ICT and its role in T&T s Economic Diversification: The National Innovation System ICT in general translates as the Information and Communication Technologies. But today it includes anything that has to do with computers, information, networking, software development etc. Hence it is a catch all phrase for the digital technologies. If you were to listen to any developing country that is attempting to drive its economy into global competitiveness ICT is quoted near, if not at, the top of the list and indeed create new software applications, outsourcing from more developed countries or getting into large scale data storage. The present move to cloud computing, ranging from use of equipment, through data storage to applications on-line on the cloud, is relocating some of these activities back into the developed countries. Yet the cloud offers opportunities to small developing countries. In T&T many of the advocates for economic diversification also recommend ICT in the same manner. The application areas are generally human resources intensive as opposed to capital. There are many examples in the world, Ireland, Israel, Costa Rica, that have utilised ICT to help bring their economies into the modern world. However the concern of my Ministry in its thrust for economic diversification via our National Innovation System is how exactly do you use ICT in this exercise? Whose lead do you follow if any at all? When you look at Ireland you see Microsoft, Oracle and the like. The same is true for Costa Rica that started with Intel accepting the offer of the President to locate in that country. The question therefore is; to fully utilise the opportunities presented by ICT do you have to partner with, or be employed by, the big names and attract them to T&T to participate in our thrust to make tradables in the ICT? Let us look briefly at the Irish ICT industry. A large percentage of the software firms in Ireland are foreign owned. These firms do not compete with low wage countries like India, China and Russia in providing low level coding, maintenance or outsourcing services. Instead they have targeted niche software products and services to which they can add the most value. In fact they derive a significant portion of their revenue from implementation, internationalisation and localisation (adaptation to local EU languages) of packaged software applications rather than on development or software maintenance. 1
The key success factors for the Irish industry are Ireland s location, culture and low-cost business environment- the country is located six hours from the eastern US and two hours form continental Europe. Hence it became a prime location with excellent infrastructure for US companies doing business in the EU. The biggest strength of the Irish software sector is its highly skilled and educated workforce that allows the firms to specialise in e-commerce, network security and management and messaging software. The problem, though, is the small number of software developers it can produce per year (11,000) as compared with Russia (60,000) or China or India. This output of software talent will continue to drive up costs and limit the market opportunities for Irish software firms. T&T that has 1/3 of Ireland s population may, as some think, be in an ideal location as Ireland, but we may suffer the same disadvantage of smallness as that country. Still, the government support for ICT in Ireland is aggressive- the tax rate is 12.5%, the lowest in the EU and its government offers numerous financial incentives to foreign corporations for most investment I n Ireland. This excellent business climate coupled with the low taxes played a major part in attracting, retaining and developing this country s software industry then. Today Ireland has been devastated by the current recession; why, is for another presentation. In Costa Rica the software industry is an important engine of growth. Hence national policy is an important driver of their ICT industry. This policy relates to developing and continually strengthening an interconnected network of organisations (much like our Innovation Diamond), people, infrastructure, with proper legislation, marketing and market development and finance. We have also seen that the policy in Ireland focussed on attracting FDI to exploit the EU market, on software services in India and on products in Israel. Again in Costa Rica, by 2005, there were 150 software development companies; most of them micro, small and medium sized doing work on applications for the Internet and engineering systems. Some30% of the production was exported. Further Costa Rica created a local institution whose formal mandate was to promote FDI into the country. This was also important in the growth of the Irish industry and the same in India with the encouragement of Texas Instruments and Motorola. In India the 2
