Comparison of ICT Development Strategies in Asia

Transcription

1 International Telecommunications Policy Review, Vol.18 No.4 ( ) pp.1-25 Comparison of ICT Development Strategies in Asia Keuk-Je Sung* ABSTRACT ICT development in Asia during the past decades was remarkable, following various development strategies. Korea, China, Malaysia, India and Vietnam were chosen to draw lessons for development strategies in ICT sector. Korea and Malaysia have pursued government-led development policies which turned to be quite successful. But Malaysia was not able to fully achieve its goal as planned. Related industries did not develop commensurately, and user readiness fell behind. China did not have comprehensive development policies as Korea, but protected local manufacturing industries for development, making use of huge domestic market. Software development and introduction of competition remain as future agenda. India shares no common features as the other Asian countries, but Indian software industry has tremendously grown by utilizing overseas networks and a large pool of well-educated manpower at low cost. Examination of development policies can draw lessons to other developing countries. Key words: ICT, Telecommunication, Development strategy JEL: L52, L86, H54 Manuscript was received: , revised: , accepted: * Professor at the Graduate School of Pan-Pacific International Studies, Kyung Hee University, kjsung@khu.ac.kr 1

2 International Telecommunications Policy Review, Vol.18 No.4 ( ) Ⅰ. INTRODUCTION 1. Choice of Countries for Study The purpose of this paper is to draw some lessons in the development of ICT (information and communication technology) sectors in Asian countries, so that those lessons can be applied to developing countries in the Asian region. Of course, not all the lessons can be blindly applied to any countries, but should be tailored to each country s own situation. Asia is generally recognized as fastest growing economies recently, and Asia can be largely grouped into Northeast, Southeast and South Asia. Northeast Asia includes large economies such as China, Japan and Korea. Chinese Taipei and Hong Kong SAR are also included, but three countries are more notable in ICT sector. Among Southeast Asian countries are represented by ASEAN, but Myanmar, Cambodia, Laos and Brunei are rather quite underdeveloped or small in their economic size. Thus, remaining six countries among 10 members are considered here. In South Asia, several countries are involved, but most interesting cases would be India, which has emerged as the major software exporter in the world. For comparison, Sri Lanka was also included which seems to be rather stable and per capital income is relatively higher than other South Asian countries. This leaves 11 countries for comparison: Korea, China, Japan, Indonesia, Malaysia, Philippines, Singapore, Thailand, Vietnam, India and Sri Lanka. The following Table 1 shows the development in the ICT sector in the 11 countries. It is to be noted that Korea has consistently ranked the 1 st during the several years, while Japan and Singapore are relatively ranked low. But all remaining countries for consideration are above or just below ranking 100, while there are 152 countries for comparison. ITU s indices are all based on quantitative statistics, such as broadband internet penetration ratio. 2

3 Comparison of ICT Development Strategies in Asia Table 1. Information Society Opportunity Index Rankings 2010 sub-index Access use skill Korea Japan Singapore Malaysia China Vietnam Thailand Philippines Indonesia Sri Lanka India data: ITU, Measuring the Information Society, 2011 and 2007 In order to see how active these countries are in international trade, export and import of ICT products 2 were examined, using the WTO statistics. Among the 11 countries, export performance by China outpaced any other countries. Other countries data are not presented in Figure 1, as they are rather small. However, it is to note that Thailand and Philippines have increase their export significantly entering the year Figure 2 was included here to show the magnitude of exports and imports of ICT products for all 11 countries in the year 2009 which is the most recent year for which comparable data are available. 1 Access accounts 40% weight and comprises of fixed and mobile telephone penetration ratios, international internet bandwidth, percentage of households with a computer and with internet access. Use also accounts 40%; percentage of internet users, penetration rate of fixed and mobile broadband internet users. Skills include literacy rate, second and tertiary gross enrolment ratios. 2 There is no official definition what comprises of ICT products. For this paper, Office and Telecommunication Equipment were chosen as ICT products; they include electronic data processing and office equipment, telecommunications equipment, and integrated circuits and electronic components. 3

4 International Telecommunications Policy Review, Vol.18 No.4 ( ) Figure 1. Export of ICT Products ( billion USD) China Japan Korea, Rep. Malaysia Singapore data: WTO, Time Series on international trade, Figure 2. Export and Import of ICT Products 2009(million USD) 600, , ,000 0 export export import data: WTO, Time Series on international trade, Comparabe ICT service data were hard to come by, like most service statistics. One consistent data are from the WTO, but the data are incomplete. One notable feature is the very large amount of Computer and Information service export by India 3. 3 Some other source estimates that the ICT service export of India may reach around 500 billion USD in html 4

