Enterprise Development

ICT4D meets sustainable tourism

Last Friday, QED Group, LLC hosted “Tourism as a Sustainable Development Strategy: A Systemic Value Chain Approach,” a breakfast seminar. Discussions focused on best practices in tourism management and how these tools can be implemented in projects to maximize positive impacts.

Amanda MacArthur, Director of Operations at CDC Development Solutions (CDS) and speaker at the seminar, offered an overview of the Tourism Employment and Opportunity (TEMPO), a USAID funded program implemented in Nigeria’s Cross River State.

Tourism e-Marketing and promotion strategy

MacArthur highlighted the Ambassador Promotion Program as a successful tourism e-marketing and promotion strategy.

Essentially, CDS staff work with local stakeholders to develop a program over a specific period of time where they provide resources, deep discounts, activities, packaged promotions to people who are willing to be first adopters of the location.

“Facebook integration wristbands”

Ushuaia Beach Hotel in Ibiza launched in July their Facebook sharing initiative—a first in the hotel industry. Hotel guests are given the option of wearing a slim wristband synchronized to their Facebook profile.

Guests can swipe their wristbands across a sensor at designated kiosk, checking in to various places in the resort, updating their status and tagging themselves in as many pictures as they like to post online.

Last year, Coca-Cola pioneered a similar technology in Israel. In the summer, the Coca-Cola Village invites 600 to 800 teenagers for a three-day stay in a multimedia village to enjoy fun activities such as sports, swimming and horse-riding.

Through the Like Machine, conceptualized by Enon Landenberg, joint-CEO of Publicis E-dologic, the inhabitants of the village were able to use their wristbands to register that they “liked” a certain activity, and a Facebook message would automatically appear on his or her wall stating that he or she “liked” the pool at the village, for instance.

The event was so popular that according to E-dologic joint-CEO Doron Tal, 250, 000 people claimed to have been there—even though only 8,000 had the opportunity to experience it in real life.

“They felt that they had been there because they could enjoy it through their friends by following their fun on Facebook,” Mr. Tal Said.

Background on TEMPO

TEMPO’s ultimate goal is to build a destination tourism sector—leading to jobs creation and economic growth for local and regional communities. To accomplish this goal, CDS established (or provided) capacity building to private sector led public-private Destination Management Organizations (DMOs).

In particular, CDS built DMO’s ability to use technology to promote and sell tourism in the destination by creating a web-portal that provides information about Cross River State tourist spots, training in content development and collection to enable tourism operators to market their services based on customer needs, and making booking and payments available online.

Why Tourism for Development?

Presenter Kristin Lamoureux, Director of International Institute of Tourism Studies at George Washington University representing the Save Travel Alliance a member of the Volunteers for Economic Growth Alliance (VEGA) at the seminar, stressed the importance of the tourism sector in developing countries.

Tourism is the top five export category for 83% of developing countries—and for 38% of those it is the most relevant economic activity, said Lamoureux.

Also, the benefit of tourism is that resources—cultural and natural—are already available in developing counties. Most importantly, many tourists’ activities are found in rural areas and this creates opportunities for sustainable economic growth in remote locations.

Though sustainable tourism requires various conditions to thrive, the visitor’s experience should be the center-piece of a tourism promotion strategy with an emphasis on connecting travelers to destinations.

These innovative approaches—Facebook integration wristbands and Ambassador Promotion Program—connects travelers to destination and tie online and offline worlds neatly and painlessly together.

It is a great bit of user-generated marketing for the resort or destination, and has the added benefit of letting guests share their experiences with their friends, colleagues and family members through social media. This will in turn bring more visitors to the location.

October 5, 2011/by actualize

Business Enabling Environment, Economic Growth & Trade, Enterprise Development, MicroEnterprise Development, Originally posted on the GBI Portal

Why immigrants make great ICT entrepreneurs

Photo: Zelalem Dagne

Zelalem Dagne had spent the past twenty-five years in the United States, but the thought of returning to Ethiopia continually intrigued him. Eventually, with some prodding from friends and co-workers, he returned. What he saw surprised him; the country was ripe for development and for new businesses, Dagne explains. Despite his initial urge to “do everything,” he focused on one problem in Ethiopia—delays in product transportation—and started a new business.

