Getting Technical?

Allow me to post here the essay I wrote in compliance with one of the many requirements I just have in graduate school. Shooting two birds in one stone, here goes my blog entry and an assignment as well.

My professor wants us to submit a reaction paper on this article:

Why IT Doesn't Matter Anymore


And this is my essay:

IT Doesn’t Matter in Developing Countries

In 2003, the Harvard Business Review published an article by Nicholas G. Carr entitled, “IT Doesn’t Matter”. Basically, it aims to lay out the economics of information technology (IT) at the corporate level. First, let us answer the question “What is IT?” IT involves not only just computer literacy but also the knowledge of how computers work and how these computers can further be used in information processing as well as in communications and problem solving tasks. In modern business, most activities are done with the help of machines (i.e., not to mention digitally). In household, at least we know of ATM cards, compact disks, MP3 players, text messaging, or the Internet. Many technical terms come in the list and more will arise in the future as technology evolves. It only indicates that IT, or information and communications Technology (ICT), in the broader sense is just around to influence the whole world, not only in businesses but in the households as well.

Carr emphasizes that IT doesn’t matter anymore because it can be compared to electricity in the sense that no company builds its business strategy anymore around its electricity usage. On the other sense, electricity matters because without the supply, commerce would come to a halt. But in the skill of electricity management, it is no longer particularly useful to most companies, since electricity is now so cheap and so commonplace that it can no longer be a source of competitive advantage to companies. The same is true with IT. As most companies are able to invest in IT, it also can no longer be a source of competitive advantage. Therefore, Carr says IT doesn’t matter anymore. Doesn’t IT matter anymore? Yes, indeed IT doesn’t matter in developing countries! This is not to say, however in the context of Carr’s notion but in a different way.

While many in the development community believe that IT can serve as a catalyst to help poorer countries accelerate development, IT remains less impact on the poor countries than on the rich ones. Also, while IT gives more impact on rich countries, only the developed community can supply computer hardware and other innovative products. Moreover, while IT is an essential tool to everyone, either in commerce or in agriculture, wise western ‘partners’ are able to manage prices of natural resources through hedging, thus deteriorating the economy of the underdogs. IT doesn’t matter in developing countries for as long as digital divide exists and the few capitalists continue to garner self-interests. What will matter if superior economies continue to exploit poor countries’ natural resources and take advantage of scarcity in third world countries?

The Digital Divide Phenomenon

Carr pointed out that IT doesn’t matter anymore because of its potency and ubiquity and its core functions have become available and affordable to all. It was supported by the fact that there has been an increase in capital expenditures of American companies towards information technology. Statistics show that in the early eighties, investment in IT increased to 15% from its old record in 1965, which was only about five percent. It even rose further in the early nineties by at least 30%, and greater still by the late nineties for about 50%. Given this figures, shall we say that IT has become commonplace around the world? Definitely the answer is no. There is only a small portion of wealthy nations along the world and they are the only few countries who can say that IT is so commonplace.

According to the World Bank, there are 56 countries that fall under the developed countries, while 138 countries are under the developing countries. The total number of countries in the world today is 194. This shows only 56 out of 194 countries of the whole world or 28.86 percent fall under the developed countries (or rich countries), while a large value of 138 or 71.14 percent of the world total nations belong to the developing countries (or low-income economies).

With regards to population, there are about 6.6 billion people in the world as of mid-year 2007. Among the 23 most populous nations in the world, there are only six developed countries listed, while the developing countries comprise the majority of 17 nations. Of all the rich countries, the United States only ranked third of the most populous and Japan, Germany, France, United Kingdom, and Italy only ranked 10^th, 14^th, 21^st, 22^nd, and 23^rd, respectively. These countries constitute only 631 million people or 10 percent of the world’s population. On the other hand, the low-income economies of China and India top the list of most populous nations in the world. China ranked first and India ranked second. On rank fourth is Indonesia followed by Brazil, Pakistan, and other many countries including Philippines. These countries that fill the knots of top populous comprise 4.1 billion people or 63 percent, significantly.

