The Emergence of the Virtual Enterprise? How Austrian Companies Use the Internet 1

Gunther Maier 2, Hannes Traxler 3

ABSTRACT

This paper discusses the global computer network Internet and the way it is utilized by companies in Austria. At a theoretical level this new infrastructure is related to the discussion of the "global economy", of the "information society", and of the advent of "virtual corporations". It can be demonstrated that the Internet is a key element in this development, but because of its characteristics may also modify its implications. The hypotheses that can be derived from theory are tested in an empirical study of Austrian companies that use the Internet. By use of a WWW-based electronic questionnaire we have collected information about what type of companies use the Internet and how they use it.

TABLE OF CONTENT

1. Introduction
2. Global Networks: Development and Characteristics
3. The Framework: Global Economy, Information Society antion Society and Electronic Revolution
4. Impacts at the Firm Level: Information Technology and Productivity
5. Economic Development: Spatial Impacts
6. Internet-use by Corporations in Austria: Empirical Results
6.1. Structure of the Sample
6.2. Use of the Internet
7. Summary and Conclusions
REFERENCES

1. Introduction

Frequently, investments in telecommunication facilities such as the "Information Superhighway" or other computer networks are considered as important for economic development as investments in better roads and highways were some decades ago. It is argued that this technological "revolution" has similar importance as the industrial revolution and it is seen as "the backbone of all other major structural transformations. Whereas the industrial revolution was based on energy, the current revolution is based upon information technologies" (Castells 1993, p. 248). It provides the basic infrastructure for the "information society" in a "global economy", a completely different and functionally interrelated world economic system.

Several authors (Bell 1973, 1976, Machlup 1972, Porat 1977) realized the importance of information and knowledge and the wn and knowledge and the wide range of implications already more than twenty years ago. Their theories and concepts of a postindustrial or information economy are still an important basis for research on the impacts of this development on society as a whole. These changes require adaptions within companies as well and a fundamental revision of corporate strategies. Davidow and Malone (1992) envision the formation of "virtual corporations", companies with high flexibility, and close ties to customers and suppliers.

Global computer networks appear to be the ideal infrastructure for these new companies and their growth will probably strengthen and speed up the development trend toward virtual corporations in a global economy. The dramatic growth of the Internet in recent months and its increasing commercial use seem to support this hypothesis. The development is to recent to be visible in aggregate indicators. At the firm level, however, we may be able to detect signs of the developments that are predicted by the theoretical literature.

In this paper we will present the results of a pilot study that tried to find out, how companies use the global computer network Internet. Section 2 summarizes development and characteristics of global computer networks, section 3 shows the general economic consequences in the framework of the global economy and the information society. These two parts provide some more general background informatiokground information for the further analysis. Section 4 focuses in greater detail on the impacts of telecommunications infrastructure on firms and productivity, whereas section 5 elaborates the spatial impacts. In section 6 we discuss an empirical analysis that we have conducted in Austria, which attempted to identify some of the characteristics and strategies of virtual corporations in the companies that use the Internet, the largest global computer network. In the first sub-section we lay out the structure of the analysis and present the instruments we used. The following sub-section discusses the results. The paper ends with a concluding section.

2. Global Networks: Development and Characteristics

Global networking, the possibility to communicate and to exchange large amounts of data, has developed only over the last 25 years. By far the largest global computer network is the Internet, and it is still growing at an impressive rate. While the estimated number of Internet users in January 1991 was 1.88 million, the Internet had about 4 million users one year later. By August 1992 this number was 5-10 million, and the network had 1 million hosts. Since 1987 the number of networks has doubled each year, and monthly measurements of numbers of hosts for Europe show, that the growth rate there is currently faster than in the United States, the Internet in Europe is increasing by a factor of four annualor of four annually (Quarterman 1993, p. 43). Currently, the number of Internet users worldwide is 35- 40 million. An interesting detail in this context is, that commercial hosts are already a majority in the United States, and their number is growing at a faster than average rate.

