Your SlideShare is downloading. ×
Understanding innovation in the telecommunications sector of rural argentina - Martha Garcia-Murillo y Fatima K. Espinoza-Vasquez  (2010)
Understanding innovation in the telecommunications sector of rural argentina - Martha Garcia-Murillo y Fatima K. Espinoza-Vasquez  (2010)
Understanding innovation in the telecommunications sector of rural argentina - Martha Garcia-Murillo y Fatima K. Espinoza-Vasquez  (2010)
Understanding innovation in the telecommunications sector of rural argentina - Martha Garcia-Murillo y Fatima K. Espinoza-Vasquez  (2010)
Understanding innovation in the telecommunications sector of rural argentina - Martha Garcia-Murillo y Fatima K. Espinoza-Vasquez  (2010)
Understanding innovation in the telecommunications sector of rural argentina - Martha Garcia-Murillo y Fatima K. Espinoza-Vasquez  (2010)
Understanding innovation in the telecommunications sector of rural argentina - Martha Garcia-Murillo y Fatima K. Espinoza-Vasquez  (2010)
Understanding innovation in the telecommunications sector of rural argentina - Martha Garcia-Murillo y Fatima K. Espinoza-Vasquez  (2010)
Understanding innovation in the telecommunications sector of rural argentina - Martha Garcia-Murillo y Fatima K. Espinoza-Vasquez  (2010)
Understanding innovation in the telecommunications sector of rural argentina - Martha Garcia-Murillo y Fatima K. Espinoza-Vasquez  (2010)
Understanding innovation in the telecommunications sector of rural argentina - Martha Garcia-Murillo y Fatima K. Espinoza-Vasquez  (2010)
Understanding innovation in the telecommunications sector of rural argentina - Martha Garcia-Murillo y Fatima K. Espinoza-Vasquez  (2010)
Understanding innovation in the telecommunications sector of rural argentina - Martha Garcia-Murillo y Fatima K. Espinoza-Vasquez  (2010)
Understanding innovation in the telecommunications sector of rural argentina - Martha Garcia-Murillo y Fatima K. Espinoza-Vasquez  (2010)
Upcoming SlideShare
Loading in...5
×

Thanks for flagging this SlideShare!

Oops! An error has occurred.

×
Saving this for later? Get the SlideShare app to save on your phone or tablet. Read anywhere, anytime – even offline.
Text the download link to your phone
Standard text messaging rates apply

Understanding innovation in the telecommunications sector of rural argentina - Martha Garcia-Murillo y Fatima K. Espinoza-Vasquez (2010)

741

Published on

This paper explores the role of cooperatives as innovators and promoters of the information and communications industries in …

This paper explores the role of cooperatives as innovators and promoters of the information and communications industries in
Argentina. We use the open business model literature to help us understand the motivations and modus operandi of these
organizations within the context of innovation in a less developed country. We relied on five case studies with from various
communities in Argentina. In depth interviews were conducted with directors of these organizations. We find that
cooperatives operate in a similar manner as open businesses and this has allowed them to respond effectively to their
circumstances and engage in innovation inspired by the difficulties they face.We found that cooperatives operate in a similar
manner as open businesses and this has allowed them to respond effectively to their circumstances, and engage in innovation
inspired by the difficulties they face. Their innovation is driven by: their interest in fulfilling the needs of their communities;
and the regulatory environment which sometimes has protected them sometimes challenged them. We recommend
cooperatives to be given similar rights to resources as those in the private sectors; to provide them access to the universal
services fund, and to address the concerns of their “anticompetitive behavior” using the Argentinean anticompetitive law. We
think cooperatives should be given credit and support for driving innovation, and for having a decisive socio-economic
impact in their communities.

Published in: Technology, Economy & Finance
0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total Views
741
On Slideshare
0
From Embeds
0
Number of Embeds
0
Actions
Shares
0
Downloads
14
Comments
0
Likes
0
Embeds 0
No embeds

Report content
Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
No notes for slide

Transcript

  • 1. Garcia-Murillo et al. Understanding Innovation in the Telecommunications Sector of Rural Argentina Understanding Innovation in the telecommunications sector of rural Argentina Martha Garcia-Murillo Fatima K. Espinoza-Vasquez Syracuse University Syracuse University mgarciam@syr.edu fkespino@syr.eduBIOGRAPHIESMartha Garcia-Murillo: Dr. Martha García-Murillo is an Associate Professor and Director of the Telecommunications andNetwork Management Master’s program at the School of Information Studies at Syracuse University. She has an M.S. inEconomics and a Ph.D. in Political Economy and Public Policy. She has been involved in research projects for the UN, USState Department and other regional and international organizations. Her areas of research include institutional andevolutionary economics in the ICT sector, the impact of regulation on business behavior, the impact of technology onregulation factors that affect infrastructure deployment and ICT in Latin America.Fatima K. Espinoza-Vasquez is a PhD student at the School of Information Studies in Syracuse University. She has a M.S.Information Management from Syracuse University and a BA in Communication from Universidad TecnologicaCentroamericana UNITEC in Honduras. Fatima is a research fellow at the Center for Research in Collaboratories andTechnology Enhanced Learning Communities (Cotelco) in Syracuse University. Her research interest includes: VirtualOrganizations, Transnational Networks, International Development, Social Media, Geographically Distributed Collaboration.ABSTRACTThis paper explores the role of cooperatives as innovators and promoters of the information and communications industries inArgentina. We use the open business model literature to help us understand the motivations and modus operandi of theseorganizations within the context of innovation in a less developed country. We relied on five case studies with from variouscommunities in Argentina. In depth interviews were conducted with directors of these organizations. We find thatcooperatives operate in a similar manner as open businesses and this has allowed them to respond effectively to theircircumstances and engage in innovation inspired by the difficulties they face.We found that cooperatives operate in a similarmanner as open businesses and this has allowed them to respond effectively to their circumstances, and engage in innovationinspired by the difficulties they face. Their innovation is driven by: their interest in fulfilling the needs of their communities;and the regulatory environment which sometimes has protected them sometimes challenged them. We recommendcooperatives to be given similar rights to resources as those in the private sectors; to provide them access to the universalservices fund, and to address the concerns of their “anticompetitive behavior” using the Argentinean anticompetitive law. Wethink cooperatives should be given credit and support for driving innovation, and for having a decisive socio-economicimpact in their communities.KEYWORDSOpen innovation, cooperatives, information and communications industry, Argentina, Latin America, telecommunicationsregulation.INTRODUCTIONThe purpose of this paper is to explore the role of cooperatives as innovators and promoters of the information andcommunications industries in Argentina. We believe that they can be considered a special type of an open innovationbusiness model able to contribute to innovation and economic development. We also investigate their ability to face theircountries political and economic challenges in an increasingly connected and globalized world.Proceedings of the 4th ACORN-REDECOM Conference Brasilia, D.F., May 14-15th, 2010 321
