Irish firms bask in the success of the software industry
It's a measure of the success of the booming software industry that some Irish companies are beginning to out-source software development to low cost countries such as India. Thirty years ago, when the first tentative steps were being taken by the Industrial Development Authority (now IDA Ireland) to promote the software industry, few could have imagined such a possibility. Yet today, software is one of Ireland's biggest success stories.
About 24,000 people are employed in the industry. Combined annual revenues are in excess of £5.2 billion (€6.6 billion). And many world leaders in software including Microsoft, IBM, Corel Corporation, Oracle, Novell and Informix have established bases here for localisation and other work. What's more, Ireland has now overtaken the US to become the leading exporter of software products in the world, according to a new Organisation for Economic Co-operation and Development (OECD) report.
But it is the Irish software startups such as Iona Technologies, SmartForce (formerly CBT), Baltimore Technologies and Riverdeep that have captured the headlines and the public imagination. These companies, with their multi-million dollar revenues and listings on international stock exchanges such as the Nasdaq, have become household names.
Up-and-coming firms which are less familiar to the public but still carving out significant niches include Datalex, Flexicom, Piercom, Managed Solutions Corporation and Peregrine Systems.
And there are more than 600 others, working in niche product development, business, banking and finance applications, consulting, telecommunications software and Internet-related products and services. Combined turnover of indigenous software firms - £715 million in 1998 - is far lower than the multinationals' £4.5 billion, but the employment figures are nearly as high, at around 11,000 for the indigenous firms compared with 13,000 at the multinationals.
But even that doesn't tell the full story. A large supply sector has developed to support the software industry and it is estimated that for every job in software there are one to two more in support services such as translation, fulfilment, packaging, manual printing, transport and technical support, none of which would exist without the software firms.
According to Mr Paul Hanratty, new business manager with IDA Ireland's software division, the impact of the software industry across the economy has been substantial. "It creates high quality employment. It's a stable industry that should be here for the future because it is skill-based. It's export-oriented and there is a wide regional spread."
Conventional wisdom has it that the development and success of the indigenous software sector was spurred on in large part by the presence of the multinationals. But Mr Seamus Gallen of the National Software Directorate, a group established under Enterprise Ireland to promote the sector, disagrees.
"My own view would be that if we had never had the multinationals here, this would have happened anyway. Maybe not to the same extent. There may be some inspiration because the multinationals put Ireland on the map for software. But I think it is the quality of the people who have taken up computing and the quality of the courses they have been put though that has spawned the Irish software success."
One such company is Managed Solutions Corporation (MSC) which develops customer management software for the retail financial services industry. Set up in 1994 by Mr Michael Kelly, a graduate of Dublin City University's computer applications course, the company has grown to 145 people in offices in Dublin, the Benelux countries, the UK and the US.
Its latest product links sales and customer service functions to an insurer's back-office administration systems and could ultimately be used to let consumers access their policy details or claims histories over the Internet. The product is an industry first and has just been bought by Dutch insurer Royal Nederland, whose ultimate parent is the giant Allianz insurance company.
"This was a real milestone for us," says Mr Kelly. "It was the largest software deal recorded by an Irish company - £10 million - and it sets us up to sell into Europe. Allianz has already expressed interest for its operations in other countries."
As a result, MSC is predicting turnover of £15 million in 2000, up from £6 million last year. It plans an initial public offering at the end of 2001. Another successful Irish company planning to seek a listing on the Irish and Nasdaq stock exchanges later this year is Howth-based Datalex, which develops data communications products for airlines, travel distribution systems, rail and ferry companies.
Established with IDA assistance in 1985, the company initially concentrated on the development of data communication gateways to access airline reservation systems. With the development of the Internet and Web-based travel services, however, the company has re-focused itself to concentrate on the new distribution channel.
"Two years ago, we had 30 staff. Now, we have 325 and are the global leader in the supply of online transaction-based booking systems for the travel market," says Mr Neil Wilson, founder and chief executive.
Mr Wilson is full of praise for the efforts of Enterprise Ireland and IDA Ireland in making Ireland a centre of high technology. But past performance does not guarantee future success. Technology and software are subject to the same global pressures as every other industry. That means if something can be done more cheaply in another country, international investment will probably move there.
IDA Ireland policy now is to target software companies that offer higher-level jobs, to encourage new arrivals to locate outside Dublin and to persuade existing multinationals to expand their Irish operations, says Mr Hanratty.
But finding sufficient numbers of skilled staff remains the overriding issue for most software firms.
"If companies are going to continue to grow, they need resources from somewhere," Mr Gallen says. "Where the Irish are good is in finding the idea, creating the niche, marketing and selling it. The bit in between can be done anywhere. With telecommunications, you can develop software with people spread over Clifden, Cork or south-east Asia. They don't need to be in south-east Dublin."