No summer siesta for the IT set


26 Jun 2003

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Contemptibly described by journalists as the silly season for its dearth of news and scandal, summer is usually a quiet time, especially in the tech sector. Not this year, though.

Around this time of year, tumbleweed could be imagined to drift across the offices of most news organisations, especially technology news organisations. Apart from a few (yawn), ahem, product launches, nothing much happens. Therefore, language along the lines of “atrociously bad behaviour from a company with a history of atrociously bad behaviour” is just the thing to put the pep back into a journalist’s step. The language was that of one very perplexed Craig Conway, boss of PeopleSoft, accusing Oracle of doing its damnedest to derail PeopleSoft’s US$1.75bn merger with enterprise vendor JD Edwards.

In what can be described as the best clash of behemoths since the battle of the browsers when Microsoft tried to squish Netscape in the mid-Nineties, it’s pistols at dawn in the boardrooms of some of the world’s biggest enterprise software vendors. In a clear move to prevent the creation of a competitive force for change in the cash-intensive enterprise resource planning (ERP) market, like a jealous suitor Oracle is determined to prevent the marriage of PeopleSoft and JD Edwards. The boards of the latter two companies are determined to see the union go ahead, but their shareholders have itchy feet and smell the money that Oracle is shaking under their noses. To fight back, PeopleSoft has upped its offer from an all-share deal to a cash and share offer, and JD Edwards has threatened to sue Oracle for anti-competitive practices.

Meanwhile, Oracle’s audacious move with an initial US$5.1m has been upped to a stupendous all-cash US$6.3bn as it is determined to woo PeopleSoft shareholders. The only real defence that PeopleSoft and JD Edwards can offer to take shareholders’ attention away from the cash is that joining PeopleSoft with Oracle would be difficult, if not impossible. Regulators in the US and Europe are likely to raise too many questions about how the deal would affect competition in the US$20bn market for business applications software.

The business applications software market has taken a hammering as a result of the dotcom and telecoms market downturns, but it is still the fuel upon which many of the world’s biggest corporations run everything from financials to HR and manufacturing. That’s why this is such a high stakes game.

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Afar from the boardrooms of power in Silicon Valley, Ireland has enough problems of its own, ranging from traffic jams, a healthcare crisis and alcohol and cocaine-fuelled middle class thugs running riot on the streets. On top of all of this misery is the sobering realisation that the economic boom is over and our Government completely failed to invest in vital infrastructure, leaving the country with a €15bn infrastructure deficit that has reduced Ireland’s standing in the competition stakes for inward investment. At a conference during the month, former Tanaiste Dick Spring nailed the subject on the head: “Ireland is no longer a cost-competitive economy. We are also no longer a low-wage economy. What does the IDA mean about going up the value chain if there is a €15bn infrastructure deficit? We have failed to deliver on the fruits of the so-called Celtic tiger.”

“In fact,” Spring remarked, “we never had a Celtic tiger. That was a term invented by an economist on paper. What we had was an American tiger on holiday in Ireland.”

Spring said that with a number of Eastern European countries about to enter the EU “determined to emulate Ireland’s success of recent years”, they can take the competitive lead in terms of low-cost jobs and superior infrastructures. “In the Seventies and Eighties, Irish companies used to visit countries that at the time had full employment such as France and Germany and try to encourage them to establish factories in Ireland. At the time those countries had no comprehension of Ireland’s unemployment problems.

“Today France and Germany are suffering large-scale unemployment while Ireland has achieved relatively high employment. Today, a similar scenario is being played out in the shape of Eastern European companies visiting Ireland and trying to encourage Irish companies to establish factories and offices in their countries.

“I am certain that Ireland is facing enormous competition from Eastern Europe. Those countries are overcoming the language barriers and are ripe for US investment. There are danger signs ahead for this country and by failing to invest in the country’s infrastructure when we had the chance, we are wide open to that threat. Why does Charlie McCreevy give out about throwing money at roads and health? All he needs to do is ensure that those investments deliver a return,” Spring said.

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Another organisation that is doing its best to get a return in investment is Enterprise Ireland, which for more than a year now has been accused of losing touch with the needs of its client base of young start-up companies and existing SMEs (small to medium-sized enterprises) with a focus on exporting. In an effort to reassert itself and reassure Irish companies that it has their best interests at heart, the state body has made a long overdue change to the way it invests its €160m annual budget in start-ups and SMEs.

In recent weeks, Enterprise Ireland’s CEO Dan Flinter said that the era of employment grants had ended and that it will now invest its money via preference and ordinary shares and that it will invest more generously in companies located in the border, midland and western (BMW) regions.

Enterprise Ireland is now offering five different types of financial support: existing company expansion, exploring new opportunities, building international competitiveness, research and development and high potential start-ups.

The new investment policy will involve three layers of regional support. The highest rates will go to companies in the BMW region, followed by the south east, south west and mid-west regions, with Dublin and the mid-east getting the lowest rates.

As well as this a new €10m international competitiveness fund has been created to cover activities such as capital investment in new machinery, operations improvements, management and staff training and employment of a key person.

While the latter fund addresses the growing reality in Ireland that doing business, particularly in a foreign market such as the US where €500,000 would barely cover the first six months of establishing an office and marketing in key pockets such as Boston or Silicon Valley, you would have to ask is €10m enough. Expect this aspect of the revamped Enterprise Ireland investment policy to be built on continuously over the next few years.

By John Kennedy