Dagne applied for and received a matching grant from USAID and Western Union’s African Diaspora Marketplace, allowing him to officially start Global Technology & Investment PLC. His company provides affordable GPS trackers to businesses that transport their goods in Ethiopia. The GPS trackers are attached to trucks, allowing business owners to monitor the efficiency of their truck drivers and the ensure prompt deliver of goods. Additionally, drivers can monitor traffic with the devices, allowing them to avoid traffic jams, check-in consistently with headquarters, and report back when goods are delivered. Dagne’s Fleet Management System is planned to be used in over 60,000 trucks.

In addition to strengthening business productivity in Ethiopia, Dagne’s company facilitates more national trade and makes Ethiopian businesses more attractive to foreign investors and international businesses. His company, then, contributes to Ethiopian development, allowing Dagne to give back to his home country through his business practices.

Dagne spoke ten days ago at a USAID-sponsored Microlinks seminar. Leaders of the African Diaspora Marketplace accompanied Dagne; representatives from USAID and Western Union also spoke on the program. The marketplace funded 14 projects last year, 5 of which are in the ICT sector. This year, in phase 2 of the marketplace program, there is a particular focus on ICT businesses.

Logically, immigrants and refugees would be ideal entrepreneurs in their own nations. They understand the business practices and technological developments present in the United States, and understand the needs of a particular country in the developing world. Their experience in both nations gives them unique vision. They see the differences between the places and what holes in one area can be filled by a solution from another country.

Additionally, ICT projects are particularly powerful in developing countries. The United States invests more than any other nation in research and development of ICTs. And as demonstrated by the rapid expansion of the mobile phone around the globe, “appropriate technologies” are quickly adopted by the developing world. Though the likelihood of the African Diaspora Marketplace funding the next mobile phone is highly unlikely, it is probable that the entrepreneurs funded by the marketplace will bring technologies already common in the United States, and integrate them into societies in their home countries.

July 22, 2011/by actualize

Economic Growth & Trade, Enterprise Development, Originally posted on the GBI Portal, Tech Transfer, Workforce Development

UN University Releases study on Tech Skills in Sudan

The Maastricht Economic and social Research institute on Innovation and Technology (UNU‐MERIT) last month released its “Assessment of skill and technology indicators at the macro‐micro levels in Sudan.”

The research uses new primary data from macro and firm surveys and provides a new contribution by examining five hypotheses on the causes and consequences of low skill and technology indicators at the macro and micro levels in Sudan:

First- that the interaction between the deficient educational system – caused by low quality of education- and the high share of unskilled workers leads to poor provision of training; low skill levels; skills mismatch; low transfer of knowledge/external schooling effect; weak technology indicators and dependence on foreign technologies at the micro level.
Second- that the poor local technology indicators/indigenous capability to build the local technology and heavy dependence on foreign technology can be attributed to lack of R&D activities/efforts, due to a lack of funding, low skill levels, weak linkages, lack of networks systems and collaboration between universities and industry/firms, low transfer of knowledge and a lack of entrepreneur perspective.
Third- that the transfer of knowledge/external schooling effects is successful at the micro level but unsuccessful at the macro level due to low educational qualifications and deficient educational and training systems.
Fourth- that skill and technology indicators are significantly determined by firm size and industry.
Fifth- concerns the consistency of upskilling plans at the macro-micro levels.

Finally, one advantage and interesting element in the analysis is a new contribution to the Sudanese literature, explaining the causes, consequences and interaction between the low skill and technology indicators and the transfer of knowledge. Recommendations include further efforts to improve skill and technology indicators and transfer of knowledge at the macro and micro levels which are all essential for economic growth and development in Sudan.

July 8, 2011/by actualize

Business Enabling Environment, Economic Growth & Trade, Enterprise Development, MicroEnterprise Development, Originally posted on the GBI Portal

Oxford: East African SMEs Clamoring to Use Internet

Photo: AfriBiz

Recently, the ESRC-DFID awarded funding to the East Africa research group at the Oxford Internet Institute (OII) , led by Dr. Mark Graham. The proposed study, titled “The Promises of Fibre-Optic Broadband: A Pipeline for Economic Development for East Africa,” promises important results about the impact on small-medium enterprises (SMEs) when they adopt and utilize a broadband Internet connection. Thus far, their preliminary research indicates that nearly all businesses in Kenya and Rwanda are investing in Internet connections.