  • 2. Garcia-Murillo et al. Understanding Innovation in the Telecommunications Sector of Rural ArgentinaThis research relies on five case studies from various communities in Argentina. for this we conducted in-depth interviewswith directors of these cooperatives. Given the limited amount of research that has been done about innovation in emergingeconomies and cooperatives we decided to explore the notion of open business models as a tool that can help us understandthe the operations of these organizations and the manner in which they can potentially contribute to national innovationsystems.The paper is organized into two sections. The first section provides some background information about Argentinastelecommunications sector and in particular the origins and evolution of cooperatives. The second section provides an in-depth review of the literature on innovation as well as the open innovation models their differences and similarities withcooperatives From this analysis of the literature we then present research questions and a guiding framework. The fourthsection presents the methodology. The fifth, and most important section, is the analysis of the data which identifies theseorganizations innovations, the manner in which they operate and the similarities they have with open businesses. The paperends with recommendations and conclusions.TELECOMMUNICATIONS IN ARGENTINA AND THE ROLE OF COOPERATIVESIt is widely accepted that information and communication technologies (ICTs) promote economic and social development,increase productivity and support education (Castells, 2000). Researchers have recommended governments to find ways toprovide incentives to foster: innovation, the information industry, and thus economic development (Saunders, Warford, &Wellenius, 1983). The incentives implemented in developing countries have focused on establishing a research anddevelopment agenda such as those in developed economies, hoping it would ideally help them catch up. Unfortunately, thisapproach has not provided the expected results (Wallsten, Scott & George Clarke. 2002), particularly in rural areas. (ITU,2006) (Galperin & Mariscal, 2007).Given the failure of those policies, it is thus worth exploring other alternatives of which cooperatives is one of them. Fromprevious studies we know that cooperatives and other small-scale market entrants have played an important role in theintroduction and development of information and communication services in rural areas of Latin America. (Galperin & Bar,2006; Simmons & Birchall, 2008). Such is the case of Argentina; the government has struggled keeping up with the rapidpace of technological innovation since the acquisition of its first telecommunication system in 1880. In the 1940’s itattempted to have a more hands-on strategy to develop the industry by nationalizing its telephone operator. the strategy didnot work as expected as many rural communities were left unconnected by ENTEL (the national telecomm). As aconsequence of the low penetration, in the 60’s, a number of concerned cooperatives in these rural areas got organized tofulfill their communication needs . By 1965 there were over a hundred cooperatives providing telecommunication services.With the 1990 telecommunications reform, when ENTEL was privatized, cooperatives were able to strengthen their businessand make alliances. Cooperatives have strengthened as small-scale telecom operators; have emerged with new businessmodels, to offer ICT services to the rural areas that have been overlooked by government and large companies (Galperin &Bar, 2006).Today the Argentineans communications sector is characterized by a small number of urban concentratedtelecommunications carriers and a large number of cooperatives that serve primarily sub urban, rural or isolated communities.The major carriers concentrate their operations in the Northern corridor that connects the cities of Rosario, Córdoba,Mendoza, and Santiago de Chile. The rest of the country has much less options for connectivity if any. It is in those regionsof the country where there is a higher concentration of cooperatives and several of them have been in existence for manydecades between 50 and 80 years. They started trying to resolve some basic needs such as access to electricity and theybecame so good at it, that they have expanded both their customer base as well as the number of services that they provide. InHinca, for example, 35% of the electricity is sold by cooperatives. ( personal interview with Beta (Huinca Gustavo Garcia)These entities have taken the role of innovators by bringing telecommunication services to remote areas where neither theprivate sector or the government have been able to reach. (Galperin & Bar, 2006) Thanks to cooperatives, a person’s averagemonthly spending on mobile telephony is of USD$11.00 (6.3% of income) in these locations where the cost would have beenmuch higher under a private service provider. (Galperin & Mariscal, 2007), A considerable percentage ( 87%) of thepopulation owns a mobile phone (Galperin & Mariscal, 2007). Their unique characteristics, which much resembled those ofopen business, has allowed them to provide and develop the information and communications industry in the rural areas ofArgentina.Proceedings of the 4th ACORN-REDECOM Conference Brasilia, D.F., May 14-15th, 2010 322
  • 3. Garcia-Murillo et al. Understanding Innovation in the Telecommunications Sector of Rural ArgentinaLITERATURE REVIEWIt is well accepted that innovation and technological change drive economic growth (Kim and Nelson, 2000) (Saunders,Warford & Wellenius1983). Fagerberg and Srholec (2008) argue that innovations provide competitive advantage at theindustry level but they also positively affect a country’s competitiveness. They claim that is not only technology, but alsosocial and governmental competencies that foster innovation. Given these agreements will explore innovation in thetelecommunication sector in Argentina, particularly in the rural areas. In the following sections we analyze the contributionsfrom scholars that have looked at innovation, we will particularly focus on the literature on open innovation given that wethink cooperatives show characteristics of open business models.InnovationFor the last century a “conversation” has been taking place regarding the factors that foster innovation and economicdevelopment in newly industrialized economies . (Schumpeter & Opie, 1955; 1934) (Shionoya, Perlman, & InternationalSchumpeter Society. Meeting, 1994)(Rostow, 1959)(Patrick, 1966)(Levine, 1997; Walker, 1969)(J. Fagerberg, Mowery, &Nelson, 2005; Nelson Sidney & Richard, 1977; Nelson & Winter, 1982)(Aghion & Howitt, 1992; Romer, 1990)(Grossman &Helpman, 1991)(Grant, 2002)(Lundvall, 