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Wednesday, 24th April 2024 |
| Technology sector pulls through |
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| Mary Cryan looks at whether the 'Winter of Technology' will become the big freeze and how the Irish technology sector can face the challenges in the light of the recent terrorist attacks in the US. |
The dreadful events of September the 11th in the US will have severe repercussions for the Irish technology sector, which was already suffering badly. Whatever slight optimism was beginning to emerge has now been thrown out the window, and it will be several months before we see the full impact.
As we know our technology sector is very exposed to the US, not only do we have a heavy reliance on US multinationals, but up to 45 per cent of our indigenous industry output is to the US. Over the last five years we have largely ignored the European market in our quest to become global players centred in the US. The expression ‘when the US sneezes, the rest of the world catches a cold’ has taken on a frightening reality.
We all know companies were struggling even before the terrorist attacks, raising the concern that this will be enough to push some companies deeper into the mire. Also the long-term impact on the high-tech sector is still unclear and may not be known for many months. One thing is certain, the events of Tuesday 11th September will have added at least four quarters to the expected recovery time for this sector. The hard reality is that the future technology earnings outlook is only expected to get worse.
Confidence is badly shaken, IT buyers have gone to ground, and projects have been put on ice. It is clear that over the coming months things will be slow, and we can expect to see a volatile market, particularly until we see the market reaction to whatever action the US takes. Then companies will be faced with managing the consequences of whatever that action is.
However it is not all gloom and doom. We must remember this is still a growth industry with many opportunities. Sure there are serious challenges, but this industry will come back.
Not all companies and niches are equally effected. The catastrophic events could serve as catalysts for new IT spending, especially for backup storage, security systems and services. Areas like e-learning should get a boost as travel budgets are cut. There will also be increasing opportunities for security technology and software and network services. Other areas such as mobile applications, mobile internet infrastructure, biometrics and CRM should still see growth once the market stabilises.
The impact on Ireland
At the moment it is impossible to forecast when the uplift will occur in the market. This industry has never been here before. The indigenous sector is badly shaken and facing cash burn issues. In general start-ups will face a very difficult environment, but this is a good time for innovative start -ups. Funding is available for innovative start-ups where the funding is earmarked for research and development rather than marketing or sales spend. There is rising concern amongst Irish CEO’s of foreign multinationals about the future and position of the Irish operation within the global organisation. They need to position the Irish operation very deeply and securely within the parent organisation. We have to accept that up to hundreds more jobs could be lost in Ireland by the end of the year. For the time being increasing closures, cutbacks, limited private investment and nervousness will dominate the market. The challenge is to look at where we can create new jobs in a time of downturn.
Today survival of the fittest is now the name of the game. Companies need to work, ‘smart’. There is no doubt the market will recover, we are not going back to quills instead we are moving into a new mobile internet era. This industry is still growing, and markets like South America, China and Korea will become growth markets in the medium term.
All of this has provided valuable lessons. We now know with certainty that only the strong will survive and CEO’s will be fiercely tested on their ability to manage in times of downturn, rather than the heady days of massive growth. Companies need to now undertake a thorough examination of their operations and take corrective action. They also need to understand what type and size of company they need to be to survive the next six months. And finally they must avoid hype, concentrate on short-term sales and change things, change everything if necessary.
The market will not take off until traditional industries buy into the ‘new technologies’. Companies need to invest in sustaining their competitive advantage, reinvent themselves and kill off redundant products before someone else does.
Will it ever be normal again? Normal is a relative term, but no, we will never see those heady days again. But the ICT market as with all industries is maturing, the only difference is that changes are taking place at the speed of the Internet instead of over 10 years. We are now operating in a nervous investment climate, cautious growth projections and a re-emergence of the old values, profit, loyal customers and a sound business model.
This is not time for doom and gloom or slash and burn, it is a time for strong leadership and a steady hand on the rudder. There has never been a more important time to have a clear strategy and a positive outlook. Our industry needs to be ready for the upturn and strong leadership and focus is required now. We need to put the building blocks in place and invest wisely for the future. This industry will come back, and we need to position ourselves for that come back. |
Mary Cryan is Director of the Technology Consulting Practise in Prospectus. Prospectus is currently running restructuring workshops for further information call 2603122 or email, mcryan@prospectus.ie
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| Article appeared in the November 2001 issue.
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