e-Ireland: Europe’s New Internet Hub
Hrvoje Benko

In a few years’ time, there will be no Internet companies – there will justbe companies – and all companies that will operate in the future, will beInternet companies.
- Dr. Andrew Grove, Chairman, Intel Corporation
Introduction
By the end of 2001, the Internet will have created a single market of about 300
million computers worldwide. According to Forrester Research, in 2000 global ecommerce transactions equaled about $657 billion. Most analysts predict that this number
will increase more than tenfold by the year 2004. Even though North America willaccount for most of those profits in 2004, contributing close to $3.5 trillion, the region's
dominance will fade as Western Europe and Asian-Pacific countries experience intensive
growth in 2002. (Forrester) The amazing thing is that these astounding numbers are only
conservative estimates.
Today, Ireland stands far removed from centuries of large-scale emigration and asuffering economy. GDP growth is currently averaging about nine percent per year,
compared to three percent in the U.K. and five percent in the U.S. The economy isprosperous, labor demand is at it all-time high, and for the first time in history there is net
immigration into the country. However, many scholars suggest that the foreign direct
investment that has poured in during the last two decades may have reached its plateau

2and that high GDP growth rate cannot be sustained for long. It appears that Ireland is justcoming out of the “catching up” phase with the rest of Europe and that therefore thisgrowth will soon have to slow. Also, pressures coming from the rest of the European

Figure 1

Union have already resulted in a small but significant corporate tax increase from 10
percent to 12.5 percent, an increase which directly affects Irish industry.
Government and businesses in Ireland are now turning to e-commerce and theprospects of the new digital economy to take growth and prosperity in the republic to thenext level. Becoming the e-commerce capital for Europe and ultimately one of thepremier e-commerce centers of the world is Ireland’s top national priority. In this paper I
will evaluate the level of readiness for e-commerce activities in Ireland, focusing on thetechnical, economic and social conditions that play key roles in ensuring theirdevelopment.

E-Commerce Explained

3Electronic commerce (e-commerce) can be defined as any and all business
communication and transactions over data networks and through computers. In the mostrestrictive form, e-commerce entails exchanging goods, services and funds throughdigital communication channels like the Internet. Beyond changing the way companies
and individuals buy or sell, e-commerce is challenging the way the companies think, theway they market and distribute their products, and the way they adapt and react tocontinuously changing global markets. Even though some authors make distinctions
between the terms e-commerce and e-business, throughout this paper both of these terms
will be used interchangeably.
E-commerce has introduced several fundamental changes to the traditional
business environment. Foremost is the change in the perception of the global
marketplace. No longer must a company be physically present in a certain market to
conduct business there. With digital communication, any company with effective strategy
and marketing can develop a presence anywhere on the globe where there is a substantial
digital culture. A second key change concerns infrastructure. Advanced
telecommunications is the fundamental requirement for successful development of ecommence. Broadband access to the world’s data networks is a must for any e-commerce
venture. A third fundamental change introduced by e-commerce is in the nature ofbusiness leadership. The different character of the competition, the speed of reaction
required of market leaders, and the new ideas and practices that they have to promotemake these new managers a different breed of business leaders. A final change brought
about by e-commerce is the increasing dependence on highly skilled computer
professionals to create, maintain and upgrade information systems.

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These developments do not mean the disappearance of traditional “brick andmortar” businesses. On the contrary, some of the most important players in the ecommerce world are traditional companies, like Barnes and Nobles, Staples and Fidelity
Investments, all with well-established brands and products and all of whom haveincorporated the digital environment into their business models and have created theirpresence online.

