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Program: Business Studies Course Title: Digitalisation and New Market Paradigms Course Code: MAMA311 Total Credits: 1.5 Total lecture Hours: 7.5 – PowerPoint PPT presentation

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Title: Program: Business Studies


1
  • Program Business Studies
  • Course Title Digitalisation and New Market
    Paradigms
  • Course Code MAMA311
  • Total Credits 1.5
  • Total lecture Hours 7.5
  • Course Lecturer Uwem Essia

2
COURSE OVERVIEW AND OUTLINE
  • Course Description
  • The students are taught how digitalization is
    changing the way business is done.
  • The new market possibilities created in the
    digital economy are explained.
  • How the structure, conduct and performance of
    firms are affected by digitalization is
    discussed.
  • The new microeconomics of competition explained.
  • Imperatives of the new economy for corporate and
    macroeconomic policies are discussed.

3
COURSE OVERVIEW AND OUTLINE
  • Pedagogic Goal
  • The students capacity to carry out marketing
    activities in the new markets is improved.
  • Pedagogic Objectives
  • The students understand how digitalization has
    changed the way business is done.
  • The students understand how marketing is
    affected by the Internet.
  • The student appreciates the implication of
    digitalization for macroeconomic policies and
    overall development programming.

4
COURSE OVERVIEW AND OUTLINE
  • Learning Objectives
  • The students can differentiate the digital
    economy from the brick and mortar economy.
  • The students can explain the paradigm shifts in
    marketing occasioned by digitalization.
  • The student is able to link changes in the
    digital economy to macroeconomic and global
    development.

5
COURSE OVERVIEW AND OUTLINE
  • Learning Outcomes
  • The students are able to function better in the
    digital economy.
  • The students are able to undertake researches in
    digital marketing related areas in line with
    global best standards.
  • Course Outline
  • Content
  • Section 1 From Industrial to Digital Economy
  • 1.1. New basic conditions
  • 1.2. The positive loop effect of knowledge
    creation
  • 1.3. The knowledge worker
  • 1.4. The Internet as a converging force
  • 1.5. Layers of the Internet Economy

6
COURSE OVERVIEW AND OUTLINE
  • Session 2 Structure-Conduct-Performance
  • 2.1 Performance in the Digital Economy
  • 2.2. Production and allocation efficiency
  • 2.3 Digital Market Structure
  • 2.3.1. Redefining industries and competing groups
  • 2.3.2. Barriers of entry to online trading
  • 2.3.3. Drop-out rate of business startups
  • 2.3.4. Frictions in the electronic and
    conventional
  • 2.3.5. Transparency of virtual markets.
  • 2.3.6. Economies of enterprise size in the
    Internet world
  • 2.3.7. Market structures in virtual markets

7
COURSE OVERVIEW AND OUTLINE
  • 2.4. Conduct Of The Digital Economy
  • 2.4.1. Competitive strategy in the digital
    economy
  • 2.4.2. Money and payment
  • 2.4.3. Innovation
  • Session 3 Pricing Behavior
  • Session 4 Behavior of Firms
  • 4.1. Connectivity And Firm Behavior
  • 4.2. Dis- and re-intermediation
  • Session 5 Product Strategy and Advertising

8
COURSE OVERVIEW AND OUTLINE
  • Session 6 Other Firmlevel Characteristics
  • 6.1. Company finance and the growth of firms
  • 6.2. Legal tactics
  • 6.3. Standards
  • Session 7 Macroeconomics of Spillovers
  • 7.1. Role of Government
  • 7.2. Need for Supranational moderation
  • Session 8 The Digital Economy and Economic
    Growth
  • 8.1. Digital divide and the catch up
  • 8.2. Skill requirements

9
1 From Industrial to Digital Economy
  • 1.1. New basic conditions
  • Recent ICT explosion has moved world from the
    brick and mortar industrial age to the digital
    era.
  • The Internet has changed the basic conditions
    significantly.
  • It is still debated how productive the internet
    has really been the so-called productivity
    paradox.
  • On the one hand, it is argued that ICT has
    positive impact on productivity,.
  • On the other hand, the re-organization
    necessitated by ICT adoption creates a huge cost.

10
1 From Industrial to Digital Economy ..1
  • 1.1. New basic conditions
  • Moreover, it takes many years for the payoffs
    from the IT revolution to manifest.
  • But the Internet evolution has already created
    the information society.
  • And theories of the old economy that are based on
    the traditional factors of production (land,
    capital, labor) need re-examination.
  • Nowadays, intellectual, creative, and innovative
    capital (basically knowledge) drive development.
  • The basis for comparative advantage has changed
    hence the paradigm shifts.

11
1 From Industrial to Digital Economy ..2
  • 1.2. The positive loop effect of knowledge
    creation
  • The first type of knowledge dominating the
    digital society is imaginary or creative
    knowledge
  • Presentation skills is an example of imaginary
    skills.
  • Team building is an example of creative
    knowledge.
  • The second type of knowledge is practical
    knowledge that is based on data and information.
  • Mastery of algebra is practical knowledge once
    internalized the student can apply the new
    knowledge to physics, chemistry or economics.
  • This is necessary where knowledge is needed to
    obtain and to use (adoption requirements)
    knowledge.

