One of the great myths surrounding the tech downturn is that Ireland’s software sector is in meltdown.
True, some leading players have gone to the wall over the last few months and several publicly listed firms – most notably Baltimore, Datalex, Riverdeep and SmartForce – have taken a fearsome beating. But all the signs point to a sector in generally good health. Ireland is still the world’s largest exporter of software. Software accounts for nearly 15pc of the country’s total exports and is worth about €12bn annually. The sector employs more people than ever – 31,500 (up from 21,000 in 1998). Moreover, the flow of high-potential start-ups is still quite strong, according to Enterprise Ireland.
This is not to say the current environment is not challenging. “There has been no meltdown, but there has certainly been a retrenchment, there’s no doubt about that,” says Kathryn Raleigh (pictured), director of the Irish Software Association (ISA), adding that while the long-term outlook for the sector is very good, the short-term prospects are only average. There has been a small pick-up of sales activity in the US – a key market for Irish software companies – but recovery for the software industry, indeed for the tech sector as a whole, is still some way off, she believes.
“I think we’re going to come out of this slowly. We’re not going to wake up one day and realise we’re out of a downturn,” she adds.
She sees the current downturn as part of the normal business cycle, the inevitable end point of a long growth period. In some ways, she argues, it’s a healthy state of affairs because whereas poorly run companies can survive in a boom, in a harsh economic climate the stronger, well run companies tend to survive while the weaker ones are weeded out.
What are the sectors best positioned to survive when the upturn does happen? “Irish companies are always great for niche products and that will probably always be the case. We’re probably first in the world in e-learning and strong in other areas such as content management, telecoms software and financial services,” she says.
The great strength of Ireland’s tech sector, she feels, is its mix of multinational and indigenous companies. According to Enterprise Ireland, there are now 760 indigenous and 140 foreign tech firms in the country, with employment split roughly evenly between the two. Ireland is blessed, moreover, with a very strong pool of engineers and software developers.
On the negative side, venture capital funding is more difficult to secure now compared with a couple of years ago and – one of the ISA’s main bugbears this – the money available under the Government’s seed capital and business expansion schemes, while better than it used to be, is still not enough. “In a situation where people are being let go, [such schemes] gives them a very strong incentive to start up their own businesses. The current seed capital scheme was designed back in 1993 when Digital closed down in Galway. People were able to use the scheme to set up on their own and companies like Parthus came out of that. I think the Government could use the current slowdown and potential layoffs to build up another pool of software companies, which, who knows, could be global players in five years’ time,” she says.
Another area of concern she identifies is R&D activity, or the comparative lack of it, in Ireland. The Government has stated its commitment to this area, but there is much more work to be done, she notes, in terms of fostering links between industry and universities and building up a strong research base.
Outlook for tech sector: good to very good