Effects of Digitization on Companies : Part III

This article is continuation of part II. The advancing digitization of companies, i.e. communication between business partners via various platforms such as e-mail or instant messenger, the automation of work steps, the availability of all data independent of time and place, enables and supports the increasingly important role of globalization and the global Trade. The following manifestations of globalization have developed into an increasingly important factor over the decades:

• International trade in goods: Trade in goods is one of the decisive factors in globalization. It enables countries to focus on goods and goods for which you have a cost and production advantage over other countries. Be it through climatic conditions or natural resources. The excess production of goods allows goods to be exported abroad, which in turn allows other goods to be imported from abroad. Over the years, the costs of transport have steadily decreased due to global trade agreements and the elimination of customs duties and improved transport options, including enlarged container ships and air freight capacities. As can be seen in Figure 5, the costs for both ocean freight, Air transport as well as telecommunications decreased rapidly compared to 1930. The costs for sea freight are only around a third, and air transport only around 12% of the comparative value from 1930.
• International trade in services: The cross-border trade in services now affects many areas. Services are provided domestically for foreign countries or requested directly from abroad. These can be one-time assignments or long-term relationships. Reasons for this can include consulting services, support for a foreign company in the search for new sales and purchasing markets or financial services.
• International capital movements: Cross-border financial transactions are mostly carried out on the basis of purchases of services or goods. Due to the global stock exchanges, however, many investment and speculative transactions are carried out across borders. Digitization has contributed to real-time execution of financial transactions on exchanges around the world, which has led to a sharp increase in financial flows.
• International investments: The world, which is becoming increasingly intertwined due to digitization, is also investing more in property, plant and equipment and companies that are spread all over the world. One example is the relocation of production steps abroad, which is intended to save personnel and production costs.
• International migration: The migration of employees is not directly affected by digitization. The migration of workers to another country has existed before and has not increased further in percentage terms in recent years.

These factors of globalization and the resulting ever more closely networked global activities lead to changed competition. Local companies have to assert themselves against more and more international companies through the opening of the markets and constant technological developments. For companies, the physical distance to a sales market no longer plays a role.

Digitization has advanced so far that all important information and data are available worldwide via the Internet. The management of a group can monitor and control the subsidiaries that are distributed around the world in real-time, the employees usually have worldwide access to the company’s servers, and customers can buy a digital product regardless of location, be it from home or on a trip abroad. The resulting global competition forces companies to develop and innovate faster and faster so as not to lose touch. If a company misses a new development, it can lose market share within a very short period and, if necessary, be driven into bankruptcy.

The mobile phone manufacturer Nokia is a good example of missed developments. In 2007 Nokia was the market leader in the field of mobile phones/smartphones with a market share of over 50% based on the operating system used.
Nokia did not take the competition from smartphones with touch displays seriously at the beginning. When the niche market of touch displays developed into a mass market, Nokia was no longer able to catch up with the technological lag. In the second quarter of 2010, the market share was 37.3%, followed by a sharp slump. The share fell to 2.9% at the end of 2012. Nokia initially tried to stimulate sales again with smartphones and the Symbian operating system it developed in-house, and later with cooperation with Microsoft. However, this did not succeed. The market share of the iOS operating system, which is installed on Apple’s smartphones, remains almost constant over the period between 10% and 20%. The big climber is the Android operating system from Google. It is installed on various smartphones from many manufacturers and has secured itself from almost 0% to 80% of the market within a few years. The example of Nokia clearly shows how missed development can threaten even global companies. In order not to lose market shares or to gain new market shares, companies try to bring innovations and developments to market faster, which leads to ever-faster product cycles. The term hyper-competition is often used in this context. It is defined by the worldwide, permanent struggle for more market shares and ever shorter design, innovation and product cycles. The reason for this lies in the already mentioned, digitization-driven.

Due to these changes in competition, companies have to deal with digitization, which must lead to a rethink of the previous business.

First, companies have to prepare for the growing competition. This can occur both locally and digitally. On the one hand, some new competitors want to open up a new market abroad. This is easier and less risky than it was several decades ago due to the lower market entry barriers already mentioned. Many countries have concluded trade agreements and dismantled economic protective measures. Digitization helps companies to present themselves better to customers in the new markets via several channels, e.g. social media and e-mail, and to sell their digital products over the Internet. Marketing campaigns via online channels are cheaper than traditional marketing channels such as poster advertising and advertising mail, faster and reach more potential customers. Furthermore, companies have to prepare for growing competition from the Internet. Digitization means that more platforms pose a threat to existing companies. New e-commerce models, which we will discuss in more detail later, are entering the market and making the importance of physical proximity disappear. The price, quality and functionality can be compared at a glance via comparison portals. This enables consumers to get a better overview of the market. are entering the market and making the importance of spatial proximity disappear. The price, quality and functionality can be compared at a glance via comparison portals. This enables consumers to get a better overview of the market. are entering the market and making the importance of spatial proximity disappear. The price, quality and functionality can be compared at a glance via comparison portals. This enables consumers to get a better overview of the market.

It can also happen that foreign companies offer online services that compete with local providers. The social media platforms can be cited as an example. Furthermore, due to the shorter product cycles and the great pressure of competition, companies have to bring new products to the market faster and faster in order not to lose touch with the constantly changing competition. Companies have to be flexible, dynamic and always present. Wrong decisions in management can be costly and possibly threaten the very existence of the entire company.

Digitization also contributes to the fact that companies increasingly have to beware of increasing transparency. The increasing number of networks and contacts means that economic information in the form of innovations, technologies, insights, and views can more easily get from the inside to the outside. This happens particularly through social media, which means that undesirable developments are more difficult to hide and, should they become public, more difficult to contain. The rapid spread of negative news can cause immense damage to your image within a few days. This mainly affects the PR department in companies. It must ensure that the company’s public image does not suffer and that it is as popular as possible.

Another risk, which is becoming increasingly important for companies due to advancing digitization, is Internet crime, also known as cybercrime. According to the Federal Criminal Police Office, cybercrime describes all crimes that have been committed with the help of information and communication technologies. The shortened product cycles lead to increasing pressure to bring new products and innovations onto the market. It is therefore all the more important to protect this research and development from unauthorized access. The automation of work processes and the networking of autonomous systems, machines and devices also increases the risk of cybercrime. In the event of sabotage by an infiltrated virus or the like. there could be production standstills in companies or, which would be more important for the public, standstills in companies that serve basic services, e.g. in power plants, hospitals or control centres for the transport infrastructure. Continued in next part.