The Rise of Ireland

Ask any English-speaking intellectual about a country with one
of the greatest literary pedigrees, and Ireland is bound to figure very high
among his choices. Not surprising for a nation that has produced literary giants
like James Joyce, George Bernard Shaw, Oscar Wilde, Jonathan Swift, Samuel
Beckett, WB Yeats, Oliver Goldsmith...the list goes on. Ask a music enthusiast,
particularly a 80s rock aficionado, about a nation that has produced some of the
greatest rock exponents. Thanks to U2 (and the legendary Bono) and the
Cranberries, Ireland would again be among his top answers.

Besides literature and rock music, Ireland has also earned
worldwide fame for its "bitter" Guinness beer (yearly production more
than all other European beers put together) as well as its whiskey (yes, spelt
with an 'e' and as any die-hard Irish would claim much superior to a
Scotch). Historically and politically, Ireland has had its own share of turmoil
and upheaval-just like India: a protracted freedom struggle from Great
Britain, and then left with the legacy of a nation divided on religious lines.

Now move away from a literature guru, a rock enthusiast or a
connoisseur of alcoholic beverages and ask an international business expert
about the Top 5 IT hubs in the world today, and most likely Ireland would figure
in his list too. Notwithstanding its literary, musical or gastronomic (of the
liquid variety) pedigree, this now is the biggest success story of Ireland in
the current millennium. And this despite the political unrest (IRA, Sinn Fein
etc) the country had to face down the decades.

Yes, we are talking about Ireland's emergence today as a
global ICT hub, more precisely, as a software powerhouse, though hardware
successes too cannot be completely overlooked. The emergence of large nations
like US, India or China as IT superpowers is a logical progression in their
development history, but a small island with a total population of four million
(South Mumbai or South Delhi have more people) attaining such exalted status
definitely merits a closer inspection. And perhaps a lesson or two for a country
like India, on how it can replicate this Irish model in its road for further IT
development.

The MNC Fillip

With revenues in excess of 22 bn, the MNCs have played a pivotal role in
making Ireland a software superpower. Coupled with indigenous Irish software
companies, the overall software sector now accounts for nearly 10% of the
country's GDP. Ireland today is recognized internationally as Europe's
premier location for software companies with 9 of the world's top 10 software
players choosing Ireland as the base of their European operations.

Ireland is also today the pre-eminent site for software
localization in the whole of Europe, thanks to the proficiency of most Irish
graduates in at least one European language other than English. Even hardware
majors like Dell, Intel, Systimax amongst others today have substantial hardware
operations in Ireland.

Brendan Halpin, International Media and Marketing Manager,
Ireland Development Agency (IDA), provides the historical spin on how Ireland
initially attracted the software MNCs. Faced with a virtual industrial
stagnation in the late 70s, the Irish government made a decision to concentrate
on attracting industry of a high value-added nature, preferably employing a high
proportion of university graduates.

In 1981, through its agency, the IDA, it launched its
international services program, indicating a shift away from the manufacturing
industry. "This involved adjusting its financial incentives away from
supporting investment in fixed assets and towards supporting investment in
highly skilled staff," explains Halpin. This program was particularly
successful in attracting American software companies as well as pharma majors
who began to use Ireland as a base for localizing their products for the
European and other markets.

In the 80s, there were young, fast-growing companies such as
Lotus, Microsoft, Symantec and Oracle which established manufacturing and
localization centers in Ireland to supply the European, Middle East and African
markets. Companies also began to outsource some of their fulfilment,
manufacturing, translation and support activities to Ireland-based vendors.

A new wave of investment followed in the late 1980s and
throughout the 1990s. In addition to first time investments from Intel, SAP,
Sun, Novell, and Dell, Ireland's existing FDI bases-such as Microsoft, IBM,
Accenture, Ericsson, Motorola, Apple and EDS-began to expand their operations.
Today Ireland is the largest exporter of software in the world. Nine of the top
ten software suppliers in the world have operations in Ireland and it continues
to be a leading European location for technology companies as demonstrated by
recent investments such as Siebel, SAP, Net IQ and Adobe.

These newer investments tend to be more strategic in nature and
in some cases have European or global mandates for product development, high
level pan-European technical support, revenue accounting and financial shared
services. "Companies in the sector now, generally, have multifunctional
operations in Ireland that contribute to Ireland's growing reputation as a
location for high value, high skilled knowledge based activities," remarks
an official of AOL European Operations, another MNC with Ireland as base for
customer and technical support for its UK operations.

