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National IT Policies for Developing Countries
by Jason Dedrick and Kenneth L. Kraemer
Information technology (IT) and the Internet present opportunities for developing countries to improve productivity, support development, and participate more fully in the world economy. Countries that fail to adopt these technologies risk isolation from international markets and from the wealth of information and communication resources available via the Internet. Developing countries face challenges in three areas as they attempt to construct effective IT policies: IT use, national IT industries, and national capabilities.
IT Use
Research shows that IT investments result in increased productivity for developed countries, but does not find this relationship in developing countries. However, it is likely that sustained investments in IT and in complementary assets such as human resources, physical capital and telecommunications infrastructure will eventually lead to productivity gains in developing countries as they have in developed countries.
Globalization makes it more urgent to develop IT capabilities. High-tech industries such as computers and electronics are moving quickly to integrate global supply chains electronically. Even low-tech industries such as textiles and footwear are adopting electronic commerce. Companies and countries need to be able to use IT to take part in these global production networks.
National IT Industries
The computer industry is a major source of output, exports and jobs in countries such as Singapore, Taiwan, South Korea, China, Mexico and Malaysia. Creating a national IT industry is not a simple matter, however. Only those in close proximity to a large market and to a well-developed supplier base are likely to succeed in hardware, and only a few developing countries are in such a position.
Fortunately, there is an option available to developing countries that encourages IT use while also creating opportunities to develop a local industry. This option, which we call ‘production close to use’, includes IT services such as system integration, custom programming, and web design and hosting, as well as some kinds of packaged software.
These segments offer specific advantages for developing countries. First, there are opportunities to develop niche products that meet the needs of local languages and business cultures, and to provide services to local customers. Such markets have relatively low entry costs, so local companies can start small and grow at a pace that can be supported by their own resources.
Next, IT services can serve as a link between use and production, helping users apply IT more effectively, and creating business opportunities for domestic entrepreneurs. Finally, software and services are the fastest growing segments of the IT industry (see table), and present many opportunities for new entrants.
National Capabilities
In order to support both IT use and production, countries need to develop human resources and information infrastructure. At one level, there is a need to develop basic capabilities through general education and broad infrastructure investments. However, focused investments in high level capabilities are also important. These can include the training of IT professionals, investment in specialized information infrastructure, and the creation of advanced technology institutions.
Such investments will create the foundation for building broader capabilities. For instance, professionals with advanced training are needed to support IT use and production, and are also needed to develop IT education programs at local schools and universities. Likewise, specialized high-speed research networks can provide the infrastructure for widespread Internet use.
The most effective IT policies are those that promote use and production close to use, and those that build national capabilities. These policies work best if developed in cooperation with the private sector, and if the efforts of related agencies are coordinated so that they complement, rather than compete, with each other.
Promoting IT Use
A key step is to lower IT costs. Any policy that makes computers more expensive will discourage use, so lowering taxes and tariffs on IT products will help promote use. Public sector use must also rise. Governments can become sophisticated IT users, developing useful applications and becoming a model for the private sector. Putting computers and Internet access in schools and providing necessary support for teachers not only can improve education, but will also nurture a new generation of children who are comfortable using IT. Moreover, we need more development-orientated applications.
Many IT applications are well-suited to the development process. For instance, geographical information systems can help protect natural resources and support land use planning, while distant learning can support education in countries with remote rural populations. Governments and development agencies can work with the private sector to deploy such applications.
Developing National IT Capabilities
Promoting hardware production usually involves some combination of financial incentives, export processing zones, infrastructure, and worker training. Promoting software and services is more complex, but three policies are likely to be effective.
First, promoting IT use among small businesses is essential. These usually rely on local vendors for IT services, and provide a valuable source of revenue and opportunities to develop new products and services. Second, provide direct support. Governments can provide low-interest loans and grants in amounts that are appropriate for small companies, and can create incubators for new companies. They need to work with private sector experts who can judge the viability of plans and act as mentors to those selected. Third, create partnerships between local firms and multinationals. Working with world-class companies helps local firms develop the skills to grow and compete. Governments can offer incentives to multinationals to work with local companies.
Developing Capabilities
The final set of tasks are amongst the most important. These include expanding IT skills by training people locally and sending the best abroad for advanced degrees. Then ensure that there are opportunities to do interesting work, so that talented people will stay or return. In addition, it is vital to develop information infrastructure, by encouraging competition in telecommunications and Internet access to reduce prices and improve quality. Finally, technology capabilities must be upgraded. This means creating institutions to evaluate, adapt and diffuse imported technologies and eventually create original R&D capabilities.
In summary, IT use pays off when investments are sustained and combined with investments in complementary assets, such as human resources. While some countries may be able to develop computer hardware industries, ‘production close to use’ of software and services offers the best opportunities for most developing countries. Government policy can make a difference by promoting use, stimulating production close to use, and developing national capabilities.
Mr Jason Dedrick and Professor Kenneth L. Kraemer are with the Center for Research on IT and Organizations (CRITO), University of California, Irvine (www.crito.uci.edu). They are participating in UNU/WIDER’s research on IT and Economic Growth, led by Professor Matti Pohjola. This article is based on their presentation to the UNU panel on IT, Economic Growth and Development (UN ECOSOC 2000 preparatory process) in New York, 5 May 2000.