Ireland’s Advantages
In discussing the e-commerce advantages that Ireland has compared to its
competitors in the European Union and the world, I will use the following framework:
1. Advanced broadband infrastructure;
2. Provision of a skilled workforce;
3. Supportive business environment;
4. Investment in research and development.
These components are vital to e-commerce development. Using this framework, one canassess the initiatives and actions of the Irish government in creating an e-commercefriendly environment and also what still needs to be done to firmly establish Ireland as aEuropean e-commerce center.
Advanced Broadband InfrastructureWith ever-increasing demand for higher quality data, including images andstreaming audio and video, a universally accessible broadband telecommunications
network is the top priority of any e-business. By a definition, broadband connectivity isessentially a high-speed and high-throughput telecommunications link. Capacity is
described by data transmission rates through the network, measured in bits per second

5(bit/s)1 . The minimum capacity for a broadband connection is 2 Mbit/s; however, today
many businesses are demanding bandwidth of 155 Mbit/s and higher. To put these1

1 Kbit/s = 1,000 bit/s, 1 Mbit/s = 1,000 Kbit/s, 1 Gbit/s = 1,000 Mbit/s

6
numbers into perspective, standard modems that individual home users use to connect tothe Internet have a maximum speed of 56 Kbit/s, which is roughly 35 times less than theslowest broadband connection.
Ireland has long recognized the fundamental importance of advanced
telecommunications to e-commerce development. The initial push for the advanced
communications infrastructure came with the liberalization of Ireland’s
telecommunications market in 1998, which was executed a full year ahead of schedule.
Liberalization introduced competition, new technologies and reduced Internet accessprices. Government agencies such as Forfás (The National Policy and Advisory Board forEnterprise, Trade, Science, Technology and Innovation), Enterprise Ireland, and theIndustrial Development Agency (IDA Ireland) have since prepared and published anumber of critical reports on the necessary investments in the basic infrastructure. These
reports set some groundwork for further investments in fiber optic infrastructure. By the
beginning of 2001, over 200,000 kilometers of fiber optic cables have been laidthroughout Ireland (see Figure 2). According to Forfás’ plans there will be a 700 percent
increase in available business locations with broadband access by 2002.
(“Telecommunications for e-Business,” p. v) The development of the National Digital
Park as a premiere industry development area just outside of Dublin, with broadband
capacity, appealing infrastructure and a pro-business environment, has already attracted anumber of interested companies and research agencies and will further increase the Irish
presence in the e-commerce arena.

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Figure 2

Probably the biggest push for Ireland’s communications infrastructure happened
when the government decided to make an important deal with Global Crossing Holdings,
Ltd. Global Crossing is one of the leading providers of global broadband communication
services in the world. The Irish government seeded the market for broadband

8development by bringing the country directly onto Global Crossing’s AC-1 cable. AC-1
is the company’s first transatlantic cable, laid in mid 1998. The AC-1 cable connects theUnited States with the United Kingdom, Germany and Holland. In 2000 the Irish
government bought about half of the available capacity on an AC-1, which translates to
160 155Mbit/s lines. (Lillington) In order to facilitate digital economy growth, thegovernment sold a majority of those lines at just above cost to companies in Ireland withstrong strategies of network and e-commerce use. The availability of cheap broadband
access should create a major competitive advantage for Irish e-commerce businesses.
In order to ensure the leadership position in broadband capacity, Ireland alsobought parts of Global Crossing’s new AC-2 cable, as well as yet a third transoceanic
cable, named 360Atlantic, laid by the Canadian company 360 Networks Inc. Note that
one of only four landing points of the 360Atlantic cable is in Dublin, giving the National
Digital Park a direct link to the Internet (see Figure 2). With such a sizeable increase inbroadband supply, the cost of bandwidth has plummeted. Whereas a 25-year lease on a155-Mbits/s line between London and Paris will cost $4.47 million, the same deal
between Dublin and Paris or any other of 35 European cities will cost only $0.5 million.
(Cass, p. 38) As a result of these substantial investments, Ireland now commands one
quarter of all Europe’s broadband data capacity to the United States, and the costs ofbroadband connections are among the lowest in the world.
Provision of a Skilled Workforce
Almost every developed country in this age of the digital economy is faced with amajor skills shortage, especially among IT and computer professionals. Two areas are
relevant to analysis of e-commerce workforce needs: the provision of the new skilled9workforce and expanding the skills and knowledge base of existing managers andbusiness leaders.
One of Ireland’s strengths through the last two decades has been an expanding
and well-educated young population. Ireland is the youngest nation in Europe, with about
40 percent of its population under the age of 25. This workforce advantage is projected toremain in Ireland’s favor even in the year 2010 when about 35 percent of the population
will be under 25 years of age, compared to the U.K.’s 31 percent or Germany’s 24
percent. (United Nations) Additionally, the Irish Government has created strong
incentives over the past 15 years to develop an educational system that produces welleducated professionals in software and technical fields. The net result is a significant
skill-set in computing, software and information technology among the predominantly
young population. According to IDA Ireland, the most important factor attracting Intel tolocate in Ireland was the quality and numbers of highly qualified young people coming
out of the Irish educational system. (“Achieve European…,” November 1999) This mixof young and highly trained professionals has already proven to be an important incentive
in attracting other high-tech businesses to Ireland, and should continue to have an
important role as industry shifts towards e-business.
In addition to ensuring the flow of new workers to e-commerce enterprises,
Ireland has taken steps to educate existing managers and leaders in e-commerce
strategies. The rising importance of e-commerce to businesses in Ireland has presented aneed to incorporate e-commerce topics into the advanced managerial curricula in Irish
higher education. University College Dublin and Trinity College in particular are now
offering major courses in Information Technology, while in institutes of technology

