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Blockchain Technology in International Business. Changing the Agenda for

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DOI: 10.1108/RIBS-06-2019-0078

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 Review of International Business and Strategy
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Blockchain Technology in International Business. Changing
the Agenda for Global Governance.
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Journal: Review of International Business and Strategy

Manuscript ID RIBS-06-2019-0078.R4
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Manuscript Type: Conceptual Research Paper
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Blockchain, Bitcoin, distributed-ledger technology, international business,
Keywords:
smart contracts, global governance
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Page 1 of 32 Review of International Business and Strategy
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3 Blockchain Technology in International Business. Changing the Agenda for Global Governance
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9 Abstract
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12 Blockchain technology has extended beyond the border of cryptocurrency and taken hold in various areas
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14 of international business. This study aims to analyze the impacts of blockchain on international business
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16 and the resulting challenges and implications for global governance. As the technology disrupts business
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activities, it also affects the governance of these activities on a global scale. The analysis of multiple
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21 blockchain applications in international finance, banking and insurance, supply chain management and
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23 logistics, and marketing and advertising shows that the use of blockchain in international business has
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25 differentiated impacts on global governance. While the protection of property rights can be improved and
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27 transaction costs can be reduced, the effects on other functions of global governance are more
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30 ambivalent. Suggestions for the future regulation of blockchain applications in international business are
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32 developed. As a recommendation for future studies, the need for more multidisciplinary and empirical
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34 research is proposed.
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42 Keywords: Blockchain, Bitcoin, distributed-ledger technology, international business, smart contracts,
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global governance
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50 Article Classification: Research paper
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 Review of International Business and Strategy Page 2 of 32
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3 1. Problem & Objective
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6 Blockchain technology is beginning to extend outside the realm of cryptocurrency and into the world of
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8 international business. In fact, Gartner (2017) predicts that by 2030, 30 percent of the global customer
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base will be made up of actors that use blockchain as a foundational technology for conducting
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13 commercial activity. In addition, a World Economic Forum (2015) survey suggests that ten percent of
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15 global gross domestic product will be stored on blockchain by 2027.
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18 While originally applied in the context of cryptocurrency, blockchain applications have taken hold in
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traditional businesses, startups, and in everyday life. For example, it is being used to offer a payment
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22 alternative to credit cards or PayPal for e-commerce and international transfers (Antonopoulos, 2017).
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Beyond that, it is being implemented in financial institutions and banks, but also in many other companies
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27 like Samsung, Deloitte, RWE, and IBM, with applications ranging from simplifying and automating trade
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29 finance, to tracking merchant loyalty points and gift cards, even to creating decentralized markets for
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31 electricity trading (Buterin, 2016). It is also being deployed, for example, by Siemens and others for energy
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sharing and grid management, and by smartphone companies like HTC and Foxconn that are producing
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36 blockchain-enabled phones to make paying in cryptocurrency possible by phone for consumers (Forbes,
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38 2019). Some startups in the fin-tech sphere are focused on disrupting the seemingly “inefficient and
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highly-intermediated” banking industry, while others are more interested in using the technology to build
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42 consumer-facing services (Murray et al., 2019, p. 6).
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45 Blockchain technology acts as a digital, distributed, public ledger and it is transforming traditional business
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47 activities by streamlining processes, increasing trust, and saving time and costs for companies. Its
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implementation is disrupting the status quo and inspiring new ways of doing business in many industries,
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52 firms, and corporate functions (Swan, 2015; Tapscott & Tapscott, 2016). Perhaps the biggest opportunities
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exist in centralized industries, where automating processes and saving time with smart contracts makes
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Page 3 of 32 Review of International Business and Strategy
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3 businesses more efficient and eliminates or decreases the need for middlemen, document processing,
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and contract enforcement, as well as the large budgets that come along with them (Torres de Oliveira,
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8 2017). Additionally, risks around fraud and data security are reduced because data no longer needs to be
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10 given to or managed by centralized entities.
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13 As blockchain transforms international business practices, it has the potential to change the rules and
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15 norms, having implications for global governance. Until now, interest has been on ways that companies
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17 can apply blockchain technology in their various business activities. However, blockchain’s application
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also affects the governance of these activities on a global scale. International business is regulated by a
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22 combination of national governments, international organizations, and non-governmental organizations
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24 that set the rules and standards in the forms of legal regulation and generally accepted norms and
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26 expectations. The implementation of blockchain technology is changing traditional business processes
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and the way businesses transact across borders, enabling companies to operate outside the reach of
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31 current laws and governance mechanisms. “As this disruptive technology gains momentum, it has many
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33 implications for firms and institutional settings. The way that firms interact with each other and the role
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35 of employees, shareholders and institutions all have the potential to change radically“ (Torres de Oliveira,
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37 2017, p. 13).
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It is argued, for example, that the existing regulation of the technology is limited and companies are
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42 innovating new forms of business where regulation does not yet exist. This means the governance agenda
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45 is increasingly being set by private companies, not by governments and public institutions anymore.
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47 Moreover, collective action problems associated with the provision of global public goods are emphasized,
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49 while others discuss the risks of money laundering and tax evasion (Gabison, 2016). At the same time,
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51 blockchain applications may reduce transaction costs (Antonopoulos, 2017; Campbell-Verduyn, 2018;
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Davidson et al., 2018) and “industrialize trust” (Berg et al., 2019) by mitigating opportunism. Thus,
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3 blockchain applications have the potential to coordinate economic activities without the coercive power
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of a central authority (Atzori, 2015).
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8 In recent years, blockchain technology has received much attention in information technology (Hughes et
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al., 2015; Narayanan et al., 2016; Pilkington, 2016) and legal studies (De Filippi & Wright, 2018; Yeoh,
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13 2017). Moreover, literature in the area of economics (Swan et al., 2019; Vigna & Casey, 2016) and finance
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15 (Guo & Liang, 2016; Tapscott & Tapscott, 2016) has discussed the impact of blockchain applications on
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17 financial markets and monetary policies. On the contrary, blockchain technology has been hardly
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discussed in international business studies (for exceptions, see for example Laplume, 2018; Zalan, 2018).
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22 Up until today, a comprehensive analysis of blockchain in a major international journal is lacking. Existing
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24 literature remains technical and largely avoids consideration of the technology’s implications for global
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26 governance (Campbell-Verduyn, 2018). This is surprising, given its principally borderless character and the
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increasing number of examples where blockchain is disrupting the various activities of international firms
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31 (Zalan, 2018). In particular, key questions regarding global governance of international business activities
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33 built on blockchain technology remain largely unaddressed.
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36 The aim of this study is therefore to explore the impacts of blockchain applications and uses in
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38 international business and the resulting effects on global governance. To address this question, we will
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first explain briefly the key characteristics of blockchain technology. Afterwards, the conceptual
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42 framework of this study is developed. The existing literature on global governance is reviewed and five
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45 key functions of global governance are derived. This is followed by the methodology section. Using data
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47 from multiple secondary sources, a number of blockchain applications in international business contexts
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49 are identified and described. Based on these examples, we then analyze how the application of blockchain
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51 technology in international business affects the functions of global governance outlined before. The paper
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concludes with implications for global governance as well as recommendations for future research.
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Page 5 of 32 Review of International Business and Strategy
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3 2. Blockchain Technology
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6 The concept of blockchain was introduced by Haber & Stornetta (1991) and popularized by Satoshi
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8 Nakamoto, whose identity remains anonymous today, in a frequently cited white paper on Bitcoin in 2008.
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Nakamoto presents the new peer-to-peer electronic cash system Bitcoin, describing it as “an electronic
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13 payment system based on cryptographic proof instead of trust, allowing any two willing parties to transact
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15 directly with each other without the need for a trusted third party’’ (Nakamoto, 2008, p. 1). The
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17 cryptocurrency Bitcoin is transacted electronically in the form of digital tokens, and the technology
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running those transactions is a digital, distributed ledger. However, blockchain technology itself is not tied
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22 to Bitcoin. It can be used anywhere as a digital, trusted, decentralized ledger, which is how it is being
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24 leveraged by companies in a variety of business areas as a tool of distributed consensus (Antonopoulos,

