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Information technology (IT) may be defined as the convergence of electronics, computing, and telecommunications. It has unleashed a tidal wave of technological innovation in the collecting, storing, processing, transmission, and presentation of information that has not only transformed the information technology sector itself into a highly dynamic and expanding field of activity - creating new markets and generating new investment, income, and jobs- but also provided other sectors with more rapid and efficient mechanisms for responding to shifts in demand patterns and changes in international comparative advantages, through more efficient production processes and new and improved products and services (e.g. replacing mechanical and electromechanical components, upgrading traditional products by creating new product functions, incorporating skills and functions into equipment, automating routine work, making technical, professional, or financial services more transportable).
The development of IT is intimately associated with the overwhelming advances recently accomplished in micro-electronics. Based on scientific and technological breakthroughs in transistors, semiconductors, and integrated circuits ("chips"), micro-electronics is affecting every other branch of the economy, in terms of both its present and future employment and skill requirements and its future market prospects. Its introduction has resulted in a drastic fall in costs as well as dramatically improved technical performance both within the electronics industry and outside it. The continuous rise in the number of features on a single micro-electronic chip has permitted lower assembly costs for electronic equipment (each chip replacing many discrete components), faster switching speeds (thus faster and more powerful computers), and more reliable, smaller, and lighter equipment (fewer interconnections, less power and material). Similar dramatic falls in costs occurred in the transport and steel industries in the nineteenth century and in energy in the twentieth, associated with the emergence of the third and fourth Kondratiev cycles, respectively. The potential effects of micro-electronics are thus very far-reaching, for its use in production saves on virtually all inputs, ranging from skilled and unskilled labour to energy, materials, and capital.
All sectors of the economy have been influenced by the development of IT applications: information technology opens up greater opportunities for the exploitation of economies of scale and scope, allows the more flexible production and use of labour and equipment, promotes the internationalization of production and markets, offers greater mobility and flexibility in capital and financial flows and services, and is frequently the precondition for the creation of innovative financial instruments. Information system developments are constantly being applied to increase the productivity, quality, and efficiency of finance, banking, business management, and public administration. In manufacturing, and to some extent in agriculture, many processes have been automated, some requiring highly flexible, self-regulating machines, or robots. The engineering industry has been transformed by computer-aided design and three-dimensional computerized screen displays.
The pace of technological change in IT will most likely accelerate the already observable growth in the interdependence of international relations not just economic or financial, but also political and cultural. National economies have become more susceptible to the effects of policy decisions taken at the international level, and domestic economic measures are having increased impacts on economic policies of other countries. World markets for the consumption of similar goods are growing, and so are common lifestyles across national borders. The advance of telecommunications and computerization has recently enabled large companies to use information systems to transmit technical and economic information among numerous computer systems at different geographical locations, subjecting widely dispersed industrial plants to direct managerial control from a central location; this affects the international division of labour and production and international trade, changing the patterns of industrial ownership and control, altering the competitive standing of individual countries, and creating new trading partners.
It is the integration of functions that confers on information technology its real economic and social significance. More than just a gradual and incremental technological evolution leading to improved ways of carrying out traditional manufacturing processes (i.e. simply the substitution of new technologies for existing systems and the rationalization of standard activities), IT offers the opportunity for completely new ways of working through systems integration. Rather than applying one item of new technology to each of the production functions now performed at distinct stages of the production process, i.e. design, production, marketing, and distribution (in what could be called "stand-alone" improvements or "island automation"), IT offers the possibility of linking design to production (e.g. through programmable manufacturing, measuring, and testing equipment responding to the codification of design), planning and design to marketing and distribution (e.g. through a variety of computer aids and databases that sense and collect changing market trends), production to distribution (e.g. by automatically incorporating orders and commissions by customers and suppliers into the production process), etc. The complete integration of all these production subsystems in a synergistic ensemble is still more a long-term trend than a reality, but use of automated equipment to link together individual items of equipment belonging to hitherto discrete manufacturing operations has already made IT a strategic issue for industry.
More technical advances are expected soon in the automation of telecommunications and the linkage of computers by data transmission that will enhance the possibilities of systems integration. Such "programmable automation," or computer-integrated manufacturing (CIM), has the capability of integrating information-processing with physical tasks performed by programmable machine tools or robots. CIM offers radical improvements in traditional problem areas confronting manufacturers, such as:
- reduced lead time for existing and new products;
- reduced inventories;
- more accurate control over production and better quality production management information;
- increased utilization of expensive equipment;
- reduced overhead costs;
- improved and consistent quality;
- more accurate forecasting;
- improved delivery performance [31].
These features characterize information technology as a new technological system, in which far-reaching changes in the trajectories of electronic, computer, and telecommunication technologies converge and offer a range of new technological options to virtually all branches of the economy. Moreover, IT forms the basis for a reorganization of industrial society and the core of the emerging techno-economic paradigm.
