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RESEARCH INSIGHTS: ICT INVESTMENTS AND FIRMS’ PRODUCTIVITY

Updated: Apr 1, 2021




Do you remember MP, Mr. Roger Clarke? He was a colourful character for many reasons; he was a successful farmer, he was an ‘affable dancer’, he was once photographed with one of his supporters “backing-it-up on him” and yes, his hilarious and laugh-provoking quotes -Man have all two phones now; him can call himself and say 'hello’!!. Importantly, Sir Roger was making a simple but profound point about the pervasive growth of ICT in Jamaica. RIP Sir Roger.





Over the next twenty-four months, I will provide you with insights into my research perspective on Information Communication Technology (ICT) investments and firms’ productivity. I hope that these articles, and later my book, will broaden your knowledge on the ICT research space and provide critical insights into the complementary organizational resources that businesses should consider when making ICT investments. These articles will include an introduction to my research thesis, the methodology utilized to execute the research and a high-level preview of my findings.


In 2008, I took the bold decision to pursue a Doctorate in Business Administration (DBA). It was a first of its kind DBA program in Jamaica. I was a member of the first cohort, the “Guinea Pigs” as it were. During next six years, my world was turned upside down by school - conducting and preparing my research thesis. Can you imagine pursuing a DBA, while working in an 8 a.m. - 5 p.m. job, running a business and raising a young family? It was ‘demanding, miserable and stressful’. But, I am here! I survived.





My research perspective was influenced by my love for engineering, information systems and management. My desire to do a DBA was significantly fueled by my Dad, who had no formal education. He was a proud father and farmer who toiled and harvested his provisions in the hills and valleys of North Western St. Elizabeth. He believed strongly in family and gave his all for the development of his children. I wanted to make him proud by becoming the first ‘doctor’ in our family. I also wanted to upgrade and differentiate myself professionally to provide strong, steady and expert leadership to Jamaica’s brightest and most accomplished medical, paramedical and administrative practitioners that I served with. At the time, I was the Chief Executive Officer of Kingston Public and Victoria Jubilee Hospitals, the largest multidisciplinary hospitals in the English-Speaking Caribbean. It was therefore no surprise that my research thesis was on the impact of ICT investments on Firms’ Productivity in the Health Industry of Jamaica. My studies begun in 2008 and the dissertation was completed in 2014.





Jamaica’s Investment Growth Paradox

Over the past four (4) decades, Jamaica continues to suffer from anaemic productivity and economic growth. “Jamaica’s economic history is a story of paradoxes and potential” (World Bank, 2003). This observation remains very relevant today, even though Jamaica is located next to one of the world’s largest markets, the United States of America (USA). Jamaica is blessed with many natural and indigenous resources from bauxite to reggae. A mecca for tourism, Jamaica’s unique qualities includes its happy and courteous people, beautiful resorts, white sand beaches and tropical sunny weather. The population’s fully diverse demography is English speaking and well educated with high adoption to the ICT.

Mindful of this productivity and economic stagnation, the Government of Jamaica (GOJ) in 2013, launched an aggressive program “to stabilize the economy, reduce debt and fuel growth, gaining national and international support” (World Bank, 2013). However, productivity and economic growth remains elusive for Jamaica, even though the country has seen major successes such as:

1. Public debt fell below 100% of Gross Domestic Product (GDP) from a high of 140% in 2013 (World Bank, 2020);

2. Unemployment rate fell to a historic low of 7.2% from 15.25% in 2013 (World Bank, 2020);

3. Poverty rate is now at 12.6%, the lowest in 10 years (JLSC, 2020);

4. Inflation rate fell from 13.3% in 2009/2010 to 4.8% in 2019/2020 (BOJ, 2021).


Macro-economic factors such as debt to GDP continues to impact the productivity and economic growth of Jamaica (IDB, 2019). Many are of the view that micro-economic factors may just as important. These include firms’ customers, employees, unions, competitors, shareholders, suppliers and other tangible and intangible assets. My own views on the matter are strengthened by my management and entrepreneurial experiences I attained over the past 30 years in the public and private sector of Jamaica. I am even more convinced that firm level performances are significantly impacted by investments in ICT and other organizational resources, such as, culture, innovation, unionization, management commitment and worker qualification as confirmed in my own research. Clearly, further research is required in this space to ascertain the impact of firm-based performance on country level performance. This may help to further explain the ‘Jamaica’s Investment Growth Paradox’ (IMF, 2006; IDB, 2010).