12
1 From Industrial to Digital Economy ..3
  • 1.2. The positive loop effect of knowledge
    creation
  • The vast cyberspace warehouses data and its
    network effect increases interactive data
    exchange exponentially.
  • This positive loop effect of knowledge creation
    is highly accelerated.
  • Computers have increased the brain power of
    humankind magnificently.
  • So too are interconnectivity of computers and
    people via the Internet.

13
1 From Industrial to Digital Economy ..4
  • 1.2. The positive loop effect of knowledge
    creation
  • The generation, processing and distribution of
    knowledge and information drive productivity.
  • All firms need ICT to be on the competitive
    technological frontier.
  • Thanks to the Internet, Knowledge is almost
    non-rival and non-excludable
  • Knowledge cannot be kept secret for any possible
    long period
  • the new economy is characterized by
    uncontrollable spillovers and externalities
  • It is now important that experts conceptualize
    how knowledge and information can best be
    modeled.

14
1 From Industrial to Digital Economy ..5
  • 1.3. The knowledge worker
  • The knowledge society requires a knowledgeable
    worker with up-to-date competencies.
  • Workers need to renew their skills through
    life-long learning and on-the-job-training.
  • The Internet or virtual space is increasingly an
    important part of human life.
  • It is also the dominant medium to create,
    transmit and share information and ideas.
  • Nearly everyone is compelled to "think network",
    and live through the liberalized sea of
    information flow.

15
1 From Industrial to Digital Economy ..6
  • 1.3. The knowledge worker
  • However, many fear that the cyberspace may
    someday collapse due to information overload.
  • The volume and speed of flow of information has
    been very high.
  • Many now focus just on synthesizing information
    already provided.
  • Much less time is available for analyzing
    coherences and creating new information.

16
1 From Industrial to Digital Economy ..7
  • 1.4. The Internet as a converging force
  • The Internet engulfs all aspects of economic,
    political, social-cultural and moral life.
  • Knowledge is converging. It is now more difficult
    to separate professions and specialties.
  • It not only loss of distance, but also loss of
    space. knowledge knows no territorial
    boundaries.
  • Individuals, firms, and countries are now under
    immense pressure to be global players.
  • Measures of performance for the industrial age
    have become ill equipped for the new economy.

17
1 From Industrial to Digital Economy ..8
  • 1.4. The Internet as a converging force
  • This is particularly so because network or global
    effect are difficult to contextualize and
    measure.
  • Network externalities exist because the utility
    from being connected increases when more persons
    are connected.
  • Subscription to the network is more valuable as
    the network is oversubscribed.

18
1 From Industrial to Digital Economy ..9
  • 1.5. Layers of the Internet Economy
  • The Internet economy can be divided into four
    layers, namely Infrastructure Layer, Application
    Layer, Intermediary Layer, and Commerce Layer
  • Infrastructure Layer players in this layer
    provide the hard infrastructure e.g., backbone
    providers and Internet service providers, and
    manufacturers.
  • Application Layer players in this layer build
    upon the infrastructure provided. They include,
    Internet consultants, and web/software
    developers, etc.
  • Intermediary Layer players in this layer
    facilitate the meeting and interaction of buyers
    and sellers over the Internet. These include
    online travel agents and brokers, content
    aggregators, portals/content providers and online
    advertising,

19
1 From Industrial to Digital Economy ..10
  • 1.5. Layers of the Internet Economy
  • Commerce Layer players in this layer sell
    products and services to consumers or businesses
    over the Internet. These include e-tailers,
    manufacturers selling online, airlines selling
    online tickets, and online entertainment and
    professional services.
  • Note that many companies are players at multiple
    layers.
  • For instance, Microsoft and IBM are important
    players at the Internet infrastructure,
    applications, and Internet commerce layers.

20
Review Questions
  • Explain how the IT revolution has created new
    basic conditions.
  • Explain why imaginary skills, creative knowledge
    and practical knowledge are relevant in the
    digital economy.
  • The internet has rendered the knowledge
    non-rival and non-excludable. Discuss.
  • Do you agree with the view that the
    knowledgeable worker needs to renew skills
    through lifelong learning
  • In what ways is the internet a converging force?

21
Session 2 Structure-Conduct-Performance
  • 2.1 Performance in the Digital Economy
  • In the new economy, the frontiers for goods and
    services have melted down to digital- or non
    digital goods.
  • Digital goods can bypass transportation costs,
    and quite often the wholesale and retail
    networks.
  • They are non-rival, for example, most web users
    go online to get news and information, and every
    big newspaper or magazine, and TV stations have
    valid web addresses.
  • Digitalized goods are pulled by the demand of the
    customer, and pushed by the supplier.
  • Digital products have high fixed cost and low
    marginal cost
  • For example, information is expensive to produce,
    but cheap to reproduce.

