15

Technology and Innovation

INTRODUCTION

Technology is a key driver of the world economy. As the opening vignette clearly illustrates, technological innovation and cutting-edge technology can be an important source of competitive advantage. In the modern business environment, technology permeates every aspect of business. It is no longer confined to the engineering and design departments of organizations, but is an intrinsic part of all functional areas. However, the relationships between knowledge, technological innovation and markets are now recognized to be more complex than was once thought. In fact, the process of globalization itself is now considered to be the result of growth in technology and innovation in transport, communication and the Internet.

Technological development has led to the growth of international business as a result of the efforts of national innovation systems and organizational structures that have adapted to it. Social, cultural and political factors in national environments can influence the creation and adoption of technological know-how. Globalization processes have raised these issues, particularly in relation to technology and knowledge transfer. Thus, while organizations see the need for a strong focus on technological innovation, they are becoming increasingly aware that technology must be viewed in the context of the wider business environment. The increasing prevalence of shortened life cycles and customer's demands for higher levels of technical service and customized products have resulted in a greater focus on managing technology.

In a rapidly globalizing world, management of technology has assumed increasing importance due to the following reasons:

• Technology is a major source of global competitive advantage. Apple's competitive advantage over its competitors is the result of the technological capability derived from its R&D processes.
• A firm's technological strength comes from its ability to innovate. The process of technological innovation is aided by technology integration from different disciplines and the convergence of electronic, telecommunications and information technologies.
• Time is of vital importance in gaining competitive advantage; it is therefore imperative that firms decentralize their R&D efforts to accelerate the process of innovation and adaptation.

TECHNOLOGY

Technology can be defined as the methodical application of scientific knowledge to practical purposes. In the context of business, it refers to a knowledge or skill that brings about changes in output as a result of its impact on the factors of production. Essentially, technology is a concept at the intersection of learning and doing.

 

Technology manifests itself through inventions and innovations. An invention is a product or process that can be described as “new”, in that it makes a significant qualitative leap forward from the state of existing knowledge. A patent provides legal protection to an invention as it gives the inventor the right of “ownership” for its exploitation. The term innovation, on the other hand, is broader in its scope, in that it covers not just inventions, but a range of technical improvements to products and processes that are commercially exploitable. While many inventions may never be commercially produced, innovations, by definition, are economically valuable. Technical innovation has thus been described as the matching of new technology to a market, or “the first commercial application or production of a new process or product”.¹ An innovation may be a less dramatic step forward, for example, an improvement that speeds up an industrial process. Although it cannot be patented, it is nonetheless significant, and can lead to economies of scale and its attendant benefits.

 

 

From the viewpoint of business, technology may be classified as follows:

 

• Product technology is knowledge and information that is specific to a product's features and uses.
• Process technology refers to knowledge and skills necessary for the manufacturing of a product.
• Management technology is the repository of skills necessary for running a business.

TECHNOLOGICAL INNOVATION

It is assumed that innovation is the key to economic progress. The earliest recorded mention of the importance of technology was in Adam Smith's Wealth of Nations, which recognized the “improvements in machines” as a contributor to growth.² Michael Porter also stressed that technological innovation can create first-mover advantages, which act as a source of competitive advantage.³ Economists, however, have treated technology and its impact as an exogenous variable beyond the traditional inputs of labour and capital, with the exception of Joseph Schumpeter, whose contribution stands out in this regard. Schumpeterian analysis developed alongside the growth of industrial economies and stressed the importance of the individual entrepreneur in the innovative process. Schumpeter's analysis of technological innovation was based on the notion of business cycles, developed by Russian economist Kondratieff to describe successive waves of economic development in which technological innovation played a crucial role. Each of the waves described in Table 15.1 is based on technological changes and their widespread diffusion in the economy, creating changes in investment opportunities and employment.

 

Table 15.1 Technology Through the Ages

Time period	Technological innovation	Technological effect
1780–1840	Industrial Revolution	Apprenticeship, scientific management
1840–1890	Steam power and railways	Mechanical and civil engineering
1890–1940	Electricity and steel	Industrial R&D labs
1940–1990	Fordism: Mass production of automobiles and synthetic materials	Large-scale industrial and government R&D
1990 onwards	Microelectronics and computer networks, Internet, biotechnology	Data networks, R&D global networks

THE NATIONAL INNOVATION SYSTEM

Over the last two decades or so, there has been a growing realization of the role of the national innovation system (NIS) as an agent of innovation to supplement the innovative efforts of business firms. A national innovation system is broadly defined as the structures and institutions that help to encourage and facilitate the innovative activities of a nation both directly and indirectly. The earliest mention of this can be found in the writings of Friedrich List. In his work National System of Political Economy (1841), List talked of both social and cultural factors as well as government policy in the protection of infant industries and the setting up of technical training institutes.

 

Literature developed later felt that firms are just one of the agents of innovation, and their innovativeness can't be completely related to their own firm-specific technological efforts alone. This was based on the pioneering works of Lundvall⁴ and Freeman⁵, which emphasized that innovation and technology development of a nation are the result of a complex and dynamic interactive process among different agents that generate and commercialize new knowledge through changes in products, processes or services.

Prior to the popularization of the NIS approach, innovation was narrowly interpreted and the focus of science and technology policies was largely aimed at encouraging R&D investment in the economy. It was expected that both public and private sector firms would undertake basic research for which they were given a number of incentives. This research was ultimately determined by market parameters like fragmentation of demand, market power, cost advantage and profitability.

While the NIS perspective agrees that R&D or patents are necessary indicators of the innovation process, it also suggests that these variables alone fail to provide a complete picture of the role of all parties and agents involved in that process.

It is generally agreed that the NIS has the following key aspects:

Education and Training

Technological innovation depends on both institutionalized scientific research and interaction between people with different kinds of knowledge. Learning includes both formal education as well as learning by doing. In general, it is the government that is responsible for the provision of education at all levels. For instance, in the discussion on the Indian IT industry, it is clear that the setting up of science and engineering colleges played a huge role in the emergence of the Indian software engineer.

Science and Technology Capabilities

Technological capabilities differ among nations depending on the resources devoted to R&D. TNCs in search of sustained competitive advantage in the global marketplace often spend highly on R&D. We find a global application of R&D as firms keep their core innovative capabilities close to corporate headquarters but extend their R&D efforts to other developed as well as developing countries. Globalizing R&D is a process of operating and locating R&D laboratories in different countries under a coordinated and integrated system in order to leverage the technical resources of its different facilities in developing the firm's overall technological capabilities and competitive advantage.

This has resulted in increasing R&D intensity—the proportion of total R&D expenditure relative to total sales in several industries such as electronics, pharmaceuticals, chemicals and medical equipment. TNCs from the advanced countries such as the United States and Japan as well as from the newly emerging economies of Korea, Taiwan and Israel have a high R&D intensity demonstrated by the number of patents developed by them. Some developing countries, including China, India and Brazil, have also rapidly increased their R&D expenditure, to levels on par with those of the world's richer countries.