With the increasing number of participants, the new networking technologies are more and more integrated in work and community. The Arthur D. Little Forecast on Information Technology and Productivity summarizes the major change in the underlying concept and structures of communications networks and their implementation: "In the past, communications networks were created ad hoc to handle data processing applications as they arose. Aggressive companies will now reverse the situation: They will set up basic, flexible communications structures from which users will draw capabilities as needed" (Weizer et al. 1991, pp. 173).

One of the most important reasons for this rapid development is the existence of positive agglomeration effects (Maier 1995). The fact, that 35-40 million users are potential customers or at least recipients of marketing and product information, makes the Internet so attractive. And the permanent increase in the number of networks, hosts and users is motivation for additional users and information providers to utilize this facility for their needs. Higher demand and supply due to positive agglomeration effects induce the ciects induce the circular- cumulative increase that could be observed over the recent years.

Another important aspect is the cost structure of the underlying infrastructure. The main costs are fixed (hardware and physical network), thus with increasing volume of transactions the costs per unit transferred decrease. This constitutes an economic mechanism toward expanded use of networks like the Internet (MacKie-Mason and Varian 1993).

As compared to other infrastructure components, the Internet has some completely new characteristics. Once a computer is connected to the Internet, the user has access to all other Internet hosts, regardless of their physical location. Terms like "Cyberspace" and "virtual communities" describe this phenomenon and the diminishing importance of space and location (Rheingold 1993, pp. 57-58). Distance becomes a negligible component for the Internet user (Maier user (Maier 1995).

3. The Framework: Global Economy, Information Society and Electronic Revolution

The Internet growth rates and the increasing importance of computer networks have to be seen in a broader context. Recent improvements of network technologies fit into other, more general development trends, which created the demand for these facilities and services. The most important aspects of this process are the globalization of the economy and the increasing importance of information ("informational society").

The Global Economy

Castells (1993, p. 249) defines the global economy as "an economy that works as a unit in real time at a planetary scale." Capital flows, labor markets, commodity markets, information, raw materials, management and organization are internationalized and interdependent worldwide. Companies in the global economy have to coordinate their activities in all different parts of the world and they also have to observe all ongoing changes, developments and activities of competitors. Globalization and integration increase competition, and it is important to market new products immediately and globally (Maier 1995).

The shorter life span of new products increases the need for a more efficient production to be competitive. Rapid technological developments as well as frequent changes in demand require high flexibility of the internal organization. internal organization. Lean production, lean management, flexible specialization, just-in-time and outscoring are thus important strategies of companies in the global economy (Davidow and Malone 1992, Maier 1995).

Firms try to find optimal locations for individual parts of the production process and to cooperate with others to minimize risks and/or costs. These strategies result in an increasing importance of formal and informal networks between firms, research and training institutions and other public or private organizations at different spatial levels (Tödtling 1994, Maier 1995). A related trend is the internationalization of research and development (Morris 1992, pp.181-184). Small and large, public and private, profit and nonprofit institutions benefit from international science and technology linkages. Not only manufacturing, distribution and marketing, but also R&D networks gain importance.

The Informational Society

Two conceptual paths toward the idea of an information society can be identified (Dordick and Wang 1993, p. 9): authors like Daniel Bell related the increase of technology and planning to the emergence of a new society. Machlup and Porat, on the other hand, related their work more directly to the growing importance of information- or knowledge- based industries.

Bell's (1973, pp. 18-20) concept of the postindustrial society defines the acquisition and codification of theoreticaification of theoretical knowledge as most important principle. Following industrialization, according to Bell (1973, p. 20) "a society organized around knowledge for the purpose of social control and the directing of innovation and change" emerges. The society is dependent on information, the crucial power is the control of knowledge. Porat and Rubin (1977) define the information society as a shift in roles of the labor force. A different kind of worker is required in a society that produces and distributes knowledge.

