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 1. The Irish Outsourcing Market 2. 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. 1.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 – www.etenders.ie

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 1. IT Services (hardware maintenance) 27% 2. eBusiness Development/Hosting 11% 3. Network Management 11% 4. Software Development 9% 5. Website Admin/Management 8% 6. e-commerce 7% 7. Helpdesk 4% 8. Application Management 3% 9. Security Services2% 10. ERP Implementation 1% 11. Other 9% 12. None 41% Source: Cap Gemini Ernst & Young - Irish Business Attitudes to Outsourcing

10. IT Functions Considered for Outsourced 1. Web Development/Hosting 69% 2. e-commerce 54% 3. Website Admin/Management 53% 4. IT Services (hardware maintenance) 44% 5. Security Services 40% 6. Network Management 37% 7. Helpdesk 34% 8. ERP Implementation 25% 9. Application Management 22% 10. No Plans to Outsource 9% 11. Don’t Know 3% Source: Cap Gemini Ernst & Young - Irish Business Attitudes to Outsourcing

11. Decision Factors 1. Money Saving 58% 2. Lack of IT Staff 26% 3. Lack of Expertise 23% 4. Improved efficiency 22% 5. Access to Broader skills base 18% 6. Company requirements changed 12% 7. If we feel the need 5% 8. Other 6% 9. Don’t Know 7% Source: Cap Gemini Ernst & Young - Irish Business Attitudes to Outsourcing

12. Benefits of Outsourcing 1. Cost Reduction 50% 2. Access to Broader Skill Base 42% 3. Improvement in Overall Efficiency 23% 4. Allow us to concentrate on our business 16% 5. High quality of IT workforce 15% 6. Access to advanced technology 13% 7. More efficient IT Department 13% 8. Better Service 7% 9. No perceived benefit 4% 10. Other 8% 11. Don’t Know 6% Source: Cap Gemini Ernst & Young - Irish Business Attitudes to Outsourcing

13. Concerns on Outsourcing 1. Security/Confidentiality 40% 2. Loss of control 37% 3. Choosing right partner 31% 4. Reliance on supplier 28% 5. Costs 13% 6. Lack of successful examples 5% 7. Other 8% 8. No concerns 10% 9. Don’t Know 12% 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 Region650  Irish Investmentsca. €1.5 billion  Irish Companies with Local Operations84  Employment in the Region by Irish Companies ca. 12,000  Irish Companies Outsourcing from CEEca. 30 -40  CEE and CIS citizens working in Ireland 8,000 (work permits)  Exports growing at 20% p.a. since 1989. 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) 20002001 Total12,04520,324 Of which ICT Sector Data processing machines 3,241 2,733 Telecommunication apparatus 228 2,928 Electrical apparatus 131 99 % in ICT 30% 28% IRISH IMPORTS FROM LITHUANIA EUR (000) Total14,38923,648 Of which Animal feed0296 Mineral fuels08,469 Fertilisers8,5245,216 Textiles67108 Electric machinery901,017 Clothing5,2328,127 Scientific instruments712

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. 2.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 Tactical Value Conventional Delivery 1:1 Netsourcing Delivery 1:N Business Transformation Outsourcing Business Process Outsourcing Business Service Provider Business Processes Application Service Provider Application Management Business Applications Information Technology Outsourcing Managed Hosting Technology Infrastructure 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.  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 Options 2. Collaborative Outsourcing

23.  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. Options 2. Collaborative Outsourcing

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.  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…) Globalization of corporate functions

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.