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Digital Economy:
Impacts, Influences
and Challenges




Harbhajan S. Kehal
Varinder P. Singh




IDEA GROUP PUBLISHING
i




Digital Economy:
Impacts, Influences
and Challenges

Harbhajan S. Kehal
University of Western Sydney, Australia

Varinder P. Singh
University of Western Sydney, Australia




IDEA GROUP PUBLISHING
Hershey • London • Melbourne • Singapore
ii

Acquisitions Editor: Mehdi Khosrow-Pour
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Published in the United States of America by
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Copyright © 2005 by Idea Group Inc. All rights reserved. No part of this book may be repro-
duced in any form or by any means, electronic or mechanical, including photocopying, without
written permission from the publisher.


Library of Congress Cataloging-in-Publication Data

Digital economy : impacts, influences, and challenges / Harbhajan Kehal, editor,
Varinder P. Singh, editor.
p. cm.
Includes bibliographical references and index.
ISBN 1-59140-363-4 (hardcover) -- ISBN 1-59140-364-2 (pbk.) -- ISBN 1-59140-365-0
(ebook)
1. Information technology--Economic aspects. 2. Information technology--Social
aspects. 3. Electronic commerce. I. Kehal, Harbhajan, 1942- II. Singh, Varinder
P., 1974-
HC79.I55D5455 2004
303.48'33--dc22
2004003777


British Cataloguing in Publication Data
A Cataloguing in Publication record for this book is available from the British Library.

All work contributed to this book is new, previously-unpublished material. The views expressed in
this book are those of the authors, but not necessarily of the publisher.
iii




Dedication



In Memory of My Parents,
Chaudhry Harkishan Singh Kehal and Sardarni Harnam Kaur Kehal

H.S. Kehal



To
My Parents,
Who have guided me with wisdom and always supported me in every
walk of life.

V.P. Singh
iv




Digital Economy:
Impacts, Influences
and Challenges

Table of Contents



Preface ......................................................................................................................... vii

Chapter I
Socio-Economic Impacts and Influences of E-Commerce in a Digital Economy ............ 1
Sushil K. Sharma, Ball State University, USA

Chapter II
Re-Intermediation and Deferment through E-Commerce: Neo-Austrian
Interpretation of Capital and Time .............................................................................. 21
Parthasarathi Banerjee, NISTADS, India

Chapter III
Risk and Investment in the Global Telecommunications Industry ............................. 39
Irene Henriques, York University, Canada
Perry Sadorsky, York University, Canada

Chapter IV
Reduction of Transaction Costs by Using Electronic Commerce in Financial
Services: An Institutional and Empirical Approach ................................................... 62
Thomas Pfahler, University of Bayreuth, Germany
Kai M. Grebe, University of Bayreuth, Germany

Chapter V
The Spreading Use of Digital Cash and Its Problems ................................................ 84
Yutaka Kurihara, Aichi University, Japan

Chapter VI
Electronic Signature: The Core Legislation Category in Digital Economy .............. 98
Fjodor Ruzic, Institute for Informatics, Croatia
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Chapter VII
Impacts of the Digital Economy: The Shift to Consumer-Driven Competition and
Life-Span Products .................................................................................................... 136
Simon Mowatt, Auckland University of Technology, New Zealand

Chapter VIII
Digital Products on the Web: Pricing Issues and Revenue Models ......................... 154
Gary P. Schneider, University of San Diego, USA

Chapter IX
On Software Piracy ................................................................................................... 175
Sougata Poddar, National University of Singapore (NUS), Singapore

Chapter X
An E-Classification of the World™s Capital Cities: URL References to
Web Sites .................................................................................................................. 200
Stanley D. Brunn, University of Kentucky, USA

Chapter XI
Online Services and Regional Web Portals: Exploring the Social and
Economic Impacts ...................................................................................................... 217
Helen Thompson, University of Ballarat, Australia

Chapter XII
ICT Growth and Diffusion: Concepts, Impacts and Policy Issues in the Indian
Experience with Reference to the International Digital Divide ................................ 236
Saundarjya Borbora, Indian Institute of Technology Guwahati, India

Chapter XIII
Digital Technologies and the Cross-Border Expansion of South African Banks .... 252
Joanne Roberts, University of Durham, UK
Chipo Mukonoweshuro, University of Durham, UK

Chapter XIV
Technology and Culture: E-Commerce in China ...................................................... 273
Alev M. Efendioglu, University of San Francisco, USA
Vincent F. Yip, University of San Francisco, USA

Chapter XV
Internet Economy of the Online Game Business in South Korea: The Case of
NCsoft™s Lineage ...................................................................................................... 286
Kyonghwan Park, University of Kentucky, USA

Chapter XVI
Opportunities and Challenges of the New Economy for East Asia ........................... 313
Donghyun Park, Nanyang Technological University, Singapore
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Chapter XVII
Digital Engineering Campus: Economics, Acceptance, and Impact ......................... 344
Milind J. Mahajan, Mirash Infotech, India
Sunil S. Umrani, Sunind Systems, India
Narendra S. Chaudhari, Nanyang Technological University, Singapore

