Importance of Technology in International Business
Technology has revolutionized the lives of consumers and businesses alike. The increased array of products on the shelves, the lowered cost of goods and services, and the ease of accessing information are just a few of the ways technology has enhanced society. The field of international business is particularly sensitive to technological innovations.
In the early 1700s, international trade was impeded by economic forces that included wildly fluctuating currency exchange rates, handwritten correspondence via an unreliable postal service, and common supply-chain disruptions such as theft and vandalism of passing ships. Furthermore, as Douglas Irwin explains in a “Library of Economics and Liberty” article, imports used to be highly regulated and taxed to discourage countries from running trade deficits. Improvements in the legal system allowed for contracts with greater transparency and enforceability, and improvements in the mode of transportation allowed goods to be transported in less time.
The most important modes of technology in international business include electronic communication such as emails, texts, faxes and virtual conferences. Tracking methods for shipping and purchasing is another huge technological innovation, as it allows businesses to verify the delivery of goods and the quantity of inventory purchased. Electronic spreadsheets and databases are other inventions that allow international companies to manage and store their information with greater ease.
The improvement in technology regarding communication is a linchpin of international business. The ability to instantaneously communicate with a manager in China or a factory in Singapore, for example, allows companies to expand overseas.
Though multinational companies existed before the Internet, the ease of communication allows companies to outsource their operations with greater assurance: Video monitoring of factory and working conditions, inexpensive conference calls to consultants working in different countries, emailed reports to foreign vendors, and cheap long-distance phone calls are just a few of the ways technology has facilitated international business trade and operations.
Multinational corporations have much more complex supply chains than local brick-and-mortar businesses. International companies often have vendors, factories, customers and consultants in different parts of the globe. Keeping track of how a product is developed, manufactured, shipped and purchased can involve hundreds of steps in several countries.
Technological innovations streamline the supply chain by allowing up-to-the-minute results on the assembly of a product, and global tracking technology highlights where the product is moving. RFID technology assists companies such as Wal-Mart Stores with inventory control. Jack Plunkett, author of “Plunkett’s Transportation, Supply Chain and Logistics Almanac,” states that Wal-Mart mandated 600 of its suppliers to implement RFID technology to track and monitor deliveries and shipments.
Technology allows companies to produce products for less money. As Sudalaimuthu and Anthony Raj explain in the textbook “Logistics Management for International Business,” the cost of shipping goods can account for 25 percent of production costs; thus, the reduction in the cost of shipping significantly decreases the cost of producing goods. Furthermore, companies have a wider selection of vendors from which to choose which lowers the cost as well. For instance, technological innovations enable a clothing company to choose from textile plants in Vietnam, Singapore, Taiwan and several other locations. The increased selection lowers the cost as these foreign companies bid against the others for contracts.
Technologies that will forever change global trade
International trade has dominated the global headlines recently. Much of the discussions have been focused on the threat of a trade war, the tit-for-tat tariffs, and the health of the global trade order. While extremely important, these conversations are missing a brighter side of international trade – how innovative technologies in the Fourth Industrial Revolution are transforming trade by making the processes more inclusive and efficient.
Technological disruption isn’t new for the global trade system. The steam power revolution connected the world like never before. The invention of shipping containers laid the foundation for globalization. More recently, technologies such as Optical Character Recognition (OCR) to read container numbers, Radio Frequency Identification (RFID) and QR codes to identify and trace shipments, and basic digitization of trade documents have improved the reliability and efficiencies of the international trade.
At the same time, from trade agreements written before digital commerce, transactions that go accompanied with large amount of paper work, to trade financing that still depends on traditional banking methods, the global trade system has failed to take full advantage of cutting edge technologies that could make trade more efficient, more inclusive, and less costly.
The good news is that we may be on the brink of change. Different technologies in different parts of the technology adoption life cycle, when combined, could fundamentally change the way resources are allocated and international trade operates. Governments and businesses need to understand the current trends in order to stay ahead of the curve.
Blockchain and blockchain-based distributed ledger technologies can have tremendous impact on the global trade supply chain. Trade organizations such as Dubai Chamber of Commerce and Industry have also launched an initiative to leverage blockchain technology to address global trade issues such as high costs and lack of transparency and security.
In addition to making movement of goods more efficient and reliable, blockchain-based solutions are disrupting the world of trade financing. For example, blockchain is being used to simplify the long and tedious process of obtaining a Letter of Credit (LoC), a payment mechanism used in international trade.
- Artificial Intelligence and Machine Learning
Artificial Intelligence and Machine Learning can be used to optimize trade shipping routes, manage vessel and truck traffic at ports, and translate e-commerce search queries from one language into other languages and respond with translated inventory.
More than efficiencies gains and better consumer services, AI is also being used to make global trade sustainable. For example, Google launched Global Fishing Watch in 2016, which is a real-time tool using machine learning to combat illegal fishing by providing a global view of commercial fishing activities based on ship movements and satellite data. It can be used by governments and other organizations to identify suspicious behaviors and develop sustainable policies.
- Trading services via digital platforms
It’s increasingly easier to trade services online – digital platforms like Up work allow users to find service providers from all over the globe for a wide range of services, and can find anything from a web developer in Serbia, to an accountant in Pakistan, to a virtual assistant in the Philippines. Meanwhile, startups such as the international learning platform VIPKID pairs up American educators with Chinese children to teach English online. These digital platforms seamlessly connect the customers with service providers, in a way that wasn’t possible before when such professional services were mostly delivered in person.
The jury is still out on the impact of 3D-printing on global trade. There are studies that predict that once high-speed 3D-printing is mass-adopted and cheap enough, global trade may decrease by as much as 25%, since 3D -printing requires less labor and reduce the needs for imports. Others argue that such views are too optimistic and don’t take into account the complexity and reality of mass manufacturing. Regardless of the positions, the impact of 3D-printing on global trade is real, especially as faster and cheaper methods of 3D-printing become available.
- Mobile payments
From Apply Pay to Alipay to M-Pesa, mobile payments are transforming the way we live and connecting more people to market opportunities. According to the World Bank Global Inclusion Database, the number of people who gained access to bank accounts increased by 30% between 2011 and 2016, and mobile money accounts were a major drive for financial inclusion, especially in emerging economies.