NIERC REPORT SERIES NO 16 COMPUTER SERVICES AND SOFTWARE EMPLOYMENT IN THE UK AND IRELAND,

Transcription

1 NIERC REPORT SERIES NO 16 COMPUTER SERVICES AND SOFTWARE EMPLOYMENT IN THE UK AND IRELAND, An Exploration of Official Data with Particular Reference to Northern Ireland Mike Crone NORTHERN IRELAND ECONOMIC RESEARCH CENTRE

2 Computer Services and Software Employment in the UK and Ireland, An Exploration of Official Data with Particular Reference to Northern Ireland Mike Crone January 2000 Northern Ireland Economic Research Centre

3 Copyright 2000 NIERC All rights reserved. No part of this publication may be reproduced, stored in a retrival system, or transmitted in any form or by any means, electronic chemical, mechanical, optical, photocopying, recording or otherwise without prior permission in writing from the copyright owner. Published by: Northern Ireland Economic Research Centre, University Road, Belfast, BT7 1NJ Tel: Fax: ISBN: X Price 30 Stg.

4 Contents Contents... i List of Tables and Figures... ii Preface... iii Acknowledgements... iii Executive Summary... iv Key Findings for Northern Ireland... iv Other Key Findings...v Chapter 1: Introduction Background to Study Study Rationale and Aims Structure of Report Coverage and Data Sources...3 Chapter 2: Computer Services Employment in the UK National Trends The Regional Pattern The County Pattern Summary...15 Chapter 3: Computer Services and Software in the Republic of Ireland Software and the Celtic Tiger Official Statistics on Computer Services Employment in Ireland Accounting for the Remainder of the Irish Software Industry Summary...20 Chapter 4: Computer Services and Software in Northern Ireland Recent Prominence of Software in Policy Circles Employment Performance in Computer Services, Recent Inward Investment Performance Summary...30 Chapter 5: Summary and Issues for Further Research...31 References...34 i

5 List of Tables and Figures Table 1: UK Computer Services Employment, Table 2: UK Regional Pattern of Computer Services Employment, Table 3: County Employment in Computer Services in 1991 and Table 4: National Software Directorate Aggregates for Irish Software Industry 16 Table 5: Aggregates for Computer Services (NACE 72) in Republic of Ireland 17 Table 6: Employment in Computer Services (NACE 72) in Republic of Ireland and Selected UK Counties and Regions, Table 7: Number of Persons Engaged in NACE 223 Reproduction of Recorded Media in Republic of Ireland, Table 8: Employment in Computer Services, : Comparison of Selected Non-core Counties 25 Table 9: Foreign Direct Investment Projects in Computer Services and Software (Announced April 1996-September 1999): Type of Investment by Region 27 Table 10: Jobs Promoted in New Foreign Direct Investment Projects in Computer Services and Software by Region (Jan 1997-Sept 1999) 28 Table 11: New Foreign Direct Investments in Computer Services and Software in Scotland and Northern Ireland (Announced January 1997-September 1999) 29 Figure 1: Figure 2: County Location Quotients for Computer Services Employment in County Location Quotients for Computer Services Employment in ii

6 Preface The apparent growth potential of the information technology industries and the software industry in particular - has recently been emphasised by both the UK government and various government and industry bodies in Northern Ireland. However, because there is presently a lack of detailed empirical research on the IT industries (including software), these discussions are rarely grounded in a wider historical or geographical context. This report attempts to provide such a context by using various official data sources to describe the pattern of computer services and software employment in the UK and Ireland in the period In doing so, the report lays the foundation for subsequent detailed research on the computer services and software industries in Northern Ireland and other parts of the British Isles. It is hoped the report will also be a useful reference point for policy-makers and researchers with an interest in this dynamic sector of the economy. The background to the report, its aims and coverage, and the data sources it uses are outlined in Chapter 1. Chapter 2 of the report examines the regional and county pattern of employment in the UK computer services industry (Division 72 of SIC 1992) in the period using Census of Employment and Annual Employment Survey data. Chapter 3 then explores the nature of the Republic of Ireland software phenomenon using data from Ireland s National Software Directorate, Annual Services Enquiry and Census of Industrial Production. An attempt is made to compare the Republic of Ireland s recent performance in computer services and software with the performance of various UK regions and sub-regions. In Chapter 4, the employment performance of Northern Ireland in computer services and software is examined and compared with that of other sub-regions of the British Isles using data from the NI Census of Employment. Northern Ireland s recent record of inward investment in this sector is also examined using data from the Invest in Britain Bureau. Finally, in Chapter 5, some issues for further investigation are outlined. Acknowledgements This research was supported by the Department of Enterprise, Trade and Investment and the Department of Finance and Personnel as part of their funding for the NIERC research programme on Competitiveness in Tradable Services. I am grateful to Neil Gibson for his assistance in retrieving and preparing the NOMIS data used in this report, to Lisa Bradley for her help in preparing the maps, and to Stephen Roper, Michael Anyadike-Danes and Seamus McGuinness for their comments on earlier drafts of this report. The views expressed in the report, however, are those of the author alone. iii

