Republic of Ireland
Trends in the ICT sector
Ireland of the Welcomes – the name evokes a romantic and attractive image of an Ireland of soft green pastures and gentle people. Lately, however, the image has been changing. While Ireland is rightly still thought of as a holiday destination, it is perhaps not so widely appreciated that it has in recent years become a formidable economic power within Europe and in the world market.
The Irish economy is the fastest growing in the developed world with the best job creation record of any OECD country during the 1990s. In recent decades the Irish economy has been transformed from one based on agri-business and traditional manufacturing to one increasingly based on the hi-tech and services sectors. As a result, there are now a growing number of job opportunities in Republic of Ireland for people with the right skills and experience.
The growing Irish economy and an educated, skilled workforce make Ireland an attractive site for global enterprises although, as in many countries, workforce shortages are beginning to emerge, particularly in the IT sector. The Irish government has instituted several programs to aid businesses, including a lowering of personal tax rates and more flexibility in immigration laws.
Business Friendly Ireland
Over the past several years, the Republic of Ireland economy has experienced unparalleled economic growth of between 8 and 10 percent per year, four times faster than the average EU country. For example, over 800 internationally traded financial service operations trade in Dublin's International Financial Services Centre.
Also, in the past number of years Ireland has emerged as the European leader in the call centre arena, with 29% of the pan-European call centre market and over 60 major companies locating their European call centres in this country.
Provided that there is no hard landing for the US economy, or a shock to the EU economy, the October 1999 forecast from the Economic Social Research Institute predicted a gradual reduction in the growth rate, to 5.5% in 2001, which is still a promising outlook.
According to the Central Statistics Office, the labour force rose by 96 600 people in 1999, in a country of 3.6 million people. Virtually all of this employment growth has been concentrated in the manufacturing or high-tech industry and services. For example, Republic of Ireland is now the world's second largest software exporter.
Unemployment stood at approximately 6.4 percent and continues to fall. Even as unemployment drops, more and more people are coming to Ireland to enhance their careers. Ireland has only in the past few years begun to experience net immigration. Last year alone, 44,000 people came into Ireland, with approximately 52 percent being returned emigrants.
Ireland - Quick Facts:
Population: / 3,626,000 (1996)% of population under age 25: / 41% (1996)
GDP per capita: / IR£16,096 (US$ 21,730 approx) in 1998, up from IR£9489 (US$12,810) in 1993
Unemployment: / 6.4% August 1999vs 12.3 percent in March 1995)
Labor force: / 1.815 million; services, 62.1 percent; manufacturing and construction, 27%; agriculture, forestry, and fishing, 10%; utilities, 0.9 percent
In July 1998 the Wall Street Journal named Ireland as the model economy for Europe, because of its business-friendly policies.
The most notable result of these policies is a competitive corporate tax rate for certain businesses of 10% (to be levelled for all businesses to a still very attractive rate of 12.5% from 2003), approximately one-third of the average EU rate. This has resulted in significant international investment. For example, U.S. investment in France (a country with a population 16 times that of Ireland) is about one-sixth of the U.S. investment in Ireland.
In addition to the corporate tax regime, Ireland is attractive to overseas investors for many reasons, including:
- Young workers available at affordable wage levels
- An industrial relations environment based on partnership
- A social security regime that is one of the cheapest in Europe
- Smooth and efficient start-up assistance
- Competitive grant aid and other incentives
- A time zone that helps to maximise working hours world-wide
- Customs-free access to the EU's 368 million population[1].
Explanations for the Republic of Ireland’s Success
The Republic of Ireland’s (RoI) economic success over the past decade has been well recorded. Between 1994 and 1999 RoI experienced GDP growth of over 9 per cent per annum. Gross National Product (GNP), which is a more appropriate measure for an open economy such as RoI because it excludes profits from overseas owned companies, rose by a marginally lower 8 per cent per annum. Employment has risen by nearly a third over this period and ILO unemployment which stood at 13 per cent in 1994 has fallen to 4.4 per cent. Consequently living standards in RoI, which were traditionally low by western standards, are converging rapidly to the EU average.
The advent of the European Single Market in 1992 also proved a major boost to the Irish economy. RoI’s industrial policy – low corporate tax rates and industrial grants – and an available supply of high quality and cost competitive labour meant that it was in a strong position to capitalise on US foreign investment looking for a base within Europe. In 1997 RoI attracted 16 per cent of US manufacturing investment in Europe and 42 per cent of electronics investment.
