The Role of IT in Globalization and Trade. An Empirical Analysis

Akademische Arbeit, 2021

29 Seiten


Table of Contents

I List of Figures

1 Introduction

2 Theoretical background
2.1 Definition of globalization
2.2 Digitalization - a new era of globalization?
2.3 Employment effects of trade in tasks
2.4 Impact of offshoring on innovation

3 Information technology in global value chains
3.1 R&D offshoring – IT as a competitive advantage
3.2 Smart contracts – technological advantages and expectations
3.2 Background of smart contracts
3.3 Technical use in international value chains

4 Conclusion


I List of Figures

Figure 1: Research Process

Figure 2: Annual export rates in billion US dollars

Figure 3: Usage of mobile data by type

Figure 4: Value chain of smart contracts in the insurance industry

1 Introduction

The beginning of the twenty-first century marks a period of sustainable changes in society and the economy. Particularly regarding global trade, globalization has slowed down its speed after the financial crisis in 2008. While diverse industries are confronted with profound technological and digital changes, this entails an increasing exchange of digital products and R&D collaborations among competitors to thrive on new products. Therefore, the emergence of digital technologies requires new forms of collaborations and interactions among market participants (Marin and Verdier, 2012). Undoubtedly, technical advances in global trade not only help companies to continuously stay in contact with customers, but they also facilitate analysing customer’s needs and developing customized products and services. Moreover, products and services can be suggested to the customer on the Internet while directly obtaining feedback and customer experiences from online forums, blogs and social media (Bianchi and Labory, 2018). Companies engaged in cross-border businesses have addressed evolving challenges in global trade by arranging production in international value chains, decentralizing hierarchical structures, relocating human capital and offshoring innovation (Marin et al., 2015). The primary objective of this paper is to highlight the impact of these changes on international companies and countries engaged in global trade-in-tasks.

The introduction constitutes the first chapter and highlights the relevance of globalization from an economic perspective. The primary objective is to stress the urgency of the topic hence cross-border value chains emerged, national borders are becoming increasingly blurred, and the advent of the Internet remarks the beginning of a new digitalized world. The objective of the second chapter is to define the term globalization, to explain its characteristics, stages and to examine major changes in international value chains. Although a broad literature exists about the historic phases of globalization, evolving challenges and upcoming trends, only a few scholars have already evaluated digitalization as a new era of globalization. Therefore, the third chapter critically discusses the associated chances and risks of trade in tasks on global markets and the influence and role of modern information technology to achieve competitive advantages in global trade. Finally, the fourth chapter summarizes the key findings and assesses their relevance in a broader context. Besides, the author provides a prospective outlook on how digitalization can further shape global trade. The structure of the present paper is intended as outlined in figure 1.

Figure 1 : Research Process

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Source: Own Illustration

2 Theoretical background

Firstly, this chapter is dedicated to the theoretical background of the present paper and critically discusses structural transformations evolving with the fourth industrial revolution and recent developments in globalization. While relevant terms are defined, particularly the advent of the Internet and its impact on countries, international companies and trade are examined from a global perspective. Furthermore, the influence of trade in tasks on labour markets and the level of innovation in both the home country and abroad are critically evaluated.

2.1 Definition of globalization

Before focusing on the characteristics and stages of globalization, the term is defined in a broader context. Based on early definitions of Clark (2000) and Norris (2000), Dreher (2006) defines globalization as a complex and dynamic process establishing networks of relationships across national and international boundaries conveying people, technologies, labour, goods and financial capital. Furthermore, Dreher (2006) emphasizes that globalization fully unleashes the economic capabilities of nations by overcoming international barriers and interconnecting cultures, technologies and governments. However, Clarl (2000) and Norris (2000) criticize that globalization fosters a system of mutual dependencies between stakeholders across different hierarchical levels. Besides, Rodrick (2011) confirms that notion stressing that globalization has the potential to limit democracy because global markets, independent states and democracy cannot exist in parallel. In conclusion, scholars partly criticize globalization as a global phenomenon eroding nations’ independence.

Aligning with Nye and Keohane (2000), Dreher (2006) differentiates three distinct dimensions of globalization including economic, social and political aspects. While the economic dimension deals with the exchange of goods, labour and capital affecting markets, the social dimension covers the distribution of knowledge, expertise and information. Moreover, the political dimension copes with the spread of government policies. In contrast, Scholte (2008) and Caselli (2012) contradict that notion and suggest making a clear differentiation between globalization and analogical concepts like e. g. liberalization, internationalization, universalization. While Scholte (2008) and Caselli (2012) find that globalization is primarily the rise in cross-border relationships among people, they regard internalization as the process of growing transactions and mutual interdependencies between nations. Besides, both define liberalization as the procedure of removing boundaries between nations and universalization as the occurrence of establishing common habituations and values. While these concepts have a lot of commonalities with each other, a clear demarcation is required but difficult to reach. Consequently, Grossman and Helpman (2015) confirm the notion of Figge and Martens (2014) stressing that an explicit differentiation between these concepts is not required thus a diverse and broad definition of globalization is created.

