MGT 711 Week 1 E-Business in the Global Economy Example

How Digital Technology Changes the Economics of Selling Industrial Supplies Across Borders: A Literature-Based Introduction

[Student Name]

University of Phoenix

MGT/711: Strategic Opportunities in an Internet-Based Global Economy

Week 1 Assignment

[Instructor Name]

[Date]

Lakeshore Industrial Supply and all company details are composites written for a model paper.

Lakeshore Industrial Supply, a composite distributor founded in Milwaukee in 1921, sells bearings, motors, safety equipment, fasteners, tools and thousands of other maintenance, repair and operations items to factories, utilities and contractors. It has $620 million in revenue, 1,400 employees and 24 branches across the Midwest. Customers increasingly buy online, large national distributors run sophisticated websites and Amazon's business marketplace has grown quickly. Lakeshore wants to grow through e-commerce, including sales to manufacturers in Canada and Mexico. A distributor exists because it reduces the cost of finding, buying and receiving the right part, and the internet changes exactly those costs. This paper uses research to explain how e-business changes the economics of Lakeshore's industry.

Defining E-Business and the Digital Economy

E-business refers to conducting business processes, including selling, buying, collaborating and serving customers, through digital networks. The digital economy is broader, encompassing economic activity that depends on digital technologies and data. For a distributor, e-business includes online catalogs and ordering, electronic data interchange with large customers, digital supply chain links and marketplaces.

The Five Cost Reductions

Goldfarb and Tucker (2019) synthesized research on digital economics and organized the field around five falling costs: finding things, copying them, moving digital goods, following behavior and confirming who or what can be trusted. Each reduction has distinct consequences for prices, competition and market structure. This framework organizes the rest of the analysis.

Lower Search Costs

When buyers can compare prices and products easily, price dispersion can fall and buyers can find niche products. Brynjolfsson et al. (2003) estimated that the main consumer benefit of online booksellers came not from lower prices but from access to a much wider variety of titles. For industrial buyers, lower search costs mean a plant engineer can find a specific bearing from many suppliers in minutes, weakening loyalty to a local branch.

Lower Replication and Transportation Costs

Digital goods, such as product data, CAD drawings and technical documents, can be copied and sent at nearly zero cost. Physical goods still require warehouses and trucks, so these reductions affect Lakeshore's information services more than its core products. Rich product data becomes a competitive asset.

Lower Tracking and Verification Costs

Digital technology makes it cheap to track customer purchases and behavior and to verify identities, reputations and product authenticity. For Lakeshore, tracking enables personalized catalogs and predictive reordering, and verification supports trust in counterfeit-prone categories such as bearings.

E-Business and International Trade

Research on trade finds that the internet increases trade. Freund and Weinhold (2004) found that growth in a country's internet hosts was associated with export growth. Lendle et al. (2016) set eBay transactions beside conventional trade flows and reported that distance lost much of its drag in the online setting, attributing much of the difference to lower information frictions.

Distance Still Matters

Blum and Goldfarb (2006) found that even for digital goods consumed online, consumers visited sites from nearby countries more, suggesting that taste and cultural similarity sustain a gravity effect. For physical industrial goods, shipping costs, customs and service expectations add to distance effects. E-commerce lowers some barriers to selling in Canada and Mexico but does not remove them.

Sources of Value in E-Business

Amit and Zott (2001) studied e-businesses and identified four interconnected sources of value creation: novelty, new ways of conducting transactions; lock-in, which encourages repeat transactions; complementarities among products, technologies or activities; and efficiency, lower transaction costs. These sources apply to Lakeshore's options, such as a marketplace that adds complementary third-party products or tools that lock in customers through integrated purchasing.

The Productivity Puzzle

Digital investment does not pay off immediately. Brynjolfsson et al. (2021) argued that firms adopting general-purpose technologies must also invest in intangible assets, such as new processes, data and skills, which are hard to measure, so measured productivity can fall before it rises, a pattern they call a J-curve. For Lakeshore, an e-commerce platform may depress margins for several years while the company builds data, retrains staff and changes processes, a pattern leaders should expect rather than treat as failure.