22
2 Structure-Conduct-Performance ..1
  • 2.1 Performance in the Digital Economy
  • Digital goods are not generally governed by the
    conventional economic notions of scarcity and
    increasing marginal cost.
  • The Internet is blurring traditional description
    of tradable and non-tradable goods.
  • It is now possible to trade more goods and
    services.
  • Any activity that can be conducted via a screen
    and telephone can be carried out anywhere in the
    world.
  • Some goods, like food, may never become
    digitalized.
  • Goods like software are very susceptible to
    digitalization and hardly get distributed
    physically anymore.

23
2 Structure-conduct-performance ..2
  • 2.2. Production and allocation efficiency
  • Competitiveness of the virtual markets checks
    misallocation of resources.
  • Interactivity of Internet has eased adjustment of
    prices.
  • A modern capital market demonstrates how the new
    economy can be efficient.
  • The digital economy aligns demand to supply more
    intimately.
  • Markets and industries are getting destroyed and
    created at an unprecedented speed.

24
2 Structure-Conduct-Performance .. 3
  • 2.2. Production and allocation efficiency
  • Today's businesses and consumers demand more
    customized set of products and services.
  • Firms in the same industry compete and at the
    same time collaborate to develop knowledge.
  • Digitalization encourages co-operational
    relationship of firms in a value chain.
  • The new economy defines the basic assumptions and
    analytical tools.
  • This has redefine what is meant by good
    performance.

25
2 Structure-Conduct-Performance .. 4
  • 2.3 Digital Market Structure
  • The transition from brick and mortar to the
    digital economy raises a number of questions
  • What is the structure of industries and competing
    groups?
  • Has barrier to entry changed with online trading?
  • How is the drop-out rate of startups in the
    emerging markets?
  • Do electronic markets have less friction than
    conventional markets?
  • How transparency are virtual markets'?
  • Does the firm size matter in the virtual market?
  • Does the textbook model of perfect competition
    apply in virtual markets?

26
2 Structure-Conduct-Performance .. 5
  • 2.3 Digital Market Structure
  • 2.3.1. Redefining industries and competing groups
  • Openness of the virtual markets to customers has
    accelerated competition.
  • In considering economies of scale, the concern
    now is with scope instead of size.
  • Firms reduce cost with multiple products instead
    of producing more of one product.
  • The unit costs are lower when complementary
    products are produced by a single firm.
  • The synergy created from complementarities are
    the 'cross product' and 'cross-learning
    effects'.
  • In the old economy the focus of a firm was on
    maintaining and improving the actual business.

27
2 Structure-Conduct-Performance .. 6
  • 2.3 Digital Market Structure
  • 2.3.1. Redefining industries and competing groups
  • In the new economy the preoccupation is to
    continuously initiate new, innovating businesses.
  • The old firm focused on maintaining and improving
    the actual business.
  • But the new firm is to continuously initiating
    new, innovating, businesses.
  • The new economy is dominated by unconditional
    consumer focus, and product individualization.
  • This has redefined industries and competing
    groups.
  • Measurement systems of the old economy are
    ill-equipped for the digital economy.

28
2.3. Digital Market Structure
  • 2.3.2. Barriers of entry to online trading
  • The new economy has made entry and exit much
    easier.
  • Since no firm is able to control the value chain,
    new firms are often set up virtually overnight.
  • Outsourcing eases the entry of new business ideas
    into a market niche (of a value chain).
  • New ideas and enterprises often do not need need
    to spend much on fixed cost spending.
  • Marketing is eased by online ordering.
  • The death of distance kills many market entry
    inhibitions of spatial economics.

29
2.3. Digital Market Structure
  • 2.3.2. Barriers of entry to online trading
  • The worldwide-Web is cutting through many of the
    distribution and market barriers.
  • Local firms are increasingly gaining access to
    foreign markets.
  • This is extremely beneficial for small and
    medium-sized firms.
  • Barriers of entry to global markets, especially
    in the supply chain, procurement and outsourcing
    have now almost vanished.

30
2.3 Digital Market Structure ..2
  • 2.3.2. Barriers of entry to online trading
  • The internet cuts through distribution and market
    barriers that limits access to foreign markets.
  • This is has been quite beneficial for small and
    medium-sized firms.
  • However, the network effects and economies of
    scope favor the established firms.
  • This has raised some entry barriers for the
    e-commerce newcomers.

31
2.3 Digital Market Structure ..3
  • 2.3.3. Drop-out rate of business startups
  • While entry may be easy, growth and survival of
    businesses constitute the major challenge.
  • Barriers to entry may be low, but the issues is
    whether it makes sense to enter in the first
    place.
  • The key ingredient for success is creating the
    economies of reputation.
  • Making a name is paramount in virtual markets.

32
2.3 Digital Market Structure .. 4
  • 2.3.4. Frictions in the electronic and
    conventional markets
  • The network effect eases getting several items
    from a source, rather than from several sources.
  • It is now easier for many firms to buy components
    of products instead of producing everything.
  • Outsourcing is now commonplace in the digital
    economy.
  • Increasingly, firms sell diversified but related
    products and services.

33
2.3 Digital Market Structure .. 5
  • 2.3.4. Frictions in the electronic and
    conventional markets
  • For example, an online book retailer can as well
    sell air tickets.
  • The driving force here is the economies of scope.
  • A waste disposing firm can produce organic
    manures, and at the same time cultivate
    vegetables.
  • Closeness to the consumers makes it easier to
    better decipher the demand
  • It also helps to tailor production to the single
    customer.