Throughout East Africa, many SMEs struggle with record-keeping, processing large requests, and consequently, attracting foreign investment. OII’s study aims to measure the economic consequences for SMEs when they pay for and regularly use Broadband Internet.

In an interview, Dr. Graham explained the study questions to me in more detail. First, is paying for broadband Internet connections worth the cost for SMEs? Second, how do Internet connections change companies’ business practices? Dr. Graham and his research team have observed SMEs in both the tourism and business processing operations (BPO) sectors. They found that nearly all businesses have some sort of Internet connection, since, as Dr. Graham explained, “it would be difficult to compete with your rivals, who would all have connections, if you aren’t connected yourself.” Furthermore, “almost every type of business seems to be investing in connectivity, from one-person entrepreneurs to large companies.”

Whether these investments lead businesses to increase profits and to what degree, however, is still unknown. The results are highly anticipated, as many have speculated regarding the impact of broadband connectivity, but few studies have shown its impact, and none have focused specifically on SMEs.

Photo: Benjamin Cole

In an applied effort to help SMEs utilize the Internet for their advantage, USAID funded the West Africa Trade Hub. The Trade Hub operates under the mission statement and ideal that “with appropriate software and hardware solutions, companies can track their operations and activity much more effectively.” In their own research and experience assisting SMEs in West Africa (see a case study video from Ghana here), the Trade Hub finds that foreign business owners investing in the West African BPO sector want to be able to monitor where their product is and when it will be finished. They need updates—are the materials in the sewing process, packaging, or shipping processes? Chinese factories, on the other hand, historically have Internet access and the human capacity to keep the online systems updated, so many investors turn to China and not Africa.

Without high-speed Internet connections, many African businesses are unable to process large orders from foreign investors, leading to “lost” products. And western businesses prefer to make agreements with BPO agencies that have their own domain name; they are less likely to trust anyone using a gmail or yahoo account, for example.

These findings are explained and applied in the SME Toolkit Africa, produced by the West Africa Trade Hub. The toolkit is available as open-source advice for Africa businesses, and contains guides such as the how-to set up online websites, email accounts, computer accounting programs, and other business-oriented items.

Both the efforts of West African Trade Hub and the Oxford Internet Institute are important to evaluate the level of impact broadband connectivity has on SMEs in East Africa. As fiber optic cable networks expand and nations push for increased connectivity, Internet connections will be progressively more influential for economic growth throughout the region.

June 30, 2011/by actualize

Business Enabling Environment, Economic Growth & Trade, Enterprise Development, Originally posted on the GBI Portal, Workforce Development

Planting CEEDs of Growth in Moldova with ICTs

The ICT sector is one of the most dynamic in Moldova’s economy. Recording a vibrant growth over the past years, today it represents nearly 10% of the national GDP, on par with agriculture production.

There are about 40,000 people employed directly and indirectly in ICT, making the ICT sector one of the major employers in Moldova. It is also one of the highest paying industries, as jobs in ICT pay on par with those in the financial sector, historically the best paying jobs in the country. Most importantly, the ICT industry employs the young generation, offering an exciting, fast-growing and rewarding career for the next generation.

Moldova has already chosen the pathway of ICT. All players – the Government, the business community, the citizens and the ICT industry itself – have acknowledged the importance of information technology as a catalyst for growth, and as a tool of growth enhancement in all other economic sectors.

Technical assistance from USAID Moldova through the Competitiveness Enhancement and Enterprise Development (CEED) project over the past five and a half years has enhanced the competitiveness of the ICT sector through initiatives meant to consolidate the quality of companies, to strengthen ICT education so that it meets the needs of business, and to align the industry towards common goals.

Just last month, USAID Moldova sponsored the Moldova ICT Summit 2011, featuring the Association of Private ICT Companies in Moldova, as well as the recently launched national E- Government Center. The event focused on the e-transformation of the Moldovan economy, and the importance of e-transparency, among other topics.

Since the initiation of the first phase of the CEED project, USAID Moldova has been involved in numerous efforts. They facilitated the formation of the Association of Private ICT Companies in Moldova, established relationships between the national government and the private companies in the ICT sector, helped private firms to become IT-Mark certified ICT companies under CMMI methodology (encouraging foreign investment and trade), and set up talks respecting the formation of a “Cloud-Moldova” e-government system.

