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Digital Economy:
Impacts, Influences
and Challenges




Harbhajan S. Kehal
Varinder P. Singh




IDEA GROUP PUBLISHING
i




Digital Economy:
Impacts, Influences
and Challenges

Harbhajan S. Kehal
University of Western Sydney, Australia

Varinder P. Singh
University of Western Sydney, Australia




IDEA GROUP PUBLISHING
Hershey • London • Melbourne • Singapore
ii

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Library of Congress Cataloging-in-Publication Data

Digital economy : impacts, influences, and challenges / Harbhajan Kehal, editor,
Varinder P. Singh, editor.
p. cm.
Includes bibliographical references and index.
ISBN 1-59140-363-4 (hardcover) -- ISBN 1-59140-364-2 (pbk.) -- ISBN 1-59140-365-0
(ebook)
1. Information technology--Economic aspects. 2. Information technology--Social
aspects. 3. Electronic commerce. I. Kehal, Harbhajan, 1942- II. Singh, Varinder
P., 1974-
HC79.I55D5455 2004
303.48'33--dc22
2004003777


British Cataloguing in Publication Data
A Cataloguing in Publication record for this book is available from the British Library.

All work contributed to this book is new, previously-unpublished material. The views expressed in
this book are those of the authors, but not necessarily of the publisher.
iii




Dedication



In Memory of My Parents,
Chaudhry Harkishan Singh Kehal and Sardarni Harnam Kaur Kehal

H.S. Kehal



To
My Parents,
Who have guided me with wisdom and always supported me in every
walk of life.

V.P. Singh
iv




Digital Economy:
Impacts, Influences
and Challenges

Table of Contents



Preface ......................................................................................................................... vii

Chapter I
Socio-Economic Impacts and Influences of E-Commerce in a Digital Economy ............ 1
Sushil K. Sharma, Ball State University, USA

Chapter II
Re-Intermediation and Deferment through E-Commerce: Neo-Austrian
Interpretation of Capital and Time .............................................................................. 21
Parthasarathi Banerjee, NISTADS, India

Chapter III
Risk and Investment in the Global Telecommunications Industry ............................. 39
Irene Henriques, York University, Canada
Perry Sadorsky, York University, Canada

Chapter IV
Reduction of Transaction Costs by Using Electronic Commerce in Financial
Services: An Institutional and Empirical Approach ................................................... 62
Thomas Pfahler, University of Bayreuth, Germany
Kai M. Grebe, University of Bayreuth, Germany

Chapter V
The Spreading Use of Digital Cash and Its Problems ................................................ 84
Yutaka Kurihara, Aichi University, Japan

Chapter VI
Electronic Signature: The Core Legislation Category in Digital Economy .............. 98
Fjodor Ruzic, Institute for Informatics, Croatia
v


Chapter VII
Impacts of the Digital Economy: The Shift to Consumer-Driven Competition and
Life-Span Products .................................................................................................... 136
Simon Mowatt, Auckland University of Technology, New Zealand

Chapter VIII
Digital Products on the Web: Pricing Issues and Revenue Models ......................... 154
Gary P. Schneider, University of San Diego, USA

Chapter IX
On Software Piracy ................................................................................................... 175
Sougata Poddar, National University of Singapore (NUS), Singapore

Chapter X
An E-Classification of the World™s Capital Cities: URL References to
Web Sites .................................................................................................................. 200
Stanley D. Brunn, University of Kentucky, USA

Chapter XI
Online Services and Regional Web Portals: Exploring the Social and
Economic Impacts ...................................................................................................... 217
Helen Thompson, University of Ballarat, Australia

Chapter XII
ICT Growth and Diffusion: Concepts, Impacts and Policy Issues in the Indian
Experience with Reference to the International Digital Divide ................................ 236
Saundarjya Borbora, Indian Institute of Technology Guwahati, India

Chapter XIII
Digital Technologies and the Cross-Border Expansion of South African Banks .... 252
Joanne Roberts, University of Durham, UK
Chipo Mukonoweshuro, University of Durham, UK

Chapter XIV
Technology and Culture: E-Commerce in China ...................................................... 273
Alev M. Efendioglu, University of San Francisco, USA
Vincent F. Yip, University of San Francisco, USA

Chapter XV
Internet Economy of the Online Game Business in South Korea: The Case of
NCsoft™s Lineage ...................................................................................................... 286
Kyonghwan Park, University of Kentucky, USA

Chapter XVI
Opportunities and Challenges of the New Economy for East Asia ........................... 313
Donghyun Park, Nanyang Technological University, Singapore
vi


Chapter XVII
Digital Engineering Campus: Economics, Acceptance, and Impact ......................... 344
Milind J. Mahajan, Mirash Infotech, India
Sunil S. Umrani, Sunind Systems, India
Narendra S. Chaudhari, Nanyang Technological University, Singapore

Chapter XVIII
Corporate Strategies in a Digital World: Supply Chain Management and
Customer Relationship Management “ Development and Integration-Focus .......... 359
Purva Kansal, Panjab University, India
Keshni Anand Arora, Indian Administrative Services, India

About the Editors ....................................................................................................... 381

About the Authors ..................................................................................................... 382

Index .......................................................................................................................... 389
vii




Preface



Information and knowledge have emerged as major sources of wealth in the recent past.
There is a digital revolution and it has impact and influences on the consumers, produc-
ers, investors, exporters, importers, public policy makers, academics, students, con-
sultants, administrators, lawmakers and all others directly or indirectly involved in
various processes of the new economy. It has also huge challenges for all of the above
and the shape of things to come will be determined by their response to the fast moving
changes, additions and modifications in the Information, Communication, Technolo-
gies (ICTs) and their applications.
The pace of the revolutionary changes in the ICTs and their applications and their
impacts, influences and challenges are more pronounced in the developed countries.
The rest of the world is also catching up with them fast in the digital stakes.
Public policy makers in both the developed countries and the rest of the world and
administrators, who have even bigger challenges than policy makers, will have serious
problems to tackle. Censorship and freedom will be in conflict with each other in rela-
tion to the use of and access to the ICTs.
ICTs have ushered in a new era of global communication, production, trade and invest-
ment. It has implications for all of the players in the economy and society irrespective
of whether they reside and work in the developed countries or in the developing coun-
tries. The digital economy is transforming the lives of people beyond recognition.
There is a revolution in the way that things are produced and traded before they reach
the final consumer. Also there is a revolution of rising expectations as the world is
getting transformed to a global village and the access to the good things in life will no
more be in the domain of the rich and influential, whether in developed or developing
countries.
The buzzword is e-commerce. The term e-commerce goes beyond doing business elec-
tronically. Doing business electronically means that the conventional processes are
computerized and are done on the Internet, however now it seems that the Internet is
not merely an alternative to make a channel for marketing or selling product online.
Instead the electronic marketplace enables the seller to innovate the whole business
process from the producer to consumer to service by integrating them in the seamless
whole, where product choices and prices are updated according to the customer infor-
mation in real-time on web stores.
viii


About the Book
This book is not about how to use the web or how to set up your web page for a
successful business. This book provides information from socio-economic angle. As a
number of books are already available about e-commerce or digital commerce, most of
them provide information mainly from a technical angle and the socio-economic aspect
had been neglected. Contrary to that, we would like to present the picture of digital
information economy from the socio-economic perspective. This book covers various
aspects of global production, trade and investment and the effects of the Internet from
a socio-economic angle.
While paying attention to the current status of intertwined issues of electronic com-
merce in technology, standards, policy and legal issues, the focus is on many economic
issues and aspects of electronic commerce that other books do not cover. This book
aims to provide relevant theoretical frameworks and the latest empirical research find-
ings in this area.
The change in the flow of information, computing and communication in the recent past
has greatly influenced the world economy. In the emerging “digital economy,” the
players as well as the rules of the game are changing fast. Along with it has come a lot
of confusion and uncertainty. The digital economy may bring potential invasions of
privacy, more sophisticated and far-reaching criminal activities and host of other un-
known problems.
The audience of this book is diverse. In addition to the academics, students and other
knowledge workers, this book is intended for the business people who are using the
Internet to seek a new customer, suppliers and partners around the world.
If a business person is already directly involved in international trade and business
and business trade, either as a manufacturer, distributor, exporter and importer, custom
broker and freight forwarder, trade financer, diplomat, then this book is for him/her.
If he/she is involved in the international trade, perhaps as a lawyer, management con-
sultant, trade show organizer, site developer, business school professor, executive
educator or someone who advises international companies, then this book is also for
him or her.
The assembling of the chapters and editing of this volume was a very onerous task but
has proved to be highly worthwhile and rewarding in the end. The response to the call
for chapters was overwhelming. We received proposals from top scholars, profession-
als and practitioners from various parts of the world. We have received chapters from
the USA, Canada, Japan, Australia, New Zealand, Korea, Singapore, India and many
other countries. Authors with background from various cultural groups and with first-
hand knowledge of the socio-economic impacts, influences and challenges of the digi-
tal economy has contributed to this volume.
Choice of the chapters for this volume was a highly challenging task, as we received an
overwhelming response. Which chapter to include and which to exclude was very
difficult. Chapters included in this volume have gone through a very rigorous review
process. The ultimate choice of the chapters for inclusion in this volume were guided
by the quality, relevance and coverage of the vital issues and proper analysis and
depiction of the impacts, influences and challenges of the digital economy. The brief
ix


summaries of the various chapters included in the book in the words of the contributors
are provided below for the readers to make their own judgement:


The first chapter of this book is Socio-Economic Impacts and Influences of E-Com-
merce in a Digital Economy written by Sushil K. Sharma.
Electronic commerce or e-commerce is the exchange and processing of business trans-
action information using computers connected through a network. E-commerce does
have unique advantages for businesses. It allows a shop, a show room or an office to
open 24 hours a day, seven days a week. It also means that time zones are not a problem.
A Web site can bring a prospect from the point of advertising and information directly
to the point of sale, seamlessly, without involving any other medium. Adoption of new
information technologies, particularly e-commerce, is expected to result in improve-
ments in firm performance, such as reducing transaction costs and closer coordination
of economic activity among business partners. E-commerce also is expected to facili-
tate entry into new markets or extension of existing markets and greater integration of
systems with suppliers and customers. E-commerce is changing business economics
and as a result many firms are re-engineering their core business processes. Suppliers
and retailers are able to collaborate on product forecasts, product flow and inventory
management decisions using the collaborative Internet-based networks between sup-
pliers and retailers. In addition to reducing costs, e-commerce solutions permit custom-
ers to custom order products based on individual needs and preferences. Retailers are
able to allow customers to mass customize orders based on virtually thousands of
choices. The Internet™s growth and e-commerce has begun to create fundamental change
in government, societies, and economies with social, economic and political implica-
tions. These advances present many significant opportunities but also are having
wide-ranging effects across numerous domains of society and policy makers.
As e-commerce continues to grow rapidly, it could have significant effects on the social
and economic structures of economy. The impacts of these changes are diverse and
may even widen the digital divide among nations, alter the composition of trade, dis-
rupt labor markets and change taxation, may have ramifications for intellectual property
rights, privacy protection, and data filtering, etc. Some of these effects of e-commerce
are unintentional and create adverse business and personal conditions that could have
societal consequences. Social and economic aspects of ICTs have been studied by a
wide variety of researchers and practitioners for over 50 years. However, the influences
of e-commerce are far bigger than imagined before. This chapter describes the various
socio-economic impacts and influences that have been created by e-commerce in a
digital economy.


The second chapter is Re-Intermediation and Deferment through E-Commerce: Neo-
Austrian Interpretation of Capital and Time written by Parthasarathi Banerjee.
It is commonly believed that electronic commerce reduces intermediation and the time
in a business circuit. This is an efficiency view. This borrows from the Chicago view.
Alternatively, transactions cost economics (TCE) theorists argue that electronic com-
merce decreases transactions cost by way of reducing the distance between the pro-
ducers and the customers. TCE too argues that dis-intermediation in electronic com-
merce reduces transactions cost and hence increases economic efficiency. In contrast
x


to this efficiency theory of dis-intermediation and of quickened money, this chapter
argues from Neo-Austrian perspective that efficiency can refer to technological changes
alone. Efficiency, it is argued, fails to increase rate of profit or innovation. Electronic
commerce is an innovation in trade. Electronic commerce brings in several layers of
possible intermediaries. In this chapter authors argue that electronic commerce keeps
transactions incomplete and extends the completion of transactions indefinitely and
thereby; electronic commerce instead of shortening the business circuit would extend
such a circuit indefinitely. Indefinite extension of business circuits”that is the length-
ening of business transactions”increases effectively the period of production. Aus-
trian theory argues that capital is time. This theory argues that a longer period of
production implies a higher rate of profit and an increase in capital. Based on this
theoretical stance, the authors argue that electronic commerce enhances capital and
increases the rate of profit by lengthening the circuit of transaction through re-interme-
diation and through an increased period of production.
Velocity of money or goods in an economy, as the efficiency theorist suggests, refers to
technical efficiency. This efficiency refers to particular states of affairs of technology.
As a result this perspective fails to explain why such technological states change or
why certain particular economic agents reap great profits. Moreover, efficiency theo-
rists™ “profit” is actually a rent earned. Interpreters of TCE have assumed that elec-
tronic commerce brings about a frictionless or transactions-cost-free market. They have
wrongly committed TCE to such an explanation. Moreover, reduction of transactions
cost would increase efficiency and would not increase rate of profit or the capital and
even would not hasten innovation. It follows contrarily that electronic commerce would
increase transactions cost.
Internet pricing has shown personalized effects based on quality differentiation and on
personalized offerings. Electronic commerce has opened up the possibility of offering
extremely variegated personalized pricing. This forum can also offer equivalents of
typical market place bargains. Production organization of a vertically integrated corpo-
ration stood upon standardization. Production of apiece products with variegated qual-
ity, chosen often by the buyer himself, demands that the entire chain of logistics and
the supply chains get linked to the electronic commerce platform and that the stages in
production are increased immensely and at each step of production each apiece prod-
uct contains unique information. Such a picture of an electronic-commerce-led economy
shows that stages of production must increase, that different economic agents must
undertake value addition at each stage, that variability must increase and that mass
production of personalized wares must hasten. In short, electronic commerce demands
that an economy increase both its division of labor and the long period of production.
A long period of production refers to the entire input-output table of an economy. A
short period of production refers to a specific transaction chain of a business or a
sector. Electronic commerce increases the length of both these periods. Shackle dis-
cussed profit and its rate from the perspective of lengthened periods of production and
an increase in the division of labor amongst economic agents who are speculators.
Electronic commerce has opened up this opportunity. In these commerce intermedia-
tions, in particular, cyber mediations have increased and will continue to increase. Neo-
Austrian framework offers a cogent explanation as how electronic commerce increases
the rate of profit and the capital in an economy based on electronic commerce.
xi


The third chapter is Risk and Investment in the Global Telecommunications Industry
written by Irene Henriques and Perry Sadorsky.
Access to affordable technology to improve the flow of information is essential to the
development of an economy. Closing the Digital Divide could bring many benefits to
developing countries. In many ways, developing countries have the most to gain from
improvements in telecommunications and information technology. Bringing the ben-
efits of IT to developing countries is possible, but the governments of these countries
need to be aware that the process is going to cost money and require institutional
changes.
International investors will frequently calculate the cost of equity for their existing
investments and their proposed investments. Development planners must be able to
make their own cost-of-equity calculations so that they can see first hand how their
investment projects compare with other investment projects around the globe.
Consequently, it is necessary to have good measures of equity risk for managers,
planners, policy makers and investors. The cost of equity is important in valuing new
investment opportunities and in evaluating the ongoing performance of established
business projects. This is especially true in the new economy IT industry where an
understanding of equity risk aids in the examination of the relationship between the IT
sector and economic development.
In this chapter, quantitative modeling and simulation techniques are used to estimate
various risk measures and the associated cost of equity for the global telecommunica-
tions industry. The approach is to calculate several different cost-of-equity values and
then use simulation techniques to build up a probability distribution for each company™s
cost of equity. In this way, a clearer picture of where a company™s cost of equity lies is
developed.
Estimates of the cost of equity for a particular company vary widely and depend upon
the methodology used. For a particular company, cost-of-equity values based on sys-
tematic risk tend to be lower than cost-of-equity values calculated from downside risk
measures. For some companies, downside cost-of-equity values are twice as large as
cost-of-equity measures based on systematic risk. This is true, even though all of the
cost-of-equity values use the same risk-free rate and same risk premium.
One of the insights that emerges from this study is the fact that the average cost of
equity for telecommunications companies in developing countries is not always greater
than the average cost of equity for telecommunications companies in developed coun-
tries. This is borne out by the high cost-of-equity calculations for companies like Cable
& Wireless, France Telecom and Nextel. In general, it is difficult to find evidence of
regional differences in the average cost of equity of telecommunications companies.
This is useful to a development planner who can then use a portfolio approach in which
high-risk investments are combined with low-risk investments to promote an invest-
ment in a developing country™s telecommunications industry. Closing the Digital Di-
vide could bring many benefits to developing countries but international investors and
development planners must be able to make their own cost-of-equity calculations so
that they can see first hand how their investment projects compare with other invest-
ment projects around the globe.
xii


