1. IT Outsourcing: An Irish Perspective
Presentation by:
Adrian Devitt
Forfás
Advisory board for Industrial and Enterprise Development and Science, Technology and Innovation:
03 December 2002

2. Two Key Aspects The Irish Outsourcing Market
Ireland as a centre for Offshore IT Outsourcing

3. Irish Outsourcing Market
Irish market worth $137m in 2000 (IDC)
Information Systems Outsourcing- $98m
Desktop and Network Outsourcing- $39m
Small but real growth potential
For Ireland to catch up to current UK levels of outsourcing activity, the Irish market will need to double in size to $270m

4. Irish Outsourcing Market
Key Drivers
The Existing Software Base
Government Outsourcing
General Business Outsourcing

5. The Existing Software Base
Ireland: World’s largest exporter of software products
40% of Europe's PC packaged software market
60% of Europe's business application software
Strong Indigenous and Overseas Base

6. Government
Government are the largest purchasers of goods and materials in Ireland (€12BN)
Slow down in economy
– Lower Government Revenues
– Need for Cost savings
Irish Government Committed to eGovernment
Major opportunities going forward –

7. General Business Outsourcing
High level of awareness of outsourcing in Ireland
Business Process outsourcing
IT outsourcing
Multinational companies more likely to outsource than indigenous companies
Cultural issue?
Ireland lags behind other European countries

8. General Business Outsourcing
Poor take-up with the exception of web hosting
Low level of awareness of the benefits of outsourcing
Outsourcing perceived as more appropriate to large organisations rather than SMEs

9. IT Functions Currently Outsourced
IT Services (hardware maintenance) %
eBusiness Development/Hosting %
Network Management %
Software Development %
Website Admin/Management %
e-commerce %
Helpdesk %
Application Management %
Security Services %
ERP Implementation %
Other %
None %
Source: Cap Gemini Ernst & Young - Irish Business Attitudes to Outsourcing

10. IT Functions Considered for Outsourced
Web Development/Hosting 69%
e-commerce %
Website Admin/Management 53%
IT Services (hardware maintenance) 44%
Security Services %
Network Management %
Helpdesk %
ERP Implementation %
Application Management 22%
No Plans to Outsource 9%
Don’t Know %
Source: Cap Gemini Ernst & Young - Irish Business Attitudes to Outsourcing

11. Decision Factors Money Saving 58% Lack of IT Staff 26%
Lack of Expertise %
Improved efficiency %
Access to Broader skills base 18%
Company requirements changed 12%
If we feel the need 5%
Other %
Don’t Know %
Source: Cap Gemini Ernst & Young - Irish Business Attitudes to Outsourcing

12. Benefits of Outsourcing
Cost Reduction %
Access to Broader Skill Base 42%
Improvement in Overall Efficiency 23%
Allow us to concentrate on our business 16%
High quality of IT workforce 15%
Access to advanced technology 13%
More efficient IT Department 13%
Better Service %
No perceived benefit %
Other %
Don’t Know %
Source: Cap Gemini Ernst & Young - Irish Business Attitudes to Outsourcing

13. Concerns on Outsourcing
Security/Confidentiality 40%
Loss of control %
Choosing right partner 31%
Reliance on supplier %
Costs %
Lack of successful examples 5%
Other %
No concerns %
Don’t Know %
Source: Cap Gemini Ernst & Young - Irish Business Attitudes to Outsourcing

14. A Snapshot of Irish Business in CEE and Russia - 2001
Ireland Annual Exports €1.3 billion
Ireland Annual Imports €0.9 billion
Irish Companies Active in the Region 650
Irish Investments ca. €1.5 billion
Irish Companies with Local Operations 84
Employment in the Region by Irish Companies ca. 12,000
Irish Companies Outsourcing from CEE ca
CEE and CIS citizens working in Ireland 8,000 (work permits)
Exports growing at 20% p.a. since Exports have grown from €135 in 1989 to €1.3 billion in 2001
The most heavily traded area in both directions are data processing and telecommunications equipment
CEE (Central and Eastern Europe)

