How Internet has changed globalization

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31 Οκτ 2013 (πριν από 3 χρόνια και 5 μήνες)

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MSc in Finance and International Business


Pawel Lukasz Jelinski

Academic Supervisor
Jens Kaalhauge Nielsen

How Int
ernet has changed globalization

Aarhus School of Business

August 2010

Problem statement





1. Defining


2. Reviewed history of Globalization



2.1. Before fifteenth century



2.2. Fifteenth to late eigh
teenth century



2.3. Nineteenth to twentieth century



2.4. Twentieth century



3. Technologies which powered Communication Revolutions



4. Changes caused by Internet

an introduction



4.1. New Economy, a comparison with previous economies



4.2. New Economy changes in numbers



4.3. What’s new in business ar



4.3.1. Wider, quicker and easier globalization



4.3.2. Costs reduction for companies



4.3.3. Robust competition



4.3.4. Diminishing government barriers to globalization


Need of global market participation



4.3.6. New or re
engineered products and services


4.3.7. Deduplication of physical pre



4.3.8. Internet Effects on global marketing



4.4. Computer aided human network



4.4.1. New distribution of power


4.4.2. Difficulties in legislature system



4.4.3. Unrealized
prophecies in politics


4.4.4. Social structure is not very different


4.4.5. Culture









Problem statement

The aim of this paper is to explore how Internet
changed globalizat
ion. What
are the areas where it reinforced the process of convergence, which changes are seen
positive and which negative from the society and business point of view.

The secondary
goal is to compare ‘Internet Economy’ with ‘Older Economies’.


Internet is still underestimated in today’s economy

and treated as a secondary
. While running little consulting company
I have surveyed

different CEOs
and marketing


trying to sell them a new website
. For some of them possessing

professional web
site was useless
. Actually the

only use of ICT

for them


However, for many


companies Internet is a crucial tool for obtaining suppliers and

and for some of them,

it is the only channel of distribution and introd
of products (born globals). I started to realize Internet, stopped to be a toy or just an
academic experiment. I wondered how many changes were caused by Internet, which I
did not know about.

On the other hand I have heard many myths about Internet

influence on
economy and society. It was hard to conclude on arguments ripped out of a context

whether Internet changes us positively or not
. I wanted to research which changes
caused were good or bad, and which were true or false.

In this paper I exami
ne many
fields of globalization, trying to find out how they were changed by Internet. The task is
not that easy, as changes
are complex and go deep into social structure
. No one can
how Internet is going to develop and
what is going to happen in t
he future.
There is no limit to what people can do, if they have tools and a freedom

to use them
That is why Web 2.0 emerged so quickly, people started to co
create and explore
completely new

areas where Internet can be used. I will guide you through my f
chapter by chapter, t
ouching different areas

of globalization.

The first chapter is a
user guide to globalization
, called

. I discuss there
what globalization really is (for me). Is it a convergence of pure economical factors or
ocial o
nes? Authors explain the concept of globalization on many different ways.

some of them it is one or two field convergence (economy and politics for example), but


in fact to understand the problem right, you need to look at globalization as broad mix

different areas, as I try to do it in this paper.

The second chapter is a

summary of
globalization history
. The main reason
I decided to put it in my paper, was to show you which changes were influencing

For example

costs of transportation


globalization like
nothing else.
It was possible thanks to explorations of new sea routes and developing
newer and faster transport technologies.
I would like you to pay attention how raising
, which were results of
wars and conflicts,


flows of goods and people.

Keeping in mind
the historical framework of biggest milestones of globalization, can
help better understand how Internet is revolutionary in overcoming similar barriers


Third chapter is a

in communications

namely technology of



directly influence on Internet and today’s global forces.

flow of information, which is essential to ‘New Economy’ emerged from such primitive
inventions like cave signs

and papyrus. These were the first carriers of data, doing the
same job as our CDs and DVDs today. I finish this

with discussing the newest
revolution, linked with Internet directly.

The fourth chapter is an actual research on changes caused by I
nternet. I have
read and reviewed many theoreticians to write this part. I found both supporters and
opponents of such changes. After reflections on their arguments I put them all in this
starting with introduction, after that I try to compare ‘Ne
w Economy’ with
older ones on theoretical basis. I try to find out if we really can use the term of ‘New
Economy’. Next section gives some stat
istical evidence, an insight whe
ther we had a
shift to newer economy or not, comparing numerical data.

I go


deeper into changes

by Internet splitting material into two parts

business and social. In business
field, among many I discuss such problems like Internet triggered

changes in
competition, government barriers to globalization, global marketing, co
st reduction etc.
In social part

I discuss redistribution of power, legislature system, politics
, social
structure and culture.



I would like to begin my paper by
explaining how I understand globalization

Surely, for many it is a western

culture coming to our homes by TV, newspapers and
Internet. By United Nations (2004) it is a mix of migration, flows of goods and capital
Is this only these characteristics?

Winstein (2005) stated that in general, globalization is
a process

an evolutio
n of closer economic integration, by increased trade, foreign
investment and immigration, and a very high degree of interconnectedness of world
The term of globalization and its common usage made an impression that it
is possible for ordinary pe
ople and economic actors to get in touch, interact and do
business with other people and communities worldwide

Gillies (2001). I agree
that globalization is a process, as it is very hard to find a starting point and perhaps there
will never be the

of it
. Nevertheless

for sure globalization lasted for long centuries,
so we can surely call it a process. The second part of definition is incomplete as it deals
only with economic sphere, forgetting about social structure, culture or politics as well

Here is another


he term globalization applies to a set of social
processes that change our present social condition of weakening nationality into one of
globality. In its core then globalization is about shifting forms of human contacts
eger 2009).
This definition deals with changes in social structure

(which is good)
, but
forgetting about economic area

and suggesting that social contacts shift from nationality
to globality, which I later will prove is false
Another view presents Khiaban
y (2003)

globalization has become a buzzword

term used by academics, policymakers,
politicians, and journalists. Like many other buzzwords, there is no one meaning of this
“process”, “epoch” or “ideology”.
Does it mean we will never find a clear defini
tion of
globalization? Maybe
it is


just a made up with no exact meaning? Actually it is
not that bad.



hundreds of explanations and definitions
of word “globalization” but

of them which are narrowing the term to only o
ne field of integr

economy or
social structure,

are mistaken. You will understand this mistake reading Keping (2008).
He is closest to the truth in my opinion
, connecting all the dots, linking all the areas of
globalization into one definition.

He argues

that the pri
mary em
bodiment of

is economic integration, but this process will make a big influence, and
inevitably start the globalization of social structures, culture and politics.


now agree

that social area, political and economic should come with o
ne definition of


globalization. I also agree that the most important factor was economy, triggering

of all the other fields
. I am aware this is a classical problem, what was first

the egg or a chicken. I was confused for a long time, with t
his topic, and I really think
money rules the world.

People always wanted to trade with other cultures, they were
curious of different nations, but curiosity was not the most powerful force but economy.
Of course pure economical motives will be insufficien
t, without proper technology or
eagerness to explore which are social characteristics
. Cartwright (2002) also thinks
“true” globalization begun with searches of new markets by first fifteenth century
corporations. Economists generally agree that trade prom
otes growth for exporters and
porters, busting globalization.