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26 2017).
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29 Blockchain is a digital ledger, or database, that keeps unchangeable records of all operations and
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31 transactions (Drescher, 2017). This leger is decentralized, meaning all of the information about these
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operations and transactions are stored across the network, not in one centralized place. The operations
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36 are carried out and verified anonymously by various parties on the blockchain network, and the
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38 transaction records are broadcasted publicly across the entire distributed network. Transactions are
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grouped into blocks that are linked together in a chain and timestamped, hence the name, blockchain.
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42 Chirls (2018) described blockchain as “a new kind of database where a distributed group of people can
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45 verify transactions and data in a way that doesn’t require a centralized third party and doesn’t require
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47 them to trust one another. This data sits on the blockchain and lives on there publicly.” Transactions
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49 carried out on a blockchain are based on cryptography, a technique of writing and solving codes to
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51 communicate messages securely, explained in depth by Diffie & Hellman (1976).

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3 Generally, two types of blockchains can be distinguished: public and private. While public and
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unpermissioned blockchains are open for everybody to join and the individual executing the transaction
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8 remains anonymous, private and permissioned blockchains are more circumscribed and the user identity
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10 must be known and confirmed. Permission to join is given by a single party or a consortium that acts as a
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12 gatekeeper (Yeoh, 2017). As outlined later, most applications in international business are private
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blockchains where access is restricted to selected parties.
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17 One of the key benefits of blockchain technology is that it removes the need for an intermediary to process
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the data or perform operations. This is because the data involved in the operations and transactions
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22 carried out on the blockchain network are permanently stored there. Dispensability of a middleman or
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24 trusted third party means that there is no centralized point for data to pass through, no central point of
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26 vulnerability on the network to be exploited, and no chance for data to be manipulated, making
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transactions conducted via blockchain technology safe and transparent (Nakamoto, 2008). When applied
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31 in business, a plethora of benefits arise including cost savings, time savings, streamlined processes,
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33 increased trust in the system, increased security, increased transparency, reduced tampering and fraud,
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35 reduced auditing needs, reduced overhead and human error from manual processes, lowered transaction
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37 costs, and others (Torres de Oliveira, 2017).

