Internet Competitive Advantage and the Global Economy

Puneet Kapur
Infotech Services: Internet Training and Consulting, USA


The growth of the Internet as a powerful economic/business paradigm will be among the most important socioeconomic developments of the late 20th century. In many ways the Internet shows the same trends in growth as did the American railroad around the 1830s.

The emergence of the Internet and of information technology (IT) is a change as profound as the emergence of the railroad, but it is played out on a global level. The railroad and steamboats lowered the costs of transporting "physical goods" in the 19th century. The Internet has decreased the cost and increased the transmission speed of "information goods." As the United States moves from an industrial to an information economy (i.e., as it becomes IT-enabled), there will be very important consequences for commerce, economics, and the nature of work and labor itself. Michael Porter, Harvard's business-strategy guru, has indicated that competitive advantage is upgraded by information. Examples and case studies are provided for multinational companies like Schlumberger ( and Hyatt ( and for small companies like Virginia Diner, a 70-year-old family restaurant that has turned into an international supplier of peanut butter ( Relevant examples from U.S.-Indian and U.S.-Chinese trade are presented. I also use a model of technological economic growth by Nobel laureate Robert Solow, a model that suggests that the knowledge or skill level of the worker becomes very crucial in times of rapid technological change. In a global economy enabled by IT, the elasticity of labor or the ratio of the rate of change of output with respect to the skill level of the worker will be higher. In practical terms, many U.S. companies have shown a 40 to 50 percent return on investment in IT training (skill enhancement).

The paper also focuses on both the theoretical and practical applications of the Internet in the local and global economy. Theoretically, the Internet reduces the problem of information asymmetry between the producer and the consumer (or retailer). The business model of online retail also puts the onus of price comparison on the seller and not the buyer; by its very nature the seller has economies of scale in information gathering. Some examples of online retail are Industry Net ( and Shoppers Advantage ( The emergence of online banking and the role of the Federal Reserve in the midst of "smart cards," e-cash, and digital money are mentioned. A relevant example of online banking ( is discussed. The presentation concludes with a look at the promises and perils of local and global commerce and economics in the Age of the Internet.