The “knowledge economy” is a powerful vision of Ireland’s future, one that sidesteps the disadvantage of being a nondescript mid-Atlantic island with a pitiful domestic market, while playing to our Anglo-American cultural strengths. Unfortunately, our so-called knowledge economy depends on a failing supply of knowledge workers, and immediate steps must be taken to source more of them. In this post I’m going to make the argument that foreign knowledge workers are not only necessary to maintain the presence of existing multinational employers, but that they are desperately needed if we want to turn our booming startup scene into a highly profitable domestic technology industry.
The Economics of Software
There’s a fundamental difference between the economics of software companies and those of traditional physical businesses. If a furniture company sells an extra table, it still needs to cover the costs of the materials, manufacturing and shipping. With low profit margins, the company’s benefit to the economy can be mostly measured by how many people it employs. Roughly speaking, it’s nearly as good for Ireland to have a foreign manufacturing company as it is to have a domestic one.
In software, however, the rules are radically different. With no need for materials, manufacturing or shipping, the marginal cost approaches zero, meaning additional sales are nearly pure profit. Once you’ve managed to create a valuable product, sales can go global overnight on a shoestring. The millions spent on salaries can be quickly overshadowed by the profit. Consider Google: a 14 year-old software company with revenues of $40 billion, growing at 30% year on year, with 25% profit margins (despite investing heavily in themselves). Assuming their 60 thousand global employees make a (ridiculously generous) average salary of $100K, total payroll is still dwarfed by annual profits of more than $10 billion.
Clearly, the big opportunity for Ireland is not to create mere thousands of jobs through companies like Google, but to create a real domestic software industry and keep these kinds of profits at home. This will be the true knowledge economy – one that not only pays people’s bills, but which creates real wealth and is sustained by each generation of entrepreneurs investing in the next.
Finding Technical Talent
The knowledge economy faces a major skills shortage. Thousands of vacant IT jobs holding us back from growing our industry. StartupWiki (which I recently co-launched with Vinny Glennon, CEO of SeenBefore) currently lists more than 300 startups in Ireland. Between the hundred or more startup founders that I know, “finding talent” is the number one topic of conversation. At Scale Front we even invested in creating TechTeams.ie, hoping to release this pressure a little.
There is no doubt in my mind that the growth of these startups is now constrained by access to high-calibre talent. From our small population of 4.5 million, only about 2,600 students enter engineering and technology degree courses each year [2010 PDF report here], and only a fraction of that is accounted for by computer science courses. Thanks to high failure rates (normal for computer science), the top courses produce maybe 150 graduates each year. Of these, I would personally consider only about 20 suitable for the challenging job of product creation in a startup environment.
If this doesn’t already sound like a daunting situation from a recruitment perspective, consider that a startup hoping to hire one of these elite graduates must now compete against some of the biggest software companies in the world, which the IDA has so successfully lured to our shores. These lucky 20 graduates must have a very enjoyable time watching international giants outbid each other for their attention. With a good degree from a good university, they can each expect a starting salary between €35K-€40K, reaching up to €90K within 4 years (excluding benefits). This is great for the lucky graduates, but disastrous for the country. It’s more difficult than ever to grow your startup into a sustainable business.
There are longer-term solutions, such as addressing the quality and availability of scientific teaching in schools, but the effects of any such solutions are more than a generation away. The only immediate solution is to throw open Ireland’s doors to software developers, wherever they may hail from. Only this will enable the hundreds of startup companies that have sprung to life to grow into the foundations of a true knowledge economy.
The rules for hiring from outside Ireland aren’t draconian, merely … reluctant. The clear goal is that jobs should go first to European candidates, then to foreign candidates. Unfortunately, there’s no allowance made to skip the process when there are obvious endemic talent shortages, such as the one we face.
Should you want to hire a candidate from within the European Economic Area, he/she can just arrive and start working. Hiring from outside Europe is considerably more difficult:
- You must first advertise the position for 2 months with FÁS (a national training/employment service). Which, considering you’re looking for super-achieving university graduates, is completely absurd.
- You must advertise the position for six days in national and local newspapers. Handily, candidates who still use newspapers to find jobs mostly eliminate themselves from consideration.
- Candidates cannot bring their family with them (except on a 3 month holiday visa).
- Candidates must be paid at least €30K per year. This essentially rules out foreign interns.
- When applying for a work permit, you must pay a fee of €1,500.
Having paid your fee and applied for the work permit, you face a 6 to 8 week processing delay before hearing back. In total, the delays add up to at least four months, plus thousands in additional expenses (beyond the thousands in travel and accommodation that you’ve already committed). Then, as with all candidates, you face the risk that things don’t work out and you need to go through the ordeal once again. Richard Barnwell, CEO of Digit Games (Ireland’s leading homegrown games development studio), puts it this way:
I don’t WANT to go abroad to hire. If I am, it’s because I need to. The issue for me is having to wait for job ads to hit x number of days before I can even consider abroad, then having to wait a long time for a visa to be granted. The recruitment lifecycle is too long.
Digit Games has a core team whose pedigree in the games industry is unparalleled in Ireland. Unfortunately, like so many promising young companies, their growth may be slowed by the government-imposed process and costs of hiring software developers abroad. Digit operates in an industry where profit margins can soar to nearly 50% on hundreds of millions of revenue. Considering the longer-term opportunity companies like Digit represent to the economy, these outdated rules are frustrating and counterproductive.
The Department of Jobs, Enterprise and Innovation provides its statistics openly: it grants about 250 work permits per month, mainly to the service and health industries. Unfortunately, Information Technology is not tracked separately, but is presumably included in the “Industry” category accounting for 15% of applications. If we assume a third of these are in Information Technology, then a grand total of 150 jobs out of the thousands of vacancies are filled each year in this way. The unavoidable conclusion is that the work permit process is so onerous that the companies that are most in need are avoiding it.
Catalyzing the Knowledge Economy
We are witnessing an unprecedented level of entrepreneurship, with a great many of our most talented twentysomethings choosing not to flee, but to stand their ground and create new businesses. The technology talent problem they face is unnecessary: there are no shortage of international technologists who would jump at the opportunity to live and work in Ireland. Our fledgling industry is hindered only by outdated laws that aim to protect the jobs of workers who don’t exist.
The knowledge economy will flourish upon the foundations built by these startups, but they must first be able to hire from countries such as the United States. The work permit regulations must be updated, perhaps along the following lines:
- Drop the requirement to advertise the position if there is historic evidence of a skills shortage.
- Allow candidate to bring their families on an extended holiday visa of 12 months.
- Drop the minimum salary to €20K.
What’re your thoughts? Do you have tips for working within the rules, or another suggestion about how they might be changed? Please continue the discussion in the comments below.