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Austrian framework offers a cogent explanation as how electronic commerce increases
the rate of profit and the capital in an economy based on electronic commerce.
xi


The third chapter is Risk and Investment in the Global Telecommunications Industry
written by Irene Henriques and Perry Sadorsky.
Access to affordable technology to improve the flow of information is essential to the
development of an economy. Closing the Digital Divide could bring many benefits to
developing countries. In many ways, developing countries have the most to gain from
improvements in telecommunications and information technology. Bringing the ben-
efits of IT to developing countries is possible, but the governments of these countries
need to be aware that the process is going to cost money and require institutional
changes.
International investors will frequently calculate the cost of equity for their existing
investments and their proposed investments. Development planners must be able to
make their own cost-of-equity calculations so that they can see first hand how their
investment projects compare with other investment projects around the globe.
Consequently, it is necessary to have good measures of equity risk for managers,
planners, policy makers and investors. The cost of equity is important in valuing new
investment opportunities and in evaluating the ongoing performance of established
business projects. This is especially true in the new economy IT industry where an
understanding of equity risk aids in the examination of the relationship between the IT
sector and economic development.
In this chapter, quantitative modeling and simulation techniques are used to estimate
various risk measures and the associated cost of equity for the global telecommunica-
tions industry. The approach is to calculate several different cost-of-equity values and
then use simulation techniques to build up a probability distribution for each company™s
cost of equity. In this way, a clearer picture of where a company™s cost of equity lies is
developed.
Estimates of the cost of equity for a particular company vary widely and depend upon
the methodology used. For a particular company, cost-of-equity values based on sys-
tematic risk tend to be lower than cost-of-equity values calculated from downside risk
measures. For some companies, downside cost-of-equity values are twice as large as
cost-of-equity measures based on systematic risk. This is true, even though all of the
cost-of-equity values use the same risk-free rate and same risk premium.
One of the insights that emerges from this study is the fact that the average cost of
equity for telecommunications companies in developing countries is not always greater
than the average cost of equity for telecommunications companies in developed coun-
tries. This is borne out by the high cost-of-equity calculations for companies like Cable
& Wireless, France Telecom and Nextel. In general, it is difficult to find evidence of
regional differences in the average cost of equity of telecommunications companies.
This is useful to a development planner who can then use a portfolio approach in which
high-risk investments are combined with low-risk investments to promote an invest-
ment in a developing country™s telecommunications industry. Closing the Digital Di-
vide could bring many benefits to developing countries but international investors and
development planners must be able to make their own cost-of-equity calculations so
that they can see first hand how their investment projects compare with other invest-
ment projects around the globe.
xii


The fourth chapter is Reduction of Transaction Costs by Using Electronic Commerce
in Financial Services: An Institutional and Empirical Approach by Thomas Pfahler
and Kai M. Grebe.
The authors face the subject of analyzing the impact of the increasing utilization of
information and communication technology (ICT) and electronic commerce on the co-
ordination of specific transactions in financial services. Bank transfers and stock pur-
chases, as two relevant business processes commonly occurring in the contractual
relationship between a financial institution and its customers, will be considered in
detail.
For that purpose, the conceptual framework for the target analysis has to be developed
at first. This requires the definition of the most important terms and the explication of
major ideas. The basic principals of the New Institutional Economics and the instru-
ments developed in the context of the Transaction Cost Approach specifically serve as
a theoretical background for the study and all further argumentation. Subsequently, the
chapter develops and implements a proposal how to exemplify and to compare the
above-mentioned processes under the varying influence of certain technologies. This
new approach will be specified and the proceeding will be elucidated in detail. The
authors refrain from attempting to quantify transaction costs in an absolute way and
concentrate deliberately on comparative considerations. Transactions will be decom-
posed and classified into different phases according to their devolution over the period
under observation. The intention is to reveal the basic phenomenon and to document
the reasons of the current utilization of ICT in this sector by emphasizing relative
reductions of transaction costs through the use of electronic commerce.
After the development of the approach to quantify reductions of transaction costs, the
model will be applied exemplarily on the two selected transactions. In detail, the model
takes into account seven different phases of a transaction and seven different modes
of coordination.
The empirical section of the chapter concentrates on existing technological infrastruc-
tures, growth rates, and diffusions rates of certain information and communication
technologies. Available data will be analyzed, particularly for Germany. Moreover, cer-
tain indicators are introduced to qualify in detail present developments and impacts of
ICT.
In the final stage the attained results and consequences of the outlined developments
are eventually systematized and summarized. The authors criticize and comment on
crucial points concerning the elaborated approach, its significance and limitations as
well as its explanatory power. Last, but not least, an attempt is be made to relate the
diffusion rates of the investigated technologies in the empirical section to the insights
on reductions of transaction costs derived from the theoretical cost model. This will
lead to a four-quadrant scheme to illustrate and classify present and future impacts of
electronic commerce on financial services. On the basis of this visualization the chapter
concludes with deducing a couple of final predictions and with giving a future perspec-
tive.


