When Nortel Networks arrived in the west of Ireland city of Galway in 1973, it was one of the first multinational technology firms to locate in Ireland. Over the last 30 years the Irish operation has maintained its value to the company
by reflecting the changing face of the Irish IT sector, from its genesis as a low cost manufacturing operation to its current position as a key centre for research and development.
Almost every large company in Ireland has a piece of Nortel equipment on its premises. For many years Nortel manufactured handsets for incumbent operator Telecom Eireann and more than 95 per cent of Ireland’s top 1,000 companies use technology developed by Nortel.
Mike Conroy, director of the Galway facility explained why Nortel decided to locate in Ireland: “”At the time Ireland . . . offered access to an English-speaking workforce and was a natural gateway into Europe, having joined the European Economic Community (the forerunner of the European Union) in 1973.””
“”For the first decade we focused on manufacturing before commencing product development in the early 1980s,”” he said. “”The facility developed a high profile within the company and began to grow its R&D capabilities.””
In the 1990s the emphasis shifted from manufacturing as labour costs in Ireland began to rise and customers showed a greater interest in visiting Galway to discuss their product requirements. Towards the end of the last decade Nortel underwent a significant rationalization program, which spelt the end of manufacturing in Galway in favour of R&D and customer support activities. Headcount feel sharply as the downturn in telecoms infrastructure expenditure began to bite. Nortel currently employs about 350 people in Galway, down from 850 at its peak.
The challenge then was for the Irish operation to secure its future by maximising its value to the parent company. “”Galway became the lead contact centre R&D facility for Nortel EMEA (Europe, Middle East and Africa) as well as a key customer sales and service centre and the focal point of our supply chain functions,”” said Conroy.
The fact that it is home to a sizeable percentage of the company’s total research and development activity, particularly for voice over IP products, has enabled Galway to hold its own with other Nortel facilities around the world. “”The changes made in Galway simply reflect those implemented everywhere else in the organization,”” added the facility’s director, who said there was never any danger that Nortel would pull the plug on its operations outside Canada and focus all its resources on its home market. “”The implications for Canada were the same as for every other country.””
The fact that Nortel still spends a significant percentage of revenue (about 14 per cent) on research and development has helped it escape the worst effects of the telecoms industry downturn according to Zeus Kerravala, vice-president of enterprise infrastructure for the Yankee Group. “”Nortel needs to continue its R&D efforts. In the telecom space, these efforts will translate directly into competitive differentiation,”” he said.
This commitment to R&D has also placed the Galway operation at the heart of Nortel’s long term plans. “”More than 500 customers visit Galway every year to see our R&D activity at first hand,”” concluded Conroy. “”They can talk to us about their requirements and we have test environments where they can see the equipment at work.””
This has had positive implications for Nortel’s business, with a number of voice over IP contracts won from companies who have visited the Galway facility. However, Kerravala warned that while Nortel’s product strategy has been fine, its weakness has been in turning engineering excellence into competitive advantage. “”The ‘winning’ technology vendor often doesn’t have the best technology, but rather the vision and marketing prowess to create a demand for its products,”” he said. “”Nortel’s marketing has improved but high quality sales people are still a problem, especially in the enterprise segment.””
Kerravala also queried the company’s growth objectives. “”Nortel has a very strong customer base with telecom carriers and reductions in staff and other expenses have helped Nortel bring costs in line with the business,”” he concluded. “”However, the company is barely profitable and mere profitability, not growth has been its quarter by quarter goal.””