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researchers and practitioners for over 50 years (Dutton, 1999a; 1999b). However, the
influences of e-commerce are far bigger than imagined before (Sharma and Gupta, 2003b).

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Socio-Economic Impacts and Influences of E-Commerce in a Digital Economy 3

This chapter describes the various socio-economic impacts and influences that have
been created by e-commerce in a digital economy. The chapter is divided into four
sections. The first section provides the definition and components of the digital
economy. The second section discusses the positive influences of e-commerce for
businesses. The third section discusses the details of sociological influences of e-
commerce. The fourth and concluding section discusses the economic impact of e-
commerce in the digital economy.

Digital Economy
The essential in the new economy is a structural shift from the industrial economy toward
an economy characterized by information, intangibles and services and a parallel change
toward new work organizations and institutional forms. Many new terms have been
coined for this new economy such as “knowledge-based economy,” “borderless
economy,” “weightless economy,” “networked economy,” “digital economy,” “the
information-based economy,” and “the networked economy” to name a few (Woodall,
2000; Sharma et al., 2004). A digital economy is a convergence of communications,
computing, and information. The new economy is basically about coordination, innova-
tion, selection and learning (G¤rdin, 2002). The combination of networked computing
technologies and new business models is creating entirely new markets, industries,
businesses, and work practices today to form a digital economy. The new economy or
digital economy is based more in the form of intangibles, information, innovation, and
creativity, in expanding economic potential (Persaud, 2001) and is based on the exploi-
tation of ideas rather than material things. The focus of the new economy moves from
processing material input into material output toward creation, trading and distribution
of knowledge, intellectual property and intangibles. The symbiosis between changing
production and business processes and information and communication technologies
(ICT) is the driving force toward the new, digital economy. The key to understanding the
new economy is services and the measurement of services. The modern industrial
enterprise is largely a producer of services integrated or embedded in the product. A large
part of this service production concerns the use of information in some form (G¤rdin,
2002). The essential elements of the digital economy are:
• digitalization and intensive use of information and communication technologies
• codification of knowledge;
• transformation of information into commodities; and
• new ways of organizing work and production.

This implies that much of information and many services are available online. A widely
distributed access to the networks, the intra- and Internet, and of skills to live and work
in the Information Society is the basis for the digital economy. The new economy is a

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4 Sharma

combination of services and ICT. Malone, Yates and Benjamin elaborate on the growing
concern that the benefits of the digital economy are not evenly distributed within society
(Bouwman, 1999). The two major concerns are the role of technologically-sophisticated
workers in the digital economy and the equity of the benefits-sharing as digitization of
information changes the structure of businesses and industries. For example, the
dramatic expansion of inequality and educational differentials, and disparities in access
among different groups seem to follow the perfect labor market scenario. In this scenario,
the most qualified workers receive much of the benefits, but both firms and poorly
qualified workers tend to lose out (Kauffman and Walden, 2001). Many of these socio-
economic influences are discussed in the next section.

Positive Influences of E-Commerce for
Electronic Commerce or e-commerce is the exchange and processing of business
transaction information using computers connected through a network. E-commerce
does have unique advantages for businesses. It allows a shop, a showroom 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. E-commerce has
reinvented the way businesses operate. E-commerce has also allowed the establishment
of completely new types of businesses such as online shopping and Internet banking.
These new ways of thinking, and processes involved in commerce, provide many benefits
and advantages. E-commerce brings substantial net benefits to the economy. The real
impact of e-commerce is its ability to reduce costs and prices and make doing business
more efficient. The increased productivity will result from lower production costs, lower
inventory holding costs and lower overall input costs to a business. These savings
permeate through the entire value chain and impact significantly in business interactions
with other businesses (Sharma and Gupta, 2003a).
The Internet is providing considerable opportunities for firms to streamline their
business operations as well as offering greater choice and lower prices to customers
shopping online or alternatively obtaining product information before making a store or
catalogue purchase. A large number of enterprises have migrated to Internet-based
systems for increased efficiencies, lower costs and the ability to operate in real time
across different platforms. 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 and product flow and inventory management
decisions using the collaborative Internet-based networks between suppliers and
retailers. In addition to reducing costs, e-commerce solutions permit customers 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.
Internet-based systems are more efficient in communicating customized product infor-
mation to suppliers. The entire value chain makes better decisions collaboratively with

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Socio-Economic Impacts and Influences of E-Commerce in a Digital Economy 5

the end result being vastly improved performance throughout the entire chain. The Net
economy or digital economy will result in lower prices for consumers, better information
access and increased competitiveness of small and mid-size businesses. It will also pave
the way for a true global trading community.

