Impact of the Internet on Developing Countries

Abstract

The Internet has completely changed the information management scene in developed countries. It has improved the communication systems and has developed user-friendly environments for information sharing and exchange. The benefits of the Internet in developed countries have inspired the developing countries to develop the Internet and use it to their benefit. The Internet is now changing the information practices in various sectors in developing countries. The impact of the Internet has caused developing countries to modify traditional methods of conducting information business by setting up new sources of information and new methods of communication on a global basis. The Internet has helped the developing countries to take advantage of access to global sources of information in order to improve their economic markets.

In this paper we will discuss the evolution of the Internet along with the atmosphere, which initiated the growth of the Internet in developing countries. We will touch upon the constraints involved in promoting Internet growth, the models used to enhance Internet growth, the areas benefited by the Internet and the future of Internet in developing countries. We have focused our discussion on the impact of the Internet on the two most populous developing countries, India and China.

Introduction

In today’s world where globalization is inevitable if you want to succeed, the Internet is your only respite. The Internet has revolutionized information technology and made information access across boundaries very easy. It has spread in all spheres of life and you cannot think of life without the Internet. Come to think of it, how did the Internet evolve and how did it become such an essential part of our lives?

The Internet has created competition by bringing many international and indigenous information technology vendors on to the same platform and has raised the standards of quality of services. Even though the Internet has its advantages, the developing countries are facing a lot of issues in using it to achieve maximum benefits. Some concerns are related to the infrastructure costs, language and cultural barriers, political barriers and economic costs. If the issues related to the growth of the Internet can be tackled, there would be phenomenal growth in the economy of the developing countries due to the benefits of the Internet.

Statement of Purpose

The three major aspects involved in the overall development of a country are economic, political and social. As it is evident from the success of the Internet in developed countries, and will be clear from the examples stated in the paper, we can see that the Internet plays a very important role in all these aspects.

It is evident from the extent of usage of the Internet in our daily lives that it has and will continue to change the way we live. How it has changed, and how it will continue to change our lives, is the reason for discussion on the topic of “Impact of the Internet in Developing Countries”. We are discussing the impact of the Internet specifically on developing countries because the awareness and number of users of the Internet is still growing. As compared to the number of users of the Internet, the effect of the benefits of the Internet has been phenomenal.

Evolution of the Internet

The idea of the Internet originated about 25 years ago at the US Defense Department Advanced research Projects Agency (ARPA), to keep track of data through computer hardware and software. The Internet is now a complex web of networks connected with high-speed links cutting across countries. There are no set boundaries for the Internet in cyberspace. Recent statistics show 50,000 networks in more than 100 countries with more than 50 million users (MIDS press release). It is estimated that the rate of growth in Internet use is around 20 per cent a month. Currently the Internet is not proprietary and is available to anyone with computer access connected to the external world. Since the USA launched the information superhighway in 1994, the Internet has come to play an ever-increasing role in the vast information market in many countries.

Malaysia’s Prime Minister, Mahathir Mohammed, once said:

“It can be no accident that there is today no wealthy developed country that is information poor, and no information rich country that is poor and underdeveloped”

This statement emphasizes the importance of the Internet for developing countries. From an international perspective access to and use of the Internet is unbalanced; there are obvious gaps between developed and developing countries in terms of the numbers of nets, hosts and users.

Information Environment in Developing Countries

China and India have the highest population among the developing countries. With the vast population, the market for the Internet in these countries is huge. Both India and China are information-rich countries with a long tradition of learning and applying their knowledge. Both countries have had phenomenal growth economically and are utilizing information technology and information management for the same. The reduction in the price of personal computers and the multimedia influx only accelerated the growth in Internet usage.

For countries with vast information centers, the Internet proves to be the most valuable resource.

