Fostering Technological Industries in Developing States

Development is constantly fueled by innovation. The Commission on Science and Technology for Development (CSTD) often has coinciding and mutually reinforcing goals with other UN bodies; for example, the United Nations Industrial Development Organization (UNIDO) is mandated to reduce poverty using sustainable industrial development.

This body defined industrial development as the source from which “all countries should have the opportunity to grow a flourishing productive sector, to increase their participation in international trade and to safeguard their environment. CSTD has refined and adopted this mandate to focus specifically on technological industry development, a topic that continues to require attention throughout the developing world. Technology, or the development of technology, is the force that drives human development and innovation. States further work to be more economically stable, sufficient, and strong. 

The desire for efficiency has fuelled industrial development, and more recently technological industrial development and innovation. Technological innovations allow entire factories to run completely unmanned and have allowed scientists to map the entire human genome. These innovations are but a few that have been made in the last few decades and new discoveries continue to be patented every day. This trend in innovation has held true for the last 40 years, and demonstrates the amazing rate of technological development and advancement. 

For developing states, technology and industry hold the key to economic development and the ability to compete in the world economy. There are many models for development, often inspired by what developing countries have done before. Some models were influenced by the rise of countries like China, which used heavy industry to produce goods in large quantities, while others look to emulate countries like Singapore and Taiwan, which were able to discover previously untapped niches in the market.

The methods used by former developing countries are not guaranteed models for success, but can be used as an example of how other developing countries can advance and industrialize. Though this goal seems straightforward, there are many mishaps that can potentially hinder success. For example, joint ventures are a hopeful endeavour and a great method for development, but have also been plagued with problems. As developing states race to capitalize on the use of technology as an advantage, there is huge potential for disaster, including the use of faulty materials, cutting corners, and violations of internationally recognized practices, rules, and norms. All of this different phase must be taken into consideration when approaching this agenda.

HISTORY AND DESCRIPTION OF THE ISSUE

Various types of technology have risen in prominence as a result of efforts made to further technological advancement in developing states. For example, nanotechnology is an area of development that has recently produced new products like Aero gel, a material that can absorb 900 times its own weight in oil. Nanotechnology also has applications in the construction of a space elevator, the discovery of new cancer treatments, and the development of faster and more efficient electric and Internet cables.

Nanotechnology is just one example of the scientific developments shaping the future of technological industries that must be addressed in order to have a comprehensive understanding of the topic. This topic not only deals with the issues present in the technological industry, but also the methods in which such technology can be developed. Some of the methods that foster the creation of new industries and companies within developing countries include joint ventures, FDI, and domestic innovation.

Technological Industry and the Internet

The Internet has taken on an incredibly important role in the development of technological industry; thus it is important to understand how states can use the Internet to spur development. The first World Summit on Information Society (WSIS) was held in Geneva in 2003, and was one of two meetings held by the UN to discuss communications, information, and information society. This summit was created in response to UN Resolution 56/183, which recognized a multitude of key issues, but namely those involving the pivotal role of technology and information in development, and the position the UN have in facilitating its spread and accessibility.

The mission of the WSIS is to create an “Information Society, where everyone can create, access, utilize and share information and knowledge, enabling individuals, communities and peoples to achieve their full potential in promoting their sustainable development and improving their quality of life.”Full implementation of this initiative can be very beneficial to all states as the spread of the technological industry directly assists in sharing knowledge and technology, while also providing other benefits like improving living standards. 

Although this summit did not result in a framework for Internet governance, other efforts have been made toward achieving this goal. The Working Group on Internet Governance (WGIG) published a report in 2005 that proposed a definition and guidelines for the role that Internet governance should have, as well as recommendations for potential ways to achieve these goals moving forward. Nevertheless, any rules that govern the use of the Internet have dramatic potential to be beneficial or detrimental to technological development.

China for example, has implemented strict Internet censorship, which has greatly limited the freedom of its civilians. The “great firewall” as it is called, is one among many methods that the Chinese government uses to control material and content accessible to its citizens. Such tactics are meant to squash political dissidence, and there has been harsh international criticism against this regulation. This level of governmental oversight has a stifling impact on both the domestic as well as the international technological industry within a developing country. This exemplifies the great asset of the Internet, but also the possible threats that it harbours. States must therefore determine how governmental oversight will ultimately affect Internet governance. 

