Annual Conference of the Irish Software Association

19 May, 2005

Good morning to you all, I am delighted to have been invited here today to speak at the opening of your Annual Conference, particularly, as the future development of the High-Technology Industry sector, through innovation and internationalisation, is a key priority for the present Government.

I am aware that software companies and others in High Technology sectors face significant challenges as a result of globalisation and increased global competition. Ireland is at a turning point in its economic development. The reality we must face is that the low cost model is no longer an option for Ireland. Irish companies must increasingly compete through innovation, increased investment in Research & Development and through a strong focus on export growth.

Without doubt, the Irish Software sector is a substantial contributor to export based revenue generation in the Irish economy. The sector has experienced sustained growth over the past 10 years and today accounts for exports of over €14 billion annually. The Indigenous sector has seen an increasing number of entrepreneurs starting high value added, high export growth and high potential companies. Over the last number of years Enterprise Ireland has supported over 470 high potential start-up companies, which today employ 7,500 people and have a cumulative turnover of approximately €1 billion each year. These companies, which include a strong contingent of software companies, represent a new breed of globally competitive industry based on knowledge and innovation. For future success, we will need to see substantially increased levels of applied research in Irish firms and we must foster an environment where there exists a close working relationship between companies and Third Level Institutions.

Increased business investment in Research & Development is essential for sustaining competitiveness and future employment creation in the enterprise base. There can be little doubt that R&D is an activity that should be developed in Ireland, and, in this regard, the new R&D tax credit scheme announced last year will assist in stimulating Research & Development activity here. Incremental R&D expenditure qualifies for a tax credit of 20%, in addition to the normal deduction for R&D expenditure at the effective corporation tax rate. The credit can be carried forward indefinitely against a company's Irish corporate tax bill where there are insufficient profits to absorb the credit. This gives a potential tax write off for incremental R&D expenditure of up to 32.5%.

The repositioning of the Irish enterprise sector higher up the economic value chain is dependent on stimulating and strengthening business R&D. This tax credit should assist firms to increase their expenditure in Research & Development. With this in mind, the Department of Enterprise, Trade and Employment has already sanctioned an increase of €20 million in Research & Development expenditure by Enterprise Ireland in 2005. Also, a new cabinet sub-committee on R&D has been established and charged with providing a detailed map towards the achievement of a 2.5% spend on R&D in line with the Lisbon Agenda.

I know that the Business Expansion Scheme and Seed Capital Scheme are issues which are of concern to your Association and, indeed, were raised in your pre-Budget submission last year. My colleague, the Minister for Finance announced last year that State Aid approval had been received from the European Commission for the Business Expansion Scheme and the Seed Capital Scheme.

This enabled the necessary legislation to be signed, which brought the schemes into effect from 5 February 2004 until 31 December 2006. The present Government's support for new business start ups and development is unwavering and the Business Expansion (BES) and Seed Capital schemes greatly facilitate small and start up companies in overcoming the difficulties they experience in accessing early stage development capital. Recent reports have found that the BES and SCS schemes are core sources of finance available for early stage business ventures, and that they play an important role in helping new start-up companies bridge the financial gap. The limit a company can raise under these schemes was increased from €750,000 to €1 million.

The future growth and prosperity of the Indigenous Business sector is also vitally dependent on its capacity to win sales in export markets. Innovation and clearly differentiated products, services and customer solutions are key factors in winning business in international markets. Moreover, as an export market driven nation, Ireland needs to continually develop and improve skills in sales and marketing. In this regard, the very successful "Sales Star" programme which is a joint initiative of Enterprise Ireland, FÁS and the Irish Software Association and which is focussed on the development of the sales capability within growing software companies, is an example of what can be achieved when we collectively work together to achieve a common goal.

As we all know, growth worldwide has slowed due to a combination of general global economic slowdown and saturation in some software markets. Even so, the indications are that the global software industry will have a value of US$126.5 billion in 2007. So, in spite of growth in the industry having slowed in recent years, this still represents a growth rate of 6.4% on 2002. It is a reflection of Ireland's competitive operating environment that Ireland continues to win mobile high quality investment projects from the world's leading technology companies.

In my view, Ireland's committed membership of the European Union has been significant in creating that environment.

Since your conference last year, a number of high profile investments have been announced. These include companies investing in Ireland for the first time. There have also been some notable successes in the Digital Media and Internet Technology areas. Recent announcements by Yahoo, Amazon.Com and DC Studios have added to Ireland's excellent reputation as a strategic location for IT services to support business activities throughout Europe.

The Enterprise Strategy Group's Report "Ahead of the Curve - Ireland's place in the Global Economy" has provided a blueprint for the actions that need to be taken to secure and build on Ireland's position as a developed economy. It clearly focussed on the need to accelerate the development and internationalisation of Irish owned business sector as a priority for future economic development.

Following Government consideration of this Report, my colleague, Mr. Micheál Martin TD, Minister for Enterprise, Trade and Employment published the Enterprise Strategy Group Action Plan, which specifically detailed actions for implementation across a range of Government Departments. I know that in particular, Minister Martin asked Enterprise Ireland to creatively re-think how best to help business as we deliver on the Group's recommendations.

I am aware that Enterprise Ireland has now undertaken a complete business process and organisational re-engineering of its overseas and marketing supports with a clear focus on client need linked with a performance driven mission. It is putting in place initiatives to underpin the future performance of Irish Industry making it central to industrial policy going forward.

Just two weeks ago the Minister for Enterprise, Trade and Employment launched Enterprise Ireland's Strategy 2005-2007 - "Transforming Irish Industry". This document outlines Enterprise Ireland's response to the ESG Group Action Plan. It clearly represents a major change in approach and will, I believe, make a substantial contribution to the further internationalisation of Irish companies in an increasingly knowledge driven global economy.

The present Government, with the assistance of Enterprise Ireland, will play a pivotal role in the next generation of industries development in Ireland with its focus on innovation, entrepreneurship and exports. Successful companies also need to be innovative and outward looking. The Government's view is that companies like this should consider Enterprise Ireland as their development partner in harnessing the opportunity offered by global markets.

In conclusion, I hope these thoughts will be of use to you in your deliberations. I would like to thank you for inviting me today and wish you all a successful and enjoyable conference.

Thank you.

Ends

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