The fifth chapter is The Spreading Use of Digital Cash and Its Problems, which is
written by Yutaka Kurihara.
xiii


It has been several years since the words “digital cash” and other related terms were
introduced into the modern lexicon. Needless to say, the progress made in communica-
tion and information technology (IT) has been rapid, and change in the area of digital
cash is no exception. The volume of such transactions is rising, yet analysis of this
revolution in payment is limited, particularly in the academic fields.
Although e-commerce has been growing rapidly and attracting much attention, digital
cash has not been a focus of such attention. Digital cash has some problems associ-
ated with it that need to be solved before its use can continue to grow, and the rate of
growth is slowing at present. The logic behind replacing cash, checks and magnetic
credit cards with digital cash is bound to prevail in the end, but there are many barriers
that need to be overcome.
The author proposes that material cost reduction and service price are cutting resultant
factors of the demand for electronic wallet transactions and the means by which digital
cash can spread, the technology of IC (integrated circuit) card reformation can be
developed, and price cutting on the supply side can occur. The popularity of the per-
sonal computer and the Internet has also skyrocketed in recent years. A general price
decline for computer and communication tools has been ongoing as well, helping to
promote online-type transactions at the supply side.
Moreover, it seems that the spread of mobile telecommunications has contributed to
the development of digital cash. In the near future, interactive television will be used to
make transactions. IT (information technology) has undergone a global revolution in
many fields. Ubiquitous instruments in IT fields have appeared recently allowing for
digital cash to develop much further.
There are two points that will be emphasized in this chapter. The first point is that given
the essential characteristics of electronic money, its advantages and disadvantages
should be carefully examined. It is quite certain that digital cash will be promoted. It
also seems that IT progress is unstoppable, and fortunately IT can make our world a
more convenient and efficient place in which to live. Nevertheless, there are a number
of concurrent challenges with this change. None of these challenges are apt to be
resolved swiftly or painlessly.
The second point is this: since financial institutions cannot stop this trend, it would be
prudent for them to view it as a business opportunity. If they do not find ways to adapt,
they will become obsolete and completely fade away from the market. By promoting e-
finance, a company can gain market share and negotiating power over suppliers, as well
as earn a profit. Monetary authorities worldwide should pay careful heed to the trend
as well, guiding the “sound” market to maturity, taking care not to confuse exercising
leverage with excessive intervention.


The sixth chapter is Electronic Signature: The Core Legislation Category in Digital
Economy authored by Fjodor Ruzic.
E-business, as well as all of the active participants in the digital economy environment,
raises a host of new legal issues that must cope with the fact that the technical expec-
tations imposed by participation in the digital economy will increase. Three basic seg-
ments of the digital economy are converging, and each of them consists of one core
category:
xiv


• Infrastructure: telecommunications infrastructure (the members of the society
must communicate)
• Services: the content (the goal of communications is to transfer the content)
• Legislation: electronic signature (the goal is to compile rules of intercommunica-
tion processes in which the electronic content is interchanged)


Businesses that offer services and have taken to the Internet seriously have a respon-
sibility to their customers to offer services in a secure manner. Security is a fundamental
requirement for e-business applications using signature-based forms. Lack of trust is a
significant problem for any e-business ” the parties evolved in the e-business pro-
cesses must feel trust in the people and companies that are doing business. In many
traditional business relationships, trust is based on a combination of judgement or
opinion based on face-to-face meetings, or recommendations of colleagues, friends
and business partners. However, the e-business environment generally does not in-
volve human interaction and, therefore, this new context requires a new understanding
of trust.
Several techniques help in establishing online e-trust:
• Electronic authentication
• Electronic signature
• Escrow payment services (online)
• Public Key Infrastructure (PKI)


