The ICT Landscape in BRICs Countries: Lessons from Emerging Economies (R&D, Innovation and Trade)

Transcription

1 The ICT Landscape in BRICs Countries: Lessons from Emerging Economies (R&D, Innovation and Trade) Proceedings of the Second International Workshop held in Johannesburg, South Africa on 5 October 2011 Author: Jean Paul Simon Editor: Marc Bogdanowicz Report EUR EN

2 European Commission Joint Research Centre Institute for Prospective Technological Studies Contact information Address: Edificio Expo. c/ Inca Garcilaso, 3. E Seville (Spain) Tel.: Fax: This publication is a Technical Report by the Joint Research Centre of the European Commission. Legal Notice Neither the European Commission nor any person acting on behalf of the Commission is responsible for the use which might be made of this publication. Europe Direct is a service to help you find answers to your questions about the European Union Freephone number (*): (*) Certain mobile telephone operators do not allow access to numbers or these calls may be billed. A great deal of additional information on the European Union is available on the Internet. It can be accessed through the Europa server JRC80745 EUR EN ISBN (pdf) ISSN (online) doi: /18633 Luxembourg: Publications Office of the European Union, 2013 European Union, 2013 Reproduction is authorised provided the source is acknowledged. Printed in Spain

3 Preface The aim of the second International Workshop 1 was to take a closer look at the ICT landscape in some emerging economies: the BRIC countries. The size of the ICT sector for each of these countries was documented, and their R&D expenditures were assessed. The BRIC countries are becoming major players not only as ICT users/ importers but also as producers of ICT goods and services. China, for example, has become the world s largest producer of ICT products. Taking a closer look at the BRIC countries allows us to better track and understand the flows between and within regions. Trade, foreign direct investment (FDI) and the off-shoring of manufacturing are very noticeable in Asia but trade relationships between Asia and Brazil are also worth noting. In other words, the overall impact of these emerging economies is better captured on the global ICT landscape. The workshop, 2 the first of its kind organized by IPTS in a BRIC country, was meant as a working tool for IPTS ongoing research on ICT. 3 This research identified the issues at stake and related research questions triggered by the market entry of these countries. It forms part of the PREDICT project, 4 a research line started some five years ago at JRC-IPTS which aimed to describe the dynamics of the ICT industry and its R&D worldwide. As an extension of these projects, IPTS launched a tender for research focused on R&D in ICT sectors in India, China and Taiwan, in order to gain a better understanding of major ICT R&D capabilities in those parts of the world. The 2011 PREDICT report offered a country-level approach to ICT R&D internationalisation by analysing the ICT industry in China and India, the two largest emerging economies. It then provided a first synthesis of the research. This research exercise led to three further reports on China, India and Taiwan, each one including a dataset and a technical annex. Based on these country reports and further research, IPTS prepared a first report on ICT in BRIC countries in This focused on Brazil, India and China. In 2012, the report was complemented by articles dealing with the Russian Federation and South Africa. 6 This report summarises the workshop sessions (see Annex 1) which were organized around the countries (Brazil, Russia, South Africa) and with a cross-comparison of India and China, each session highlighting the view of the industry and the view of policy makers or academia. 7 1 Radisson Blu Hotel, Sandton - Johannesburg, South Africa. Wednesday 5 October A first IPTS conference "Asian rise in ICT R&D Looking for evidence: Debating collaboration strategies, threats and opportunities", was held in February 2011 in Brussels, Belgium. 22 experts from academia, research institutes, industry and public administrations were invited to speak. 13 of these experts are working in Asia. Presentations, proceedings and accompanying documentation available at: 2 The workshop was organised in association with the Annual Conference of the International Institute of Communications (IIC). 3 In 2005, and again in 2008, IPTS launched several tenders for research focused on R&D in ICT sectors in Asia (2005) and particularly in India, China and Taiwan (2008), in order to gain a better understanding of major ICT R&D capabilities in these countries. 4 PREDICT: More at 5 Jean Paul Simon, The ICT Landscape in BRICS Countries: Brazil, India, China. 2011, Available at: 6 The ICT Landscape in BRICS Countries 4: South Africa. Alison Gillwald, Jean-Paul Simon, In IDATE: Communications & Strategies 86. The ICT Landscape in BRICS Countries: 5. Russian Federation, Valentin Makarov, Stefan Schandera, Jean Paul Simon, in IDATE: Communications & Strategies 87 7 Presentations available at: 1