With the present demography, this is to contest that IT’s potency and ubiquity is far from what Carr described in his article. The process of technology diffusion occurs unevenly across national boundaries because of differences in national environments and links to the global economy. There is technology divide and digital divide among rich countries and poor countries in the world. Kenny (2007) states that, “The Internet will have less impact on poor countries than on rich ones because the enabling environment for advanced applications isn’t there.” In Sri Lanka for example, their 2004 survey shows there is significant unequal availability of computers in households. The urban households possessing a computer is only a small portion of 10 percent while the rural households owning it has the very little value of 3 percent. Internet facility is available only in 7 out of 1000 households. For households without computer, 78 percent said they did not need these facilities; and 14 percent meet these needs through private institutions such as communication centers, cyber cafes, etc. It was found out that majority (64%) did not feel the need of acquiring a home computer soon, possibly due to the lack of knowledge (computer illiteracy) and resources. Those who strongly feel the need of computers comprises one third (36%) of the population sample.

Although the Internet use is expanding rapidly and the number of Internet users in developing countries increased from about one per thousand people in 1993 to 75 per thousand in 2003, many people in developing countries have decided to stay offline. The advanced use of the Internet is extremely limited. A recent survey carried out in regions of India, Mozambique and Tanzania found that, in spite of the availability of public facilities in local towns, less than two percent of respondents had ever used the Internet (In contrast, seventy percent were regularly using the telephone). For buying and selling over the Web, secure servers are used to host e-commerce applications. Of 110,000 such servers worldwide, only 224 are in low income countries.

The general state of the developing world that drives the low exploitation of Internet use is the lack of knowledge of people. In Chile, the two most popular answers to a survey of enterprises that asked why so few are into e-commerce were ‘it isn’t necessary’ and ‘our clients don’t use the Internet’. Therefore, the human capital for IT applications is not sufficient. Chile, one of the richest among developing countries with an illiteracy rate is only about five percent, 80 percent of people do not have experiences on IT. The financial infrastructure for e-commerce in the third world is lacking. In China, only 13 percent of online transactions are completed with a credit card. Above all, the physical infrastructure doesn’t help. In Brazil, for example, FedEx doesn’t deliver Amazon packages to rural areas.

In the developing countries of the Asia-Pacific region, reports claim that IT spending among those countries rose in 2004 by 10 percent as compared to IT spending in the previous year, and still increasing in the succeeding years. China and India, considered the two emerging economies in the region, are being accounted to the highest IT investments in Asia-Pacific. Other high IT investments are accounted to Indonesia, Vietnam, the Philippines, Malaysia and Thailand. Having said so, the ratio of IT spending to gross domestic product (GDP) in the region is low, at 2 percent against 4-5 percent in developed countries, a sign that IT commodity in the region are far from saturated.

The current problem of developing countries lies in lack of affordability of computer hardware despite the various low-cost computers such as a $100 laptop being offered as solutions. It may also be noted that problem is part of a broader set of issues that include poverty, lack of infrastructure and inadequate education. Other than the level of national wealth, Dedrick, Kraemer, and Shih (2008) consider the following as the driving factors towards IT investments among nations:

1. Resource for technology – means the availability of capital, either from external sources such as foreign direct investment and foreign aid or from internal sources such as equity markets and domestic loans and credits;

2. Structure of the economy – refers to finance, insurance and real estate as percent of total country employment;

3. Complementary assets – these are such as a telecommunications infrastructure and skilled human resources; and

4. Openness to external influences – means foreign trade facilitates the diffusion of IT across borders as it provides channels of communication that stimulate cross-border learning of production methods, product design, organizational methods, and market conditions.

Their analysis leads to two general conclusions that have important practical implications. First, the study shows that wealth is the single most important factor influencing IT investment but that other factors are significant as well. This raises the question of how important GDP per capita is relative to other factors for developing countries, given that relative wealth is difficult to directly influence through policy changes, at least in the short run. Second, the factors driving diffusion are different for developing economies than for developed ones. The availability of investment resources (loans and foreign aid), the level of complementary assets, and openness to foreign investment all play a role in driving IT investment in developing countries. Again, these factors can be influenced by national development policies as well as by financial aid from international development agencies.