Jamaica has had its share of Foreign Direct Investments (FDI), especially in the tourism, mining, energy and construction sectors (www.state.gov/reports/2019). Real GDP increased by an average of 1.6% per annum during the period from 1980 to 2004, while investments rose from 15% to 33% of GDP over the same period (IMF, 2006). This investment growth paradox has been puzzling to many including the GOJ and research scholars (IMF, 2006; IDB, 2010). The graph below reveals that Jamaica’s GDP continued to decrease from 2001 – 2020 through the period to a low of -8.6% in 2020, even after the IMF interventions of 2013.




Jamaica GDP Growth (Sourced from Knoema.com)

The FDI Technology Transfer Index of Jamaica in 2007 was 5.2, which surpassed Latin American and Caribbean Countries (LMI-LAC) average of 4.9 (USAID, 2008). A country’s development and growth are directly tied to the level of ICT acquired and adopted from the global economy (USAID, 2008) and for this reason, it is expected that FDI inflows into Jamaica should have provided better economic and productivity performances



(FDI Technology Transfer Index; Sourced from USAID, 2008)


ICT Investments

There is anecdotal evidence that the private sector in Jamaica is more technologically inclined than the public sector. The private sector drives investments in ICT (Stiroh, 2002). This seems to be no different in Jamaica where tremendous visible investments have taken place in the telecommunication, tourism and financial industries. The investments in telecommunication are manifested in the proliferation of broadband technology in the country. This has facilitated data and voice transmission through cellular technology, and provided for the entry of Multinational Companies (MNCs) into the telecommunication industry. With the propagation of many banking and financial firms, the use of customer service software, billing and banking applications, have been deployed to facilitate customer transactions. Other commercial entities have also implemented point of sale systems and other productivity applications to support their staff and clients. ICT forms the basis for the transition to the information society that represents the model for developed economies in the 21st century (Vision 2030, 2009).





Digital Planet (2006) projected that by 2009, ICT expenditures in Jamaica would have reached an estimated US$1.1 billion. The ICT investments in 2001 was approximately US$800 million, which confirms the consistent increase in ICT spending in Jamaica over the last two decades. Jamaica has a small ICT producing industry that is limited to software development. Therefore, ICT spending is driven by the high demand of residential and commercial consumers purchasing imported business applications, networks and hardware. Some of the largest expenditures in ICT are by commercial firms in the manufacturing, transport and telecommunication, and wholesale and retail sectors (Digital Planet, 2006). Multiple sectors have had major investments by MNCs in ICT. Additionally, MNCs such as Conduent, Teleperformance and Alorica, have made tremendous investments in the Business Process Outsourcing industry that presently employs over 36,000 Jamaicans.


The scarcity of financial resources seems to have caused many government entities, with the exception of Executive Agencies and Statutory Bodies, to retain existing cumbersome paper-based systems and slow communication processes. Executive Agencies and Statutory Bodies are significantly more technologically inclined than many other GOJ entities. Their investments in internet-based client support applications and the networking of their offices across the island, allow for greater efficiency and client support in land management, tax administration and birth registration systems. Examples of these Executive Agencies are the National Land Agencies (NLA), Tax Administration of Jamaica (TAJ) and Registrar General’s Department (RGD). On the other hand, GOJ entities such as police stations, hospitals and schools, which are obviously plagued with a scarcity of financial resources, have retained manual paper-based systems, for the most part. Where computers exist, they are utilized mainly for word processing and productive applications. The public sector in Jamaica is sometimes described as being too large and inefficient (The Orane Report, 1999) and is predominantly viewed as bureaucratic.





It is clear that the adoption of ICT in Jamaica may have been influenced by the dramatic reduction in prices of ICT assets, growth in FDI inflows from multinationals and its ICT spill-over effects across sectors, the GOJ policy interventions that have resulted in the deregulation of the telecommunications industry and the removal of General Consumption Tax (GCT) and import duties on computer equipment (IMF, 2006; IDB, 2010; USAID Report, 2008). In 1999, the GOJ took a strategic decision to turn to ICT as a major driver of social and economic development (Information and Communications Technology Policy, 2011). However, after a decade of aggressive development of the GOJ policies that are geared towards improving social and economic developments, Jamaica still continues to register low aggregate labour productivity growth (Jamaica Productivity Centre (JPC), 2009).


