Entrepreneurial Capacity, Government Intervention and Diffusion of Technologies in Uganda: Comparing the Supply side of Modern Energy and Mobile Telephony Technologies

Abstract

The diffusion of modern technologies plays a critical role in development. Mobile Telephony Technology (MTT) has been successfully diffused in Uganda with minimal government intervention unlike Modern Energy Technology (MET), which remains outside the reach of most Ugandans despite concerted intervention efforts.  MET dissemination efforts, METs widely used in other developing countries, and METs successfully piloted in Uganda have all failed to upscale.  Policy makers are quick to blame this on poverty and ignorance but this is now challenged by rapid diffusion of MTT in similar environments.

This study explored the diffusion of technologies in Uganda, using entrepreneurial capacity (EC) as an independent variable. By comparing the fast diffusing MTT with the slow diffusing MET, our study identifies differences in measuredEntrepreneurial Capacity (EC) constructs,tempered by government interventions through governance, regulation and funding, between MTT and MET vending firms.These (indicate these things eg: “TheseECs had….”)had some significant effect on the diffusion of these technologies.

Introduction

Low access to MET poses one of the biggest challenges to economic transformation (World Bank, 2004). In the 2011/12 financial year repot, the energy sector spent $521 million in form of project support and subsidies, and more in terms of tax waivers and donor support (MOFPED, 2012). This was a 70% increase in budget allocation; and indicates the importance government attaches to the energy sector. However, with electricity still contributing just 2% of Uganda’s energy mix (MEMD, 2008) progress in disseminating MET has been slow. Successful experiments and pilot trials have not translated into replicable models for national adoption (Karekezi & Raja, 1997).

Low diffusion of MET has been attributed to poverty, lack of technical skill, lack of exposure, poor infrastructure, poor access to finance and lack of willingness to change (MEMD, 2007). However, the relatively more successful diffusion of more expensive and seemingly less critical technologies in similar environments has put to doubt most of these arguments. A case in point is the entrepreneur-promoted- MTT. Unknown in Uganda before 1995, the percentage of Ugandans owning a mobile phone has reached 42% (Tentena, 2011). This is in sharp contrast with access to electricity at 12% despite existing for over 70 years and the massive government interventions.

Differences in vendor EC could provide a more plausible explanation for this discrepancy. Antonneli (1998) holds that changing society is the role of entrepreneurs who see opportunity in changing accepted routines. According to Wilkinson & Hindle (2006), the ability to assess economic potential in new innovations and devise means of transforming it into real economic value is what is called EC.  EC enables people to seek new ways of doing things, and to adapt to changing environment by destroying old routines and replacing them with superior ways (Thornton, 1999; Thurik, 1999).

Most scholars have applauded the impact of the interventions of governments and multilateral agencies in the dissemination of MET, with a section of scholars alluding to the indispensability of government interventions. However, this study is premised on the assumption that government led dissemination efforts fall short of the EC required to achieve diffusion of technologies, hinders the participation of entrepreneurs with the necessary EC, and could therefore be responsible for the low diffusion of MET.

Problem Statement

Despite the increasing demand for eMET, the availability of a wide variety of energy sources and technologies, increasing number of projects and policies aimed at increasing access to MET in Uganda; the rate of uptake of MET has remained low (World Bank, 2004). People remain entrenched in traditional energy technologies often characterised by low productivity and decreasing returns. This compares badly with private sector promoted MTT which have become a permanent fixture in Ugandan homes. This study presupposes a higher EC in the private sector and proposes that differences in vendor EC may be responsible for the variations in diffusion between energy and MTT. That notwithstanding the difference in the magnitude of investment required for electricity projects vis-a-vis the corresponding of setting up MTT is a factor which needs to be taken into consideration.

Purpose of the Study

This study compares the effect of vendor EC on the diffusion of both MTT and MET by assessing government and donor interventions in, and the interventions’ effect on, the dissemination of MET and MTT. The study also assesses the effect of government intervention on the EC of firms involved on the supply side of MET and MTT, differences in EC between MET and MTT vending firms and the effect of EC on the diffusion of MET and MTT.

