THE NEW ECONOMY AND E-COMMERCE C H A P T E R 2 THE NEW ECONOMY AND E-COMMERCE n To understand what is meant by the New Economy n To outline how the New Economy will impact on management thinking n To provide a link between the New Economy and e-commerce n To define e-commerce n To compare e-commerce and e-business n To list the broad categories of e-commerce Chapter Objectives http://www. ecommercebook.co.za
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THE NEW ECONOMY AND E-COMMERCE
21
C H A P T E R
2
THE
NEW ECONOMY
AND
E-COMMERCE
nnnnn To understand what is
meant by the New
Economy
nnnnn To outline how the New
Economy will impact on
management thinking
nnnnn To provide a link between
the New Economy and
e-commerce
nnnnn To define e-commerce
nnnnn To compare e-commerce
and e-business
nnnnn To list the broad
categories of e-commerce
Chapter Objectives
http://www.
eco
mm
erc
eb
oo
k.c
o.z
a
CHAPTER TWO
22
1. Enter a brave new world
In all fairness, argues Wolfgang Grulke of FutureWorld, had it not been for concurrent
revolutions in globalisation and the deregulation of trade, and in related technologies
such as telecommunications, computer networking, computing power, satellite systems
and GSM cellular phones, the impact of the Internet might have been far less. He
suggests that we stand at the confluence of several great “rivers of change” which
together are changing the very fabric of global business and the world economy.1
And so we have entered a brave new world, dominated by new micro-chip technologies,
open markets, dynamic management thinking, and one which is wired together by a vast
global information highway. These developments have spurred the restructuring and
reshaping of a new economic order called (not surprisingly) the New Economy.
Today, a New Economy is clearly emerging; it is a knowledge and idea-based economy
where the keys to wealth and job creation are the extent to which ideas, innovation, and
technology are embedded in all sectors of the economy.2
In this chapter we examine some of the features of this New Economy since it provides
us with the framework within which e-commerce takes place. We also look at the link
between the New Economy and e-commerce. Finally, we move on to define
e-commerce, e-business and to outline the broad categories of e-commerce.
2. The New Economy
Over the centuries, humankind has gone through several reformations. During this time -
from the earliest days of civilisation, through the many empires and revolutions, until
today - technology has played a role in what we do and how we live. Every time a new
technology comes into play, civilisation turns the corner on the road to a new era. This
was the case with fire, the wheel, the printing press, the industrial revolution, the motor
car, the aeroplane, the computer revolution, and is also the case today with the
e-revolution* embodied in the New Economy.
The difference today is that we are so much more in tune with what is happening around
us. With the industrial revolution, most people were still tilling the lands and few even
knew that the industrial revolution was taking place. As we enter the new millennium, a
large portion of the world’s population is at least aware - through television, radio, print
media and the Internet - that there is this revolution happening (for example, it is
estimated that soon one sixth of the world’s population will have access to the Internet
either at home or at work).3 The impact of the New Economy on humankind, therefore, is
more palpable than ever before.
* It is common in today’s semantics to talk about ‘e-something’, such as e-commerce, e-business, e-economy, e-literacy, etc. The
‘e’ stands for electronic and has to do with new electronic world of micro-chip technologies and online activities. Many
companies are striving to copyright and to brand names that have the ‘e’ in them; there is clearly an e-revolution on the go!
THE NEW ECONOMY AND E-COMMERCE
23
What is more, the New Economy is not an attempt to create a separate universe as was
the case with communism, for example. Instead, it is an evolution stemming from the late
20th century’s vital centres. Forces acting on this New Economy include the proliferation
of computers, technologies enabled by the micro-chip, networks, television,
telecommunications, rapid globalisation, the elimination of barriers to trade, the Internet,
e-commerce, and the Information Age. These drivers of the New Economy are discussed
in the next section.
Figure 2.1: The drivers of the New Economy
Of course the arrival of this new era has been nicely timed (albeit, not deliberately) with
the arrival of the new millennium. So as we enter the 21st century, we can expect to
experience even more dramatic changes in the way we live and work.
3. Drivers of the New Economy
We have already alluded to a number of major drivers behind the New Economy - see
figure 2.1. These include:
The Personal Computer
It is probably fair to say that the New Economy had its origins in the desktop revolution.