10around the country e-commerce serves as an important segment of every business course.
(McCall) The re-education of the existing managerial force is well underway with
programs like the Masters in Business Administration (MBA) and the Masters in
Business Studies (MBS) in e-Commerce, which are now available in universities acrossthe country.
Supportive Business Environment
Ireland’s major selling point in the effort to attract foreign direct investment has
been its pro-business environment: a democratic and stable government, the only
English-speaking nation under the European Monetary Union, supportive corporate
legislation, an excellent educational system and a low corporate tax. However, ebusinesses will also require additional incentives in order to fully develop. The physicalenvironment suitable for e-commerce mostly relies on the telecommunications
infrastructure as was discussed above. However, incentives are also needed in legal andregulatory areas, such as the establishment of trusted third parties, supportive contract
law and favorable taxation. Ireland’s Electronic Commerce Act 2000 made electronic
signatures legally binding as handwritten signatures, and began a series of legislative
initiatives to foster Irish e-commerce. This act ensures that electronic agreements areundertaken in an environment of trust and certainty and have full validity and protection
under Irish law. Together with similar acts in the U.S., U.K., Canada and Singapore, thisact serves as the model for many other countries establishing their own e-commerce
legislation. (“Electronic Commerce…”)
In order to create a pro-e-business legal environment, Ireland should also establish
a system for accrediting the existence and reputation of e-business companies. This