5 goods Service Philippines Singapore China Malaysia Korea, Rep. Thailand Japan World Indonesia Vietnam Sri Lanka India India Philippines Sri Lanka World Indonesia Malaysia China Singapore Korea, Rep. Japan data: Worldbank Database, Comparison of ICT Development Strategies in Asia Figure 3. ICT Service Export in 2009 (million USD) 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 data: WTO, Time Series on international trade, Huge difference in the size of economies somewhat obscures the true status of ICT development. In this regard, the ratios of ICT product export in the total export, and also the ratio of ICT service in the total export. Following Table 2 shows the share of ICT goods export and service export in 11 countries, including the world average for comparison. Figure 4 shows the contents of Table 2. As can be seen in Table 2, most of Asian countries considered export larger share of ICT products, but smaller share of ICT services, except India, Philippines and Sri Lanka. Table 2. Comparison of ICT Export Ratios 2009 (unit: %) 5

6 International Telecommunications Policy Review, Vol.18 No.4 ( ) Figure 4. Ratios of ICT Export in Total Export 2009 (unit %) Goods Service data: Worldbank Database, It is interesting to note that those countries with low ratio of ICT products are exporting larger shares of ICT services, compared to the world average. This may due to fact that the three countries are English speaking countries, but considering Malaysiaa is also an English speaking country, it may be the combinationn of the two: English speaking and also low wages. Considering all these facts, it seems reasonable to take into the development strategies of the following 5 countries; Since Japan has achieved ICT growth quite early, and is a very developed country, and Singapore is a city state, these two countries are left out for further consideration. However, Korea, China, and India definitely need to be examined further, as their performances are outstanding. Malaysiaa has ambitiously pursued ICT development plans, and thus need further examination. Thailand seems to be in line with Malaysia, with less intensity. Philippines, Indonesia, and Sri Lanka are farther behind than Malaysiaa and India, thus need not be looked into further, and Malaysian and Indian cases could be representatives of these countries. Vietnam, however, is included for policy examination, since it has shown remarkable growth in ICT in recent years. Thus, in the following, ICT development strategies of Korea, China, Malaysia, India and Vietnam will be examined to draw some lessons. 6

7 Comparison of ICT Development Strategies in Asia 2. Overall Comparison of ICT Development Status Before going into details of each country, overall comparison of ICT status would reveal differences in development strategies. Currently, ITU(International Telecommunication Union), EIU(Economist Intelligence Unit) and WEF(World Economic Forum) publish informatization indices. Among these, ITU s index (which was shown in Table 1 above) exclusively draws upon fact-based data such as broadband network penetration or enrollment rate at the tertiary schools. However, many, if not all, of the indices by WEF came from qualitative survey results, which are not based on quantitative data. EIU s indices are somewhere in between. EIU s overall rankings are almost the same as those by ITU; government initiative in ICT development was strongest in Korea, followed by Malaysia. But China and Vietnam did not rank high in this regard. China is ahead of India or Vietnam regarding the absorption capacity by the private sector. Pricing appears to be the lowest in Korea; this may reflect the degree of competition in telecommunications. In terms of spending, the burden is highest in Korea, and lowest in India. Table 3. Various Indices by ITU and EIU Economist Intelligence Unit (2010) ITU (2010) Consumer Government ICT price Per Overall and policy & basket 4 Per capita (% capita ranking business spending($) vision of GNI) GNI ($) absorption Korea , Malaysia , China , India , Vietnam data: ITU, Measuring the Information Society, 2011 EIU, 4 Fixed line for monthly subscription+30 local calls; mobile for 30 outgoing calls+100 SMS; fixed broadband for 1G download. 7

8 International Telecommunications Policy Review, Vol.18 No.4 ( ) However, according to the WEF s detailed indices in Table 4 regarding market conditions, government regulations, government s policies and their achievements (success) show rather contrasting results from those in Table 3. For example, Malaysia outperforms all other 4 countries with favorable market conditions, least burdensome government regulation, and strong government involvement in the development. China and Vietnam also show quite high rankings in terms of government readiness. Surprisingly, Korea ranks quite low in government readiness, ranking even lower than Vietnam. India s rank still remains low. Since these indices are mostly based on qualitative survey results, it may be interpreted that these indices indicate participants perceptions toward the market condition and government policies. Table 4. WEF Global Information Technology Index Government Overall ranking burden of gov t regulation Market environment readiness priority procurement Vision success in promotion Korea Malaysia China India Vietnam data: WEF, The Global Information Technology Report In this context, we may temporarily postulate that strong government initiative in Korea has achieved rapid ICT development, while in Malaysia, the quantitative results did not sum up to the government efforts. China is in between Korea and Malaysia. In the case of Vietnam, government determination was high, but it did not materialize into higher ranking or was not perceived to be successful. India s readiness or ranking did not measure up to the other countries, but as we saw in Figure 3, India outperforms all others in software development. Further detailed examination in the next section will reveal characteristics of each country s development strategies. 8

