fueling globalization through information systems · pdf fileof challenges facing companies...

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In today’s world, the effects of globalization can be seen everywhere. Whether you

buy products or services, almost everything (except for maybe a haircut at your local

barbershop) can be produced somewhere else in the world. For example, retailer Wal-

Mart buys much of the products it sells from China—it is said that if Wal-Mart were a

country, it would be China’s eighth-largest trading partner, ahead of Russia, Australia,

and Canada (Jingjing, 2004). Similarly, all kinds of services are now being outsourced

to foreign countries, no matter whether the service is software development, the tran-

scription of documents, or the design of components for large commercial aircraft. In

this chapter, you will learn how globalization evolved and how information systems

fuel this trend toward an ever-shrinking world.

The next section examines the evolution of globalization, followed by a discussion

of challenges facing companies operating in a global digital world. Then different inter-

national business strategies and associated international information systems strategies

are examined. Other aspects of the relationship between globalization and information

systems, such as the digital divide (see Chapter 11—Managing Information Systems

Ethics and Crime), will be examined throughout the remainder of the book. Finally, our

discussion of globalization is intentionally limited to how information systems are fuel-

ing globalization; for more comprehensive discussions, see Friedman’s The World Is Flat

(2007) or Viotti and Kauppi’s International Relations and World Politics (2009).

� Define globalization,describe how itevolved over time, and describe the keydrivers ofglobalization.

� Describe the emergingopportunities forcompanies operatingin the digital world.

� Explain the factorscompanies have toconsider whenoperating in thedigital world.

� Describe internationalbusiness andinformation systemsstrategies used bycompanies operatingin the digital world.

P r e v i e w

Fueling Globalization Through Information Systems 2After reading this chapter, you

will be able to do the following:

C H A P T E R

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Information Systems Today: Managing in the Digital World, Fourth Edition, by Joe Valacich and Christoph Schneider. Published by Prentice Hall. Copyright © 2010 by Pearson Eduction, Inc.

Manag ing in the D ig i ta l Wor ld : In fosys Techno log ies L td .

Those of us who thought the debate over whether the world is flat or round had beenresolved centuries ago are wrong. Now we are told the world truly is flat. ThomasFriedman explains why the world is now flat in his book, The World Is Flat: A Brief Historyof the Twenty-First Century. Friedman concluded that the world is flat and started workon his book explaining when Nandan Nilekani, the Bangalore-based Infosys TechnologiesLtd. CEO remarked “the global economic playing field is being leveled.” “Level” toFriedman meant “flat,” and this, he said, was his eureka moment. The concept of a flatworld quickly became a phrase descriptive of globalization, with Friedman the guru.

Companies that help organizations compete and win in this flat, global world arecalled “flatteners.” Infosys Technologies Ltd. is a flattener because the multinational infor-mation technology services company helps businesses think flat, which requires changingoperational priorities and doing business in new ways. For example:

• Outsourcing: If an organization in a distant location can perform a portion of abusiness’s services better and cheaper, hire that organization. In other words, it’s nolonger prudent or necessary for all of a business’s services to be performed in onelocation, or under one roof.

• Supply Chains: Find the equipment and supplies needed to accomplish businessgoals efficiently and economically by using global, not just local, sources.

• Consulting: In order to compete in a flat world, it may make sense for businesses toconsult information services that can advise them on how to become global. Forexample, Infosys Technologies consults with clients within eighteen industries, rangingfrom the aerospace industry, to health care, education, and utilities industries.

• Employment: To hire the best and the brightest, seek employees from countries aroundthe world, or use the employment procurement services of a global employment service.

Infosys Technologies has been described as the brightest jewel in India’s crown. It hasmaintained this reputation since seven individuals founded it in 1981, with $250 (U.S.) inborrowed capital. In 2008, the company reported consulting revenues of $4 billion andwas valued at $30 billion.

After reading this chapter, you will be able to answer the following:

1. What events have led to the flat world?

2. What types of activities within an organization arebetter candidates for outsourcing?

3. How can you prepare yourself to compete in the flatworld?

Based on:

Anonymous (n.d.). What we do. Retrieved May 24, 2008, fromhttp://www.infosys.com/about/what-we-do/default.asp.

Anonymous (n.d.). Flat world. Retrieved May 24, 2008, fromhttp://www.infosys.com/flat-world/business/perspectives/default.asp.

Friedman, T. (2006, July). Think flat. Retrieved May 24, 2008, fromhttp://www.infosys.com/flat-world/business/perspectives/FriedmanPerspective.pdf.

Friedman, T. (2007). The world is flat 3.0: A brief history of thetwenty-first century. New York: Picador.

Infosys. (2008, May 21). In Wikipedia, the free encyclopedia.Retrieved May 24, 2008, from http://en.wikipedia.org/w/index.php?title=Infosys&oldid=213835069.

The world is flat. (2008, May 18). In Wikipedia, the free encyclopedia.Retrieved May 24, 2008, from http://en.wikipedia.org/w/index.php?title=The_World_Is_Flat&oldid=213282759.

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FIGURE 2.1

An employee walks in the Infosys Technologies campus inElectronics City in Bangalore, India.

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40 CHAPTER 2 • FUELING GLOBALIZATION THROUGH INFORMATION SYSTEMS

Evolution of GlobalizationOver the past centuries, globalization—the integration of economies throughout theworld, enabled by innovation and technological progress (IMF, 2002)—has come a longway, from separate nation-states on different continents to what we see today, a worldwhere people and companies can enjoy worldwide communication and collaboration, withfewer and fewer barriers. In his book The World Is Flat, New York Times foreign affairscolumnist Thomas L. Friedman has characterized the evolution of globalization as havingthree distinct phases (see Figure 2.2), differing in the focal point and primary drivers of thisevolution (see Table 2.1 for an overview of each phase). While it had taken humankindthousands of years to discover that the world is round, Friedman argues that forces of glob-alization are now creating a “flat,” or connected, world, such that competitors in manyareas of the world now have equal opportunities to access the global marketplace. As tech-nologies have evolved and diffused broadly throughout the world, the pace and scope ofglobalization has accelerated. Next, we examine this evolution.

Globalization 1.0The first stage, termed Globalization 1.0 by Friedman, began in the late fifteenth centuryand ended about 1800. During those times, India was famous for its wealth of spices andother goods; however, getting there, for example, by traveling east was very cumbersomeand dangerous, as no sea route had been discovered until the end of the fifteenth century.Even then, sailing to India going east included circumnavigating the entire continent ofAfrica, including a dangerous passage around the Cape of Good Hope (South Africa).When Christopher Columbus set sail in August 1492 to discover a westward route to India,he was convinced, contrary to popular belief at that time, that the earth was round.However, instead of discovering a new route to India, he discovered the Americas, openingup new areas for discovery and new sources for resources.

During Globalization 1.0, mainly European countries were globalizing, attemptingto extend their territories into the New World. Power—from domesticated horses (fortransportation and agriculture), wind (for grinding grain and sailing), and, in the late

Globalization 1.0 Globalization 2.0 Globalization 3.0

Medium-Sized World Small-Sized World Tiny-Sized World

1492 1800 2000

FIGURE 2.2

Evolution of globalization.

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CHAPTER 2 • FUELING GLOBALIZATION THROUGH INFORMATION SYSTEMS 41

stages, steam (then used primarily for mining)—was the primary driver of this stage ofglobalization. Collectively, this evolution brought continents closer together, shrinkingthe world “from size large to size medium.” During those times, industries changedslowly, and any change took generations. While many industries (such as the apparelindustry) changed, most people didn’t notice how it affected their lives because of theslow pace of change.

Globalization 2.0In 1800, Globalization 2.0 started, lasting up until the year 2000 (being interrupted onlyby the Great Depression and the two world wars). During Globalization 2.0, the worldshrunk from “size medium to size small,” as companies (rather than just countries) startedto globalize. While people were constantly innovating, changes still took quite some time.For example, it took more than a generation before people felt the effects of the industrialrevolution. In the early stages of Globalization 2.0, the steam engine led to falling costsfor the transportation of goods, both on land using railroads and on sea using steamships.Technological innovations such as the telegraph and, later, telephones, personal comput-ers, satellites, and early forms of the Internet, tremendously reduced telecommunicationcosts. The reduction of transportation and telecommunication costs spurred a growingmarket for products and labor. However, it was still mainly Americans and Europeans dri-ving globalization.

Globalization 3.0Around the year 2000, Globalization 3.0 began, with individuals and small groups fromvirtually every nation joining the globalization movement, shrinking the world from “sizesmall to size tiny.” Not only did the world shrink, but this shrinking brought with it an evenfaster pace of change. People now feel the effects of industry changes within decades, andnew industries have emerged that no one would have imagined only a few decades ago. Forexample, Google, the company that now dominates the search engine market and is one ofthe world’s largest companies, was incorporated only in 1998. In the next sections, we willdiscuss the factors enabling Globalization 3.0 and how these factors have forever trans-formed the world.

Key Factors Enabling Globalization 3.0 In the last decade of the twentieth century, anumber of technological and societal changes took place, ushering in Globalization 3.0. Inhis book, Friedman provides a list of ten forces enabling the transition from Globalization2.0 to Globalization 3.0 (see Table 2.2). While the list of enablers could be extended almostendlessly (or be debated as to their ultimate significance), we will focus on those discussedby Friedman given their broad popularity.

ENABLER #1: NOVEMBER 9, 1989—THE FALL OF THE BERLIN WALL. The fall of the BerlinWall and the downfall of communism is one of the key events flattening the world. Built in1961 to keep East German citizens from emigrating (or escaping) to West Germany, theBerlin Wall quickly became the symbol of the division of Germany and the existence of an“iron curtain” between Western and communist countries. Following an autumn of massdemonstrations in 1989, the East German government announced on November 9, 1989,that its citizens were finally permitted to cross the border to West Germany; in the days and

TABLE 2.1 Phases of Globalization

GlobalizationPhase Time

Primary Entities Globalizing Regions Globalizing

1.0 1492–1800 Countries Europeans and Americans2.0 1800–2000 Companies Europeans and Americans3.0 2000–now Individuals and small groups Worldwide

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FIGURE 2.3

Enabler #1: People tearing down the Berlin Wall afterNovember 9, 1989.

TABLE 2.2 Ten Enablers of Globalization 3.0

Enabler Event or Trend Description

1 November 9, 1989 The fall of the Berlin Wall and the fall of communismopened up new markets for talent and products

2 August 9, 1995 Netscape went public; the company introduced the firstmainstream Web browser

3 Work flow software Standards and de facto standards enabling computers to“talk to each other” and facilitate collaboration

4 Uploading The ability of individuals and companies to activelyparticipate in content generation on the Web

5 Outsourcing The moving of business processes or tasks (such asaccounting or security) to another company

6 Offshoring Companies moving business functions to different countries(often overseas) to reduce costs

7 Supply chaining The use of information systems to tightly integrate retailers,their suppliers, and their customers

8 In-sourcing The delegation of a company’s logistics operations to asubcontractor that specializes in that operation

9 In-forming Individuals’ use of powerful search engines on the Internet,such as Google, Yahoo!, or MSN, to build their “ownpersonal supply chain of information, knowledge, andentertainment” (Friedman, 2007, p.178)

10 The steroids Technologies amplifying the other flatteners by makingthings digital, mobile, virtual, and personal

weeks after that date, people from all over the world participated in dismantling the wall(see Figure 2.3). The fall of the Berlin Wall and the opening of the border between East andWest Germany marked the end of the Cold War between communist and capitalist coun-tries and the breakup of the Eastern bloc, freeing millions of people. At once, people inmany former communist countries could enjoy greater freedoms. For many companies,this meant a tremendous increase in potential customers as well as access to a huge, tal-ented labor pool in the former Eastern bloc countries.

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FIGURE 2.4

Enabler #2: The Netscapebrowser was a cornerstone ingiving individuals easy access to the Internet.

Around the same time, Microsoft released the first version of the Windows operatingsystem, which over time became the de facto world standard in PC operating systems,enabling people from all over the world to use a common computing platform.

ENABLER #2: AUGUST 9, 1995—THE RELEASE OF THE NETSCAPE WEB BROWSER. The secondbig flattener was the Internet browser—the “killer app” that enabled everyone who had acomputer and a modem to view Web pages. While the first Web site went live in 1991, view-ing and navigating early Web sites was very cumbersome, and the Internet, in its infancy, wasnot widely used by the general public (see Chapter 4—Managing the Information SystemsInfrastructure). A company called Netscape released the first mainstream Web browser in1994 and went public on August 9, 1995. Later in 1995, Netscape even integrated an e-mailcomponent into its browser, allowing people not only to view Web pages but also to commu-nicate using the Internet. Thus, the Netscape browser can be regarded as a cornerstone in giv-ing individuals easy access to the Internet (see Figure 2.4). In addition to opening up the pos-sibilities of the Internet for the general public, Netscape helped set a standard for thetransport and display of data that other companies and individuals could build on, making theInternet even easier to use and more powerful than ever. Since then, Netscape has beenacquired by AOL, which phased out the once popular browser in early 2008. Nevertheless,Netscape’s legacy lives on, as both the open-source browser Mozilla Firefox and Netscape’ssuccessor Flock are based on Netscape’s source code. Although many companies had someinternal computer networks, it was the widespread adoption of the Internet that enabled com-panies to interconnect in new ways. Widespread adoption of the Internet also allowed organi-zations to benefit from the political and societal changes during that time.

In the final years of Globalization 2.0, the Internet really took off, and many young entre-preneurs envisioned a variety of new business models based on the possibilities the Internetoffered. At the same time, companies supplying the network infrastructure saw the need toprovide more and faster connections, leading to a tremendous overinvestment in telecommuni-cations infrastructure, such as fiber-optic cable, which is used to transmit very large amountsof data at the speed of light (see Chapter 4). Only a few years later, many of the new ventures(most of which operated at a loss in order to gain initial market share) proved not to be viable,often because of inexperienced management and uncontrolled spending. With the bursting ofthe dot-com bubble, stock prices plummeted, causing many people to lose much of their retire-ment money that had been invested in the stock market. However, the burst of the dot-combubble also helped make the transition from Globalization 2.0 to Globalization 3.0.

