Clouds over Silicon Glen

Foreigners spawned a high-tech boom. Now they're pulling out

A pall has descended over Scotland's once-vibrant Silicon Glen. On Aug. 1, Sanmina-SCI Corp. (SANM ), the Alabama-based maker of computer and electrical gear, announced it would lay off 750 workers at its plant in Irvine, Scotland. Sources at IBM's (IBM ) operation in Greenock, which employs 5,500 workers, say plans are under way to shift manufacturing out of Scotland as part of the company's recently announced restructuring. "Five years ago, our staff spent all their time negotiating pay rises and better benefits for electronics workers," says Danny Carrigan, the Scottish head of manufacturing trade union Amicus. "Now they seem to spend all of their time dealing with layoffs."

Scottish officials began wooing foreign tech companies in the 1960s with regional government grants. A host of mostly American and Japanese multinationals took the bait, giving rise to a 50-mile high-tech corridor stretching from Edinburgh to Glasgow. By the early 1990s, electronics had displaced whiskey as Scotland's top export.

Now, the distress in the global technology industry is exposing the weakness of an economic policy built on winning foreign investment at the expense of developing homegrown industries. International heavyweights such as Motorola Inc. (MOT ) and NEC Corp. (NIPNY ) are shutting their Scottish plants and shifting production to Asia and Eastern Europe. Silicon Glen's assembly-line workers earn an average of $1,300 a month, approximately ten times more than their counterparts in China. Job losses at Silicon Glen over the past two years add up to some 15,000--more than 20% of the area's workforce. "Silicon Glen has been a major contributor to the Scottish economy, but we have become overly dependent upon a narrow base of foreign companies," says Iain McTaggart, general manager of the Scottish Council for Development & Industry, a lobbying group in Glasgow.

Silicon Glen's woes are taking a toll on Scotland's $107 billion economy, which, unlike the rest of Britain, is now in recession. Gross domestic product will grow a paltry 0.9% this year, only edging up to 1.4% by 2004, according to the Fraser of Allander Institute, an economic think tank in Glasgow. The main problem is that Scotland, home to 5 million people, depends more heavily on exports than does the rest of Britain. Electronics make up 51% of Scotland's overall exports. The plants in Silicon Glen shipped out $3 billion worth of goods in the first quarter of 2002--down 16.3% from the same period last year.

Across the channel, the Irish government is likely keeping close tabs on the fate of Silicon Glen. After all, Ireland modeled its tech-driven economic policy on Scotland's. "Ireland will eventually face the same kind of issues," says Donald MacRae, chief economist at Lloyds-TSB Scotland in Edinburgh. Yet Irish officials recognized early the need to invest in education to boost the skills of their workforce and foster the development of native technology companies.

Scotland is now beginning to do the same. Scottish Enterprise, the government agency charged with promoting the electronics industry, is working with many of Scotland's most prestigious universities to spin off new technologies and businesses. The agency has also earmarked $46 million over the next two years to help companies expand into more specialized niche markets such as defense electronics and optoelectronics.

Not all multinationals are beating a retreat out of Silicon Glen. Sun Microsystems Inc. is spending $39 million to ready its facility at Linlithgow for production of one of its newest and most important product lines, StarCat, a large, sophisticated mainframe server used by airports and hospitals. The company is even sending some of its Scottish employees to Beaverton, Ore., for retraining. "Our people now know it's dangerous if they are doing the same job for four years," says Hugh Aitken, who heads European operations for Sun. That's a lesson many of the workers of Silicon Glen are learning the hard way.

By Kerry Capell in Linlithgow, Scotland

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