Three key sectors – electronics, pharmaceuticals and internationally traded services (including software, telemarketing and financial services) – have been specifically targeted in RoI. These were identified because of their long-term growth prospects, their employment potential, their potential linkages within the domestic economy, their ability to cluster and that they were high value-added industries where the rewards from technology transfer and spill-over effects were highest. In addition, RoI was careful to promote sectors where foreign-owned industries would produce primarily for export markets so as not to compete with indigenous industry.
The second long-term policy behind RoI’s success is its education policy. Since the introduction of free secondary school education in the late 1960s and, more recently, the emphasis on completing upper secondary and tertiary education, educational attainment and skill levels of the Irish workforce have gradually improved towards the EU average. However, it is the quality of the labour in RoI relative to its cost that has been the means to the success of RoI’s education policies and their impact on growth. Labour costs in RoI are low relative to productivity ensuring competitive production and proving another important attraction for overseas investors.
Relatively low wages in RoI are attributable to two factors. Firstly, favourable demographics in RoI following the baby boom in the 1970s alongside rising participation rates (particularly female participation due to rising educational attainment) has led to rapid growth in the ‘young’ highly qualified labour force. Until recently this resulted in an over supply of highly qualified labour which restrained graduate wages. Indeed in many cases graduates were doing non-graduate jobs.
Secondly, national wage agreements in RoI have also kept wages down. These agreements have been successful because restraints in wage increases have been offset by cuts in personal taxation ensuring that disposable incomes have risen. Further implications from the restraint in wage growth have been labour intensive Foreign Direct Investment (FDI), and rising profits which has encouraged investment[2].
Skills shortages
Labour Force Skills
As in most parts of the developed world, the expanding market in Ireland has created an unprecedented demand for skilled workers, especially those in the IT sector. There is a high demand for skills in various sectors particularly Teleservices, Financial Services, Electronics, Software Industry, Tourism and the Construction Industry.
In terms of the IT skills – there are major world-wide skills shortages in the software testing, localisation and website testing areas of expertise and these are especially apparent in the Republic of Ireland which is the world leader in software localisation, corporate web site testing and software testing expertise. Currently, there are 43 companies employing 8,000 people in the Irish software localisation sector alone and Irish Government forecasts estimate that this will grow to 15,000 by 2003. These figures do not include those working in "traditional" software testing nor those employed in companies who provide web site testing services for corporates.
The Border Counties have to some extent shared in this employment boom. For example, in the Northeast region Xerox are currently creating over 2000 jobs in Dundalk and Terradine Ltd. are creating up to 600 jobs in Cavan town. However, on the downside several Fruit of the Loom Plants have closed over the past few years in the Northwest of the region leading to a major redundancy situation.
The growth in demand for software and web site testing expertise is being fuelled by the needs of e-business and industry observers agree that the demand will continue to expand. Demand for testing services is global and the geographical location of test services contractors is irrelevant – skills in the context of a reliable trustworthy and proper business structure are the issues.
There is clear evidence that the software industry throughout the world is rapidly changing the way in which it conducts its own business. In the US, many software companies now sub-contract large elements of work on the basis of their overhead costs, their core skills and the need for the delivery of product on time. This trend is also apparent in the Republic of Ireland where over forty companies employ almost 8,000 people in the software localisation industry representing 16% of Ireland’s software sector. In this sector alone, there is a deficit of almost 400 testers per year, yet not one person is employed in Northern Ireland in this industry.
A number of months ago, unemployment had been virtually wiped out, record numbers of new jobs were being created and employees were something of a precious commodity. They still are, but internet-company closures have put them in a weaker negotiating position. In 2000, candidates with software and IT skills were commanding salaries and packages on a par with executives in other sectors.
This time last year, an e-commerce architect with only five-to-seven years' management experience could command a salary 60% higher (£80,000) than that of a blue-chip counterpart (£50,000). The government confidently predicted that it would take 200,000 workers from non-EU countries to fill vacant positions over the next five years.
Last March, International Data Corporation announced that Ireland had a shortage of 5,635 information-technology professionals. That figure, they said, would worsen. By 2003, the report revealed, the republic would have the fourth-highest IT skill shortage in western Europe of about 10%.
This situation drove the growth of the recruitment sector, with the average charge for head-hunting an executive around 28% to 33% of the annual salary of the recruit. The skills shortage created a new era for job-seekers. Employees left their jobs to join dotcoms and internet start-ups. In some cases, chief executives from blue-chip companies took a cut in salary in return for share options. Even though the performance of these stocks began to drop as early as April 2000, shares were still an attractive option. Managers on salaries of £40,000 to £60,000 were told they could make between £100,000 and £500,000 from their shares over three or four years[3].
