Hail Ireland, the new California

With fiscal incentives, a computer-literate population and generous grants, it is surging ahead in the race to attract high technology businesses, reports Clayton Hirst

The journey by car to California's Silicon Valley is punctuated with a visual reminder that you are entering the world's hi-tech hub. Along the verge of Highway 101, the long straight road into the valley's core, are scores of 40ft billboards advertising the latest IT vacancies. The message is simple: "This town is successful, and we need successful people like you."

The journey by car to California's Silicon Valley is punctuated with a visual reminder that you are entering the world's hi-tech hub. Along the verge of Highway 101, the long straight road into the valley's core, are scores of 40ft billboards advertising the latest IT vacancies. The message is simple: "This town is successful, and we need successful people like you."

The passengers who arrived at Dublin Airport last Monday had a similar - albeit more European - experience to this.

As weary travellers walked down the steps of the aeroplane, leaflets were pressed into their hands advertising job openings with IT companies. Sitting in the coach driving back to the airport terminal, the travellers' concentration was broken again with an internal radio blaring out more job adverts.

These distractions were from some of the biggest names in IT, including Dell and Compaq. And the message was clear: "Ireland is booming on the new economy, and we need you."

Today, the country is home to almost every major technology company, including IBM, Microsoft and Oracle.

Take the computer software sector as an example. Ireland is now the world's second largest exporter of software, after the United States. Some 550 software companies are based there, employing 15,000 people. And it's estimated that over 40 per cent of PC package software sold in Europe comes from Ireland.

As well as the corporate giants, Ireland has spawned its own army of home-grown dot com millionaires. This includes Cyril and John McGuire, the brothers who set up Dublin-based internet company Trintech and who are estimated to be worth a cool £731m.

Tony Page, associate director of IT recruitment agency Computer People, says: "The market is healthy for IT professionals which has been driven by the flood of IT comp- anies in Ireland. In six months, we have doubled the size of our team in Dublin to cope, and we are expecting to double it again in the next six months."

While Ireland's IT industry is gleaming - which has helped to drive down unemployment from 18 per cent in 1985 to just 5 per cent today - Britain's own Silicon Valley is starting to look a little tarnished.

United Kingdom technology companies, which two years ago thought that the Thames Valley was the bee's knees, are now beginning to think again, despite repeated protestations from Gordon Brown and Tony Blair that the UK environment is an e-business magnet.

A cocktail of higher UK taxes, a skilled Irish work force, and an Irish government that has bent over backwards to accommodate the dot coms, means that many companies are using Ireland for expansion, rather than the UK.

Norman Green, UK finance director of Oracle, the world's second largest software company which employs 3,500 people in the UK and 700 people in Ireland, says: "Because we are an IT company, we don't have to be based in any particular county. We could well look at future European investment and expansion, and decide that it won't be in the UK."

Lindsey Armstrong, who is a vice president of Veritas, the software company, echoes his remarks. "When companies are setting up large European subsidiaries, Britain will lose out because it simply isn't competitive," she says.

Veritas employs 300 people in the UK. "In the last three months, we have gone from nought to 40 people in Ireland. I expect that in the long run we will employ approximately the same number of people in the UK and in Ireland," says Ms Armstrong. So what is drawing these silicon stalwarts to the Celtic Tiger? Mr Green and Ms Armstrong are unequivocal - it is Ireland's tax system.

On two counts, Ireland stands head and shoulders above the UK's regime.

First there is Corporation Tax. In Ireland, the rate is 24 per cent. But for certain forms of manufacturing, software production and development, the rate is just 10 per cent. This looks lean compared to the UK's normal rate of 30 per cent.

In 2003, the Irish government will harmonise its system so that all businesses pay 12.5 per cent. While the IT industry will end up paying a slightly higher rate, it will benefit most as the sales side of its business will overnight be taxed at a much lower rate.

Secondly, there is the thorny issue of National Insurance. At the beginning of the month, UK employers were faced with a new NI tax system where they had to pay a 12.2 per cent tax bill when employees vest their share options.

Because so many IT companies and dot com companies use share options as a tool to recruit skilled staff, many companies considered the tax ill thought out and retrograde.

It has even led Cisco, the world's largest company, to mull over scaling back its UK investment.

Says Ms Armstrong: "I think that the UK government has greatly underestimated the amount of money floating around in the dot com and IT companies. These are borderless businesses. There is absolutely no reason why these companies need a presence in the UK apart from, say, a small server. The National Insurance issue could make companies strike the UK off their lists in favour of countries such as Ireland."

As well as taking less money away from companies in tax, the Irish authorities are also more generous providers. Companies setting up in designated areas of the country are eligible for hefty grants. For example, one company that was contacted by the Independent on Sunday revealed it'd been offered nearly £5,000 per head in grants to set up in Ireland.

This is in stark contrast to the British system. This year the DTI has been unable to distribute any "regional assistance" grants to companies because of a row with the European Union's Competition Commission and its head, Mario Monti.

Meanwhile, the Regional Development Agencies, which were hailed as "England's regional powerhouses" by John Prescott when they were first conceived in 1997, have been rendered toothless and penniless because of a separate row with the Commission.

While England's development agencies have floundered, Ireland's has flourished. The Industrial Development Agency, which has 14 offices worldwide is viewed as a major force in promoting the IT sector in Ireland. Its business development manager, Richard Hendron, argues that, while Ireland's grants and tax incentives encourage IT companies to relocate, the country's workforce is its biggest draw.

He says that, because 40 per cent of the Irish population is below the age of 25 and 60 per cent of school-leavers go into further education, "the workforce is perfectly matched to the dot com and IT companies". In addition, the Irish education system has a strong emphasis on IT training, which means that the majority of the working population is computer literate.

This interest has spawned initiatives such as the IR£15m project to turn Ennis - a small town in the south east - into an "information age town" where most households and most businesses are fully wired up to the internet.

For Oracle, however, it was the work force's grasp of languages which attracted it to the Irish work force.

Mr Green says: "Dublin is very cosmopolitan and there is a very good pool of people with language skills in German, French and Italian. This is essential for our call centres."

However, he says that because Oracle and its counterparts have been piling into Ireland over the last 18 months, there has been a noticeable fall in the labour stock, which has driven up wage inflation. This could be the one chink in Ireland's armour. As the country becomes ever more popular with IT companies, its labour force will be gradually eroded.

The Irish government is starting to address this with an IR£500m education investment programme and major infrastructure projects in regions outside Dublin where unemployment is around 20 per cent. There are early signs that it is working, with SunLife of Canada having just committed to a 250-strong IT centre in Waterford in the south.

But there is another trend which will protect Ireland's growing position in the IT world: people are emigrating to Ireland to join IT companies.

Mr Page of Computer People says: "Ten years ago people were leaving Ireland to go to America and continental Europe. The reverse is happening now as superb opportunities are opening up." It is estimated that some 200,000 people are now living in Dublin solely because they have a job with an IT company.

It is not, however, a bed of roses for everyone emigrating to Ireland. Some things are just a little bit difficult to fathom.

Says one American executive of an IT company: "Dublin is great. But Guinness - no way. Give me a Bud any day."