15. IRELAND - LITHUANIA IRISH EXPORTS TO LITHUANIA (EUR (000) 2000 2001
Total , ,324
Of which
ICT Sector
Data processing machines 3, ,733
Telecommunication apparatus ,928
Electrical apparatus
% in ICT % %
IRISH IMPORTS FROM LITHUANIA EUR (000)
Total , ,648
Animal feed
Mineral fuels ,469
Fertilisers 8,524 5,216
Textiles
Electric machinery ,017
Clothing 5,232 8,127
Scientific instruments

16. National Irish Policy is Promoting Outsourcing
Competitive outsourcing can be a key to:
cost positioning;
retention of existing business;
flexibly increasing production capacity;
expansion of existing customer bases;
managing skills shortages.
The above advantages accrue where there are suitable products and volumes to outsource. However, the disadvantages of outsourcing include:
the requirement of significant management input and time;
cost advantages may be difficult to achieve due to transport costs, market based pricing, lower productivities, higher inventory carrying costs and other miscellaneous items;
intellectual property risks.

17. Ireland as a Centre of Offshore IT Outsourcing
Largest exporter of Software in the World;
Strong:
40% of Europe's PC packaged software market
60% of Europe's business application software
Sales of US$7.2 billion
20% growth since 1990
800 companies – over 100 with ISO 9000 or CMM (level 2 or higher)
Major Emphasis is on Product rather than Process Development

18. Ireland’s Advantages Strong Government Support
Strong Legal and Regulatory framework
Political and Economic Stability
Highly Skilled Work Force
English Language Fluency
World Class Communications

19. Major Global Trends Shift from Traditional Outsourcing
Globalization of Corporate Functions

20. Shift from traditional outsourcing
Strategic Value
Business Transformation Outsourcing
Business Processes
Business Process Outsourcing
Business Service Provider
Business Applications
Application Management
Application Service Provider
Technology Infrastructure
Information Technology Outsourcing
Managed Hosting
Tactical Value
Conventional Delivery
1:1
Netsourcing Delivery
1:N
Source: Accenture

21. Options 1. Conventional Outsourcing
Conventional IT outsourcing will remain a very competitive market as firms outsource support functions to specialist providers to cut cost and to focus on core issues.
Competition is high due to:
Standardised nature of services;
Transaction based fee for service pricing;
Narrow scope and scale of services;
The economic and technology slowdown;
Wide range of companies and countries focusing on these markets.

22. Options 2. Collaborative Outsourcing
Collaborative (Net Sourcing) Outsourcing involves re-engineering and running non-core processes to cut costs and to provide flexibility to respond to changes in business needs
Key features
Flexible Traded Services
Pricing based on value realized
Services scaled to meet changing business needs

23. Options 2. Collaborative Outsourcing
Use partnerships / equity to build trust and a greater understanding of needs.
Look at your company to see what may be of interest to potential clients.
Use outsourcing experience to drive potential clients business forward by offering differentiated product based on your technologies, skills, patents, etc. - Not just what a potential client may wish to spin off.

24. Globalization of Corporate Functions
Ireland
World’s Most Global Economy
Exports are 88% of GDP
UK still our primary trade partner
More US imports than elsewhere in EU
20 Years Ago - High Quality, Low Cost, Medium Technical Competence
Now - High Quality, Medium Cost, High Technical Competence - and High Reputation

25. Globalization of corporate functions
Ireland’s competence in IT manufacturing
The trust and respect built up with overseas MNC’s
Our world class engineers
Our good education system
The (likely) emergence of High Quality, Low Cost, Medium Technical Competence centers elsewhere
Enterprise Ireland’s encouragement and active assistance to the indigenous sector to outsource to lower cost centers overseas
Ireland continues to develop as an eCommerce Command centre (eSCM, eLogistics, eFinancial Services…)

26. Source: Digital 1980s

27. Conclusions
The Irish Outsourcing markets is small but is growing and opportunities exist;
Given Ireland’s Software base and growth as a more strategic centre for MNC activity, Ireland is growing as a buyer rather than a supplier of outsourcing;
Outsourcing – competition is growing – need to develop more strategic activities and to move towards R&D and final customers.