The reason for the pre-eminence of the new technological system clustered around information technology over the equally new technological systems clustered around new materials and biotechnology is the fact that information activities of one kind or another are a part of every activity within an industrial or commercial sector, as well as in our working and domestic lives. Almost all productive activities have a high information intensity (some involve little else, such as banking or education), so information technology is capable of offering "strategic" improvements in the productivity and competitiveness of virtually any economic or social activity. Information technology is universally applicable.
Probably only a fraction of the benefits derived from information technology-based innovations have so far been reaped and the rest remain to be acquired in the next decades. The shift towards systems integration to capitalize the full potential benefits of IT requires considerable adaptations, learning processes, and structural changes in existing socio-economic institutions and organizational systems. The tradition in most current organizations is still to operate in a largely "disintegrated" fashion, reminiscent of the Ford-Taylorist management approaches that dominated the fourth Kondratiev cycle: high division of labour, increasing functional specialization/differentiation and de-skilling of many tasks, rigid manufacturing procedures and controls, long management hierarchies with bureaucratic decision-making procedures and a "mechanistic" approach to performance. Under these conditions, use of IT is restricted to piecemeal technology improvements. By contrast, information technology-based systems offer organizations the opportunity of functional integration, multi-skilled staff, rapid and flexible decision-making structures with greater delegation of responsibilities and greater autonomy of operating units, a more flexible and "organic" approach enabling a quick adjustment to changing environmental conditions. (On "flexible specialization," see Piore and Sabel [44].)
But this means that information management skills require the ability to make choices about the optimal arrangements for particular situations: unlike earlier generations of technology, IT offers not a single "best" way of organization but a set of more or less appropriate alternative organizing, staffing, and managing options that may be adopted in different organizational contexts. There is no "determinism" in the way information technology influences the socio-institutional framework: organizational innovation is a crucial part of the requirement for firms to adapt to survive [31].
Implications for developing countries
The complex interrelations between technological and institutional changes associated with information technology have significant implications for the way IT will affect the societies and economies of developing countries. The negative and positive potential impacts of IT on these countries is a matter of great controversy among economists and politicians. The main short-term issues usually discussed are the potential erosion of the comparative advantages of low labour costs, particularly in relation to assembly facilities, and the effects of automation, particularly on internal markets and international competitiveness.
The first direct effect of the "micro-electronics revolution" was the location of production for export in third world countries. While production of mainframe computers continued to be located largely in industrialized countries, production of smaller computers and of micro-electronic devices, more subject to price competition, was shifted to low-wage locations, mainly in East Asia, where countries presented low wage costs as well as political stability, a docile labour force, and government incentives. Location of production for local and regional consumption followed, but the countries concerned were mainly middle income: three-quarters of US investment in third world micro-electronic industries was concentrated in 11 countries, namely the four Asian "dragons," India, Thailand, Malaysia, the Philippines, Brazil, Mexico, and Colombia [53]. Export-oriented investments in these countries were associated more with direct foreign investment from larger firms in industrialized countries than with firms producing for the local market; on the other hand, licensing was more associated with smaller firms [55].
The automation of production decreases the relative importance of labor-intensive manufacturing and cost of labour, thereby eroding the competitiveness of low labour costs. For instance, automation led to a sharp decrease in the difference between manufacturing costs of electronic devices between the United States and Hong Kong: in manual processes, manufacturing costs were three times higher in the United States, and the introduction of semi-automatic processes made the difference practically disappear [45]. Equally, the expansion of automation in Japan has contributed to a reduction of Japanese investments in the Asia/Pacific region involving firms in electronics, assembly parts, and textiles [45].
The trend to increasing systems optimization and integration is most likely to induce large producers in industrialized countries to bring back a significant share of their production located in developing countries (offshore production). This movement has been called "comparative advantage reversal." As integration increases, with functions previously obtained by assembling pieces being incorporated in the electronic components, value-added is pushed out of assembly processes into the components themselves and upwards towards servicing. In addition, the growing technological complexity of electronic devices increases the value of the parts manufactured by firms located in industrialized countries The amount of value-added obtained in offshore assembly has thus been constantly decreasing [45]. Global factories constructed in locations of least cost, often at a considerable distance from final markets, were economically worthwhile because labour was one of the major determinants of costs. Technology and rapid responsiveness to volatile local markets are becoming more important components of competitiveness. The reduction of product cycles due to the growing resistance to obsolescence of programmable machines and equipment has led to a concentration of manufacturing investment in capital-intensive flexible manufacturing, further adding to the erosion of the comparative advantages of developing countries.
The assembly of systems will probably continue in some developing countries that have adopted protective legislation for local production targeted at particular market segments (e.g. Brazil), although this is changing very rapidly. The types of equipment produced under these circumstances are used largely in internal markets and are hardly competitive on the international level; they tend to be far more expensive than comparable equipment available abroad, and often their installation and use are also more costly because of expensive auxiliary installations, under-use, and lack of management skills. Nevertheless, they may at least provide the country with the capacity to follow the development of information technologies more closely. In other countries, assembly of equipment is taking place from components bought practically off the shelf, but as the level of hardware integration and the amount of software incorporated into the chips (firmware) grow, value-added will be taken away from the assembly process, reducing or eliminating its economic advantages.
