ICT diffusion and production in ASEAN countries: Patterns, performance, and policy directions

Telecommunications Policy xxx (xxxx) xxx–xxx

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ICT diffusion and production in ASEAN countries: Patterns, performance, and policy directions Khuong M. Vu1 Lee Kuan Yew School of Public Policy, National University of Singapore, 469C Bukit Timah Road, 259772, Singapore

A R T I C L E I N F O

ABSTRACT

Keywords: ICT ASEAN Diffusion Production Digital transformation Policy

ICT has become an increasingly crucial catalyst for economic development, but the transition to more sophisticated technologies is a challenging process requiring prudent vision, strategy, and policy. This paper investigates the dynamics of ASEAN countries’ performance on embracing the ICT revolution for development. Several findings stand out. First, ASEAN experienced a faster pace of convergence, compared to the rest of the world, in level of ICT diffusion over the past 10 years. Second, all ASEAN countries, including Singapore – the leading player, face increasing challenges in competing with income-level peers on ICT diffusion performance. ASEAN is a global hub of ICT hardware production and a fast-growing center of ICT services exports. In terms of revealed comparative advantage, ASEAN as an economy is strong in ICT hardware but remains weak in ICT services. The paper discusses policy insights drawn from the study and proposes a strategic policy framework to guide ASEAN's concerted efforts to embrace the ICT revolution for development.

1. Introduction The ICT revolution has profoundly changed the world in the past three decades and is likely to usher in a new era of development in the decades to come. Digital technologies are becoming a powerful enabler not only for making transaction and activities more efficient and effective but also for prompting a paradigm shift in the long-term foundation of development, including its fundamental concept, strategic design, implementation, and learning. In describing the power of the ICT revolution, Bresnahan and Trajtemberg (1995) identify ICT as a general purpose technology (GPT), in the same spirit as the steam engine and electricity that has had dramatic impact on growth and transformation across countries over extended periods of time. According to the authors, GPTs share three salient characteristics: (i) Pervasiveness – the technology spreads throughout the economy and can be applied to a wide range of sectors; (ii) Improvement – the technology rapidly evolves and advances over time, which continuously enhances the performance of and lowers the cost of its applications; and (iii) Innovation spawning – the technology's rapid penetration and improvement foster R & D productivity, innovation efforts, and transformation in downstream sectors. In some cases, one GPT can create a foundation for the next GPT. Besides possessing the three aforementioned characteristics of a typical GPT, ICT generates two phenomena: network effects and knowledge enrichment. Regarding network effects, the investment of an individual in ICT connectivity and capabilities would benefit not only that individual but also members of that individual's network. Regarding knowledge enriching, ICT can play a role in democratizing access to global knowledge through the internet at any time and place, and largely independent of the user's wealth and social status. These two features, together with GPT capabilities, make the digital revolution's effects not only more powerful and

1

E-mail address: [email protected]. I thank Kris Hartley and Nguyen Chi Hieu for research assistance. I am grateful to three anonymous reviewers for helpful comments.

http://dx.doi.org/10.1016/j.telpol.2017.04.005 Received 15 February 2017; Received in revised form 29 April 2017; Accepted 30 April 2017 0308-5961/ © 2017 Elsevier Ltd. All rights reserved.

Please cite this article as: Vu, K.M., Telecommunications Policy (2017), http://dx.doi.org/10.1016/j.telpol.2017.04.005

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transformational but also more equitable and self-sustaining than preceding GPTs. However, as indicted by the World Bank (2016), a country will not be able to reap full benefits of the ICT revolution if it does not have an effective digital strategy.2 Furthermore, the ICT revolution can impact countries in varying ways. On the one hand, it helps the countries with robust ICT policies advance faster and capture its potential benefits. On the other hand, it can impose a burden on countries lagging in digital transformation, not only in economic competitiveness but also in readiness for the future. The World Bank study also shows that an effective digital strategy must go beyond efforts on accessibility and affordability to strengthen the three fundamental complements of the ICT revolution: a favorable business climate, strong human capital, and good governance. The Association of South-East Asian Nations (ASEAN) consists of 10 countries: Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam (Appendix A, Table A1). With the formation of the ASEAN Economic Community (AEC) in December 2015, ASEAN as an economy has a total population of approximately 630 million people and an aggregate GDP rivaling India and Japan. At the same time, the 10 countries vary largely on the level of economic development and the level of ICT diffusion (Appendix A, Tables A1 and A2). Although ASEAN countries are vastly different on preparedness for digital technologies, they all have formulated national strategies to embrace ICT for development. At the same time, ASEAN has launched comprehensive master plans to coordinate region-wide efforts to promote ICT diffusion. (Appendix A, Table A3). The main objective of this paper is to provide a robust set of policy insights obtained from a comprehensive review of the performance of ASEAN countries on embracing ICT for development. In particular, the paper tests three hypotheses concerning the performance of ASEAN as a group and that of its member countries. The first is that ASEAN countries have outpaced the world in reducing the digital divide. The second is that ASEAN countries face significant challenges in competing with their income-level peers on key ICT diffusion indicators. The third is that ASEAN is a global ICT production hub undergoing significant structural transformation, which is strong on manufacturing but not on services. The remainder of this paper is structured as follows. Section 2 outlines the dynamics of ICT diffusion in ASEAN member countries. Section 3 investigates the performance of the ICT manufacturing and services sectors. Section 4 presents a policy framework that provides strategic direction for ASEAN's efforts to embrace ICT for development. Section 5 summarizes the findings and offers concluding remarks. 2. ICT diffusion This section examines the performance of ASEAN countries on ICT diffusion. Subsection 2.1 tests the hypothesis that ASEAN countries have progressed towards convergence on ICT penetration indicators. Subsections 2.2 and 2.3 develop a more nuanced assessment of this performance. The performance of an individual country on ICT diffusion can be revealed through two sets of indicators. The first is the penetration rates of mobile phones, internet, broadband, and secure servers. The data used are available from the World Bank Development Indicators online database.3 Mobile phone penetration can be further broken down by mobile technology (2G, 3G, and 4G), for which data is provided by TeleGeography.4 The second set of indicators is a complementary measure focused on ICT usage readiness by individuals, businesses, and governments. Data for these indicators are drawn from the Network Readiness Index (NRI) dataset in the World Economic Forum's annual report series “The Global Information Technology Report.”5 2.1. Convergence on ICT penetration Although ASEAN countries vary widely on their level of development and preparedness in embracing ICT for development. Broad-reaching economic reforms and ICT promotion in the past decade may have enabled ASEAN countries to experience a clear convergencetrend. Following Baumol and Wolff (1988), one can use the coefficient of variation (CV)6 – computed as standard deviation divided by the mean – to assess the magnitude of divergence and whether ASEAN has exhibited a convergence trend on key ICT diffusion indicators. As shown in Table 1, the CVs for the four key ICT diffusion indicators and per capita income are notably higher in 2005 for ASEAN countries than for the worldwide sample, implying that digital and income inequality is larger in ASEAN. The sharp reduction of CVs from 2005 to 2015, which captures the pace of convergence, however, is notably larger for ASEAN than for the world. For example, the CV on ASEAN internet usage dropped by 0.66 (from 1.21 in 2005 to 0.55 in 2015) compared to a 0.52 drop (0.96 to 0.44) for the world (Table 1). Although ASEAN countries have followed a clear convergence trend on ICT diffusion over the 2005–2015 period, and the pace of this convergence was faster than the world's, the digital divide among ASEAN countries in 2015 remained larger in comparison to the world, with the exception of mobile phones. ASEAN's digital divide remained particularly large compared to the world on secured servers (CV is 2.2 for ASEAN vs. 1.68 for the world) and broadband penetration (1.19 vs. 0.85) (Table 1). 2 As a piece of evidence, there is a strong relationship between ICT policy reforms and ICT diffusion in developing countries (Howard & Mazaheri, 2009); while ICT adoption has become an important driver of economic performance (Indjikian & Siegel, 2005; Commander et al., 2011; Spezia, 2011; Vu, 2011, 2013; Cardona, Kretschmer, & Strobel, 2013; Jorgenson and Vu, 2016; Paunov & Rollo, 2016). 3 The dataset can be downloaded from http://databank.worldbank.org/data/home.aspx, accessed June 10, 2016. 4 Details can be found at https://www.telegeography.com/research-services/globalcomms-database-service/, accessed July 15, 2016. 5 Details can be found at https://www.weforum.org/reports. 6 A declining CV indicates convergence while a rising CV specifies divergence.

