Peter Walsh believes Government must do what is necessary to encourage multinationals to establish their research and development in the Republic, writes Ciaran Brennan.

Suggesting that changes are needed in the Republic's corporate tax regime is unlikely to win you many friends in Government or in the business community. But, Mr Peter Walsh, the newly appointed chairman of the Irish Medical Devices Association (IMDA), insists that changes are necessary to encourage multinationals to locate research and development activity in the Republic and to promote innovation and research among existing high-tech companies.

"Obviously, the corporation tax has been very important from a manufacturing standpoint but from an R&D standpoint you could say it is somewhat of a disincentive," he says.

While the IMDA fully supports the current corporation tax system for manufacturing, the regime does not encourage research, says Mr Walsh.

As R&D is a higher-cost activity, US multinationals tend to keep the activity at home where they can offset the costs against tax, he says.

"You're taxed at a higher rate in the US, so there is a certain incentive to keep more of your costs in that higher-tax zone," he explains.

This is now a crucial issue for the medical devices industry in the Republic, he says, where, in the past, companies have been able to operate in a low- to medium-cost manufacturing environment.

Relatively low wages, a favourable tax environment, a highly qualified workforce all helped to attract multinational companies over the past 10 years. The Republic's medical device and diagnostics sector is now made up of more than 80 individual plants, employing more than 19,000 people and exporting more than €3 billion.

But as the Republic's economic environment changes and wage costs rise, the sector will no longer be able to sustain competitive advantage based on the enticements of the past, he argues.

The industry must develop and innovate to move up the value chain, while at the same time keeping costs to a minimum, he says.

"Over the past 10 years, the strategy has been to attract those companies here and certainly, if you look at the top 20 medical and pharmaceutical companies in the world, most of them are here today," says Mr Walsh. "The challenge now is how do we get them to do more R&D here."

Through its membership of IBEC's science, innovation and technology committee, the IMDA will make a comprehensive submission in advance of the 2003 budget, which, if implemented, will result in targeted tax relief for companies engaged in R&D, according to Mr Walsh.

A draft submission for a new PAYE/PRSI credit relief scheme has been prepared by IBEC, which has the support of the association, he says.

"We are the only country in the OECD which doesn't have tax credits in place," he says. "IBEC is going to submit a proposal to Government quite shortly which will look at current EU state rules and decide whether or not we can mimic some of the other types of schemes that have already been approved by the EU Commission or maybe tailor one ourselves."

The system of taxation is just one item on a very crowded agenda for Mr Walsh, who took up the role of chairman of the IMDA last month.

While the Celtic Tiger era has led to a transformation of the Republic's image from backwater economy to a serious player, establishing a reputation in R&D is still a key to the State's future progress, according to Mr Walsh.

"The challenge for all of us is developing the credibility. The perception is we're good at manufacturing but, from an R&D perspective, we don't have an established reputation," he says.

He avoids words like "crossroads" to describe the State's position today.

"It's part of an evolution more than a crossroads," he says.

Education will be one of the catalysts in the evolutionary process. Historically, the level of research carried out in universities has been quite low compared to other countries and that must change, he says. However, he recognises that progress is being made through Science Foundation Ireland. But he says the emphasis on biotechnology almost to the exclusion of other life sciences by Government is a cause for concern. The biotech focus ignores the strengths of the medical devices and pharmaceutical sectors.

"We would like to see it a little bit broader where there would be a mix of biotech, medical devices and pharmaceutical under the umbrella of life sciences."

At second-level education, he is concerned about the poor and decreasing interest among students in pursuing careers in science.

"There's a recognition that not only do we have a shortage of students, we have a shortage of teachers in the science area. We have been diagnosing this problem for years now, so we need to identify actions."

The issue of pay in teaching is an issue, he says, while there is also a perception that science as a sector does not pay well.

"We've got to address that as a sector and show there are opportunities in the sector for people to do well, which will open up over time as the whole R&D situation begins to build."

The Republic's evolution into a centre for innovation, research and development will also require significant management change. Manufacturing tends to be internally driven and this is reflected in management, says Mr Walsh.

"If you want to become involved in R&D, you have to be externally focused," he says.

"You've got to have a strong appreciation of where the business is and where it is going in the future. I would say at management level within this country, I'm not sure if that challenge is fully appreciated in terms of the transformation. Within the IMDA we are trying to create a support structure, and networking to look at best practice within our industry so we can provide an environment where management can understand these challenges."

With a large part of the medical devices industry located on the western seaboard, the development of infrastructure is very important for the association, particularly access to airports. Mr Walsh, as vice-president and general manager of Medtronic Ireland, which is based in Galway, has first-hand experience of the situation.

"If you're involved in R&D, you're either travelling to customers or bringing customers to you, and getting to western Ireland from mainland Europe is a real issue. It has improved but sometimes people say it is easier to get to New York or Boston than it is to get to the west of Ireland from Paris," he says.

Apart from business issues, it is clear that Mr Walsh has an affinity with the west. A native of Sligo, he now lives in Galway.

"There is no place I would choose more to live," he says.

Living in the west also allows him to indulge in his favourite sport, golf. "We have lots of nice golf courses and I still play a mean game of golf," he says.

He is a big sports fan and is one of the few Sligo men to have a Connaught provincial medal, having played in the team that beat Mayo in the Connaught final in 1975.

"We hadn't won a Connaught title for the previous 50 years and we haven't won in the last 26 years," he says.

"The lifestyle in Ireland in terms of GAA, sport and our ability to blend in sport with our life is a great thing. It brings people together. It's a fantastic part of our culture."

The evolution in the Republic's economy should allow more people to enjoy that lifestyle, he says.

"For people like me, 10 or 15 years ago, I would have to emigrate to do what I'm doing. I've had the pleasure of living in the west of Ireland and doing what I want to do career-wise, versus having to emigrate because my career aspirations were not being met.

"As we evolve, we will have a choice to stay in this country and have the benefits of the careers we want and the lifestyles we want."