7 Executive Summary Key Findings for Northern Ireland 1. The majority of the leading firms in what is commonly referred to in Northern Ireland as the software industry are classified under Division 72 Computer Services in the Northern Ireland Census of Employment. According to the most recent Census of Employment data, computer services employment in Northern Ireland totalled 2,240 in September (The official estimate for September 1998 was 2,710). 2. However, throughout the period , Northern Ireland had a lower share of private sector employment in computer services than any other UK region. In 1997, computer services accounted for only 0.61 per cent of private sector employment in Northern Ireland, compared to 2.01 per cent in the UK as a whole and 3.85 per cent in the South East region of England. The only other UK region where computer services accounted for less than one per cent of private sector employment in 1997 was Wales (0.76 per cent). 3. It is also useful to compare Northern Ireland s computer services employment with that in various UK counties but county level employment data for Division 72 is not available for Northern Ireland. However, because of its relatively small size, it is possible to treat Northern Ireland as a county for this comparison. On this basis, Northern Ireland ranked a lowly 54 th out of 65 UK counties in 1997, in terms of the share of employment in computer services. 4. Northern Ireland s computer services employment grew at slightly above the UK average rate during (increasing by 118 per cent from 1,030 in 1991). However, this average growth performance means Northern Ireland had failed to close the gap to the rest of the UK by This experience can be contrasted with that of similar-sized sub-regions of the UK (such as Merseyside, Lancashire, and Devon & Cornwall) where computer services employment grew at twice the UK average rate during from a similar starting position. 5. An analysis of inward investment projects announced by the Invest in Britain Bureau since January 1997 shows that Northern Ireland has been disproportionately successful in securing new projects in computer software and services in recent years. According to IBB press releases, Northern Ireland has secured eleven out of 35 major new projects announced in this period and these projects account for over 1,600 jobs promoted (around one-fifth of the UK total). iv

8 If these anticipated jobs materialise, the Northern Ireland computer services and software sector should undergo a significant expansion over the next few years. 6. Nevertheless, the evidence presented in the report raises questions about the employment growth projections of the recent Software Industry Federation (1999) and Strategy 2010 reports. These reports set targets for software employment in Northern Ireland that would require a sustained average expansion of 30 per cent per annum. Yet the evidence in this report finds no precedent for such growth rates in the recent history of Northern Ireland or any other part of the British Isles. For example, computer services employment in the Republic of Ireland grew at a compound rate equivalent to 15.6 per cent per annum between 1992 and Other Key Findings 7. Computer Services (Division 72) has been one of the fastest growing sectors of the UK economy during the 1990s. By September 1997, UK employment in this sector had reached almost 354,000 (roughly two per cent of total private sector employment). Employment growth during was equivalent to a compound annual rate of 13 per cent per annum. 8. At the regional level, the UK computer services industry is highly concentrated in the Greater South East (the Greater London, South East and Eastern regions) which together accounted for 60 per cent of total employment in Location quotients reveal a regional hierarchy in which these core regions are the leaders and Wales and Northern Ireland are the laggards. Overall, there has been little change in this hierarchy during the 1990s. 9. At the county level, an even more uneven pattern emerges. When location quotients are calculated, a western arc of non-metropolitan counties in the South East region is revealed as the dominant cluster within the UK (Berkshire, Buckinghamshire, Hertfordshire, Surrey). Outside of the Greater South East the West Midlands ( Greater Birmingham ) and Greater Manchester are the biggest centres of computer services employment. However, with the exception of Nottinghamshire, every county in Northern England and the Celtic Fringe had below the UK average share of employment computer services in At face value, the growth of the software industry in the Republic of Ireland during the 1990s has been impressive. However, an investigation of official data on the Republic suggests some structural contrasts with the UK regions that should be born in mind when using the Republic as a performance benchmark. Specifically, a significant component of the Irish software industry is made up of large foreign-owned software manufacturing and localisation plants, which have no parallel in the UK regions and are not classified under the computer services heading of the NACE industrial classification. 11. When considered without the software-manufacturing element, the performance of the Irish computer services industry (Division 72) looks less exceptional. Total computer services employment in the mid-1990s was comparable to that in some smaller English sub-regions (such as Avon or West Yorkshire) and the share of v

9 employment in computer services was much lower than in South East England. Nevertheless, the Republic of Ireland has outperformed other peripheral regions of the British Isles in computer services (including Wales and North East England). vi