The burst of the dot-com bubble created less demand for and oversupply of thetelecommunications infrastructure that had been installed just a few years before, which, in

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Powerful PartnershipsNetscape’s James H. Clark and Marc Andreessen

The WWW came into existence in 1993, and a year laterJames H. Clark and Marc Andreessen (see Figure 2.5)founded the first company to take advantage of the Web,called Mosaic Communications Corporation. The com-pany’s first product, released in October 1994, was a Webbrowser (an application used to view and navigate theWorld Wide Web and other Internet resources) calledMosaic Netscape 0.9. The browser was subsequentlyrenamed “Netscape” in November 1994.

James Clark was born in Plainview, Texas, in 1944. Hedropped out of high school after being suspended andspent four years in the navy. After Clark’s discharge fromthe military, he earned bachelor’s and master’s degrees inphysics from the University of New Orleans and then wenton to earn a PhD in computer science from the University ofUtah in 1974. Clark’s computer science research concernedgeometry pipelines, specialized software or hardware thataccelerates the display of three-dimensional images.

Marc Andreessen was born in Cedar Rapids, Iowa, in1971. He earned a bachelor’s degree in computer scienceat the University of Illinois in Urbana-Champaign in 1993.

While still an undergraduate, he worked at the University’sNational Center for Supercomputing Applications (NCSA),where he and a salaried worker, Eric Bina, developed codefor a user-friendly browser with integrated graphics thatcould work on a wide-range of computer platforms. Theycalled the browser code Mosaic.

After college graduation, Andreessen took a job withEnterprise Integration Technologies in California, wherehe met James Clark, who had recently left SiliconGraphics, a successful company he founded with severalothers. Clark saw the potential in the browser codeAndreessen had helped develop, and the two foundedMosaic Communications Corporation. However, theUniversity of Illinois owned exclusively the Mosaicbrowser code Andreessen had helped develop at NCSAand claimed that Clark and Andreessen had stolen it fromthem, so Clark and Andreessen changed the name oftheir company to Netscape CommunicationsCorporation. Nevertheless, they continued to distributethe software they marketed as Netscape Navigator, andin December 1994, Netscape Communications settled


FIGURE 2.5

Netscape’s James H. Clark (left) and Marc Andreessen(below).

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turn, caused infrastructure providers to fail, and much of the infrastructure had to be sold fora fraction of the cost. While the short-term consequences were devastating for many compa-nies and individual investors, the most notable long-term consequence was falling telecom-munications costs, enabling the collaboration of individuals and small groups we see today.

ENABLER #3: WORK FLOW SOFTWARE. What Friedman broadly calls work flow softwareis a variety of software applications that allow for software-to-software interaction.Whereas the Netscape browser enabled people to access the Internet, other standardsallowed different companies all over the world to communicate seamlessly. For example,eXtensible Markup Language (XML; see Chapter 9—Building OrganizationalPartnerships Using Enterprise Information Systems) enabled computer programs to “talk”to other programs so that, for example, a computer in an automobile manufacturing plantcould automatically order a new shipment of windshield wipers from a supplier once theinventory reached a certain level. This and a variety of other transactions could be handledwithout human intervention, thanks to standards allowing different computers from differ-ent computer manufacturers, running different operating systems, to communicate. Today,XML is even used for saving document formatting information in open-source applica-tions such as the OpenOffice.org Productivity Suite (see Chapter 4).

In addition to XML, various other de facto standards emerged, easing the ability forindividuals and companies from all over the world to communicate and engage in com-merce. Worldwide use of productivity software such as Microsoft Word or Adobe Acrobatenabled information sharing, while standard online payment systems such as PayPal (seeFigure 2.6) provided a common global currency to fuel commerce (see Chapter 5—Enabling Commerce Using the Internet). Providing individuals anywhere in the worldwith the ability to communicate, share documents, or transfer money, regardless of the

with the University of Illinois. The settlement costNetscape Communications $3 million, including legalfees, but the University dropped all claims to Netscape.

At first Clark and Andreessen charged for the prod-uct, but there were a number of ways to receive the prod-uct free of charge, and most users did not pay. As thepartners concentrated more on making their productubiquitous, they worried less about making money fromsales of the browser and hoped to make money in otherways, such as selling advertising. Superior features ofNetscape, such as new HTML tags that allowed Webdesigners more control and creativity, soon madeNetscape the browser of choice. Despite competitionfrom Microsoft’s Internet Explorer, by 1996, 75 percent ofWeb surfers used Netscape.

Fierce competition with Microsoft began almostimmediately after Netscape was released when Microsoftreleased Internet Explorer 1.0 in 1995, as part of aWindows 95 Plus-Pack add-on. For the next few years,the two browser companies worked to outdo each other(often termed “browser wars”), adding features to theirrespective products so quickly that they often did notwork correctly. Soon, Microsoft began bundling InternetExplorer with the Windows operating system, nevercharging extra for it, and by 1998, Netscape Communi-cations was forced to offer its browser for free as well.Eventually Netscape Communications could no longer

compete with Microsoft’s superior financing assets andeffectively dropped out of the race.

Critics of Netscape Communications have arguedthat racing to the market before browser versions werefully operational and bad company management con-tributed to the company’s decline. The company restedon its laurels, some said, and soon Internet Explorer hadsuperior features and better performance as a browser.

AOL acquired Netscape in 1999 for $10 billion in stockand hired Andreessen as chief technology officer. AOL hasnot promoted Netscape software, and decided to retirethe browser in 2008 after its share of the browser marketdropped to 1 percent. Both Clark and Andreessen havegone on to found several IT start-ups, and both arewealthy WWW pioneers.

Based on:

Anonymous (n.d.). Internet pioneers. Retrieved May 24, 2008 fromhttp://www.ibiblio.org/pioneers/andreesen.html.

James H. Clark. (2008, May 22). In Wikipedia, the free encyclopedia.Retrieved May 24, 2008, from http://en.wikipedia.org/w/index.php?title=James_H._Clark&oldid=214262173.

Marc Andreessen. (2008, May 18). In Wikipedia, the free encyclopedia.Retrieved May 24, 2008, from http://en.wikipedia.org/w/index.php?title=Marc_Andreessen&oldid=213302804.

Netscape. (2008, May 23). In Wikipedia, the free encyclopedia.Retrieved May 24, 2008, from http://en.wikipedia.org/w/index.php?title=Netscape&oldid=214400768.


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FIGURE 2.6

Enabler #3: The online paymentsystem PayPal provides acommon global currency to fuel commerce.

underlying computing platform or local currency, is fueling global collaboration of com-panies, small groups, and individuals.

ENABLER #4: UPLOADING. The fourth enabler of Globalization 3.0 Friedman callsuploading, or the ability of individuals and companies to actively participate in contentgeneration on the Web, enabling everyone to be a producer of information instead ofmerely a consumer. This enabler encompasses open-source software, wikis, and blogging/podcasting (see Chapter 6—Enhancing Collaboration Using Web 2.0 for a more detaileddiscussion of these Web 2.0 tools).

The ability to upload has been a catalyst for the growing popularity of open-sourcesoftware products such as the Linux operating system, the Firefox Web browser, or theOpenOffice.org Productivity Suite. The open-source community has made different soft-ware, as well as the software’s source code, freely available to everyone. With the power ofuploading, software developers, geeks, and other techies all over the world use the commu-nication and collaboration capabilities offered by the Internet to create and share new piecesof software. The software created in this way can be of very high quality, as people critiqueeach other’s work, improve the software, fix flaws, and so on. Despite the fact that open-source software development is often touted as a “hobbyist” movement, professional soft-ware developers are among the most active contributors to the creation and refinement ofopen-source software. In fact, more than one thousand developers working for more thanone hundred different organizations participate in the development of the Linux operatingsystem “kernel” (the core of the operating system that manages a computer’s resources suchas processor, memory, or input and output devices—see Chapter 4), and between 70 and 95percent of these developers are being paid for their work. Whereas many companies use theLinux operating system but don’t participate in further improvements, other companies,ranging from IBM to Intel, Google, Nokia, or Sony, actively participate in the developmentof future versions (http://www.linux-foundation.org/publications/linuxkerneldevelopment.php). The enormous success of open-source software, such as the Firefox Web browser orthe Web server software Apache, has even forced established software companies to launchnew and improved versions of their own proprietary software. The power of open-sourcesoftware is further demonstrated by the fact that many established manufacturers (such asDell, HP, Lenovo, or Asus) started offering laptop or desktop computers running different“flavors,” or versions, of the open-source operating system Linux (see Chapter 4 and theTechnology Briefing).

Another example of uploading is the successful online encyclopedia Wikipedia (seeFigure 2.7), the content of which can be created and updated by anyone with an Internet

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FIGURE 2.7

Enabler #4: An example ofuploading is Wikipedia, thecontent of which is created by its users.

connection. The term wiki refers to Web sites allowing users to add, remove, or edit con-tent and is now often used synonymously with open-source dictionaries. Within a wikicommunity like Wikipedia, there is a huge number of people throughout the worldreviewing all recent additions and edits; flaws in the content are usually quickly detectedand fixed.

Finally, blogging allows individuals to upload content without editorial reviews,such that anyone can upload news or commentary comparable to an “open-source news-room.” Similarly, podcasting allows individuals to upload audio or video files that otherscan download and watch on their computers, MP3 players, or mobile devices. Uploadinghas made content, information, and software available to anyone with an Internet con-nection, enabling new and easier forms of collaboration for individuals, small groups,and organizations.

ENABLER #5: OUTSOURCING. As defined in Chapter 1—Managing in the Digital World—outsourcing is the moving of business processes or tasks (such as accounting or security) toanother company. The tremendous decrease in communication costs has added anotherdimension to outsourcing, as now companies can outsource business processes on a globalscale (also referred to as offshore outsourcing). For example, companies commonly out-source customer service functions (such as call centers) or accounting to companies spe-cializing in that service. Oftentimes companies located in countries such as India can pro-vide these services much cheaper due to lower labor costs (see Figure 2.8).

FIGURE 2.8

Enabler #5: Many U.S.-basedfirms are outsourcing their callcenter operations to outsourcingproviders such as Wipro.

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TABLE 2.3 Outsourcing, Offshoring, and Offshore Outsourcing

Concept Description Example

Outsourcing Business processes performed byanother company

Payroll processing by a specializedprovider, such as ADP

Offshoring Business processes performed in-house, but in a different country

Boeing having aircraft design workperformed at a Boeing design centerin Moscow, Russia

Offshoreoutsourcing

Business processes performed byanother company in a differentcountry

A U.S. company having softwaredeveloped by an Indian software firm,such as Wipro

FIGURE 2.9

Enabler #6: Companies areoffshoring production tooverseas countries (such asChina) to utilize talentedworkers or reduce costs.

ENABLER #6: OFFSHORING. As opposed to outsourcing, offshoring refers to having cer-tain functions performed by the same company, but in a different country (see Table 2.3).For example, aircraft manufacturer Boeing offshored design work (such as computationalfluid dynamics) for its new 787 Dreamliner aircraft to Russia, making use of the availabil-ity of highly skilled aeronautical engineers.

When China officially joined the World Trade Organization in 2001, it agreed to followcertain accepted standards of trade and fair business practices. Before, the slow opening ofthe Chinese market was seen as an opportunity to sell products to the huge Chinese market;afterward, companies saw the opportunity to produce goods in China (see Figure 2.9). Now,instead of just offshoring production to Mexico or Canada, companies set up entire factoriesin emerging countries, such as China, in order to mass-produce goods at a fraction of the price it would cost to produce these goods in the United States, Canada, or even inMexico.

ENABLER #7: SUPPLY CHAINING. Supply chaining refers to the use of information systemsto tightly integrate retailers, their suppliers, and their customers. One of the best-knownexamples is the supply chain of the giant retailer Wal-Mart (see Figure 2.10). Wal-Martleverages the other enablers to create a seamless supply chain (see Chapter 9—Building

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FIGURE 2.10

Enabler #7: Wal-Mart is usingsupply chaining to tightlyintegrate the operations of itsglobal suppliers and stores.

Organizational Partnerships Using Enterprise Information Systems) to get the goods fromthe manufacturers to the customers. Not only does Wal-Mart receive the information abouttheir stores’ sales, they also transmit this vital data to the manufacturers so that they cananticipate when the next shipment is needed, how their products sell, and what productsmay need improvement to increase sales. Wal-Mart has recently introduced RFID (radiofrequency identification) tags into their supply chain, allowing them to track where thegoods are in the supply chain as well as when their products are sold and to whom (seeChapter 9 for more on RFID).

ENABLER #8: IN-SOURCING. The eighth major enabler is in-sourcing, which refers to thedelegation of a company’s logistics operations to a subcontractor that specializes in thatoperation. For example, United Parcel Service (UPS) is becoming a leading in-sourcingprovider. In addition to providing their traditional service offering of delivering packagesto worldwide destinations, UPS started offering complete supply chain solutions to compa-nies (see Figure 2.11). Traditionally, online retailers, such as Nike.com, would handle allonline customer orders themselves. However, through an in-sourcing arrangement, UPSmanages Nike’s warehouse and handles product packing and shipping as well as paymentcollection from customers so that Nike can concentrate on its core competencies, such asthe design of new athletic shoes. Similarly, near their sort station in Lexington, Kentucky,UPS employees manage distribution facilities for a vast array of companies, even packag-ing bulk consumer electronics into retail packages or repairing Toshiba laptop computers.In some instances, it is not the manufacturer’s repair team coming to a customer to performon-site repair or maintenance but rather a team of certified UPS technicians. In these exam-ples, UPS acts as a department within an organization. UPS employees come into an orga-nization, analyze the organization’s processes, and take over entire functions. Thus, suchin-sourcing agreements require great amounts of trust, and for the outside observer, it isoften hard to see that a different company (such as UPS) is performing the actual work.Given the scope of the in-sourcing arrangements and the nature of the tasks (i.e., completelogistics or supply chain solutions), such activities could usually not be performed fromoffshore locations.

