March 2009 Archives

That the Nordic countries again lead the networked readiness index ranking -- for the third time in a row -- in the World Economic Forum's  Global Technology Report 2009 released last week, is no surprise. Given their small sizes and relatively sparse population, top-notch education system, their impressive per capita income, as well as the high importance given by their Governments to adopt ICT in their general competitive agenda, it is quite natural that these countries would frequently be at top of networked readiness list.

What is surprising however, is that the biggest leap in improvement of ICT adoption and networked readiness was taken by a country which had been far lower in the previous year. According to the latest Networked Readiness Index [NRI] of the WEF as reflected in the Global Technology Report 2009, China by ranking 46th this year, leapfrogging 11 positions, thus overtaking India and the rest of the BRIC economies for the first time.

Even more impressive is the fact that in the readiness component of the NRI, the Government Readiness matrix moved up an impressive 9 places (33rd from 42) indicating that, unlike many other developing nations, the government of even a communist-led country has realized the extraordinary capacity of ICT to drive growth and innovation, and is increasing its ICT usage too to render more services and efficiency.

"Anyone who has been following China's rise in the last few years would not find it surprising that China has performed so well," says Irene Mia the co-analyst and co-author of the report who is also an economist at the World Economic Forum. "After all China is the biggest exporter of ICT products and is one of the most dynamic countries in terms of ICT use. Yet the element that is worth noting is the role of the Chinese government to use ICT and putting it at the center of its development agenda to improve its efficiency."

According to Soumitra Dutta, professor of the business and technology studies at INSEAD, France, who is the other co-author of the report, China has been investing very heavily in technology over the last several years, "and the results of that investment is coming upright now."

But although Dutta says that he expects "China to continue to rise in ranking in the next few years," there are nevertheless some weaknesses that China needs to address to make the growth of its ICT use sustainable.

For one, the sheer size of the country makes its existing ICT infrastructure insufficient to sustain a long term growth. That comes in the way of Internet, mobile telephony and PC penetration.

"But the biggest weakness of China is its regulatory environment especially with respect to its intellectual property [IP] protection," says Mia.

The Global Information Technology Report series, produced by the WEF in partnership with INSEAD annually since 2001, is one of the most significant efforts that has helped in raising awareness of the importance of ICT diffusion for overall competitiveness. The Networked Readiness Index, that WEF calculates, identifies the enabling factors that permit countries to fully benefit from ICT advances, stressing the key responsibility of all social actors --individuals, businesses, and governments.

According to WEF, NRI has not only emerged as an important tool for policymakers and even stakeholders to measure the progress of a country's ICT use and adoption, but has also been a facilitator for designing national policies and strategies that aim toward enhanced networked readiness and competitiveness.

The eighth edition of the Report covered a record 134 economies.

Besides the fact that Denmark and Sweden continue to be assessed as the world's most networked economies and along with Sweden, Finland, Iceland, the Nordic region continues to feature prominently in the NRI 2008-2009 rankings, the other siginifacnt development is that the Middle East region is also on the rise.

"This region has progressed rapidly as well due to its stellar increase in Internet penetration," says Mia, "and also the fact that in order to diversify their economy from oil and to modernize their society, the governments in these countries have put ICT at the center of their development agenda."

The other notable features in this year's ranking are the facts that Singapore (ranking 4) was the only Asian country to feature in top 10, while the United States moved up one position (to 5), confirming its pre-eminence in networked readiness in the current times of economic slowdown.

"The US has done very well," says Dutta. 'It is one of the large countries that has always been on the top. It has tremendous strength in terms of attracting talent and a great track record in start-up tech companies. And while US certainly has a challenge in the financial sector, on the whole technology is in a very strong position."

Photo: Shanghai PC Mall - Sony Vaio store by Josh Bancroft. Creative Commons Attribution-Noncommercial 2.0 Generic

Given that 80% of Indians have no access to proper information and good quality ICT, it is often a wonder that the country still manages to be the top destination for IT related outsourcing and back office services.