10 Chapter 1: Introduction 1.1 Background to Study An important factor behind the relatively poor economic performance of certain peripheral UK regions over the past two decades has been their relative weakness in business services (e.g. Marshall and Wood, 1995; Bristow et al, 1999; Anyadike- Danes, 1999). However, it has recently been suggested that the information technology sector - and particularly the software industry - has the potential to buck this general trend and make a significant contribution to the future economic development in such regions 1. Proponents of this argument often point to the rapid recent development of the software industry in the Republic of Ireland, a peripheral European region that has traditionally been weak in business services. The information technology industries, including computer services and software, are attractive to peripheral regions for a number of reasons. First is the spectacular recent and projected growth of these industries, stimulated by the so-called information revolution. Second it is often claimed that these industries are more footloose than other economic activities. Advances in digital telecommunications mean proximity to customers and markets is becoming less important. Neither do the computer services and software industries require any natural factor endowments. Indeed, at face value, the locational requirements of the computer services industries are limited to an advanced, low-cost telecommunications infrastructure and a pool of skilled, IT-literate labour. The third factor which makes the computer services industries attractive to peripheral regions and their development agencies is the suggestion that jobs may be promoted at a lower direct cost per job in knowledge-based industries than in more capital-intensive manufacturing industries. Finally, an additional appeal of the computer services and software industries stems from the fact that: Information Technology (IT) is now a key factor in the growth and development of both manufacturing and service industries in mature capitalist economies. The computer services industry, along with the telecommunications sector, fulfils a crucial role in providing an IT infrastructure to all sectors of the economy. (Coe, 1996, p. 15). 1 For example, a recent strategy document produced by Northern Ireland s Software Industry Federation (1999) makes ambitious claims about the job creation potential of the industry in Northern Ireland. Also, both the Industrial Development Board for Northern Ireland and Scottish Enterprise have targeted software as a key sector for future growth. 1

11 Hence, it is argued that regions that are able to develop a dynamic computer services industry may subsequently realise improvements in the competitiveness of other sectors of their economy. 1.2 Study Rationale and Aims Despite speculation about the growth potential of the IT-related industries and the emergence of the knowledge-driven economy there has, to date, been relatively little empirical research on the computer services and software industries in the British Isles. Notable exceptions can be found in the excellent work of Coe on both Great Britain (1996a, 1996b) and the Republic of Ireland (1997, 1999) and studies by O Riain (1997, 1998), O Gorman et al (1997) and Grimes (1999) on the Republic of Ireland. However, there has been no independent research on the industry in Great Britain beyond 1993 and none at all on Northern Ireland (Coe s study did not cover Northern Ireland and dealt with the period ). Since there are likely to have been significant changes in the level and pattern of employment in recent years, there is a clear need for further research, including comparative research on the relative performance of various regions. Such research should allow policy-makers and other interested parties to make more balance and informed judgements about the nature and potential of the computer services and software industries in particular locations. As a first step towards fulfilling these requirements, this report presents a descriptive overview of the pattern of computer services and software employment in the UK and Ireland between 1991 and 1997, noting significant regional and sub-regional trends in the pattern of employment growth in this period 2. In drawing together existing published data sources, it should provide a useful reference point for researchers and policy-makers with an interest in this dynamic sector of the economy. The report also aims to provide a contextual foundation for the forthcoming NIERC research programme on the computer services and software industries in Northern Ireland and the Republic. 1.3 Structure of Report The structure of the report is as follows: Chapter 2 examines the pattern and growth of computer services employment in the UK between 1990 and 1997, looking at the national, regional and county picture. Chapter 3 then explores the growth of the computer services and software industries in the Republic of Ireland during the 1990s. Chapter 4 considers the relative performance of Northern Ireland in computer services and software up to 1997 and examines recent inward investments into Northern Ireland in this sector. The report concludes in Chapter 5 with a summary and a brief discussion of some of the issues raised by the report. 2 It should be noted that explaining these observed patterns and trends is largely beyond the scope of this particular report as such an endeavour requires much more detailed research. 2

12 1.4 Coverage and Data Sources Current public discourses about the computer software, computer services and information technology industries suffer from a lack of definitional clarity. In Northern Ireland, for example, various government departments and agencies have recently become interested in the economic development potential of software. However, the term software seems to be used to refer to a range of computer-related activities (including data processing and other computer service tasks) as well as software design and development. In the Republic of Ireland, there is also some confusion over the definition of the software industry. For example, the National Software Directorate s definition apparently includes various software manufacturing activities (such as disk duplication and shrink-wrapping packaged software) in addition to service activities such as software development (O Gorman et al, 1997). In an attempt to minimise these definitional confusions, this report focuses primarily on Division 72 of the UK s 1992 Standard Industrial Classification (described as computer and related activities ) and its Republic of Ireland equivalent, Division 72 of NACE Revision 1 (described as computer services ). Division 72 is an aggregation of a number of different service activities including hardware consultancy, software consultancy and supply, data processing, database activities and computer maintenance. In this report the generic term computer services is used to refer to Division 72, whereas computer services and software is used as a looser definition to include a wider range of related activities, including software manufacturing and localisation 3. Employment data for Division 72 in Great Britain, which are discussed in Chapter 2, come from the Annual Employment Survey (and its predecessor the Census of Employment) and were obtained from NOMIS (National On-line Manpower Information Service). These data are available for September 1991, 1993, 1995, 1996 and 1997 and are disaggregated at both the regional and county level 4. Equivalent data for Division 72 in Northern Ireland, which is not covered by NOMIS, are obtained from the Northern Ireland Census of Employment and are available for September 1991, 1993, 1995 and Since Northern Ireland data are not available at county level this report considers Northern Ireland as both a county and a region, which is not unreasonable given Northern Ireland s relative size 5. In the case of the Republic of Ireland, employment data for Division 72 are obtained from the Annual Services Enquiry 1992, 1995 and However, because there is conflicting evidence on the size of the Irish software industry, additional data from the National Software Directorate are also considered in Chapter 3. Finally, data on recent inward 3 This latter term follows the example of the Computer Services and Software Association (CSSA), the dominant industry association in the UK. 4 September 1997 is the most recent data available at the time of writing. 5 There is a precedent for this in the case of Merseyside, which is both a county and a region. 6 In the case of the Republic of Ireland, the computer services and software industries are not completely covered by Division 72. In fact, it is shown later in the report that a large portion of the software industry in Ireland is treated as a manufacturing activity in the Census of Industrial Production under the heading 2233 Reproduction of Computer Media. Hence, data from Ireland s Census of Industrial Production are also used in the report. 3