Research and Development

Large-scale investment in R&D is borne mainly by a country's large firms, as only they are able to undertake long-term R&D programmes and the accompanying risks. Of course, simply spending a lot of money on R&D does not ensure successful innovation. Inter-firm rivalry and competition in home markets can lead to “imitative” increases in R&D in particular product fields. Small firms also play a role in technological innovation, as has been the case in the high-tech industry. A small start-up is more flexible and less bureaucratic than the large established firm, and may be a rich source of ideas. Microsoft and many other high-tech companies began as start-ups.

Countries differ in their areas of specialization and the intensity of R&D activities. Where a country pursues a particular technological strength in an area of growing global importance, it stands to gain competitive advantage. Japan's intense investment in R&D in the fast-growing consumer electronics industry in the 1970s and 1980s is an example. Japanese electronics firms overtook both European and US firms in acquiring patents, both at home and in the US. India's growth in software development is a more recent example of building competitive advantage through R&D efforts.

Interactions Within the Innovation System

Interactions, whether in the form of formal coordination or informal networking, contribute to innovation activities within a country and to their diffusion. Government guidance differs considerably from country to country. The coordinating role of Japan's Ministry of International Trade and Industry is often cited for its crucial role in the country's economic development. Strong state guidance in the Soviet Union, by contrast, was much less successful, as separate research institutes for each industry sector had only weak links with each other. The Soviet system's concentration of R&D expenditure on military and space projects, coupled with its rigid command economy, left little scope for civilian innovation links to develop.⁶ A more recent trend globally, as in the life sciences, has been the growing interaction between academic researchers and firms, as scientific research plays a more important role in the development of many new technologies.

The importance of innovation in ensuring market share and leadership is best illustrated through a comparison between Nokia and Nintendo. Nokia—the Finnish company synonymous with mobile phones through the 1990s and early 2000s has suddenly found its supremacy challenged as it has fallen behind on mobile applications and high-end touch-screen devices despite holding its position as the number-one mobile device-maker in the world. Nokia has suddenly found it needs to develop smartphones that effectively compete with Apple's iPhone and Google's Android devices, make key decisions on the future of the company's software offerings and establish itself as a player in the United States.

Nokia's plight is similar to that of Nintendo, which was the dominant player in the gaming market. Much like Nokia, Nintendo lost most of its market share to Sony and Microsoft by the mid 2000s. However, Nintendo managed to bounce back with a dramatic innovation in the form of the Wii game console and rebranding to take the number-one position once again in a matter of two to three years. Nokia needs to adopt a similar innovative policy to get its customers back.⁷

PATENTS AND INNOVATION

Patents are often referred to as a type of “industrial” property, and patent activity is an indicator of levels of innovation. Patent statistics are an often-cited barometer of innovation. Protection of intellectual property rights has been a matter of debate since the days of the Industrial Revolution. Many argue that technology should be freely available everywhere for everyone to use. Governments of industrialized countries, on the other hand, have long established policies for protecting intellectual property (IP) in the belief that only doing so will give people the incentive to devote time and resources to innovation. From research and design to testing, a new product can take many years before it reaches consumers. While patents help create monopolies and restrict competition, they are also considered to be the price of technical progress and an incentive to companies to undertake expensive and time-consuming R&D. Developing countries, on the other hand, argue that they get left out of the benefits of technological progress as a result of the concentration of intellectual property ownership in the industrialized countries.

The patentable invention is a new product or process that can be applied industrially and does not include discoveries, scientific theories and mathematical methods, as they relate to knowledge and have no technical effect. Mere ideas or suggestions are excluded, as a complete description of the invention must be submitted as part of a patent application. Moreover, the invention must not have been disclosed prior to the patent application, as once disclosed, it becomes “prior art” and can no longer be said to be new. Most inventions are not totally new products, but improvements on existing products. For a pharmaceutical drug, for example, a new patent can be obtained for a new one-a-week dosage, rather than one-a-day. While we tend to think of only the most formal inventions as patentable, in fact the scope of potentially patentable inventions is expanding all the time, extending to software, microorganisms and business methods. A patent right is an exclusive right for a limited period to exploit the invention, license others to use it and stop all unauthorized exploitation of the invention.

 

At a global level, efforts to harmonize national laws on intellectual property rights have led to the international agreement on TRIPS—Trade-Related Aspects of Intellectual Property Rights—under the provisions of the General Agreement on Tariffs and Trade (GATT). TRIPS demands equal treatment for foreign and domestic individuals and companies, and the application of the principle of the most favoured nation. Formulated in 1996, it allowed a transitional period of five years for developed countries and ten years for developing countries for its provisions to come into effect. There has been widespread criticism of TRIPS by developing countries, which have a weak patenting system that allowed industries like pharmaceuticals in India to develop generic drugs at low cost. Instead of granting patents only to end-products as was done in developed countries, the Indian Patent Act of 1970 allowed the patenting of the manufacturing process as well. Thus, the requirement of process patenting (and not product patenting) has been responsible for the growth of various industries in India and is now threatened (post 2010) as the TRIPS provisions come into effect.

 

TECHNOLOGY TRANSFER

Technology transfer is an interactive, complex process of transfer of technology crucial to the processes of industrial growth and global integration. International technology transfer is a process by which technology or knowledge passes between firms for economic benefits. While the term usually refers to transfers from firms in advanced economies to firms in industrializing economies, it also covers transfers among firms in industrialized countries.

Over a period of time, four main channels of technology transfer have emerged: foreign direct investment (FDI), collaborative ventures, licensing, and trade in capital goods. Foreign direct investment by TNCs is a major source of technology for developing countries. For the host country, the benefits derive from observing, imitating and applying the technologies, including the management methods, of the more technologically advanced TNCs. Spillover effects can include the development of links between the TNCs and the domestic suppliers, but to exploit them, incentives need to be offered to local firms to adopt the new technologies. Secondly, collaborative ventures, such as joint ventures and strategic alliances, are another vehicle for technology transfer driven by increasing costs of innovation as well as specialization in R&D activities. Thirdly, the owner of a patent may license a foreign manufacturer to produce the product under licence in return for a royalty payment. Technology transferred through licensing, however, is significantly older than that transferred through FDI. Finally, sometimes called “embodied” technology transfer, the importation of machinery and equipment provides a means to assimilate the technology. This is known as capital goods trade. By “reverse engineering”, that is, discovering how a product has been made, it is possible to develop and refine the technology further. Japan's post-War industrial development is a good example of the benefits of imported technology, which were assimilated and complemented by local R&D and engineering capabilities. Japanese firms similarly benefited from licensed technology, building on substantial investments in R&D and engineering. Importing foreign technology is not just limited to imitation; instead, it is part of a larger process of technological accumulation.

A basic problem that arises with technology transfer is the lack of certainty regarding a firm's ability to acquire, assimilate, integrate and exploit knowledge and skills that have been transferred to it. This capacity depends on the firm's existing level of technological expertise and skills, its organizational learning system and the ability to combine skills.

