In the second of a two-part series on the knowledge economy in the regions, Jamie Smyth, Technology Reporter, asks why tech firms are opting for some areas over others.

A bitter wind is blowing through Donegal this weekend as people come to grips with the news that clothing firm Fruit of the Loom will close its remaining factories in the county by 2007.

The US company, which at its peak employed 2,500 people in Donegal and Derry, confirmed last week that it is shifting its textile operations to lower-cost locations. The decision took few people by surprise in the Republic's least developed economic region, which earlier in the summer was told that another of its biggest employer's Unifi - the US textile firm - was closing.

But feelings are running high in the county as people struggle to adapt in the face of a massive global restructuring affecting the textile industry. More than 4,000 textile jobs have been lost in Donegal since 1999, a major factor explaining why the county has an unemployment rate about three times the national average.

"There is no doubt that the Government has not done enough for this region," says Mr Joe Doherty, chairman of the Chamber of Commerce in Buncrana, the town that will face the brunt of the latest job losses.

"These announcements have not come out of the blue. The first restructuring came in 1998 and a task force was set up by the Tánaiste, Ms Harney. But very little has come out of this and there is no doubt that more could be done to market the county."

Whatever jobs have been created during this time have gone to Letterkenny rather than the Inishowen peninsula. Most people now have to travel to Letterkenny or Derry for work, says Mr Doherty, who is also manager of AIB's Buncrana branch.

"I admit that we don't meet all the demands from every county," says Mr Dermot Clohessy, IDA's head of regional development and property. "But if you take a 10-year view Ireland is pretty unique in that employment across all the regions has grown."

Foreign investors currently support 5,928 jobs in the north-west region, which includes Donegal and Sligo, an increase of 6 per cent on the total in IDA-supported jobs during 1999.

Big investments in Carrick-on-Shannon by MBNA, Abbott in Sligo and Prumerica in Letterkenny in 2003 helped to reduce the impact of jobs lost in the clothing industry. But in 2004 there have been no significant new job announcements by the IDA in Donegal, despite the agency's comments that Ireland is now experiencing an "increased buoyancy in inward investment".

An analysis of the grant aid awarded by the State to overseas firms in 2003 shows that investment remains skewed towards the more developed east of the country, which includes Dublin.

This region accounts for 40 per cent of grant aid - worth €53.6 million - while the border and west regions together accounted for just 15 per cent of IDA grants, worth some €19.5 million. The statistics demonstrate the difficulty that the IDA is encountering in attracting foreign investment to certain locations despite its mandate to deliver a regional agenda.

This is becoming particularly apparent as Ireland competes for "knowledge economy" projects within the competitive ICT, biotech and research sectors. Astonishingly, there are currently no IDA-supported technology firms located in Sligo or Donegal.

"It is more difficult to win business in locations outside the cities," admits Mr Clohessy "Each region needs a strong urban base to meet the needs of inward investors... this tends to generate attractive clusters of indigenous and foreign firms."

He cites the examples of Cork, Galway and Limerick, which have attracted 270 multinational companies employing 22,000 people in a range of firms such as Nortel, Hewlett-Packard and Dell.

"Companies like to be in locations where there are like minded entities. This creates a greater pool of skills and enables local colleges to respond to their needs," says Mr Clohessy.

The university presence is undoubtedly a key element in the success of these cities, whereas Waterford - which does not have a fully-fledged university - has failed to build up an ICT cluster.

In contrast, Cork - which is well served by University College Cork, Cork Institute of Technology and the National Microelectronics Research Institute - is currently thriving.

Motorola, the US telecoms company, which employs 500 people at its development centre in Cork, has become the hub of a small cluster of software firms serving the telecoms industry since it set up in the city in 1981.

"We welcome new firms coming to the region," says Mr John Philips, country manager for Motorola Ireland. "Even if we lose some staff to start-ups, it often creates a bank of new talent and ideas... It helps us to keep on our toes and if staff have nowhere else to go they can often become resistant to change."

Cork is very well served by universities and colleges. UCC and CIT produce very good graduates and we have benefited from WIT and UL graduates. Other factors that have attracted Motorola to Cork is the airport access that it offers to Europe, improving roads and broadband. There is also the quality of life that skilled staff demand, says Mr Philips.

Apple, Siemens, Flextronics and Moog are just a handful of the IDA-supported technology firms that have chosen Cork to set up their operations. And this cluster of firms has also helped the city's hinterland to begin to attract companies that operate in the knowledge sector.

Clonakilty, a pretty town lying on the west Cork coastline may not have the same number of chic nightclubs of Dublin, but it has managed to attract its fair share of high value foreign investment.

More than 350 people currently work at the West Cork Technology Park on the outskirts of the town in firms engaged in sectors such as video conferencing, finance and software. So why has Clonakilty succeeded where Donegal has so far failed?

"Back in 2000 we sanctioned some research from UCC to see how we could encourage investment and they made it clear that we needed infrastructure," says Mr John Connolly, one of the proponents of the technology park.

"So we set up a task force, built high-quality office space, broadband connections and set up a skills database to encourage firms to locate at the park," he says. "We also encourage them to buy into the quality of life offered in Clonakilty and to that end have set up a creche in the business park and a training centre."

This dynamic approach has borne fruit and helped the IDA to sell the location to several multinational employers, although Mr Connolly admits that the close proximity to Cork airport - which is 40 minutes away - is a crucial contributing factor for success.

But multinational success stories in the regions for ICT, software and e-commerce investments are rare. And the experience of eBay, which rejected the IDA's overtures to set up in Athlone rather than Dublin, suggests it won't get easier in the future.

"The eBay situation happen quite often where a firm will just have a mindset that only Dublin will do. That is the big challenge for us," says Ms Mary Buckley, IDA director for the South area.

IDA capital and employment grants, which up until now have been used as carrots to attract industry out of the Dublin area, are due to be phased out in 2006.

In the absence of direct financial aid, IDA will have to focus more on a region's infrastructure and on quality-of-life issues.

However, she stresses that the IDA will not encourage industry to set up in unsuitable locations.

"We will lose that business if we try to suit our needs and not their needs."

Bearing in mind this competitive climate Buncrana may have to wait a little longer for the type of "knowledge-based" jobs that can offer a viable replacement for losses at Fruit of the Loom.