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Impacts of globalization on e-Commerce Adoption and Firm Performance

Abstract

This research develops and examining the relationship between firm

globalization, scope of e-commerce use, and firm performance, using data from the

selected firm that use Internet in its business operation. It is said that globalization

leads to both greater scope of e-commerce use and improved performance, measured

as efficiency, coordination, and market impacts. Scope of e-commerce use also leads

to greater firm performance of all three types. Globalization has differential effects on

B2B and B2C e-commerce, however, such that highly global firms are more likely to

do B2B but less likely to do B2C.

Statement of the problem

Two powerful and sometimes controversial current social and economic trends

are globalization and the widespread adoption of information and communication

technologies (ICTs). It is argued that these two trends are closely associated, each

driving the other forward, and both being driven by other common forces. There is a

direct and indirect effect of globalization to the firm performance and the process of

globalization will create new challenges to the organizations. Therefore in responding

to this, it requires the firms to think about the impacts of the two separate but

interrelated forces on individual firms.

Background to the Problem

Pohjola (2002) argues that the twin forces of globalization and the ICT

revolution are combining to create the so-called New Economy, marked by higher

rates of economic and productivity growth. Technology is both driven by and a driver

of globalization, as both forces continually reinforces one another (Bradley et al.,

1993). The process of globalization creates new challenges and opportunities for

firms. The opportunities include access to new markets that were previously closed

due to cost, regulation, or indirect barriers, the ability to tap resources such as labor,

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capital, and knowledge on a worldwide basis, and the opportunity to participate in

global production networks that are becoming prevalent in many industries such as

automotive, electronics, toys and textiles. Challenges come from foreign competitors

entering firms’ domestic markets, and from domestic competitors reducing their costs

through global sourcing, moving production offshore or gaining economies of scale

by expanding into new markets. Globalization challenges firms to become more

streamlined and efficient while simultaneously extending the geographic reach of

their operations.

Responding to these opportunities and challenges increasingly requires a

fundamental restructuring of organizational strategy and processes (Bradley et al.,

1993). Due to increased competitive pressure, companies are using new technologies

to extend their products and operations into the international marketplace (Snow et al.,

1996). They are also using these technologies to achieve new innovative transnational

organizational forms (Boudreau et al., 1998; Sturgeon, 2002). The adoption of ICTs

such as the Internet makes it cheaper and easier for firms to extend their markets,

manage their operations and coordinate value chains across borders

As Alan Greenspan (2001) has said, "By lowering the costs of transactions and

information, technology has reduced market frictions and provided significant

impetus to the process of broadening world markets". ICT adoption fosters

globalization by reducing transaction and coordination costs and creating new and

expanded markets with economies of scale.

It is important to focus on the relationship between globalization and the

adoption of a particular set of ICTs, namely the Internet and electronic commerce, at

the firm level. The goal is to move beyond general arguments about these

“megatrends” and to look at their actual dynamics in the operations of business

establishments. This requires thinking about the impacts of the two separate but

interrelated forces on individual firms. Much of the literature on globalization and IT

is lacking in empirical analysis, but implicitly treats globalization as the dependent

variable and examines the impacts of IT and the Internet. It is acknowledged that there

is a reciprocal relationship between the two, so there is a need to examine the impacts

of globalization on e-commerce and firm performance as the process of globalization

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has preceded the adoption of the Internet and e-commerce in time and it is still too

early to observe reciprocal effects.

Studies show that highly global companies (those that have operations abroad,

buy and sell abroad, and face more intense foreign competition) utilize the Internet for

business-to-business (B2B) e-commerce more than their less global counterparts. On

the other hand, highly global firms are actually less intensive users of the Internet for

business-to-consumer (B2C) ecommerce than less global firms. This suggests

different patterns of e-commerce activity for global and local firms. Global firms (the

largest share of which are in manufacturing) are more likely to integrate their

operations and automate transactions through B2B e-commerce in order to compete in

a global marketplace. On the other hand, local firms may have an advantage in the

B2C arena due to established physical infrastructures, local knowledge of consumer

preferences, language and culture, and brand recognition and trust. Global companies

also report greater performance improvements from the adoption of ecommerce, in

terms of greater efficiency, better value chain coordination, increases sales and

improved competitive position. Further, the adoption of B2B e-commerce by all firms

leads to improved sales, coordination and efficiency, while adoption of B2C improves

sales and efficiency but has no impact on coordination.

Figure 1: Example of conceptual framework of a company

Research Objectives

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Analyses will be based on the following factors:

(1) The relationship between globalization, e-commerce adoption and impacts on firm

performance.

(2) The degree to which a firm is already globalized will influence the extent to which

it adopts e-commerce and types of e-commerce it undertakes.

(3) The degree of globalization will influence firm directly as well as indirectly.

Research Questions

Will the impacts of globalization result to an improved firm performance and

better company efficiency?

Will level of e-commerce adoption lead to firm performance?

What type of impacts do firms face and what are the measures should firms

undertake to improve firm’s overall efficiency?