ENABLER #9: IN-FORMING. For the individual, in-forming allows individuals to utilizepowerful search engines on the Internet, such as Google, Yahoo!, or MSN, to build their“own personal supply chain of information, knowledge, and entertainment” (Friedman,

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2007, p. 178). With the Web and powerful search engines, such as Google, Yahoo!, orMSN, every person who has access to the Internet can now build his or her “own per-sonal supply chain of information, knowledge, and entertainment” (Friedman, 2007, p.178). Using the possibilities of the Internet, an incredible number of people all over theworld now have access to all kinds of information; this access to information hasenabled people to get a more complete picture of what’s happening in the world, andpeople have to depend less on propaganda and censored media (see Figure 2.12). Now,people have an incredible amount of information at their fingertips, and in the nearfuture, people will be able to access almost any book without even having to go to aphysical library.

FIGURE 2.12

Enabler #9: Individuals can usepowerful search engines such asGoogle for in-forming.

FIGURE 2.11

Enabler #8: In-sourcing providerUPS manages entire warehousesfor companies such as Nike.com.

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Net StatsOnline Searching

The Google search engine has become so popular withInternet users that the word “Google” is often used as averb1 (I “Googled” the restaurant to see its reviews.), butthere are other well-known search engines, such as

TABLE 2.4 Top Three U.S. Search Engines by Market Share, October2006 Compared with October 2008:

Search EngineOctober 2008 Market Share (%)

October 2006 Market Share (%)

Change(percentage points)

Google 71.9 60.9 11.0Yahoo! 17.7 22.3 –4.6MSN 4.2 10.7 –6.5

Based on: http://www.seoconsultants.com/search-engines

Yahoo! and Microsoft’s MSN. Table 2.4 compares the per-centage of Internet surfers that used each search engine(i.e., the search engines’ market share) in 2008, as com-pared to 2006.

ENABLER #10: THE STEROIDS. The last group of enablers, which Friedman calls “thesteroids,” are technologies that make different forms of collaboration “digital, mobile, vir-tual, and personal” (p. 187). This group of technologies amplifies all the enablers dis-cussed previously. By digitizing content—from books, to music, photographs, or virtuallyany business document—people can collaborate easier than ever before, benefiting fromlightning-fast transmission of information. Similarly, the collaboration becomes virtual inthat people using these technologies never have to think about the underlying standards ortechnologies enabling the collaboration; greater mobility enables collaboration from awide variety of locations without being tied to one’s office or desk (see Figure 2.13).Finally, certain enablers, such as in-forming, are available to everyone with an Internetconnection, making the new forms of collaboration very personal.

What are some examples of these “steroids”? The tremendous increase in computingpower and storage capacity is one of these steroids, enabling people to collaborate,manipulate pictures, or even record songs using their computers. Further, people can col-laborate worldwide using technologies such as Skype, which allows free PC-to-PC videoand voice calls to anywhere in the world. A final example is the growth in mobile infra-structures, to the point where people can access the vast resources enabled by the othernine enablers no matter where they are—be it on a train, in a coffee shop, or even aboardan aircraft.

Triple Convergence Although any one of these enablers may be powerful alone, it’stheir convergence that makes Globalization 3.0 possible; Friedman refers to this as a“triple convergence.” First, between 2000 and 2003, the enablers started working together,making new forms of collaboration possible, such as the sharing of knowledge and workwithout regard to distance or geography, and soon even language. Second, thisconvergence enabled the move from vertical to horizontal collaboration, facilitating valuecreation and innovation. For example, employees of a global organization represent a vastglobal pool of specialists that can be assembled (and disassembled) as needed. Finally,

1Although “to google” is often used by people to refer to searching the Web, Google.com is becomingconcerned that its use as a verb is a copyright infringement. See http://www.nzherald.co.nz/category/story.cfm?c_id=55&objectid=10396133.00

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people from countries such as China, India, or the former Soviet Union, could enter theplaying field and connect and collaborate with others all over the world, enabling morepeople than ever to participate in new forms of collaboration. However, different countriesand regions are at various stages of participation in the global village, so clearly we areonly at the beginning of Globalization 3.0—the deep and pervasive impacts of this phaseare in their infancy.

The Rise of OutsourcingAs discussed previously, one phenomenon that has seen a huge increase due to the decreasein telecommunication costs is outsourcing, both onshore (domestically) and offshore.Traditionally, organizations (domestically) outsourced business functions such as account-ing to other companies. Early examples of offshore outsourcing included the manufacturingof goods in countries such as Mexico, based primarily on the cost of labor. For example,many U.S. companies produce their goods in so-called maquiladoras—assembly plantslocated on the Mexican side of the U.S.–Mexican border—to take advantage of lower wagesand less stringent regulations. Then, in the years leading to Globalization 3.0, companiesstarted to introduce offshore outsourcing of services, starting with the development of com-puter software and the staffing of customer support and telemarketing call centers. Today, awide variety of services—ranging from telephone support to tax returns—are candidates foroffshore outsourcing to different countries, be it Ireland, China, or India. Even highly spe-cialized services, such as reading X-rays by skilled radiologists, are outsourced by U.S. hos-pitals to doctors around the globe, often while doctors in the United States are sleeping.However, companies operating in the digital world have to carefully choose offshore out-sourcing locations, considering factors such as English proficiency, salaries, or geopoliticalrisk. While countries such as India remain popular for offshore outsourcing, other formerlypopular countries (such as Singapore, Canada, or Ireland) are declining due to risingsalaries. With these shifts, outsourcers are constantly looking at nascent and emerging coun-tries such as Bulgaria, Egypt, Ghana, or Vietnam, each of which has some particular bene-fits to offer (see Table 2.5). Obviously, organizations have to weigh the potential benefits(e.g., cost savings) and drawbacks (e.g., higher geopolitical risk or less experience) of off-shore outsourcing to a particular country.

In 2006, the global market for outsourcing was $930 billion. By the end of 2009, theglobal market is projected to be worth more than $1.43 trillion. The outsourcing market forIT services alone was $233 billion in 2006. Additionally, by 2006, nearly 90 percent of all

FIGURE 2.13

Enabler #10: The “steroids”allow people to collaborate fromalmost anywhere.

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large organizations used some type of offshore outsourcing of business functions.Companies are choosing to outsource business activities for a variety of reasons; the mostimportant reasons include the following (King, 2003):

� To reduce or control costs� To free up internal resources� To gain access to world-class capabilities� To increase revenue potential of the organization� To reduce time to market� To increase process efficiencies� To be able to focus on core activities� To compensate for a lack of specific capabilities or skills

Fueled by Globalization 2.0 and 3.0, outsourcing is now a fact of life, and no matterwhich industry you’re in, you will likely feel the effects of (offshore) outsourcing (seeTable 2.6). With Globalization 3.0, individuals will have to ask themselves how they canseize the global opportunities and how they will be able to compete with individualsfrom all over the world who might be able to do their job at the same quality but at alower cost.

However, offshore outsourcing does not always prove to be the best approach for an organization. For example, only about a decade ago, German companies manufacturinghighly specialized products such as large crankshafts, ship cranes, or road-paving equipment,

TABLE 2.5 Popular Offshore Outsourcing Destinations

Country RankingEnglishProficiency

Yearly entry-level Programmer Salary (in US$1,000)

RelativeGeopoliticalRisk

AsiaIndia Leading Very good 5–10 ModerateChina Up and Coming Poor 5–10 ModerateMalaysia Up and Coming Fair 10–15 ModeratePhilippines Up and Coming Very good 5–10 HighVietnam Nascent Fair <5 ModerateThailand Nascent Poor 5–10 ModerateSingapore Declining Fair 15–20 Low

EuropeCzech Republic Up and Coming Good 10–15 ModeratePoland Up and Coming Good 10–15 ModerateHungary Up and Coming Poor 10–15 ModerateRussia Up and Coming Poor 10–15 ModerateRomania Emerging Good 5–10 ModerateBulgaria Emerging Fair 5–10 ModerateUkraine Emerging Poor 5–10 ModerateIreland Declining Excellent >20 Low

Middle EastEgypt Emerging Very good <5 HighIsrael Declining Very good 15–20 ModerateAfricaSouth Africa Challenging Very good 10–15 ModerateGhana Nascent Very good 5–10 High

The AmericasMexico Up and Coming Poor 10–15 ModerateCosta Rica Emerging Very good 10–15 ModerateBrazil Emerging Poor 5–10 HighArgentina Nascent Fair 5–10 ModerateCanada Declining Excellent >20 Low

Based on: Overby, 2006.

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TABLE 2.6 Examples of Offshoring and Offshore Outsourcing

Industry ExamplesOffshoring/Offshore Outsourcing

Airlines British Airways moves customer relationsand passenger revenue accounting to India.

Offshoring

Delta outsources reservation functions toIndia.

Offshore outsourcing

Airplane design Parts of Airbus and Boeing airplanes aredesigned and engineered in Moscow,Russia.

Offshoring

Consulting McKinsey moves global research divisionto India.

Offshoring

Ernst & Young moves part of its taxpreparation to India.

Offshoring

Insurance British firm Prudential PLC moves callcenter operations to India.

Offshoring

Investment banking J.P. Morgan moves investment research toIndia.

Offshoring

Retail banking Worldwide banking group HSBC movesback-office operations to India.

Offshoring

Credit cardoperations

American Express moves a variety ofservices to India.

Offshoring

Government The Greater London Authority outsourcedthe development of a road toll system toIndia.


Telecommunications T-mobile outsources part of its contentdevelopment and portal configuration toIndia.


Based on: www.ebstrategy.com, 2006.

outsourced parts of their operations to Eastern European countries in order to cut costs.However, the cost savings have turned out to be negligible due to added overhead such as cus-toms, shipping, or training, and quality problems ran rampant, leading to a reversal of thistrend. Today, many companies are moving production back to Germany in order to better con-trol production quality and costs. Similarly, InformationWeek, a leading publication targetingbusiness IT users, found that 20 percent of the five hundred most innovative companies interms of using IT took back previously offshored projects. Another recent trend isnearshoring—the use of locations closer to the home country in terms of geographical, polit-ical, linguistic, economic, or cultural distance. Nearshoring is thus the reversal of offshoring,such that, for example, U.S. companies move work from India to Mexico or British Columbiain order to address some of the challenges associated with overseas offshoring destinations.

The next sections will outline some opportunities made possible by increasingglobalization.

Opportunities for Operating in the Digital WorldClearly, globalization has opened up many opportunities, brought about by falling trans-portation and telecommunication costs. Today, shipping a bottle of wine from Australia toEurope merely costs a few cents, and using the Internet, people can make PC-to-PC phonecalls around the globe for free. To a large extent fueled by television and other forms ofmedia, the increasing globalization has moved cultures closer together—to the point wherepeople now talk about a “global village.” Customers in all corners of the world can receivetelevision programming from other countries or watch movies produced in Hollywood,Munich, or Mumbai (aka Bollywood), helping to create a shared understanding about

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Brief Case d

IT Globalization: Accenture in India

“High performers recognize shifts in the landscapebefore they happen.” The Web site of the global managementconsulting and outsourcing company Accenture displays thisaxiom next to a photo of Tiger Woods in action. As one com-pany competing with others in this unsettling age of global-ization, Accenture has taken its own advice. The companythat offers services in the general areas of consulting, tech-nology, and outsourcing, has quickly risen to the top andbecome the benchmark for their competitors.

One reason for Accenture’s success is that the companyhas always seen itself as a global organization. When mostbusiness consulting, technology, and outsourcing firms werejust waking up to the fact that “globalization” was the keyword, Accenture was already there. For example, 35,000 ofthe company’s 160,000 employees are now located in India,where labor costs are less than half of those in the UnitedStates. Other companies in India saw Accenture as competi-tion in the United States, but underestimated the company’sability to move quickly to other markets. “At one time Ithought we’d be fortunate,” says Pramod Bhasin, chief exec-utive of Genpact, a top player among Indian companies han-dling business process outsourcing. “But [Accenture] reallyembraced [globalization].”

Accenture is quickly increasing its lead: in March 2008,the company announced plans to double its thirteen thousand

business consultants over the next three years; one exampleof its hard-to-match services is the Life Sciences Center ofExcellence in Bangalore, India. At the Center, dozens ofphysicians, pharmacists, mathematicians, statisticians, biolo-gists, and PhDs work together to prepare clinical trial reportsfor the world’s top drug companies. Robert Ruffalo, Jr.,president of research and development at Wyeth Pharma-ceuticals, Inc., an Accenture client, has said of the company:“We are launching drugs that otherwise would have beenheld up by our inability to handle the work . . . [Accenture]knew us and understood us. We don’t have to educate themagain and again.”

Questions1. What can you do to prepare yourself to work for an

organization like Accenture?2. Why do you think Accenture has been successful in the

flat world?

Based on:

Anonymous (n.d.). Client successes. Retrieved May 24, 2008, fromhttp://www.accenture.com/Global/Services/Client_Successes.

Hamm, E. (2007, April 23). How Accenture one-upped Bangalore.Business Week. Retrieved May 24, 2008, from http://www.businessweek.com/pdf/270499bwEprint.pdf.

forms of behavior or interaction, desirable goods or services, or even forms of government.Over the past decades, the world has seen a democratization of many nations, enablingmillions of people to enjoy freedoms they had never experienced before. All of this makesoperating in the digital world much easier than ever before.

Opportunities for Reaching New MarketsAfter the fall of communism, new markets opened up for countless companies. The fall of theBerlin Wall and the following reunification of Germany, for example, increased the size ofthe German market from sixty-four million to eighty million people. Similarly, the fall ofcommunism in other Eastern Bloc countries, such as Poland, Romania, and the former SovietUnion, enabled the sales of products to literally millions of new customers (see Figure 2.14).

Opportunities of a Global WorkforceWith the decrease in communication costs, companies can now draw on a large pool ofskilled professionals from all over the globe. Some companies outsource to differentregions because the availability of skilled labor is high. Many countries, such as Russia,China, and India, offer high-quality education, leading to an ample supply of well-trainedpeople at low cost. While enrollment in the sciences or engineering is dropping in theUnited States, other countries are producing engineering graduates at an unprecedentedpace (Mallaby, 2006). In 2005, for example, 200,000 young engineers graduated from00

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U.S.S.R.

Poland

RomaniaG

.D.R

.

Czechoslovakia

Hungary

Bulgaria

Albania

FIGURE 2.14

Former Eastern Bloc countries.

U.S.