The fourth chapter is Reduction of Transaction Costs by Using Electronic Commerce
in Financial Services: An Institutional and Empirical Approach by Thomas Pfahler
and Kai M. Grebe.
The authors face the subject of analyzing the impact of the increasing utilization of
information and communication technology (ICT) and electronic commerce on the co-
ordination of specific transactions in financial services. Bank transfers and stock pur-
chases, as two relevant business processes commonly occurring in the contractual
relationship between a financial institution and its customers, will be considered in
detail.
For that purpose, the conceptual framework for the target analysis has to be developed
at first. This requires the definition of the most important terms and the explication of
major ideas. The basic principals of the New Institutional Economics and the instru-
ments developed in the context of the Transaction Cost Approach specifically serve as
a theoretical background for the study and all further argumentation. Subsequently, the
chapter develops and implements a proposal how to exemplify and to compare the
above-mentioned processes under the varying influence of certain technologies. This
new approach will be specified and the proceeding will be elucidated in detail. The
authors refrain from attempting to quantify transaction costs in an absolute way and
concentrate deliberately on comparative considerations. Transactions will be decom-
posed and classified into different phases according to their devolution over the period
under observation. The intention is to reveal the basic phenomenon and to document
the reasons of the current utilization of ICT in this sector by emphasizing relative
reductions of transaction costs through the use of electronic commerce.
After the development of the approach to quantify reductions of transaction costs, the
model will be applied exemplarily on the two selected transactions. In detail, the model
takes into account seven different phases of a transaction and seven different modes
of coordination.
The empirical section of the chapter concentrates on existing technological infrastruc-
tures, growth rates, and diffusions rates of certain information and communication
technologies. Available data will be analyzed, particularly for Germany. Moreover, cer-
tain indicators are introduced to qualify in detail present developments and impacts of
ICT.
In the final stage the attained results and consequences of the outlined developments
are eventually systematized and summarized. The authors criticize and comment on
crucial points concerning the elaborated approach, its significance and limitations as
well as its explanatory power. Last, but not least, an attempt is be made to relate the
diffusion rates of the investigated technologies in the empirical section to the insights
on reductions of transaction costs derived from the theoretical cost model. This will
lead to a four-quadrant scheme to illustrate and classify present and future impacts of
electronic commerce on financial services. On the basis of this visualization the chapter
concludes with deducing a couple of final predictions and with giving a future perspec-
tive.


The fifth chapter is The Spreading Use of Digital Cash and Its Problems, which is
written by Yutaka Kurihara.
xiii


It has been several years since the words “digital cash” and other related terms were
introduced into the modern lexicon. Needless to say, the progress made in communica-
tion and information technology (IT) has been rapid, and change in the area of digital
cash is no exception. The volume of such transactions is rising, yet analysis of this
revolution in payment is limited, particularly in the academic fields.
Although e-commerce has been growing rapidly and attracting much attention, digital
cash has not been a focus of such attention. Digital cash has some problems associ-
ated with it that need to be solved before its use can continue to grow, and the rate of
growth is slowing at present. The logic behind replacing cash, checks and magnetic
credit cards with digital cash is bound to prevail in the end, but there are many barriers
that need to be overcome.
The author proposes that material cost reduction and service price are cutting resultant
factors of the demand for electronic wallet transactions and the means by which digital
cash can spread, the technology of IC (integrated circuit) card reformation can be
developed, and price cutting on the supply side can occur. The popularity of the per-
sonal computer and the Internet has also skyrocketed in recent years. A general price
decline for computer and communication tools has been ongoing as well, helping to
promote online-type transactions at the supply side.
Moreover, it seems that the spread of mobile telecommunications has contributed to
the development of digital cash. In the near future, interactive television will be used to
make transactions. IT (information technology) has undergone a global revolution in
many fields. Ubiquitous instruments in IT fields have appeared recently allowing for
digital cash to develop much further.
There are two points that will be emphasized in this chapter. The first point is that given
the essential characteristics of electronic money, its advantages and disadvantages
should be carefully examined. It is quite certain that digital cash will be promoted. It
also seems that IT progress is unstoppable, and fortunately IT can make our world a
more convenient and efficient place in which to live. Nevertheless, there are a number
of concurrent challenges with this change. None of these challenges are apt to be
resolved swiftly or painlessly.
The second point is this: since financial institutions cannot stop this trend, it would be
prudent for them to view it as a business opportunity. If they do not find ways to adapt,
they will become obsolete and completely fade away from the market. By promoting e-
finance, a company can gain market share and negotiating power over suppliers, as well
as earn a profit. Monetary authorities worldwide should pay careful heed to the trend
as well, guiding the “sound” market to maturity, taking care not to confuse exercising
leverage with excessive intervention.


The sixth chapter is Electronic Signature: The Core Legislation Category in Digital
Economy authored by Fjodor Ruzic.
E-business, as well as all of the active participants in the digital economy environment,
raises a host of new legal issues that must cope with the fact that the technical expec-
tations imposed by participation in the digital economy will increase. Three basic seg-
ments of the digital economy are converging, and each of them consists of one core
category:
xiv


• Infrastructure: telecommunications infrastructure (the members of the society
must communicate)
• Services: the content (the goal of communications is to transfer the content)
• Legislation: electronic signature (the goal is to compile rules of intercommunica-
tion processes in which the electronic content is interchanged)


Businesses that offer services and have taken to the Internet seriously have a respon-
sibility to their customers to offer services in a secure manner. Security is a fundamental
requirement for e-business applications using signature-based forms. Lack of trust is a
significant problem for any e-business ” the parties evolved in the e-business pro-
cesses must feel trust in the people and companies that are doing business. In many
traditional business relationships, trust is based on a combination of judgement or
opinion based on face-to-face meetings, or recommendations of colleagues, friends
and business partners. However, the e-business environment generally does not in-
volve human interaction and, therefore, this new context requires a new understanding
of trust.
Several techniques help in establishing online e-trust:
• Electronic authentication
• Electronic signature
• Escrow payment services (online)
• Public Key Infrastructure (PKI)


With the advent of electronic signatures, e-business is changing the way we sign and
store documents. Thus, any business that wants to succeed in the digital economy
must deal with electronic signatures. It is considered an everyday activity whenever a
law or other arrangement requires a signature of person. Signature is needed as a
medium for authentication in order to identify the person (the signer), to indicate the
person™s approval of the information communicated and, to be legally applicable. Most
of the national laws currently in force provide that a signature, contract, or other record
relating to such transaction may not be denied legal effect, validity, or enforceability
solely because it is in electronic form. Like a handwritten signature, an electronic signa-
ture can be used to identify and authenticate the originator of the information and, it
can also be used to verify that information has not been altered after it is signed.
Electronic signatures play a key role in enabling electronic business by helping ensure
that electronic documents are unaltered and have not been forged.
Considering the functionality and applicability of such issues, this chapter finds one
key category that links all of the separate e-business legal issues in one regulated
scene ” the answer is done by introducing electronic signature as equivalence with
handwritten signature no matter what type of information technology is in use. There
are more legal environments, solutions and applications of an electronic signature from
which several examples are described accompanied with the e-business view on elec-
tronic signature utilization.
xv


The seventh chapter is Impacts of the Digital Economy: The Shift to Consumer-Driven
Competition and Life-Span Products authored by Simon Mowatt.
This chapter examines changes in innovation and competition made possible in two
traditional industries by the adoption of integrated information and communication
technologies. The two industry cases used are drawn from the consumer magazine
segment of the printing industry and the grocery multiple (supermarket) segment of the
retail industry. Both of these industries have benefited from changes in communication
within the industry value system made possible by the adoption of digital information
management and communication systems.
The primary research in these industries was undertaken by an empirical program of
qualitative, interview-based research focused on innovation networks. The informants
were involved in production, distribution and retail, and identified by prior secondary
research. The research also employed a census questionnaire survey of consumer
magazine publishing firms. The survey response was checked for representiveness
against a random sample of the industry population and found to be robust.
The chapter highlights the importance of consumer-drive innovation in consumer-fac-
ing markets. The industries examined had previously been conditioned by the econom-
ics of manufacturing. The development of complex innovation networks to supply
consumer needs is examined and the innovation process is explored in detail. For the
process of consumer-driven innovation, the importance of linkages to end-consumer
and market experts is acknowledged”something is enhanced by the use of digital
technologies. The chapter acknowledges that the development of the innovation sys-
tems described was the result of firms reacting to consumer needs. But in addition to
this, the chapter offers the concept of “life-span” goods as those developed from the
outset as having a short life dependent on changing consumer tastes and fashions.
Life-span goods are emerging as firms continue to explore the possibilities of proactively
using innovation systems to forge links with consumers. Within this environment firms
have been recently acting more as project orchestrators: using their skills in develop-
ing innovation teams based on the deep knowledge of consumer activities to identify
and supply new market segments.
Production in the innovation systems identified is undertaken across firms and coordi-
nated by shifting and temporary alliances. This presents a challenge to economic analysis
and to the theories of the firm grounded in a transaction-cost framework. Network-
based and sociologically grounded theories of the firm have previously attempted to
resolve the inadequacies of contemporary economic theory by emphasizing the impor-
tance of social ties and long-term embedded relationships. However, the examples ex-
plored in this chapter highlight the role of new technology in short-term non-embedded
relationships as well. The project-based firm is identified as having features that are
problematic for economic analysis. Despite this the chapter suggests that changes in
competitive pressures towards consumer-facing competition may increase the preva-
lence of project-based firms with industrial economies. Finally, the chapter concludes
by exploring some avenues for future research that offer new pathways for future
theoretical understanding of project-based and network organizations.


