EU in 1973 today this figure is closer to 46 per cent (European Commission

18
2015b; Laffan and O’Mahony 2008, p.226; Leddin and Walsh 2013, p.427; MacSharry and
White 2000, p.26).
3.4 Conclusion
It is believed that a decreasing share in more traditional labour-intensive industries and an
increase in market share in high-technology industries is a sign of increased international
competitiveness. The 1970’s oil crisis prompted the IDA to look towards more high-
technology sectors such as computers and electronic components, pharmaceuticals, and
medical and optical products. This was driven by factors such as a more educated workforce
and the entry of lower wage countries from Asia into the global market. The ability of Ireland
to conserve a low corporation tax has been a key factor in foreign firm’s decision to invest in
Ireland. Entry to the EEC in 1973 opened Ireland up to a market of 250 million people
allowing Ireland to become an export-platform for US companies (Barry and Bergin 2012,
pp.3-7; Buckley et al 1988, p.182; MacSharry and White 2000, p.200). European aid has
allowed Ireland to build the infrastructure, needed for manufacturing to compete
internationally, at a time when the Irish government could not fund it themselves. Upon entry
we had the lowest average GDP of the EEC at GDP per capita of 53 per cent and by 2008 we
had the 2nd
highest at 135 per cent of the EU average (Donnelly et al 2010, p.380). The wage
restraint due to social partnerships has benefitted manufacturing by boosting competitiveness
through lower than expected wages (MacSharry and White 2000, p.134). As of 2010 foreign
multinationals involved in exports employ 136,000 people and account for 70 per cent of total
exports amounting to €110billion (Donnelly et al 2010, p.65).

19
4. The loss and recovery of manufacturing
competitiveness throughout the Irish Property and
Global Credit Crisis
4.1. The end of the Export-led boom and the Loss of
competitiveness in Irish Manufacturing
Economic growth from 2001–2008 was led by an artificial construction boom which replaced
the export-led boom of 1994–2001 (Donovan and Murphy 2013, p.28). Export growth began
to slow down after 2000 due to weak global demand for high-technology goods an area which
Ireland specialised in. This was in conjunction with a widespread slowdown in international
demand. A rising domestic cost base and an appreciation of the euro led to an erosion of the
competitive position of many exporting sectors linked to manufacturing. Export growth
dropped from 20.4 per cent in 2000 to as low as minus .08 per cent in 2003 before rising
again to 4.4 per cent in 2004 (Cassidy and O’Brien 2005, p.76-78). Cerra et al (2002, p.5) use
the Unit Labour Cost-based (ULC) measure of the real effective exchange rate (REER) to
determine external competitiveness of manufacturing. They show how Ireland gained
competitive advantage from 1995-2000 by decreasing ULC’s. The increases in wages were
outweighed by the growth in manufacturing productivity. The slowing of global demand in
the second half of 2001 saw production cuts in many sectors, the decreasing productivity no
longer offset the increase in wages which was beginning to soar. Some companies began to
reduce employment some even relocated to Eastern Europe and East-Asia. The ULC measure
is usually weighted by shares in manufacturing output. The output weighted measure shows

20
increasing competitiveness in manufacturing from 1995 – 2001. Despite this the improvement
in ULC’s for labour-intensive sectors has been poor. When measures are weighted for
employment the ULC shows little change in this period implying that the increase in
competitiveness was limited. The positive competitiveness gains indicated by the output
weighted measures are representative of the impressive performance a few high performing
sectors such as Chemicals and Pharmaceuticals. These sectors tend to have less employment
and high ratios of output per worker. This would indicate that the employment weighted
measures are less immune to increasing wage costs (Cerra et al 2003, pp.183-184). The
labour-intensive manufacturing industries were more reliant on a weak nominal exchange-rate
in order to improve competitiveness in this period rather than lower ULC’s. An appreciation
of the Euro in 2002 added to the already cyclical deterioration of competitiveness in labour-
intensive manufacturing (Cerra et al 2003, pp.186-187). Sectors such as Chemicals and
Pharmaceuticals, Electrical machinery, and Medical and Optical instruments maintained their
growth in competitiveness during this period and beyond 2001 showing them to be less
sensitive to increases in wages and exchange rates. This was somewhat offset by the
deterioration in competitiveness in the Office and Computing machinery sector (Figure 4.1),
which would have higher employment, by the global downturn in ICT in 2001. The
employment weighted measure may be a more appropriate way of measuring manufacturing
competitiveness in Ireland. The gains in the output weighted measure can often represent a
few high performing sectors which who tend to have less employment and can often mask the
fact that employment-intensive sectors are not improving their competitiveness (Cerra et al
2003, pp.189-190).

