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TIME Europe, March 23, 1998
Silicon Isle: Ireland is studded with software talent
In Dublin's new "Emerald Valley" American-style firms lead a post-Industrial Revolution
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Baltimore Technologies used to be as sleepy as the tiny fishing village where the company was born in County Cork, Ireland. A 10-person consultancy founded in 1976 by three grads of Dublin's Triity College, it specialized in the once arcane field of cryptography for electronic messages. Then Fran Rooney came along. A top aide to wealthy Irish investor Dermot Desmond, Rooney realized that the growth of commerce on the Internet gave Baltimore's cutting-edge research the potential to yield the digital equivalent of a better mousetrap. Sure enough, in the past year, after Desmond bought the company, the world is beating a path to Baltimore.
That's because the world is entering a new era of electronic commerce with smart cards, website banking and online shopping. But such transactions require sophisticated security systems to ensure that sensitive data like credit card information and account numbers are protected from computer thieves. Firms like Baltimore provide the encryption software to put sensitive information into code. Encryption is measured in bits — the more bits, the more secure it is. Most of this software uses only 40 bits, and an experienced hacker can break a 40-bit code in a few hours. Baltimore is one of the few firms to commercialize 128-bit technology. Its codes would take several millennia to crack.
The company's technological advantage has been unintentionally augmented by a security-minded U.S. Government. Washington fears that terrorists and criminals could use advanced technology to guard their secrets and avoid detection by law enforcement and security agencies, and so U.S. firms are barred from exporting encryption software using more than 40 bits. But the Irish company has proved it can compete in the U.S. as well. Its J/Crypto program — designed for the Java computer language — was licensed by RSA Data Security, a leading American computer-security company and. Baltimore's latest version of J/Crypto is the world's fastest Java-based encryption software.
In the next year the company plans to open U.S. offices and hopes to go public. Meanwhile, Baltimore's staff is 43 and growing. Rooney boasts that the firm keeps in the forefront of this rapidly-changing sector by pouring 75% of its revenues back into R. and D.: "We ask, 'Can this be the best? Can it be first?' Otherwise, forget it — someone else has already done it." That is indicative of what has happened to the Irish software industry, for Baltimore is no anomaly. Some 40% of all software and 60% of all business-application software sold in Europe comes from Eire. Only the U.S. exports more. Software is a $2.4 billion trade employing more than 15,000 people. "Not bad for an industry that didn't really exist until the mid-'80s," says Jennifer Condon, a policy adviser at Forbairt, the state software development agency.
Not so many years ago Ireland was agrarian and poor, with little industry and few natural resources, so generations of its brightest sons and daughters sought fortunes elsewhere. "Historically, Ireland didn't experience the Industrial Revolution," says Katherine Lucey, director of the Irish Software Association. Software is a shortcut into the modern economy. Multinational giants like Microsoft, IBM and Oracle make up the bulk of the trade, employing 55% of those 15,000 people. Lured by Ireland's young, well-educated and flexible workforce and a low 10% corporate tax rate, five of the world's 10 largest software companies have some operations in Ireland.
The arrival of the software multinationals encouraged some of the more entrepreneurial of Ireland's homegrown talent to strike out on their own, slowly creating an indigenous industry, with some help from state funds. Many entrepreneurs gained useful experience by first working for a software giant. "People will spend four years at a multinational and say, 'Hey, I can do this,'" says Brendan Doherty, marketing director of Delphi Software. Today, of the 500 software companies in Ireland, 80% are Irish-owned, and most are still small. Initially, raising money was a problem for software entrepreneurs. Banks were reluctant to make loans to risky startups, and local venture capital was scarce. That began to change a few years ago with the advent of more adventurous investment banking. Additionally, Forbairt has now invested $50 million — in Irish government and E.U. cash — in more than 100 companies. Says Doherty, "There's a lot more money than good ideas." Two Irish companies — Iona Software and CBT Systems — are listed on the Nasdaq, each with market capitalizations of more than $1 billion.
Success brings growing pains as well. Top graduates and highly-skilled veterans are demanding higher salaries, making wage inflation a nagging worry for a country that relies on a low-cost business environment. Part of the problem is that, in spite of vastly diminished emigration, Ireland's pool of skilled software engineers and technicians is drying up as multinational and indigenous firms race to expand operations. To replenish the labor supply, the government is investing $10 million to increase enrollment in computer science courses in universities and technical schools and funding training schemes for high school graduates.
As Ireland's local industry grows, America remains the market Irish companies most want to conquer. And American multinationals — considered the most nimble, aggressive and entrepreneurial — are the companies to emulate. Rooney isn't shy about his desire for Baltimore to morph into a U.S.-style corporation. He's working to establish at Baltimore an American-influenced culture that rewards flexibility, hard work and initiative. Says Rooney: "Our colleagues in the Silicon Valley call Ireland the Emerald Valley. It's the same here really — just a little greener, a lot cooler and a lot wetter." And a lot less sleepy than it used to be.
"Not bad for an industry that didn't exist until the mid-'80s."
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