A recent interpretation of the information society by Castells (1993, pp. 248-249) emphasizes the dependence of the sources of economic productivity, cultural hegemony and political- military power on the capacity to retrieve, store, process and generate information and knowledge. Information and knowledge are seen as directly productive forces, as "the critical raw material of which all social processes and social organizations are made." The globalization of the economy and the increasing importance of the different interlinkages as well as the automation of most standard production and management functions are the main reasons, why generation and control of knowledge, information and technology is a key factor and a "necessary as well as sufficient condition to organize the overall social structure around the interests of the information holders."

Both the trend toward an information society and the globality and the globalization of the economy have induced and encouraged the growth of the Internet. On the other hand, the technological revolution, the increasing importance of computers in manufacturing as well as management and the fact, that information is more frequently available in digital form, have also had an influence. This development is again part of the larger, global trends, so that all the different processes have to be seen and analyzed in this broader context.

4. Impacts at the Firm Level: Information Technology and Productivity

The overall trend that we have characterized with the terms "global economy" and "information society" has fundamental implications for individual companies. The increasing level of competition reduces profit margins. The shortened business cycle requires companies to get new products to the market at a faster rate. Therefore, the companies face a higher level of risk and try to develop strategies for reducing this thread. Some of the more promising strategies are sharing the risk with other companies in joint ventures and strategic alliances, and getting more accurate information about customers and markets faster.

The Internet might be the pivotal infrastructure for these and related strategies. It provides fast and reliable connections to suppliers and customers worldwide. The Internet offers all the advantages of a direct electronic link to vendors, c link to vendors, but the company does not have to commit to a proprietary vendor system. An increasing number of suppliers provide on-line pricing and ordering capabilities over the Internet, which makes it easier for firms to compare prices and delivering schedules of several potential suppliers. Software and publications can be distributed electronically and are thus available immediately to all Internet users, and on-line product support also increases efficiency and reduces costs (Cronin 1994, pp. 55-57).

On the customer side, there are similar potential advantages. The Internet is a powerful tool for market research, for establishing new markets and for testing customer interest in new products. Electronic information and software can be delivered over the Internet, and payments can be collected the same way. Electronic catalogs and on-line help can be offered. The Internet provides opportunities for direct contact with customers and allows technical and development staff to find out immediately how customers respond to company products.

The example of four multinational U.S. companies (Schlumberger, IBM, Oracle, Rockwell International; Cronin 1994, pp. 70-93) shows that even sophisticated internal corporate networks are no longer sufficient for the complex communication needs of these firms. Gateways are needed to access the standard systems used by customers, other businesses, government and universities. < and universities.

Besides companies utilizing the Internet for specific business purposes such as marketing, for collaborative research and development and to improve connections with customers and suppliers, some specialized firms already do business only on (and for) the Internet. The worldwide computer network, the repeated technological breakthroughs and its rapid growth combined with the low-cost entry points for individuals and small businesses provides an excellent environment for innovation and entrepreneurial activity. Global connectivity generates an unprecedented availability of products, but also means of production and distribution. Once small businesses are connected to the Internet, they can produce, market and distribute their products globally with minimal incremental costs (Cronin 1994, pp. 213- 214).

5. Economic Development: Spatial Impacts

The 2> The development of a specialized industry to provide access, tools and services that facilitate participation in the global economy of the information age is an interesting phenomenon, and could have far-reaching consequences for the structure of the entire economy and the future of cities and regions. "Virtual firms" have completely different needs than "traditional" industries, other locational factors gain importance, and space and location get a completely different value and meaning.

The key element of all the implications of global computer networks is the fact that spatial proximity becomes much less important, in a certain sense almost irrelevant. By connecting to the Internet, companies are able to substitute virtual accessibility for spatial proximity. Unlike the traditional transportation costs, access costs to the Internet are independent of distance, as long as efficient network infrastructure is available. On the other hand, firms in locations without access to the Internet face the traditional transportation cost barrier. Thus, in addition to the classical agglomeration economies as discussed above, we can also define economies of virtual agglomeration on the Internet. The latter will become increasingly important with a further growth of the Internet, whereas the former will loose importance (Maier 1995, pp. 12-13).