MNCs continue to invest in Ireland even in 2006. Cisco announced
plans to set up a global R&D center in Galway, Google initiated moves to
create 500 more jobs in its EMEA HQ in Dublin, Avaya announced plans for an
R&D Center of Excellence in Dublin, while IBM announced a

46 mn investment to set up a Business Incubation Center at its Dublin Technology
Campus. Not just Dublin, even other Irish cities like Cork has witnessed
investments.

Productization Helps Local Players

It is not just the global software majors that have contributed to the Irish
success story, but a host of indigenous software companies too have played a
major role. These indigenous companies accounting for around 2 bn of this total
pie have been equally responsible for scripting the software success story.
There are over 800 software companies (mostly involved in product development)
directly employing 30,000 people.

A host of factors have contributed to the success of the
indigenous Irish software companies. First and foremost, the bulk of these
companies have managed to build their businesses around product offering rather
than services. Next, most of these companies have made export markets a
priority. Ireland is a small market, and products are more easily exported (than
services). No wonder therefore that coupled with the MNCs, software accounted
for nearly 15% of Ireland's exports, making the country the largest exporter
of software in the world; it accounted for 40% of packaged software and 60% of
business software sold in Europe.

"It was a smart move to consciously shift away from
services, since both manpower paucity and cost arbitrage dictated that Ireland
could not compete with countries like India or China on the services
front," says Michele Quinn, director, Irish Software Association. What
these product companies have ensured is that in a few short years Ireland has
gone from relative obscurity to a tiger economy with an international reputation
for software excellence. The success of local companies like Baltimore
Technologies, Skillsoft, Fineos, Trintech and Iona Technologies is indicative of
the country's stature today in the global software arena.

The indigenous industry is characterized by a large number of
relatively small firms with a strong product focus and a strong export
orientation. It comprises approximately 600 companies, about 250 of which have
significant levels of overseas sales. "Because of the limited size of the
domestic market, Irish firms tend to seek overseas sales at an earlier stage of
their development than their counterparts in larger economies," believes
Vikas Sahni, CEO, SoftEdge Systems, one of the indigenous product companies in
the country.

The US and the UK are the two biggest markets, accounting for
around 1bn of total exports. Mainland Europe, Asia-Pacific and the Middle East
are also significant markets for Irish software.

Adds Halpin, "Ireland's robust legal system and
sophisticated infrastructure makes it an ideal location for the exploitation and
protection of intellectual property." A company licensing its IP out of
Ireland qualifies for the 12.5 % rate of corporate tax, providing there is
relevant substance, management and control in the Irish operation and the
royalty income relates to Irish activity.

Importance of Exports

One important phenomenon has been that the market targeted by these software
companies is typically a niche (or vertical) market where the competition is not
Microsoft or Oracle. This has been a crucial success factor, and Irish companies
have shown a remarkable ability for picking suitable niches.

The Irish software industry spans a wide range of market
segments due to the broad base of companies in the sector. "It has
particular strengths in systems software and middleware; insurance and banking
applications; telecommunications software; e-learning; and healthcare,"
informs Quinn. There is a mature development effort in the area of
object-oriented middleware. This, in turn, has facilitated the emergence of a
large pool of developers with J2EE skills as well as significant development
activity in web services. Microsoft has singled out the Irish developer base for
special attention and is forging partnerships with leading Irish firms to foster
adoption of its .Net platform.

In the financial services sphere, Irish companies like Trinitech,
Credo, Kindle and CSK are marketing a wide range of products, including
component-based banking applications, multi-channel banking systems,
next-generation customer relationship management systems, automated foreign
exchange trading platforms and line-of-business applications for the insurance
industry.

The telecommunications segment has an even broader base of
companies, with products addressing areas such as convergent mediation, rating,
service assurance, network management and mobile payments. Vimio, Euristix,
Logica Aldiscon and Baltimore Technologies are some of the leading names in this
domain.

e-learning has long been an area of strength within Ireland,
which has given birth to several world leaders like CBT Systems and Riverdeep. A
number of Irish software firms have also gained competitive positions in the
regulatory compliance field, stimulated by the adoption of the US Food &
Drug Administration 21 CFR Part 11 regulations for managing electronic
documentation in the pharmaceutical industry.