Chinese general information systems are divided into six categories:

(1) Information centers affiliated with the National Scientific and Technical Commission

(2) Information centers belonging to central government ministries

(3) Information centers of a provincial nature

(4) Information centers of a specialized nature affiliated to regional governments

(5) Information centers affiliated with state enterprises, universities and other research institutions

(6) Information centers of non-governmental, regional, professional and similar bodies

In India, at the national level the main sources of information include:

(1) Various line ministries;

(2) The Central Statistical Organization (CSO)

(3) The National Sample Survey Organization

(4) The Registrar-General of India (RGI)

(5) The National Information Center (NIC)

(6) The Center for Monitoring Indian Economy (CMIE)

(7) The Federation of India Chamber of Commerce and Industries (FICCI)

(8) Tata Energy Research Institution

(9) The Center for Science and Environment

Given such huge information centers in both countries, the public need for the Internet and its potential are vast.

Areas of concern in Developing Countries

Three major areas of concern about the Internet in developing countries are:

(1) National information policy

(2) Regulatory framework and information infrastructure

(3) Proper education and training

National information policy

Awareness of various information sources in developing countries is limited to oral form. Awareness in print is negligible. The national information policies in developing countries concentrate on trade, international relations, national security and technology, but they barely concentrate on electronic access of information through the Internet to achieve maximum benefits. For rapid economic growth, official documents of developing countries should include high priority plans to implement electronic information delivery systems. National policy documents, like five-year plans, should contain policy statements and should be implemented on time. Sufficient funding should be available during planning and implementation phases of electronic information access models.

Regulatory framework and information infrastructure

Developing countries have a regulatory framework in place, which makes protection of investment, intellectual property and individual privacy compulsory in the information market. Developing countries have legal frameworks in place, which deals with private sector involvement, skilled human resources, standards and implementation. Regulatory frameworks for information do not exist.

Even though information technology and telecommunications have made a way into all the markets in a developed country, in developing countries, information technology is still seen only as a means to support information management systems, finance and accounting facilities and data processing.

As compared to the population numbers, the per capita penetration of computers in both India and China in the area of small office/home office (SOHO) is very insignificant. Telecommunications has also not yet picked up in India and China. If the information infrastructure were to cover the wide Indian and Chinese markets, and if technology was used for global access to information through the Internet, there would be a phenomenal economic growth in these countries. Both the countries need to urgently address the awareness of the Internet and its importance for policy makers at the political level.

Proper education and training

As in developed countries, workforces in developing countries are also adopting knowledge-based methodologies rather than labor intensive ones. Surveys have shown that Internet use is associated with higher education in developed countries. The same applies to developing countries. Literacy rates in developing countries needs to be improved to a great extent. The governments, central, state and local and learning institutions and civic associations should take responsibility and should work together to raise the literacy levels in developing countries. Information professionals should be trained on priority. Trained information professionals can make better use of the Internet and will be more efficient in acquiring, organizing and propagating information. Developing countries are often concerned about preserving language and culture heritage and supporting political systems. They are weary of foreign economic formats. Thus, proper trainings and seminars for information professionals is a must. These trained professionals can help educate the masses and can take advantage of the benefits of the Internet. This would help in sharing of knowledge through cyberspace and would help in increasing the value of the global information sector.

The Internet will support development in the following ways:

* Assess the information capacity of the country and determine the needs of users, organize and synthesize information and provide access to internal and external information

* Disseminate information to meet the public needs and private sectors and the daily information needs of the general public

The government’s role in utilizing the Internet is very critical. It influences the appropriate use of the Internet for social and economic change in the shift from labor-intensive production to knowledge based information industries. Also, it reveals the market to a strong private information sector by defining public and private sector relationships. In order to destroy monopolies and encourage competition among international and indigenous vendors, it redefines telecommunication policies.

Internet Growth in India

Internet service in India started in 1994 with government being the monopoly provider. Service was costly and unreliable and by 1996 there were only 4,000 subscribers nationwide. In 1998, the ISP market was deregulated. By 2000, there were 225 ISPs (India Infoline 2001) and prices had dropped 60%. PC prices also dropped significantly owing to lowering of import duties. The subscriber base then grew rapidly, reaching 1.8 million in January 2001. E-mail and chat are the most popular applications (Natarajan 1999). E-commerce is yet to find wide acceptance but is expected to touch $2.3 billion by 2002 (Pai 2000a). PC penetration in urban middle class households has increased in recent times (Dataquest 2000; Pai 2000b), and has led to an increase in the Internet subscribers. The popularity of the Internet has also had a feedback effect on PC sales (Dataquest 2000).

