Technology:
Breaking The Cycle

Prabir
Purkayastha

THE
current approach to the Eleventh Plan identifies that the “growing interest of
foreign direct investors in the economy provides a valuable method of injecting
resources into the economy, upgrading our technological standards and building
international partnerships which can have many positive effects.” Therefore
– according to the Approach Paper – the only measure needed for technology
development is to provide world-class infrastructure and more foreign investor
friendly climate. The Approach Paper is rooted in the neo-liberal model of
globalisation, where autonomous development of technology is hopeless. The only
hope of acquiring advanced technology is to become junior partners to MNCs.

In
this view, as the MNCs control the current generation of technologies and are
creating the next generation ones, the only possible route to advanced
technology lies in partnering them. The evidence however does not show that MNCs
cause diffusion of advanced technology systems in other countries; such advances
tend to remain within the fold of these companies only. The entry of major brand
names into other countries is the primary thrust of the MNCs. Therefore,
catching-up in technology does not take place automatically by allowing MNCs
free entry including location of their R&D facilities.

The
current WTO battle between the developed countries and the developing ones is a
defensive one from the point of view of developing countries. 
While the developed countries want to open the markets of the developing
countries further, the G20 or G90 are trying to restrict this as well as extract
some concessions. However, a change in the terms of trade demands that we look
how different countries are integrating themselves at different levels in the
global economy. Control over advanced technology is the key to determining the
level at which countries integrate themselves. At the lowest rung are countries
that are bartering their natural resources for manufactured commodities. At the
middle level, are countries like China, Brazil, India, South Korea, etc., which
are able to win some space for themselves and are able to sell manufactured
goods; at the top of the heap are advanced countries, who not only sell
knowledge intensive goods but also knowledge itself as a commodity. The key
question therefore is how to catch up in technology. It is only by catching up
in technology that the larger question of a more equal world can be resolved. 

Though
in opposition to neo-liberal globalisation, some radical forces are equally
pessimistic about developing technology without the MNCs. Therefore they propose
a relatively autarchic and ‘closed’ economy. Obviously, as this closed
economy cannot reproduce all the advances made elsewhere, the need then to
reject the consumerist life style of the ‘west’: the terrain of struggle is
then one of life styles. While issues such as consumerism and paths of
development are important, limiting the growth of technology based on such
considerations alone would inevitably lead at some point to the failure of such
a closed economy: autarchy is not an option in the world of today. Partially
de-linking the economy may be transitional path, but in the long term, catching
up in technology is the only way to break out of the cycle of under-development
and dependence.

It
might appear that as technological development is dependent on the already
existing pool of technological knowledge, companies or countries that already
have this knowledge are the more likely to develop technology. Further, it has
been argued that economies of scale operate in developing technology also: the
bigger the R&D player, the bigger are the chances of making the requisite
knowledge breaks. Since less developed countries neither have this existing pool
of knowledge nor can hope to match the scale of R&D investment required, it
might appear that they are forever condemned to backwardness. Reality however is
not that bleak. The continuous nature of technological change opens out windows
of opportunity for others. The neo-liberal model misses out the changing nature
of technology and a dynamic view of the process. That is why their advocacy of
the global MNCs as the only vehicle of change.

While
the earlier model of indigenisation that many countries pursued did help to
build a large manufacturing base – India, South Korea, Brazil – all being
examples of this, in a period where technological change is extremely rapid,
such an indigenisation model may no longer work. Therefore, while indigenisation
is what has led to countries such as India having successfully built up a real
manufacturing and knowledge base, this may not be enough in the fast changing
technology world of today. We need not only to understand the technology cycle
but also the absolute measure of time in this technology cycle. If the entire
cycle from birth to death of a technology – as it is in the semi-conductor
technology – is only 24 months and not 10-15 years as it used to be in the
early 20th century in the automobile industry, the strategies of entry and
survival also need to change. We, therefore, need to examine the impact of
continuous cycle of innovation on our indigenisation paradigm and modify it
accordingly so as to take advantage of the windows of opportunity and break the
technology cycle.

TECHNOLOGY
CYCLES

Each
technology that enters the market, starts with a number of variants in its early
phase, standardises to only a few in the course of a shake out period and then
remains in its mature phase for some time before undergoing another cycle of
innovation. This is the technology cycle. A number of studies have shown that
firm size helps in entering the market and staying the course. However, it helps
less in high technology areas, where entry by small firms is quite common. In
contrast, innovation in mature technologies is much more likely to come from
large firms, where the existing pool of knowledge pre-requisite for such
innovation is likely to be within the larger firms. The small firms stay here in
niche markets and not as competitive threats to the big.

