E-Commerce and Geography

E-Commerce and the “Death of Geographical Distance”

As e-commerce and other information technologies became more widely available, many observers predicted the “death of geographical distance,” a concept that gripped both the popular and the [Page 845]policy imagination. The core supposition is that anyone anywhere can engage in the global market. This idea is based on the concept that electronic technologies remove the geographic barriers to entry that previously prohibited some people and some communities from full participation in economic activities. Indeed, some prognosticators have proposed that certain industries will cease to conduct sales at physical locations, removing the need for large sums of capital investment before starting business. These discourses are compelling because of their egalitarian promise, but they greatly oversimplify the complex relationship between distance, electronic technologies, and the economy.

Despite the rhetoric, bank branches and retail stores still operate, and would-be entrepreneurs still face many of the same barriers to entry. There are several reasons why online exchanges have not rendered physical locations completely obsolete. First, many economic activities rely on the knowledge embodied in skilled labor, capabilities that are most easily exchanged (and regulated by managers) over minimal physical distances (at least among today's workers). Second, Internet adoption rates vary widely throughout the world. In some countries, such as Sweden or Canada, more than 75% of the population has regular Internet access, while in other countries, such as India or Indonesia (not to mention sub-Saharan Africa), the rate is less than 10%.

Perhaps the most important reason why e-commerce and other information technologies are unlikely to eradicate geographical barriers is that moving physical products through e-commerce is not as easy as transferring data. For example, moving tangible products from one place to another imposes logistical costs that might favor centralized distribution to a large number of customers (e.g., through traditional storefronts) rather than decentralized distribution straight to each buyer. Similarly, consumers may feel more confidence when buying some products, such as clothing or appliances, if they can see and feel them before making a purchase. Although some products are available for instantaneous exchange and are sufficiently standardized for consumers to buy them remotely with confidence (e.g., music, video, or e-book downloads), these products are relatively few.

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