International Business and Information Technology

Interaction and Transformation in the Global Economy

Gerald Karush, Masood Samii

• Publisher: Routledge
• Year: 2004
• eBook ISBN: 9781134342754
• Topic: Business
• Subtopic: Business General
• Index: Business

Topical and timely, this breakthrough text analyzes the relationship between international business operations and information technology. First, it assesses the impact of current developments in IT on the operation of multinational corporations, both on a practical and theoretical level, and explores how IT can improve competitive advantage. Secon

Chapter 1

Massood Samii

Gerald Karush

Southern New Hampshire University

INTERNATIONAL BUSINESS AND IT

Introduction

THE DYNAMIC BUSINESS STRATEGIES and operations of many companies have become highly influenced in recent years by the forces of globalization and advances in information and communication technologies. It is apparent that firms will have difficulty in operating effectively and creating value for their owners and stakeholders unless they embrace both of these forces to their advantage. Both internationalization of business activities and IT offer opportunities and threats to companies. Opportunities involve market expansion, cost reduction, risk diversification, and potential increases in productive efficiencies and market expansion. Failure to understand and to come to grips with them may well result in a competitive disadvantage compared to those firms which have effectively integrated the new forces of technology and globalization into their business strategies.

There has been much written about globalization theory and IT, but little attention has been paid to the interaction between these two disciplines. Yet, there is a close coupling of the two areas. Information and communication technology has had profound impacts on the global operations of multinational enterprises. At the same time, information systems applications have developed and evolved mainly based on the internal operations of the firm, with little attention given to the global needs and requirements that arise when working in a multinational, cross-cultural environment.

The chapters compiled in this book address the issues mentioned above by focusing first on the impact of advances in IT on the global operations of contemporary businesses. The book then addresses a number of important impacts globalization has had on the design, implementation, and management of global IT operations. Finally, the book examines several actual examples that focus on implementation of global IT systems within the firm and the implications for economic gaps among nations at different levels of development.

The theoretical analysis of the impacts of IT on globalization has lagged behind the actual real world business applications. How the theoretical pillars of globalization need to be modified or strengthened to encompass the impacts of information and communication technology is addressed in Chapter 2. It is argued that IT has introduced three new attributes: market efficiency, operational efficiency, and cost efficiency. The location advantage is sensitive to and is influenced by these factors.

The chapter analyzes how each of the three variables—ownership, location, and internalization (OLI)—is influenced by IT. The eclectic paradigm based on OLI has emerged as one of the main theories of international business. Another approach explaining patterns of location selection of multinational enterprises (MNEs) is called cluster theory. Chapter 2 argues that clusters faced with information networks have less attractiveness than network externalities. While clusters are still important, the focus of a firm in its globalization effort is the expansion of networks rather than the selection of cluster sites. This is not to say that clusters are no longer important. Obviously there are even IT clusters that provide potential interaction with their members.

One of the main aspects of IT has been in its influence on the international firm’s value chain. In Chapter 2 it is argued that IT helps alleviate some of the constraints to optimization of the value chain arising from geography and operational distance. Finally, the chapter focuses on the advantage that IT brings to small and medium-sized enterprises. By easing access to information, reducing costs of global interaction, and expanding global access of small and medium-sized firms, IT has evened out, in a major way, the global playing field.

Chapter 3 focuses on the development of the IT industry and the impact of globalization on the dynamic structure of global IT. The authors have used a systems approach with a “negative feed back loop” type analysis to show why there is a limit to the growth of the global IT industry. Their argument is that there is a natural constraint to the growth of this industry. Using an example of population and ecological interaction they show that if the industry expands at an accelerated rate, eventually it will reach a set of natural constraints imposed on its operational performances and on its competitive position.

The analysis focuses on the shifts in the competitive nature of industry throughout the industry lifecycle. Ray Vernon (1966) had argued using product lifecycle theory, that once a product reaches its maturity stage, it becomes a commodity, and the competitive weapon becomes price. Therefore, it makes sense for firms to search for production locations that provide cost advantage. Within this context, the authors of this chapter have argued that there are five stages in the evolution of IT industry: market entry, growth, saturation, adaptation, and equilibrium. They maintain that a variety of dynamic factors would lead toward a pattern of constrained growth for the global IT industry. The extensive shift of IT clusters to India and emergence of a sub-industry focusing on IT outsourcing is one of the main indicators of such a strategic shift for the information and communication industry.

One area on which IT has had quite an impact has been the process of international negotiations and deal-making. In Chapter 4 it is argued that those international firms which have integrated IT into their global deal-making have obtained a competitive edge. The high cost of international negotiations and business dealings, arising from traveling cost and time spent on airplanes, can be cut considerably by using electronic media for communication. Additionally e-negotiation to some extent reduces cultural barriers and languages that in many cases are reasons for failure of global business deals.