The eighth chapter is Digital Products on the Web: Pricing Issues and Revenue Mod-
els written by well read Gary P. Schneider.
xvi


Products that exist in digital form can be bought, sold, and in some cases delivered,
online. Some products exist only in digital form, such as software and certain types of
information databases. Many more types of products exist in physical form, but can be
digitized. These products include many forms of intellectual property such as text,
pictures, photographs, architectural drawings, choreography notes, sound recordings,
and video recordings. In some cases, digital products arise from the transmission of
other digital products, as in the case of telephone and fax transmissions. The pricing
issues that arise in the sale of these products are different from those that sellers face
when pricing physical goods. These pricing issues lead to interesting opportunities for
devising revenue models. These pricing and distribution issues affect the nature, quan-
tity, and quality of competition in markets for these products. Some digital products are
made available at no charge. Thus, an alternative revenue stream that is somehow
related to the product must be devised. Some digital products are bundled with other
products (digital or physical) to avoid some of the problems inherent in the pricing of
digital products alone. Another pricing strategy is to create an artificial distinction
within a subset of digital products and use differential pricing to extract the highest
revenue possible from each set of customers for the product. Perhaps the most common
pricing method is to use a licensing approach of one kind or another. Many digital
products are, in their essence, things that are experienced by customers. They often
have no meaningful physical existence separate from their experience. Providers of
digital products must maintain a current knowledge of underlying technologies that are
used or could be used in the future for delivery of their products. The ability of custom-
ers to adapt and reformat digital products is also an essential characteristic of digital
products, a characteristic that can be affected by changes in technologies as well. The
success of revenue models for companies that sell digital products depend on the
nature of the product, the characteristics of the buyers, and the traditional practices in
the industry. For most digital products, the effect of pricing and distribution strategy
does not derive so much from the introduction of the Internet into the marketing chan-
nel as from the products™ very nature as digital products. This chapter examines the
nature of digital products, their pricing issues, and the efficacy of various revenue
models that have been implemented by companies that deal in digital products.


The ninth chapter is On Software Piracy by Sougata Poddar.
The pervasiveness of the illegal copying of software is indeed a worldwide phenom-
enon. Economists argue that when the piracy takes place at the end-users level, the
original software developer finds it profitable to allow limited piracy when the effect of
network externality is reasonably strong in the users™ market. The author argues that
when the piracy is of retail in nature, the same logic cannot be extended, and shows that
it is always optimal for the original software developer to protect its software even
when the effect of network externality is strong in the end-users™ market. The author
suggests that piracy depends on more fundamental issues like demand environment,
market structure, the nature of piracy and the nature of competition. The other issue
covered here is the economic impact of piracy on the welfare of a society. The author
discusses various policy implications on regulating piracy in developing as well as
developed markets.
xvii


The 10th chapter is by the well-known Professor Stanley D. Brunn, An E-Classification
of the World™s Capital Cities: URL References to Web Sites.
The world™s capital cities perform various political functions for their populations,
contain embassies, consulates, and missions of other governments, and serve as head-
quarters for major corporations, cultural and humanitarian organizations. While social
scientists have classified major cities based on population size, number of corporation
headquarters, banks, and airline connections, the emergence of ICTs suggests addi-
tional criteria. The author used the number of URL references to Web sites listed in the
Google search engine for 199 world capitals. These cities had nearly 120 million
hyperlinks in mid-2003. The capital cities in Western Europe had the most hyperlinks
(15 million), followed by Southern and Northern Europe (13 and 10 million respectively),
and Central America (10 million). The capitals with the most references to electronic
information were: Singapore (6.6 million), Washington, D.C. (5.1 million), and Mexico
City (4.2 million). The next largest cities are recognized as major European cities and
world cities, including: Luxembourg, Paris, Tokyo, Monaco, Madrid, Berlin, Rome, and
London. Several Central American capitals, Panama, San Salvador, and Guatemala City,
were in the top 15. The top 15 capitals had 46 million hyperlinks or 31% of the total. The
regions with the fewest hyperlinks were capitals in Southern Africa (only 603,000) and
the Pacific Islands (only 410,000). These had less than 1% of the total. Five capitals
had fewer than 6,000 URL references each. They were the capitals of Bhutan, Micronesia,
Tonga, Mauritius, and Nauru. Small prosperous city-states and major capitals in West-
ern Europe and North America had the most hyperlinks. The fewest links are found for
capitals in poor and rural Sub Saharan Africa and Southeast Asia countries. Capitals
with multiple government offices, strong ICT economies, and dominant tourist econo-
mies have the most hyperlinks per capita. These were mostly in wealthy Europe and
North America. The lowest values were African and Asian capitals that were poor and/
or had repressive regimes. Regarding hyperlinks per capita, there were 48 capitals with
more URL references than residents. The highest figures were for small city-states with
dominant specialized functions, including administration, finance, tourism, telecommu-
nications, and religion. These include: Vatican City, Vaduz, Singapore, Brussels, Lux-
embourg, Washington, D.C., Canberra, Ottawa, Monaco, Valetta, Yaren (Nauru), and
Victoria (Seychelles). Those with the lowest per capita values were in South and Central
Asia, West, East, and North Africa. Many have closed or repressive regimes or are
poorly connected to the Internet. The major categories of information provided on the
first “screen” of those capitals with the most hyperlinks were news stories, embassy
(often US) information, and financial, tourism, and weather information. The first items
of those capitals with the fewest hyperlinks were tourist sites, hotels, recreational
activities, and local time. A number of subsequent topics are offered that merit addi-
tional research by scholars in various fields interested in e-commerce.


Online Services and Regional Web Portals: Exploring the Social and Economic Im-
pacts is the 11th chapter written by Helen Thompson.
This chapter examines community empowerment, economic and business development,
and equity of service as the issue of success and decline in regional and rural commu-
nities. This is explored with a particular focus on community informatics initiatives (CI)
in Australia, there has been a vision for online services to be used to open up regional
xviii


communities to the rest of the world. Government support has been seen as enhancing
the competence levels of local communities so they become strong enough to deal
equitably in an increasingly open marketplace. But how effective have regional portals
and other online initiatives been? This chapter explores whether economic and social
benefits are generated via establishing and sustaining regional CI initiatives. Theory
relevant to online communities is introduced to provide a context for the presentation
of two case studies. The first case outlines how a geographical portal has been estab-
lished and progressively enhanced as a central component of a strategy to facilitate an
increase in the uptake of ICT and e-commerce in the Ararat region. Benefits have
included the efficient linking of Internet-based information and services, more effective
promotion of local businesses, tourism and regional events and also significant skills
development and learning opportunities for community members. Ararat Online has
been recognized as an exemplar online community, effectively demonstrating how re-
gional development and online technologies can be combined. The second case dem-
onstrates how online services can be established to leverage the activities of a commu-
nity of interest. The Young Australian Rural Network (YARN) is an interactive online
community for young people working in rural industries to keep in touch, collaborate,
share ideas and strengthen networks. “Ownership” is effectively shared between the
Federal Government and young people with multiple opportunities provided for partici-
pation and involvement. For examples, the author discusses contributing to online
discussions, building a community site, adding a link, publishing events or suggesting
news items. In both cases the same comprehensive portal platform and toolset has been
accessed in the delivery of each community™s web-based services. This platform has
been designed by the University of Ballarat to meet regional and rural needs and to
reduce evident challenges in terms of infrastructure, cost and skill barriers, which often
negatively impact on the success of CI initiatives. It has been found that communities,
just like businesses, benefit from accessing assistance in identifying appropriate online
services for their particular circumstances. Case studies, such as those presented in
this chapter, are effective in illustrating the impacts, influences and challenges that can
be experienced in operationalizing and sustaining regional CI initiatives. Dissemination
of the critical learning from cases such as Ararat Online and YARN can inform others
about diverse factors which impact on the effectiveness and long-term sustainability of
regional CI initiatives.