This development has important consequences, primarily for cities and aggfor cities and agglomerations. In principle, global computer networks could reduce locational disadvantages of peripheral regions, because many office tasks can be performed independent from the location of both producers and users. But some authors argue that the introduction of telecommunication technologies will increase regional concentration instead of decreasing it (Steinle, 1988). Goddard and Gillespie (1988) discuss aspects of equity and efficiency. They raise the question, whether the information economy is likely to become less equitable, because knowledge and information as key strategic resources are becoming marketable commodities to an increasing extent. A related hypothesis is that the largest corporations benefit most from the new information technologies. They are able to extend their control over global markets, because the essential communications infrastructure is being created by and for the transnational corporations. Goddard and Gillespie conclude with the thesis, that developments in the information economy would create even worse geographic disparities in economic well-being, if there is no policy intervention. The counter argument, which we support, is based on the cost structure of the Internet. Since costs do not vary by distance, the Internet allows even small companies to compete globally and to target market niches on a worldwide scale. Not size is the critical factor, but the company's flexibilityny's flexibility and its ability to identify and to adjust to new market conditions. Therefore, newly founded small corporations may even have an advantage over large established firms.

From the region's point of view, the fact that just access to the Internet is important for certain activities, will increase the level of competition for innovative, "interesting" companies between cities and regions (Maier 1995). Such companies will be highly mobile between the regions with Internet access and will choose between them based on costs for access and factors not related to the network, like taxation, level of bureaucracy, etc. Regions without access to the Internet, however, could soon face substantial problems. As Castells (1993, p. 248) points out: "This technological informational revolution creates a new communication world made up at the same time of the global village and of the incommunicability of those communities that are switched off from the global network."

6. Internet-use by Corporations in Austria: Empirical Results

The discussion so far of the globalization of the economy, the information society, the virtual corporation, and the characteristics of the global computer network Internet have generated a number of hypotheses about what companies will use such an infrastructure and how they will use it. We expect small, newly founded companies in sectors that process information to ess information to be among the first on the Internet. They will probably use it for external communication, to observe markets, and to coordinate with suppliers and customers.

The major problem is that even on a global scale there is little empirical evidence about the Internet use by commercial operations. The situation in Austria is no exception. Even finding out the number of companies who use the Internet in Austria is practically impossible. The only information available is the number of computers (hosts) that are connected to the Internet in the country. By May 31, 1995 it was 37.369, up almost 2.300 from one month earlier (RIPE, 1995). Figure 1 shows the growth in the number of hosts in Austria between July 1991 and May 1995. It corresponds to a growth rate of 6.4% per month or about 110% per year. These growth rates are similar to those in other western european countries.

How many of those hosts are used for commercial purposes is unclear. At the global scale, according to Network Wizards (1995) the number of commercial hosts has almost doubled between October 1994 and January 1995. One has to keep in mind, however, that this observation is based on an inquiry of selected sites. When we look at the attention the Internet has received in the Austrian media in recent months, this trend seems plausible for Austria as well. Practically all major publications, business journals in particular,ls in particular, in the country have reported about the Internet (e.g., trend, New Business) and numerous companies have appeared on the World-Wide-Web (for an overview see e.g. Austria Online).

We have decided to use the Internet in order to collect some preliminary information about how companies in Austria use the network. We have designed a questionnaire, but instead of mailing it to a sample of Austrian companies, we have stored it as HTML-form on a World-Wide-Web server and sent the information to various newsgroups and to Austrian Internet-providers that companies should fill in this questionnaire. Those who were willing to cooperate, downloaded this document onto their computer-screen, filled in the form and clicked on the "submit"-button. With this, their answers were transmitted back to our server where they were automatically accumulated in a file. This procedure itself is an example of how the use of the Internet can reduce costs. We saved the costs of mailing the questionnaires as well as those of keying in the responses. The drawback, of course, was that we had no control over who "received" the questionnaire. It is very likely that companies where employees are actively participating in the virtual communities will be overrepresented in our sample. We think that this is justifyable in an exploratory study.