34
2.3 Digital Market Structure 6
  • 2.3.5. Transparency of virtual markets.
  • The e-economy can be called a nude economy due
    high transparency of the Internet.
  • It is possible to search for any thing on the
    internet.
  • The ease that can be gathered, analyzed and
    interpreted has simplified marketing research.
  • The high level of mutual transparency makes it
    difficult for consumers to be deceived.
  • Consumers easily identify how to make some gains,
    and producers know their customers quite well.

35
2.3 Digital Market Structure ..7
  • 2.3.6. Economies of enterprise size in the
    Internet world
  • The vast opportunities to enter the value chain
    create key roles for the small innovating firms.
  • Smaller firms can easily supply components for
    larger firms.
  • But larger firms have goodwill and scope to
    diversify much faster than small firms.
  • Consumers and down line firms prefer to buy
    variety of items from one source, rather than
    from several sources.

36
2.3 Digital Market Structure ..8
  • 2.3.7. Market structures in virtual markets
  • Modern ICT enables the creation of a better and
    clearer view of the market.
  • It may seem that the virtual market indeed
    approximates perfect competition in several ways.
  • Buyers and sellers generally have access to the
    same kind of information
  • Leading to high mutual knowledge between consumer
    and producer.
  • This approximates the perfect availability of
    information assumed in perfect competition.

37
2.4. Conduct Of The Digital Economy
  • 2.4.1. Competitive strategy in the digital
    economy
  • Generally, the e-economy tend to approximate the
    textbook model of perfect competition.
  • But the threat of entry depends on the industry
    and on the final goal of the business.
  • In reality it is much easier for a large firm to
    cross-enter a new market.
  • For example, it is easier for a big car importer
    to also sell computers and its accessories.
  • A car retailer can as well offer information
    processing tools.

38
2.4 Conduct Of The Digital Economy ..1
  • 2.4.1. Competitive strategy in the digital
    economy
  • Economies of scope make big firms able to enter
    almost every market.
  • The e-economy has weakened customer loyalty as it
    is very easy to switch to competitors.
  • Price competition has become intensified, due to
    high level of transparence.
  • Price discrimination becomes extremely difficult.
  • Firms are compelled to satisfy the consumer by
    every means possible.

39
2.4 Conduct Of The Digital Economy ..2
  • 2.4.1. Competitive strategy in the digital
    economy
  • Costumers trust has become increasingly
    difficult to get and retain.
  • The firms need to do more quality inducing
    advertisement.
  • Geographical factors are no longer the bases for
    competitive advantages.
  • The consumer profits from sticking to one company
    that already knows him well.
  • The high mutual knowledge between buyer and
    seller is the basis for costumer loyalty.

40
2.4 Conduct Of The Digital Economy ..3
  • 2.4.1. Competitive strategy in the digital
    economy
  • Firms in an industry produce substitute products
    continually.
  • Competition is excessive in the Information-based
    firms.
  • It is also the case with the music industries,
    banking and other intermediary functions.
  • Knowledge creation has improved performance
    significantly.
  • Buyers compete by forcing down prices and
    bargaining for higher quality or more services.

41
2.4 Conduct Of The Digital Economy ..4
  • 2.4.1. Competitive strategy in the digital
    economy
  • Some buyers also play competitors against each
    other as they seek more favorable prices.
  • Consumer sovereignty has compelled firms to
    collaborate and compete at the same time.
  • Suppliers are compelled to trust each other. But
    infomediaries are replacing traditional ties.
  • Suppliers bargaining power is decreasing.
  • The high transparency introduced by B2B practices
    is at the heart of network relationships.

42
2.4 Conduct Of The Digital Economy ..5
  • 2.4.2. Money and payment
  • A sound Internet payment system requires
    security, reliability, scalability, anonymity,
    acceptability, customer base, flexibility,
    convertibility, efficiency, ease of integration
    with applications, and ease of use
  • Security the infrastructure supporting
    electronic commerce must be usable and resistant
    to attack.
  • Reliability the infrastructure must be highly
    available and should avoid any form of failure.
  • Scalability The payment infrastructure must
    support multiple servers, distributed across the
    network.

43
2.4 Conduct Of The Digital Economy ..6
  • 2.4.2. Money and payment
  • Anonymity the identity of the parties to the
    transaction should be protected. Tracking a
    transaction should be made highly expensive and
    difficult.
  • Acceptability the e-payment instrument must be
    accepted widely and unrestricted by time and
    space.
  • Customer base the customer base should be vast
    and well spread for wider acceptability.
  • Flexibility the payment mechanism should support
    several payment methods and instruments that
    should be integrated into a common framework.

44
2.4 Conduct Of The Digital Economy ..7
  • 2.4.2. Money and payment
  • Convertibility - it should be possible and easy
    to move funds from one instrument and currency to
    another.
  • Efficiency the cost per transaction of using the
    infrastructure must be insignificant.
  • Ease of integration the payment system should be
    pliable to upgrading and modifications.
  • Ease of use most payments should occur
    automatically, and users should be able to
    monitor their spending without going out of their
    way to do so.

