Sector report: Software sector set to grow, limited availability of skilled labour a challenge

The software sector has seen strong growth and development in the 2010s. This growth is driven by companies’ establishment abroad and rapid technological development as well as digitalisation in other sectors and in public administration. Software sector companies are also developing new innovative services for the market. Limited availability of skilled labour is threatening to halt the sector’s growth.

These are the findings of a report on software services, commissioned by the Ministry of Economic Affairs and Employment, which was published on 3 February 2020. The software sector consists of four sub-sectors: software design and manufacturing; computer hardware and software consultancy; data processing and hardware operating and management services; and other hardware and IT services. The software sector is included in business services. It has grown significantly in recent years.

An increase in the turnover of the sector's companies

In 2018, the sector’s turnover amounted to EUR 9 billion. The sector employed approximately 53,000 full-time personnel in 7,000 businesses. More than half of the software sector turnover is generated by companies that belong to the software design and manufacturing sub-sector. The second largest sub-sector is computer hardware and software consultancy. Software sector companies are mainly small and medium-sized enterprises.

The majority of companies in the software sector are located in the Uusimaa region and other major growth centres. According to data from 2017, over 50% of software sector companies are located in the Uusimaa's ELY Centre area, and 60% of personnel in the industry are working in that area. Slightly over 70% of the sector's turnover is generated in Uusimaa. Other significant regional clusters in the software sector are located within the areas of the ELY Centres of Pirkanmaa, North Ostrobothnia, Southwest Finland and Central Finland.

Exports growing especially in small enterprises

The software sector’s exports have not been addressed in previous sector reports. Due to the type of export data used in previous reports, it was difficult to analyse the distribution of exports – i.e. the extent to which companies engage in export activities and the size of these companies.  For the purposes of this report, Business Finland used data from the Tax Administration and Suomen Asiakastieto for the analysis of the sector’s exports.

Based on the data, it is possible to estimate the proportion of sales calculated from VAT accounts submitted to the tax authority are EU exports and exports outside the EU in the software sector. The volume of exports in the sector can be estimated to be more than one third of the volume of sales in 2018. According to the data, there are more than 3,900 exporting companies, and the value of exports exceeds EUR 100,000 in approximately 2,300 companies.

Excluding the data of the two largest and most important operators in the software sector, the estimated volume of exports has increased dramatically in 2015 –2018. Export growth has been particularly notable in small enterprises and companies with a sales volume of less than one million euros. The export data used in the report indicates that the growth of Finnish software sector exports is not in the hands of only a few companies but that many software sector companies are engaged in export activities.

The software sector report was published together with an SME sector barometer. MEAE Business Sector Services is a network of experts led by the Ministry of Economic Affairs and Employment that collates, analyses and communicates information about the business environment to help companies and various other operators make decisions. It promotes and supports business renewal, increase in added value, and internationalisation.

Inquiries:

Johanna Ek, Sector Manager, tel. +358 50 557 7028
Katri Lehtonen, Development Director, Ministry of Economic Affairs and Employment, tel. +358 29 506 4926
Senior Manager, Business Intelligence Risto Setälä, Business Finland, tel. +358 50 5577858 (export data)