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UNCTAD'S timely call for prepardeness to digital economy
Modi govt can get valuable insights for e-governance
By G. Srinivasan
UNCTAD report contends that the fast growth of tech MNEs is the fallout of multiple and interrelated factors, including robust technological and market momentum prompted by the digital revolution, financial solidity and spending capacity due to very high margins and liquidity, as well as a managerial culture oriented towards investment and innovation in just a few years. Some have become digital hubs operating across the full spectrum of the digital economy.



The Modi government has unfeigned fascination over things digital as it believes that this technology is a savior and a salutary agent for positive change to alter the topography of governance for bringing immeasurable benefits to the Indian people. No doubt, the digital economy is a key driver of growth and development.

The World Investment Report, 2017 of the UN Conference on Trade & Development (UNCTAD) has set apart a few exclusive chapters extolling the countless benefits digital technology can usher in as "it can provide a boost to competitiveness across all sectors, new opportunities for business and entrepreneurial activity and new avenues for accessing overseas markets and participating in global e-value chains". It has in its armory new tools for "tackling persistent development problems" which has attracted the focused attention of political classes across the universe with India being no exception to this ubiquitous rule to mollify, if not end the inequities and inequalities of the extant societal order. At the same time, the UNCTAD has not glossed over the "host of policy challenges, including the needs to bridge the digital divide, minimize potential of negative social and development impacts and deal with complex internet-specific regulatory issues"

Recounting the burgeoning ascendancy of tech multinational enterprises (MNEs), it said this genre of new-fangled MNEs are enablers of the global digital economy as they provide and underpin the infrastructure and the tools for digital adoption. In 2010, the relevance of tech companies in the top 100 MNEs ranking compiled by UNCTAD was still limited and not markedly different than a decade earlier. But with the rapid growth of the digital economy, the weight of the tech MNEs in international production has increased dramatically. Thus from 2010 to 2015, in contrast, the number of tech companies in the ranking more than doubled from 4 to 10 and their share in total assets and operating revenues followed a similar and even more pronounced trend. This growing heft and weight results from a group of tech MNEs, mainly from the United States, entering the ranking. Some of these firms such as Alphabet (Google) and Microsoft are leading the digital revolution; others such as Oracle, heavily rely on and benefit from the acceleration of the internet to deliver their value proposition. When including telecom MNEs, other important enablers of the digital economy, 19 MNEs in the top 100 global mega-corporations are ICT companies!

UNCTAD report contends that the fast growth of tech MNEs is the fallout of multiple and interrelated factors, including robust technological and market momentum prompted by the digital revolution, financial solidity and spending capacity due to very high margins and liquidity, as well as a managerial culture oriented towards investment and innovation in just a few years. Some have become digital hubs operating across the full spectrum of the digital economy. The average market capitalization (M-caps) of tech mega-corporations is almost three times than that of other MNEs. At the end of 2015, 10 tech MNEs made up about 26 percent of the total M-caps of the top 100 MNEs in the UNCTAD ranking, a share over two times larger than their share in number, assets and operating revenues for comparison.

When including highly valuable unrecorded intangibles, such as brand, know-how and intellectual property components, tech MNEs' intangibles are estimated to be roughly equal to their asset book value- significantly more than the average 40 percent recorded for other MNES. Interestingly, the traditional approach to growth and investment--characterized by high capital expenditure and debt, stretched liquidity, high fixed cost and squeezed margins-is largely absent in the digital world.

UNCTAD documents the importance of digital MNEs-including internet platforms, e-commerce and digital content firms-which is also growing rapidly. They make about 70 per cent of their sales abroad, with only 40 per cent of their assets based outside their home countries. No wonder, the impact of digital MNEs on host countries is less directly visible in physical investment and job creation, but their investments can have "important indirect and productivity effects and contribute to digital development". It is this facet of the digital economy that had captivated the imagination of political classes in emerging economies to exploit even as these mega-corporations are not paying taxes in the host countries commensurate to their capacity and business transacted daily. But that is another unedifying saga of tax evasion by monopolistic mega tech companies over which European nations are sore and have begun slapping gargantuan tax penalties with the latest hefty fine by the European Commission on Google being the illustrative case!

Notwithstanding the warts and all, the adoption of digital technologies in global supply chains across all industries would have profound effects on global production, UNCTAD said adding that depending on industry-and MNE-specific preferences, it can lead to fewer large investments in centralized "big-data-enabled" production, but also to nimbler, distributed 3-printing production in decentralized manufacturing of small components. It can lead to re-shoring but also to more services outsourcing. In supply chains, digital tools can coordinate a multitude of vendors around the globe with greater efficiency, opening up new vistas for procurement. Companies such as Cisco and Procter & Gamble have built "control towers "that offer real-time visibility across complex global supply chains. These hubs bring together information from sensors, actuators, radio frequency identification tags, GPs tracking and other tools into dynamic models that help mangers assess alternatives in a jiffy when risks or roadblocks occur.

As the champion of the developing world's causes, UNCTAD rightly bats for evolving investment rules and regulations and policies and institutions for the promotion and facilitation of investment to weigh cross-border operating models of tech MNEs in particular. Of the top traditional industries most hit by digitalization, five coincide with the top 10 industries in which countries maintain investment restrictions-and digital MNEs are expanding into other regulated sectors. Hence there is a crying need to review some analogue-era regulations to avoid that they become obsolete or an unintended drag on digital adoption across the globe.

UNCTAD suggests that a comprehensive digital development strategy to cover investment in digital infrastructure, in digital firms and in digital adoption by firms across all industries. UNCTAD estimates the investment costs associated with near universal basic 3-G coverage in those countries (a pre-requisite for Sustainable Development Goal universal access target) at less than 100 billion US dollars. It said regional cooperation for investment in internet infrastructure can make infrastructure projects more attractive for global investors. UNCTAD also plumps for promoting investment in local digital content and services to expedite digital development which meant fostering and maintaining a conducive regulatory framework for digital firms, as well as active support measures.

Finally, UNCTAD urges policy makers while promoting investment in digital development to address public concerns. This entails up-to-date regulations in such areas as data security, privacy, intellectual property protection, consumer protection and the safeguarding of cultural values. In short, as the Modi Government sets store by digitalization, its policy mandarins and implementing authorities should pore over this crucial UNCTAD document to gain valuable insights into the evolving ecosystem for e-governance.

—(IPA Service)


News Updated at : Tuesday, July 11, 2017
 
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