Additionally, a need for more trained and educated IT professionals in Moldova has arisen. To meet this need, USAID Moldova connected the Moldovan Minister of Education with large ICT firms. The ministry signed memorandums with Microsoft, Cisco, and i-Carnegie (Carnegie Mellon University). New IT focused courses and degrees are being offered in the Moldovan education system, providing the ICT industry with the professional staff it requires.

A man and a woman watch as a man repairs a computer.

Photo: Sergiu Botezatu

Despite these advancements, a few large boulders block continued development of the ICT sector in Moldova. The national government’s telecommunications company, Moldtelecom, still controls the majority of the market. Additionally, Moldova is unknown in the region as a destination of IT, this holding back investment. Thankfully, however, steps are in place to remove these barriers. The national government is beginning to investigate selling Moldtelecom and a strategy for ICT sector positioning and promotion is underway, which is intended to put Moldova on the regional and global ICT map.

June 29, 2011/by actualize

Agriculture, Business Enabling Environment, Economic Growth & Trade, Enterprise Development, MicroEnterprise Development, Mobile, Originally posted on the GBI Portal

Can Mobiles Increase Farmers’ Profits? Evidence from Malawi

USAID’s Mission in Malawi has evidence that mobile phones can and do have an impact on local farmers’ profits, according to Vince Langdon-Morris, an agricultural specialist with the Agency. Langdon-Morris explained that USAID Malawi’s is helping small-medium agricultural enterprises monitor and sell their products using an innovative mobile phone platform, similar to Esoko from Ghana.

In very simple terms, the commodity chain of agricultural production in Malawi is being modified in the following way by this project:

Farmers harvest grains and communicate with buyers via phone.
Small-medium business owners purchase farmers’ grains and monitor their product inventory and sales at their aggregation centers by phone.
The owners sell the grains in bulk to larger agri-businesses, checking market prices on their phones to ensure a quality sales price.

The phone helps the farmer to know where he should sell his grains at the best price and when the owner is willing to buy. The phone helps the small-medium enterprise owner because he can monitor the collections at the 20-30 aggregation centers that he usually operates, allowing him to sell in bulk at the right times and limiting his travel costs, among other benefits.

Mobile phones are tools to promote economic growth and other forms of development. Certainly, mobile phones are not the cure to all problems, but they can facilitate programs that do directly reduce poverty, such as this agricultural project by USAID Malawi. Other missions would do well to mimic their efforts and incorporate technology into their current projects in order to enhance effectiveness.

Given the success of M-PESA and other revolutionary applications like MXit and Ushahidi, mobiles4development (hastag #m4d on twitter) is gaining political clout within many development spheres, seemingly replacing microfinance as the solution to end poverty. Champions of m4d do not fail to mention World Bank studies that describe the connections between mobile phone usage and economic growth, improved healthcare, better agriculture, etc.

Unfortunately, such claims are overstated, as mobile phones cannot solve poverty. They can, however, be tools for improving development projects, as seen in Malawi. The test for USAID missions, then, will be to utilize mobiles phones as tools for development projects, but maintain a critical eye about their effectiveness.

June 29, 2011/by actualize

Agriculture, Cross Cutting, Economic Growth & Trade, Economic Policy and Governance, Enterprise Development, Originally posted on the GBI Portal, Tech Transfer, Trade & Investment

A West African ICT Hub? Ghana’s $10 Billion Legacy Plan…

The Ghanian government will spend $10 billion to realize its potential as a major ICT hub in West Africa.

Last week, Ghana said it “initiated the establishment of an innovation center that will promote export-oriented ICT products and services and generate employment opportunities.” The center will form part of an ICT Park to be built in Tema.

The West African nation notes that these plans are part of its drive to build a knowledge-based economy. The “Communications Minister, Mr Haruna Idrissu, said ICT parks worldwide played a critical role as intermediaries that supported knowledge-based economies.” The minister cited the Smart Village in Egypt, Innovation hub in South Africa, Software Technology in India and Technology Park in Malaysia as models for Ghana.

The establishment of ICT Parks may also strengthen the link between Ghanian research institutions and industry. This may engender a culture of commercial research funding, instead of the state-based framework currently used.

Mr. Idrissu says the project is a collaboration between Ghanian businesses, and the Ministries of Trade and Industry and Communication, which will stimulate private sector-led investment in ICT infrastructure. The proposed park is expected to promote technology development and diffusion, and stimulate the formation of new technology-based firms, which will boost wealth creation and provide jobs.