With the advent of electronic signatures, e-business is changing the way we sign and
store documents. Thus, any business that wants to succeed in the digital economy
must deal with electronic signatures. It is considered an everyday activity whenever a
law or other arrangement requires a signature of person. Signature is needed as a
medium for authentication in order to identify the person (the signer), to indicate the
person™s approval of the information communicated and, to be legally applicable. Most
of the national laws currently in force provide that a signature, contract, or other record
relating to such transaction may not be denied legal effect, validity, or enforceability
solely because it is in electronic form. Like a handwritten signature, an electronic signa-
ture can be used to identify and authenticate the originator of the information and, it
can also be used to verify that information has not been altered after it is signed.
Electronic signatures play a key role in enabling electronic business by helping ensure
that electronic documents are unaltered and have not been forged.
Considering the functionality and applicability of such issues, this chapter finds one
key category that links all of the separate e-business legal issues in one regulated
scene ” the answer is done by introducing electronic signature as equivalence with
handwritten signature no matter what type of information technology is in use. There
are more legal environments, solutions and applications of an electronic signature from
which several examples are described accompanied with the e-business view on elec-
tronic signature utilization.
xv


The seventh chapter is Impacts of the Digital Economy: The Shift to Consumer-Driven
Competition and Life-Span Products authored by Simon Mowatt.
This chapter examines changes in innovation and competition made possible in two
traditional industries by the adoption of integrated information and communication
technologies. The two industry cases used are drawn from the consumer magazine
segment of the printing industry and the grocery multiple (supermarket) segment of the
retail industry. Both of these industries have benefited from changes in communication
within the industry value system made possible by the adoption of digital information
management and communication systems.
The primary research in these industries was undertaken by an empirical program of
qualitative, interview-based research focused on innovation networks. The informants
were involved in production, distribution and retail, and identified by prior secondary
research. The research also employed a census questionnaire survey of consumer
magazine publishing firms. The survey response was checked for representiveness
against a random sample of the industry population and found to be robust.
The chapter highlights the importance of consumer-drive innovation in consumer-fac-
ing markets. The industries examined had previously been conditioned by the econom-
ics of manufacturing. The development of complex innovation networks to supply
consumer needs is examined and the innovation process is explored in detail. For the
process of consumer-driven innovation, the importance of linkages to end-consumer
and market experts is acknowledged”something is enhanced by the use of digital
technologies. The chapter acknowledges that the development of the innovation sys-
tems described was the result of firms reacting to consumer needs. But in addition to
this, the chapter offers the concept of “life-span” goods as those developed from the
outset as having a short life dependent on changing consumer tastes and fashions.
Life-span goods are emerging as firms continue to explore the possibilities of proactively
using innovation systems to forge links with consumers. Within this environment firms
have been recently acting more as project orchestrators: using their skills in develop-
ing innovation teams based on the deep knowledge of consumer activities to identify
and supply new market segments.
Production in the innovation systems identified is undertaken across firms and coordi-
nated by shifting and temporary alliances. This presents a challenge to economic analysis
and to the theories of the firm grounded in a transaction-cost framework. Network-
based and sociologically grounded theories of the firm have previously attempted to
resolve the inadequacies of contemporary economic theory by emphasizing the impor-
tance of social ties and long-term embedded relationships. However, the examples ex-
plored in this chapter highlight the role of new technology in short-term non-embedded
relationships as well. The project-based firm is identified as having features that are
problematic for economic analysis. Despite this the chapter suggests that changes in
competitive pressures towards consumer-facing competition may increase the preva-
lence of project-based firms with industrial economies. Finally, the chapter concludes
by exploring some avenues for future research that offer new pathways for future
theoretical understanding of project-based and network organizations.


The eighth chapter is Digital Products on the Web: Pricing Issues and Revenue Mod-
els written by well read Gary P. Schneider.
xvi


