Many countries rely on the strong growth of the information and communications technology (ICT) sector as part of their development strategy. The potential of ICT seems attractive to high income countries and to those who have been less successful in terms of economic development. This chapter highlights the most important resources that power the ICT industry and examines the industry’s main business models. The offer of Latvian ICT industry is positioned within this resource and activity space and compared with the situation in other countries.

Global Development Trends

The last fifty years (following the digital revolution) have produced enormous improvements in ICT that, in turn, have changed our daily lives, changed the operations of enterprises, and enabled new business models. However, it is more difficult to forecast how the ICT industry will develop in the future and what its impact will be on productivity, employment and quality of life. Technology optimists think that we live at the beginning of a second machine age and that the creation of functional and applicable artificial intelligence combined with connection of a large part of the world population to a single digital network are the preconditions for innovations that, in the near future, will turn much of what has been science fiction into everyday reality. It seems, though, that the progress of ICT until now has had a limited impact on measures of productivity. The productivity in manufacturing sectors that have adopted ICT based solutions more intensely have not increased more than in the rest of manufacturing. Based on such evidence, the sceptics argue that ICT based innovations have exhausted their potential and in terms of impact cannot be compared to innovations that came before (especially the internal combustion engine and electrification) and lead to improvements of productivity up until 1970s.

The sceptics point out that since the 1970s, technological improvements have been concentrated in entertainment, communication and data processing and that it has minimally impacted the rest of the economy outside of those activities. The optimists counter by listing several possible explanations for the absence of productivity gains starting from mismeasurement problems and ending by citing difficult to eliminate bottlenecks in the production process that prevent companies from capturing the productivity gains in other parts of the process. However, all agree that nowadays ICT not only supplements and allows the skills and competencies of the workers to better manifest, but increasingly enables to replace workers. Although it is difficult to predict the path of the development of technology, and the further into the future we look, the more surprises we can expect, we have summarized some of the most important ICT developments with particular focus on technologies that are changing the current state of the industry and application of which is likely to increase substantially in near future.