Chapter XVIII
Corporate Strategies in a Digital World: Supply Chain Management and
Customer Relationship Management “ Development and Integration-Focus .......... 359
Purva Kansal, Panjab University, India
Keshni Anand Arora, Indian Administrative Services, India

About the Editors ....................................................................................................... 381

About the Authors ..................................................................................................... 382

Index .......................................................................................................................... 389
vii




Preface



Information and knowledge have emerged as major sources of wealth in the recent past.
There is a digital revolution and it has impact and influences on the consumers, produc-
ers, investors, exporters, importers, public policy makers, academics, students, con-
sultants, administrators, lawmakers and all others directly or indirectly involved in
various processes of the new economy. It has also huge challenges for all of the above
and the shape of things to come will be determined by their response to the fast moving
changes, additions and modifications in the Information, Communication, Technolo-
gies (ICTs) and their applications.
The pace of the revolutionary changes in the ICTs and their applications and their
impacts, influences and challenges are more pronounced in the developed countries.
The rest of the world is also catching up with them fast in the digital stakes.
Public policy makers in both the developed countries and the rest of the world and
administrators, who have even bigger challenges than policy makers, will have serious
problems to tackle. Censorship and freedom will be in conflict with each other in rela-
tion to the use of and access to the ICTs.
ICTs have ushered in a new era of global communication, production, trade and invest-
ment. It has implications for all of the players in the economy and society irrespective
of whether they reside and work in the developed countries or in the developing coun-
tries. The digital economy is transforming the lives of people beyond recognition.
There is a revolution in the way that things are produced and traded before they reach
the final consumer. Also there is a revolution of rising expectations as the world is
getting transformed to a global village and the access to the good things in life will no
more be in the domain of the rich and influential, whether in developed or developing
countries.
The buzzword is e-commerce. The term e-commerce goes beyond doing business elec-
tronically. Doing business electronically means that the conventional processes are
computerized and are done on the Internet, however now it seems that the Internet is
not merely an alternative to make a channel for marketing or selling product online.
Instead the electronic marketplace enables the seller to innovate the whole business
process from the producer to consumer to service by integrating them in the seamless
whole, where product choices and prices are updated according to the customer infor-
mation in real-time on web stores.
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About the Book
This book is not about how to use the web or how to set up your web page for a
successful business. This book provides information from socio-economic angle. As a
number of books are already available about e-commerce or digital commerce, most of
them provide information mainly from a technical angle and the socio-economic aspect
had been neglected. Contrary to that, we would like to present the picture of digital
information economy from the socio-economic perspective. This book covers various
aspects of global production, trade and investment and the effects of the Internet from
a socio-economic angle.
While paying attention to the current status of intertwined issues of electronic com-
merce in technology, standards, policy and legal issues, the focus is on many economic
issues and aspects of electronic commerce that other books do not cover. This book
aims to provide relevant theoretical frameworks and the latest empirical research find-
ings in this area.
The change in the flow of information, computing and communication in the recent past
has greatly influenced the world economy. In the emerging “digital economy,” the
players as well as the rules of the game are changing fast. Along with it has come a lot
of confusion and uncertainty. The digital economy may bring potential invasions of
privacy, more sophisticated and far-reaching criminal activities and host of other un-
known problems.
The audience of this book is diverse. In addition to the academics, students and other
knowledge workers, this book is intended for the business people who are using the
Internet to seek a new customer, suppliers and partners around the world.
If a business person is already directly involved in international trade and business
and business trade, either as a manufacturer, distributor, exporter and importer, custom
broker and freight forwarder, trade financer, diplomat, then this book is for him/her.
If he/she is involved in the international trade, perhaps as a lawyer, management con-
sultant, trade show organizer, site developer, business school professor, executive
educator or someone who advises international companies, then this book is also for
him or her.
The assembling of the chapters and editing of this volume was a very onerous task but
has proved to be highly worthwhile and rewarding in the end. The response to the call
for chapters was overwhelming. We received proposals from top scholars, profession-
als and practitioners from various parts of the world. We have received chapters from
the USA, Canada, Japan, Australia, New Zealand, Korea, Singapore, India and many
other countries. Authors with background from various cultural groups and with first-
hand knowledge of the socio-economic impacts, influences and challenges of the digi-
tal economy has contributed to this volume.
Choice of the chapters for this volume was a highly challenging task, as we received an
overwhelming response. Which chapter to include and which to exclude was very
difficult. Chapters included in this volume have gone through a very rigorous review
process. The ultimate choice of the chapters for inclusion in this volume were guided
by the quality, relevance and coverage of the vital issues and proper analysis and
depiction of the impacts, influences and challenges of the digital economy. The brief
ix


summaries of the various chapters included in the book in the words of the contributors
are provided below for the readers to make their own judgement:


