#97 Distinguishing Between High-Tech and Strategic Sectors
What is a “High-Tech” sector really?; India's Commercial Aviation Ambitions Soar
Today, Satya Sahu tries to clarify the distinction between “high-tech” and “strategic” sectors. In his inaugural post, Avinash Shet writes on India’s new civil aviation legislation, the Bhartiya Vayuyan Vidheyak Bill 2024.
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Technomachy 1: What is a “High-Tech” sector really?
— Satya Sahu
**This is an excerpt from an upcoming monograph on the Geopolitics of Indian talent. Keep an eye on our research page here to read it when it’s published.**
Excerpted from a paper from the monograph titled “Engaging high-skilled expatriates to accelerate India's High-Tech sectors”. In order to understand the attributes of talent in a “High-Tech” sector, we attempt to first distinguish the latter from conceptions of “Strategic” sectors. As you can guess, it remains an inconclusive endeavour.
While the usage of "high-tech" and "strategic" as terminology has gained significant traction from policymakers, scholars, and industry, defining their precise boundaries and characteristics remains a complex challenge.
Braja and Gemzik-Salwach (2019) provide a comprehensive roster of core attributes that have been used to refer to high-tech; the notion of these sectors encompasses industries that are characterised by a high degree of innovativeness, relatively high expenditures in R&D activities, and constant adoption of new and complex scientific and technical knowledge. These sectors typically exhibit higher levels of productivity and demand high-skilled talent as well as a robust technological base. Finally, knowledge also becomes an additional factor of production (alongside land, capital, and labour).
Globally, nation-states use a mix (or any one) of these factors to define high-tech sectors. The OECD, for instance, uses R&D intensity as the sole criterion, while the EU goes a step further to not only cover listed high-tech sectors like information and communications technology (ICT) and biotechnology but also incorporates a broader ecosystem of knowledge-intensive services and the digital transformation of traditional industries.
In its methodology, the US Bureau of Labour Statistics (BLS) considers a few other factors to determine the high-tech nature of a sector, such as a high concentration of STEM occupations, a high proportion of R&D-focused employment, and the utilisation of high-tech production methods. This includes high-tech capital goods and services; a good example is the gas and chemical manufacturing industry that caters to different semiconductor global value chain segments.
It should be noted that while these studies were undertaken in the context of manufacturing industries. Older studies like this also have limitations such as the fact that they eschew the inclusion of Biotech and nanotechnology from the list of high-tech industries because of Dept. of Commerce nomenclature at the time. However, the factors identified by this study are still relevant for understanding the core characteristics of high-technology sectors.
The Bureau also attempts to define "high-tech employment" similarly; workers in these occupations inevitably tend to have specialised and expert qualifications in their respective fields, collectively referred to as "technology-oriented workers". Interestingly, therefore, the Bureau arrives at a definition for "high-tech industries" on the basis of the talent employed by them: "…industries that are technology-oriented-occupation intensive." Classic examples of high-tech industries like ICT, biotechnology, semiconductors, aerospace, and artificial intelligence can be adequately covered by such a definition.
The Business Dynamics Statistics of U.S. High Tech Industries (BDS-HT) utilises a similar methodology to define “High-Tech” based on the concentration of STEM occupation employment
This definition would also cover the sectors covered by the US-India iCET, and perhaps many other sectors that may use high-tech production processes and inputs but may not produce high-tech output.
Beyond the realm of high-tech, the concept of "strategic" sectors adds another layer of complexity to the definition. Martin C. Libicki defines strategic sectors to be those that
"..best foster the systematic application of knowledge to generate more and better outputs from inputs." This covers "increased productivity, the creation of better products, the better match of products and services with wants and needs, improvements in the efficacy of public goods, or increased deterrent power of the military."
Libicki's classification encapsulates sectors and industries that may not be high-growth in nature but could have vital use in other applications or sectors. Importantly, he also suggests that policy interventions can make sectors more or less strategic. His classification seems especially clairvoyant since distinguishing between "high-tech" and "strategic" sectors has become particularly tricky as the links between high-technology, national power, and geopolitics have grown stronger, leading nation-states to view high-technology through a "strategic lens".