9 Comparison of ICT Development Strategies in Asia Ⅱ. DEVELOPMENT STRATEGIES IN INDIVIDUAL COUNTRIES 5 1. Korean Strategy 1) Remarkable Growth in Service Provision and Hardware Production Korea was no different from, or even worse than, any developing countries in the ICT sector until For example, fixed line penetration ratio remained 7.2% until , and there were 600 thousand subscription applications while only 2.8 million lines were installed. It took usually a year and half to get the line installed, and black market for a subscription asked for the price of a house. Starting from the early 1980s, Korean government recognized the importance of the ICT sector for further economic development, and launched development plans. At the time, the slogan was Korea, a follower in industrialization but a leader in informatization. In Korea, these days, virtually all the people have 3G mobile phones 7 and virtually all households have access to and use of broadband internet, as the penetration ratio is over 80%. Hardware production has also dramatically developed. Trade surplus in ICT sector in 2007 was 60.3 billion USD, which accounts for more than 90% of total trade surplus of Korea. Also during 2003~2004 when economy was sluggish, ICT sector accounted for almost half of GDP growth. Technology development was also dramatic. Korea has developed its own digital switches in the 1980s, developed own mobile technology, the CDMA in 1990s, and mobile broadband technology, the WiBro in 2000s. 2) Competition in All ICT Sectors Competition was also introduced to telecommunication services in Korea, let alone to the manufacturing from the early years. Starting from the middle of 1990s, competition was gradually introduced in all spectra of services, and now there are 5 Section II partly draws from the unpublished paper by the author, Summary of ICT and Emerging Technology, submitted to ADB RETA 6426: Knowledge Sharing Program Using Good Asian Practices on Innovation and Development. 6 Penetration ratio of developed countries exceeded 30% at Korea started 2.5G mobile service from 2000, but ITU recently recognized Korean 2.5G as 3G services. 9

10 International Telecommunications Policy Review, Vol.18 No.4 ( ) three integrated private carriers competing hard against each other. They own fixed line, local and international, mobile, and internet networks. 3) Critical Role of Financial Autonomy Path-breaking policy decision was made in 1981 when Korean government decided to establish an SOE(state owned enterprise), named Korea Telecommunication Authority (KTA). What was important was not the establishment of an SOE, but the financial autonomy given to the KTA; all revenues from the telecommunication services are now to be invested in the telecommunication sector, completely segregated from the general budget constraint. Also, the local tariff rates were increased by 250% in two years, when the inflation rate was close to 30% a year during the same period. The then top decision makers have recognized the importance of the ICT sector, and gave all possible supports to the sector. With financial viability, telecommunication facilities were rapidly provided, and the backlogged subscriptions disappeared in just 7 years. In addition, such financial ability could support the development of telecommunication, computer and semiconductor technologies. Further financing was added through the collection of licensing fees during the 1990s when competition was introduced. However, all these were possible due to the financial autonomy given to the ICT sector in early 1980s. 4) Deliberate Governmental Intervention in Competition During rapid expansion of the ICT sector in the 1980s and 1990s, the Korean government closely monitored and designed policies so that local carriers and manufacturers can most benefit from expansion. Also when competition in the services was introduced, the market was controlled by the government so that new entrants can have rooms for profit earning from investment, and incumbent can have enough profit for further investment in the infrastructure. They implemented the so-called asymmetric regulations to the telecommunication carriers. The government was mainly interested in expanding ICT infrastructure. Thus, competition was not in services, but in facilities. In this sense, Korean competition policy was not competition policy, but rather an industrial policy. Korea also adopted a new, instead of existing, technology (CDMA instead of GSM) as the only mobile technology. In fact, Korea was the first country in the world which commercialized the CDMA. Because of this choice, foreign carriers 10

11 Comparison of ICT Development Strategies in Asia could not take part in the Korean telecommunication market, and Korean manufacturers could benefit from virtual market protection from foreign suppliers. Similar technological policy was adopted for mobile internet services, and until 2 years ago, no foreign mobile phones or services could be introduced to Korea. However, now, Korea has allowed world-widely adopted technologies both in mobile and mobile internet services. 5) Lessons from Korean Experience Financial Autonomy in Telecommunications The decisive factor in Korean ICT development was the decision to give financial autonomy to the ICT sector. This was not an easy decision for a developing country because especially telecommunication is a very lucrative business in many developing countries and this sector contributes a lot to the general pool of government budget. Financial autonomy is not a necessary condition to ICT development; other policies are also available, but such autonomy can clearly work as a vehicle to implement the development plan. On the other hand, it is not a sufficient condition either, if the resources are not properly managed. Technology development can also be supported with financial autonomy. One thing to add is that he general level of industrial production capacity could support such development and R&D projects in Korea. Without these commensurate industrial developments, ICT policies could not have reaped the desired results. Liberalization with Close Monitoring In order to continuously increase productivity and avoid wasteful investment, competition should be introduced. But all-out full liberalization may bring in disturbances in the sector, and careful monitoring is needed. Smooth transition from monopoly to competition was one of the objectives. One may argue that such is not competition policy per se, instead, managed competition or industrial policy. In doing so, more emphasis was given to infrastructural development, neglecting the service side, to the detriment of consumers. Also, there is a risk in adopting unique, sometimes, un-tested technology. If the choice was not a proper one, then the cost of such policy mistake to the consumers and producers would be huge. 11

