One of the most exciting and vibrant industries in Northern Ireland is undoubtedly the ICT market. Apart from the growing presence of some of the world’s biggest ICT companies on these shores, we’ve also managed to foster an environment where our home-grown creative ICT talent can blossom.
But no matter how progressive we feel we are, we can always do better and for that reason Tughans and Ulster Business brought together some of the key players in the industry over a cup of coffee to tackle the big issues facing our youngest sector. There were innovative ideas, there were controversies and there was even the odd joke. What follows is an edited version of the morning’s debate.
David Elliott: How healthy is the Northern Ireland ICT market and where do we sit compared to the rest of the world?
Michael Orr: From a PwC perspective, we are consultants to IT so clients ask us for help. Public sector would come to us for technical advice and the local ability to supply large scale and small businesses can be serviced from NI and serviced well. I think Meridio is a good example of a data management solution developed on local shoulders which government has bought. But in some respects we in Northern Ireland don’t sell ourselves particularly well as small IT businesses.
Dennis Murphy: I think there are some really hopeful signs. We have world class early-stage infrastructure to support our new commercial market and that includes the work that Steve Orr (from Northern Ireland Science Park) is doing with NISP Connect. Steve came home from San Diego and implemented a model here which has been a huge influence. The other key is Alan Watts (Director of halo at NISP) who has made our halo network here world class. That, combined with Invest NI support, gives very powerful early stage support for entrepreneurs and the amount of companies that are getting funded through that process is very positive. But the reality is that it is going to take a while for those companies to come through the development process. We have unbeatable government support for the venture capital industry and the early stage infrastructure that has been put in place – along with Invest NI getting funder funds in place - will really support the development of early stage companies here and lead to the transformation of the industry.
Colin Walsh: I would say we have to be realistic; we can’t be good at everything. We are a very small piece of territory and should leverage where we are strong and not try to, as the Americans would say, “swing at every ball that comes at us.” But in NI we do have particular strengths. At Crescent Capital we would tend to see people who have a belief they can leverage what they have got onto the international market. So we wind up by default investing in businesses that take that opportunity on. Typically, companies we back have 10, 20 or 30 people in them; they have a niche where they have already established some credentials. They’ve maybe got £0.5 million or £1 million of sales and have a shot in turning that into a £10 million company. We try and pick through, eliminate the ones where we think the management are not going to cut it or where they don’t really have any competitive advantage to achieve that objective, and back the ones that we think that can.
Nic Stirk: If you look at the NI ICT market it is not great and the primary reason for that is because the dominant industry in NI is in IT services. I think the opportunity is around export and it is around the strong technologies that have been developed. There are lots of good pockets of intelligence and clusters of real expertise in strong technology companies. The market is export as far as SLA Mobile (SLA Mobile exports 100% of its business) is concerned. Indeed, we see the market place as global. The second part of the question in terms of how do we sit compared to the rest of the world? Again, I don’t think we sit well compared to the likes of the Chinese.
Ian Coulter: Two positives and two negatives. First positive is early stage support has never been better. We need to get that message out to more people who are thinking about doing business in NI. Second, we see the contracts that come through so we see the actual output. We now see contracts in the UK and internationally as the norm not the exception. There’s a much more outward focus. The two negatives are we still don’t co-ordinate enough. Actually our greatest weakness could also be our greatest strength in that we are quite small so we should be quite agile. Between us around this table we can put 100 people down on a piece of paper that need to be involved in something like this. That said, we need to focus on selling NI as a Technology Centre of Excellence. I don’t think there’s enough collective co-ordinated thought toward developing that. The second negative is that we see some super ideas but they get to a certain size and then hit a glass ceiling. We have to try and think how we break through that ceiling.
Brian Baird: Most of the people who work in the ICT market in the private sector are working in some sort of support for public sector contracts and that has been good for the sector since the early 90s. In the early 90s, government stopped doing things for themselves and started outsourcing to the private sector. Ever since then there has been confidence building up in system integration companies such as Fujitsu, Capita and HP and they have employed some of the best talent in the province. I think the future is in innovation and using top technology to understand the rest of the market that’s available and get new products in play. It takes a small, concentrated and well-networked community to do that.
