The Internet in the Countries in Transition
By: Dr. Sam Vaknin
First published as an Interview in Suite101 - Click HERE:
The Internet in Countries in Transition
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Though the countries in transition are far from being an homogeneous lot, there are a few denominators common to their Internet experience hitherto:
1. Internet Invasion
The penetration of the Internet in the countries in transition varies from country to country - but is still very low even by European standards, not to mention by American ones. This has to do with the lack of infrastructure, the prohibitive cost of services, an extortionist pricing structure, computer illiteracy and luddism (computer phobia).
Societies in the countries in transition are inert (and most of them, conservative or traditionalist) - following years of central mis-planning. The Internet (and computers) are perceived by many as threatening - mainly because they are part of a technological upheaval which makes people redundant.
2. The Rumour Mill
All manner of instant messaging - mainly the earlier versions of IRC - played an important role in enhancing social cohesion and exchanging uncensored information. As in other parts of the world - the Internet was first used to communicate: IRC, MIRC e-mail and e-mail fora, and SMS (short messages services on mobile phone and other portable devices) were - and to a large extent, are - all the rage.
The IRC was (and is) used mainly to exchange political views and news and to engage in inter-personal interactions. The media in countries in transition is notoriously unreliable. Decades of official indoctrination and propaganda left people reading between (real or imaginary) lines. Rumours and gossip always substituted for news and the Internet was well suited to become a prime channel of dissemination of conspiracy theories, malicious libel, hearsay and eyewitness accounts.
Instant messaging services also led to an increase in the number (though not necessarily in the quality) of interactions between the users - from dating to the provision of services, the Internet was enthusiastically adopted by a generation of alienated youth, isolated from the world by official doctrine and from each other by paranoia fostered by the political regime.
The Internet exposed its users to the west, to other models of existence where trust and collaboration play a major role. It increase the quantity of interaction between them. It fostered a sense of identity and community. The Internet is not ubiquitous in the countries in transition and, therefore, its impact is very limited. It had no discernible effect on how governments work in this region. Even in the USA it is just starting to effect political processes and be integrated in them (for instance, through blogs).
The Internet encouraged entrepreneurship and aspirations of social mobility. Very much like mobile telephony - which allowed the countries in transition to skip massive investments in outdated technologies - the Internet was perceived to be a shortcut to prosperity. Its decentralized channels of distribution, global penetration, "rags to riches" ethos and dizzying rate of innovation - attracted the young and creative.
Many decided to become software developers and establish a local version of "Silicon Valley" or the flourishing software industry in India. Anti virus software was developed in Russia, web design services in former Yugoslavia, e-media in the Czech Republic and so on. But this is the reserve of a minuscule part of society. E-commerce, for instance, is a long way off (though m-commerce might appear sooner in countries like the Czech Republic or the Baltic).
E-commerce is the natural culmination of a process. You need to have a rich computer infrastructure, a functioning telecommunications network, cheap access to the Internet, computer literacy, inability to postpone gratification, a philosophy of consumerism and, finally, a modicum of trust between the players in the economy.
The countries in transition lack all of the above. Most of them are not even aware that the Internet exists and what it can do for them. Penetration rates, number of computers per household, number of phone lines per household, the reliability of the telecommunications infrastructure and the number of Internet users at home (and at work)- are all dismally low.
On the other hand, the cost of accessing the net is still prohibitively high. It would be a wild exaggeration to call the budding Internet enterprises in the countries in transition - "industries". There are isolated cases of success, that's all. They sprang in response to local demand, expanded internationally on rare occasions and, on the whole remained pretty confined to their locale. There was no agreement between countries and entrepreneurs who will develop what. It was purely haphazard.
3. The Great Equalizer
Very early on, the denizens of the countries in transition have caught on to the "great equalizer" effects of the Net. They used it to vent their frustrations and aggression, to conduct cyber-warfare, to unleash an explosion of visual creativity and to engage in deconstructive discourse.
By great equalizer - I meant equalizer with the rich, developed countries. See the article I quoted above. The citizens of the countries in transition are frustrated by their inability to catch up with the affluence and prosperity of the West. They feel inferior, neglected, looked down upon, dictated to and, in general, put down.
