ECONOMICS: 'YOU'RE NOT playing at Croker," the man from the IDA said to Annrai O'Toole and I when we approached him in 1992, inquiring about state aid for our then small indigenous startup, IONA Technologies, writes CHRIS HORN

Enterprise Ireland did not yet exist. Although the IDA was ostensibly responsible for all industrial development, there was then a heavy emphasis on attracting multinationals which might create several thousand jobs overnight, rather than a young ambitious start up looking to create just six new jobs immediately. In the days of high unemployment and a brain drain overseas, only the foreigners could play at Croker.

Looking back over the 50 years since 1958 when Lemass opened Ireland for foreign direct investment (FDI), and the 40 years of FDI in the electronics and software sectors, the emphasis on FDI has paid well. Back in 1957, emigration was almost 2 per cent per year of our population. Without the economic stimulus of the multinationals, unemployment would not have been stemmed, our youngest and brightest would have continued to be lost overseas, and our tax revenues would not have soared to the point where investment and tax incentives for construction and infrastructure projects became possible in the last decade.

At a time when much of the global economy is retrenching, it is timely to pause and consider whether FDI has had any other benefits to Ireland, and what opportunities now lie before us.

My contact in the IDA might have argued that nothing could be more strategic than reduced unemployment, retention of our key young talent and buoyant tax revenues. But there have been additional and more sustainable benefits that perhaps are not always widely acknowledged and these lay the foundation for further growth.

The early emphasis of FDI in the electronics sector was on manufacturing. At the time, Ireland's school leavers and graduates had a reasonably high standard of engineering, mathematics and scientific skills. With a highly competitive cost base and as an English-speaking nation joining the European Union in 1973, we became a highly attractive location for out-sourcing, and a portal to Europe.

The complementary strategy of the IDA became a focus on stimulation of indigenous sub-supply manufacturing so as to embed us in the supply chain of the multinationals. However, in many of these multinationals, electronics manufacturing quickly expanded into testing - and then diagnosis - of complex electronics systems as they came off the assembly lines.

This positively re-positioned our "value add" since lower-skilled manufacturing could be re-out-sourced from Ireland to even lower cost locations, leaving the more complex, high-value and skilled quality assurance and control operations in Ireland.

From an acquisition of manufacturing and testing skills, came a deeper understanding of how particular specific products and subsystems actually worked, and how these had been designed by the product development teams in the parent global headquarters. This further upskilling and knowledge acquisition led to some Irish operations of the multinationals actually re-designing specific products and subsystems to take advantages of recent technology advancements.

As competent product development teams emerged "bottom-up" in Ireland, it was unusual not to have tension over the control of projects between Ireland and headquarters. It became challenging for the site managers of Irish operations to appropriately position their operations relative to headquarters.

Frustrations sometimes arose, in some cases leading to spin outs and a loss of skilled talent to the indigenous sector. In other cases, corporate activity - eg, mergers and acquisitions - led to restructuring of Irish operations and a similar release of skilled talent into the indigenous sector.

A further, perhaps hidden, benefit to the indigenous technology sector from the FDI activity has been channel partnership. In our own case in IONA, our global credibility was dramatically enhanced by our choice of Sun Microsystems in 1997 as a trade investor.

A well-executed channel partnership enables a multinational to explore early emerging nascent opportunities through an energetic young proxy which then benefits from the considerable credibility that a larger global player brings.

It is not uncommon for multinationals to have latent technology, expensively developed and patented, which its product groups and line of business managers consider too early, too immature, or potentially cannibalising to their current revenues.

By licensing this under appropriate commercial terms to a dynamic ambitious young company, the executives within a multinational can not only facilitate tactical changes inside their own organisation, but more importantly they pre-empt and wrong-foot their own global competitors.

In the last few years, Ireland's focus on scientific R&D through SFI has led to new strategic skills being acquired. In my own experience, the outstanding example of this is Bell Laboratories (now part of Alcatel-Lucent) in Blanchardstown who have shown how complex, inter-disciplinary, multi-site world-class research can be managed and developed: the Irish universities and research institutes working with Bell Laboratories have matured in their abilities and confidence as a direct result.

This has led to interesting consequences for the indigenous sector as SFI-funded technology is licensed by experienced Irish chief executives - Dr Ronan Farrell of NUI Maynooth recently won the Enterprise Ireland commercialisation award for the licensing of advanced technology to the Irish start-up Socowave, led by Joe Moore.

The way to succeed in Croker, and all places of competition, is innovative exploitation of clever insightful analysis and experience. Investment and leadership are prerequisites; innovation is game beating.