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.

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.

 

Few world leaders are as savvy users of new media tools as Rwandan President Paul Kagame, who actively maintains a Twitter account and a YouTube channel. Because of how technologically engaged he is, Kagame was invited to answer a range of user-submitted questions as part of the Youtube Worldview Interview.

President Kagame fielded questions that touched on genocide, foreign aid, democratic elections, education, and job creation. But the main purpose of the interview was to explain to the world how a nation can restore political and economic stability and prevent genocide.

Kagame says technology stimulates economic activity and touts social media as a viable tool for governments to remain engaged with citizens. A fifth of the questions asked related to technology, and Kagame noted that had the infamous genocide occurred in an age where ICT were as ubiquitious as they are today, more positive voices would have been heard.


Transcriptions for three responses given by President Kagame (Transcription Credit: oAfrica)

What advantage do developing countries have when it comes to new technology? What potential do you see for mobile technology in improving the lives of Rwandans? (31:35-35:21)

Developing countries have an advantage because they can leapfrog. They don’t have to go through re-inventing the wheel, it has already been invented. We just go to the best – to the latest – that there is already. This is a very huge advantage. Again this is an advantages to those that see the opportunity. The fact that it is there is not enough. New technologies provide new opportunities. They support entrepreneurship, they support innovation, they support creativity. They constitute a business themselves. They present economic activities that people can benefit from. They serve as drives and tools that we can use to develop economic activities. For Rwanda, we are using not only these technologies but we can make them accessible to our people and make sure people are able to use them. And affordable. We build from there. Information technology is very critical. It informs our people. It gives them an enormous amount of information and ways, and therefore means, And they can also communicate. Once that exchange takes place it tells society to accelerate their development whether it is government or development or different aspirations for the country.

You personally use social networking websites like Twitter. Do you think modern day leaders & government officials should use these platforms as a means to reach young people or as a means to broadcast vital information? (40:55-43:20)

My experience with the use of the social media is that yes, it gives an opportunity to communicate with a very wide audience, even abroad. So it comes with a wealth of information and ideas. The whole value of connecting with the people and doing so it provides a platform to air your views, hear from other people’s views. It’s very instructive, indeed. I try and subscribe to making use of social media. I benefit, maybe other people will benefit too. It creates a healthy link with a wide, even global audience, not just a domestic area.

Considering today’s technology and access to it that everyone has, do you think had we had this kind of technology 17 years ago that what happened could have been prevented? (43:20-45:08)

I think, yes, this institution would have been much better if we had this 17 years ago. It would bring more awareness. It would be a process of liberalization for a good cause. It would be more positive than negative. Negative people abuse it, but I believe there would be more use for the better cause than for such negative ones. Some of the activities that took place were hidden from the eyes of the general public. Voices would have come out to say it is something else. There would have been more people challenging things that were happening. Certainly the matter would have been different.



Ghana, West Africa’s emerging ICT hub, inaugurated two more Rural Technology Facilities (RTFs) last week. RTFs form part of Ghana’s thrust “to enhance and build a strong and vibrant rural economy to reduce unemployment, poverty and ruraL-urban migration.”

The new RTFs at Goaso and Bechem, which cost US$637, 636, brings the complement to 15; and Hanna Tetteh, Ghana’s Minister of Trade and Industry, says seven more are in the pipeline.

Tetteh says Ghana will continue to establish RTFs country-wide to support the transfer of technologies to farmers, agroprocessors, artisans, unemployed youth and micro and small enterprises.

According to government estimates, the existing RTFs have enabled the establishment of over 21, 000 businesses and 52, 000 jobs across Ghana’s 10 geopolitical regions.

The RTF drive, which is funded by Ghana, in collaboration with, the International Fund for Agricultural Development (IFAD) and the African Development Bank (ADB), house technical workshops with modern equipment and trained technical personnel. RTFs are capable of providing technical training, promotion and dissemination of technology to boost the capacity of micro and small-scale enterprises.

To find out more about Ghana’s efforts to cement its position as a West African hub for ICTs, go here.

 

Kenya’s ICT sector accounts for three percent of GDP, and it is poised to expand next year. According to estimates for the fiscal year 2012, the government will pump millions into efforts to boost the sector. The state will spend nearly US$10 million dollars to boost exposure to ICTs in schools and far-flung villages.

Finance Minister Uhuru Kenyatta says the state will pump more than US$2.3 million into its much vaunted digital villages project or Pasha Centers. The Minister says the other US$7.5 million will be used to purchase computers for schools across the country. Commentators say this will provide early initiation into the digital world for a broader cross-section of Kenyan youth.

But none of these grand plans will work without major improvement of Kenya’s electricity infrastructure. “Electricity is very essential in the roll-out and running of ICT infrastructure,” says Telecommunications Engineer Esmond Shahonya. The Kenyan government agrees. The East-African ICT hub will spend US$62 million to electrify 460 trading centres and 110 secondary schools, among other public facilities under the rural electrification program. This will further bridge the digital divide.

The ICT sector will also benefit from the $730 million allocated to the Ministry of Energy.

 

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.

 

Last week’s Tech Salon, hosted by ICT Works and the UN Foundation Technology Partnership, was on the topic ‘Can youth find economic empowerment via apps, m-payments and social media?’ Fiona Macaulay from Making Cents and I gave some of the opening remarks to get the conversation started (and Wayan Vota kept things lively as usual).