Conceptual Framework

The constructs of the model  are defined out of Rogers’ (2003) diffusion of innovation theory and Hindle’s (2007) conceptualization of EC. Diffusion arises from decisions made by potential customers to accept the new technology. This depends on the persuasions resulting from the target user’s product knowledge or awareness and the real and perceived characteristics of the technology resulting from the vendors’ dissemination strategies.

These strategies are an expression of the vendor’s EC characterized by the ability to: identify and evaluate opportunities, mobilize the required resources, and exploit the opportunities. What entrepreneurs do to create awareness, positive perceptions and persuasion for the technology determines the level of diffusion. However, the vendor’s EC is also somehow influenced by government interventions.

Literature Review

In developing economies, technology is perceived as a foreign import – an independent variable that compels people to change (Orlikoski, 1992). In more developed economies, technology is seen as a natural consequence of the actions, social interactions and decisions of individuals (Orlikowski, 1992); a dependent variable relying on people’s daily interactions. DeSanctis & Poole (1994) provides a middle ground where technology is viewed as an external force whose influences depend on human actors and organizational contexts. Communities form their own perceptions about a technology, influenced by the vendors’ actions, and determine how it can be used. These perceptions influence the way a technology is used, and mediate its impact on outcomes and diffusion (Warren, Slikkerveer, & Brokensha, 1995).

Technology diffusion depends on: characteristics of an innovation, decision-making process, characteristics of potential adopters, consequences of adopting, and communication channels used in the adoption process (Rogers, 2003). These elements originate from the two stage diffusion model, which suggests that new technologies are first adopted by opinion leaders who then influence others to adopt (Rogers, 2003; Guilhon, 2001). This seems to challenge the Technology Acceptance Model’s argument that adoption is a conscious and logical decision based on perceived usefulness and ease of use (Bwisa & Gacuhi, 1997). Rogers (2003) notes the complexity of new technologies that makes it hard for potential users to perceive usefulness and ease of use.

The multi-step flow – diffusion of innovation theory argues that exchange of information through networks influences opinions and judgment (Rogers, 2003), influencing perceptions and persuading people to adopt. According to Cohen (1989), receiving communities adopt and align technologies to their priorities, just as technologies modify structures in the receiving communities.  New technologies penetrate and influence communities, and the social structures of the communities in turn influence and modify the technologies’ original intention (Parker, 2000), meaning that communities can only effectively absorb new technologies when they develop their own capabilities (Warren, Slikkerveer, & Brokensha, 1995).

Hindle (2007) has defined EC as “the ability of individual or grouped human actors to evaluate the economic potential latent in new knowledge and to design ways to transform that potential into realizable economic value for intended stakeholders”. EC is the resource that is essential for discovery to become a realised commercial opportunity (Cunningham & Moroz, 2008). It is the condition necessary for vendors to recognize the value and feasibility in new technologies and to communicate a promise of reward to potential adopters (Krueger, 2000; Guilhon, 2001). It enables people to envision the economic potential of new technologies (Hindle, 2002). EC ensures that technologies have characteristics appropriate for the context, and are continuously adjusted to ensure that dissemination strategies are successful, replicable and sustainable (Benkler, 2006; McMillan & Woodruff, 2002).

Persuasion creates perceptions of desirability, feasibility and profitability (Bwisa & Gacuhi, 1997; Rogers, 2003). Desirability depends more on perceptions, and less on actual characteristics. Diffusion requires vendors to increase the frequency and diversity of cues supporting the desirability and feasibility of the technology (Kanter, 2000). Persuasion also addresses perceived feasibility of the technology, which is achieved by helping individuals master the technology and by the modeling of a behavior by a believable source through mentors and other role models (Sagasti, 2004; Rogers, 2003).