Social Impacts and Influences of
As e-commerce continues to grow rapidly, it could have significant effects on the
structure and functioning of a society at an individual and aggregate level (Granovetter,
1985). The social impacts of these changes are discussed in this section.

E-Commerce and the Digital Divide

The term Digital Divide means a lack of equal access to computer technologies and the
Internet in particular, creating a gap between those who have and those who have not.
The Internet, information and communication technologies (ICTs) and growth of e-
commerce has created enormous influence on services, market structure, competition
and restructuring of industry and markets. These changes are transforming all areas of
society, work, business, and government. The use of information and communication
technologies (ICTs) for e-commerce deepens and intensifies the socio-economic divi-
sions among people, businesses and nations. New leadership, better policies, improved
infrastructure, greater trust and determined efforts to raise ICT-related skills and
competencies across the economy and society in general to move toward greater and
more equal digital opportunity. On one hand, e-commerce has provided new opportuni-
ties for economic growth. On the other hand, it has created a social problem of digital
divide. Digital divide refers to the disparity between those who have use of and access
to information and communications technologies (ICT) and those who do not. More than
two-thirds of the world population still is deprived of access to information and
communication technologies (ICTs). There is a complicated patchwork of varying levels
of ICT access, basic ICT usage, and ICT applications among socio-economic groups.
Many disparities are getting even larger (Lambert, 2000). Disparities in the location and
quality of Internet infrastructure, even the quality of phone lines, have created gaps in
access (Quay, 2001). There are gaps in the adoption of digital technologies among
different social groups and firms, depending on income levels, education, gender, and
ethnic groups and, for firms, depending on industry structure, business size (large firms
versus SMEs) and location. Millions of technologically disenfranchised have-nots, who
cannot afford the cost of that technology and training, are walled off from potentially life-
changing tools and knowledge. Therefore, they feel isolated in the virtual world. For
example, although growth has been very strong in Europe, particularly in Sweden and
Finland, the United States still accounts for more than three-quarters of all e-commerce
transactions. Despite the promise of “borderless” trade, most e-commerce is still national

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6 Sharma

or within the continents (Bassols and Vickery, 2001). Hindered by poverty and a poor
telecommunications infrastructure, the gap between developing nations and developed
nations is widening further and, therefore, those nations that are not able to jump on the
e-commerce bandwagon and have poor access to the Internet suffer from a great disparity
in wealth. Many countries are trying to formulate multi-faceted social policy approaches
to improve access conditions, education, skill development and training to reduce digital
divide gaps (Rombel, 2000; Morrisett, 1998).

E-Commerce and Marginalization

In many countries, the formal sectors in the economy are becoming less labor-intensive
and are able to provide employment opportunities to only specialized workers. With the
use of the Internet to conduct business, fewer people are required as jobs are automated
or made obsolete (World Employment Report, 2001, 2002). This also means that those
who are employed in the formal sectors require greater skills and knowledge. This implies
that the other half is either unemployed or is in the informal sector of the economy.
According to Tores, Bhorat, Leibbrandt and Cassim (2000), those in the informal sectors
may be employed ” as they are involved in “survivalist” activities, yet they remain in
poverty. They are therefore marginalized as they are pushed to the periphery due to their
inappropriate education or skills. They are further marginalized as the gap in the
knowledge attained between themselves and those in the formal sectors (using the
Internet to conduct business) grows (Abrahams et al., 2001).
The use of ICT (such as e-commerce) has brought greater than the existing marginalization
(Machipisa, 1999). These sentiments are echoed by the World Employment Report (2001),
which says that the use of technologies such as e-commerce is positively correlated with
economic growth ” both on a national and organizational level. It also states that in
countries where ICTs are relatively expensive, many people (particularly previously
marginalized, e.g., rural people) are further marginalized. These persons are marginalized
to a greater degree than before, i.e., they are being excluded from the electronic market
place and are simply ignored by “electronic players.” The Internet is becoming a
prerequisite for economic development and companies that can quickly access informa-
tion about conditions in export markets can respond rapidly to changes. On the other
hand, those organizations or business people who do not have access to such facilities
are unable to respond. Again, they are left out of the mainstream of activities (Abrahams
et al., 2001; Licker, 2000).