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41 After blockchain began to gain momentum, a new computing innovation called Ethereum was created by
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43 Vitalik Buterin (2016). It uses the same technology like blockchain, but adds another level of functionality
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45 that allows applications coded by users to run on top of it, like smart contracts. Smart contracts are digital
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47 protocols used to execute, verify, or enforce contracts automatically when contract conditions are met
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(Cong & He, 2019). With these smart contracts, a program enforces the contract built into the code, and
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52 contract enforcement that used to have to be triggered manually now becomes automatic. Not only do
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companies save time and money by deploying smart contracts, they also eliminate some transaction costs
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Page 7 of 32 Review of International Business and Strategy
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3 of doing business due to automated execution of contracts when the specified conditions are met,
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providing added security and fairness between contracting parties. Companies can custom-program smart
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8 contracts for their individual needs, with a variety of conditions and using a variety of inputs, and “these
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10 inputs can trigger the preprogrammed protocols stored on a blockchain to automatically carry out a range
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2019, p. 9).
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18 3. Conceptual Framework: Functions of Global Governance
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Before we explore the impact of blockchain applications in international business on global governance,
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23 it is necessary to provide a better understanding of governance and its main functions. Governance can
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25 be conceptualized as “the means by which to infuse order, thereby to mitigate conflict and realize mutual
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27 gain” (Williamson, 2010, p. 674). The Commission on Global Governance (1995: 2) defines it as “the sum
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of the many ways individuals and institutions, public and private, manage their common affairs. It is a
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32 continuing process through which conflicting or diverse interests may be accommodated and cooperative
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34 action may be taken. It includes formal (…) as well as informal arrangements that people and institutions
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have agreed to or perceive to be in their interest.” Its aim is to promote benevolence and to ensure
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38 efficient economic outcomes by using fiscal and regulatory instruments.
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41 While the academic literature on governance is eclectic and relatively disjointed, the following main
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functions of governance according to Williamson (1996; 2005) can be identified: protection of property
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46 rights, reduction of transaction costs, internalization of externalities, prevention of monopolistic power,
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48 and maximization of social welfare (Figure 1).
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3 Figure 1. Functions of Governance
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32 A foundational responsibility of governance is the protection of property rights (Alchian, 1989;
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34 Williamson, 1996). According to Allen et al. (2018, p. 117), “the right of people to acquire and transfer
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valuable resources through exchanges agreeable to the affected parties, and which do not compromise
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39 the ability of others to undertake the same kinds of action, has long been considered as a cornerstone of
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41 individual freedom and human flourishing.” In this sense, property can range from physical to intangible
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46 While property rights are usually protected by laws, their transfer is affected by various transaction costs.
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Transaction costs include the complexity, uncertainty, and contract enforcement costs that arise when
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51 conducting business activities. Such costs determine whether transactions will be carried out on the
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53 general market, or within the boundaries of the firm (Williamson, 2010). In order to stimulate the
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55 exchange of goods and services, the reduction of costs is necessitated.

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Page 9 of 32 Review of International Business and Strategy
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3 While the price mechanism is a powerful institution to coordinate economic activities, it may not lead to
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desired outcomes in the case of negative externalities. Externalities are considered any negative external
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8 effects or consequences produced from business activities that affect non-involved parties, like
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(Novak, 2018).
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17 Another key function of governance is the prevention of monopolistic power (Williamson, 1979).
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Monopolies occur when one company controls the majority of supply for a product or service in the
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22 marketplace, giving that company an unfair advantage. This warrants regulation because it can lead to
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24 higher prices and entry barriers for other suppliers, which is undesirable for both consumers and
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29 Finally, maximization of social welfare is a duty of governance. Social welfare can be understood as the
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31 well-being of society. Factors that influence quality of life, such as the environment, health, social services,
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the economy, and happiness can attribute to social welfare, as can technological advances (World
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38 be avoided.
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41 4. Methodology
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44 Research design
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47 As blockchain is a new, rapidly emerging and eminently practical field, we searched for heterogeneous
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49 examples of blockchain applications and uses a case study approach was appliein order to explore the
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impacts of this new technology in international business and on global governance. The aim was to reveal
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54 differences and similarities among applications is method is useful to reduce researcher biases and to
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 Review of International Business and Strategy Page 10 of 32
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3 approach allows to reveal differences and similarities among the cases and to bring the findings into the
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broader picture (Eisenhardt & Graebner, 2007; Stake, 2005). In the context of blockchain applications,
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8 even though many examples are documented in literature, the understanding of blockchain’s impact on
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10 global governance is not sufficiently advanced.
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13 Data collection and analysis
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16 DIn line with previous research that used similar methods (e.g., Schuster & Holtbrügge, 2012), dData was
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18 collected from multiple secondary sources that were published up until over a period of two months from
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April to May,, 2019. First, general literature research was conducted on blockchain technology,
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23 international business, and global governance by searching for keywords such as ‘blockchain’,
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25 ‘distributed-ledger technology’, ‘Bitcoin’, ‘smart contracts’, ‘blockchain governance’, ‘blockchain
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27 regulation’, ‘global governance’, ‘international business’, etc. in various combinations. Next, professional
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magazines, newspapers, blogs, and blockchain-specific news outlets were looked at to identify examples
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32 of blockchain applications. Some sources included Coindesk, Cointelegraph, Forbes Money, Fortune,
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34 Reuters, The Verge, The Wall Street Journal, and Business Insider. Another valuable source of information
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was, for example, the Lisk Academy website (https://lisk.io/academy/blockchain-business/blockchain-in-

