Asked to name an Icelandic industry, most people in Britain would plump for fish. But two young entrepreneurs are hoping to help develop the windblown volcanic outcrop into a centre for 21st-century computer-led business, writes Maggie Hartford.

Their company, Virtual State Productions, based at Oxford Science Park, is a computer games business with a difference.

One difference is the Icelandic connection the other is the founders' aim to take leading-edge computer game technology out of its 'fun' ghetto and use it to help industries which are only just moving on to the Internet and computer visualisation.

It was set up by Icelanders Mr Halli Bjornsson and Mr Jon Gudmarsson, who met while they were both studying in Oxford.

Many people might feel that the distance between Oxford Brookes, where Mr Bjornsson was training to be an architect, and Oxford University, where Mr Gudmarsson was taking an MPhil in international relations, is figuratively greater than the distance from Iceland, but they met up nonetheless. Mr Bjornsson said: "We are a small population and when you are in Oxford there there is no inhibition about looking up a fellow Icelander.

"Our friendship took off and that was when we first started thinking about virtual reality and three-dimensional modelling software."

Their paths then diverged for some time. Mr Bjornsson moved into the computer games industry, working for some of the major console games publishers, including Electronic Arts , Sega and Sony Psygnosis as an artist for motor-racing games such as F1 97 and Sega's Metropolis Street Racer.

But during this time, he did not loose sight of his ultimate aim to use games technology to allow architects and their clients to see on the computer screen how their designs would look in practice. It was an attempt to overcome the old age problem encapsulated in the joke: "At least doctors can bury their mistakes an architect can only plant a vine and wait."

Mr Bjornsson said: "I originally went into the games industry because I wanted to use the computers as a tool for architecture, to help people visualise things before they are built, so as to improve the design. Many architects use computers to solve special problems, such as Frank Gehry at the new art gallery in Bilbao." By the time they met at a party in Iceland eight years later, Mr Gudmarsson had become political adviser to Iceland's Minister of Education, Science and Culture.

Mr Bjornsson was doing so well in the computer games industry that he had decided to set up in business on his own and his friend decided to join him, using his contacts to find private funding from Icelandic investors.

VSP has three strings to its bow. The computer games development is a lucrative source of income, and the company has assembled a strong team specialising in 3D environments based on extreme realism.

Co-founder Mr Steve Oldacre joined after six years as programming manager at Sony Prognosis. As a registered Playstation2 developer, the company is creating games where realism is the key to enjoyment.

The second string is architecture, a specialism which is strengthened with the recruitment of architect and web designer Paul Gardner. VSP has landed a deal to provide software for Oxford architects Ridge and Partners, so that their clients or, indeed, planning authorities can go on a virtual "walk" around a newly designed building, spotting anything they are not happy with so that the design can be improved before building work starts. Mr Bjornsson said: "It allows you to create any kind of environment so that the user can interact with the buildings and go inside. Until now it has been difficult to get things in real time looking realistic. If you use the right techniques, you can get very high quality material.

"Our architectural partners have been trying to accomplish this before but thetechnology was not good enough. "The games industry has been a leader in these technologies, which are now becoming more relevant in other areas."

The third aim is to use the technology to help businesses wanting to design websites which give customers a realistic experience so that they can get a feel for the products being marketed.

Mr Gudmarsson said: "The games industry has moved from a niche back-bedroom busines to something which is quite professional and dynamic. There is a wide range of applications."

But why Oxford? He said: "Iceland has experience in IT but it has no experience in the games industry. We have the right contacts here and there are good business reasons for being here."

Mr Bjornsson said: "Overall, the UK is a fantastic environment for creativity, yet there is less funding for these things here than there is in France, say, which is less of a base. The people here are trying to keep up with America. Here they are innovative and creative, yet they are technically better." They both hope that they will eventually be able to at least set up a branch of the company in Iceland, whose population, though less than twice that of Oxford, has the highest Internet penetration in the world. Mr Bjornsson said: "We do both harbour the intention of taking this industry back to Iceland at some stage.

"It is extremely important that the country is moved into the new age.

"It has relied on fishing in the past but it has to move forward. It has a very well-educated population talented people go all over the world to earn degrees. Our romantic vision is that we could open this area to Icelanders."

Since the company was set up in November, it has already expanded from two people to 11 and is still growing. Mr Bjornsson said: "It's like an interface to the future. Everywhere you look, everyone is looking at three-dimensional images on computer screens to sell products."