International Business in the Information and Digital Age

Rob van Tulder, Alain Verbeke, Lucia Piscitello, Rob van Tulder, Alain Verbeke, Lucia Piscitello, Rob Van Tulder

• Publisher: Emerald Publishing Limited
• Year: 2018
• Print ISBN: 9781787563261
• eBook ISBN: 9781787563278
• Topic: Business
• Subtopic: Strategia di business
• Index: Business

This volume is dedicated to Lorraine Eden for her lifetime contributions to IB scholarship. Her research, spanning several decades, has addressed many interdisciplinary and societal themes at the heart of the IB field. The story of her intellectual journey -- strongly influenced by the coming of age of the fourth industrial revolution -- is shared in the opening chapter of this volume.

This thirteenth volume in the PIBR series covers an increasingly important area of research for International Business (IB) scholars: the role of multinational enterprises (MNEs) in the digital and information age. A limited number of MNEs now dominate the landscape of the digital age, but almost all internationally operating firms are being affected by prevailing trends. How to take stock of these trends? How to develop resilient international business models? How to regulate? The digital age presents new opportunities but also major challenges for established and emerging MNEs alike.

This volume brings together papers from leading IB scholars and from academics in adjacent disciplines such as economic geography, international relations and political science, strategic management, and technology studies.

Four dimensions of the information and digital age are analyzed using an IB angle:

• Trends and theories in the information age
• Entrepreneurial strategies in the information age
• Functional strategies in the information age
• Industry 4.0

CHAPTER 1

THE FOURTH INDUSTRIAL REVOLUTION: SEVEN LESSONS FROM THE PAST

Lorraine Eden

ABSTRACT

The digital economy, which heralds the start of the Fourth Industrial Revolution (IR4), is upon us. What can history teach international business scholars about how firms are likely to respond to this new form of technological change? Who are the likely winners or the likely losers? For 30 years, the author has lived through, studied, and written about the Third Industrial Revolution and other major environmental shocks, ranging from new entrants to academia to regional integration to outbreak of war, looking at the fundamental issues of how individuals, firms, communities, and countries respond to and are affected by life-changing events. In this chapter, the author tells seven brief stories about living through and studying “shocks and responses.” Perhaps, some of these stories may provide useful lessons to the scholars of IR4.

Keywords: Fourth Industrial Revolution; Industry 4.0; digital economy; shocks and responses; insiders and outsiders; technological competition; political bargaining model; institutional distance; liability of foreignness

1. INTRODUCTION

The global economy is going through a digital revolution, one that Schwab (2016a) refers to as the “Fourth Industrial Revolution” or “Industry 4.0.” In this chapter, I offer some insights into the Fourth Industrial Revolution (IR4) based on having lived through the Third Industrial Revolution (IR3) and having researched the roles played by multinational enterprises (MNEs) in IR3.

The question of how individuals and firms are affected by and respond to major shocks, of course, is not solely the property of IR3. Many kinds of environmental shocks can blow through and disrupt the existing order of our lives. For example, Bob Dylan’s song “The Times They Are a Changin” has been a theme song for my generation, who grew to adulthood during the turbulent times of the late 1960s (e.g., the Vietnam War, the assassinations of Martin Luther King and Robert F. Kennedy, the first man landing on the Moon). The “changing times” has also been a key research interest for me, studying how environmental shocks affect us and change the trajectories of our lives.

In this chapter, I want to share some reflections on shocks and responses, focusing mostly on IR3 but with the occasional addition of a personal story along the way. The Oxford English Dictionary defines a parable as “a simple story used to illustrate a moral or spiritual lesson.” I write about my research and experiences as simple stories, which I hope may have lessons useful for other international business (IB) scholars studying IR4. We all see life through our own lenses, of course, so the reader is warned in advance that these stories are subjective and colored by the haze of history; they are not “transparent accounts of events” but rather “material for interpretation, inquiry, and engagement (Bocher, 2007, p. 206). I invite the reader to engage with these stories and think about their potential usefulness for research on multinationals, IB, and the digital economy. My chapter begins with a brief history of the first three industrial revolutions and then moves into a description of IR4. Seven short lessons follow. I conclude with some thoughts about next steps.

