Since the inception of the Internet, it is clear that informationsystems have had a direct impact on the economic development of organizations,government, and society.
Overall, I believe that information systems benefit theeconomy through reducing transaction costs, increasing management and workefficiency, creating new jobs, and making the markets more competitive. The Internet can transmit information quickly, conveniently, andinexpensively. Companies can reduce cost of operations through web-basedtechnology such as online databases for processing and transmitting information.One health insurance organization, Electronic Data Interchange, claims it canreduce costs of processing, from $10-15 per paper-based claim to $2-4 perelectronic-based claim. To put this into perspective, if health insuranceclaims were to shift to web-based technology, $20 billion per year could besaved and the process would be faster and more convenienti.
Coase’s theory states that the Internet reduces transaction costs, such as reducingthe need for negotiations, contracts, and inspections. It is easier for producersto procure raw materials by outsourcing activities or owning suppliers indeveloping economiesii.The Internet has facilitated the reduction of transaction costs due to the easeof information transmission.
While web-based technology is helpful, there maybe limitations if customers do not have access to the Internet. Additionally,there may be issues of communication and with governments when dealing withinternational outsourcing including bylaws, lack of technology in developingcountries, and language barriers. Companies may be reluctant to swap intoweb-based processes; change is generally a turn-off for companies, especiallyif their current process is sufficient. There would be the complication ofdeveloping the new process, getting approvals, testing, employee training, andpotential loss of historical data.The Internet as a management tool has improved work efficiency inessentially all industries through improving communication, scheduling, andcollaboration. Supply chain management technology is able to reduce cycletimes, inventories, and improve effectiveness of distribution channels. Informationtechnologies offer smart manufacturing – where all information, from the plantfloor, along the supply chain, and to the final product – can be captured inreal-time. Organizations are able to predictively meet needs through intelligentautomated analyticsiii.
Online product documentation and FAQs allow customers to get support withoutrequiring a customer service representative. Cisco reported savings of $500million by restructuring and integrating processes with suppliers and customerswith the help of web-based applications and toolsiv.McKinsey Global Institute conducted a study that demonstrated the Internetaccounting for 3.
4% of the global GDPv.Comparing to the traditional sectors, the Internet sector has already surpassedagriculture and education, and almost passing transportation. While it is truethat some jobs will become outdated, there have been more jobs created. Forexample, in France, the Internet has destroyed over 500,000 jobs but created morethan 1,200,000 in the past 15 years. Companies with a high web index are seento have twice the growth compared to those with low to non-existing webpresence. An issue that a company with high dependency on the Internet andweb-based applications is that if there is a problem with connections or poweroutages, what will they be able to do? These external factors may result inmajor losses for small companies. For example, a 5-hour power outage in Taiwancaused $3 million worth of losses for 151 companiesvi.Advanced Semiconductor Engineering reported the power outage resulted in approximately$500,000 to $800,000 loss.
The markets become more competitive as the Internet enables the wholeeconomic system to be available internationally. Online shopping has becomeextremely prevalent and consumers can shop for the best deals over a widegeographic area in the comfort of their homes. Prices of goods and services aretransparent and companies are able to compete on a bigger scale, thusincreasing the competitive market through the need of higher productivity andbetter processes. However, Joseph Bailey of the University of Maryland findsretail Internet sales insignificant; about 1% of retail sales at the beginningof 2000. There is an issue with data drowning due to the flood of informationand marketing noise that invades the Internet. Legitimate businesses losetraffic and revenues due to consumers ignoring the onslaught of information.
While the Internet has many benefits towardseconomic development, there are a few drawbacks including: business technologyreliance, security issues resulting in economic losses, loss of traditionaljobs, and imbalance of global economic power.Although it is clear that the informationsystems have become a major aspect of organizations, there can be a few faults.Small businesses that aren’t able to afford expensive web-based technology arenot able to compete with larger companies that have improved their technologyand are able to provide a better and efficient service or product. Productionis greatly affect by malfunctions of machinery and information managementsystems.
With these complicated systems, only specialized professionals such asmechanics and programmers, have the ability to fix problems. An entire automaticproduction line may halt if one key operation has an issue. With the heavy reliance on the Internet, thereis the aspect of Internet security and privacy. There is always the potentialrisk of losing important data and vital information to hackers and viruses for web-basedtechnology.
Recently a Tokyo-based cryptocurrency exchange called CoincheckInc. lost $425,000,000 of its virtual currency to hackersvii.Just last year, Equifax reported that 145.5 million Americans have had theirpersonal information compromised; putting many people at risk of identity theftand fraud, and as such, shares in Equifax dropped by almost 14% on Wall Streetviii.
The new craze of Bitcoin could potential crash the stock markets according toDeutsche’s Bankix.The loss of traditional jobs to automation isevident, especially in manufacturing. In a video, Anthony Carneval ofGeorgetown University estimates 75% of the job losses in manufacturing are dueto robotsx.The labour market has decreased dramatically – in 1st world countries,this can lead to greater inequality and further erosion of the middle classwhile in the emerging economies, industrialization may become more difficult.
Thiscauses a larger gap between the high and middle class workers, resulting in higherlevels of poverty, poor public health, and lower economic growth. AssociatedPress released a video reporting that some banks in South Korea are closingbranches and making everything automatedxi.In Japan, rail lines are becoming fully automated and do not require an onboardconductor. These technologic advances have thrown many of the middle-classworkers out of jobs and thus, it is a concern of what are these people going todo. The middle-class workers will have to adapt to these changes throughretraining or learning new skills.Finally, information systems increase the gapbetween the rich and the poor for global economies, resulting in an imbalanceof economic power. In correlation to losing middle class jobs to automation, manyjobs in developing countries may be replaced with more efficient machines.
Thisalso ties in the globalization which impacts the economy of developing nationsxii.Countries unable to take advantage of globalisation fall further behind and theincreased interdependency of countries cause greater vulnerability to economicproblems (such as the recent global recession). Countries with easy access toinformation systems are able to flourish more while countries with limitedaccess, generally those with developing economies, drown. This issue iscorrelated to the digital divide and the idea of appropriate technology whichmay help reduce the gap between these economiesxiii.Mobile devices have to potential to overcome three types of exclusion: social,political, and economic. They provide access to education, healthcare,government services, and access to markets for products and finance.While it is difficult to quantify the actual impact of informationsystems on the economy, I strongly believe that it is beneficial. As technologyinnovations advance, the economy is generally affected positively and companiesthat utilize these technologies are able to grow financially through increasedproductivity, reduced operating/manufacturing costs, ability to reach globalcustomers, and provide better services/products.
However, developing countriesthat have limited access to information technology struggle to compete withdeveloped nations and the gap between high and middle class may cause lowereconomic growth. Through methods including suitable technology in developingnations, positive globalisation growth, and retraining and potentiallyredefining the standards of the middle-class, these issues can be addressedresulting in a better global economy.