13 investments in computer services and software, which are examined in Chapter 4, are obtained from Invest in Britain Bureau press releases (available on-line at: 4

14 Chapter 2: Computer Services Employment in the UK 2.1 National Trends During the 1980s, employment in the UK computer services industry underwent a remarkable expansion. Using a definition based on Activity Heading 8394 of the 1980 Standard Industrial Classification, Coe (1996a) reports an increase in UK computer services employment from 54,800 in September 1981 to 147,500 in September equivalent to a growth rate of 10.4 per cent per annum over the decade (p. 92). This growth outstripped not only that of services as a whole but also that for business and financial services, which grew at a rate equivalent to 4.2 per cent per annum over the decade 7. Under the SIC 1992 definition of computer services (i.e. Division 72), which is used in this report, UK employment in computer services totalled 170,400 in This represented 1.03 per cent of total private sector employment and 1.62 per cent of private services employment 9. Using data obtained from NOMIS it is possible to examine the growth of UK computer services employment over the period The evidence in Table 1 shows that the spectacular growth of the 1980s has continued at a comparable rate during the 1990s. UK employment in computer services more than doubled in the six-year period to September 1997, by which time it had reached 353,900. This growth rate (equivalent to 13.0 per cent per annum) again dramatically outstripped the growth of the financial and business services sector as a whole (equivalent to 3.6 per cent per annum) 10. By 1997, therefore, computer services had increased its share of total private sector employment to 2.01 per cent and its share of private services employment to 2.97 per cent. 7 Here, the service industries as a whole are Divisions 6-9 of SIC 1980 and financial and business services are Division 8. 8 Activity Heading 8394 of the SIC 1980, which Coe (1996a) uses as the basis for his study of UK computer services, differs slightly in coverage from Division 72 of the SIC 1992, which is the definition used here. The difference - which amounted to 22,900 jobs in is attributable to the inclusion of computer maintenance activities under SIC Private sector employment is total employment less the public sector (Sections L to N) and private services employment is Sections G to O of SIC 92 less the public sector (Sections L to N). 10 Financial and business services (Sections J and K of SIC 92) employed 3,414,700 in the UK in 1991 and 4,233,100 in 1997, an increase of 24 per cent over (data from Census of Employment and Annual Employment Survey). 5

15 Table 1: UK Computer Services Employment, Computer Services Employment 170, , , ,901 Private Services Employment 10,523,243 10,576,793 11,232,464 11,929,559 (CompServ as % of PrivServ) (1.62%) (1.75%) (2.37%) (2.97%) All Private Sector Employment 16,513,293 15,996,792 16,768,651 17,649,753 (CompServ as % of AllPriv) (1.03%) (1.16%) (1.59%) (2.01%) Total Employment 22,116,397 21,653,854 22,438,657 23,381,231 (CompServ as % of TotEmp) (0.77%) (0.85%) (1.19%) (1.51%) Note: All figures according to SIC 1992 definitions. Source: data obtained from NOMIS (original source Census of Employment 1991 and 1993, and Annual Employment Survey 1995 and 1997). 2.2 The Regional Pattern Numerous previous studies have highlighted the uneven spatial distribution of financial and business service activities within the UK economy, and in particular their concentration in Greater London and the South East region (e.g. Marshall and Wood, 1995; Anyadike-Danes, 1999). Previous research by Coe (1996a, 1996b) has shown that the UK computer service industry conforms closely to this general pattern of uneven development. Indeed the dominance of London and the South East has been a persistent feature of the UK computer services industry since its foundation in the 1960s (Coe, 1996a). In 1981, for example, London and the South East together accounted for 51.5 per cent of UK computer services employment 11. In 1991, these two core regions still accounted for 48.7 per cent of UK computer services employment. According to Coe (1996a) the major change in the UK regional distribution of computer services employment during the 1980s was a relative decline in the dominance of London in favour of the South East region, in the context of continuing dominance by the Greater South East. Thus, London s share of UK computer services employment declined from 32.2 per cent in 1981 to 21.8 per cent in 1991, whereas the South East s share increased from 19.3 per cent in 1981 to 26.9 per cent in Data from NOMIS on the UK regional pattern of computer services (i.e. Division 72) employment in 1991 and 1997 are shown in Table 2. The data show that the earlier dominance of London and the South East has continued though the 1990s (they accounted for 49.1 per cent of UK computer services employment in 1997). In fact this spatial concentration remains the most remarkable aspect of the regional pattern 11 Calculated by the author on the basis of information in Coe (1996a) p This calculation was necessitated by the revision of the South East regional boundaries. Bedfordshire, Essex and Hertfordshire have been moved to the new Eastern region since Coe s study. Throughout this report, the new Standard planning regions are used. Thus the South East includes the counties: Berkshire, Buckinghamshire, Oxfordshire, Hampshire, Isle of Wight, Surrey, West Sussex, East Sussex, and Kent. 6