States have taken further action to address the lack of sufficient technological advancement in developing countries. In 2005, the second WSIS gathered in Tunis, Tunisia to continue discussions. This conference further developed the progress made by the first meeting in Geneva by establishing the Tunis Commitment, Tunis Agenda for Information Society, and the Internet Governance Forum. The Tunis Commitment reaffirmed many of the goals and aspirations made in the declaration of principles in Geneva. Signatories pledged their continued support for issues like bridging the digital divide, proliferation of information and communication technology (ICT), and improving access to these resources. The authors of this document also pledged to pay particular attention to vulnerable groups, or groups with special needs, as well as populations in developing, conflict stricken countries, or those affected by natural disasters. By casting a wide net, and pledging to protect people of all backgrounds and cultures, the resolution has become stronger and more comprehensive.

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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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Though the extent to which each country has achieved technological advancement varies across borders, many developing areas specifically, have made progress with their endeavours; one such example is the Asian Tigers. The Asian Tigers are comprised of Hong Kong, Singapore, South Korea, and Taiwan. They were considered relatively poor during the 60s, but were able to completely revolutionize their industries and enter into the world market. Although many people believed that this active involvement would not last, the region has remained successful in that it has survived many economic crises since its initial entrance. This success was achieved by them primarily focusing on an export-driven model of economic development, while also developing better education systems on the side to help create a new generation of skilled workers. Furthermore, the significant investments made by the Asian firms in creating a smarter population coupled with the integration of foreign technology helped spur the development of many technological industries within their borders. Matthews also stated that Asian firms were not the “recipients of any technology transfer” but that they instead integrated any technology that they found to be useful; the argument in a sense primarily promoted the transfer of ideas and methods instead, rather than the transfer of actual products. This was paired with the idea of developing their own industries and moving away from multinational corporations.  States must realize that some form of initial investment of knowledge sharing is beneficial, but states must also work to develop its education infrastructure and further expand upon these other aspects of industry.

Malaysia hopes to completely revamp its economy by focusing on ICTs and advanced technology development, in order to reach a “high income” country status in the next few years. By primarily focusing on improving the livelihood of its population, it hopes to solidify a domestic base from which further development will stem. It is investing heavily in schools, equipping them with computers and wireless devices. Datuk Ghazali, CEO of the Multimedia Development Corporation, is in charge of Malaysia’s ICT development and he believes that improved education and access to new jobs will help keep people in Malaysia instead of leaving to work abroad. Investments and projects from international firms in part helped the country establish this new direction. Now with an educated population and plenty of job opportunities, Malaysia is on the path to becoming just as strong as other technologically advanced countries. 

The transformation within Estonia provides an ideal example of successful domestic innovation and the country’s emergence as a technological powerhouse. The Estonian Prime Minister, Mart Laar, jumpstarted the domestic economy by heavily investing in the education system, deeming Internet use a human right, as well as connecting classrooms to the Internet. Furthermore, the state created a flat income tax and liberalized trade, both of which helped to foster domestic industry. Instead of purchasing technology from other states, Estonia also created its own digital phone system. All of these efforts eventually paid off and Estonia now has more than 14,000 newly registered companies, and it is now one of the most technologically advanced countries in the region.

CURRENT STATUS

Regional Developments

 Countries are constantly working towards developing new technologies, establishing industries, and working to raise their standard of living. Though developed countries have in the past made relatively few attempts to help spur the development of technological industries in developing countries, such assistance is now increasingly common. For example, the United Kingdom released a statement on 22 July 2013 pledging USD 160 million in aid for the development of agricultural science and technology in developing countries. The UK hopes to develop methods of increasing agricultural yield while reducing the environmental impact and resource costs. The country’s goal is to better unite everyone that is involved or affected by the agricultural industry and to create better circumstances for these people. The UK is not the only country investing in such development; Japan recently contributed USD 5.5 million towards the creation of new programs that will help distribute the use of clean energy technology to developing countries. The United States has also made efforts towards aiding the economic growth of developing countries. Spear- headed by the ECHO Farm non-profit organization, many initiatives have been implemented to train workers in using green technology. The ECHO farm also provides them with region-specific advice about productive farming. Additionally, they develop methods of producing much needed tools like stoves, solely using the resources found within that specific country or region. By expanding similar programs in other developing countries, states can create products and develop industries for products that are unique to their own country. 

