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Introduction
Internet is a system of network that connects computers or computerized devices across the world. It only requires a connection device in order to reach and connect people or parties that could be very far from each other.
International business is, on the other hand, a reference to commercial undertakings between two or more individuals or parties that are located in different regions or countries. Technological developments over time have led to global revolutions, which have made it possible for the witnessed developments in communications from the initial usage of messengers to the current sophisticated use of internet for communication.
This communication technique has been adapted to an extent of acculturation in commercial transactions, especially in cases where parties are far apart as in cases of international trade. This paper seeks to discuss the effects that internet has had on international business. The paper will look into the history and development of internet usage in international business, factors that led to the development of internet usage in international business as well as the effects that this internet usage has had on international business.
History of Internet Usage in International Business
Internet usage in international business is a form of general online transactions in which parties to a business conduct transactions through the internet. These transactions involve parties exchanging information by the use of internet as opposed to the previous modes of communications such as written forms and use of phones.
The development of internet mode of business transactions can be claimed to have been driven by desire for efficiencies and ease in transactions such as “direct marketing, selling and services, online banking and billing and secure distribution of information” (Rehman, n.d., p. 13). With desires for efficiencies, better and more secure transactions, other means of communications in the business arena, such as use of posted letters proved to be time-consuming with chances of information being lost or intercepted on the way being high.
Steps to ensure safety of business information, which is in most cases comprises business transactions and secrets which have to be kept away from business competitors, must have facilitated the shift to the internet usage which is relatively considered to be safer than the previously used methods of communications in the business world. Development of internet usage in business, in general, started with the establishment of “electronic data interchange” (EDI) in the year 1960 (Rehman, n.d., p. 15).
The establishment then set standards for business communications in electronic media, which were then enhanced by the standardization of formats that were earlier used under electronic information transfer into adoption of one format in the year 1984. Further enhancement was achieved in the year 1992 when a browser was developed.
The browser then provided easier access and transfer of data and information through the use of internet by the employment of DSL features. Further developments of computer operating systems such as Microsoft and Linux have similarly promoted data management in computer systems, thereby promoting the internet usage in communications between international business parties (Rehman, n.d., p. 15).
Klein David gave further clarification on the timeline of the history of internet usage in business transactions. Through its evolution roots from electronic communications such as telegraph that was developed as early as the nineteenth century, the usage of internet was later developed with the establishment of browsers that have enabled people to use internet services to send and receive information (Klein, 2002, p. 5).
Developments in Internet Usage in International Business
Internet usage came into play in the late twentieth century and has over time undergone a number of developments in regard to its usage and even security. The use of the internet has quickly spread and gained fame all over the world, for example, it was established in China in the year 1987 when internet communications through emails was introduced.
A history of internet application in business by china to link business entities both in china and across the globe gives an illustration of how internet and its usage in business, both domestic and international, have evolved since the year 1987. The government of the people’s republic of china established a project for developments of the EDI applications, which was by then the basis of computer operations regarding business records and transactions. A series of EDI systems were then established by a variety of entities.
At the moment, EDI technology saved business entities, worldwide, the trouble of dealing with paperwork which had proved to be bulky. The EDI technology served the purpose of transforming information to a given format, which was then transferred from one destination to another. Owing to the development of many forms of EDI, there was established a standard EDI format to which information from a business source was converted before it could be sent to its recipient.
The development of EDI improved communications in the business fraternity by increasing the efficiency with which communications are made. EDI, for example, reduced “intensity, mistakes and cost” that had been part of generation and transfer of information among contracting parties (Qin, 2009, p. 5). It is for this reason that there was an increased tempo of business across international borders, which was made possible by the availability of a better and more effective link between trading partners across the globe (Qin, 2009, p. 5).
The disadvantage of the EDI system of information transfer, however, was that it proved costly to small and middle leveled entities since its usage cost was not dependent on the amount of information that was being transmitted. The constant charge on usage of EDI made it economical to large scale organizations and entities that had voluminous quantity of information to transmit while entities and individuals who only needed to transmit a small amount of data at a time felt financial strain in the application of EDI.
Internet usage in international and domestic businesses then developed to the establishment of companies that provided a media of information in the internet. Companies such as: “Dell Company, Amazon, yahoo internet search engine, baidu internet search engine, sina, sohu and Ebai” (Qin, 2009, p. 5) were developed and provided internet connections to networks across the globe (Qin, 2009, p. 5).
Applications of such developments were employed in areas such as sales and marketing as have been the case of Dell and Amazon, and the general provision of information by entities that required such information known by other parties. Like the EDI technology, this development was immediately spread throughout the globe with statistics showing that in a span of three years, which was from the year 1995 to the year 1998, the number of websites increased from two thousand, all the way to over four hundred thousand.
Internet usage has spread to more than one hundred and fifty thousand countries and predictions are made to its further spread in the coming years. Due to its lower cost as compared to EDI usage, the websites technology has led to advancements that have integrated information technology in the internet communication systems (Qin, 2009, p. 5).
Factors that Led to the Development of Internet Usage in International Business
The development and use of internet as a means of communication in international business was instigated by a number of factors. One of the factors that led to the internet usage in business was advancements in technologies used in communication.
Existence of a competitive environment in open market put business entities in a state of always strategizing to beat each other in competitions over markets. Information technology became a field in which these parties sought their strategies leading to research and developments in information systems such as “database and internet technologies to enhance the effectiveness of relationship marketing practices” (Tan and Hunter, 2005, p. 318).