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5 Table of Contents Preface... 1 Introduction... 5 Brazil: Impressive Growth but Great Heterogeneity... 7 Creeping Tiger, Soaring Dragon: a Cross Comparison of China and India... 9 The Russian Federation: Northern Locomotive between West and East? South Africa: Suboptimal Development? Wrap-up Annex 1: Workshop Agenda List of Figures Figure 1: ICT priority patent applications by inventors from the EU, US, Brazil, China, Korea, India, Russia, South Africa and Taiwan Figure 2: Oi new innovation ecosystem... 8 Figure 3: e-readiness by regions Figure 4: The size and structure of the IT sector Figure 5: The South African telecom market Figure 6: Revealed competitive advantage in communication equipment trade

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7 Introduction Fabio Colasanti, President of the IIC 8 (London) chaired the workshop and introduced the sessions. He commented that In 2010, I saw some forecasts prepared by the Conference Board for the rate of growth over the following ten years for various big regions of the world. The surprising result of these forecasts was that although growth was expected to slow down a bit in all regions (with a small exception for India), the rate of growth of the world was expected to remain constant. This was due to a "composition effect", i.e. growth taking place in regions that now have a greater weight in world GDP. I found this result a very graphic illustration of the shift in economic activity that is taking place towards the BRICS". He highlighted the dynamics of these emerging countries and the need for the European Union to cooperate more with them. There is already significant cooperation with Brazil but less with China. Jean Paul Simon, JRC-IPTS, set the scene and gave some background data on these countries, 9 stressing their current role as engines of global growth. These countries have had growth rates far above average during the last decade, exceeding those of the more advanced countries (EITO 2011). 10 He proceeded with some global views of the size of the ICT sector (see Predict reports 11 ) with a focus on inventive activities (patents, see Figure 1). For ICT parent PCT 12 patent applications, China, Japan and South Korea account for 48% of the world s total ICT parent PCT patent applications in The IIC publishes Intermedia: 9 See the IPTS report, 2011, op. cit. and the PREDICT reports Performance of R&D, Internationalisation of ICT R&D, ICT in BRIC countries 1, The 2011 Report on R&D in ICT in the European Union.: (BRIC), 10 EITO Special Report, (2011), BRIC countries ICT markets, , 3 January. 11 The PREDICT reports can be downloaded from: 12 PCT : Patent Cooperation Treaty 13 Source: OECD, 5

8 ICT patent applications Figure 1: ICT priority 14 patent applications by inventors from the EU, US, Brazil, China, Korea, India, Russia, South Africa and Taiwan US China EU Russia Brasil South Africa Brasil Russia South Africa EU US China Korea India Source: IPTS, 2011, Priority patent applications to the EPO, the 27 Member States National Patent Offices, the USPTO, the JPO, and 29 further Patent Offices. Inventor criterion. He stressed the role of BRIC countries in the ICT sector, as in 2010, they accounted for 13% of global demand, spending about 328 billion on ICT (EITO, 2011). They have become major players, not just as ICT users/ importers but also as producers of ICT goods and services. The ICT sector is certainly representative of the massive changes in the Brazilian, Indian and Chinese industry and economy. In 2009, 46% of Internet users (1.8 billion global Internet users) were concentrated in five countries, the top Internet markets: China, USA, Brazil, India, and Russia - four of these are BRIC countries. Several Chinese electronics firms have become global players, including Huawei Technologies, Lenovo, and ZTE. After reminding participants of some weaknesses BRIC countries still have, he concluded with some questions for the workshop about a new global equilibrium, the sustainability of the growth models of the BRIC countries, and emerging trade relationships between Asia, Africa and Brazil, which have displaced former relationships with other regions like the EU and the USA. China has become the world s largest producer of ICT products: its ICT exports increased fourfold between 2004 and 2008, though many of these were re-exports from other Asian countries). 14 priority patent applications ; this means that only the first filing of an invention is considered and all the possible successive filings of the same invention to different patent offices are not counted again. Inventor criterion : a patent is assigned to declared country of residence of the inventor(s). Source: The 2011 Report on R&D in ICT in the European Union, Annex 5: Methodology for patent data, 6

