Around half of all software vacancies here are filled through inward migration

Around half of all software vacancies here are filled through inward migration

By Will Goodbody, Science & Technology Correspondent

@willgoodbody

Warnings about a skills shortage in the IT sector are nothing new. We’ve been hearing them for years now, mostly from the industry itself. Nor are they unique to Ireland. Because as the internet flourishes and technology becomes ubiquitous, the global demand for IT skills is rocketing, everywhere. Indeed the manpower shortage will be a little shy of 1 million people by the end of next year in Europe alone, according to a recent estimate from the European Commission.

But when an in-depth academic study of the software industry in Ireland finds the problem is so severe that thousands of new jobs set to be created by Irish based businesses over the coming months and years could end up in foreign countries, it’s worth taking note. Particularly at a time when unemployment remains close to 12%.

Because that was the main finding of the Irish Software Landscape Study interim report – a research project carried out by the Irish Software Engineering Research Centre (Lero) and Kemmy Business School, both at the University of Limerick, and the Centre for Science, Technology and Innovation Policy at the University of Cambridge.

The study appears to be comprehensive – involving research workshops, a survey of over 100 companies and in-depth interviews. And while one might argue that Lero’s strong and plentiful partnerships with industry might colour its view, it also leaves it well placed to get a panoramic vista of the industry landscape.

The interim report paints a picture of an exceptionally strong sector, well placed to lead Ireland’s recovery. With growth rates over the past three years of 39% in indigenous firms, and 23% among foreign and multinationals, the software industry is clearly bucking the trend.

The study also provides a unique insight into the structure of the industry here. Indigenous firms make up a surprising 80% of the total sector and are, in the main, young and fast growing. Clearly not all will succeed, but many are certainly trying.

On the other side are the foreign software multinationals. They may be big and important employers here. But the report reveals they aren’t the massive nerd centres they and others might like us to think they are – employing proportionately fewer engineers than indigenous Irish software companies do. Presumably that’s because many foreign and multinational tech businesses base themselves here for reasons other than technology talent, and carry out many of their back office functions here.

But the most stark finding in the report is that growing shortage of suitable software engineering talent. So severe is it, that as many as half of all software vacancies here are still filled by people being brought in from outside the country. Some of that may be down to the need for language skills required to service particular markets. But it appears to be more than that – with the study finding that engineering talent required to service the expansion of the industry is simply not available in big enough quantities within this country. It could be caused by the huge levels of demand. Or it could be the result of dropout rates of between a quarter and a third in computing courses here. But either which way, what it could all add up the authors say, is a potentially massive opportunity lost, as the sector powers ahead over the coming months, but the jobless here are left behind.

And it is not just about the people. The investment climate here is also not conducive to propagating and nourishing growth. Sure, there’s plenty of seed and early stage venture capital around to get businesses going. But when it comes to the second or high growth stage of development, the report claims venture capitalists either keep a tighter hand on the purse strings, or don’t have a purse at all, the report finds. Little wonder then that many scaling Irish tech companies are forced to look west for the make or break stage, often taking jobs with them.

A big impediment, according to the authors, is the tax environment. Software companies here must compete with some countries in Eastern Europe, who in an effort to attract in software engineers and businesses, levy little or no tax at all on income. While incentives designed to encourage venture capitalist to take a punt in Irish tech start-ups are simply not good enough to compete with the offering in places like the UK, the report suggests.

It’s a point backed up by the Irish Venture Capital Association, which claimed the software industry in Ireland has reached a tipping point. Chairman, John Flynn, said while the indigenous software sector is one of the leading segmets aiding the country’s recovery, the tax environment for investors, entrepreneurs and employees has become increasingly uncompetitive compared with the UK and the US.

He added that high marginal tax rates in Ireland are making it difficult to attract and retain scarce human resources and are working against the excellent ecosystem which has been developed here.  He also criticised recent increases in Capital Gains Tax which he described as a serious disincentive to indigenous entrepreneurs, warning that not only jobs but entrepreneurs could be lured overseas.

For its part, the Department of Jobs says the ICT skills shortage is global, and looks on it as an opportunity to attract in more companies by giving them what they want. It claims it is starting to do this through measures under the Action Plan for Jobs, which have seen 60% of of industry demands for ICT professionals in Ireland now filled domestically, compared to 45% in 2011 (which contradicts the findings of the report).

But clearly, with chatter about the budget starting to increase, we can expect to hear much more about this issue in the coming weeks, as the software industry lobbies for tax changes which will compute a better environment for Irish software development.