The truth is, the major reason behind India's success story in IT is perhaps what has been the country's biggest problems for decades -- population.

Even as the burden of India's 1.3 billion people has pulled the country down in many economic development parameters, its huge population has ensured a supply of abundant English-speaking, technology-savvy, and cheap but skilled IT workers. And this has helped India's IT sector to forge ahead in the global IT arena despite a plethora of hurdles back home.

The county also has a detailed IT Policy, and in fact, over the years has tinkered and experimented with various types of IT policies. But critics say that due to lack of focus and vision, the country has hardly been able to harness its IT prowess to propel the country forward.

Realizing that deficiency, India's main political opposition the Bharatiya Janata Party (or BJP) is now moving in to cash in on the opportunity by offering a well-crafted Indian IT Policy in the upcoming General Elections (in April and May).

Releasing the party's manifesto two days ago, BJP also announced its carefully-crafted IT vision that aims to bring about "the next revolution in India through the use of IT and technology."

Called "Transforming Bharat" (India is called Bharat in Hindi) BJP's IT policy promises IT sops to all -- starting from farmers to students, to even the poor -- if BJP is  voted to power that is in the next elections.

So, from proposing a multi-purpose identity card for all citizens, 12 million new information technology-enabled jobs in rural areas, laptops priced at slightly above $200 for millions of students, and providing "cheap" smart mobile phone to every poor, the policy promises to "connect everybody with IT."

In many respects "Transforming Bharat" is indeed impressive, For instance, it promises;

•12 million new IT-enabled jobs in rural areas.

• Multipurpose National Identity Card (MNIC) with unique Citizen Identification Number (CIN) in 3 years; to replace all other identification systems.

• Bank accounts, with eBanking facilities, for all Indian citizens. Direct transfer of welfare funds.

•India to equal China in every IT parameter in five years.

• National Digital Highway Development Project to create India's internet backbone

• Broadband Internet (2 Mbps with 1:1 content ratio) in every town and village, at cable TV prices (less than $4 per month).

• All schools and colleges with internet-enabled education.

•Laptops at about $200 a piece with interest-free loan for funding the laptop, for 10 million students

• Computing in local languages that would include formation of National Mission for Promotion of IT in Indian Languages.

• Promotion of domestic IT hardware industry to minimize dependence on imports.

• Promotion of domestic hosting industry to minimize international bandwidth charges.

• An independent body, called Digital Security Agency (DSA), for cyber warfare, cyber counter-terrorism, and cyber security of national digital assets.

However, in accordance with its Nationalism bias, "Transforming Bharat" also contains a couple of proposals that could be thorns for global IT and top telecom companies. The BJP IT policy stresses on active promotion of open-source software and Internet telephony, which say analysts, could make the likes of Microsoft and the telecom companies see red. Driven by the country's (and Microsoft's) aggressive anti-piracy drive, ever since small and medium sized businesses as well as large enterprises started favoring Linux a few years back, the open-source alternative has gained quite a bit of traction in India.

And arguing that cheap Internet telephony could hit Indian telecom operators hard thus jeopardizing the country's telecom penetration ambitions, the local telecom industry has been fiercely objecting to the introduction of VoIP for years. While the industry says that call prices are cheap enough to offset the benefits of VoIP, many say that not allowing VoIP has  deprived Indian consumers the fruits of global competition.

Still it appears that the BJP's IT vision has been well-received by the industry. Commenting on the policy, Sun Microsystem's country director Jaijit Bhattacharya told the press that "We welcome the IT vision of one of India's significant political parties. We believe the policy will help in improving IT industry in India through adoption of open standards and promotion of domestic web hosting industry. We hope other political parties will follow suit."

Photo by McKay Savage. Creative Commons Attribution-Noncommercial 2.0 Generic

Mounting job cuts and pressures from the tax payers are pushing President Obama to impose strict protectionist measures for international outsourcing by bailed-out US companies. Now some experts are starting to say that any similar measures, if adopted by US State governments, could have a devastating effect on the state economies.