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Table 1 Coefficient of Variation (CV) on ICT penetration and per capita GDP: 2015 vs. 2005. Source: data from the World Bank Development Indicators dataset. Indicator

Mobile phone Internet usage Broadband Secured servers GDP per capita

World

ASEAN

2005

2015

2005-15 Change

2005

2015

2005-15 Change

(A)

(B)

(A)- (B)

(C)

(D)

(C)- (D)

0.64 0.96 1.48 1.93 1.05

0.33 0.44 0.85 1.68 0.96

0.31 0.52 0.63 0.25 0.09

0.88 1.21 2.25 2.76 1.46

0.26 0.55 1.19 2.2 1.26

0.62 0.66 1.06 0.56 0.2

Note: The ASEAN group has 10 countries while the world sample has 132 economies for which data on all the indicators is available for both 2005 and 2015.

2.2. ICT diffusion performance This subsection evaluates the performance of ASEAN countries on ICT diffusion within global dynamics. The evaluation provides more nuanced insights by focusing not only on the current penetration level of a given country but also on the change in this level over a recent period,7 while controlling for income level. A change in penetration level reflects a country's efforts to improve its ICT diffusion status. Controlling for income level enables an assessment of a country's performance in comparison to its peers – countries with similar income levels. For a given ICT diffusion indicator, the evaluation framework (elaborated in Appendix B) helps reveal the performance of a country compared to its income-level peers through four scenarios (Appendix Table B1): “Forging ahead” (FA), “Slowing-down” (SD), “Catching-up” (CU), and “Lagging behind” (LB).8 As a result, each country should fall into one of the four groups, FA, SD, CU, and LB. The FA group includes the countries that outperformed their peers on both current level and improvement efforts. Belonging to this group may suggest that, to a certain extent, a country has been relatively more effective than its peers in promoting ICT diffusion. Countries in the SD group outperform peers on diffusion level but underperform on diffusion improvement over the observed period. Upon falling into this status, the country should review its current ICT policy to determine factors underlying this slowing down performance. Countries in the CU group lag their peers on diffusion level but outperform on improvement. These tend to be countries making significant catch-up efforts through ICT policy reforms and implementation. The last scenario, the LB group, includes countries that underperform peers on both diffusion level and growth. These countries may need to conduct a comprehensive review their ICT policy to understand the factors underlying this lagging performance on both dimensions. The results from estimations based on the econometric models introduced in Appendix B are summarized in Table 2 (for ICT penetration) and Table 3 (for ICT usage). One can use these results to test the hypothesis that ASEAN countries are not behind their income-level peers on ICT penetration and usage. 2.2.1. Evaluation on ICT penetration 2.2.1.1. Mobile phones (see Table 2). On the conventional measure of total mobile phone penetration, which is the sum of the penetration rates of the three existing generations (2G, 3G, and 4G), five ASEAN countries – Cambodia, Indonesia, Philippines, Malaysia, and Thailand – are in the FA group; Vietnam is in the SD group; Myanmar in CU; and three countries – Brunei, Laos, and Singapore – are in the LB group. The status of Vietnam, Brunei, and Singapore, however, should be carefully interpreted to account for the rapid progress of the mobile technologies. As a country shifts away from a legacy technology to a more advanced one, that country can be in the SD or LB groups on the former technology and in the FA group on the latter. For example, Singapore is in the FA group on 4G but in the LB on 3G and Total (due to its rapid replacement of the 2G and 3G with the 4G technology). Similarly, Vietnam and Brunei are in the FA group on 3G but in the lower-performing group on Total. Total mobile phone penetration, therefore, is no longer a meaningful indicator on the advancement of a country on mobile phone penetration. As such, an evaluation should focus on the penetration of smart phones (3G and 4G technologies) instead total mobile phones. Regarding smart phone adoption, ASEAN has seven countries – Brunei, Cambodia, Indonesia, Malaysia, Singapore, Thailand, and Vietnam – belonging to the FA group for either or both 3G and 4G technologies. It should be noted, however, that ASEAN countries are lagging their peers on adopting 4G technology, with seven countries – Philippines, Thailand, Indonesia, Brunei, Laos, Vietnam, and Myanmar – falling in the LB group. In particular, 4G was not yet available in Vietnam and Myanmar at the end of 2015.9 7 The length of the period is 5 years for ICT penetration indicators, which mean 2010–2015; while for ICT usage it is 3 years (due to data availability), which means 2012–2015. 8 This approach is used by xxx in analyzing the dynamics of economic growth. 9 The delays of 4G deployment in Vietnam was caused by policy, not technology or infrastructure. The Ministry of Information and Communication (MIC) intended to support mobile network operators to recover their investment capital in 3G before introducing 4G (source: Vietnam urged to go ahead with 4G, Vietnamnet, November 12, 2015; available at http://english.vietnamnet.vn/fms/science-it/145448/vietnam-urged-to-go-ahead-with-4g.html, accessed Dec 10 2016).

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Table 2 ASEAN countries by ICT penetration performance. Indicator

Countries grouped by performance Forging-ahead (FA)

Slowing-down (SD)

Catching-up (CU)

Lagging-behind (LB)

Mobile, total penetration (2G, 3G, 4G)

Cambodia, Indonesia Philippines, Malaysia, Thailand

[Vietnam]

Myanmar

Laos, [Brunei], [Singapore]

Mobile, 3G

Thailand, Brunei Cambodia, Malaysia Vietnam, Indonesia

Philippines Myanmar, Laos, [Singapore]

Mobile, 4G

Singapore, Cambodia,

Philippines Thailand, Indonesia, Brunei Laos, Vietnam,* Myanmar*

Malaysia

Internet

Vietnam

Fixed broadband

Secure servers

Malaysia, Philippines

Myanmar, Cambodia

Indonesia, Brunei, Thailand, Laos, Singapore

Vietnam

Thailand

Brunei, Malaysia, Indonesia, Laos, Singapore, Philippines, Myanmar, Cambodia

Vietnam

Indonesia Myanmar Brunei

Singapore, Malaysia Thailand, Philippines, Laos

Cambodia

Table 3 ASEAN countries’ performance on ICT usage. ICT usage readiness indicator

Countries grouped by performance Forging-ahead (FA)

Catching-up (CU)

Governments

Singapore, Malaysia, Philippines, Indonesia

Businesses

Philippines, Indonesia, Malaysia, Singaporea

Thailand

Cambodia,

Thailand

Individuals

Slowing-down (SD)

Lagging-behind (LB)

Vietnam

Cambodia, Thailand

Cambodia, Vietnam

Philippines

Vietnam

Singapore, Malaysia, Indonesia

Note: a For Singapore, the gaps on both level and growth are zero (see Appendix B).

2.2.1.2. Internet and fixed broadband penetration (see Table 2). In comparing income-level peers, only Vietnam is in the FA group and two lower income countries – Myanmar and Cambodia – are in the CU group. On the other hand, five countries – Indonesia, Brunei, Thailand, Laos, and Singapore – are in the LB group, while Malaysia and Philippines are in the SD group. This suggests that ASEAN countries, in general, are not strong on promoting internet diffusion compared to their peers. This situation is even more pronounced for fixed broadband. On this indicator, only Vietnam is in the FA group, while Thailand is in the CU group and the remaining eight countries are in the LB group. The relatively low performance of Singapore on this measure suggests that compared to its peers (which are very high-income nations), Singapore faces more challenging structural problems in inducing ASEAN's laggard group to adopt advanced ICT technologies. The emergence of Vietnam in the FA group is an interesting case as the country was listed among North Korea, Laos, and Myanmar as those with very little internet connectivity (Holiday, 2002). However, with a vigorous strategy to catch-up on embracing

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NRI: Government Usage .

Gap in 2015 Level

. S Korea

0

. .

Malaysia

.

. . Singapore . . China. . . . . . . . India Vietnam . .. . . . Philippines . . . . . . . . . . . . . Indonesia . . . . . . . . .. . . . . . . . . . . . .. . . . .. . . .. . . . .. . . Cambodia . . Hong Kong . Thailand . . . . . .. . . . . . .. .. . . . . . . . . . . . . .. .

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0 Gap in 2012-2015 Change

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.

.

. .

. Cambodia . .

0 Gap in 2012-2015 Change

Fig. 1. A: Performance gaps on government ICT usage. Notes: the gap indicates the difference between the actual and predicted values. That is, the FA group is in the top-right quadrant; the SD group in the top-left; the CU in the bottom-right; and the LB in the bottom-left. B: Performance gaps on business ICT usage. Notes: the gap indicates the difference between the actual and predicted values. That is, the FA group is in the top-right quadrant; the SD group in the top-left; the CU in the bottomright; and the LB in the bottom-left. C: Performance gaps on individual ICT usage. Notes: the gap indicates the difference between the actual and predicted values. That is, the FA group is in the top-right quadrant; the SD group in the top-left; the CU in the bottom-right; and the LB in the bottom-left. (a) Source: data from results reported in Table A3. (b) Source: data from results reported in Table A3. (c) Source: data from results reported in Table A3.