9 Brazil: an impressive growth but a great heterogeneity Simone Scholze, Director General, Anatel (Brazil), highlighted the positive growth of Brazil s GDP and the democratization of access over the last 15 years, as penetration rates, especially wireless since the liberalization, have grown. She noted however a negative impact on the trade balance (strong dependence on imported equipment) and that the telecom sector had become highly dependent on foreign direct investment (FDI). The telecom services sub-sector is a typical example of FDI in Brazil, where the Mexican company Telmex plays a prominent role (it owns 75.16% of Embratel in the fixed market, 100% of America Movil in the mobile market), and with the presence of large EU companies in both fixed and mobile markets (Telefonica, Portugal Telecom, Telecom Italia). The Brazilian telecom sector still makes low investments in R&D. The regulator Anatel is therefore trying to leverage some R&D regulation opportunities based on its jurisdiction and the available legal instruments (for instance with merger regulation 15 ). It hopes to foster growth, create the right incentives for operators to strike more partnerships with universities, and increase local demand for domestic products and services. Public policies have supported the improvement of national production and local R&D content. The Brazilian government adopted a national broadband plan in May 2010, with ambitious targets on coverage, prices and speed. It aimed to triple the number of accesses, decreasing the price from around R$ to R$ 15, and increasing the capacity from 256 kbps to over 512 by It also introduced a special tax regime to deploy broadband. At the same time, there was an attempt to reduce the tax burden on the carriers for telecom services and the Federal Government opened a dialogue with state governments to that end. Tax relief was also used earlier, in 2005, with the Digital Inclusion Programme. This programme reduced to zero some federal taxes imposed on the gross retail sales of PCs, notebooks, and modems (later extended to tablets). The government is taking the opportunities that will be offered by the FIFA World Cup in 2014 and the Olympics in 2016 for more initiatives. Jose Rogerio Vargens, Executive Consultant, Oi Telecom, 16 explained the Oi innovation ecosystem, and its focus on innovation and services. He pointed out that the strong expansion in GDP per capita in Brazil plus a record low unemployment rate have resulted in a significant shift in income classes. In the telecom sector, Brazil is a significant market ranking 4 th for fixed lines (in June 2010, Brazil had 42 million lines, placing it just after China, the US and Japan), and 5 th for mobile (by March 2011, Brazil had 206 million mobile users just behind China, India, the US and Russia). However, Brazil lags behind in broadband: it ranks 10 th, with 13 million broadband users (June 2010). Oi telecom is an integrated carrier providing wireline, wireless, broadband, and pay TV to a total of 66 million customers with a market share of 25% (right behind Telefonica: 28%). As regards R&D, he confirmed the agreement 17 between Oi and the regulator and explained the compromise reached to invest 0.5% of Oi s revenues in R&D until 2025 (40 million US$ for 2010 agreed in the compromise but up to 60 million US$ in real terms). The company reorganised itself to encourage innovation, creating a new unit in It is trying to move away from the traditional relationships with telecom equipment and solutions, calling 15 As illustrated with the conditions mandated for the merge of Oi and an agreement accepted by the company. 16 Telemar and Brazil Telecom merged in Oi in See note 15. 7

10 suppliers to enter into new partnerships, for instance with Brazilian research centres (see Figure 2). Figure 2: Oi new innovation ecosystem Source: Oi 8