2010) (McKnight, Vaaler, & Katz, 2002). Castellacci (Castellacci, 2008), argues thatthere are two economic approaches to the of study innovation within the Schumpeterian tradition; (1) the traditional“Research and Development” (R&D) approach and (2) the “Evolutionary” view of innovation. Under the Schumpeterianview, innovation is a concept associated with cutting edge technological advances and/or inventions created with intellectualresources within an organization in the context of developed economies. In the evolutionary view, innovation is no longer aprivilege of developed nations and is associated with implementation of existing ideas. Table 1 provides various views ofinnovation in the two traditions. Author Definition of Innovation Innovation Tradition Innovation is a process of creative destruction in which new combination of existing resources replaces old ones. Schumpeter New Products, new methods of production, new sources of supply, the R&D & Opie exploitation of new markets and new ways of organize business. (Schumpeter & Opie, 1949) Highly complex, hard to measure and uncertain process of creation and marketing Kline & the new. This process intertwines economic and technological considerations. R&D Rosenberg (Kline & Rosenberg, 1986) Teece Process of developing new products.new ideas, and new methods.(Teece, 1986) R&D Fagerberg & Innovation is the first attempt to carry out an invention into practice. It is a R&D Srholec lengthy, continuous process involving interrelated innovations. (J. Fagerberg & Srholec, 2008; J. Fagerberg et al., 2005) Christensen Innovation is a disruptive strategy that changes the way things are done. R&D (C. M. Christensen, 2002; J. F. Christensen, Olesen, & Kjaer, 2005) Rogers “An idea, practice, or object that is perceived as new by an individual or other Evolutionary unit of adoption.” (Rogers, 1983) Viotti Innovation is any “technical change for technological catch-up”. Innovation as Evolutionary R&D is typically a privilege of industrialized countries. Whereas in industrializing economies, Innovation is absorption and improvement of to the absorption and improvement of innovations produced in the industrialized countries. (Viotti, 2001)Proceedings of the 4th ACORN-REDECOM Conference Brasilia, D.F., May 14-15th, 2010 323
  • 4. Garcia-Murillo et al. Understanding Innovation in the Telecommunications Sector of Rural Argentina Open Innovation: Is the use of purposive inflows and outflows of knowledge to accelerate internal innovation, and expand the markets for external use of Chesbrough Innovation, respectively. It assumes that firms can and should use external ideas Evolutionary as well as internal ideas, and internal and external paths to market, as they look to advance their technology. (H. W. Chesbrough, 2003) Table 1. Definitions of Innovation within the two traditions Research and Development and EvolutionaryCastellacci argues that the two views have been used indistinctly, but that they are in fact quite different. He states that eachview has different implications for a) the standards of empirical research; b) theoretical foundations; and c) policyimplications. The first view (R&D) focuses on the research and development activities carried out by private firms as aprimary source of innovation and it is normally measured by the percentage of revenue allocated to R&D or the number ofpatents received. The second view (evolutionary) considers innovation to be context-specific, these encompass companiesstrategies carried to gain competitive advantage, (e.g. equipment acquisitions, expansion of services, customer support).Researchers have used the evolutionary perspectives as a framework to study newly industrializing counties such as Brazil, S.Korea and Singapore (Cooper, 2005), thus advocating for a shift in the studying of innovation, particularly in the context of aNIE. Coherent with Roger’s (1983) diffusion of innovation theory, the evolutionary view considers innovation as a synonymof dissemination; the introduction of new products, new services, and improvements, more functions, customizations, andeven small adjustments can be considered innovations. Innovation is then defined as “technical changes” taken to implementnew services or adopt new products in specific contexts. (Viotti 2001; Rogers 1995). Considering that the innovations carriedout by developing countries in the last forty years have been done through imitation (McKnight etal. 2001) we think thisdefinition of innovation is suitable to study innovation in a newly industrialized economy such as Argentina. (Ehrlich,Eisenach, & Leighton, 2009)Open InnovationConsistent with the evolutionary view of innovation, Open Innovation (OI) is a business model that proposes the use ofexternal sources of value creation (Chesbrough 2005). OI acknowledges the reality of globalization, distributed knowledge,and ubiquitous communication media. It takes advantage of these external resources and ideas and incorporates them intotheir business processes to make a profit (McKnight 2001). “Open innovation assumes the cooperation of two or more organizations — at least one generating an innovation and at least one utilizing it — with a viable business model for each” (West in Chesbrough, 2005 p. nn)We think that cooperatives can be considered a special, and perhaps more primitive type, of and open business process thatallows external ideas to be implemented, and that has shaped the current state of the information and communicationsindustry in rural Argentina. The concept of open innovation emerged within the context of the private sector, there are ofcourse important differences between the original notion of open innovation and the manner in which cooperatives havetraditionally worked. In cooperatives all the subscribers are members and decisions are made taking into consideration theinterest of the community as a whole. While it is not possible for all of the members to contribute and make decisions, thereis a structure through the cooperatives representatives that members of the community can make business decisions. Table 2illustrates the similarities between the manner in which a cooperatives functions and the traditional open innovation format.Proceedings of the 4th ACORN-REDECOM Conference Brasilia, D.F., May 14-15th, 2010 324
