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News : Innovation Last Updated: Nov 18, 2010 - 2:03:54 AM

Ex-Intel CEO says Ireland's 3% of GDP research target not adequate; Wise or crazy advice?
By Michael Hennigan, Founder and Editor of Finfacts
Nov 17, 2010 - 4:01:51 AM

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Marc Mellotte from NUI Galway’s DERI demonstrates what DERI does during former CEO and chairman of Intel Dr Craig Barrett’s visit to NUI Galway for the ‘Education for Innovation’ address while NUI Galway deputy president, Professor Jim Ward and DERI CEO Michael Turley look on, Nov 16, 2010.

A former Intel CEO said on Tuesday that Ireland's 3% of GDP (gross domestic product) research target is no longer adequate. Is this wise or crazy advice in an economy where the indigenous sector only accounts for about 10% of tradeable goods and services exports?

Dr. Craig Barrett called for increased investment from the Government into research and development projects. Speaking at the ‘Education for Innovation’ seminar in NUI Galway, he said a sustained plan of funding needed to be implemented if Ireland wishes to keep up with the world’s larger and more business savvy nations.

“We cannot jerk around with the R&D policies of our Government and expect to get good results,” said Dr. Barrett. “It needs to be a sustained commitment. Why can’t we have a Silicon Valley in our own country? What is it about society that makes that work? Universities are the key and they are wonderful spots to create wonderful ideas. Smart people and smart ideas combined in the right environment can create wealth.

”There has got to be a synergy between the public and private sectors. We have got to see our private sectors involved with the universities. They have the great ideas. We need to see them acting as mentors and partners in research. It is vital,”
he said.

The former Intel head is in Ireland this week in his role as chairman of the Irish Technology Leadership Group, and was keynote speaker at an event at NUI Galway. His address was followed by a discussion panel with John Ryan, Macrovision; Professor Patrick Cunningham, Ireland’s Chief Scientific Advisor; Tom McDermott, Georgia Tech Research Institute; Dr. Martina Newell-McGloughlin, ITLG and University of California; and Professor Terry Smith, Vice President of Research at NUI Galway.

Prior to his keynote address, Dr. Barrett met with representatives of NUI Galway’s leading research institutes The Digital Enterprise Research Institute (DERI) and the National Centre for Biomedical Engineering Science (NCBES) two major research groups: REMEDI and MDr.G as well as University of Limerick’s Research Centres, LERO and the Materials and Surface Science Institute (MSSI) plus Georgia Tech Ireland.

The Digital Enterprise Research Institute (DERI) is claimed to be the world leader in Semantic Web (Web 3.0) research. At Tuesday’s event DERI showcased a portfolio of over 25 of the latest 'cutting edge' technologies emerging from the institute. REMEDI is a leading biomedical research centre focusing on gene therapy and stem cell research. REMEDI were joined by industry partner Ovagen who are working with the institute to develop technologies for the production of novel biotherapeutics.

The Molecular Diagnostics Research Group (MDr.G) at NUI Galway has 20 years experience and an international track record of achievement in the development and application of molecular diagnostics tests for microbial species identification. The MDr.G were joined by research partners at Beckman Coulter Ireland with whom they are developing molecular diagnostics for clinically relevant bacterial and fungal pathogens.

Each year the ITLG leads a delegation of Silicon Valley technologists and venture capitalists to Ireland to support high potential emerging technology companies from the island of Ireland. This year’s events are held in partnership with NUI Galway, University of Limerick and Shannon Development.

As part of his key note address, Dr. Barrett claimed that a 3% target of  investment of Ireland’s GDP into research and developmentis no longer a reasonable target and that we “have now to compete with the rest of the world to get paid”.

“Look at Microsoft,” he said. “They have a research budget of approximately $8bn per year. That is huge, and is more than all of Ireland spends in R&D. Israel now invests 5% of its GDP into research and development. And Israel has 140 new companies listed on the Nasdaq. Europe only has between 30 and 40. That is the future for Ireland and if we fail to pursue it with vigour, passion and resources, there will be no future for us because our lunch will be eaten by somebody else. We must outsmart them and outthink them,” said Dr. Barrett.

Finfacts comment: Dr. Craig Barrett is an accomplished engineer who headed one of the world's most successful companies but his advice on Ireland should be ignored.

Last month, Trintech, the last of the high hopes of the 1990s home-grown Irish high-tech sector, was acquired by an American private equity group; Iona Technologies was acquired by a US software of more recent vintage in 2008; this year, 2 of the successful commercial spin-outs from university research were acquired by US firms.

