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NEW ECONOMY.
Term Paper ID:28941
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Essay Subject:
Development of "dot.com" companies of late 1990s. Relation to world economy. Bankruptcy of dot.com companies. Relation to European Union & American economy. Need for New Economy to combine Old Economy factors for success.... More...
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10 Pages / 2250 Words
11 sources, 17 Citations,
APA Format
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Paper Abstract:
Development of "dot.com" companies of late 1990s. Relation to world economy. Bankruptcy of dot.com companies. Relation to European Union & American economy. Need for New Economy to combine Old Economy factors for success.
Paper Introduction:
Introduction
During the late 1990s, the term, "New Economy," began appearing in articles and news reports as analysts sought to describe transactions that were largely Internet-based, or at least transactions which did not require consumers entering a brick and mortar store. Articles were written about the young entrepreneurs who were rewriting business rules, about companies where Casual Friday evolved into Casual Everyday, and how the New Economy would radically change the entire business landscape. As 2000 draws to a close, however, it is becoming obvious that the Old Economy is not going to go away entirely. Many of the touted "dot com" companies have gone bankrupt as they were unable to produce that most traditional product of the Old Economy: profit. New Economy companies are finding that they must integrate Old Economy facto
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Latin America andAfrica are likely to lag behind because of the lack of telecommunicationsinfrastructure in these locations, and most analysts do not expect wirelessto present a viable alternative to land line Internet service at the levelrequired by business for some years (Mugan, 1999, p. Inaddition to driving investments relating to Internet access, the NewEconomy will also drive traditional information technology investments suchas hardware, software and services. Another consideration affecting international Internet usage is thesingle European currency (the euro). In 2 2, when the euro reaches the general population, consumers aswell as businesses are likely to regard buying and selling on the Internetas acceptable as American residents do. Some corporations in Nordic countries andthe Netherlands have been providing home PCs for their employees to promotefamiliarity and skill. BSLN13984482). Kirsner, S. 25). In a recent survey, approximately 4 percent of 8 2 CEOs calculatedthat e-business would account for more than 1 percent of their revenuesover the next five years. Trade distribution and logistics industries deal with two flows: aflow of goods and a 'counter-flow' of information about the goods and abouttheir movement. 14). Already the New Economy has become an economic factor in Europe. Forbes, p. For some customers andsuppliers, e-commerce will be their preferred way of doing business withDow; for others, the Internet simply will not gain acceptance (Kawasaki,1999, p. Conclusion The New Economy extends well beyond the common perception of buyingbooks and Cds on-line. Small and rural businessesmay be among the biggest beneficiaries of the new economy. In some of theworld's other significant economies (such as France, Germany, and Japan),language is holding back e-commerce growth. New economy lessons. Introduction During the late 199 s, the term, "New Economy," began appearing inarticles and news reports as analysts sought to describe transactions thatwere largely Internet-based, or at least transactions which did not requireconsumers entering a brick-and-mortar store. Logistics workers,for example, tend to be highly unionized, but unions have had far moredifficulty in organizing among the high-technology workers who build andsupport the Internet. 14. There remain, however, some distinct differences between the OldEconomy and New Economy, including the role of unions. Wilfred Corrigan, an executive in the semiconductor industry,notes that a primary difference between the Old Economy and the New Economyis the primary commodity which powers the two. The efficiency of these industries is being dramaticallyimproved by Internet-based methods of moving information allowing them toreduce transport, insurance and border administrative costs. The New Economy and the World Economy Dow Chemical provides an example of how large corporations from theOld Economy view the New Economy. 11). Internet-driven spending in WesternEurope in 1998 was nearly US$19 billion, and is expected to exceed US$51billion in 2 2. PC Magazine, p. For example, the e-business unit ofAvnet's computer-marketing group in Phoenix has experienced growthaveraging 3 percent per month since November 1997 (Gonsalves & Kerstetter,1999, p. Business Line, p.BSLN13984482. PC Week, p. Companies are finding that the Internet eliminates many of the limitsto scale which have traditionally plagued companies. The significance of 11nations adopting a single currency cannot be overemphasized. Bringing the New Economy and the Old Economy Together One of the areas that is sometimes overlooked about the New Economy isthe impact that e-business has on the Old Economy. The euro is beingimplemented at the same time as the Internet is undergoing significantadoption throughout the world, and the two events will inevitably affecteach other ("India," 2 , p. Gonsalves, A., & Kerstetter, J. However, that gap could be closed quicklyamong some European nations (while others may take longer than five yearsto eliminate that gap). As 2 draws to aclose, however, it is becoming obvious that the Old Economy is not going togo away entirely. In addition, the nation expectsthat fully half of its businesses will be using some form of e-commerce by2 3 (Kirsner, 1999, p. Western Europeans are already adept at using the Weband buying over the Web. Mugan, C. The implications of the euro are going to beimmense, not only in Europe, but throughout the world. 2. 11. The Old Economy was heavilyreliant on oil, according to Corrigan, while the New Economy is heavilyreliant on silicon. All paths lead to the global interchange. 