Fostering Technological Industries in Developing States

Fostering Technological Industries in Developing States

This ICT development is an essential component of the overall development of technological industries. Furthermore, the general application of the Tunis Commitment would allow for technology pertaining to communication and information to be more widely distributed, therefore promoting the growth of this industry in countries where barriers previously existed.

Joint Ventures

Joint ventures are efforts by foreign multinational corporations to expand into foreign markets by combining institutional knowledge and other resources with a domestic corporation.  Experts have routinely changed their opinions on the usefulness of such ventures, and for good reason.

For example, ten years ago, multinational corporations attempted these projects as a means of engaging in the Chinese market. But the number of failed joint ventures was high, and domestic companies were quick to think of strategies to start businesses from scratch, and thus there was no real need for joint ventures and the complications that arose from these partnerships.  Joint ventures combine many different aspects of two companies, but most importantly contain two or more opinions on how the new partnership should run, which can lead to headaches and delays as they work to come to a compromise. Alternatively, when there is only one company making the decision, the business process is streamlined. This mentality has since changed once again due to China's recent impressive growth rates, and joint ventures have become the preferred method of moving forward.

Many multinational companies now face the challenge of competing in a market saturated with domestic companies that are unwilling to sell or merge with foreign competitors. Faced with this unfavorable situation, foreign companies have yet again turned to joint ventures; working hand in hand with domestic companies collaborating on views and plans for the future. Even so, joint ventures still continue to be stricken with the same problems that they faced several years ago. This is due to the very nature of the project itself since multinational corporations and their domestic counterparts often have many different goals in mind for the future of their projects.

This has been the case in China. Three workers at the Shanghai office of McKinsey & Company have argued that multinational companies have always preferred profitability over growth, while their domestic partners valued growth more, even at the expense of profitability. Despite all the problems that have been discussed, joint ventures greatly benefit both companies; domestic companies acquire tactics, technology, and growth strategies from the multinational companies while the multinational companies are able to enter a market with less effort and cost on their end. Given the expertise that the domestic corporation has with the particular market they are in, they can also assist in the multinational sale of goods.   

Joint ventures often require the exchange of technology and information in order for a new project to properly develop in the country. The foreign company brings these technologies and information to the domestic company’s country. Even so, developing countries often times have weak legislature governing the use of intellectual property. Intellectual property is defined as “creations of the mind: inventions, literary and artistic works, and symbols, names, images, and designs used in commerce.”This weakness in legislation in the past has caused multinational corporations to lose valuable property to theft. Thus, this lack of respect of and compliance with intellectual property rights discourages multinational corporations from partnering with domestic companies for fear that their technology will be pirated. 

Foreign Direct Investment (FDI)

Another option to encourage the development of these industries is the use of foreign direct investment (FDI). As defined by the United Nations Conference on Trade and Development (UNCTAD), FDI is the “investment made to acquire lasting interest in enterprises operating outside of the economy of the investor.” Essentially, it refers to the investment made by one state, or private entity in one state, in the economy of another state. This past year, 2012, was the first year during which developing countries surpassed the developed countries in its use of FDI. The developing world received 52% of the world’s investments due in part to large increases in investments in South America (12%) and Africa (5%). 

There are a couple of methods of technology transfer that companies have developed to keep both parties satisfied. For example, by using older technology that is still competitive in developing countries, companies can obtain a profit while still protecting their most valuable intellectual properties. This does have certain drawbacks as this solution hinders long-term development and reaffirms the development gap between developing countries and industrialized countries. Thus, it should be noted that methods currently employed by multinational corporations are only short-term solutions with negative long-term consequences. Furthermore, the question of a legislative framework to protect intellectual property rights must be addressed in order to derive the most benefit from joint ventures. National policies governing intellectual property as well as bilateral or multilateral treaties on the issue must also be updated and strengthened for this project to be successful. 

FDI differs from joint ventures in the way in which the investment is made. In joint ventures, two companies are forced to work together to pursue their shared goal of developing a new economy. FDI circumvents this problem of potential conflict because it instead consists of an investment into a company, rather than a merger of two institutions. However even with such benefits, FDI can create problems regarding the political implications of foreign companies operating within another state’s border. For instance, Chinese owned companies Huawei and ZTE are now under heavy criticism from the US government for their recent FDI in Africa. Although not always the case, political intrigue and distrust can get in the way of development.