He says efforts are underway to build consensus for the project. Stakeholders were invited to a meeting to view the proposed design of the ICT Park. Ghana has instituted a range of measures to boost its position as a leading player in Africa’s emerging technology sector. Its eGhana project is slated to create over 7, 000 high-end jobs.

June 14, 2011/by actualize

Business Enabling Environment, Economic Growth & Trade, Economic Policy and Governance, Enterprise Development, Originally posted on the GBI Portal

Morocco Launches Project to Fund Innovations

Morocco has launched three new projects, including a $US 65 million research fund, to encourage partnerships between researchers and businesses and boost investments on cutting edge innovations.

The project includes building four new ‘innovation cities’—science and technology hubs that will host research centers, specialized companies and business incubators—will establish the Moroccan Center for Innovation (MCI), and three research funds worth $US 65 million.

Moroccan education minister Ahmed Akhchichine said that three innovation cities will be built this year in Fez, Marrakech and Rabat, and the preparations for a fourth center in Casablanca are underway and will be ready next year.

The goal of the Moroccan Centre for Innovation, who leads the strategy, is to track down potential inventors at the country’s universities and provide them with the financial backing to implement their innovations.

The funds will support grants for young researchers, and the research and development divisions of certain companies according to Ahmed Reda Chami, Morocco’s minister of industry, commerce and new technologies.

Youssef Ait Ali, an inventor, said that these grants could help in removing the financial blockades that have continuously obstruct the rolling out of new inventions.

“The government is prepared to raise the amounts that are budgeted for encouraging innovation and creativity to keep up with the demand,” Finance Minister Salaheddine Mezouar said.

We’re waiting for your proposals, ideas and projects, and we will provide the necessary means to realise them on the ground

These government-backed initiatives have the financial and regulatory framework to heighten and sustain innovation throughout the country. Akhchichine is hopeful at this projects prospects, “Last year, Moroccan universities managed to produce 40 patents, compared with less than 10 patents in the previous year”, he said, giving credit to the government incentives.

Moroccan inventors and innovations unions welcomed the new projects but emphasized that there is still a long way to go for the country to maintain a threshold of innovation,

Abderrahim Boumediane, president of the Moroccan Inventors and Innovators Association, said most of the government’s reforms in the innovation field could turn out to be ineffective as, “Morocco still doesn’t have a ministry for scientific research”, which hampers the sustainability of such projects.

However, according to Akhchichine, the government is currently working to reform this measure and is in the process of creating a legal and regulatory framework for scientific research.

April 18, 2011/by actualize

Economic Growth & Trade, Enterprise Development, MicroEnterprise Development, Originally posted on the GBI Portal

The Future of BPO: “Cherry Blossoming,” “Gold Farming,” and “Microwork”?

Usually our discussions of ICT and economic growth follow a familiar narrative: how can we use ICTs to more efficiently perform economic tasks? We take this line of discussion because we know that efficiency is productivity, and productivity improvements lead to economic growth.

But a recent book published by the World Bank, called “Knowledge Map of the Virtual Economy,” suggests that this line of thought is boxing us in. Instead, it argues, we should ask “what completely new markets have been created by ICT growth, and how can poor people lead the way in these new industries?” If this sounds fanciful consider the following: last year a man in California paid $500 in an online auction for a “virtual” castle. We are not talking about a crumbling, stone-and-mortar, historical relic here; but rather a few lines of code that generate a castle that the buyer can use as a base for his virtual armies in an online video game. He bought this castle from a company in China that creates (and speculates in) these types of virtual products. This Chinese company employs young people, mostly male, from lower class or working class backgrounds. The workers have a decent education but little opportunity, and they are making a healthy living in a completely new industry that offers returns too low to seriously interest anyone in the developed world. But for them it’s a gold mine.

Or rather it’s a “gold farm,” which is the term that has come into use to describe these types of companies (the industry as a whole is known as “gold farming”). Gold farming was a $3 billion industry globally in 2010, and generated jobs for 100,000 full time equivalent workers. But, of the new opportunities identified by the report it is the most demanding of its workers. Other new industries can employ people with less-advanced skill sets.