Consequently, the advice now being urged upon US state governments is; "do not give in to internal pressures; instead do business internationally as usual."

Indeed the last four weeks have been unprecedented as far as US trade-restrictions are concerned. In early February for instance, the US Senate voted for imposing strict conditions on hiring of people with H-1B visas by American companies that receive federal bailout money. And two weeks later, Obama in his first address to the Congress announced that his administration will end tax breaks for corporations that ship jobs overseas.

"Following these steps there may be stronger voices in the US calling for more protectionism and protectionism could well spill over to the state level in the US," says Rodney A Nelsestuen, Research Director, at the Massachusetts-based IT Consulting firm, the Tower Group. "US states hardly outsource IT services themselves, so the real issue is that state governments might regulate business that are domiciled within their state. And if the federal government imposes protectionist steps, state governments tend to follow the federal government moves by imposing taxes on their own."

He added that US States "can create tax incentives and tax burdens that drive behavior, as well as most states have corporate taxes and they can influence separately their own tax policies. But the real issue is that states need to be very careful about taking any kind of protectionist actions against IT because they could face other barriers from elsewhere."

According to Nelsestuen, while formulating any initiative that gives preference to US-based suppliers, State Governments should keep the following points in mind;

• Procurement processes that become politicized run the risk of proliferating as a "good-old-boy" system of decision making.

• Domestication of IT infrastructure delivery limits scalability and reduces access to IT best practices in an important, increasingly technical, but also highly commoditized service.

• Limiting outsourcing to domestic providers will make the industry less competitive, with fewer value-added services than when global resources are in the bidding process.

• Project selection will be driven by limited capital focused on a higher-cost delivery model.

• Increasing costs may drive architectural decisions to bolt on functions rather than more holistic IT solution strategies.

• Efficiency goals will be redefined with lower expectations, increasing operating costs that will be passed on to clients and customers.

However, says Guillermo Kopp Executive Director, Tower Group, the most important point to note is that "protectionist barriers to international suppliers will cause foreign governments, businesses, and individuals to retaliate in kind by shunning products and services that are being sold abroad by US providers."

Take the US states of Arkansas, Nebraska and Minnesota for example, which have tremendous amount of export of agricultural products. If these states wish to be as protective as the Obama administration wants the US to be, other countries - like Brazil, Russia, India, and China that import agricultural products from these states against exporting IT services to US - may well stop importing commodities from them. "And that could be devastating for these states," says Nelsestuen.

Besides, there could be another significant fallout to the protectionism, particularly with regard to outsourcing and offshoring of IT services. Following the last few years of consolidation in the global IT arena, pure US "domestic" technology vendors are increasingly hard to find.

Last year for instance, US-based vendor EDS was purchased by US-based Hewlett-Packard. Since, both companies have long been global, having operations centers outside the United States, any protectionist move could severely complicate this de facto global status of these companies.

Protectionism, then, would need to be redefined. "Because even as it comes with all good intention in the short rum, it is a very high risk proposition in the long run," says Nelsestuen. "That's because the health of companies based in developed nations depends on their ability to take part in the global economy, and protectionist moves further depress business results in these companies and increase unemployment everywhere."

 

Thanks to the biggest global economic slowdown since the "Great Depression" of the 1929, few may like to look back at 2008. For global ICT however, 2008 was a year when it achieved a few significant milestones. Mobile cellular subscriptions worldwide crossed the 4 billion -- translating into a penetration rate of over 60 percent -- while almost a quarter of the world's 6.7 billion people were able to hook up to the Internet.

Yet despite this high growth rates, record subscription numbers, and all-time high penetration rates-achieved particularly over the last five years, ICT failed to achieve one of its most important objectives; Bridging the digital divide.