12 International Telecommunications Policy Review, Vol.18 No.4 ( ) 2. Chinese Strategy 8 1) Rapid Growth in Hardware through FIEs China is a huge and fast-growing economy; perhaps no country in the world could match China in terms of its speed of growth and the sheer size of its economy. It has grown over 10% each year during the past decade (let alone the previous two decades), and expected to grow close to 8% even in the next decade. Its size of the economy has already surpassed that of Japan to become the 2 nd largest economy of the world, and by the end of the next decade, it may grow even bigger than the US (depending on the exchange rate appreciation). Because of the rapid increase in demand for telecommunication, the local market, and accordingly the opportunity, for ICT sector was immense. Indeed, ICT is the largest value-adding sector in the high-technology production (72% in 2005) in China as the following Table 5 shows. Table 5. Value-added of High-tech Industries (billion RMB) Total Pharmaceutical Aircraft and space craft Electronics and telecom equipments Computers and office equipments Medical equipments and meters data: National Bureau of Statistics, et al, China Statistics Yearbook on High Technology Industry (2006) 8 This part draws partly from Rongping Mu (2009). Human Resources for S&T and Innovation in China, Institute of Policy and Management, Chinese Academy of Science, Xielin Liu & Jun Su (2009). Science and Technology and Innovation Policy in China, Graduate University of Chinese Academy of Science, Xielin Liu & Shi-Ji Gao (2009). The Catching-up Process of ICT Industry in China, Graduate University of Chinese Academy of Science and Development Research Center, Yanhua Li & Xielin Liu (2009). Global Interface and Chinese Innovation System, Graduate University of Chinese Academy of Science, all are unpublished mimeo for ADB RETA

13 Comparison of ICT Development Strategies in Asia The growth of the Chinese ICT is mainly centered around hardware manufacturing. It is well known that China is the major factory of the world, and ICT sector is one of the major ones in manufacturing. As an example, Suzhou city produces 8 products which rank top in the world in terms of quantity, including computer mouse, crystal vibrator for cell-phones, and LCD for cell-phones. This in turn was mainly driven by Foreign Invested Enterprises (FIEs) for offshore manufacturing. As of 2004, FIEs produced 81% of gross value of output in ICT. China accounts 24.5% of world export in ICT related hardware export in 2008, and 13.8% of import. Although European Union tops both lists, but as a single country, China surpasses any other countries in ICT trade; next largest country is US, but export is about three times that of the US, but import is slightly less. This creates huge amount of trade surplus in ICT sector, which is about 150 billion USD in Technology has also been developed rather quickly. China has relied on foreign technology in telephone switches in early years, but has developed its own digital switches starting from the 1980s. It is claimed that the technological gap in digital switches has been narrowed by mere 2 years in the case of W-CDMA base station. 2) Huge Size of Domestic ICT Market Owing to huge size of population and fast growing economy, domestic ICT market was large enough to develop ICT industry. Although low in terms of penetration ratio, the number of fixed telephone, internet and wireless phone users 9 are huge and the sales of ICT industry occupies close to 1/3 of world growth. Strong competition exists in domestic markets, but foreign presence is rather weak compared to the export, as FIEs were allowed mainly for exports. Also, basic telecommunication service market is not liberalized (at least to foreigners) yet. 3) Market Driven Innovation Strategy with International Alliance Huge local market could not be met only by multinational companies. Many local companies, through competition, were able to satisfy local demands. However, they did not try to develop state-of-art products, but pursed low-cost test and secondbest strategy to capture the market. Also they focused on the incremental product innovations, such as new designs suitable for the Chinese people. In fact, the share of foreigners patents granted in China show high portions in invention patents at 9 They are respectively 371 million, 131 million, and 449 million in 2006, and occupies between 20~40% of the growth of the world. 13