21
Figure 4.1
(Central Statistics Office 2016c)
4.2. What factors caused the loss in competitiveness?
Manufacturing employment fell by 31,000 from 2000–2005 with many job losses seen in the
ICT and Traditional sectors. Traditional sectors such as Textiles and Leather saw a 50 per
cent drop in employment. These are typically labour-intensive sectors and were affected by
the deterioration in price competitiveness due to an appreciation of the Euro especially against
the US dollar the UK sterling (Department of Jobs, Enterprise and Innovation, 2016a). This
saw consumer prices in Ireland rise 10 per cent compared to their trading partners from 1999–
2002 (Cassidy and O’Brien 2005, p.85).

22
4.2.1. Dot.com crash and the deterioration of the Irish ICT manufacturing
sector
The ICT sector in Ireland was highly exposed to the dot.com bubble of 2000 resulting in
major job losses and deterioration of competitiveness. With companies such as Apple,
Gateway, Intel and Dell Ireland had become one of the main European centres for computer
hardware manufacturing. According to the IDA in 1999 almost 33 per cent of PC’s sold in
Europe were manufactured in Ireland. Ireland also accounted for 5 per cent of global
computer exports (Barry and Egeraat 2008, p.38). During the late 90’s a new e-commerce
sector had emerged in the US. Along with Microsoft there was a surge in business to
consumer (B2C) e-tail companies (Marche and Thornton 2003, p.122). The NASDAQ
Composite Index had doubled in value from 1999–2000 however the shares were enormously
overvalued and on the 10th
of March it reached its peak at 5000 (Donovan and Murphy 2013,
p.61). A correction in the stock market in April saw the NASDAQ drop 10 per cent sending
the high-tech sector into freefall. By the end of the year some 234 dot.com companies had
crashed (Marche and Thornton 2003, pp.122-123). The dot.com bubble had burst and in
addition to the 9/11 attacks and the outbreak of war in Iraq the US economy took a sharp
downturn in 2001 (Donovan and Murphy 2013, p.61). This had a major impact on Irish
exports as they were highly exposed to the Global ICT sector. A fall in demand for exports
(Figure 4.2) from the multinational sector coupled with increasing unit labour costs led to a
loss of jobs in the Irish computer, electronics and optical sector. CSO figures show that
employment fell from a high of 48,500 in Q1 2001 to 35,500 in Q4 2004 (Donovan and
Murphy 2013, p.61 and Central Statistics Office 2016d). Competition from low wage
countries saw computer assembly production move to Central and Eastern Europe and the
production of computer peripherals move to East Asia (Barry and Curran 2004, p.6).

23
Figure 4.2
(Central Statistics Office 2016e)
4.2.2. A period of low productivity in Manufacturing: 2001-2007
Kirby (2010, pp.6-7) raises the question whether the Celtic Tiger was simply a reflection of
the US boom. The economic growth in the period 1995-2000 was largely a result of very high
productivity rates of a few high performing sectors most of which were made up of
multinationals from the US. Indigenous firms employed roughly the same number as foreign
owned firms however their value-added to output was much less. In 2006 Indigenous firms
added €9.7bn to the value of output however this only amounted to 16 per cent of the total
output, with foreign firms providing the other 84 per cent worth €50.6bn. Exports continued
to grow from 2001–2007 at an average of 5.2 per cent per annum however this was at a lower
rate than our trading partners with global exports at 6.4 per cent. Exports did not contribute to
Irish economic growth from 2003–2007. Productivity weakened after 2001 and this was

