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How Global Is the Internet Economy?
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<http://knowledge.wharton.upenn.edu/articles.cfm?catid=12&amp;articleid=737&;
amp;homepage=yes> 

When the dot-com boom was going strong during the late 1990s, several books
touted the Internet as the greatest technological breakthrough since
electricity. 
After 2001, when boom turned to bust, the pendulum has swung to the other
extreme. Tome after tome has appeared chronicling the high-stress, caffeine-
charged, stock option-driven atmosphere in Internet start-ups; the meteoric
rise and fall of teenage CEOs; and so on. Like their puffy predecessors,
these 
volumes have had a breathless quality. Books that take a balanced view - and
separate the speculative frenzy surrounding the Internet bubble from its
measured, 
unobvious, long-term impact on business and society - have been few and
rare. 

Last month MIT Press published a book, however, that fits that bill. The
Global 
Internet Economy, edited by Bruce Kogut, is a serious, wide-ranging
examination 
of the technical, social and business challenges that the emergence of the
Internet poses. Until recently Kogut was co-director of the Reginald H.
Jones 
Center for Management Policy, Strategy and Organization at Wharton; he is
now 
with INSEAD business school in France. In The Global Internet Economy, he
joins 
colleagues from Wharton and elsewhere to probe the growth of the Internet
globally and its evolution along distinct paths in seven countries - the
U.S., 
Sweden, France, India, Germany, Korea and Japan. In addition, the book
delves 
into issues such as global convergence in regulating electronic markets and
the 
relations between suppliers and intermediaries. Kogut and his colleagues
argue 
that the Internet is not just a business phenomenon but also a cultural one.

Kogut defines the book's broad theme in his introduction. "The story of the
global Internet gold rush hides another and a fascinating tale," he writes.
"Here we have an intrinsically global technology - for once a country is
connected, it becomes virtually co-located with all other countries - but
its 
development occurs within the physical and institutional geography of
nations." 

According to Kogut, the Internet took off internationally because web
explosion 
coincided with a period when powerful forces of globalization were at work
in 
fields such as finance, corporate governance and trade. At the same time,
though, 
these global trends had to play out within individual nations, each with its
own 
institutions, laws, conventions and entrepreneurial modes. "The Internet
technologies 
crashed on the shores of most countries about the same time, challenging
existing 
institutions and powerful interests," Kogut writes.  In other words, though
the  
Internet technology was global, "its economic and business development was
molded in the context of prevailing national institutions."

The outcome is clear. National differences played a big role in the way the
Internet evolved in various countries. In the U.S., for example, the Web
appeared 
to fit naturally into the American model of entrepreneurship - but for that
very 
reason it also seemed unsettling to other national systems. Business in
Germany, 
for example, is organized by "corporatist principles," notes Kogut, in which
"business and labor are represented by their associations, banks and firms
are 
highly intertwined by cross holdings, and the government actively supports
programs to maintain the contract of a social economy." In Japan and Korea,
the 
economies consist of "competing business groups; labor unions are often
fragmented, 
and tax rates are low, pushing many social programs onto individuals and
companies." 
India, in contrast, is "a classic dual economy, with a backward and advanced
agriculture.
and with a backward retail sector coupled with relatively advanced
industries, with 
pockets of global activity in software design."

The Global Internet Economy tries to answer two key questions that arise as
a 
result of such national differences. The first, according to Kogut, is "how
much," or how much the Internet economy has contributed to a country's
growth. 
The second question is "how different," or what evolutionary paths countries
have followed in their attempts to build an Internet economy.
 
Country Studies
The heart of the book's exploration of the second question consists of
chapters 
that attempt to probe these issues in the context of different countries. In
examining the growth and development of the Internet in the U.S., for
example, 
Martin Kenney, a professor at the University of California at Davis,
compares 
the technological impact of the web as being similar to the arrival of the
telegraph more than a century earlier. Though Kenney believes that the
Internet 
investment craze during the late 1990s was "wasteful in the extreme" and
"wild 
ideas of all sorts received funding," he admits that even after blowing
through 
enormous amounts of speculative capital, U.S. companies "remain dominant in
nearly every area related to the Internet, except in mobile telephony." The
fact that companies like eBay and Amazon have become household names around
the 
world in a relatively short time shows that this is true.
 
