Innovation new technology (combination of hardware and

Innovation effect:

Means that those inventions that would lead to altering the existing product to change the consumption patterns or to suit the change in consumption patterns. There are also dynamically continuous innovations that do not involve new consumption patterns but involve the creation of a new product or the alteration of an existing one. Electric tooth brush is an example. There are discontinuous innovations like the automobiles, televisions, computers, etc.

Substitution effect:

The simplest form of substitution occurs when a new technology (combination of hardware and software from one extreme to the other) captures over a period of time a substantial share of the market from an existing/ older technology. The new technology should be better and economically more viable. A good example is the substitution of black and white television with colour TV.

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Diffusion effect:

The most common and simplest form of diffusion arises when individuals are the adoption units and the innovation concerned is a consumer type. In this case, at any given time, the number of individuals who have adopted the innovation gives a good measure of the diffusion process with time. Interpersonal influence and mass media are both major causes of diffusion when individuals are the adoption units. Both demand and supply factors effect diffusion.

Therefore, three measures to gauge the technology change are usually considered: 1. Rate of improvement in technology – leapfrogging or step jumps; 2. Rate of substitution’. The actual measurement criterion in these three aspects becomes subject-matter of specialists.

The life span of technologies also follows almost the similar stages: innovation stage; syndication stage; diffusion stage and substitution stage. Technology life chain therefore, involves lot of capital and major portion of such capital has to wait for a long time for its full realization by the investor. Before actual realization takes place, it is quite likely that new technology shall emerge to substitute it or diffusion may decelerate leading to erosion in the market. Then comes the technology divide.

Technology divide does not have to follow income divide. It is created in response to market pressures – not the needs of the poor people who have little purchasing power. In Sri Lanka competition among providers of ICT has led to increased investment; improved connectivity and better service. Chile offers a successful model of pursuing privatization and regulation simultaneously.

Although technology modernization and up gradation is critical to both domestic and export competitiveness, yet it continues to be a casualty. SME sector in general is not capable of investments in R & D because of cost intensity involved. Further, when technology is changing, enterprises have to invest in training workers to stay competitive.

Smaller enterprises in particular can benefit from public policies that encourage coordination and economies of scale and partly subsidize their efforts. (Technology Information, Forecasting and Assessment Council-TIFAC, Technology Development and Modernization Fund of SIDBI are cases in instance).