Chapter 12 is ICT Growth and Diffusion: Concepts, Impacts and Policy Issues in the
Indian Experience with Reference to the International Digital Divide authored by
Saundarjya Borbora.
This chapter examines the role of technology in economic and social development in
developing countries, with a particular emphasis on India as an example. The concepts
of ICT Growth and ICT Diffusion are examined. ICT growth refers to the growth of IT-
related industries and services and their effect on employment, export earnings and
outsourcing of activities. ICT diffusion refers to IT-induced development, which in-
creases productivity, competitiveness, economic growth and human welfare from the
use of the technology by different sectors of the economy. The chapter focuses on the
direct benefits of ICT growth, paying special attention to the service sector. But the
role of IT in economic development has not received adequate attention in India. From
this, the paper reviews Indian governments™ successful policies encouraging ICT growth
xix


through the support of the export-oriented service industry. This industry has wit-
nessed long-term growth primarily as the result of the increasing tradability and conse-
quent internationalization made possible by changes in ICTs. However, the export fo-
cus policy has created enclaves within the Indian economy without significant forward
and backward linkages. Whatever ICT diffusion is taking place is due to activities of
industry and discrete public and private initiative at the absence of any specific central
government policy for ICT diffusion in India. The chapter examines both international
and domestic digital divides. Real disparities exist in access to and in the use of infor-
mation and communication technology between countries, the International Digital
Divide, and between groups within countries, the Domestic Digital Divide. Evidence
suggests that International Digital Divide between may be increasing. Examining the
present unequal access to ICT, it may be stated that new technologies reinforce the
disparities between developed and developing societies. But late entrants such as
India have the advantage of access to frontline technologies and cost-effective infra-
structure development without the sunk costs in extent systems carries out by many
developed countries. There exists real opportunities for promoting ICT diffusion through
involvement of the society at large. This chapter suggests that in order to maintain its
relative technological position and to increase its comparative advantage in the IT
sector, government policy should focus on domestic ICT diffusion. The chapter re-
views several local public, private and public-private initiatives to spread the use of
ICT throughout Indian regions that has been successful and may serve to offer ex-
amples for future development. The author concludes that ICT-driven development
may be achieved with supportive central government policies in order to maximize the
wider economic and social benefits, lessening both the International Digital Divide and
the Domestic Digital Divide.


The 13 th chapter is Digital Technologies and the Cross-Border Expansion of South
African Banks, which has been written by Joanne Roberts and Chipo Mukonoweshuro.
The increasing intensity of competition since the 1970s, together with the deregulation
of financial markets and the internationalization of financial services, has driven the
application of digital technologies in the financial services sector. However, the impact
of digital technologies combined with the deregulation of financial markets has led to a
growing concentration of financial service activity in the global cities of developed
countries. Nevertheless, digital technologies do influence the financial services sec-
tors in the developing countries, both in terms of the availability and cost of capital,
consumer access to services and the organizational development of service providers.
This chapter focuses on the impact and role of ICTs in the development of financial
services organizations in the developing countries of Africa, and, in particular, on the
international development of South African banking organizations.
Through a review of relevant literature and evidence, together with a number of case
studies, this chapter explores the role of ICTs in the international development of South
African banking organizations. The aim of this chapter is to explore the role of digital
technologies in facilitating the cross-border expansion of South African banking orga-
nizations. Specific challenges do exist for financial sector organizations operating in
Africa where the ICT infrastructure is poorly developed. Nevertheless, it is argued here
that South African banking organizations derive important advantages from the use of
xx


ICTs in their expansion into neighboring countries. Using Dunning™s (1989, 1988) eclec-
tic approach as a mechanism with which to assess the importance of digital technolo-
gies, ICT is explored both as an ownership-specific internal capacity, and as a locational-
specific factor influencing the geographical pattern of international expansion, and as
a facilitator of the internalization of cross-border banking networks. This chapter high-
lights the opportunities and challenges related to ICTs for South African banking orga-
nizations. In so doing, the chapter will make a contribution to the understanding of
intra-African foreign direct investment in the banking sector and the emerging digital
economy in developing countries.
A review of banking in Africa with particular attention focused on South Africa is
provided, followed by an analysis of the internationalization of South African banking
organization. The use of digital technologies in the delivery of services and the organi-
zation of banking networks is then explored before their role in the South African
banking organization networks is investigated. Finally, conclusions are drawn regard-
ing the role of digital technologies in the international development of South African
banks.


Technology and Culture: E-Commerce in China is the 14th chapter of this book written
by Alev M. Efendioglu and Vincent F. Yip.
The number of Internet users around the world has been steadily growing and this
growth has provided the impetus and the opportunities for global and regional e-
commerce. As part of this trend, over the recent years access to technology in China
dramatically increased and it is projected that 10.3 million PCs were sold during 2002,
making China the 3rd largest market after U.S. and Japan. Furthermore, China is now
second only to the United States in the number of home Internet users with nearly 57
million people with web access at home. Internet subscriptions are growing by 5-6%
every month, and in just three or four years 25% of the population could have Internet
access, translating to over 250 million people. During 2002, 31.67% of Internet users in
Shenzhen made online purchases. However, as with the Internet, different characteris-
tics (infrastructure and socio-economic) of the local environments have created signifi-
cant levels of variation in the acceptance and growth of e-commerce in different regions
of the world and in China. The author™s research focuses on the impact of these infra-
structures (payment systems and access to technology), and socio-economic factors
on e-commerce development in China. The findings provide insights into the role of
culture in e-commerce, issues such as “socializing effect of commerce,” “transactional
and institutional trust,” and “attitudes toward debt,” that may impact a broader accep-
tance and development of e-commerce in China. To identify the current infrastructure
and socio-economic influences on the development and growth of e-commerce in China,
a 20-question questionnaire was administered to a total of 252 individuals that formed
the study group. The study participants were located in Beijing, Shenzhen, Shanghai,
Guangzhou, Wuhan, and Shandong during the time of the study, worked for different
types of organizations (Joint Ventures, State-Owned Enterprises, Multi-National Cor-
porations, etc.), resided and worked in different regions in China, and had different
educational levels, professions, and gender. The participants identified some infra-
structure and social issues that will impede and be obstacles to full development of e-
commerce in China in the near future. Among the most identified and repeatedly men-
xxi


tioned issues were lack of credit cards (availability of them for the general public in
China) and convenient payment means, poor distribution logistics, lack of specialized,
trustworthy online merchants of reasonable size (too many small players facing many
bottlenecks and without necessary resources to set up e-commerce systems), an imper-
fect legal system, and lack of large scale telecommunication transmission capability
(broadband). Overall, the respondents were reasonably positive about the availability
of hardware/software, government and industry support for IT in China and were over-
whelmingly less positive when asked if the Chinese culture “supports” the propagation
of IT and e-commerce. The group thought the Chinese consumer society was not quite
ready (lack of confidence in technology and off-site transactions, online culture, and
overall sophistication of the general public) and the conditions were not “ripe” for e-
commerce. In this chapter, the authors present and discuss the findings in detail, and
propose some strategies for success for e-commerce in China.