24
reflected in our global competitiveness ranking which dropped from the top five at the
beginning of the decade to 21st
by 2006 according to the WEF rankings (Burke and Lyons
2011, pp.95-96). An annual average growth rate of 5 per cent from 2001-07 would suggest
Ireland overcame the dot.com crash and the global slowdown in the ICT sector. This growth
data however hides the fact that the productive base in Ireland had changed. Growth was no
longer driven by exports but by increasing domestic demand especially in housing and
construction. Sexton (2007, p.46) finds that productivity slowed particularly around 2004-05.
He suggested that the decline in productivity was due to a shift in the structure of economic
growth from the high-technology manufacturing sectors to the construction and services
sectors.
4.2.3. Monetary Union and the Fiscal Policies of the Irish Government
Allied with the decline in productivity this period saw an increase in wages, consumer prices
and house prices which all contributed in the deterioration of Ireland’s price competitiveness.
As part of a monetary union you have to relinquish your monetary power which makes it hard
to control inflation as you have no power over your interest rates, “Monetary unions can
exacerbate different patterns of business cycles across the different regions in the union”
(Burke and Lyons 2011, p.71). This was a problem for Ireland as they were experiencing
economic growth while at the same time countries like Germany were experiencing an
economic slowdown. Ireland had average annual growth of 5 per cent from 2001-07 therefore
they needed higher interest rates in order to cool down the economy and control inflation
however the real interest rates remained low due to the slowdown in Germany. This low
interest rate acted as an asymmetric shock to the economy. Low interest rates meant there was
less saving and credit could be accessed easily. This led to a credit fueled boom with growth
delivered through investment and consumption which was clearly unsustainable. The

25
Government fiscal policy should have been to restrain wages, consumer prices and house
prices. However the government did not see rising house prices as a sign of poorer
competitiveness but rather as a sign of greater wealth and implemented an expansionary fiscal
policy. Ireland required a prudent fiscal policy similar to that of the 1980’s/90’s which helped
us to gain price competitiveness. Instead government expenditure expanded rapidly at a rate
of 10 per cent annually from 2000-08. Increasing unit labour costs were extremely damaging
to our price competitiveness and the increase in wages in this period can be attributed to the
70 per cent increase in public sector pay by the government. This resulted in private sector
pay being increased with manufacturing seeing an increase of in wages of 63 per cent (Burke
and Lyons 2011, p.71).
4.3. The Irish Property Crash and the Global Credit Crisis: 2008-
2010
A property led boom from 2001-2007 was precipitated by a boom in bank lending. A rapid
rise in wages, the availability of cheap finance as a result of low interest rates in the Eurozone
and the globalisation of financial markets fuelled a boom in the property and construction
sector. This led to an employment boom in construction causing wages to increase to
uncompetitive levels across all sectors. This was particularly negative for manufacturing
companies dependent on export markets (Bergin et al 2011, p.48 and Kelly 2009, p.1). House
prices increased at a much faster rate than inflation and wages from 1997-2007 (Leddin and
Walsh 2013, p.393). Kelly (2009, p.2) links the increase in house prices to the increase in
mortgage lending. This created a vicious circle whereby larger mortgages were pushing up
house prices and increasing prices prompting banks to grant even higher mortgages. Banks
were funding this through borrowing on the wholesale markets and lending to domestic
developers. The policy of the banks was to borrow short-term at cheap rates on the inter-bank

26
market and lend long-term to domestic developers and property buyers leaving the banks
vulnerable to any shock to the economy (Bergin et al 2011, p.49 and Kelly 2009, pp.2-4). By
mid-2007 unsold housing units were beginning to accumulate and the property sector was in
trouble. The banks which were heavily leveraged by loans to the property sector began to see
share prices fall. By late 2008 the US sub-prime mortgage crisis came to a head and Lehman
brothers went bankrupt sending the international market into a global credit crisis. Inter-bank
lending froze spelling disaster for Irish Banks and on the 28th
of September an Irish
government bailout guaranteed all deposits and senior debt in the six Irish banks (Leddin and
Walsh 2013, pp.397-398 and Kelly 2009, p.3). House prices began to collapse in 2009
sending developers into liquidation and thus prompting a run on the banks sending Ireland
into a banking crisis. By November 2010 increased interest rates meant the government could
no longer borrow on the international bond market. Unable to finance the country the
government obtained a bailout from the IMF-EU-ECB (Troika) (Leddin and Walsh 2013,
pp.398-399).
4.4. Post-Crash Recovery in exports 2008-2015
The ensuing Recession saw unemployment increase to 15 per cent in 2011 (Figure 4.3) and
emigration has reached 276,600 from 2008-2015 (Figure 4.4; Table 4.1). Employment in
construction dropped from a high of 273,900 in 2007 to a low of 96,300 in 2013 (Central
Statistics Office 2016d). Aggregate exports have improved their competitiveness since 2008.
However compositional effects show this has been due to strong performance in certain
sectors (O’Brien 2011, p.91). The recovery in exports is mainly due to the performance of
modern sectors such as Chemicals and Pharmaceutical’s, and Medical Devices. Both these
sectors increased their share of EU15 manufacturing exports in 2009 proving them to be less
vulnerable to a downturn in the economy. It is Irelands Revealed Comparative Advantage in