Greg McDaid: Fujitsu is the third largest ICT company in the world so there are 180,000 of us spread over each of the continents around the world. You can basically consider Fujitsu as a company in two parts. There is a part of the company that manufactures and makes things, innovates and does research and development. The other part of the company runs things that other people have built. Essentially, outside Japan there isn’t an awful lot of the first part of the company, the company that builds things. They spend $1.1 billion per annum on research and development and practically none of that is spent outside of Japan. To put it bluntly, NI is subscale for us and to put any of that R&D here, well, it is just not going to happen. There isn’t sufficient scale to do that. If you take the question of the world market, well we are not competing in a world market because we are essentially supplying support in eight hour chunks. Eight hours when its in the Middle East, eight hours when it’s in Europe and eight hours when it is in North America. Our competitors are not local, it is not the sub-continent, it’s not the far east, but is actually Poland, its Portugal, its South Africa and in that respect NI can hold its own extremely well. Our difficulty comes from the fact that in our services business we speak one language and one language only. Provided your customer’s predominant language is English, NI can do well.
Adrian O’Connell: The innovation that is coming through has come on leaps and bounds in my view and what I am dealing with now in terms of capturing contracts is much more exciting. However, that is only one side of the equation, the other side is actually translating that innovation into sales and that is where I feel the problems still lie. There is an inherent lack of confidence and also that vital skill set seems to be missing. I just can’t see the talent coming through.
Sean Nelson: We deal in the University with technology that is at a very early stage. I know people talk about taking these projects global but we have to teach that. We need to get projects we can validate and I believe there is a group of people, entrepreneurial people who will take them to the market. The one misperception I believe is to take academics’ great ideas and build businesses with them. That doesn’t work, academics are academics. They are researchers, they like studying but they don’t like the risk. There has been a great progression in terms of the available support but what we need to be doing is to find those good ideas and support them at a very early stage in their lives. The university academia needs to realise what they’re good at and what they’re not. It is a very difficult, dirty task to get a small company in technology moving to convince investors to part with a cheque.
DE - Are Northern Ireland’s technology companies too dependent on public sector business?
MO: From our perspective, the large technology companies in NI and the technology consultancy companies do service the public sector more than the private sector. But looking at demand going forward, we’re probably not too dependent on the public sector. There’s a certain amount the government will spend on technology and that figure will probably stay the same. It’s not a growing market and NI’s technology companies are concerned about that. Over the last six months of the year there has been a slow down on the big projects as the funding issue hits. So I think yes, there is a dependency but we have lessened that dependency simply because the markets in the public sector isn’t going to grow. I have a big practice and I need to make sure that our guys are learning but I also need to make sure we are a technology centre of excellence. As a result of all the tech work we’ve done I’ve been able export that into the UK, Middle Eastern and European markets where the demand currently is.
DM: Yes I think we are absolutely too dependant on the public sector. A large part of that business is going away so in the future we have to develop new client confidence. It hasn’t been a bad thing to have had a lot of concentration on the public sector as it was giving huge employment, I think to around 800 people, that’s an amazing number. But we definitely have to change our whole strategy around the public sector in the future; its going to be for a very much smaller part of the sector.
CW: We see less dependency on the local public sector as some businesses are selling to public sectors abroad. My experience has been that it is a credibility issue for small companies here to sell to public sector. But in the public sector decisions may take longer and that doesn’t sit well with venture capital backing where you want the clock to go faster. We tend to back businesses that are going after sales to the private sector where the gestation period is shorter. If 5% of the sales in the Crescent Capital portfolio happens in the UK then maybe one or two per cent of that is public sector.
BB: Technology centres in NI have in the past been driven by public sector accounts and therefore NI has got a lot to be grateful for. It has brought some talents into the NI sector which are world class, mainly around solution architecture. We have a massive amount of talent and some organisations have benefitted up as a result of the public sector here.
GMcD: One thing about the public sector is that its highs are never so high and its lows are never so low, so it does provide a stabilising effect on our economy. But sometimes I don’t think we are necessarily as grateful for that as we should be. It provides an anchor for businesses such as ours. It gives you the platform for which to do the other things so I don’t know we could run a business such as ours well without it.