According to Kumbaroğlu, et al (2008) the diffusion of MET only occurs if appropriate subsidies exist, because people cannot invest in more expensive MET, especially in liberalized energy markets. However, Faiers and Neame (2006) observe that stimulating markets with grants stunts diffusion. Similarly, Velayudhan (2003) argues that over-emphasizing subsidies tends to shift focus to cost at the expense of other technology benefits. Subsidies negatively impact on the development of sustainable local markets and the creation of sufficient EC (Chang et al, 2009). These distortions create rent-seekers who, with minimal EC, use their influence to exploit government funds in wasteful ways at the expense of entrepreneurs with genuine desire to disseminate technologies for profits (Chua, 1999).

Most researchers hold the notion that a supportive policy framework is a prerequisite for successful diffusion (Li, 2008; Jacobsson & Lauber, 2006). This support, they argue, is necessary to remove barriers to adoption, build capacity, facilitate a wider debate, provide leadership and regulation, and provide incentives for adoption (Martinot et al, 1993). Although new technologies meet many forms of resistance and obstacles that require a supportive environment, it also needs a trial and error approach that encourages learning from mistakes. Government Interventions require rigid adherence to policies and procedures and don’t tolerate deviations. Indeed, well-meaning government interventions to promote technologies may sometimes create the gaps in the innovation chain that slow commercialization and diffusion of these technologies (Balachandra et al, 2008).

Government approaches tend to push technologies instead of developing structures to help markets to grow according to their social dynamics and capabilities of existing actors (Srinivasan, 2005).  Cohen (1989) shows that receiving communities adopt technologies, and adapt them to their own priorities; just as technologies modify structures in the communities. Communities diffuse new technologies after developing their own capabilities by modifying their structures (Warren, Slikkerveer, & Brokensha, 1995). By imposing foreign institutional frameworks to support the deployment of technologies, regulations block the modification of structures that could create sustainable markets for piloted projects (Balachandra et al, 2008). By interacting more closely with user communities and allowing the target users more room to negotiate conditions of adoption, entrepreneurial deployment efforts tend to cause little disruption of the social structure, enhance competences within the community and encourage new learning resulting in higher chances of technology diffusion (Shum and Watanabe, 2007).

Research design and methodologies

Panel data on the importation of MTT and MET equipment between 2001 and 2010 was used to estimate the diffusion of these technologies. A cross sectional research design was used to study the EC of the vending firms. The sampling frame was constructed from a list of all firms that imported MET and MTT equipment between 2001 and 2010. The sample frame for the MET and MTT vending firms had a total of 762 and 883 firms respectively. 35 MET and 41MTT firms were randomly selected for investigation. Up to five employees from each firm were selected as respondents.

Data were collected through a combination of surveys of employees, interviews with key informants and secondary data from URA, MEMD, MICT and the respondent firms. The EC variable was measured directly using a 7 point Likert scale questionnaire developed from constructs in the literature, in combination with the comprehensive evaluation model of EC of entrepreneurial team developed by Rui & Hua (2006).

Using the Statistical package for Social Scientists (SPSS), correlation and other descriptive statistics were generated from the pre-cleaned and pre-coded data. Responses from the MTT and MET sectors to questions regarding the EC of the firms were compared and contrasted. Responses from individual respondents were sorted by firm name and aggregated to create a new file in which the cases were transformed from individual employee responses to average firm scores. The results obtained from this aggregation were used to explore differences in EC between MET and MTT vendors; using the One-Way ANOVA to test the hypothesis that the mean responses of MET and MTT vendors were significantly different. Using bivariate correlation, the relationship between government intervention (represented by REGULATION and SUBSIDY) and EC were computed.

Findings and Discussions

Government intervention in technology diffusion is mainly through: governance, funding and regulation.

Governance intervention is through ministries and agencies. The energy ministry was established in 1998, and has since grown to become one of the big five ministries during the past decade. On the other hand, MTT issues are handled by a department in the Telecommunications Directorate in the Ministry of Information and Communications Technology established in 2006. MTT issues are also handled by Uganda Communication Commission (UCC) – a government agency that was recently merged with the Uganda Broadcasting Council (UBC). While MTT issues could not warrant a full government agency, the MET sector is governed by half a dozen government agencies that include: Electricity Regulatory Authority (ERA); Electricity Dispute Tribunal (EDT); Uganda Electricity Generation Company Limited (UEGCL); Uganda Electricity Transmission Company Limited (UETCL); Uganda Electricity Distribution Company Limited (UEDCL); and Rural Electrification Agency (REA).