45
2.4 Conduct Of The Digital Economy ..8
  • 2.4.3. Innovation
  • The traditional notion of innovation is linked to
    RD, pecuniary expenses, scientific or technical
    expertise and procurement of equipment.
  • In the e-economy, innovation is linked to the
    conception and implementation of new ideas.
  • The new ideas need the scale of big companies in
    order to get widely accepted.
  • Inter-firm cooperation is important cooperation
    of firms with the academia is also needful.

46
2.4 Conduct Of The Digital Economy ..9
  • 2.4.3. Innovation
  • Firms innovate faster when they can access and
    implement acquired knowledge rapidly.
  • This calls for strong link between internal
    innovativeness and external innovations.
  • Internal innovativeness eases adopting knowledge
    produced outside the firm.
  • Generally, collaborating firms are more
    innovative than non-collaborating ones.
  • Collaboration is as important for a big company,
    as it is for a small start-up.

47
2.4 Conduct Of The Digital Economy ..10
  • 2.4.3. Innovation
  • External economies of scale are a basic driving
    force in the e-economy.
  • Internet is the big equalizer, as all firms and
    individuals can work with same information.
  • Constantly, collaborations unconsciously develops
    and extends the frontier of innovativeness.
  • Everyone involuntarily swims through different
    waves of innovation at the same time.
  • What distinguishes firms is the lead time of
    each player.

48
2.4 Conduct Of The Digital Economy 11
  • 2.4.3. Innovation
  • It is not necessarily how good, but how fast
    a firm or consumer is.
  • Reward in the e-market is driven by economies of
    time or first-mover-advantage.
  • The cost of new technologies is reducing at a
    very fast rate
  • For example, a laptop made in 2014 will cost far
    less than its 1975 model, and as well have much
    higher processing power.

49
Review Questions
  • Digital goods are generally not governed by the
    conventional economic notions of scarcity.
    Discuss
  • Explain the destructive creation powers of the
    internet economy.
  • Explain how digitalization has changed the
    structure of the market economy.
  • Explain the economies of goodwill and scope in
    the digital economy.
  • Explain how the new economy has made corporation
    of enterprises with researchers and the academia
    very important.

50
Session 3 Pricing Behavior
  • Prices in the e-markets are falling in the long
    run for the average consumer.
  • But the cost of e-purchase should be higher that
    at a physical take-away store.
  • Global openness and transparence of e-markets is
    making it more difficult to discriminate in
    prices.
  • The different types of discrimination are as
    follows
  • First-degree price discrimination also known as
    perfect price discrimination. The seller charges
    a different price for each unit of the good based
    on the costumers maximum willingness-to-pay for
    that unit.

51
Session 3 Pricing Behavior 1
  • Second-degree price discrimination also known as
    nonlinear pricing. Price differ depending on the
    number of units of the good bought, and not
    across costumers.
  • Third-degree price discrimination different
    purchases are charged different prices. But each
    purchaser pays a constant amount for each unit of
    the good bought.
  • The e-markets give buyers and sellers equal
    access to retailer information about prices.
  • Success depends on how well either party is using
    the full potential of the Internet for his best
    benefit.
  • Online auctions is common and Customer-to-Customer
    (C2C) sites have increased.

52
Session 3 Pricing Behavior ..2
  • The sites act like an intermediary, facilitating
    deals between parties.
  • Many e-markets now approximate the stock market,
    with prices adjusting constantly.
  • A dominant dynamic pricing model is known as
    demand-based pricing.
  • This is based on the concept of volume discounts
    in the beginning.
  • Shopping sites allow users to commit to buy a
    product if the price drops at least to a
    specified level within a time period, usually a
    few days.
  • In what ways is the internet making price
    discrimination difficult.
  • Do you agree that the internet has made many
    services and commodity markets to approximate the
    stock market with constan

53
Review Questions
  • In what ways is the internet making price
    discrimination difficult.
  • Do you agree that the internet has made many
    services and commodity markets to approximate the
    stock market with constan

54
Session 4 Behavior of Firms
  • 4.1. Connectivity And Firm Behavior
  • Inner-firm Management Interconnectivity has
    accelerated the speed of decision making.
  • Requires Less Staff, Flat Hierarchies And More
    Democratic Leadership Models.
  • ICT Has Multiplied The Teamwork Potential.
  • Production Life Cycles Are Getting Shorter And
    Management Reactions Quicker.
  • 10 Year Planning Is Increasingly Unrealizable.
  • Long Term Thinking In Virtual Markets Means One
    Year.

55
4 Behavior of Firms ..1
  • 4.1. Connectivity and firm behavior
  • Networking between firms in e-markets the
    parties are only one mouse click away.
  • Virtual platforms where companies can offer their
    goods are created continually.
  • Inability to make extra profits makes
    applicability of perfect competition possible.
  • Equally, through company extranets and industry
    trading exchanges, firms are linked to their
    trading partners.

56
4 Behavior of Firms ..2
  • 4.1. Connectivity and firm behavior
  • Increasingly also, more players along the value
    chain collaborate.
  • This reduces inventory, increases sales and
    improved service levels.
  • Trading partners and producers share their plans
    and deal with possible deviations.
  • By working on issues before they occur, both
    partners have time to react.