  • 5. Garcia-Murillo et al. Understanding Innovation in the Telecommunications Sector of Rural Argentina Open Business Description Cooperatives Innovation Use and adoption of external sources of value creation (products, ideas, X X technologies) Allow external elements to join (ideas, partners, resources) X X Change/Destruction of old organizational relationships X X Change/Destruction of management practices X X Change/Destruction of investment policies X X Change/Destruction of business models X X Open Decision-making X Open Membership X Establishment of strategic alliances X X Strong interaction with its environment and permeable boundaries X X between the firm and its environment. Table 2. Comparison between cooperatives and open innovation businessThe Role of Government in Innovation (this section is completed except for the diagram)Authors like (Molano 2001) argue that governments are unable to adapt to the rapid pace of the destructive forces of creativebusiness and cloud down the process of innovation. Throughout history there are many cases in which the private sectorbrought about innovation when governments were not been able to do so (McKnight 2000; Kim & Nelson, 2000.) There areseveral views about the role of governments fostering innovation. One side argues governments should have an open policyand deregulate the environment to allow private entities to innovate (Pack 2000). Another side argues that governments canposted and facilitate innovation through policy, regulation and incentives (Lall 2000). Strategies though, should be selectiveand sector-specific and allow countries to establish their own indigenous capabilities. Consistent with Lall’s position,Fagerberg & Srholec (2008) argue that governments play a determinant role to help countries catch-up. Countries need tohave a “well developed innovation system” that integrates social and technological capabilities. Fagerberg and Srholec(2008) identified four fundamental “capabilities” that allowed developed countries to thrive: (1) governance, (2) politicalsystem, (3) national innovation systems and (4) openness to trade.Taking into consideration the data we have available, we will focus on the third capability: national innovation system .National innovation systems should contain elements of learning and training of human capital (Lall, 200). Assimilationtheory argues that there is a learning component associated with the adoption and mastering of new technologies. through aprocess of imitation and reverse engineering people can learn the skills necessary to become innovative (the traditional R&Dapproach) in their particular context (Kim & Nelson, 2000). McKnight (2000) also argues that in addition to human capital,policy should focus on new tools and techniques to support private sector innovation.At the industry level Castellacci (Castellacci, 2008) proposes governmental measures to coordinate organizational policies tofoster innovation. Fagerberg and Srholec (J. Fagerberg & Srholec, 2008) suggest the same at the national level; they arguethat a combination of institutional arrangements and policy interventions can positively affect innovation.In the Latin American telecommunications market, Gutierrez and Berg (Gutierrez & Berg, 2000) suggest the creation of newregulatory models with tailored institutional arrangements to promote investment and innovation in the sector. The studynonetheless is not very specific with respect to the particular regulatory changes that would accomplish that.In summary, this study parts from the theoretical assumption that innovation brings about national competitiveness andeconomic development. The evolutionary view of innovation allows us to evaluate innovation in the ArgentinianProceedings of the 4th ACORN-REDECOM Conference Brasilia, D.F., May 14-15th, 2010 325
  • 6. Garcia-Murillo et al. Understanding Innovation in the Telecommunications Sector of Rural Argentinatelecommunications sector. Open Innovation functions as a framework to study cooperatives as innovators and to describetheir complex relationships with other organizations including the government. it is also evident from the literature that thereare actions governments can take to enable innovation at the industry level (Castellacci, 2008) (Frenkel et al., 2008). (Lerner1999). (Kassicieh, 1993) (Gruber & Verboven, 2001).Thus to understand innovation in the Argentinean information and communications industry, we look at cooperatives asmodels of open innovation to understand: 1) their role in promoting innovation; 2) their business model as an example ofopen innovation; and 3) the manner in which regulation has fostered or hindered innovation in this context (Fig. 2) given thisobjectives this paper will address the following research questions:1. What impact do cooperatives have on innovation in the information industry in Argentina?2. What are the reasons that may have prompted cooperatives to engage in innovation? Has their modus operandi, is a type of an open business model contributed to their success/ failure?3. Does the Argentina have a regulatory framework that can fosters or hinders innovation of these smaller organizations? Fig. 3 Variables at each level of the innovation processMETHODOLOGYThis paper is an exploratory qualitative research of cooperatives in Argentina. We selected the country because of previousevidence of having a thriving cooperatives sector in telecommunications. The project relied on in-depth interviews with highlevel officials at five cooperatives in various regions of the country. The companies interviewed agreed to do so after theyanswered a survey with a larger pool of participants. All of the companies that participated in the survey came from a publicdatabase available from the National Communications Commission of Argentina (CNC as in Spanish) website. From the 50companies that answered the survey eighteen were cooperatives, and five of them agreed to be interviewed. All theinterviews were done through phone in Spanish, and each of them had an average duration of about 50 minutes. An interviewquestionnaire was prepared in advance to assure consistency across all the interviews. All the interviews were transcribed inSpanish (both researchers are fluent in English and Spanish ) which generated approximately four pages of content for eachinterview. The interview asked basic information of the company origins, examples of innovations they have engaged and therationale for having done so. Each of the interviews were then coded using a computer assisted qualitative data analysissoftware called QDA Miner, their guiding criteria for the analyses were the research questions posed earlier in the paper.Table 3 provides a short description of each of the companies analyzed this paper. Because of privacy and competitiveconcerns the cooperatives are not identified by their real name and use instead letters to identify them.Proceedings of the 4th ACORN-REDECOM Conference Brasilia, D.F., May 14-15th, 2010 326
  • 7. Garcia-Murillo et al. Understanding Innovation in the Telecommunications Sector of Rural Argentina Company Geographic location Type of services provided Description name Coop A Huinca Renancó, Córdoba Public telephony A cooperative founded int Province, Central Argentina he 1940s, entered into the Analog and IP Telephony telecommunications industry in 2000. Made alliances with other cooperatives to implement 186 miles of infrastructure. Coop B Pinamar, East Coast, Telephony (local and Small cooperative founded Buenos Aires Province East international), and Internet the 1960s. It has seventy of Argentina employees. Installed its digital Coop C Córdova, Córdova Province, Public, Local, National, and Relatively recent small Central Argentina International phone and private company created by Internet services an alliance of small cooperatives in order to circumvent regulatory limitations related to future services. Coop D All Argentinean Territory Telephony, Internet, Cooperative founded in the Broadband, data transport, begining of the 1960s home security systems, Coop E Carhue Province, East- Telephony Cooperative founded in Center of Argentina 2007 as a joint-venture of Internet (ADSL) two cooperatives. Interconection to Bahia Blanca Table 3. Description of companiesANALYSISThe analysis of the five cooperatives with which we had interviews is organized in this section based on the researchquestions that were posed for this paper. Because we are using the open innovation business as a framework to understandthe manner in which cooperatives operate, this section makes comparisons between those two types of organizations andreflects specifically on the elements that foster or hindered innovation.1. Cooperatives and InnovationThere are many dimensions in which we can observe innovation in cooperatives. The first one is in its membership anddecision-making processes. Cooperatives have open memberships and decision-making that is done with some sort ofrepresentation: "... each customer becomes a partner, much like a shareholder who can vote to choose the council who leadsthe business. This generates a strong local identity, utilities are distributed ........and the community appreciates it."(Manager, Coop B). Even though decisions are made only by those individuals representing, this horizontal approach is moreconsistent with an open business model, than with a traditional vertical business model in which decision-making iscentralized.Proceedings of the 4th ACORN-REDECOM Conference Brasilia, D.F., May 14-15th, 2010 327
