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Wednesday, March 12, 2008

Technology Diffusion: A Unique and Unexplored Challenge

By Nitin Rao

Soon after we explored the role of Technology in BoP success, Derek pointed me to an interesting article in The Economist: Technology in emerging economies. The article makes a distinction between technology adoption and technology diffusion -- and argues that emerging economies are better at adopting new technologies than at putting them into widespread use.

The Tata Nano at USD 2500 is a favorite example to show that competence in design and technology exist, and that challenges could well lie in reaching out to a large audience.

Even as technology is spreading to emerging markets faster than ever, I found one very interesting data point.

In most countries, most technologies are available in some degree. The degree varies widely. In almost all industrialised countries, once a technology is adopted it goes on to achieve mass-market scale, reaching 25% of the market for that particular device. Usually it hits 50%. In the World Bank's (admittedly incomplete) database, there are 28 examples of a new technology reaching 5% of the market in a rich country; of those, 23 went on to achieve over 50%. In other words, if something gets a foothold in a rich country, it usually spreads widely.

In emerging markets this is not necessarily so. The bank has 67 examples of a technology reaching 5% of the market in developing countries?but only six went on to capture half the national market. Where it did catch on, it usually spread as quickly as in the West. But the more striking finding is that the spread was so rare. Developing countries have been good at getting access to technology?and much less good at putting it to widespread use. As a result, technology use in developing countries is highly concentrated. Almost three-quarters of China's high-tech trade comes from just four regions on the coast. More than two-thirds of the stock of foreign investment in Russia in 2000 was in Moscow and its surroundings. Whereas half of India's city-dwellers have telephones, little more than one-twentieth of people in the countryside do.

In my view, it is still early to make this assessment -- but there is a valid point that sustained unevenness between islands of success and the rest of the country could stifle the adoption of new technology. As the article points out:

Most advances are based on the labours of previous generations: you need electricity to run computers and reliable communications for modern health care, for instance. So countries that failed to adopt old technologies are at a disadvantage when it comes to new ones. Mobile phones, which require no wires, are a prominent exception.

I went back to the technology models looked at earlier -- and found that most of them are at the stage of innovation and market testing.

Barring exceptions such as ITC's e-Choupal, most of this technology appears to be launched by entrepreneurs. These entrepreneurs might play a key role in validation and technology adoption, but not necessarily be able to achieve widespread use.

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