Did you know that E-commerce has experienced a tremendous growth over the last 15 years? In 1999, the global trade earnt over $150 billion through E-commerce. If you compare this to the global trade through E-commerce in 2014, it has increased by more than 90 percent (Economist, as cited in the impact of e-commerce on international trade and employment, 2000). This is partly because of the globalization and the increase number of internet users.
Preble (2010) and Gunther & van der Hoeven (2004) described that there are different social dimensions and a lot of (dis)advantages relating to globalization. Besides that, Gunter & van der Hoeven (2004) described that globalization has an impact on several key economic characteristics. One of these is ‘international trade’. Trade can be conducted through various possibilities, for example E-commerce.
This paper studies the effects of globalization on international trade related to E-commerce and how companies can respond to these developments. It provides answers on what companies need to consider to go along with the trends of globalization and E-commerce and how they could gain advantage of these developments.
Preble (2010) and Gunter & van der Hoeven (2004) already studied the pros and cons regarding to jobs, international trade, wages and employment of globalization. A few more articles, which investigated the impacts on E-commerce and the consequences of digital globalization for companies, were added. Together, these articles will provide information to answer the paper statement.
This paper contains four topics. The first topic is about globalization in general. It explains what globalization means and how it may cause changes and developments in all parts of society. It shows that there are proponents and opponents regarding to globalization. The second topic contains information about international trade. It describes how the internet plays a role in international trade and how companies, which are already involved in the international market, gain more advantage than companies which are not. Topic three is about globalization and E-commerce. It provides possibilities companies can get by using E-commerce and why it is so important for business-to-business and business-to-consumer markets. The final topic of this paper is about how companies can respond to all the developments and effects of globalization and E-commerce.
Globalization
Held et al.(1999) defines globalization as: “the growing interconnectedness of the world through cross-border flows of information, capital and people”(p.324). At this moment, globalization is one of the largest developments in this world. Namely, it may cause changes and developments in all parts of society.
Kraemer et al.(2005) states that globalization leads to more opportunities for E-commerce on a wider scale and that it can help businesses to organize their internal processes in a more efficient way. The development of globalization creates proponents and opponents. On the one hand, proponents say that globalization creates jobs, improves the living standards and provides a wider variety of cheaper goods and services being available to consumers. Besides that, they think that globalization leads to a wider variety of goods, which results in an improvement of international trade (Preble, 2010). On the other hand, opponents claim that the benefits above are not accessible for all levels of society (Preble, 2010).
International trade
The World Bank has found that the world trade has undergone a tremendous growth between 1985 and 2002 (World Bank, 2003, as cited in the social dimension of globalization, 2004, p.10). One of the reasons for this growth is the liberalization of the world trade, which means that it became easier for companies to do business with international customers across the border (Gunter & van der Hoeven, 2004). Terzi (2011), states that the development of the internet can also increase the international trade.
Without the internet, it would be really costly to gain information about the market, competitors, prices, and customers across the national border. Besides that, without internet it would be impossible to develop a platform in order to do online business. When you have no access to the internet, it would be difficult to find customers and to sell products outside of the companies ‘own’ country (Trezi, 2011). This became easier because of the development of the internet, so firms could find buyers and sellers online on the international market. However, Trezi (2011) states that it depends on the type of product whether online sales can increase the international trade. For example, if it is a digital product it would be easy to send it online to the customer. If it is an offline, physical product then it needs to be send via transportation, which will increase the costs. These increasing costs could keep firms away from trading through E-commerce.
Kraemer et al.(2005) states that businesses, which are already active on the international market, gain more advantage of globalization than companies which are not, because of the following reasons: first, companies on the international market are already used to more competition. Therefore it is likely that they are already distinctive compared to other firms and use modern technologies to organize their internal processes. Second, companies with international experience are probably using different modern methods to decrease their operational costs and to make their online sales more efficient. Final reason why larger organizations take advantage of globalization is that they are forced to use the newest technology regarding to e-commerce, because there is a high chance that their customers (business-to-business) uses the newest programs as well.
Globalization and E-commerce
Terzi (2011) defines E-commerce as: “the use of the internet to conduct business transactions nationally or internationally”(p. 746). The use of E-commerce can take different roles: first, it can take an important role in the provision of information because companies are able to upload information easier via online devices. Second, E-commerce can replace different processes and actions within a company in order to produce and sell more efficiently (Terzi, 2011).
Globalization and E-commerce opens new doors for companies (Kraemer et al., 2005). Markets where they never had operated belong to the new possibilities. Due to globalization, companies are now able to be a part of a wider economic market. These developments ensure that entrepreneurs can put their business back on the map, and that they can innovate and improve. Instead of focusing on local markets, businesses get the opportunity to look further and create new adventures in other countries. (Kraemer at al., 2005). In contrast, the access to new and international markets creates new competitors when businesses enter these markets. To compete with these competitors , businesses need to change their internal processes so they can work in a more efficient way. For example, companies have to look at their strategies and they need to innovate by using new gadgets and IT programs (Snow et al., as cited in impacts of globalization on E-commerce use and firm performance, 1996 p.323).