A recent trend among TNCs has been to relocate R&D activities from the home country to overseas locations, enhancing the parent company's overall innovative capacity. The recently industrialized countries of Asia and Latin America have benefited from FDI flows, mainly from the United States and Japan. From the 1980s, outflows from newly industrialized countries, mainly South Korea, Taiwan and China, have also increased, reflecting a successful build-up of technological capabilities.

INFORMATION AND COMMUNICATIONS TECHNOLOGY (ICT)

The IT revolution has been compared to the Industrial Revolution in its pervasiveness and impact. It now seems impossible to survive in the present day without the e-mail, Google and Facebook—all of which owe their existence to the now ubiquitous device called the computer. The genesis of this revolution began just after the Second World War, when, with army sponsorship, a team at the University of Pennsylvania produced the first electronic computer, a monster weighing 30 tonnes and using so much electricity that it caused Philadelphia's lights to flicker. The 1950s saw the commercial development of mainframe computers, spearheaded by IBM.

In the early post-War period, many in the industry did not see the huge potential of computing. Those who did felt that it would be a long time before computer-based automation would bring about the “automatic factory”, and many feared it would bring mass unemployment. Diffusion of computer technology in the 30 years after the War rested on clusters of both radical and incremental innovations, such as computer-aided design (CAD) and software engineering. Its widespread use was facilitated by economic factors as technical advantages were combined with falling prices.

The arrival of microelectronics in the 1960s and the microprocessor in the early 1970s was the genesis of the “knowledge revolution” that has swept the global economy, benefiting both SMEs, as well as large firms as they reap the benefits across industries. The spread of the microcomputer started with Apple Computer's Apple-1 in 1976 and was followed by IBM's Personal Computer (PC) in 1981, whose name has become the generic name for computers today. Unlike Apple Computer, which developed its own software and continues to do so, IBM relied on the MS-DOS operating system developed by Microsoft.

Microprocessors have been described as the “fundamental building block of the new technology”, making it possible to produce better products more cheaply and efficiently.⁸ A single memory chip now holds 250,000 times as much data as one from the early 1970s. In 1970, a state-of-the-art computer cost about USD 4.7 million, which was equivalent to 15 times the lifetime wages of the average American worker. Now, a PC with more than 10 times as much computing power can be purchased for less than two weeks’ wages of an average American worker. The average cost of processing information fell from about USD 75 per million operations in 1960 to one-hundredth of a cent in 1990.

The diffusion of computer technology enabled organizations to reorganize production methods and develop new skills and management structures. The new “technological paradigm” has been the basis of the “new economy” or the “knowledge economy”, fundamentally characterized as “informational, global and networked”.⁹ In the process referred to as “technological convergence”, telecommunications technology is now integrated with information processing technology. Innovations in information and communications technology can thus be major drivers of globalization, making possible a networked, interdependent and global economy.

THE INTERNET

Further networking capacities were opened up with the creation and rapid development of the Internet. Like computing technology, the Internet was a product of military research, the first network dating from 1969. Initially, the United States Department of Defense and university research centres, including the National Science Foundation in the US, were able to communicate via the network. Commercial exploitation and corporate use were not far behind, and in 1979, the network was able to link up computers through ordinary phone lines. From military-inspired innovation, the Internet became available to anyone anywhere with a PC and a modem, decreasing in cost all the while.

 

Figure 15.1 Internet Penetration in the World by Continent (2009)

 

 

Figure 15.2 Internet Penetration Rate (Percentage of Population) by Continent (2009)

 

 

A lot of computer networking activity developed from Robert Metcalfe's invention of the Ethernet protocol for computer networks. He also discovered that the value or power of a network increases in proportion to the square of the number of nodes on a network. This is known as Metcalfe's Law, and it suggests, among other things, that the more people there are who own a phone, fax or are connected to a computer network, the more useful it is for people to have a phone, fax or be connected to a computer network. This effect has been driving the growth of the Internet for several decades. Its growth appeared to particularly accelerate with the emergence of the World Wide Web.¹⁰ The growth in Internet use can be illustrated through Figures 15.1, 15.2, and 15.3.

The World Wide Web was developed in the late 1980s by Tim Berners-Lee, a scientist at CERN. The original idea behind the development of the World Wide Web was to facilitate the sharing of information among scientists working in different universities and institutes all over the world. It was hoped that this would help to merge the technologies of personal computers, computer networking and hypertext into a powerful and easy-to-use global information system.

Hypertext is text with links to further information, on the model of references in a scientific paper or cross-references in a dictionary. With electronic documents, these cross-references can be followed by a mouse-click, and with the World Wide Web, they can be stored anywhere in the world. There is no need to know where the information is stored, and no need to know any detail on how it is formatted or organized. Wandering from one document (Web page) to another is called browsing or “surfing” the Web.

Of course, behind this apparent simplicity there is a set of ingenious design concepts, protocols and conventions. Nowadays, the World Wide Web has expanded from its original scientific environment and has millions of academic and commercial users. Apart from the effects described by Metcalfe's Law, technology has become cheaper and more powerful over time, allowing more data to be created, processed, stored and communicated via networks.

 

Figure 15.3 Distribution of Internet Users in the World by World Regions (2010)

 

E-COMMERCE: AN OVERVIEW

Electronic commerce (or e-commerce) typically involves people using a worldwide network of computers—the Internet—to conduct business. This network can be accessed using devices such as computers, handheld (wireless) devices and mobile phones. People use the Internet both to access information and services created by others, and to present their own information and services; in essence, the Internet allows people to communicate and conduct business across the world at any time, almost instantaneously.

 

The way the Internet allows people to communicate is also significant. Internet communication often involves text, pictures, video and sound; it is typically represented in the form of electronic mail and Web sites. People communicate about many different things using the Internet, including business. Some examples of Internet-based e-commerce activities include:

• Visiting an online bookstore to select and purchase books
• Sending electronic mail to people and businesses
• Checking the location and status of parcels in transit
• Using an online marketplace to find suppliers of stationery
• Searching for suppliers of truck spare parts

E-commerce vs E-business

Among the most important issues in the study of e-commerce is its relationship with e-businesses. E-commerce refers to the use of electronic processes or tools that are enabled by information and communications technologies for conducting commercial activities. The terms “electronic trading”, “electronic procurement”, “electronic purchasing” and “electronic marketing” are often used synonymously with e-commerce. At a basic level, e-commerce is about the deployment of ICTs to enable buyers and sellers to undertake transactions electronically, especially over the Internet.

A more complex explanation of e-commerce is that it is a process that enables all transactions and processes by ICTs. According to this point of view, e-commerce can be thought to extend beyond a simple purchase and sale to include the entire supply chain, or the chain of transactions that links desired products with the final customer. This means that all processes that enable commercial activities commercially are an integral aspect of e-commerce. This includes e-procurement, e-purchasing, e-fulfillment and related activities. E-business, on the other hand, is a business using ICTs to enable commercial processes, and especially to attain advantage through implementation of an e-commerce strategy.

