Outsourcing guide: Ireland

When CIOs talk about their operations in Ireland and Northern Ireland, the word comfortable arises frequently. Both Ireland and Northern Ireland, which remains part of the U.K., are relatively close to the US, and their language, infrastructure, and inhabitants' culture and work ethic are all familiar and comfortable to the American eye. There's a catch, though: Companies that send IT work to Ireland pay a stiff premium for that comfort.

According to Gartner , Irish outsourcers have generally focused on the aggregation and implementation of packaged software applications, rather than on development and maintenance.

However, the experience of The Allstate in Northbrook, Ill., has been different. In 1999, in response to skyrocketing US salaries, Allstate (through subsidiary Northbrook Technology) created a Northern Ireland IT group that now employs about 575 people in Belfast and 75 in Derry, according to Mike Scardina, assistant vice president for IT finance.

The types of duties entrusted to the Northern Ireland group have "matured and grown," Scardina says. "Initially, it was mostly maintenance, but the variety of skills (possessed by the Irish workers) and increased quality have let us develop over 70 apps," including software related to Allstate's property and casualty insurance, annuity products and even enterprise security.

One East Coast CIO whose company is mulling offshore outsourcing and who requested anonymity says Ireland is high on his list based on previous experience. "The last company I was at did software development work in Belfast, and it was very encouraging," the CIO says. "The government was highly encouraging, offering good tax benefits, and the development work itself was outstanding."

Both Northern Ireland and Ireland itself are a six-hour plane ride from the East Coast of the US, and there's plenty of overlap in the business days of US and Irish workers. That makes it possible to pick up the phone and make a call when necessary, which Scardina says was an important consideration for Allstate.

Scardina says that because of the benefits of outsourcing to Northern Ireland, Allstate didn't seriously consider setting up operations in other nations. He declines to say exactly how much Allstate's Irish workers are paid but notes that the number is "more than 50 % but less than 75 % of contractor rates in the U.S." According to Computerworld's 2002 Salary Survey, the average contractor salary in the US is about $87,000.

Larry Gordon, vice president of marketing at Teaneck, N.J.-based Cognizant Technology Solutions , which provides offshore outsourcing services, says Ireland's IT professionals are significantly more expensive compared with those in other nations. In Ireland, Cognizant pays "prevailing wages or better," Gordon says, characterizing Irish IT salaries as about midway between those in the US and those in India.

Aggressive government efforts have increased Ireland's appeal. Ireland's tax rate, 12.5 %, is the lowest in Western Europe. (Northern Ireland's taxes are higher.) And both governments offer foreign businesses grants on everything from capital investment to recruiting to training. These inducements make it especially appealing to set up wholly owned subsidiaries in Ireland.

Education Advantage

Prudential Financial is another company that has created an IT subsidiary in Ireland. The Newark, N.J.-based financial services firm launched the subsidiary in 2000 to develop and test applications, according to Paul Carmody, Prudential's vice president of global sourcing. In 2001, Prudential added an inbound call centre for its property and casualty insurance business.

All told, the company employs about 400 people at its facility in Letterkenny. Prudential chose this remote town in County Donegal, three and a half hours from Dublin, partly to take advantage of another strength of Ireland: a top-notch education system.

"In Ireland, the best and the brightest are now going into software," says Marty McCaffrey, executive director of Salinas, Calif.-based Software Outsourcing Research. Letterkenny boasts a strong technical school that feeds Prudential a stream of talented IT workers at what Carmody calls an apprentice level — with apprentice-level salaries.

Why actively seek less expensive apprentices, rather than simply find a cheaper country? Carmody says Ireland's advantages make the country's premium price worthwhile, but that doesn't prevent Prudential from seeking bargains where possible. The company pays its Irish IT workers "right in the average range," he adds. McCaffrey puts that at US$23,000 to $36,000.

Salaries are Ireland's Achilles' heel. The country's low population (3.9 million in 2002, according to the CIA's The World Factbook), strong economy and early success as an offshore labour source have driven up costs. The outstanding universities and three-year technical programs in Ireland and Northern Ireland turn out only 11,000 or so computer science graduates each year, McCaffrey says, and there's a lot of competition for those fresh-faced IT pros: IBM, Oracle and Microsoft are just a few of the US high-tech giants that have major production and development facilities in Ireland.

Factor in a high cost of living, and the essential truth is that Irish IT workers don't come cheap compared with their counterparts in other countries.

Although Ireland is pricier than many offshore options, that premium buys companies extremely low risk, according to Debashish Sinha, an analyst at Gartner. Although terrorism plagued Northern Ireland for 30 years, Irish Republican Army terrorist activity has essentially halted since the signing of a 1998 peace accord.

"Ireland has made a commitment," McCaffrey says. "They are going to be a world software powerhouse."

Ulfelder is a freelance writer in Southboro, Massachusetts Contact him at sulfelder@charter.net.

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