Gillies (2001) and
Van Dijk (2005) also argue
that economy was the dominant trigger in globalization. In fact Ietto

two triggers for globalization

transnational com
panies, and information/

communications technologies. Van Dijk says economy was always the main driver for
development, creation and use of networks in communication and transport. As
documented, no society that closed itself
off to

trade managed to genera
te higher living
standards over the last several decades of twentieth century (see Winstein 2005).

Economical factor was truly the most powerful in pushing world to unity. As cited in
Lopez (2004) Kapferer explains

in all managerial and consulting circle
s, and in most
business reviews, global brands are the only one that count, and the process of global
branding the only thing worth spending resources on

The above reflections were some
kind of an explanation of mistakes made by many authors, giving t
he e
conomy as the
only motive for

globalization. I

deal with


problem this

way, that I take economy as
the first and most important factor, but not the only one.

Aside of elaboration on what started globalization
, which is not a topic of my
paper, I would

like to summarize
, that in my opinion globalization is a process of
changing world economies, cultures, politics, law and social structures. This is how I
constructed my paper further on, explaining all of those fields directly.

2. Reviewed history of G

To understand how globalization changed over time, since very beginning of
civilization, but mostly since fifteenth century and time of ‘great voyages’, it is crucial
to go back with history on this field.
The understanding of shortcomings of

and political system in the past will help to get a clear view on how Internet can


reinforce us nowadays.
As history is supposed to be objective and because this is only a
review of most important

events back in time, writing this chapter I u
sed three

publications Bordo et al. (2003)
, Taylor (2002)

and Cartwright (2002). The history of
globalization is detached from history of technology in communications media


as the later is directly connected with the development of the Int
ernet, and consists a
little bit more technical terms.

2.1. Before fifteenth century

I would like to start w
ith period before year 1500 of w
orld history because
Columbus and Vasco da Gamma were not the first who established roots of
international trade o
r different

global trade.

They ease globalization, they did more
than anyone before for unity, but

arious scholars in the world history school posit a
very early start date for globalization,

circa 1000. According to this view, overland and
nean trade flourished in this

period, with caravans and coastal shipping
linking Asian and European markets, and this

is enough to prove the existence of a
world economy
.” (Taylor 2002, p.8). Columbus and da Gama were

forced to search for
new paths because

of already existing monopoly on spice trade of Egypt and Italy, more
specific cities of Venice and Genoa and this monopoly existed far before Columbus.
This Egypt
Italy exchange was not the only example of global trade

before year 1500.
We need to keep


mind that China and India traded with Southeast Asia, Eastern
Europe, Mediterranean area and Islamic world.
There was international trade within the
Baltic area too. More than a thousand years ago there was an international trade
between different contine
nts. Among goods transferred was: wool from Spain and
England, cloths from Italy, gold from West Africa or textiles and pepper from India.

Shortly summarizing above paragraph, one can tell globalization started around
year 1500, when great voyages of Colu
mbus or da Gama began.
There is some truth in
that, but there is no such thing as “starting point” of globalization.
It was always a
process and actually it is still running. The only reason

to think about 1500 as breaking
point in globalization history i
s that

new sea routes were found,

sea travel and
transportation were getting more popular and save. The second reason is that

monopoly was broken and a new route to Asia was found. That indeed speeded up the
process of internationalization.
Europe was not the dominant continent when
it came to trade. The leaders of agriculture and tra
de were Islamic world and China.


Interesting statement
for discussion
I have found in Bordo (2003)

Death” which was caused by the migration at that tim
e, also played a big role in
economy. It killed over one third of population of the world and caused an

increase in income per capita.
The same amount of money and
property stayed

in hands
of less people.
Because supply of workforce was small
er wages went up and demand for
luxury goods from Asia grew rapidly.

However in my opinion these happenings could
cause nothing more but inflation and stagnation instead of galloping economy.
Nevertheless, more silver was

needed to pay for goods and more g
oods were demanded
at the same time. Finally this caused globalization effect

Europeans went after a new
way to Asia. Because there was only continental route or traditional Red Sea route
controlled by Egyptians and Venetians, big incentives emerged, to
find different route.
This is when Columbus and da Gama changed economy and global trade. Because of
their voyages, it was possible to transport goods from Asia via new Cape of Good Hope
route destroying the strength of spice monopoly. Columbus discovered
making it possible to import unknown goods and to trade black slaves. Very important
was also a new source of gold and silver for Europe, which was needed to trade with
Asia and China as a payment mean.

2.2. Fifteenth to late eighteenth century

Following Flynn and Giráldez one of the most important moments in
globalization was creating harbor city Manila (1571) and standardization of Chinese
monetary and fiscal systems into silver. This directly linked trade of Europe, Asia,
Africa and Americas.
There was standardized currency and shipping harbor from now
on, much more convenient for every party. We can of course search for globalization
milestones earlier, when first journey across Pacific was made or around the globe.
However this city allowed m
any nations to trade on one common market, bringing
nations together into one place. P
ession of foreign goods,

d or impressive
fleet of ships c
ould mean nothing without access to buyers and sellers.

As we go along the time axis, transport ch
anges. The more modern and popular
were the means of transportation, the faster and wider was the globalization. The most
common products transported between continents were expensive goods with high price
to weight ratio, for example: spices, tea, coffee,

sugar, silk, silver and slaves. These
goods were the most demanded and expensive those days, so during era of high


transportation costs, it was profitable trading and moving them between continents. It is
important to mention that during period of discove
ry voyages, only goods with no
substitutes where transported, otherwise it would not be worth to send them across the

As mentioned before, monopoly of Italian cities was broken, but they were not
eliminated from the global trade completely. The Ib
erian voyages led to a shift from
Italian and Egyptian dominance in transportation. This time the Antwerp was the main
core of trade of “new Iberian order”. It attracted many industries: woolen clothes from
England, silver, copper and financial capital fro
m Southern Germany. The city grew
very fast up to 100

000 citizens in 1560, but there was no strategy for developing
businesses and attracting new investors, so Portuguese moments of glory were short
lived. Soon the Dutch with Amsterdam took the big stake
of the transport market. They
were able to do this because they made improvements in shipping technology and sub
service for traders

like packing or storing. After
all the old spice monopoly fought back
and managed to take some share of the market, and a n
ew player followed

We can now deduct that imports and exports was some kind of a split between Venice
and Egypt, Amsterdam, England and Portuguese.

When it comes to payments, silver was the most important since sixteenth
century. Amounts of good
s shipped between continents were so enormous, that some
standardized mean of payment had to be found. Silver was shipped to Europe from
Americas and it was paid for with goods from Asia, silver was then resold to China or
India at much higher rate and so
arbitrage profit was
. We cannot forget that in
such a big economy and with growing trade volume, there was higher inflation and so
interventions of government were necessary. Duties and taxes is one form of it.
However fiscal policy in sixteenth ce
ntury was rather in business of individuals than of
public. Duties and taxes were not embedded to goods competitive but it was rather
something that can bring bigger profit to rulers, example can be price inelastic tea and
coffee. High duties on products a
re the reason why black market existed together with
smugglers. Government’s actions were not limited to overgrown duties. During this
period they were also promoting positive trade balances, by creating chartered
monopolies and by acquisition of overseas
colonies as markets for goods produced in
mother country.