Consequently, this means that any such sector is now going to be characterised by a high degree of government intervention as countries seek to exert their influence in a domain previously defined by industry and academia. Moreover, viewing high-tech via a strategic lens can result in permutations and combinations of different factors that can be used to define them.
Marc Weiss, in 1978, remarks that a high-tech industry is a
"new technology goods-producing industry (and related services), which are still a long way from market saturation and over production, or if they are beginning to face the problem of global competition, are now organising to make demands for government assistance.."
but more importantly,
"whatever relatively new industry these governments hope to attract automatically becomes high-tech."
Weiss' definition was predicated on such industries being at the top of governmental priorities for their potential for rapid and sustained job growth. This is markedly different from the factors mentioned above, where economic spillovers are a consequence of successful high-tech sectors (and they may not employ relatively huge numbers, so branding them as vehicles of job growth may not always make sense).
To illustrate the difficulty of attempting to deduce the overlap between “strategic” and “high-tech” sectors, let’s take the example of China. Beijing does not seem to offer any guidance as to its classification of high-tech sectors. However, the "High-Tech Fields Supported by the State" regulations include areas (such as aerospace and new materials) that are also covered by a mix of the factors mentioned above.
Further, the criteria that determine whether enterprises can be accredited as high-tech enterprises, set out in the "Management Measures for the Recognition of High-Tech Enterprises", call for high R&D expenditure ratios, and minimum thresholds for the number of scientific and technological personnel, etc.
Significant overlap also exists with the "Made in China 2025" initiative, which identified ten key sectors, including robotics, aerospace, and advanced materials, as strategic priorities for achieving global leadership. To make matters more unclear, the 2010 "decision of the State Council on accelerating the cultivation and development of strategic emerging industries" defines "strategic emerging industries" in terms of factors that can be used to define high-tech (such as "industries with intensive knowledge and technology"). There are also factors reminiscent of Libicki's classification (such as "high growth potential and good comprehensive benefits based on major technological breakthroughs and major development needs").
Therefore, changing domestic and foreign policy priorities (like job growth, "self-reliance," etc.) also ultimately dictate which sectors are viewed as "high-tech" or "strategic.”
**In the paper, and for the sake of simplicity, we ended up using the US Bureau of Labour Statistics' definition of high-tech talent. If you are interested in this research area, keep an eye out for our upcoming monograph with multiple papers on the Geopolitics of Indian Talent.**
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Technomachy 2: India's Commercial Aviation Ambitions Soar
— Avinash Shet
In a recent turn of events, India’s civil aviation minister, Kinjarapu Ram Mohan Naidu, introduced a new bill called the Bhartiya Vayuyan Vidheyak Bill 2024 (the Bill). It was passed by the Lok Sabha on 9th August 2024 and replaces the ninety-year-old Aircraft Act of 1934, which, till now, regulated the civil aviation sector.
The Bill establishes and defines the role of statutory bodies such as the Directorate General of Civil Aviation (DGCA), Bureau of Civil Aviation Security (BCAS), and Aircraft Accident Investigation Bureau (AAIB). It also defines the power of the union government to make rules and defines appellate mechanisms. Ostensibly, it is meant to be a revision and consolidation of the earlier Act with better structure and lesser redundancy.
However, at first glance, there is no substantial change in the new bill aside from the restructuring of the old provisions. The changes are listed below:
The Bill now also regulates aircraft design.
The Union government is vested with additional power to make rules for radio telephone operator certificates and licences under the International Telecommunication Convention.
There is an additional level of appeal and appellate mechanisms. One can appeal against the decisions of the First Appellate Officer to a higher-ranking officer.
The Bill also adds that appeals against the DGCA and BCAS can be filed before the Union Government.
The comments made by the Union aviation minister on building aircraft in India are more deserving of attention, though:
“The process of building aircraft in India is a work in progress. The major challenge is how to connect it to the industry and make it viable in the long run. Our HAL (Hindustan Aeronautics Ltd.) and NAL (National Aerospace Laboratories) are the most important players today, and they have been doing it for the defence sector for a long time. What we are trying to see from the civil aviation side is how we can convert something manufactured for defence and make in civil aviation capable.”
