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Last Updated: Wednesday, 19 November, 2003, 00:18 GMT
The death and rebirth of Silicon Glen

By James Arnold
BBC News Online business reporter

Circuit board
Silicon Glen remains too low-tech for some

Silicon Glen is not really a place. Although Scotland's hi-tech sector is most densely packed in the central corridor between Glasgow and Edinburgh, its tentacles reach into the remotest regions of the country.

Nor, unlike many would-be Silicon Valleys around the world, is it a joke.

Scotland's electronics sector contributes one-seventh of its gross domestic product, directly employs 45,000 workers, and accounts for more than half the country's exports.

More broadly, high technology is central to the "smart, successful Scotland" that the country's five-year-old devolved government is eager to construct.

Grim reading

Grim news, then, that the sector is currently suffering the most catastrophic slump in its brief history.

For more than a year now, Scottish business news has been a depressing roll-call of Silicon Glen jobs lost.

"There are days when I can hardly bring myself to open my newspaper," groans one industry veteran.

Silicon Glen
Last year, something like 15,000 jobs - a quarter of the total - were shed, largely through aggressive cost-cutting by multinational employers.

According to Scottish Enterprise, the country's economic development agency, foreign investment was more or less steady last year - although at less than one-tenth of its late-1990s peak.

But other sources, notably Ernst & Young, point to a fall of about one-third in 2002 alone.

Exports from Silicon Glen, meanwhile, have almost halved.

Mind the gap

This has jolted the wider Scottish economy.

Over the past decade or so, Scotland has lagged the UK economic growth average.

Since the turn of the decade, the gap has widened, with Scotland teetering close to recession on several occasions.

In the early 1990s, Scotland accounted for close to one-fifth of total UK inward investment; now, it garners less than 7%.

Fickle fancies

The roots of this erosion lie in the 1980s and 1990s, when Scotland marketed itself aggressively as a target for foreign hi-tech investment.

Hugh Aitken
Manufacturing is very much alive - it's just different
Hugh Aitken, Sun Microsystems
With business costs then low, and plentiful spare industrial capacity, multinationals poured in, particularly the so-called original equipment manufacturers (OEMs) - companies building hi-tech hardware such as personal computers and mobile phones on behalf of brand name companies.

But these OEMs, despite the apparent permanence of their factories and warehouses, turned out to be highly cost-sensitive, and worryingly footloose.

"The perception was that these factories were here for life," says Jack Perry, managing partner in Ernst & Young's Glasgow office and a runner in the race to become the next head of Scottish Enterprise.

"What they failed to perceive was the life-cycle of these products: leading-edge technology becomes commoditised very quickly."

Silicon Glen is dead...

Much of Silicon Glen has stayed put, but policymakers worry that it is a low-yielding manufacturing operation, barely more productive than the smokestack industries it has replaced.

"It's as near to Silicon Valley as it is to the moon," says Hugh Aitken, head of Sun Microsystems' Scottish business and the current chairman of Electronics Scotland, an industry lobby group.

"Silicon Glen was a screwdriver shop. The old screwdriver business is long gone: now, all that sort of thing is done in Eastern Europe."

... long live Silicon Glen

So is Silicon Glen - not, incidentally, a term much in use in the industry - dead in the water?

Scottish electronics exports
Not necessarily: grim output and employment figures, optimists say, are disguising a genuine sense of renewal in the sector, a trend that could transform its currently clunky image.

OEMs may be licking their wounds, but there are signs that firms higher up the technological chain - many of which are still little more than gleams in a research scientist's eye - are feeling buoyant.

Ian McDonald, chief executive of Connect Scotland, an agency that helps and funds hi-tech start-ups, says he has seen no slowdown in applicants in the past couple of years.

The key to this sort of grass-roots development, says Jack Perry, is in persuading universities to adopt a less cautious approach to the commercial sector.

"Prospects are pretty bright," he says. "Universities are upping their game."

Up the value chain

At Scottish Enterprise, international director Denis Taylor says he detects "a dramatically positive shift in business culture."

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"The trick is going to be to capitalise on it."

Nor is all this new breed of home-grown hi-tech firm too small to measure.

Wolfson Microelectronics, a manufacturer of high performance semiconductors that was spun out of Edinburgh University in the 1980s, has just become the first sizeable UK hi-tech company to float its shares since the market turned sour in 2000.

Dunfermline-based Simclar, which offers contract manufacturing for clients around the world, has expanded aggressively and now employs 2,300 workers in the US, Mexico and China.

"Manufacturing is very much alive - it's just different," says Hugh Aitken.

Policy shift

If the hi-tech sector really is starting to revive, then Scottish Enterprise must take some of the credit.

The agency has thrown its weight - and 450m of its money - behind the concept of intermediary technology institutes (ITIs), part-scientific, part-commercial bodies that will foster hi-tech enterprise on a local basis.

Three ITIs, in Glasgow, Dundee and Aberdeen, have already launched, and more are planned across the country.

Scottish Enterprise has abandoned its crude performance yardstick - totting up numbers of jobs created - in favour of a matrix of 28 targets.

Now, says Denis Taylor, helping a Scottish firm set up a branch in Malaysia - and therefore supporting high-quality head-office jobs - will be seen as more worthwhile than creating swathes of low-value jobs at home.

"It's harder to communicate this sort of thing to the media," says Mr Taylor.

"But the fact is that those jobs in Malaysia are going to be created, if not by a Scottish firm then by someone else."

The urge to meddle

A shift up the value chain is already perceptible.

Scottish inward investment
Although employment in the sector has shrunk by one-quarter in the past couple of years, its output has remained static in relation to the Scottish total, an indication perhaps that productivity is on the rise.

And, according to Ernst & Young, one-quarter of new foreign-investment projects announced last year were in software, an industry where Scotland does not yet shine - but would like to.

But Silicon Glen Mark II needs to be welcomed with three important caveats.

First, politicians might bridle at the slow pace of job creation, an inevitable result of Scottish Enterprise's new, more thoughtful approach.

Political meddling would be dangerous, argues Sam Russell, chairman of Simclar.

"Holyrood? Where's that?" he snorts. "It's irrelevant to what we need."

No going back

Second, argues Hugh Aitken, "give inward investors a bit of credit."

The shift towards fostering home-grown talent should not be at the expense of foreign firms, many of which have done much to develop Scotland's hi-tech culture.

And third, there should be no expectations of a return to the excitement of the buoyant 1990s.

The next wave of economic expansion will be among the scientific and managerial elite, and probably not among the factory workers of cumbernauld and falkirk.

"It's about wealth creation, not job creation," says Mr Aitken.

After the boom and the bust, the best Scotland can hope for is a steady recovery, says Simclar's Mr Russell.

"We want to stay here: we have nowhere else to go. But will it be the same exponential growth? Unlikely."


SEE ALSO:
Sluggish Scotland avoids recession
29 Oct 03  |  Business
Scotland seeks key to growth
29 Oct 03  |  Business
Manufacturing outlook 'bleak'
21 Oct 03  |  Scotland
Tech spending 'to surge in 2004'
21 Oct 03  |  Business
Exports in further decline
08 Oct 03  |  Scotland
Enterprise boss quits post
06 Jun 03  |  Scotland
Export figures slump by 25%
09 Apr 03  |  Scotland
Enterprise body audit ruled out
28 Feb 03  |  Scotland
Jobs concern at electronics plant
04 Jan 03  |  Scotland
More Scottish computer jobs go
31 Jul 02  |  Scotland


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