The demand for bandwidth outstrips supply thirty-fold (Desai 2001). As of December 2000, there were only 28 million telephone lines equal to a tele-density of 3.5/100 persons. Alternatives to analog modems, such as ISDN lines or cable modems, are limited. Regulations have also stifled Internet growth. The ban on Internet telephony and the requirement to obtain security clearance before setting up an international gateway are two examples. In short, Internet diffusion in India started very recently and is characterized by high telephone charges, limited customer acceptance of E-commerce applications, limited telecommunications infrastructure, and restrictive regulations. These characteristics are prevalent in many other developing countries as well.

The VSNL, is still by far the dominant player in the ISP market, and maintains the backbones that most private firms will have to use to provide access to consumers. There is currently one Level 1 gateway owned by VNSL, as well as a Level 2, through which most private companies will have to connect.

1995/96

1996/97

1997/98

1998/99

1999/2000

2000/2001

2001/2002

States

Popn CAGR (’81-’91)

Estd

Popn

CAGR of Lines

Actual

Lines ‘000

Lines/100

Estd

Lines

Lines/100

Estd

Lines

Lines/100

Estd

Lines

Lines/100

Estd

Lines

Lines/100

Estd Lines

Lines/100

Estd Lines

AP

2.19

696.98

20.44

797

1.35

959

1.59

1155

1.87

1391

2.20

1675

2.60

2017

2.58

2044

Assam

1.20

227.37

21.59

107

0.56

130

0.68

158

0.81

192

0.98

233

1.17

283

1.16

284

Bihar

2.14

903.30

19.97

280

0.36

335

0.43

401

0.50

481

0.59

577

0.69

692

0.68

694

Gujarat

1.94

428.65

16.52

916

2.44

1067

2.79

1243

3.19

1448

3.64

1687

4.16

1965

4.18

2012

Haryana

2.45

174.52

21.31

295

2.00

357

2.36

433

2.80

525

3.31

636

3.91

771

3.90

786

Himachal

1.91

53.60

28.27

110

2.58

141

3.23

180

4.06

230

5.10

295

6.42

378

6.45

387

JK

2.57

82.29

13.61

53

0.71

60

0.79

68

0.87

77

0.96

87

1.05

98

1.02

98

Karnataka

1.93

466.52

20.32

784

1.98

943

2.34

1134

2.76

1364

3.26

1641

3.85

1974

3.85

2013

Kerala

1.35

307.74

22.24

681

2.67

832

3.22

1017

3.88

1243

4.68

1519

5.64

1856

5.71

1905

MP

2.41

700.25

22.47

623

1.06

762

1.27

933

1.52

1142

1.82

1398

2.17

1712

2.14

1730

Maharashtra

2.32

831.86

18.70

2425

3.38

2878

3.92

3416

4.55

4054

5.28

4812

6.12

5711

6.19

5904

Orissa

1.85

327.44

19.68

166

0.59

198

0.69

236

0.82

282

0.96

337

1.12

403

1.11

405

Punjab

1.91

210.22

25.23

571

3.34

715

4.1

895

5.03

1120

6.18

1402

7.60

1755

7.70

1813

Rajasthan

2.53

468.70

28.14

494

1.32

633

1.65

811

2.06

1039

2.57

1331

3.21

1705

3.17

1727

TN

1.44

570.17

22.01

1014

2.14

1237

2.57

1509

3.09

1841

3.72

2246

4.47

2740

4.50

2798

UP

2.30

1464.71

25.53

810

0.68

1016

0.83

1275

1.02

1600

1.25

2008

1.54

2520

1.51

2537

WB

2.23

714.44

15.56

610

0.96

704

1.09

813

1.23

939

1.39

1085

1.57

1253

1.55

1265

‘The above table represents an extrapolation based on the s available at the end of the 1995-96 fiscal year. The s show that the penetration of phone lines is in fact growing faster than the population. In addition, the s represent only the penetration of public services, whereas the latest telecom policy calls for added investment in the private sector. Nevertheless, it is clear that the current trends in growth will not result in the planned telephony penetration into India (7% by 2005 and 15% by 2010). In addition, in many cases the s are skewed towards the urban regions within the states, and mask a poorly developed rural sector. Thus, the general indication at this juncture is that there is a clear need for dedicated infrastructure developed throughout india.’

