Globalization and Cyber Nations

While the virtual world will no longer have national boundaries, virtual communities and groups will abound. Instead of political boundaries, the virtual world will be divided by interests and preferences. In electronic commerce, globalization will afford sellers access to a larger market with regard to geographical area, but product differentiation and customization will mean a smaller market for each product. Globalization is aided by the removal of tariffs and other regulatory measures based on geographical boundaries. The global telecommunications accord and the information technology agreement pioneered by the World Trade Organization during the last years of the 20th century have opened up a truly international trade in computers, telecommunications equipment, and software. A uniform commercial code and an income tax policy for international trade will further stimulate exchanges in digital products. Most important, a fully convertible digital currency will facilitate international transactions. As a result of these developments, a product's market will be defined not by geographical areas but solely by its customers. Globalization, however, will not break down all market boundaries, as customers still have different tastes. While spatial convergence will remove geographical market boundaries, virtual communities will act as distinct and coherent groups, just as physical markets and nations do today.

These cyber communities or cybernations will be made up of like-minded consumers and businesses, congregating and interacting online. Sellers will want to know who participates in such virtual communities and how they interact. In the virtual marketplace, consumers will learn about product quality from each other, while sellers will observe consumers' reactions to their products and marketing strategies. What will the implications be of such learning by agents in a market? For one thing, unlike today's emphasis on strategic interactions between firms, the electronic marketplace will make apparent the need for firms to interact with consumers and for consumers to interact with other consumers and firms. Specifically, consumers will not be myopic, but will become strategic players in the market. Cyber nations and cyber communities will become powerful instruments in influencing prices, product quality, and competitive behaviors. To counter this trend, firms will develop market strategies based on their interactions with consumers. Indeed, demand preferences can be manipulated, quality information can be controlled, and reputation or brand loyalty can be cultivated, all by actively participating in virtual communities. Cyber communities are a natural outgrowth of today's Internet societies, where the process of word-of-mouth dissemination of information is greatly facilitated by personal e-mail, mailing lists, chat lines, newsgroups, and other discussion forums, which can occur concurrently and reach every corner of the globe.