As the PC took its place in society in the early ’80s, it freed people from mundane tasks,
it increased the rate of work-flow, it opened the door to the information age and
knowledge, and it put power in the hands of entrepreneurs and innovators.
2
PERSONAL
COMPUTER
NETWORKS
INTERNET
TELE-
COMMUNICATIONS
INFORMATION
& KNOWLEDGE
GLOBALISATION
E-COMMERCE
MOBILITY
NEW
ECONOMY
CHAPTER TWO
24
Not only was the PC perhaps the most important initial catalyst for the New Economy by
putting computing power in the hands of individuals, but the incredible growth in desktop
computing power has provided the impetus for its continued pivotal role in driving the
New Economy.
Today, new PCs are in fact supercomputers that are integrated with intuitive and easy-to-
use, point-and-click graphic interfaces. What is more, they have become smaller in size
and it is now possible to carry a fully-fledged computer in your jacket pocket.
These continuing trends - increasing computing power and a reduction in size - are
empowering users to store, crunch, interface with and share vast quantities of
information at lightening speed and within a mobile environment. This allows users to
focus on putting this information to work in new and creative ways, instead of wasting
time on manually gathering, storing and processing information.
The Networked Age
One PC alone is a powerful tool, but two PCs able to share information and resources
between them are clearly much more powerful. Imagine then an organisation with large
numbers of computers all connected to each other, allowing managers and staff not only
to perform their required tasks more efficiently, but also able to communicate with each
other and to share information and ideas. By networking powerful computers,
organisations have been able to leverage additional value out of these computers and
networks.
Telecommunications
During this time, there has been a tremendous growth in the global telecommunications
infrastructure. The telephone, the telex and the fax have all played a significant role in
bringing people together, thereby facilitating the sharing of ideas and information. The
role of television has been equally important in this regard. Today, fibre optics, satellites,
cellular phones and related tele-technologies (such as video conferencing) are ensuring
that people and organisations communicate faster, wider and further afield than ever
before.
Globalisation
Globalisation has been with us for some time already. The motor car and the aeroplane
probably played the most important roles in physically bringing people together from
different nations. The television, in its own right, has opened up a window to other
countries and cultures. In so doing, it has encouraged a propensity among people to
travel abroad to visit new countries, experience new cultures and to explore new
business opportunities, and in this way has contributed to globalisation. The growth in
the telecommunications infrastructure we mentioned above, has also had a dramatic
impact on globalisation by enabling people around the world to communicate with each
other more cheaply and easily than before.
THE NEW ECONOMY AND E-COMMERCE
25
International organisations and forums, while they are often criticised, have played their
role, too, in bringing the world together as one global village. Organisations such as the
World Trade Organisation, the United Nations Council for Trade and Development, the
International Trade Centre, the United Nations Security Council, the International
Chamber of Commerce, the United Nations Development Program, the World Bank, the
International Monetary Fund and others, have all been working towards reducing barriers
to trade, facilitating global trade, providing a forum for arbitration, ensuring global
security, funding development in the poorer parts of the world, and providing access to
global and national information, thereby underpinning the process of globalisation.
The Internet
The Internet has been another major driver behind the New Economy. Closely aligned
with the concept of networked PCs and globalisation, the Internet, we said in Chapter 1,
is nothing less than a global network of computer networks. It puts the information and
resources available on the millions of networks around the world that are connected to
the Internet, at your disposal. It is perhaps the most powerful communications tool yet
available and is also a vast store of information, knowledge and ideas.
E-commerce
We also argued in the previous chapter that it has been the commercialisation of the
Internet that has been the main driving force behind its incredible growth. This online
commercial activity is commonly referred to as e-commerce (or e-business) and is
discussed in more detail in the rest of this book.
The Information Age
In the Old Economy, it was about the ownership of tangible, physical assets. Land,
buildings, capital equipment and cheap labour - all finite and limited - gave entrepreneurs
the ability to produce goods and services that were consumed by their customers. The
control of natural resources and ownership of property, plant and equipment were the
means to wealth. This economic age was called the ‘economics of scarcity’ and spawned
the concept of the ‘haves’ and the ‘have-nots’ - you either had access to these scarce
resources or you didn’t.4
Initially, there was very little competition; markets were local and protected from outside
players by trade barriers. Business was relatively easy. Companies mostly took the lead
in producing what they thought customers wanted and were generally successful
because of the lack of alternatives (e.g. Henry Ford - “they can have any color they want
as long as it’s black”).