27
these areas which has helped stabilise the economy during the Global Crisis. The only
increase in exports in 2007-2008 occurred in Chemicals and Pharmaceutical’s at 10 per cent
and medical devices at 12 per cent. Also many of these companies are American and a large
majority of their exports are to the US, therefore there is a lot of intra-firm trade which
cushion the exports from exchange-rate volatility (Barry and Bergin 2010, p.4; Barry and
Bergin 2012, p.15; O’Brien 2011, p.97; Pina 2011, pp.19-23). Unit Labour costs have fallen
18 per cent from 2008-2011 the largest fall among the euro area countries. This can be
attributed to growth in productivity and wage restraint. In 2010 Ireland had three times the
EU27 average for gross value added per employee in the manufacturing sector (O’Brien and
Scally 2012, p.90; Pina 2011, p. 4). Even so Traditional sectors, which are highly Indigenous,
such as Food and Beverages experienced a drop in competitiveness following the crash.
Indigenous firms are heavily exposed to the UK market and a sharp depreciation of the
sterling of 16.4 and 11.9 per cent in 2008 and 2009 had a negative impact on such exports.
However, an appreciation in Sterling by 3.7 per cent in 2010 saw a return to competitiveness.
Added to this wage restraint helped the recovery in market shares (Figure 4.5) in the Irish
food sector (Bergin et al 2011, p.53; O’Brien 2011, pp.91-100; O’Brien and Scally 2012,
pp.92-94; Pina 2011, pp.19-26).
Table 4.1
Estimated Emigration (Persons in April) (Thousand) by Nationality, Sex and Year
2008 2009 2010 2011 2012 2013 2014 2015
13.1 19.2 28.9 42.0 46.5 50.9 40.7 35.3
(Central Statistics Office, 2016a)

28
Figure 4.3
(Central Statistics Office 2016b)
Figure 4.4
(Central Statistics Office 2016a)

29
As of 2015 the Irelands competitiveness position has improved mainly due to external factors
such as a weak Euro, low ECB interest rates and low energy prices caused by the drop in oil
prices. These low energy costs are particularly important as Ireland imports 90 per cent of its
energy (O’Brien and Scally 2012, p.90). Goods exports have been the main contributor to
economic growth in 2015 with 11.1 per cent growth with the Pharmaceuticals and Medical
Devices sectors being particularly strong. The Traditional sector has also showed strong
growth due to the competitiveness of the weak Euro and low oil prices. Production output in
the modern sector grew 26 per cent year on year in the third quarter of 2015 and the
traditional sector saw an increase of output at 10.3 per cent in the same period. Exports in the
modern sector have been helped by the return to growth of the US economy since 2010 with
an annual growth rate of GDP of 2.21 per cent to 2014 (Figure 4.6), (The World Bank 2016).
The depreciation in the Euro is helping to offset the downward pressure from lower
commodity prices particularly in the traditional sector. Unit labour costs remained stable in
2015 and are forecast to decrease 1.4 per cent in 2016. The US Dollar and UK sterling
appreciated against the euro by 10 and 6 per cent respectively year on year in the fourth
quarter of 2015. To maintain cost competitiveness Ireland cannot rely on external factors such
as exchange rates or low energy prices but must improve productivity. In the long run this
will help Ireland remain competitive even in the face of increasing incomes (National
Competitiveness Council 2016a). Productivity has improved over the last few years
increasing 3.5 and 3.2 per cent in 2014 and 2015 with a projection of 2.4 per cent in 2016.
The central bank forecast a strong contribution from net exports to Irish GDP growth of 6.5
and 4.9 per cent over the next two years (Central Bank of Ireland, 2016a; Central Bank of
Ireland, 2016b; Central Bank of Ireland, 2016c).

