National Software Strategy for Scotland : The Way Forward : Internationalisation

Initiative 4; Foreign Direct Investment (FDI)

One of the principal thrusts within this strategy is that Scotland should be much more fully engaged in international software activity. Software is increasingly international in nature.

A key element in further developing this international capability and addressing Scotland’s key infrastructural weakness - namely, the lack of major software companies - is inward investment.

Therefore, this initiative would focus on attracting major software development centres to Scotland.

Scotland has had considerable success in attracting FDI, particularly electronics and related assembly operations. Within this investment, there are four notable companies (whose business is not principally software) which have developed significant local (software) capabilities - NCR, IBM, Hewlett Packard and Motorola. This added capability is important and attractive to Scotland in that it develops local added-value and helps to sustain and anchor the manufacturing operations. There are also some local benefits to Scottish software industry through activities such as local sourcing of software development, although generally this is not well developed.

However, the addition of software activities (product development) to electronics hardware is more related to developing the hardware industry than the software industry.

From a software perspective the more significant gap is the lack of a major scale international software development company. There are mobile projects in software development where Scotland can compete. Early and first generation, international projects were concentrated on the downstream value chain including distribution, replication, customisation and subsequently customer service and support. During the last five years more high value projects in R&D have emerged given skill shortages in the country of origin of investors (the US). They are attracted by skill availability not low cost.

This will require a significant targeted effort - based around developing specific propositions to international software firms for example:

• where the project is not a trading entity which obviates corporate tax disadvantage versus Ireland and Netherlands - probably R&D;
• where local demand can be leveraged - as for example with financial services or utilities or shared services centres;
• where a compelling case for local skills availability and flexibility of course design can be developed with HEI;
• where a communications/access argument can be developed that supports the individual project.

The effort involved would be significant and within limited resources necessarily trade-off against other FDI activities. However, we believe the need for flagship activity is compelling as it would:

• directly assist in internationalising the Scottish industry structure;
• put Scotland more on “the international map” and position it as a serious contender for software development and indeed related design and development projects in hardware manufacture;
• provide an added facility for business formation;
• challenge and develop local software skills and training;
• possibly work on advanced products with local users;
• provide added business to local software firms through sourcing and joint development;
• possibly provide an additional channel to market.