 

 

E-commerce and e-business differ on three main levels:

1. An e-business consciously makes the deployment of ICTs for commerce an integrated component of its business strategy.
2. An e-business considers connections of these electronic processes to other parts of the organization and not just the buying and selling of products and services electronically.
3. An e-business automates the relationships between multiple suppliers and partnering organizations.

E-commerce in this context is, therefore, used more to cover not just goods and services being selected, ordered and paid for via the Internet, but also the various services, electronic processes and transactions that occur within and among businesses. E-business can more specifically refer to the strategy and business model encompassing e-commerce.

Types of E-commerce

The major different types of e-commerce are: business-to-business (B2B), business-to-consumer (B2C), business-to-government (B2G), consumer-to-consumer (C2C), consumer-to-business (C2B), and mobile commerce (m-commerce).

B2B E-Commerce

Business-to-business (B2B) e-commerce is simply defined as e-commerce between companies. This is the type of e-commerce that deals with relationships between and among businesses. About 80 per cent of e-commerce is of this type, and is growing faster than any other type. The B2B market has two primary components: e-frastructure and e-markets.

 

The formal structure of B2B is known as e-frastructure. E-frastructure mainly consists of the following:

• Logistics, such as transportation, warehousing and distribution
• Application service providers for the use, hosting and management of packaged software from a central facility (e.g., Oracle and LinkShare Corporation)
• Outsourcing of functions in the process of e-commerce, such as Web-hosting, security and customer care solutions (e.g., outsourcing providers such as eShare, NetSales, iXL Enterprises and Universal Access)
• Auction solutions software for operating and maintaining real-time auctions on the Internet (e.g., Moai Technologies and OpenSite Technologies)
• Content management software for Web site content management and delivery (e.g., Interwoven and ProcureNet)
• Web-based commerce enablers (e.g., Commerce One, a browser-based XML-enabled purchasing automation software)

E-markets are virtual markets that act as meeting points for buyers and sellers to conduct transactions. Most B2B applications are in the areas of supplier management (especially purchase order processing), inventory management (managing order-ship-bill cycles), distribution management (especially in the transmission of shipping documents), channel management (information dissemination on changes in operational conditions), and payment management (electronic payment systems or EPS).

The most common B2B examples and best practice models are IBM, Hewlett-Packard, Cisco Systems and Dell. Cisco, for instance, receives over 90 per cent of its product orders over the Internet.

B2B e-commerce provides opportunities for worldwide sourcing for all sectors, including raw materials, components and services. The use of the Internet leads to cost reduction by streamlining purchasing, distribution and marketing. While the benefits have been apparent to multinationals, SMEs have also benefited. SMEs are able to form networks linked to multinational companies, opening up new avenues for the cooperative development of technology as well as markets. The transnational “web” of global production networks is transforming supply chains.

B2C E-Commerce

Business-to-consumer (B2C) e-commerce refers to commerce between companies and consumers. It begins with customers gathering information, and includes the purchase of physical commodities as well as electronic material and digital content such as software and e-books.

 

 

Originating in online retailing or e-tailing, B2C e-commerce is the earliest and second largest form of e-commerce. Among the more popular global B2C models are online retailing companies such as Amazon.com, Drugstore.com, Beyond.com, Barnes & Noble and Toys“R”Us. Other popular B2C companies involving information goods are E*TRADE and Travelocity.

The most common uses of this type of e-commerce are in the areas of buying of products and information as well as in personal finance management, including personal investments and finances, with the use of online banking tools such as Quicken.

B2G E-Commerce

Business-to-government (B2G) e-commerce, is generally defined as commerce between companies and the public sector. It refers to the use of the Internet for public procurement, licensing procedures and other government-related operations.

Although Web-based purchasing policies increase the transparency of the procurement process (and reduce the risk of irregularities), the size of the B2G e-commerce market as a component of total e-commerce is insignificant, as government e-procurement systems remain undeveloped.

 

C2C E-Commerce

Consumer-to-consumer (C2C) e-commerce is simply commerce between private individuals or consumers. This type of e-commerce is characterized by the growth of electronic marketplaces and online auctions, particularly in vertical industries where businesses can bid for what they want from among multiple suppliers. It perhaps has the greatest potential for developing new markets. This type of e-commerce comes in at least three forms:

 

• Auctions functioning at a portal, such as eBay, which allows online real-time bidding on items being sold on the Web;
• Peer-to-peer systems, such as the earlier Napster model (a protocol, such as Internet Relay Chat (IRC), for sharing files between users in chat forums) and other file exchange (and later money exchange) models; and
• Classified advertisements featuring buyer leads and “Wanted” ads at portal sites where buyers and sellers can negotiate.

There is little information on the relative size of global C2C e-commerce. However, sales figures of popular C2C sites such as eBay and Napster (in its previous peer-to-peer mode) indicate that this market is quite large. These sites produce millions of dollars in sales every day.

C2B E-Commerce

Consumer-to-business(C2B) transactions involve reverse auctions, which empower the consumer to drive transactions. We see a concrete example of this when competing airlines give a traveller best travel and ticket offers in response to the traveller's post that she wants to fly from New York to San Francisco.

 

M-Commerce

M-commerce (mobile commerce) is the buying and selling of goods and services through wireless technology, that is, through handheld devices such as cellular phones and personal digital assistants (PDAs). Japan is seen as a global leader in m-commerce.

 

As content delivery over wireless devices becomes faster, more secure and scalable, some believe that m-commerce will surpass wireline e-commerce as the method of choice for digital commerce transactions. This may well be true for the Asia-Pacific region, where there are more mobile phone users than there are Internet users.

Industries affected by m-commerce include:

• Financial services, including mobile banking (in which customers use their handheld devices to access their accounts and pay their bills), as well as brokerage services (in which stock quotes can be displayed and trading conducted from the same handheld device);
• Telecommunications, in which service changes, bill payment and account reviews can all be conducted from the same handheld device;
• Service/retail, as consumers are given the ability to place and pay for orders on the fly; and
• Information services, which include the delivery of entertainment, financial news, sports figures and traffic updates to a single mobile device.

Advantages and Disadvantages of E-commerce

E-commerce provides many new ways for businesses and consumers to communicate and conduct business. There are a number of advantages and disadvantages of conducting business in this manner.

