INFORMATION TECHNOLOGY IN DEVELOPING COUNTRIES

A Newsletter of IFIP Working Group 9.4
and
Commonwealth Network for Information Technology

Volume 8, No3, January 1998
Editor: Subhash Bhatnagar

January 1998

Impact of Corporate Telecom Networks on Entrepreneurial Competitiveness

Victor Prochnik

E-mail: victorp@omega.lncc.br

Introduction

These preliminary notes are related to work in progress, which seeks to discuss the expected impact of corporate telecommunications networks on the competitiveness of firms working in Brazil. Three questions are raised in relation to the impact of telecommunications networks on competitiveness: their effect on productivity growth, the international relocation of internal productive activities and the outsourcing of entrepreneurial functions.

The main conclusions related to the first question are that the expected impact on productivity is positive, although there are important asymmetries in the corporate network dissemination process, which allow one to propose public information and dissemination policies. As to the international relocation of productive activities, the choice was made to analyze the internal data processing activities of firms. The available data shows a trend toward a higher concentration of Latin American data processing in Brazil. There are also cases of a relocation of data processing from Brazil to developed countries.

Finally, the paper discusses the demand for international network outsourcing services. It shows that there is a strong propensity to outsourcing which, given the sector’s supply structure — made up of foreign firms — may have adverse consequences on the creation of better jobs and the performance of high-level technological activities in Brazil.

The impact of information technologies on expected productivity growth

As is generally known, there has been a rapid increase in Brazilian productivity levels this decade. Saboia & Carvalho (1997) show that, between 1990 and 1995, labor productivity in manufacturing industry grew around 7% per year. Between 1970 and 1995, in comparison, the average annual growth rate was 4% per year.

The same study also suggests that Japanese management methods and techniques are among the main causes of productivity growth. This seems to be greatest among large enterprises, particularly those in the transport material, electric material, communications material and chemicals sectors. Other papers, such as Prochnik’s (1991) on the shoe industries show that other industries have also progressed in the same direction.

Besides this trend, there has been a noticeable progressive computerization of the productive system. It is thus worth asking what its possible effects may be on productivity growth. At an international level, after many years of discussion (known as the productivity paradox debate), more recent academic works, such as Brynjolfsson & Hitt (1993), have found positive effects from information technologies (IT) on American productivity growth — see also Brynjolfsson & Yang’s (1996) summary.

According to Brynjolfsson & Hitt (1993), one possible explanation for the favourable results found in the previous research work is the fact that in this kind of aggregated study the IT impact on the quality of processes, products and services and also on the variety of product and services offered is not considered. Another possible explanation is the restructuring and cost cutting needed to benefit from IT effects.

With reference to the Brazilian economy, one might suggest that in the near future IT will also find a more propitious terrain in Brazil in which it will become a relevant cause of productivity growth.

Another argument is the rapid spread of IT in the entrepreneurial system, shown in a recent survey of 974 medium and large firms. In fact, between the first (1988) and the last survey (1997), enterprises have increased IT expenditures from 1.4% to 3.1% of their total revenue. Although well below the average value found for American firms — estimated between 6% and 7% by the research coordinator, Prof. Fernando Meirelles — future prospects seem favorable.

A word of caution, however, might not be amiss due to the possible existence of asymmetries between the computerization of firms in Brazil and in other countries. For instance, there are only about 400/450 robots operating in Brazil, while South Korea has 27,000, Taiwan 4,500 and Singapore 3,500 (these numbers, however, may have been estimated using different robot definitions).

Another result is presented in graphic 1, showing the ratio between employees and computer keyboards, clerks and number of micros and clerks and number of computer keyboards. This graphic shows the number of employees per computer keyboard declining, converging to one. Thus, productivity gains associated with the work process become dependent on the evolution and modernization of digital technology.

Meanwhile, a survey among 1,212 micro and small enterprises has shown that only 16% of the firms considered themselves to be totally computerized, 41% partially computerized and 43% as non computerized. Among the firms, 46% had at least one local network and 22% were connected to Internet.

Graphic 1

Computerization Trends

Source: Information Technology Resources Annual Survey,

Applied Info.Tech. Center, EAESP/FGV, EAESP/FGV home page, 1997.

Available data on the extent of IT dissemination suggests that the impact on productivity is not only large and positive, but is also expected to grow. The spread of networks, however, is quite asymmetric, opening the way for public policies directed at promoting the spread of information technology. The increasing adoption of Intranets may diminish productivity differences between large and small enterprises, although in this case there are also applications that are better suited to larger firms, such as the so-called Extranets.