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38 business), which contains a many examples of blockchain use cases in business. Based on the qualitative
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41 content analysis of published content relating to blockchain use and implicationscase studies approach
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43 (e.g., Welch et al., 2011; Schuster & Holtbrügge, 2012), the identified sources were analyzed with regard
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45 to explicit and implicit references to the functions of governance outlined in the conceptual framework.
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47 Since the study focuses on objective data rather than perceptions, triangulation with other sources was
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determined unnecessary (e.g., Welch et al., 2011; Schuster & Holtbrügge, 2012).
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53 Selection of examples
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Page 11 of 32 Review of International Business and Strategy
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3 To select blockchain applications which would provide valuable insights, diverse examples were compiled
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in order to reveal more information than similar examples. Therefore, companies that operate in different
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8 industries and apply blockchain technology in different corporate functions were included in order to
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10 guarantee a high heterogeneity of the sample. Focusing on a small number of examples from the various
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is assumed to be useful when it comes to the generalization of the findings as blockchain applications may
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17 affect global governance differently. Based on these considerations, blockchain applications in
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19 international finance, banking and insurance, supply chain management and logistics, and marketing and
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5. Applications of Blockchain Technology in International Business
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International finance is certainly the most obvious business area for blockchain technology to take hold
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33 due to being popularized with the advent of the cryptocurrency Bitcoin. As a payment alternative, it has
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35 disrupted e-commerce and international money transfer. However, more potential lies in the wider
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37 financial sector, where “entire industries, such as clearinghouses in financial trading or title-search firms
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39 in real estate, conceivably could be displaced, slashing costs and cutting the time required to complete a
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42 transaction” (Wall Street Journal, 2016b).
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44 The introduction of blockchain at Barclays has cut down the time necessary to execute a capital exchange
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47 from the typical week to ten days to less than one day (Reuters, 2016). In a partnership with startup Wave,
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49 Barclays is essentially able to execute global trade transactions between two business entities in real-time
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51 using blockchain technology. In the words of Barclays Global Head of Trade & Working Capital, Baghdadi,
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53 blockchain has the power to “speed up trade transactions, reduce costs for companies around the world,
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optimize internal processes for banks, and reduce the risk for documentary fraud” (cited in Reuters, 2016).
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3 They plan to collaborate with other banks to support the adoption of this system and make industry-wide
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improvements for managing trade documentation.
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8 The possibility of immediate cross-border funds transfer is appealing to other companies, too. At
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Signature Bank, “SignetTM allows the bank’s commercial clients to send free, secure payments to other
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13 commercial clients of the bank at any time of day with no transaction limits, in as little as five seconds”
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15 (Forbes, 2019). Veem, a startup backed by Google and Goldman Sachs, allows enterprises to send and
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17 receive payments in different currencies, but uses bitcoin as the intermediary asset. With this system,
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“neither counterparty is required to directly hold bitcoin, and an algorithm automatically routes
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22 transactions along the most efficient payment rails, more than half the transactions processed by Veem
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24 rely on the cryptocurrency as a replacement for correspondents” (Forbes, 2018). Moving from a business
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26 to an individual level, Santander launched a mobile app called One Pay FX as a foreign exchange service
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using Ripple’s blockchain technology that allows individuals to transfer money to other individuals
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31 instantly or within the same day (Santander, 2018).

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Insurance companies are benefitting from the blockchain-based contract execution to automatically
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36 trigger the insurance claim processing procedure, providing greater trust and transparency between the
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38 contracting parties. AXA is using smart contracts for their flight delay insurance claim processing. This
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allows for storing and processing of insurance payouts based on smart contracts linked to global air traffic
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42 control databases, meaning that when a delay of over two hours is registered, compensation is
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45 automatically triggered. In this case, blockchain is streamlining processes for the provider and the
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47 customer, improving AXA’s customer relationships (Business Insider, 2017). Allianz is implementing a
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49 similar automated claim payment for their flight delay insurance using blockchain (Forbes, 2019).
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52 Blockchain technology is also being employed to simplify administration and document processing in
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complex transactions. For example, Northern Trust is automating much of the legal paperwork involved
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3 in their private equity deals (Northern Trust, 2017). Specifically, it is “using Hyperledger Fabric to handle
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the administration of private equity fund events, including initial sales and liquidations of fund
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8 investments” (Forbes, 2019). On a larger scale, the Depository Trust & Clearing Corporation plans to
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10 implement blockchain for its credits derivatives tracking process for the Trade Information Warehouse.
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12 This system serves as foundational infrastructure for the global financial industry and “provides lifecycle
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event processing services for roughly 98% of all credit derivative transactions worldwide, worth $11
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17 trillion” (Coindesk, 2018). A successful rollout of this new blockchain-based system could reduce a large
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International Supply Chain Management and Logistics
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27 Supply Chain Management (SCM) has long been under scrutiny from a business ethics perspective
28
29
regarding ethical, responsible, and sustainable sourcing practices (Kolk, 2016; Quarshie et al., 2016; Wang
30
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31
32 et al., 2019). Blockchain’s appearance in this field offers more transparency, efficiency, and accountability
33
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34 for companies concerning the provenance of their products. It allows companies to track the history of a
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product from the procurement of raw materials throughout the supply chain up to the moment of sale
37
38 (Dobrovnik et al., 2018; Treiblmaier, 2018).
39
40
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41 The platform Provenance is helping companies employ this technology with the goal of making supply
42
43
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chains more transparent, cultivating more informed consumers, and accelerating movement towards
44
45
46 sustainable consumption (Accenture, 2018). Provenance adds value to businesses and products through
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47
48 verification of their supply chains and procurement practices, taking a social approach to SCM by
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50 integrating their services with companies’ procurement processes in order to provide this information to
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52 customers via their website or app. The mission of Provenance (2019) is to “help brands and retailers build
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3 customer trust through transparency. Using blockchain technology Provenance empowers shoppers to
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choose your product.”
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8 IBM also uses blockchain technology to address supply chain improvement. In a partnership with Maersk,
9
10
IBM developed a platform similar to Provenance’s to provide authenticity for all supply chain participants,
of
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13 reducing the need for third party validation during freight shipping (Murray et al., 2019). The platform
Int
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15 TradeLens has over 100 organizations signed up so far and is expected to track tens of millions of shipping
16
17 containers annually (Accenture, 2018). Goals of the program are “to reduce the cost of global shipping,
er
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improve visibility across supply chains and eliminate inefficiencies stemming from paper-based processes”
20
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21
22 including delays and fraud (Scott, 2018).
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Blockchain supply chain tracking is being implemented for all sorts of products, from metal parts, to food,
25
26
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27 to even diamonds. In order to improve SCM, Toyota has joined the R3 blockchain consortium to use the
28
29 technology to track auto parts as they move between countries and factories. This helps with efficiency
30
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31 and logistical challenges due to supply chain disruptions that might occur from events like tsunamis and
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earthquakes (Wall Street Journal, 2016c).