30
Figure 4.5
(O’Brien and Scally 2012, p.98)
Figure 4.6 US GDP Growth 2006-2015
(The World Bank 2016)

31
5. Future Competitiveness of Irish Manufacturing
5.1. Introduction
This Chapter is looking at the path for future competitiveness in Irish manufacturing. A case
study will look at Boston Scientific a company in the Medical Devices/Technology sector in
Ireland. Section 5.3 will investigate the theory of convergence of technologies and capabilities
within manufacturing through the work of Best, Giblin and Ryan who studied the Medical
Devices/Technology clusters in Massachusetts and Galway. The final section will be a review
of five recent reports published by various Government departments outlining the
requirements and future prospects for Irish manufacturing.
5.2. Case Study: Boston Scientific- Medical Devices/Technology
Sector
Boston Scientific Corporation was established in Marlborough, Massachusetts in 1979. They
are one of the world’s largest Medical Device companies they employ 25,000 people across
17 manufacturing sites worldwide. They specialise in less-invasive medical technologies
which provide alternatives to major surgery and other medical procedures that can be
traumatic to the body (The Engineers Journal 2016). Boston Scientific Group Plc first
established in Ireland in 1994. Today it has three Irish sites in Galway, Cork and Clonmel
employing approximately 3,000 people. Investec the Irish Exporters Association ranked them
14th
in their Top 250 Irish Exporters for 2015. Their exports in 2015 were valued at €4.2bn
with some 10 million devices exported worldwide each year including products such as stents,
balloons, platinum coils, catheters, inflation devices and pacemakers. The Irish manufacturing

32
operation is seen as fundamental to the company’s manufacturing strategy (Irish Exporters
Association 2016b). The Galway plant is the company’s largest manufacturing facilities and
is the centre of excellence for developing drug-eluting stents, 12 million of these stents have
been implanted worldwide with many of these having been manufactured in Galway (The
Engineers Journal 2016; Irish Exporters Association 2016a). From a solely manufacturing
beginning the firm has evolved over the years to include product design and development
capabilities (Ryan and Giblin 2012, p.1333).
The Medical Devices/Technology (Medtech) Sector in Ireland is the second largest employer
in Europe with over 27,000 people employed with the highest number of workers per capita at
the highest output per capita in Europe. There are over 400 Medtech companies based in
Ireland and 60 per cent are Indigenous (Cunningham et al 2015, p.24 and Irish Medical
Devices Association 2016a). Medtech goods represent 8.3 per cent of Ireland’s total
merchandise exports valued at €7.2bn in 2015. Exports have seen improvement even in the
face of the Global/Irish Crisis. This can be linked to the essential nature of the goods being
produced as health remains a priority even in times of economic downturn. While exports
experienced a 10 per cent decline from 2005-07 they have seen an annual growth of 14 per
cent since then (Figure 5.1) and an increase in value from €3.9bn to €7.2bn (Irish Exporters
Association 2016b). Medtech companies are attracted to Ireland due to the young educated
workforce, its low corporate tax base and its innovative and entrepreneurial spirit. For US
companies there is also the attraction of the EU regulatory system which allows them to bring
products to market within 2 years in comparison to the US where it can take up to 5 years to
bring a product through the FDA (Cunningham et al 2015, pp.23-24; Irish Exporters
Association 2016a). The medical devices sector in Ireland has seen a reversal in product
strategy in the last 25 years. Products such as syringes and catheters with less stringent
regulation made up 92 per cent of exports in 1990 compared to 35 per cent in 2010. More

33
stringent regulatory products such as pacemakers and implantable devices represent 58 per
cent in 2010 compared to 3 per cent of exports in 1990. In 2012 Ireland was the largest
exporter of both these products accounting for a 20 and 24 per cent share of global exports
(Irish Exporters Association 2016b). Almost 80 per cent of global stent production occurs in
Ireland with Boston Scientific a major contributor. Unlike pharmaceuticals over half of the
Medtech companies in Ireland engage in R&D. The medical device sector is the number one
industry in the world for innovation with up to 8 per cent of sales reinvested in R&D. Ireland
can take advantage of this by introducing technological convergence between the medical
devices, pharmaceutical and ICT software sectors. Irelands competitive advantage in these
areas could allow it benefit in all three sectors through the externalities arising from such
clustering (Collins and McNicholas 2016, pp.1-9 and Cunningham et al 2015, pp.26-28). The
effects of such clustering have already been seen in Galway which has the 2nd
highest
concentration of medical devices companies outside of Minnesota. University-Industry
linkages have allowed for the development of a skilled labour force and knowledge transfers
have benefitted both start-ups and local supplier firms (Cunningham et al 2015, pp.30-33). To
remain competitive Ireland is investing more resources in high-value manufacturing and R&D
through education. Applications for STEM subjects have increased 18 per cent since 2010
with engineering, computing and science averaging increases of 23.9, 47.6 and 17.2 per cent
respectively. The government have also introduced through Solas two new apprenticeships
aimed at the Medtech sector, Manufacturing Engineer and Manufacturing Technician (Collins
and McNicholas 2016, pp.5-9). This is an important step considering 57 per cent of
employees in the medical devices sector are operatives who might not necessarily need a
degree (Cunningham et al 2015, p.24). The outlook for the Medical Device/Technology sector
is positive it has an annual growth rate of 4 per cent in Europe. The IMDA expect the global
Medtech industry to grow at an annual rate of 5.5 per cent over the next 3 years. In Ireland 72