In
the first phase of a new technology, the investment cost required to enter the
market is quite low. However, the human capital or knowledge required is high.
The first phase therefore requires human capital in terms of knowledge and
trained human power. Getting on to new technologies right in the beginning
allows a low entry cost, but also a higher risk of failure. Not all such
attempts will succeed. But some will, and this allows firms (and countries) to
adopt what can be called a ‘fast seconds’ approach to innovation. This is
what Japan had done earlier. South Korea has also demonstrated a similar ‘fast
seconds’ approach and both these countries have invested heavily in R&D
after their initial market successes.

The
other entry point in entering the technology cycle is at the mature phase of
technology. Here the investment costs are high but risks are low. Traditionally,
Indian entrepreneurs as well as the State sector have chosen this route. In
this, obviously, the terms of global integration do not change, as the skill
level required at this stage is not very high. However, having entered at this
level, for survival firms have necessarily to be large. This opens up the
possibility of entering the next phase of innovation cycle, provided they have a
strategy of doing so.

One
of the consequences of rapid technological change is that repeated windows of
opportunity will appear in terms of developing new technologies. We need to
focus on where and how we can leverage our strengths, either in terms of the
market or in technical expertise and knowledge to develop future technology. We
must also work out a two-pronged strategy: one in which we focus on important
areas but with stable and mature technology. The other is a strategy of entering
very early in new technologies, which have a much larger impact.

ENTERING
CYCLES AT DIFFERENT PHASES

There
are two kinds of innovations: one is incremental innovation, more important in
the more mature technologies; the other is new technology – those that break
with the past decisively. The important aspect of such new technologies is that
they are characterised by a number of simultaneous innovations (or innovation
clusters) and generally form a close network of formal and informal
relationships. That is why hi-tech industries tend to locate themselves in close
geographical proximity.

The
characteristic of new technology innovations is that they generally do not occur
within the confines of the large firms. Large firms tend to concentrate on
technology that is useful to their current core set of products. This is where
existing knowledge is generally confined to the company and providing an
advantage over outsiders. However, new technologies generally do not have an
existing pool of knowledge except external public domain ones and this allows
“outsiders” to compete on equal terms with larger firms. In fact, larger
firms are handicapped as they may regard such products or technologies to be
competition to existing lines and tend to mothball such technologies. Most
often, large firms buy up the successful innovators after the technology is seen
to be successful rather than promote such technologies themselves.

The
other critical question is the relationship between new technologies and state
support. Neo-liberal theorists argue that resource made available to R&D
funding from state sources mean that more efficient forms of private resources
are crowded out. They therefore argue that private and venture capital is best
suited for developing new technologies and therefore for a disengagement of the
State from such funding. The evidence from the US shows clearly that this is not
the case. Even with well-developed venture capital, the role of the State is
crucial in nurturing new technologies (Branscomb,
Lewis M and Philip E Auerswald, Between
Invention and Innovation: An Analysis of Funding for Early-Stage Technology
Development, NIST GCR 02-841,
2002).

As
we have discussed earlier, the two entry points in the technology cycle are
either the first phase, where the capital costs are low and knowledge is
available in the public domain; the second is the mature phase where the
technology is relatively stable and if
there are large domestic companies, they can be used to break the cycle of
dependence.  If we want to break the cycle of dependence, we should look
at each of these areas: new technologies as well as areas where there are
already large domestic firms.

ENERGY
SECTOR

If
we look at the technology scenario today, energy sector is a relatively mature
technology. In this, there is obviously a renewal of old technology stock that
is taking place with the new generation of automation and materials entering the
market. But such renewal is necessarily much slower than the speed with which
new technologies are developing, for example, in the IT, telecommunications,
entertainment and automation technologies. The strategies that are required for
the energy sector are relatively different than that of the new technology
sectors mentioned above.

The
energy sector falls, therefore, more into the mature phase of the technology
cycle. It means that it needs large firms or institutions that have already
accumulated enough knowledge to develop the next generation of incremental
innovation required for the sector. It also would penetrate slowly, as the
capital costs of existing plants are sufficiently high for them not to be
written off with any new technology unless it is a dramatically different one
with far greater bang for the buck than the current ones.