Globalization also stimulated the need for expanded and more efficient communication systems for the larger global market (Tan and Hunter, 2005, p. 318). The internet usage in international business has also been facilitated by factors such as its “reduced costs, increased efficiencies and improved customer service” (Safavi, n.d., p. 1).
The use of internet also meets other standards, such as meeting consumers expectation in terms of “trustworthiness, privacy, integrity, confidentiality and non-repudiation” (Safavi, n.d., p. 1), among others making internet usage a preference to previously used communication media. This has upheld the continuous growth of internet usage globally, as well as its continued development (Safavi, n.d., p. 2).
Impacts of Internet on International Business
A lot of effects have been felt in international business following the introduction and development of the internet as a means of communication. One of the immediate impacts of the use of the internet in international business was the expansion of market for goods and services. A study of the relationship between expansion of the use of internet and the level of international trade revealed a significant relationship between the two elements.
It has been found out that as the use of internet spreads among countries, an increase of ten percent in the number internet web sources leads to a corresponding 0.2 percent increase in the amount of products that a particular country exports. In view of that research outcome, it can be concluded that the development of internet usage together with its expansion across the globe has had the effect of expanding international trade by increasing inter border business transactions.
This can be attributed to the increased access of information that internet usage has developed since contrary to the previously dominating communication media, internet became a global connection allowing business entities to advertise and reach markets throughout the world. Internet has also had the impact of reduced amount of money spent in communications (Fleming, Mueller and Thiemann, n.d., p. 8).
Contrary to the advertisement of homogeneous goods, the costs advertisement and market penetration for heterogeneous goods in global aspect varies and was previously demanding. Delivery of information concerning these goods using the internet has however been cheaper enabling business entities in various countries to reach more audience in the search for a market for their products.
In its aspect of a more efficient and faster communication system, internet has played an important role in international marketing of perishable goods such as flowers. Enhanced communication system has ensured faster establishment of market for this product hence reducing their spoilage while in storage (Fleming, Mueller and Thiemann, n.d., p. 8).
According to Choi Changkyu (2010), the development of internet was a major factor to globalization that transformed world trade patterns. Liberalization of trade patterns, as an element of globalization, resulted in open trade international markets that had not been previously available as a result of characteristics of nations limiting importation of commodities.
Effects of liberalization that saw the lifts of limitations to international trade were a step towards promoting and motivating international trade, which has actually been effectively achieved. Internet usage is therefore identified, in this chain, as a factor to the increased international trade that resulted from globalization (Choi, 2010, p. 3).
Barfield and Welfens (2003) argued that there exists a relationship between marketing costs and the final prices of commodities. With this respect, reduced advertisement costs and extensiveness of internet advertisement has been credited for increased levels of bilateral trade arrangements.
The use of internet especially in countries where it had not been developed is also seen as a step to opening the country to other markets as well as exposing that country’s market for exploitation. This way, the extensive advertisements, together with explored new international markets opens ways for trade between the subject country and other countries, thereby enhancing the tempo of international trade.
Reduced costs of marketing also play a part in influencing reduction of final prices of commodities in international markets hence making imported goods a bit cheap comparable to domestically produced goods in terms of prices. Previous advertisement modes limited advertisements and knowledge of commodities to specific regions and as a result acted as a barrier to international trade (Barfield and Welfens, 2003, p. 86).
It is similarly argued that communications, of which internet is an element, has a tendency of increasing the volume of trade between countries. Establishment of internet services is, for example, expected to motivate introduction of newly developed products into markets.
Such product developments are further associated with elements of international trade such as “net capital inflows, including long term foreign direct investments” (Welfens, 2002, p. 88). Foreign direct investment is one of the elements of international trade and it is for this reason that it can be concluded that development of internet usage has played an important role in international business (Welfens, 2002, p. 88).
Application of internet services on research and advertisement is also effective in “market-specific entry costs” for producers who wish to venture into international business (Bojnec and Ferto, 2010, p. 2). Unavailability of information regarding markets for finished products on the side of producers in one country and on the side of consumers in another country is a perfect limitation to trade between these two populations.
A high cost of conducting research into a business venture that was previously a necessity was also a barrier to ventures in international trade. The introduction of internet, however, downplayed these two aspects by readily providing information regarding markets and products thereby linking the two parties at different levels of trade as well as different countries of origin. The internet again forms a link for breaking into international market and participation in international business (Bojnec and Ferto, 2010, p. 2).
Conclusion
Internet developed from earlier electronic communication media. With its establishment towards the end of the twentieth century, internet developed to become the center of communications. International trade, being based on information about markets, has employed the use of internet as it proved to be better than other communication media in terms of costs, efficiency and even time. With its advantages such as linking markets and reducing time and cost in trade, the use of internet has positively impacted international trade.
References
Barfield, C. and Welfens, P. (2003) Internet, economic growth, and globalization. Washington, DC: Springer.
Bojnec, S. and Ferto, I. (2010) Market-creating effect of internet on food trade. Web.
Choi, C. (2010) The effect of internet on service trade. Web.
Fleming, E., Mueller R., and Thiemann, F. (n.d.) ICT and the blooming bloom trade. Web.
Klein, D. (2002) Evolution of E-commerce. Web.
Qin, Z. (2009) Introduction to e-commerce. Beijing, china: Springer.
Rehman, I. Introduction to E-commerce. Web.
Safavi, R. Human/ social factors influencing usability of e-commerce websites and systems. Web.
Tan, F. and Hunter, G. (2005) Advanced topics in global information management. New York, NY: idea group Inc.
Welfens, P. (2002) Internet economics dot net. Washington, DC: Singer.
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