34
per cent of Medtech companies expect sales to increase and 47 per cent of companies expect
to employ more people in 2016 (Collins and McNicholas 2016, pp.2-9; Irish Medical Devices
Association 2016b).
Figure 5.1
(Central Statistics Office 2016f)

35
5.3. Convergence
The firm is an important source of technological change however it also represents the skill
level and technological capability of the region it inhabits. In turn the distinct technological
capability the region possesses is a source of competitive advantage to the firms (Best 2005,
p.3). “Capabilities are the ability to reconfigure, redirect, transform, and appropriately shape
and integrate existing core competences with external resources”, in turn they help combat
increasing global competition and imitation (Giblin and Ryan 2012, p.1326). Best (2005, p.3)
uses the VThread database to look at 5,000 companies in Massachusetts, looking at product
categories in order to find technological capabilities within a region. Looking for locations
with concentrations of product/technology they found that specialist engineering skills and
knowledge could offer plentiful opportunity for new product development (NPD) in medical
devises in Massachusetts (Best 2005, p.5). Boston Scientific had already been a leader in
technological and organizational process integration and they availed of the leading biotech
industry in the region by integrating it with medical devices in their NPD. They implemented
an ‘Open Systems Business Model’ which allowed them to focus on their core capabilities
and partners with complementary capabilities. This type of model was replacing the old
vertically-integrated organizations. Mid-sized companies followed their lead and helped
reinforce the regions production capabilities. Production development was the aim not mass
production. This was built on a strategy which was technology focused (Best 2005, pp.16-20).
The theory is that the development of capabilities and improved skills and expertise are the
drivers of regional specialization and economic growth. This should be backed up by research
which will locate the distinct capabilities which characterize the regional competitive
advantage (Best 2005, p.31). The integration of technology around medical devices and
biotech established a regional advantage in Massachusetts. For example the development of
Angioplasty by Boston Scientific may not have created a new industry but the integration of

36
drugs and medical devices can have the same effect as they bring together two technologies in
order to create a new product. The open systems business model has meant the
experimentation and design activities central to NPD has been decentralized allowing smaller
firms to avail of NPD capabilities. The technological diversity of a region is vital to the
transition to a new regional system of innovation. The region itself can be said to have NPD
and technology management capabilities even though many smaller firms may not have such
capabilities internally (Best 2005, pp.34-35).
The Irish economic model of attracting FDI investment based on cost competitiveness and
low corporate tax in order to introduce new industries is now largely redundant. A transition
to a new model based on endogenous development is fundamental and the IDA must sell
Ireland as a place to innovate by targeting innovative and high-end manufacturing projects
(Best et al 2010, p.45; Giblin and Ryan 2012, p.1325). Evidence has shown that FDI is
attracted to industrial clusters and we can see how this has translated in the West of Ireland in
the medical device sector through generating economic externalities in the local economy.
Through specialisation in this sector we have seen the transfer of capabilities from MNC’s
which must be nurtured in order to influence indigenous development. The transfer of
capabilities combines both the ‘soft’ side of technology such as management and production
processes and the ‘hard’ side of technology such as science and engineering. The combination
of micro-level capabilities within each firm can shape the macro-level regional capabilities.
The influx of MNC’s into Galway has accounted for the transfer of capabilities in precision
engineering for the production of medical devices. Successful regions with distinct
technological capabilities can gain a competitive advantage over time which can be difficult
to imitate for other countries (Giblin and Ryan 2012, pp.1325-1327). The Lucerna database
was created to help researchers characterise, measure and monitor emerging technology-
oriented firms that can drive technological transition in Ireland (Best et al 2010, p.45). The

