Call it Rathodics, Rathodology, Rathod-gineering, or Rathodistry; chances are high that you will find lot of useless things on this blog. Nevertheless, I thank you for visiting my blogsite, and hope you spend sometime reading the blogs and commenting on them. Further, you can visit me at http://www.unm.edu/~srathod

Sunday, September 05, 2004

FDI: good or bad?

Foreign Direct Investment (FDI): Is it good or bad for economies of developing countries? I don't know the answer to that, but I can provide one reason which I came across which says that FDI is, indeed, good for a developing nation. The article titled "Asian Economies Striving To Enhance Innovation Capabilities" by P. G. Yoshida, under the 'Perspective' section on page 2, in a January 2001 issue of Research Technology Management emphasized that for a country to develop, it needs to privatize state-owned enterprises. The author said that private sector participation is important to stimulate technological innovation, and to increase the rate at which these innovations reach the consumers. It cited that percentage of R&D expenditure by countries such as Japan, China, Korea, Taiwan, and Singapore. It said that over the years the percentage of R&D expenditure by the industry, mostly through FDI, increased resulting in a better economy.

Later on, I had a chance to talk with one of the professors whose research interests include technology management, and I asked him regarding his point of view on this issue. He said that he agreed that, in this era of globalization, it is important for a developing nation to attract FDI to be competitive.

The reason he said that the citizens of a developing nation has tremendous potential to innovate. To tap into such a resource, it is of utmost importance to provide all the help they need to turn their innovativeness into something which will benefit their country, and hence, the society. One of the easiest avenues to fructify these resources is the government in terms of educational institutions, state-sector industry, etc. However, more often than not, the government can provide only limited amount of capital. The government has money, but it has to play wisely, when it comes to allocation of such limited resources. Further, people in the government who approve funding for technological projects don't necessarily have the relevant background, which is required to understand the need of the hour as mentioned in the proposal. So, many times, it so happens that a promising technology doesn't get any funding, but a vague idea can get funding. So, effectively, the government funding goes waste.

Now, the next source of capital is the industry. The chances of a developing nation having a well-established industry with sufficient amount of capital to fund such technology is pretty slim. Hence, they have to attract foreign companies to invest in such research and development, since foreign companies of repute from developed nations are expected to have sufficient capital to invest in countries other than their home. Further, a company will invest in R&D of a technology only if it lies within its area of operation, or is closely related to its current technology. Exceptions are in cases where a firm wants to diversify. The point here is that, unlike the government, such a firm has the necessary human resources to critically evaluate the R&D proposal, before committing their money towards it. In such an instance, bad ideas, vague ideas, etc. gets filtered out. Only ideas which have a potential of being commercialized are funded.

This gives rise to the question that what about basic research. Who would fund basic research? The professor answered that companies that just think about commercialization of technology, and hence just applied research, have a short-term view, and they have a very high failure-rate when faced with stiff competition from a company which invest in long-term research, such as basic research. The ideal combination would be to invest in both basic as well as applied research. Firms such as IBM, AT&T, Intel, etc. have both types of research going on in their labs.

So, the next question would be the extent of FDI. Some people argue that privatization, usually, goes against the benefit of the common people of the nation, since companies work for making profits; for them, the basic question is whether they would in business tomorrow or not. So, why would they care about the welfare of the common man. I guess, that is where the concept of Corporate Citizenry comes into picture. But, more about this, some other time.


Blogger Prashant said...

Adding to this discussion. Read this article from the Indian Express:

Techies in the Village

1:21 PM  
Blogger SBR said...

This article gives two points of views.

1. That it is not necessary that engineers working in hi-tech industry can only come up with commercializable ideas.

2. That we still lack the active participation of industry and venture capitalists to fund such commercialization.

While discussing what I mentioned in the post above regarding FDI with the professor, one question came to my mind: what is the extent of industry-backed research funding in educational institutions in India, and how does the percentage compare to those in other developing nations and developed nations? I still don't know the answer.

I would love to know the extent of industry-backed funding in UICT.


2:11 PM  
Blogger Aditya said...

hi SBR - long time no post?

4:15 PM  
Blogger SBR said...

Hey Aditya,

Just been too busy with a few reports, proposals, class work, etc. I have a list of topics on which I want to write, though I am not getting time. Hopefully, in the next week, I should attempt to spare time to blog.

8:10 AM  

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