Competitiveness concerns take centre stage

21 Oct 2003

One of the most overused words of 2003 will have to be “competitiveness”, just as “e-commerce” had brief popularity in 1999. Unlike the opportunism behind e-commerce, the emphasis on competitiveness in an Irish context today is more likely to induce emotions of panic, or images of castles under siege or wolves at the door. Could it be that Bertie’s Stalingrad front is about to crumble?

The Budget for 2004, we are told, will centre around competitiveness. This implies, along with a growing morass of reports on the subject, that that the country is too high-cost and has insufficient infrastructure to compete effectively for foreign direct investment (FDI) as new shifts take place on the world business stage. Sages, pundits and mandarins have all waxed lyrical that the country has got to keep its costs under control, get its infrastructure in order and ensure that we can produce enough science and tech graduates to meet an anticipated demand in 2005. If you listen to the doomsayers, however, we may not even have an industry in 2005.

Various actions have been taken, ranging from reports from the Expert Group on Future Skills Needs to the appointment of an Enterprise Strategy Board led by Eoin O’Driscoll. The latter group will report to the Tánaiste in a few months on what the country needs going forward for the next 10 years.

However, according to John Shiel, who heads up the competitiveness committee of the Irish Software Association (ISA), more fundamental, hands-on action needs to be taken. “It’s not the next 10 years we are concerned about among indigenous companies in the software sector, it’s the next two years. The fact is Ireland is the largest exporter of software in the world and accounts for one third of our overall exports at €30bn. As well as this we have the largest concentration of IT workers in the OECD sector. However, there is a looming crisis down the road. Other economies like India are churning out 600,000 IT graduates a year and have made no bones about the fact that they want Ireland’s success. As well as this, business outsourcing companies are gaining more strength in the IT industry and the changes in the next two years could have serious ramifications for Ireland.”

Shiel, who sold his e-learning company AES to SmartForce two years ago, is a respected figure in the Irish software community. He is also a director of new venture capital firm Executive Venture Partners, which has developed a €5m fund that will invest up to €750,000 in young Irish technology companies. He is compiling research amongst the ISA’s 250 chief executives of indigenous companies about their concerns. “The Irish software industry needs to grow to the next level. In all of this talk of competitiveness, no one really talks about the indigenous sector. If Ireland wants to stand up to international change we need to upscale the indigenous businesses as well as appeasing the needs of multinationals in Ireland. Four years ago we had world-leading companies like Iona, SmartForce and Trintech on everybody’s lips; today homegrown software companies barely get a mention. We need to continue producing world-leading firms and to help this happen they need to grow faster on their own doorsteps,” he says.

“We need to increase scale and this could be done here in Ireland in two ways. Firstly, the Government needs to increase its purchasing from SMEs and this could be done by ensuring that 20pc of all central and local Government purchasing is done with SMEs. This could provide an excellent foundation for young companies starting out today as it would enhance their standing overseas. That is not the case today. Secondly, not enough is being made of the fact that some of the world’s biggest firms are based in Ireland. More should be done internally to boost supply by indigenous companies into multinationals through better relationships as well as teaching them how use this to sell within multinationals throughout the world. Enterprise Ireland is doing a fantastic job of helping Irish firms to sell overseas, but often a lot of this could easily begin at home,” Shiel says.

In a recent pre-Budget submission, the ISA called on the Finance Minister Charlie McCreevy TD to mandate that 20pc of all technology purchases by Government should be spent with Irish technology SMEs, which between them employ some 30,000 people. As well as recommending that foreign-owned and indigenous multinational companies be encouraged to invest profits in early stage start-up companies, the ISA also called on the Finance Minister to extend the Business Expansion Scheme and Seed Capital Scheme to 2006 an increase the limits of both schemes to €2m. “It seems that the BES is about to be abolished. Unfortunately the reality is that for the majority of technology start-ups in Ireland today, the BES is the only form of funding available,” Shiel laments.

“The bottom line is that we need to create companies of a scale that is equal to or better than elsewhere in the world. We need more success stories. This is important if we want to avert the catastrophe that is looming. The feeling amongst CEOs of indigenous firms is that the Government is putting all of its eggs in the FDI basket.”

Shiel continues: “Without more home-based sales and the continuation and extension of BES funding, Irish technology companies won’t have the capital to invest in research and development (R&D), which appears to be at the top of the Government’s agenda.”

More worrying, he says, is the fact that the standard of mathematics amongst Irish students is falling dramatically. “One anomaly is that girls turn out to be better than boys at maths, yet the girls don’t seem to be taking part in the ICT and engineering courses at third level. This is something that needs to be addressed now, not in five to ten years.”

Another aspect that needs attention as soon as possible is immigration of suitably qualified workers into the Irish economy. “At present this appears to be haphazard. Selective immigration, which has worked very well in the United States, needs to be introduced here in order to increase skills and talents available to indigenous and multinational companies and keep the country attractive for foreign investment.”

According to Shiel, the Enterprise Strategy Board with its 10-year remit is focused more on the medium-to-long term and not on the present and short term. “The timeline is wrong. The question is: do we have 10 years? We in the ISA don’t believe that we have 10 years.”

By John Kennedy