50,000

0

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

500,000

Europe India India (2009)

FIGURE 2.15

Engineering graduates in theUnited States, Europe, and India.

Based on: Mallaby, 2006

Indian universities, while the United States produced only about a third as many; like-wise, Europe produced only about half the number of India (see Figure 2.15). While thenumber of engineering students in the West is plummeting, enrollments in Asia and Indiain particular are rapidly expanding (e.g., India reported having over 450,000 studentsenrolled in engineering programs in 2005). Some countries are actively building entireindustries around certain competencies, such as software development or tax preparationin India and call centers in Ireland. For companies operating in the digital world, this canbe a huge opportunity, as they can “shop” for qualified, low-cost labor all over the world.On the other hand, the consulting company McKinsey believes that out of the 2.5 millionIndian university graduates, only 10 to 25 percent (depending on the field of study) areconsidered employable by multinational companies, mainly because of differences in thequality of the education and the differences in language skills (Farrell, Kaka, and Stürze,2005).

The factors discussed in this section translate into a number of direct opportunities forcompanies, including greater and larger markets to sell products and larger pools of quali-fied labor. Nevertheless, while globalization has brought tremendous opportunities to com-panies, they also face a number of daunting challenges when operating in the global mar-ketplace. Next, we highlight some of these challenges.

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Challenges of Operating in the Digital WorldTraditionally, companies acquired resources and produced and sold goods or services allwithin the same country. Such domestic businesses did not have to deal with any chal-lenges posed by globalization but also could not leverage the host of opportunities. Thechallenges faced can be broadly classified into governmental, geoeconomic, and culturalchallenges. See Table 2.7 for a summary of the challenges of operating in the digitalworld.

Governmental ChallengesMany challenges faced by companies operating in the digital world are of a governmentalnature. These challenges are associated with factors such as the overall political system,regulations (including data sharing), or even Internet access. In the following sections, wewill highlight some of these challenges.

Political System Challenges First and foremost, companies operating in the digitalworld have to consider the overall political climate of their host country. One factor toconsider here is whether the host country is a market economy or whether it is a plannedeconomy. When operating in a country that is less free than the home country, a companymight face tight restrictions regarding what can be produced or sold, how much can beproduced or sold, or to whom the products can be sold.

Further, although companies now have access to more countries than ever before,political stability is one issue to consider when operating outside one’s home country. Inmany countries, the political systems are less stable than in the United States or in Western

TABLE 2.7 Challenges of Operating in the Digital World

Broad Challenges Specific Challenges Examples

Governmental Political system Market versus planned economy;political instability

Regulatory Taxes and tariffs; import and exportregulations

Data sharing EU Data Protection Directive

Internet access andindividual freedom

Internet censorship in variouscountries

Geoeconomic Time zone differences Videoconferences across differenttime zones

Infrastructure-relatedreliability

Differences in network infrastructuresthroughout the world

Differences in welfare Migration and political instabilitycaused by welfare differencesbetween rich and poor countries

Demographic Aging population in the United Statesand Western Europe; youngerworkforce in other countries

Expertise Availability of labor force and salarydifferences

Cultural Working with differentcultures

Differences in power distance,uncertainty avoidance,individualism/collectivism,masculinity/femininity, concept oftime, and life focus

Challenges of offeringproducts or services indifferent cultures

Naming and advertising for products;intellectual property

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Europe, and companies have to consider whether to invest huge sums into specific coun-tries, as foreign companies operating in politically unstable countries risk losing theirassets due to confiscation, military coups, upheavals, or civil wars.

Regulatory Challenges As most countries have their own sovereign governments,taxes, laws, and regulations differ from country to country, and companies have to followthe rules of their host countries. For example, many countries impose a variety of differenttaxes and tariffs in order to regulate the flow of goods and services into and out of thecountry. Such taxes and tariffs exist for almost all categories of products, from bananas tocomputer hardware, and differ widely depending on the product category. The nature andamount of such taxes and tariffs have to be considered when deciding whether to import orexport goods and services, manufacture in a foreign country, and so on.

Other regulations concerning the flow of goods and services are embargoes and exportregulations. Embargoes are typically limiting (or prohibiting) trade with one particularcountry. For example, the U.S. embargo of Cuba is intended to isolate the Cuban govern-ment economically; thus, it prohibits the export of goods into Cuba, the import of Cubangoods (such as rum or cigars) into the United States, and most forms of travel to Cuba.Other embargoes are targeted at countries accused of sponsoring terrorist activities; thesecountries include Syria, Iran, and North Korea, among others. Thus, embargoes limit manyforms of trade with a specific country.

In contrast, export regulations are directed at limiting the export of certain goods toother countries. While the export of goods such as missile technology from the UnitedStates to almost any country is severely restricted, other products may be exported to some,but not other countries. The U.S. Department of Commerce maintains lists to cross-checkwhich types of products cannot be exported to which countries. For some products, suchregulations can be quite complicated. For example, while the desktop version of the com-puter program PGP (Pretty Good Privacy, a data encryption technology; see Chapter 7—Securing Information Systems) can be exported to almost any country (with the exceptionof embargoed countries), more sophisticated versions of the software can be freely sold toany user in European Union (EU) member countries and close trading partners, but only tonongovernmental users in other countries, and it cannot be sold at all to users in embargoedcountries. As you can see, companies dealing with certain product categories have to bewell aware of the laws and regulations governing the sale of their products.

Often companies have to produce in certain countries in order to win sales contracts.For example, Boeing produces some airplane parts in China for two important reasons.First, there are significant cost savings associated with manufacturing in China. Secondand more important, the Chinese government requires the manufacturing of at least someaircraft components in China in exchange for large aircraft orders (Holmes, 2006).Similarly, the United States has various quotas permitting foreign businesses to bring onlya certain number of products into the country; therefore, to overcome such quotas, manyforeign car manufacturers (such as BMW, Toyota, or Mercedes-Benz) started producingautomobiles in the United States.

Data-Sharing Challenges One area that has recently come to concern is the regulation oftransborder data flows. Spurred by the decrease in telecommunications costs, companiesstarted to use offshore outsourcing for many business functions; for example, companiestoday outsource integral functions such as accounting or human resources to India, where thesame quality of service can be provided at a fraction of the cost of performing the samefunctions in the United States or the EU. However, to outsource such functions, much(sometimes sensitive) data has to be transferred to different countries, which is where theproblems start. Recently, the EU passed a directive facilitating the transfer of data betweenmember countries, while prohibiting the transfer of data to countries with less stringent dataprotection laws. Thus, while it is now easier to transfer data between countries within the EU,it is much harder to transfer data from an EU member country to a nonmember country. Thisposes not only challenges to companies from EU member countries (e.g., a Germaninsurance company outsourcing its call center to India), but also introduces difficulties forinternational companies operating in the EU; for example, can a U.S.-based company

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transfer certain data from a European subsidiary back to the home office? In most cases no.As such, these limitations significantly restrict a company’s ability to utilize commonbusiness processes (e.g., in the financial or health care sector), making it much more difficultand expensive to operate globally. However, currently, only a few countries have dataprotection laws as stringent as those of the EU, and a U.S. company outsourcing certainservices to India, for example, does not face such challenges.

Standards Despite efforts to create globally accepted standards, there are many national orregional standards that differ across the world. Organizations operating on a global scale haveto be aware of those issues and have to make sure to consciously think about those differences.For example, U.S. companies typically use the twelve-digit UPC (Universal Product Code)barcode to label their products, enabling the use of barcode scanners. However, when goingglobal, companies may have to consider switching to EAN-13 (European Article Number), astandard that is widely used in Europe and Japan to mark goods (see Figure 2.16).

Other differences include the uses of measurement units. Whereas in the United States(and only two other countries, namely Liberia and Myanmar) distances are expressed ininches, feet, and miles, and weights are expressed in ounces and pounds, all other countriesuse the International System of Units (i.e., the metric system), using centimeters, meters, andkilometers for distances, and grams, kilograms, and tons for weights. This can create difficul-ties for companies operating internationally. For example, companies such as U.S. automakerFord have to think about how to engineer their products. While U.S. auto repair garages typ-ically have both metric and “standard” tools, garages (and mechanics) in Europe or Asia onlyhave metric tools and will not be able to work on cars having “standard” fasteners. In addi-tion to those differences, many other de facto standards emerged around the world. For exam-ple, Wal-Mart did not consider that the standard sizes of pillowcases differed between theUnited States and Germany, and as a result, Wal-Mart’s German stores ended up sitting onhuge piles of U.S.-sized pillowcases. These and other problems eventually caused the retailgiant to withdraw from the highly competitive German retail market.

When operating international e-commerce sites, companies have to consider a varietyof other standards across the world. For example, different countries have different formatsfor postal (ZIP) codes, with some consisting of letters and numbers (such as Canada), andother countries have no postal codes at all (e.g., Hong Kong). Similarly, phone numbers

FIGURE 2.16

Bar code standards differthroughout the world.

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and addresses are standardized differently across countries. This has to be consideredwhen designing data entry forms for international users.

Internet Access and Individual Freedom When operating in a global digital world,companies will also have to consider Internet access issues. People in many countries haveaccess to almost all places on the Internet, but people in other places face many limitationsin terms of the content they will be able to see or the applications they will be able to use.For example, in Germany and France, sites displaying fascist symbols and racistpropaganda are banned by law; however, their citizens still have the possibility to visitprohibited content on sites hosted outside those countries. In other countries, certaincontent is completely blocked, and people have no way to access banned content.Likewise, China restricts the use of Voice over Internet Protocol (VoIP) technology (atechnology enabling phone calls over the Internet; see Chapter 4) in order to be able tomonitor phone conversations. Thus, Chinese Internet users typically are not able to usesuch technologies.

The French organization “Reporters without Borders” (www.rsf.fr) maintains a listof countries listed as “enemies of the Internet.” Countries ranging from Belarus toVietnam block all types of content that the governments deem inappropriate, with topicsincluding primarily politics, religion, and sex. Whereas many countries regulate theInternet by maintaining blacklists of sites and providing Internet access only throughstate-owned Internet service providers, some countries (such as Cuba or North Korea)block Internet access altogether, allowing only a handful of people with special permis-sion to access the Internet. Operating in such countries brings about all sorts of issuesregarding mainly how to comply with such regulations and whether a company shouldcomply with such rules on ethical grounds. For example, U.S. Internet search portalsMSN and Yahoo! recently faced an ethical dilemma when they were requested to revealthe identity of Chinese citizens posting dissident messages on Web logs (i.e., blogs, seeChapter 6) hosted on those sites. Clearly, the Internet poses great challenges not only forcompanies operating globally but also for countries that are imposing control or limitingthe freedom of their citizens.

Geoeconomic ChallengesThese are just a few factors companies have to consider when operating in the digital world.Other factors to consider are of a geoeconomic nature, that is, the combination of economicand political factors that influence a region. Especially in the times before Globalization 3.0,the necessity to travel in order to conduct business in a foreign country was a big factor, con-sidering the time needed to reach overseas destinations, the lost productivity due to time dif-ferences, and so on. For highly paid executives, a two-day trip to London can cost largesums of money, for airplane tickets, overnight stays, travel days, and lost productivity due tojet lag and other factors. The Internet in general and Globalization 3.0 in particular havereduced much of the need for business travel by enabling low-cost and high-quality video-conferencing. One such example is the partnership between computer company Hewlett-Packard and Dreamworks SKG (the makers of animated movies such as Shrek and Kung FuPanda), which built a collaboration studio intended to simulate face-to-face meetings acrossthe globe. Although only one such room costs about $400,000 and the monthly service feescan be as high as $18,000, the reduced need for business travel can still easily translate intosignificant savings in costs and time for companies conducting business globally.

Time Zone Challenges One factor that videoconferencing cannot resolve is the timedifference between different countries. On the one hand, companies can use the timedifference for their advantage; on the other hand, the time difference may actually hindercollaboration. For example, Symantec, a maker of antivirus software, has set uplaboratories around the globe such that different teams can work on fighting viruses aroundthe clock. When a team in California quits for the night, a team in Tokyo (where it’smorning) can take over; when the team in Tokyo has finished their day’s work, they handoff the project to a team in Europe, which then hands it back to the team in the UnitedStates (an approach called “following the sun”). However, the time differences can also

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Ethical DilemmaUnderground Gaming Economy

In the United States in 2008, the real estate market wasin dire straits, forcing many home owners (and specula-tors) into bankruptcy; gasoline prices rose to a phenome-nal $4.00 per gallon and up; and health care costs againspiraled out of sight. It’s the real world, and those of uswho live and work in it develop skills to cope.

Things in Project Entropia, a virtual world with a realcash economy, aren’t much better. Colonists on Calypsomust still fight off dangerous enemies, the Ped is stillworth only 10 cents against the U.S. dollar, and the priceof ore-rich property is rising.

Project Entropia is one of many massively multiplayeronline role-playing games (MMORPGs). Other online role-playing games include but are not limited to Sony’sEverquest, George Lucas’s Star Wars Galaxies, SecondLife, and Ultima Online. Players pay monthly subscriptionfees and assume virtual identities called avatars. Estimatesare that more than 100 million people play worldwide,and the gaming companies report that subscriptions totalover $3.6 billion a year.

In most MMORPGs, gamers slay enemies, build housesand businesses, choose professions, pick up mystical attrib-utes, and fill their virtual bank accounts with gold and cash.Each player’s avatar “lives” in the game’s virtual community.A recent trend, however, is for serious players to play to col-lect virtual tools, gold, or cash and then sell the booty forreal cash. The dollar amounts involved are usually relativelysmall, say, $70 for 10 million gold sets in Ultima Online, butthere have been notable exceptions. In November 2005, forexample, Jon Jacobs, a film producer from Miami, Florida,paid $100,000 for a virtual resort in Project Entropia. “Ihave invested in a business that offers numerous opportuni-ties for generating revenue,” Jacobs said. He pointed outthat the digital resort includes 1,000 hotel rooms that couldbe sold for $100 each, a stadium for hosting hunting orcombat competitions, and a nightclub.

The practice of buying and selling assets fromMMORPGs has become so prevalent that the virtual mogulshave a name: “farmers.” The popular auction site eBay.comdaily lists thousands of items taken from MMORPGs under

its Internet Games category. Items for sale range from char-acters that have advanced to higher levels of a game toweapons, gold, and other items captured in a game.

