Strengths
Romania's Communist-era policy of
isolationism had a positive effect of creating IT capabilities. However,
this build-up came at a high price – particularly in constraining local
IT consumption – and the government of the time failed to use the capabilities
as a base from which to create a strong, innovative IT sector. Quite the
reverse, in fact, since capabilities were atrophying and policy was directionless
during
the final years of the 1980s.
The period of transition and gradual policy liberalization since 1989 has
seen much of the country's hardware capability lost or sidetracked into
specialized niches. Liberalization has also caused a loss of software
technological capabilities through both external and internal brain drains,
through the conversion of some software developers into software traders,
and through the conversion of some software custom-builders into software
customisers. Nevertheless, greater retention of software TCs has been possible
than was the case with hardware skills.
Liberalization has led to the suppression
of some existing higher-level technological capabilities. However,
liberalization has also led to a significant expansion in local IT consumption.
This has drawn in the multinationals but it has also encouraged a large
number of new local entrants into the IT industry.
Within these local entrants, there
has been widespread creation of at least low-level technological capabilities
in areas such as IT consultancy, IT installation, IT maintenance, IT training,
and software customization.
The use of computerized systems
is still seen mainly as the preserve of IT specialists. As liberalization
helps IT to spread out of these enclaves into homes, schools, managers'
offices and the like, demand is likely to increase for localized systems
created by local software developers. Secondly, Western spreadsheet, database
and other packages are no more than shells which must be customized to
particular
organizational needs. As these
packages spread, demand will increase for customization work undertaken
by local software developers. The benefit for local IT production
of liberalization-stimulated IT consumption depends, obviously, on the
degree of linkage between the two. In the sphere of hardware, there is
little linkage. Stimulating microcomputer use in Romania, for example,
will benefit hardware multinationals, not local producers. That is not
to say that all benefits flow overseas since local import, distribution,
installation and maintenance capacity will all reap rewards. Nevertheless,
the spin-offs for local production are much greater in software.
In summary, while liberalization
has suppressed some existing capabilities, it has simultaneously created
a pool of new (albeit lower-level) capabilities. The difficulty for any
nation is to build from this base to higher things rather than being confined
to a prison of secondary skills. On the other hand, Romania's retention
of existing capabilities has not been the result of liberalization and
of market forces – quite the opposite, in fact. Retention of software TCs
has, instead, been based on two factors : "natural
protection" and government intervention.
Natural Protection
The natural protection that protects
software capabilities is based on unique Romanian user requirements. These
derive from Romania's particular organizational practices and social, economic,
political and cultural environment. Elements of this already identified
include:
• the Romanian language,
• the importance of personal contacts
rather than mass marketing, and
• the process of transition and
the continuous changes it demands.
Protection also derives from the high cost of imports in an impoverished economy. Economic and political uncertainties afford a further measure of protection because legal purchases of larger foreign packages represent a long-term investment that many enterprises cannot risk. These protective factors mean that local software consumption is – to some degree – delinked from the global marketplace. This ensures that – piracy notwithstanding – while Microsoft may have been the main beneficiary of growth in Romanian software consumption, there have been plenty of opportunities created in local package customization, in training, in support, and even in the custom-build arena. However, this will only remain true if the natural protections remain in place. However, there are clear signs that they are being eroded by three factors:
• Western European languages are
increasingly part of educated Romanians' skills portfolio. They are both
willing and able to use packages that lack a Romanian interface.
• Romanian organizations are facing
a choice in their use of software. On the one hand, they can have a program
custom-built by a local firm to meet their particular needs and way of
working. On the other, they can adapt their working methods to match what
is provided by an imported package. The latter route may be quicker, cheaper
(especially where the package has been pirated), and more in tune with
ideas of modernizing the Romanian
economy by rejecting the 'old ways' and embracing Western methods. It may
also produce a higher-quality, better-tested application.
• The major software multinationals
are themselves investing in software localization to match their packages
to the languages and practices of individual country markets. Some multinationals
are also "localizing" their prices. Both trends are visible in Romania.
These factors particularly affect software demand from business enterprises. The Romanian public sector is more likely to remain a redoubt of unique needs met by local software developers.
State Intervention
In addition to the natural protections,
continuing state intervention is helping retain software capabilities.
Direct funding for the state IT industry has fallen considerably and steadily
since 1989. Nevertheless, state funding of R&D and public sector procurement
of information systems (often via EU funding) remain important props that
support Romanian technological capacity in IT. The IT industry
– like the whole of the Romanian economy – is being opened up to the forces
of market capitalism. If undertaken suddenly, such a process can create
a shock that, in economic terms, is potentially lethal. Whether by luck
or judgement, changes in Romanian state policy have created a process of
manageable transition that has
provided access to up-to-date technology
for some Romanian consumers without (as yet) destroying all the technological
capabilities of Romanian IT producers.
Weaknesses
The following list encompasses the most fundamental weaknesses of the Romanian national IT environment:
• Finance. The Romanian government
needs to stimulate the supply of working and venture capital to IT firms.
Existing financial sources are too bureaucratic and find it hard to incorporate
software's intangibility. The government itself would do well to consider
changing some of its direct financing in order to provide its contractors
with a greater incentive to commercialize the products that have
been developed. Some form of profit-sharing
arrangement could be used.
• Education and training.
