Global information infrastructure: eliminating the distance barrier

Business Economics, April, 1998 by Heather E. Hudson

"The death of distance as a determinant of the cost of communications will probably be the single most important economic force shaping society in the first half of the next century."(1)

The death of distance could have profound implications for both individuals and organizations. The ability to work "anytime, anywhere" allows "road warriors" to work without offices on planes, in hotels, and at client sites, and enables information workers to telecommute from their homes rather than traveling to work. This flexibility can be two-edged for individuals, who can work wherever they choose but may never escape the "virtual workplace." Organizations may reduce their overhead costs and improve their productivity, but they must also learn how to manage their decentralized work force.

One major technological trend is the extension of "information superhighways" in the form of broadband networks; another is the increasing ubiquity of communications using wireless technologies (that will, however, initially provide access to squirts rather than floods of information).(2) Personal communications networks using microcellular technology will allow people in urban areas not only to talk on pocket-sized telephones, but to transmit and receive data using wireless modems. In rural and developing areas, these services may be available from low earth-orbiting (LEO) satellite systems.

On an international level, the death of distance has profound implications for the globalization of industries and national economies. Rural regions in Europe and North America may lure businesses with their pleasant environment and lower labor costs; however, they are no longer competing only with cities in their own countries. Companies may hire information workers in developing countries where labor is far cheaper, not only for data entry and word processing, but for writing computer programs. Conversely, developing countries now find themselves competing in global markets, where quality and suitability of products may be as important as price.

GLOBAL NETWORKING: CHANGING THE GEOGRAPHY OF BUSINESS

Telecommunications networks now link manufacturers with assembly plants, designers with factories, software engineers with hardware vendors, suppliers with retailers, retailers with customers. No longer is it necessary to have all the expertise in house. Software engineers in Silicon Valley complain that they are laid off while contractors transmit code from Russia and India. Freelance designers can now send clothing patterns directly to an automated garment factory. Customers can order anything from airline tickets to winter clothing online and do their own banking and bill paying electronically.

These trends open opportunities for innovative entrepreneurs around the world. For consumers, they offer more choice and lower prices because there is no overhead cost for sales clerks and order takers. Yet these changes pose threats to traditional businesses as well as to employees. Increasingly, companies that want to compete on price will have to "work smarter" to reduce costs and respond to market changes, while others will have to rethink how to add value to attract customers. High levels of customer service and individualized attention are likely to become more important. As Wells Fargo found, a bank that offers assistance from a human twenty-four hours a day in addition to online electronic banking can attract new customers. And computer vendors that offer free and easy-to- reach customer support may be able to charge a premium, or at least not lose customers to commodity discounters.

More than half the computers in U.S. offices are linked to local area networks (LANs). Increasingly, businesses are also linking into the Internet to reach counterparts in other organizations, specialized databases, and potential customers. Each month, some 2,000 businesses join the more than 20,000 that have already set up "virtual shop" on the Internet.(3) Federal Express's 30,000 employees around the world are linked via the Internet to "intranet" sites within the company's Memphis headquarters; some 12,000 customers a day track their own packages using Federal Express's Internet Web site, rather than calling a human operator. Ford Motor Company engineers in Asia, Europe and the United States worked together electronically to design the Taurus automobile. Pharmaceutical company Eli Lilly uses information compiled on its intranet sites to schedule clinical trials and submissions for approval of new drugs in countries around the world. Visa International provides an information service called Visa Vue for its 19,000 member banks on an internal Web site.(4) As electronic security improves, in the form of "firewalls" to prevent unauthorized access to private networks and encryption to protect the privacy of personal and financial data, more companies will use the Internet to sell products and services as well as to link their employees.

The Internet opens a global market to the small business and lets low budget nonprofit organizations reach interested parties across the country or the world. While Reuters and Dow Jones are repackaging financial information for electronic subscribers, a startup company in Silicon Valley called QuoteCom is selling financial information over the Internet for as little as $10 per month. The Future Fantasy Bookstore in Palo Alto, California, put its catalog on the Internet and suddenly became a global firm.(5) Small businesses with computer expertise can also set up shop as gateways to the Internet for their communities. In eastern Washington state, the Palouse Economic Development Council has established Palouse Net, a World Wide Web server and Internet aggregator for farmers and small businesses in rural Washington and Idaho(6).