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In IBM’s partnership with Everledger, diamonds are being tracked and their movements are recorded from
37
38 the mines to the jewelry stores. The service was designed to give transparency to buyers so they can
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41 screen the stones to make sure they do not come from regions where forced labor is common or where
42
43 proceeds are used to fund violence (Wall Street Journal, 2016d). Everledger CEO Kemp explains: “Today,
an

44
45 many diamond transactions rely on paper, which can be altered or forged. It’s a 150-year-old industry that
46
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47 trades in trust” (cited in Wall Street Journal, 2016d). Blockchain provides trust in the trustless system, and
48
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offers peace of mind for consumers concerned with the ethical procurement of diamonds.
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52 Another partner of IBM is Walmart. The two enterprises collaborate to track the movement of food
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products specifically in Walmart’s supply chain. One of their first major projects involved tracking the
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3 movement of pork in the Chinese supply chain to make the system more reliable and make the product
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safer in one of the biggest global meat markets (Wall Street Journal, 2016a). According to Chang, global
6
7
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8 supply chain expert at IBM, “most supply chains are fairly lengthy so it’s is easy to introduce cheating
9
10 because not everyone knows all the other players in the chain” (cited in Wall Street Journal, 2016a). This
of
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12 project allows Walmart to trace the sourcing of contaminated pork or to monitor it better in on its journey.
13
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They also launched the Blockchain Food Safety Alliance to provide more efficiency, transparency, and
15
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17 authenticity to food supply chains and they will start using this program around the world. In fact, “during
er
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19 a pilot program conducted with Walmart, testing found that by applying blockchain to trace food cut the
20
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21 time it took to trace a package of mangoes from the farm to the store to just two seconds – from days or
22
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weeks” (Forbes, 2017). As of this year, Walmart even requires all spinach and lettuce direct suppliers to
24
25
26 log shipments of the produce via blockchain (Walmart, 2018).
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Following suit in terms of food supply chain tracking are companies like Nestle, which is piloting a service
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31 in Europe to allow consumers to track Gerber baby food ingredient sourcing (Forbes, 2019). Starbucks is
32
33 tracking coffee production from farmers in Costa Rica, Colombia, and Rwanda to pilot their ‘Bean to Cup’
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35 initiative so customers can trace coffee origins (Cointelegraph, 2019). Bumble Bee is also deploying
36
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37 blockchain in their supply chain with the help of SAP, tracking albacore tuna from the fishermen in the
38
39
40 South Pacific to the grocery stores in the US (Forbes, 2019). This helps build confidence in product safety
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42 and sustainability in light of current health and environmental concerns. Bumble Bee consumers “will be
43
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44 able to scan QR codes on the 12-ounce bags of ahi tuna steaks to learn more information about each
45
46 product, including where it originated, which community caught it, the size of the catch, and how it came
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to be certified as fair trade” (Fortune, 2019). As consumer demands for ethical standards rise, the
50
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51 transparency provided by blockchain integration in supply chains is key for credibility, and it even affords
52
53 companies deploying it a competitive advantage and the ability to charge a premium price.
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3 International Marketing and Advertising
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6 In the field of International Marketing and Advertising, blockchain technology allows a more complete
7
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8 picture for advertising specifics, like the time and performance of ads, and improves transparency for
9
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companies advertising. Additionally, it offers transparency for consumers being advertised to, because
of
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13 blockchain’s public ledger records information on how data is used and to whom it is sold.
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One example is Comcast. The company is working with industry partners to launch Blockgraph, a
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17
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18 blockchain-enabled platform allowing advertisers to have more control over data and more accurately
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target ads to viewers without revealing the personal information of viewers to those advertisers (Forbes,
21
22 2019). The platform was developed to improve the efficiency and effectiveness of TV marketing and
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advertising. An extra advantage that emerges is consumer privacy, since each Blockgraph participant’s
25
26
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27 data stays in its own systems and the participant continues to protect the data and manage the privacy of
28
29 its users, including respecting any user choices regarding the use of the data (Business Wire, 2018).
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32 Facebook is another company that is interested in using blockchain to give more privacy to users by
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34 implementing blockchain-based identities to log in to websites (Forbes, 2019). Such a system could
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influence Facebook’s user data monetization. CEO Zuckerberg said a new login system like this would
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38 replace Facebook Connect “with something that’s fully distributed,” and would enable users to choose
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41 which apps they wanted to allow access to and how much data they wanted to share with no intermediary
42
43 party necessary (cited in the Verge, 2019). However, after the Cambridge Analytica scandal where almost
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45 90 million users’ data were compromised, Facebook faces skepticism and pressure regarding data
46
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47 protection of users.
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50 Both advertisers and consumers benefit from Algebraix’s blockchain-based advertising innovation. Its app
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52 ALX “is a permission-based advertising platform, fueled by the ALX token” (Algebraix, 2019). Marketers
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add content on the network and specify their target audience. Then, ALX delivers that content to fitting
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3 prospects on the network. Next, the prospects that interact with the content are paid in tokens. Finally,
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marketers receive anonymous analytics about their target audience. In short, individuals are incentivized
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7
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8 by compensation for the use of their data and for ad consumption. This platform respects privacy and
9
10 data rights, and adds value for advertisers and consumers (Guillory, 2018). Thus, the implementation of
of
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12 blockchain in pursuit of more effective marketing and advertising has coincidentally improved consumer
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privacy.
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18 6. Effects of Blockchain Applications on Global Governance
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Table 1 summarizes the examples of blockchain applications in international business described in the
21
22
23 previous section. While their business implications are manifold and far-reaching, they also have various
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25 governance consequences. As the technology has potential to disrupt business activities, it affects the
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27 ability for such activities to be governed and regulated. Based on our conceptual framework, potential
28
29
implications for the five functions of global governance explained above are analyzed, namely protection
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32 of property rights, reduction of transaction costs, internalization of externalities, prevention of
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34 monopolistic power, and maximization of social welfare.