Advantages of E-Commerce

Some advantages that can be achieved from e-commerce include:

• The ability to conduct business each day through the year: E-commerce systems can operate all day every day. Your physical storefront does not need to be open in order for customers and suppliers to be doing business with you electronically.
• Access to the global marketplace: The Internet spans the world, and it is possible to do business with any business or person who is connected to the Internet. Simple local businesses such as specialist record stores are able to market and sell their offerings internationally using e-commerce. This global opportunity is assisted by the fact that, unlike traditional communication methods, users are not charged according to the distance over which they are communicating.
• Speed: Electronic communication allows messages to traverse the world almost instantaneously. There is no need to wait weeks for a catalogue to arrive by post: that communications delay is not a part of the Internet/e-commerce world.
• Increased market space: The market in which Web-based businesses operate is the global market. It may not be evident to them, but many businesses are already facing international competition from Web-enabled businesses.
• Opportunity to reduce costs: The Internet makes it very easy to “shop around” for products and services that may be cheaper or more effective than we might otherwise settle for. It is sometimes possible to, through some online research, identify original manufacturers for some goods, thereby bypassing wholesalers and achieving a cheaper price.
• Freedom from the limitations of operating systems and hardware: Many, if not most, computers have the ability to communicate via the Internet independent of operating systems and hardware. Customers are not limited by existing hardware and operating systems.
• Suitable applications development environment: In many respects, applications can be more efficiently developed and distributed because they can be built without regard to the customer's or the business partner's technology platform. Application updates do not have to be manually installed on computers. Rather, Internet-related technologies provide this capability inherently through automatic deployment of software updates.
• Customer outsourcing: People can interact with businesses at any convenient hour of the day, and because these interactions are initiated by customers, the customers also provide a lot of the data for the transaction that may otherwise need to be entered by business staff. This means that some of the work and costs are effectively shifted to customers; this is referred to as “customer outsourcing”.
• New marketing channel: The Internet provides an important new channel to sell to consumers. As a marketing channel, the Internet has the following characteristics:
  • The ability to inexpensively store vast amounts of information at different virtual locations
  • The availability of powerful and inexpensive means of searching, organizing and disseminating such information
  • Interactivity and the ability to provide information on demand
  • The ability to provide perceptual experiences that are far superior to a printed catalogue, although not as rich as personal inspection
  • The ability to serve as a transaction medium
  • The ability to serve as a distribution medium for certain goods (like software)
  • Relatively low entry and establishment costs for sellers

Disadvantages of E-Commerce

Some disadvantages and constraints of e-commerce include the following.

• Time for delivery of physical products: It is possible to visit a local music store and walk out with a compact disc, or a bookstore and leave with a book. E-commerce is often used to buy goods that are not available locally from businesses all over the world. This means that physical goods need to be delivered, which takes time and costs money. In some cases, there are ways around this, such as with electronic files of music or books being accessed over the Internet, but then these are not physical goods.
• Physical product, supplier and delivery uncertainty: In some respects, e-commerce purchases are made on trust. The reasons are:
  • Not having had physical access to the product, a purchase is made on an expectation of what that product is and of its condition.
  • Supply businesses can be conducted across the world, and it can be uncertain whether they are legitimate businesses or are going to swindle your money. It's pretty hard to knock on their door later to complain or seek legal recourse.
  • Lastly, even if the item is sent, it is easy to start wondering whether or not it will ever arrive.
• Perishable goods: Though specialized or refrigerated transport can be used, goods bought and sold via the Internet tend to be durable and non-perishable: they need to survive the trip from the supplier to the purchasing business or consumer. This shifts the bias for perishable and/or non-durable goods back towards traditional supply-chain arrangements, or towards relatively more local e-commerce-based purchases, sales and distribution. In contrast, durable goods can be traded in any way, sparking competition for lower prices. In some cases, this leads to “disintermediation” in which intermediary people and businesses are bypassed by consumers and by other businesses that are seeking to purchase more directly from manufacturers.
• Limited and selected sensory information: The Internet is an effective conduit for visual and auditory information: seeing pictures, hearing sounds and reading text. However, it does not allow full scope for our senses: we can see pictures of the flowers, but not smell their fragrance; we can see pictures of a hammer, but not feel its weight or balance. Further, when we pick up and inspect something, we choose what we look at and how we look at it. This is not the case on the Internet. If we were looking at buying a car on the Internet, we would see the pictures the seller had chosen for us to see but not the things we might look for if we were able to see it in person. And, taking into account our other senses, we can't test the car to hear the sound of the engine as it changes gears or take in the smell and feel of the leather seats. There are many ways in which the Internet does not convey the richness of our sensory experience of the world. This lack of sensory information means that people are often much more comfortable buying via the Internet generic goods—things that they have seen or experienced before and about which there is little ambiguity—rather than unique or complex things.
• Returning goods: Returning goods online can be an area of difficulty. The uncertainties surrounding the initial payment and delivery of goods can be exacerbated in this process. Various questions arise. Will the goods get back to their source? Who pays for the return postage? Will the refund be paid? How long will it take?
• Privacy, security, payment, identity, contract: E-commerce transactions involve issues such as privacy and security of information and payment details, contract laws, and problems of identity theft.
• Feasibility of transactions: E-commerce is most often conducted using credit card facilities for payments, and as a result very small and very large transactions tend not to be conducted online. The size of transactions is also impacted by the economics of transporting physical goods. For example, any benefits or conveniences of buying a box of pens online from a US-based business tend to be eclipsed by the cost of having to pay for them to be delivered to you in Australia. The delivery costs also mean that buying individual items from a range of different overseas businesses is significantly greater.

DRIVERS OF E-COMMERCE

The growth of e-commerce has been driven by global forces, availability of financial resources and information infrastructure, changes in national policy and demography, as well as factors that are specific to the industries and firms within it. Let us now look at the various factors driving e-commerce.

Global Factors

Global production networks and increasing global competition are the two main global factors.

Global Production Networks

The growth of global production networks in industries such as automobiles, electronics and textiles is the primary driver of e-commerce as these networks rely heavily on IT and e-commerce for coordination. Some countries have domestic firms who participate in these global networks as suppliers or subcontractors (such as in Taiwan) or as bases for subsidiaries of multinational corporations (such as in Singapore), while others are coordinators of such networks (such as the United States and Japan). Although the roles differ, the integration of countries into global production networks often involves the adoption of B2B e-commerce by firms in these countries as a condition for participating in such networks.

Increasing Global Competition

Global competition is perhaps the most significant force driving e-commerce development across countries. A country's integration in global production networks, the presence of TNCs and the extent of trade liberalization are all factors that increase the level of global competition and, by extension, the pressure for countries to adopt e-commerce as a means of reducing costs and/or expanding markets.

In summary, global factors by definition potentially influence the adoption of e-commerce in all countries. However, they appear to have more prominence in shaping e-commerce diffusion in countries that are part of open trade regimes, have a high proportion of TNCs, and have more firms that are part of global production networks and/or are engaged in global competition. While these factors represent global pressures for countries to adopt e-commerce, their influence will depend upon characteristics of each country. Some countries, such as Singapore, which has historically been a centre of entrepôt trade in East Asia, are more trade-oriented, and, therefore, more open, TNC-friendly, and part of global networks. Others, such as Mexico, which is a supplier to global TNCs, are heavily engaged in production networks by virtue of trade liberalization and being located next to the large US market.

Demographic Factors

Country demographics are likely to act as enablers or inhibitors for e-commerce development, as they relate to market size and concentration, consumer needs and ease of access to technology. It is seen that densely populated nations, such as Singapore and Germany, enjoy strong IT infrastructures, whereas large countries with low population density, such as China and Brazil, suffer from underdeveloped infrastructures, plus distribution and delivery problems.