37
statistics provided by the CSO are based on NACE classifications which are problematic in
this context as the industrial classifications are too broad. Firms that have multi-product
technology will be classified under one code when in fact they may cross-over into multiple
codes. These industrial categories were developed to classify mass production of generic
products rather than product-led competition. The Lucerna database is more refined allowing
it to capture the location, source and extent of technological change and industrial transition
(Best 2005, p.4; Best et al 2010, p.5; Giblin and Ryan 2012, p.1327). The Irish Medtech
sector mirrors that of Massachusetts as it has advanced the growth of high-tech exports and a
knowledge-based workforce in the Galway region. Boston Scientific and Medtronic have
been the drivers for the medical device/technology cluster in the region. This has allowed for
the transfer of capabilities resulting in the growth of indigenous firms in the sector as both
suppliers and creators of new products. In 2009 out of the 42 Medtech firms in Galway 24 are
indigenous and 18 of the 24 are involved producing their own devices demonstrating the
capability development within the region (Giblin and Ryan 2012, pp.1330-1334). Many of the
owners of indigenous firms worked in the MNC’s before setting up their own business
allowing them to develop soft capabilities such as managerial skills, meeting international
quality standards and creating international contacts. This is evidenced in their business
strategy which has a global outlook as they target international export markets. In contrast to
many other indigenous firms who mainly target the domestic and UK markets. The higher
education institutes (HEI’s) in the region also enhance the cluster by developing research-
based capabilities within the Medtech sector and also providing the skilled labour force
needed through degree’s tailored towards the sector. The MNC’s have clearly created a
positive spillover to the economy in the region and also enhanced the capabilities of the
workforce leading to a growing indigenous high value export-led sector. And it is this

38
indigenous-led capability development which will aid in sustainable growth for the future
(Giblin and Ryan 2012, pp.1333-1336).
The government must be able to distinguish what the distinct technological capabilities are
within the economy otherwise they will not have the ability to move industry on to the next
level. The Medtech cluster in Galway proves that the potential is there for Ireland to transition
to a new economic model based on the development capabilities of indigenous companies.
Giblin and Ryan provide four key elements for a policy to pursue this model. (1) The Lucerna
database is crucial as it can identify distinct capabilities within the economy. (2) Long-term
support by the government to incentivise the establishment of indigenous business by people
who are currently working for firms or in HEI’s. (3) The government needs to maximise the
economic externalities emanating from geographical concentrations of technological
capabilities. (4) Investment in HEI led research in conjunction with industry is vital in
embedding capabilities within a region (Giblin and Ryan 2012, p.1337). The future
development of industry will not be built around solitary sectors but instead through the
convergence of multiple technologies across sectors already evident in the integration of
medical devices, pharmaceuticals and ICT in Galway. The policy at macro-level needs to be
directed at capability building as firms may enter and exit an economy however the
capabilities embodied within people and processes are more enduring (Best 2005, p.45; Best
et al 2010, p.5; Giblin and Ryan 2012, p.1338).

39
5.4. The requirements and future prospects for Irish
manufacturing
This section will be a review of five recent reports published by various Government
departments outlining the requirements and future prospects for Irish manufacturing.
There is often a tendency to seek new sectors to improve manufacturing however the
Manufacturing 2020 report stresses the need to also build on our strengths. Convergence of
technologies in existing sectors can facilitate the emergence of new sub-sectors.
Encouragements of cross-sector knowledge sharing by firms and research institutes, of
advanced technologies can help build on sectors in which Ireland already has a competitive
advantage in. This has already been achieved in the Medtech sector in Galway. Enterprise
development agencies need to do more to promote RD&I in engineering especially in
indigenous firms to support the development of new products for export markets (Department
of Jobs, Enterprise and Innovation, 2016d).
Competitiveness in manufacturing today emphasises the need for RD&I in order to have the
capacity to adapt to new forms of technology and expertise which drive innovation and
productivity. There is a need for closer collaboration between the industry, employee
representatives and the relevant education and training bodies such as Solas, Skillnets and
HEI’s. Advanced technology has spurred the demand for more skilled machinists. The Future
Skills Requirements report recommends the development of as Engineering Skillnet training
network to provide in-company training for those already in machinist jobs who need to
upskill. The medical devices sector in particular is in need of more apprenticeship places for
toolmakers and higher core-engineering skills particularly in graduates. Researcher skills at
NFQ Level 9 and 10 are essential to drive product and process innovation which can have a
positive impact on future economic growth and employment. The medical devices sector in

