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Technological Innovation and Services
JORDAN I. BARUCH
Jordan ]. Baruch Associates
The growth in recent years of services as a component of national economies
has drawn more than a passing glance from the World Bank and other institutions
concerned with Third World development. Indeed, the extent of this interest in
services is evident in a 1994 Bank publication, Liberalizing International Trans-
actions in Services: A Handbook. In the services area, technological changes are
producing impacts as important as those they have produced in mining, manufac-
turing, and agriculture. Not only are the changes important, but they also are
blurring (if not obliterating) the distinctions between services and the other eco-
nomic sectors.
James Brian Quinn et al. have pointed out that today in the developed na-
tions, services are large, technology- and capital-intensive industries that are
virtually inseparable from manufacturing. Elsewhere, the National Research
Council has described information technology and its impact on the performance
of services in developed countries.2 In looking at services, these publications
have analyzed, in terms relevant to the Bank's mission, the impacts of the tradi-
tional service sectors finance, real estate, insurance, retail and wholesale trade,
transportation, communications, and sometimes construction-under the forces
of technological change, on the overall economy, including manufacturing. While
these analyses have focused on the developed world, there is little reason to
expect significant differences in the developing countries.
But rather than review the implications for the developing countries of what
already has been written, this paper will focus on the technologies of information-
based services and their implications for developing countries. The first section,
on embodied services (a term borrowed from the concept of embodied technolo
210
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211
gies), focuses on the transborder trade in goods that are, in essence, indistinguish-
able from services. The second section, which addresses transborder services,
focuses on information-based services in the developing countries that serve both
. . . .
as Import and export activities.
While there may be many questions about the predictions made at the Sym-
posium on Marshaling Technology for Development, one thing is clear: the grow-
ing technological, managerial, and political sophistication of the developing coun-
tries will produce a strong force for the vertical integration of their industries and
their services. Indeed, they will exploit every opportunity to secure added value
by moving up the input scale while developing capital goods and using them to
fill in the lower levels. Does this sound familiar?
EMBODIED SERVICES
Some important technological changes taking place in the Third World de-
pend heavily on information technology, but they have become evident in more
material ways. For example, a women's clothing company called The Limited
gathers copious data at its point-of-sale terminals which are analyzed almost
continuously at its central office. Based on these analyses, the firm predicts when
it must reorder a particular item. The transaction order is then automatically
generated and, once approved, is transmitted electronically to China or wherever
that item is to be fabricated. When the order is received, it is filled and the
garments are shipped by air back to drop points in the United States. Thus within
days of the order, the goods are in The Limited's retail outlets.
Certainly, the data gathering, computing, transmission, transportation, distri-
bution, and retailing are services. But how about the actual fabrication of the
garments? Under the influence of today's drive by the industrialized countries to
outsource anything in which a firm does not excel,3 fabrication also must be
considered a service. A closer look at the potential positive and negative impacts
of technology on services in the developing countries may reveal that this kind of
fabrication is one of the more important services.
Research and development services performed in the industrial nations may,
under the right conditions, be particularly amenable to embodiment in goods
generated in developing countries. Such a transfer has been seen in electronic
fabrication, agriculture, and food processing, but it is far from simple. For ex-
ample, recent discussions among the National Mariculture Center in Israel, the
government of Jordan, and representatives of the World Bank have highlighted
an interesting question that is likely to have ongoing implications for services in
the developing countries. In Elat, Israel, adjacent to Aqaba, Jordan, the National
Mariculture Center has developed exquisite technologies for the genetic manipu-
lation, culture, and care of several fish species that are in great demand. For the
gilt-head bream, an expensive saltwater fish marketed in France as dorade, the
center has succeeded in producing a continual flow of bream fingerlings through
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Marshaling Technology for Development
out the year. Jordanians recently expressed a strong interest in forming some kind
of partnership to share in this activity, although the two countries differ widely in
their levels of technological sophistication in this field. Yet conversion of the
fingerlings into marketable, edible fish requires a large land area for ponds and
access to saltwater both of which Jordan has. It also requires careful feeding,
control of disease, and good harvesting practices skills that Israel knows how to
teach. The conversion of fingerlings to fish is a kind of farming. Indeed, the
Israelis now doing the conversion are not highly trained technologists or skilled
biologists or ichthyologists; they are farmers. They, in fact, are the service branch
of a partnership that converts the center's R&D output into an economic product.
And clearly these fish farmers could work in Jordan or Egypt as easily as in
Israel.
While the technical barriers to a partnership between Israel and Jordan are
small, the organizational ones require attention. For example, such partnerships
help to shrink the developmental gap between the developing country and the
industrialized partner only if both countries benefit. Thus the flow of skills to the
developing countries must be encouraged, but the economic position of the more
developed partner must not suffer. Under this paradigm, the Jordanians might
well start out as fish farmers, but it would be in the partners' joint interest for the
Jordanians to move up the technological scale. They would learn to culture,
rather than import, Rotifera for feeding the young fish. They also would learn to
compound fish food for the mature fish, induce spawning, inoculate fish, and
gradually take over the whole gilt-head bream culture process. The Israeli center
would share in the profits and remain available for consultation and process
improvement. It also would extend the process to other fish such as the grey
mullet, which is in demand in the Arab world. The partners, to both of their
benefits, might well choose to extend their partnership to include Egypt. There, a
copious supply of fresh water would permit the raising of various freshwater
species, including ornamentals.
Such two-level partnerships are possible in other areas as well. Some orga-
nizations in the developed countries will find it profitable to share their design
and marketing skills with partners in the developing countries. Why partner-
ships? The fact is that the developing countries will tend increasingly to use their
scarce natural resources to secure a developmental advantage in bilateral agree-
ments. For example, in Indonesia or Thailand skilled contract furniture makers
with access to exotic trees might set up two-level partnerships with developed
country design and marketing firms. If access to those trees is restricted (by law
or pricing), such partnerships can become a significant force in the furniture field
and advance the technological level of the junior country. Similar potentials exist
in the field of pharmaceuticals, where developed country firms are constantly
seeking botanicals that can form the basis for new drugs. To this end, skilled
botanical observers could collect and tabulate the thousands of individual species
in untouched forests in the developing countries. Once these samples have been
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213
identified and their potential verified by scientists and technologists in the devel-
oped world, developing countries could assume the task of farming and even
converting those natural materials. The "upper-level" partner would, of course,
be responsible for proof of effectiveness, regulatory compliance, and marketing.
The growth of such partnerships will require the establishment of legal bod-
ies and agreements that can enforceably adjudicate disputes between such part-
ners and between them and their clients. That, however, must be the subject of a
later discussion, but one in which the World Bank could play an important role.
TRANSBORDER SERVICES: DATA EXPORTING
The very concept of transborder services is a child of modern technology.
Today, however, communication technology, computer technology, and dynamic
entrepreneurship have combined to make certain transborder services barely no-
ticeable within the developed nations they serve. Consider the following predic-
tions:
1. The cost of digital electronic communication is becoming independent of
distance, and its price will, because of growing competition, drop accordingly.
2. The cost of electronic communication bandwidth is dropping faster than a
factor of two per year and its price will follow.
3. The price of digital memory of all kinds is dropping even faster than that
of bandwidth.
4. Manufacturers, including software creators, will continue to see the dis-
placement of service providers by products as a profitable strategy.
The massive drops in communication costs predicted above will have major
implications for developing countries. The plummeting prices for both distance
and bandwidth in communication would seem to foretell a rosy future for the
growth of transborder services. Such long-distance services as data entry and 800
number response already have grown, and, as the costs of computation and com-
munication decrease, it seems reasonable to expect that those kinds of services
will grow and flourish. Indeed, in some developing countries the costs of commu-
nication services and locally networked desktop computers have become low
enough to permit the growth of communication or data-processing zones, where
moderately trained and educated service providers perform such data services far
from the source of the raw material. When services once performed in developed
countries are shifted to the developing countries, they become a significant source
of both income and technological familiarization. But the same kind of techno-
logical developments that have made those services possible will act to change
them in the future.
Prediction 4 the urge to replace service providers with "things" that can do
the same jo~implies, however, that growth is only part of the story. Consider
just two recent trends and events: scanner technology and voice-input technology
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Marshaling Technology for Development
are improving rapidly, and the Microsoft Corporation is in the process of absorb-
ing Intuit. What do those developments have to do with long-distance services?
The acquisition of Intuit by Microsoft signals a major potential change in the
check- and credit slip-clearing processes. Intuit currently offers its subscribers, as
part of its accounting package (over 5 million in use), a program element called
Billpayer. For 15 cents (less than half the price of a first-class stamp) the user can
enter a transaction and have it paid automatically. Because there is no check, no
clearance (and thus no overseas clearance service) is needed. Intuit also offers a
register system for recording credit purchases. Soon that register may be checked
electronically (if not entered directly) against the card issuer's records, eliminat-
ing the need for overseas credit-slip transcription. These developments are not
unlike the shift made earlier in this century by the telephone system from opera-
tors to dials. In both cases, hardware and software products were used to shift the
provision of services from some outside provider to the user.