14 International Telecommunications Policy Review, Vol.18 No.4 ( ) 56.6% in 2006, but in utility model patents and external design patents, the share fell to 1.2% and 9.8% respectively in Simply put, fast growing market could not have been satisfied by a small number of large multinationals which do not have proper understanding of the local Chinese consumers. Basically, Chinese firms relied on market-oriented innovation supported by technology outsourcing and alliances, not on the absorption of foreign technology. Global technology alliance was also pursued, as multinationals naturally wanted to take part in this huge fast growing market. Joint and/or global research centers were established, and local companies such as Huawei, ZTE, Holly group, TCL International and Lenovo have expanded their reach to acquire major foreign ICT firms. 4) Combination of Market Forces and Government Intervention China did not allow FDI unconditionally at first. In fear of crowding out local investment, Chinese government introduced the limitation to FDI, such as localization and export requirement and technology transfer. In the first laws related to FDI, it was stipulated that FIEs should use advanced technology and equipment, and FIEs were required to form joint R&D consortium. Effectiveness of knowledge transfer through these policies is debatable, but at least they gave some breathing space for local companies to survive in their early lives. These strategies were not abolished until 2003 when they are prohibited under the TRIMs/WTO. What is interesting to note is that foreign share in mobile phone sets has increased since Government also invested heavily in ICT infrastructure construction and universal service, without relying on foreign investment. In such huge investment, there is no question that Chinese government gave preferences to local companies. It also supported the basic and early-phase research by funding S&T projects. In short, during the past two decades, Chinese government played an active role in constructing a large network and establishing the basic industrial capacity. 5) Continued Open Door Policy for FDI It is further to be noted that China has maintained favorable policies toward FDI all through the years. Through this open policy, Chinese companies could learn the latest technology from the leading companies of the world. However, it is questionable whether these foreign companies have actually transferred technology. But through joint ventures, local companies could at least learn managerial 14

15 Comparison of ICT Development Strategies in Asia knowledge including marketing, human resources management and incentive plans. Moreover, through their presence in the local market, Chinese companies had easy access and contacts with multinational products, product exhibitions and specialized journals as their sources of technology. 6) Lessons from Chinese Experience Maintaining Competition in the Local Market In many, if not most, developing countries, local markets are not competitive, but rather oligopolistic, and this non-competitive market structure often hinders industry development. But in the case of China, domestic market was huge enough to entertain many local companies, and Chinese government also encouraged competition among SOEs, FIEs and local companies. Furthermore, with some protection from the government, they enjoyed breathing space in the early stage of development, and also they could grow by concentrating on low-cost second-tier products. It is to be noted that large domestic market was one of the critical factors for this practice to succeed. Maintaining Global Network through Market Opening By opening-up markets, local companies will have opportunities to use global knowledge and alliance. Moreover, foreign presence can give impetus to local companies for technological update. But in order for this policy to succeed, absorbing capacity and appropriate innovation strategy (as in Chinese case) are also needed. Also, large local market seems to be needed to embrace many foreign, not only local, companies to compete. 3. Malaysian Strategy 10 1) Deliberate Choice of ICT as a Driver for Economic Growth Malaysian development of ICT sector was deliberately chosen by the government as a driver for economic growth. The choice was not made by the traditional market forces such as comparative and/or competitive advantage, product life cycle or blue-ocean strategy. The belief was that, with strong government impetus and 10 This part draws on Universiti Sains Malaysia (2009). Malaysian Best Practices on Innovation and Development, unpublished mimeo for ADB RETA

16 International Telecommunications Policy Review, Vol.18 No.4 ( ) institutional and infrastructural support, private investment would follow the given incentives. Malaysia has established and implemented plans for the development of ICT, by incorporating major incentives in the 5 year Malaysian plans starting from the 6 th one ( ). The 6 th plan focused on the development of ICT for the support of manufacturing sector, and the 7 th through 9 th mainly on the application of ICT in building e-society; government, commerce, learning, health and R&D, to name a few. From the 9 th plan, additional priority was given to three converging technologies (cellular telephony, internet and broadcasting). Malaysian ambition was most salient in the Multimedia Super Corridor (MSC) project launched in 1996 under the Vision MSC is basically a technology park with a dedicated corridor (15 km wide and 50 km long) which stretches from Kuala Lumpur to the new airport. It was created for building a multimedia utopia. MSC was accompanied with 7 flagship projects, which are mostly concerned with the application of ICT to various parts of the society as mentioned above. They include e-government, multi-purpose card, tele-health, smart school, R&D cluster, e-business, and technopreneur development flagships. 2) Considerable Achievements, albeit Short of Ambition Owing to these efforts, considerable achievement has been made. However, such achievement did not seem to fully satisfy the initial ambition. For example, fixed telephone penetration ratio, cellular phone subscription or broadband penetration ratios did not yet reach the level of typical developed countries. It is also arguable that even such achievement could not have been possible without government initiative or support, but it may still take some time for Malaysia to reach the desired level of development as they wanted. As an example, the software development was not at all comparable to that of India. In terms of informatization indices, Malaysia mostly ranked in the middle pack, instead of upper one. As can be seen Table 1 above, Malaysia ranked 57 th in ITU index, which is quite low, considering its level of development and the time period they have pursued informatization. 3) Incommensurate Capacity by Sectors Private investments did follow government initiatives, and many local population have enrolled in the training and education programs for the necessary skills to 16