Direct investments in ICT assets, for many years, were thought to be the only way of improving a firm’s performance. This convention, however, has been changing as new research findings emerge. It is now accepted that ICT is complementary with firm-specific and industry-specific resources to enhance firms’ performance (Melville, Kraemar, &Gurbaxani, 2004; Wade &Hulland, 2004, Bresnahan & Brynjolfsson, 2002). Business practitioners are motivated to get the best value from their investment dollar, therefore, it is critical that they are aware of the value contribution of ICT complementarity. It is this expectation for greater efficiency, effectiveness and value added to firms, that has continued to fuel substantial investments in ICT. The global ICT spending in the health industry in 2009 was US$159 billion and this represented 5% of total global ICT spending by market segments (World Information Technology and Services Alliance (WITSA), 2010). The total global ICT expenditure in 2001 was US$2.1 trillion and this was projected to become $4 trillion by 2009 (Digital Planet, 2006). More current global ICT spending between 2007 – 2017 was US$3.8 trillion; the future growth projection in ICT spending is expected to be driven by robotics, artificial intelligence, 3D printing and internet of things (www.idc.com).


Research Problem

Does ICT investment lead to improved firm productivity? This question has been aggressively debated by ICT researchers and scholars over the past 40 years, and this debate has been termed the ‘ICT Productivity Paradox’.


Significant investments have occurred in network systems, productivity and business applications in firms in Jamaica (Digital Planet, 2006). However, no previous research existed in Jamaica before my research on the impact of ICT investments on firms’ productivity.


My research conducted in 2014 was timely and most relevant back then as it is now. This research was primarily focused on the direct and indirect impacts of ICT investments on firms’ productivity in the health industry of Jamaica.


Conclusion

The context has been set! Jamaica continues to experience an ‘economic growth paradox’, reflected in its anaemic productivity and economic growth over the last four decades. There is ample evidence of high levels of FDI over the period in Jamaica by MNCS across multiple sectors, including telecommunication, tourism, mining, transportation, etc. At the same time, Jamaica continues to be a leader among middle income countries in its adaptation of ICT. It remains an early adopter of ICT such as broadband (4G and 5G) technologies and business applications (Enterprise Resource Planning (ERP) Systems), especially in the private sector.


The level of investments made in ICT by private and public sector firms are expected to be substantially different in Jamaica, based simply on resource availability. Understanding the investments made in ICT in firms and its impact on firm’s productivity will continue to be an important area of interest to many. Furthermore, the investments made in ICT and complementary organizational resources may just have greater impact on firms’ productivity. This and my future articles on ‘ICT investments’, will provide greater insights on this important research perspective. Please follow me on this journey.


Read more of my blogs at http://www.donaldfarquharson.com/blog. After, make sure you subscribe to the email listing and share this article with friends on Twitter, Instagram and Facebook.


If you want to engage with me more, book my services at www.donaldfarquharson.com/book-online.


For additional references, please DM or EMAIL me at donald.farquharson@gmail.com.

Definition of Terms


The following terms are used in a specific way in this study and are therefore defined to avoid misinterpretation.


ICT - Includes the hardware and software which enable companies to instantly exchange production orders, invoices, and payments, thus removing paper interactions, reducing error and delays. This type of technology is likely to streamline business processes and increase productivity (Aubert & Reich, 2009).


ICT Investment - is the net book value of ICT stock including the depreciation of all previous assets that are still in use (Dedrick, Gurbaxani, & Kraemer, 2003).


ICT Business Value - Is the impact of ICT investments on a firm’s performance (Melville, Kraemar, & Gurbaxani, 2004).


Firm Resources - These include all assets, capabilities, organizational processes, firm attributes, information, knowledge, etc.; controlled by a firm that enable the firm to conceive of and implement strategies that improve its efficiency and effectiveness (Daft, 1983).


Firm Productivity– Is the amount of output produced per unit input (Brynjolfsson & Hitt, 1998).


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4 Comments


Paul Letts
Paul Letts
Feb 26, 2021

Very informative

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Continued ICT investment is vital for Jamaica's productivity, competiveness and ease of doing business.

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ICT will provide the building block of opening a new era where almost everything is done remotely. Working from home and learning from home has become our new norm and as such we should embrace ICT because like it or not this is the future.

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Brian R Pinnock
Brian R Pinnock
Feb 25, 2021
Replying to

Very good point, supported by the current pandemic we are experiencing. But, as humans, are we really wired to be apart or together? How does being apart impacts our creativity, innovation, competitiveness, social skills, drive, motivation, support and determination? I could carry on in finding words to support the point that innately, we serve greater benefit to societal development, our own needs, as well as the synergy of being together than apart. For that reason and this should not take away from the exponential advancement current on the way in ICT space, even before the pandemic smoke clears, we will restore to our nature state of being together than remaining apart.

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