The presence of an IT labour force is another enabling condition for e-commerce, in that it provides needed skills for IT production and use. For example, countries like India and China have a large IT workforce whereas countries such as Singapore and Germany import IT workers. Taiwan and Denmark restrict immigration that could supplement their small domestic IT workforces.

General IT literacy enables access to both B2C and B2B e-commerce, and is influenced by demographic factors such as income, education, age and gender. The cases show that IT literacy is higher among the highly educated across countries, and is highest among the younger generation. The United States has an equal gender distribution on Internet use, whereas use is heavily male-dominated in the other countries.

The distribution of wealth is also a major barrier or limit to IT usage. In Brazil and Mexico, where income is unevenly distributed, a large percentage of the population is cut off from PC and Internet access due to their inability to afford such technologies. A more equal distribution of wealth, such as in Japan, Germany, France and Taiwan, is conducive to e-commerce in that a greater proportion of the population is able to participate in e-commerce through access to IT.

Economic and Financial Resources

The availability of financial resources, such as venture capital, to support online businesses and start-ups is another enabler of e-commerce across countries. Such support through venture capital is more widely available in the United States, Denmark, Germany, Singapore, Taiwan and Brazil.

The availability of online payment methods is also an enabler of e-commerce. The use of credit cards is a universal phenomenon, although the use of debit cards is more common in Europe. In Asian countries stored-value cards are used as well as wireless payment, money orders, bank transfers and cash on delivery. In Taiwan and Japan, hybrid methods are popular—such as ordering goods online and picking them up and paying for them through convenience stores. At this point, most online purchases are not paid for online except in the United States.

Information Infrastructure

A widely available and affordable information infrastructure is another important enabler of e-commerce diffusion. Availability includes both the extent of coverage and the range of technologies in use. High penetration of multiple technologies (wireless technology, Internet, broadband and PCs) enables e-commerce in that several channels are available for conducting it. Countries such as Taiwan and Germany have experienced particularly high penetration and rapid wireless growth since 1995, whereas the United States now ranks relatively low on mobile phone penetration. This is probably because of the high penetration of fixed lines and higher competitiveness of the local and long distance market in the United States, compared to Europe and Asia, where mobile phones are more affordable and fixed lines less prevalent. Additional reasons for the rapid growth of wireless technology in Europe and Asia may be the use of a common standard, namely GSM, and the all-digital network that allows for integration of additional features like text messaging.

The cost of Internet access can be an inhibitor to e-commerce diffusion. High costs of Internet access limit the amount of time consumers use to browse the Web for information or purchases. Countries with metered access such as France, Germany, Denmark and Japan have had higher costs of access than countries in which users are not charged by the minute but pay a monthly fee for unlimited access. High access costs in these countries have, however, been reduced over the past few years and rates have become more uniform across countries.

Industry Structure

The adoption of e-commerce depends on both industry structure and firm characteristics. In each country, some industries are leaders in e-commerce, while others lag behind. E-commerce is commonly found in finance/banking, distribution (wholesale and retail), IT, electronics manufacturing and automotive manufacturing. In general, industries driving e-commerce have been found in sectors that are information-intensive (such as finance/banking) and/or internationally competitive (such as electronics and automobiles).

Firm size is another factor identified in the cases. Large domestic firms tend to be leaders in adopting e-commerce, as they possess the resources (technological, financial and human) needed for e-commerce and can leverage e-commerce investments over a large revenue base. In certain cases, small and medium enterprises (SMEs) may have advantages such as being more flexible, innovative and more capable of adapting to organizational changes required by e-commerce than large firms. However, it is generally seen that SMEs are an inhibitor to the spread of e-commerce due to their lack of technological expertise and lack of funds to implement e-commerce solutions.

The existence of strong traditional retail networks acts as a stumbling block to the spread of e-commerce in countries such as France, Japan and Taiwan. While such outlets often compete with e-commerce, sometimes they also encourage e-commerce as such retail networks are located in urban areas with concentrated economic activity and high Internet usage, and they might adopt the “click and mortar” strategy of integrating their physical and virtual infrastructures for competitive advantage.

Entrepreneurial Environment

An entrepreneurial business culture facilitates e-commerce. The organizational and legal environment in the United States and Taiwan, for example, encourages entrepreneurial and innovative business cultures by making it possible for bankrupt individuals to financially survive and have another chance to try again without being stigmatized by failure. However, the lack of entrepreneurial support is evident in countries like Japan, Singapore and Germany. For example, Japanese financial institutions are reluctant to fund entrepreneurial start-ups through venture capital or equity.

In Asian countries like Taiwan, personal relationships are important in doing business, and anonymous online relationships are considered impersonal and discouraged. In highly unionized countries such as Denmark, e-procurement and automation of public services is perceived as a threat to job security by government and public officials. In most countries, organizational readiness for e-commerce is still restricted by high perceived costs of IT, security concerns and lack of integration of information systems with business partners.

Consumer Preferences

B2C e-commerce is driven by consumer desires for valuable and useful content, convenience, lifestyle enhancements, and greater product and service selection. High acceptance of IT and the Internet is a key enabler of B2C. Internet fever has caught on internationally and has generated high hopes and expectations for positive economic and social impacts. However, consumers have significant reservations about purchasing online, which stems from lack of trust in business practices, privacy/security concerns regarding credit card and other personal information, resistance to using credit cards, and preferences for in-store shopping and inspection of products. These concerns are particularly acute in countries such as India and China, where no legal consumer protection exists and buyers and sellers have little legal backup for faulty products or negligent payment. Language is an inhibitor among non-English-speaking consumers due to the prevalence of English content on the Web, particularly in Asia where the older generation lacks knowledge of English and Western languages. Beyond language, preferences for local content (even among those who speak English) are evident across countries. As the Web becomes increasingly multilingual and incorporates more local content, consumers are likely to participate more in online commerce.

In summary, the list of environmental factors affecting the spread of e-commerce is long, and the cases indicate that these factors have different degrees of influence in different countries. Demographic factors (income, education, IT skills) define the size and characteristics of the potential market for e-commerce and the availability of skills to support e-commerce. Economic and financial factors determine whether there are sufficient resources (venture capital) to invest in e-commerce and mechanisms (payment systems, secure systems) to facilitate it. Industry structure reflects both business demand for e-commerce and the capabilities of firms to engage in it. Firms in more information-intensive industries and those that operate globally are more likely to have need for e-commerce, and large firms are more likely to have the capabilities needed to engage in it. Information infrastructure defines a country's technical readiness for e-commerce, and the cost of online access in particular is a critical determinant in that countries with lower costs are more likely to have wider diffusion and use. Most of these environmental factors reflect path dependencies of a country and can be changed only in the medium or long term. An exception is the cost of online access, which can be changed rapidly by telecommunication liberalization, and thus explains its critical role in e-commerce diffusion.

National Policy

Key policy factors that affect the spread of e-commerce include liberalization of telecommunications, government promotion of e-commerce and IT, and specific legislation to promote e-commerce and IT.

