Looking Back

2013 marks 40 years since the publication of Social Issues in Computing (Academic Press, 1973) by Calvin Gotlieb and Allan Borodin.  Their central concern in the section on  “computers in developing countries” was “How should computing be applied in developing countries and what might be the impacts of that application?” They cited reports of international agencies (OECD, UNESCO and the United Nations), which argued that some computer activity was appropriate for developing countries and these countries should be actively engaged in seeking how to make use of computers for their situation.  They also noted that although some officials in developed countries felt that developing countries should focus on more urgent, basic needs such as food, health and poverty, officials in developing countries rejected this view because they regarded computers as stepping stones to social and economic development. They showed determination to join the computer revolution by investing in computers, seeking education and participating in computing-related meetings and conferences.

While encouraging computer use, Gotlieb and Borodin urged government officials in developing to be cautious about trying to develop their own computer industry.  They argued that only a very few large developing countries, such as India, would have the technical and human resources required, and so they urged countries to concentrate on computer applications.  With respect to social impacts, they felt that developing countries would experience social issues such as unemployment, privacy threats and the need for skills development similar to the industrially advanced countries.   Their chief concern was that “the gap between the industrially advanced countries and those which are still developing is widening”.

 Looking Forward

This short article will review what we know about the foregoing issues:  (1) the returns to IT investment (2) computer production vs. use and (3) the digital divide.  At the time that Social Issues in Computing was published, I had just become Director of the Public Policy Research Organization (which later morphed into the Center for Research on IT and Organizations or CRITO) at UC Irvine.  We had just received our first NSF grant to study policies for effective use of computers in governments in the U.S.  Rob Kling, Jim Danziger, Bill Dutton, Alana Northrop, John King, Suzanne Iacono and Debora Dunkle were all colleagues in this work and one of our first tasks was to do a literature survey. It was Rob Kling who brought this book to our attention, mostly for its concern with the social and economic impacts of the technology. We were not thinking about developing countries at the time, but turned to them in the nineties at which time we became interested in understanding why so many developed and developing countries were not succeeding in their attempts to develop domestic computer industries. With this context setting, we examine the issues.

Payoffs from IT investment in developing countries

The question of whether IT investments lead to greater productivity and economic growth has been studied extensively at multiple levels of analysis, with strong evidence that the returns to IT investment are positive and significant for firms, industries and developed countries.  Cross-national research for the 1985-1993 time period found that IT investment was associated with significant productivity gains for developed countries but not for developing countries (Dewan and Kraemer, 1980).  Other studies found similar results (Pohjola , 2001).

Nonetheless, developing countries increased their investment in IT from 0.5% of GDP in 2000 to 1.0% from 1994 to 1997.  For some the change has been dramatic.  For example, China had fewer than 10 million PCs in use in 1997 and barely 1 million Internet users.  In 2011, China passed the U.S. as the largest PC market and led the world with over 400 million Internet users (Shih, Kraemer and Dedrick, forthcoming).  Similar rapid growth in places such as India, Latin America, Southeast Asia and Eastern Europe has transformed the landscape for IT use in developing countries.  So, an important question is  whether this level of investment and experience has now changed the results for developing countries.

A recent study, which analyzed new data on IT investment and productivity for 45 countries from 1994-2007, found that upper-middle income developing countries have achieved positive and significant productivity gains from IT investment in this more recent period as they have increased their IT capital stocks and gained experience with the use of IT (Shih, Kraemer and Dedrick, forthcoming). The study also found that the productivity impacts of IT are moderated by country factors including human resources, openness to foreign investment, and the quality and cost of the telecommunications infrastructure. These policies are useful in their own right, but the study suggests that the impacts of IT depend not only on the level of use, but on the presence of resources and favorable policies to support IT use.

The academic implication is that the impact of IT on productivity is expanding from the richest countries into a large group of developing countries.  The policy implication is that lower tier developing countries can also expect productivity gains from IT investments, particularly through policies that support IT use, such as greater openness to foreign investment, increased investment in tertiary education, and reduced telecommunications costs.