Social Disparities and Change of Life Styles

Changes in households™ roles, division of labor, responsibilities and relationships take
place, at least partially influenced by the adoption and use of modern information and
communication technologies. Home-based e-work and other combinations of time and
place flexibility have created a variety of important effects on partnerships, families and
family life. Important research questions are boundaries and overlap between work and
leisure or family activities, the availability of space and other resources for home-based

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Socio-Economic Impacts and Influences of E-Commerce in a Digital Economy 7

e-work and its impact on social contacts and career prospects (Gershuny, 2000). Four
groups have been identified that could have problems in coping with new information
and communication technologies: inhabitants of remote and less-developed regions,
older workers, women and the disabled. The relationship between the adoption of new
information and communication technologies and the development of income distribu-
tion is very complex. Several important causal chains, effects and mechanisms must be
investigated and at least some of them seem to be contradictory in the sense, that the
adoption of ICT can cause both growth and reduction of income disparities.
Domestic use of information and communication technologies has both beneficial and
harmful impacts. Evidence is mixed with regard to various competing theories about the
impact of computing on individual well-being. Some data suggest that increasing Internet
use is associated with social isolation, withdrawal, and stress. Although the data also
suggest that Internet “addiction” may be limited to about ten percent of Internet users
and it is not necessarily associated with how much time an individual actually spends
online. Conversely, some studies suggest that Internet use enhances family bonds and
friendship formation since e-mail and multi-user domains may foster communication
between family members and friends. E-commerce has also created another kind of
problem which is known as an X problem. A few magazine reports indicate that as many
as 600,000 people are hooked on Internet pornography. The report says online sex addicts
go to porn sites, X-rated chat rooms and other sexually-oriented content. The Internet
survey indicates that one percent of all Internet users are addicted to online porn.

Social Isolation

E-commerce has been an important facilitator of new flexible work forms. Types of flexible
work refer to:
• the location of work, with a flexible location including, e.g., working on the move,
working from home and working from tele-centers or satellite offices;
• the working time with non-standard arrangements like flexible hours or “flexitime”
schemes, part-time work, job-sharing, compressed working weeks, annualized
working hours and zero hours (contracts under which the employer does not
guarantee to provide work and pays only for work actually done);
• contractual arrangements like outsourcing, use of agency workers, temporary/
fixed term contracts, casual.

The ranks of telecommuters have grown rapidly throughout the late ™90s, as employees
have wired homes with high-speed Internet connections and multiple phone and fax lines.
Fueling the trend is an office-space crunch in most major cities. Instead of leasing new
office space or expanding the existing headquarters, it™s vastly less expensive to provide
workers with laptops and phone lines and tell them to stay home. Given the historically
tight job market, the fierce competition for talent, and the record high turnover among
workers, many executives see telecommuting as a perk to woo new recruits”no different
than offering them company cars, subsidized Internet access or stock options. Telework

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8 Sharma

has a considerable variety of forms. It includes, among others, work of employees of a
company away from the workplace (part-time or full-time, at home or in another places,
such as tele-centers), home-based work freelancers, home-based part-time or temporary
work as a secondary activity and, in recent times, mobile working, made neither in the
workplace nor at home (or tele-center). Early research indicates that so-called telework
centers may boost productivity. To cope with the high price of commercial real estate and
the shortage of information technology workers, many companies are opening outpost
offices in different countries. Each office has a conference room equipped with three large
video screens so programmers and engineers can collaborate from remote locations.
However, there are various serious social effects of telework. E-commerce has far
reaching implications in a social context. On one hand, it provides all the comfort of
shopping from home, on the other side, it removes old-fashioned human interactions for
social needs (Gershuny, 2000).
The chief problem appears to be the fear of losing touch. Telecommuting could be seen
as a different social class with a different set of rules. The fact that traditional workers
could be seen as failures in such a society further increases rifts between social classes.
As Internet use grows, it is observed that workers spend less time with friends and family,
shopping in stores or watching television, and more time working for their employers at
home ” without cutting back their hours in the office. The more hours people use the
Internet, the less time they spend with real human beings (Kraut et al., 1998). More people
are working at home on the Internet for their employers and are working more hours at
home since they gained Internet access without cutting back at the office, actually
reporting increases in time spent working both at home and at the office (Gershuny, 2000;
Heikill¤ et al., 1998).
E-commerce makes it possible for an older consumer to purchase almost all needs from
home and have those items delivered. But this can lead to social isolation. The only time
there is any personal contact in this situation is when the consumer signs for the
packages and when they call up customer service. Due to such phenomenon, there are
fewer people active in their neighborhoods than in the 1960s. Many researchers are trying
to find answers by working on various issues, such as: How might online communities
help reverse this trend? How can local neighborhoods, street corners, apartment
buildings, school playgrounds, etc., be turned into bustling, chattering communities
where people feel connected and care about others? Random encounters in chat rooms
are not enough. Continuing collaborations are needed that encourage trust and collabo-
ration in local health groups, community groups, parent-teacher associations, local
conservation groups, community activists or political action groups. Hopefully online
communities of the future will help reduce social isolation, enrich local neighborhood
communities and encourage development of social capital. Corporate cultures that are
traditionally strengthened and reinforced through informal discussions of stories, ritual
and specialized language can no longer be maintained. Therefore, geographic dispersion
is the primary factor contributing to a weakened culture.
Another issue is ensuring the safety standards of tele-workers. Some feel that an
employer should be responsible for preventing or correcting hazards in a home office,
passing an unprecedented burden of liability onto the employer. Employers must take
steps to reduce or eliminate any work-related safety or health problems they become

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Socio-Economic Impacts and Influences of E-Commerce in a Digital Economy 9

aware of through on-site visits or other means. But determining how much responsibility
an employer has for a tele-worker™s home office is unclear. Should an employer be
responsible for making sure a tele-worker™s office is ergonomically sound or for
snowplowing services on the porch and driveway of a traveling salesperson™s home?