Globalization trends were getting broader and faster now; there was one
standardized mean of payment (silver) and diversified routes of transportation around


the globe. When it comes to statistics,

world looked as following (O’rourke and
Williamson 2001, table 1) intercontinental trade grew at 1.26 percent per annum in
sixteenth century, but in seventeenth it was 0.66 percent and in the next century it was
1.26 again. For the entire period of 1500
800 it was 1.06 percent, population at that
time grew 0.24 per annum, which means trade grew faster and so has demand for
foreign goods.

During seventeenth century there was demand growing rapidly but technology
of production was poor. Even major technolo
gical shifts were whittled down by
population growth.
Standard of living was low.
The system of production was a
manufacture being able to sustain a “Smithian growth” as opposed to “Shumpeterian
growth”, where the first one has limited capacity in growth o
f income per capita and the
second one continuously raises income per capita by reducing fertility rates. The only
improvements that could be done before eighteenth century to raise income were
specialization in labor and better division of work. However d
uring eighteenth century
Holland and England were examples of modern production and labor technology. In
Amsterdam with so small population of about 200 000 people

Dutch managed to trade
and offer subs
ervices o
n a global scale. The

have not created just
a center of trade

harbor city. It was a complex of different shipping, storing, packing, unpacking and
financing services that made Amsterdam so attractive. Was this the only reason? Surely
Dutch had high rate of literacy, what gave them opportunity to

extort many service
businesses, but they also had a very good location in middle Europe, between the Bay of
Biscay and the Baltic. A connection of smart entrepreneurship and location created the
most attractive city of intercontinental trade. Among goods
shipped from Amsterdam to
the East, we can find: cloth, silver, salt, wine and colonial products. At the same time
they carried grains, fish and naval stores to the West.

They had very good financial services offering borrowings at very low rates and
rest rates on savings at 12 %

(Bordo 2003)
, much better than in competitive England
at that time. This was possible because public and private capital came together to
create a modern shipping city. Netherlands at that time can be easily called internation
service nation. Half of citizens lived in the cities, so they had to import grain from
Baltic regions, as there were not enough farmers to meet food demand.

1 entered 11.04.2010


A different great economy in Europe was Britain, where industrial revolution
took place in eight
eenth century. The events of that time, confirmed Britain as dominant
player in world economy. They used coal and other fossil fuels to alter the shortage of
energy in the industry. New technologies of production in cotton sector cut the slave
trade by hal
f. Introduction of many innovations, allowed lowering the prices, and
producing more efficient
. They went away from animal based economy to machinery,
steam power, electricity, iron founding and fast textile producing. Knowledge was
spreading across coun
tries, changing not only economies but also cultural and social

The global economy was distracted by many wars. Examples can be: Hundred
Years’ War, Anglo Dutch Wars, and Seven Years’ Wars. However the biggest impact
on global trade had French

and Napoleonic Wars dated from 1793 until 1815. Both
England and France blocked each other, especially on the sea. Even neutral ships could
not enter English ports; otherwise they would be seized by French. The very same
blockades were raised against Fren
ch ports. Because of this political situation, US ports
in Europe were closed and most ships returned to America. As we can assume, all navy
businesses died

ships building, sugar refining, rope production and linen industry, but
at the same time continen
tal trade speeded up, like cotton textiles sector. Continental
business brought human capital which was earlier employed in shipping sector. Now the
war was creating new economy and the peacemaking movements were unlikely seen by
lobbyists, who corrupted g
overnments and who wished not to free the trade on the sea,
because it would mean loosing business for them. Bordo (2003)

concerning these blockades

British trade deteriorated between 41.9 and 49.7 percent
while US trade by 31.6

32.7 perc
ent. During this period migration of people was
limited to workers under contracts or coercion and even these were short lived, because
slaves from Africa were imported to America. It was cheap labor comparing to workers,
so companies and landlords preferr
ed to buy Africans. Slavery period slowed down at
around 1807 when abolition of trafficking in human beings was
. From this time
contract laborers came back once again to United States, but this time mostly from India
and China.

ch W
ars’ tariffs
and blockades changed global trade and European model of
industry. After 1815 there were many sectors of economy in need of government help,
as many people were hired in continental sector of industry. When conflicts were over
there was a big risk of colla
psing of this sector, and shifting to shipping industry once


again. There were many people hired in the continent and it was necessary to keep them
employed. For many years after French Wars governments, especially French had to
protect those businesses. S
ome authors still see legacy of Napoleonic Wars in French

2.3. Nineteenth to twentieth century

Most important improvement in global trade was steamship. It was faster and
independent of weather conditions, as wind for example. At the be
ginning, only the
most expensive goods were shipped this way, like mail or passengers. These journeys
were taken along rivers or lakes, where distances were not long. First transatlantic
service was inaugurated in 1838. In 1869 Suez Canal was opened allowi
ng not only for
shorting by half Bombay

London route but also made it possible for steamships to go
to Asia (they could not make a long distance through Cape route). The other nineteenth
century innovation was railway. In 1830 Manchester

Liverpool line

was opened and
since that intercontinental transportation costs were falling substantially. In the same
century Britain liberalized trade and labor law, and opened borders. Workers and goods
were able once again in history to cross the border freely. Howe
ver it was 23

January 1860, when Cobden Chevalier treaty was signed officially liberalizing trade in
whole Western Europe, especially in France and Britain. Among countries that followed
were Netherlands, Denmark, Portugal, Sweden, Belgium and Switzer

Golden age of liberalization ended around 1880’s when Europe was going back
into tariffs and limited trade. Only German and Scandinavian countries mentioned
earlier remained open traded. Reason for another shift into blockades and tariffs was the
w World and Russian grain. Transportation costs were so low, that it was payable to
import cheaper goods from other continents

New World and Russia. Lands in Britain
fell down in price over 50 percent because of imports of low price grain. Profits of
downers were melting down, so tariffs were raised again in those countries, where
landowners’ interests were powerful enough to change the import policy.

Deepening crisis pushed Belgium and Denmark to switch from export economy
into import economy and thi
s way those countries stayed opened as opposite to many
others like Argentina, Brazil, France, Germany, Italy, Sweden, Australia, Canada or
US. Interestingly most of Asian countries switched their policy in opposite way

were closed before the crisis

and during nineteenth century they opened for trade. It was


China, Japan, Korea, India and Indonesia. Despite these changes in economies, world
trade grew 3.5 percent during nineteenth and twentieth century and price spread
between countries was smaller.
Today we know, that lowering transportation costs, and
convergence of prices is a natural effect of globalization. It is exactly what happened in
Europe, Russia and New World became competitive and pushed prices down.

In nineteenth century immigrants from
Europe outnumbered slaves from Africa
in US. Inflow of paid labor started at the beginning of the century but most of workers
came at around 1830. The same was for the Australia

Europeans outnumbered
convicts, a popular workforce in this region. Because o
f a distance, migrants had some
incentives to travel to Australia, like free passages. The same was for South America,
where longer journeys had to be rewarded by free passage.

The growing number of free immigrants in nineteenth century was caused by
ne in Europe and lowering transportation costs. Immigrants mostly came from
Britain, Germany, Scandinavia, Austro
Hungarian Empire, Poland, Russia Spain and
Portugal. Most of them went to North America but those from Italy, Spain and Portugal
went to Brazi
l and Argentina.