2. THE FIRST THREE INDUSTRIAL REVOLUTIONS

Industrial revolutions are caused by “new technologies and novel ways of perceiving the world [that] trigger a profound change in economic systems and social structures” (Schwab, 2016a, p. 11). Most scholars believe that there have been three industrial revolutions (Bell, 1987; Mytelka, 1987) and that the fourth is underway (Morrar, Arman and Mousa, 2017; Schwab, 2016a, b). The First Industrial Revolution lasted from about 1760 to 1840; this was the era of water and the steam engine, the shift from craft production in homes to simple machines in factories, and the rise of the iron and textile industries. The Second Industrial Revolution (IR2), from roughly 1850 through 1920, was sparked by new technologies (electric power, telephone, and internal combustion engine), the rise of the chemical, steel and petroleum industries, and the introduction of modern business management systems. The IR3 started with the introduction of semiconductors and integrated circuits (1950s), which were followed by mainframe computers (1960s and 1970s), personal computers (1980s), and the Internet (1990s). In IR3, the introduction of electronics and information technologies was also accompanied by changes in business management systems as manufacturing shifted from mass to lean production techniques.

I have had a long-run interest in technology and its impacts on domestic and foreign firms going back as far as Eden (1989, 1991). My early work in this area was influenced by the writings of social scientists on the political economy of technological change and its impacts on the international division of labor. Bell (1987) and Mytelka (1987), for example, argued that the early industrial world was split into two types of economies: core and periphery. Around 1860, core economies such as England, Germany, and the United States began to use outward foreign direct investment as a way to extract natural resources and primary goods from the periphery economies, creating the Old International Division of Labor (OIDL) in which raw materials were shipped back to the core economies.

The OIDL lasted up to the 1950s when, in response to the rise of Japan and the newly industrializing economies in East Asia, MNEs in the core economies began to shift light, labor-intensive assembly operations (e.g., textiles) offshore to East Asia, pulled by lower unit labor costs and more attractive government policies such as the creation of export processing zones. The introduction of semiconductors in the 1950s and mainframe computers in the 1960s fueled the growth of the electronics industry and it, too, moved offshore. At the same time, manufacturers of mass-production, capital intensive products, such as steel and automobiles, also moved out of the core economies, attracted by large host-country markets and import-substitution policies that induced inward tariff-jumping FDI into Latin and South America. Bell (1987) and Mytelka (1987) refer to this time period (roughly from the 1950s to the 1980s) as the New Industrial Division of Labor (NIDL). In the NIDL, multinationals began creating global commodity chains, linked together by intrafirm flows of capital, technology, and intermediate and finished goods. Researchers – typically sociologists, labor economists, and political scientists – studied these global value chains in industries such as textiles, apparel, semiconductors, and electronics (see, e.g., Gereffi & Korzeniewicz, 1994).

The introduction of personal computers in the 1980s and the Internet and e-mail in the early 1990s spurred another round of technological change. The new information and communication technologies (ICT) were also accompanied by another shift in manufacturing processes, from mass production to lean production, as the US and European manufacturers began to adopt Japanese business practices. New industries emerged, not only in electronics, but also, for example, in biotechnology and advanced materials.

The automotive industry was the “old style” manufacturing industry where the shift from mass production to lean production was perhaps most pronounced and certainly most studied; the best-known study being the five-year MIT research project and book The Machine that Changed the World (Womack, Jones, & Roos, 1990). Other works with seminal case studies included Van Tulder and Junne (1988) and Kenney and Florida (2003).

The flat panel display (FPD) industry was perhaps the first “new economy” manufacturing industry to emerge in that time period. The definitive study by Murtha, Lenway, and Hart (2002), funded by the Sloan Foundation, saw FPDs as “the windows to the souls” of all the new machines that would follow, including wall-hanging TVs, wearable computers, and on-board automotive navigation systems – all of which we have today. Key insights in Murtha et al. (2002) – also borne out subsequently – were that the sources of competitive advantage in these new industries would be knowledge based, with short product life cycles where rival firms would engage in knowledge-driven competition based on learning, speed, and flexibility.

And now, we are witnessing what most social scientists believe is the birth of IR4.

