Irving Wladawsky-Berger

Understanding the Impact of Cybersecurity on International Trade

The explosive success of the Internet in the 1990s led to a historical transition from the industrial age of the past two centuries to an economy and society increasingly based on global, digital interactions.  This transition has continued to advance over the past two decade with the advent of billions of smartphones, hundreds of billions of IoT devices, a wide variety of online applications and mobile apps, and huge amounts of data, all connected via Internet-based broadband networks.

Then came Covid-19. A recent McKinsey survey found that the pandemic has accelerated the overall adoption of digital technologies and applications by three to seven years in just a few months.

At the same time, cybersecurity threats have been growing. Large-scale fraud, data breaches, and identity thefts have become far more common. As we moved from a world of physical interactions and paper documents, to a world primarily governed by digital data and transactions, our existing cybersecurity methods have been far from adequate.

More recently, international cyberthreats have escalated, with a growing number of high profile attacks by criminal groups and adversarial governments. Cybersecurity is now invoked by governments as a major aspect of national security, as they focus on protecting their critical infrastructures and the overall wellbeing of their nations. In early June, for example, FBI Director Christopher Wray compared the danger of ransomware attacks on US firms by Russian criminal groups to the September 11 terrorist attacks. And, in a recent editorial, the NY times editorial board argued that ransomware attacks have emerged as “a formidable potential threat to national security,” given “their ability to seriously disrupt economies and to breach strategically critical enterprises or agencies,” urging governments that “It is a war that needs to be fought, and won.”

The Evolving Role of the CIO

“CIOs and other technology leaders have led heroic work to help their companies stay in business during the pandemic,” said a recent report, Pilots, co-pilots, and engineers: Digital transformation insights from CIOs for CIOS. “The question now is where will the focus of CIOs and their organizations be in the future?” To shed light on this question, the professional services firm Genpact surveyed 500 CIOs and technology leaders in partnership with the MIT Sloan CIO Symposium and Babson College professor Tom Davenport. Their findings were presented at the 2021 MIT Digital Symposium.

“We found a surprising level of commonality in terms of the technologies on which they are focused, the infrastructure they are attempting to build, and their view of expanding responsibilities,” was the report’s overriding finding. “High proportions of CIOs, for example, are focused on artificial intelligence (AI) and advanced analytics, moving to the cloud, and architecture modernization. There is, however, a lack of consensus on a critical issue: the role of the CIO in business transformation.”

I’ve had a window into the evolution of the CIO role over the past decade through my involvement with the MIT CIO Symposium. In the past, the primary responsibility of many CIOs was operating their companies’ IT infrastructures while keeping costs down. Given their role, they often reported to the COO or the CFO. But increasingly, CIOs have been given responsibility for their companies’ overall digital strategy working closely with senior executives across the business.

“The role continues to evolve,” notes the Genpact report. “Almost all CIOs expect their roles to expand. Almost all report to or interact with the CEO regularly. And many are exploiting the cloud, advanced analytics, and automation. The big future bet that unites all CIOs is artificial intelligence (AI). And to access new talent and skill sets, many are exploiting their external ecosystem partners. All of which bodes well for the CIO’s future transformational activities. In addition to flexing their technology muscles, many CIOs are still building their transformation muscles, which must include strength in change management and business knowledge.”

The New Joint Cyber Defense Collaborative

Following World War II and the onset of the Cold War with the Soviet Union, the US undertook a series of measures to strengthen the resilience of the nation. These included a significant expansion of government support for scientific research in universities and R&D labs, leading to product innovations from the private sector and better weapons from the defense industry which contributed to making the US the most prosperous and secure nation in the world.

In the 1950s the government enacted the National Interstate and Defense Highways Act, which led to the construction of the Interstate Highway System. The Act had a dual purpose: facilitating the economic growth of the country as well as supporting the country’s defense during a conventional or nuclear war should it be necessary.

And, last but far from least, in the late 1960s the Department of Defense launched ARPANET, the digital infrastructure that eventually became the Internet. ARPANET was designed as a flexible digital network that would enable computers to continue to communicate with individuals and with each other following a military attack.

Fortunately, we never had to test the Internet’s ability to keep the US going following an attack or invasion. But, who would have thought that 50 years after the launch of ARPANET, it would be a global pandemic that’s been testing the Internet’s ability to fulfill its original objective of keeping nations and economies going during arguably the biggest shock the world has experienced since WWII.

The Evolution of Shopping in the Digital Economy

Earlier this year, The Economist published a special report on The Future of Shopping, with nine articles on the subject. In its overview article, The Economist argued that “a new species of shopper is emerging: less centered on America, more intent on ensuring that what they buy reflects what they believe, and technologically dexterous. This latest incarnation of the global consumer looks likely to change how capitalism works - for the better.”

Three major changes are transforming the world of retailing. First, Western Europe and North America are no longer the biggest retail markets; nor do they epitomize the leading edge of retail as has long been the case, with innovations like the department store, the mall, catalogue shopping, and e-commerce. Shoppers are increasingly Asian. “Last year China and America were almost neck-and-neck as the world’s biggest retail markets. China’s two biggest online marketplaces, Alibaba’s Taobao and Tmall, both do more third-party business than Amazon.” And Asia’s shoppers are now at the frontier of retail, with innovations like livestreaming e-commerce.

A second change is that, beyond low prices, younger shoppers are increasingly influenced by their social, ethical, and political values when making buying decisions. They’re selecting  which brands to engage with based on their social values like environmental credentials and workplace environment. Well managed firms work hard to establish the kind of positive reputation that attracts people to want to be associated with the brand and its products and services. This is particularly important in our Internet age, which enables a company’s actions to be instantly communicated to all. “One way that capitalism adapts to society’s changing preferences is through government regulation and laws, which voters influence, at least in democracies. But the dynamic response of companies to the signals that consumers send is a force for change, too,” and the reason firms spend considerable time, energy and funds nurturing their brands.

The final big change is the increasingly digitalization of the economy. The explosive growth of mobile devices means that a company can be engaged with its customers not only when they’re shopping online, but wherever they are, - at home, at work, or in a store. “More accurate and voluminous data about shopping patterns are breaking down the decades-long relationship between mass consumption and mass production. In its place is a more varied world in which the shopper can decide whether to buy online or in store, whether to shop via platforms or from individual brands, and whether to accept targeted ads or not.”