Liberalization

The liberalization of markets over the last three decades has enabled e-commerce through increased competition. Firms in competitive markets are motivated to adopt e-commerce technologies in order to enhance productivity and provide better services. Telecommunication liberalization, in particular, has encouraged IT and Internet use by making rates more affordable and giving consumers a wider selection of services and options.

Promotion of E-Commerce

Initiatives to promote e-procurement and e-government have been established in most countries and are direct drivers of e-commerce between governments and with businesses that interact with governments as sellers or applicants for services (regulatory approval, permits, licenses, etc.). They contribute to total e-commerce revenues, pave the way for private sector e-commerce initiatives, and build up the e-commerce services industry. Government and industry promotion varies across countries, but the most common areas are promotion of IT and e-commerce in businesses, especially SMEs, by providing them with technical support, training and funding for IT use.

E-Commerce Legislation

Key areas needing comprehensive legislation are digital signatures, privacy, consumer protection, copyright and intellectual property, and content regulation. Country-specific legislation tends to reflect cultural values. For example, France and Germany have passed privacy and consumer protection laws, reflecting an emphasis on individual rights. China and Singapore, on the other hand, have focused on content regulation, reflecting the importance that they attach to social control. Internet taxation is not an issue in most countries because e-commerce is small, but could be a major enabler or inhibitor in the future. The impact of e-commerce legislation remains to be seen. For example, despite the implementation of legislation in the United States recognizing electronic signatures nearly two years ago, e-signatures have not yet caught on.

BIOTECHNOLOGY

Biotechnology, according to the 1999 edition of the Oxford English Concise Dictionary, is “the application of scientific and engineering principles to the processing of materials by biological agents to provide goods and services”.

 

The biological sciences are adding value to a host of products and services, producing what some have labelled the “bioeconomy”. From a broad economic perspective, the bioeconomy refers to the set of economic activities relating to the invention, development, production and use of biological products and processes. If it continues on course, the bioeconomy could make major socioeconomic contributions to the global economy. These benefits are expected to improve health outcomes, boost the productivity of agriculture and industrial processes, and enhance environmental sustainability. The bioeconomy's success is not, however, guaranteed: harnessing its potential will require coordinated policy action by governments to reap the benefits of the biotechnology revolution.

As biotechnology is concerned with the manipulation of living organisms, it is often called “life science” technology. Practical applications extend from primary sectors (such as agriculture and forestry) to secondary industries (such as food, chemicals and drugs). The growth in biotechnology is a further aspect of technological convergence made possible by the advances in computing. Research on the genetic makeup of living organisms has led to “genetic engineering” or genetic modification. The research is relatively young, having begun only in the 1980s. Genetically modified (GM) bacteria producing human insulin for the treatment of diabetes was approved in 1986, as was the first vaccine using DNA. The use of vaccines to prevent disease is one of the greatest potential benefits from the new science of microbiology. Whereas treatment for many diseases is expensive and inaccessible, vaccines offer an affordable alternative and are of particular relevance in developing countries.

Rising incomes, particularly in developing countries, are likely to increase demand for healthcare and for agricultural, forestry and fishing products. At the same time, many of the world's ecosystems that support human societies are overexploited and unsustainable. Climate change could exacerbate these environmental problems by adversely affecting water supplies and increasing the frequency of drought.

Biotechnology offers technological solutions for many of the health and resource-based problems facing the world. The application of biotechnology to primary production, health and industry could result in an emerging “bioeconomy” where biotechnology contributes to a significant share of economic output. The bioeconomy in the future is likely to involve three elements: advanced knowledge of genes and complex cell processes, renewable biomass and the integration of biotechnology applications across sectors.

Biotechnology today is used in primary production, health and industry. Platform technologies such as genetic modification, DNA sequencing, bioinformatics and metabolic pathway engineering have commercial uses in several application fields. The main current uses of biotechnology in primary production are for plant and animal breeding and diagnostics, with a few applications in veterinary medicine. Human health applications include therapeutics, diagnostics, pharmacogenetics to improve prescribing practices, functional foods and nutraceuticals, and some medical devices. Industrial applications include the use of biotechnological processes to produce chemicals, plastics, and enzymes; environmental applications such as bioremediation and biosensors; methods to reduce the environmental effects or costs of resource extraction; and the production of biofuels. Several applications, such as biopharmaceuticals, in vitro diagnostics, some types of genetically modified crops, and enzymes are comparatively “mature” technologies. Many other applications have limited commercial viability without government support (for example, biofuels and biomining) or are still in the experimental stage, such as regenerative medicine and health therapies based on RNA interference.

The existence of different social, economic and technological factors in the bioeconomy will create new business opportunities for biotechnology, requiring new types of business models. The main business models at present are small, dedicated biotechnology firms (DBF) that specialize in research and sell knowledge to large firms, and the large integrated firms that perform R&D and manufacture and distribute products. This structure characterizes the health sector. In primary production, gene modification technology has created economies of scope and scale that have driven rapid corporate concentration. Only a few DBFs have been active in industrial biotechnology, as profitability depends on the ability to scale up production. This requires specialized engineering knowledge and large capital investment.

There are two possible business models that could emerge in the future: collaborative models for sharing knowledge and reducing research costs, and integrator models to create and maintain markets. Collaborative models are relevant to all application areas. Their adoption, combined with new business opportunities for non-food biomass crops, could revitalize DBFs in primary production and in industry. Integrator models could develop in health biotechnology to manage the complexity of predictive and preventive medicine, based on biomarkers, pharmacogenetics, shrinking markets for individual drugs and the analysis of complex health databases.¹¹

Biotechnology research has not been without controversy. Scientists have inserted foreign genes into animals in their efforts to study human diseases and possible cures. Under the EU Biotechnology Patents Directive, neither DNA nor the human genome can be patented, as they are discoveries of realities which already exist. However, an invention based on gene sequences, requiring the isolation and manufacture of genes, can be patented, as human intervention is involved, assuming the process is capable of industrial application.

Biotechnology research has made it possible to breed high-yield, disease-resistant plants, with a reduced reliance on pesticides and herbicides. However, it has given rise to ethical questions that have generated heated debate centred on food safety and the environmental impact of such advances. One of these concerns is doubts over the research on GM foods, including food safety and environmental effects.

GM crops, and the GM food or animal feed derived from them, are developed using the tools of agricultural biotechnology. Agricultural biotechnology, also known as genetic engineering, genetic modification or transgenic technology, involves the genetic modification of plant nuclear DNA through the permanent integration of engineered or recombinant DNA (rDNA) sequences using biotechnological techniques. These engineered sequences contain one or more genes, and mostly come from an organism that is different from the host plant.