Role of the State

States manage many aspects of everyday life such as banking rates, trade, and investments, which are all vital in developing technological industries. Also, state involvement through specialized agencies for education or infrastructure building is extremely advantageous for the development of the technology industry. The current US administration, for example, has increased funding for subjects like math and science in order to lay the foundation for a new generation of workers who are capable of working and developing technological industries. State aid in education and infrastructure building can also help industries by providing an educated workforce as well as better infrastructure to transport and build the goods.

The focus of governments on defence, and on other security concerns, can also indirectly promote technological industry. For instance, the US Department of Defence purchases billions of dollars of military hardware from numerous defence companies; this not only employs thousands within the security sector, but also funds the development of new military technologies as well. States provide a great source of income for companies both in the form of aid and government purchases that can greatly improve the growth and development of the technological industries. States exert a huge influence over the interest rates of banks, which affect the rate of industrialization and development. Specifically, states can lower interest rates and taxes in order to better incentivize companies to invest and expand. This is beneficial for governments because by getting involved in matters of business, states can ensure that unemployment rates are lower and that the standard of living is increasing within its borders. By lowering interest and tax rates in the hopes of encouraging purchases, states can help jumpstart the economy. This jumpstart can translate to the technology industry hiring more workers in order to adequately respond to the rise in sales. 

This, however, is not always the case. There are several examples of issues that have arisen as a result of states’ involvement with the details of industrialization and business. In the US during the 2000s, extremely strong growth led banks to lower interest rates for borrowers, and even allowed many people previously ineligible for loans to take them out. This had only become possible because the central governments had lowered interest rates for loans between banks. Unfortunately, due to a number of risky investments and banks selling their loans as “bets” against insurance companies, the pyramid structure quickly collapsed and led to one of the worst financial crises the world has seen since the Great Depression.

The government is not completely at fault for this collapse, because it was the banks that executed such risky transactions; however, the lowered interest rate encouraged by governments was the catalyst that started it all. This shows that the state has the potential to both provide a favorable environment for investment and technological development in new industries, but that it can also severely disrupt both the domestic and international economy.

If states are able to create favourable conditions to encourage companies to invest, they must also make sure that there is an adequate legislative and judicial framework in place to protect these companies. For example, the use of patents and observance of intellectual property rights is crucial to the overall concept of fostering technological industries. However, protecting intellectual property is only half of what is needed; the basic protection of assets must also be guaranteed before foreign companies will comfortably make large investments. Conflict, regardless of its size, can lead to an unfavourable economic situation and deter investment. As seen in Egypt, the revolution that started with the removal of Hosni Mubarak has led to general unrest, as well as causing the economy to tank, with prices for basic food staples such as sugar and flour increasing by 50%. States must keep in mind the importance of political and economic stability to development projects.

Sustainable Development and the Tech Industry

One particular area of focus important for consideration is the development of green technology. This is a new and developing sector of sustainable development that is hailed as the next big industry.  Sustainable development or green technology involves the use of technology intended to reverse the negative effects of human activity and benefit the environment. In June 2011, a sustainable green technology was developed in Bangladesh to help reduce greenhouse gas emissions. As a result of joint efforts from the Global Environment Facility (GEF) and the United Nations Development Program (UNDP), an innovative brick-making technology was created as an energy saving technique. These new environmentally friendly bricks, created by use of the Hybrid Hoffman Kiln device, have helped Bangladesh develop its infrastructure and are more cost effective and less hazardous to the environment than regular bricks.

Industrialization helps to create a better quality of life for populations. It fuelled the growth of developed countries, and is the ultimate goal of developing states. However, the amount of energy used for industrial development purposes represents an incongruously large proportion of energy used worldwide. Developing states in particular often times also lack advanced technology or government regulations needed to control greenhouse gas emissions. These developing states now face considerable international pressure to prevent emission rates from reaching a deadly level.

