Chapter 2 Fueling Globalization Through Information Systems “The global economic playing field is being leveled.” Nandan Nilekani, Infosys Technologies Ltd.

Learning Objectives 2-2 1. Define globalization, describe how it evolved over time, and describe the key drivers of globalization. 2. Describe the emerging opportunities for companies operating in the digital world. 3. Explain the factors companies have to consider when operating in the digital world. 4. Describe international business and information systems strategies used by companies operating in the digital world.

Learning Objectives 2-3 1. Define globalization, describe how it evolved over time, and describe the key drivers of globalization. 2. Describe the emerging opportunities for companies operating in the digital world. 3. Explain the factors companies have to consider when operating in the digital world. 4. Describe international business and information systems strategies used by companies operating in the digital world.

Globalization Globalization created a new world characterized by: Worldwide communication Collaboration without barriers

Evolution of Globalization Mainly European countries are globalizing Power is the primary driver Industries changed Slow pace of change

Evolution of Globalization (cont’d) Companies are globalizing Reduction in transportation and telecom-munications costs Mainly Europe and America involved

Evolution of Globalization (cont’d) Individuals and small groups are globalizing Faster pace of change Emergence of new industries

Evolution of Globalization: Summary The World Is Flat (Thomas L. Friedman) “10 Enablers” Key factors enabling Globalization 3.0

Enabler #1: The Fall of the Berlin Wall November 9, 1989 Fall of communism People from the former communist countries gained more freedom

Enabler #2: Netscape Browser August 9, 1995 “Killer app” First mainstream browser Gave individuals access to the Internet & set standards

Enabler #3: Work Flow Software Applications that allow people worldwide to communicate XML: applications “talk” to each other New possibilities for information sharing Global currency to fuel commerce

Enabler #4: Uploading Individuals and companies actively participate in content generation on the Web Wikipedia a huge success

Enabler #5: Outsourcing Outsourcing companies profited from the drop in telecommuni-cations costs Companies can now use talented engineers from anywhere

Enabler #6: Offshoring Companies set up entire factories in countries such as China Mass production Low costs

Enabler #7: Supply Chaining Integration of retailers, suppliers, and customers Wal-Mart became an early leader Use of RFID tags

Enabler #8: In-Sourcing Delegation of company’s key operations to a subcontractor Example: UPS provides complete supply chain solutions to companies

Enabler #9: In-Forming In-forming is to individuals what outsourcing, offshoring, and in-sourcing is to companies Individuals have access to massive amounts of information

Enabler #10: The Steroids Technologies that support different types of collaboration Greater mobility Triple convergence

Learning Objectives 2-19 1. Define globalization, describe how it evolved over time, and describe the key drivers of globalization. 2. Describe the emerging opportunities for companies operating in the digital world. 3. Explain the factors companies have to consider when operating in the digital world. 4. Describe international business and information systems strategies used by companies operating in the digital world.

Opportunities for Operating in the Digital World Opportunities for reaching new markets Former Eastern Bloc countries provide new opportunities for international companies to reach new customers

Opportunities for Operating in the Digital World (cont’d) Engineering Graduates in the United States, Europe, and India Opportunities of a global workforce: Low communications costs Highly-skilled labor pool Based on: Mallaby, 2006

Learning Objectives 2-22 1. Define globalization, describe how it evolved over time, and describe the key drivers of globalization. 2. Describe the emerging opportunities for companies operating in the digital world. 3. Explain the factors companies have to consider when operating in the digital world. 4. Describe international business and information systems strategies used by companies operating in the digital world.

Challenges of Operating in the Digital World Globalization also created a set of unprecedented challenges: Governmental Geoeconomic Demographic Cultural

Governmental Challenges Political System Challenges Political stability Regulatory Challenges Tariffs Embargoes Export regulations Quotas

Governmental Challenges (cont’d) Data-Sharing Challenges Transborder data flow regulations Differences in standards UPC vs. EAN Measurement units Postal codes, phone numbers, etc.

Governmental Challenges (cont’d) 2-26 Internet Access and Individual Freedom Content blocking by governments/censorship China—Use of VoIP restricted Germany—Sites with fascist symbols prohibited Internet access blocking Cuba, North Korea

Geoeconomic Challenges Time Zone Challenges Real time meetings across continents difficult Working around the clock possible

Geoeconomic Challenges (cont’d) Infrastructure-Related Challenges Traditional infrastructure—roads, electricity Connectivity—reliable Internet connections Challenges Related to Economic Welfare GDP growth not distributed evenly throughout the world Migration Some companies used to deal with low margins and tough competition

Geoeconomic Challenges (cont’d) Demographic Challenges Differing rates of population growth World Population, 1950-2050 (in billions)

