Journal Article Review

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Dr Joseph H. Kim School of Management

RMIT University

Global information economy

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Today’s lecture

• Era of global information economy

• Innovation and R&D

• Implications for MNEs

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Global information economy: The new world of big data

• “Humans now create in two days the same amount of data that it took from the dawn of civilization until 2003 to create” (Eric Schmidt, Executive Chairman of Google)

• The World of ‘Big Data’: “the infinite sea of facts, products, books, maps, conversations, references, opinions, trends, videos, advertisements, surveys -- all of the sense and nonsense that is literally at your fingertips, 24/7, everyday from now on” (USA Today)

• Challenges for MNEs?

Industrial society

Information society

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COVID-19: Impact on E-Commerce Transactions

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Digital technologies and changes to GIE

• Product mix: existing products are replaced by new products • Players in the market: existing firms displaced by new entrants

and others evolve to take advantage of opportunities - The rise of “hub firms”: Digital superpower firms that use

their existing network-based assets to enter into another industry

• Demand for labour: automation replaces some jobs and reduces the need for others, new jobs emerge, and the skills needed change

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Development of global information economy

Late 2000s:

sharing economy firms utilising

underused assets on P2P platform

Early to mid- 2000s:

social media firms enabling users to communicate and

share content

1990s:

led by e-commerce companies

creating “digital marketplace”

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E-commerce

• The exchange of goods and services across an interactive digital network

- A computer-mediated and virtual market with a digital means of exchange - Overcoming the problems of distance and costs

• Altering the industry dynamics? • Growing power of consumers

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Retail bankruptcies in US (2020)

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E-commerce & industry dynamics

Porter’s Five Forces

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Social media

• Social media are interactive online communication technologies that facilitate the creation or sharing of information

• Social media has become a critical partof MNE’s strategy

- build relationships with both existing and potential customers

- create brand and product awareness - customer support and education - solicit feedback and respond to

complaints

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Sharing economy

• “A peer-to-peer market; and economic arrangement in which asset owners and users mutualise access to products or services associated with these assets” (Bradley & Pargman, 2017; Zervas, Proserpio & Byers, 2017)

E.g. vehicles, machinery, tools, clothes, houses • Enables an increase in the use of under-utilised assets, improving the

overall efficiency of the economy • Disrupts the traditional markets, particularly those where firms relied

on restrictions to market entry • Intrinsically an international phenomenon: asset owners have to work

with customers in different countries • Standards and regulations often lag behind the new business models

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Innovation in global information economy

Innovation: Introduction and spread of new and improved products and processes in the economy

(Christopher Freeman)

“Innovation is a critical driver of growth and prosperity. China’s move up the [global innovation] rankings, and the U.S. drop, is a reminder that without investment in education and research, trade tariffs aren’t going to maintain America’s economic edge.”

(Tom Orlik, Bloomberg Economics, chief economist)

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Most innovative economies in the world (2020)

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Measuring Innovative Index

• R&D Intensity: Annual research and development spending, as a % of an economy’s gross domestic product (GDP).

• Patent Activity: The number of annual patent and grant filings, and the 3-year average growth of filings abroad and filings growth, as a share of the world’s total patent growth.

• Tertiary Efficiency: The total enrollment in higher education, the share of labour force with advanced education levels, and the share of STEM graduates and in the labour

force. • Researcher Concentration: Professionals (including postgraduate PhD students)

engaged in R&D across the population.

• High-tech Density: The volume of domestic, high-tech public companies as a share of the world’s total companies. Examples of high-tech companies include: aerospace and

defense, biotech, internet services, and renewable energy. • Manufacturing Value-added: Manufacturing output levels—contributing to exports—as a

% of GDP, and per capita. • Productivity: GDP and gross national income (GNI) in the working age population, and

the 3-year improvement.

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Role of government in GIE

• Enabler of new technology development and adoption • Mitigator of risks • Regulator of the frameworks in which firms and markets operate

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Where should R&D be located?

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Centralised R&D

• Development of new technologies at the single (usually parent firm) location

• Reasons for having centralised R&D - need for physical co-location of R&D: facilitate corporate-wide control and coordination - economies of scale (e.g. the purchase of expensive and specialised laboratories, recruitment of expert professionals) - competitiveness of R&D site (resources, labour, support industry etc) - government support and/or incentives

Intensification of competition for innovation drives the globalisation of R&D for MNEs

→R&D as an important motivation for internationalisation of MNEs

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Decentralised R&D

• Dispersed global R&D networks - global subsidiaries as sources of knowledge - multidirectional flows of knowledge

• Reasons for having decentralised R&D - capitalising on location-specific advantages: obtaining more varied

/ competitive ideas, knowledge and talent resources and knowledge spill-over from regional clusters (e.g. Dyson in Singapore)

- speeding up development time through parallel efforts at several sites

- improving responsiveness to local needs by being closer to the market

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