1 7. New economy lifts EU growth. 3 ). Harbert, T. Of that 4 percent, fully half expect that theire-business will contribute more than 2 percent of their total revenue.This increase is substantial given that more than 75 percent of the CEOsreport that only five percent (or less) of their current business is comingfrom the Internet. Even largetraditional companies such as Dow Chemical, Boeing, AlliedSignal, andGeneral Electric are installing sophisticated e-business systems. 42). According to some analysts, the populations of the UnitedStates and the 11 nations adopting the euro are 286 million and 292million, respectively, while the GDPs in 1997 were US$8.11 trillion andUS$6.26 trillion, respectively (Rupley, 1999, p. 3 ). For many analysts, "New Economy" refers to the extension of electroniccommerce and electronic business (e-commerce and e-business, respectively)which are based on using the Internet and related technologies forconducting transactions. 3 ). Relatively easy access to PCs,relatively high levels of disposable income, and predominantly English-language content are three reasons e-commerce, especially business-to-consumer e-commerce, is mainly a North American phenomenon. For many companies, the costs associated with thisfinal step in the transaction cycle prohibits shipping to internationalcustomers. At this point, for example, the Internet and e-commerce ispredominately Western in its penetration, with North America accounting formuch of the e-commerce that is transacted. 42. Norman, P. It is not more costly to reach the onemillionth customer than the seventh customer when using a Web site, and therevenue generated from the one millionth customer does not go to support alarger facility which, in traditional companies, would be necessary tosupport such a large operation ("Sales on the Internet," 1999, p. Lower transaction costs alsoprovide opportunities for many rural and regional communities to revitalizetheir economic bases. S24-S26. Items included in the spending are software, servers,services, information appliances, PCs, network equipment, and Internetaccess. Articles were written aboutthe young entrepreneurs who were rewriting business rules, about companieswhere Casual Friday evolved into Casual Everyday, and how the New Economywould radically change the entire business landscape. Dow is committed to maximizing its useof the new economy, but the company is confident that it will always havesome Old Economy ways embedded in the organization. TheFinancial Times, p. As the European Union moves to a more service-based economy and a more skilled labor force, New Economy jobs, companiesand benefits are expected to accrue to the region (Norman, 2 , p. Companies are finding that the Internet providesnew and effective ways of conducting business, but Old Economy tasks(including distribution) continue to be paramount to a company's success.Organizations which combine New Economy and Old Economy factors are likelyto enjoy a high degree of success; those that focus too much on oneinfluence or the other will find that they have overlooked key factors forsuccess. CIO, pp. These include software services,finance, education, entertainment and professional services. Inthis New Economy, physical facilities and the concentration of employees inspecific departments (such as purchasing) may well be reduced as computersand specialized software automate functions to levels previouslyunimagined. (2 , November). The New Economy and the American Economy It is estimated that the Internet is likely to generate sales inexcess of $3.2 trillion in the year 2 3, a result of both revolutionaryand evolutionary factors. (2 , November 29). (1999, February 9). Complex commerce. Unions seem a small threat to hightech, at least for now. 2 ). Combined, theEconomic and Monetary Union (EMU) resembles the United States in populationand size of GDP. Issues such as overtime pay for white collarworkers, employee benefits for contractors and workplace trainingopportunities are being handled by non-union groups, although some unionsare eyeing these as opportunities for organizing traditionally non-unionemployee classifications (engineers and programmers, for example) (Harbert,2 , p. 1 7). Many of the touted "dot com" companies have gonebankrupt as they were unable to produce that most traditional product ofthe Old Economy: profit. Nevertheless, the New Economywill penetrate these economies and markets and will provide a truly globalworkplace and market. Expansion of the New Economy in Europe will be facilitated by a commoncurrency that measures the cost of goods regardless of the country in whichtransactions occur. (1999, January 4). Catalog companies have always provided business to shippingcompanies, but the Internet has expanded that business significantly.Simply put, delivering an item to a customer (business or consumer)requires human interaction in the form of truck drivers, longshoremen andother traditional transportation workers (Harbert, 2 , p. Electronic Business, p. This research considers the New Economy andits economic implications on both global and domestic levels. TheFinancial Times, p. American consumers, forexample, can now comparison shop for goods on the Internet and purchaseitems from across the country that they formerly would have purchased downthe street. In fact, the combination of theeuro and the Internet could release pent-up demand by consumers for goodsfrom other nations. Online sellingset to snowball in '99. Themarketing (and financial) message they and others are sending is thatcompanies must use the Internet if they are to remain competitive (Bridgeset al, 1999, p. There are also customs and trade regulations which might makecompanies refrain from taking on this type of transaction if they are notalready international organizations (Kehoe, 2 , p. Oil prices have increased over the past 3 years,driving inflation and limiting productivity growth in the Old Economy, butsilicon prices have decreased over the same period, supporting lowinflation and high levels of productivity growth (Kehoe, 2 , p. Kehoe, L. S24). (1999, March 1). 