Over time, however, an increasing number of companies entered the playing field, trade
barriers were lowered allowing competition from abroad, and customers soon realised
that they had the freedom to choose. Companies embraced the concept of marketing
which required them to understand their customers’ needs and to gear the company’s
processes towards catering to these needs.
2
CHAPTER TWO
26
To this end, information about customers through market research became a critical
success factor for companies. They also needed to know about their competitors in order
to stay ahead of the field, as well as about developments in their respective industries
and about what new products or materials were coming onto the market that could pose
a threat or provide an opportunity for them. So the Information Age was born.
The power of the computer to hoard and churn out data had a major impact on the
Information Age, as did networks, telecommunication systems and television. Information
became a commodity to buy and sell, and many companies were created simply to
gather, analyse and provide competitive information for their clients.
Soon there was so much information around that it has led to an information overload.
The Internet has been pivotal in making huge quantities of information available to
customers and companies at e-speed - that is, almost instantly. The Internet has also
made these vast stores of almost unlimited information available to anyone; no longer
are interaction and collaborations costs high - anyone can play. In the old economy, size
was important; it meant that you had the resources to do business. Long vertical value
chains helped keep competitors out of the game.
Today, small virtual companies are competing head-on with the giants, and often
winning. Overhead is gone; manufacturing capacity can be hired; and best-of-breed
business partners can be assembled as and where necessary by the new-age
entrepreneur to cater to the needs of customers. The key, of course, remains the
customer and success will depend on how companies meet customer needs in the New
Economy. Finding and keeping customers is as important as it has always been. Strong
customer relationships are crucial in binding the customer to the company, in an
electronic environment where the nearest competitor is but one mouse click away.
The economic model has shifted from the ‘economics of scarcity’ to the ‘economics of
plenty’. Anyone can have access to these information resources if they choose to and
no-one is limited to one good idea per day. Today there are only the ‘haves’ and the
‘want-nots’.5 The Information Age really represents the ‘economics of attitude’.6 The New
Economy, therefore, can be said to be based on information and knowledge* - intangible
assets.
Knowledge management
In the previous section we said that information alone is not enough. Information must be
turned into knowledge. Knowledge management attempts to connect an organisation’s
intellectual assets both explicit (recorded) and tacit (personal know-how) with positive
business results.7 It encompasses identifying and mapping intellectual assets within the
organisation (including the creative and innovative capacity of its staff), generating new
knowledge for competitive advantage, making vast amounts of corporate information
accessible to its workers and managers, sharing best practices within the firm, and
utilising artefacts (i.e. the physical processes and technologies) that enable all of the
above.8 The focus of knowledge management is on developing an integrated and
synergistic knowledge system and on the management of that knowledge.
* In this regard, knowledge is seen in its broadest sense, ranging from the capabilities of human resources to provide services,
solutions and ideas, to the intellectual capital invested in knowledge-intensive goods such as pharmaceutical products and
computer software
THE NEW ECONOMY AND E-COMMERCE
27
Other drivers
There are many other factors that will come into play to help drive the New Economy
deep into the 21st century. One of these is mobility. We have already mentioned that
computers are not only getting more powerful, but also smaller. Today’s PDAs are as
powerful as full-blown computers were only a few years ago. Already you can access the
Internet with your cellular phone and it is likely that cellular phones and computer
technology will converge over the next few years, to bring additional mobility to the cell
phone owner.
Nanotechnology will enable computers to be made small enough to be implanted in a
body and connected to the nervous system of a human being. This would enable you to
control a computer just by thinking about it. This is not science fiction, these experiments
are already happening today.9
New materials - metals and ceramics - will allow us to push the
boundaries of what is possible today, while biotechnology will
allow us to live longer.7 In addition, developments on the social,
political and environmental scene, will almost certainly impact on
we live and work in the new century.