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37 Area Example Business Governance

38 Implications Implications
39 International Finance, Barclays Quicker transactions, Transaction costs,
40 Banking and Insurance reduced costs and externalities
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41 fraud
42 Signature Bank Quicker B2B Property rights
43
an

transactions (real-time)
44
Veem No foreign currency Property rights, social
45
46 exchange needed welfare
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47 Santander Quicker individual Property rights, social

48 transactions (real-time) welfare
49 AXA, Allianz Automated processes, Transaction costs,
50 increased consumer social welfare,
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51 trust monopolistic power

52
Northern Trust Automated processes Transaction costs,
53
54 and paperwork externalities
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3 Depository Trust & Reduced paperwork, Transaction costs,
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Clearing Corporation reduced time, externalities
5
6
streamlined processes
7 International Supply Provenance Increased transparency Social welfare,
w
8 Chain Management and trust transaction costs
9 and Logistics IBM - Maersk Increased transparency Property rights, social
10 and efficiency, reduced welfare, transaction
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11 costs costs, externalities,
12 monopolistic power
13
Toyota Increased logistics Transaction costs
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15 efficiency
16 Everledger Increased transparency
Social welfare,
17 and trust transaction costs
er
18 Walmart Increased reliability and
Social welfare,
19 product safety, time transaction costs,
20
na
savings externalities,
21
monopolistic power
22
23 Nestle, Starbucks, Increased transparency, Social welfare,
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24 Bumble Bee trust, and product externalities

25 safety
26 International Comcast Improved efficiency, Property rights, social
na

27 Marketing and increased consumer welfare

28 Advertising privacy
29 Facebook Increased data privacy Property rights
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Algebraix Improved efficiency, Property rights, social
32 increased consumer welfare
33 privacy
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34 Table 1. Examples of Blockchain Applications and Governance Implications

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37 Protection of property rights

38
39
40 The blockchain applications described in the previous section show that blockchain technology has the
ss

41
42 potential to impact property rights protection in various ways. First, this applies to the protection of
43
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44
personal data. With the implementation of blockchain in advertising, such as in the case of Facebook,
45
46
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47 personal information can be withheld from advertisers and consumers can choose how much information
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49 to share with third parties, allowing more privacy and protection of personal data. Money can also be
50
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51 considered property that deserves protection. The examples of Barclays, Signature Bank, and Veem show
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53 that parties receiving payment will be better protected because there is no longer the option for
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56 chargeback fraud or payment reversal (Tsukerman, 2015). In addition, the technology impacts legitimacy
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3 and transparency in logistics recordkeeping. When data is stored on a blockchain-based system, such as
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at IBM-Maersk, information pertaining to freight cannot be altered or recorded fraudulently. Blockchain
6
7
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8 disruptions offer the opportunity for increased protection of property rights and may prompt stricter
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10 regulation around data privacy, as well as recordkeeping and reporting.
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13 Transaction costs
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16 Several examples show that blockchain-based smart contracts provide companies another option for
17
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18 completing complex and uncertain activities outside the firm through automated contract enforcement,
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which removes much of the uncertainty present in traditional contracts governed by existing forms of
21
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23 regulation. They also eliminate the ‘hold-up’ problem in contracts, or counterparty risk, when the paying
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25 party opportunistically attempts to exploit the selling party after already having made specific
26
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27 investments or expended resources to fulfill their contracted obligation (Holden & Malani, 2018). This can
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be observed in the case of AXA’s automated insurance claim payouts, as smart contracts remove
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32 transaction uncertainty and the customer is paid out automatically when a flight is delayed over the
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34 contract threshold. Blockchain-based smart contracts reduce principal-agent costs that arise from
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conflicting interests in contracting (Murray et al., 2019), and costs of overhead for middlemen and
37
38 auditors that are no longer needed due to automated and fraud-proof contract execution in the cases of
39
40
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41 insurance and money transfer, as well as in other applications in finance and supply chains. Additionally,
42
43 the transparency offered by blockchain’s application on platforms like Provenance removes uncertainty
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45 about information upon which supply chain transactions are built.
46
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47
48 While the potential of blockchain technology to reduce transaction costs is clear, the examples also reveal
49
50 a number of contrasting forces. One large issue for the implementation of blockchain technology among
tra