Products that exist in digital form can be bought, sold, and in some cases delivered,
online. Some products exist only in digital form, such as software and certain types of
information databases. Many more types of products exist in physical form, but can be
digitized. These products include many forms of intellectual property such as text,
pictures, photographs, architectural drawings, choreography notes, sound recordings,
and video recordings. In some cases, digital products arise from the transmission of
other digital products, as in the case of telephone and fax transmissions. The pricing
issues that arise in the sale of these products are different from those that sellers face
when pricing physical goods. These pricing issues lead to interesting opportunities for
devising revenue models. These pricing and distribution issues affect the nature, quan-
tity, and quality of competition in markets for these products. Some digital products are
made available at no charge. Thus, an alternative revenue stream that is somehow
related to the product must be devised. Some digital products are bundled with other
products (digital or physical) to avoid some of the problems inherent in the pricing of
digital products alone. Another pricing strategy is to create an artificial distinction
within a subset of digital products and use differential pricing to extract the highest
revenue possible from each set of customers for the product. Perhaps the most common
pricing method is to use a licensing approach of one kind or another. Many digital
products are, in their essence, things that are experienced by customers. They often
have no meaningful physical existence separate from their experience. Providers of
digital products must maintain a current knowledge of underlying technologies that are
used or could be used in the future for delivery of their products. The ability of custom-
ers to adapt and reformat digital products is also an essential characteristic of digital
products, a characteristic that can be affected by changes in technologies as well. The
success of revenue models for companies that sell digital products depend on the
nature of the product, the characteristics of the buyers, and the traditional practices in
the industry. For most digital products, the effect of pricing and distribution strategy
does not derive so much from the introduction of the Internet into the marketing chan-
nel as from the products™ very nature as digital products. This chapter examines the
nature of digital products, their pricing issues, and the efficacy of various revenue
models that have been implemented by companies that deal in digital products.


The ninth chapter is On Software Piracy by Sougata Poddar.
The pervasiveness of the illegal copying of software is indeed a worldwide phenom-
enon. Economists argue that when the piracy takes place at the end-users level, the
original software developer finds it profitable to allow limited piracy when the effect of
network externality is reasonably strong in the users™ market. The author argues that
when the piracy is of retail in nature, the same logic cannot be extended, and shows that
it is always optimal for the original software developer to protect its software even
when the effect of network externality is strong in the end-users™ market. The author
suggests that piracy depends on more fundamental issues like demand environment,
market structure, the nature of piracy and the nature of competition. The other issue
covered here is the economic impact of piracy on the welfare of a society. The author
discusses various policy implications on regulating piracy in developing as well as
developed markets.
xvii


The 10th chapter is by the well-known Professor Stanley D. Brunn, An E-Classification
of the World™s Capital Cities: URL References to Web Sites.
The world™s capital cities perform various political functions for their populations,
contain embassies, consulates, and missions of other governments, and serve as head-
quarters for major corporations, cultural and humanitarian organizations. While social
scientists have classified major cities based on population size, number of corporation
headquarters, banks, and airline connections, the emergence of ICTs suggests addi-
tional criteria. The author used the number of URL references to Web sites listed in the
Google search engine for 199 world capitals. These cities had nearly 120 million
hyperlinks in mid-2003. The capital cities in Western Europe had the most hyperlinks
(15 million), followed by Southern and Northern Europe (13 and 10 million respectively),
and Central America (10 million). The capitals with the most references to electronic
information were: Singapore (6.6 million), Washington, D.C. (5.1 million), and Mexico
City (4.2 million). The next largest cities are recognized as major European cities and
world cities, including: Luxembourg, Paris, Tokyo, Monaco, Madrid, Berlin, Rome, and
London. Several Central American capitals, Panama, San Salvador, and Guatemala City,
were in the top 15. The top 15 capitals had 46 million hyperlinks or 31% of the total. The
regions with the fewest hyperlinks were capitals in Southern Africa (only 603,000) and
the Pacific Islands (only 410,000). These had less than 1% of the total. Five capitals
had fewer than 6,000 URL references each. They were the capitals of Bhutan, Micronesia,
Tonga, Mauritius, and Nauru. Small prosperous city-states and major capitals in West-
ern Europe and North America had the most hyperlinks. The fewest links are found for
capitals in poor and rural Sub Saharan Africa and Southeast Asia countries. Capitals
with multiple government offices, strong ICT economies, and dominant tourist econo-
mies have the most hyperlinks per capita. These were mostly in wealthy Europe and
North America. The lowest values were African and Asian capitals that were poor and/
or had repressive regimes. Regarding hyperlinks per capita, there were 48 capitals with
more URL references than residents. The highest figures were for small city-states with
dominant specialized functions, including administration, finance, tourism, telecommu-
nications, and religion. These include: Vatican City, Vaduz, Singapore, Brussels, Lux-
embourg, Washington, D.C., Canberra, Ottawa, Monaco, Valetta, Yaren (Nauru), and
Victoria (Seychelles). Those with the lowest per capita values were in South and Central
Asia, West, East, and North Africa. Many have closed or repressive regimes or are
poorly connected to the Internet. The major categories of information provided on the
first “screen” of those capitals with the most hyperlinks were news stories, embassy
(often US) information, and financial, tourism, and weather information. The first items
of those capitals with the fewest hyperlinks were tourist sites, hotels, recreational
activities, and local time. A number of subsequent topics are offered that merit addi-
tional research by scholars in various fields interested in e-commerce.