According to the ITU's latest ICT Development Index-released today, although ICT has seen significant improvements in the developing world, both in terms of technology as well as adoption, the gap between the ICT haves and have-nots has hardly been bridged in the last 5 years.

"The developing countries the world over have made a lot of progress in terms of ICT access and are very dynamic as well in terms of ICT development," says Susan Teltscher, Head, Market Information and Statistics Division, ITU. "But despite their efforts, because the developing countries have not been able to keep pace with the development of ICT in developed countries, there's still a significant divide between the countries with very high ICT levels and countries with very low ICT levels."

Susan adds that even as developing countries have taken rapid strides in making  mobile phones ubiquitous, an area where most developing countries have failed to match up with their develop counterparts is the broadband penetration.

While the number of estimated Internet users worldwide continues to grow rapidly -- by the end of 2007 an average of one out of five people were online -- penetration levels in the developing world remain low, at around 13 per cent.

As an instance, take the case of Africa. Amongst the developing regions, Africa continues to have the highest mobile growth rate, as mobile penetration rose from just one in 50 people at the beginning of this century to over one fourth of the population last year.

Yet Africa features among the lowest (with values of 0.82 to 2.03) in the ITU Development Index because less than 5 per cent of the population use the Internet, compared to  less than 15 percent in Asia, and 43 and 44 percent in Europe and the Americas respectively.

"ITU has repeatedly highlighted the importance of broadband for development," says the report entitled Measuring the Information Society: The ICT Development Index 2009. "[However}, with limited availability of fixed networks in many developing countries, where wired access is often restricted to major urban centers," people find it difficult to get fixed broadband access.

The other stumbling block in bridging the gap is the scarcity of local content. For example, in many African low-developed countries, English, French or Portuguese is either the mother tongue or widely spoken. And there is hardly any local content availed in indigenous languages.

The lack of international bandwidth also poses a significant barrier to developing countries' ability to participate in ICT-enabled activities. 

"Today's information society is a global one where individuals must be able to interact and exchange knowledge and know-how globally. Also, in the absence of national or regional Internet Exchange Points (IXPs), international Internet bandwidth is used/ needed for domestic traffic, to transport data from users within the same country," says the report.

The Report has found that all countries (except one) have improved their ICT levels during the past five years, but some much more than others. Notably, Eastern Europe not only features high relative growth but also one of the highest IDI value gains and can thus be considered as the most dynamic region on ICT developments during this time period. Countries that were driving this process include the Baltic States and Romania. Other economies that have significantly improved their ICT levels are Luxembourg, the United Arab Emirates, Ireland, Macao (China), Japan, Italy and France.

The most advanced countries in ICT however, are from Northern Europe with the exception of Republic of Korea. Sweden tops the new ITU ICT Development Index, followed by the Republic of Korea, Denmark, the Netherlands, Iceland and Norway.

They are followed by other, mainly high-income countries from Europe, Asia and North America. But interestingly although gaining on both the access and the usage sub-indices, the United States has not yet reached the same high ICT penetration levels as several European countries. In fact United States is down six places, ranking 17th in the index.

Poor countries, in particular the least developed countries, remain at the lower end of the index with limited access to ICT infrastructure, including fixed and mobile telephony, Internet and broadband

A notable feature in this year's IDI is that it has included a new measure called ITU IC Price Basket that analyzed the prices for ICT services in each country.

And the revelation is; prices vary greatly between countries, not only in absolute terms (i.e. US$) but also when they are adjusted to purchasing power parity (PPP), and when they are presented as a percentage of Gross National Income per capita.

"The results of that analysis are interesting," says Susan.  "We found that high-income, developed countries have lower relative prices for ICT services (as a percentage of GNI per capita), whereas low-income, developing economies tend to have higher prices, which increases the rift in the digital divide globally."

 Photo: A classroom in India - World Bank Photo Collection/ Curt Carnemark . Creative Commons Attribution-Noncommercial-No Derivative Works 2.0 Generic