The digital economy: business organization, production processes and regional developments

293 Pages·2008·1.699 MB·English

by  Edward J. Malecki, Bruno Moriset

THE DIGITAL ECONOMY
Information technologies (IT) shape economic space, but we have no clear map of the
cyber economy since the “digital revolution” began in the early 1970s. The convergence
of computers, advanced telecommunications, digital media, and the rise of the Internet
have generated tremendous changes in the geographies of business organization, with
consequences for places and communities worldwide. Business has become network-
centric, global, and flexible and firms and workers are encouraged to be increasingly
sophisticated consumers of space.
The Digital Economy offers an up-to-date, critical synthesis that links the various
aspects of the digital or cyber economy from the perspective of real firms. A geographic
approach emphasizes how IT has made businesses less dependent on locational constraints,
and the tangible effects on places and regions are placed at the core of the analysis.
Case studies of companies, including Amazon, Dell, Li & Fung, and Volvo, demonstrate
that the geography of digitally-driven production is the outcome of both dispersion and
agglomeration dynamics. Global corporations are shown to have footprints that ignore—
to some degree—distance and time, yet creative and coordinating activities remain
anchored in urban innovative ecosystems such as Silicon Valley and Bangalore. These
trends have been made possible by the development of a worldwide and integrated
telecommunications network, whose unequal presence dictates the capabilities of places
and communities to be connected to the global economy. However, the threat of the
digital divide must not be overstated. In cities, rural areas, and emerging countries, local
development is wrapped up in human capital, rather than technology.
This engaging and accessible text describes and explains the patterns and dynamics
of today’s digital economic space. The effects on places and regions and the people in
them are at the core of the authors’ analysis, illustrated by many real examples. This
book will be useful to anyone studying Business and Management, Geography, and
Information and Communication studies.
Edward J. Malecki is Professor of Geography at The Ohio State University. He is
author of over 100 published papers, and of Technology and Economic Development
(Addison-Wesley Longman 1997) and Associate Editor of Entrepreneurship and Regional
Development.
Bruno Moriset is Associate Professor and Head, Department of Geography and Planning
at the University Jean Moulin of Lyon in France. His research focuses notably on the
link between information technologies and regional development.

