Valista to expand operations

In the turbulent economic condition all industries in the world are passing a difficult time. This interview with Senior VP (Services) at Valista Declan McMahon is focused on the present and future situation of the industry. Valista is an Irish software company with one of its main research bases in Sri Lanka.

Q: What are the direct impacts of the present global economic and financial crisis on the software industry?

A: The global economy has gone through drastic changes over the last 6 months; it is quite difficult to fully understand how or when it will reach a stable position. What is clear, though, is that 2009 will be a lean year with tight budgets across many organisations. This is going to create difficulty for some organisations - the strong will survive and thrive.

But history shows us that many successful companies such as - HP, Microsoft, Hyatt, CNN were formed during recessions. Necessity is the mother of Invention! Over the past few years, there has been a trend of many smart IT staff migrating to Australia, USA, Canada and the UK. It will be interesting to see how this trend evolves during 2009, although I suspect the trend will slow and potentially even reverse. If this happens, these returning migrants will bring home a lot of new ideas and experience that could serve Sri Lanka well.

This trend happened in Ireland in the 1970s and 1980s. In 1980, Ireland was able to make a switch from being an out sourcing industry towards IT innovation. By 2001, Ireland was officially the world's largest exporter of computer software (only to be overtaken by China). This is quite amazing when you think that Ireland is roughly the same size as Sri Lanka, with a quarter of the population. The returning migrants played an important role in helping Ireland achieve this transition.

In the case of Sri Lanka, an opportunity may well exist to become a strong centre for IT innovation. I have a huge respect for Sri Lankan companies such as hSenid, Millennium IT and WSO2 for their pioneering work in creating home-grown innovative product businesses. Their leadership teams should be commended for their vision and work in this area. The global economic and financial crisis may well create a new generation of entrepreneurs, innovators and visionaries.

For multinationals with existing operations in places like Sri Lanka, India and China, the downturn presents an opportunity to recruit strong talent that may not otherwise be available.

Q: What are the developments that the industry predicts or Valista expects in the future? Will it become worse or develop positively in the short-term?

A: I believe that the industry will remain challenged for the next 2-3 years after which time it will stabilise and mature. Some companies will not survive during this period but those that do will be stronger than ever.

Returning migrants will also play a key role in bringing new ideas and innovation to the local software industry. I believe that the global economic crisis will lead to the regeneration of some companies, who will emerge as innovators of the future.

Q: What are the latest developments in the Irish software industry?

A: Over the years, the Irish government has always looked to provide ways to encourage innovation in Ireland; whether it's tax relief to foreign multinationals or the Business Expansion Scheme which looks to provide capital to start-up businesses. As a result of the economic crisis, and particularly with a reduction on lending by financial institutions, initiatives such as the Business Expansion Scheme are likely to play an important role. Some feel that the Government missed an opportunity to drive growth in Ireland's SME sector by not increasing the limits companies can raise through BES (Business Expansions Scheme). Measures such as the new ventures waiver for corporation tax and capital gains tax and overdue improvements in the Research & Development tax credit scheme are steps in the right direction.

Since the mid-90s Ireland has avoided competing against the power houses of off-shoring and instead concentrated much more on high-end IT innovation centres. In recent years, companies such as Vodafone, Google, Microsoft and others have opened or expanded their presence in Ireland with more high-end jobs.

Q: How do you see the "Sathyam scam", its impact on Indian software industry and the industry of similar countries such as Sri Lanka?

A: The US presidential election, the demise of leading financial institutions and the global economic recession have dominated most of the press coverage to such an extent that the Satyam controversy has not had as much European press coverage and airtime as it should have had. Situations like this tend to rock confidence and trust and the knock-on effects are felt for a long time. From a financial investment perspective, I think it is likely to be quite damaging to the outsourcing solutions sector. From a corporate perspective in the usage of outsourcing services, I think this specific scandal will have a smaller ripple effect that will undermine confidence which will take some time to rebuild, but ultimately the industry will bounce back.

Q: Do you have any plan to reduce Valista's Sri Lankan operation or expand it in the future?

A: During 2008, we expanded our office space and positioned ourselves for growth in our Sri Lankan operation. During the latter part of 2008, we have been conservative in our expansion plans as we monitored the global market.

GW