In 1492, Columbus reaffirmed what astronomers were long saying: the world was round and the seas could be safely sailed. As it turned out, the world was populated by peoples and languages living in isolation from one another, with great disparities in economic and scientific development. The world trade that ensued after Columbus’s voyages has brought these peoples and cultures closer. The “industrial revolution” was really a worldwide phenomenon energized by expansion of trade among nations and the emergence of the first global economy.
In 2005, journalist Thomas Friedman wrote an influential book declaring the world was now “flat,” by which he meant that the Internet and global communications had greatly reduced the economic and cultural advantages of developed countries. Friedman argued that the United States and European countries were in a fight for their economic lives, competing for jobs, markets, resources, and even ideas with highly educated, motivated populations in low-wage areas in the less-developed world (Friedman, 2007). This “globalization” presents both challenges and opportunities for business firms.
A significant percentage of the economy of the United States and other advanced industrial countries in Europe and Asia depends on imports and exports. In 2017, about 30 percent of the $20 trillion U.S. economy resulted from foreign trade, both imports and exports. In Europe and Asia, the number exceeded 50 percent. Many Fortune 500 U.S. firms derive more than half their revenues from foreign operations. Tech companies are particularly dependent on offshore revenue: 80 percent of Intel’s revenues in 2017 came from overseas sales of its microprocessors, while Apple got 60 percent of its revenue outside of the United States. Eighty percent of the toys sold in the United States are manufactured in China, while about 90 percent of the PCs manufactured in China use American-made Intel or Advanced Micro Design (AMD) chips. The microprocessor chips are shipped from the United States to China for assembly into devices.
It’s not just goods that move across borders. So too do jobs, some of them high-level jobs that pay well and require a college degree. In the past decade, the United States lost 7 million manufacturing jobs to offshore, low-wage producers. But manufacturing is now a very small part of U.S. employment (less than 12 percent of the labor force and declining). In a normal year, about 300,000 service jobs move offshore to lower-wage countries. Many of the jobs are in less-skilled information system occupations, but some are “tradable service” jobs in architecture, financial services, customer call centers, consulting, engineering, and even radiology. Yet at the same time the United States has lost so many jobs, it has added 33 million new service jobs.
The U.S. economy creates more than 3.5 million new jobs in a normal, non-recessionary year. Although only 1.1 million private sector jobs were created in 2011 due to slow economic recovery, by 2017, the U.S. economy was adding more than 2 million new jobs annually for the third straight year. Employment in information systems and the other service occupations is expanding rapidly, and wages are stable. Outsourcing may have accelerated the development of new systems worldwide, as these systems could be maintained and developed in low- wage countries. In part this explains why the job market for MIS and computer science graduates is growing rapidly in the United States.
The challenge for you as a business student is to develop high-level skills through education and on-the-job experience that cannot be outsourced.
The challenge for your business is to avoid markets for goods and services that can be produced offshore much less expensively. The opportunities are equally immense. Throughout this book you will find examples of companies and individuals who either failed or succeeded in using information systems to adapt to this new global environment.
What does globalization have to do with management information systems? That’s simple: everything. The emergence of the Internet into a full-blown international communications system has drastically reduced the costs of operating and transacting on a global scale. Communication between a factory floor in Shanghai and a distribution center in Rapid City, South Dakota, is now instant and virtually free. Customers can now shop in a worldwide marketplace, obtaining price and quality information reliably 24 hours a day. Firms producing goods and services on a global scale achieve extraordinary cost reductions by finding low-cost suppliers and managing production facilities in other countries. Internet service firms, such as Google and eBay, are able to replicate their business models and services in multiple countries without having to redesign their expensive fixed-cost information systems infrastructure. Briefly, information systems enable globalization.
Source: Laudon Kenneth C., Laudon Jane Price (2020), Management Information Systems: Managing the Digital Firm, Pearson; 16th edition.