Significance

Globalization of both the economy and the society has confronted the world

over the past decade. A shift of focus and interest from the local market to the

international setting has demanded innovation not just in corporate leadership as new

information; forms of communication and technology are being offered to be utilized

in encouraging and reinforcing interaction among individuals. Fewer trade barriers

and unprecedented technological advances have accelerated the pace of globalization.

The advances in communication technology make it easier to enter the

international market through the efficient marketing (online transactions) and

advertising strategies that a number of international business organizations invest in

by utilizing the services provided by the Worldwide Web. Electronic data

communication (EDC) facilitates the exchange of data at tremendous speeds; it sorts

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and integrates data with other information available to the recipients (businesses,

banks, capital markets) from other sources. Thus, this improves the firm performance

as a whole. It also creates opportunities for local business to reach market globally

and young entrepreneur to operate business successfully by adopting e-commerce in

their business strategy. More job opportunities are created since the higher demand of

skilled workers with excellent IT knowledge.

Research Design (Materials and Methods)

Sources of data will be primary and secondary data. Based on primary

research, data will be gathered through a survey and questionnaires distribute to the

selected firms and different level of employees. Respondents will be among the

CEOs, CIOs or IS managers who are responsible for making the firm’s IT related

decisions. Interviews with the experts from the company will be conducted to get the

relevant information of the firm’s performance with regard to impact of globalization.

The firms will be selected from industry sectors that are known to be more advanced

users of e-commerce such as manufacturing, distribution(wholesale and retail), and

finance (banking and insurance). The survey covers a number of topics related to

adoption and impacts of the internet and e-commerce. However this research

addresses only the relationships between globalization, e-commerce adoption and firm

performance. Through exploratory factor and reliability analysis, several dimensions

of globalization are identified as well as e-commerce adoption and impacts based on

the following:

1) Firm globalization: the degree to which firms conduct business internationally and

face international competition.

2) E-commerce adoption: the use of the Internet to buy, sell or support products and

services.

3) Firm performance: the firm’s operational efficiency, coordination and expansion of

commerce.

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4) Control variables: firm sizes and industry.

Data collection mainly relies on primary data (questionnaires method).

However, other useful information is gathered through literature search, websites

review, reports and documents. A stratified random sample will be used, drawing

from company lists representative of each local market and stratified by industry and

firm size within country. Several hypotheses will be made to support the analysis.

Justifications

The research is relying on the logical argument that the process of firm

globalization has been occurring longer than Internet-based e-commerce has been in

existence, so it precedes it chronologically. However, it could also be argued that

greater e-commerce adoption leads to greater firm globalization in turn. It also focuses

on the effect of firm globalization on e-commerce adoption and impacts, rather than

being explicitly interested in a range of factors explaining different types of impacts.

Given the robustness of the estimates, the results will indicate that globalization does

have an effect on e-commerce adoption. It also has an impact on firm performance,

both independently and through the mediating influence of e-commerce adoption

Timeline

Stage 1: Based on the literature reviews, issues are identified and preliminary

framework will be done.

Stage 2: Questionnaire development which includes; discussions with experts from

company, field visit to the selected firm, and literature reviews or journals

proceedings.

Stage 3: Questionnaire administration and analysis of data.

Stage 4: Consolidation and learning.

Expected Result

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Firm globalization is heralded as a key driver of e-commerce diffusion.

(Steinfield &Klein, 1999). The overall analysis should show positive results when

testing the hypotheses. It is expected that highly global firms are likely to employ e-

commerce more intensively than less global firms. It is also expected that there will be

a direct relationship between firm globalization and firm performance. Highly global

firms should perform better in terms of increased sales, lower costs, and improved

competitive position and it is likely that global firms will realize greater impacts on

performance as they can more effectively employ e-commerce technologies.

Therefore, it should can be concluded that globalization will have impacts on the

certain level of e-commerce adoption within firms and will result to greater firm

performance.

References

Boudreau, Marie-Claude, Karen D. Loch, Daniel Robey, & Detmar Straud,. (1998)

Going Global: Using Information Technology to Advance the Competitiveness of the

Virtual Transnational Organization. Academy of Management Executive, 12(4): 120-

128.

Bradley, Stephen P., Jerry A. H, & Richard L. N,. (1993) Globalization, Technology,

and Competition, Boston: Harvard Business School Press.

Mann, C., L., Sue E., & Knight., S,. C, (2000) Global Electronic

Commerce: A Policy Primer. Washington, DC: Institute for International Economics.

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Sekaran, U. (2003), Research Methods for Business, New York, NY: John Wiley and

Sons, Inc.

Websites:

Internet and e-Business, 2009, Available from:

http://ivythesis.typepad.com/term_paper_topics/globalization/ [online], Accessed on

28 July 2009.

Impacts of Globalization: A Cross-Country Investigation, 2002, Available from:

http://crito.uci.edu/papers/2002/JIBS.pdf [online], Accessed 0n 29 July 2009.

Impacts of Globalization, 2004, Available from:

www.crito.uci.edu/pubs/2004/GEC3Japan.pdf [online], Accessed 0n 29 July 2009.

Factors Determining E-Commerce Usage And Value Creations In Malaysian Service

Industry, 2009, Available from:

http://www.cluteinstitute.com/Programs/Prague_2009/Article%20292.pdf [online],

Accessed on 2 August 2009.