11 Creeping Tiger, Soaring Dragon: a Cross Comparison of China and India Anindya Chaudhuri, NISTADS, CSIR (India), proposed a comparison between the two countries 18 stressing the fact that China has left India behind, and has moved from assembly line workers (i.e. China as the manufacturer of the world) to engineers and scientists (all illustrated by the number of publications in science and technology). He noted China s exceptional performance in high performance computers (HPC), linked to strong government intervention. No such intervention has been seen in India where the largest computers belong to the private company, Tata. While India leads in ICT service exports, China is racing ahead in ICT goods exports. He claimed that the notion of IT as inclusive is misleading as it covers basic economics of hardware, software and services that differ. The Indian story is characterised by a lack of policy research. The emphasis has been on services, mainly export, highly subsidized but selling cheap and buying dear. There is no linkage with other IT sectors and no IP focus. Low barriers to entry make India more vulnerable. Though Indian companies are progressing, China benefits more from the policy charity begins at home. China has focused on its big domestic market, and has climbed up the technology ladder without stepping off. China benefits from huge economies of scale and displays rapidly increasing broadband speeds. Dr. Yang Yang, Vice Director at Shanghai Research Center for Wireless Communications (WiCO), Chinese Academy of Sciences, (China) reminded the participants that in 2009, China supplied 60% of PCs, nearly 50% of mobile phones, and 48% of TVs to the global market. The Chinese ICT industry has become an important pillar of the Chinese economy with growing revenues including a small but growing software component (30%). 75% of China s 1.2 billion ICT users are mobile (with high growth recently of 3G), 4.3 trillion 18 "Creeping Tiger, Soaring Dragon: India, China and Competition in Information Technologies", available at: or 9

12 minutes. Compared to users in the US, Chinese users spend much more time watching videos, streaming music and playing online games. He also stressed that one of the key differences with India was the more powerful Chinese government. He was more cautious about the role of patents, still to be evaluated according to him. As regards R&D challenges, he explained major national projects in science and technology, 19 and how the Chinese government is stimulating R&D on next generation mobile wireless broadband technology for the new IMT 20 standards within the ITU. Rasheda Sultana, Grameenphone 21 (Bangladesh), gave the industry view. She noted that both India and China have been resilient in the crisis, unlike the developed economies. However this has not been the case for Russia and South Africa, even if as noted earlier other BRICs countries had performed outstandingly. The rise of 3G mobile started in Asia, with impressive numbers. After an initial launch in Japan and Europe, the markets started really growing with India and China, driving innovation. Operators are facing a structural decrease of their revenues (ARPU 22 ) with traffic growth outpacing revenues, as the costs of telecom do not follow Moore s law. Companies must therefore innovate as they did in India, with rates targeted low for the bottom of the pyramid users. Grameen introduced a dynamic pricing scheme, based on time and location, with Grameenphone (discounts from 10% up to 83% on the GP network). To reduce their legacy costs, the companies are outsourcing to benefit from a more efficient cost model. To conclude, she was confident that Asia will lead the way, with China and India as the forerunners. These two countries will drive the ICT revolution, and innovation and human capital development. During the discussion that followed, A. Chaudhuri was sceptical about how companies can recoup their investments in 3G. For R. Sultana, the situation was much better in China, where the 3G spectrum was allocated for free, than it is in India, where there is no foresight and where the regulators have been trying to extract as much money as possible. 19 See: 20 IMT-2000 is the term used by the International Telecommunications Union (ITU) for a set of globally harmonized standards for third generation (3G) mobile. 21 Grameenphone is a subsidiary of Telenor, the former incumbent from Norway. 22 Average revenue per user, sometimes average revenue per unit. 10

13 The Russian Federation: Northern Locomotive between West and East? Stefan Schandera, a Development Expert and Research Fellow at DBFZ (Germany), put the Russian Federation s economy into perspective. He reminded participants that the country went through an accelerated transition in 2011 when Russia became the world's leading oil producer. Russia is also the second-largest producer of natural gas. Exports provide a large proportion of its GDP but this is dominated by energy exports: 65% in In the ICT sector, the strategy of firms is to rely on existing talents, which have been an output of strong education quality (although there are some issues). Russia is the third largest software development outsourcing destination (behind China and India), and software development here occupies high-end niches (44% market share in Central Eastern Europe). Telecommunications represent almost 70% of the Russian Federation s total ICT sector. Russia is Europe s largest mobile market in terms of connections. Mobile penetration levels are not evenly distributed across the country: there is some digital divide between urban centres (such as Moscow and St. Petersburg) where the penetration is as high as 210% and most regional areas (see Figure 1: e-readiness) where it is close to 150%. Figure 3: e-readiness by regions Source: S. Schandera, regional e-readiness index in the Russian Federation ; Institute for the Development of the Information Society, Moscow, 2010 R&D is still in transition, but public spending still contributes 86% of all R&D expenditures. However, ICT R&D expenditures are declining and the output of R&D measured by patents is following the same trend. Information technologies, space and telecommunications were key elements in the President s Modernization Program, Go Russia, introduced in The government also launched an Information Society Program to replace the previous one, Electronic Russia ( ). A Russian Silicon Valley (Skolkovo Innovation Centre near Moscow) was created. Russia has gained some global visibility in innovation with success stories such as Kaspersky Lab, a security software company, which ranks 4 th among security software companies worldwide. The country will have to make some policy and strategic choices on sustainability, for instance, and also between global integration and regional protectionism. Valentin Makarov, President of the Russoft Association (Russia), provided data on an IT market of 19 billion US $ in 2010, growing by 14% in 2010, showing growth recovery. MTS, Beeline (Vimpelcom), Megafon are major players in the mobile telecommunications market. Telecom and Internet are going mobile but further development depends on the conversion of frequencies from defence to civil use, and on liberalization of the market. 11