During nineteenth century many men came to the New World to work. The
general characteristics of them were young and single. However, every rush in
migrations is followed by reverse

people coming

back to their home countries, m
use of unsuccessful startup in new environment, but also because of family reasons.
Europeans were not the only ones migrating, after end of slavery there was a big
demand for cheap labor. The biggest source of that labor was Asia, so Asians came to
s countries under indentured servitude or contract labor. They were needed not
only in United States. Workers from India went mainly to British colonies, Mauritius
and Caribbean East Africa South Africa. Chinese went to Cuba, Malay, North and
South America
. Japanese went to Hawaii, Peru and Brazil.

2.4. Twentieth century

During the World War I period blockades and high tariffs were used once again.
Export from European countries suffered most. It was because during the war all goods
especially grain and o
ther food products needed to stay inside the country for army
purposes. In the case of Britain army consumed 38 percent and in the case of Germany
it was 53 percent of national output. In France demand for food was so big, that import


has grown from 20 per
cent to 37 during the war. Logically in neutral nations not
contributed in conflicts exports rose analogically, like in Switzerland or Japan.

After war ended there were many attempts to liberalize trade again but it was not
so easy because of earlier MFN
treaty signed by many countries. In simple words it
allowed every member country to trade on the same conditions as the most favorable
nation in network. This treaty worked well before the war, but it was a bilateral
agreement spreading slowly across count
ries, in other words there was a small incentive
to free ride. Now the same rights and obligations were creating a free rider problem, as
network was big, and no country wanted to be a prey establishing favorable agreements.

After the war there was oversup
ply of food and agricultural products in Europe,
at the same time oversupply of manufactured goods in Australia, India, Japan, Latin
America and USA. Tariffs policy was so strong across the world that even traditionally
opened Netherland closed trade. It w
as because during inter war period France,
Netherlands, Switzerland and Belgium had problems with balance of payments,
overvaluation and deflation. “Globalization collapsed between world wars, and
recovered only slowly thereafter. Indeed, it was not until
the 1980 that capital flows
would return to levels that prevailed prior to World War I” (see Winstein 2005, p. 2).

Global trade had to wait until 1937 for Belgium, Luxemburg, Netherlands, Sweden,
Norway and Denmark signed agreement eliminating quotas betwe
en member states.
United States also signed over 20 treaties with countries important for its trade, also
with Great Britain. This was an attempt to liberalize the trade again.

During the war period also migration suffered because of more restricted policy
Migration from Asia was a problem especially in USA so in 1917 there was first in the
world barred zone called “Asiatic Barred Zone” prohibiting Asians to enter USA.
Moreover the independence movements and accompanied conflicts in colonies in Asia,
ca and Oceania, reduced demand for agriculture products. Crisis in the economy
after World Wars caused further reductions of contract laborers inflow migration. After
World War I, facing Depression of 1930s United States enacted quotas limiting

sharply, at the same time Soviet Union had quotas for emigration which
together with recession, distracted the global labor market. In recent decades there has
been shift in immigration trends. Immigrants from Europe to United States fell from

000 in
1950 to 100

000 in 1990 and at the same time Europe became more
attractive for Asians, Africans, Middle East and Soviet Union migrants thus making net
migration to Europe over a million from 200

000 in period of 1980
1993. So nowadays


European Union is a d
estination country rather than source country as it was earlier.
Opposite change happened in Latin America, which shifted from destination to source
country, which
emigrants have

been going mainly to United States.

this short summary of globalization

I wanted to focus your
attention on obstacles to growth, unity, convergence or just to globalization.
Conservative trade
and migration
law, high costs of transportation and political conflicts
inhibit the globalization. However, every time law was
more liberal and borders were
opened, every time new transportation technology was introduced (so there was
reduction in transportation costs) globalization seemed to flourish. What if
there was a
way, to overcome all the

law and technology obstacles? What

if governments could not

international trade by
their regulations and what if transportation costs were
close to zero? With the next chapter I will introduce technology making it at least part
possible, and so giving globalization a green light.

3. Technologies which powered Communication Revolutions

When looking back into the past, hundreds of technologies were important for
, like train, ship or airplane
. However there are some
mentioned more often by researchers,

like Burns (2003), Woods (2005), Streissguth
(1997) and Fang (1997). These are technologies of communication. In this chapter a list
of most important of them will be presented and shortly reviewed.
I will discus
revolutionary technologies in communicatio
n area, but s
imple developments in
technology are not enough to create a revolution in media. As van Dijk (2005) writes

some structural changes together with qualitative technical improvements have to take
Each revolution

is created by involvement

of more than one communication
media (like telephone and telegraph in Mass Media Revolution
. Following Fang
(1997), there were several stages in

Revolution, which I will present


Every one of these gave society more possibilities, kno
wledge and freedom in
obtaining information. Starting from complete analphabet, and finishing with modern
and educated Internet society.

1) Writing Revolution, it actually starts with prehistoric paintings on cave walls,

but also

sending smoke, drum, and f
ire signals. Also van Dijk (2005) suggests it was

first communication revolution
, which helped bridge time and space

signals sending
across long distance bridged space
because there was no need for two people to be at


the same place to exchange inform
ation. Paintings on the walls bridged time, as those
painting could be then read by next generations at any given period.
After these initial
developments there were a

papyrus of Egyptians, and finally creation of first libraries.


books gathered in
formation and knowledge, but this knowledge was available
only for few people,
for the
reach elite.

At eight century B.C Greeks invented phonetic
alphabet, which spread to the East. What is extraordinary here, that humanity was no
longer constrained by bra
in memory itself, but they could easily put information into
practical format, easy to use and for storage.

Writing Revolution


first communication channels.
Burns (2003) and Fang (1997),
these channels began in ancient Greece

and Rome

with their horse messengers and beacon fires. At first these communication channels
were used in military and political purposes, but later they were foundations of more
advanced systems.

2) Printing Revolution,

starts in Europe in

fifteenth cent
ury, the key


invention of

paper. It was originally imported from China, later from Arabic countries.
This is the time of German Johannes Gutenberg, who invented printing press. The
ability to reprint books at low cost opened many possibilities to poore
r social spheres to
It is very important step for society, as from this point more and more people
were able to read discovering knowledge from different parts of the world.

3) Mass Media Revolution started in Western Europe and United States during

the middle of nineteenth century.

breakpoints we can include: advanced printing
methods on a wide scale
, which resulted


form of newspapers and magazines
Second development was

a telegraph (invented in 1844). These technologies slowly, at
the b
eginning locally bu
t then globally spread the news and


Gillies (2001), civilization always desired to communicate and send information
faster than speed of transport. Thanks to telegraph, for the first time communication was
t constrained by the means of transportation, like horse messengers or post. From
smoke signals, ordinary mail system, semaphore signaling and pigeon post civilization
finally got a modern communication system based on electrical cable. As Burns (2003)
tes, many advances in electrical science made this invention possible. Example

be static electricity, galvanism and electric battery

invention of Galvani and Volta. In
1866 first transatlantic telegraph cable was installed enabling quick and global
share of

. This was very important and breaking through technology.
Indirectly, creation of a telegraph, spurred really global and efficient financial markets


(quotes across continents could now be obtained much faster) or news sending

(distant reporters were sending news across countries). Later, telephone was invented in
1870s independently and simultaneously by Alexander Graham Bell and Elisha Gray. It
is interesting to know that telephone grew from researches in physiology of

hearing and search for a telegraph that could send and receive many messages on a
single wire (Burns 2003).