16 of UK computer services employment. It is important to note that, in order to maintain their overall dominance, London and the South East have had to generate substantial absolute increases in computer services employment during the 1990s (refer Table 2, columns 2, 3 and 8). Interestingly, the relative position of London versus the South East has been largely unchanged during the 1990s; in 1997 London accounted for 22.5 per cent of UK computer services employment compared to the South East s 26.6 per cent. The fact that London has held its relative position is perhaps surprising given the net decentralisation from London to the South East during the 1980s, as observed by Coe (1996a). Beyond southern England, the other notable concentrations of computer services employment are in the North West and West Midlands regions; each had well over 20,000 computer services jobs in 1997 (Table 2). Table 2: UK Regional Pattern of Computer Services Employment, Region Employment (thousands) Percentage in Comp Serv Location Quotient Percentage Growth South East London Eastern W Midlands South West North West Scotland Yorks-Hum E Midlands North East Wales Merseyside N Ireland UK Notes: Percentage in Comp Serv = percentage of all private sector employment in computer services (Division 72 of SIC92); Location quotients calculated in relation to private sector employment. Source: calculated by author using data obtained from NOMIS (original source Census of Employment 1991 and Annual Employment Survey 1997). Location quotients for 1991 show three distinct sub-groups among the UK regions at the start of the decade (Table 2, columns 6 and 7). Only three regions - South East, Greater London, and Eastern - have location quotients greater than This confirms the relative as well as absolute dominance of the Greater South East. In particular, the South East, with a location quotient of 2.07 in 1991, is shown to be strongly over-represented in computer services, relative to the UK average. The South East region had 2.14 percent of its private sector employment in computer services in 1991, compared to only 1.03 per cent in the UK as a whole (Table 2, column 4). At the opposite end of the regional spectrum in 1991 was a group of three laggard regions - Wales, Merseyside, and Northern Ireland (Table 2, column 6). All these regions had a location quotient of less than 0.40, with Northern Ireland being the worst placed region (location quotient of only 0.29 in 1991). The intermediate group of regions in 1991 had location quotients between 0.50 and The West Midlands, 7

17 with a location quotient of 0.98 was the best placed of these regions followed closely by the South West, and then by the North West, East Midlands, North East and Yorkshire and the Humber (Table 2, column 6). Comparison of regional location quotients in computer services for 1991 and 1997 shows some interesting changes in the regional pattern over the 1990s. In 1997, there were still only three regions with a location quotient greater than South East, London, and Eastern (Table 2, column 7). Although the location quotient for the South East declined slightly, the overall dominance of these three core regions actually increased. This is because the location quotients of the next strongest regions in West Midlands and South West - had weakened by 1997 (particularly that of the West Midlands which fell from 0.98 to 0.78). The relative position of Scotland had also worsened. Another notable change in the regional pattern during the 1990s was the emergence of Merseyside from the laggard group. Merseyside s computer services location quotient increased from 0.33 in 1991 to 0.67 in 1997 whilst Wales s and Northern Ireland s remained largely unchanged. This meant that by 1997, Wales and Northern Ireland were the only UK regions where computer services accounted for less than one per cent of private sector employment. Finally, the relative position of the North West and East Midlands regions improved during the period , with their location quotients increasing to 0.73 and 0.70 respectively (Table 2, columns 6 and 7). Of course what these changing location quotients reflect are significant differences in the growth of computer services employment among the UK regions between 1991 and Thus, in the leading group of regions, London and the South East grew at close to the UK average rate whilst the Eastern region was the UK s fourth fastest growing region in this period (Table 2, column 8). The declining location quotients of the West Midlands and Scotland are a reflection of relatively poor growth rates in these regions (Table 2, column 8). On the other hand, Merseyside emerged from the laggard group during this period because its computer services employment grew at more than twice the national average rate, making it the fastest growing region over the period (Table 2, column 8). The East Midlands and North West were the second and third fastest growing regions between 1991 and Overall, however, a regional league table based on absolute computer services employment in 1997 shows relatively little change from 1991 (refer Table 2, columns 2 and 3). The four largest and four smallest regions by employment in 1997 are exactly the same as in 1991 and only the East Midlands has moved by more than one place in either direction (up two places to seventh largest). Thus, despite differential employment growth during the 1990s, the regional pattern of employment in computer services suggests the persistence of uneven development, with the Greater South East maintaining its dominance and laggard regions such as Northern Ireland and Wales continuing to trail well behind. 8