One of these is called “Cherry Blossoming.” Derived from a Japanese-language slang expression (“Sakura” in Japanese means both “cherry blossom” and “paid spectator”) the name refers to an industry that sells social media “status” to companies looking to use these tools as part of their marketing strategy. For example, a company that has just started a Twitter feed may not want to go through a growth period where they have only a few followers, for fear that this low number will reflect poorly on their product or business. So “cherry blossoming” firms offer these companies the opportunity to buy Twitter followers, by the thousands. Similarly, they sell “Facebook likes.”

This business involves a large number of extremely small tasks that each generate a very low return for the company. A worker will sit at a terminal and, using a host of different profiles and accounts, “like” or “follow” their client companies. Each “like” may only take a few moments, and earn the company only a few cents. For example, a quick Google search will reveal that it is possible to buy 1000 Twitter followers for $20. This type of repetitive, low-margin work does not interest developed world companies, but in the developing world it can offer reliable income to poorly educated people who don’t have any other opportunities.

Though Cherry Blossoming is controversial, it is representative of the emerging field of “microwork,” which on the whole is not. Microwork is usually defined as a task that takes under 30 seconds to complete. Companies throughout the world have lots of this work to do, and it is now possible to parse tasks out and have them done by the very poor in the developing world.

Samasource, a non-profit organization focused on generating employment opportunities in Kenya, is one organziation that does this. They contract with large firms, in this case Silicon Valley tech firms, and perform microtask after microtask out of large telecenters the organization sets up in Africa. The group’s first contract involved digitizing text. This is often difficult for a computer to do, and near impossible if the document to be digitized is handwritten. So Samasource workers will look at scanned copies of the document and manually type in words that the software cannot comprehend. This does not even require the worker to be literate – they just need to be able to recognize all the letters by shape and match them to the keyboard. Samasource has expanded into other small tasks as well, such as vetting sites for inappropriate images and video, and verifying business listings for crowd-sourced yellow-pages sites.

Performing these micro-tasks gives “dignified digital work” to poor people, as Samasource puts it. They have even managed to set up and operate a successful business that employs many people in a refugee camp in Dadaab, on the Kenya-Somalia border.

The next iteration of micro-task work is to find a way to do it on mobile phones. The industry isn’t quite there yet, but once it is there will be no geographic limit to who can easily make a living out of the digital economy. This is the next generation of business process outsourcing, and it holds the potential to employ many poor and at-risk youth in the developing world.

If this discussion gives you any ideas, you may want to try to develop them. The World Bank is considering holding a “Mobile Micro-work Challenge,” where they would fund promising start-ups in the field.

April 8, 2011/by actualize

Economic Growth & Trade, Economic Policy and Governance, Enterprise Development, Originally posted on the GBI Portal

Reexamining India – Part II

When we last examined the Indian IT boom on this blog we were left with a few important conclusions. First, it became clear that the IT boom was driven by software exports and that these exports grew linearly until 1992. In that year something happened in the industry and software exports began to take off in an exponential manner.

Knowing that the primary input into software is labor, and that the rate of employment growth didn’t change dramatically, we can be certain that this take off in software exports was caused by massive increases in labor productivity; and we have a graph to show it. The figure below shows revenues per worker in the software industry over the course of the 1990s.

The takeoff is extraordinary. By the late 1990s software firms were hiring as many engineers as they could find, and each additional worker was leading to even higher marginal revenues. Shockingly, despite the huge IT workforce that was a precursor to the boom in the first place, by the end of the decade the number one complaint of IT firms in business surveys was a scarcity of labor.

The boom in labor productivity could only have come from two sources: better management practices and moving up the value chain (and it in fact came from both). India already had highly trained workers, and these workers were already working with advanced machinery. They were however engaged in simple work conducted “on-site” – mostly systems design, analysis and coding. There were few, if any, Indian firms doing turnkey software projects. By the early 2000s that fact had changed completely. Whereas in 1988 90% of all software exports were “on-site” services, by 2003 that number was down to 40% and falling.

What happened to allow India to move up the software value chain and to force firms to invest heavily in improved management practices? The logical place to start looking for clues is in the massive political change that occurred in India in 1991. In the 1950’s Nehru had established a Soviet-style system of central planning and restrictions on the private sector that came to be known as the “License Raj.” But in ’91, facing a currency crisis that required IMF intervention, the international community forced reforms on India that made it much easier for businesses to spring up and foreign investment to pour in. And pour in it did: the graph below shows foreign investment into India throughout the 1990s. Its exponential shape seems to mirror that of software exports.