Disintermediation or Reintermediation

Lower search costs raised early predictions that distributors would be cut out as manufacturers sold directly online. The evidence is more mixed: in many markets new intermediaries, including platforms, replaced old ones rather than eliminating the middle layer. Distributors that add services buyers value, such as inventory management, technical advice and consolidated billing across many manufacturers, can remain valuable. The question for Lakeshore is which of its services survive when search becomes nearly free.

Measurement Challenges

Research on e-business faces measurement problems that matter for interpreting findings. Many studies rely on data from a single platform, such as eBay or an online bookseller, which may not represent other markets. Effects measured in consumer settings may differ for repeat industrial purchases. Productivity gains from digital investment are hard to observe because intangible assets are not recorded on balance sheets. These limits mean that applying findings to Lakeshore requires judgment, and that the company's own data will be important evidence.

Business Markets Differ

Much research studies consumer markets. Industrial buying differs: purchases are repeated, involve approval workflows, contract pricing and technical specifications and depend on reliability. These differences may weaken some effects, such as price comparison, while strengthening others, such as lock-in through system integration.

Implications for Lakeshore: Threats

Lower search costs threaten the distributor's traditional value as a local source of knowledge and inventory. National distributors and marketplaces with broader assortments and better data can win customers who previously relied on branch relationships.

Implications for Lakeshore: Opportunities

Lakeshore can use tracking to predict customer needs, verification to guarantee authentic parts, product data to support technical buyers and integration with customers' purchasing systems to create lock-in. E-commerce can extend its reach to manufacturers in Canada and Mexico without new branches.

Where Lakeshore Stands Today

Lakeshore's current e-commerce site handles about 18 percent of orders, mostly reorders from existing accounts, and offers about 60,000 of the 250,000 items in its catalog with incomplete product data. Fewer than 5 percent of sales go outside the United States. Its branch staff remain its main sales channel and the source of its technical reputation. These facts set the baseline against which the business models, platforms and plans in later weeks will be judged.

Questions for Further Study

The literature leaves open how much lower search costs erode distributor margins in business markets, how branch-based service and e-commerce complement each other and how cross-border e-commerce performs for physical industrial goods. Later weeks will examine business models, platforms, macroeconomic and regulatory factors and research on digital strategy.

Conclusion

Research shows that digital technology lowers search, replication, transportation, tracking and verification costs, weakens but does not eliminate distance in trade and creates value through novelty, lock-in, complementarities and efficiency. For Lakeshore, these findings explain both the threat to its traditional role and the opportunities to build a digital business that extends across borders.

References

Amit, R., & Zott, C. (2001). Value creation in e-business. Strategic Management Journal, 22(6-7), 493-520. https://doi.org/10.1002/smj.187

Blum, B. S., & Goldfarb, A. (2006). Does the internet defy the law of gravity? Journal of International Economics, 70(2), 384-405. https://doi.org/10.1016/j.jinteco.2005.10.002

Brynjolfsson, E., Hu, Y., & Smith, M. D. (2003). Consumer surplus in the digital economy: Estimating the value of increased product variety at online booksellers. Management Science, 49(11), 1580-1596. https://doi.org/10.1287/mnsc.49.11.1580.20580

Brynjolfsson, E., Rock, D., & Syverson, C. (2021). The productivity J-curve: How intangibles complement general purpose technologies. American Economic Journal: Macroeconomics, 13(1), 333-372. https://doi.org/10.1257/mac.20180386

Freund, C. L., & Weinhold, D. (2004). The effect of the Internet on international trade. Journal of International Economics, 62(1), 171-189. https://doi.org/10.1016/S0022-1996(03)00059-X

Goldfarb, A., & Tucker, C. (2019). Digital economics. Journal of Economic Literature, 57(1), 3-43. https://doi.org/10.1257/jel.20171452

Lendle, A., Olarreaga, M., Schropp, S., & Vézina, P.-L. (2016). There goes gravity: eBay and the death of distance. The Economic Journal, 126(591), 406-441. https://doi.org/10.1111/ecoj.12286