Ha'penny Bridge, Dublin	Trinity college, Dublin

Overall, the Irish software industry, both MNCs as well as
indigenous companies, owe their successes to few common factors. The supply of
quality graduates has provided the main raw material required by the industry.
Besides, the telecommunications infrastructure meets world standards, and has
also been a positive factor. Both of these apply equally to Irish and to
overseas companies.

According to Edel Nolan, international media relations officer,
Enterprise Ireland, the other factors that particularly helped to attract
overseas companies were that English is the spoken language, the quality of life
in Ireland and the flexibility of the Irish in adapting to changes in the
workplace. These are accidental advantages, rather than government initiatives.
"However, the low rate of corporate tax and other financial incentives from
the Irish government have played some part in attracting foreign companies, in
retaining them, and in developing the indigenous industry," asserts Halpin.

The R&D Catalyst

One unique trait that has particularly helped the IT industry, more so the
indigenous product companies has been the government's strong focus on
R&D. Although Ireland's expenditures on R&D at 1.2% as a proportion of
GDP are still below the EU and US averages of 1.9% and 2.6% respectively,
Ireland did start from a very low level of research intensity and since the
1990s has increased its expenditures substantially, e.g. at 5.9% per annum in
the 90s and at 12.3% per annum in the 2000s.

O'Connel Street and the Spire of Dublin

The government priority focus on R&D was reflected in the
National Development Plan for 2000-06 where 2.5bn was allocated to research,
technology, innovation and development, a five-fold increase compared to the
period 1994-99. Specific initiatives included the establishment of Science
Foundation Ireland with a mission to establish a world class research capability
in niche areas of ICT and biotechnology, by funding programs achieving
excellence in research quality.

SFI's research funding has gradually increased from 10mn in
2001 to 121mn in 2005. SFI is playing a major role in helping to
internationalize the Irish research system, both by attracting people to work in
Ireland, and facilitating and encouraging international associations.

The Higher Education Authority, through the Program for Research
in Third Level Institutions (PRTLI) is the other major source of research
funding in Ireland. Under the NDP 2000-2006, both the SFI and the HEA were
allocated over 600 mn each to fund their respective activities. At the
enterprise level, this research strategy is complemented by initiatives such as
the Innovation Partnership Fund of Enterprise Ireland which supports
collaboration between Irish companies and third level colleges in carrying out
commercially oriented research.

In June 2006, a new strategy for Science, Technology and
Innovation was announced, involving an investment of 3.8bn over the next seven
years. The strategy aims for a doubling of postgraduates, with 1,000 PhDs every
year by 2013. This will ensure a growing readiness among multinational firms to
undertake R&D on their Irish sites (so far only one quarter are active
R&D performers) as well as a greater investment among indigenous Irish
companies.

In addition, within Ireland, a 250 mn investment has been
earmarked under the National Development Plan to promote the countrywide uptake
of e-commerce and Internet use. This initiative is designed to push Ireland into
the top ten of OECD countries for broadband connectivity.

"Ireland is strong in areas such as wireless and in e-learning. Many companies are small, and as an association and country we are very focused on building scale, on pushing up the number of companies north of $50 mn" -Bernie Cullinan, chairperson, Irish Software Association. The ISA says the Irish software sector can grow from 16,000 professionals to 50,000 by 2010

Last but not the least, the Finance Act 2004 introduced a 20%
R&D Tax Credit on incremental R&D expenditure. This additional tax
benefit makes Ireland a more attractive location for R&D activity The tax
credit is available to Irish tax-resident companies engaged in in-house
qualifying R&D undertaken within the European Economic Area , provided
such expenditure is not otherwise eligible for tax benefit elsewhere within the
EEA.

Gov Agencies Help in Growth

Different industrial agencies like IDA, Enterprise Ireland, Forfas and SFI
have also helped in the growth of the Irish IT industry. IDA Ireland (Industrial
Development Agency) is an Irish Government agency with responsibility for
securing new investment from overseas in manufacturing and internationally
traded services sectors. "It also encourages existing investors to expand
and develop their businesses," adds Halpin..

Enterprise Ireland is another state development agency focused
on transforming Irish industry. "Our core mission is to accelerate the
development of world-class Irish companies to achieve strong positions in global
markets resulting in increased national and regional prosperity," asserts
Nolan. Enterprise Ireland focuses on five main activities for Irish
companies:achieving export sales; investing in research and innovation;
competing through productivity; starting up & scaling up and driving
regional enterprise.

Rajneesh De

rajneeshd@cybermedia.co.in