In
energy, India already has large public and domestic private sector undertakings
(BHEL, L&T, etc.) that have the requisite size and expertise to develop the
next generation of technologies. All the conditions of developing innovation in
the mature phase exist in these entities. We also have one of the largest
markets for power equipment in the world. The only support that is required is
that of State policy. This is what China and South Korea are doing: using their
captive market to force large global corporations to transfer technology and use
this to develop the technology further. If we believe that technology can only
be created through MNCs, we would then miss a real window of opportunity that
exists: a captive market and an institutional set-up capable of developing new
technologies in these areas.

The
task is to have a strong national program supported by a strong network of
institutions, which then can be developed further to break the monopoly over
technology of a select few large global corporations.

AUTOMATION

The
other area is automation technologies. However pervasive the energy sector is,
its major revolutionary impact was during the industrial revolution and
introduction of mass manufacture. Automation technologies today are virtually
changing the way companies produce goods and take them to the market. If energy
powered the earlier revolution of mass manufacture, this one bids fair to change
the paradigm of mass production to flexible production systems. Instead of mass
production, we are seeing the first phase of the mass customisation market. And
this means the rules of the game are being written anew.

The
production systems today are changing rapidly from mass production of goods to
mass customisation of goods. Mass production, starting with the industrial
revolution to the Fordian paradigm, brought down cost while providing high
quality. It achieved this using standardisation of components and goods,
economies of scale and quality control.
However, it produced rigid production structures, large plants and eliminated or
minimised customer choices. As Henry Ford was reported to have said,
“You can have any colour as long as it’s black”. The end user was
willing to sacrifice variety for quality and low cost. Customised goods remained
but as expensive goods for an elite and a niche market.

This
is still the way the majority of manufacturing is performed today. But things
are starting to change. In addition to high quality, low cost, and fast
delivery, many customers now demand products that exactly fit their needs. We
are moving towards an environment where factories will start combining mass
production and customisation into “mass customisation.” 
The customer today wants variety and high quality and wants it at the
same cost. However, this is not mass customisation. Mass
customisation is the customer expecting his or her exact specification to be produced in the factory and reach him/her
in a matter of days. The factory taking the order from the customer then has to
schedule the production process and meet the delivery target of a few days. 
This is the direction we are moving today in manufacturing systems: 
nimbleness and agility of manufacture coupled with flexible production.

The
other change in the production process is that it is possible to de-scale
technology far more effectively. This allows much smaller plants to be
competitive in the market. Large plants with the economies of scale and rigid
structure are giving way to much smaller plants.

All
this allows us to look at automation technologies and how to upgrade our small
producers to become globally competitive. Earlier, advanced technology
automatically meant large plants. This is no longer true. It is possible to use
state-of-the-art technology of automation in selected parts of the process that
requires such high quality controls, while retaining other parts of the
production process to be largely manual. Such a possibility would mean that
large parts of Indian industry, which is currently finding it difficult to
compete either domestically or internationally, would be able to provide goods
at lower costs but with the requisite level of quality: they can be competitive
not only in terms of costs but also in terms of quality.

However,
this will not happen by itself. India needs a directed effort from the State to
develop such automation technologies, as well as de-scale the production
processes. If this does not happen, large parts of Indian industry – small and
medium scale – would just die out with increased global competition.

The
key to automation technologies is software. And this is where some of the most
exciting developments have taken place recently in technology development. The
GNU/Linux operating system is only one example of open source and free software
developments. Other examples of collaborative models of development are
developing not only in software but also in biotechnology. India is already an
emerging software super power. All that it needs is the State to support a major
effort to produce the new technologies of automation so that we can climb on to
the on-going mass customisation paradigm that is opening up in the world. Such
an effort to support our small and medium scale sector is all the more needed
since we have the capability to develop cutting edge technology due to our
software skills. All we need is a change in mind-set: instead of body shopping
to global software companies, develop new automation technologies by ourselves.

India
has high quality of research personnel and software professionals available at a
very low cost. Can we as a nation leverage this strength to capture a niche in
the global market and from there deepen and widen our salience? This is the
challenge that we face today. I believe that such a project will not only help
Indian industry but can also be collaboratively developed with other third world
countries to provide meaningful industrial solutions for the future. And only
this will produce a more equitable global order. Defensive battles in WTO will
only get us some temporary respite. What we need to do is to change the terms of
integration itself. That can only come from developing the next generation of
technologies.