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trusted third party should be an independent and reputable source of information andcertification that helps develop trust between online parties. The Chamber of Commerce
Ireland (CCI) has shown interest in becoming such a certification authority; however, nodefinite decisions have yet been made public. The government has passed several otherbills besides the Electronic Commerce Act to push forward this initiative and create ecommerce-friendly legislation. The two most important bills are the Copyright Bill,
which deals with copyright issues of online documents, and the amendments to the
Criminal Evidence Act 1992, which allow for certain online documents to be valid
evidence in court. (“Report on…,” p. 89) Having this legislation in place provides Irelandwith an advantage over those nations without any legal support for electronictransactions.
Research and Development
Before 2000, Ireland did not participate significantly in high-tech research anddevelopment. Universities across Ireland did not have the funds, resources or access to
networks of researchers developing high-tech devices or software. Instead, Irish higher
education focused mainly on providing a highly skilled workforce. A significant changecame on December 12, 2000, when Taoiseach Bertie Ahern announced that Ireland was
getting a direct link to, and membership in, the cutting edge Next Generation Internet(NGI) and Internet 2 (I2) research networks in the United States. “Broadband links are set
to increase over 20 times between Irish and U.S. research institutions,” said Ahern.
(Lillington) Ireland’s premiere research institutions, which have so far been lagging
significantly behind those in Europe and the United States, will thus not only have accessto cutting edge research networks but will also participate in the development of future12Internet standards. In order to facilitate this connection, the Irish Government is using asegment of the fiber-optic cable AC-1 that it acquired from Global Crossing. This
broadband capacity link, labeled as a national resource, will directly link U.S. and Irish
research centers.
In addition to this broadband link, the Irish government had previously announcedplans to expand and support high-tech research institutions across Ireland. In 2001 thegovernment will complete the launching of Science Foundation Ireland with the IR £560
million Technology Foresight Fund for advancement of biotechnology and IT andcommunication technologies. This is probably Ireland’s biggest research push ever in thehigh-tech arena. This initiative urges companies and Irish universities to develop research
centers, bringing Ireland to the technological forefront. One of the first responses cameduring the summer of 2000 from the top research institution in the world, theMassachusetts Institute of Technology, which opened MIT Media Lab Europe near thecenter of Dublin. This Media Lab is one of the pioneers of the National Digital Park andhas already started several ambitious research projects.

Potential Problems
Despite all efforts of the government to provide the most supportive environment
for development of e-commerce, there are several emerging problems that might be hardto overcome and should definitely not be overlooked when analyzing the Irish digital
future. These include:
1. Skills shortage;
2. Overdependence on foreign investments;
3. Value added taxation;

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4. Inactive domestic market;
5. Slow “m-commerce” initiatives.
I will discuss each of these problems in the sections that follow.
Skills Shortage
The worldwide shortage of skilled IT professionals affects Ireland as well.
Therefore, the Irish government is taking steps to increase the output of its
educational system. In April 1999 the government approved an additional
allocation of IR £75 million to the Department of Education and Science for theprovision of 5,400 IT-related places in third-level educational institutions. In
January 1999 the programs in the institutes of technology were expanded toinclude information technology, and thus 1,100 additional IT-related openings
were created. In June 1999 the government made available an additional IR £6million towards the continuing annual provision of 1,500 IT-related postgraduate
places in third-level colleges. (“Expert Group…,” p. 21) These expensive boosts
notwithstanding, Irish IT and software industries still face labor shortage
problems. According to the Computer Staff Recruitment's annual Technology
Salary and Skills Survey 1999, 95.3 percent of Irish software development
companies were experiencing difficulties in recruitment in 1999. Ten percent
even outsourced their development work overseas. (“Technology Salary…”)
Enterprise Ireland has reported that Irish IT companies alone will have to fill
nearly 3,000 software development positions by 2003. Enterprise Ireland predicts
that a significant number of these and other IT-related positions will have to be
filled with the workers from outside of Ireland. (Gallen)

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The idea of having to rely on foreign workers to bolster economic growth is a new
and fairly difficult one for the Irish, who for the last couple of centuries only had to deal
with large emigration and a struggling economy. Even though labor flows freely within
the boundaries of the European Union, skilled labor at competitive prices often has to befound outside of the EU borders. Most overseas nationals currently employed in the Irish
IT industry come from Eastern Europe and Russia. Moreover, slow and bureaucratic
immigration procedures for non-EU nationals frustrate recruiters in need of new skilledworkers. In order to ensure a sufficient labor supply for the IT industry, the Irish
government should expedite its immigration procedures to make overseas recruiting
easier and less costly.
Overdependence on Foreign Investments
Most of the credit for the booming economic growth in Ireland throughout the
1990s is due to two factors. First, Ireland attracted U.S. multinational firms such as
Microsoft, Intel, Dell, Merck and Pfizer, offered them substantial benefits to locate andexport from Ireland, and depended greatly on them to develop its economy. Second, atthe same time Ireland used the EU Structural Funds to develop its roads,
telecommunications and other infrastructure, which served as further selling points to
attract multinationals. Once one of the least-developed countries in Europe with no hightech industry, Ireland has quickly become one of the fastest growing economies in theworld.
However, for several reasons Ireland should further promote its indigenous
industry, especially in the e-business area, thus relying less on foreign funds and foreignplans. First of all, the 2001 slowdown in the U.S. economy, especially its technology