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the ICT revolution, the country has made spectacular achievements in fostering ICT diffusion (Vu & Austin, 2015). 2.2.1.3. Secure servers penetration (see Table 2). On this indicator, ASEAN countries have significant progress to make. Only two countries, Vietnam and Cambodia, are in the FA group. Three countries – Indonesia, Myanmar, and Brunei – are in the CU group and five countries – Singapore, Malaysia, Thailand, Philippines, and Laos – are in the LB group. This finding underscores variability across the region, but also a general lack of high-level performance overall.

2.2.2. Evaluation on ICT usage The performance of ASEAN countries on ICT is evaluated along the three ICT usage readiness indicators across three sub-groups: governments, businesses, and individuals (results are summarized in Table 3). Due to lack of data availability, Brunei, Laos, and Myanmar are not listed in the table. 2.2.2.1. Government ICT usage. Singapore, Malaysia, Philippines, and Indonesia are in the FA group, Vietnam is in the SD group, and Cambodia and Thailand are in the LB group (see Table 3). Fig. 1A shows that Singapore emerges as the strongest performer while Thailand had the lowest performance on level and Cambodia the lowest on growth.

2.2.2.2. Business ICT usage. Philippines, Indonesia, Malaysia, and Singapore are in the FA group, Thailand is in the CU group, and Vietnam and Cambodia are in the SD group (Table 3). Fig. 1B shows that no ASEAN countries are below the expected level, while Philippines and Indonesia are strongest on showing improvement. Singapore is exactly at the projected position for both level and growth.

2.2.2.3. Individual ICT usage. Among ASEAN countries, higher-income countries (especially Singapore and Malaysia) tend to have relatively lower performance than the lower-income countries. While Cambodia and Philippines are in the FA group, Singapore, Malaysia, and Indonesia are in the LB group. Thailand is in the CU group and Vietnam in the SD group (see Table 3). Again, the relatively low performance of Singapore on this measure indicates that the country faces more challenging structural problems than its high-income peers in promoting ICT usage among the most disadvantaged groups. Promoting ICT diffusion has become a main priorities in ASEAN countries’ policy agenda (Appendix A, Table A3). The obstacles to ICT diffusion, however, vary by country; and hence requires different policy approaches. For example, to address its most challenging obstacles caused by limitations in human resources and connectivity, the Lao government launched the E-Education project that established a computer lab in 50 schools and provided free Internet access to more than 500 schools. For Singapore, to promote the poor's ICT use, the government set up the $10 million Digital Inclusion Fund that allow households with income of less than S$1900 to apply for 100Mbps broadband connectivity and a tablet at a subsidized rate of S$6 per month.10

3. ICT production This section examines the performance of ASEAN countries on their embrace of the ICT revolution to promote ICT production industries, which can be grouped into two sectors: ICT manufacturing and ICT services.11 Based on data availability, this examination is only focused on the export performance of these two sectors, over the period 2004–2014 for the ICT manufacturing sector and 2005–2014 for the ICT services sector.12 The data used for this analysis is drawn from the World Trade Organization (WTO) database.13 Complementary data for ASEAN countries are from the ASEAN statistics databases.14

3.1. ICT manufacturing sector The ICT hardware sector consists of three industries: data processing and office equipment (DP & OE), integrated circuits and electronic components (IC & EC), and telecom equipment (TE). Key performance indicators of the ICT manufacturing sector and its three industries are reported in Table 4. The discussion in this subsection is based on information from this table, if not otherwise indicated. 10 Low income households can apply for fibre broadband plan at $6 a month, AsiaOne, available athttp://news.asiaone.com/news/singapore/low-incomehouseholds-can-apply-fibre-broadband-plan-6-month, accessed April 15, 2017. 11 The ICT hardware sector consists of three industries: data processing and office equipment, integrated circuits and electronic components, and telecom equipment. The ICT services sector includes two sub-sectors: telecommunications, and computer and information services (source: WTO database). 12 Data for 2004 is not available for ICT services exports. 13 The data can be downloaded at http://stat.wto.org/; accessed October 15, 2016. 14 The data can be downloaded at http://asean.org/resource/statistics/asean-statistics/; accessed October 15, 2016.

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Table 4 ASEAN ICT manufacturing sector's exports: selected performance indicators. Data source: WTO Database Value

Growth

Share in the economy's exports

Share in ICT exports

(Billion US$)

2004-14

Total goods=100

Total ICT hardware=100

World=100

ASEAN=100

2004

2014

2004

2014

2004

2014

2004

2014

35.9 0.1 9.1 44.4 60.5 46.5 22.0 4.1

23.1 1.2 3.6 28.1 37.3 30.7 15.8 24.5

100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

17.6 0.0 0.6 4.9 2.1 8.1 1.9 0.1

16.4 0.0 0.4 3.7 1.3 7.0 2.0 2.1

100.0 0.0 3.2 27.9 11.9 45.9 10.5 0.5

100.0 0.0 2.2 22.4 7.9 42.8 12.2 12.5

Data processing and office equipment (DP & OE) ASEAN-7 69.9 70.9 0.1% 12.4 Cambodia 0.0 0.0 5.6% 0.0 Indonesia 2.6 2.2 −2.0% 3.7 Malaysia 20.2 14.2 −3.5% 16.0 Philippines 7.6 7.0 −0.8% 19.2 Singapore 29.6 21.9 −3.0% 14.9 Thailand 9.1 18.4 7.3% 9.5 Viet Nam 0.7 7.3 27.2% 2.5

5.6 0.0 1.2 6.1 11.3 5.3 8.1 4.8

34.7 43.1 40.9 35.9 31.8 32.1 42.9 60.4

24.1 1.0 33.9 21.6 30.3 17.4 51.3 19.7

16.3 0.0 0.6 4.7 1.8 6.9 2.1 0.2

12.8 0.0 0.4 2.6 1.3 4.0 3.3 1.3

100.0 0.0 3.8 28.9 10.9 42.4 13.0 0.9

100.0 0.0 3.0 20.1 9.9 30.8 25.9 10.2

Integrated circuits and electronic components ASEAN-7 94.5 158.0 5.3% Cambodia 0.0 0.0 5.1% Indonesia 0.8 0.8 0.1% Malaysia 23.5 39.1 5.2% Philippines 15.2 15.1 −0.1% Singapore 48.5 92.0 6.6% Thailand 6.3 8.4 2.9% Viet Nam 0.2 2.7 29.6%

(IC & EC) 16.8 0.0 1.1 18.6 38.4 24.4 6.6 0.8

12.4 0.0 0.4 16.7 24.3 22.4 3.7 1.8

46.9 2.1 12.0 41.8 63.5 52.4 29.8 18.6

53.8 0.0 12.3 59.4 65.2 73.1 23.5 7.3

28.7 0.0 0.2 7.1 4.6 14.7 1.9 0.1

29.2 0.0 0.1 7.2 2.8 17.0 1.6 0.5

100.0 0.0 0.8 24.9 16.1 51.3 6.7 0.2

100.0 0.0 0.5 24.7 9.6 58.2 5.3 1.7

Telecommunications equipment (TE) ASEAN-7 37.1 65.0 5.8% Cambodia 0.0 0.1 63.1% Indonesia 3.0 3.4 1.2% Malaysia 12.5 12.5 −0.1% Philippines 1.1 1.0 −0.7% Singapore 14.4 12.0 −1.8% Thailand 5.8 9.0 4.6% Viet Nam 0.2 26.9 61.1%

6.6 0.0 4.3 9.9 2.8 7.2 6.0 0.9

5.1 1.2 1.9 5.3 1.7 2.9 4.0 17.9

18.4 54.8 47.1 22.3 4.7 15.5 27.3 21.0

22.1 98.9 53.9 19.0 4.5 9.6 25.2 73.0

9.6 0.0 0.8 3.2 0.3 3.7 1.5 0.1

9.3 0.0 0.5 1.8 0.1 1.7 1.3 3.8

100.0 0.0 8.2 33.8 3.0 38.7 15.6 0.6

100.0 0.2 5.3 19.2 1.6 18.5 13.9 41.3

2004 Total ICT hardware ASEAN-7 201.5 Cambodia 0.0 Indonesia 6.5 Malaysia 56.3 Philippines 24.0 Singapore 92.5 Thailand 21.2 Viet Nam 1.1