The Internet is perceived as something which can restore the balance. Only, of course, it cannot. It is still a rich people's medium. Former US President, Bill Clinton, pointed out the Digital Divide within America - such a divide exists to a much larger extent and with more venomous effects between the developed and developing world. the Internet has done nothing to bridge this gap - on the contrary: It enhanced the productivity and economic growth (this is known as "The New Economy") of rich countries (mainly the States) and left the have-nots in the dust.
4. Intellectual Property
The concept of intellectual property - foreign to the global Internet culture to start with - became an emblem of Western hegemony and monopolistic practices. Violating copyright, software piracy and hacking became both status symbols and a political declaration of sorts. But the rapid dissemination of programs and information (for instance, illicit copies of reference works) served to level the playing field.
Piracy is quite prevalent in the countries in transition. The countries in transition are the second capital of piracy (after Asia). Software, films, even books - are copied and distributed quite freely and openly. There are street vendors who deal in the counterfeit products - but most of it is sold through stores and OEMs.
I think that intellectual property will go the way the pharmaceutical industry did: Instead of fighting windmills - owners and distributors of intellectual property will join the trend. They are likely to team up with sponsors which will subsidize the price of intellectual property in order to make it affordable to the denizens of poor countries. Such sponsors could be either multi-lateral institutions (such as the World Bank) - or charities and donors.
Interview with Ray Power, main shareholder and General Manager of iDevelop, Macedonia and Chairman of the British Business Group
Conducted by: Sam Vaknin
1. Can you briefly describe your product, your market niche, and marketing strategy?
RP: In brief, it is a solution that allows companies to monitor their website traffic in real time and initiate chats with those visitors without any downloads etc. Our primary market is the SME (Small to Medium Enterprises) segment and we are finding a lot of success with realtors, travel agencies, hotels and car dealerships.
The marketing strategy is closely linked to the sales strategy
which has at it's core the subscription billing method. This delivers the
software to our customer at a fraction of what it would cost were it packaged or
sold as a unit. We have direct sales agents in place in Eastern Europe, the UK
the USA who target medium sized companies and identify resellers; such as web development companies to whom we offer good margins and support thus giving us as wide a spread reach as possible.
2. Why Macedonia? It is not exactly the first locale that pops to mind when hi-tech is mentioned ...
RP: Well, we originally used the country as an
offshore IT destination, i.e. for development purposes only. But, with the
economic and political
developments in the last two years, for example lower taxes. we decided to move all of our operations here. It is favourable in that we know the
territory and the people on the ground from the development work but, from a commercial point of view in that it is an emerging market with massive
potential and growth capability. With the political and economic landscape looking very positive, from a growth perspective, over the next few years,
we anticipate that we will benefit from this directly and indirectly as foreign investments look to the stock exchange as an investment option. So far as the high-tech element is concerned, granted, Macedonia is better know for its pepper and tomatoes, but, there are some excellent IT minds in the
country and this resource is growing all the time. At present, we still have the pick of the best as don't have to compete with the recruitment campaigns of the likes of Oracle and IBM etc. as they don't have a presence here. In fact, none of the big names have any substantial development
operations, (such as what they have in Romania, Poland & Bulgaria for instance), in the country making our lives that little bit easier.
3. You are on the verge on an IPO in Macedonia's stock exchange. What would a dot.com issue or flotation do to the local capital markets? Wouldn't it serve to enhance volatility and thus buttress the market's reputation as a substitute casino?
RP: There is always the concern that people do not
perform their own due diligence when purchasing shares which is why we have been
making quite an effort to put in place robust, two-way communication processes
that will allow us to disseminate news about the company activity which, we hope
will prevent people from making investments as a gamble, but rather, take a look
at what we do, consider our product, our strategy and our performance. On that
basis, we hope we can eliminate excessive price fluctuations and establish a
steady pattern of growth that reflects the business value.
4. Do people here grasp the exact nature of a dot.com? It is after all, hitherto unheard of here ... As pioneers, what are you doing to educate them and dispel misunderstandings and misrepresentations?