  • 8. Garcia-Murillo et al. Understanding Innovation in the Telecommunications Sector of Rural ArgentinaThe market liberalization in the 1990s allowed cooperatives to diversify and offer telecommunication sevices. In order to dothat, they had to rethink their old management practices, investment policies organizational relationships and businessmodels. Since many cooperative had existed for several years, most of them already had key business resources in place suchas billing systems, customers, funds, and in some cases even electrical networks. Many of them had to make significantchanges to the way they were used to do business, these changes ranged from updating their accounting systems to heavyinvestments in infrastructure deployment. For instance Coop C invested in an entirely new corporate infrastructure thatcurrently has over 9000 subscribers with a 5 to 10 percent growth. Coop A Beta invested on a 300 km (185 miles) fiber opticnetwork that connected several other cooperatives. We must also note that these investments and adoptions of existing ideasor products into a new endeavor are characteristic of an open business model.Unlike their private counterparts cooperatives have been innovative in the manner in which they conduct their businesses. Aprivate corporation for example would find it difficult to cooperate with another company to pool resources, in fact in somecases this can even be prohibited by law. Open innovation businesses on the other hand have realized the benefits of poolingresources which in the case of cooperatives is manifested through the association of several of these organizations. Alliancesallows them to generate higher levels of volume, which can benefit their clients and give them leverage when negotiatingwith incumbents or to pay off a large investment. "Telecomms are volume businesses, this forces them to have a broadregional view in order for them to have high volumes and low costs" (Coop A) These alliances are done through associationssuch as FESECOR, FECOTEL, FECOSUR and INVERTEL. There are many other cooperatives in the Argentineantelecommunication industry who have made strategic alliances.Another important innovation for cooperatives is the strong interaction with their environment, this can be demonstrated inthe way in which they support their clients/members. For many private companies it is unprofitable to have representation insmall communities; the way they handle customer services is through remote 800 numbers that can only offer genericanswers and little support. "Here people are used to sit and talk. The international models have shut everything, bills need tobe sent to another business, support by telephone has thousands of menus. When you manage the resources locally, they arespent locally... that is very important" (Manager, Coop A). The boundaries between cooperatives and their environment aremore permeable, they can have a strong influence in the community and vice-versa.Lack of stronger intervention from the regulator and interconnection issues have been blessing and a curse for cooperatives.While these organizations can get access to the incumbents networks, the terms are often quite onerous. "The requirementsimposed by those companies were too burdensome, they requested links in far away communities at 100 or 200 Kms (60 to120 miles) away" (Manager, Coop A). The inability to obtain favorable terms forced them, as was stated before, to buildtheir own infrastructure but also to become much more creative in the manner they managed their networks. A group ofcooperatives built a network wide enough that encompassed several communities; and through creative incentives,fostered local traffic that would avoid the costs of interconnection.Because cooperatives operate on a cost-basis model, they have little margin for innovation. This forces them to be moreingenious in the way in which they make their investments. Some cooperatives have been particularly creative: Acooperatives in the east coast of Argentina set up a software development company. They build software for themselves andthen sell their products to other companies. (Manager, Coop B). This same cooperative was also the first one in LatinAmerica to install a digital switch in the 1980s when analog systems were still prevalent. At this respect the general managerstates: "...it was the first city to have a digital switch, and for many years the only one to have telephone wake-up calls. Wewere one of the first companies in the industry to offer conference calling, call forwarding and innovative phoneplans.....people reacted positively when we implemented detailed billing in the 1980s. The cooperative had a breakthrough,thanks to implementation of technology that could produce better "timing" (this is in regards to time-based charges)(Manager, Coop B)Cooperatives in Argentina have reactied to the particularities of the Argentinean telecommunication environment, they havebecome innovators because they have opened their business processes at different stages of their life-cycles. They haveopened their decision-making process and company boundaries in order to allow members of the community andshareholders to have a say in the destiny of the company. They have innovated in their investment policies and approach tobusiness, they have diversified their services and entered new markets, built their own infrastructure and managed their ownnetworks. They have also innovated in their management practices by forming strategic alliances that have given themleverage.Proceedings of the 4th ACORN-REDECOM Conference Brasilia, D.F., May 14-15th, 2010 328