There are a number of e-negotiation systems that allow for a more efficient process of negotiation. Negotiation support systems (NSS) are instruments to help in all three stages of negotiation (the three stages of negotiations being: prenegotiation, a negotiation phase, and a post-deal phase). Furthermore, enterprise resource planning (ERP) systems can help the firm to collect information and to evaluate the specific financial and organizational impacts of its new deals. But the author maintains that while these systems do facilitate global negotiations, a successful deal still requires individual and human interaction. The NSS, ERP, and similar systems are only there to help negotiators, by better understanding various alternatives and compromises, reducing negotiation costs, and expediting the negotiations process.

Chapter 5 analyzes changes in the global financial system that can be attributed to technological development and innovation. Structural changes in the global financial system such as cross-border internet banking, electronic equity and bond markets, and electronic foreign exchange trading have all been made possible by the various technology platforms based on IT. Foreign exchange trading platforms, multi-banking portals, and project finance portals are among the new and emerging tools in the global financial system made possible by recent advances in information and communication technologies.

While it is widely recognized that advances in telecommunications technologies have enabled companies all over the globe to expand their international markets and trading capabilities, what is often overlooked is that there is a great deal of complexity in building and maintaining a technical infrastructure to support the requisite level of global business activities. Chapter 6 examines a number of technical and non-technical issues in building an IT infrastructure to support global operations. An important point to recognize is that the notion of infrastructure implies a number of components, such as: technical (e.g., electrical supplies, computer hardware and software), governmental (e.g., tariffs, energy and telephone regulation), and public policy (e.g., education and training).

Focusing first on current uses of telecommunication technologies in the context of international business, the author explores how IT infrastructures are used to interact with customers, vendors, and to coordinate geographically dispersed internal operations. Following this is a discussion of a range of supporting telecommunication technologies that are available to a company, such as: private networks, value added networks, and virtual private networks. A key point here is that there might be several choices depending on which countries are involved and their level of technological sophistication.

Chapter 6 also discusses the role of the internet and worldwide web as an important component of an IT infrastructure. Developing intranets and extranets, along with business to business (B2B) and business to consumer (B2C) connections, all using internet technologies, are of great strategic value for businesses working in international markets. Recognizing the growing importance of the internet as a major factor in the expansion of global trade the author points out some of the current limitations of the internet, such as: lack of bandwidth, quality of service limitations, network architecture limitations, and language development limitations. The author explores some of the solutions to these problems along with likely technologies to support international operations in the future.

Given the growing importance of the internet and the worldwide web in mediating global commerce for both B2B and B2C transactions, it is necessary for web designers to understand how operating in an international context affects their designs. This is the focus of Chapter 7, which looks at a number of detailed technical issues that need to be considered when developing websites to support international business activities. Starting with an overview of general principles of website construction, the author examines the three important aspects: structure, navigation, and presentation.

Structure refers to the site structure and organization of content for those who use the website. Here the focus is in identifying the characteristics of the site visitors, the information needed to be presented on the site, and the transactions that need to be supported. These factors will determine how to organize the site structure to best meet these needs. The navigation aspect looks at determining the optimal design pattern to assure efficient navigation and access to the website. This will insure that site visitors can find the desired information and know their location within the site structure. Included in this are guidelines to determining the appropriate width and depth of the navigation access through a site. Finally, the presentation aspect of website design addresses the style and layout of individual pages within a site.

These three considerations are common to all website development. However, for each of them, there are several technical issues which must be addressed when constructing an internationalized website for the conduct of business via global e-commerce. It should be noted that for many customers and suppliers, a company’s web page is the company to them. It is an important marketing tool as well as a facilitator of online commerce. If a web page is poorly designed it will discourage users from conducting business with the company. Thus, it becomes important for both IT managers and general business managers to understand basic web design principles and how they are affected by an international environment.

Chapter 7 proceeds to address a number of specific technical considerations related to building effective international websites. Specific topics that are addressed include: site branding, audience analysis in an international environment, organization to support multilingual sites, navigation, template, style, multilingual web standards, and a number of technical issues regarding browsers and HTML editors.

Due to cultural differences in language and semantics, the author points out the need to consider things like fonts and color schemes, logos and images, and the use of multimedia. All of these items must be examined in terms of their impacts on multicultural audiences or site visitors. Web site developers need to be aware of multilingual standards and their limitations. It is suggested that, to the extent possible, the design of an internationalized website should respect existing standards interpreted within a multilinguistic framework, but at the same time be aware of limitations and new developments in this area. These topics are covered in the last part of the chapter where consideration is given to the universal multilingual script standard of Unicode, and character and language supports for internationalized sites using HTML.