14 Figure 4: The size and structure of the IT sector Source: IDC, The Russian Federation s software segment, despite being hurt by the crisis, went through a profound three phase transformation. The 1st phase ( ), though characterised by quality engineering, saw Russian companies lag behind the rest of the developed world in quality assurance and in their understanding of international business. During the second phase ( ), Russian software service companies reached leading positions in Europe in quality assurance and became global, and able to manage distributed development in their offices worldwide. During the last phase, ( ), Russian companies reached a much better understanding of business needs that yielded some success stories: Auriga was ranked first among engineering companies, Kaspersky Labs appeared in the list of the World s 100 biggest IT companies ranking 68 th, the two leading Russian Internet IT companies, Mail.ru and Yandex succeeded, in 2010 and 2011 respectively, on the global fund market through IPOs. 23 As a result, the Russian software industry now ranks third after the US (35 companies) and India (31 companies) with nine companies classified in the 2011 Global Service 100 rating. The exports of both packaged software and IT services are growing fast. Echoing S. Schandera, V Makarov highlighted the Russian Federation s strengths: human capital (source of new competencies), a growing domestic market, a cultural/ geographical proximity to Europe and close ties to key markets: China, Japan, US. Russia can offer the other BRIC countries technological and geographical diversification, and cooperation in software development. Russia could become a northern mobile cluster for the EU with R&D outsourcing and the integration of St Petersburg and Karelia into the Northern Cooperation Network of Mobile Technology. 23 Initial public offering (IPO) or stock market launch. 12

15 South Africa: Suboptimal Development? Alison Gillwald, Executive Director, Research ICT Africa, and Adjunct Professor at the University of Cape Town (South Africa), described South Africa has having two economies. One is very developed, whereas the other includes a large part of the population without access to most basic services. This feature makes this country s GDP not very relevant. It also suffers from a lack of engineers: only 300 qualify annually. Surprisingly, despite the current emphasis on the enabling role of ICT for the economy, ICT policies are not on the national agenda and coordination is poor between ministers. Overall, growth in South Africa appears to be suboptimal. The ICT sector is plagued by high access and usage costs, low PC ownership and weak IT literacy. Internet use is very low for a country of this size and GDP per capita. Growth in the sector is mostly supported by highend users able to pay high prices. This creates a narrow band of users which quickly becomes saturated. Broadband has not reached the critical mass of 20% of the population. Figure 5: The South African telecom market Source: A.Gillwald, Research ICT Africa While fixed services have stagnated (the fixed line network is smaller now than before privatization), mobile services in the country have grown exponentially. Four mobile operators, Cell C, MTN, Vodacom and the new entrant 8ta, together with virtual network operator Virgin, claim to have over 100% penetration. Fixed broadband penetration in South Africa was low, and has been rapidly overtaken by mobile broadband penetration. Unlike the mature economies of Europe and North America, where fixed line services are universal, mobile broadband is increasingly being used in the home as the primary service rather than a complementary service to fixed broadband services. The poor policy outcomes in the ICT sector in South Africa over the last decade and a half are a result not only of an absence of evidence-based policy but also political neglect of this sector, even though it is crucial to any modern economy and democracy. Despite the 10 and 15 year Presidential Reviews of Government which have highlighted the failures of a 13