57
4 Behavior of Firms 3
  • 4.1. Connectivity and firm behavior
  • Building brand awareness through advertising and
    marketing is critical for success.
  • To support branding many firms develop exciting
    affiliate programs.
  • For example, a website owner can partner with an
    affiliate program or producers.
  • The web site owner is paid a commission for
    generating the sale.

58
4 Behavior of Firms ..4
  • 4.2. Dis- and re-intermediation
  • Many have argued that e-markets have reduced the
    importance of intermediation.
  • The direct business model, link customers and
    suppliers via customized Intranet sites.
  • Elimination of margins by the direct business
    models mean complete disintermediation.
  • The more common disintermediation is due to
    elimination wholesale and retail sectors.

59
4 Behavior of Firms .. 5
  • 4.2. Dis- and re-intermediation
  • However, a theory of re-intermediation by means
    of infomediary has been developed.
  • Informediaries in made possible by the fact that
    all parties search the internet.
  • All parties rely on web-based intermediaries that
    maximize the value of their data.
  • Review Questions
  • In which ways has the internet promoted the role
    of infomediaries?
  • The internet has weakened the roles of
    distributors and retailers. Discuss.

60
Session 5 Product Strategy and
Advertising
  • Firms and individuals now desire customized set
    of products and services.
  • Firms along the value chain often collaborate to
    make this possible.
  • Software solutions facilitate the entire customer
    lifecycle
  • from driving web traffic to the website,
  • to capturing leads and guiding customers through
    their buying process,
  • enabling online purchasing and payment,

61
5 Product Strategy and Advertising 1
  • coordinating delivery
  • and providing them with pre or post-sale customer
    service.
  • The e-economy gives marketing more expansive
    role, beyond just selling.
  • Customer Relationship Management (CRM) has become
    very essential.
  • Pre- and post-sale services have far-reaching
    significance in virtual markets.
  • In addition, managing supply and value chains
    have become very important.

62
5 Product Strategy and Advertising 2
  • Typically a marketer now needs to understand
    supply chain planning system, procurement system,
    logistics system, and streamlined business
    production or automated supply-chain
    integration
  • a supply chain planning system, a firm forecasts
    and plans how to match supply to demand on a
    real-time basis
  • a procurement system, a firm shares information
    with the suppliers and service providers to
    ensure that it has the right supply of parts and
    components available
  • a logistics system, a firm ensure its products
    are delivered to customers in the shortest
    possible time.

63
5 Product Strategy and Advertising
..3
  • Streamlined business production, the Internet
    connects parties and facilitates information
    exchange.
  • Demand and supply chains get integrated to
    deliver faster time-to-market for the companys
    products.
  • The supply chain links the producers and all
    trading partners to customers via the internet.
  • Collaboration across the extended network of
    trading partners ensures product delivery in the
    shortest time and at the lowest cost.
  • Analysis-driven workflow can streamline business
    processes even further.

64
5 Product Strategy and Advertising
..4
  • For example, analytic software can identify needs
    based on observed trends.
  • Success with trading in the virtual market
    requires product promotion and advertising.
  • The e-economy provides diversity of marketing
    models
  • viral marketing, B2C marketing, affinity
    marketing, partner marketing, affiliate programs,
    B2B marketing, co-marketing, e-marketing,
    m-commerce marketing, etc.

65
5 Product Strategy and Advertising
..5
  • Customer Relationship Management (CRM) the
    retailers interaction with the customer
    generates information about his preferences.
  • The information is recorded and analyzed for the
    producer to meet customer wants.
  • This process of capturing and analyzing is
    commonly known as CRM.
  • CRM Solutions deliver a complete lifecycle view
    of customer interactions
  • from creating targeted marketing campaigns,

66
5 Product Strategy and Advertising ..
6
  • generating leads and forecasting the potential
    sales opportunities
  • to managing customer relationships across
    multiple integrated channels
  • the goal is complete personalization of the
    virtual store.
  • This makes advertising more impactful and throws
    open opportunities for cross-selling.
  • Cross-selling has less to do with the
    personalization of the product, but rather with
    the optimization of the offer.
  • For example, shoppers who select televisions are
    likely to need video CD players.

67
Review Questions
  • List and explain the essential components of
    supply and value chains.
  • How has digitalization made managing supply and
    value chains important?
  • Why is cross selling a growing feature of the new
    markets?

68
Session 6 Other Firmlevel
Characteristics
  • 6.1. Company finance and the growth of firms
  • Venture capital is now a major institutional and
    corporate investment good.
  • Many large firms now have a venture capital firm
    serving as the general partner.
  • Some firms setup their venture funds and give
    employees a chance to invest in startups.

69
6 Other Firmlevel Characteristics
..1
  • 6.2. Legal tactics
  • Internationally, the United Nations Commission on
    International Trade Law (UNCITRAL) has completed
    work on a model law that supports the commercial
    use of international contracts in electronic
    commerce.
  • This model law establishes rules and norms that
    validate and recognize e-contracts.
  • It sets default rules for contract formation and
    governance of e-contract performance.
  • It defines the characteristics of a valid
    electronic writing and an original document.

