Tartan Technology: Scottish Software Firms Look Abroad to Expand Sales

GLASGOW, Scotland -- Robin Mair, a member of the software team at the development agency Scottish Enterprise, leans back in his chair, crosses his arms and grins smugly.

He has every right to feel satisfied.

Scotland's software industry, which was born in the shadow of an IBM (IBM Quote) plant established in 1951, has grown up into a $2 billion-a-year endeavor of both foreign and domestic companies that employ some 19,600 people.

What Mair is most pleased about, though, is a report compiled by Scottish Enterprise and the Scottish Software Federation, the representative body of the Scottish software industry. At the end of last year the report found a healthy and vibrant indigenous software industry of 220 companies employing 7,400 people.

"Scottish software businesses have been around for a while, but they weren't very well known in the 1980s," says Mair. Seeing the potential, Scottish Enterprise decided to form a software team in the late 1980s to promote these software companies. And promote it they have.

Scottish Enterprise
Pivotal in the promotion of Silicon Glen, the agency helps fledging companies find their feet.
Credit: Nick Watson

Scottish Enterprise has aided the legion of graduates streaming out of Scotland's 14 universities who are eager to put their learning to work. Assistance includes money from the Scottish Technology Fund, a fund established in partnership with venture capitalists 3i Group. In return for an equity stake, the fund offers grants of between $75,000 and $200,000 to start-up firms.

Scottish Enterprise has also created a smattering of software centers in Scotland, which offer young companies space not on industrial estates but adjacent to existing high-tech companies. Hewlett-Packard (HWP Quote) was the first such company to offer space around its plant in 1992, and in a matter of months, 20 small companies took up residence. When a company outgrows the space, another young firm moves in.

Leaders of the Pack

Scottish Enterprise's efforts have not been in vain.

Three out of the top 10 firms on Deloitte & Touche's list of the 50 fastest-growing British high-tech companies are Scottish software firms. Data Discoveries, the U.K.'s largest provider of databases of names and addresses, takes the second-place slot with revenue growth of 7,117% between 1996 and 1998. Data Discoveries comes behind London-based Eidos (EIDSY Quote), a game publisher and developer that posted a staggering 29,637% growth in revenue in the period, largely on the back of its Tomb Raider game products.

In Scotland alone, the largest software firm, Kingston SCL, has seen its workforce grow by 50% and, last year, the firm had revenue of $38.5 million after a buyout of its former parent. A provider of billing and operational software for telecommunications companies, it was formed last July after management ponied up $105 million to buy out Kingston Communications (Hull).

Home Grown Top 10 Scottish software companies
Company	1998 revenue (in millions)
Kingston SCL	$38.6
Graham Technology	24.3
Newell & Budge	22.8
Weir Systems	16.2
SCOMAGG	16.2
CRS Computers	15.9
Real Time Engineering	13
Atlantech Technologies	12.6
Concept Systems	12.6
Zonal Retail Systems	11.3
Source: Scottish Enterprise

Kingston's rapid growth has enabled it to be largely self-funded, although it has had injections of cash by 3i and Royal Bank of Scotland Development Corp. Logan says it has plans to go public in the medium term.

Located in Edinburgh Park, a beautifully landscaped business park that wouldn't look out of place in Washington state, Kingston's offices sit comfortably near those of Adobe (ADBE Quote) and Oracle (ORCL Quote).

Kingston's business grew in the wake of European deregulation of the telecom industry that began in the U.K. in the mid-1980s, and the company now operates in more than 30 countries. Although there is "plenty of business still to be done in Europe," says Richard Logan, the commercial director of Kingston, the company is now looking across the Atlantic toward the U.S.

Scotland's second-largest software firm and the 37th company on Deloitte's list is Graham Technology, a systems integration software provider. Last year, Graham Technology's revenue grew 64% to $24.3 million, with revenue growth of 319% from 1996 to 1998.

Graham Technology's success has been driven by the adoption of its GT-X systems integration software since 1995 by firms such as Great Universal Stores, British Telecom (BTY Quote), Lucent (LU Quote) and Home Shopping Network.

In March the company announced that it is currently developing a version of the GT-X software for use on the much-ballyhooed next-generation phones being developed by Symbian, a consortium that includes the U.K.'s Psion, Motorola (MOT Quote), Nokia (NOK Quote), Ericsson (ERICY Quote) and Japan's Matsushita (MC Quote).

Go West

Yet Data Discoveries, Kingston and Graham Technology -- three export-driven companies with products that sell around the world -- are perfect examples of how Scotland's software firms suffer from a small-town sensibility.

"The Scottish [software] industry lacks a strong export orientation and is focused on Scottish and U.K. demand," says a recent report compiled by Scottish Enterprise and the Scottish Software Federation. "The bias within Scotland's activities is towards local for local service provision, rather than the local development of software products for international markets."

Some of Scotland's smaller and newer software firms have heard the clarion call. Data-mining specialist Quadstone, which ranked 11th in the Deloitte survey with revenue growth of 848% from 1996 to 1998, has moved from simply helping companies analyze their data to developing its own product in the data-mining area. Quadstone is now the largest data-mining company in Europe.

Orbital Software, the recent darling of the Scottish software industry with its boyish 30-year-old CEO Kevin Dorren, who won PricewaterhouseCooper's Emerging Entrepreneur award this year, has concentrated on building a product and selling it overseas. Its big break came when Novell (NOVL Quote) agreed to add Orbital's knowledge-management software to its Network 5.0 operating system.

The Scottish Enterprise report noted that survival rates of start-up firms in Scotland is the same as the rest of the U.K., and it is certain that there will be many more failures than successes in the future.

However, if the successes of Quadstone and Orbital can be replicated by at least a few of Scotland's other software companies, perhaps Scottish Enterprise's Mair can keep on smiling.