Technology: Who’s Growth Are They Talking About?

Hunger, illiteracy, lack of access to health care, and lack of decent shelter are among the many problems confronting the governments of poor countries. The ambitious drive of these governments towards taking ICT to the villages provide ingenious way of bridging technology divide. Imagine the sprouting satellite towers on villages where people have nothing to eat! Indeed, the technology uplifts the quality of life - survey evidence suggests that farms and enterprises with access to phones get more for their products whilst consumers with telephone access pay less, for example. The Philippines has been noted for m-commerce and the mobile phone is being used to transfer cash in areas with few banks and fewer ATMs - 2.3 million people are benefited from it. However, it is foolish that a number of economists have run statistical analyses suggesting evidence of a link between telephone rollout and economic growth.

It is true that the ICT and the business process outsourcing (BPO) industries have generated more jobs in India (the same is true in the Philippines). It even promises to create million jobs by 2007. India records 600.000 jobs created in the ICT sector and 200,000 people employed in the BPO companies but this is only a small portion compared to the huge unemployment in the same country. The same analysis also applies to other developing countries like the Philippines.

In India, its Millennium Development Goals aims to pull out half the world's population living in poverty and hunger by the year 2015 (Sharma, 2007). Between 2000 and 2005, Rs. 720,000 million has been invested in the telecom sector. Much of this is in the name of building a knowledge-led rural economy. Strange, however, that there is no small amount of money when it comes to the sunrise industries while a large number of families were living in hunger. If only India, according to Sharma, had attempted to feed its 320 million hungry in 2002-03, at least a third of world's hunger could have been taken care of. While farmers constitute the rural majority, they have been considered by some economist to be less in need of adequate infrastructure, cheap credit, an assured market, and a remunerative price. Apparently, government funds have been appropriated to the small percentage of rich industrialists, business and trade. Strange also, that the technology divide or the digital divide surely becomes wider when scarce public resources are first misappropriated.

In India, moreover, there is a program for virtual agricultural universities. It is being hailed as a revolutionary paradigm to transform the life of Indian farmers. In Maharashtra for example, fifty internet kiosks have already been set up as a pilot project in the villages of Baramati and Khed tehsils of Pune district. This project involves trained farmers to spread the technology to another ten farmers in the village. Its objective is to improve the farmer's decision making ability, help aggregation of demand by creating a virtual producers' cooperative and in the process facilitate access to higher quality farm inputs at lower costs for the farmers.

Several technological schemes have been tried in India’s history of agriculture. There was the disbanded Training and Visit (T&V) system of farm extension where it was known to embark the same strategy as the internet kiosks in the village. However, it has miserably failed in disseminating improved technology. Report shows that Maharashtra has already spent Rs. 15 million for the pilot project in 2003-04 and has promised Rs. 17.5 million for 2004-05. Another ambitious program was noted when the country was waking up the visual medium – the television. The government provided community TV sets in each village but it failed to inspire the farming community to bring about technological revolution. The obvious phenomenon despite the reach of the visual communication medium, hunger and poverty continued to grow. Sad to think, but only those manufacturers and suppliers of the TV sets attained economic growth.

The idea however, of bringing ICT to the villages is to benefit the small percentage elite industrialists and to expect farmers to go online and trade is ridiculous. The paradox of accessing to higher quality farm inputs at lower costs for the farmers via Internet against the lowering economy of developing countries is obvious. In terms of commodity exchange for example, Indian government is slowly withdrawing from food procurement, the main reason is unmanageable procurement structure and the inefficiency in the system. Food procurement is a way to provide an assured market to the farmers. Withdrawn food procurement means farmers are being penalized for the inefficiency of the food corporations and various other government agencies. Along with this situation, Indian government is also withdrawing from providing an assured price to farmers by saying time and again that the minimum support price (MSP) has become the maximum support price. This is opposed to the reality that the MSP looks higher than the international prices because of the massive agricultural subsidies in the western countries that depress global prices. In the richest trading block - Organisation for Economic Cooperation (OECD) countries - a subsidy of US $ 1 billion is provided every day to agriculture as a result of which the international prices slump (Sharma, 2007). By withdrawing the support prices by the Indian government, along with other third world countries is only helping the American and European farmers to continue to produce at subsidized prices and then offer the produce to the global markets. In reality, the dumping of cheap and subsidized commodities on the world markets is the main reason why rural poverty and loss of livelihoods continues.