But of course the story isn’t quite that simple. While the 1992-99 period did see 68 multinational software firms establish offices in the country, software exports have always been largely the domain of domestic firms. By 2001 multinationals still accounted for only 15% of such exports from India.

It is also important to note that in 1990 and 1991 the government established a series of software technology parks (STPs). The first one opened in Bangalore in August 1990 and included modern communications networks that were beyond the reach of ordinary firms. Even after liberalization the government continued to do this, and by 2002 there were 39 parks that together accounted for 80% of the country’s software exports.

So we have a lot of different elements – some involving liberalization and some involving outright subsidization – that were woven together to create a unique growth recipe for IT in India. The story can be told briefly somewhat like this.

In the mid-1980s, while Indian IT was almost entirely focused on on-site services, Texas Instruments came in and established a research and development center in Bangalore. The exact reasons they were willing to go through the trouble of starting a subsidiary in India during the License Raj years are unknown, but the fact that they had an IIT-educated Indian VP may well have had something to do with it. Many of their multinational competitors watched from afar as this business was set up, but none followed. Bangalore at the time TI arrived was a hub of the Indian defense industry, home of an IIT, and a logical place for the government to establish a science and technology park. They did so largely at the urging of the software exporters specializing in “on-site” software development. They felt that with better data links to their work sites (links they couldn’t afford on their own) they would be better able to do more of their work in India. That would save them a large amount of money in both travel and in the division of labor. Often consultants that went out from India on site visits were top tier company employees – they had to be capable of the most complex tasks that clients would ask of them. But these top employees spent little of their time on the ground doing complex tasks. Often times they simply coded, a job for which software engineers in the US and Europe almost never do Pronab Sen noted that because of this phenomenon the average productivity of an Indian on-site software engineer in the US was only 30% of his American counterpart. With reliable data links the on-site consultant could farm this work out to employees at home and spend more of his time doing complex work.

By 1993 this had begun to happen. “Off-shoring,” the development of software in India, had jumped by a third over the previous two years. Consequently, the labor productivity associated with the primary industry laborers, the on-site software engineers, had begun to soar. As more and more work was done off-shore by the companies that had previously requested on-site services, they became more comfortable with it. Gradually, more and more valuable work was allowed to be off-shored.

At the same time that “on-site” consulting firms were beginning to do more offshore work India was liberalizing. The firms that had long watched Texas Instruments, and had seen them prove that successful R&D could be done in India, finally could make a business case to move into the country.

So foreign software firms began to move into India, and previously on-site clients began to do more work off-shore, all at the same time. This led to a fierce competition for the primary resource in the IT sector, programmers and engineers. But interestingly, as pointed out by the economist Suma Athreye, the Indian firms and the multinationals were only competing in the input market, not the product market. The large multinational subsidiaries established in India sold their product only to their parent company. This meant that the presence of multinational firms in India forced salaries up, forced domestic firms to adopt more efficient labor use strategies, but did not compete with (and potentially destroy) them. These positive incentives had an impact on labor productivity. By the late 1990’s Indian firms had earned ISO certifications that were on par with the multinationals with whom they were competing for talent. A culture of organizational management expertise was inaugurated, and as new Indian firms were created in throughout the 1990’s they sought this expertise as well. So it was truly a combination of moving up the value chain and improved business processes that led to the labor productivity boom, and it was brought about by a unique combination of public policies (some liberal, some not) and private sector initiative.

What lessons can we draw from this experience? I pull out a few, but am happy to debate them.

1) In India business parks were successful. I can think of many places where they were not. They worked in India because existing business had a need (connectivity) that the business park could solve. They were not meant to create an industry out of nothing.

2) A plan that relies on accessing export markets can work, but it works really well when you have limited competition and your citizens hold management positions with the primary overseas clients.

3) The entry of multinationals had a catalytic effect on growth in software exports from domestic Indian firms. This is likely because they only competed in input markets, not output markets, and because Indian firms were already well established.

I could probably go on, but a trend is emerging. It seems that standard interventions to support ICT industries – a business park, a strategy of liberalization – can go either of two ways. It can help your industry or hurt it, depending on conditions on the ground. This argues strongly for heterodox policies that are country specific and take account of these circumstances.

March 30, 2011/by actualize

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