MBS Professor Florian W. Bartholomae has just published an essay on “Digital Transformation, International Competition and Specialization” in CESifo Forum, a high-quality journal on European economic issues, which is published quarterly by the well-respected ifo Institute. In the article, he addresses a brief overview of the economic aspects of digital transformation, and highlights basic opportunities and threats.
“E-commerce”, “industry 4.0”, or “sharing economy” are terms that are associated with progress, innovation, and a renewal of the economy. These developments are parts or consequences of digital transformation, which represents a paradigm shift in the economy that changes production and organization, and thus has significant effects on national and international competition, as well as on the specialization patterns of economies.
Digitization can lead to major cost savings, both in the form of direct monetary cost reductions or indirectly by reducing transaction costs. This cost reduction influences competition, in particular because the information goods resulting from digitization have particular characteristics. Although the immanent characteristics of these goods, such as network effects in particular, favor the emergence of monopolies, cost reductions also lead to an intensification of (international) competition and thus affect international cooperation. In addition to the direct cost savings, the digital transformation improves production and organizational processes, which increases overall economic efficiency and puts pressure on all companies to follow the trend towards digitization.
Furthermore, the digital transformation continues to increase the importance of innovation. All in all, these developments are also accompanied by an enormous accumulation of risks: on the one side the lack of protection of intellectual property rights, especially in developing countries with weak institutions, and on the other side hacking by internationally operating cybercriminals are becoming ever greater issues. These risks not only threaten the existence of companies, but also the prosperity of a society. Since cybercrime is a cross-border problem, international cooperation and improvement of all prosecuting institutions are indispensable.
Both society and firms must therefore always be aware of the trade-off between cost reduction and increased efficiency on the one hand, and data security and the need for constructive cooperation between all stakeholders on the other. Or to put it another way: for the digital transformation to be successful, pure competition must become cooperative competition (coopetition), in which even competitors who are in strong competition with each other cooperate in fundamental areas such as data protection or data security as this is the only way to guarantee the basis for efficient and sustainable economic development.
The complete essay is to be found here.