ISMT101

Digital Economy (I)

Next Business implications
Mgmt

Organizational use
(1) Digital
Economy

• Industrial revolution 
information economy
• Career: IT+Business

Technology components People

Nature of the digital economy

Conceptual foundations
 Information
 Useful,meaningful data for users (a person, an
organization…) in a specific context
 Information technology (IT)
 Technology for managing information
(hardware, software, networking, database)
 Information system
A set of interrelated ITs that work together in an
organization for a common purpose
Information

 Learning

 Retailing

 Financial market

 Airline

 Many other examples…

Information Technology
Information Technology
Information Technology
Information Technology
Information Technology
IT in home

Source: IDC, Morgan Stanley, US National Science Foundation

IT in home

Worldwide DVR uses (millions)

35
33
30
25
20 21
15
10 12
7
5 4
0
2003 2004 2005 2006 2007
IT in home
Computer Price Index
(Index normalized to 100 in 1996)
400

350

300

250

200

150

100

50

0
1987 1989 1991 1993 1995 1997 1999 2001
IT in home

U.S. PC Gamers:
77M in 2003
113M in 2007
 Internet users

232
(69.4%)

313
(38.6%)
389
(10.5%)

Australia
89 19 (53.5%)
(16.0%) (3.5%)

33
(3.5%)
Source: Zhu, CityU
Globalization
 “The system of interconnected economies based
on capitalist market is called globalization”
 Globalization—a company doing business in a
global market
 Leaders in industry
 Dell – divisions in 43 countries
 Fedex – serving 215 countries
 JPMorgan – offices in 50 countries
 Toyota – manufacturing plants in 20+ countries
Source: Seven-Eleven Japan Co.
Globalization
 Why?
 Nature of the industry (e.g., Fedex)
 More consumers (e.g., Seven-Eleven)
 Lower costs (e.g., Toyota)
 Exploring the global market (e.g., financial
firms)
We are indeed in a global market…
 Online
education…

Online
research…
Enabler of globalization

Silk road East India Company Today, IT

Enabler of globalization
 Information technology—enabler of global
communications in a business-to-business
setting

 Communications in a business-to-business setting

 Information about products
 Price
 Quantity
 Invoice, shipping information, payment information
 Damage…
 Internet-based business-to-business communications
 An important part of B2B e-business
Enabler of globalization
Communication tasks
a global company is facing

Extent of globalization
1 2 3 4 5… (e.g., number of
oversea offices)
Enabler of globalization
 A global firm faces more tasks of communications
(with partners, suppliers, and customers in other parts of
the world).
 Globalization requires IT to facilitate communications.

 FYI…this is based on the theory by Coase, Nobel Prize winner

 Supportive evidence based on 3,000 European firms: Globalization
 use of the Internet (Zhu, Kraemer, and Xu, EJIS, 2003, vol 12,
page 251-268).
Digitization
Digitization
Digitization
Digitization
Digitization
Digitization
Digitization—impacts on companies

 New business

+
Digitization—impacts on companies

 Lower marginal costs

 Marginal costs: costs of making an additional unit

Encyclopedia Marginal Price

Britannica costs (USD) USD)
Printing, binding, 200-300 1500-2200
physical
distribution
CD-ROM 1.50 50
Internet … …
Digitization—impacts on companies

 Lower marginal costs

Banking Costs of one

transaction (USD)
Teller assisted 1.00
(labor, paperwork,
security…)
ATM 0.54
Internet 0.01
Digitization—impacts on consumers

 Lower price
 Convenience
Digitization—impacts on the society

 Social Impacts
“In the digital world, anyone can use computers to create
and distribute creative works.” --Textbook, p.5

Blog
Online forum
Wiki
Discuss
What cannot be digitized……
Take-home points
 Information technology is a key enabler of
globalization.
 IT, globalization & communications

 Digitization has significant impacts…

 Companies,consumers, society
 Low marginal costs