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The Internet of Things: Objects that Talk to Each Other and Trade with Each Other

By Federico Mazzella ,
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  Ideas de Integración Integration Ideas n231

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Connections between devices will change the way in which we trade, while bringing about significant savings in planning and logistics costs. What risk does information leakage pose?

If we define “conversation” as the act of exchanging information, objects began to talk to each other a long time ago. However, the phenomenon did not happen overnight. First, sensors had to become cheaper, and advances in nanotechnology were necessary for more information to be saved in less space. Then cloud communication platforms had to develop, along with a culture of permanent social connectivity, 3G and 4G networks, and the spread of Wi-Fi.[1]

The convergence of these factors has made a reality of something that until recently seemed like science fiction: objects have started to talk among themselves by automatically exchanging data, enabling us to take great strides towards creating smart cities (Fundación Telefónica, 2011).

This phenomenon is known as the Internet of Things (IoT) and is a network of all manner of objects that includes devices that connect and interact with other devices and their environment.

Figure 1. The Evolution of the Internet

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Source: Jadoul (2015).

 

The most common example is the smart refrigerator, which communicates directly with the supermarket when it detects that it has run out of a particular product. But the options are endless: there are even shirts with sensors that communicate with washing machines to ensure they are washed on the appropriate cycle.

As all this information is in the cloud, these developments also raise questions about user privacy.[2] In the USA alone there are already 245,000 million devices, and the demand for cyber security is constantly growing, in an effort to prevent the leakage of personal or corporate information.

In relation to trade, this new technology brings with it a series of significant consequences for all types of business organizations.[3] In the first place, the spread of the IoT through value chains (also referred to as the “industrial Internet of Things”) is likely to contribute to increasing productivity and efficiency in a wide variety of sectors. For example, online agricultural machinery would decide on optimal seed combinations, planting depth, and fertilizers for a given site, based on an analysis of geological and climatic information, the properties of the inputs used, etc. Another example is online clothing, or “wearables,” which might allow you to monitor the wearer’s health in real time, potentially revolutionizing medical services and the pharmaceutical industry through the transition from medicine as treatment to preventive medicine. Given that the speed of these changes will vary from sector to sector and from one player to another within the same sector, trade flows will be affected as a result of possible changes in comparative advantages.

Secondly, the IoT will contribute to reducing the costs associated with trade through improved efficiency in storage processes, traceability, transportation, distribution and marketing, as a result of data analysis and real-time decision making. According to estimates by Evans and Annunziata (2012), for every 1% reduction in rail transportation inefficiencies, the IoT would enable annual savings of US$1.8 billion at the global level. In commercial aviation, cost reductions of 1% as a result of better planning using the IoT would signify annual savings of US$2 billion.

Third, the IoT increasingly blurs the border between goods and services: not only will there be an increase in the services embodied in goods, but these will also become more visible. An example of this are smart appliances: refrigerators that not only keep things cold, but that also let you know when the best before date is coming up for any given product, and that can create a shopping list that includes foods that have run out, which it sends to the owner’s cell phone so that he or she can then place an online grocery order.

Fourth, the IoT is extending the reach of e-commerce beyond shopping through computers, cell phones, or tablets. One such example is the Dash Button,[4] a wireless device recently launched by Amazon that can be placed on any surface so that you can purchase a given product via Wi-Fi and have it sent to your home, all by simply pressing a button. The options available so far include a variety of widely consumed household products.

This transition towards online objects will generate new ways of doing business and increase interactions between producers of goods and services, giving rise to greater flows of international trade and investment.

From the regulatory standpoint, the main challenges will be linked to e-commerce, intellectual property rights, data protection and privacy, cyber security, and technical standards, among others.

Regulatory consistency is another critical challenge that has arisen with the development of the IOT, as goods that are traded internationally may in turn generate cross-border service flows (as is the case with wearables). The situation is similar for the regulation of transnational investments, as the Agreement on Trade-Related Investment Measures (TRIMs) applies only to measures affecting trade in goods, while investments in the service sector are regulated by the General Agreement on Trade in Services (GATS, mode 3).

Latin American and the Caribbean is in no way removed from this phenomenon: there are entrepreneurs in the region who have created successful innovations in this regard. One example of such creativity is the Bluesmart, a smart suitcase created by Argentine designers that you control from your smartphone, allowing you to remotely lock and unlock it, weigh it, locate it, and receive notifications and reports about the trip. You can charge your phone from it, too.[5]

For some institutions, like the McKinsey Global Institute, the IoT will be one of the technologies that has the greatest impact on people’s daily lives over the next few years.[6]

 

Bibliography

Evans, P. C. and Annuziata, M. 2012. Industrial Internet: Pushing the Boundaries of Minds and Machines. United States General Electric.

 

Fundación Telefónica. 2011. “Smart Cities: un primer paso hacia la internet de las cosas. [Smart cities: the first step towards the internet of things].”

 

Garcimartin, M. 2014. “Internet de las Cosas cambiará el futuro del comercio [The Internet of Things will change the future of trade]” (in Spanish), in: Media-tics. September 2.

 

Gaya, R. 2015. “El Sistema multilateral de comercio y las nuevas tecnologías [The multilateral trading system and new technologies]” (in Spanish), in: Integration & Trade Magazine 39. Buenos Aires: IDB/INTAL.

 

Gutierrez, M. A. 2015. “La economía del futuro [The economy of the future]” (in Spanish), in: Integration & Trade Magazine. Buenos Aires: IDB/INTAL.

 

Ibarra, A. 2015. “La Internet de las Cosas tiene su lado oscuro en la privacidad de los usuarios [User privacy: the dark side of the Internet of Things]” (in Spanish), in: El Mercurio de Chile. June 13.

 

Jadoul, M. 2015. “La Internet de las Cosas: El siguiente paso en la evolución de Internet [The Internet of Things: the next step in the evolution of the internet]” (in Spanish), in: Techzine. March 15.

 

Vacas, F. 2014. “Internet de las Cosas: los objetos hablan y mucho [The Internet of Things: objects talk, and a lot]” (in Spanish) in: El Cronista Comercial. November 4.

 

 

[1] On this topic, see Vacas (2014).

[2] Ibarra (2015).

[3] For more details on the impact on trade, see Gayá (2015).

[4] For more information, see https://www.amazon.com/oc/dash-button.

[5] See “Argentinos crearon la primera valija inteligente [Argentines have created the first smart carry-on]” (in Spanish), Infobae, October 20, 2014. Available at http://www.infobae.com/2014/10/20/1603001-argentinos-crearon-la-primera-valija-inteligente.

[6] See Gutiérrez (2015).

 

 

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