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52 international businesses is standards. Currently, blockchain applications are developed in each firm and
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each industry separately. Due to the competitive nature of business, this leads to fragmented and
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3 incompatible technologies and applications. Thus, “organizational bodies will be required to determine
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5
standards and agreements, especially in the context of interoperability between blockchains” (Accenture,
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7
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8 2018, p. 7). Networks across industries need to be established in order to realize mutual benefits (Carson
9
10 et al., 2018).
of
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13 Internalization of negative externalities
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16 The impact of blockchain on externalities is apparent when it comes to environmental protection, because
17
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18 the implementation of blockchain technology itself creates negative externalities for the environment due
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to the high level of energy consumption needed to run it. While no information about the carbon
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23 emissions in the discussed examples is publicly available, observers argue that a huge and ever-growing
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25 amount of computing power is required by miners to carry out calculations for blockchain transactions
26
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27 (Gabison, 2016). This poses a problem for governance, because even though implementation of
28
29
blockchain-based systems in supply chain management and finance are more efficient, transparent, and
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32 use less paper and resources, how can an acceptable threshold of energy consumption be determined,
33
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34 let alone be regulated in these applications. Concerns like these will grow as the use of blockchain
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technology in global business becomes more widely deployed.

37
38
39 Prevention of monopolistic power
40
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42 The examples of blockchain applications in international business show that early adopters of this new
43
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44 technology are mostly multinational corporations – sometimes in cooperation with start-up firms. There
45
46
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47 is a risk that these large and powerful actors may use their technological and financial superiority vis-à-vis
48
49 smaller market participants, such as suppliers and customers, to advance their own interests and impose
50
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51 entry barriers for future competitors. Regulatory authorities may therefore provide financial and
52
53 technological support to smaller entrepreneurs in order to prevent the risk of monopolistic power
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executed by large blockchain pioneers. On the other hand, blockchain and smart contracts can help
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3 equalize positions of counterparties of differing size in supplier-buyer transactions by automating contract
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execution based on pre-programmed terms (Murray et al., 2019). This no longer allows the more powerful
6
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8 party to pressure the other party into amending contract terms and provides more fairness and
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10 competitiveness for small and medium suppliers (Cole et al., 2019).
of
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13 Maximization of social welfare
Int
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16 Finally, the application of blockchain technology in international business has several implications for
17
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18 social welfare. The impacts in supply chain management affect both the system in general and the people
19
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involved. For example, Walmart and Starbucks aim to increase honesty and credibility in supply chains,
21
22
23 which can help move the overall system toward more ethical practices. Additionally, blockchain has the
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25 potential to provide consumers more transparency and information about the products they purchase,
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27 like in the case of Bumble Bee tuna, Nestle baby food, and Everledger diamonds, allowing them to make
28
29
more informed choices and shift purchasing toward ethically sourced products. Governance may even
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32 intervene in this area as blockchain becomes more mainstream in SCM to regulate supply chains more
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34 strictly and mandate more ethical provenance.

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37 Another area of social welfare impacted by blockchain is consumer trust and satisfaction. For example, at
38
39 AXA, Allianz, and Northern Trust, automated blockchain-based claims systems do not allow the insurer to
40
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41 take advantage of the consumer or withhold claim payout, which instills more consumer confidence.
42
43
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Blockchain-based advertising, such as at Comcast, keeps personal data hidden from advertisers, and in
44
45
46 some cases even allows individuals to decide whether to participate in advertising and how much
dS