RP: Broadly speaking I think that very few of the
people I speak to fully understand the nature of a dot com. I normally find
myself elaborating heavily on why a dot com is different than a traditional
bricks and mortar business. Often people are very quick to jump on the very
high rates of returns that can be achieved with a successful product but
sometimes incorrectly conclude that they are looking in a brand new
start-up. Indeed, the product is new, exciting and innovative and sure to be a
hit, but, the business itself is not a traditional startup in that we have our
sales people in place with matured business processes, payment facilities and a
product that has completed development and testing and already has paying
subscribers. One of the main problems we face is that a lot of people remember
the dot com bubble bursting without realizing why that happened and, in fact,
how far along the industry has moved since then. There is, for want of a better
phrase, a second dot com boom happening at the moment but in a much more subtle
and sustainable manner - I think that the people with the ideas have all grown
up a little and have realized that services must generate income...you don't see
us giving our product away for free! (Smiles)
5. What are the lessons Macedonia should learn from the global dot.com boom and bust in the late 1990s?
RP: I think that I may have started to answer this
above...simply, they should take a few minutes to understand the underlying
cause for the boom and bust cycle that occurred back then. It was a phenomenon
where many business people couldn't understand what the business case was but
regardless; there seemed to be this innate concept that just because they didn't understand the technology behind the website, they didn't have to understand how the revenue was made. In effect, business people threw aside what they knew about business on the basis that the technology would
compensate. In a nutshell, they should know that you cannot give something away for free and expect revenue from nowhere, it just doesn't add up! They should look at the business as a business and make sure that the product actually does function and that the revenue model is based on real sales
with a real management and sales strategy associated to it.
6. What can the government do to help you and companies like you? What has it done to date and what are its plans? Have you communicated your wishes and expectations to the authorities?
RP: Wow, that's a long answer! I'll try and be brief. For
iDevelop specifically, we know that we will need more programmers and a
continually improving IT infrastructure. I think that so far, the initiatives
in the universities and the push to establish a Minster for IT have been good
steps in the right direction but I think there should be a greater pressure put
on the central bank and a focus on the fiscal policy to make the e-banking and
trading laws user friendly. At the moment, the laws are in place on a local
level but there are so many restrictions in place on how income or sales can be
realized it makes the process nigh on prohibitive. If the policy making was considered with a system approach I feel that transactions would flow
smoothly and that we would see a faster development of this sector which would benefit us all. It is noteworthy however, to point out that any
suggestions we have presented thus far have been well received and dealt with in a very positive manner.
7. Macedonia is a highly politicized country, as are all polities in transition. How do politics figure into your financing and marketing equation?
RP: To keep things predictable and sustainable we
take our sales forecasts from the markets that are not in transition; i.e. the
UK or other Western
European countries and the USA. We make an effort on a local level to stay informed of the political road map and take measures to minimize any impact that rapidly changing policy may have. In this case, we are very fortunate to have similar markets to analyze and help with such predictions, which, to be honest, have meant that so far, we don't really have any significant impact from political movements. Bear in mind that we are not moving boxed products across land which also keeps us distanced from issues that some other companies may have with supply chains etc.
8. Can Macedonia become a hi-tech hub: back-office processing (outsourcing and offshoring), software development, product design, etc.?
RP: I think the answer to this is yes, to a
point. I don't think it can be THE hub, but then I don't think any single
country in the FYR region could provide THE hub. It does have excellent scope
for back-office processing, support services, and software development for
various niche industries but
I think that is fair to say that, with a population of less than 1/4 of that of London, it won't have the breadth and depth of knowledge and experience demanded by some companies and industries. Without a doubt though, the extraordinarily high level of very well educated young people is a workforce that is ultra-capable and can respond to many market needs.
The Internet Cycle
INTERNET - A MEDIUM OR A MESSAGE?
The Solow Paradox
Leapfrogging to Cellular
How to Write a Business Plan
Decision Support Systems
The Demise of the Dinosaur PTTs
The Professions of the Future
Knowledge and Power
The Revolt of the Poor - Intellectual Property Rights
The Disruptive Engine - Innovation and the Capitalist Dream
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