Online Services and Regional Web Portals: Exploring the Social and Economic Im-
pacts is the 11th chapter written by Helen Thompson.
This chapter examines community empowerment, economic and business development,
and equity of service as the issue of success and decline in regional and rural commu-
nities. This is explored with a particular focus on community informatics initiatives (CI)
in Australia, there has been a vision for online services to be used to open up regional
xviii


communities to the rest of the world. Government support has been seen as enhancing
the competence levels of local communities so they become strong enough to deal
equitably in an increasingly open marketplace. But how effective have regional portals
and other online initiatives been? This chapter explores whether economic and social
benefits are generated via establishing and sustaining regional CI initiatives. Theory
relevant to online communities is introduced to provide a context for the presentation
of two case studies. The first case outlines how a geographical portal has been estab-
lished and progressively enhanced as a central component of a strategy to facilitate an
increase in the uptake of ICT and e-commerce in the Ararat region. Benefits have
included the efficient linking of Internet-based information and services, more effective
promotion of local businesses, tourism and regional events and also significant skills
development and learning opportunities for community members. Ararat Online has
been recognized as an exemplar online community, effectively demonstrating how re-
gional development and online technologies can be combined. The second case dem-
onstrates how online services can be established to leverage the activities of a commu-
nity of interest. The Young Australian Rural Network (YARN) is an interactive online
community for young people working in rural industries to keep in touch, collaborate,
share ideas and strengthen networks. “Ownership” is effectively shared between the
Federal Government and young people with multiple opportunities provided for partici-
pation and involvement. For examples, the author discusses contributing to online
discussions, building a community site, adding a link, publishing events or suggesting
news items. In both cases the same comprehensive portal platform and toolset has been
accessed in the delivery of each community™s web-based services. This platform has
been designed by the University of Ballarat to meet regional and rural needs and to
reduce evident challenges in terms of infrastructure, cost and skill barriers, which often
negatively impact on the success of CI initiatives. It has been found that communities,
just like businesses, benefit from accessing assistance in identifying appropriate online
services for their particular circumstances. Case studies, such as those presented in
this chapter, are effective in illustrating the impacts, influences and challenges that can
be experienced in operationalizing and sustaining regional CI initiatives. Dissemination
of the critical learning from cases such as Ararat Online and YARN can inform others
about diverse factors which impact on the effectiveness and long-term sustainability of
regional CI initiatives.


Chapter 12 is ICT Growth and Diffusion: Concepts, Impacts and Policy Issues in the
Indian Experience with Reference to the International Digital Divide authored by
Saundarjya Borbora.
This chapter examines the role of technology in economic and social development in
developing countries, with a particular emphasis on India as an example. The concepts
of ICT Growth and ICT Diffusion are examined. ICT growth refers to the growth of IT-
related industries and services and their effect on employment, export earnings and
outsourcing of activities. ICT diffusion refers to IT-induced development, which in-
creases productivity, competitiveness, economic growth and human welfare from the
use of the technology by different sectors of the economy. The chapter focuses on the
direct benefits of ICT growth, paying special attention to the service sector. But the
role of IT in economic development has not received adequate attention in India. From
this, the paper reviews Indian governments™ successful policies encouraging ICT growth
xix


through the support of the export-oriented service industry. This industry has wit-
nessed long-term growth primarily as the result of the increasing tradability and conse-
quent internationalization made possible by changes in ICTs. However, the export fo-
cus policy has created enclaves within the Indian economy without significant forward
and backward linkages. Whatever ICT diffusion is taking place is due to activities of
industry and discrete public and private initiative at the absence of any specific central
government policy for ICT diffusion in India. The chapter examines both international
and domestic digital divides. Real disparities exist in access to and in the use of infor-
mation and communication technology between countries, the International Digital
Divide, and between groups within countries, the Domestic Digital Divide. Evidence
suggests that International Digital Divide between may be increasing. Examining the
present unequal access to ICT, it may be stated that new technologies reinforce the
disparities between developed and developing societies. But late entrants such as

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