2.2 Digitalization - a new era of globalization?

Nowadays, global value chains are continuously thriving, and globalization is largely affected by digitalization as a whole (Grossman and Helpman, 2015). Indeed, Bianchi and Labory (2018) identify two trends: Firstly, initiatives of countries and international companies to relocate former offshored tasks emerged in the last years. This implicates that formerly outsourced and offshored parts of the value chain are brought back to the home country. Secondly, the emergence of the fourth industrial revolution created new digital hyper-communication channels connecting offices and branches in far distances fast and reliably. Thus, traditional flows of goods in global trade are efficiently replaced by digital data channels saving costs and time (Bianchi and Labory, 2018). Figure 2 illustrates the yearly global export rates of physical goods in billion US dollars between 1980 and 2016. The chart demonstrates that the growth rates between 1980 to 2008 were not reached during the last decade at any time.

Figure 2 : Annual export rates in billion US dollars

Abbildung in dieser Leseprobe nicht enthalten

Source: Dreher, 2006

The exponential increase in global trade during the 1980s and the early 2000s clearly illustrates the effects of labour division until the development stops in 2008. This disruption in economic trade cannot be solely deducted from the financial crisis but rather shows the transformation of global markets (Rodrick, 2011) The drawdown in annual export rates of physical goods in 2008 and a missing recovery in growth appear to outline a significant decline in global trade at first sight. The exchange of digital products and services tremendously increased thus the consistency of traded goods among countries changed. Nowadays, trade among nations starts to increasingly comprise of digital data and these trade operations are happening extremely fast (Bianchi and Labory, 2018). Several scholars have already recognized the beginning of the fourth industrial revolution: While already many digital advances enhance distinct scientific and technological areas, particularly innovative information technology communication (ICT) constitute hyperconnected systems tremendously facilitating cross-border communication (Grossman and Helpman, 2015). Although the Internet already disseminated during the late 1990s, it is now omnipresent and largely influences work, family life and spare time. This observation manifests in figure 3 illustrating the global usage of mobile data traffic in exabytes. Particularly video streaming, web browsing, and social networking have become increasingly popular. Transferring this underlying thought on consumer behaviour on global trade and globalization, it becomes obvious why companies such as Google, Amazon or Facebook providing social networking, video sharing and web browsing dominate digital trade (Figge and Martens 2014).

Figure 3 : Usage of mobile data by type

Abbildung in dieser Leseprobe nicht enthalten

Source: Grossmann and Helpman, 2015

Undoubtedly, international hyperconnected systems require companies not only to become part of digital trade across borders but also within the borders of the company. This internal trade within the companies’ boundaries often entails further challenges such as an internal “war for talent” (Feenstra et al., 2015). To meet the challenges alongside digital globalization, companies taking part in digital trade had to reorganize internal structures and capabilities. In this relation, Baldwin (2016) observed that companies started to reorganize manufacturing processes in international value chains thus producing intermediate goods and parts regionally and either assembling these in the target market or directly selling them. Conclusively, this led to a decentralization of hierarchical structures and headquarters with flat hierarchies and small regional subsidiaries. In this way, employees as human capital fulfilling trade in tasks become a new form of stakeholder to international companies. The underlying concept of international value chains is to divide up the entire production process in distinct phases across multiple countries in the world to cut production costs exploiting differences indirect labour prices (Baldwin, 2016). While this concept is commonly described in the literature as “ fragmentation ”, “ offshoring ” or “ vertical specialization ”, international value chains play a decisive role in the increase of global trade since 1970 (Lane and Milesi-Ferretti, 2018).

While a task is defined as the activity which needs to be fulfilled until a specific point in time, the production of goods and services requires a series of various single tasks. Conclusively, the higher the complexity of products and services, the more complicated to divide up the manufacturing process into several single tasks (Samini and Jenatabadi, 2014). Whereas trade in final goods means that all products in trade are made of one country’s components, trade in tasks imply that companies from distinct countries are incorporated into the value chain of one product. Consequently, companies specialize in their best area and products consist of parts from companies of countries all over the world (Baldwin, 2016). In comparison, the trade in final goods makes it easy to assess the distinct value of a finished product and one company’s or country’s contribution to the total production cost. On the contrary, the individual value of one product with components originating from countries all over the world produced within a system of trade in tasks is hard to determine. As a result, the value of single product components needs to be estimated and then summed up for each country (Baldwin, 2016). However, Lane and Milesi-Ferretti (2018) criticize that some complex manufacturing processes cannot be split up into multiple simple tasks. Moreover, Becker et al. (2013) stress that one country might exercise some tasks good whereas others not. When one country succeeds in the trade in tasks system and people get wealthier, customer demand usually switches from mass-consumption to more differentiated products and services with higher quality. To maintain productions levels high, companies are then forced to enhance the level of quality and differentiation. Consequently, the manufacturing processes of domestic companies need to be improved hence the quality and technical standards of foreign companies does not meet the standards of domestic demand. This phenomenon is often criticized by sceptics of trade in tasks (Crino, 2012). In conclusion, the major growth indicator of trade in tasks is that offshoring, outsourcing and unbundling of tasks in international value chains increases efficiency, productivity and quality hence companies specialize on their best capabilities thus a competitive market is created (Baldwin, 2016).


Ende der Leseprobe aus 29 Seiten


The Role of IT in Globalization and Trade. An Empirical Analysis
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ISBN (Buch)
role, globalization, trade, empirical, analysis
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Tobias Brinkmann (Autor:in), 2021, The Role of IT in Globalization and Trade. An Empirical Analysis, München, GRIN Verlag,


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