The 15th chapter is Internet Economy of the Online Game Business in South Korea: The
Case Of Ncsoft™s Lineage written by Kyonghwan Park.
This chapter attempts to lay the groundwork for in-depth discussions on the economic,
social and cultural dimensions of the online game business as one of the most success-
ful forms of the contemporary digital contents industry using the Internet. Theorizing
the Internet as a “general purpose technology” is a useful framework to elucidate its
“complementary” role in commerce and telecommunication sectors, and its “general-
purpose” diffusion in socio-cultural spheres. However, the framework has an overall
danger in downplaying the significant “discontinuity” of the emerging Internet economy,
which takes the Internet “network” itself as a core, as an alternative economic resource
and a social “space” of economic activities. Based on this problematic, this chapter
explores the way in which the online game as a form of digital economy has evolved
both through and within the “space” of the Internet.
For an empirical analysis, this chapter investigates the case of the South Korean online
game company NCsoft™s Lineage: the blood-pledge. The rapid success of NCsoft™s
Lineage is mainly indebted to two factors. The first is the formation of South Korean
national innovation systems (NISs) in the recent development of the Internet broad-
band infrastructure. Since the 1997 financial crisis, the South Korean government has
implemented massive projects to construct nationwide, high-speed Internet networks
in order to boost a knowledge-based and techno-intensive national economy. About
24,000 broadband-based Internet-caf©s on every street corner in built-up areas played
a crucial role in the success of the online game business, not only because Internet-
caf©s provided high-quality Internet service along with low price, but also because
they were pivotal “off-line” places of the online game users™ communities. The second
is the company™s technology-intensive, elaborate efforts at constructing the cyberspace
of Lineage as a social space in-between the real and the imaginary. Lineage is a spatial
simulacrum consisting of not only hyper-real images of basic realities, but also its own
spatio-temporal scale. It is a distinct social space in which game users share common
time-space compressed experiences and socialize with other game users in order to
survive the cyber-society of Lineage. In short, the broadband Internet infrastructure
and the construction of the game users™ community constitute two necessary condi-
tions for the economic success of the online game business.
xxii


Although a digital economy could not be completely separate from conventional eco-
nomic principles, the online game business contains emerging forms of new economic
space not only in-between the real space and the virtual space, but also between the
production and the consumption. The author conceptualizes such a socio-cultural
economy of the Internet business as the economy of a “third” space. The case of
NCsoft Lineage implies the third space is not just social, but also economic space with
the game users™ real consumption of simulacra and its spread effects on other off-line
economic sectors. The emergence of the digital economy containing certain forms of
new economic space would give rise to a neo-economic environment in which many
businesses such as e-business could explore new economic opportunities.


The 16th chapter is Opportunities and Challenges of the New Economy for East Asia
which is written by Donghyun Park.
The first part of the chapter discusses the economic impact of the New Economy on
East Asia. First, the author discusses the potential economic benefits of the New Economy
for the region. The author argues that East Asian countries should focus on applying
existing IT technology to improving the efficiency of the manufacturing sector, the
main engine of the region™s economies. Second, the author points out that while the IT
revolution may enable East Asian countries to leapfrog some technological barriers, it
does not enable them to leapfrog sound economic policies. Furthermore, the potential
of IT will remain largely unfulfilled in the absence of complementary investments such
as a sound infrastructure for transportation and logistics. Third, East Asian countries
must fulfill certain pre-conditions to make sure that the New Economy takes hold.
Above all, they must liberalize their telecommunication sectors so as to improve the
quantity and quality of telecom services. They should also make the necessary invest-
ments in human resource development. In short, although the New Economy holds out
tremendous economic potential for East Asia, realizing that promise will require a lot of
determination and hard work. That promise is already being realized in the more devel-
oped countries of the region, namely Japan and the NIEs, and the author looks at some
examples of their success in the New Economy.
The second part of chapter deals with the implications of the IT revolution for regional
development. The second part is essentially an application of the first part, which
addressed the broader issue of economic development, to the narrower issue of re-
gional development. East Asian countries suffer from significant inter-regional eco-
nomic inequalities. Such inequalities inevitably interfere with well-balanced economic
development and impose costs on both the magnet cities and the rest of the country. A
more balanced pattern of development is therefore desirable, and IT can make signifi-
cant contributions toward this objective. In particular, by reducing the concentration
of information and knowledge in the main city and disseminating those valuable re-
sources to the rest of the country, IT reduces the inequality of opportunity that lies at
the root of the inter-regional economic inequality. However, IT by itself will not enable
poorer regions and cities to catch up with the main cities, and will facilitate regional
development only if the other fundamental ingredients of regional development are in
place.
In the last section, this chapter summarizes the main points and provides some con-
cluding thoughts. In addition, policy implications of the analysis for FDI in Asia, along
xxiii


with implications for potential foreign investors, especially in the telecommunications
industry are given. FDI into IT sectors can not only be profitable for the investors, but
also can promote the host country™s economic growth.


Digital Engineering Campus: Economics, Acceptance, and Impact is the 17th chapter
of this book written by Milind J. Mahajan, Sunil S. Umrani, and Narendra S. Chaudhari.
Widespread uses of many web-based, e-learning approaches have established the use-
fulness of these technologies. The cost of development of contents is a major compo-
nent for appropriate “soft” infrastructure for such web-based, e-learning approaches.
To have a wider impact of these technologies on the society, we need to have the
models to keep the development cost self-sustainable within the society. In advanced
countries, in the educational sector, the costs are mostly borne by government / public
supported educational institutions. In developing countries like India, there is not
sufficient financial support. However, there is a huge market. Tapping such a market at
an early stage is important.
To highlight these issues, in this chapter, the authors introduce two existing web-
based, e-learning approaches, and examine economic and social aspects of their usage
in the society. Specifically, the authors first briefly introduce an e-learning initiative in
Singapore. Secondly, the authors introduce a scenario in developing countries like
India. The demand for an engineering degree within India has led to widespread engi-
neering education within the country. While there are a few “elite” institutes like IITs,
that have been funded heavily by government, offering engineering degrees, the wider
societal impact is increasingly being driven by a large number of private educational
institutions. However, such an expansion has resulted in concerns for maintaining
necessary educational standards. The cost-effectiveness and success of low-cost,
web-based, e-leaning initiatives is the main focus in the discussions within this chap-
ter.
In this respect, the authors briefly introduce the role of universities and other govern-
ment agencies for monitoring educational standards. Next, the authors give a scenario
of an engineering education at a wider level with a focus on a typical state. The authors
have chosen to focus on Maharashtra state for this purpose. A brief sketch of the
socio-economic perspective for the adoption of web-based, e-learning in the context of
engineering education in India is examined. The impact of non-governmental organiza-
tions (NGOs) is illustrated through the detailed description of a case study regarding
the experiment called “Digital Engineering Campus” (DEC). DEC is an NGO initiative to
provide supplementary educational facilities for engineering colleges in India. Consid-
ering the economic as well as social benefits, using the detailed case study of DEC,
authors argue that developing countries like India have tremendous growth potential
in web-based education. Further, the experiences of developed countries with web-
based education will prove to be highly beneficial for developing countries like India.


The last chapter of this book is Corporate Strategies in a Digital World: Supply Chain
Management and Customer Relationship Management “ Development and Integra-
tion-Focus written by Purva Kansal and Keshni Anand Arora.
xxiv


These days, the majority of management literature stresses the concept of “learning
organizations,” i.e., an organization™s capacity to change. However, it is not easy for
people to accept this fundamental especially when it comes to the Internet and
technology™s growing importance in business operations. They claim it as a temporary
trend that will leave little visible change in the way business is conducted. For these
businessmen the philosophy seems to be “keep making better products and offering
new services, and the customers will keep buying.” They ignore changes occurring in
the buying habits of customers and ignore the impact of technology.
There are some businesses that are happy to follow the leader and adopt tools like
supply chain management. Supply chain management is a recognized discipline to
shorten cycle times, reduce inventories, decrease logistics™ costs and streamline com-
munication process across the business network.
On the other hand are the businessmen who understand the learning organization
concept and develop a forward orientation. They are prepared to ride the technology
wave to new heights and accomplishments by using technology as a defining element
in business operations. This chapter suggests a new approach for this new breed of
Entrepreneurs. In this chapter, the authors are trying to give supply chain management
a customer orientation and study its results. The authors highlight the synergistic
advantage of linking supply chain management with customer relationship manage-
ment into a tightly knit network using technology. The main focus is on finding solu-
tions to deal with Internet-empowered customers and to learn how to apply technolo-
gies demanded in the new digital economy.


All the chapters included in this book are original and have been published for the first
time. This book covers various aspects of global production, trade and investment and
the effects of the Internet from a socio-economic angle.
While paying attention to the current status of the intertwined issues of electronic
commerce in technology, standards, policy and legal issues, the focus is on many
socio-economic issues and aspects of the electronic commerce that other books do not
cover. This book aims to provide relevant theoretical frameworks and latest empirical
research findings in this area.
xxv




Acknowledgments



A collaborative project like this doesn™t exist in vacuum. Such projects can-
not be kept running without enormous support and help. Producing a book
is just like entering a long-term relationship with many partners like con-
tributors, reviewers, editors, and a publisher. It is appropriate to acknowl-
edge all of those people we know who have directly or indirectly shaped our
work by contributing to the successful production of this book.
We would like to express an especially warm note of thanks to Professor
Mehdi Khosrow-Pour, Chief Editor, Idea Group Publishing, which made the
start of this project possible by planting the seed of inspiration by suggesting
this project to us.
We wish to thank all the contributors for their excellent contributions to this
book. Many of the contributors also served as reviewers for the chapters
written by other contributors and assisted the editors in producing a won-
derful product. Thanks go to all those who provided constructive reviews to
enhance the quality of the book. Irrespective of having congested schedules,
these people responded promptly and enthusiastically to all our requests.
However, some of the individuals need a special mention as their help set the
benchmark. These include: Professor Alev M. Efendioglu, Professor Vincent
F. Yip, Mr. Kwonghwan Park, Dr. Saugata Poddar, Professor Yutaka Kurihara,
and Dr. Fjodar Ruzic, among others. A special vote of thanks is due to Profes-
sor Stanley D. Brunn for providing us access to his listserv, introducing us to
potential authors and contributors and encouraging us to persist with the
project until successful completion. A special vote of thanks is also due to
Professor Gary P. Schnieder for kindly accepting our invitation and making
a highly valuable contribution within the tight delivery schedules.
A special environment at the University of Western Sydney in Australia facili-
tated our work on this project. The cooperative attitude of all the colleagues
had a direct impact on the successful completion of this task.
xxvi


