Growing software sector relies on the few

Just seven Irish firms generate half of all revenue in the State's £1 billion indigenous software industry and fewer than 50 per cent of about 250 companies are profitable. But a report published today says the sector is poised to take off. The report, which includes interviews with more than 120 industry executives, calls the Republic a "hotbed" of software activity, especially in the past three years. Of 25,000 employees, 11,000 work for indigenous companies.

Produced by Dublin business accelerator company HotOrigin, the report says that for the industry to remain vibrant, it needs much greater national investment in research and development, improvements in telecoms infrastructure, better venture funding, and expanded Government support.

HotOrigin managing director Mr David Dalton said he thought the most surprising fact to emerge from the report was that fewer than 30 per cent of companies interviewed were established before 1996 and almost half were formed since January 1999. Almost 60 per cent remain in the start-up phase of growth, with fewer than 25 employees.

Another 30 per cent are in the build phase, with between 26 and 75 employees. Only 12 per cent are in expansion mode. "That kicks against the myth that Ireland has been a strong software market for years," he said.

He also noted that the current slump in the technology market posed particular challenges to companies in later-stage growth.

Those that are aggressively expanding and reliant on external funding will find the markets are much more critical, he said, and may have to change their development plans. But, he added, many software successes, such as Baltimore and Iona, were set up in very difficult market conditions in the early 1990s, when little funding or support was available.

The report found that the State has a small venture capital community in comparison to other nations. Overall, finance remains the top concern of industry executives, with 28 per cent citing it as their company's "biggest single issue". For 16 per cent, the key issue is expanding into international markets.

The report compares the Republic with other attractive locations for software development: Cambridge in England, Finland, Sweden and Israel. Five critical factors influence a location's desirability:

the level of research and development;

human capital;

abundant venture funding;

a good business environment;

a good living environment for employees.

The State is particularly vulnerable in R&D, where it "has suffered historically". Also of concern are the shortage of skilled workers, a small venture market and telecommunications infrastructure. But overall, the business climate is good and people enjoy living here.

The report says the State has "strength and depth" in several internationally recognised high growth areas for software: CRM (customer relationship management), the wireless sector, e-learning and enterprise application integration. Mr Dalton said this indicates that the software industry will remain a significant contributor to the economy.