The Impact of the internet in developing countries http://cse.stanford.edu/classes/cs201/projects-00-01/third-world/india-overview.html

Modeling Internet Growth

To get a thorough understanding of the technicalities of Internet diffusion in developing countries, we will discuss a model, which combines contagion effects and their interaction with external factors.

There are a variety of methodologies available in the market to represent dynamic processes. We will be discussing the SD (Sterman 2000) model. Some of the reasons for choosing this model are listed below:

* The feedback loop, which is the main structural element in an SD model, makes the model well suited for capturing the interaction among different drivers of diffusion over time

* The SD model not only represents quantifiable variables, but also soft variables, which help in understanding because the diffusion context has both social as well as technical aspects

* System behavior in SD models results from interaction among its feedback loops

When you build an SD model, you start with the development of a causal loop graph that consists of a collection of causal links. Each of these causal links has a certain polarity. A positive (negative) link is associated with a reinforcing (balancing) relation. A positive (negative) change in the cause in this scenario leads to a positive (negative) change in the effect. Small lines intersecting causal links represent the delays in an effect. A causal loop is the result of a closed sequence of causal links and the loop polarity can be easily understood from the individual link polarities. The causal loop graph results in a mathematical model in which relationships are illustrated by means of time varying difference equations. A what-if analysis is conducted by simulating the mathematical model under different parametric and structural alternatives.

The given above depicts the causal loop diagram for our diffusion model. The first of validation is the verification of each of the structural components involved. We will be discussing the foundation for the core component, followed by the selected components that capture external factors that are typical of developing countries. At the heart of the diagram lies the contagion based Internet Adoption, which helps PC owners become Internet subscribers. Innovation Coefficient and Imitation Coefficient drive Contagion in the same manner as in Bass 1969. The causal loop structure consisting of the above five variables would result in the familiar S-shaped diffusion curve, if it did not have any other structural components. The basic contagion mechanism is augmented by external factors typical of developing countries. In the above , this is accomplished by driving the contagion parameters by external factors like PC price, tele-density and the level of competition allowed by regulation.

Model validation – Replicating observed behavior

Replicating the observed behavior is the second stage involved in validating an SD model. The given above was transformed into the corresponding difference equations and was then implemented using the iThink package.

The s given below provide a comparison of the simulated and observed behavior of subscriber base and growth rates respectively, using quarterly data for India from 1996 to January 2001

(Dutta. A, Roy. R, 2001)

(Dutta. A, Roy. R, 2001)

Conclusions from this model

The validated model offers a synthetic environment that helps us in analyzing the effect of different external factors. Loop dominance analysis (LDA) was used in SD parlance in order to analyze the external factors. A dominant loop is one, which is mainly responsible for model behavior over a particular time interval. The relevance of LDA is that it helps in identifying which loops need to be strengthened and/or weakened, through policy actions, so that we can achieve maximum desirable behavior.

Two conclusions analyzed from our model, using LDA, are listed below:

* Low infrastructure facility, high hourly usage costs and low geographic dispersion are dominant in the diffusion process. Regulatory policies would help in weakening these variables and therefore would dominate the future diffusion processes.

* Besides the industrial countries, security concerns have not spread intensely in developing countries. One explanation for this could be that e-commerce has not yet got a hold in developing countries.

Political barriers hindering the growth of the Internet

The political atmosphere in India is to blame for the slow growth of both, the Internet access and the telecom infrastructure. In spite of the liberalization of Indian economy in 1991, the telecommunication sector remained in tight control of the government. This resulted in a number of problems for both, private firms as well as consumers.

Even though the government has increased its interest in promoting the growth of the Internet throughout India, there is still a need for the review and/or removal of regulations still in place if we want the telecom industry to flourish.

The government should rethink its current policies on telecommunications, take into account the global changes brought the about by the advent of new technology, and work to create a market environment that is favorable for investment by both local and international IT firms.