After telephone, not commonly known precursor of wireless tech
photophone was invented

in 1880s (in simply words

sending messages em
bedded in
light wave). Different types of wireless technology were invented by James Clerk
Maxwell, Hermann von Helmholtz, Heinrich Hertz, and Oliver Lodge. Their studies on
electromagnetism showed how electromagnetic waves can be produced and detected
rns 2003). It is good to know that electromagnetism itself was discovered by Danish
scientist Hans Christian Oersted in 1820. All of the above discoveries were
used by
Guglielmo Marconi in his wireless telegraph.

At the end of nineteenth century (cr
eated in 1890s, but more popular became in
1920s) radio showed up, which opened access to information on wide, wireless

everyone who had a receiver. The invention of radio was possible thanks to two
element (diode) and three
element (triode) vacuu
m tube
by Ambrose Fleming
and Lee De Forest. These tubes generated and detected wireless signals. World was
becoming smaller and more informed than ever before.

Notice that during every
revolution information was easier to access, but it still lac
ked interactivity.

4) Entertainment Revolution started in Europe and America at the end of
nineteenth century. New inventions of this period are storage of sound, cameras
affordable by households and motion photography

movies. Fang (1997) compares
ainment Revolution, as it was Industrial Revolution in a world of entertainment.
Media so inaccessible
for ordinary people
, have been mass produced
from now on
Movies, television and photo cameras were affordable for households. First television

took place in 1920s in Germany, the subject of broadcast were Olympics. At
the beginning all mass media was broadcasted by air by analog antennas, but limited
frequencies, led to construction of cable network in 1960s. In less developed countries
of cables

signals were put through satellites (cheaper way than thousand of
kilometers of cables). In 1990s there were not more than 30 channels of television.
Growing demand for interactive medium and bigger variety of channels, led to change
from coaxia
l cables to optic cables which gave the possibility to widen number of


programs broadcasting and the use of teletext, which was primitive interactive tool in

5) Information Superhighway revolution.

This revolution includes development
of Inter
net, so naturally during this period, further improvement of information access
took place. However, r
egarding van Dijk (2005) this newest revolution, which name
was created in USA in 1993, is not simply overcoming barriers of space and time. This
would on
ly be improvement of a process, which was already happening. The new
revolution is different in terms of digital code, integr
ation and interactivity. It


telecommunications, data communications and mass communication into one structure
which nev
er happened before.
Because of this convergence of different types of
communication, new media are called “multimedia”
. I
ntegrated media are characterized
by multichannel approach covering many different media, digital structure operating on
electric code

and interactive system allowing user to interact with

it. There are many
multimedia, like

television which offers Internet

and radio. T
here is

also a

telephony which offers television
, radio and Internet
at the same time. Because my
paper is about
Internet, I would like to summarize shortly the most important technical
innovations in scope of Internet, which in fact became a multimedia offering television,
radio and telephony.

ISDN was the first integrated network (it emerged from telecommunication
connecting tele, data and mass communications, its competitor was a new satellite
system with broaden transfer than before, enabling data communication, broadcasting of
digital television and radio. There was also cable television technology DSL offering

television, radio and internet on single subscriber line. These are in fact stationary
technologies offering Internet access at fixed position. I believe the future lies in
wireless Internet access which I would like to explain.

Until 1970s telecommunicat
ion relied on copper cable which transmitted
electrical impulses of telegraph or telephone. Then first optical cable was invented by
scientists at Corning Glass Company. Fiber
optic cables were able to transmit signal at
longer distances. The key developme
nt was use of laser to generate efficient and precise
wave guide. Later at around 1980s and 1990s microwaves technology arrived with cell
phones and satellite enabling communication in any area of the world.

In 1980 wireless telephony started to replace t
raditional one. First digital
network of mobile telephony GSM, was launched in Europe. In 2005 there were over a
billion GSM users. After such a success another wireless technologies were invented,


concentrating on better efficiency. The general trend was
towards the convergence of
different communications in one. GPRS system allowed sending pictures and text
(convergence of photography and writing) wireless. But 30
60 kb/s was soon too low to
send streams of audio or video (convergence of sound and motion
photography) via
Internet. Another technologies were in place

EDGE with 256 kb/s, UMTS with 384
kb/s, HSDPA with 7,2 Mb/s and finally Wi
Fi with different versions of it, growing
from 54 Mb/s in 802.11a version, up to 54 Mb/s with 802.11g version. Trans
fers are
still growing fast, as more multimedia is embedded in websites. Websites become more
fancy and sophisticated; HTML codes (basic website language) become mixed witch
FLASH, videos, animations etc. all of it

just to bring more viewers into website
s and
to pack more interesting contents into one place. These modernizations require
increased transfer in Internet. Ten years ago most of us had Internet via modem with 54
kb/s, nowadays 1 Mb/s is even too low to surf quickly. Increasing transfers in the
Internet was possible thanks to radical decrease in costs of data transmissions and in the
costs of microchips which build the hardware components of digital network.

After discussing all the information revolutions it is time to think what these
ns gave to society? Most importantly

power. Every social revolution, which
all of the information revolutions are, shifted power from governments and monopolies
to individuals. Power holders can be called information holders. The one that knows
less is
in disadvantage. Consider newest goings
on. As Dawn (2010) writes, Pakistan
blocks over 800 websites over ‘blasphemy’. Why power holders are afraid of free
media? Answer is obvious, more informed society becomes less controllable, more
about this in later

4. Changes caused by Internet

an introduction

President Obama believes that all Americans should have access to broadband
Internet and the fabulous opportunities it affords. Broadband services allow individual
people to access new social, ca
reer and educational opportunities. They help businesses
reach new markets and contacts, and improve efficiency. They support communities
that seek
to attract new industries. T
hey enhance the government’s capacity to deliver
critical services. Broadband to
uches nearly every aspect of the U.S. economy, providing
Americans with many opportunities in employment, education, health care,
entrepreneurship, and civic participation. For millions of Americans without adequate


access to broadband, however, the possib
ility of falling behind in the knowledge
economy is real

from President Obama Act (Obama 2009).
Following OECD (2001,
p.11) “in the long term, growth of economies depends on building and maintaining an
environment that is conducive to innovation an
d the application of new technologies.
This involves ensuring the generation of new knowledge, making public investment in
innovation more effective, improving interaction between universities, research
institutes and firms, and establishing the right ince
ntives for innovation.”

As can be seen
there are many promises and hopes emerged with Internet.

a subject of
changes caused by Internet because it has
big influence on so many
parts of economy
and on what

ordinary people do
, not even noticing

ts applicability. In 1960’s Marshall
McLuhan raised a concept of a global village, which was created by new
communication media like radio or television. Nowadays, after building Internet
network, we can see this concept was quite accurate. According to Po
rter (2001) as
cited in Prashantham (2007) the key question is not whether to use Internet
technologies, but how to use it, as there is no choice if company wants to be
competitive. Loane (2005, p. 273) takes similar position, “the in
depth interviews
aled that the dominant attitude with regard to the integration of the Internet and
business processes was not whether they should become Internet enabled, but rather
how could they best leverage Internet enablement to support the firms’ strategic
onal growth objectives.”