In the Middle East, the number of new technology start-ups is on the rise. Jordan is one of many start-up hubs and is home to hundreds of new firms. Start-ups are extremely beneficial in promoting economic growth, as they also help address the issue of youth unemployment in the region. For example, a private entrepreneur launched a website that compiled hundreds of cooking videos. Her success displays the potential benefits that can result from a simplistic business idea. Additionally, Maktoob, a Jordanian Internet portal was sold to Yahoo for USD 175 million. Much of the success of these two start-ups can be attributed to King Abdullah, as he influenced these business launches among others by making efforts to help spur the growth of small start-ups.

International Action and Concerns

Between 13 and 17 May 2013, the latest WSIS meeting took place in Geneva. The subjects addressed were those outlined in the first WSIS meeting in Geneva, and also included a discussion of how to promote “infrastructure development, media, e-learning, e-agriculture, access to information and knowledge, enabling environment, and business.” Some topics including fostering new green technology industries attempt to prevent further environmental damage without forfeiting manufacturing or industrialization. Future discussions can focus on issues like protecting intellectual property laws and patents. These subjects are very much at the forefront of Information and Communications Technology (ICT) advancement and have the potential to revolutionize dozens of technological industries. The topics that outlined in the Geneva WSIS contain many of the technology industry’s rising fields like green, nano and micro technology. 

An often-overlooked aspect of the dilemma is access to information, which greatly assists any attempts in creating industry because it helps answer questions and provides much needed support. Another important component is how this information is presented to the public, and that is where media plays its part. The media plays a huge role in how information is presented to the general public and how a product will be received. Therefore, it is important that media is free and allowed to publish information without hindrance, but also without bias. 

After a string of environmental disasters in the late 2000s, the world saw a huge increase in the use of mobile phones in disaster relief efforts. For example, after the Japanese Tsunami; there was a huge increase in mobile disaster warning applications. The Japanese are not the only ones to do this; the Bangladeshi government also announced a plan in which people in disaster prone areas would get a flashing message on their cell screens. This technology, and the industries that create it, can be a great new tool that is used all over the world, particularly in developing countries where the dissemination of information is not as fast or as widely implemented as in developed states. Furthermore, it is a great incentive for states to allocate more funds towards technology and the various different applications it can have. 

China’s Globalization Limitations

 State involvement in China refers to the active role that the government plays in global economic affairs, as well as its control of many of the country’s companies and banks. These state owned industries are seen as a threat and potential security risk by countries around the world because the companies are a direct appendage of the Chinese government. As a result, this involvement has limited the ability of Chinese companies to expand. One instance of such limitation is displayed with the attempted expansion of Chinese companies into the US. The first instance was when a private Chinese firm tried to buy wind farms in Oregon. In an unprecedented move, President Obama issued a presidential order banning the purchase in late 2012. A month later, the House of Representatives banned the entrance of two Chinese telecom firms, ZTE and Huawei, from operating in the US market, citing “security risks.” More recently, the European Union also denied Chinese firms entry into the European market, although not to such extremes as the US. In May 2013, the European Union decided to launch an investigation into two Chinese companies over illegal dumping of products into markets. This is an excellent example of the potential fallout from excessive government involvement in different industries. As developing states race to make themselves more attractive to investments and foreign expansion, there is a strong possibility that developed countries will hinder the expansion of technology industry from developing countries or abstain from foreign investment for political reasons. This holds particularly true in fields of communication and security, where a company’s relationship with the government are particularly scrutinized. 

  

About the Author
Author: Anant Mishra
Anant Mishra is a former youth representative United Nations.Almost 4 years of experience, he has served in number of committees including United Nations Conference for Trade and Development and Economic and Social Council primarily focusing on international trade, finance, economics. food crisis and disputes. Currently he is serving as a Mentor & a Member for the organising committee of Global Entrepreneurship Summit 2014. He is also the state convener, chhattisgarh for a nation wide think tank, Centre for Education Growth and Research, New Delhi. Beside this he is an editor, foreign affairs for political mirror, columnist for business digest and iReporter for the CNN. He is also an author for the Indian Economic Review, an yearly journal for Delhi School of Economics.

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