IT Production versus use

Gotlieb and Borodin’s 1973 caution that most developing countries should focus on computer use rather than production was wise, and prescient.  Many countries have sought gains from investments in IT production rather than IT use, but the research shows that there are gains to the whole economy from investment in IT use rather than gains to only a single industry sector from investment in IT production.  The significance of investment in IT use is heightened by the fact that production in the IT industry is now global.  Increasingly, products designed in one country are made in others with components from still other countries and then marketed throughout the world.  This global production system relies on IT to link it all together.  Therefore, countries desiring to participate in the global production system must develop IT capabilities through both short term and longer term strategies.  By doing so, countries can not only participate in the global production system but also increase the productivity of their economy, and thereby raise the standard of living for their citizens.

Recognition of this fact has been slow in coming. In the 1950s with the introduction of computers, many countries wanted to develop their own computer hardware industry and many of the advanced industrial countries did so.  The history of the industry shows that success requires large investments in R&D and human resources, and that one misstep in this highly competitive global industry can bring downfall.  Computer makers in England, Germany, France and Italy succeeded initially against the leader IBM because they were national champions, but there were unable to compete on the world market and were bought out, merged or disappeared.  Japanese companies succeeded longer in their protected market.

With the introduction of the PC, new opportunities arose for developing countries. Domestic companies in such as India, Brazil and Mexico succeeded for a while in their own markets, but could not compete globally with the multinational brands or their own white box makers. Because of its large English-speaking population, India switched from computers to software and services whereas Brazil and Mexico companies exited quietly.  Taiwan and China traditionally have been workshops for the multinationals, but China’s Lenovo and Taiwan’s Acer have risen to number two and three in the global computer hardware industry.  Neither China nor Taiwan is a model for other developing countries due to their unique circumstances.  The oft-cited successful small countries like Singapore and Ireland have been regional outposts for multinationals despite the hyperbole about having a domestic industry.

However, there is a side of production that is close-to-use (Figure 1), which has proven valuable for some developing countries even though Gotlieb and Borodin did not specifically identify it at the time– the development of packaged software and information services.  India has succeeded tremendously as an offshore workshop for software development and for computing services around the world. However, the industry has not yet created notable packaged software.   Many smaller developing countries such as Brazil, Costa Rica, Bulgaria, and Israel are also succeeding in software development and information services, usually as a result of language or specialized knowledge/skill.

China set the goal of becoming a computing software and services powerhouse as early as the mid-eighties and in its subsequent five-year plans.  Since 1999, China has made the “fundamentals of computer science” mandatory for all university students and now graduates over a million computer scientists a year (Zang and Lo, 2010). This has not gone unnoticed by foreign multinationals who rushed into China after 2000 to take advantage of the large, low cost labor pool.  However, multinationals (MNCs) that employ graduates report that they have theoretical knowledge but little practical knowledge.  A recent study of five large U.S. MNCs in the computer and telecommunications industry indicated they employed from a low of 4,000 to a high of 20,000 computer professionals in their software and services operations in China (Dedrick et al., 2012).  The study also indicated that the MNCs must put new hires through in-house training programs for up to a year.  The training involves not only teaching in-house methods, but also promoting greater work discipline and teaching teamwork, as China’s one child policy has created many little emperors.  Still, these computer professionals are developing valuable practical skills, learning how Western and other Asian organizations operate and rising up to management and leadership positions within the MNCs.  Whereas foreign MNCs were the first job choice of Chinese computer science graduates early on, government enterprises and the military are now the first choice followed by Chinese private enterprises and then the foreign MNCs.  One only has to read daily newspaper accounts of hacked corporations and government agencies the world over to realize the advanced skill and creativity being achieved by at least some Chinese computer professionals.

As early as the nineties, several experts urged developing countries to follow production close-to-use strategies (Schware, 1992; Dedrick and Kraemer, 1998), but only a few have done so.   Although late in coming, a recent UNCATD (2012) study urges developing countries to develop indigenous software capabilities in order to take advantage of IT opportunities. It makes a strong case for the social and economic benefits to be gained from leveraging software skills in the domestic market – in both the private and public sectors. It urges governments to promote domestic software writing that meets local needs and local capabilities as a means of increasing income and addressing broader economic and social development goals.  The argument is that developing such software locally increases the chances that it will fit the context, culture, and language where it is used.  The Report also argues that such capabilities also can help to expand software exports.

