It's the higher-end, value-added production that's going to be the engine of growth for the Republic in the future. Claire Shoesmith reports on the  production challenges ahead

Rarely does a week go by without a news report announcing the closure of a manufacturing plant somewhere in Ireland. A quick glance through The Irish Times website, www.ireland.com, reveals the loss of 485 jobs at a food processing plant in Co Derry and the elimination of a further 85 at a textile factory in Co Antrim so far this year.

The Republic is not immune either, with these two announcements preceded by the decision by a hearing aid manufacturing company in Cork to shift production to China, with the loss of 180 jobs.

The fact that the company favours China over Ireland as the base to produce its hearing equipment in is a clue to one of the main problems facing Irish manufacturers today.

"A combination of extremely tough competition from low-cost economies such as eastern Europe, China and India, and the fact that we have a rising cost base in Ireland is causing huge problems for Irish manufacturers," says John Whelan, chief executive of the Irish Exporters' Association (IEA). "The Irish are simply struggling to compete."

It's not just high wage costs that are hurting Irish manufacturers either. According to Whelan, these businesses are also struggling to cope with non-wage costs, such as local authority charges and energy bills, which have been rising steadily over the past few years, at a time when the prices companies can charge for their goods have been falling. Factory gate prices are today 12 per cent lower than they were two years ago, according to Whelan.

Then there is the issue of logistics. As an island economy, Ireland has to import a large amount of the materials it uses in manufacturing production, therefore increasing the costs of production before it has even started. This is an area where Whelan believes that the Government has failed particularly badly and something that needs to be done before even more manufacturers are forced out of business. "Spending on transport has been pitifully low and this needs to change if these companies are to stay alive," he says.

This leads us on to the question of why we want these companies to stay alive. There is no escaping the fact that the economy is changing and its dependence on traditional industries such as agriculture and manufacturing is declining.

More than 30,000 jobs have been lost in the manufacturing industry over the past four years and yet employment is still at a record.

However, without some home-made products, the cost of goods, which is already high in Ireland, may become even higher. Perhaps it is time that the manufacturers learnt to adapt to their new circumstances.

Take Diageo for example. While many manufacturers are struggling to survive in Ireland, one of the world's leading makers of alcoholic drinks and more importantly for Ireland, the home of Guinness and Baileys, has recently increased its manufacturing capacity here.

Last year, Diageo closed its brewery in Park Royal in London and shifted Guinness production to Dublin. This decision resulted in an increase in output in the Dublin brewery of about 50 per cent starting last summer.

This may seem like an unusual decision when you look at the number of other businesses that are choosing to move out of Ireland because of the high costs of doing business here. However, for Diageo, it was a question of heritage.

"Ireland is the home to Guinness and both the history and the expertise are here," says Jean Doyle, a spokeswoman for Diageo.

However, she acknowledges that the costs are high and says that the company has made significant investment over the past few years to improve its machinery to cater for the increased production.

About €750 million worth of Guinness is exported each year from the St James's Gate brewery in Dublin and investment is ongoing to ensure that, through automation, that this is done at the least possible cost to the company.

If you ask Whelan, this is something that other manufacturers need to pick up on. "There is a common misconception that China is cheaper for manufacturing because there are hundreds of Chinese people working on minimal wages to get things done as fast as possible," he says. "In fact this couldn't be further from the truth. What China has done is to invest in automation, making their businesses much more productive."

According to Maurice Martin, business development officer at Microsoft Ireland, increasing productivity is an area that Irish businesses will need to focus on if they are to remain competitive in the future. However, it's not all about working longer hours.

"Increasing productivity is about using the skills that you have more efficiently," he says, adding that this is the only way that the economy is going to continue to grow.

"It's not that there isn't a place for agriculture and traditional manufacturing any more, it's just that it's the higher-end, value-added production that's going to be the engine of growth in the future," he says.

So while traditional manufacturing will remain, it is widely accepted that we need the new knowledge-based activities, such as software, chemicals, computers and electronics, in order to sustain any sort of growth.