 

 

The introduction of GM crops began in the United States in 1994 when the Federal Food and Drug Administration (FDA) approved the genetically modified Flavr Savr tomato for commercialization. This was soon followed by other major GM crops: GM cotton (a food crop because it produces cotton seed oil), GM corn (also referred to as GM maize), GM soybean and GM canola, along with other minor crops such as squash. According to the non-profit and science-based International Service for the Acquisition of Agri-Biotech Applications (ISAAA), 114.3 million hectares (282.4 million acres) of GM crops were grown in 23 countries in 2007. The six largest producers of GM crops by land area, in order, were the United States, Argentina, Brazil, Canada, India and China, growing GM soybean, GM cotton, GM corn and GM canola.¹²

The arguments against GM food range from the ethical and religious to concerns over inherent or potential risks to health and safety, and the environmental impact such technologies may have. Intellectual property rights and control over seeds by multinational corporations are also cause for opposition. The arguments in support of GM food range from the ethical and practical—based on arguments regarding feeding the world—to the scientific, in which evidence is collected to address some of the opposition's concerns and to fill in gaps in our knowledge.

VIRTUAL WORLDS AND THE TRANSFORMATION OF BUSINESS

Virtual worlds, also known as Web 3D, are immersive and collaborative environments on the Internet that are changing the global business environment.¹³ Developed out of online games, social networking and Web services, virtual worlds benefit from several technologies that enhance their usefulness, including massively scaled games, avatars, cloud/on-demand/grid computing, on-demand storage and next-generation networks.

The new virtual world “ecosystem” has brought about a change in the way businesses operate. Accessible through mobile and other handheld devices, virtual worlds bring powerful computing, data analysis and decision-making tools to employees of firms of any size. These platforms facilitate a wide range of business activities and opportunities, such as training and education, product and service development, marketing and strategy creation, and finance exchange that can be executed in new, interactive environments. Operating in the virtual world is made possible with current and ever-evolving technology and enables the modern business to operate and receive knowledge and inputs from suppliers, employees, and customers in wholly new ways. It also provides for the emergence of very small highly specialized firms that can combine to create innovative products when opportunities for these exist.

Virtual world environments promote such changes by helping enterprises develop new products in tandem with suppliers as well as with specialized “expert firms” or individual entrepreneurs. These collaborative environments allow corporate executives and other employees to bring computer simulations and robust databases into virtual worlds supported by high-speed, next-generation networks. This allows a wide range of businesses, manufacturing concerns and services to see the results of business decisions in real time. For instance, banks can visualize analyses of equity data or prices of options and make rapid decisions about where to direct investments.

On the one hand, this helps to expand the modern corporation, and on the other hand it also leads to greater specialization. Firms can also use virtual worlds technology to foster collaboration both inside and outside the firm, and use the specialized knowledge to act as consultants for other firms. As a result, they become “extremely agile” corporations that can quickly and effectively acquire new products and recognize new benefits from technological innovation and services development.

These emerging collaborative enterprises use existing virtual world and social networking technology to form new ecosystems that are three-dimensional immersive environments which can be secured behind a firewall online, within the corporation's intranet system or in secure extranets outside of corporate firewalls.

The evolution of the Internet into Web 3D or fully functional virtual worlds will require extensive use of cloud/on-demand/grid computing, on-demand storage and next-generation networks. These three technologies will allow businesses to take computer-intensive processes, such as product design, investment decisions and daily business problems, and bring them under the control of a wide range of corporate executives. This will enable business collaboration on an unimaginable scale and scope. Furthermore, embracing these three new technologies makes it possible for corporations to make the social networking organization the central tool for integrating supplier and partner expertise into their own operations, either temporarily or permanently. This will transform both manufacturing and services-oriented businesses and the economy as a whole.

Many of these virtual world technologies are being used in business today. Several virtual world sites have millions of registered users; the total number of users is expected to grow to one billion worldwide by 2017. As of May 2008, IBM's virtual world connected at least 6,000 active employees. Sulake Corporation's Habbo Hotel has nearly 100 million registrants and 10 million unique monthly visitors. Linden Lab's Second Life reported 12 million registrants and about one million active users. IBM, Cisco and other firms are using virtual worlds for training and conferences. Cigna has established health groups for counselling. Aerospace and auto firms are using virtual cars and planes in their design and testing groups. Oil firms are using virtual models to evaluate new wells. We expect these examples to become manifold in the years to come.

The rise of the collaborative enterprise that is likely to result from the successful deployment of virtual world technologies will usher in a new era of business. It will change the way firms compete with one another for customers in both goods and services industries.

If our nation accelerates the development and maturation of virtual worlds, it will encourage a more collaborative and enterprising form of business. This will lead to greater innovation, sustained productivity, and competitive growth in the world economy.

It will also create challenges. The ability of manufacturing, service and knowledge-based businesses to find whatever inputs they need regardless of their geographical location poses a specific problem. Virtual worlds could engender new forms of outsourcing or place the United States at a competitive disadvantage if firms around the world were faster to adopt virtual worlds than their US counterparts.

MANGERIAL IMPLICATIONS

In the global economy today, corporate, and consequently national, performance is at the interface between research, technical knowhow and production. We have seen in this chapter that the globalization of production has led to a diffusion of technology, but also that technological capacities still depend to a large extent on national innovation systems. It is also true that technological innovation increasingly depends on links between scientific research and industrial R&D, both of which differ between national technological environments. As nations become increasingly different, the international operations of large firms are exploiting and developing this diversity.

In generating innovation and exploiting its fruits, globalization processes highlight the continued role of national government policies. By providing incentives to companies for innovative activities and supportive infrastructure such as industry/university partnerships, governments can attract the innovative activities that generate competitive advantage. Technological innovation thus has a national as well as global dimension. Countries that have concentrated on low-cost, labour-intensive manufacturing industries have been less successful in developing the more technologically advanced production systems. It is arguable that businesses in these countries may find opportunities in the knowledge-intensive industries of the new economy, where geographic location is less important. On the other hand, poor developing countries risk falling further behind, opening up a “digital divide” between rich and poor countries.

Agricultural biotechnology

Biotechnology

Business-to-business e-commerce

Business-to-consumer e-commerce

Business-to-government e-commerce

Consumer-to-business transactions

Consumer-to-consumer e-commerce

E-business

Electronic commerce

Innovation

International technology transfer

Invention

M-commerce

National innovation system

Patent right

Patent

Technology

1. Outline the elements of a national system of innovation. How relevant is the educational and training environment of the country?
2. Describe briefly the four ways in which technology transfer takes place, pointing out the advantages and disadvantages of each.
3. In which ways has the revolution in IT transformed business?
4. Assess the possible benefits and the ethical issues of biotechnology research.
5. What is e-commerce? Distinguish between e-commerce and e-business.
6. Enumerate the advantages and disadvantages of e-commerce for an international business.
7. List some of the factors that pose a challenge to global e-commerce activity in the global economy.

1. The World Bank has compiled a Location Readiness Index, which is a modelling tool that helps countries identify their areas of relative strengths and weaknesses in terms of IT and IT-enabled services (ITES) (http://www.infodev.org/en/Publication.986.html). Compile a report based on the index and suggest areas of policy intervention for your country.
2. The Economist compiles “digital economy rankings”, previously known as the “e-readiness rankings”, to assess the world's largest economies on their ability to absorb information and communications technology and use it for economic and social benefit (http://graphics.eiu.com/upload/EIU_Digital_economy_rankings_2010_FINAL_WEB.pdf). Prepare a report on the rankings for the current year.