17 Comparison of ICT Development Strategies in Asia work in the ICT. Unfortunately, ICT production has still to be benchmarked against other countries to identify missing or weak elements; a good example would be the software industry in Bangalore, India. Application of ICT to business was lower than expected, and the reasons turned out to be difficulty in access to broadband internet, poor understanding of the legal framework and lack of confidence in online payment. However, private users have gone ahead to adopt the internet to serve both their business as well as social needs; virtually all companies maintain homepages, and many individuals enjoy blogs and facebooks. It seemed that the government has pushed the ICT sector, but the general public, business and other sectors did not have commensurate development or capacity. Malaysian government is also concerned with the digital divide between urban and rural areas. Recent development in mobile technology and grid-computing may solve technical problems, but unfamiliarity with English and lower education level among rural population are lessening the need to embrace ICT in their lives. 4) Lessons from Malaysian Experience Integrated and Consistent Government Initiative Malaysia has pursued ICT as top priority industry during the past 15 years, and constantly updated the development plans. As ICT related indices show, Malaysia has made strides into the relatively advanced stage in terms of ICT. This kind of consistent and predictable government policy can give signals to the private sector and the people that the ICT sector is vital for further economic growth. However, it is still hard to definitely conclude that such government initiative was a decisive factor in the development of ICT. As in the case of slow software development, and slow diffusion of e-commerce and other applications, many other socio-economic factors also affect the development of ICT. All institutional or infrastructural settings were provided, but if the general conditions including the general level of education or awareness of the people, are not ripe, then the development can be constrained. 4. Indian Strategy 1) Exceptional Growth in Software Exports Indian ICT sector development is quite unique in the sense that it is concentrated in one specific sector; the software. As seen in Figure 3 above, India surprisingly 17

18 International Telecommunications Policy Review, Vol.18 No.4 ( ) surpasses any developed countries in terms of computer and information service exports. This is in contrast to common sense in that software is a knowledge intensive product, and thereby suitable for developed countries. It is said that India enjoyed trade surplus in invisible trade of 75 billion USD in the year of , and more than half of this surplus occurred in software exports. It is also interesting to note that the trade balance in business management consultancy is also positive (about 800 million USD during the same year). Table 6. Exports of Computer and Information Services (billion USD) Country India Ireland UK US Germany Sweden Israel Spain Canada China data: reproduced from Table 1, p 240, Indian best practice on innovation and development, Centre for Science and Technology of the Non-aligned and Other Developing Countries (NAM S&T Centre), May 2009 However, India s positions in world trade in hardware or telecommunication services, are rather insignificant, or at most modest. The share of high technology trade in domestic GNP stood at 0.49% in 2006, one of the lowest among developing countries. All in all, trade in the area of computer and information services signifies India to be a non-minor player. India captured 16% of global export of 15 largest economies, while Indian import accounted only 8%. This is the only segment where India has a significant global presence. 2) Market-driven Growth by Young Innovative Entrepreneurs The forces behind this miraculous growth in software industry in India are not 18

19 Comparison of ICT Development Strategies in Asia government or large industrial companies, and nor has India developed any new state-of-art technology. Indian report 11 says, Indian success in ICT and emerging areas of technologies has remained moderate; young companies including startups have scripted the success. The report further mentions that growth of these start-ups depended more on business innovation in the early years, and on organizationally innovational as well as on raising capability in the matured phase of the business; and the innovation of these companies depended less on novel technological solutions. Not only these companies grew rapidly without depending on new technologies, but also there were virtually no support from the government. State directed and state supported growth through export was indeed missing and critical dependence on domestic market remained tied up with the federated governance and democratic institutions. 3) Insufficient Government Support Large firms in ICT usually maintain internal R&D centers, and gather knowledge from outside sources. But Indian small software firms have nearly done away with in-house R&D. Indian states, however, did support the development of software industry after it became evident that the industry is booming. The Software Technology Parks (STPs) were established to support Small and Medium Enterprises (SMEs). But these STPs were not built only for software companies, but were built in the context of an overall strategy to promote industrial R&D and develop high technology industry in India. Software SMEs received tax benefit, infrastructural support, etc., but large companies received more benefits from STPs, and many SMEs simply registered at STPs, but operated outside of STPs, using spaces often privately held and at great distances from the park. Basically, the STP units, although these are 100% export oriented units, did not fare any better in terms of export growth, compared to the national trend. In other words, STPs have not been able to achieve any higher growth compared to the national average. 4) Networks and Global Market Conditions One of the reasons for success in India can be found in the large number of Indian knowledge workers working in advanced countries. The following Table 5 shows 11 p. 239, Indian best practice on innovation and development, Centre for Science and Technology of the Non-aligned and Other Developing Countries, May

