Type: Process Essays
Sample donated: Manuel Wagner
Last updated: December 25, 2019
1.1Introduction When dealing with ICT and its impact on theeconomy most views remain strictly optimistic. On the other hand there areoften uncertainties regarding the legitimacy of claims that ICT is actuallysuch a determining factor in the recovery form the financial crisis. Thefollowing paper deals with the hypothesis that ICT and especially the mobiletelephony sector helped recover from the financial crisis. It also discussesseveral benefits of investments towards ICT and mobile telecommunication inparticular, finishing up with a conclusion.
Firstly the paper gives a brief insight intomethods of research considering the financial crisis. Then it brieflyintroduces the financial crisis and how it impacted ICT. Secondly, the paper willdiscuss how and if ICT is a viable solution in aiding the recovery from thecrisis. 1.2How research is done in the field The impact of the mobile phone industry onthe financial crisis and especially the recovery form it, is mostly describedthrough scientific research is done through induction done by empiricalobservations. In this case empirical observations are gathered through fieldresearch aimed towards finding and enforcing hypothesis in macro theory. Thedata needed for the induction in this case is provided by countless entitiessuch as the World Bank, Analysts (Like Pyramid Research), entities in themobile industry (GSM Association and ITU International Telecommunication Union)and several others.
1.3The economic crisis The financial crisis in 2008 has been the worst financial crisissince the Great Depression in the 1930s. The crisis cannot be traced to asingle event, it was a result of a number of events. The beginning of thecrisis was caused by the excessive lending of subprime mortgages in the USmarket . As consequence, investors lost confidence in the mortgage and loanmarkets. This developed into a global banking crisis with the collapse of theinvestment bank Lehman Brothers.
Due to the close interaction of banks acrossthe world the crisis was followed by an international economic downturn and aglobal liquidity crisis. A well representing, oftenused symbolism for the economic crisis is a growing soap bell which pops aftera while when it has grown too big. 1.4The impact on ICT Due to the financial crisis, the industry hasexperienced decreasing demand, operational cutbacks and reduced investment (ITU,2009). But in comparison to most other industries, the area of mobilecommunications has been proving to be more flexible. In the financial crisis of2008 the ICT sector has had a role as both villain and hero (ITU, 2009).
On theone hand, it was acting as a leading indicator of decline while on the otherhand also proving to be an important power assisting the recovery of theeconomy.In 2009 the typical American wireless userinteracts with wireless technology via a cellular telephone and about 90% ofU.S.
citizens actively use a mobile device (ITU, 2009). In contrast to this, Greeceis experiencing a mobile penetration rate of greater than 200% (ITU, 2009).This means that on average every Greek inhabitant has two devices connected toa mobile network. These statistics show how explosive the expenditure of themobile phone market is. 1.5Impact on DemandThe financial crisis had a huge impact on most industries all overthe worlds. In contrast to that, the mobile market in developing countriesremained growing. For example, the two largest developing countries China andIndia.
China mobile, the world’s largest mobile operator added 74 millionadditional mobile users in the year through October 2008 (ITU, 2009). In India, the world’s second largest market 10.4 million mobilesubscriber were added in October 2008 (ITU,2009).
In Brazil, the number of subscribers rose by 4million in October 2008 which is more than twice as much as in October 2007(ITU, 2009).As these data show the mobile growth of developing countries has been weaklyinfluenced by the financial crisis and even further increased after the crisis.On the other hand, the general demand in mostindustries decreased because of less income per head. Less expensive purchaseswere done in mobile phones and operators.
This was also partly due to the factthat people did not want to freeze expensive monthly deals for 2 years. Thisindirectly stimulated the economic crisis as it is a down warding spiral. 1.6Impact on supply The Supply of the mobile industry is mainly influenced by theexpenditure and investments in telecommunication networks. Due to the financialcrisis, the capital expenditures decreased.
