THE Irish software industry is now on target to become Ireland's third largest employer and exporter. Ireland has gained a world wide reputation and is now the European capital for software localisation and production. Over 60 per cent of PC software sold in Europe is generated in Ireland.

From a handful of companies a decade ago, we now have nearly 500 software firms in Ireland employing nearly 12,000 people. A remarkable "feature of the Irish industry is that cover 70 per cent of companies employ fewer than 12 people each. Nonetheless, the indigenous industry has experienced revenue growth of over 63 per cent with a growth in employment of 28 per cent in the last two years.

The Irish market for software is small and most companies are highly export oriented. In fact, 95 per cent of revenues in the indigenous industry are export derived. Software offers the Irish economy an unprecedented opportunity to generate growth and employment. Could more be done to speed up this growth?

Industry statistics show that research and development expenditure on software is a low rate of 12.7 per cent of revenues - a worrying level for companies in such a high tech sector. Similarly, expenditure in training has fallen from 3.1 per cent to 2.4 per cent of revenues over the last two years. In the same period, profitability per employee has also weakened.

So, the picture painted by these figures is of an industry which is experiencing rapid growth in revenues and exports in an environment of reducing profitability per employee. The sheer pace of growth brings its own management challenges - both for individual companies and at a strategic sectoral level.

Responsiveness and expertise are now critically important in this fast growth industry, a challenge shared by the global software industry. Ireland is not unique. Providing a firm basis for new growth and continued competitive strength must be taken seriously at Government level.

There are a number of elements essential to ensuring this firm basis for future growth? These include providing for adequate financing, an efficient telecommunications structure and education.

Financing expansion is an obvious concern for companies facing average annual growth rates of over 18 per cent. This issue has recently been resolved to some extent by low interest rates and by the emergence of a number of venture capitalists with an understanding of the software industry. In the past, software has had to compete with other, better understood, investment opportunities.

The availability of quality telecommunications infrastructure has been a cornerstone of the industry's success to date. The recently published Forfas Strategy for Enterprise, however, highlights the need for the aggressive adoption of further advanced telecommunications technologies.

Probably the most important concern of the industry currently is information technology in the educational system. Employment in software is expected to reach 20,000 by the year 2000, growth of 15 per cent per annum. Graduates and qualified personnel must be supplied to support this growth.

It would be foolish not to maximise the economic opportunities presented by the information technology sector. The new breed of entrepreneur - the Celtic Tiger - is well represented in the Irish software industry. Many have played a role in taking our industry to an enviable position - we have all the pieces but can we play the game - and stay in the premier division?

Katherine Lucey is Director of IBEC's Irish Software Association