Chapter 8 explores the many challenges faced by IT professionals working in a global environment by focusing on a type of database application called the data warehouse. Used to facilitate online analytical business processing, data warehouses have become increasingly popular among large, especially globally oriented business enterprises. Beginning with a discussion of the strategic importance of the global data warehouse (GDW) the author proceeds to describe the major components of the GDW application: source data systems; extraction, transformation, and load (ETL) systems; and the data warehouse system. Based on the view that all information systems are socio-technical in nature, the author explores a variety of technical and socio-cultural issues that affect the ability of the IT manager to operate in a diverse environment, by examining issues related to the overall design of each major component.

An important issue raised in this chapter is that globalization of business activities has dramatically increased the diversity and heterogeneity of information systems, culture and language, and business processes and procedures. The need to develop coordinated information systems such as the GDW in such a diverse environment presents some of the biggest challenges to IT managers who must operate in the global environment. Some of the technical issues covered in this chapter include: problems of agreeing on common user requirements, differences in source database hardware and software, coordination of operations over a wide geographical area with many time differences, differences in data definitions, and variations in the quality of data.

Among the socio-cultural issues explored are sensitivity to gender and cultural issues, language issues, time-zone management, ownership of data issues, and local versus corporate control of data. All of these technical and cultural issues interact to provide a constant challenge to the IT manager. For example, building a GDW involves introducing major changes in the way data are collected and processed locally so they can be extracted to the data warehouse. This will require great coordination and cooperation between the GDW development team and local IT managers in making these technical changes, a process that can be made even more difficult because of system diversity and data ownership issues, as well as language and cultural differences.

Overall, the discussion in this chapter suggests that the biggest impact of international business on IT management in general and the global data ware-house in particular is the technological integration of many technically diverse source systems in the context of cultural and linguistically diverse environments.

Many companies that expand into global markets find themselves hampered by inadequate support from their information systems architecture. Chapter 9 presents a case study of one such company, Reebok, which makes footwear and apparel products for sports and fitness activities. Founded in England Reebok has emerged as an international company doing business through twenty-one subsidiaries around the globe. In 1993, an assessment of the current state of Reebok’s IT technology assets was undertaken to determine whether Reebok International’s current IT position could support the projected growth for the company. Reebok needed to respond quickly to a globalizing industry that necessitated a global information infrastructure. Reebok management recognized that in order to achieve sustainable competitive advantage it was necessary to proactively develop an enterprise information system architecture that would facilitate global efficiencies in production and distribution.

The author points out that the 1993 assessment identified major problems with Reebok’s information systems: incompatible databases, systems that were old and inflexible, and both costly and time-consuming to change. Many critical business processes were manual and paper based, such as financial consolidation, factory purchase order placement, and there was a notable lack of standardization of hardware and software. Based on this assessment, Reebok’s management was faced with a challenge. Given a fragmented global technology infrastructure, how would Reebok International achieve a truly transnational configuration leading to the global efficiencies it sought and yet maintain the local responsiveness required for its customers?

The remaining parts of this chapter present a discussion of how the company responded to these challenges by first developing a strategic information systems plan (SISP) and then adopting an information architecture to satisfy the business requirements identified in the strategic plan. Reebok’s management decided to implement an enterprise wide package called structural adjustment program (SAP) which is used by many large international companies. The author presents an insightful analysis of the problems that were encountered in the implementation of SAP, key lessons that are applicable to other, similar companies operating in the same type of dispersed global environments.

One of the major problems in promoting business growth among small and medium-sized enterprises (SMEs) is how to scale up their level of economic activities and enable their entry into international markets, and what role IT can play in this effort. Chapter 11 presents a strategy to deal with this situation with the development of an information architecture business incubator model, designed to support B2B transactions among SMEs who wish to develop an international as well as a national market presence.

The authors frame their presentation of the model by addressing two broad questions. How can the ...

Table of contents

• Cover
• Title
• Copyright
• Contents
• List of figures
• List of tables
• Notes on contributors
• Foreword
• Preface
• 1 International Business and It
• 2 Globalization and It
• 3 Factors Influencing the Internationalization of E-Commerce: Toward a Systems Dynamics Approach
• 4 Incorporating It into Global Business Negotiations
• 5 It and Transformation of Finance
• 6 It Infrastructure and Global Operations
• 7 Web Design for International Business
• 8 Designing and Managing Data Warehouses in a Global Environment
• 9 It and Globalization at Reebok
• 10 Electronic Commerce in Low-Income Countries
• 11 The Role of E-Commerce in Scaling up Small Businesses in Developing Economies: A B2B Information Architecture Model and it Infrastructure
• 12 Internal and External Environmental Factors Affecting Access to Technology in Southeast Asian Institutions of Higher Learning
• Index