As cost competition bites, Abbott Laboratories is looking closely at higherdegrees of innovation and more sophisticated products, ShaunConnor tells Dominic Coyle

Abbott Laboratories first came to Ireland in the early 1970s, succumbing to the allure of a tax-free opportunity and a toehold in the European Economic Community, which Ireland had just joined.

Thirty years on, Abbott recently announced plans for its eighth factory in the State, where it now employs about 1,800 people.

More importantly, its arrival sowed the seeds for a cluster of international leaders in the healthcare industry, which now forms one of the central planks of Ireland's economic success.

"When we first came in, Ireland was a relatively low cost manufacturing location which provided a 0 per cent tax rate and a foothold in the EEC, plus there was a ready supply of relatively high-grade workers," says Mr Shaun Connor, director of hospital products operations and the senior Abbott employee in the State.

He joined Abbott in 1974 and has seen the company's operations develop from what was essentially a manufacturing operation to a leader in high-technology hospital products and diagnostics.

That experience should serve him well as he steps into the chair at the Irish Medical Devices Association, the IBEC lobby group that represents the business in Ireland.

It's a broad area, manufacturing everything from traditional medical products to cutting-edge drug delivery systems and contact lenses to orthopaedic implants. The industry is going through a period of transition, as Ireland faces up to the fact that it can no longer compete on manufacturing costs with Latin America, South-East Asia and Eastern Europe.

"We have now reached the point where costs in Ireland are high, relatively," says Mr Connor. "Inflation is high, labour inflation is high, the costs of insurance and energy are high. All these things mean that, purely on cost terms, we are finding it very difficult to maintain competitiveness.

"That is forcing us to look closely at higher degrees of innovation, more sophisticated products - what they call 'moving up the value chain'."

The Irish Medical Devices Association wants to establish Ireland as a centre for innovation and R&D, targeting the high-value jobs that generally follow such activity.

It has a reasonable base to work from, judging by a survey of companies in the industry in Ireland, which shows that 57 per cent of the sector's companies now have an R&D function alongside more traditional manufacturing operations.

Spending on R&D is also growing sharply. In 2001, the industry invested €50 million in R&D in Ireland, an increase of more than a third on the year before.

The initiative has also been boosted by the €646 million fund set up under the auspices of Science Foundation Ireland.

Innovation is the buzz-word for the industry this year. The association's forthcoming conference, Innovation Island, will focus on strategies that will "help the sector move up the value chain".

It aims to bring together industry representatives - both those who have already taken the jump in adjusting operationally to place the emphasis on innovation and those who have yet to take the first step.

"This is what we see as our biggest challenge and our ability to move forward will depend on our ability to succeed in this transition," says Mr Connor.

The one thing in his favour, he reckons, is the Irish workforce. "Irish people have proved themselves to be very versatile and willing to adapt to newer things coming in," he says.

Ireland's medical devices industry has other advantages over competing states. One is the presence of 16 of the top 20 pharmaceutical companies in Ireland, predominantly in Cork and Dublin.

"Having all the competencies near to each other in one place, like Ireland, is a plus in that it allows us to use new products to deliver new drugs and develop the two alongside one another," says Mr Connor. Each industry supports the other.

Experience in supplying the growing number of healthcare companies operating in Ireland down the years has also seen the development of high-quality component and service providers.

But it needs Government to play its part, in particular by taking steps to promote science and engineering courses, which have fallen sharply in favour in recent years.

Ms Sharon Higgins, director of the Irish Medical Devices Association, says the blueprint is set out in the Report on the Task Force on the Physical Sciences, which was submitted to then education minister Dr Michael Woods in 2002.

"The Government has been quite slow in implementing the report. Obviously, there are financial considerations but, as a sector, we fully stand behind those recommendations and ask that they be implemented.

"If they can do that, they will secure the future of the industry and not this industry but high-technology industry in general," she added.

The association is playing its part and next month will launch a new science programme for 10- 12-year-olds in primary schools on a pilot basis through Junior Achievement/Young Enterprise, a non-profit making organisation dedicated to building a bridge between the classroom and the workplace.

The Government also needs to promote actively a waste management infrastructure and that, the association argues, requires an acceptance of incineration as part of the answer.

If the State fails to provide adequate waste management options at reasonable cost, the association says it runs the risk of jeopardising future foreign direct investment by multinationals.

Most importantly, suggests Mr Connor, is making the commitment to supporting high-risk enterprise and encouraging people to take risks in innovation even at the expense of failure.

"In the US you are allowed to fail; in Ireland it is very different," he says. "We need to encourage people to try different things without the fear of stigma if they don't work out first time around. I think it was Edison who said he had failed his way to success."

Innovation Island, the Irish Medical Devices Association R&D conference, takes place in Fitzpatrick's Hotel, Bunratty, on May 27th-28th. Contact IMDA at 01-605 1564.