Funding Intervention: Another indicator of government intervention can be deduced from the amount of money allocated to the sector in the national budget. Allocations to MICT are just about 1% of MEMD allocations (Table 1). Moreover, government on behalf of the MET sector has entered into many partnership agreements with development partners to provide budgetary support, technical assistance, training, and machinery acquisitions. The MTT sector enjoys no such support, and is completely dependent on private sector players.

• Comparison of Funds allocated to MICT and MEMD:

Source: Budget Speech (2012/13)   

Regulatory intervention: The current telecommunications policy and regulatory environment in Uganda is based on the telecommunications sector policy framework (1996), the Uganda Communications Act of (1997), and the licenses that were issued to a duopoly of National Telecommunications Operators in 1998. Although the expiry of the duopoly agreements in 2005 provided an opportunity for reviewing the original policy framework, the proposed MTT policy compiled and submitted to the Minister in 2005 has never been approved. Apart from Ministerial Policy Guidelines of 2006 to enable UCC to develop a new Licensing Regime, no clear policy has been formulated in this fast changing MTT sector. In comparison, the Electricity Act (1999), Energy sub-sector policy (2002), Oil and Gas policy (2008), Atomic Energy Act (2008), Renewable Energy policy (2007), Petroleum Supply Act (2003) and its related Regulations (2009) have been debated and passed. Some have been revised, while more have been drafted.

Government interventions are more concentrated in MET because it’s considered a national priority. Traditionally, government monopolised the generation, transmission and distribution of electricity. The 1999 Electricity Act, which was meant to reduce government intervention in the sector only managed to end government’s monopoly intervention model. However, government still controls the generation, transmission and distribution through cartel-like private sector players. In contrast, MTT is considered a luxury, and government has limited it’s interventions to ensuring a good investment climate and healthy tax regime. This seems to have resulted in the rapid diffusion of MTT by allowing firms with high EC to disseminate these technologies. By persistently defining the reality of MTT using their own interpretations, these entrepreneurial firms have been able to influence buyers’ perceptions and decision to adopt MTT.

Effect of Government Intervention on EC

A bivariate correlation analysis of government interventions on various dimensions of EC indicate that subsidies were significant (at the 0.01 level) but negatively correlated to both opportunity recognition (awareness) and opportunity evaluation. However, funding interventions did not significantly affect a firm’s capacity to mobilize resources and attract expertise, and its capacity to attract exploit opportunities. Opportunity awareness was also negatively correlated to regulation at the 0.01 level. All other EC dimensions were not significantly affected by regulation (Table 2).

• Correlations – Effect of Government Intervention on EC

**. Correlation is significant at the 0.01 level (2-tailed).

Sector specific correlations indicate that all dimensions of EC were negatively and significantly correlated with subsidy in the MTT sector. In MET, dimensions of opportunity awareness and evaluation were negatively correlated with government funding at the 0.05 level, while capacity to get the required expertise was positively correlated to government funding to at the 0.01 level of significance (Table 3).

• Correlations – Effect of MTT and MET Subsidy on EC

Increasing subsidies reduce firms’ capacity to identify alternative opportunities as they strive to meet requirements for available subsidies, blur the vision for creating sustainable markets and create a vicious cycle of subsidy dependence reflected in less optimistic evaluations of business growth in the sector. In the more self-reliant MTT sector, subsidies negatively affect all constructs of the EC. However, subsidies are only positively correlated with expertise because funds are normally used for capacity building, hiring experts and consultancies. However, both MTT and MET had negative, significant to the 0.01 level, correlation between regulatory intervention and opportunity awareness (Table 4).