Farming has become especially popular in China,where companies employ rows of gamers who play forup to twelve hours at a time, collecting virtual assets andascending to the highest levels of a game—all of whichthe companies will sell.

Critics of this new virtual economy say that it penal-izes gamers who play strictly for fun but allows thosewith cash to spend to advance through levels of a gamethey have not mastered. Others say there is nothingwrong with players buying advantages that let them playat higher levels without putting in large amounts of time.

Some game companies have banned farmers fromthe playing field. For example, Blizzard Entertainment,the makers of World of Warcraft, a game that boastsmore than six million subscribers, has permanentlybanned over five thousand users following its investiga-tion into cheaters and farmers. By 2008, another 10,700accounts were suspended for violations of the game’sTerms of Use. Similarly, PC Gamer, America’s largest gam-ing magazine, stopped taking advertisements from com-panies that trade in virtual goods and characters fromMMORPGs, and in early 2007, eBay banned the sale ofvirtual goods such as currency or avatars.

The companies cite ethical reasons for penalizingfarmers, but they also realize that farmers can eventuallyimpact revenues, as gamers who don’t buy and sell attrib-utes refuse to play with those who do.

Based on:

Anonymous (n.d.). About Entropia universe. Retrieved May 24,2008, from http://www.entropiauniverse.com/en/rich/5035.html.

Millard, E. (2006, January 4). Inside the underground economy ofcomputer gaming. Newsfactor. Retrieved May 24, 2008, fromhttp://www.newsfactor.com/story.xhtml?story_id=40592.

Spohn, D. (2006, April 12). Thousands banned from World ofWarcraft. Retrieved May 24, 2008, from http://internetgames.about.com/b/2006/04/12/thousands-banned-from-world-of-warcraft.htm.

Wrolstad, J. (2005, November 11). Virtual resort sells for $100,000.Newsfactor. Retrieved May 24, 2008, from http://www.newsfactor.com/story.xhtml?story_id=39369.

cause friction, especially if real-time meetings (such as videoconferences) are needed. Agood example is that of a U.S. telecommunications giant with subsidiaries in differentEuropean countries. Traditionally, the company’s employees in Los Angeles prefer to holdweekly business meetings on a particular day of the week right after lunch. For employeesof the European subsidiaries who have to “join” the conferences (via either phone or00

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FIGURE 2.17

International time zones.

videoconferencing), this means coming in to work late in the evening once a week, as 1:00P.M. in Los Angeles is 10:00 P.M. in Frankfurt (see Figure 2.17). Companies outsourcingcall center operations to India face similar problems. To serve customers during NorthAmerican daytime hours, call center workers in India have to work night shifts, leading tolow worker morale, high attrition rates, and a general decline in customer service, whichcan be devastating for a company’s reputation.

Infrastructure-Related Challenges Another challenge facing companies operating inthe digital world is differences in infrastructure, both in terms of the classic infrastructure(such as roads, electricity, and sewage systems) and in terms of connectivity. While in mostWestern countries the telecommunications infrastructures are fast and reliable, in manyother countries connectivity is not always a given. A network outage somewhere in Africacan effectively bring the communications infrastructure of an entire country to ascreeching halt. Similarly, periodically, the undersea network cables linking differentregions of the world are being accidentally cut, leading to massive problems in networkaccess. Having backup plans for such incidents is imperative when operating in differentregions that offer less reliable services. We will discuss infrastructure-related issues inmore detail in Chapter 4.

Challenges Related to Economic Welfare Although the fall of communism and theother factors enabling Globalization 3.0 have helped to open up new markets andglobalization has contributed to unprecedented growth in global per-capita gross domesticproduct (GDP), this growth has not been evenly distributed throughout the world.According to the International Monetary Fund, the gap between rich and poor countrieshas widened, as the per-capita GDP has increased sixfold in the richest 25 percent of allnations, whereas it only has increased threefold in the poorest 25 percent. For manycompanies, the poorest countries thus do not constitute viable markets, and attempting toexpand their customer base by operating in such markets will not be worthwhile. Further,this inequality can have other (and potentially more serious) consequences, such aspolitical instability or increased migration toward the richer countries.

For many established companies, there is also new competition coming from poorercountries. For example, companies like the Brazilian aircraft manufacturer Embraer, theChinese appliances manufacturer Haier, or the Indian tractor and auto manufacturerMahindra have gained extensive experience in operating in markets characterized by tough

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competition and low profit margins. Now these emerging giants have started entering theEuropean and American markets, and established companies do not only face their compe-tition in emerging markets but also in their traditional home markets, as the emerginggiants can offer products at prices much below those established companies can offer(Engardio, Arndt, and Smith, 2006).

Demographic ChallengesCompanies operating in the digital world will also have to consider different demographictrends occurring worldwide. Specifically, the populations of the United States, manyEuropean countries, and Japan are increasingly getting older. At the same time, the popu-lation of other countries is getting younger and younger. While this may be an opportunityfor companies to try to replace their aging workforce with new talent, it can also pose achallenge, as much of this younger workforce is lacking the necessary work experience.

Many low-wage countries have an abundance of people; in addition, the populationsof such countries are growing at much higher rates than those of most Western nations (seeFigure 2.18). As these countries are very poor, however, it is unlikely that the populationgrowth will directly translate into a larger qualified labor pool or a larger market for prod-ucts and services.

Expertise-Related Challenges Relatedly, the nature of the workforce can also posesignificant challenges for companies operating in the digital world. Different countrieshave different concentrations of skilled workers and differing costs for those workers (seeTable 2.8). For example, most industrial nations have made significant investments inbuilding a large base of skilled information systems personnel. However, these workerswill typically also be much more costly to employ than those from less developedcountries. The types of skills prevalent in different countries may also vary. Depending onthe region, the lack of skilled labor can be a real problem for companies, as they might notalways be able to hire people with the right set of skills. Further, cost advantages ofoffshore outsourcing can shrink as skill levels and wages are rising. As a case in point, thecost advantage of India has halved to about 1:3 (forbes.com), and attrition of qualifiedworkers is a huge problem. The rising Indian rupee will soon further erode India’s costadvantage, to a point that some have already forecast the coming death of offshoreoutsourcing to India. For these very reasons, Africa is seen as the next outsourcingdestination, with low wages, cultural and language ties to many European countries, andcloseness in terms of time zones (the same as Europe and closer than India for U.S.companies).

1950

1960

1970

1980

1990

2000

2010

2020

2030

2040

2050

0

9

10

7

8

5

6

3

4

1

2

AfricaAsiaUnited StatesWestern EuropeWorld

FIGURE 2.18

World population, 1950–2050(in billions).

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TABLE 2.8 Salary Differences Have Helped to Make Global Outsourcing Popular

2006 Average Salary for Experienced IT Managers in Various Countries

Rank Country Pay (US$)

1 Switzerland 161,9002 Germany 126,7003 Denmark 116,0004 Japan 112,3005 Belgium 109,6006 Ireland 108,8007 United Kingdom 105,7008 Hong Kong 97,6009 Italy 93,900

10 Spain 93,20014 United States 89,10034 India 26,500

Based on: www.finfacts.com.

TABLE 2.9 Critical Cultural Dimensions for Various Countries

Countries

Critical CulturalDimensions

Group 1: United States,Canada, Australia

Group 2:Germany, Austria,Switzerland

Group 3: Mexico,Venezuela, Peru

Group 4:Japan

Group 5: India,Hong Kong,Singapore

Power distance Moderately low Moderately low Moderately high Moderatelyhigh

High

Individualism/collectivism

Highly individualistic Moderatelyindividualistic

Moderately tohighly collectivistic

Moderatelycollectivistic

Moderatelyto highlycollectivistic

Masculinity/femininity

Moderately masculine Moderatelymasculine

Moderately tohighly masculine

Highlymasculine

Masculine

Uncertaintyavoidance

Moderately weak Moderately strong Moderately weak Strong Moderately weak

Concept of time Long term Long term Short term Long term Short term

Life focus Quantity Quantity Quality More qualitythan quantity

Changing fromquality to quantity

Based on: Verma (1997).

Cultural ChallengesThe third broad class of challenges can be classified as cultural challenges. Although peo-ple speak of the emerging “global village,” its existence is often very superficial, and com-panies operating in the digital world still have to consider a variety of cultural differences,some of which can pose quite complex challenges.

How National Cultures Differ Hofstede (2001) defines culture as the “collectiveprogramming of the mind that distinguishes the members of one group or category ofpeople from another” (p. 9). Culture is manifested in how individuals view a variety ofcultural dimensions, such as power distance, uncertainty avoidance, individualism/collectivism, masculinity/femininity, concept of time, and life focus (see Table 2.9). Inessence, each nation has its own culture, which can often have important implications forcompanies operating in the digital world. One area where such challenges often surface isthe interaction between a company’s headquarters and a subsidiary in a different culture.

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POWER DISTANCE. Power distance refers to how different societies handle the issue ofhuman inequality and sheds light on the inherent power structure within organizations andteams. Some cultures are higher in power distance, preferring strong authority or autoc-racy, while other cultures are lower in power distance, fostering more collaborative team-work and less hierarchical structures. Consequently, differences in power distance canpose serious challenges.

UNCERTAINTY AVOIDANCE. The degree of uncertainty avoidance helps in understandingthe risk-taking nature of a culture. From an outsourcing perspective, this might result inworkers from some cultures being more cautious; this can be particularly troublesomewhen some workers, because of high levels of uncertainty avoidance, are not eager toadopt new technologies or techniques.

INDIVIDUALISM/COLLECTIVISM. A related dimension, individualism/collectivism,reflects the extent to which a society values the position of an individual versus the posi-tion of a group. In societies that are collectivist, peer pressure often plays an important rolein shaping group interaction and decision making. Mixing both individually and collec-tively oriented individuals in an outsourcing project can often cause excessive conflict ifnot carefully managed.

MASCULINITY/FEMININITY. Additionally, masculinity/femininity refers to the degree towhich a society is characterized by masculine qualities, such as assertiveness, or by femi-nine characteristics, such as nurturance, which can have important implications in terms ofuser preferences for technology, how user requirements are collected, or how teams assignroles and collaborate.

CONCEPT OF TIME. The concept of time can also differ across cultures, with some cul-tures having a relatively longer-term orientation, reflecting an appreciation for futurerewards, perseverance, and long-term planning. On the other hand, cultures with shorter-term orientation focus on the past and the current situation.

LIFE FOCUS. A last cultural dimension, life focus, contrasts the extent to which a culturefocuses on the quantity versus the quality of life. A quantity-of-life orientation reflects amore competitive culture that values achievements and the acquisition of material goods. Aquality-of-life orientation values relationships, interdependence, and concern for others.Life focus differences can influence group development, task and role assignments, andthey can cause difficulties in the interaction between a company’s headquarters and a sub-sidiary in a different culture.

Other Cultural Barriers In addition to the cultural barriers mentioned by Hofstede,there are many other barriers that can pose a challenge to companies operating in thedigital world, including the following:

� Language. Communication language and norms� Work Culture. Work skills, habits, and attitudes toward work� 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

Each of these cultural elements can greatly influence interaction between employeesin different countries, as outlined in Table 2.10. For example, the lack of a common lan-guage can often lead to disastrous results when communicating technical information,such as user requirements or design specifications. Likewise, differences in work culturecan influence the employee’s interaction. For instance, Europeans typically approach aproject by focusing on its beginning and incrementally moving forward until the project isconcluded. Americans, on the other hand, typically look at the end first and work backwardto the start (Heichler, 2000). In sum, differences in language, work culture, and other cul-tural elements can have serious implications for managing in the digital world.

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COMINGATTRACTIONS Coming Attractions

Learning Languages in Context

Have you struggled through years of classes in lan-guages such as Spanish, French, or German (or English ifit is not your first language), only to find that you cannotcarry on a conversation in that language? As you mightexpect, the Internet can help.

For example, a start-up called Livemocha, based inBellevue, Washington, uses social networking to motivatelanguage students and help them learn. The site goesbeyond the typical CD-ROM-based method of learning lan-guages. Visitors can find structured lessons, help with gram-mar, and canned pronunciation guides, but one of the mostvaluable aspects of the site is the ability to practice convers-ing in a language with those who speak the native tongue.Presently, language learners can find instruction in English,Hindi, Mandarin Chinese, Spanish, French, and German, butCEO Shirish Nadkarni says plans for 2009 and beyondinclude adding instruction in twenty-five additional languages. Nadkarni hopes the online community willbecome involved: “We expect the community to come in

and use their native-language proficiencies to provide more explanation—grammar tips, alternate phrases, or colloquialisms—allowing people to build a much betterunderstanding of the language and how it might be spokenin different parts of the world,” Nadkarni says. “This is a lotmore instructive and more dynamic than a static CD-ROM.”

Gail Keech, who tested Livemocha early on, wanted touse the site to learn German, but when a flood ofChinese-speaking users asked her to help them withEnglish, she saw the perfect opportunity to learn Chinese.Not only can site visitors learn new languages, they canhear firsthand opinions on everything from world affairsto the proper term for “ice cream” in German.

Based on:

Anonymous (n.d.). Learn languages and practice with native speak-ers. Retrieved May 24, 2008, from http://www.livemocha.com.

Naone, E. (2007, October 5). Learning languages in context.Technology Review. Retrieved May 24, 2008, from http://www.technologyreview.com/Biztech/19484/?a=f.

Environmental Challenges The manufacturing of goods in other countries can be agood way to reduce costs for a company. However, increasingly, organizations have toconsider, defend, and try to minimize the environmental impact of their business practices.For example, companies producing goods in China or India cannot ignore issues such asenergy consumption, air and water pollution, and workers’ health, as, in addition to beingunscrupulous, companies also risk damaging their reputation. Whereas just a few years

TABLE 2.10 How Various Cultural Elements Can Affect Communication,Interaction, and Performance

Cultural Element How It Can Impact Globalization Success

Language Communication problems can influence efficiency, understanding,and performance.

Work culture Different skills, work habits, and attitudes can influenceperformance and manpower constraints.

Aesthetics Art, music, and dance reflect nonwork interests that can be used toenrich team communication and cohesiveness.