To be sure, building a commercial aircraft is a work in progress in India. Although we have successfully developed fighter aircraft like the HF-24 Marut and the Light Combat Aircraft HAL Tejas for defence, we are yet to have a market-ready commercial aircraft. An active attempt is taking place to complete the development of NAL’s 14-seater Saras, which has seen its fair share of ups and downs over the past three decades. 2016 marked the darkest year for Saras as the project was shelved because of a funding crunch. The project was then revived again in 2017, giving it a second chance to achieve the milestone of being the first indigenously designed commercial aircraft. Apart from this, HAL and NAL are also working together to develop an RTA (Regional Transport Aircraft), with five times the capacity of the Saras.
HAL is a veteran in the aerospace manufacturing domain, with plenty of experience manufacturing the German Dornier-228 under licence since 1983. Aerospace product and component production has seen a steady rise in India in recent years, with a concurrent increase in the involvement of private manufacturers. Some of these firms include Dynamatic Technologies, Tata Advanced Systems, and Mahindra Aerospace.
With this chequered history, India is still firmly a novice in the field of commercial aircraft design, development, and service. To strengthen India's manufacturing ecosystem, we need giants like Airbus and Boeing to set up large-scale civilian aircraft manufacturing units in India. Boeing already has a joint facility with the Tata Group based in Hyderabad, which manufactures certain structures and components for AH-64 Apache military helicopters. The government has been pushing these companies to build their civilian aircraft in India for the past couple of years. The Minister of Aviation, Kinjarapu Ram Mohan Naidu, has acknowledged this and stated,
“We have already encouraged Boeing and Airbus to set up their factories here for spare parts and components. We are encouraging them to do more in the country as it will bring know-how. When a company is trying to make products here, there is a lot of spillover that happens. Some other industries follow on, leading to the formation of a cluster. It is a win-win situation for everyone.”
These efforts, however, have not yielded much progress in this push.
Another subdomain under the commercial aircraft ecosystem that needs much-needed attention is MRO (Maintenance, Repair, and Overhaul). Think of MRO as service centres for aircraft. Aircraft go through periodic maintenance to maintain their efficiency, longevity, and safety. Repair and overhaul of the plane's aerostructure, engine, and components play a critical role in increasing its life as it ages. MRO services encapsulate four broad categories (aircraft, engines, components, and lines) and are a crucial part of an airline’s operations to keep the aircraft safe while at the same time increasing its efficiency and age.
India is the third-largest aviation market, with over 700+ aircraft operational. In 2021, India had a market share of 1.7 billion USD, but MRO facilities in India possess competence only in airframe maintenance and lack facilities for aircraft engines and components; the latter account for 82% of total MRO outlay. Indian MROs account for only 25% of domestic MRO services, with 75% coming from imports. MRO services are imported from France, Sri Lanka, Germany, Jordan, Malaysia, Singapore, Turkey, the United Arab Emirates, and the USA. This means Indian firms have an opportunity to capture this remaining domestic market worth 1.26 billion USD.
Given the projected market size of the MRO sector, projected to reach 4 billion USD by 2031 at a CAGR of 8.9%, this presents a significant opportunity to invest in and facilitate the scaling up of MRO services. This mission can be deduced from remarks made by the Union civil aviation minister.
“We are not only focusing on the needs of Indian airlines but also aiming to attract international carriers to use our MRO services.”
Despite its optimism, this vision remains challenging. First, India needs to create a favourable environment for investing in and establishing MRO infrastructure to cater to domestic airlines. Second, Indian MRO services must harmonise Indian facilities with international standards to provide quality services and attract international carriers. These efforts can also invite international carriers to use Indian MRO services, boosting the country's aviation industry and encouraging services exports.
To sum up, India has a long way to go in this journey to become a significant player in the commercial aircraft ecosystem. Government acknowledgement of these relevant issues, along with the country's booming domestic aviation market and resilience in technological advancement, provide a good starting point for growth.
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What We're Reading (or Listening to)
[Opinion] The US Can Accelerate India’s Rise as a Legacy Chip Hub, by Satya Sahu and Amit Kumar
[Article] India re-allowing Chinese cos in electronics manufacturing as industry pressure grows
[Journal] The August issue of the Indian Public Policy Review has several good articles on technology policy and technology geopolitics.