National Software Strategy for Scotland : Scotland's Potential In Software : Scottish Supply : A Distinct Absence of Large Software Developers

The distribution of firms sizes within the software community is far from homogenous. Kingston SCL is Scotland’s largest independent software developer with 370 employees and is “out on its own” in terms of size. The chart below shows the size distribution of Scottish software enterprises by number of employees. Most of the firms with over 100 software employees are not principally software companies but are those with significant in-house software capability or autonomous software divisions; for example, hardware electronics firms.

Figure 2.3: Size distribution of Scottish Software Enterprises by number of employees (1996)

Why should the lack of large software firms in Scotland be of particular concern in its future development? Evidence from successful industry groupings elsewhere suggests that the existence of large software firms is vital. Whilst smaller firms provide the dynamism required for a competitive software industry, larger firms act as gateways to international markets3, attract and retain skills, and act as “ambassadors” for local capabilities. Crucially, large firms are proven as the most important seedbeds for software business formation4 and provide the training grounds for skills in advanced technologies.

As such, Scotland’s lack of large software development firms is a serious barrier to further development. Addressing this weakness is central to the strategy. In addition, whilst the Scottish industry has grown rapidly in the last few years - and is set to continue to grow - the lack of major scale players represents a structural imbalance.

Attribute	Data
Size	Employment: about 19,600 of which: indigenous software firms 7,400 employees a further 250 sole traders and around 3,000 individual contractors autonomous software divisions of large companies and in-house software development 8,950 employees Output: about Ł1.4bn pa About 200 indigenous enterprises and 3000 individual contractors
Industry Structure and Resources	Very large number of very small firms Significant ‘new breed’ of firms with 11 to 50 employees Little cohesion between firms Most Scottish firms are independent with local decision autonomy Biased towards service provision rather than product offerings Specialist businesses development support via Scottish Enterprise Of the 23,000 first degree graduates produced by Scotland each year in the Physical and Mathematical Sciences, Computer Science and Engineering and Technology about 700 are Computer Science Graduates. Scotland also produces about 160 higher degrees in Computer Science per year5.
Industry Growth	Output growing at about 15% pa Growth expected to continue for at least 2/3 years
Industry Performance	Few Scottish firms export beyond the rest of the UK Inward investment has been low It appears that software conforms to the Scottish trend for low business birth rates

3 As demonstrated by the role of large software firms in Israel, Colorado and Silicon Valley.

5 Note that software professionals have a very wide range of degree backgrounds (ie. not just science and technology) and may not necessarily hold a degree. (Source: Higher Education Statistics Agency)