Recruitment activity was frantic. Salaries jumped, while schemes and incentives were drawn up to attract new candidates and keep existing employees. Job-hopping was no longer taboo for those seeking to climb the corporate ladder as the gulf between supply and demand of experienced business people widened. Loyalty had all but disappeared. The phenomenon was confined mainly to sectors where the demand for skilled people outstripped supply.
In response to the hype surrounding the recruitment market, salaries rose by over 10% in one year. The IT managerial area was particularly hard hit by skills shortages, and salaries increased by between 15% and 20%. These figures do not even reflect the large increases in share options and equity stakes.
The slowdown in the American economy has affected Ireland, along with the turbulence in the stock market. A general lack of investment and a rising number of company profit warnings, and in extreme cases closures, have spread caution.
Companies are now focusing on employee performance. Employers expect staff to raise the standards of their work. Basically, it's a case of 'I want to see what I'm paying for'. Many companies feel they have to shed at least 10% of their staff. The IT and recruitment industries are experiencing the largest number of cutbacks.
The vulnerability of dotcoms and other technology firms has caused many employees to seek jobs in more traditional sectors such as banking, insurance and accountancy. Job-hopping has also scaled back substantially. People are a lot more cautious. A lot of employees are sitting tight and riding out the storm.
However, in spite of the recent negativity surrounding the technology sector, there is no doubt that people with sought-after skills remain in demand. Ireland's First Tuesday Club launched First HR this year to serve the technology community in the light of the shake-up within the sector.
If anything, there are more opportunities than ever out in the technology industry and other sectors according to PricewaterhouseCoopers. Traditional bricks-and-mortar companies are fast realising they have to embrace the e-commerce revolution and are hiring many people from dotcoms.
So all is not lost for the job-seeker. Although salaries have levelled out and they are unlikely to see or be offered the same packages as last year, the rates remain attractive and competitive.
The slowdown in the information technology (IT) sector has begun to affect overseas recruitment. Some sectors still need to hire overseas workers, however, due to a shortage in the workforce here.
Highly skilled overseas workers who came to Ireland recently in search of employment are leaving in disappointment as the dramatic slowdown in recruitment has begun to bite. The technology and telecommunications sectors have been particularly badly affected. However, employers in a variety of areas will still need to recruit non-EEA workers. Global resourcing is a reality in most developed economies, and Ireland is no exception.
A recent FAS/ESRI report on future job requirements indicates that, between 1997 and 2005, an additional 621,000 workers will be needed. If non-EEA employees aren't hired in sufficient numbers, the labour force could be short by about 150,000 workers. According to the report, there will be a demand for 60,000 professionals and 17,000 skilled manual or craft workers from non-EEA countries.
Ireland's need for foreign employees is in stark contrast to other EU countries, where immigrant workers tend to be employed in lower-paid, unskilled jobs. In this country, the greatest requirement is for professionals and skilled workers, in such areas as engineering, IT, nursing and medicine.
Despite the carnage among dotcom firms and layoffs by US multinationals, there was a record net gain in the number of jobs. At 15,211, the 2000 figure was almost double the 8,538 net gains made in 1999. A slight downturn is expected, as pressure on the labour market eases off.
If labour shortages in certain sectors are exacerbated by an inadequate inflow of immigrant employees, wages could rise significantly. Overseas recruitment is seen by many as the only solution to the current and projected shortage of professional and skilled workers, as sufficient training and development in these areas takes a number of years to implement.
The Minister for Education announced an investment plan which would create 5,400 new third-level places in engineering and computer hardware and software. Along with the increasing numbers of students who will emerge from tertiary education, initiatives in vocational training that will take effect in the next few years, and the number of women returning to the labour market, such changes are expected to ease recruitment pressures in all affected sectors.
The Cost of the Welcome
As already mentioned, the unprecedented fact that Ireland now has net immigration caused by the influx of expatriates and returning Irish emigrants has meant that close scrutiny is paid to the cost of coming to live in Ireland, not only by the individuals themselves, but by multinational employers anxious to keep their international deployment costs under control.
Rising property prices (rental and purchase) in the Dublin area in particular are putting upward pressure on wage demands. This is especially apparent for returning expatriates who left Ireland when the economic outlook was a lot less promising and for the increasing group of immigrants who are arriving to work in Ireland for the first time. However, in general, other elements of the typical expatriate basket of living expenses are on a par with other major European locations.