The Enterprise Strategy Group report on industrial policy to be published shortly will recommend a radical shake up of the way Government allocates grant aid to companies.
The review, commissioned by the Tánaiste, Ms Harney, last year, will also redirect the State's focus towards nurturing Irish firms rather than focusing on foreign investment.
In an interview with The Irish Times yesterday, Ms Harney, said the full report would be published shortly, but a central recommendation would identify ways to support innovation in Irish companies, many of which don't yet regard research as an essential spending priority.
"We tend to think in Ireland too often of the foreign companies, which are hugely important as generators of taxation revenue and employment. But I think, in the future, we will have to put a greater emphasis on creating our own Michael Dell or Bill Gates rather than importing them."
She said one way to encourage this type of innovation was by changing the way grant aid was allocated to firms. In the future, funds should not be awarded for expansion projects unless the firms are also involved in innovation in some way, she said.
A lot of the help that the State offers firms to expand overseas would also have to follow the innovation route. Agencies such as Enterprise Ireland would have to help firms diversify into different markets and outsource low-value activity abroad in order to keep high-value activity here, she said.
The Enterprise Strategy Group, which is being chaired by Mr Eoin O'Driscoll, is evaluating how to make the Republic attractive for higher-skilled, research-based activities, as lower-value manufacturing and services move to lower-cost locations.
It is expected to propose a range of measures to create an innovative and entrepreneurial industrial culture in the State.
The Tánaiste also outlined a range of priorities for the Government in relation to building up the State's research capabilities.
She said the Government should appoint a chief scientist to help co-ordinate the State's research activities. It should also elevate the status of an existing informal Dáil committee on science to make it a committee with full statutory powers, she said. Both measures should be introduced before the end of the current Government, she added.
Ms Harney also said the Government could still achieve the EU target of generating R&D activity worth 3 per cent of gross domestic product (GDP) by 2010.
Currently, the Republic is estimated to generate research activities worth about 1.6 per cent of GDP following the allocation of almost €2.5 billion to research in the national development plan.
This represents only a small increase from the 1.14 per cent of GDP recorded by the OECD in 2001. But Ms Harney said the goal was achievable but would require the State to be very ambitious in each of the years to follow towards 2010.