Education Lack of adequate education limits skill levels, technologicalsophistication, and infrastructure.

Religion, beliefs, andattitudes

Basic values and beliefs can influence attitudes toward work,promptness, punctuality, mutual trust, respect, and cooperation.

Social organization Social norms of a society can influence formal and informalcommunication, including negotiations and job assignments.

Political life Differing political systems can influence the delivery of suppliesand equipment, human rights, legal system, and overall stability.

Based on: Verma (1997).

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FIGURE 2.19

Electronic waste in China.

ago, companies moved their facilities offshore to avoid having to comply with stringentU.S. Environmental Protection Agency (EPA) regulations (which some companies stilldo), the enablers of Globalization 3.0 also help to uncover such unethical practices muchmore easily. In addition to the environmental impact of producing and disposing of goods(see Figure 2.19), a growing concern is the shipment of these goods to the final consumer,as the worldwide shipping traffic is a major player in terms of environmental impact,contributing between 5 and 6 percent to the world’s emission of greenhouse gases (inaddition to the emissions from airfreight and truck shipments). Clearly, organizations andsociety will have to consider these negative impacts of global trade.

Other Challenges of Offering Products or Services in Different CulturesCompanies selling their products in foreign markets also have to consider different localcultures when deciding what to sell and how to market their products. For example,different countries have different standards concerning what type of advertising is sociallyacceptable. Also, different cultures have different standards of dealing with intellectualproperty, such as computer software, digital music, or movies. In most Western nationsintellectual property is considered very important and is even protected by law, but in othernations copying someone else’s work is not seen as problematic. In fact, some cultureseven regard it as flattery to copy the work of others. Thus, intellectual propertyinfringements are common in many countries, reaching from counterfeiting Nivea Cremeto mass-producing illegal copies of DVDs or computer software (see Figure 2.20). Finally,different norms and standards can cause problems for companies.

Network Readiness With the increased reliance on information and communicationtechnologies, the development of economies and societies is heavily depending on access tothe global networked economy (WEF, 2008). Enabling creative thinking and collaborativeproblem solving, the enablers of Globalization 3.0 provide vast opportunities for countries allover the globe. To assess how prepared the world’s nations are for benefiting from theseopportunities, the World Economic Forum and the French business school INSEAD annuallycollect data to calculate the countries’ Network Readiness Index. This index assesses factorssuch as market conditions, political and regulatory environment, quality of education,government prioritization, and individual, business, or government usage of information andcommunication technologies. Not surprisingly, the top ten countries on the list comprise00

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e-Waste

Americans bought an estimated $173 bil-lion worth of consumer electronics in 2008—computers, monitors, cell phones, PDAs, DVDplayers, microwave ovens, and so on—andthat number was projected to increase to $183billion for 2009. When consumers replace old elec-tronic products with newer versions, many of the dis-carded products could end up in landfills. This is anenvironmental concern because electronic productscontain a mix of toxic components, such as lead, mer-cury, cadmium, or PVCs, which are released into theenvironment when incinerated or buried in a landfill. Aconventional computer monitor alone, for example,contains four to eight pounds of lead, and newer LCDscreens contain mercury.

So what happens to electronic gadgets when con-sumers no longer need or want them? Some ownershand them down to someone else or pack them awayin the back of a closet or garage. Others donate theitems—whether they still function or not—to a charita-ble organization, but when the products are hopelesslyoutdated, the donations probably aren’t so welcome.Unfortunately, since local landfills generally won’t takehazardous waste, some consumers bury discarded elec-tronic products in ordinary household garbage, wherethey end up in landfills or incinerators despite the ban.In fact, an estimated 70 percent of discarded comput-ers and monitors and over 80 percent of old TVs endup in landfills.

Currently, only 20 percent of e-waste is channeledthrough municipal drop-off sites or companies thatoffer disposal service, and even if such services areused, there’s no guarantee that the waste will be dis-posed of properly.

In 2004 alone, Goodwill Industries International,Inc., was flooded with more than twenty-three millionpounds of electronic goods, most of which were unus-able. Since recycling electronics costs money, Goodwillspokesperson Christine Nyirjesy Bragale told a reporterin January 2006, “Electronic waste is becoming a costlyproblem for us.”

Three U.S. states—California, Maine, andMaryland—have followed examples from Europe andJapan in handling electronic waste disposal in thatthey impose a mandatory recycling fee either on con-sumers or manufacturers, they require manufacturersto take back the equipment for recycling, or theyplace responsibility on local governments for provid-

ing recycling centers. Although federal lawin the United States prevents businessesfrom improperly disposing of e-waste, thislaw does not extend to households.

Unfortunately, although the export ofhazardous waste to developing countries was bannedin 1992, between 50 and 80 percent of America’s e-waste continues to be shipped to Third World coun-tries, where environmental standards are less strict. Somuch e-waste has been deported that, in 2002, Chinabanned its import. Now e-waste is smuggled intoChina, however, where resident scavengers know it isillegal but continue to earn payment for the preciousmetals and other materials extracted. The waste thatdoesn’t reach China is diverted to other parts of Asia oris sent to West African countries like Ghana, Nigeria,and the Ivory Coast.

To reduce the environmental impact and to facilitaterecycling efforts, as of mid-2006, the EU has bannedtoxic ingredients, such as lead, mercury, cadmium, andso on, from electronics, appliances, lighting equipment,medical equipment, and other consumer products. Priorto the EU mandate, few companies were concernedwith the production of “green” hardware. Now, how-ever, since Europe represents about 30 percent of theworld market for electronic equipment, manufacturersare rushing to comply with the EU directive.

The need for stricter regulations concerning e-wastedisposal has been recognized in the United States, andin March 2008, Congress appointed a working group todetermine a course of action. In April 2008, the HouseCommittee on Science and Technology held hearingson the e-waste problem, but legislation at the federallevel has yet to be enacted. In the mean-time morestates may decide to formulate their own legislation.

While Congress debates the problem, the U.S.Environmental Protection Agency estimates thatthirty to forty million PCs will be ready for “end of life management” in each of the next few years. Andcomputers are not the only electronic product head-ing for obsolescence. In 2009, American TVs thatreceive only analog signals no longer function with-out a set-top box as digital broadcasting becomes the norm, which means that about twenty-five mil-lion TVs will be taken out of service annually. Add tothose numbers the ninety-eight million cell phonesthat have become unfashionable since 2005 and the garbage heap will grow exponentially. All told,

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the UN Environment Programme estimates that e-waste of all types could total fifty million tons ayear worldwide.

Clearly, disposing properly of e-waste is a problembegging for a solution if the environment and humanhealth are to be protected.

Based on:

Anonymous (2005, May 15). Waste electrical and electronicequipment. Retrieved May 24, 2008, from http://europa.eu.int/scadplus/leg/en/lvb/l21210.htm.

Anonymous (2006, January 6). Is America exporting a huge envi-ronmental problem? ABC News. Retrieved May 24, 2008, fromhttp://www.abcnews.go.com/2020/Technology/story?id=1479506.

Anonymous (2008, January 7). 2008 consumer electronics salesseen up. Reuters.com. Retrieved May 24, 2008, from http://www.reuters.com/article/businessNews/idUSN0740878220080108.

Blouin, G. (n.d.). Is Canadian e-waste an environmental disaster inwaiting? Canada.com. Retrieved May 24, 2008, from http://www.canada.com/topics/technology/story.html?id=e8def77a-3a8f-420b-ad29-a9e08d03fca0&k=4739&p=1.

Carroll, C. (2008, January). High tech trash. National Geographic.Retrieved May 24, 2008, from http://ngm.nationalgeographic.com/2008/01/high-tech-trash/carroll-text.

Mayfiel, K. (2003, January 10). E-waste: Dark side of digital age.Wired. Retrieved May 24, 2008, from http://www.wired.com/news/technology/0,57151-1.html?tw=wn_story_page_next1.

Watkins, S. (2006, January 2). E-waste epidemic. GovernmentTechnology. Retrieved May 24, 2008, from http://www.govtech.net/magazine/channel_story.php/97724.


FIGURE 2.20

Illegally copied intellectualproperty is openly bought andsold in many countries.

several European nations, Singapore, and the United States; many countries in the developingworld—e.g., Chad, Bangladesh, Bolivia, and so on—are still far behind, often due to politicalconditions, education, or lacking infrastructure (such as telephone lines or Internet servers).

Going Global: International Business Strategies in the Digital WorldBefore the era of globalization, most companies were solely operating in the domesticarena, conducting their activities exclusively in one country, starting from the acquisitionof raw materials to the selling of final products. Although such businesses are likely to ben-efit from the enablers that also spurred Globalization 3.0, domestic companies do nothave to deal with many of the challenges brought about by globalization.

In today’s digital world, the number of domestic companies is continually shrinking,with most domestic companies being relatively small (often local) businesses, such as local

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High

LowLow

Degree of Local Responsiveness

Deg

ree

of G

lob

al In

tegr

atio

n

High

Multidomesticstrategy

Transnationalstrategy

Globalstrategy

Home-Replication

strategy

FIGURE 2.21

International business strategies.

TABLE 2.11 When to Use International Business Strategies

Strategy Description Strengths Weaknesses When to Use

Home-Replication

International business seenas extension of homebusiness

Focus on corecompetencies in homemarket

Inability to react to localmarket conditions

Homogeneousmarkets

Global Centralized organizationwith standardizedofferings across markets

Standardized productofferings allow achievingeconomies of scale

Inability to react to localmarket conditions

Homogeneousmarkets

Multidomestic Federation of associatedbusiness units;decentralized

Ability to quickly react tolocal conditions

Differing product offeringslimit economies of scale,and limited interunitcommunication limitsknowledge sharing

Very heterogeneousmarkets

Transnational Some aspects centralized,others decentralized;integrated network

Can achieve benefits ofmultidomestic and globalstrategies

Difficult to manage; verycomplex

Integrated globalmarkets

service providers, restaurants, farms, or independent grocery stores. Most of today’s largecompanies, no matter if they are in car manufacturing (such as GM, Toyota, or Daimler),insurance (Allianz or Munich Re), or consumer goods (Nestlé or Procter & Gamble) havesome international business strategy for competing in different global markets.

Such companies pursue either a home replication, multidomestic, global, or transna-tional strategy, depending on the degree of supply chain integration and necessary localcustomer responsiveness (Prahalad and Doz, 1987; Hitt, Ireland, and Hoskisson, 2009). Onthe one hand, businesses strive for global integration to realize economies of scale; on theother hand, a company’s local subunits may benefit strongly from being able to quicklyrespond to changing conditions in local markets. Different international business strategiesare suited better for different situations (see Figure 2.21 and Table 2.11).

Organizations use a variety of information systems strategies to manage internationaloperations most effectively. For example, Nestlé, one of the world’s largest food produc-ers, with over five hundred factories and operations in more than seventy countries, is alsoconsidered to be one of the world’s most globalized companies. In the following sections,we describe each of these various business strategies, along with the appropriate informa-tion systems strategies.

Home-Replication StrategyThe home-replication strategy (sometimes called export strategy or just internationalstrategy) is the most basic form of going global. Companies using this strategy view inter-national operations as secondary to their home operations. Thus, companies pursuing a

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home-replication strategy focus on their domestic customers’ needs and wants, and merelyexport their products to generate additional sales. This allows companies to focus on theircore competencies in their respective domestic markets. In some cases, selling productsinternationally is used as a way to extend the life of products nearing the end of their lifecycles domestically (e.g., last year’s tennis shoe may still be considered “hip” in somecountries). As the company only places secondary emphasis on international operations,there is no expectation of obtaining additional knowledge from foreign operations. Forexample, it can be argued that German automaker Porsche pursues a home-replicationstrategy. Specifically, Porsche designs very high performance automobiles geared towarddriving on German Autobahns (many of which have no speed limits); although this style of driving is almost impossible in most countries, Porsche sells their cars with the promiseof high performance, making only minor modifications for local markets. With a home-replication strategy, the organization provides a relatively low level of local responsivenessand requires a relatively low level of global integration. As such, information systems playa minor role in facilitating this strategy (see Table 2.12).

Global Business StrategyCompanies pursuing a global business strategy attempt to achieve economies of scale byproducing identical products in large quantities for a variety of different markets. In con-trast to the home-replication strategy, where a product is developed for the home countryand then exported (with little or no modifications), companies pursuing a global strategy(such as Sony) develop products for the global market.

A global business strategy works much more in a centralized fashion. As the deci-sions are made at the headquarters, the organization can be characterized as a centralizedhub (Bartlett and Goshal, 1998). The headquarters gives the overall strategic direction andthus has tight control of the entire company as well as the knowledge that is generatedwithin the company. However, the need to achieve economies of scale prohibits imple-mentation of local strategies, and thus a global company cannot quickly react to localchallenges and opportunities. Here, data flows extensively from the subsidiaries to thehome location, and the home location exerts strong control on the subsidiaries (see Figure2.22). As the home office coordinates most of the strategic decisions of the local sub-sidiaries, companies pursuing a global business strategy utilize multiple networks betweenthe home office and the subsidiaries to facilitate both communication and data sharing.The data does not stay at the local subsidiaries, which reduces the potential for duplica-tion, but at the same time introduces issues related to transborder data flows (primarily inEU countries) (see Table 2.12).

The multidomestic business strategy is particularly suited for operations in mar-kets differing widely. The multidomestic business strategy uses a loose federation of associated business units, each of which is rather independent in their strategic

TABLE 2.12 Global Information Systems Strategies

Business Strategy Systems Communications Data Resources

Home-Replication Domestic systems (ifany)

Limited (if any) Local databases(if any)

Multidomestic Decentralizedsystems

Direct communicationbetween home office andsubsidiaries

Local databases

Global Centralized systems Multiple networksbetween home office andsubsidiaries

Data sharingbetween centralhome office andsubsidiaries

Transnational Distributed/sharedsystems; Internet-enabled applications

Enterprise-wide linkages Common globaldata resources

Based on: Alavi and Young (1992), Karimi and Konsynski (1991), Ramarapu and Lado (1995).0002

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decisions. In other words, the degree of integration is very low, and the individual sub-units can respond quickly to their respective market demands (Ghoshal, 1987).Multidomestic companies can thus be extremely flexible and responsive to the needsand demands of local markets, and any opportunities arising in local markets can bequickly seized. An example of a multidomestic company is the international arm ofGeneral Motors, the national subsidiaries of which produce cars that are customized tothe specific local markets (e.g., Opel in Germany and Vauxhall in Great Britain).However, working in a decentralized fashion, much of the knowledge generated isretained at the local subsidiaries, and knowledge transfer between the individual sub-sidiaries is often limited, leading to inefficiencies and mistakes that potentially can berepeated across subsidiaries (Bartlett and Ghoshal, 1998). In sum, for companies fol-lowing a multidomestic business strategy, very little data and control information flowsbetween the home and subsidiary locations (see Figure 2.23).