DE: What other growth areas are there for ICT companies in the private sector?
DM: Look where venture capital is going; it’s going to areas like Clean Tec, Connected Health etc. We can’t be good at everything so I would really like to see end-to-end strategies put in place. If you look at the Clean Tec space in Germany, 10 years ago they created all sorts of incentives to change policies and today 80% of the world of Clean Tec exports come out of Germany. We can definitely make a big difference if we co-ordinate.
IC: To grow an IT business you need the talent and you need the money; in the IT sector in Northern Ireland we have got the talent but maybe not the money. Once you take your companies to a certain stage and try and break through the ceiling, it’s like pulling teeth. We need to find a way to get serious investment and that stage.
BB: Most technology companies identify a gap in the market and want to exploit the market in that window of opportunity before the gap closes. Most of the companies I have worked with or looked at understand that gap reasonably well and none of them have got the money to exploit it in that timescale.
IC: If we could get a mechanism whereby an investor puts money into a private limited company in Northern Ireland and capital gains tax is only 5% or zero then we’ll begin to attract real investment. We’ve got to get the money over here and until we do that we are only going to reach a certain level no matter how good the talent is.
CW: I fundamentally disagree with the Ian’s contention about the lack of capital. I have been involved in backing two dozen businesses here and I started off in a previous life in a venture fund in the UK. In that time I haven’t come across a business yet where the team was good enough and the proposition was good enough but they couldn’t get the money. Mobile money sitting will come and will back good teams if the proposition is good enough. I have been involved in taking two companies to the market and you know the investors in the stock market will put money in for relatively modest returns, again if the proposition and the team is good enough. There is no glass ceiling.
GMcD: Government can probably stimulate the SME market by making those large companies tell them how much they spend locally. If they actually started to score procurements, the amount of money spent locally will jump much quicker than any amount of investment on R&D and speculation.
NS: At the moment the government is all about social engineering and it is all about generating jobs (rather than wealth) so there is a disconnect there.
GMcD: What they do is they confuse the outcome from the two. Wealth generation does create employment and it can actually create a sustainable sector that will generate employment for generations. Employment generation through multinationals generates short-term employment. We provide employment but the profit is taken somewhere else whereas you guys create wealth within this economy which then creates employment which in turn creates further wealth. We perform two quite different functions here and we need folks in Stormont to start to recognise the difference and start to use the levers they have to incentivise the large multinationals.
NS: But it’s the big boys that will get an investment for jobs, who will poach my engineers.
GMcD: The amount of subvention in the employment market by the public sector either directly or indirectly is alarming. Pay in the public sector today is on average 20% higher than in the private sector in Northern Ireland and then we wonder why people become doctors, solicitors, lawyers, judges and whatever.
DM: I think there is a point here that we are all missing. Northern Irish executives are hugely successful around the world and we have to bring those guys home. We have to create a kinds of entrepreurial culture here.
NS: We also need to encourage them to market their roots. There’s a lot of goodwill out there to NI and if we could harness it and bring it all together it would be quite a force.
MO: Is there not a question asked why? Why haven’t these ex-pats capitalised on their roots? Perhaps they’ve looked at it but it’s a struggle commercially.
DE: Do we have enough skilled labour in NI?
DM: There are key deficiencies in sales.
CW: We have to be a bit cute in trying to get talent into business. Sometimes you can capture someone like the engineering and product people from other larger multi-nationals that have an operation here. The sales thing is a particular challenge and we tend to look to the NI ex pats which have gone away and have learned those skills somewhere else because there is not that many large business here that have really strong selling hubs. Some of the best sales talent that I see in some local companies are returners. But it’s a bespoke one-at-a-time activity as opposed to trying a programme to bring them all.
BB: There is some incredible talent inside Fujitsu, Northgate etc. If those people were actually harnessed into heavy wealth generating companies who were going for it in the international market there is enough talent in NI to cover that stage. My view is that if we could create an attitude change and get great talent that does gravitate towards high wealth generation then we would transform the NI IT industry overnight.
CW: What you are describing is maybe where are all in agreement. If well-funded, indigenous businesses with legs were able to offer well paid propositions we can draw some of that talent across.