18 2.3 The County Pattern When analysed at the county level, the geographical pattern of UK computer services employment at the start of the 1990s is found to be highly concentrated among a small group of leading counties (Table 3). The 1991 Top 10 counties by employment in computer services, which accounted for more than 40 per cent of UK computer services employment, was dominated by Greater London and a group of counties in the South East region. Hampshire and Berkshire were the second and third-placed counties, with over 12,000 computer service employees each (roughly 7 per cent of the UK total), Surrey was fifth with about 9,000 employees, and Hertfordshire and Buckinghamshire were seventh and eighth with almost 6,000 employees each (Table 3). The only northern counties in the 1991 Top 10 were the West Midlands (4 th ), Greater Manchester (6 th ) and Strathclyde (10 th ) metropolitan counties 12. Avon, which includes Bristol and resides in the South West region, was the ninth largest centre. Interestingly, the 1991 Top 10 contains two distinct types of county. Five counties include a major urban centre - London, West Midlands (Birmingham), Greater Manchester, Avon (Bristol), and Strathclyde (Glasgow). The other five counties are non-metropolitan in character and are either in the South East region (Hampshire, Berkshire, Surrey, Buckinghamshire) or contiguous to it (Hertfordshire). These counties are located in a western arc around London and generally consist of medium-sized towns interspersed with rural areas. Other Southern counties with these characteristics namely Essex, Cambridgeshire, Wiltshire, and Bedfordshire were ranked between 11 th and 20 th in They arguably represent a second tier on the fringes of the western arc. Further examination of Table 3 shows that almost all of the leading Northern counties in 1991 contained a major urban centre including those mentioned previously plus West Yorkshire (Leeds), Nottinghamshire (Nottingham), Tyne & Wear (Newcastle), and Lothian (Edinburgh). The only other Northern counties in the Top 20 are Cheshire and Hereford & Worcester. These counties are arguably comparable in character to the counties of the western arc around London. Specifically, they are close to a major city (Manchester or Birmingham) but are composed of a number of medium-sized towns interspersed with rural areas. 12 Here the North refers to the English North and Midlands and the Celtic fringe. 9

19 Table 3: County Employment in Computer Services in 1991 and 1997 (Counties in Top 50 in 1991) County Reg Employment 1991 Rank 1991 Employment 1997 Rank 1997 Growth % London GL 37, , Hampshire SE 12, , Berkshire SE 12, , West Midlands WM 9, , Surrey SE 9, , Greater Manchester NW 6, , Hertfordshire EA 5, , Buckinghamshire SE 5, , Avon SW 5, , Strathclyde SC 4, , West Yorkshire YH 4, , Essex EA 4, , Cambridgeshire EA 3, , Nottinghamshire EM 3, , Tyne & Wear NE 2, , Wiltshire SW 2, , Bedfordshire EA 2, , Lothian SC 2, , Cheshire NW 2, , Hereford & Worcs WM 2, , Warkwickshire WM 2, , Oxfordshire SE 1, , South Yorkshire YH 1, , West Sussex SE 1, , Kent SE 1, , Gloucestershire SW 1, , Derbyshire EM 1, , Leicestershire EM 1, , Lancashire NW 1, , Staffordshire WM 1, , Merseyside MY 1, , Northern Ireland NI 1, , Gwent WA 1, , Northamptonshire EM , Grampian SC , Suffolk EA , East Sussex SE , Dorset SW , Humberside YH , North Yorkshire YH , Devon SW , Shropshire WM , South Glamorgan WA , Somerset SW , Cleveland NE , Norfolk EA , Mid Glamorgan WA Clwyd WA Fife SC West Glamorgan WA Source: data obtained from NOMIS (original source Census of Employment 1991 and Annual Employment Survey 1997). 10