3. IR4

3.1. Definitions

Schwab (2016a, 2016b) argues that IR4, also known as Industry 4.0 or the “digital economy,” started around the millennium with the introduction and widespread adoption of digital technologies. (I use the three terms interchangeably in this chapter.) Schwab (2016b, p. 1) defines IR4 as “characterized by a fusion of technologies that is blurring the lines between the physical, digital, and biological spheres.” Schwab (2016b) believes that IR4 is distinct from IR3 due to its velocity (evolving at an exponential not linear rate), scope (disrupting almost all industries in all coun tries), and systems impact (transforming production systems, management, and governance).

Organisation for Economic Cooperation and Development (OECD) (2012, p. 5) views IR4 as “comprised of markets based on digital technologies that facilitate the trade of goods and services through e-commerce.” A third, more detailed definition is provided by Global Trends (2013, p. 1):

social and economic activities that demonstrate the following characteristics: are enabled by internet/mobile technology platforms and ubiquitous sensors, offer an information rich environment, are built on global, instant/real-time information flows, provide access 24/7, anywhere, support multiple, virtual, connected networks.

My own view (Eden, 2016) is that IR4 is one of the key “winds of change” that are shattering and replacing traditional forms of MNEs and FDI. IR4, like the industrial revolutions that preceded it, is generating a process of Schumpeterian creative destruction. IR4 is being fueled by several disruptive technologies that are transforming markets; these include the Internet (also in IR3), automation of knowledge-based work, the Internet of Things, cloud computing, advanced robotics, 3D printing, and advanced materials (McKinsey Global Institute, 2013).

IR4 has three key features, according to the European Commission (EC) (2014): mobility (velocity), network effects, and data usage. All three offer the potential to shake up domestic and international markets. In terms of mobility, once the fixed costs have been incurred of developing a blueprint for a digital product, the marginal cost of producing, replicating, and providing a digital product to consumers is minimal; thus, location can be placed wherever total costs (including tax payments) are the lowest.

Network effects are generated when the value of a product to its users increases with the number of other users of the product, creating economies of scale and scope. Network effects were very much evident in IR2 with the creation of telegraph and railroad networks and in IR3 with the Internet. In IR4, network effects are particularly pronounced because digital platforms not only attract users, but also other groups, such as advertisers and applications developers (OECD, 2012, pp. 8–9). Two-sided networks where both buyers and sellers interact on online platforms are common (e.g., Amazon, eBay, HomeAway, and Uber). In instances where small firms have firm-specific advantages with global reach, they can now “go global” from start-up, delivering online business services and digital products through e-commerce. Manufacturing firms that use digital technologies gain advantages in flexibility, small batch production, and customization. Network effects can lead to “winner take all” outcomes, but low replication costs suggest that the monopolies may not be long lasting if fast followers overtake the early movers.

The third feature of IR4, according to the EC (2014, p. 12) is the growing usage of data caused by information and communications technologies “continuously driving down the costs of collecting, storing and analyzing data.” As the volume of data grows and the costs of generating and storing data fall, market-making costs (e.g., search, negotiations, monitoring, and enforcement) also decline, generating more opportunities for domestic and cross-border trade.¹

3.2. Classifying Firms in IR4

Firms that are key participants in IR4 can be classified in different ways. One simple classification is to separate firms that are wholly digital from those that are partly digital. Wholly digital businesses are typically digital from inception, operate digitally, and have their products delivered digitally. They are truly “born digitals.” Examples of born digital businesses include the Internet search engines (e.g., Google, Yahoo, Bing, ask.com, Baidu, and DuckDuckGo), the Internet social networks (e.g., NextDoor, Facebook, Instagram, LinkedIn, Twitter, WeChat, WhatsApp, and YouTube), and internet-based sharing platforms (e.g., Airbnb, Uber, Dropbox, Google Drive, and Khan Academy).

Born digitals are distinct from existing “brick-and-mortar” businesses that are adopting digital technologies into their existing production processes and product lines, which I refer to as “going digital” or partially digital businesses. Going Digitals can be either...

Table of contents

• Cover
• Title
• Introduction: International Business in the Information and Digital Age – An Overview of Themes and Challenges
• Chapter 1 The Fourth Industrial Revolution: Seven Lessons from the Past
• Part I IB Trends and Theory in the Information Age
• Part II Entrepreneurial Strategies in the Information Age
• Part III Functional Strategies in the Information Age
• Part IV Industry 4.0
• Index