4. The New Economy vs the Internet
Economy vs the e-Economy
As is so often the case when one deals with a new topic, the semantics are somewhat
confusing. One person speaks of the New Economy, the next refers to the Internet
Economy and still another talks about the eEconomy (sometimes e.Conomy). What is
what? John Chambers, CEO of Cisco Systems, says that “What many refer to as the
New Economy can be more descriptively defined as the Internet Economy.” 10
Certainly, the Internet plays a pivotal role in the New Economy but it is probably fair to
say that the New Economy is much more than the Internet. If we focus on the Internet
only, we are in danger of losing our grip with our physical reality. Like a Black Hole, there
is the threat of being sucked into virtual oblivion, living and working a cyber existence
only. This is not healthy situation for the individual or for a business - it is as bad as not
being online at all. Important is to find a healthy balance between the physical and the
virtual.
The terms “eEconomy” and “eConomy” are simply snazzy words for “electronic
economy” which is akin to the term “Internet Economy” except that they have a slightly
broader meaning to incorporate other non-Internet electronic technologies such as smart
cards, electronic kiosks, etc. Again, the New Economy is not only about electronics,
microchips and cyberspace - people still need to make the world go around.
“500 million Internet
users will buy or sell
goods over the Web
by 2003”
International Data
Corporation
2
CHAPTER TWO
28
5. Challenges and opportunities of the
New Economy
The networked economy opens the doors to information and knowledge. Used properly
this knowledge will impact on productivity and incomes. But today business is not simply
about information or even knowledge, but about skills - knowing something is not
enough; to do something and to do it well is what is required.
It is fair to say that as with the Old Economy, people remain a crucial factor in the impact
that the New Economy will have on business and society. People, both as individuals
and as a key resource within firms, need to be equipped, therefore, to meet the
challenges of this brave new world.
As individual players in the New Economy, we all have to commit ourselves to learning
new skills, and we may have to reinvent ourselves and our skills-base several times
again over our working lives as the world around us changes. No longer can we afford to
learn a particular skill and then expect an employer to provide us with a long-term outlet
for our skill in the form of a career. Long-term employment is out. Job security is gone.
Instead, we will all become migrant workers, sharing our skills with firms as and where
needed for a fee. We are entering a new era of life-long learning and a churning job
environment involving flexible and dynamic employment.
Those who take up the challenge, and enhance and reinvent their skills will experience
wage growth; those who do not will experience a decline in real wages. Unfortunately,
we are likely to see a widening gap between the skilled and unskilled.
These trends are already revealing themselves in South Africa, with a growing number of
firms retrenching large numbers of staff as they downsize themselves - lean and mean is
the new policy. Unions are doing their best to force such companies to keep staff. But
this will only make these firms - clogged with more staff than they need or can afford -
even more uncompetitive in the New Economy. Already South Africa ranks poorly
(37th out of 47 countries studied) in the 1999 IMD study of international
competitiveness.11
The focus of unions should instead be on reskilling - teaching workers relevant skills for
the New Economy. In the New Economy, the key is education and training, and again the
Internet has a role to play. Instead of becoming a technology trap, the Internet and
related technologies can help bridge the skills gap that exists in this country. Bringing
education and training to remote geographic areas and to disadvantaged communities is
a real possibility with satellite-linked Internet-based learning systems. Computers are
cheap when compared with human resources and can be used effectively to support and
to enhance the role of teachers (we are not suggesting that the Internet should ever
replace teachers - it is simply a powerful tool for educators to use).
THE NEW ECONOMY AND E-COMMERCE
29
As they enter the New Economy, firms, too, will need to reinvent themselves to take
advantage of new technologies to manufacture goods and services. Manufacturing will
take place where it is cheapest and entrepreneurs will become imagineers and solution-
blacksmiths that forge solutions and put them into place. They will contract for skills and
manufacturing capacity as required and they will compete globally for business. A skilled
labour force, support for R&D, an effective tele-communications and business
infrastructure, and an open and stable economy is what will attract business to invest in
countries.
