ANALYSIS: IMPACTS ON BUSINESS

 

Information plays a key role in the maintenance and adaptability of business activities.  Regardless of the industry, information is increasingly the life-blood of organizations.  According to information theorist Frank Webster, the following are some of the contributions that information makes:

When considering the impacts on business, we must first consider the structure of the IT institutional environment in Ecuador:

 Structure of the IT Institutional Environment in Ecuador

 

When we examine the national environment for information flows, management, access and storage, we find that Ecuador lacks many of the resources and experiences necessary for effective global business. From our guest speakers and class readings, we have learned of the success of countries like Ireland and Iceland, which have leveraged IT in unprecedented ways. In the article, "An Era for Mice to Roar" by Pascal Zachary, we are told that, "Entrepreneurs and small countries can both have an easier time than bigger entities in adjusting to shocks and taking advantage of new opportunities. Technology is obliterating the isolation that used to hurt small companies and countries. And just as new businesses sometimes run circles around established companies, so too can small nations prosper in competition with big ones." However, the success of Ireland, Iceland and other countries is arguably the exception, not the rule.     

One of the key differences between these countries and Ecuador is that they possess a relatively modern infrastructure. In the case of Ireland, we have also learned that the government has taken a proactive approach to developing the country's IT environment, making it attractive to global corporations (low tax, incentives, education, etc.) However, one should not assume that government involvement is critical for success. Take the case of the Philippines. In the article, "High Tech Hopes" by Pascal Zachary and Robert Frank we learn that the government has done little to encourage IT development (government sponsorship is referred to as the "top-down" model), yet the country enjoys a reputation for its high-quality IT labor force and innovative approaches. The authors argue that basic literacy and proficiency in English have saved the Philippines from the "dung heap of technological history". Also, the US possession of the islands earlier this century and the people's enthusiasm for the Internet have enhanced the environment for business, so much so that the likes of Andersen Consulting, Bechtel, Motorola and AOL have all set up shop in the country.

Ecuador's IT sector does not enjoy government support in the way that Ireland has experienced, nor does its population enjoy universal literacy nor English proficiency. One must be aware that Ecuador is first and foremost an oil exporting country. Its influence in the global community is felt primarily through this sector. Second, Ecuador depends on agricultural exports. Oil and tropical products have dominated the economy and remain the focus of the government and international business community. Most importantly, people's perceptions both inside and outside the country hinder IT expansion. Pascal Zachary states that "shared values and a sense of trust often make it possible for a small country to seize new opportunities more quickly - by getting the 'brains', or country's elite, to act in concert." Ecuador has historically suffered from corrupt governments that have overwhelmingly reduced the people's confidence in the system. Given the country's lack of governmental support, higher education, and the dominance of other sectors of the economy, it is unlikely Ecuador will make a fundamental transition to IT-led growth in the near future. Moreover, analysis of Ecuador’s economy and infrastructure reveal an economy that suffers from high inflation and improper taxation legislation, constantly changing government and difficult business market penetration. 

 

Examining Ecuador's Potential 

However, it would be wrong to leave this analysis on such a negative note. There are multinational firms avidly pursuing negotiations with Ecuador. So why do businesses seek out investment opportunities in Ecuador? Long-term gain is the most common response. According to Pedro Aguayo, former Vice President of Ecuador and current Executive Director of the Fundacion Ecuador, a consortium of private investors working to promote economic development and stability, “the profitability of projects is much higher than in other more advanced countries where projects have already been done." (Source: Washington Times) 

Given the still developing IT infrastructure, should businesses view Ecuador as an entry point into the Latin American market? The answer is yes, but only if several conditions are successfully achieved. Currently, American companies desiring to invest in Ecuador act as the operators of the firm and establish relationships with more developed Latin American countries, such as Panama. However, additional costs are incurred that are potentially unnecessary. The motto, “Think Globally, Act Locally,” best describes the most successful way to do conduct business in Ecuador. Companies, such as Prada, find that entering the market early during a country’s development is more beneficial due to increasing costs once a country is saturated. 

There are many non-IT challenges facing an international company residing in Ecuador. First, there are numerous labor disputes, with on-going strikes. Additionally, some companies face high-turnover rates and are required to invest significant funding and time into training programs. Therefore, the government is working with the private sector and foreign investors to arrive at mutually beneficial solutions. The government is creating programs to provide more adequate and professional training. In addition, they are acting as the intermediary in strike negotiations, though this is a problem more prevalent in the public sector; it still exists in the private sector.

Ecuador’s affiliation with numerous international organizations, such as ICC, ITU, CITEL, has enabled them to recently achieve moderate economic, political and social stability and modest improvements in Ecuador’s infrastructure act as enticements to foreign investments. Businesses requiring manufacturing and distribution centers, as well as sales offices and network support can find these services in the Ecuadorian community, albeit not always in the traditional, ‘developed’ sense. Support services needed by foreign investors are best obtained by investing in and outsourcing to the local community itself. Establishing a strong relationship with national best eliminates the cultural barrier, which may be almost as formidable as the economic obstacles.

For example, a food manufacturer, such as Nestle, has successfully penetrated and integrated their business into the Ecuadorian marketplace. Nestle entered the market, assessed its consumer base, then selected from their diverse product offerings those goods that best met consumer demands. They expanded their base of operation in Ecuador through acquisition and by building four of their own operation plants. Tower Records has penetrated the Latin American music industry by establishing a base of operations in Quicentro, Ecuador. The common theme of success focuses on the investment in the local communities and businesses. Working with local operators and vendors allows for faster, more efficient production, cheaper prices and easier access to the market. Nabisco, known for its reputation in the food and snack industry, has been working with the Republic of Ecuador for 64 years. 

The government’s pro-active role in privatization and seeking to align itself with aggressive international investors demonstrates a desire and willingness to advance to the next level in the global marketplace. The question is whether or not bureaucratic barriers to reform and development will prevent Ecuador from achieving its goals. 

 

 

This report was completed in December 2000 for the class Impacts of National Information Technology Environments on Business given by Professor Erran Carmel in the program of Management of Global Information Technology at the Kogod School of Business in Washington DC