20 Comparison of the county picture in 1991 with that in 1997 enables us to examine changes in the pattern of computer services employment during the 1990s (Table 3). The first point to note is that although most counties have benefited from the continuing expansion of UK computer services employment between 1991 and 1997 there has been considerable variation between counties in the rate of growth. As noted previously, London reinforced its dominant position during the 1990s. Beyond the capital, it is clear that the dominance of counties from the Greater South East has actually been re-enforced during the 1990s. With the exception of Hampshire (which slipped from 2 nd to 4 th place), all of the other South Eastern counties from the 1991 Top 10 were ranked at least as high in the 1997 Top 10, and often higher (Table 3). At the top of the 1997 rankings, Berkshire (23,000 employees) had overtaken Hampshire (20,000), which had also been caught by Surrey (20,000). Essex improved its position considerably during the 1990s, moving from 12 th place in 1991 to 9 th in Further down the rankings, three other South Eastern counties also jumped several places in the rankings (Oxfordshire up 6 places to 16 th, West Sussex up 7 places to 17 th, and Kent up 7 places to 18 th ). The fact that computer services employment has grown faster here than in other parts of the South East suggests that the western arc has expanded into adjacent areas of the Greater South East during the 1990s. In contrast, many of the leading Northern counties from the 1991 ranking occupied a lower position in the 1997 rankings (including West Midlands, Greater Manchester, Strathclyde, Tyne & Wear, Lothian and South Yorkshire) 13. Among the counties with a major urban centre, West Yorkshire (Leeds) remained in 11 th place but only Nottinghamshire (Nottingham) and Merseyside (Liverpool) had improved their rankings by 1997 (moving up to 12 th and 24 th respectively). Elsewhere in the North, Cheshire and Lancashire, the two fastest growing northern counties between 1991 and 1997, moved up several places in the rankings (Table 3). Interestingly, both counties are adjacent to Greater Manchester, the third largest metropolitan county for computer services employment (after London and Birmingham). It is possible that Manchester has experienced a net decentralisation of computer services employment to surrounding non-metropolitan counties in the 1990s, along similar lines to that experience by London in the 1980s. As with the regional pattern, location quotients can be used to give a better indication of the relative strength or weakness of each county in computer services employment (effectively standardising for county size). This is important because smaller counties that are relatively strong in computer services would not be detected in a consideration of absolute employment. Conversely, some of the largest counties in terms of absolute employment may actually be relatively weak computer services. Figures 1 and 2 show county location quotients for computer services employment in 1991 and It is immediately striking that the western arc is the dominant cluster for computer services employment in relative as well as absolute terms. In both 1991 and 1997, the five highest scoring counties on the location quotient were Berkshire, Surrey, Hampshire, Buckinghamshire, and Hertfordshire (all five counties scored more than 1.75 on the location quotient in 1991 and more than 2.00 in 1997). This 13 Note that employment in computer services has increased significantly in all of these metropolitan counties during the 1990s but at a slower rate than elsewhere. 11

21 suggests that these counties are strongly over-represented in computer services employment compared to the UK average, and that this over-representation has intensified during the 1990s. The fact that counties including Avon, Bedfordshire, Cambridgeshire, Wiltshire, Warwickshire, Hereford & Worcester and West Midlands which were ranked between 6 th to 15 th in 1991 all had lower location quotients in 1997 suggests that the western arc has actually increased its dominance over the rest of the country during the 1990s. Interestingly, Greater London was not among the leading group of five counties, as measured by the location quotient, at any time during the 1990s. This shows that although London is the largest county in terms of computer services employment, this is more a reflection of the capital s overall size than its relative strength in computer services 14. Figures 1 and 2 also provide a further illustration of the broad North/South contrast in the pattern of UK computer services employment. In 1991, 17 counties had a location quotient of 1.00 or more (i.e. above national average share of employment in computer services), of which only five were located in the North (Warwickshire, Hereford & Worcester, West Midlands, Lothian, and Nottinghamshire). Between 1991 and 1997 the relative position of these leading northern counties declined in all but one case 15. By 1997, Nottinghamshire was the only county in the North with a location quotient greater than That is, every other county in the North was under-represented in computer services relative to the UK average. 14 The capital s location quotient in 1997 was almost unchanged from that in 1991, supporting the earlier assertion that London has maintained its position in the national hierarchy during the 1990s. 15 In the face of rapidly growing computer services employment in the UK during the 1990s, these counties have been left behind by faster growing counties but they have not declined per se. 12

22 Figure 1: County Location Quotients for Computer Services Employment in 1991 LEGEND 2 to 5 (4) 1.5 to 2 (5) 1 to 1.5 (8) 0.5 to 1 (16) 0.25 to 0.5 (25) 0 to 0.25 (19) 13

23 Figure 2: County Location Quotients for Computer Services Employment in 1997 LEGEND 2 to 5 (4) 1.5 to 2 (1) 1 to 1.5 (11) 0.5 to 1 (25) 0.25 to 0.5 (26) 0 to 0.25 (10) Another important observation about the two maps (Figures 1 and 2) is that the pattern of location quotients outside the south of England was more even in 1997 than it was in For example, in the UK as a whole there were 25 counties with location quotients between 0.5 and 1.0 in 1997 compared to only 16 in In particular, the area of Northern England covered by this category was extended to include almost the whole of the West Midlands, North West and Yorkshire. The fact that the number of counties with a location quotient below 0.25 also declined from 19 in 1991 to only 10 in 1997 provides further evidence of a more even distribution of computer services employment outside the south of England by the late 1990s. In fact, by 1997 it was only the most remote rural locations that remained strongly underrepresented in computer services employment. 14