2014

293.9 0.1 6.4 65.7 23.2 125.8 35.8 36.8

3.8% 53.7% −0.1% 1.6% −0.3% 3.1% 5.4% 42.3%

3.1.1. ASEAN as a global hub of ICT hardware production (see Table 4) ASEAN stands out as a hub of global ICT hardware production networks, especially for IC & EC – the core industry of the ICT manufacturing sector. The share of ASEAN in global exports in 2014 was approximately one sixth for total ICT hardware and close to one third for IC & EC. IC & EC is the leading industry of ASEAN's ICT manufacturing sector, with a share of 53.8% of the sector's total exports in 2014. The other two industries claimed much smaller shares, with 24.1% for DP & OE and 22.1% for TE. Among the ASEAN countries, Singapore is the largest player in the ICT manufacturing sector (accounting for 42.8% of the region's ICT exports in 2014), followed by Malaysia (22.4%), Vietnam (12.5%), Thailand (12.2%), and Indonesia (2.2%). At the same time, Singapore also accounts for the largest share of the region's exports of IC & IC (58.2%) and ED & OE (30.8%), while Vietnam was the largest contributor in exports of TE (41.3%). For Singapore and Malaysia – ASEAN's two largest ICT players - the shares of IC & EC, DP & OE, and TE in that country's ICT hardware exports in 2014 were 73.1%, 17.4%, and 9.6% (Singapore) and 59.4%, 21.6%, and 19.0% (Malaysia). Note that both Singapore and Malaysia are similar to ASEAN as a whole in terms of export structure by industry (IC & EC takes a dominant share, followed by DP & OE; TE has the smallest share). This implies that these two major largest players together determine the export pattern of ASEAN's ICT sector. 3.1.2. The contribution of ICT hardware to merchandise exports at the country level (see Table 4) ICT hardware has a large share in the merchandise exports of ASEAN countries, with the exception being Cambodia. However, for most countries, this share declined substantially over 2004–2014, from 60.5% to 37.3% for the Philippines, 46.5–30.7% for Singapore, 44.4–28.1% for Malaysia, 22.0–15.8% for Thailand, and 9.1–3.6% for Indonesia. For Vietnam, ICT hardware has become 7

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Fig. 2. ICT hardware exports: ASEAN countries vs. China and India. Source: WTO database.

a major driver of the country's merchandise exports, increasing its share from 4.1% in 2004 to 24.5% in 2014. For Cambodia, this share, while remaining very small, expanded from 0.1% to 1.2% over the period.

3.1.3. Growth and changing dynamics As shown in Fig. 2, ASEAN's ICT hardware exports grew at an average rate of 3.8% over 2004–2014, which was below the rate observed for the world average (4.6%), China (13.2%), and India (12.1%). Growth patterns, however, varied significantly by country. While Philippines and Indonesia experienced negative growth, Vietnam and Cambodia grew impressively, at 42.3% and 53.7% respectively (Fig. 2). From Table 4, four important observations on the growth patterns and changing dynamics of the ICT sector in ASEAN can be identified. First, while ASEAN's share in global ICT hardware exports slightly declined from 17.6% in 2004 to 16.4% in 2014, its global share of IC & EC exports expanded from 28.7% in to 29.2% during the same period. The shrinkage of ASEAN's share in the global ICT hardware exports was driven mostly by DP & OE and somewhat by TE. The region's share contracted over 2004–2014 from 16.3% to 12.8% in the former and from 9.6% to 9.3% in the latter. These changing dynamics indicate a significant shift in the region as a whole toward IC & EC, a higher value-added industry requiring relatively higher-skilled labor. The region's concentration on this industry increased notably, with the industry's share in the region's total ICT hardware exports expanding from 46.9% in 2004 to 53.8% in 2014. Second, the growth patterns and changing dynamics observed above for ASEAN's ICT manufacturing sector appeared to be driven by Singapore and Malaysia, the region's two largest players. Singapore's global export share contracted from 8.1% to 7.0% for total ICT hardware; 6.9–4.0% for DP & OE; and 3.7–1.7% for TE; while its share expanded from 14.7% to 17.0% for IC & EC. As a result, the share of IC & EC in the country's ICT hardware exports expanded from 52.4% in 2004 to 73.1% in 2014. Similarly, Malaysia's global export share declined from 4.9% to 3.7% for total ICT hardware. IC & EC slightly increased from 7.1% to 7.2%, boosting the country's concentration on this industry in its ICT hardware exports (from 41.8% in 2004 to 59.4% in 2014). It is notable that IC & EC is a higher value-added industry compared to DP & OE and TE, implying that the shift to IC & EC in a country is a positive structural change. At the same time, however, the decline in the global export share in DP & OE and TE may imply that this change is caused by increasing competition from countries with lower labor costs. Third, Thailand, Vietnam, and Cambodia are the three ASEAN countries that expanded their shares in global and regional ICT hardware exports over 2004–2014. The pattern of this expansion, however, differs among the countries. For Thailand, its share in global ICT hardware exports increased from 1.9% in 2004 to 2.0% in 2014, for which DP & OE is the sole driver; its share in global exports expanded from 2.1% to 3.3%. At the same time, Thailand's shares in global exports of IC & EC and TE shares shrank. Vietnam has rapidly emerged as an important node in global ICT manufacturing networks. Growing at 42.3% annually over 2004– 2014, the country's ICT sector increased its share in global ICT hardware exports from 0.1% in 2004 to 2.1% in 2014. While all the three ICT industries contributed to this expansion of Vietnam, the TE industry was the major driver, growing at 61.1% over the period and boosting its share in global TE exports from 0.9% in 2004 to 17.9% in 2014. As a result, TE has become the major industry in Vietnam's ICT sector, accounting for nearly three quarters of the sector's exports. Furthermore, nearly 50% ASEAN's TE exports was contributed by Vietnam. Cambodia is similar to Vietnam in the dynamic pattern of the ICT manufacturing sector, with its ICT hardware exports growing at 53.7% over 2004–2014. The sector's rapid growth was largely driven by TE, of which exports grew at 61.1% over the period. However, the size of Cambodia's ICT manufacturing sector remains very small, with an insignificant share in global exports. Fourth, Indonesia and the Philippines are notably lagging in the performance of their ICT hardware sectors. Both countries experienced significant share contraction in global as well as ASEAN exports for all the three ICT industries – DP & OE, IC & EC, and TE. This trend is more pronounced for the Philippines, as its exports experienced negative growth in all three industries. Moreover, the share of the Philippines in IC & EC markets substantially contracted from 4.6% to 2.8% in global exports and from 16.1% to 9.6% in ASEAN's exports. 8

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Table 5 ICT services exports. Data source: WTO Database ICT services export value (million US$)

Total services exports=100

Share in ICT services export World=100

ASEAN=100

2005

2014*

2005

2014*

2005

2014*

2005

2014*

4015.0 12.6 42.9 1145.6 5.9 628.9 0.0 653.0 1046.7 285.4 212.5

13,631.1 25.1 49.2 1139.9 38.6 2733.2 62.8 3472.3 5289.6 527.9 419.0

3.6 1.6 3.9 8.8 2.8 3.3 0.0 7.6 2.3 1.4 5.1

4.5 2.2 1.3 4.8 5.0 6.5 2.0 14.0 3.8 1.0 3.8

2.0 0.01 0.02 0.57 0.00 0.32 0.0 0.33 0.52 0.14 0.11

3.0 0.01 0.01 0.25 0.01 0.60 0.01 0.76 1.16 0.12 0.09

100.0 0.3 1.1 28.5 0.1 15.7 0.0 16.3 26.1 7.1 5.3

100.0 0.2 0.4 8.4 0.3 20.1 0.5 25.5 38.8 3.9 3.1

China-India China 2325.4 India 16,862.2

20,172.9 55,666.1

2.6 32.5

8.7 35.8

1.17 8.45

4.41 12.16

57.9 420.0

148.0 408.4

North-east Asia Hong Kong 948.9 Korea 294.9 Taiwan 425.0

2637.2 2876.2 1772.0

2.0 0.6 1.7

2.5 2.7 3.1

0.48 0.15 0.21

0.61 0.63 0.39

23.6 7.3 10.6

20.5 21.1 13.0

South Asia Bangladesh Pakistan Sri Lanka

381.2 805.0 747.9

7.0 16.9 8.3

24.9 23.0 13.4

0.02 0.17 0.06

0.09 0.18 0.16

1.1 8.5 3.1

3.0 5.9 5.5

ASEAN Brunei Cambodia Indonesia Lao PDR Malaysia Myanmar Philippines Singapore Thailand Viet Nam