SubsidiaryLocation

SubsidiaryLocation

SubsidiaryLocation

SubsidiaryLocation

HomeLocation

Data

Data

Control

Control

Data

Data

Control

Control

FIGURE 2.23

Multidomestic business strategy.

SubsidiaryLocation

SubsidiaryLocation

SubsidiaryLocation

SubsidiaryLocation

HomeLocation

Data

Data

Control

Control

Data

Data

Control

Control

FIGURE 2.22

Global business strategy.

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SubsidiaryLocation

SubsidiaryLocation

SubsidiaryLocation

SubsidiaryLocation

HomeLocation

Control/Data

Control/Data

Control/Data Control/D

ata

Control/Data

Co

ntr

ol/

Dat

a

Co

ntr

ol/

Dat

a

Control/D

ata

FIGURE 2.24

Transnational business strategy.

In order to support the loose confederacy of various different local subsidiaries and thedecentralized nature of the decision making within companies utilizing a multidomesticbusiness strategy, each organizational subsidiary has its own decentralized informationsystems. Although the systems within the different business units may be integrated, thereis no centralized IS infrastructure. The communications take place primarily between thedifferent subsidiaries and the home office; thus, there is no focus on the communicationbetween the different subsidiaries (this is why there is only limited knowledge transferamong the subsidiaries). As the different subsidiaries are very independent, they retain thedecentralized local data processing centers that are responsive to local needs and regula-tions and at the same time use information technology to integrate them loosely into theframework of the parent organization (see Table 2.12).

Transnational Business StrategyAn emerging strategy is the transnational business strategy. Having realized the bene-fits and drawbacks of multidomestic and global business strategies, companies using atransnational business strategy selectively decide which aspects of the organizationshould be under central control and which should be decentralized. This business strategyallows companies to leverage the flexibility offered by a decentralized organization (to bemore responsive to local conditions), while at the same time reaping economies of scaleenjoyed by centralization. An example of a transnational company is Unilever, whichdecides when to centralize and when to decentralize, depending on the products and thelocal markets. However, this business strategy is also the most difficult, as the companyhas to strike a balance between centralization and decentralization. In contrast to globalorganizations, where most of the resources are centralized in each company’s home coun-try, different resources in a transnational company can be centralized in different coun-tries, depending on where the company can achieve the greatest returns or cost savings.Further, different decentralized resources are interdependent; this is in contrast to theother organizational forms, where there is usually one direction of the flow of resources.In a transnational company, for example, semiconductors for computer chips might beproduced in a state-of-the-art factory in Dresden, Germany; shipped to a Southeast Asiancountry to be assembled into a final product; and then shipped back to Western Europe tobe sold to an individual customer. Bartlett and Ghoshal (1998) characterize transnationalcompanies as integrated networks requiring a great deal of effort in terms of managing thedifferent interdependencies, tasks, and communication among the different units. In sum,both data and control can flow in any direction, depending on the specific businessprocess (see Figure 2.24).

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Industry AnalysisThe Automobile Industry

Could Ford Motor Company end up as the last ofDetroit’s “big three” car companies to be based in theUnited States? By late 2008, the big three were battlingfor survival, asking the U.S. Congress for loans to helpdeal with a major global recession. Although mostAmericans think of the big three as “U.S. firms,” all majorautomobile companies (both foreign and domestic) haveglobal operations.

Auto industry experts have claimed for years thatglobalization—the flattening of the world—would resultin a widespread consolidation of automakers.

What is happening within the auto industry is indica-tive of globalization in general. A “flattened” worldimplies that the world is becoming more homogeneous.As the process continues, distinctions between nationalmarkets are fading and, for some products, may disap-pear entirely.

For instance, for decades manufacturers within theautomobile industry have worked toward developing a“world car”—a basic car that with a few modificationscan be sold all over the world. In the 1990s, threeattempts were made to produce and market a world car:Honda’s Accord, Ford’s Mondeo/Contour, and GM’sCadillac Catera/Opel Omega. None of the models sold aswell as hoped in North America, Europe, and Asia for sev-eral reasons:

• Consumers in different areas of the world havedifferent tastes in automobiles. For example, smallcab size has long been accepted in Europe, butAmerican consumers prefer larger cabs.

• Europeans prefer steel construction over plastic, asin door panels, which are largely used in carmanufacturing in the United States.

• Differences in infrastructure among countries leadto varying preferences in cars. Asians, for example,prefer smaller-sized cars that can maneuver well

through narrow, crowded streets, while Americansare fond of SUVs and pickups.

• The price of gasoline varies throughout the world.Europeans think first of fuel economy when buyinga car, while this line of thinking is only slowly beingadopted in the United States.

• Variations in regulations governing cars, such asemission standards, also vary with countries andaffect car buyers’ choices.

The development of a “world car” may yet be accom-plished but probably not until cultural and economic con-ditions undergo even more globalization.

In the meantime, the automobile industry continues tomove beyond geographic boundaries. Auto companies tra-ditionally based in the United States are moving plants over-seas, and foreign manufacturers are moving productionfacilities to the United States. The Japanese auto manufac-turer Toyota operates production plants in many U.S. states,including Alabama, Texas, and West Virginia. The FordMotor Company is based in the United States but operatessatellite companies in Asia and Europe. A Chinese car man-ufacturer recently planned to buy a Brazilian auto enginemanufacturing plant and transport it to China (the plantwas eventually purchased by Italian multinational Fiat).

Another significant change in the auto industry involvessales channels. Traditionally, U.S. automakers maintainlocalized franchises that handle auto sales in a specificregion. Now there are Internet franchises that have also cre-ated worldwide sales centers that did not previously exist.

Clearly, the global marketplace has changed the auto-mobile industry profoundly, by allowing the automakersto build global networks of suppliers (such as Bosch andContinental from Germany, Magna and Lear from theU.S., or Yazaki from Japan) and selling to customers fromall over the world. Although this has created new oppor-tunities, the auto crisis in late 2008 has shown that in the

Companies utilizing a transnational business strategy need to create an integrated net-work between the home office and the multiple local subsidiaries. Because of this require-ment, there is much communication among the different subunits as well as between thehome office and the subunits. Many systems are distributed and/or shared; in this way, asubsidiary can access the systems and resources of other subsidiaries. Similarly, key data isshared throughout the company to enable a seamless integration of processes. Much of thecommunication, data, and application sharing is enabled by intranet, extranet, and Web-based applications (see Table 2.12).

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Key Points Review

1. Define globalization, describe how it evolvedover time, and describe the key drivers ofglobalization. Globalization is the integration ofeconomies throughout the world, fueled bytechnological progress and innovation. Over thepast centuries, globalization has come a long way;starting with Columbus’s discovery of America,Globalization 1.0 was fueled by power. Then, in1800, Globalization 2.0 started, fueled mainly bya fall in transportation and telecommunicationscosts. Globalization 3.0 started in 2000 and wasenabled by the convergence of a number ofenablers, namely, the fall of the Berlin Wall,Netscape going public, work flow software,uploading, outsourcing, offshoring, supplychaining, in-sourcing, in-forming, and “thesteroids.” This has led to a rise in outsourcing and has helped to shape the world as we know ittoday.

2. Describe the emerging opportunities forcompanies operating in the digital world.Companies operating in the digital world see anumber of opportunities, many of which areenabled by Globalization 3.0. For companies, theprimary opportunities are the access to newmarkets for their products and services as well asthe access to a talented labor pool in countries withlower wages.

3. Explain the factors companies have to considerwhen operating in the digital world. In additionto the opportunities, operating in the digital worldalso poses a number of challenges to companies.The first broad set of challenges is of governmentalnature and includes challenges related to thepolitical system (such as market versus plannedeconomy or political instability), regulatorychallenges, data-sharing challenges, and challengesrelated to Internet access and individual freedom.

The next class of challenges is of geoeconomicnature. Such challenges arise due to differences inworld time zones, communication reliability, andworkforce quality. Further, differences in economicwelfare potentially lead to challenges, both forcompanies and for countries. Another set ofchallenges relates to national cultural differences,including differences in power distance,uncertainty avoidance, individualism/collectivism,masculinity/femininity, concept of time, and lifefocus as well as differences in language, education,and religion. Finally, companies face variouschallenges when offering products or services inmany countries, depending on what is considered asocially acceptable product or advertisement, orenvironmental concerns related to operating in thedigital world.

4. Describe international business and informationsystems strategies used by companies operating inthe digital world. Companies operating in thedigital world can use different business strategies.Some companies pursue a home-replicationstrategy, which entails selling products developedfor the home market internationally. In contrast,other companies develop products for the globalmarket. This strategy, known as global businessstrategy, includes having a centralized organizationto offer standardized products in different markets.This helps to achieve economies of scale and isbest suited for homogeneous markets. Informationsystems used by organizations pursuing thisstrategy are very centralized, and much data flowsfrom the subsidiaries to the headquarters. Themultidomestic business strategy is best suited forheterogeneous markets, as it allows to quicklyrespond to changing local conditions; this strategyincludes having a decentralized federation ofloosely associated business units in different

age of Globalization 3.0, the success or failure of anymajor global firm has ripple effects far beyond its homecountry.

Questions1. How is Globalization 3.0 fueling change in the auto

industry?2. Examine how cultural differences make it difficult to

create a world car.

Based on:

Chandler, C. (2000, May 22). Globalization: The automobile indus-try’s quest for a ‘world car’ strategy. Retrieved May 24, 2008, fromhttp://globaledge.msu.edu/NewsAndViews/views/papers/0018.pdf.

Emmons, G. (2006, May 10). American auto’s troubled road.Working Knowledge. Retrieved May 24, 2008, from http://hbswk.hbs.edu/item.jhtml?id=5290&t=innovation.

Webster, S. (2006, July 2). Future of autos is global. Detroit Free Press.Retrieved May 24, 2008, from http://www.freep.com/apps/pbcs.dll/article?AID=/20060702/BUSINESS01/607020577/1014/BUSINESS.

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Key Termsconcept of time 65culture 64domestic company 69embargoes 58export regulations 58geoeconomic 60global business strategy 71globalization 40Globalization 1.0 40Globalization 2.0 41Globalization 3.0 41

home replication strategy 70individualism/collectivism 65in-forming 49in-sourcing 49international business strategy 70life focus 65maquiladoras 52masculinity/femininity 65multidomestic business strategy 72nearshoring 54offshoring 47

offshore outsourcing 47power distance 65quotas 58tariffs 58transborder data flows 58transnational business strategy 72uncertainty avoidance 65uploading 46wiki 47work flow software 45

Review Questions1. List the ten factors that led to Globalization 3.0.2. How did the fall of the Berlin Wall flatten the world

according to Friedman?3. Describe work flow software. How did this technology

drive the flattening of the world?4. Compare outsourcing, offshoring, and offshore

outsourcing.5. Describe in-sourcing and provide examples of how

organizations use in-sourcing.6. List and describe several reasons why companies are

choosing to outsource business activities.

7. List and contrast several challenges of operating in thedigital world.

8. Explain the concept of geoeconomic challenges andhow organizations can overcome these challenges.

9. What is meant by transborder data flows, and why isthis a concern?

10. Define culture and describe how it affects globalization.11. List and describe several ways in which cultures differ.12. Describe the multidomestic business strategy and how

it affects the flow of control information.

Self-Study QuestionsVisit the Interactive Study Guide on the Companion Web site for addi-

tional Self-Study Questions: www.pearsonhighered.com/valacich.

1. What stage of globalization started with expansion oftrade to India, where the horse and wind and in laterstages steam were the primary drivers?A. Globalization 0.5B. Globalization 1.0C. Globalization 2.0D. Globalization 3.0

2. The release of the Netscape Web browser had the following effects on the flattening of the worldexcept:A. setting the standard for Web browsingB. providing easy access to the InternetC. providing integrated e-mailD. launching the World Wide Web

countries. Companies pursuing this strategyemploy decentralized systems, and data sharing isvery limited. The transnational business strategy isvery well suited for operating in the digital world,as it combines the benefits of the multidomesticand the global business strategies by enablingeconomies of scale while being responsive to localmarket conditions. In a transnational businessstrategy, some aspects of the company are

centralized, while others are decentralized. Theinformation systems used are distributed, allowingfor increased communication between theheadquarters and the subsidiaries as well asbetween the subsidiaries, and common access tocritical data. Transnational information systems areprimarily enabled by intranets, extranets, and theInternet.

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3. Which of the following is not considered an enabler ofa flat world by Friedman?A. uploadingB. supply chainingC. in-formingD. customer service software

4. Which of the following is not considered open-sourcesoftware:A. Microsoft OfficeB. OpenOffice.orgC. FirefoxD. Linux

5. The assembly plants on the Mexican side of theU.S.–Mexican border that mass-produce goods for theU.S. market are called _______.A. MexicanizationsB. maquiladorasC. MexcaiasD. gringoias

6. Embargoes are considered which part of the followingchallenges operating in the digital world?A. regulatoryB. data sharingC. political systemD. governmental

7. One of the geoeconomic challenges that videoconfer-encing cannot resolve is _______.A. time zone challengesB. regulatory challengesC. data-sharing challengesD. cultural challenges

8. Which of the cultural dimensions is described as “theextent to which a culture focuses on the quantity versusthe quality of life”?A. concept of timeB. uncertainty avoidanceC. life focusD. work culture

9. _______ reflects the extent to which a society values theposition of an individual versus the position of a group.A. masculinity/femininityB. uncertainty avoidanceC. individualism/collectivismD. life focus

10. What emerging strategy do companies use when decid-ing which aspect should be under central control andwhich should be decentralized?A. global business strategyB. transnational business strategyC. multidomestic business strategyD. operational business strategy

Answers are on page 79.