24 2.4 Summary Using data from NOMIS, this chapter has shown that UK computer services employment (i.e. Division 72 of SIC1992) underwent a spectacular expansion between 1991 and 1997, which even surpassed the high level of growth in this sector during the 1980s. Consequently, employment in the UK computer services industry exceeded 350,000 persons by September 1997, or roughly two per cent of all private sector employment. However, the distribution of growth in computer services employment over this period was such that the established pattern of uneven development in this sector was preserved, or even accentuated. Notably, London and the South East retained a disproportionate share of computer services employment and peripheral regions including Wales and Northern Ireland continued to lag well below the UK average. Despite these broad regional contrasts, the full extent of the unevenness in UK computer services employment only becomes apparent at the county level. Most notably, a small group of South East counties in a western arc around London are particularly dominant, having at least twice the UK average share of employment in computer services. Outside the South East, other notable clusters of employment are found in and around Manchester, Birmingham and Bristol. The counties which are most underrepresented in computer services tend to be peripheral and rural in character and include Devon and Cornwall, the rural counties of Wales, Humberside, Lincolnshire, the counties of the old Northern region (except Tyne & Wear), the Scottish borders, the Scottish highlands and islands, and Northern Ireland. 15

25 Chapter 3: Computer Services and Software in the Republic of Ireland 3.1 Software and the Celtic Tiger Much of Ireland s impressive economic performance has been associated with attraction of significant levels of inward investment in sectors such as software, international financial services, and teleservices of various types including shared services. (Grimes, 1999, p. 2). The impressive growth record of the Irish software industry has recently been acclaimed in both academic and non-academic circles (e.g. Coe, 1997, 1999; Grimes, 1999; SIF, 1999). According to the National Software Directorate, a co-ordinating body backed by the Irish government, employment in the Irish software industry expanded from 7,800 in 1991 to 18,300 in 1997 equivalent to 15.3 per cent per annum (Table 4). At the same time, software revenues grew from IR 1.7 billion in 1991 to IR 4.5 billion in 1997 equivalent to 17.6 per cent per annum (Table 4). It has recently been claimed that the Republic now produces over 40 per cent of all packaged software and 60 per cent of all business applications software in Europe (SIF, 1999, p. 29). These impressive statistics suggest the Republic of Ireland may provide a useful benchmark for assessing the growth of computer services and software employment in the regions and counties of the UK. Table 4: National Software Directorate - Aggregates for Irish Software Industry Employment in Ireland Indigenous sector 3,801 4,495 5,773 9,200 Foreign-owned sector 3,992 4,448 6,011 9,100 Totals 7,793 8,943 11,784 18,300 Number of companies Indigenous sector Foreign-owned sector Totals Revenues (IR million) Indigenous sector Foreign-owned sector 1,580 1,756 2,611 3,933 Totals 1,729 1,992 2,997 4,461 Source: National Software Directorate website ( 16

26 3.2 Official Statistics on Computer Services Employment in Ireland Making a direct comparison between the extent and growth of computer services and software employment in the Republic of Ireland and regions or counties of the UK is less straightforward than might be imagined. It is not immediately clear, for example, which activities are covered by the National Software Directorate s definition of the software industry (Table 4) or how these activities correspond to the computer services sector as defined by official classifications such as the UK s SIC 1992 or the European standard NACE Revision 1 (i.e. Division 72). However, because the Central Statistics Office in Dublin collects data according to the NACE Revision 1 industrial classification it is possible make a direct comparison of Division 72 Computers Services employment in Ireland and the UK. CSO data on employment, the number of enterprises and turnover in the Republic s computer services sector, which are obtained from the Annual Services Enquiry, are shown in Table Table 5: Aggregates for Computer Services (NACE 72) in Republic of Ireland Full-time employees 4,012 5,158 6,756 Part-time employees Proprietors/family workers Total persons engaged 4,338 5,823 7,758 Number of enterprises Turnover excl VAT (IR m) Sources: Annual Services Enquiry 1992, 1995 and 1996 (Tables 13 and 14), CSO, Dublin. Using data from the Irish Annual Services Enquiry, the British Annual Employment Survey and Northern Ireland Census of Employment we can compare the Republic of Ireland s recent employment performance in computer services (Division 72) with selected UK regions and counties (Table 6). The first interesting fact emerging from this comparison is that the overall size of the Republic of Ireland computer services sector is not particularly remarkable. For example, the county of Berkshire, which has the UK s biggest concentration of computer services employment, had roughly twoand-a-half times as many computer services jobs as the Republic in 1996, despite the fact that Berkshire is less than one-third the size (Table 6). In fact, the computer services sector in the Republic in 1996 was more comparable in size to those in the English counties of West Yorkshire and Avon (both of which are much smaller overall). Also, the share of employment in computer services was not significantly greater in the Republic than in other peripheral regions of the British Isles. Computer 16 The Annual Service Enquiry was first undertaken in Prior to this date the only data on services in Ireland came from the one-off 1988 Census of Services. Data for Division 72 are presently only available for the reference years 1992, 1995 and 1996 (1997 data were not published at the time of writing). Until the reference year 1995, the Annual Services Enquiry only surveyed the business services sectors on a three year rotating basis but from the reference year 1996 onwards the Annual Services Enquiry will cover business services sectors on an annual basis. 17