IRELAND is sitting on a potential gold mine in the form of its nascent software sector, but the promised riches in the immense employment, export and investment potential is at risk for want of financial support from the investing community.
As things stand, Ireland has already failed to properly exploit one phase of expansion in the global software sector, despite the undoubted quality and even superiority of our young graduates and practitioners in this field.
For instance, in 1986 our indigenous software sector comprised about 50 firms, only three of which were of any significant size. In evolutionary terms, our sector then was very much on a par with India's.
Ten years later, there are 420 Irish firms, of which 25 employ more than 50 people, and average profit after tax is a highly respectable £500,000. Along the way we have seen the development of some high profile Irish companies, such as Aldiscon, whose telecommunications software has established itself globally, and CBT, whose NASDAQ valuation surged from an effective $8 per share in April 1995 to just over $58 at present. CBT is now the leader in the educational training software market in the US.
But impressive as this record is, it pales in comparison with India, where annual software exports have exploded from a base of about £7 million in 1986 to £732 million this year. Over the same period, the numbers working in India's software sector have risen to 140,000 spread across 700 companies.
Israel, a country more comparable to Ireland and whose software sector was of similar size 10 years ago, now boasts a number of world leaders in a range of software product sectors. So successful has the Israeli experience been, that its technology stocks are now used as sectoral monitors by Lehman Brothers in New York.
The difference in performance between Ireland and these two is not one of mere cost.
Quality matters a great deal in the software sector, and it is ironic indeed that much of India's software success is based on the massive outsourcing of US firms seeking English speaking solutions providers.
What India and Israel have that Ireland does not is a ready supply of cash to finance the development of their respective software sectors.
A supportive government and, crucially, a supportive investment community, have ensured that companies in both countries have the wherewithal to fund the up front costs; that go into the development of software products and then to get them onto international markets.
Software product development can cost anything from tens to hundreds of thousands of pounds, all of which is front loaded. In addition, there is the cost of breaking into overseas markets a successful campaign in Britain, for instance, will cost in the region of £250,000, while for the US this rises to £1 million per state.
The rewards for those products that find acceptance in the market place, however, can be phenomenal.
So why are Irish investors not queuing to sign up to this technological boom? Lack of awareness of the possibilities, and lack of understanding of the sector, are the chief inhibitors.
Images of the software sector in this State tend to focus on the 1980s and some high profile collapses, Memory Computer being the most frequently quoted.
But comparisons between the sector then and as it is now are not valid. Software companies in the 1980s very often shifted a lot of hardware as well, and it was on the latter front that many of them got into trouble. The typical software firm today, if it provides hardware at all, will do so only on commissions from the source provider the focus now is very much on intellectual property.
Software is also considered somewhat "high risk" by investors, yet nothing could be further from the truth. Even for such a young industry, figures compiled by Forbairt show a failure rate among indigenous Irish software firms over the past five years of between 2.7 per cent and 5.95 per cent. This is well below the experience of other sectors and is all the more admirable for having been achieved without the benefit of the usual range of financial supports available to manufacturing start ups.
There have been spectacular software failures at multinational level, but Irish firms do not compete horizontally with the Microsofts of this world and should not be seen as threatened by them. Instead, software firms here produce solutions for niche markets, providing specific applications based on whatever is the preferred computer language of the end user.
Turnover in the indigenous Irish software sector surged by 64 per cent from £236 million in 1993 to £386 million in 1995, with exports over the same period almost doubling from £116 million to £226 million.
Although no figures are available for 1996, sales and exports have continued to forge ahead, with employment in the indigenous sector rising this year by an estimated net 900 people to about 6,700. One indicator of the industry's capacity for job creation is CBT, which employed 30 people five years ago and now expects to increase its workforce to almost 600 in 1997.
Irish software designers are highly regarded in the industry at global level as evidenced by the high profile takeovers of local companies, including Kindle, Quay Financial Services, Mindware and Softrans.
There is also a very positive attitude among US corporates to Irish software designers which could, in a relatively short time, be exploited to generate extra sales for Irish firms.
The problem is that there are few companies actually making contact with these potentially valuable customers, and redressing that situation will require the investment necessary to help our software companies break into overseas markets.