 

• Correlations – Effects of MTT and MET Regulation on EC

Regulations attempt to organise and control commercialisation. This tends to block free interactions between various stakeholders struggling to define and defend their advantages within the new framework. Regulations increase the number of permissions required to execute ideas, thereby slowing-down the implementation process. Dissemination strategies have to be constantly revised by the situations encountered and the reactions of various stakeholders struggling to define and defend their own advantages. However, government agents are often inflexible, seeing themselves and their policies as determinants of what is right or wrong. This, therefore, limits the capacity of various stakeholders to negotiate for their various interests. Political agents also develop their own preferences which are fast tracked, while other ideas are hindered, lost and rejected.

Comparison of Means

Appendix 1 shows differences between the EC of MET and MTT firms. There was no significant difference in awareness of opportunities in the two sectors; because awareness occurs in the mind, involving minimal action, and is therefore not encumbered by government interventions. This implies that without interventions the differences in EC between MTT and MET firms become negligible.

Evaluation generated four significant differences: MTT vendors perceive more promising growth opportunities and better future prospects. They are also more assured of the quality of their offering to customers, the convenience of their outlets to rural customers and rural customers’ ability to use their offerings. These differences were proven significant using the one-way ANOVA and the robust test of significance. These advantages result from both formal and informal linkages that MTT vendors have built up with small and medium enterprises. Their EC helps in convincing others about the viability of their technologies’ business propositions. For example air-time cards and mobile money services are available in most remote areas of the country. Because of the flexibility allowing anyone with interest and means to join the business chain, MTT firms don’t need to traverse the countryside to ensure the availability and quality of their offerings. Their linkages with small and micro vendors ensure availability to rural customer.

The rigidity of government-led initiatives deters participation by small and informal players. Laws, rules and policies affect the continuous interactions between target users, vendors and other stakeholders. For example the electricity distribution model, the final customer deals directly with one company– a private company with a monopoly to distribute grid power in Uganda. This model makes the distribution of electricity very expensive and hard for the vendor to ensure quality. The firm fails to build the EC within and for firms in its distribution chain. However, government interventions cover its weaknesses, making the firm perpetually dependent on government protection. This is why MET vendors were more inclined to profess minimal market potential, minimal viability without subsidies, and higher political sensitivity of their technologies.

Resources for Opportunity Exploitation: Four constructs were significantly different in the measurement of this variable, and in all cases MTT responses were significantly higher than MET. Skilled and trained labour was more readily available in the MTT sector, it had more skills training opportunities, more entrepreneurial role models, and MTT vending firms had a significantly better understanding of financial management. While all public and private Universities in Uganda offered MTT related courses with enrolment estimated in thousands per year, MET related courses were only confined to two public universities and enrolment was not more than 300.

Opportunity Exploitation: variations with regard to opportunity exploitation were more pronounced, with MET showing higher scores for giving and using expertise, forming alliances and cooperating with other firms resulting in more joint firm initiatives. MET’s higher cooperation and joint firm initiative returned a very high significance of 0.001 for the one-way ANOVA and the Welch’s and the Brown-Forsythe’s Robust test of equality. MET diffusion is premised on planned interventions that compel firms to employ external experts to help them access the government assistance. Experts are normally government agents who concentrate on controlling the program, assuming themselves to be more knowledgeable and powerful outsiders helping the more vulnerable local people. Alliances, cooperation and Joint firm initiatives are created to provide a degree of accommodation between the strategies of recipients and the experts.

However, MTT firms are more inclined to attract and recruit expertise, provide incentives for retaining expertise, committing to business expansion and seeking out rural customers. Incentives for retaining expertise were very highly significant at 0.006. MTT vending firms have higher scores with regard to recruiting and attracting expertise rather than using and giving expertise. Their expertise is built from within based on their interactions with the technology users and other stakeholder. This expertise is deemed to be more firm-specific rather than sector wide expertise. MTT firms were compelled to provide incentives for retaining this firm-specific expertise that is harder to identify from outside of the firm. MTT firms were also more committed to business expansion and to seeking new rural customers. This was the only sure way of surviving and thriving in a competitive MTT sector. Some MET vending firms could use the same un-expanding firms to source for funds from a variety of donors, ensuring that firms thrived without expanding their businesses and attracting new customers.