An important difference can be made between the globalization of business-to-business (B2B) and business-to-consumer (B2C). Kraemer et al. (2005) states that B2B is more focused on international trade and B2C on sales on a smaller scale. Companies which are investing in E-commerce can distinguish themselves from companies which only have a store where customers can buy their products (Steinfield & Whitten, as cited in impacts of globalization on E-commerce use and firm performance, 1999 p.326). To strengthen this argument, Steinfield & Whitten (1999) provide 3 reasons why e-commerce so important is. To increase the consumer trust and the awareness of online sales, the preexisting relationships should be incorporated. Besides that, developing an online platform for sales can add value to the shopping experience of the customer. Instead of time-consuming shopping in stores, customers are now able to shop easily and quick via the online platforms. Additionally, companies with online sales possibilities can use the current technologies in order to provide their products more easily.
How can companies respond to the developments of globalization and E-commerce?
Manyika (2016) states in his paper about digital globalization that firms need to innovate in order to evolve together with the changing online market. Companies have to think about the questions below in order to go along with the developments of globalization and to respond to the opportunities of E-commerce.
“Does your footprint and organizational structure make sense in a more digital world?”
Companies might face high costs when they make the decision to be a part of the globalization and develop an online sales platform, but it can also have benefits for smaller companies. For example, it is easier to develop an online store in a foreign country than to set up a local shop with personnel. This possibility can trigger companies to expand their business. Manyika (2016) states that lots of companies which are active on the international market are reducing the amount of offices and choose for online shops. Besides that, companies can use the current technologies to help their customers via online devices instead of services via local stores (Manyika, 2016). These changes are all needed in order to gain efficiency and competitive advantages.
“Should you offer one brand and one product line around the world, or customize for local markets?”
When developing an online sales platform, companies have to think about whether they want to provide one brand or one product for all their sales countries, or a different product and brand for each country. Manyika (2016) states that many companies have broaden their assortment in order to connect with the wishes and needs of their customers across different countries. Besides that, prices of products may vary by country, which makes it important to use different prices for each target.
In contrast to divers products and brands for different targets, companies can also provide just one brand or product for all their sales countries. An important reason why companies should use one brand or product, is for example, that customers in different countries want to wear the same style of clothes. In this case, companies would sell more if they use the same brand and product over all their sales markets (Manyika, 2016).
“Are you prepared for new risks?”
Developing new sales platform, in this case online sales, can entail various risks. Not only because of the lack of knowledge and inexperience, but also because of online risks. Manyika (2016) provides an example that companies may be affected by cyberattacks. Companies can protect themselves against this by keeping their information assets up to date, give employees responsibilities and daily tasks to protect their systems and to test the system constantly (Manyika, 2016). Besides that, companies must take into account that global circumstances can also influence the online and global sales. For example, when an economic crisis occurs, there is a chance that this also affects a company which is active on the global, international, market. In case of such a crisis, people have less to spend, which might have an effect on sales. Because of this, firms need to think seriously about risk management in case of international issues occurs (Manyika, 2016). Companies can design their risk management by creating a specific department, which is specialized in identifying risks. This department should be able to come up with preventive actions in case of global issues.
Conclusion
In conclusion, this paper showed that globalization was a trending topic over the last years and that it still engages people. This is understandable, because it is one of the largest developments in the world. Since 1999, E-commerce has increased by billions of dollars partly because of globalization. Due to the globalization, companies gained access to the international market and it became easier for them to do business with new international customers. Companies could now focus on other countries, look for new adventures and can improve and innovate their firm.
Furthermore, this paper explained that companies who were already a part of the international market, could gain more advantage of the developments of globalization then firms which were not. The most important reason for this, is that businesses with international experience are already used to the competition and they know how they can distinguish themselves from others.
Thus, due to globalization companies gained a lot of new opportunities. In order to have a good respond to the developments, companies have to innovate. They must ask themselves if their organizational structure makes sense in a digital E-commerce world. They have to keep in mind that it will cost a lot of money to develop an online sales platform. Besides that they have to decide if they want to offer one brand and product for each country individually or offer the same brands and/or products for the whole world, because prices, styles, and needs can fluctuate by country. Additionally, are companies prepared for new risk? It speaks for itself that acceding an unknown market creates a lot of risks, for example more competition and online risks.
If companies can develop a distinctive strategy, be able to offer a brand or product that connects to the demand, and are willing to take risks then firms could gain a lot of advantage of the globalization through E-commerce on the international market.