Impact of the Internet on various sectors in developing countries

The Internet has considerable potential in various sectors in developing countries:

• Education

• Banking and Finance

• Business

• Government

• Telecommunications

• Travel and Tourism

We will discuss the impact of Internet on some sectors in detail.

a) Impact on Education

The world of education is undergoing some major changes, the most important of which is the use of the Internet in teaching and learning. Before the advent of the Internet the main sources of information for students were the teachers and the books available in the libraries. Now, thanks to the Internet, teachers are just one of the sources of information. Global access to information has widened their horizons to gain maximum knowledge.

In this “Information age”, the Internet has helped involve students in active learning. They are more interested in hands-on learning, which presents them with practical, real-life experience. Studies have revealed that this style of learning results in better retention and understanding of topics. Also, learning is now not confined to the walls of the institutions. The easy and quick access to infinite resources of information has encouraged out of the box thinking.

Besides these benefits, the Internet has helped in personal development of students. Social interaction over the Internet has helped students who are shy to interact and improve their communication skills.

With the advent of the Internet, the concept of online exams has also evolved. It has become easier to appear for exams like GRE, GMAT, TOEFL, technical certification like SCJP etc. These exams are now conducted online, which has helped people in developing countries to enhance their knowledge. It has reduced the overheads and hassles involved in personally going to exam centers.

One of the best examples would be CISCO human network which has promoted education in remote areas of almost all developing countries like India, Africa etc. by using the Internet for teaching through virtual classrooms which use video conferencing.

b) Impact on Banking and Finance

Around the clock banking is one of the biggest advantages of Internet use in banking. With the help of the Internet, we have remote access to the banks, which helps in transfer of money overseas with concepts like RTGS from RBI, India. It has reduced daily visits to the banks because we can get regular updates about our bank details online.

Expenditure on administration services, paper, stationery etc. has been reduced which has helped in increasing the profit margins of banks besides being environment friendly. Internet has eliminated the tedious paperwork involved in banks, and has provided easy and fast access, making life much easier for bankers as well as customers.

The concept of digital signatures has also picked up and it will only enhance the benefits of Internet banking.

Tedious and monotonous process of dealing with brokers has been eliminated with the help of Online Trading. Demat accounts have eliminated the concept of physical shares.

c) Impact on Business

The Internet has provided a global source of information, which helps in developing new strategies and methodologies to enhance businesses. Even for the smallest of traders, constant updates of the prices of commodities are available online.

Some companies use the Internet to build direct associations with their customers. Others are using the Internet to bring together buyers and sellers in the new tremendously efficient marketplaces. The Internet has taken the concept of e-Commerce to e-Business. The growth of the Internet has promoted inter-company trade of goods over the Internet. The best examples would be of online websites like e-Bay and other companies promoting online gifting systems.

Airline industries have also benefited a lot from the Internet. Tickets can be booked online at any time of the day.

d) Impact on Advertising

The companies attract customers by building brand awareness and by providing market information over the Internet. This can be seen in the recent IPO (Initial Public Offerings) releases like those of Reliance Petronet. In e-business, the profits are generated not only by speeding up and automating the company’s own internal processes but also by recognizing its ability to spread the efficiency benefits to the business systems of its suppliers and customers. The capability to team up with others may be just as much of a competitive advantage as the ability to deploy the technology.

e) Impact on e-Governance

With the growth of the Internet, people have realized that the use of information and communication technology to provide and improve the government services can be highly beneficial. Using the Internet for e-Governance is a convenient and cost effective method to provide people access to current information. Internet can promote greater citizen participation in the nation’s capital. It will encourage people all over the country to interact with politicians to make their voices heard so that the political situation can improve and the countries can progress.

E-Governance would make the political system more efficient, provide improved services, better accessibility of public services and would make the processes more transparent and accountable.

Nowadays, online counseling for entrance exams has reduced the overhead for the government institutions.

Developing countries are now using the Internet to manage the biggest networks like railways. All travelling transactions can now be done online on websites like www.irctc.co.in (India).

f) Impact on Telecommunications

Internet has helped the developing countries in reducing the national as well as international call rates. The BRIC (Brazil, Russia, India and China) nations have all taken up the concept of VOIP (Voi