Furthermore, in India, there is known as e-Choupal, an initiative to link directly with rural farmers for the procurement of agricultural/aquaculture produce like soya, coffee, and prawns. E-Choupal’s objective, they say, is to eliminate wasteful intermediation and multiple handling. The result is the fast moving of retail sector into the rural areas. It is seen, however that e-Choupals have created a direct marketing channel for the promoting company with the essence at harmonizing the business pursuits rather than helping the farming community leading to sustainable livelihoods.

Change is desirable. It is even necessary. Setting up infrastructures and adopting IT in the rural areas is certainly not incorrect. The sad reality only shows that those behind several projects have lost its mission to actually help mitigate the existing problems of the poor and hungry. Common to the third world countries are problems that exist somewhere else but they come out with the solutions that actually provide full pockets to multinational companies and put their wealth to the western world.

Conclusion

For developing countries to realize the potential benefits of IT, policymakers should look for real ways to bridge digital divide and to protect the welfare of marginalized sector. To attain greater IT use and at the same time strengthen farmers and small business sectors, the following are recommendations:

1. Provide a good sense of fund appropriations to agriculture but at the same time promoting the strength of industry, finance, and information-intensive services;
2. Devise programs among rural livelihood to strengthen microeconomic levels and maintain self-reliance among the poor;
3. Devise programs to protect the welfare of marginalized sector of the farming community; and
4. Adopt technologies and standards to bring country’s produce to global market, with competitive price without sacrificing quality.

Moreover, telecommunication investment accompanied by policies to introduce competition into that sector is essential to promote IT diffusion in the developing countries. Along with these infrastructures, increasing efforts to educate people in IT and producing ICT professionals are important to spread out IT-related services.

Finally, encouraging foreign investment by removing restrictions and improving the environment for foreign capital is likely to have a major impact. In cases such as Mexico and Brazil, economic liberalization that led to investment by foreign multinationals stimulated IT use. These multinationals required suppliers to adopt IT, and created competitive pressure for domestic firms to invest in IT.

References:

Dedrick, J., Kraemer, K.L., & Shih, E. (2008). It diffusion in Developing countries. Communications of the ACM, 51(2), 43 – 48.

Kenny, C. (2007, April). Internet in development: World Wide Web? Retrieved January 3, 2008 from the world wide web: http://www.iimahd.ernet.in/egov/ifip/apr2007/charles-kenny.htm

Rosenberg. M. (2007, September 9). Most Populous Countries. Retrieved January 3, 2008 from the world wide web: http://geography.about.com

Rosenberg. M. (2006, November 10). The Number of Countries in the World. Retrieved January 3, 2008 from the world wide web: http://geography.about.com/cs/countries/a/numbercountries.htm

Satharasinghe, A. Computer Literacy of Sri Lanka – 2004. Retrieved January 3, 2008 from the world wide web: http://www.statistics.gov.lk/cls2004/index.htm

Sharma, D. (2007, August). ICT and Rural Livelihoods. Retrieved January 3, 2008 from the world wide web: http://www.iimahd.ernet.in/egov/ifip/aug2007/devinder-sharma.htm

Varian, H. R. (2004, May 6). How Much Does Information Technology Matter? [Electronic Version]. The New York Times

Wong, C. (2005, January 5). IT spending to rise 10% in Asia, 12% in RP. http://www.chinwong.com/index.php/site/C25/

Small Business Bible is a site that presents essentials on Small Business (http://www.smallbusinessbible.org/advan_disadvan_informationtechnology.html)

Wikipedia is an only free encyclopedia (http://www.wikipedia.com)