Special thanks go to the publishing team at Idea Group Inc. particularly to
Jan Travers, who via her timely emails prompted us to always meet the dead-
lines and keeping the project on schedule. We also acknowledge the help of
Michele Rossi, Jennifer Sundstrom and Amanda Phillips for their unstinting
support to this project.
We would like to express our sincere thanks and gratitude to our families,
who have been supportive and patient throughout this venture, without which
this project could not have been completed successfully. We are highly grate-
ful to Mrs. Harbans Kehal for her great moral support and encouragement
that bolstered us in tough situations.
A special mention must be made of Harinder Samatani for his technical help
in the editing process and also for his contribution with his computing and
linguistic skills.
In closing, we wish to acknowledge the unselfish help and technical support
provided by Dr. Kiranjit Sohi during the end days of the project.


H.S. Kehal
V.P. Singh
January 2004
Socio-Economic Impacts and Influences of E-Commerce in a Digital Economy 1




Chapter I



Socio-Economic
Impacts and
Influences of
E-Commerce in a
Digital Economy
Sushil K. Sharma
Ball State University, USA




Abstract
Innovations in information and communications technologies have created a digital
revolution that is changing the way the world works, learns, communicates and
transacts business. E-commerce continues to show strong growth and has been
influencing the social and economic growth of nations. On one hand e-commerce
technologies have helped nations to accelerate their economic growth and to provide
more opportunities for businesses to grow, but it has also created many challenges and
effects across numerous domains of society, and for policy makers. These issues involve
economic productivity, intellectual property rights, privacy protection, and affordability
of and access to information, among other concerns. This chapter describes the various
socio-economic impacts and influences that have been created by e-commerce in a
digital economy.



Copyright © 2005, Idea Group Inc. Copying or distributing in print or electronic forms without written
permission of Idea Group Inc. is prohibited.
2 Sharma


Introduction
The revolution in computing and communications of the past few decades, indicate that
technological progress and use of information technology will continue at a rapid pace.
The Internet™s growth and e-commerce has begun to create fundamental change in
government, societies, and economies with social, economic and political implications
(Boulton et al., 2000; McGarvey, 2001). These advances present many significant
opportunities but also are having wide-ranging effects across numerous domains of
society, and for policy makers. Issues involve economic productivity, intellectual
property rights, privacy protection, and affordability of and access to information,
among other concerns (Sharma and Gupta, 2001; 2003b). Electronic commerce promises
to be the momentum behind a new wave of economic growth (Mariotti and Sgobbi, 2001).
E-commerce has already improved business value by fundamentally changing the ways
products are conceived, marketed, delivered, and supported. The relationship and
interaction of various stakeholders such as customers, suppliers, strategic partners,
agents, and distributors is entirely changed. On the positive side, e-commerce has been
creating opportunities for individuals and businesses in the new economy. E-commerce
is helping organizations to reduce transaction, sales, marketing, and advertising costs.
E-commerce is also helping businesses to reach global markets efficiently 24 hours per
day, seven days per week, 365 days per year. Many of the benefits come from improved
consumer convenience, expanded choices, lower prices, and the opportunity for better
interactions with partners, suppliers and targeted customers for service and relation-
ships. E-commerce has also improved product promotion through mass-customization
and one-to-one marketing.
Adoption of new information technologies, particularly e-commerce, is expected to result
in improvements in firm performance, such as reducing transaction costs and closer
coordination of economic activity among business partners (e.g., Malone et al., 1987;
Mukhopadhyay et al., 1995). E-commerce specifically (especially B2B) is predicted to
result in lower coordination or transaction costs due to automation of transactions
online, as well as productivity and efficiency gains (Amit and Zott, 2001; Lucking-Reiley
and Spulbur, 2001; Wigand and Benjamin, 1995). E-commerce also is expected to facilitate
entry into new markets and the extension of existing markets (Garicano and Kaplan, 2001),
and greater integration of systems with suppliers and customers (OECD, 1999; Timmers,
1999; Wigand and Benjamin, 1995). As e-commerce continues to grow rapidly, it could
have significant effects on the social and economic structures of economy. The impacts
of these changes are diverse and may even widen the digital divide among nations, alter
the composition of trade, disrupt labor markets, and change taxation (Anonymous, 2000).
Widespread use of the Internet for e-commerce may have ramifications for intellectual
property rights, privacy protection, and data filtering, etc. Therefore, in the digital
economy, it is becoming imperative to know how e-commerce affects organizations and
society and raises social concerns. Some of these effects of e-commerce are unintentional
and create adverse business and personal conditions that could have societal conse-
quences. Social and economic aspects of ICTs have been studied by a wide variety of
researchers and practitioners for over 50 years (Dutton, 1999a; 1999b). However, the
influences of e-commerce are far bigger than imagined before (Sharma and Gupta, 2003b).



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Socio-Economic Impacts and Influences of E-Commerce in a Digital Economy 3


This chapter describes the various socio-economic impacts and influences that have
been created by e-commerce in a digital economy. The chapter is divided into four
sections. The first section provides the definition and components of the digital
economy. The second section discusses the positive influences of e-commerce for
businesses. The third section discusses the details of sociological influences of e-
commerce. The fourth and concluding section discusses the economic impact of e-
commerce in the digital economy.




Digital Economy
The essential in the new economy is a structural shift from the industrial economy toward
an economy characterized by information, intangibles and services and a parallel change
toward new work organizations and institutional forms. Many new terms have been
coined for this new economy such as “knowledge-based economy,” “borderless
economy,” “weightless economy,” “networked economy,” “digital economy,” “the
information-based economy,” and “the networked economy” to name a few (Woodall,
2000; Sharma et al., 2004). A digital economy is a convergence of communications,
computing, and information. The new economy is basically about coordination, innova-
tion, selection and learning (G¤rdin, 2002). The combination of networked computing
technologies and new business models is creating entirely new markets, industries,
businesses, and work practices today to form a digital economy. The new economy or
digital economy is based more in the form of intangibles, information, innovation, and
creativity, in expanding economic potential (Persaud, 2001) and is based on the exploi-
tation of ideas rather than material things. The focus of the new economy moves from
processing material input into material output toward creation, trading and distribution
of knowledge, intellectual property and intangibles. The symbiosis between changing
production and business processes and information and communication technologies
(ICT) is the driving force toward the new, digital economy. The key to understanding the
new economy is services and the measurement of services. The modern industrial
enterprise is largely a producer of services integrated or embedded in the product. A large
part of this service production concerns the use of information in some form (G¤rdin,
2002). The essential elements of the digital economy are:
• digitalization and intensive use of information and communication technologies
(ICT);
• codification of knowledge;
• transformation of information into commodities; and
• new ways of organizing work and production.


This implies that much of information and many services are available online. A widely
distributed access to the networks, the intra- and Internet, and of skills to live and work
in the Information Society is the basis for the digital economy. The new economy is a



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4 Sharma


combination of services and ICT. Malone, Yates and Benjamin elaborate on the growing
concern that the benefits of the digital economy are not evenly distributed within society
(Bouwman, 1999). The two major concerns are the role of technologically-sophisticated
workers in the digital economy and the equity of the benefits-sharing as digitization of
information changes the structure of businesses and industries. For example, the
dramatic expansion of inequality and educational differentials, and disparities in access
among different groups seem to follow the perfect labor market scenario. In this scenario,
the most qualified workers receive much of the benefits, but both firms and poorly
qualified workers tend to lose out (Kauffman and Walden, 2001). Many of these socio-
economic influences are discussed in the next section.