In this chapter I will go deeper into these changes
discovering their real impacts on economy and society. World is split to enthusiasts and
skeptics of those changes, this chapter is
to find a response to it

4.1. New Economy,
a comparison with previous economies

Beniger (1986)

in his book “Control Revolution” writes that because of “Control
Crisis” (it concerns control/administr
ative crisis caused by overgrowth in

some innovations had to be made in speeding econ
omy. In 19

century growing
economies suffered from mistakes in coordination of transportation and administrative
functions. The existing supply system could not keep up with demand because control
problems and inefficiency. Second half 19

century innov
ations, in response to these
problems were:




formalization and rationalization of procedures


Better transportation and communication infrastructure

paved roads, trains,
telegraph and telephone


Mass communication and mass research

ress, film, radio and importantly
et research and opinion polls

to reach new masses of consumers and meet
their needs faster and better than competition

In ‘Old Economy’ speed was the most important characteristic of production.
Generally linear, hiera
rchical system in factories aimed to produce faster and faster.
However, there was a first shift towards network companies made by Japanese. They
practiced “quality circles” which were ancestors of decentralized teams in factories.
Entrepreneurs and manage
ments understood that the biggest value in a company is
human capital and knowledge embedded in

minds. “Circle” or “network”
organization in company, can exploit this knowledge

when more flexible organization is
created with task based procedures an
d division based structure, so bureaucratization is
less important
. That is how economy begun to change into “Knowledge Economy”. The
most important asset in companies is now information. The linear mass production is
being replaced by flexible specializat
ion and diversification. Just
case has become

However, e
fficient communication systems were needed to allow team members to
create products from distant places

or just to have a contact
Computer aided design,
manufacturing and enginee
ring allow for better

and quicker

team work.

Place in
geographical term


less important as well as time. Professionals can enter databases
and put their efforts to plan products no matter when and where they are.

The phenomenon of changes caused by Inte
rnet was discussed in a number of
literatures, which will be summed up in this paper. Theoreticians used to call Internet
based economy a ‘New Economy’. From Atkinson and Court (1998) the term “New
Economy refers to a many qualitative and quantitative chan
ges that, in the last 15 years,
have transformed the structure, functioning, and rules of our economy. The New
Economy is knowledge, information and idea
based economy where the keys to job
creation and higher standards of living are innovative ideas and t
echnology embedded
in services and manufactured products. It is an economy where risk, uncertainty, and
constant change are the rule, rather than the exception.”

Some theoreticians claim that “New Economy” can push aside “Old Economy”
and bring permanent
economic growth and productivity raise without inflation or high


unemployment. But others claim it would be a temporarily increase in economic growth
and new process innovations. Atkinson and Court (1998) agree that productivity even
slowed down in “New Ec
onomy”. “You can see the computer age everywhere but in the


Robert Solow. Explaining this paradox, we can say, that with
most jobs relocated from agriculture and manufacture in
to service sector (which is often

difficult to digit
alize and improve by programming) productivity slowed down, but not
vanished. With progressing digitalization and by network effect, more and more office
application will be used in service sector driving this paradox down. In fact productivity
fell more i
n companies which did not invest in computers. In other words, when
changed from mechanized and automated assembly lines and farms to service sector,
productivity slowed down, but only for a while, to grow in the future. Additionally
Progressive Policy Ins
titute ( forecasts that in fact three main
drivers will create strong economic growth in the New Economy: development of a
digital economy, increased research and innovation, and improved skills and knowledge
of the workforce.

what did the “New Economy” brought to us which is new? Following Van
Dijk (2005) there are many characteristics of “New Economy” which are similar to
Information Economy and Network Economy which existed years before. These
similarities are among others:


ust like in Information Economy, in New Economy reproduction of another
copy of product is very cheap and easy. Lines of codes or digital books are
stored on digital devices, so they can be found and copied whenever suitable, at
almost no cost.


Trust and a
uthority are very important just like in Information Economy. How
do we know if information we are buying is the appropriate one? There

thousands of information out there, but we must choose the right one for us.
There are industries producing knowledg
e and information like biotechnology or
programmers. On the other hand there are industries managing this information
and finding for us what we are looking for. That is why so many review and
consultancy businesses arose, helping businesses to choose whic
h information to
process further.


The main good in New Economy, which is information, can be transferred to
buyer, but supplier does not l
ose this good. In other words the subject of trade
stays in producer’s hands, as opposite when a good is material (ca
rs, computers).



From Network Economy

New Economy takes high switching costs. When a
network is established with all its standards, it is costly to change to a different
network. For example changing mobile network operator to a different one than
our frie
nds have can cause higher costs for us, because we have to inform
everybody about new situation. More
costly example could



change of IT
system in factory, which stops the production for many days and hire lots of
people to implement new system.


r Network Economy legacy is a network effect. Every new program,
technology or network can come to usage, when a critical mass of people is
exceeded, that is a minimum number of people use it, so it trigger further
spreading by itself. Let’s take a faceboo, it would be useless without some
minimum number of friends we could find there. But after exceeding a critical
mass, it spreads automatically to other users, as it becomes famous and
fashionable, but most of all

practical in finding contacts.


taking a deeper view, there ar
e number of characteristics of

Older Economies
in New Economy

One can say it is a hybrid of Information and Network Economy.
In my opinion merging two different characteristics is enough to say we have
achieved something new
, even if it is not a radical change from older system.

4.2. New Economy changes in numbers

Some numerical facts regarding

changes brought by “New Economy” we can find in
Atkinson and Court (1998)

research on USA market. I will present them below,
ether with conclusions of other researchers.

One of the characteristics of “New Economy” is decentralization of production,
and centralization of management and capital at the same time. Decentralization of
production field and decomposing production chain

to many foreign countries require
more office w
orkers. The mass production of Industrial E
conomy is pushed away by
flexible production and services of today’s economy. This service sector grew steadily
from 1980 and is now the fastest growing sector of th
e economy. This fact is
Technological change, including recently growth of the Internet, has
reshaped many sectors in economy, including trade. For example it has increased trade
in services by making previously non

tradable services now trad
able. Computer
programs can be written in India and shipped to the Europe instantly at very little cost


Winstein (2005). Service sector grows as agriculture and mining shrink.

In United
States for example services contribute to
about half of all trade

, each year the
service industry is bigger

Lituchy and Rail (2000). After World War II service
industry became the biggest sector of the economy in most developed countries (Quin,
Baruch and Cushman Paguette

as cited

in Lituchy and Rail, 2000). Globa
lization and
the rise of Internet are the two most powerful forces affecting business

and it probably
will stay this way for at least the next decade

Yip (2000). R
esearch on Canadian labor
market shows the same thing (Canada 2007)

service sector (by
employment) is now
about 60% percent bigger then it was in 1980’s, when goods producing sector initially
suffered decline, to end up with 10% growth since 1980’s. Data from European Central
Bank show employment share at level of 47% in 1970’s in EU
15 and
steadily 10%
more every 10 years, the last available data is 70% share in 2001.

The obvious is change in demanded labor force on the market. High educated
workers are needed mostly. Canada (2007) shows increase in management type jobs by
1.2% (in period 20
2015) university educated jobs grow 1.6%, while only on
training 0.6%. Atkinson and Court (1998) show similar results

growth of wages.
Advanced degree professions are growing slightly, college professions are in horizontal
trend but high sch
ool and less educated ones are less and less paid.