6.1. Structure of the Sample

Over a peri> Over a period of four weeks the procedure described above yielded 65 responses from Austrian companies, of which 55 could be used in the analysis. Most of the companies (60%) are located in Vienna, but we have at least got some responses from other regions in Austria as well. 14% of the observations are firms in Styria, other clusters are in Upper Austria (5%) and Lower Austria, south of Vienna (9%). The four remaining companies are located in Salzburg, Carinthia, and Tyrol (2).

It is not surprising, that almost all the businesses are in the service sector. The heterogenous group of "other services" is the largest one (29%), followed by computer vendors (22%). Other sectors such as media, manufacturing, tourism etc. are minorities in our sample (see Fig. 2).

As we expected, smaller and younger firms seem to be more active on the Internet. Almost 55% of our respondents have ten employees or less, whereas only five companies have more than 1,000 employees. About 2/3 of the responses came from single plant firms. Exactly half of the companies in the sample were founded after 1986 and one fourth started business since 1992.

6.2. Use of the Internet

Most of the companies in our sample started to use Internet services only in recent months. Only individual firms had e-mail access before 1992, and 45% installed e-mail as communication tool in 1995. The use of in 1995. The use of World-Wide-Web (WWW) is an even more recent phenomenon: only about 1/4 of the firms that use WWW started to do so in 1994 or before, the rest in 1995. Similar trends can be observed for the introduction of other services (mainly FTP, Telnet and Gopher).

In companies with more than one location, usually headquarter and all subsidiaries have access to Internet services. In four cases this is a privilege for the headquarter only, other plants are not connected. While 66% dial in via modem, the other firms have broadband connections.

Management (46%) and electronic data processing department (EDP; 33%) initiated most of the Internet connections, other internal or external initiatives are less important. These two departments as well as public relations, marketing and customer service are the most intense users of the Internet (between 38% and 56%). The network services seem to be less important for production (20%) and acquisition (31%) and in particular for accounting (6%). In more than half of the companies (57%), all the employees who use a PC for their work have access to the Internet. This number is surprisingly high and reflects to a certain extent the small firms bias of our sample. On the other hand, some of the largest companies also provide Internet access for all their employees who work on computers. In additional 7% of the firms, more than half the employees can use the services. In the rservices. In the rest of the companies (36%), less than half of the employees using computers have access, in 9% of the cases access is restricted to only one user.

As can be seen in figure 3, e-mail as communications tool with external partners (89%) and WWW (91%) as information source are the most important applications, FTP (80%) - an unexpected result - is next. Significantly lower are the numbers for internal e-mail communication (58%), NetNews (56%) and Gopher (46%). While the Internet services have been widely accepted and used for communication and as information sources, few companies are active as information providers yet. More than half of the firms (51%) have their own WWW server installed, but only 7% are maintaining a gopher server. Whereas only 7% of the companies plan to set up a gopher server within one year, 36% indicated plans to install a WWW server. Thus, WWW and external e-mail will be by far the most important Internet services for Austrian companies in the near future, close to 100% of the firms in our sample will use both.

It is interesting to compare the motivations of the individual companies for establishing Internet connections. 42 firms described briefly the goals they wanted to achieve with the use of Internet services. In general, the responses confirm the theoretical arguments and expectations. A major goal was to apply a faster, easier and also cheaper way toalso cheaper way to communicate with others worldwide (e-mail). Several respondents emphasize the importance of real-time communication between supplier and customer and the fact, that e-mail guarantees accessibility 24 hours a day. Most companies see the easy and fast access to global information as another important aspect of the Internet, in particular WWW has been introduced to gain more access to information sources. Some explicitly state that they want to experiment and become familiar with this new technology. Individual respondents mention the ability to provide information and new products immediately and refer to the increasing internationalization of research and development and the need of international cooperation. To facilitate this new way of joint product development, access to the global computer network is considered essential.