The introduction of micro-electronics requires certain new skills of design, maintenance, and management, as well as complementary infrastructural facilities such as reliable telephone systems and power supplies. Deficiencies in these factors prevent the widespread adoption of information technology in developing countries [32]. The more advanced developing countries, with a wider basis of skills and infrastructure and a more flexible labour force, may be in a better position to adopt IT and to increase their productivity and their international competitiveness. But the less developed countries, with inadequate skills and infrastructure, low labour productivity, and lack of capital resources, will find it difficult to adopt the new technologies; they are likely to suffer a deterioration in international competitiveness vis-à-vis both industrialized and the more advanced developing countries [53].
Quality, too, requires an adequate level of skills, infrastructure, and managerial know-how that is generally lacking in developing countries. This greatly reduces the synergies, number of options, faster responses, and more informed decisions that can be implemented in the firm by the optimization of the systems performance. In turn, the composition of the labour force existing within firms located in industrialized countries will further improve their systems performance and further reinforce the advantages derived from automation. The proportion of the labour force employed in production is constantly decreasing in the industrialized countries, implying that performances at the systems level and innovation, not manufacturing, are becoming the key to profit, growth, and survival [45].
Like biotechnology, information technology is a proprietary technology, vital technical information regarding design engineering specification? process know-how, testing procedures, etc., being covered by patents or copyrights or closely held as trade secrets within various electronic firms from industrialized countries. Many companies in the software area do not patent or copyright their products because it entails disclosing valuable information, and firms are generally reluctant to license the more recent and advanced technologies. Therefore, technology transfer takes place mainly among established or important producers, hindering the access to developing countries. Moreover, the main issue facing developing countries is not so much the access to a particular technology but to the process of technological change, because of the dynamism of this process. Recent trends in inter-firm relationships seem to indicate that this access takes place essentially through the participation in the equity of the company holding the technology [45]. The possibility of firms from developing countries doing this is small.
The general tendency thus points to a widening of the information technology gap, both between industrialized and developing countries and within developing countries. From a purely quantitative standpoint, there remain large gaps in the access to information in the world, showing that the diffusion of information technology in developing countries is still in an embryonic stage. In 1985, only 5.7 per cent of the total number of computers in the world were located in developing countries, which have so far mainly used computers for more standard functions, such as inventory control, accounting, and payroll. There are some significant exceptions: during 1981-1986, the Brazilian electronics market grew to about US$8 billion, becoming the tenth largest in the world, slightly larger than that of the Republic of Korea. Brazilian controlled firms have rapidly expanded their production of computers, and India has been particularly successful in software, having achieved a niche in the international software market through its government policies of tax breaks and liberal foreign exchange regulations for this sector. In 1985, Brazil was by far the largest user in computers in the developing world, with about 10,000, followed by India with around 1,000 [45].
The value of data processing equipment (excluding micros) existing in developed countries was 4.5 times greater than in developing countries (including centrally planned economies) in 1983 [45]. On the other hand, the market for telecommunications equipment (i.e. telephone, telegraph, telex, data and satellite communications, mobile radio and radio telephone, radio paging, and cable TV) in industrialized countries in 1985 was 8 times greater than in developing countries [45, source: Arthur D. Little Inc.]. Increasingly severe financial problems facing the developing countries are most likely to lead to a quantitative increase in the gap.
The situation is not very different from the qualitative standpoint. The process of "informatization" of society is one in which greater amounts of knowledge and information are incorporated into goods and services. Knowledge and information are sources of wealth creation and value-added in their own right: as their amount increases, the amount of energy, materials, labour, and capital decreases. The concentration of knowledge and information-intensive services in industrialized countries is per se a further barrier to efforts to reduce the information technology gap between industrialized and developing countries [45]. Moreover, since systems integration and disembodied technologies are the essential locations of competitive innovation, the advantages of technology transfer by reverse engineering and technological "unpacking" are more difficult to capture [25]. For instance, even in Taiwan and Korea, all numerically controlled mechanisms are made under licence [23]; in Brazil and Argentina, computerized numerically controlled devices and motors are imported [23, 12]. India and China produce numerically controlled and computerized machine tools under licence, utilizing imported control units and motors.
There is, however, an alternative "reading" of the evidence presented above. Some commentators see IT as a powerful new opportunity for at least some developing countries to improve their competitive position in certain fields and to foster their development precisely because of their relative lack of established industrial infrastructure, meaning that there are fewer institutional barriers to the adoption of advanced systems based on information technology. Problems related to the reluctance to discard previous generations of equipment, for instance in telecommunications (i.e. outdated electromechanical and copper-wire based infrastructure), are less important in developing countries, and replacement costs are lower, allowing them to jump directly to "best practice."
This school of thought minimizes the fact that in practice, information technology is still a "black box" technology for most users in developing countries, requiring new skills to operate, to repair, and even to purchase, particularly in its integrated form, where its full benefits emerge. It is therefore most likely that information technology will be largely applied in industrialized countries to the disadvantage of the majority of developing countries, the latter remaining heavily dependent on advanced technology-based products designed in the former.