15
sector, could negatively impact the Irish economy. In Ireland, where 76 percent of GDP
comes from exports, the fortunes of its top three exporters (Intel, Dell and Microsoft)
significantly drive the overall economy. With these and numerous other high-tech and IT
companies struggling, Ireland’s growth could be severely impacted. Second, recent
pressures from the European Union to increase Irish corporate taxes combined withpressures connected with the Value Added Tax (to be discussed below) are reducing thebenefits to locate and export from Ireland. Therefore, multinational corporations might
relocate or reduce their output as taxation incentives fall. A third reason for promoting
indigenous industry comes with Ireland’s transformation from a net beneficiary of the EU
Structural Funds to a net contributor in the year 2001. This change presents an importantbudget redistribution challenge for the Irish government. For all these reasons, a strong
domestic industry would help ensure continued economic growth while reducing
dependence on foreign investments.
Some very successful indigenous IT companies have been started up in Ireland
during the 1990s. IONA Technologies, for example, was started by Trinity College
students in 1991. IONA eventually patented its research on distributed computing, and its
technology is now used in almost every Global 2000 company. However, in e-commerce
venture capital is the primary catalyst for startups. Only recently have venture funds
become available throughout Ireland. The major initiative came with Enterprise Ireland’sIR £10 million e-Business Accelerator Fund to assist 120 start-up companies. However,most of those funds have now been exhausted. (Gallen) It remains to be seen whether
these scarce initiatives will aid in support for Irish indigenous e-commerce and IT
industry.

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Value Added Tax in Europe
While a low corporate tax is helpful in attracting corporations to settle in Ireland,
Ireland’s Value Added Tax (VAT) is a significant disadvantage to e-commercecompanies. The 21 percent Irish VAT is much higher than the VAT in Germany (16percent) or in the U.K. (17.5 percent). (“Report on…,” p. 99) There are proposals in the
EU to apply the VAT to online transactions in the country of registration, which would
put companies located in Ireland at a serious disadvantage. If these proposals becomelaw, Ireland will need to either lower its VAT to the level of its competitors have or add
some other benefits in order to attract new e-businesses.
Inactive Domestic Market
For a country with dreams of becoming the European e-commerce center, Ireland
currently lags well behind many other less tech-ambitious countries in overall ecommerce activity. Figure 3 shows how Ireland compares to some of the most developed
countries in terms of Internet access at home. Clearly, for a country that boasts a large
broadband network and relatively cheap connection costs, the 20 percent Internet accessstatistic is surprisingly low.
Amárach Consulting, an Irish firm specializing in Internet statistics, points out
another troubling fact. According to Amárach, only 10 percent of Irish Internet users
made an online purchase in 1999, which also means that only about 2 percent of the total
population actually participated in e-commerce activities in Ireland. (“Eir-Commerce…,”
p. 2) Comparing Irish activity with that of the U.K., Canada and the U.S. shows that
Internet users in the U.K. are twice as likely to have made an online purchase

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Figure 3

while those in the U.S. are nearly three times as likely. Amárach analysts also claim thatthe low number of Irish Internet customers is primarily due to the small number of local
e-commerce web sites and to low credit card usage among Irish web users. Only about
one third of Irish Internet users have credit cards, which hinders their ability to participate
in e-commerce. Additionally, high local phone charges and no flat-rate connections in
Ireland reduce the amount of time Irish spend online.
Slow m-Commerce Initiatives
It is surprising that with all the attention that Irish government is giving to plansand programs for development of e-commerce, there is very little mention of mcommerce. Even though m-commerce as a worldwide term is not yet generally wellknown, it can be taken to mean mobile and wireless commerce via WAP-enabled2 mobile2

WAP – Wireless Application Protocol.

