How do technological capabilities affect emerging markets? What are the future indications?

Question

What will be an ideal response?

Answer 1

EMs have been associated with limited investment in technology. Traditionally, the economies within these markets are based on non-value added production, which is labour intensive. Therefore, many EMs are dependent on the developed economies for technology transfer. EM growth has mainly been facilitated by economic and political reforms and the adoption of existing know-how and technologies. Firms from developed countries are advantaged in terms of technological and marketing capabilities. In contrast, EM firms do not often have firm-specific assets, defined within the context of firms from developed markets. Many emerging market firms still base their strategy on exploiting current assets and focusing on the production of the same or similar products.

Shifts towards market-based economies in EMs result in increased competition for domestic firms, as well as the growing need to emphasize quality and customer satisfaction. As such, domestic firms are faced with the need to update their operations and products in line with the market needs. Though the innovation base and technological capabilities in EMs are weaker than those of developed nations, governments and firms have realized the importance of investing in technological capabilities for global competition and are increasing investments to this effect. Improvements in policies in terms of protection of property rights and macro-economic stability, as well as increased exposure to new technologies, have also contributed to the increased rate of technological advancement in emerging markets.

Competition from MNEs from developed countries has also accelerated the growth of innovative capabilities of EM firms (Gorodnichenko et al., 2008). Even though firms from developed markets are still the creators of new technologies, firms from EMs have been absorbing new technologies more rapidly as their exposure to such technologies increases (WorldBank, 2011).

There is some evidence that some EM countries are undertaking efforts in order to develop technological capabilities. In EMs, people are now empowered with universities and research centres, as well as access to information via improved communication technologies which should transfer into developments in innovation (Sachs, 2008). Meanwhile, many MNEs from developed economies are trying to spread R&D efforts globally and investing in R&D centres in both EMs and developed countries (UNESCO, 2011). Formation of globally distributed R&D networks has been accelerated over the past two decades. Due to the increasing availability of technical personnel in EMs many multinationals have been shifting their R&D investments to such countries, especially to China and India. In order to compete with developed markets, emerging markets need to increase their focus on building technological capabilities. As such, their investments in this area are bound to increase.