Similarly, governments will need to move swiftly to address these above-mentioned
issues. Education and training - especially life-long learning - is a critical area for
development. Workers need to be provided with the skills to participate in the New
Economy. If someone does not succeed, it should be because they are a ‘want-not’ and
not because the system has failed them, allowing them to become
a ‘have-not’ (i.e. a person without suitable skills). Policies that
nurture growing businesses and attract skilled labour are an
equally important area of focus for governments. In addition,
infrastructure must be created to support business and the tax
system needs to be fair and equitable. The environment and
quality of life are also important factors in attracting investment in
the New Economy.
In the online environment, access is crucial and if countries are to
succeed in the New Economy, their citizens must be provided with
ready and affordable access to the virtual world.12 A lack of access
will translate into a growing number of ‘have-nots’. In particular,
the following areas of focus, adapted from NGA Online, are
required to steer countries into the new millennium .13
n Building workforce skills and educating and promoting lifelong learning to ensure
a competitive workforce
n Enhancing the transportation and communications infrastructure needed to
support burgeoning knowledge-based industries and electronic commerce
n Facilitating access to the virtual world by means of a competitive
telecommunications service and partnerships with the private sector to connect
the workforce with the Internet
n Reengineering government to deliver services more efficiently using technology,
privatisation and partnerships with the private sector
n Developing more uniform regulatory and tax structures to reduce complexity and
eliminate market distortions
n Supporting entrepreneurs, business start-ups and exporters by streamlining
business regulations, providing timely decisions and assisting firms in their search
for venture capital
n Promoting university policies that encourage research and development, build
intellectual infrastructure and facilitate R&D partnerships between universities and
businesses
n Addressing quality-of-life issues to attract new businesses and workers
The New Economy:
“The tools may have
changed, but the
business rules
haven’t”
Arthur Goldstuck ,
CEO -
Media Africa.com
2
CHAPTER TWO
30
6. Staying competitive in the New Economy
As the environment around us changes, so we need to develop strategies and attitudes
that will help keep us competitive, both as individuals and firms.
As individuals
Reskilling
It was argued earlier in this chapter that the key to the New Economy is reskilling and
this clearly has to be a major focus for individuals. For many of us, this is a daunting
prospect. We may have spent a large portion of our lives preparing ourselves for a
particular career. Add to this years of experience gained through hard work, then we may
feel justified having reached a level of competency that places us in a position of
seniority and control. If we wish to stay there, however, we will need to embrace new
ideas and learn new skills or we will find ourselves displaced. It may mean going back to
the classroom, or it may simply mean being open-minded to the changes that are
happening around us.
Open-minded
Too often when change threatens us, we take a defensive approach. We fight the
change and look for arguments why it is not right for us. We refuse to entertain the ideas
being put forward and may turn away from reading related articles or the proposals put to
us by our colleagues.
The right way, however, is to be open-minded. Accept that we are going through a period
of dramatic change and that every idea being put forward is not necessarily a bad one.
But be positive rather than negative. Seek out the good about ideas and find solutions to
what we see the inherent problems being. By being a ‘player’, you are likely to get much
further in the New Economy than a ‘nay-sayer’.
Embracing change
Change has always been part of life. We grow up from being children to becoming
teenagers and eventually to becoming adults. We start jobs and change jobs, our
children grow up and leave home, our loved ones pass away, our friends change, the
politics of our country changes, and we move into a new millennium. The fact that
change is part of our lives, however, does not make it any easier to deal with.
But we need to reconcile ourselves with the reality that as we enter the new century, the
changes that are happening around us are perhaps more dramatic than ever before.
This is probably because they are happening at a faster rate and are happening in
different areas of our lives. Not only are the business rules changing, but technology is
THE NEW ECONOMY AND E-COMMERCE
31
changing faster as well, we are moving towards a global village at warp speed, we’ve
entered the new millennium, and we’re experiencing dramatic changes at the socio-
political levels, particularly in South Africa.
To succeed in the New Economy, we need to embrace these changes; we need to sit
down and plan our reaction to these changes. We cannot afford to let the changes
happen without thinking about them. They require deliberation and a planned response.
Becoming your own boss
When competing in the New Economy, companies need to become leaner and meaner.
They require more skilled staff, while simultaneously downsizing their total staff numbers
and outsourcing many of their business requirements. This impacts on the individual
directly.