Figure 1.  Information services as link between production and use

Source:  Dedrick and Kraemer, 1998

The Digital Divide

Gotlieb and Borodin, like many others since, were concerned that the gap in use of IT between developed and developing countries was widening.  The literature documents this digital divide, or difference in cross-country penetration of computers, the Internet, smart phones and other ITs.  Explanations for the divide usually are based on socio-economic factors such as GDP, human capital, openness to trade, IT infrastructure and IT costs–especially telecommunciations costs. However, a recent cross-country study of the diffusion of personal computers (PCs) and the Internet in 26 developed and developing countries over the period 1991-1995 indicates that the divide might be narrowing due to co-diffusion effects between PCs and the Internet (Dewan et al., 2008).  That is, the adoption of PCs leads to greater adoption of the Internet, which in turn leads to greater adoption of the Internet in a virtuous cycle.  Moreover, the study found that the impact of PCs on Internet diffusion is substantially stronger in developing countries as compared to developed ones.

The fact that these co-diffusive effects are a significant driver of the narrowing of the digital divide has policy implications for developing countries with respect to how diffusion of PC, Internet, and smart phone/tables technologies might be harnessed to further accelerate the narrowing of the global digital divide.  The key is government policies that promote expansion of the IT infrastructure, lower the cost of access devices and telecoms costs and upgrade users’ knowledge and skill.  Even then, it is necessary to recognize that there will be failures along the way, as illustrated by the OLPC effort to bring low cost computers to schools in the poorest countries of the world (see box).

Dedrick, J. and Kraemer, K.L.  Asia’s Computer Challenge: Threat or Opportunity for the United States and the World?  New York: Oxford University Press, 1998.

Dedrick, J., Kraemer, K.L. and Tang, J.  2012. China’s indigenous innovation policy: impact on multinational R&D, Computer, 45 (11) November: 70-77.

Dewan, S., Ganley, D., and Kraemer, K.L. Complementarities in the diffusion of personal computers and the internet: implications for the global digital divide. Information Systems Research, 20, 1 (2009), 1-17.

Dewan, S., and Kraemer, K.L. Information technology and productivity: preliminary evidence from country-level data. Management Science, 46, 4 (2000), 548-562.

Han, K., Chang, Y.B., and Hahn, J. Information technology spillover and productivity: the role of information technology intensity and competition.  Journal of Management Information Systems, 28, 1 (Summer 2011), 115–145.

Kraemer, K..L., Dedrick, J. and Sharma, P. 2009.  One Laptop Per Child (OLPC): vision and reality, Communications of the ACM, 52(6), 66-73.

Kiiski, S., and Pohjola, M. Cross-country diffusion of the Internet. United Nations University, World Institute for Economic Development Research, 2001.

Papaioannou, S.K. and Dimelis,S.P..  Information technology as a factor in economic development: evidence from developed and developing countries. Economics of Innovation and New Technology, 16, 3 (2007), 179-194.

Park, J., Shin, S.K., and Sanders, G.L.. Impact of international information technology transfer on national productivity. Information Systems Research, 18, 1 (2007), 86-102.

Pohjola, M. Information technology and economic growth:  a cross-country analysis. In M. Pohjola (ed.), Information Technology and Economic Development. Cambridge: Oxford University Press, 2001, pp. 242-256.

Robert Schware, 1992. Software industry entry strategies for developing countries: A “walking on two legs” proposition, World Development, 20 (2): 143-164.

UNCTAD, 2012.  Information Economy Report 2012 – The Software Industry and Developing Countries (UNCTAD/IER/2012) 28 November. Geneva: United Nations Conference on Trade and Development, 142 pages.  http://unctad.org/en/pages/publicationwebflyer.aspx?publicationid=271.

Zang, M. and Lo, M.M. 2010.  Undergraduate computer science education in China. SIGCSE ’10, March 10-13, Milwaukee, Wisconsin, USA.  http://fusion.grids.cn/career/attachments/china-SIGCSE2010.pdf