The first chapter of this book is Socio-Economic Impacts and Influences of E-Com-
merce in a Digital Economy written by Sushil K. Sharma.
Electronic commerce or e-commerce is the exchange and processing of business trans-
action information using computers connected through a network. E-commerce does
have unique advantages for businesses. It allows a shop, a show room or an office to
open 24 hours a day, seven days a week. It also means that time zones are not a problem.
A Web site can bring a prospect from the point of advertising and information directly
to the point of sale, seamlessly, without involving any other medium. Adoption of new
information technologies, particularly e-commerce, is expected to result in improve-
ments in firm performance, such as reducing transaction costs and closer coordination
of economic activity among business partners. E-commerce also is expected to facili-
tate entry into new markets or extension of existing markets and greater integration of
systems with suppliers and customers. E-commerce is changing business economics
and as a result many firms are re-engineering their core business processes. Suppliers
and retailers are able to collaborate on product forecasts, product flow and inventory
management decisions using the collaborative Internet-based networks between sup-
pliers and retailers. In addition to reducing costs, e-commerce solutions permit custom-
ers to custom order products based on individual needs and preferences. Retailers are
able to allow customers to mass customize orders based on virtually thousands of
choices. The Internet™s growth and e-commerce has begun to create fundamental change
in government, societies, and economies with social, economic and political implica-
tions. These advances present many significant opportunities but also are having
wide-ranging effects across numerous domains of society and policy makers.
As e-commerce continues to grow rapidly, it could have significant effects on the social
and economic structures of economy. The impacts of these changes are diverse and
may even widen the digital divide among nations, alter the composition of trade, dis-
rupt labor markets and change taxation, may have ramifications for intellectual property
rights, privacy protection, and data filtering, etc. Some of these effects of e-commerce
are unintentional and create adverse business and personal conditions that could have
societal consequences. Social and economic aspects of ICTs have been studied by a
wide variety of researchers and practitioners for over 50 years. However, the influences
of e-commerce are far bigger than imagined before. This chapter describes the various
socio-economic impacts and influences that have been created by e-commerce in a
digital economy.


The second chapter is Re-Intermediation and Deferment through E-Commerce: Neo-
Austrian Interpretation of Capital and Time written by Parthasarathi Banerjee.
It is commonly believed that electronic commerce reduces intermediation and the time
in a business circuit. This is an efficiency view. This borrows from the Chicago view.
Alternatively, transactions cost economics (TCE) theorists argue that electronic com-
merce decreases transactions cost by way of reducing the distance between the pro-
ducers and the customers. TCE too argues that dis-intermediation in electronic com-
merce reduces transactions cost and hence increases economic efficiency. In contrast
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to this efficiency theory of dis-intermediation and of quickened money, this chapter
argues from Neo-Austrian perspective that efficiency can refer to technological changes
alone. Efficiency, it is argued, fails to increase rate of profit or innovation. Electronic
commerce is an innovation in trade. Electronic commerce brings in several layers of
possible intermediaries. In this chapter authors argue that electronic commerce keeps
transactions incomplete and extends the completion of transactions indefinitely and
thereby; electronic commerce instead of shortening the business circuit would extend
such a circuit indefinitely. Indefinite extension of business circuits”that is the length-
ening of business transactions”increases effectively the period of production. Aus-
trian theory argues that capital is time. This theory argues that a longer period of
production implies a higher rate of profit and an increase in capital. Based on this
theoretical stance, the authors argue that electronic commerce enhances capital and
increases the rate of profit by lengthening the circuit of transaction through re-interme-
diation and through an increased period of production.
Velocity of money or goods in an economy, as the efficiency theorist suggests, refers to
technical efficiency. This efficiency refers to particular states of affairs of technology.
As a result this perspective fails to explain why such technological states change or
why certain particular economic agents reap great profits. Moreover, efficiency theo-
rists™ “profit” is actually a rent earned. Interpreters of TCE have assumed that elec-
tronic commerce brings about a frictionless or transactions-cost-free market. They have
wrongly committed TCE to such an explanation. Moreover, reduction of transactions
cost would increase efficiency and would not increase rate of profit or the capital and
even would not hasten innovation. It follows contrarily that electronic commerce would
increase transactions cost.
Internet pricing has shown personalized effects based on quality differentiation and on
personalized offerings. Electronic commerce has opened up the possibility of offering
extremely variegated personalized pricing. This forum can also offer equivalents of
typical market place bargains. Production organization of a vertically integrated corpo-
ration stood upon standardization. Production of apiece products with variegated qual-
ity, chosen often by the buyer himself, demands that the entire chain of logistics and
the supply chains get linked to the electronic commerce platform and that the stages in
production are increased immensely and at each step of production each apiece prod-
uct contains unique information. Such a picture of an electronic-commerce-led economy
shows that stages of production must increase, that different economic agents must
undertake value addition at each stage, that variability must increase and that mass
production of personalized wares must hasten. In short, electronic commerce demands
that an economy increase both its division of labor and the long period of production.
A long period of production refers to the entire input-output table of an economy. A
short period of production refers to a specific transaction chain of a business or a
sector. Electronic commerce increases the length of both these periods. Shackle dis-
cussed profit and its rate from the perspective of lengthened periods of production and
an increase in the division of labor amongst economic agents who are speculators.
Electronic commerce has opened up this opportunity. In these commerce intermedia-
tions, in particular, cyber mediations have increased and will continue to increase. Neo-

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