20 International Telecommunications Policy Review, Vol.18 No.4 ( ) the amount of workers remittance from abroad, and India tops the list. The Indian report says the remittance data is indicative of high value-adds, while remittances for many Asian countries are of low values, but [due to] high volumes of immigrants. 12 Considering that overseas workers from India are about twice those from Philippines, and average Indian immigrant s earning in the United States is higher than those of Filipinos and Chinese, this argument has some grounds, albeit further investigation is needed. In general, it is well known that there are many Indians working abroad in the ICT sector. These overseas Indians would have networks not only in advanced countries but also in India, and they could have grabbed the business opportunities in software development. STPs knowledgeintensive production was facilitated by a global situation of knowledge-intensive production, and this was also made possible because the general level of education is high, and there is a large pool of well-educated, but low-paid software programmers in India. Table 7. Asian Comparison of Workers Remittances (in million USD) Country India 16,285 21,885 20,012 23,909 29,247 38,219 Philippines 7,167 7,081 8,617 10,668 12,481 13,266 China 1,679 3,343 4,627 5,495 6,830 10,679 Bangladesh 2,848 3,180 3,572 4,302 5,418 6,593 data: reproduced from Table 3, p 241, op cit 5) Lessons from Indian Experience Utilization of Global Network Many developing countries are concerned with brain-drain. But as we can see from the Indian experience, brains outside of a country can work as an efficient and effective network which can create business opportunities, from the developed countries into the developing countries. Of course in the Indian case, we cannot deny that the large size of population and the large number of highly educated 12 p. 240, ibid 20

21 Comparison of ICT Development Strategies in Asia people also played an important role for the development of software industry. These factors have contributed to the creation of brain pool among Indians at low cost. In this regard, any support in creating international networks among compatriot brains can be a useful policy tool in many developing countries. Reliance on Market Forces In the Indian case, there were government supports for the software industry development. However, the role of government was rather minimal or ineffective, as they were not specifically targeted to the SME software companies. Large companies benefited even more and many SMEs did not operate in the STPs. SMEs moved around locations for cheaper offices and lower cost manpower. In these regards, the software industry in India mostly relied on market forces, without much government support or intervention. Market forces alone can foster even high value-added industries in developing countries. Or if we put things around, inaction or neglect by government could turn out to be a good practice, although paradoxical. However, on the other hand, if there were appropriate government supports, the software industry might have grown even bigger, even though one has to worry about government failure during such support. 5. Vietnamese Strategy 1) Relatively Sufficient Basic Telecommunication Infrastructure Vietnam is a sizable country with 86 million people, but per capita income is still low at 1,060 USD as of However, Vietnam started its open door policy only in 1992, but the economic growth was quite high during the past two decades at about 7%. Development in the ICT sector is more remarkable; as of 2007, fixed line penetration ratio is 26.7 per 100 habitants, much higher than developing country average. In the case of mobile telephony, the ratio has passed over 126 in Internet penetration is also high at 21, while the developing country average is 17. Indeed, EIU in 2009 has ranked Vietnam at the top among the Low Income country group for Network Readiness, and its overall ranking is higher than that of Brazil. Vietnam s high ranking is also due to government s determination toward ICT and fierce price competition in telecommunication services. Against these achievements in infrastructure, achievements in other sectors in ICT, including software and hardware are not comparable. Hardware trade even shows large trade deficit; in 21