18phones. In Europe, where DSL3 and cable connection technologies are not as available asin the U.S., many consumers access the Internet through slow modems, which are notvery conducive to expanding e-commerce. The biggest opportunity in Europe now seems
to lie with mobile telecommunications. GSM4 standardized the mobile phone market
across Europe, with about 25 percent penetration5 in the EU. With this large market base,analysts forecast skyrocketing m-commerce activity in the near future.
Despite strong Irish plans for e-commerce, the mobile phone boom seems to havecaught Ireland by surprise. Only recent initiatives hint that m-commerce might someday
be part of the Irish e-commerce strategy. Looking at the penetration statistics in 2000,
Ireland is above the European average with 49 percent, and the number of mobile lines
now exceeds the number of fixed lines. (“World Analogue…,” p. 109) Nevertheless, a
troubling statistic comes from the Office of the Director of Telecommunications
Regulation (ODTR) in Dublin: Ireland tops the EU list for most costly monthly mobile
calls, both personal and business. (“Statement on Telecommunications…,” p. 8) A major
step was taken in May 2000 when a third mobile carrier, Meteor, was introduced to the
Irish market to increase competition and lower prices. Some other initiatives to help Irish
m-commerce include awarding third-generation broadband wireless access licenses suchas UMTS 6 licenses to allow high-speed data access over wireless networks. Even though
recent activities show promise, they remain too limited while access prices are still thehighest in the EU. Ireland has to come up with a national strategy, much like that for e-

3

DSL – Digital Subscriber Line.
GSM – Global System for Mobile Communications.
5
Penetration is defined as the number of mobile phone users per capita.
6
UMTS – Universal Mobile Telecommunications System. This system allows 2Mbit/s speeds
over mobile phones.
419commerce, on how to establish its presence in this quickly growing and highly lucrative
market.

Conclusion
Ireland has been successful in revitalizing its industry potential and has now
reached a relatively mature stage of economic growth. Based on the extensive researchthat the Irish government has done, headed by a proactive and future-looking Minister ofEnterprise, Trade and Employment, Mary Harney, Ireland is well on its way to becoming
Europe’s e-commerce hub. The government has laid the groundwork and created acompetitive e-business environment. Now it is time for firms, both Irish andinternational, to embrace the new technology and the new digital economy and to start
doing e-business in Ireland. Even though opportunities for companies doing so arepromising, success will ultimately depend on how well they manage to compete with therest of the world and how responsive they are to their customers’ needs. In the ecommerce world, alternatives are just a mouse click away. The fight for customers isevery bit as competitive as in traditional markets and perhaps even more so. The
companies that succeed will ensure the future Irish position in the international ecommerce arena.

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Abstract
With the beginning of the new millennium, Ireland is turning to e-commerce andthe new digital economy to take growth and prosperity in the republic to the next level.
This paper evaluates the level of readiness for e-commerce activities in Ireland, focusing
on the technical, economic and social conditions that play key roles in ensuring theirdevelopment.

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Biography
HRVOJE BENKO graduated with highest honors from Lehigh University in June
2001 with a Bachelor of Science in Computer Engineering. He served as the president of
the Lehigh University Philharmonic Orchestra, Head Gryphon of Trembley Park, and thepresident of Future Global Entrepreneurs Club. For his achievements he was presented
the Gabuzda Memorial Award for the Best Student in EECS Department, as well as thePhi Beta Delta Student of the Year and the Student Life Leadership Award. He was
inducted into Phi Beta Kappa, Tau Beta Pi and Phi Beta Delta honor societies. A nativeof Croatia, Hrvoje is currently pursuing a Ph.D. in Computer Science at Columbia
University in New York City.