Computing and communications have revolutionized in recent decades, and there is evidence that technological advances and the use of information technology will continue at a rapid pace. Falling communications costs as a result of technological advances and increased competition accompanies and sustains a dramatic increase in the capacity and use of new information technologies. According to Moore’s Law, the processing power of microchips doubles every 18 months. These achievements offer many important opportunities, but also pose serious challenges. Today, innovation in information technology has far-reaching implications in many areas of society, and policymakers address issues such as economic productivity, intellectual property rights, privacy and accessibility and access to information. The choices made today will have long-term consequences, and we must pay attention to their social and economic consequences.
One of the most important advances in information technology is likely to be e-commerce on the Internet, a new way of doing business. Although it is only a few years old, it can radically change the economic activity and social environment. It already affects large sectors such as communications, finance and retail, and can spread to areas such as education and health. This implies a transparent application of information and communication technologies throughout the value chain of an electronically controlled company.
The impact of information technology and e-commerce on business models, trade, market structure, workplace, labour market, education, privacy and society as a whole.
- Business models, trade and market structure
One important way to influence information technology is to reduce the importance of distance. In many industries, the geographical distribution of work is changing significantly. For example, some software companies have found that they can overcome a limited local market for software developers by sending projects to India or other countries where salaries are much lower.
Computers and communication technologies also contribute to more market-closer forms of production and distribution. The computer and communication technology infrastructure, which provides low-cost, round-the-clock access to almost any price information and products that buyers wish, will reduce information barriers to effective market forces. This infrastructure can also provide the means to conduct real-time transactions and eliminate the need for intermediaries such as sellers, brokers and travel agents whose role is to provide vital information communication between buyers and sellers. Eliminating intermediaries would reduce costs in the value chain. Information technology has promoted advanced mail sales, where goods can be quickly ordered through phones or computer networks, and then sent by suppliers through integrated shipping companies that rely heavily on computers and communication technologies to manage their operations. Non-physical products, such as software, can be sent electronically, which eliminates the entire transport channel. Payments can be made in a new way. This leads to disintermediation across the entire sales channel with lower costs, lower prices for the end user and higher profit margins.
The impact of information technology on enterprise cost structure can best be illustrated by the example of e-commerce. The main areas of cost reduction when selling through e-commerce, rather than when selling in a traditional store, are physical creation, placing and fulfilling orders, customer support, inventory management and distribution. While creating and maintaining an e-commerce website can be costly, maintaining such a showcase is certainly cheaper than a physical display case because it is always open, accessible to millions of people around the world and has few variable costs, so it can be scaled to meet demand. Using one “store” instead of several avoids doubling the value of inventory.
Although e-commerce destroys some intermediaries, it creates a greater dependence on others, as well as on some brand new intermediaries. Some of the intermediary services that may entail the cost of e-commerce transactions include advertising, secure online payments, and shipping. The relative ease of becoming an e-commerce seller and building stores leads to such a huge number of transactions that consumers can easily get lost. This increases the importance of using advertising to create a brand and thus increase consumer awareness and trust. For new e-commerce companies, this process can be costly and entail significant transaction costs. The openness, global reach and lack of physicality inherent in e-commerce also make it vulnerable to fraud and thus increase some of the costs for e-commerce enterprises compared to traditional stores. New methods are being developed to protect the use of credit cards in e-commerce transactions, but the need for greater security and authentication of users requires higher costs. An important feature of e-commerce is the ease of direct delivery of purchases. In the case of tangible goods such as books, this leads to shipping costs, which in most cases lead to higher prices, negating significant savings in e-commerce and dramatically increasing transaction costs.
With the advent of the Internet, e-commerce is growing rapidly and becoming an open and rapidly changing global market with an ever-increasing number of participants. Due to the open and global nature of e-commerce, the market is likely to expand and change the structure of the market, both in terms of the number and size of players and the way players compete with each other in international markets. Digitized products can cross borders in real time, consumers can shop 24 hours a day, 7 days a week, and companies are increasingly facing international competition online.