Intel confirmed yesterday its 2.5B$ commitment to build Fab68 in Dalian, China Apparently it is the first green field development since 1992 when Intel came to Leixlip Ireland. Dalian is one of China’s greener cities, and set in Liaoning Province near the border with North Korea.
By complete coincidence, there is a large delegation of Chinese software companies and associated Government officials visiting Ireland at the moment, with many of them from Dalian. I attended a meeting yesterday morning hosted by the Department of Enterprise, Trade and Employment, along with the IDA, Enterprise Ireland and the Irish Software Association for the visiting delegation.
Listening to the alternate presentations – Irish and Chinese – it struck me how different our two software industries are at this time.
The Irish software industry focuses on the global export market, because the home market is so small. From the figures presented this morning, most Chinese software companies currently focus on their domestic market, and do not export very much at this time by comparison.
The Irish software industry has six times as much revenue generated by multinationals operating in Ireland as by indigenous Irish companies. The Chinese numbers are the converse: more indigenous activity than multinational at this time.
The Irish software industry is primarily focused on the creation of new software products, and associated services. The Chinese industry at this time is focused instead on software outsourcing and business process outsourcing.
One can understand the Chinese focus, given the need to create employment, particularly in the private sector. At the same time, it was interesting to hear an official from Dalian readily admit to staff shortages, leading to upwards cost pressures: in fact the local government is apparently offering housing subsistence allowances and tax breaks to software professionals, so as to keep labour costs down in the area. It would be wonderful if our own Government in Ireland took such an enlightened view!
One wonders how these positions will change over, say, the next five years. The Irish industry may need to become less dependent on foreign direct investment and more focused on its indigenous companies. The Irish Software Association is strongly lobbying the Irish Government to considerably increase its IT procurement from indigenous Irish software companies: it is very ironic that many Irish companies in general have much more success selling to Government agencies outside of Ireland than within it. Maybe the Irish domestic market can be grown for the indigenous companies.
The Chinese focus on outsourcing and BPO is also interesting. We were told this morning that in the same way that Bangalore is a centre for outsourcing and BPO for the US and the English speaking world, Dalian is as successful as a centre for outsourcing and BPO from both Japan and South Korea. However, I suspect the Irish appetite in general for outsourcing is more focused on central Europe, driven by the expansion of the European Union last year and the availability of low cost air connections directly out of Ireland to a large number of central European destinations.
Some Irish agency officials pitched Ireland as an opportunity for investment by Chinese companies as a gateway to Europe. In return, some Dalian officials pitched Dalian as an opportunity for investment by Irish companies as a gateway to both Japan and both Koreas. I think this reciprocal perspective holds a mirror to both arguments: frankly I suspect most Irish companies will chose to invest directly in Japan or a Korea and choose to bypass Dalian to do so; I suspect most Chinese companies may think the same in regard to the rest of Europe and using Ireland as a gateway.
A little bit of Yin and Yang this morning. The true opportunity for collaboration comes from a closer working relationship, and working together to deliver whole products jointly together to specific market niches and opportunities. There are many commercial opportunities in China, and my own experience shows that a visible commitment on the ground – for example by opening a development centre – reassures Chinese customers and prospects that a company is in it for the long haul.