Impact of technological business environment

By Abhinash Jena on April 24, 2010

Technology is knowledge applied to the production process whereby it creates the potential for greater output and income from the same resources. Alternatively it allows the production of the same level of output with fewer resources. It results in cost reduction and/or quality up-gradation.

Impact of technology

Technology is a way of doing things and a way of thinking. It is knowledge-in-practice which countries need to consciously and actively promote and nurture. It is not an object easily available to everyone. It is tacit or intangible. It involves not only the entire accumulated complex of scientific and machine tool knowledge and the tools themselves which exist at the world level but it also incorporates the country-specific human understanding, skills, education and training essential for making use of such knowledge and tools in any particular domestic context. The empirical truth is that  the ability to apply technological knowledge varies dramatically among the economies in the world.

The gaps in per-capita incomes between the rich and poor nations is due to technology gaps and hence the question of catching up with the rich countries involves closing the technology gaps which requires a technological strategy of development.

Technological strategy of business development

Developmental successes in Britain and USA or in Japan, Korea and Taiwan reveal that technological strategy for development involves two distinct proficiency, viz. Independent Technology Learning Capacity (ITLC) as the first step, and Independent Technology Creating Capacity (ITCC) as the second and higher step. ITLC comes about during the easy import substitution/easy export substitution phase of structural transformation via industrialization. Whereas ITCC comes about during the secondary import substitution/secondary export substitution phase of structural transformation via knowledge-intensive industrialization as reflected in the rising share of science expenditures and/ or  R&D expenditures as a proportion of GDP.

There are three fundamental requirements of ITLC. First, there should be better basic education in terms of science and maths education and the augmentation of the human capital stock. A large stock of scientists, engineers and technicians directly and indirectly involved in production related research activities is a prerequisite for ITLC to come about. Secondly,  there should be “learning by doing” the best practice technology. Experience gained primarily by actually producing matters quite a lot. For example, the rise of Korean steel industry  can be appreciated in terms of four phases. In Phase I, foreign engineers constructed the steel mills while the Korean engineers observed.. In Phases II and III, there was greater participation in terms of greater responsibilities taken up by the Korean engineers. In the Phase IV, the Korean engineers were totally responsible and the the efficiency of the steel mills was more than that of the earlier ones. Thirdly, what is important is the rapid speed at which new technological knowledge, embodied in new capital equipment, is likely to be appropriated with economic growth. Much of new technology is embedded in the design of new physical capital equipment(e.g. computer controlled arc welding devices; computer networks). As investments rise, the speed with which new capital embedded with new technological knowledge replaces old capital affects the pace at which best practice technological learning is integrated into local production by becoming appropriated knowledge possessed by local human capital.

Thus, ITLC involves a country creating a technologically sophisticated community (which includes knowledge workers like scientists, engineers, researchers, etc.; skilled workers on the shop floor who can utilize new ideas and improvise on them in local application; and entrepreneurship which has positive attitude towards science and technology and  is keen to absorb new knowledge)  which can use and adapt the existing pool of knowledge to employ the implements of production to further its own economic progress. Simply borrowing the manifestations of technology such as physical capital, tools and implements does not bring about technological development.

Growth through technology

What is crucial for ITCC is R&D through which businesses move up the quality ladder by improving products and inputs. Industrial innovation through R&D is dynamic creative destruction process whereby those who move up the quality ladder will derive monopoly profits for sometime till new competitive rivals come in after which again some other improvements in product and inputs will have to be brought about to move on. It is important to identify the products and sectors of production which are likely to be better candidates for higher levels of technological change (e.g. computers unlike footwear). ITCC comes about not only through the creation of a core R&D cadre but also through legal support for R&D endeavour in terms of intellectual property rights (e.g. patents, copyrights) protection granted to domestic and foreign producers. The role of the state as ‘developmental state’ as in Korea is very important in moving from ITLC to ITCC. The state in Korea acted as the facilitator by steering, assisting and inducing private firms to attempt new production challenge in areas of high priority. It did this by lowering risks or increasing the rate of return on investment by allocating credit, limiting import competition or even by providing subsidies. The state also nurtured new technological change by setting up R&D facilities or labs to support new industry in the private sector or public units involved in producing the most technologically challenging inputs. For example, the success of Korea in terms of moving away from electronic assemblies into advanced electronics (i.e. semiconductors) in the 1970’s through 1980’s owes a lot to the setting up of Electronics Training and Research Centre by the state which in coordination with Samsung and Luck Goldstar brought about the Korean cutting edge in competing for the markets of  advanced electronics products.

Export orientation of manufacturing brings about effective performance standards and so industrial policies that are geared to encouraging exporting are very vital in bringing about ITLC and ITCC. The government must also put in place other supportive macro policies like the trade reform policies with which strategy switching is done from import substitution towards export promotion.

It is a myth that multinational or transnational corporations can do technological diffusion and upgrade the technological capabilities of the LDCs. Research reveals that  multinationals use foreign inputs as substitutes for local factors, and thereby promote technological dependency of the LDC.  Unless there is substantial local control over production and learning processes as found in East Asia, the businesses in many LDC will not acquire technological competitiveness.



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