Another change in “New Economy”
is robust

competition, because of

trade. Internet allows cont
acts with distant continents to search for supplier or
Services like connect counte
rparties in trade. International trade is
ow easier, than ever so Europe

as well as
other countries show growth in trade
Numerous databases show radical gro
wth of trade. WTO (2008) gives w
orld growth in
services and in merchandise trade respectively at 1
8% and 15% respectively in 2007.
Atkinson and Court (1998)
write about three times

bigger world exports
comparing to
level from 1970’s which was
1.3 trillion and 4.3 trillion in 1995). They also argue this
enormous growth is due to better communication tec
hnologies and freer trade with less
tariffs and blockades.

More and more companies are born global. Number of gazelles

rapidly growing
companies, also grew steadily. Many of those businesses were financed with IPOs on
stock market. As we know Internet al
lows investors to move capital all over the world,
there are many international funds investing money. Even smaller/high risk companies
have access to public investments through stock markets like NewConnect
( In this manner number of IP
Os grew about 50% between 1970s


and 1990s. This growth is almost perfectly reflected in gazelle’s growth in the same

Atkinson and Court (1998)

Average new product development times have decreased by 32% in period
1995. “In the frenetic Intern
et economy, people talk about technological evolution
in “Web years” (three months of a normal year) because the rules of the game seem to
change that often (Atkinson and Court, p.18). Internet speeded up marketing
mix stages
(see later in this paper), thi
s had impact on product development time but also product
life cycle

and so variety of products
. Of course customers are better of variety of
products on shelves, but on the other hand we have to buy a new computer every 3
years to have up to date system a
nd follow newest program standards.

As we can
suppose not only product life cycle is shorter, but also average job tenure. Interestingly
in “New Economy” unemployment is smaller, but those unemployed stay longer
without a job.

4.3. What’s new in business

As a student of Business School I was particularly interested in changes in scope
of business and entrepreneurship. I am a former student of Marketing and Management,
where I wrote a thesis about introduction of a new product on Internet portal mark
The portal which I was writing about was my own and my colleague’s project. I run an
Internet based company dealing with websites creation and data searches, namely
market researches (www.master
- With this package of experience I will

this thesis even more interesting putting many of examples from a real life, as I
met with CEOs and workers of different departments in a variety of companies.
Nevertheless I have based this chapter on Yip (2000) structure of changes in business,
g it and putting this knowledge in a way I think it is best.

New technologies of communication, especially Internet allow even smallest
companies to compete on the market and reach customers and suppliers networks

Prashantham (2007). According to Prasha
ntham Internet holds big promise for small

want to go international. The more peripheral are regions, the bigger
incentive to use Internet technologies. Loane (2005) researched “Internet enabled”

those, which are using Internet an
d other ICT (information and
communication technology) on daily basis. Results have shown the characteristics of
that use Internet. Those companies wer
e usually young, with a mean age of


ly 9 years and 37% of firms fe
ll in 6
10 years i
nterval. Additionally
companies were usually small with less than 50 employees. Over a half of companies
had export ratio in a range of 51
90%. 19% of companies were purely exporting without
domestic market. The rapidness of internationalization through I
nternet can be seen in
over 70% of firms going international wi
thin 2 years, meaning they were

born global.
61.5% firms were active in 5 or less foreign markets, the

served more, in some
cases 40

or above
. All firms were highly specialized conducting

operations in niche
markets. The usage of Internet in surveyed firms was concerning: marketing
communication 100% of companies, e
mail communication 100%, product
development 31%
54%, market intelligence 31%
46%, competitor analysis 18%

4.3.1. Wider,

quicker and easier globalization

Internet increases global standardization in customer’s needs and tastes (it also
the opposite


more in next section
). Nowadays,
needs among people and across countries are very simil
ar, it enables companies to take
more advantages from economies of scale. Potential users of products are now global,
so are suppliers. It does not matter where customers are from, by global shipping
channels they can obtain any product.
By extending poten
tial markets to many countries
Internet homogenized customers’ identity. With global marketing strategies companies
can attract much more similar customers then before.

The product and pricing information is less expensive, or even at no expense in
the Int
ernet. Dealers and sellers need to rethink their prici
ng and stock offers, because

makes market information available in a second. With enhanced global marketing,
customers are now more aware of existing brands. It does not matter how big the
which is going global is. Already established grown ups can benefit by
strengthening their brand awareness, but small companies can ease their start ups, and
go global within one day. Finally marketing is more efficient and effective at the same
time. It i
s easier to direct promotion strategy to users, as there is unified language in the
web, which is English. On the other hand, marketing mix has to be even more attractive
then ever, or more coordinated, because Internet customer is very sensitive and well
informed about competitive offers. Internet also helps identifying lead markets. Earlier,
information like this was expensive and time consuming. Now

with digital databases,


surveys and rapid information channels it is easy to choose best market for parti

4.3.2. Costs reduction for companies

Blake (1999) and Yip (2000) suggest that Internet actually drives down
economies of scale and scope

because you can switch between being a large produces
or niche company
. Products can be obtained at m
inimum cost from
. Even
a buyer is small and
can not exploit economies of scale
, he can merge
with other
buyers by forums online
In simple words everyone can benefit on large orders, not only
the biggest companies.

On the other hand


can also benefit on niche markets, not only
specialized small companies. W
ith web based order forms it is easy to service smaller
markets without physical presence, so decision whether to service large or niche
markets is to service both of them. Let’s ta
ke DELL computers. They could never

to pre

ptops. However with DELL online

form, we can
build and order a customized laptop. In other words it is affordable for DELL to
customize laptops as long as clients customize them online,

at the

paying for them. Dell produces both standardized machines for large buyer like Media
Markt, but on the other hand they sell diver
sified machines for individuals

In earlier section I wrote, that Internet helps to exploit economies o
f scale

homogenizing customers
. I am well aware of this paradox, and it is not a mistake.
Internet has a dual nature, which will be seen across this work many times.
Standardization and individualization come at the same tim
e with Internet. It helps to

both big standardized markets, at the same time it allows to service niches. So
do not be confused with paradoxically dual nature of changes discussed in this thesis.

In the Internet,

distribution channels are easy accessible and many physical
ivities were replaced by virtual ones. Additionally it is easier to find a supplier and
negotiate contract. There are even auction websites like Trading Partner Network for
production goods. This helps acquiring lowest possible prices. Buyers can form
groups to acquire discounts similar to those, which big companies have. Internet also
speeds up global logistics. It is convenient to search and

communicate with partners by
. A company can also easily find out which country could be better to plac
activities, when they are too costly in mother country. Firm can for example outsource


customer service division to lower cost country

the reports from these services can be
easily transferred between countries. When addressing customer service, a key
is the speed in which a customer’s problem is solved

Gonzalez (2007). If we compare
the speed of traditional mail and paper work to convenient online forms, it is profitable
and better for customer to address problem via net. Gonzalez also fore
sees a bigger
demand on digitalization of documents going along with technology improvements and
use of digitalized systems, he said “to that end we are evolving from basic document
scanning to business process management helping companies maximize and bec
more efficient.” Consulting companies can outsource presentation making to Asian
countries, where computer and mathematical knowledge is high and cost of labor is
cheap. Anderson (1999) writes about 25

30 percent of cost reduction in healthcare
try, by outsourcing
these kinds of
IT activities.