Rising fuel costs and fear of a diminishing supply of fossil fuels has encouraged many countries to invest in new green technologies to meet energy needs. Furthermore, many of these developing countries often have unequal access to energy, particularly those in more rural regions.  Therefore, green technology has the potential to solve this disparity since it focuses on self-generated power. This has a dual benefit: not only will the energy used for industry no longer depend on polluting fossil fields, but it will also help bolster the green technological industry in developing countries. By investing in green technology, developing states can increase self-sustainability, helping to promote continued production.

The use of green energy currently comprises 19% of total energy use worldwide, yet it continues to increase. Although the primary users of green energy are concentrated in China, the US, Brazil, Canada, and Germany, states worldwide are becoming more interested in using green technology. However, there are still barriers to its widespread expansion including unwillingness to change, government subsidies for fossil fuels, and the lack of awareness of the benefits of green technology. If domestic policies are favourable, the state must also identify if there is enough capital as well as a market for sustainable energy to take hold. In many developing states, a lack of funds hinders technological advancement, and renders companies dependent on outside benefactors for start-up capital. To reduce this financial barrier, several African states have received investments of millions of dollars to help start small to medium enterprises. By acquiring this necessary financial aid, states will more easily be able to further their technological development, ultimately spurring their economic growth.

Renewable energy is gaining traction in Asia, Africa, Latin America, and the Middle East. Historically, renewable energy has been predominantly used in developed or highly industrialized states. For example, the largest offshore wind farm is run by the United Kingdom, the largest wave power plant is in Portugal, and the largest dam in the world is in China; all of these countries have green technology that can be beneficial to developing countries. Developing states can look to these countries’ initiatives as models for development.

Research and the development of renewable energy can also lead to new innovations in science and technology. Renewable energy in Africa is becoming a key area of development, as states and companies realize it’s potential. Fabio Monforti-Ferrario, an expert in renewable energy at the European Commission, in a report published by the Ecology Global Network, highlighted several areas of the continent that are ideal for renewable technology, namely the “good wind energy potential in North Africa and good solar energy potential in Sub-Saharan Africa and the Sahara belt.” Even so, while these states might be engaged in plenty of discussions about using renewable energy technology in Africa, very few companies have yet to implement their proposals. The fact that this resource is not being exploited is due to a variety of factors, including instability in the region, or an unwillingness to make the transition to green technology. Regardless, there are certain states, whose progress can be used as a model for other countries in the region. For example, in Kenya, investments in green technology remain consistent, encouraging the rest of the continent to implement this technology. Also, Africa and the Middle East have had the greatest increase in spending on renewable technology, now estimated at USD twelve billion. A portion of this investment went towards establishing powered electric plants in the Bogaria-Silali region of Nigeria, and solar panel farms in Guinea. 

Because implementing green technology requires large amounts of capital, it is more difficult for developing countries to start projects because of their lack of sufficient funds. As companies continuously work towards developing such technologies, they start to become easier to produce and ultimately less expensive. Specifically, households can expect to see a return on investments within five to six years. On a commercial level however, companies and states can see returns in an even shorter time.

Domestic Innovation

While encouraging foreign investment is very helpful for development, the ability to create domestic industries is crucial for long-term success and sustainable progress. States should primarily invest in research and development within their own country in order to effectively compete in the market. For example, US companies like Apple or Intel have factories in many developing countries, which provide a symbiotic relationship. The developing states gain valuable expertise, jobs, and infrastructure while companies can produce goods at reduced labour and raw material costs. This relationship has its benefits, but it can also stifle the growth of the developing country’s economy and technological advancement as it is forced to compete with foreign companies. In addition, much of Eastern Asia has been a manufacturing hub for the world. There were many firms in Asia that have managed to develop advanced technology industries and compete in this advanced market. The company Foxconn is one such example, famous for producing the parts for Apple. Though successful, the challenge then becomes attempting to achieve domestic innovation and technological industrial development. The Fairs Idea event in 2012 specifically addressed this topic, and several experts argued that the challenge was that “people still believed innovation and technologies must be transferred from north to south, rather than potentially being developed indigenously,” making it difficult for developing states to “foster local technologies and innovations.” In response, states should consider methods to encourage domestic technological development, rather than further expanding business from foreign companies in developing countries.

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