Positive Influences of E-Commerce for
Businesses
Electronic Commerce or e-commerce is the exchange and processing of business
transaction information using computers connected through a network. E-commerce
does have unique advantages for businesses. It allows a shop, a showroom or an office
to open 24 hours a day, seven days a week. It also means that time zones are not a problem.
A Web site can bring a prospect from the point of advertising and information directly
to the point of sale, seamlessly, without involving any other medium. E-commerce has
reinvented the way businesses operate. E-commerce has also allowed the establishment
of completely new types of businesses such as online shopping and Internet banking.
These new ways of thinking, and processes involved in commerce, provide many benefits
and advantages. E-commerce brings substantial net benefits to the economy. The real
impact of e-commerce is its ability to reduce costs and prices and make doing business
more efficient. The increased productivity will result from lower production costs, lower
inventory holding costs and lower overall input costs to a business. These savings
permeate through the entire value chain and impact significantly in business interactions
with other businesses (Sharma and Gupta, 2003a).
The Internet is providing considerable opportunities for firms to streamline their
business operations as well as offering greater choice and lower prices to customers
shopping online or alternatively obtaining product information before making a store or
catalogue purchase. A large number of enterprises have migrated to Internet-based
systems for increased efficiencies, lower costs and the ability to operate in real time
across different platforms. E-commerce is changing business economics and as a result
many firms are re-engineering their core business processes. Suppliers and retailers are
able to collaborate on product forecasts and product flow and inventory management
decisions using the collaborative Internet-based networks between suppliers and
retailers. In addition to reducing costs, e-commerce solutions permit customers to
custom order products based on individual needs and preferences. Retailers are able to
allow customers to mass customize orders based on virtually thousands of choices.
Internet-based systems are more efficient in communicating customized product infor-
mation to suppliers. The entire value chain makes better decisions collaboratively with


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Socio-Economic Impacts and Influences of E-Commerce in a Digital Economy 5


the end result being vastly improved performance throughout the entire chain. The Net
economy or digital economy will result in lower prices for consumers, better information
access and increased competitiveness of small and mid-size businesses. It will also pave
the way for a true global trading community.




Social Impacts and Influences of
E-Commerce
As e-commerce continues to grow rapidly, it could have significant effects on the
structure and functioning of a society at an individual and aggregate level (Granovetter,
1985). The social impacts of these changes are discussed in this section.


E-Commerce and the Digital Divide

The term Digital Divide means a lack of equal access to computer technologies and the
Internet in particular, creating a gap between those who have and those who have not.
The Internet, information and communication technologies (ICTs) and growth of e-
commerce has created enormous influence on services, market structure, competition
and restructuring of industry and markets. These changes are transforming all areas of
society, work, business, and government. The use of information and communication
technologies (ICTs) for e-commerce deepens and intensifies the socio-economic divi-
sions among people, businesses and nations. New leadership, better policies, improved
infrastructure, greater trust and determined efforts to raise ICT-related skills and
competencies across the economy and society in general to move toward greater and
more equal digital opportunity. On one hand, e-commerce has provided new opportuni-
ties for economic growth. On the other hand, it has created a social problem of digital
divide. Digital divide refers to the disparity between those who have use of and access
to information and communications technologies (ICT) and those who do not. More than
two-thirds of the world population still is deprived of access to information and
communication technologies (ICTs). There is a complicated patchwork of varying levels
of ICT access, basic ICT usage, and ICT applications among socio-economic groups.
Many disparities are getting even larger (Lambert, 2000). Disparities in the location and
quality of Internet infrastructure, even the quality of phone lines, have created gaps in
access (Quay, 2001). There are gaps in the adoption of digital technologies among
different social groups and firms, depending on income levels, education, gender, and
ethnic groups and, for firms, depending on industry structure, business size (large firms
versus SMEs) and location. Millions of technologically disenfranchised have-nots, who
cannot afford the cost of that technology and training, are walled off from potentially life-
changing tools and knowledge. Therefore, they feel isolated in the virtual world. For
example, although growth has been very strong in Europe, particularly in Sweden and
Finland, the United States still accounts for more than three-quarters of all e-commerce
transactions. Despite the promise of “borderless” trade, most e-commerce is still national


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6 Sharma


or within the continents (Bassols and Vickery, 2001). Hindered by poverty and a poor
telecommunications infrastructure, the gap between developing nations and developed
nations is widening further and, therefore, those nations that are not able to jump on the
e-commerce bandwagon and have poor access to the Internet suffer from a great disparity
in wealth. Many countries are trying to formulate multi-faceted social policy approaches
to improve access conditions, education, skill development and training to reduce digital
divide gaps (Rombel, 2000; Morrisett, 1998).


E-Commerce and Marginalization

In many countries, the formal sectors in the economy are becoming less labor-intensive
and are able to provide employment opportunities to only specialized workers. With the
use of the Internet to conduct business, fewer people are required as jobs are automated
or made obsolete (World Employment Report, 2001, 2002). This also means that those
who are employed in the formal sectors require greater skills and knowledge. This implies
that the other half is either unemployed or is in the informal sector of the economy.
According to Tores, Bhorat, Leibbrandt and Cassim (2000), those in the informal sectors
may be employed ” as they are involved in “survivalist” activities, yet they remain in
poverty. They are therefore marginalized as they are pushed to the periphery due to their
inappropriate education or skills. They are further marginalized as the gap in the
knowledge attained between themselves and those in the formal sectors (using the
Internet to conduct business) grows (Abrahams et al., 2001).
The use of ICT (such as e-commerce) has brought greater than the existing marginalization
(Machipisa, 1999). These sentiments are echoed by the World Employment Report (2001),
which says that the use of technologies such as e-commerce is positively correlated with
economic growth ” both on a national and organizational level. It also states that in
countries where ICTs are relatively expensive, many people (particularly previously
marginalized, e.g., rural people) are further marginalized. These persons are marginalized
to a greater degree than before, i.e., they are being excluded from the electronic market
place and are simply ignored by “electronic players.” The Internet is becoming a
prerequisite for economic development and companies that can quickly access informa-
tion about conditions in export markets can respond rapidly to changes. On the other
hand, those organizations or business people who do not have access to such facilities
are unable to respond. Again, they are left out of the mainstream of activities (Abrahams
et al., 2001; Licker, 2000).


Social Disparities and Change of Life Styles

Changes in households™ roles, division of labor, responsibilities and relationships take
place, at least partially influenced by the adoption and use of modern information and
communication technologies. Home-based e-work and other combinations of time and
place flexibility have created a variety of important effects on partnerships, families and
family life. Important research questions are boundaries and overlap between work and
leisure or family activities, the availability of space and other resources for home-based


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Socio-Economic Impacts and Influences of E-Commerce in a Digital Economy 7


e-work and its impact on social contacts and career prospects (Gershuny, 2000). Four
groups have been identified that could have problems in coping with new information
and communication technologies: inhabitants of remote and less-developed regions,
older workers, women and the disabled. The relationship between the adoption of new
information and communication technologies and the development of income distribu-
tion is very complex. Several important causal chains, effects and mechanisms must be
investigated and at least some of them seem to be contradictory in the sense, that the
adoption of ICT can cause both growth and reduction of income disparities.
Domestic use of information and communication technologies has both beneficial and
harmful impacts. Evidence is mixed with regard to various competing theories about the
impact of computing on individual well-being. Some data suggest that increasing Internet
use is associated with social isolation, withdrawal, and stress. Although the data also
suggest that Internet “addiction” may be limited to about ten percent of Internet users
and it is not necessarily associated with how much time an individual actually spends
online. Conversely, some studies suggest that Internet use enhances family bonds and
friendship formation since e-mail and multi-user domains may foster communication
between family members and friends. E-commerce has also created another kind of
problem which is known as an X problem. A few magazine reports indicate that as many
as 600,000 people are hooked on Internet pornography. The report says online sex addicts
go to porn sites, X-rated chat rooms and other sexually-oriented content. The Internet
survey indicates that one percent of all Internet users are addicted to online porn.


Social Isolation

E-commerce has been an important facilitator of new flexible work forms. Types of flexible
work refer to:
• the location of work, with a flexible location including, e.g., working on the move,
working from home and working from tele-centers or satellite offices;
• the working time with non-standard arrangements like flexible hours or “flexitime”
schemes, part-time work, job-sharing, compressed working weeks, annualized
working hours and zero hours (contracts under which the employer does not
guarantee to provide work and pays only for work actually done);
• contractual arrangements like outsourcing, use of agency workers, temporary/
fixed term contracts, casual.


The ranks of telecommuters have grown rapidly throughout the late ™90s, as employees
have wired homes with high-speed Internet connections and multiple phone and fax lines.
Fueling the trend is an office-space crunch in most major cities. Instead of leasing new
office space or expanding the existing headquarters, it™s vastly less expensive to provide
workers with laptops and phone lines and tell them to stay home. Given the historically
tight job market, the fierce competition for talent, and the record high turnover among
workers, many executives see telecommuting as a perk to woo new recruits”no different
than offering them company cars, subsidized Internet access or stock options. Telework


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8 Sharma

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