40
particular is in need of more apprenticeship places for toolmakers and higher core-engineering
skills particularly in graduates (Department of Jobs, Enterprise and Innovation, 2016b).
The aim of the National Research Prioritisation report published in 2014 is to enhance the
economic and social returns from public investment in research. Research can help advance
technological capacity and the capabilities required for next generation manufacturing helping
to grow and sustain Irish manufacturing. Materials research with the aim of discovering new
devices in ICT, medical devices and industrial technology will be taken up by the AMBER
research centre. The vision of this report is to acquire knowledge of the core competencies
required to increase competitiveness and productivity in the manufacturing base (Department
of Jobs, Enterprise and Innovation 2016e)
The aim of the Innovation 2020 report is to make Ireland a Global innovation leader by
bringing R&D intensity to 2.5 per cent of GDP by 2020. Investment will be targeted at
increasing research personnel in industry to 40,000 and increasing research Masters and PhD
enrolments from 500 to 2,250 (Department of Jobs, Enterprise and Innovation, 2016c).
Companies will be incentivised to incest in RD&I through the implementation of the
Knowledge Development Box. Profits received from a product whose RD&I took place in
Ireland will be subject to a 6.25 per cent tax rate rather than the normal 12.5 per cent tax rate.
Companies can also avail of an R&D Tax Credit worth 25 per cent at the initial stages of
RD&I (KPMG, 2016).

41
5.5. Conclusion
The performance of Boston Scientific has shown us that manufacturing competitiveness does
not have to rely on cost-competitiveness but that Ireland can look to quality, productivity and
innovation. The sector performed well during the recent crisis with export growth rates of 14
per cent per annum since 2007. There is a high level of integration with other sectors such as
Pharmaceuticals and ICT and also with the HEI’s in the region. Convergence of technologies
and capabilities within a region present an opportunity for Irish industry to improve its
competitiveness. This has been proven in the Medtech sector in Galway were they have been
successful in integrating with technologies from Pharmaceuticals and ICT and research from
HEI’s within the region. This can present Ireland with a new economic model for industrial
growth. The transfer of capabilities has created a strong export-led indigenous sector many of
whom produce their own devices. This can create sustainable future growth for the economy
as regional capabilities are more permanent than firm capabilities. In reviewing the reports it
is clear that manufacturing is evolving and to keep pace Ireland must invest in the upskilling
of workers to keep pace with technological change. Research and R&D need further
investment in order to increase productivity through innovation. The recent Capital
Investment Plan will hopefully provide the funding needed to remain competitive in
manufacturing. The implementation of the R&D Credit Tax and the Knowledge Development
Box will hopefully spur more private investment in RD&I.

42
6. Conclusion
The future for competitiveness in Irish manufacturing has potential in the integration and
convergence of technologies and capabilities across sectors in particular the high-tech sectors.
The Medtech sector in Galway is evidence that convergence of technological and
management capabilities can help indigenous companies grow to the point where they are
producing their own products and exporting them worldwide. It is the region itself which can
gain a competitive advantage which is less susceptible to replication by emerging economies
whereas individual firms who are reliant on cost competitiveness can relocate much quicker.
Although Ireland has seen an improvement in price competitiveness since 2010 this is due
mainly to external factors out of its control. Ireland is a developed country so in order to keep
ULC’s stable, high wages must be offset with increased productivity. Convergence can
increase productivity through integration and innovation. Non-price competitiveness factors
such as productivity, product quality and differentiation are important for long-term
sustainable economic growth. Sectors that rely on these factors such as Pharmaceuticals and
Medical Devices were the strongest performing sectors post 2001 and 2008 when Ireland saw
major losses in price competitiveness. Convergence between the Industry, Government, and
Higher Education Institutions is important for sustainable growth. The government in
particular must be able to distinguish the distinct capabilities within the economy in order to
transition to a new economic model. The Irish Government has been successful in cooperating
with industry in the past in terms of the social partnership agreements which helped restrain
wages, in turn helping to retain competitiveness. Also the inception of the IDA was
instrumental in Ireland becoming a competitive economy on the international stage.
Following the oil crisis’ of the 1970’s the IDA began to target more high-tech sectors as they
felt they would be less vulnerable both economic shocks and competition from low wage
economies. This forward thinking has allowed Ireland a competitive advantage in such high-

43
tech industries like Pharmaceuticals, Chemicals, Medical Devices and Technology, and also
ICT Software. The question is can Ireland take advantage in the convergence between these
sectors to further increase their competitive advantage? The aim of the research was to
investigate whether Irish manufacturing carve a new path to competitiveness through
Integration and Innovation of technologies? The evidence of convergence in the Medtech
sector in Galway shows that the potential is there for Irish manufacturing to move to a new
level of competitiveness.

44
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