70
6 Other Firmlevel Characteristics
..2
  • The model law provides for the acceptability of
    electronic signatures for legal and commercial
    purposes.
  • And supports the admission of computer evidence
    in courts and arbitration proceedings.
  • But, governments generally face the challenge
    balancing between free information flow,
    protecting property rights, and ensuring consumer
    privacy.
  • However, e-contracts can be concluded either
    directly through the Web, electronic mail or on
    EDI agreements.

71
6 Other Firmlevel Characteristics
..3
  • The selected framework should provide security,
    privacy, property protection and a reasonable
    degree of standardization.
  • Security - a secure and reliable Global
    Information Infrastructure (GII) is required.
    Four critical security assurances are required
  • Authenticity of the communication,
  • Integrity - proof that contents of the message
    have not been altered, either deliberately or
    accidentally
  • Non-repudiation the receiver does not deny the
    transmission
  • confidentiality evidence of nor disclosure to
    third parties.
  • Privacy internet users would prefer that the
    internet has privacy.

72
6 Other Firmlevel Characteristics
..4
  • Intellectual property - commerce on the Internet
    often involves the sale and licensing of
    intellectual property.
  • 6.3. Standards
  • Standards can allow products and services from
    different vendors to work together.
  • Pre-mature standardization can lock in outdated
    techniques or lock out potential trading
    partners.
  • Review Question
  • Digitalization poses the challenge of balancing
    free information flow, protecting markets, and
    ensuring consumer privacy. Discuss.

73
Review Question
  • 1. Digitalization poses the challenge of
    balancing free information flow, protecting
    markets, and ensuring consumer privacy. Discuss.

74
Session 7 Macroeconomics of
Spillovers
  • 7.1. Role of Government
  • Support private sector leadership the e-economy
    is better led by the private sector.
  • Government should be proactive and supportive of
    positive change.
  • Internet access, education, and support for
    youths in many ways are needful.
  • Government should also ensure competitiveness of
    markets and development of new technologies.
  • Government should also identify and address
    market failures.

75
Session 7 Macroeconomics of Spillovers
..1
  • In doing so, government should act as maintainer
    and proactive promoter.
  • Maintaining tasks of government
  • Providing laws to ensure fare play and check
    exploitation.
  • One way of achieving this is to check
    monopolization and restricted competition.
  • The best known measure is antitrust legislation
    or competition policy.
  • This aims primarily at preventing the formation
    of outright monopoly.

76
Session 7 Macroeconomics of Spillovers
..2
  • The promoting task of the government
  • This should involve
  • developing e-infrastructure,
  • erasing computer illiteracy in society,
  • and investing extensively on information
    creation, communication, and interpretation.
  • It equally calls for commitment to life-long
    learning and learning-by-doing.

77
Session 7 Macroeconomics of Spillovers
..3
  • 7.2. Need for Supranational moderation
  • The global character of the world-wide-web calls
    for supranational moderation.
  • Traditionally there are several forums where
    government representatives meet.
  • Further negotiations could build on the expertise
    accumulated in certain forums on particular
    issues.
  • Since, the Internet is difficult to control by a
    single organization or government, NGOs may have
    some roles to play.

78
Session 7 Macroeconomics of Spillovers
..4
  • Despite its overwhelming importance, ICT has been
    widely faulted on several grounds.
  • It is argued that ICT has failed to generate
    broad-based multifactor productivity (MFP)
    improvement.
  • The debate on the MFP incapacities of ICT is
    widely known as the productivity paradox.
  • It was observed that productivity slowed down
    around 1973, just about the time computers became
    popular.

79
Session 7 Macroeconomics of Spillovers
..5
  • Productivity has remained sluggish ever since.
  • However, the creation of new knowledge in the
    e-economy is a crucial input factor.
  • Knowledge creation is also an important cost
    saving innovation.
  • The IT industry also has a major direct impact on
    growth and inflation.
  • This kind of growth would fall under increase of
    stock capital ceteris paribus.
  • Discuss the role of government in the new
    economy.
  • While it is obvious that the e-economy has
    generated new knowledge at a faster rate, overall
    productivity of the global economy has been on
    the decline. Discuss this productivity paradox
    of the new markets.

80
Review Question
  • Discuss the role of government in the new
    economy.
  • The e-economy generates new knowledge at a faster
    rate, yet overall productivity of the global
    economy has been on the decline. Discuss this
    productivity paradox of the new markets.

81
Session 8 The Digital Economy and
Economic Growth
  • The accelerated demand for IT products is the
    driving force in many economies since 1994.
  • The e-economy also raises the quality of an
    economys workforce and increases income.
  • All of this considered, ICT should lead to a
    permanent increase in productivity.
  • 8.1. Digital divide and the catch up
  • Death of distance" of the e-economy should bring
    our world closer.
  • But its realization calls for broad
    accessibility.