THE DIGITAL ECONOMY
Business organization, production processes,
and regional developments
Edward J. Malecki and Bruno Moriset
First published 2008
by Routledge
2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN
Simultaneously published in the USA and Canada
by Routledge
270 Madison Ave, New York, NY 10016
This edition published in the Taylor & Francis e-Library, 2007.
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Routledge is an imprint of the Taylor & Francis Group
© 2008 Edward J. Malecki and Bruno Moriset
All rights reserved. No part of this book may be reprinted
or reproduced or utilized in any form or by any electronic,
mechanical, or other means, now known or hereafter invented,
including photocopying and recording, or in any information
storage or retrieval system, without permission in writing
from the publishers.
British Library Cataloguing in Publication Data
A catalogue record for this book is available from the British Library
Library of Congress Cataloging in Publication Data
Malecki, Edward J., 1949–
The digital economy: business organization,
production processes and regional developments/
by Edward J. Malecki and Bruno Moriset.
p. cm.
Includes bibliographical references and index.
1. Information technology—Economic aspects. 2. High
technology industries—Management. 3. Business enterprises—
Technological innovations—Case studies. 4. Electronic
commerce. 5. Telecommunication—Technological innovations.
I. Moriset, Bruno, 1960–. II. Title.
HC79.I55M355 2007
303.48(cid:118)33–dc22 2007022680
ISBN 0-203-93363-X Master e-book ISBN
ISBN10: 0–415–39695–6 (hbk)
ISBN10: 0–415–39696–4 (pbk)
ISBN10: 0–203–93363–X (ebk)
ISBN13: 978–0–415–39695–0 (hbk)
ISBN13: 978–0–415–39696–7 (pbk)
ISBN13: 978–0–415–93363–3 (ebk)
CONTENTS
List of figures vii
List of tables viii
List of boxes x
Abbreviations xi
Acknowledgments xvi
1 Introduction: The digital economy and the splintering of economic space 1
Splintered, yet connected 1
Structure of the book 8
2 Information technologies and the “new economy” debate 13
The economy of digitized information 13
The new economy debate and the productivity paradox 17
The latest wave: IT and the Fifth Kondratieff 25
A knowledge economy: more than IT 28
Conclusions 34
3 Where local meets global: the rise of the digital network 36
Emergence of a worldwide, integrated network 39
The economic geography of long distance, broadband infrastructures 44
Local broadband: the enabler of the digital economy 55
Conclusion: does broadband matter? 61
4 Digital production and business organizations 63
Mastering complexity with information technology 63
Network-centric firms or virtual enterprises? 73
Global networks of modular production and the supply chain issue 80
Conclusion 91
5 The multiscale geographies of electronic commerce and electronic finance 93
E-commerce: concepts and definitions 93
Business-to-business (BtoB) e-commerce 96
The mediocre success of e-retail 101
vi CONTENTS
Electronic finance: globality vs place-embeddedness 112
Conclusion 118
6 Splintering the economic space: the offshoring of corporate services 119
Offshoring strategy: benefits, risks, organization 120
The breadth and diversity of a new global industry 128
Offshoring measurement and consequences: a controversial subject 132
The geography of service offshoring 136
A focus on India 142
Conclusion: will IT services and ITES go back to home countries? 147
7 Telework/telecommuting: time and space flexibilities in work and
business organization 150
A “multifaceted” concept which confounds analysis 151
The pros and cons of telework 156
Telework in practice 160
The energy and urban issues of telework 167
Conclusion 172
8 The paradox of a “double-edged geography”: local ecosystems of the
digital economy 174
Space and scales in a digital economy: “shaking hands” vs
electronic transactions 175
The worldwide evolution of the Silicon Valley model 180
The emergence of new ecosystems of digital industries 189
Conclusions 197
9 Peripheral regions and the “digital divide” 199
The digital economy challenge for rural and industrial communities 200
IT-enabled rural service firms, or “lone eagles and high fliers” 204
The digital divide in developing countries 208
Conclusion 216
Epilogue: the distortion of economic space in a “postmodern” era 218
Notes 223
Bibliography 225
Index 259
FIGURES
1.1 Convergence in wireless communications 5
1.2 The pyramid of the digital economy 6
2.1 Successive waves of technological change 26
2.2 The increasing speed of adoption of new technologies 27
3.1 Map of the global network of AT&T 38
3.2 World average revenue per minute for international telephone calls,
1988–2004 42
3.3 Prices per megabit per second (Mbps) in London, 2000–2006 46
3.4 Leading cities in international Internet bandwidth, 2006 52
3.5 Broadband subscribers per 100 inhabitants 59
4.1 The sphere of product lifecycle management 65
4.2 The matrix structure of Volvo AB 72
4.3 Choice factors for capability outsourcing 76
4.4 Li & Fung’s worldwide network 79
4.5 Dell’s geography of operations, January 2007 86
5.1 The classic e-commerce matrix 96
5.2 Electronic marketplaces and network consolidation 98
5.3 Home delivery may reduce overall transportation costs 104
5.4 Amazon’s worldwide geography of operations, January 2007 109
6.1 Outsourcing and offshoring classification, January 2007 124
6.2 Worldwide operations of SR-Teleperformance 130
6.3 Host countries of export-oriented FDI projects 137
6.4 The 25 most attractive offshore destinations for services 138
6.5 Labor supply in some occupational groups 139
6.6 The regional upgrading process of IT-enabled industries 147
7.1 The equilibrium of telework drivers 171
8.1 The ecosystem of Silicon Valley 183
8.2 Grenoble: A local ecosystem of the digital economy 193
9.1 Networked readiness index increases nonlinearly with the human
development index 210
9.2 Networked readiness index increases with national income
(GDP per capita) 211
TABLES
2.1 The growth of the world’s digital economy core sectors 18
2.2 Industries with highest IT intensity 25
2.3 From data to creativity: concepts related to information and knowledge 29
2.4 Indicators in the New Economy Index 34
3.1 The six layers of the infocommunications industry 40
3.2 Leading countries connected by submarine cables, 2005 50
3.3 Largest international Internet backbone links, 2006 50
3.4 Data rates and ranges of various broadband access technologies 57
4.1 IT implementation rates by European companies 67
4.2 UPS and FedEx 2005 facts and figures 88
4.3 IT-based services from LSPs used by companies in the Americas,
Western Europe and Asia-Pacific 90
5.1 The OECD definitions of e-commerce transactions and interpretation
guidelines 94
5.2 E-commerce in selected US manufacturing sectors 97
5.3 Estimated US retail sales: total and e-commerce 102
5.4 Selected data, Amazon.com, Inc. 107
5.5 Amazon’s gross fixed assets, 2004–2005 108
5.6 The four largest electronic reservation systems 111
5.7 Employment and sales in the travel reservation sector in the US 112
6.1 Offshoring drivers, facilitators, and drawbacks 121
6.2 The objectives of offshoring 122
6.3 The scope of service offshoring: Outsource2india 126
6.4 Export-oriented FDI projects in call centers and shared service centers 127
6.5 Selected call center data 128
6.6 Potential for employment offshoring worldwide in eight business
sectors, 2008 134
6.7 US employment 2004 and projected 2014 in selected IT-enabled
occupations 136
6.8 Leading exporters of “other commercial services” 142
6.9 A sample of leading foreign firms with offshored activities in India 143
6.10 Major Indian IT companies 143
7.1 Example of conflicting figures in home-based work measurement 153
TABLES ix
7.2 Work at home and usage of IT equipment (May 2004) 154
7.3 Share of employed population who are teleworking, 2002 155
7.4 Telework benefits to business 156
7.5 The pros and cons of home-based telework 157
7.6 Why people choose a telework center over home-based telework 164
7.7 Telework impact on energy and environment 169
8.1 Employment in Silicon Valley’s IT industries, 2005 181
8.2 Types of innovative agglomerations 187
8.3 Intelligent Community Awards 196
9.1 Percentage of US population that resides in Zip codes with
high-speed service 202
9.2 Teledensity: mainlines and mobile cellular, by world region, 2004 209