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Do Emerging Economies Integrate the Internet Better?

4/9/2008 --

Emerging economies may have a leg up on developed countries in terms of strategic Internet use.

ANN ARBOR, Mich.—Don't assume that emerging economies lag developed economies on all business fronts, warns Nigel Melville, assistant professor at Michigan's Ross School of Business.

According to his recent study, companies in emerging economies are more advanced in some aspects of Internet use than companies in more developed economies.

Melville and colleagues Jonathan Whitaker of the University of Richmond, Robert Plice of San Diego State University and Jason Dedrick of the University of California-Irvine, found that firms in emerging economies report a higher rate of Internet use to integrate processes with business partners. They also report a stronger motivation to use the Internet to achieve revenue growth and operational efficiency.

"These findings run counter to conventional wisdom that firms in developed economies will lead their industries in terms of technology-enabled business practices," says Melville.

The team used survey data from firms across 10 countries in North and South America, Europe and Asia, most from Fortune 500 companies. The primary survey was conducted by the Center for Research on Information Technology and Organizations (CRITO) at the University of California-Irvine and was supported by a grant from the National Science Foundation.

The survey results show that companies in developed economies conduct Internet transactions at a higher rate than emerging economies, likely because consumers in emerging economies do not yet hold credit cards in the same numbers that those of developed economies do. However, companies in emerging economies surpass developed ones in their use of the Internet to achieve higher profits and manage business-to-business communication.

The authors discuss Quanta Computer of Taiwan as a firm that exemplifies use of the Internet to conduct business-to-business operations. Quanta coordinates its operations with the production and delivery operations of its many suppliers. Using the Internet, Quanta's suppliers can access a communal schedule and make adjustments as needed. Quanta's coordinated use of the Internet translates to timely deliveries and greater efficiencies throughout the supply chain.

"Our survey results suggest that emerging-economy firms are more likely to use the Internet to achieve revenue growth and operational efficiency," says Melville. "They are proactively incorporating the Internet into their business strategies, and using the Internet to develop a virtual global presence and partnerships that can compete effectively with established multinationals."

These findings may seem counterintuitive to some, who assume that companies in developed economies will always lead industry in integrating technology into business, the researchers say. Overall, the picture is much more nuanced in terms of how companies adapt the Internet to local conditions, especially in terms of downstream consumer-facing applications.

The authors suggest that managers go beyond assumptions about the use of the Internet in emerging-economy firms, as Internet-enabled virtual partnerships represent a formidable competitive challenge.

Written by Leah Sipher-Mann

For more information, contact:
Bernie DeGroat, (734) 936-1015 or 647-1847, bernied@umich.edu