introduction of FDI spawned a new generation of entrepreneurs and contributed to a change in the then existing institutional structure which was dominated by family owned firms. However in Costa Rica the process of encouraging FDI presented difficulties as it was uncoordinated and, of importance, FDI entry tended to undermine the growth of the smaller indigenous firms. For example Intel was able to offer higher salaries and with the glamour of the multi-national corporation was able to poach trained staff away for local firms. The relatively small size of Costa Rica s national pool of software engineers contributed to and magnified the negative effects of FDI s entry into the industry. In fact there was a bidding war among the major FDI firms in poaching staff from each other which drove up salaries to the detriment of the local firms. This, as in Ireland, was further exacerbated by the fact that the training schools could not provide the human resources to meet the fast growing demand for skilled staff. This thumbnail sketch demonstrates that T&T will face at least two problems in the establishment of a globally competitive ICT sector. The first is what areas should we address? Should we look at the creation of engineering and management software (clustering), given our long standing in the energy sector, or the fledgling manufacturing sector, or should we look at outsourcing, offering our services in off-shore support for the US, or should we serendipity wise let anyone one do her own thing? Also should we, like Ireland, focus on the encouragement of FDI into the sector? One option for us is indeed ICT conceptual innovation in which companies do not create new or improved technologies but use the existing technologies to create new systems- for example the now well-known Google search engine and the new social networks. Also many small companies are using cell phones and their data networks to create market survey systems, banking by cell phone and other mobile application. Also some companies repeat for local use applications seen abroad. Another option, as was done in Costa Rica, is for us to become proficient in say some engineering or medical technology and then use ICT to enhance new applications of the 3
technology. Indeed one of my colleagues did just that by building a Department of Electrical & Computer Engineering at UWI in which all of its graduates are electrical engineers but all have a smattering of computer systems and design but an option to develop fairly in-depth skills in the design of computer software systems. The result of such a combination was the creation of the G- and Phi-pan and the Defour Machine Controller all patented by the staff of the department. Such an endeavour can be enhanced by an Innovation Centre in Software Engineering as part of the National Innovation System. My Ministry will be conducting a foresighting exercise to answer this question since industrial clusters are so much more effective. The best practices of other successful countries are there for all to see, but blindly following these will not necessarily produce similar results in T&T. We have seen that FDI may have worked in Ireland, though Professor Michael Porter thought that there was too much FDI in that country. But it damaged indigenous industry in Costa Rica. Models from abroad may not have taken into consideration the history of our formal and informal institutions, and such a lack will affect negatively the development of the ICT sector. We in this Government are attempting to address these constraints by the formation in our National Innovation System, an inter Ministerial Council to co-ordinate government s efforts, and Economic Development and Innovation/Competitiveness Boards (the last two made up of private sector people). The legitimation and the continuing foresighting exercises will manage the bottom up aspirations and conflicts and drive the allocation of support for the fledgling companies by the Government. The finance Diamond point of the National Innovation System will provide the range of funding; initially Government supplied, via Economic Development bonds raised on the local market, that includes R&D grants, seed funding, proof of concept funding and venture capital. This process sees government ownership of the funded companies that will be eventually sold as IPOs on the local stock market. Another policy decision that has to be taken is how, if at all, particularly in the provision of tradables, do you implant FDI in the ICT industry? At present there is FDI in the 4
telecommunications industry which requires world class software products. The same can be said of the energy sector. How do you create a local test market that includes the demands of these star companies? Also our Government is a large purchaser of IT goods and services yet its first choice has always appeared to be consultants and providers from abroad. In our National Innovation System measures are being considered to create such a test market. Recently I chaired the CDB Governors meeting to select a new President. Comments by the incoming President were that the CDB has in the past looked at helping the various islands on a project by project basis. However, it is time that the Bank aided by CARICOM looks holistically at the economic development of the region. In so doing regional policies which parallel those I have already discussed plus the interacting institutions will have to be created in the chosen spheres of activities. ITC as enabling technologies will naturally be chosen as one of these areas and we will possibly generate an opportunity for CARICOM to really present a local test market as a jump off platform into global competition. We have to be careful that we do not repeat the mistakes of protecting our manufacturers to the extent that they are incapable of becoming globally competitive. No one expects this to be easy, but it has to be done in a region that is threatened by depleting energy resources, tourism that if floundering, and climate change that appears to simply devastate our traditional agricultural industry and limited infrastructure year after year. It is not all gloom and doom. We can acquire, use and create the knowledge required to protect our societies and make our endeavours globally competitive. Thank you Mary K King November 2010 5