  • 9. Garcia-Murillo et al. Understanding Innovation in the Telecommunications Sector of Rural Argentina2. Rationale for innovation with cooperativesBusiness, unlike cooperatives, have a different rationale for operation. For instance in the open source community peopleengage in the development of sofware for other than for profit reasons; for example, programmers often participate inprojects that entails no remuneration because of the prestige and perhaps experience that they can get out of a project(Crowston & Howison, 2006). Individuals participate in the community to share knowledge, engage intellectually, gain agood reputation, or for the excitement of seeing the final product working. Cooperatives engage in innovation to benefit thecommunity. In some cases, these innovation initiatives entail important investments. Coop C, for example made a significantinvestment in infrastructure. "It was a big economic challenge, we had to invest USD $2" (Manager, Coop C)For the most part a cooperative initiates such type of initiatives because they see an important need among theirmembers.The main motivation to invest for one of the cooperatives that we interviewed, was simply to provide access tobasic phone service. They did it by strategically selecting communities that needed it the most. Coop C Manager says: "InJesus Maria they had electricity, but they did not have telephone service, and people had been requesting it for quite sometime" The priority in this case was determined based on how much the community had demanded the service.Coop A had to make a calculated cost benefit analysis. When they requested capacity, the incumbent operator charged themsomething between $1,800 and $2,000 per megabyte while the same capacity was being offered for $200 in the main cities ofthe country. "...... we made a deal with Red Digital Sur that allowed us to build a 300 Km (186 mles) of fiber optic. Thisnetwork connected eight localities and reached over 60,000 people. The purchasing price was of USD $270 per megabite,which is about 10% of the original price. We are now getting ready for IPTV." (Manager, Coop A) This particularcooperative was not only making a cost-benefit calculation for the short but also long term investment and opportunities.There are some cooperatives closer to the major network backbones of the country but there are also others that have noconnectivity at all, those are the ones that have been forced to build their own networks.This problem was exacerbated by theliberalization of the market in 2000 and the economic crisis in 2002. Such was the case of Coop A; which in addition toneeding to respond to the demand of services, their investment motivation was thus basic survival. For Coop A this meantbuilding up their own infrastructure. "Market liberalization made markets become concentrated and small towns had noaccess. We were forced to provide acces" (Manager, Coop A)Cooperatives tend to operate in remote areas where the private sector has not yet initiated any services. Ideas for investmentin this kind of remote disconnected communities have to come from their community or neighboring communities. In thiskind of open business model those that benefit the most are those were there is little research or expertise.Cooperativestherefore often pool their resources to accomplish their objectives; their community of course is much more narrow than anyof its kind in a networked world. Coop C formed alliances with for major infrastructure investments. Nevertheless managingthe alliances has not been easy for them because 1) each of them is by nature highly independent because they had to survivewith no support in the past. 2) coordination in a non-network world is much more difficult and 3) lack of technical expertisein some of the smaller cooperatives often makes them much more risk-averse and unwilling to sign off to projects that mayseem too ambitious. In this respect Coop C manager says: ) "All cooperatives are affiliated, its hard for 600 cooperatives toagree on a single infrastructure"Because cooperatives dont have a profit motive, they need to be able to survive on very low, if any, profit margins. It is notuncommon for these organizations to cross subsidize among a portfolio of very diverse services. It would be ideal, forexample, for them to be able to expand the spectrum of communication services that they can offer through the networkinfrastructure that they have invested in. They would like to offer, for example, TV services which for the moment areprohibited from doing. "The law wont allow coops to have television licences. This is a problem because the existingnetworks could be used to provide television....adding services is maximizing. It would be ideal to have electric, telephoneand television services over the same networks, and to use technology that allow us to use the same cables, that would behighly efficient" (Manager, Coop A)Several of the larger cooperatives have been able to diversify their services into many areas:"Coops are very strong, they practically offer all services. Coop A offers, on top of electricity, public lightning, landtelephone, ADSL Internet, Internet access, social services, health services, emergency services, funeral services in which thecommunity pay a monthly fee/insurance and the coop takes care of the funeral service, distance education, potable watter, allof these services are related to the communitys quality of life." (Manager, Coop A)This type of business model has great benefits to rural communities because in addition to offering services of need to thepopulation it also helps to resolve a greater issue, which is the migration to the countries capitals. "Argentina is very big andit has low and poorly distributed population, if there is no (universal service) fund in low profit areas, the gap grows bigger.Proceedings of the 4th ACORN-REDECOM Conference Brasilia, D.F., May 14-15th, 2010 329
  • 10. Garcia-Murillo et al. Understanding Innovation in the Telecommunications Sector of Rural ArgentinaArgentina has always been an innovator, however due to its population distribution, everything is concentrated in the largemarkets" (Manager, Coop A). This statement makes clear that in addition to the diversification of services as a risk spreadingmechanism there are other elements that dont only benefits the community but the country as a whole.3. Policy FactorsThe liberalization of the market in 2000 was welcomed by many players in the telecommunication market. On one side,entities who were not allowed to enter the market due to the 1992 decree, were now able to become players. Cooperativeswere able to expand and diversify their basket of services. They entered new markets and compete with new players. TheManager of Coop C stresses these points: "Since 1992, coops and private companies had exclusive rights to the market.Nobody else was allowed to provide telecommunication services until the decree 764/2000 in the Argentinean NationalTelecommunication Law was signed.... It was a very competitive time; coops invaded wherever they already providerelectricity." The current broadcasting and telecommunication laws prohibit cooperatives from offering cable TV andwireless Decree 22285/80. Laws and regulations would have to be changed to allow these entities to have access to resourcessuch as spectrum and to operate alongside for-profit corporations. Cooperative managers "hope liberalization with respect tothese services"(Manager Coop D), they argue "there is a high interest in the change of the broadcasting andtelecommunications law" (Manager Coop E), though they acknowledge it will be a complicated process.In the same way, cooperatives structure also represent a challenge for governments, because it is difficult for them toconceive giving a license to a non-for profit organization. In this respect the notion of anticompetitive behavior may be anissue because at some point, in some of those larger communities cooperatives may have to compete with for-profitcorporations and there is concern they might find themselves at disadvantage. Coop C manager