The State agency is trying to get firms to expand Irish activities, writesCliff Taylor, Economics Editor

It's been a good start to the year for IDA Ireland, with a significant new project announced just about every week and a few more in the pipeline. Despite these successes, senior IDA executives told the Irish management of some 370 US companies at a special conference yesterday that many of them faced a stark choice. They must either reposition their operations here or face an uncertain future.

It was an important signal of a change in focus for the IDA, which is to take a more active approach in encouraging companies to develop existing bases here. The organisation is clear that it must look after both sides of the jobs "balance sheet".

On one side, the inflow of new projects has been encouraging, particularly in the pharmaceuticals and healthcare sectors. On the other, however, job losses are ticking over at 10,000-12,000 per annum and the IDA fears this figure will grow unless its client companies act.

Hence yesterday's special conference at Citywest, which was organised with the US-Ireland Chamber of Commerce and attended by all the big US multinational players here.

"All competitive advantage erodes over time and must be renewed," according to Mr Frank Ryan, IDA executive director. "We are trying to kick-start a mind-set change, to encourage management teams to think strategically," he said, and to align their Irish strategy to where their parent company is going.

Yesterday's discussions will have been filled with the industrial jargon de jour - moving up the value chain, lean manufacturing, upskilling, deepening competencies and the like. However, the essence of what the IDA is up to is clear enough.

While some companies here are involved in industry-leading work, many have been content to plough along doing the same kind of manufacturing work for their parent company as they have always done. It is these companies that the IDA is trying to persuade to diversify into new areas involving more highly skilled and valuable work in the Republic.

Increasingly, the IDA sees its key role as being in this area. The bulk of job losses to date have been in companies that have only one function and have not diversified, according to Mr Ryan.

He sees his job now as persuading the Irish management to make a convincing pitch to its parent to locate new activities here.

He is pointing his client companies in three directions. First, they could add a new functional responsibility in Ireland, such as a research and development facility.

Second, they could add to or expand an existing function - for example, upgrading an existing manufacturing operation to the highest standards.

Third, they could seek a mandate from their parent to manage particular activities either worldwide or for the Europe, Middle East and Africa region (EMEA, in the jargon).

The IDA has been pursuing parts of this agenda for some years, of course, having a well-established research and development programme, for example.

But Mr Ryan believes that a change of gear is needed, given the new challenge for inward investment and the increasing complexity of industry.

In turn, this is driving multinational companies to have fewer but more expert locations, putting pressure on the Irish subsidiaries to remain part of their parent company's future.

Mr Ryan recently spoke to one multinational that was cutting its worldwide bases from 48 to 32, and aimed to get to 26 over a period of years.

For this reason, as a key point of its new strategy, the IDA is offering companies a new strategic competitiveness programme, offering them grant support of up to €25,000 to hire consultants to help them develop a case to upgrade or expand their Irish operations. The goal is to come up with proposals that will "fly" at corporate headquarters.

"The challenge of the 1990s was to get technicians and engineers to staff the 'ramp' of new plants" - the rapid start up of production demanded by big information technology and computer companies, according to Mr Ryan.

The challenge now is whether we can produce enough MSCs, doctoral and post-doctoral employees to attract the highest value research and management activities. Even manufacturing has moved to a new level, with the most modern plants requiring 60-70 per cent graduate employment compared with 10 per cent a decade ago.

The IDA sees some reason for optimism. Many companies have already successfully reinvented their Irish operations - Mr Ryan quotes Apple as just one example where a manufacturing operation in Cork was replaced over time by a facility specialising in software design and customer support.

Many of the newer companies, such as the recent pharmaceutical investment by Wyeth, will have a significant research capability from day one. And the IDA's research grant programme is slowly attracting more significant projects, with many typically in the €3-€10 million range.

Mr Ryan also points to the possibilities offered by the changing corporate tax regime. While many companies have faced - or will face - an increase in their core profit tax rate from 10 per cent to 12.5 per cent, the new rate covers a wider range of activities.

This gives the opportunity of locating here any profit centre relating to the companies' trading activities and having the returns taxed at the 12.5 per cent rate, giving new opportunities in undertaking services such as supply chain management or customer support from an Irish base.

With some 135,000 people employed in about 1,200 IDA Ireland companies, Mr Ryan is clear that the job of the agency is changing.

Attracting new projects will remain important but, with many of the world leaders already in the country, the main task to work on is developing those companies that are already here.