Much has been discussed and written about potential impacts in general and cost effects in particular of the usage of Internet services. Almost half (48%) of the firms responding to this question, indicated that the introduction of the Internet has led to cost reductions in one or more areas. Of these companies, 41% indicated savings in management or in EDP, 36% in marketing or customer service (fig. 4). Still 23% reported reduced expenses in acquisition, 32% in acquisitions. Even more respondents expect additional cost reductions for the near future, in partr future, in particular for marketing and public relations (more than 2/3), but also for customer service (48%). Less, but still significant, potential for future savings is considered for acquisition (36%) and production (20%).

A surprisingly high number of respondents (90%) see strategic advantages for individual departments in relation with the use of the Internet (fig. 4). Again, marketing, public relations and customer service seem to benefit most (58-76%). Whereas still 46% think that access to and use of Internet services creates strategic advantages for the management, the numbers are smaller for EDP (42%), production (16%) and the other parts of the companies. Overall, a clear majority considers the Internet not only very important, but - at least to a certain extent - necessary to be competitive.

The strategic advantages most frequently mentioned are similar to the goals and expectations pointed out by the companies. Most respondents emphasize the improvements in communication, in particular the ability to serve the customers faster and better. Providing own information and services on the Internet is considered important to remain competitive and to demonstrate competence and knowledge.

The answers to a number of statements about the Internet show, that these services are considered seriously and that they have become an important part of different commercial activities (fig. 5 and 6). On a scale from 1 (agree) to 5 (disagree), most respondents disagree, that Internet has nothing to do with their business activities ("BUSINESS", mean 4.19). More than half do not agree that the Internet is simply a nice toy for some computer freaks, but nothing serious ("TOY", 3.22). While some users consider the services expensive but too important to be missed, more than half do not agree ("EXPENSIVE", 3.43). In general, companies are not convinced that the Internet will help them to increase their profits ("PROFIT", 3.30). A huge majority considers the presentation of their company an important strategic management decision ("STRATEGIC", 2.23). This opinion corresponds with the high number of firms where it was the management who took the initiative to establish the network connection, who indicated to use the services, and who expected strategic advantages.

There seems to be no doubt, that the Internet helps to improve customer services ("CUSTOMERS", 1.96). The customers seem to be aware of and interested in the new activities of the companies, many firms got some sort of feedback from their customers ("RESPONSE", 2.69). More respondents than expected agree, that the use of the Internet is a competitive advantage ("COMP.ADV.", 2.13), a similar number emphasizes the importance of the Internet as a source of market information ("MARKET INFO", 2.32).KET INFO", 2.32). Only in a few cases, the introduction of Internet services has led to a change of the internal structure ("STRUCTURE", 3.58) and of the internal communication ("COMM", 3.25).

As discussed in section 5, the importance of the Internet at the firm level and for different activities of companies could also have some spatial impacts. More than half of the respondents think, that Internet access is already a very important factor for business location ("LOC.FACTOR", 2.67), about 50% expect that location decisions will become more flexible in the future ("LOC.FLEXIBLE, mean 2.55). These results support similar arguments in the theoretical literature.

We are particularly interested in those companies that use the Internet to its full potential. They may show characteristics of a virtual corporation as we have described it above. Of course, in order to really identify virtual corporations we would need to analyze their internal structure, their marketing, acquisition, and customer support procedures. This is not possible with the information available. However, the evaluations of our statements in the questionnaire give some indication of how well Internet services are integrated into the company strategy in the perception of the respondent. Therefore, we use some of them to identify "virtual corporations" in our sample.