Geoeconomic Challenges (cont’d) Demographic Challenges (cont’d) Expertise related challenges Different concentration of skilled workers Different costs of workers

National Cultures Cultural Challenges Power Distance—differences in how societies handle the issues of human inequality Uncertainty Avoidance—risk taking nature Individualism/Collectivism—value placed on an individual vs. a group Masculinity/Femininity—degree to which a society is characterized as masculine/feminine Concept of Time—long term vs. short term Life Focus—quantity vs. quality of life

Cultural Challenges (cont’d) Cultural Barriers Language—communication language and norms Work Culture—work skills, habits, and attitudes Aesthetics—art, music, and culture Education—attitudes toward education and literacy Religion, Beliefs, and Attitudes—spiritual institutions and values Social Organizations—family and social cohesiveness

Cultural Challenges (cont’d) Environmental challenges Energy consumption, pollution, workers health Shipping Other Challenges Differences in what is regarded as appropriate Standards of dealing with intellectual property Network readiness Not every country has access to the global networked economy

Learning Objectives 2-34 1. Define globalization, describe how it evolved over time, and describe the key drivers of globalization. 2. Describe the emerging opportunities for companies operating in the digital world. 3. Explain the factors companies have to consider when operating in the digital world. 4. Describe international business and information systems strategies used by companies operating in the digital world.

Going Global: International Business Strategies in the Digital World Home-Replication Strategy Global Business Strategy Multidomestic Business Strategy Transnational Business Strategy

Home-Replication Strategy Most basic form of going global Companies view international operations as secondary to, or extension of home operations. Focus on core competencies in home market Inability to react to local market conditions Homogeneous markets Information systems play minor role in facilitating this strategy

Global Business Strategy Centralized Used to achieve economies of scale Example: Coca-Cola Same core product Some different tastes made for local markets

Global Business Strategy 2-38 The role and characteristics of IS Centralized information systems Data flows from subsidiaries to home location Multiple networks between home office and subsidiaries Data does not stay at subsidiaries

Multidomestic Business Strategy Low degree of integration between subunits Flexible and responsive to the needs and demands of local markets Example: General Motors Opel in Germany Vauxhall in Great Britain

Multidomestic Business Strategy 2-40 The role and characteristics of IS Each subsidiary has own, decentralized information systems No centralized infrastructure Data sharing primarily between subsidiaries and home office Limited data sharing among subsidiaries Loose integration of information systems

Transnational Business Strategy Some operations centralized while others decentralized Flexibility Economies of scale Difficult to manage Example: Unilever

Transnational Business Strategy 2-42 The role and characteristics of IS Integrated networks between home office and local subsidiaries Much communication among subunits AND between home office and subunits Key data is shared throughout company Enabled by intranet, extranet, and Web based applications

Business Strategies: Summary

End of Chapter Content 2-44

Opening Case—Managing in the Digital World: Infosys Technologies Ltd. Companies like Infosys are “flattening” the world. Does business in new ways Outsourcing Supply Chains Consulting Employment

Netscape’s James H. Clark and Marc Andreessen Founded Mosaic Communications Corporation 75 percent of Web surfers used Netscape in 1996 AOL acquired Netscape in 1999 for $10 billion in stock Both founded several start-ups James H. Clark Marc Andreessen

Online Searching To “Google” has become a household verb meaning search

IT Globalization: Accenture in India Provides consulting, technology, and outsourcing Global before other companies were just “waking up” to globalization Accenture’s growth Announced plans for doubling its thirteen thousand business consultants between 2008 and 2011

Underground Gaming Economy Massive Multiplayer Online Role-Playing Game—MMORPG Virtual world—players live through avatars Players started selling virtual tools for real money—farmers Banned from various gaming sites due to behavior being unethical and fear of turning users away What’s your take on farmers and people “buying” tools and advancement without mastering the skills?

Learning Languages in Context Livemocha Online language instruction using social networking Structured lessons Help with grammar Canned pronunciation guides Most valuable asset Conversation with native speaker Using social community to increase understanding

e-Waste Disposal of electronics containing hazardous materials is a rising issue U.S. exports much of its e-waste to third world countries China banned the import in 2002 Other countries to follow In mid 2006, EU banned toxic ingredients Production of “green” hardware U.S. government working on making changes—currently state-level legislation most effective Pace of technological changes increases problem

The Automobile Industry The automobile industry is feeling the pressure of globalization Failed attempts at making a “world car” Consumers have different tastes Differences in infrastructures derive needs The price of gasoline Variations in emission standards Globalization is already there Foreign manufacturers producing in US US companies producing worldwide Global network of suppliers Ripple effects resulting from any crisis