The future lies in small virtual businesses that provide essential skills and services on an
as-required basis. These small operations will consist of one or more individuals with
specific skills that a company requires on a regular, but not on a full-time basis. In the
Old Economy, it may have been possible for a company to ‘carry’ such full-time
employees, but not any more. Many firms are retrenching staff and then rehiring them on
a consulting or part-time basis. It provides the firm with flexibility, cuts costs and is more
efficient than before.
For the individual, there is a need to consider whether your skills will be required on a
full-time basis and what the chances are to resell your services to your present employer
on a part-time, contractual basis. If not, maybe there other areas or other businesses
where you can put your skills to work. In South Africa, a number of individuals have
already taken this route into self-employment, generally quite successfully. It is certainly
a better option compared with retrenchment and unemployment.
Remember, though, even if you move out on your own, you will still need to consider how
you will reskill yourself for the New Economy.
The firm
The changes taking place around us are no less dramatic for the
firm than for the individual. What is more, the New Economy
cannot be avoided. There are people, companies and countries
that are setting new rules underlying intellectual assets,
knowledge, skills and technologies. It is no longer possible to
remain isolated while those around us gear themselves to play
the business game with these new rules. Dealing with these
changes is essential if the company is to succeed in the New
Economy.
“Information is
emerging as the
primary global
currency...infonomics
not economics will
be the order of the
day”
Dale Kutnick, CEO -
Meta Group
2
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32
The early days
In the early days, as the PC allowed us to become more creative and to test new ideas,
management paradigms were spawned to accommodate this new technology. Initially,
management models focused on doing things better - cost-cutting and efficiency were
major areas of focus. The PC was put to use in innovative ways in quality control,
financial modelling, and managing business processes. The desktop computer allowed
managers to explore ‘what-if’ scenarios and to run the firm more efficiently.
Cost-cutting alone is not enough
It has become apparent, however, as the business environment changes, that cost-
cutting alone is not sufficient for survival. It is not possible for a company to shrink its
way to success. Indeed, continuous cost-cutting only works if the company is growing.
Instead, innovation, flexibility and dynamism should be the war-cry and developing
knowledge-based growth strategies are essential in this process.
Of course operational excellence remains important for companies to compete in the
new world order. Producing faster and/or at lower cost compared to competitors is
essential for success, but it is no longer the main competitive thrust.14
Customer intimacy
We’ve already pointed out that the customer remains ‘king’. In the New Economy,
business is no longer viewed as a sequence of individual transactions. A large number
of single sales, while perhaps contributing to overall sales and profitability, is today seen
as being very risky business. Instead, there is a strong move afoot to develop a closer
relationship with the customer.
Innovate, don’t imitate
The futures success of business lies in innovation, and not necessarily always product
innovation. Certainly, product leadership will mean exploiting previously unseen
opportunities as opposed to merely imitating or improving products and services.15 In
the New Economy, however, companies will also need create new ways to add value to
customers through innovative information and knowledge services. Many new types of
companies and business opportunities have already been created simply by re-
packaging and re-working information in ways that make better sense to the customer,
the company, its suppliers and business partners. The Internet is often used as a way of
delivering this innovation, or alternatively innovation is leveraged out of the unique
characteristics of the Internet. For example, its 24x7x365 availability can be used to
provide continuous customer service and support, rather than only during working
hours.
THE NEW ECONOMY AND E-COMMERCE
33
Table 2.1: Keys to the old and new economies
ISSUE OLD ECONOMY NEW ECONOMY
Economy-Wide Characteristics:
Markets Stable Dynamic
Scope of Competition National Global
Organisational Form Hierarchical, bureaucratic Networked, entrepreneurial
Potential Geographic Low High
Mobility of Business
Competition Between Regions Low High
Industry:
Organisation of Production Mass production Flexible production
Key Factor of Production Capital/labour Innovation/Knowledge
Key Technology Driver Mechanisation Digitisation
Source of Competitive Lowering cost through Innovation, quality, time-to-
Advantage economies-of-scale market and cost
Importance of Research Moderate High
Innovation
Relations With Other Firms Go it alone Alliances and collaboration
Workforce:
Principal Policy Goal Full employment Higher wages and incomes