states: "Very few of them(cooperatives) have a bank account big enough to buy a licence and offer cellphone. The process is in itsinfancy" Cooperatives usually have low cash flow and would not easily be able to participate in spectrum auctions or similartransactions.In addition, given their cross subsidization schemes and their not for profit model, they are often perceived as beinganticompetitive. Cooperatives at this respect comment: "The cooperative model is different... partners in the annualassembly may use the surplus on a totally different way than a for-profit business. An organization like ours would buyequipment for the public hospital, because we consider public health very important. For someone in business this is verydifficult to understand; for a caring organization like ours, its important to invest in our own community" (Manager, CoopA)Unfortunatelly, the universal service program that was proposed in the 764/2000 decree has never been implemented. Thiscould have been a mechanism to avail cooperatives of resources that would help them establish or improve theircommunication services. Cooperatives are well aware of the program and regret that no implementation has been done sofar."There are opportunities for operators, such as universal service .......... with those funds ti would be possible to financetelephony for neighborhoods, however as a mechanism it has not been effective" (Manager, Coop C)CONCLUSIONS AND RECOMMENDATIONSThere is of course one important difference between open innovation business and the manner in which cooperatives operate.Cooperatives have benefited from receiving monopoly protection.Given their limited resources cooperatives have to make very concerted effort to select investments that will result in thegreatest benefits. like the Open Innovation businesses they rely on input from the entire community to help them prioritize ontheir projects.Cooperatives should be considered innovators. They fit the open innovation model; the openness of their model allows themto get input from their communities that helps them make decisions and they are more open boundaries facilitates the makingof alliances that bring greater benefits to their business and members.Cooperatives tend to have a gradual approach to innovation. They do so because of their limited resources. This approachhowever has allowed them to more successfully take on projects that private corporations might have taken much faster butperhaps also leading to a greater percentage of failure. Their gradual approach has allowed them to learn and the success ofone business has helped to support others emerging businesses. In the telecommunications field they started with fixedtelephony and later on they added Internet access with the vision to also be able to provide cellular and a TV to theirmembers.Proceedings of the 4th ACORN-REDECOM Conference Brasilia, D.F., May 14-15th, 2010 330
  • 11. Garcia-Murillo et al. Understanding Innovation in the Telecommunications Sector of Rural ArgentinaUnlike private corporations the rationale for innovation is significantly different. Cooperatives innovate because of thebenefits they see in their communities. These services and infrastructure investments that they undertake are done because ofthe need from the members to have the same type of services as their counterparts in urban settings. Their innovations arethus not only restricted to the introduction of new products or services but also in their business practices and the manner inwhich they interact with the community, their members. These organizations, like open innovation businesses, are more intouch with issues in the community. For both, their core values, are to benefit their communities.The policy environment in Argentina has shaped the way cooperatives have evolved. They were to a certain extent protected,but we must admit that the function they perform perhaps wouldnt have been done by a private business. We dont argue thatthey should continue be protected, however we cannot deny as Galperin indicated they have played a very important role inthe information industry and thus economic development of Argentina. Given these benefits governments have much to learnand do you continue to support these organizations and their communities.The Argentinean government should recognize cooperatives as entities with similar rights to resources as those in the privatesector. These should thus give them access to spectrum as well as the ability to enter for example the television market whenthe law is changed. Given that these organizations have limited cash, the universal service fund should provide resources forthem to continue to invest in the modernization of their infrastructure. Ideally, the Argentinean government, should invest ona nationwide backbone that could allow its remote communities to tap into this network at more affordable prices. Concernsfor anticompetitive behavior should be dealt on a case-by-case basis using Argentinas anticompetitive law. This howevershould take into consideration the fact that these are not for-profit corporations that will in turn lower cost of operation thantheir private counterparts. These businesses could also be supported with some training that could potentially make theiroperations more efficient. In this process we shouldnt forget the benefits of having a model similar to that of open businessthat they should continue to exploit as they move into more networked global communities.Proceedings of the 4th ACORN-REDECOM Conference Brasilia, D.F., May 14-15th, 2010 331
  • 12. Garcia-Murillo et al. Understanding Innovation in the Telecommunications Sector of Rural ArgentinaREFERENCES Aghion, P., & Howitt, P. (1992). A model of growth through creative destruction. Econometrica: Journal of the Econometric Society, , 323-351. Castellacci, F. (2008). Innovation and the competitiveness of industries: Comparing the mainstream and the evolutionary approaches. Technological Forecasting and Social Change, 75(7), 984. Castells, M. (2000). The rise of the network society Blackwell Pub. Chesbrough, C., & Vanhaverbeke, W. (2009). What is open innovation? Chesbrough, H., & Teece, D. J. (1998). When is virtual virtuous? organizing for innovation. The Strategic Crowston, K., & Howison, J. (2006). Assessing the health of open source communities. Computer, 39(5), 89-91Management of Intellectual Capital, Chesbrough, H. W., & Teece, D. J. (2002). Is virtual virtuous? Chesbrough, H. W., Vanhaverbeke, W., & West, J. (2006). Open innovation: Researching a new paradigm Oxford University Press, USA. Chesbrough, H. (2004). Managing open innovation. Research-Technology Management, 47(1), 23-26. Chesbrough, H., & Crowther, A. K. (2006). Beyond high tech: Early adopters of open innovation in other industries. R & D Management, 36(3), 229-236. Chesbrough, H. W. (2007). Why companies should have open business models. Mit Sloan Management Review, 48(2), 22- +. Chesbrough, H. W., & Appleyard, M. M. (2007). Open innovation and strategy. California Management Review, 50(1), 57- +. Chesbrough, H. W. (2003). Open innovation :The new imperative for creating and profiting from technology. Boston, Mass.: Harvard Business School Press. Christensen, C. M. (2002). The rules of innovation. Technology Review, 105(5), 32. Christensen, J. F., Olesen, M. H., & Kjaer, J. S. (2005). The industrial dynamics of open