Mari Sako, a professor of management at Oxford University's Said Business
School, contributes an insightful chapter on the Internet economy in Japan.
She 
notes that at the end of 2000, 47 million users (34% of Japan's population)
were connected to the Internet, up from 19.1% in 1999. While this adoption
rate 
is not high when compared to the U.S. or some Scandinavian countries, it is
significant that Japan was the first country in the world to offer third
generation mobile services in October 2001. The success of NTT DoCoMo's
i-mode 
service shows that despite the overall U.S. dominance in Internet
businesses, 
specific areas such as wireless might still offer other countries
opportunities 
to forge ahead. 

In Germany, the economy has excelled after World War II but not in high
technology, as Steven Casper of Cambridge University's Judge Institute of
Management Studies, points out. Following the 1980s, however, information
technology became the fastest-growing segment of the German economy, growing
by more than 10% a year. "At about $250 billion in 2001, Germany's
information 
technology sector, driven.by the Internet, is the third largest in the world
behind the 
U.S. and Japan, and the largest in Europe," Casper notes. Much of this
success was 
driven by the strength of Germany's impressive IT infrastructure.

Suppliers and Intermediaries
In addition to examining differences (and similarities) in the way the
Internet 
evolved in different countries, The Global Internet Economy looks at themes
that cut across different nations. One of the strongest essays in the book
comes 
from John Paul MacDuffie, a Wharton management professor, co-written with
Susan Helper of Case Western Reserve University. As Knowledge@Wharton
readers know from previous examples of MacDuffie's research featured in this
journal, he explores the working of business-to-business (B2B) relationships
in 
the automobile industry and the way they have been affected by the arrival
of 
online exchanges such as Covisint. In addition to looking at differences
between 
U.S. and Japanese auto companies, MacDuffie and Helper consider technical
as well as organizational issues. Their key insight is that
business-to-business
exchanges are evolutionary (not revolutionary) in nature, and that they
"accentuate and reinforce existing modes of exchange."

The book also has other valuable contributions. Dennis Yao, a Wharton
professor 
of business and public policy, weighs in with a chapter on non-market
strategies 
and regulation of electronic commerce in the U.S. (Yao's essay supplements
another 
chapter about the regulatory landscape in Europe.) Yao argues that while it
is 
difficult to decide how to regulate dynamic marketplaces, complete reliance
on the 
market is also a defective solution. "Unregulated markets may have
imperfections, 
and the markets of cyberspace are not different in this regard," he notes.
"Although 
new technologies offer opportunities for self-corrections that benefit
consumers, 
new technologies also offer opportunities by which existing regulations and
the 
consumer interest can be circumvented."
 
If the book has an overarching denouement, according to Kogut, it is that
the 
global Internet economy has yet to emerge from the hodge-podge of national
Internet economies. The first phase of the Internet's commercialization has
accelerated institutional change and also "defined more clearly roles in the
global 
supply chain of information technologies," Kogut says. Even more
importantly, 
however, "the Internet has sparked the emergence of global communities that
permit the harnessing of a distributed intelligence with potentially
far-reaching 
implications." Kogut cites the open source movement in software and the
music 
exchange communities (Napster, etc.) as examples of such communities.
 
As the Internet continues to evolve, such global networks should multiply.
And 
that, perhaps, will offer researchers opportunities for future studies in
this 
fascinating area. 

Note: Some of the themes of this book will be discussed at a Wharton Impact
conference titled, "Catching Our Breath: Reorienting Strategy During the
Internet's Quiet Time," to be held on May 1 in Philadelphia. The Reginald J.
Jones Center and the Wharton e-Business Initiative are the organizers.



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