By J Katherine Bahr
Transformative technology has remade global business structures time and time again. With the Industrial Revolution, dispersed cottage industries became centralized production hubs. In the 20th century, communication and transportation advances expanded markets and supply chains across the globe. It’s clear that now digitalization is once again transforming international business, but most managers are still wondering whether today’s technology is dispersing economic activities or centralizing businesses.
The answer is likely both, but whether digitalization’s main impact on a company takes the form of more physically dispersed teams and markets or more streamlined, centralized operations depends on several factors. A new study from the Global Strategy Journal proposes a method for characterizing digitalization’s effects based on the nature of the business activity and the company’s products.
Why Digitalization is So Transformative to Global Business Strategy
First, it’s important to note the difference between digitization and digitalization. While many businesses have digitized their information assets, most still struggle to mobilize their data in ways that make them fully digitalized multinational businesses.
Digitization: The process of transforming streams of analog data into digital bits.
Digitalization: Using algorithms and digital data to control, communicate and execute tasks.
Digitalization is transforming how firms organize themselves to create value, deliver products and capture new customer markets. Researchers posit that the reason lies in three fundamental characteristics that help free business activities from physical geographic constraints and allow for timely, agile coordination and communication across the globe: re-programmability, intangibility and infrastructure.
Digitalization’s Pivotal Characteristics
- Re-programmability: Digitalized assets can be continually reprogrammed at the moment of use, altering the nature of coordination activities.
- Intangibility: Digital assets are frictionlessly accessible from anywhere, altering the governance and coordination challenges in global strategy design.
- Infrastructure: Digital platforms enable direct and immediate interactions between users and producers located on different sides of the planet.
The Two Types of Digitalization Technologies
The study’s authors divide digitalization technologies that impact global business strategies into distinct types—communications tools and in situ technologies. Communications tools enable globally dispersed networks and online payments while in situ technologies typically automate and reorganize production and operations management.
|Communications Tools Examples||In Situ Technology Examples|
|Global sourcing software||Robotics|
|Customer relationship management platforms||3D printing|
|Online payment||Warehouse automation|
While most media and business literature treat digital communication technologies as synonymous with digitalization, it’s hard to overstate how much tools like automation, robotics, and 3D printing are changing production systems.
In situ technologies automate tasks that are repetitive and low skill, allowing them to be located in less risky locations that almost always would incur higher labor costs if the tasks weren’t automated. Communications tools allow businesses to connect disparate, specialized knowledge across the globe. They make location less relevant to innovation and effectively decentralize control.
Will Your Business Consolidate Control or Disperse Activities with Digitalization?
Whether digitalization will consolidate or decentralize control and locations within a business depends on how tangible your products are and what activities you are digitalizing. For example, highly specialized professionals working for a software company become decentralized with digital communications tools while automobile manufacturing gets automated with in situ technology in centralized locations. The authors created a table capturing this interaction.
|Nature of Activity|
|Routine, low-skill, repetitive||Specialized, high knowledge, non-repetitive|
|Product Tangibility||Intangible||Centralizing, moderated by institutional barriers||Decentralizing dominates|
|Tangible||Centralizing, moderated by locational dependence||Decentralizing accentuated by product modularity|
The study notes that any product almost always involves both specialized and routine activities and often incorporates both tangible and intangible elements. All firms are likely to have some activities in all four cells of the table, even if the majority fall in one cell.
So digitalization might be geographically dispersing some business activities while concentrating others. How digitalization will continue to affect businesses largely depends on whether computing power and algorithm sophistication continue to improve. Algorithm development has been decreasing over the past few years, despite globalization, which is a worrying trend that might threaten further transformation.
Find a full explanation of the study and how digitalization is changing the nature of globalization in the full text, available in the Global Strategy Journal.
Autio E., R. Mudambi, & Y. Yoo (2021). Digitalization and globalization in a turbulent world: Centrifugal and centripetal forces. Global Strategy Journal. https://doi.org/10.1002/gsj.1396.
J Katherine Bahr is a Knoxville-based freelance writer and content marketer with an advanced degree in creative writing and a decade working in publishing and marketing.