These expenditure cuts mainlyinfluenced developed countries that triggered the crisis. In contrast todeveloped countriesthe developing counties, also called “the homeof the next billion subscribers” (ITU,2009), have the potential of untapped demand.Therefore, it is very unlikely that investors will cut investments in marketswith such high future potential (ITU,2009). The impact of ICT on theeconomy 2.1Returns on investment in ICT The ITU emphasizes the power of investing inICT and the importance of ongoing investments form the government and theprivate sector. With the rising demand on internet access via mobile devicesthe industry relies on investmentsto stay ahead with spare capacity concerning internet use. The increasingimportance of the internet as a prerequisite for the ability to participate inthe current information economy has led to a widespread acknowledgement of the power of ICT investments.The provided graph in Figure 1 shows how economic growth can be stimulatedthrough different ways of telecommunication penetration (ITU, 2009).
Onefurther mean of return is the so called multiplier effect. In this case itdepicts how initial government investment leads to repeated rounds of incomespending. According to Statistic Networks Group secondary investments resultingfrom broadband investments are ten times the initial amount while thecontribution towards GDP could be fifteen times as high. Generally investmentstowards any sector in ICT bears high returns as well as great possible benefitsto society like robust and durable economic growth, the ability to create moreskilled personnel for the future and greater productivity gains (ITU 2009). 2.
2Economic growth through ICT ICT is considered to be one of the mainforces driving economic growth (Pohjola M, 2002). ICT has the answer on almost every question asked. The mobile phone industry as a part of ICThas continued to show steady growth despite the financial crisis unlike manyother ICT industries that lack demand during times of financial constraints.The positive impact of mobile telecommunication on economic and productivitygrowth was proved by several studies, one in particular beingby Gruber and Koutroumpis (Gruber H, KoutroumpisP, 2010). Extensive research looking at real GDP per capita and ICT useindex have shown that an improved ICT use leads most likely to an increase ineconomic growth (Farhadi M, Ismail R, Fooladi M,2012). This becomes increasingly apparent whenlooking at equipment sales which have been hit by the financial crisis.
Incontrast the provided services of the mobile industry are doing much better.The amount of mobile cellular subscriptions reached 67 percent of inhabitantsglobally at the end of 2009 (ITU, 2010) and onlya small number of countries are seeing reductions in their number ofsubscriptions. Especially the developing countries for example Latin America arepredicted to have a fast-growing smartphone market where the sale of mobilephones is expected to rise from 7 million smartphones in 2009, or 5.4 percentof total handset sales, to 48 million in 2014, or 30 per cent of the total(ITU, 2009). Additionally the growth in the mobile phone industry is driven bylarge emerging markets like India and China and the overall consumerwillingness to spend parts of their income on mobile services despite times offinancial constraints. During the development of the ICT sector, maximum growth of theeconomy is trying to be reached. However, this process gets decelerated byenvironmental consequences and restrictions. As some decisions may seem to be agood idea for the company or organisation itself, it turns out to beunprofitable for society and environment.
Due to these restrictions, onlypartial economic growth can be achieved (R. Evenson, 2015). 2.3 Theimpact mobile money transfers. But this growth potential is not restrictedsolely to developed countries. The World Bank mentions for example that in atypical developing country an extra ten phones per 100 people would be able togrow GDP by 0.
8 percent. In these countries mobile phones offer economicempowerment through its compensation for poor infrastructures. In generalmobile phones enable a faster and freer flow of information resulting in moreefficient markets. An explicit example for this is the emergence ofmobile-money services in Africa. In one case Kenyan households where able toincrease incomes by 5-30% solely through the use of mobile banking (a servicecalled M-PESA) (Tavneet Suri, 2016) 2.4 Conclusion Considering the observedevidence we conclude that mobile telecommunication plays a vital role in theICT industry. Investments towards this technology should be supported bygovernments in developing as well as developed countries since it seems safe tosay that they lead to economic growth and increased efficiency.
Also ICT andespecially mobile technology enable individuals in the economy to keep onparticipating in global trade and compensate for lacking infrastructure. Especiallythe ICT sectors of developing countries remained stable after the crisis incomparison to the developed countries. The demand kept stable after the crisisand it was possible to also keep the supply stable because the developingcountries build an attractive market to invest in due to the potential of theuntapped