This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
See Cramer's multi-million dollar portfolio for FREE and get his new book Get Rich Carefully! Learn More

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) 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) 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), 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) and Oracle (ORCL).

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), Lucent (LU) 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), Nokia (NOK), Ericsson (ERICY) and Japan's Matsushita (MC).

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) 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.

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
DOW 16,424.85 +162.29 1.00%
S&P 500 1,862.31 +19.33 1.05%
NASDAQ 4,086.2250 +52.0640 1.29%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto
Advertising Partners

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs