Electronics. There’s a mystique about the word which sets the adrenalin running. To the scientist it gets more exciting as the techniques become more microscopic; to the economist it is the name of the fastest growing industry since 1945; to governments it is not just another industry - it is, as an Indian state committee suggests, the ‘nervous system’ of a modern economy.
A general assumption is that Singapore, Hong Kong, Taiwan and South Korea - working closely with the international electronics firms - are the only viable Third World electronics producers. But the picture is changing. India, with a long record of industrial activity, is a nation intent on standing on its own feet in the electronics world - according to a ‘good news’ report by the United Nations Conference on Trade and Development on electronics in developing countries*. As a guide to other Third World countries in their dealings with the Philips, Hitachis, Siemens and Texas Instruments of the world, the report sets out the record of the foreign electronics companies in India and South Korea.
The report suggests that the miracle of South Korea’s foreign-dominated billion dollar electronics industry is not all the monetary image cracks it up to be. The South Korean government offers a tempting package to attract foreign electronic companies to the country (see ‘The Carrot of the Free Trade Zones’) but there has been a poor spin-off for local industry. Foreign corporations, according to the UNCTAD report, have responded by concentrating on products and manufacturing techniques which - on average - have a ‘half life’ of three years. ‘Half life’ products become commercially obsolete, because of new electronics technology at about the same time some of the favours like tax holidays are ending.
In otherwords, foreign-owned electronic operations in South Korea are virtually temporary processing zones using a technology which - even if it rubs off on Korean managers who might be tempted to set up their own operations - rapidly becomes obsolete.
Over the years the foreign corporations have progressively shifted from assembling, finishing and testing transistors, to doing the same operations for small scale integrated circuits, and recently large scale circuits. With advance knowledge of electronics trends, the foreign operators can waltz from one process to the next, each time cashing in on the ‘tax holidays’ and other privileges which host governments afford foreign investors in the free trade zones. For the local entrepreneur who tries to emulate the foreign operation, the export pickings are small by the time the necessary technology has been acquired. And supplying Korea’s domestic market is not an attractive alternative.
The structure of the country’s electronic industry is so geared to exports, that national opportunities for utilizing the industry are wasted. In one case, integrated circuits in South Korea were shipped to the US and Japan and then re-imported for use in locally made entertainment equipment. It’s unlikely that South Korea made a dollar out of that deal.
Even more glaring has been the country’s failure to establish a marine electronics production line. In 1976 nearly 60 vessels were built domestically, yet all were fitted with imported marine electronics. The technology could have been provided locally. It wasn’t.
In India it’s different. In a country where dynamism is not a word usually associated with the national economy, a quiet revolution has been going on throughout the seventies. So far India’s electronics performance on the export front does not compare with South Korea’s. But the long-term prospects make the Indian approach to establishing electronics production a far more constructive model for other Third World nations.
Foreigners with their finger in the Indian electronics pie have not been able to pull out the plum, as they have in South Korea. New Delhi demanded that production was initially geared to supplying local needs and only technologies with a long life were introduced.
Local technology has been incorporated and this in turn has created more jobs and added a high level of local value to all production - there is no nonsense of built-in obsolescence or ‘half life’ operations.
Electronics research gets a high priority in India - seven per cent of the country’s 500 million production was ploughed back in 1976. Little, if any local research is done in South Korea.
Obviously there are clear advantages if you own your own industry, and India’s success story has its roots in a long term government involvement. In 1971, a Cabinet Secretariat report on the setting up of an electronics commission in India noted: ‘Government attaches the highest importance to the development of an integrated and self-reliant electronics industry … ‘. The guidelines were set and now the results are coming in. While South Korea’s electronics industry continues to have a high level of foreign ownership, India’s story is of diminishing outside involvement. Even in 1972 the foreign share of electronics output in the country was only 10 per cent. By 1976 it was down to three per cent. South Korea’s comparable figure in 1974 was 38 per cent and hasn’t fallen much since then.
In a nutshell, South Korea’s industry is, and always has been, high volume, and directed to export, not domestic requirements; it uses foreign technology and is controlled by overseas money; links with other national industries have been ignored.
The Indian model is almost the reverse: it is geared to a local market; has a substantial and growing local technological content; is almost totally locally controlled with a diminishing input of foreign money; is closely linked to the needs of other Indian industries; and, perhaps most significantly, enjoys the patronage of the government as a customer, planner. entrepreneur and developer of new strategy.
Not all developing nations have the same Indian advantages of a vast domestic market - the country has a population of 630 million - and enough skilled government expertise to establish a viable electronics industry. But there is plenty of room for co-operation on a regional basis so that local demand for electronics and research investment can be pooled.
The UNCTAD report recommends that the first approach by a developing country to foreign technology should be to negotiate licence agreements with the owners of the technology. If foreign investment is needed, the report advocates that the developing country should arrange for a joint venture between a local government-owned company and a smaller foreign company so that control remains with the host country.
* Electronics in Developing Countries: Issues in Transfer and Development of Technology, a study by the United Nations Conference on Trade and Development in co-operation with Ashok Parthasarathi, Secretary of the Electronics Commission, Government of India, in his personal capacity.
What's in the Electronics Bag?
CONSUMER PRODUCTS: radio and television, tape recorders, record players, organs, video games, microwave ovens, alarms, calculators, clocks and watches, telephone receivers, citizen band radio transceivers;
PROFESSIONAL PRODUCTS calculators, accounting machines, copying machines, cash registers, computers, data terminals; radio and television broadcast and transmission equipment, sea, air and space navigation equipment, radio communications equipment, telephone switching and transmission systems, data communications; process, motor and machine tool instruments and controls;
COMPONENTS: passive and electromechanical devices, discrete semiconductors (transistors, diodes, etc), integrated circuits, optoelectronic devices and electronic tubes.