Selected other Asian economies

45.8 343.0 126.3

3.2. ICT services Key information about ICT services exports of ASEAN and selected Asian economies is provided in Table 5. Discussions in this subsection are based on this information if not otherwise indicated. 3.2.1. Global market share and leading players (see Table 5) In contrast to the trends observed for ICT hardware, ASEAN does not stand out as an important hub of ICT services exports. The region's share in global ICT services exports was only 3% in 2014, which is much lower its global GDP share of 6%. In terms of value, ASEAN's ICT services exports in 2014 was lower than India by 4 times and China by 1.5 times. Singapore, Philippines, and Malaysia are leading players in the region's ICT services sector, accounting for approximately 85% of its exports in 2014. However, their shares in global ICT services exports remain small, with only Singapore claiming a share above 1.0%. 3.2.2. Contribution to total services exports For ASEAN as a whole and for most individual ASEAN countries, the contribution of ICT services sector to total commercial services exports remains modest, with its share below 5.0%. The only two countries with this share exceeding 5% in 2014 were the Philippines (14.0%) and Malaysia (6.5%). The share of ICT services in total commercial services exports over 2005–2014 did not show a solid expansion trend across countries. While it expanded for ASEAN as a whole and for six countries (Brunei, Laos, Malaysia, Myanmar, Philippines, and Singapore); it decreased for four economies (Cambodia, Indonesia, Thailand, and Vietnam). In comparisons to ASEAN countries, India and other South Asian countries show a starkly different pattern. These countries are heavily and increasingly reliant on the ICT sector for services exports. In particular, the share of ICT in total services exports increased from 32.5% to 35.8% for India and from 16.9% to 23% for Pakistan over 2005–2014. 3.2.3. Growth and changing dynamics ASEAN's ICT services exports grew at 14.3% over 2005–2014, notably faster than the world average (9.7%) and comparable to India (14.2%), but much slower than China (27.1%) (Fig. 3). ASEAN countries, however, differ markedly on this growth rate, which ranged from −0.1% for Indonesia and 1.5% Cambodia to 23.2% for Laos, 20.4% for Philippines, 19.7% for Singapore, and 17.7% for 9

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Fig. 3. ICT services exports. Note: Myanmar does not appear in the figure because its ICT export value grew from naught in 2005 to $62.8 million in 2014 (slightly above the level of Cambodia, $49.2 million), making its growth rate undefined. Data source: WTO Database

Malaysia. The remaining three countries – Thailand, Vietnam, and Brunei – grew well below the world average although their growth rates were fairly strong (7.1% for Thailand, 7.8% for Vietnam, and 8.0% for Brunei) (Fig. 3). On the changing dynamics over 2005–2014, several observations on ASEAN's ICT services sector emerge from Table 5. First, Singapore, Philippines, and Malaysia are rapidly expanding their shares in global ICT services exports; by contrast, these shares significantly contracted for Indonesia, Thailand, and Vietnam. Second, Singapore became a leading player in ASEAN for ICT services exports in 2014, expanding its share in the region from 26.1% to 38.8% over 2005–2014. In contrast, Indonesia lost the leading position it held in 2005, with its share sharply contracting from 28.5% to 8.4% during 2005–2014. Third, six out of 10 ASEAN countries (Indonesia, Cambodia, Thailand, Vietnam, and Brunei) experienced a share decline in global ICT software exports over 2005–2014. All non-ASEAN economies in Table 5, including India and China, expanded their shares during this period. 3.2.4. Revealed comparative advantage (RCA) The Revealed Comparative Advantage (RCA) measure introduced by Balasa (1965)15 has been widely used as a simple way to assess the comparative advantage of a country/region in a given product trade in global markets. The RCA index reported in Table 6 can help sharpen and summarize the relative strengths and weaknesses of ASEAN countries in their ICT hardware manufacturing and ICT services sectors. The RCA index for ICT hardware products and ICT services in 200416 and 2014. Three important observations stand out from Table 6. F First, ASEAN as an economy has a sustained strong comparative advantage in ICT hardware, with RCA far greater than 1.0 in both 2004 and 2014 for the total ICT hardware as well as for its three constituent subsectors – DP & OE, IC & EC, and TE. It is worth noting, however, that the RCA index of ASEAN block tends to decline over 2004–2014 for the total ICT hardware sector as well as for its three subsectors. The sharpest decline in the RCA index is observed for the DP & OE, from 2.67 in 2004 to 1.92 in 2014. Second, the patterns observed for ASEAN's RCAs in ICT hardware, however, differ by member country. Five countries – Brunei, Cambodia, Indonesia, Lao, and Myanmar with RCAs much lower than 1.0 – do not have comparative advantage in ICT hardware. It should be noted that Indonesia's RCA in TE declined from 1.05 ( > 1) in 2004 to 0.53 ( < 1) in 2014. On the other hand, Vietnam made impressive progress on improving its comparative advantage in ICT hardware, increasing its RCA from 0.33 in 2004 to 2.59 in 2014. At the same time, Singapore and Malaysia enhanced their RCAs in IC & EC (from 6.83 to 7.87 for Singapore and from 5.19 to 5.85 for Malaysia) while Thailand made improvement in the DP & OE (from 2.03 to 2.78). Third, ASEAN as a whole as well as its all member countries, however, do not have comparative advantage in ICT services, with their RCAs well below 1.0. The only exception is the Philippines, which boosted its RCA from 0.99 in 2005 to 1.51 in 2014. It is worth noting that Indonesia's RCA declined from 1.15 in 2005 to 0.52 in 2014. Forth, ASEAN fairly resemble China and other East Asian economies on high RCA in ICT hardware and low RCA in ICT services. Finally, ASEAN is in sharp contrast to the South Asian countries in the RCA patterns. These countries have strong comparative advantage in ICT services but have very little comparative advantage in ICT manufacturing, with their RCAs close to zero. 4. A strategic policy framework for promoting digital transformation in ASEAN countries Investigations conducted in Sections 2, 3, and 4 show that all ASEAN 10 countries, to varying degrees, have made significant

15

The RCA index for country i in product j is defined as RCAi j =

Xi j / Xi RCAwj / XW

where Xi j and Xwj are, respectively, the export value of country i and the world from

product j while Xi and XW are their values in total merchandise exports. The country i is considered to have comparative advantage in product j if RCAi j >1. An increase (decrease) in RCA signifies an improvement (deterioration) in the country's comparative advantage in the product in question. 16 2005 for ICT services because the date for 2004 is not available.

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Table 6 Revealed Comparative Advantage in ICT hardware products and ICT services: ASEAN vs. Selected Asian economies. Data source: WTO Database; Data for ICT services is not available for 2004. ICT Hardware Total

ICT Services Data processing and office equipment

IC & electronic components

Telecommunication equipment

ICT Hardware

ASEAN Brunei Cambodia Indonesia Lao PDR Malaysia Myanmar Philippines Singapore Thailand Viet Nam

2004

2014

2004

2014

2004

2014

2004

2014

2005*

2014

2.89 – 0.01 0.73 – 3.57 – 4.87 3.75 1.77 0.33

2.45 – 0.13 0.38 – 2.97 – 3.95 3.25 1.67 2.59

2.67 – 0.01 0.80 – 3.43 – 4.12 3.20 2.03 0.53

1.92 – 0.00 0.42 – 2.09 – 3.89 1.83 2.78 1.66

4.71 – 0.00 0.31 – 5.19 – 10.75 6.83 1.84 0.21

4.36 – 0.00 0.16 – 5.85 – 8.53 7.87 1.30 0.63

1.58 – 0.01 1.02 – 2.36 – 0.68 1.73 1.43 0.21

1.39 – 0.33 0.53 – 1.44 – 0.46 0.80 1.08 4.85

0.47 0.20 0.51 1.15 0.36 0.43 0.00 0.99 0.30 0.19 0.67

0.49 0.24 0.14 0.52 0.54 0.70 0.21 1.51 0.41 0.10 0.41

2.69 – 1.01 2.01 3.23 0.10 0.00 0.02 0.06

3.15 – 0.98 1.82 2.29 0.12 0.00 0.00 0.25

3.31 – 0.77 0.73 1.06 0.06 0.00 0.02 0.02

0.76 – 2.01 2.69 4.13 0.09 0.00 0.00 0.01

1.40 – 1.77 3.47 8.17 0.04 0.00 0.00 0.02

2.75 – 1.51 3.44 1.33 0.08 0.02 0.05 0.02

3.20 – 0.60 1.89 1.13 0.17 0.01 0.04 0.11

0.34 0.26 0.20 0.08 0.22 4.26 0.92 2.21 1.09

0.94 0.28 0.22 0.29 0.34 3.86 2.71 2.48 1.45

Other economies China 2.33 Hong Kong – Japan 1.46 Korea 2.62 Taiwan 2.49 India 0.10 Bangladesh 0.01 Pakistan 0.02 Sri Lanka 0.10