Table 1: Results of the factor analysis

Variable                   iable                                 	Factor 1   Factor 2     

Internet has nothing to do with 
business activities                            -.60146     .39875     
Internet helps to improve customer service 	.77244     .37116     
Presentation on the Internet is an 
important strategic management decision    	.80700     .27499     
Presence on the Internet is a competitive 
advantage                                  	.61911     .40662     
Internet is an important source of 
market information                         	.51351    -.60751     
Internet increases flexibility of business 
location decisions                         	.59443    -.35086     

Pct of Variance explained                   	 43.5       17.2     

Table 1 shows the results of a factor analysis based on 6 evaluation questions. Factor 1, which explains 43.5 percent of the variance, dominates all but one variable. As the signs show, this factor distinguishes between firms who view the Internet as an important instrument for customer, a competitive advantage, a valuable source of market information, an important element of their business, and an infrastructure for more flexible location decisions on the one hand (low factor scores) and those firms who don't (high factor scores). Based on this analysis, we define "virtual corporations" as those with factor scores below -0.4.

Table 2: characteristics of "virtual corportations"

Varitual corportations"

Variable                                  "virt. corp."     sample

number of companies                       	     18         55
number of employees                       	     72        364
year when founded                            	   1980       1963
provides repeated training                    	    67%        38%
uses e-mail with external partners                 100%        89%
uses WWW                                           100%        91%
runs WWW server                                     78%        51%
reports cost reductions                             56%        48%
TOY                                                3.39       3.22
PROFIT                                             2.39       3.30
EXPENSIVE                                          3.61       3.43
RESPONSE                                           2.11       2.69
STRUCTURE                                          2.72       3.58
COMM                                               2.61       3.25
LOC.FACTOR                                         2.06       2.67

Table 2 compares the "virtual corporations" with the sample as a whole. As we can see, they differ markedly. The "virtual corporations" are much smaller and younger than the average company that answered our questionnaire, and they use Internet services more intensively. They train their emplyoees more frequently in the use of the Internet, and a larger percenet, and a larger percentage reports cost reductions because of Internet access. As far as the evaluation questions are concerned (those that were not used in the factor analysis), all the means move in the expected direction. In the average and in contrast to the sample as a whole, the "virtual corporations" support the statements that the Internet will lead to to higher profits as well as that the Internet has changes their structure and their communication.

These results show that this is a particularly interesting group of companies. They show all the signs of virtual corporations as we have discussed them above. It might be particularly interesting to observe the future development of those companies.

7. Summary and Conclusions

In this paper we have discussed the use of a global computer network like Internet by commercial corporations, both from a theoretical and an empirical perspective. We have summarized the discussion of globalization of the economy, of the information society, and of the evolution of "virtual enterprises" and related it to the characteristics and recent development of the Internet. As it turns out, the INternet may be an instrumental infrastructure for all those developments. It is both a result and a driving force of the process. Some of the characteristics of the Internet - its cost structure, for example - are unique and may modify the development process considerably.

ss considerably.

In the empirical analysis we investigated a self-selected sample of 55 companies in Austria who use the Internet. As the results show, these companies take this infrastructure very seriously and consider it an important tool for doing business. A considerably high percentage reports reduced cost because of Internet access, particularly in customer-related activities (marketing, public relations, customer service). The firms see the Internet as an instrument for improving customer relations, their position with respect to their competitors, and for demonstrating competence and knowledge.

Based on the data we distinguish a group of 18 companies who seem to be implementing the Internet very actively into their operation. These companies are much smaller and younger that the average company in the sample, and in many respects show characteristics of "virtual corporations".

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1 Paper presented at the 35th European Congress of the Regional Science Association, Odense, Denmark, August 22-25, 1995

2 Vienna University of Economics and Business Adminisnomics and Business Administration, Vienna, Austria.

3 University of North Carolina at Chapel Hill, Chapel Hill, North Carolina, USA. html>