But this process will not stop there. Customers in the industrialized countries
will increasingly use the digital dial network along with scanners and voice
recognition systems for entering all kinds of data now being processed by people
here and abroad. As scanners become able to read less-disciplined inputs, and
when the corrections to misinterpretation can be made by voice, the need for a
large labor force to interpret written documents will be markedly reduced. In light
of these developments, it can be reasonably expected that the use of developing
country data-entry facilities will grow as the price of long-distance communica-
tion drops, but then will shrink rapidly as the need for that service declines, much
like the development of the home permanent displaced many hairdressers (ser-
vice providers) and the advent of permanent-press fabrics, along with the devel-
opment of new washers, dryers, and detergents, eliminated whole sections of the
commercial laundry business.
What, then, will happen in developing countries with the demise of commu-
nication zones? What will replace them? One possibility may stem from the
impact of catalog shopping in the United States, where it has been an important
development in retail sales. On-line catalogs are starting to make their appear-
ance on the Internet, and the televised Home Shopping Network has been valued
at over a billion dollars. It is reasonable to predict, then, that a direct product
export business will grow in developing countries, where, at the moment, some of
the enormous variety of crafts available in the local markets-carved wooden
flowers from Bali, gold jewelry from India, sculptures, blankets, and even furni-
ture is sold abroad through multiple transactions and multiple price hikes to the
eventual consumer. Skilled entrepreneurs in the developing countries will form
local cooperatives, corporations, kibbutzim, or centers that will prepare and trans-
mit on-line catalogs of local products directly to potential customers in the indus-
trialized world. They, in turn, will then place their orders from home using secure
credit card readers. Fund transfers will take place electronically as will customs
collections (if any).
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But how will U.S. businesses respond? It seems clear that domestic catalog
dealers will try to compete by outsourcing as much of their business as possible.
They may start by sending detailed manufacturing specifications to the develop-
ing world (as does The Limited), but soon they will realize that the added value to
their product lines is consisting primarily of quality control. If they can arrange to
transfer that function to the developing country, the goods can be drop-shipped.
New overseas shipping arrangements probably will be created to meet the de-
mands for rapid delivery from single overseas points to multiple consumer loca-
tions in the developed countries.
The dramatic, ongoing drop in local information storage costs will continue
to stimulate new developments, some of which also will have significant implica-
tions for the developing countries. The actual nature of those developments is
hard to predict because they depend so heavily on user preferences. As an ex-
ample, for many information applications, memory (prediction 3) and bandwidth
(prediction 2) are interchangeable. Economically, whether data are stored locally
or remotely depends in large measure on the relative cost of memory and data
transfer. But despite that interchangeability, many users prefer the privacy of
local memory to central storage Just as telephone customers continue to prefer
local telephone answering machines over central answering services).
In developing countries, literacy is currently a significant barrier to the use of
such stored communication modes as electronic mail, facsimile transmission, and
even written instructions. Yet stored (time-shifted) communications are essential
for instructions, record keeping, and general reference. In the near future, at least,
illiteracy will continue to pose problems, especially among the adult population,
but because of both the demand and the technology, "voice fax," in which the
voice provides both the address and the data to be transmitted, will grow to fill
that gulf. And illiterates will not be the only ones to benefit. Any telephone, wired
or cellular, will then become a "voice fax" machine, and stored communication,
because of its new convenience, will spread rapidly and significantly among the
mobile and isolated members of developing country populations.
One significant form of stored-data communication presently used in devel-
oped countries is the electronic bulletin board, in which users post inquiries and
other users post responses. While many bulletin boards are quite informal (such
as computer user groups), others are more structured, even to the point of identi-
fying all respondents to provide for the authentication of their responses. The
growth of that technology and the continuing drop in memory and bandwidth
prices offer the opportunity for the development of a new aspect of transborder
information services.
TRANSBORDER SERVICES: INFORMATION IMPORTING
While the electronic export of data services is profitable to the developing
countries now and will be in the foreseeable future, the electronic import of
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Marshaling Technology for Development
information will be far more important. The critical factor leading to the potential
for importing information is the explosive growth and availability of the Internet.