82
8 The Digital Economy and Economic
Growth ..1
  • Affordability of the e-infrastructure is required
    for effective participation in the e-economy.
  • But the - digital divide - between those with
    access and those without is high.
  • The digital divide is having tremendous effects
    nationally and globally.
  • Innovations grow like mushrooms, popping up,
    almost overnight, unpredictably.
  • This is because technical progress is driven by
    an unequally distributed creative destruction.

83
8 The Digital Economy and Economic Growth
..2
  • This means that some people will benefit from the
    advances before others.
  • Those who live around where the mushroom of
    innovation popped up benefit first.
  • Access to telecom networks is critical for
    dissemination of innovations.
  • OECD countries accounted for 69.2 of the 741
    million main telephone lines in 1996.
  • Tele-densities ranged from 45- 65 per 100
    population in the developed countries.

84
8 The Digital Economy and Economic
Growth ..3
  • The average was 5.2 in the major non-OECD
    economies, 4.5 in China, and 1.5 in India.
  • More than half of the worlds population have
    never made a telephone call.
  • Yet a city like New York has more telephones than
    all of rural Asia.
  • And London has more Internet accounts than in all
    of Africa.
  • LDCs pay on average three times more than rich
    country users to access the net.

85
8 The Digital Economy and Economic
Growth ..4
  • An UNCTAD study notes that 20 access hours a
    month in 1999 cost 90 in Mexico or 15 of
    average income.
  • Compared with only 25 in the US, a mere 1 of
    average income.
  • In Africa, average access charges top 200 a
    month.
  • Differences in hardware-distribution affect
    distribution of benefits from e-markets.
  • Advanced economies will naturally gain more.

86
8 The Digital Economy and Economic
Growth ..4
  • Poorer countries need to catch up with OECD
    countries where advances are made.
  • Some people see the Internet as the Big Divider
    since it is not universally accessible.
  • Inaccessibility make sit difficult to keep up
    with general development.
  • Others claim the Internet to be the Big
    Equalizer.
  • Generally, it is difficult to bring everybody up
    to the same level.

87
8 The Digital Economy and Economic
Growth ..5
  • 8.2. Skill requirements
  • Technological change promotes industry growth and
    demand for skilled workers.
  • Future employment demands favor highly
    ICT-competent workers.
  • ICT has been incorporated into nearly all jobs
    and professions.
  • A high level of computer literacy is an essential
    component of every job.

88
8 The Digital Economy and Economic Growth
..6
  • The preferred employee is a knowledgeable
    worker.
  • Employers prefer employees who are abreast with
    current development and trends.
  • Retraining of labor force will be an important
    task for employers in the coming years.
  • Policies to cope with skill mismatches are
    already a concerns in many OECD countries.
  • The death of distance is raised a pool of high
    mobile international workforce.

89
8 The Digital Economy and Economic
Growth ..7
  • Some workers just need to work online from their
    homes.
  • Overtime virtual offices situated in
    cyberspacewill become more common.
  • Equally, working is increasingly linked to
    traveling and tourism.
  • Many argue that the e-economy has not delivered a
    leisure society.
  • It is claimed that those who have jobs today work
    harder and longer than before.

90
8 The Digital Economy and Economic
Growth ..8
  • Virtual employments and multi-tasking have
    created challenges for the labour market.
  • Components of an assignment can be done in
    several locations without workers having to
    physically relocate.
  • This international division of labor has created
    challenges for immigration laws of states.
  • Given the global scale and transparence of the
    e-economy, the reward for talented workers has
    increased.

91
8 The Digital Economy and Economic
Growth ..9
  • The income of low skill workers have reduced
    leading in wage inequalities.
  • Realities of the e-economy question the coherence
    of the industrial age.
  • However coherent paradigms of the e-economy are
    yet to emerge, due perhaps to fluidity of the
    present age.
  • Review Questions
  • 1. How has the growing digital divide affected
    productivity of the global economy?

92
Suggested Materials
  • Iwuagwu, Obi (2011). The Cluster Concept Will
    Nigerias New Industrial Development Strategy
    Jumpstart The Countrys Industrial Takeoff? Afro
    Asian Journal of Social Sciences 2(2-4) 1-24
  • Hilbert, Martin R. (2001). From industrial to
    digital economics an introduction to the
    transition. A Publication of Restructuring and
    Competitiveness Network, Santiago, Chile,
  • Barthwal, R. R. (2010) Industrial Economics An
    Introductory Textbook (3rd Ed) New Age
    International, India
  • MIT (2003) Course 14.23 Government Regulation of
    Industry (Class 1) The Cambridge MIT Institute
    of Electricity Project
  • Hinde, k. (2000). The Economics of European
    Industry Being Lecture Note for NIT EC455 Level
    3, Semester 2
  • Symeonidis, G. (2011) Industrial Economics Being
    Lecture Notes EC3099, 2790099. University of
    London International Programme
  • Lecture Notes on Industrial Organization and
    Competition Policy. Module 1 Basic Concepts in
    Microeconomics. Cost concepts. Http//http-server.
    carleton.ca/dmcfet/courses/lectures3.pdf
  • Cabral, L. (2013) Introduction to Industrial
    Organization (2nd Ed.) Teaching Notes
  • Marcos Anabela (undated) A New Marketing Paradigm
    in the Knowledge Economy
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