innovation - evidence from the transformation of consumer electronics. Research Policy, 34(10), 1533-1549. Cho, D. S. (1992). From subsidizer to regulator - The changing role of the Korean government. Long Range Planning, 25 (6), 48-55. Ehrlich, E., Eisenach, J. A., & Leighton, W. A. (2009). The impact of regulation on innovation and choice in wireless communications. SSRN eLibrary, Fagerberg, J., & Srholec, M. (2008). National innovation systems, capabilities and economic development. Research Policy, 37(9), 1417-1435. Fagerberg, J., Mowery, D. C., & Nelson, R. R. (2005). The oxford handbook of innovation. Oxford; New York: Oxford University Press. Frenkel, A., Shefer, D., & Miller, M. (2008). Public versus private technological incubator programmes: Privatizing the technological incubators in Israel. European Planning Studies, 16 (2), 189-210. Gabelmann, A. (2001). Regulating European telecommunications markets: unbundled access to the local loop outside urban areas., Telecommunications Policy (Vol. 25, pp. 729(721)). Galperin, H., & Bar, F. (2006). The microtelco opportunity: Evidence from latin america. Information Technologies and International Development, Galperin, H., & Mariscal, J. (2007). Poverty and mobile telephony in latin america and the caribbean. Garcia-Murillo, M., and Pick, James. (2004). Interconnection Regulation: Explaining Dominance by Incumbents in Mexico and the United States. Communications and Strategies, 53 (1).Proceedings of the 4th ACORN-REDECOM Conference Brasilia, D.F., May 14-15th, 2010 332
  • 13. Garcia-Murillo et al. Understanding Innovation in the Telecommunications Sector of Rural Argentina Gouldson, A., & Bebbington, J. (2007). Corporations and the governance of environmental risk. Environment and Planning C: Government & Policy, 25 (1), 4-20. Grant, R. M. (2002). The resource-based theory of competitive advantage. Strategy: Critical Perspectives on Business and Management, , 135. Grossman, G. M., & Helpman, E. (1991). Innovation and growth in the global economy. Cambridge, Mass.: MIT Press. Gruber, H., & Verboven, F. (2001). The evolution of markets under entry and standards regulation—the case of global mobile telecommunications. International Journal of Industrial Organization, 19 (7), 1189-1212. Gutierrez, L. H., & Berg, S. (2000). Telecommunications liberalization and regulatory governance: Lessons from latin america. Telecommunications Policy, 24(10-11), 865-884. InfoDev. (2009). ICT regulation toolkit. Retrieved July 9, 2009, from http://www.ictregulationtoolkit.org/en/Index.html International Telecommunications Union (ITU). (2006). World Information Society Report. Geneva: ITU Intven, H., Oliver, J., & Sepulveda, E. (2000). Telecommunications regulation handbook: Washington]: infoDev. Jacobides, M. G., & Billinger, S. (2006). Designing the boundaries of the firm: From "make, buy, or ally" to the dynamic benefits of vertical architecture. Organization Science, 17(2), 249-261. Kassicieh, S., & Radosevich, R. (1993). Strategic challenges and proposed responses to competitiveness through public sector technology. California Management Review, 35 (4), 33-33. Kim, L. (1980). Stages of development of industrial technology in a developing country: a model. Research Policy, 9 (3), 254-277. Kline, S. J., & Rosenberg, N. (1986). An overview of innovation. In Ralph Landau, Nathan Rosenberg, National Academy of Engineering (Ed.), The positive sum strategy: Harnessing technology for economic growth (pp. 275-305) National Academy Press. Krouse, C. G., & Krouse, E. (2005). Pricing network interconnection: advantages held by integrated telecom carriers., Review of Industrial Organization (Vol. 27, pp. 35(12)). Levine, R. (1997). Financial development and economic growth: Views and agenda. Journal of Economic Literature, 35(2), 688-726. Lerner, J. (1999). The Government as Venture Capitalist: The Long-Run Impact of the SBIR Program*. The Journal of Business, 72 (3), 285-318. Lundvall, B. Å. (2010). National systems of innovation: Toward a theory of innovation and interactive learning Anthem Pr. McKnight, L. W., Vaaler, P. M., & Katz, R. L. (2002). Creative destruction: Business survival strategies in the global internet economy Nelson Sidney, G., & Richard, R. (1977). In search of useful theory of innovation* 1. Research Policy, 6(1), 36-76. Nelson, R. R., & Winter, S. G. (1982). An evolutionary theory of economic change Belknap Press. Patrick, H. T. (1966). Financial development and economic growth in underdeveloped countries. Economic Development and Cultural Change, 14(2), 174-189. Rogers, E. M. (1983). Diffusion of innovations. New York; London: Free Press ; Collier Macmillan. Retrieved from WorldCat Romer, P. M. (1990). Endogenous technological change. Journal of Political Economy, 98(S5) Rostow, W. W. (1959). The stages of economic growth. Economic History Review, 12(1), 1-16. Saunders, R. J., Warford, J. J., & Wellenius, B. (1983). Telecommunications and economic development Johns Hopkins University Press Baltimore, MD. Sener, F. (2008). R&D policies, endogenous growth and scale effects. Journal of Economic Dynamics & Control, 32 (12), 3895-3916.Proceedings of the 4th ACORN-REDECOM Conference Brasilia, D.F., May 14-15th, 2010 333
  • 14. Garcia-Murillo et al. Understanding Innovation in the Telecommunications Sector of Rural Argentina Schumpeter, J. A., & Opie, R. (1949). The theory of economic development : An inquiry into profits, capital, credit, interest, and the business cycle. Cambridge, Mass.; London: Harvard University Press; Oxford University Press. Schumpeter, J. A., & Opie, R. (1955; 1934). The theory of economic development; an inquiry into profits, capital, credit, interest, and the business cycle [Theorie der wirtschaftlichen Entwicklung.]. Cambridge, Mass.: Harvard University Press. Shionoya, Y., Perlman, M., & International Schumpeter Society. Meeting. (1994). Innovation in technology, industries, and institutions : Studies in schumpeterian perspectives. Ann Arbor: University of Michigan Press. Simmons, R., & Birchall, J. (2008). The role of co-operatives in poverty reduction: Network perspectives. Journal of Socio- Economics, 37(6), 2131-2140. Simpson, D. (1998). Life with the regulator. British Telecommunications Engineering, 17, 16-19. Teece, D. J. (1986). Profiting from technological innovation - implications for integration, collaboration, licensing and public-policy. Research Policy, 15(6), 285-305. Teece, D. J. - Competition, cooperation, and innovation - organizational arrangements for regimes of rapid technological- progress - ELSEVIER SCIENCE BV. Viotti, E. (2001). National learning systems: A new approach on technical change in late industrializing economies and evidences from the cases of Brazil and South Korea. Science, Technology and Innovation Discussion Paper, 12. Wallsten, Scott, and George Clarke. (2002). “Universal(ly Bad) Service: Providing Infrastructure Services to Rural and Poor Urban Consumers.”Policy Research Working Paper Series 2868. Washington, DC: World Bank. Walker, J. L. (1969). The diffusion of innovations among the american states. The American Political Science Review, 63(3), 880-899. Yannelis, D. (1998). Pricing policy and regulation in the Greek telecommunications market. Telecommunications Policy, 22 (10), 875-881.Proceedings of the 4th ACORN-REDECOM Conference Brasilia, D.F., May 14-15th, 2010 334

×