Loss of Individuality

Maintaining a customer base has become a very important asset in today™s economy for
the organizations to gain competitive advantage. Therefore, organizations use sophis-
ticated tools to reach customers and get their personal data recorded into their databases.
Many believe that e-commerce technology is eroding personal privacy because consum-
ers have no control over their personal data that merchants have collected during their
shopping experiences. Also, personal record keeping systems of merchants are not
regulated or restricted. People fear that if the trend of collecting information continues,
they may lose their individuality since they would have no control over the information
about them (Kling and Linowes, 1996; Hatch, 1996).
The Internet expands our experience of community. This expansion challenges tradi-
tional notions of the community and the individual. The Web provides so many
manifestations of individuality that it causes an inflation of individuality. Individuality
is no longer a definition of who we are, which was won the hard way, through explorations
of the social and economical boundaries of survival. Individuality is more and more a
definition of who we are, which was acquired through countless hours of mediated
experiences through television and the Web. An important component of the sociologi-
cal implications of the information age is that the breaking down of distances that is at
the heart of the process should not be allowed to impinge on the essence of individuality.
There is clearly the need to ensure that an electronic counterpart of physical individuality
is evolved so that there is a true breaking down of distances without a loss of identity.
There is already wide recognition of such a need across the world and various efforts are
in place to create such e-identities (Miyazaki and Fernandez, 2000).


The transition from the Paper Age to the Digital Age has brought with it new issues
surrounding the usage of personal information. Privacy has now become a major issue
internationally. The rise of intrusive technologies and the Internet has resulted in a surge
in awareness about the importance of privacy. Pressure is being put on companies to
develop privacy policies to protect consumers who are liberally sharing their personal
information in this new environment (Miyazaki and Fernandez, 2000). The rush by large
corporations to engage in electronic commerce has meant more personal information is
being gathered, shared, sold, and disseminated than ever before. However, the privacy
issue moves far beyond protecting personal information on the Internet. In a larger sense,
our privacy is being violated daily as new and all encompassing surveillance technolo-
gies come on the market. It is also clear that the emergence of ever pervasive and intrusive

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10 Sharma

technologies is representing a threat not only to privacy, but also to fundamental
freedoms as citizens. We are building mechanisms and accepting them by allowing their
implementation and use, in which we are, virtually, potentially building an electronic
prison for ourselves. The potential mechanisms to diminish our basic freedoms are now
being put in place (Ambrose and Gelb, 2001).
Technology has meant a wide-scale loss of privacy in comparison to what we enjoyed
just 20 years ago. It is not just our personal information that is being abused. We are
subject to almost daily scrutiny of our lives. In most countries, video surveillance
cameras are accepted as a way of life to combat crime. Computers can now talk to other
computers and, if properly programmed, can exchange information between machines
automatically. Computers can monitor every aspect of our online activities. In the work
place, electronic monitoring of employees is not unusual. In many corporations, it is
becoming a standard practice in the name of administrative efficiency. Geo-positioning
satellite (GPS) technology can now send email, faxes and messages to our pagers and,
now, even to our cars. But that same technology can also pinpoint exactly where we are
at any given time of the day. Whether we are in our car and just a short walk away from
where we parked, someone somewhere will be able to know our location. This is just
another bit of information that will end up somewhere in a database for possible current
or future use by someone. Employers can monitor every aspect of employees™ movements
through these technologies. All of this will be in the name of administrative efficiency,
monitoring productivity and being cost-effective. In time, governments will find persua-
sive reasons to also monitor our activities. It appears that society is whistling cheerfully
as we descend willingly into the fast approaching dark tunnel of encroaching technologi-
cal tyranny. The threats to our freedoms are even wider than ever imagined (Gupta and
Sharma, 2001; Zaret and Sawyer, 2000).

The Impact of E-Commerce on Local, Social, and
Political Values

E-commerce may have a significant, impact on local political and social life and on local
values such as privacy, freedom of information and the right of free speech. Commerce,
particularly local commerce, is a social activity that promotes community connections,

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