Competitive Advantage in the Irish Indigenous Software Industry and the Role of Inward Foreign Direct Investment

Abstract

Since the mid-1980s, the software industry has been one of the fastest growing sectors of the Irish economy. This article examines the causes of the degree of success which the Irish indigenous software industry has attained in terms of growth and international competitiveness. In exploring the development of its competitive advantage we examine, in turn, the role of Irish factor conditions, domestic demand conditions, related and supporting industries, and firm strategy, structure and rivalry, in accordance with Porter's (1990) 'diamond' model. In doing this, we pay close attention to the role of foreign-owned transnational corporations (TNCs) in Ireland in influencing the development and competitive advantage of the indigenous software industry. This is a relevant issue in view of the simultaneous rapid development of the indigenous and foreign-owned branches of the industry, and also the strong growth among other, possibly related, TNC-dominated sectors such as computers and telecommunications equipment. This paper shows that the Irish indigenous software industry has had a strong competitive performance. There is no single outstanding reason for this; rather, causes can be found in all four of Porter's suggested determinants of competitive advantage, so that it is the combination of a range of favourable influences that has proved effective. However, the case of the Irish indigenous software industry shows how foreign TNCs can indeed have a significant positive influence on indigenous competitive advantage.