Effect of EC on MET and MTT diffusion

Both opportunity recognition and opportunity exploitation returned positive correlation with technology diffusion at the 0.05 level of significance. Other dimensions of EC were not significantly correlated to diffusion (Table 5). However, sector specific bivariate correlation analysis established that diffusion of MTT was positively correlated with the firm’s capacity to mobilise resources, attract expertise and the exploitation of the opportunities identified while diffusion of MET only significantly and positively correlated with the capacity to identify or create opportunities at the 0.05 level (table 6).

• Correlations – Effect of EC on Diffusion
• Correlations – Effect of EC on MTT and MET diffusion

Diffusion of MTT depends mainly on the capacity to exploit opportunities. Planning and strategizing are important, but the difference is mainly about how this strategies are implemented in the real world. This implementation will require resources and the necessary expertise. This is why in the case of MTT, diffusion is also correlated with the capacity to mobilise resources and to attract expertise.

This is at variance to MET diffusion, which is only correlated with opportunity awareness. This is because of the strong funding and regulatory interventions in the sector. The conceptualization of the opportunity and the ability to communicate and sell the opportunity identified to the funding and regulatory interventionists is the most important variable in the dissemination process. This is why opportunity awareness is the only EC variable correlated with diffusion.

Conclusions and Recommendations

This study identified differences in EC and in strategies used in exploiting opportunities. These differences are affected by levels of government intervention. With regard to opportunity evaluation, the study concludes that more people invest in dissemination of MTTs because they perceive more promising growth opportunities and better future prospects. This ensures that there is rich distribution channel that includes large, small, and micro vendors stretching to even the most rural locations of the country.  This convenience of location to the customers, including the rural customer, ensures the fast diffusion of MTT.

The perceived more promising growth opportunities and better future prospects in the sector ensure that more people are seeking to gain skills relevant to the MTT sector; entrepreneurs are able to profit from providing more training opportunities in sector. The available training opportunities attract more trainees to gain expertise in the sector. Some of these are available to provide expertise to MTT vending firms, while others start MTT vending firms to increase the diffusion of these technologies. This cycle of training and new venture creation creates a critical mass of entrepreneurial role models in the MTT sector that keeps attracting more people to start new ventures in the sector.

MTT vending firms also invest in recruiting and retaining expertise while MET firms opt to use external expertise paid for by government or other external donors. Such expertise provides generic expertise that may not provide specialised competitive advantage for a specific vending firm. Such expertise assumes a “one size fit all” and ignores the personalised needs of individual users, their mental frame of mind and their specific circumstances. Retaining expertise within the firm results in greater diffusion, while generic external expertise hinders the development of alternative dissemination strategies and retards diffusion.

Recommendations

MET vendors should do more to increase their EC to ensure that people perceived more promising growth opportunities and better future prospects in the sector so that more people invest in MET dissemination. MET vendors should also consider reducing their dependency on government and other external agents in their dissemination efforts. MET vending firms should invest in developing internal expertise to provide specialised competitive advantage for a specific firm instead of depending on external generic expertise paid for by government or other external donors. This will enable MET vendors to attend to personalised needs of individual users leading in greater diffusion.

The MET sector should push for more sector specific training opportunities in order to attract more trainees to gain expertise in the sector, to provide expertise to MET vending firms and start new MET vending firms to increase the diffusion of these technologies. This is expected to create a critical mass of entrepreneurial role models in the MET sector that keeps attracting more people to start new ventures in the sector.

Areas for further research

To the best of our knowledge, this study is the first study comparing the diffusion of MTT and MET. We are also sure that more studies need to be made to help MET vendors benefit from MTT experiences. The following studies are recommended: studies using technology users as respondents to capture demand-side views, studies at firm level widened to include more technologies, qualitative studies to further investigate the affective and psycho-motor effects of the dissemination process, and more financial biased study considering the levels of investment and financial models used by the MET industry as compared with the MTT financial model.

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