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Techno-nationalism is hurting innovation

US-China trade war is adding to the woes of a fragmented world.

There is no love lost between the US and China. The recent escalation of trade war between the two economic powers has spilled over into the technology world. The American government has recently barred its home-grown companies from dealing with foreign-made equipment that could "pose a threat to national security". The Microsofts and the IBMs of the world have been asked to stay away from companies like Huawei. While the US is well within its right to protect its national interests, this decision has stoked nationalist sentiments among Chinese consumers. The backlash has resulted in a spike in sales of Huawei products and a drop in sales of iPhones in China.
In the long run, protectionism stifles domestic competition and by extension impedes innovation. We saw this play out in Russia and India before the two countries opened their markets. Complacency had set in because there was no competitive pressure to innovate, which meant that future growth was always a question mark. Countries indulging in protectionism essentially risk their future.
It also creates risks of retaliatory actions from other countries. When nations erect legal walls against foreign companies, their own companies face similar prospects in other countries. This makes technology firms like Apple vulnerable when you consider that a fifth of Apple's profits come from China. You could argue that Apple has a healthy balance sheet that will see it through. But that may not be so true for smaller companies that do not enjoy the same level of mass consumer hysteria.
There is also the complex mesh of the global supply chain of tech products that is being put to test. Tech products are often conceived in one country, designed in another and manufactured in yet another country. The new fault lines across these global networks will create a whole new mess. It is almost impossible to disentangle this mesh of global interdependencies when patents and licenses are dispersed across the countries. Chinese investments in early-stage venture capital funding is growing steadily.
This also poses challenges for businesses that rely on global collaboration. In the past companies like Amazon and Google consciously cultivated a multinational persona for themselves. This is how BBM enjoyed a cult following in Indonesia during the hey days of the Canadian company Blackberry. But when Google stopped making available the Android operating system for Huawei smartphones, it suddenly occurred to us that Google is indeed an American company. Like companies, other countries are expected to take sides in this new cold war.
Tremors of this trade war is being felt by American allies, particularly those in Asia. The US government has announced its reluctance to share intelligence with allies that are engaged with the likes of Huawei. Canada's actions against Huawei's CFO caused a chill in China-Canada bilateral relations and trade. Yet all allies are not in a mad rush to line up behind the Trump administration. Countries like Malaysia are in no hurry to abandon China, its largest trading partner. It sucks regardless of which side you are on.
The technology world is faced with a curious contradiction. It is feeling the heat of populist nationalistic fervor that has gripped so many countries. Techno-nationalism is a thing now, with its many shades such as government-sponsored cyber warfare or the need to protect data within the national boundaries. More significantly, techno-nationalism is aroused by competitive pressures. There is an unspoken unease about the lead taken by Chinese companies over US companies in 5G telecom network technology. Both countries are now locked in a race for pole position in the 4th Industrial Revolution.
Yet techno-nationalism goes against the tenets of open innovation that is driving this digital revolution. Open Innovation is all about a free exchange of ideas across organisational and international boundaries. There is something innately positive about sharing knowledge. An idea can emerge anywhere and can snowball into something transformational for humanity if many organisations across countries contribute to it. As a result, the US will cease to be the focal point of innovation.
Centres of innovation are popping up in different pockets of the world so that small countries such as the UAE can think of taking up leadership positions. Size does not matter, data does.
Can the two opposing forces of techno-nationalism and open innovation coexist within a country? My sense is that this is not a zero-sum game. We will continue to see governments being restrictive about some technology areas that has strong implications for national defense and security. At the same time, they will cultivate an open innovation culture for solving human problems such as food insecurity, poverty, displacement, and illiteracy.
In the backdrop of a growing incompatibility of the American and Chinese economies, the risks of the technology world getting fragmented is real. As long as we can strike a balance between national security interests and openness, we have a shot at building connected digital economies.
Shalini Verma is the CEO of PIVOT technologies