Although it needs to work alongside other providers, the state is likely
to remain the prime source of fundamental skills relevant to software industry
development. It needs particularly to try to target the analytical and
managerial skills that Romania's software industry lacks. In addition,
some
accreditation scheme for private
training firms, or the use of international certification schemes for skills
should be introduced.
• Research and development. Government investment in Romanian IT R&D has been a major bulwark against the loss of technological capabilities from the country and against the growing concentration of innovation within multinationals. R&D investments should focus particularly on Romania's software market niche: that of customisation to meet local needs. Funding needs to be invested in at least equal measure in the commercialization of existing skills and applications. "Reinventing the wheel" can develop local technological capabilities, but it may be more efficient in some areas to co-operate with a foreign institution which already has the TCs and work on a means of collaborative capability transfer. It may also be more effective: some Romanian software development in innovative areas has involved reading a textbook on the topic and then floundering around trying to build a relevant application. Collaboration would cut through this type of problem, and would also increase the likelihood of attracting funds both within Romania and from overseas.
• Marketing and market information. The Romanian government can reap the benefits of scale economies in both these areas. Local software producers need information on markets and on potential collaborators both within Romania itself and outside, particularly in Western Europe. Subsidising attendance of Romanian firms at overseas IT exhibitions should also help.
• Intellectual property rights. Piracy has more to recommend it as a strategy for development of software capabilities than is often admitted. However, the maturation of a software industry goes hand-in-hand with a legal framework that only the state can provide. Romania has made a good start on this and a steady strengthening of implementation is likely to emerge.
• Infrastructure. From Singapore's intelligent island concept to the US' data highways, the state is seen to have a vital part to play in the creation of a telecommunications infrastructure.
• Procurement. Because of
its large purchasing power, the state can be the most important consumer
for emerging software and hardware industries and can use its power to
significantly influence the direction of industrial development.
Centralized procurement offices have gained a bad reputation and certainly
Romania should avoid anything that
introduces red tape or compulsion into software procurement.
• Spread of best practice.
Even in a mature software or hardware industry, the state can use its
purchasing power to lead in requiring
best practice from its software and hardware suppliers.
The Romanian government (again
with EU funding assistance where possible) should therefore focus on some
means of demanding and assuring product quality standards from all its
software suppliers. Acting as a communications link and business adviser,
the state can also help best practice to spread within an industry.
Subsidies for advice from software quality consultants can also provide
a mechanism for this.
• State-run organizations
Future Outlook for Romania's IT Industry
Hardware Industry
The future for Romania's hardware
industry seems limited, at least in terms of mainstream computer production.
The best it can hope is for some arrangement with an existing IT multinational.
This might be assembly work for the local market or, just possibly, some
peripheral role within the globalized production network. It seems unlikely
to break through to higher levels of technological capability from either
of
these situations. Mainstream markets
are likely to remain dominated by existing production locations.
Production for Romania-specific
hardware niches (i.e. individual vertical markets) should continue. However,
even this is unlikely to be sustainable in the long run without joint ventures
and foreign partners to inject new technologies and new techniques.
Software Industry
The future in software seems somewhat brighter and offers greater opportunities for the country. Compared to hardware, Romania has built up and retained a greater depth and volume of software production capabilities. Development of new capabilities is also easier since software has much lower entry barriers than hardware production because it is less capital-intensive, more labor-intensive, with a lower rate of obsolescence, and (at least for certain types of software) it has far fewer economies of scale. All of these factors work in Romania's favor given its particular macroeconomic circumstances. In addition, software has long been forming an increasing component of overall value within information technologies and has become the "lifeblood" of business, industry, and government.
Potential for Software Exports
At first sight, an export-oriented
strategy seems highly attractive. Romania has been successfully exporting
software and has the advantages of a cheap and skilled workforce, virtually
all of whom speak at least one foreign language. Software exports have
also brought a number of developmental benefits. However, there are serious
barriers that will constrain Romania's ability to become a major player
in
software exports.The barriers include:
• Lack of infrastructure.
The software export trade increasingly demands a sizeable installed computer
base; reliable and pervasive telecommunications links both domestically
and internationally; and reliable electricity supply. Romania
cannot yet claim to provide this except, perhaps, in parts of Bucharest.
• Lack of market information.
Exports are based on understanding your export market and having trading
contacts in that market. Such information is not readily available within
Romania.
• Domestic market limitations.
The present state of Romania's domestic market for
software constrains exports in
two ways. First, a sizeable and demanding domestic market can be the springboard
from which to launch into exports by providing a base of relevant skills,
experience, user feedback on products, and track record. Second, a sizeable
domestic market will draw large numbers of IT multinationals into collaborative
relationships with local partners in order to serve that market.
Unfortunately, Romania's domestic
market cannot yet be described as either sizeable or demanding.
• The business environment.
There are still a number of factors within the business environment that
make exports difficult in some way or which put off potential clients.
These include regulatory barriers, legislative deficiencies, problems of
arranging finance and financial transactions, and perceptions of Romania's
political context.
• Being a late-comer. A
number of developing countries – such as India and Singapore – arrived
on the export scene many years ago. So, too, some of the other transitional
economies – particularly Hungary and Russia – have been software export
bases since the early 1990s. These countries have already built up contacts,
policies, infrastructure, working methods, track records, etc. that Romania
is yet to develop. (6)