2). Definition of the New Economy For some analysts, the term, "New Economy," refers to the plethora of"dot com" companies which have come into existence in just the past fewyears, created new millionaires from young entrepreneurs, and changedretailing as consumers comparison shop and browse from their homes andoffices 24 hours a day, seven days a week. Manufacturingcompanies, too, are beginning to use the Internet to manage global supplychains that radiate from the United States, Europe and parts of East Asia. Companies will offer users a choice of languages at theirWeb sites, or translation capabilities, as well as on-line currencyconversion. Skillful use of the Internet can createopportunities by giving farmers, small business people and communities thecapacity to present a regional image to the world, create focal points forinquiries about local businesses and their offerings, create globalbusinesses and develop new products and services. (2 , November 3 ). Sales on the Internet willcreate an e-commerce boom. The global mall. Within five years, manyanalysts expect that there will be little difference between Europeanlevels of e-commerce and those within the United States. It is not clear thatoverall demand for goods and services is increasing as a result of the NewEconomy, but the method of procuring those goods and services has changed.Thus the Old Economic mainstay, manufacturing, is not looking at increasingits capacity under the New Economy (necessarily), but the same cannot besaid for transportation and logistics companies. In September 1998, the government launched a plandesigned to develop the city/nation as a global e-commerce hub with anestimated US$2.35 billion worth of products and services being tradedelectronically through Singapore by 2 3. 248. Singapore is taking an aggressive approach to implementing e-commercewithin its boundaries. With a base of more than 22 million World WideWeb users at the end of 1998, e-commerce revenues were nearly US$3 billion,which is more than triple the amount in 1997. InSouthern Europe, PC penetration is not as deep (Rupley, 1999, p. Despite the potentially unifying impact of the euro, Europe is farfrom homogenous in key factors such as PC penetration and theattractiveness of the Internet. Although the sale of goods--such as books and music--is the mostvisible area of e-commerce growth, the biggest advances so far are in thesupply and distribution of services. Revenues for Internet access are expected to grow at a compoundannual rate of 33 percent between 1997 and 2 2 when they will exceed US$8billion (Rupley, 1999, p. Bricks to bits. Silicon power with added value. Rupley, S. Although the advent of the euro willnot be fully felt at the consumer level until 2 2, it has already had animpact on the New Economy. Many international business partners are looking to become part of theInternet and e-commerce in a timely manner. Certainly the skills and job duties of many employees in OldEconomy companies will change as the New Economy becomes more commonplace(Kehoe, 2 , p. These sales will not be limited to such well-known companies as Amazon.com and eBay, companies whose Web sites aregarnering huge numbers of hits. The euro will thus help soften the national barriers,and the New Economy will extend the reach of buyers and sellers. (1999, July 22). 3 . Logistics arestill remarkably Old Economy--once a product is purchased, it must somehowreach the consumer. It is estimated that the percentage of WorldWide Web users who are American will drop from 56 percent in 1997 to 42percent by 2 2. Still the European Commission noted in late 2 that the New Economyhad begun to stimulate benefit to Europe, although Europe was judged to bebehind the United States by approximately five years in the macroeconomiccontribution of the New Economy. Both theeuro and the New Economy will facilitate transactions and reduce costs.Consequently, e-commerce will become a competitive necessity in Europe aswell as the United States. 2 ). However, there are several limiting factors which may well preventconsumers (and even companies) from realizing the full potential of the NewEconomy. (1999, August 1). (1999, May 31). PCWeek, p. Computer Weekly, p. While it is possible for consumers to visit sites of companieslocated anywhere in the world, language barriers are only the first hurdlethat must be overcome to conclude a successful transaction. By reducingtransaction costs, the Internet provides unprecedented opportunities forthese organizations to trade across borders. Purchasing, p. (1999, March 25). New Economy companies are finding that they mustintegrate Old Economy factors into their organizations, but Old Economycompanies are also recognizing that the New Economy offers strong potentialfor their businesses, as well. High-tech rejuvenation. 2 ). However, the ramifications ofthe New Economy move far beyond just using the Internet to reach catalogcustomers. 42). Kawasaki, G. (2 , November 8). Sales on the Internet. Outlook The Internet is likely to become a major marketing tool for at leastsome commodities and enable producers, buyers and marketing authorities todevelop closer relationships with final overseas customers and to improveinformation flows in price-sensitive markets. Among manufacturers, companies such as Dell Computer, Oracle, Gateway,Cisco Systems, and Hewlett-Packard already are connect tens of thousands oftimes each day to other businesses as well as to consumers. 25. 2 . These transactions include not only retailtransactions that might take place at amazon.com between a business and anend customer (business-to-consumer), but also business-to-businesstransactions involving purchasing, inventory control and accounting. References Bridges, L., et al. These supply-chain efficiencies have made global direct retailing of consumer productssuch as clothing, processed foods and health products possible. India. In 1999, it was estimated that the Internet drovenearly one-quarter of PC sales in Sweden, but only 1 percent in Spain. The economicprinciple commonly known as the "law of diminishing returns," which saysthat companies realize smaller incremental gains for each new customerafter a certain point, either does not apply in the world of e-commerce, orsets in at a very high level. 248).
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