efforts in embracing the ICT revolution for development. This implies that the ICT policies established by their governments have been executed with some measure of success. However, the data also reveal that all countries face individual challenges that require serious effort in enhancing the effectiveness of ICT policy design and implementation. For example, Indonesia is comparatively strong in government and business use of ICT but significantly lagging in fixed broadband penetration, exports of ICT hardware and services, and adoption of CC. Vietnam is strong on most ICT diffusion indicators and on ICT hardware promotion, but is likewise slow in adopting 4G mobile technology and embracing CC. Even in Singapore, a globally recognized leader in embracing ICT, penetration of fixed broadband and secure servers lags that of high-income peers, a possible cause for concern among government leaders. To aid governments in designing a more effective approach for promoting ICT diffusion and digital transformation, the following strategic policy framework is proposed. The model lays out five focuses for policy design and action: strategy, monitoring, accountable agencies in charge of coordination, rethinking, and trust. The model in acronym form can be referred to as SMART17 and is elaborated below. 4.1. Strategy (S) The first focus area emphasizes the importance of having a solid strategy in promoting digital transformation. A sound strategy relies heavily on three essential components: a clear objective; robust understanding of competences, technological potential, and external environment; and priorities for implementation. For digital transformation, value creation should be the primary objective. This value can come from improvements in efficiency, enhancements of effectiveness, and more inclusive development. Efficiency implies lower costs per unit and/or higher benefits such as quality, convenience, reliability, and innovative features. Effectiveness implies the ability to meet stated objectives, and can be associated with transparency, fairness, punctuality, responsiveness, participation, sense of ownership, and enhanced predictability. Inclusive development is concerned with the betterment of outcomes for and involvement by marginalized and excluded groups in the development process. With the value creation objective in mind, policy makers should judiciously determine which smart technologies receive a higher priority for investment and promotion. For example, as traffic accidents kill nearly 65,000 people per year in ASEAN (WHO, 2015), smart technologies that can help increase road transport safety should be prioritized over driverless cars. To develop a robust understanding of country-specific competences, technological potential, and external environment, 17 Letaifa (2015) presents a SMART framework for building smart cities, which focus on five dimensions: Strategy, Multidisciplinary, Appropriation, Roadmap, and Technology.

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governments must collaborate with businesses, academics, and experts under a consultative and private sector-led approach. Two principal questions should be posed across forums and consultative meetings: how can smart technologies improve the performance of current goods, services, business, and policy models?, and what are international best practices in solving current development problems faced by countries, cities, and/or industries? With regards to priorities for implementation, policy makers should recognize the importance of complementary investments and organizational restructuring that are critical for organizations to reap the benefits of investment in digital technologies (Brynjolfsson & Hitt, 2000). These complementary efforts include regulatory reforms, organizational restructuring, and human resource development, among others. 4.2. Monitoring (M) Using appropriate key performance indicators (KPIs) can help governments effectively monitor progress by a country, city, or industry in digital transformation and help governments make timely decisions to promote the development process. For example, using the results of monitoring exercises in Sections 2, 3, and 4 above, each individual ASEAN country could better understand their respective strengths and weaknesses relative to their peers. More specifically, with a close monitoring as presented in Section 2, Singapore could recognize early that the country is lagging high-income peers on fixed broadband penetration,18 while Vietnam can quickly understand that its high-performing status (relative to low-income peers) is declining, especially in ICT usage. 4.3. Accountability: the agencies in charge of coordination (A) Digital transformation requires robust structural alterations of commercial systems, as driven by entrepreneurial activities and private sector initiatives. For this to occur, however, the government must play an active role in creating an enabling environment, fostering coordination, and incentivizing risk-taking efforts that generate sizeable positive externalities. Establishing dedicated government agencies accountable for digital transformation and strengthening them through restructuring when needed are important steps for the government to enhance its role in helping the private sector more efficiently coordinate commercial activities. Singapore's recent establishment of the Government Technology Organization (GovTech) and Info-communications and Media Development Authority (IMDA) serve as illuminating examples of this type of public sector intervention. Both statutory boards were formed after the restructuring of two agencies previously in charge of Singapore's ICT development: the Infocomm Development Authority (IDA) and Media Development Authority (MDA). Formed in October 2016, GovTech is responsible for building key platforms and solutions needed to support Singapore as a “smart nation.” IMDA is in charge of developing a vibrant, world-class information communication and media sector that supports economic growth, connects people, strengthens community bonds, and powers Singapore's “smart nation” vision.19 Thailand's National Digital Economy Master Plan, approved in 2016, is another example of public sector intervention to improve the government's role in private sector coordination. This plan is regarded as a milestone in the country's endeavor to develop a domestic digital economy and transform the country into a digital society.20 To ensure the effective implementation of this plan, the government established the Ministry of Digital Economy and Society (MDES) in September 2016. Within the MDES, two new agencies dedicated to promoting digital transformation were established: the National Digital Economy Committee and the Digital Economy Promotion Agency. The Thailand case is an example of how governance restructuring (e.g. the formation of new agencies) supports particular strategies and goals adopted by government, such as the development of a more ICT-integrated economy and society. 4.4. Rethinking (R) Digital transformation is not merely a digitization of existing tasks; it is far more than ICT-enabled incremental improvements. Digital transformation stimulates, and in turn requires, a radical rethinking of regulatory and policy frameworks and a reimagination of business models. For example, while ICT allows governments to improve efficiency in driver licensing systems, incremental progress would be a system that enables residents to renew their license online, as already occurs in many states in the US. By contrast, a radical rethinking of the concept, as driven by digital transformation, would embrace the ICT-enabled measurement of drivers’ safety history, rendering periodical driving license renewal unnecessary. Singapore again provides examples of this type of rethinking. For citizens and permanent residents, driver license renewal is not required until the holder's 65th birthday. A deeper extension of the measurement and analytical capabilities of ICT would include a database of accidents and traffic violations, fed into a system that calculates through a series of algorithms whether the driver deserves to have the license automatically extended or whether the driver should be required to take another test or undergo additional training. 18 Singapore's relatively weak performance on this indicator is likely due to high access costs. The country was ranked 72nd out of 139 countries on ICT affordability in 2016, far lower than Hong Kong (16th), the US (17th), Sweden (25th), and Denmark (31st) (WEF, 2016, Table 3). 19 From the GovTech website, https://www.tech.gov.sg, accessed December 10, 2016. 20 “Committee for Digital Economy and Society approves National Digital Economy Master Plan,” Thai government website, available at http://www.thaigov.go.th/ index.php/en/government-en1/item/99989-99989.html, accessed Dec 10, 2016.

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4.5. Trust (T) Trust, the final element of the SMART model, is a critical factor in driving digital transformation. This type of trust includes relationships among all parties involved in developing and mobilizing ICT, including designers, vendors, users, and governmentbacked monitoring and regulatory bodies; it also involves trust by the above actors in the systems themselves. For example, lack of trust in the vendor and e-payment system can hinder the growth of e-commerce (Kim, Ferrin, & Rao, 2008); lack of trust in information security can impede the adoption of cloud computing (Kshetri, 2013); and lack of trust in government discourages people from participating in e-government programs for policy formation and other public sector initiatives (Kim & Lee, 2012). Building trust can be done through a range of efforts: investing in technological infrastructure to strengthen cyber security, improving regulatory frameworks to support law enforcement against cybercrimes, and raising the quality of governance to enhance citizen confidence in government capabilities. For ASEAN countries, with the exception of Singapore, building trust is one of the most challenging tasks, and governments should make this a top priority. In applying the SMART model, each individual ASEAN country and the ASEAN Economic Community (AEC) as a whole should pay particularly close attention to enhancing ICT strategies, strengthening agencies in charge of promoting digital transformation, and rethinking existing regulatory frameworks and policy approaches. Furthermore, the ASEAN secretariat should establish a Digital Transformation Board (DTB) in charge of coordinating efforts to promote digital transformation across ASEAN countries and in the AEC as a whole. The DTB should introduce a robust set of KPIs on digital transformation to monitor and support related progress in ASEAN countries. 5. Conclusion This paper has investigated development patterns and practical governance challenges facing ASEAN countries in embracing the ICT revolution for development. Country performance was evaluated by this study through measures of ICT diffusion, ICT production, and digital transformation. The data indicate that there are widely varying levels of performance on particular measures across countries in the region, particularly within ASEAN. Using the SMART model, the paper has focused on five key areas that can guide government strategies in seeking to improve individual measures and close performance gaps with peer nations. The economic growth and social development of the region as a whole depends on individual countries’ ability to embrace the ICT revolution in smart, efficient, and effective ways. In summary, the study reveals the following five insights. First, all ASEAN 10 countries, to varying extent, have made significant efforts in embracing the ICT revolution for development. Eight of these countries (Brunei, Cambodia, Indonesia, Malaysia, Philippines, Singapore, Thailand, and Vietnam) are in the “highperforming” group (relative to the peers of similar income level) on at least one of the ICT diffusion indicators examined by this study. While the performance of Myanmar and Laos is less impressive, both countries exhibit encouraging progress. Second, each ASEAN country has its own challenges in promoting a high and sustained pace of ICT diffusion. In particular, each of the 10 countries, including Singapore, falls into the “low-performing” group on at least one of three important ICT penetration indicators: fixed broadband, secure servers, and 4G mobile technology. Third, ASEAN is a global hub of ICT hardware production and a fast-growing center of ICT services exports. Among ASEAN countries, Singapore, Malaysia, Thailand, and Vietnam are the leading players in ICT hardware exports, while Singapore, Malaysia, and Philippines are the largest exporters of ICT services. As shown in the case of Vietnam, policy efforts appear to play an important role in the growth of the ICT production sector. In the region's efforts to embrace the ICT revolution to promote ICT production sectors, Indonesia appears to have fallen behind significantly, with its shares in the region's ICT hardware and services exports as well as its RCA indexes being relatively low and notably declining over the past 10 years. Fourth, the AEC should better promote, coordinate, and monitor the progress of its member countries on ICT digitization. Establishment of the ASEAN DTB and apply the SMART model should be a top priority. Lastly, the paper also points out that the total mobile phone penetration is no longer a meaningful indicator on the adoption of mobile technologies.