Internet drives down also production costs as now teams all over the world can
work on project without the need to bring them all together in one place. Earlier an
architect or engineer had to go to plant
to see if element fits properly.
Airplane tickets
are costly, and so are hotels. Nowadays, engineers

have 3D pictures of a product so
production is going faster with lower costs. When speaking of teams

Internet has
another advantage

members of a team c
an now feel motivated more, than it was a case
without immediate direct contact by
. They can now participate daily and see the
progress of their work. It was impossible when members were geographically dispersed
without virtual access to newest de
velopments. There is of course a problem with
these workers who

do not feel motivated, when there’s ‘no one looking’.
More about this problem

you will read

in social changes chapter.

Yuxin and Sudhir (2004) argue that two features of the Intern
et are low
consumer search costs and low targeting costs for firms. They found evidence that
Internet lowers these costs profiting both parties. However many researches concluded
(like Eaton 2002), that lower search costs and targeting costs would bring co
close to perfect, so product prices and company profits will decline, profiting only
customers. Nevertheless Yuxin and Sudhir argued that it is in a different way. Yes,
lower search costs drive prices down, but also drive down targeting costs for

firms. If a
company has very low targeting costs, it can better positio
n its products among

better “targeting reach” (
the ability to individually address consumers) and
“precision” (the ability to distinguish consumers on the basis of their l
oyalty), and earn
bigger profit. In their paper, to maintain decent profits, they advise firms to invest in


technologies to personalize products and services. This way Internet will not become a
perfect competitive market, but rather will split to thousan
ds of niches. Increase
customers loyalty, instead of market share, to prevent them searching lower prices.
Interestingly Xing (2008) found the very same results

4.3.3. Robust competition

Easy access to unlimited information gives all the members of the
market place
opportunity to communicate and compare prices or specifications of products. Company
can monitor its rivals or it can transfer know how to all its subsidiaries across the ocean.
The usage of internet by companies

in this manner

is very broad.
Loane (2005) finds
that 30% of companies searched for market intelligence, and 42% of them analyzed
competitors. Loane cites CEO interviews, where they admit that faster information
management and Internet access available for employees create value. Faste
r and
detailed information enables companies to draw better picture of their market position
as well as its competitors, and all of this happens much quicker than in twentieth
century. Customers can compare prices and quality on cross
company and cross
basis. In other words, easy accessible information makes market much more
competitive. As Loane (2005) summarizes Internet is available to every company
regardless of its kind or size. They can take advantage of reduced information float
time, and incr
eased contact between buyers and sellers.

4.3.4. Diminishing government barriers to globalization

As discussed in history of globalization both source and destination countries
tend to constrain
internationalization trends by different
tariffs, quotas,
barriers, export subsidies, local content requirements, currency and capital flow
restrictions, ownership restrictions and requirements on technology transfer. When
going to the extreme CNN (2008) gives a list of 10 worst countries to do busines

For example in Democratic Republic of Congo registering a new business takes 155
days, costs involved are four times bigger that 140$ per
capita gross national income

this country
. It is very difficult to get any financing as there are few protect
ions for
investors and little rating record is maintained about companies or citizens. Imports and
exports are very expensive

about 2400$ per container. In Central African Republic


registering business costs 500% of gross per capita income, and imports/e
xports costs
5000$ per container, additionally they add very high taxes. On
there is a full report about problems and obstacles like these. However Internet can be a
salvation for these countries, if they manage to digitalize their pr
oducts. E
reduces the effects of these barriers in several ways, particularly bypassing import
duties and taxes. Most governments find it impossible to monito
r or tax services
delivered by

the Internet, unless we deal with government actively enga
ged in
monitoring and censoring Web traffic, as authoritarian regimes for example
A company
can still conduct business in less developed and unfriendly for entrepreneur countries,
unless it is able to digitalize its products, or outsource the most costly
part of it to
different country. If it is illegal to conduct some services in a given country, a firm
should switch
those to more liberal one.

A good example can be Sealand
), a little country which is a salvation for disputed business a
over the world.

4.3.5. Need of global market participation

Before Internet Era
, globalization meant disinvesting in

smaller countries with
less profitable markets. Economic of scale was a prevailing strategy, but nowadays it is
possible to successfull
y compete on both developed and small markets as well. “Today,
companies can participate in core countries with physical presence supplemented by
web activities (“bricks and clicks”), while they can participate in non
core countries
with a web presence sup
plemented by some (possibly sub
contracted) physical activities
(“clicks and some bricks”)”

Yip (2000, p.6). We can also recognize a shift from
gradual rollouts of products into rapid, almost one day global launching. It is not only
the option, but now i
t is more like a

obligation to fill out many markets rapidly. If
company fails

to do this, there can be a
risk that

competitors manage to prepare
themselves against new rollouts. Moreover, a company may choose not to introduce a
product (or service) in
one or more markets, but foreign or overseas customers will
surely have the access to company website and may want to place an order. If a firm is
not ready to service them, it will look badly and it slowly will depreciate goodwill of
that company. Summari
zing, if a company do not roll out its products immediately to
many countries, the product may be seized by competitive one, moreover customers
unable to order it in particular countries would feel disappointed.


4.3.6. New or re
engineered products and s

Internet triggered changes in how existing products are made, but also helped to
create completely new ones.
Based on Ietto
Gillies (2001) I present the following
improvements in product creation:


Creation of completely new products

Internet cau
sed creation of many
intangible and knowledge based products that never existed before. We can say

it gave birth of many jobs, the very day it started. Example can be positionin
specialists in search engines

hese are these guys that make our websites
in top of Google results
), w
eb creators,
and administrators

of networks, anti
and anti viral programmers
. Without Internet, these jobs would never
, and millions of people would not have a job today.


When it comes to existing products, In
ternet offers a variety of innovations to
old production techniques. Customer co
production (cooperative production
with user) and peer
production (competitive production to user) is broad used in
New Economy.


Examples of co
production can be seen when ph
otography amateurs have
chances to create a first page designs of magazines,


companies like Dell, Alienware Computers, Zepto Computers etc. let end
user to customize their laptop. Many smaller software companies maintain
close relations duri
ng programming with customers, comparing to Microsoft
where the decision has to be made from “take it” or “leave it”. Bulgun and
Kut (2005) even write about customer’s cooperation in scope of on line cloth


production can be seen in Open Offic
e software, free to use and
download with

any restrictions. This Internet user’s joi
nt product is
obvious competitive

for Microsoft Office. Linux operating system is
competition for Windows


There are also many examples of hybrid production models, comb
ined of
two above versions. Google is a good example here. Its Android system for
mobile phones combines open source codes from Linux, in this way it
became a

of peer
production with co
production. Another case


related to Google is their search engi
ne. “Google relies on the Internet
community’s hypertext linking practices as a proxy for a site’s quality and
relevance.” Schultze et al. (2007 p. 295). In Schultze we can actually find a
continuum line of co

and peer
production. Let’s say on the left ex
treme we
have a passive co
production. In this model customer only reports errors and
mistakes, and company fixes them. Going further to the right there is active
production, where company wants, and engages customers to give a
broader feedback. On the
middle of continuum line there is already
mentioned hybrid co
production with ma
jor elements of commercial type

(open but stripped version of a product which full version is available
commercially). Also in the middle there is a model which is similar to
revious hybrid peer
production, but this time open source is in majority and
commercial part of product is dependent on how extensively source code is