The premise of the Salon was that ‘today’s youth population is the largest in the history of the world, and 90% of these young people live in developing countries. The global youth unemployment rate is the highest on record, and we’re seeing discontent and disenfranchisement play out on the news each day. In fact, the revolution in Tunisia started with an under-employed youth committing self-immolation in frustration…. Technology-based models hold great promise for increasing and improving economic opportunities for young people: low barriers to entry for youth-built apps, the widespread use of Facebook and its promise as a marketing platform, the ubiquity and ease of m-Payment systems like MPESA – these should be a recipe for youth economic empowerment.

During the Salon we explored 3 key questions:

1) How are youth starting businesses or getting jobs in growth-oriented ICT sectors around the world?

2) How are organizations and programs utilizing technology to reach and engage young people?

3) Where should we be cautious or enthusiastic with technology with respect to youth economic empowerment?

This is the first of 3 posts on those questions, starting with Question 1:

How are youth starting businesses or getting jobs in growth-oriented ICT sectors around the world?

I was pretty skeptical about the potential for apps, Facebook and m-payments to resolve the youth employment/income crisis, at least in the context of the rural communities in Africa where I’ve worked over the past several years. So leading into the Salon, I did an informal survey among some colleagues working in Africa to find out how they observed youth making money using technology, and to see whether the idea above had any legs. My thoughts were pretty much confirmed – in the places we are working, some youth are using technology to generate income, but not so much apps, mPayments and Facebook.

In Egypt, colleagues said that youth are repairing cell phones, serving as DJs at wedding parties, setting up photocopy shops and internet cafes, selling phone calls and airtime, running shops that provide children and young people with the opportunity to play games, and using computers to make flyers and posters for certain producers and products in the communities. They also provide satellite connections for poor families to access national and international TV channels – this service is not legal but generates good income for young people.

In Kenya you’ll find youth managing Mobile Phone Kiosks popularly known as ‘Simu Ya jamii’ (community phones). These double up as phone charging points. Pirated music is big business for some youth and phone unlocking services are increasing. One colleague noted that youth are not really creating applications, but in some of our programs, they are involved in piloting new applications, and thus influencing their development. In Zambia, you don’t see much of this type of activity in rural areas, according to a colleague there. But there are village telcos being operated by youth groups and some village groups are setting up banks of solar chargers to support solar lighting. (Cool result: When they set them up at a schools, encouraging women to come each day to charge their lights, they found that school attendance increased).

[youtube=http://www.youtube.com/watch?v=LTAbe35YCLY]

In Burkina Faso it’s common to see youth selling telephone scratch cards, renting out their phones, offering video services to film at private events, charging up phones for a price. In Senegal, some take phones from one area to another to charge them up for a fee. All over Africa you see video pirating and movie houses, video game houses, video downloading to mobile phones, music on flash drives and flash drives that plug into radios in cars and in collective transportation vans and busses.

There is ‘negative’ business also

Some would place ‘pirating’ and stolen satellite connections here. There is also transactional sex by girls to obtain mobile phones, which are a status symbol. We hear in some communities that adolescents with mobile phones are ‘bad.’ In Cameroon girls said that some boys only use phones to scam people and to steal. Mobiles can also facilitate prostitution. One colleague commented that in Ouagadougou (Burkina Faso) she has seen girls on motorbikes offering themselves by presenting their phone number on their back. We heard from youth in Cameroon that mobiles are commonly stolen and traded. Some parents in various countries do not like movie and game houses, associating them with porn and western culture.

Are youth in rural areas creating ‘apps,’ using ‘apps’ or tapping into ICT development or programming opportunities?

Not really, from what I have seen and what colleagues tell me. There are some shining stars here and there, but this isn’t very widespread yet, and the youth who are developing apps and such tend to be well-educated urban youth. This 2009 study on how the African Movement of Working Children and Youth (MAEJT) uses ICTs is quite interesting in this regard.

 

How do youth obtain and use mobiles? (MAEJT study, 2009)

 

In Egypt, colleagues said Facebook and Twitter groups around specific issues are common among young people in communities. But using ICT specifically for generating income is not. There is inadequate awareness among poor communities on how to make this happen. Although many youth have access to cell phones, ICT is still expensive and non-affordable for many others. Most of the families who have phones in their houses do not have a direct line, which means that they cannot get access to internet through cheap lines. Internet is still very expensive. Getting jobs through the internet is only common among advantaged, well- educated youth, not disadvantaged youth.

In Nairobi, Kenya, iHub and NAiLab have a big pool of developers and there is a lot of action. In rural Kenya, however, access is limited. There is a lot of interest from the youth who have started to catch on though, so colleagues felt it was possible that there could be some type of rural-urban mentoring or connections to help rural youth get on board. In rural Zambia, according to colleagues, sheer poverty means that very few additional resources and capital are available to take on new ideas. There is still very poor mobile phone coverage in some areas, and many young people have already left for urban areas. My colleagues in West Africa did not report seeing any youth developing apps or using Facebook combined with mPayments to generate income. In Kenya, Cameroon, Uganda and some other places, innovation hubs and labs are generating opportunities, but these again seem to be available to secondary- or even more often university-educated youth from urban areas and capital cities or large cities outside the capital.

So, is this bit about apps, mPayments and social media all hype? I’ll explore that a bit more in post 2 of the series. In post 3, I’ll cover the longer term considerations for ICTs and youth economic empowerment and some broader aspects that need to be kept in mind.

 

picture of morroco

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.

 

 

 

Women working in a BPO centerUsually 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.

Man sitting on a pile of yellow cablesWhen 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.

Graphs displaying FDI Flows In India, by year

 

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.

 

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