Appendix A. A snapshot of ASEAN Countries and ICT diffusion See Tables A1–A3. Appendix B. Evaluating ICT diffusion performance This appendix presents a simple framework for evaluating the performance of a country in comparison to its income-level peers on a given ICT diffusion indicator. This framework is based on two simple models, one for evaluating the diffusion level and the other for change in diffusion over a given period. The model for evaluating the diffusion level is drawn from the technology adoption models adopted by Caselli and Coleman (2001) and China and Fairlie (2007) by removing all explanatory variables other than the income level. The model takes the following form.

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Table A1 A Snapshot of ASEAN Countries in 2015. Data source: WDI Population

GDP (PPP$)

GDP (US$)

(millions)

Share in World

(billions)

Share in World

Income Level (World=100)

(billions)

Share in World

Income Level (World=100)

630.5 0.4 15.6 257.6 6.8 30.3 53.9 100.7 5.5 68.0 91.7

8.9% 0.01% 0.2% 3.7% 0.1% 0.4% 0.8% 1.4% 0.1% 1.0% 1.3%

6937.3 30.0 54.3 2842.2 38.6 815.6 283.5 741.0 471.6 1108.1 552.3

6.4% 0.03% 0.05% 2.6% 0.04% 0.7% 0.3% 0.7% 0.4% 1.0% 0.5%

71 458 23 71 37 174 34 48 552 106 39

2444.6 15.5 18.0 861.9 12.3 296.2 67.0 292.0 292.7 395.3 193.6

3.4% 0.02% 0.03% 1.2% 0.02% 0.4% 0.1% 0.4% 0.4% 0.6% 0.3%

38 362 11 33 18 97 12 29 523 58 21

Asian largest economies China 1371.2 India 1311.1 Japan 127.0

19.5% 18.6% 1.8%

19,524.3 7982.5 4738.3

17.9% 7.3% 4.4%

92 39 242

10,866.4 2073.5 4123.3

15.3% 2.9% 5.8%

78 16 321

World

100%

108,874.4

100%

100

71,236.6

100%

100

ASEAN-10 Brunei Cambodia Indonesia Laos Malaysia Myanmar Philippines Singapore Thailand Vietnam

7047.5

lnhit = β0 +β1 lnyit +β2 SQlnyit +εit

(1)

Where lnhit is the natural logarithm of the diffusion level hit on the ICT indicator in question for country i in year t , lnyit is the natural logarithm of the country's per capita income yit measured in purchasing power parity (PPP) dollars, SQlnyit is squared lnyit , and εt is the error term. The inclusion of variable SQlnyit is to capture the non-linear effect of the income level. Table A2 ASEAN countries’ ICT diffusion in 2015. Sources: WDI, TeleGeography, World Economic Forum GDP

ICT Penetrationa

per

Mobile phone subscribers

Capita

Total

2G

3G

4G

80,192 73,605 25,312 15,347 10,385 6938 5668 5345 3278 < 5000

148.1 114.7 145.1 120.7 128.1 119.2 130.9 67.6 141.2 68.6

9.0 12.5 59.7 25.6 79.9 92.8 91.6 57.3 105.8 50.5

68.7 97.2 65.9 89.8 46.6 22.8 39.3 10.2 34.0 18.2

Selected peer economies China 13,572 94.8 India 5730 76.3 Hong Kong 53,463 177.9 South Korea 34,387 112.6

40.1 68.6 32.9 4.0

Percentilec 75-percentile 50-percentile 25-percentile

81.6 60.0 36.1

Economy

ASEAN−10 Singapore Brunei Malaysia Thailand Indonesia Philippines Vietnam Laos Cambodia Myanmar

25,400 11,262 3888

136.3 109.9 79.9

ICT use readiness indexb Internet users

Fixed broad band

Secure servers

Individual

Business

Government

70.5 5.0 19.5 5.3 1.6 3.6 0 0.2 1.4 0

82.1 71.2 71.1 39.3 22.0 40.7 52.7 18.2 19.0 21.8

26.5 8.0 9.0 9.2 1.1 3.4 8.1 0.5 0.5 0.3

932.1 203.2 103.8 30.4 8.0 13.7 14.8 2.5 5.1 0.7

6.2

5.3

6.2

4.6 3.8 3.0 3.2 3.3 1.9 2.6 1.6

4.6 3.8 4.1 4.0 3.5 3.5 3.4 2.6

5.4 3.7 4.1 4.1 4.1 3.6 3.1 2.5

32.8 7.6 69.8 29.6

21.9 0.1 75.3 79.0

50.3 26.0 84.9 89.9

18.6 1.3 31.9 40.2

10.1 6.8 904.5 2319.6

3.6 2.0 6.2 6.4

3.9 3.5 5.1 5.4

4.7 4.1 4.7 5.7

59.8 35.4 13.2

11.2 1.4 0

73.3 50.3 21.0

23.0 8.2 0.94

321.3 50.3 5.4

5.3 3.9 2.6

4.0 3.6 3.3

4.7 3.8 3.4

Notes: a The penetration rate is per 100 inhabitants for all indicators, except for “Secure servers”, for which the rate is per 1 million inhabitants. b The index ranges from 1 (lowest) to 5 (highest performance). c There are approximately 200 economies in the dataset on ICT penetration and 141 economies for ICT use readiness index. A cell with dark background color indicates that its corresponding country is below the median on this indicator.

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Table A3 A summary of ASEAN's National/Regional ICT Master Policy. Countries/Region

National/Regional ICT Master Plan/ Vision

Brunei

The National ICT White Paper 2016–2020: ICT for diversifying economy, boosting GDP, improving the quality of life for citizens and become 'Smart Society’.a The country aims to achieve a vibrant economy powered by ICT, ICT-smart citizens, a connected and capable nation.

Cambodia

ICT Masterplan 2020 - ‘ICTopia Cambodia’: ICT as a tool to build an intelligent and comfortable nation with intelligent people, intelligent society and intelligent government.b

Indonesia

National Midterm Development Plan (2015–2019): To strengthen national connectivity to balance economy and infrastructure development.c The Indonesian Broadband Plan (IBP, 2014–2019): to promote broadband as an engine for growth and to increase the quality of life of Indonesian citizens in the long term.d The national ICT policy, which sets out nine priority areas for action. In particular, it emphasizes connectivity accessible nationwide and affordable to everyone, human resource development (ICT skills), broad-based and robust applications (egovernment, e-health, e-agriculture, e-commerce, and e-revenue), regulatory frameworks (ICT laws, cyber security law, and national ICT standards). Digital Malaysia (DM) Masterplan (2012): to transform the country towards a developed digital economy by 2020. The 2011–2015 ICT Master Plan (Follow Up Plan): To achieve socio-economic development through knowledge-based society.f Philippine Digital Strategy (PDS, 2011–2016): A digitally empowered, innovative, globally competitive and prosperous society where everyone has reliable, affordable and secure information access and with government that provides responsive online citizencentered services.g Intelligent Nation (iN2015) Masterplan (2006–2015): An Intelligent Nation, a Global City, powered by Infocommh ICT Policy Framework 2020 (2011–2020): ICT is a key driving force to bring knowledge and wisdom to Thai people and will lead the society towards equality and sustainable economy.i Master Plan on Information and Technology (2011–2020): ICTs serve as a driving force to ensure the country's growth and sustainable development, raise transparency in activities of state agencies and save the time and funds for agencies, organizations, enterprises and people.j