A company's spending on research is important but as we illustrate in our related story today, Microsoft and Nokia spend much more than Apple on research but Steve Job's instinct for consumer tastes has propelled his company to be the most valuable tech company in the world. The data on corporate spending show that spending doesn't correlate with success and there is no statistically significant relationship between financial performance and the amount spent on innovation.

SEE: Global Innovation 2010: Research spending by top 1,000 companies fell in 2009; Apple gets bigger bang for buck

The Irish economy's tradeable goods and service sectors are overwhelmingly dominated by foreign firms  -- mainly American - -  but this fact can be forgotten by outsiders and conveniently ignored by locals.

Forfás, the State policy advisory agency issued a report on Tuesday which says that the total research investment across all sectors of the economy climbed to an estimated €2.6bn in 2008, which is equal to 1.43 % of GDP. In 2008 the share of gross R&D financed by the public sector increased marginally to 34.5%, while the percentage of gross R&D financed by industry decreased to 63.2%.

State funding for basic research lies in the range of 37% - 49% and applied research in the range 51% - 63%. State funding for basic research within the Higher Education Institutions lies in the range 50% - 68% and for applied research in the range 32% - 50%.

Corporate spending is dominated by the foreign-dominated chemical and software sectors.

Sweden and Finland spend about 3.5% on R&D but these countries have big indigenous sectors with world class companies.

The UK spends less than 2%.

Craig Barrett on Monday said in Dublin that we should focus investment on indigenous startup firms rather than concentrating in attracting investment from multinationals.

Barrett said Ireland now faced “incredible competition” to win foreign direct investment and that advantages such as our corporation tax and a “decent” education system were being eroded by the efforts of more dynamic economies.

We have limited influence on multinationals regarding location of research and diverting even greater scarce resources now to research and startups would be a sure way to waste public money.

We have highlighted elsewhere that the high tech sector in Ireland will never become the main engine of growth.

Silicon Valley cannot be replicated in Ireland  -- many of the boosters for more spending say little about the market for the output of firms. It often depends on public sector demand.

The number of Israeli companies on the US Nasdaq stock exchange is about 70 not 140 as Craig Barrett cited.

Israel has a high research spending ratio and built its high tech sector from the experience with its significant defence research operations.

The Yozma (Initiative in Hebrew), public program  was a State fund of funds launched in 1993 to promote venture capital funding with investments from US firms.

In the early 1990's, Israel had highly trained graduates in both its defence forces and the defence industries. At that time, in the aftermath of the collapse of the Soviet Union, and influx of close to one million people, Israel's overall population increased by 20%. Nearly 40% of these immigrants held academic degrees, many of whom were scientists, engineers and specialised technicians.

A thriving independent local VC industry, which began as growth of the US high-tech sector was accelerating, has been established comprising close to 80 VC funds with the total capital under management in excess of $10bn.

Of course an impressive education system like Finland's is an excellent goal to aim for as is the success of Irish tech firms that are not sold to US firms before they have potential to provide value-added for the Irish economy.

However, we should not fall for a public welfare system  for the select few with performance and results remaining a fog, while tens of thousands face bleak years on the dole.

The job potential estimates in the Innovation Taskforce report were a joke; clued-in political leaders should expect better.

Glen Dimplex chief executive Seán O’Driscoll said last September that Ireland made the mistake of abandoning hands-on engineering and manufacturing for financial engineering and a focus on promoting mostly 'smart economy' jobs.

O’Driscoll, who heads a company Irish people can be immensely proud of, said that the countries leading the way out of the recession, such as China and Germany, have a strong manufacturing base. Those in the most trouble are countries such as the United States, Ireland, and the UK, which slashed and exported much low to high-end manufacturing.

Intel co-founder, Andy Grove, asked in a recent article:"...what kind of a society are we going to have if it consists of highly paid people doing high-value-added work - - and masses of unemployed?"

Grove, a Hungarian émigré from the 1956 anti-communist uprising, said manufacturing employment in the US computer industry is about 166,000, lower than it was before the first PC, the MITS Altair 2800, was assembled in 1975 (figure-B). Meanwhile, a very effective computer manufacturing industry has emerged in Asia, employing about 1.5m workers - - factory employees, engineers, and managers. The largest of these companies is Hon Hai Precision Industry, also known as Foxconn. Grove said the company has grown at an astounding rate, first in Taiwan and later in China. Its revenues last year were $62bn, larger than Apple, Microsoft, Dell, or Intel. Foxconn employs over 800,000 people, more than the combined worldwide head count of Apple, Dell, Microsoft, Hewlett-Packard, Intel, and Sony (figure-C).

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