22 International Telecommunications Policy Review, Vol.18 No.4 ( ) 2008, import was twice the export, resulting in trade deficit of 2 billion USD. Major reason seems to be the rapid expansion of the facilities. 2) Insufficient Financing for Further Investment Rapid installation of infrastructure was made possible by explosive growth in demand for telecommunication alongside with economic growth, and fierce competition among SOEs in telecommunication. Currently, there are 8 telecommunication carriers, including some foreign invested ones, but three major carriers occupy most of the market, mainly through throat-cutting price strategy. This situation is quite unique compared to other developing countries. Typically, telecommunication services are monopolized, and price and profit remain high. But in Vietnam, competition among those SOEs is driving profits down and drying out investment resources 13. Although the government is determined to put very high priority to ICT, detailed plans to finance those plans are not secured. The most urgent need for Vietnam is securing stable source of investment for building broadband networks. In the case of China and Korea, revenue from the telecommunication carriers, mainly SOEs, was a stable source, as the market demand was increasing very fast. However, currently, fierce price competition prevents telecommunication carriers from accumulating enough resources for further investment. Vietnam is exploring other possible sources like licensing fees, but some coordination among SOEs are to be desired. 3) Supporting Local Manufacturers through Procurement Unlike other developing countries, domestic market of Vietnam is not small and expanding rapidly, and thus provides opportunities to support local manufacturers during rapid expansion of facilities, as in the case of China and Korea. Price competition among carriers may conform to market principles, bring benefits to the consumers and contribute to the social objectives. But charging higher prices for quality service to the people who want those services also conform to the market principle. Also, from a longer perspective, construction of infrastructure in early 13 Most telecommunication carriers are state-owned by different government agencies, including Ministry of Post and Telecommunications, Ministry of Defense, police department and electricity company. These carriers engage in fierce price competition, making use of various forms of crosssubsidizing. Overseeing authority is relegated to the Prime Minister, but coordination is lacking, due to captured interests. 22

23 Comparison of ICT Development Strategies in Asia stage may benefit consumers more, and this requires huge initial investment which cannot be properly done by the market. During expansion, there will be also market opportunities for local manufacturers to grow, if proper procurement and joint R&D policies are designed, as in the case of China and Korea. Needless to say, transparency and proper management of such resources are pre-conditions for such a strategy. Ⅲ. SUMMARY AND CONCLUSION Among the development strategies in Asia, Korean case stands out in terms of government initiatives; government has planned ICT development, and allowed financial autonomy, and gradual competition in the ICT sector. There is no doubt that Korean ICT has quite well developed in a short period of time. Government policy was not the only reason for its success; related manufacturing industries were also developed, and there was a large pool of well-educated manpower to absorb and develop technologies. Also, Korea has achieved a very high level of education, whereby the demand for advanced services was high. Of course, there is also a downside for this success story; managed competition does not bring full benefit of advanced ICT technologies to the people, and strong emphasis on hardware or infrastructure development did not nurture software development. Similar strategy has been pursued in Malaysia, but the outcome has not reached its ambitious goal. Major problems include incommensurate development of related manufacturing industries and lack of readiness in governance and among people. This is partly evidenced by the ITU s index in Table 1; access index ranked as high as 15 th, but skill index only 92 nd. China achieved remarkable growth in ICT, especially in hardware; it is the largest exporter of ICT products in Asia. Such achievement owes a lot to large domestic market, and also a large pool of educated manpower. Although related manufacturing sector has not developed enough, but timely protection and procurement policy helped local manufacturers grow enough, by making use of low-end technology and better understanding of local demand. Most telecommunications carriers were state-owned, but the competition was not fierce, and telecommunication carriers could accumulate financial resources for infrastructure development. Technology upgrade, introduction of competition and 23

24 International Telecommunications Policy Review, Vol.18 No.4 ( ) software development remain as future policy agendas. Rather unique case of ICT development in Asia is India; without government planning or support, Indian software industry has tremendously developed; it did not have commensurate hardware industries, nor large local market. In a sense, India is a perfect example where an industry can develop without government intiative or intervention; just laissez-faire. However, we should note that India has large overseas network among Indian people, they speak English well, and a large pool of well-educated people at low cost. However, unbalanced growth of ICT, and narrow local market may become bottlenecks in the future. These examinations revealed various characteristics of development strategies in Asia. Against this backdrop, some policy recommendation naturally emerges for developing countries. For example, Vietnam does not have large local market, local carriers do not have enough financial resources for development and related industries have not been developed. However, education level is relatively higher (among young generation) and telecommunication carriers are still all owned by the state. Thus, if timely and firm decision is made like Korea, then fierce competition among SOEs through cross-subsidy can be stopped and financial resources can be secured for the upgrade of networks and technology development. In doing so, procurement policy may give rise to the local manufacturing industry, and local markets will become much larger due to highly educated young people as in China. Looking at Asian ICT development, it is true that some countries tend to focus more on the production of ICT, mainly for export. They see ICT as a quick path to get jobs in the ICT industry itself, such as software and hardware production, computer and microchip factories. However, such development strategy has limits in that there would not be enough room for all the countries in the global ICT industry, and also such concentration would go against the economic principle. It may not work. Moreover, if local markets are not big enough, then the sustainability of such a strategy will be very limited. Instead, if they focus more on the use of ICT in every sector of the economy and society, then the productivity will increase in all those segments, and the overall impact would be much bigger than the increased production in the ICT. Also, if the industry is mostly export-focused, then the impact to the local economies would be small and the impact of such high-tech industry to local economies can be rather limited. 24