16 protracted policy of managed liberalisation, which includes a constraining market structure and flawed institutional arrangements, nothing has been done to address them. Reacting to A. Chaudhuri s presentation, A. Gillwald commented that the political economy conditions for the developmental state which the South African government was adopting were absent. This made looking at South Korea, or China, as South Africa did for the ICT sector, flawed from a policy perspective. Andrew Barendse, Group Executive, Regulatory Affairs, Telkom SA, 24 (South Africa) claimed that borrowing or institutional transplantation of policies from other countries (often the EU) has not worked, and has been complex, costly and counter-productive. He took the example of price control, imported from the UK but without the rigorous application required. He said there was a lack of policy evidence assessment, which would have called for caution in the application of a regulatory innovation of this kind. 24 And Adjunct Associate Professor at Wits University (South Africa). 14

17 Wrap-up In the wrap-up to the Workshop, Tim Kelly, World Bank (USA), stressed that China has higher ICT intensiveness than either the US or the EU. He also said that India was strong in software and offshoring. These two countries revealed a competitive advantage in communication equipment trade, while one can see deteriorating trends in Brazil, South Africa and Russia. In the case of Brazil, the telecom goods trade balance has been deteriorating since 2006 (-US$ 5.6bn in 2010). For BRIC countries overall, the glass can be perceived as half-full or half empty as one can see, for instance, when looking at the revealed competitive advantage in communication equipment trade (figure 6). Figure 6: Revealed competitive advantage in communication equipment trade Source: OECD Communications Outlook. Based on Balassa Index (degree of specialisation in trade. 15

18 Annex 1: Workshop Agenda THE ICT LANDSCAPE IN BRICS COUNTRIES: LESSONS FROM EMERGING ECONOMIES (R&D, INNOVATION AND TRADE) Second International Workshop organized by the Institute for Prospective Technological Studies, Joint Research Centre of the European Commission, Radisson Blu Hotel, Sandton - Johannesburg, South Africa Wednesday 5 October 2011 AGENDA Introduction Fabio Colasanti, Chairman of the IIC (Belgium) IPTS setting the scene Jean Paul Simon, IPTS (Spain) Brazil Simone Scholze, Director General, Anatel (Brazil) Jose Rogerio Vargens, Oi Telecom (Brazil) Coffee break A cross Comparison of China and India "Creeping Tiger, Soaring Dragon: India, China and Competition in Information Technologies" - Anindya Chaudhuri, NISTADS, CSIR (India) Dr. Yang Yang, Vice Director at Shanghai Research Center for Wireless Communications (WiCO), Chinese Academy of Sciences, (China) Rasheda Sultana, Grameenphone (Bangladesh) Lunch break Russia Stefan Schandera, Development Expert, Research Fellow, DBFZ (Germany) Valentin Makarov, President, Russoft Association (Russia) South Africa Alison Gillwald, Executive Director, Research ICT Africa & Adjunct Professor at the University of Cape Town (South Africa) Andrew Barendse, Group Executive, Regulatory Affairs, Telkom SA and Adjunct Associate Professor at Wits University (South Africa) Wrap-up Tim Kelly, World Bank (USA) 16

19 European Commission EUR Joint Research Centre Institute for Prospective Technological Studies Title: The ICT Landscape in BRICs Countries: Lessons from Emerging Economies (R&D, Innovation and Trade). Proceedings of the Second International Workshop held in Johannesburg, South Africa on 5 October, 2011 Author: Jean Paul Simon Luxembourg: Publications Office of the European Union pp x 29.7 cm EUR Scientific and Technical Research series ISSN (online) ISBN (pdf) doi: /18633 Abstract The Information Society Unit of the JRC-IPTS has been investigating the Information and Communication Technologies (ICT) sector and its R&D in Asia for several years as an extension of the PREDICT project. The workshop was organised as part of this on-going research to gather the most recent information on the growing role of BRICs countries in the IT sector.

20 LF-NA EN-N As the Commission s in-house science service, the Joint Research Centre s mission is to provide EU policies with independent, evidence-based scientific and technical support throughout the whole policy cycle. Working in close cooperation with policy Directorates-General, the JRC addresses key societal challenges while stimulating innovation through developing new standards, methods and tools, and sharing and transferring its know-how to the Member States and international community. Key policy areas include: environment and climate change; energy and transport; agriculture and food security; health and consumer protection; information society and digital agenda; safety and security including nuclear; all supported through a cross-cutting and multi-disciplinary approach.