From 1984 to 1994, the number of computers linked via the Internet grew from
just over 1,000 to over 3.8 million. Consider what an inquiry service on the
Internet could do for the Third World. Questions of the "How do I . . . ?" type
could originate in the developing countries and be answered anywhere in the
world by volunteer organizations such as the International Executive Service
Corps, professional consultants, or others. The answers might start as simple text
but would soon range from drawings through voice messages to full-scale video
demonstrations. Yet a one-question/one-answer system would represent a terrible
waste of intellectual effort and knowledge. The answers must be useful to others
besides the original inquirer and their persistence in time must be ensured.
This could be accomplished by the creation of a Third World application-
oriented inquiry and library system on the Internet, described in Figure 1. The
subscripts included in the figure indicate that users, inquiries, experts, and so
forth, are all identified so that they can be tied together for future reference and
quality control. Note that the user not only gets his or her inquiry answered but
has an opportunity to evaluate the response. "Did it work?" "What were its
limitations?" "What other questions does it raise?" iterative query. Indexers
note the application to which the responses are relevant, but they do more than
simply index the response by the one application. Chosen for their experience,
they are able to envision other potentially relevant applications. A question about
distributing water to a row crop, for example, may well generate responses appli-
cable to drinking-water distribution or evaporative cooling. Without application
indexing, the direct and extended intellectual links would be lost. Subsequent
inquiries about those applications would be unable to draw on what the system
already "knows."
Unlike the inquiry-driven system described in Figure 1, a publication-driven
system is featured in Figure 2. Both systems, however, are aimed at making
world knowledge easy to access and use in developing countries. Published sci-
entific and technical papers are generally classified by the technology with which
they deal, and authors and publishers alike are, rightly, concerned with making
the papers accessible to the authors' peers and others who will build on the new
knowledge contained in them. Eventually, the knowledge embodied in such pa-
pers is put to use-often in fields far removed from those of either the publishers
or the original authors. If those users also publish, citation trails can lead back to
the original articles. But even that publication process is most likely to occur in
the developed world.
Figure 2 depicts a situation in which two people a user and a special kind of
reader, an annotator interact with the information in the published paper. Both
participate, separately or in tandem, in creating "electronic marginalia" describ-
ing an application to which the information has been, or might be, put to use in
the Third World. Initially both the user and the annotator may be in a developed
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217
Indexer
Indexer
Indexer
\
UserN
with
Iterative
InquiryM
Index by
Application
/
\
InquiryNM
ResponseBNM
EvaluationNBNM
FIGURE 1 Application inquiry, response, and index system.
Application
Indexers
Application
Note
ExpertA
ExpertB
Expertc
ExpertD
l
l
l
l
l
l
l
l
Index by |
Application
t
Actual
User
_
~ Annc~3
FIGURE 2 Application annotation and indexing system for published material.
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Marshaling Technology for Development
country, but with time, as was the case in the inquiry-driven system, Third World
users will add their experience. The annotated document can now be indexed as a
. . .
single unit.
At this point the two systems come together. The application notes of Figure
2 and the evaluated responses of Figure 1 are directly useful material. Via the
application-indexing process, they will be listed in a single index. Got a problem?
Welcome to one-stop answer shopping!
Depending on the degree of use of the system and on demand, the material
can be gathered by application for wider distribution via compact disks (CDs) or
other means. Such off-line use can save communication costs for distant users
and provide services to isolated ones. The resulting collection, regardless of its
form, will have been stored, catalogued by application, and organized into the
kind of user-focused technological library that will accelerate the development of
any developing nation that has access to it.
CONCLUSION
Any other author asked to deal with the subject of technological innovation
and services might well have adopted a wider perspective than the one used here.
But the organizers of this symposium have asked, "How can technology be
marshaled for development?" This attempt to answer that question has come back
to information services and this is no accident. Indeed, one might say that the
rule of the future will be: among the so-called services, a country's ability to
manage and use information will be the greatest single determinant of its rate of
development.
NOTES
1. James Brian Quinn, Penny C. Paquette, and Jordan J. Baruch, "Exploiting the Manufacturing
Services Interface," Sloan Management Review (summer 1988).
2. National Research Council, Information Technology in the Service Society: A Twenty-First
Century Lever (Washington, D.C.: National Academy Press, 1994).
3. See, for example, James Brian Quinn, Intelligent Enterprise (New York: Free Press, 1992),
and the end notes for chaps. 2-4.
Representative terms from entire chapter:
marshaling technology
