Janes Essay, Research Paper

IMPACT OF THE INTERNET ON INTERNATIONAL BUSINESS

The Internet is the most significant development in Information Technology since the invention of the personal computer. In business today, the Internet is changing the fundamentals of how we conduct international business. In the few short years of its existence, the Internet has shown that, despite security concerns and slow access speeds it can deliver on the long sought after goal of electronic commerce. The main reasons for its stunning and rapid success are its ease of use, low cost and extensive worldwide coverage. No other system as ever comes close to delivering on these fundamentals.

There is now ample evidence that the Internet works, and works very well, in generating new business for companies of all sizes, and in a wide variety of industries and business sectors. Forrester research estimates that Internet commerce is in a period of hyper growth and will likely reach US$ 328 billion by the year 2002, a staggering increase over the current level of US$8 billion. Another IT research company, IDC, estimates that as Internet assisted sales could account for 2% of total world GDP by 2002, and as much as 5% for developed countries. While these percentages are impressive in themselves, it is the rapid growth that is attracting most attention to this new business tool.

Contrary to initial expectations, business-to-business sales are far more significant than private consumer sales. This follows the trends in hardcopy-based catalogue sales, which are also dominated by the business-to-business sector. The main products currently selling on the Internet are computer software and hardware, office supplies, consulting and research services.

Companies world-wide have recognized the business potential of the Internet, and are getting connected to this network of networks by the millions. Ernst and Young estimates that 95% of banks plan to use the Internet for information dissemination, and 86% will have Internet-based transactions by 1999.

Approximately 50% of US businesses provide promotional and other information about their company on an Internet Web site, while 75% of UK businesses have an Internet connection.

From an international trade perspective, the Internet is the window to the global village. The potential for companies to reach clients world wide is enormous, and the costs for this access is very low, compared to traditional approaches. This combination of reduced costs and increased market access offers huge benefits to companies in regions which are distant from the major world markets.

Some of the new businesses spawned by the Internet are making impressive strides. Amazon.com, one of the first virtual bookstores on the Internet, now has annual sales of approximately US$100 million, serves over 600,000 customers world wide and holds 1.5 million titles. Fashionmall is another example of a virtual business.

Home to 18 apparel manufacturers, six fashion magazines and 14 designers, this virtual clothing company is visited 3.4 million times per day by Internet users. Cisco, a leading network router company, currently sells US$1 billion per year on the Internet. And, you don’t need to be a large organisation to benefit – the International Trade Centre (ITC) in Geneva offers free hosting for handicraft on it Virtual Trade Mart.

Using the Internet, it is now possible to order your custom built Dell computer, select suppliers from around the world by product or service, review detailed international trade statistics, view the current stock of houses for sale in a particular city, calculate your down payment and monthly mortgage payments instantly on-line, order a pizza, or set up a virtual bank.

The Internet is also having a significant impact on the service industry. Forrester research estimates that on-line airline tickets will reach US$8 billion by 2001. Other service industries directly affected are real estate, insurance and entertainment booking. What is happening here is a process of disintermediarisation where clients can now go directly to the seller (as in airline bookings) and, perhaps, receive more information on special promotions, discounts, and group or volume purchase plans.

This is not to say that the middle-man is obsolete. However, in some industries, service agencies will have to look at creative ways to use the new technology and adding value to the new range of information available direct to customers. Service industries that do not recognize this fundamental change in business practice are likely to be in difficulty.

Companies are also using the Internet to provide better service to clients and, in the process, are saving millions of dollars in better efficiency. The current trend in Internet Web sites is interactivity, whereby clients can place and track orders, make enquiries, and give feedback, 24 hours a day 7 days a week. Interactive sites effectively allow the user to query the company information which is available, leave messages, request further information or place an order. And, not only is this much more convenient from a client perspective, companies estimates savings in the region of 70% over traditional methods like phone and fax.

But the savings are much more extensive than this specific example outlined above. Electronic mail or e-mail, one of the most popular Internet related business tools, is rapidly replacing phone and fax for basic business communications – and at a fraction of the cost. For example, the cost savings on e-mailing a 10-page report from Harare to New York would be enough to cover the full Internet charges (US$50) for one month!

Security is still a significant issue for Internet commerce. But, given the value of business currently being transacted over the Internet, it is likely that the security risk will be reduced to an acceptable level in the near future.

Security is in fact being addressed by some of the biggest players in the industry. Visa and Mastercard are currently working on Secure Electronic Transaction (SET) technology to make credit card transactions safe, and this is likely to become the international standard for on-line commerce. IBM has joined with 16 major banks, in the USA and Canada, to develop the Gold Standard for interactive banking and bill payment. And yes, Microsoft is also spending millions on this issue.

Security issues are real and companies must face them head on. However, the business potential of the Internet is too strong and too pervasive to hold companies back at this stage.

Indeed, business and public use will increase even more dramatically than the current trend, and the Internet will become the de-facto standard for business transactions.

What is happening here is a revolution, a new age, a new paradigm, where the very basis of business operation are changing rapidly and a new uncharted landscape is unfolding. It is somewhat difficult to say at this stage exactly who will be the winners or losers, but a clear trend of the early adopters claiming this new market is emerging.

Companies worldwide have little choice but to adapt to this changing word as quickly as possible. This should not be seen as an imposing task, however, as the technology offers significant improvements in business efficiency and profitability. It also significantly extends the market reach of companies wherever they may be located. The Internet is, in fact, the window of opportunity to the global village.