Thursday, June 21, 2007

The future of Armenia in a flat world.

If you follow the economic developments in the world, you might have noticed the flattening of the world. Distances, both geographic and cultural, do not hinder economic cooperation much. Economic interests of the countries are so intertwined that political disagreements are not allowed to shake the peace. A few years ago, when Pakistan and India almost went to war, it was the threat of GE, Microsoft and HP pulling their operations out of these countries that made them forget about war and instead opt for making money. The same goes for the USA-China relations. The populist windbags in the US may make a lot of noise but they will not go beyond that because everybody is making money. Most people agree that making money is better than killing people.

So where does Armenia fit in this picture? I am still unsure of Armenia's role and contribution to the global economy. It's a tiny market. Yerevan is a small city of 1 million people; there are dime a dozen of such cities around the world. Add to that the middle class is a small segment of the population that can afford a lifestyle of a Western citizen, and you see why a foreign corporation may not be interested to have an official presence in Armenia let alone have manufacturing operations.

My solution for this problem is to decide what the core competencies of Armenia as a nation are. It needs to become a cluster of operations it is good at.

Any low value added products are out of question. The export routes are unstable, costly and risky. So whatever is to be exported has to be high value added with low shipping costs. Intellectual property fits this bill perfectly.

- R & D cluster: once upon a time there was a strong scientific community in Armenia. It has been decimated since the independence and now is nothing more than club of elderly brown nosers involved in political games. There is some research going on but nobody hears about it. There need to be reforms in the field and a program to identify what the Armenian scientists are good at and promote these to the appropriate multinationals in the world.

- IT cluster: there have been some successful launches of IT projects in Armenia. But it's been limited in scope. I can see two reasons for this; the universities do not produce the right kind of knowledge, and language barrier. We still have professors from the Soviet times with their outdated knowledge. These folk are out of touch with the modern reality. A good way to breathe some fresh air into this situation is to invite industry experts who would volunteer a couple of weeks of their time to teach in universities. There should be a lot more emphasis on English. That's the language of IT and it's not going to change any time soon.

- Dried fruit cluster: Dried fruits are easier to transport, and there is a long tradition of drying fruits in Armenia. There is some work that's been done so far with dehydration facilities. I don't know what the export markets for these are. Dried fruits are a major component of Turkish exports so there could be some push back from them.

These are the three core competency areas for this post. I can think of a couple of more clusters (pharma R&D and final product manufacturing, banking) but that's for another post.

Feel free to comment with your ideas. Let's hammer out some knowledge - it may be useful for the future development of Armenia as a global entity.


Anonymous said...

Your suggestions have quite a strong similarity to how Israel, another small economy, is pursuing growth, and is in fact now being able to talk with the OECD. They do have better access to english speakers and a scientific community however.

nazarian said...

I've met with Israeli entrepreneurs who were in the town looking for opportunities for joint ventures. They were interested in the research done in the bio-medical field in the Purdue University. There was quite a lot of enthusiasm on the Purdue part and they were eager to see some of the technologies commercialized with the Israeli know-how.

The surprising thing was that a few of the Israelis were scientists from Russia who had repatriated in the 80-s and 90-s.

There is a lot Armenia can learn from Israel since they are in a similar situation geographically and both the nations are spread around the world. The Jewish people have been successful at fostering a uniform identity since WW2. Armenia started to do that after Robert Kocharian became the president in 1998.

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Archuk Arshakuni said...

1,5 million Armenians in LA and a million in Europe can help to overcome the language barrier whenever there is a real state program to encourage repatriation and not the 'Ari Tun' by the zombie Hranush Hakobyan!