Laos

Malaysiae Myanmar Philippines

Singapore Thailand Vietnam

ASEAN

ASEAN ICT Master 2015 (AIM 2015), which focused on six strategic thrusts: (i) Economic transformation with initiatives on creating a conducive environment for businesses to grow leveraging ICT and promoting public-private partnership (PPP) for the ICT industry; (ii) People engagement and empowerment, which focus on ICT access to every community, affordable ICT products, affordable ICT contents and services, and trust building; (iii) Innovation, which promotes Innovation Centers of Excellence for R & D of ICT services, innovation and collaboration amongst government, businesses, citizens, and other institutions; nurture of innovation and creativity at schools; (iv) Infrastructure, which promotes broadband connectivity and network integrity; (v) Human capital development with the incentives on capacity building and ICT skills upgrading and certifying; and (vi) Bridging digital divide, which promote ASEAN integration and collaboration to narrow the digital gap among its state members.k ASEAN ICT Master 2020 (AIM 2020) envisions to propel ASEAN towards a digitally-enabled economy that is secure, sustainable, and transformative; and to enable an innovative, inclusive and integrated ASEAN Community.l

a

BruDirect.com, "ICT White Paper, Masterplan Launched"., accessed 30 March 2016 Korea International Cooperation Agency, "Summary on Cambodia Ict Masterplan 2020," http://www.trc.gov.kh/wp-content/uploads/2015/03/Cambodian-ICTMasterplan-2020.pdf., accessed 20 March 2016 c Republic of Indonesia Ministry of Communication and Information Technology, "ICT Research and Development in Indonesia," http://www.nict.go.jp/en/ asean_ivo/4otfsk00001ver81-att/a1436766621134.pdf., accessed 30 March 2016 d Rohman, "Review of Indonesian Broadband Development ". e Malaysia Prime Minister's Department, "Driving Ict in the Knowledge Econom;" http://rmk11.epu.gov.my/pdf/strategy-paper/Strategy%20Paper%2015.pdf. f Kee-Yung Nam, Maria Rowena Cham, and Paulo Rodelio Halili, "Developing Myanmar's Information and Communication Technology Sector toward Inclusive Growth " Asian Development Bank, http://www.adb.org/sites/default/files/publication/176518/ewp-462.pdf., accessed 30 March 2016. g Commission on Information and Communication Technology, "The Philippine Digital Strategy. Transformation 2.0: Digitally Empowered Nation.," http://icto. dost.gov.ph/wp-content/uploads/2014/06/philippine-digital-strategy-2011–2015.pdf., accessed 30 March 2016. h iN2015 Steering Committee, "Innovation Integration Internationalisation - Report by the In2015 Steering Committee," (2006). i Thailand Ministry of Information and Communication Technology (MICT), "Thailand Broadband Policy and Progress," https://www.itu.int/en/ITU-D/RegionalPresence/AsiaPacific/Documents/Events/2015/Sep-WABA/Presentations/TH-NBB-20150910.pdf., accessed 30 March 2016. j Government of Vietnam, "Decision No. 1755/Qd-Ttg of September 22, 2010, Approving the Scheme to Early Make Vietnam a Country Strong in Information and Communication Technologies," http://www.moj.gov.vn/vbpq/en/lists/vn%20bn%20php%20lut/view_detail.aspx?itemid=10749., accessed 30 March 2016. k ASEAN, “ASEAN Master Plan 2015 Completion Report,” http://www.acioa.com/static/files/ASEANICTCompletionReport.pdf; accessed 30 December 2016. l ASEAN, “ASEAN Master Plan 2020,” http://www.mptc.gov.kh/files/2016/03/499/1.pdf; accessed 30 December 2016. b

In Eq. (1), per capita income plays the role of a predictor of the level of ICT diffusion. Because the model does not aim to analyze the causal effect, there is no need to address the endogeneity problem. This means the error term εit contains the effects of omitted variables, many of which are policy-related such as infrastructure conditions, regulatory quality, government promotion, and ICT services competition and pricing. The error term εit can also be seen as the gap between the actual value of the diffusion level nhit and ˆ it = β +β lny +β SQlny : its predicted value based on the per capita income level lnh 0 1 it 2 it

ˆ it εit = lnhit −lnh

(1′)

As such, the sign of the error term εit can be used to assess the performance of a country in comparison to its income-level peers on the ICT diffusion indicator under examination. A positive value of εit means that the country is outperforms its income-level peers 15

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Table B1 Four performance scenarios for a country on a given ICT diffusion indicator. Scenario

Interpretation

Group Label

1.

εit >0 : Actual level > Predicted level ωit >0 : Actual growth > Predicted growth

The country is above its expected values on both level and level change.

Forging-ahead (FA)

2.

εit >0 : Actual level > Predicted level ωit <0 : Actual growth < Predicted growth

The country is above its expected value on level but below that on level change.

Slowing-down (SD)

3.

εit <0 : Actual growth > Predicted growth ωit >0 : Actual level < Predicted level

The country is below its expected value on level but above that on level change.

Catching-up (CU)

4.

εit <0 : Actual level < Predicted level ωit <0 : Actual growth < Predicted growth

The country is below its expected values on both level and level change.

Lagging behind (LB)

on the level of ICT diffusion, while a negative value of εit indicates the country's underperformance on this measure. The model for evaluating the country's catching-up performance is a modified and simplified Gompertz model used by Kiiski and Pohjola (2002) for examining the determinants of ICT diffusion across countries. With a focus only on the per capita income variable as the major predictor, the pace of diffusion for a given indicator over period [t − k , t ] can be expressed in the following simplified model 21:

∆lnhit = γ0+γ1lnhit − k +γ2 SQlnhit − k +γ3 lnyit − k +γ4 SQlnyit − k + γ5 ∆lnyit + ωit

(2)

t ]; ∆lnyit = (lnyit −lnyit − k )/ k is the average annual growth Where ∆lnhit = (lnhit −lnhit − k )/ k is the average annual growth of hi over [t −k , of per capita income; and SQlnhit − k and SQlnhit − k are the squared values of lnhit − k and lnyit − k respectively. The inclusion of SQlnhit − k and SQlnyit − k in the equation is to capture the non-linear effect of the initial level of ICT diffusion lnhit − k and per capita income lnyit − k at year t −k. Similar to the discussion of the model for evaluating the ICT diffusion level, the model for evaluating the pace of change in ICT diffusion level, shown in Eq. (2), is included to examine how a country performs compared to its income-level peers on this measure. Because the per capita income variable is used only as a predictor, there is no need to address the endogeneity problem required for analyzing causal effects. The error term ωit in Eq. (2) captures the gap between the actual value of the pace of ICT diffusion ∆lnhit and its predicted value ˆ it = γ +γ lnhit − k +γ SQlnhit − k +γ lny +γ SQlny + γ ∆lny : ∆lnh it − k it − k it 0 1 2 3 4 5 ˆ it ωit = ∆lnhit −∆lnh Again, the sign of the error term ωit can be used to assess the performance of a country in comparison to its income-level peers on the efforts to foster ICT diffusion improvement over the period of consideration. A positive value of ωit means that the country outperforms its income-level peers on diffusion improvement efforts, while a negative value of ωit indicates the country's underperformance on this measure. In combination, the sign of εit and ωit can be used to evaluate the performance of a country i in year t according to the following four scenarios in Table B1 below.

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21 For the ICT penetration indicators, the period is 2010–2015 (t = 2015; k = 5). For the usage readiness indices, due to data availability, the period is 2012–2015 (t = 2015; k = 3).

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Paunov, C., & Rollo, V. (2016). Has the Internet Fostered Inclusive Innovation in the Developing World? World Development, 78(2), 587–609. Vu, K.M., and Austin, R.D. (2015). Vietnam’s Embrace of ICT for Economic Development: Success and Future Challenges, Harvard Business School Case" Ivey Publishing Case (W15081). WEF (2016). Global Information Technology Report 2016. World Economic Forum, available at 〈https://www.weforum.org/reports/the-global-informationtechnology-report-2016〉. WHO (2015). Global Status Report on Road Safety 2015. World Health Organization (available at)〈http://www.who.int/violence_injury_prevention/road_safety_ status/2015/en/〉. World Bank (2016). World Development Report 2016: Digital Dividends Washington DC: The World Bank.

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