The Irish-based multinational and indigenous technology sectors have weathered the meltdown in the industry well but the Government must defend competitiveness, a new report says.

The Goodbody Stockbrokers report, Irish Technology 2003, says parts of the industry are threatened by adverse changes to the cost competitiveness of the domestic economy. But it also argues that a large part of the sector is well positioned to exploit improving markets from their Irish bases. This has been borne out by the decline of only 5.2 per cent in employment in the industry in 2002, despite the severe downturn in the global technology sector, it says.

Companies that are exposed to a more expensive cost base in the Republic tend to have low gross margins, and high manufacturing and distribution input. They also tend to be loss-making and, therefore, unable to avail of the Republic's low corporate tax rates.

Firms that leave probably have limited capital invested in the State, it says. Companies that are profitable, with sufficient headroom between the overall group rate of tax and corporate rate applied in Ireland, are likely to remain in the State. This is particularly so for firms with capital expenditure commitments.

However, international pressures ensure that Ireland's location as a competitive base for global technology projects must be defended ruthlessly by the Government, says the report.

To sustain competitiveness, the Government should focus on corporate tax rates, graduate supply, physical and telecoms infrastructure, wage inflation and the avoidance of bureaucracy.