Problems and Exercises1. Match the following terms to the appropriate definitions:

i. transnational business strategyii. multidomestic business strategy

iii. in-formingiv. Globalization 3.0v. quotas

vi. offshore outsourcingvii. geoeconomic

viii. uncertainty avoidanceix. nearshoringx. embargoes

a. The reversal of overseas offshoring to addresschallenges related to geographical, political,linguistic, or economic distance.

b. The outsourcing of business processes on aglobal scale.

c. Stage of globalization encompassing virtuallyevery nation and shrinking the world from “sizesmall to size tiny.”

d. An international business strategy employed to be flexible and responsive to the needs and demands of heterogeneous local markets.

e. The combination of economic and politicalfactors that influence a region.

f. Using the Internet to access information,enabling people to get a more complete pictureof what is happening in the world.

g. Regulations typically limiting (or prohibiting)trade with one particular country.

h. The cultural characteristic that helps inunderstanding the risk-taking nature of a culture.

i. The act of foreign governments to limit theimporting of certain products.

j. An international business strategy that allowscompanies to leverage the flexibility offered bya decentralized organization (to be moreresponsive to local conditions), while at thesame time reaping economies of scale enjoyedby centralization.

2. Visit the Go4Customer Web site (www.go4customer.com). What does this company do? Where are theylocated? Who are Go4Customer customers? Give an example of how a U.S. company would useGo4Customer.

3. Visit Wal-Mart China (www.wal-martchina.com/english/index.htm). Compare and contrast your local Wal-Martwith Wal-Mart China. Are the items sold in China thesame as your local Wal-Mart? How does Wal-Mart Chinadiffer from your Wal-Mart? Explain your answer.

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4. Interview an IS professional and document his or herviews on offshore outsourcing. Specifically, find out ifhis or her company is using offshore outsourcing; if so,what does the company outsource and why? If not,why not? If it utilizes offshore outsourcing, have the ISprofessional critique its quality, cost, and so on.

5. What search engine do you use? Compare and contrastyour search engine preference with one of the other bigsearch engines available (google.com, msn.com,yahoo.com). How would these search engines be usedto create your “own personal supply chain”?

6. What digital news media do you use to get your news?According to this textbook’s definitions, are you in-forming? If you are in-forming, describe how. Whatother ways could you in-form?

7. What are some examples of key technologies that uti-lize “steroids”? Using the technology definition pro-vided by this textbook, how do you use technologicalsteroids in your everyday life?

8. Should the U.S. government allow companies to useoffshore outsourcing if qualified U.S. citizens are will-ing and able to do a job? Should the government regu-late the amount that can be outsourced by any com-pany? Why or why not?

9. Work flow software allows an organization to movedocuments and/or tasks through a work process. Usingyour own experiences and observations, either profes-sionally or personally, describe how the work flowsoftware worked.

10. As outlined in the chapter, UPS provides in-sourcing ser-vices for many businesses. Visit www.ups.com and identifysome examples of UPS providing in-sourcing services andinclude a listing of some of UPS’s in-sourcing customers.

11. Interview an IS professional regarding some possibleuses for open-source software. Is open-source softwarebeing used in the IS professional’s organization? If so,document what software it uses and how it is working; ifnot, document why it is not using open-source software.

12. List ten reasons why you would (or would not) be a goodglobal manager.

13. Global outsourcing appears to be here to stay. Use theWeb to identify a company that is providing low-costlabor from some less developed part of the world. Providea short report that explains who the company is, where itis located, who its customers are, what services and capa-bilities it provides, how long it has been in business, andany other interesting information you can find in yourresearch.

14. Examine Table 2.9 and rate yourself for each of the criti-cal cultural dimensions. Do your ratings match those ofyour country in every instance? If so, why do you thinkthis occurred? If not, why?

15. Download and use the open source Firefox Web browser(www.mozilla.com/firefox/) and compare and rank itsfeatures against those of Microsoft Internet Explorer orFlock. Which do you prefer and why?

Application ExercisesNote: The existing data files referenced in these exercises

are available on the Student Companion Web site: www.

pearsonhighered. com/ valacich.

Spreadsheet Application: Building a BusinessCase for Online Ticketing

On graduation, you were hired by Campus Travel to assistin creating an infrastructure to sell travel services over theInternet. One aspect of this online system is a module tohandle travel-related requests so that the customers can seewhether a particular product or service is available. In orderto do this, you will have to be able to manipulate data toallow for management to see what is really going on. To doso, your manager has asked for the following:

1. Sort the data by date, then by sales.a. Open the file sortdata.csv.b. Highlight all data.c. Select sort from the “Data” menu.d. Sort by “Date Sold,” then by “Salesperson.” Print

out a copy of each for your instructor.

2. Count the number of tickets sold in the provided table.a. In cell H3, enter the countif formula to count the

number of tickets each salesperson has sold.Hint: Use “=countif($b$2:$b$36,g3).”b. Copy cell H3 down to the other salespeople.c. Sum the total number of tickets sold in the

appropriate field.

Database Application: Locating Campus TravelAgencies

Campus Travel is now trying to market to specific cus-tomers in its frequent flier database. This includes targetingcustomers from certain airlines that reside in certain areas.You have been asked to import the frequent flier databaseand then to filter records accordingly. To do so, you mustcomplete the following:

1. Open the file frequentflier.mdb.

2. Use “filter by selection” to filter records fromcustomers in Pullman.

3. Filter customers by “Delta Airlines.”

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Case �

Global Picture Sharing: Flickr

Has there been a wedding, birth, con-firmation, graduation, one-hundredthbirthday celebration, or other commemo-rative event in your family lately? Wouldyou like to see the photos your sister,Uncle Walt, and Grandma Mary took atthe event? Invite everyone who attendedto post their photos on Flickr.com—oneof the easiest and most popular means ofsharing photos online.

Flickr.com was developed byLudicorp, a Vancouver, Canada–basedcompany founded in 2002 and launchedonline in 2004. Yahoo! purchased Flickrin 2005. In just over a year after Flickr’slaunch, the site had over 350,000 mem-bers, who had collectively uploaded 31million images.

Flickr didn’t invent online photosharing, but the tools members can use tonavigate the photos on the site areunique. “Tags” let photo owners andviewers label photos to prescribe a cate-gory that makes them easier to find. Forexample, popular tags include summer,winter, cute, Europe, dog, cat, and so on.Flickr takes the tag concept further withclustering, a better way to explore photosthrough tags. Key in “summer beachvacations,” for instance, and you canview a page of clustered photos with just

those tags. Clustering has resulted insuch far-out photo categories as confus-ing street signs, dogs’ noses, Halloweencostumes, margaritas, and mannequins.

Flickr sees photo sharing and the useof tags as a social process users call“folksonomy.” That is, since viewers canadd comments to photos, there is a levelof involvement similar to a social gather-ing. For a person who is browsingthrough a set of photos, the notes on thephotos tell little stories, as if that personwere sitting by the photographer, who isexplaining the photo.

Flickr photo viewers can also rate aphoto according to “interestingness.”Each calendar day, a few highly rankedphotos are posted to a common page foreasier viewer exploration.

Flickr also allows for basic photomanipulation, such as rotation, orderingprints, sending to a group of people,adding to a blog or even a map, and soon. Photos can be open for everyoneeverywhere to view, or viewing can berestricted to one’s friends and family.

User space on Flickr is unlimited;however, there is a restriction based onthe bandwidth used per month. (For onlya few dollars per month, there are nobandwidth restrictions.)

Since Flickr’s basic photo-sharingservice is free, revenue for the companyis based on Yahoo!-placed ads on FlickrWeb pages. Photographers who postimages on the Flickr site, however, arefree to sell their photos. The legal aspectsof copyright are handled by a licensecalled the “creative commons.” Thislicense has many different levels of copy-right protection but is primarily for not-for-profit use of a user’s photographs.Flickr offers a simple interface thatallows photographers to choose a licensefor protecting copyright.

For programming enthusiasts, Flickrhas released all application programinterfaces (APIs) for public use. Forexample, programmers have used theAPIs to develop uploading applicationsfor the Mac, Windows, camera phones,and other devices.

Flickr is also one of the first Websites to join the OpenID project. WithOpenID, Internet users don’t need multi-ple IDs and passwords; after registeringonce with the free service, the same loginID and password can be used to enter anysite that participates in OpenID. Theworldwide popularity of Flickr is anotherway in which information systems arefueling a flatter world.

Team Work Exercise: Becoming a Global Leader

Many universities believe, rightfully so, that they have aduty to help internationalize students through a variety ofevents, courses, and experiences in order to help preparestudents for managing in the digital world. Work in teams

of four or five students and compile a list of all the differentthings you feel your school is doing to help studentsdevelop into better global leaders.

Answers to the Self-Study Questions1. B, p. 40 2. D, p. 43 3. D, p. 42 4. A, p. 46 5. B, p. 526. A, p. 58 7. A, p. 60 8. C, p. 65 9. C, p. 65 10. B, p. 72

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Case �

Enabling Global Payments at PayPal

I f you have used eBay (and whohasn’t?) you know how easy it is to payfor items you buy and to receive paymentfor items you have sold. Checks, creditcard charges, and money orders areunnecessary. Instead of these traditionalmethods of payment, digital money iseasily and effortlessly zapped to andfrom accounts at PayPal, the most fre-quently used digital money transfer ser-vice online.

Peter Thiel, a hedge fund manager,and Max Levchin, an online securityspecialist, founded what was to becomePayPal—it was first named Field Linkand then Confinity and finally, in 2001,PayPal. The company went onlinerather naively in 1999. The founders’vision was to create a digital currencyexchange service free of governmentcontrols, but the site quickly became atarget for hackers, con artists, and orga-nized crime groups, who used the sitefor scams and money laundering.Tighter security measures halted crimi-nal activity and helped assuage cus-tomer complaints, but government reg-ulators moved in. Attorneys General inseveral states investigated PayPal’sbusiness practices, and New York andCalifornia levied fines for violations.Louisiana banned the company fromoperating in that state. (The ban hassince been lifted.)

When PayPal began, payment forWeb products was made through creditcard charges at the purchase site and viachecks and money orders sent throughthe postal service. Other companies,such as Beenz.com and Flooz.com, hadtried to establish electronic paymentsystems based on a special digital cur-rency, but merchants, banks, and cus-tomers were hesitant to accept “money”that wasn’t based on real dollars. Thieland Levchin saw the need for an elec-tronic payment system that relied onreal currency, especially when eBaybecame popular, and PayPal filled thatniche.

After PayPal solved its security andcustomer support problems, customersliked the convenience and ease of usingthe service, and its client base grew.Buyers like not having to reveal theircredit card numbers to every onlinemerchant, and merchants appreciatehaving PayPal handle payment collec-tion. New PayPal clients establish anaccount with a user name and passwordand fund the account by giving PayPal acredit card number or bank accounttransaction information. AlthoughPayPal prefers the latter (because bankaccount transactions are cheaper thancredit card transactions), half ofPayPal’s accounts are funded via creditcards.

EBay bought PayPal in 2002 for $1.5billion and since then has also been amajor source of income for the moneytransfer site. At the same time, PayPalhas expanded its client base both in theUnited States and abroad, and is generat-ing much revenue by charging fees forpayment processing for a wide variety ofonline vendors, auction sites, and corpo-rations. Services to buyers are free, butsellers are charged a fee, which is gener-ally lower than fees charged by majorcredit card companies. PayPal now offersspecial merchant accounts for transfer-ring larger amounts of money and alsooffers a donation box feature for blogsand other Web sites where visitors canmake donations.

PayPal spawned many rivals after itsinitial launch, but most have since died,including Citigroup’s C2it and BankOne’s Email Money. Currently, PayPaloperates in 190 markets in thirteen coun-tries, and manages over 164 millionaccounts. PayPal allows customers tosend, receive, and hold funds in seven-teen currencies worldwide. While thecompany has had its share of problemswith fraud and phishers (scamsters whosend fradulent e-mail messages andduplicate legitimate Web sites), PayPalcontinues to be the number one methodof payment for the world’s buyers andsellers.

Questions1. Why do you think Flickr has been so popular throughout the world?2. What lessons could a Web site for a local business learn from Flickr?3. How do Web sites like Flickr act to increase globalization?

Based on:

Anonymous (2005, August 1). The new new things. Flickr Blog. Retrieved May 24, 2008, from http://blog.flickr.com/flickrblog/2005/08/the_new_new_thi.html.

Anonymous (2005, December 16). Shedding light on Flickr. News.com. Retrieved May 24, 2008, from http://news.com.com/Shedding+light+on+Flickr/2100-1025_3-5997943.html.

Anonymous (n.d.). OpenID. Retrieved May 24, 2008, from http://openid.net.

Stone, B. (2004, March 11). Photos for the masses. MSNBC-Newsweek. Retrieved May 24, 2008, from http://www.newsweek.com/id/48941.

Terdiman, D. (2005, November 16). Tagging gives web a human meaning. News.com. Retrieved May 24, 2008, from http://news.com.com/Tagging+gives+Web+a+human+meaning/2009-1025_3-5944502.html.

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Questions1. Why do you think PayPal has been so successful throughout the world?2. How has PayPal acted to increase globalization?3. Do you use PayPal? Why or why not?

Based on:

Anonymous (n.d.). PayPal company history. Retrieved May 24, 2008, from http://www.fundinguniverse.com/company-histories/PayPal-Inc-Company-History.html.

Grabianowski, E. (n.d.). How PayPal works. Retrieved May 24, 2008, from http: /computer.howstuffworks.com/paypal3.htm.

PayPal. (2008, May 24). In Wikipedia, the free encyclopedia. Retrieved May 24, 2008, from http://en.wikipedia.org/w/index.php?title=PayPal&oldid=214626566.

Walker, L. (2005, May 19). PayPal looks to evolve beyond its auction roots. Washingtonpost.com. Retrieved May 24, 2008, from http://www.washingtonpost.com/wp-dyn/content/article/2005/05/18/AR2005051802187.html?nav=rss_opinion/columns.

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