47
48 information to share, improving privacy and consumer confidence. These advances may prompt even
49
50 stricter regulation of data protection and privacy through governance. Consumer satisfaction is also
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52 improved following blockchain’s impacts on financial companies that use the technology to allow instant
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cross-border currency transfers without foreign exchange fees from the middlemen that become
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3 obsolete. These blockchain applications benefit individuals, however may pose problems for governance
vie
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because they are unregulated and are not overseen by central banks (World Economic Forum, 2015).
6
7
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8 Transactions in which individuals abuse privileges, evade taxes, engage in corruption, or transfer funds on
9
10 behalf of black market goods and services or to nefarious parties are difficult to track, let alone stop or
of
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12 reverse, limiting the potential of governance.
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15
7. Contributions and Implications
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17
er
18 Implications for Global Governance
19
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21 The aim of this study was to explore the impacts of blockchain technology on international business and
22
23
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the resulting challenges for global governance. It is shown that blockchain technology has long passed the
24
25
borders of cryptocurrencies and reached various areas of international business, such as international
26
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27
28 finance, banking and insurance, supply chain management and logistics, and marketing and advertising.
29
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The growing number of diverse blockchain applications affects global governance in various ways. While
31
32 some functions of governance become more difficult, others are relieved and benefit from blockchain.
33
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34
35 More precisely, this analysis shows that the protection of property rights can be improved and transaction
36
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37 costs reduced. Risks around fraud and data security are reduced because data no longer needs to be given
38
39 to or managed by centralized entities. Thus, blockchain technology leads to a shift from trusting people
40
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41
42 and institutions to trusting mathematical calculations (Atzori, 2015), which results in reduced uncertainty.
43
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44 These potentials will be fully exploited as blockchain technology matures and technological standards are
45
46 developed.
dS

47
48
49 The effects of blockchain applications in international business on other functions of global governance
50
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51 are more uncertain. A major challenge is negative externalities caused by the high level of energy
52
53 consumption needed to carry out calculations for blockchain transactions. Moreover, this study points to
54
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the risk that multinational corporations as early adopters of blockchain may use their technological and
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3 financial superiority against smaller market participants. Regulatory authorities are therefore called to
vie
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implement efficient measures that prevent the emergence of monopolistic power.
6
7
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8 The application of blockchain technology in international business has also the potential to increase social
9
10
welfare through increased consumer transparency and satisfaction across all industries studied. This
of
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13 requires, however, regulations and monitoring that prevent the misuse of user anonymity for illegal
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15 activities, such as corruption, tax evasion and the trade in weapons or drugs. These challenges of
16
17 governance are similar to those of various electronic payments systems (Böhme et al., 2015). Additionally,
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blockchain’s decentralized ledger structure poses further difficulties around pinpointing and preventing
20
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22 nefarious activity (Allen et al., 2018) and identifying and prosecuting a central entity when such activity
23
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24 occurs (Finck, 2019), hindering the rule enforcement and control capabilities of governance.
25
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27 In this context, an important difference between public blockchains (e.g., Bitcoin) and private blockchains
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29 that are prevalent in international business must be taken into consideration. While most previous
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31 research is – at least implicitly – related to public blockchains, our study shows that private blockchains
32
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pose additional challenges for governance. For example, the ability of private operators to restrict access
34
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36 to selected parties increases the risk of monopolistic power and diminishes the generation of social
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37
38 welfare. At the same time, the decentralized technology of blockchains aggravates direct governmental
39
40
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interventions. Therefore, forms of co-regulation between formal institutions and informal actors are
41
42 required.
43
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44
45 In this context, the involvement of “policy entrepreneurs” (Mintrom, 1997) who cooperate and compete
46
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47 with traditional regulators for best governance may be useful. Based on this idea, Reyes (2016, p. 195)
48
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50
proposes an endogenous theory of governance where “regulators undertake the dual task of enacting a
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52 law or regulation via statute and then implementing that statute through code by engaging in an iterative
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and cooperative process with the technologies’ core developers and with consensus from the network,
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3 so that regulation is endogenously incorporated into the decentralized ledger technology and the
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applications running on top of the technology.” In a similar vein, Finck (2019) suggests that public
6
7
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8 authorities voluntarily involve technology leaders, business innovators and policy entrepreneurs in the
9
10 drafting, implementation, and enforcement of norms. This concept of co-regulation “allows for regulatory
of
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12 experimentalism, which is particularly valuable in this fast-changing and diverse industry” (Finck, 2019, p.
13
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174).
15
16
17 In the future, the governance of blockchain in international business is likely to be affected by the rapid
er
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19
development of blockchain technologies and applications. Most examples analyzed in this study are still
20
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21
22 in a pilot stage. In order to keep up with this dynamic technology, permanent monitoring of technological
23
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24 and business innovations and flexible regulatory responses are required.

25
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27 Another challenge for the governance of blockchains is their inherently transnational nature. As the
28
29 analyzed examples show, most early adapters of this technology are multinational corporations that
30
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31 operate across the globe. This allows them to exploit arbitrage advantages through shifting activities to
32
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the most suitable locations and jurisdictions that match their preferences and requirements (Finck, 2019).
34
35
36 This geographic mobility of globally operating actors thus requires multilateral and transnational
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38 approaches to governance that reach beyond the limits of national borders. “The idea is to uplift
39
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transnational organizations from the limitations of geography-based, nation-state jurisdiction to a truly

41
42 global cloud” (Swan 2015, p. 32).
43
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45
46 Implications for Future Research
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48 As a main suggestion for future studies, multidisciplinary research is proposed. The complexity of
49
50
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blockchain technology requires proficiency in information technology. At the same time, its fundamental
52
53 legal challenges cannot be understood without profound knowledge of international law. In addition,
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55 expertise in the area of international business is needed to fully comprehend the implications for business
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3 models and management strategies. Thus, while existing research has been mostly settled within one of
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these fields, the complex practical and academic questions that emerge from the application of blockchain
6
7
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8 technology pose the need for meaningful multidisciplinary research that extends beyond the boundaries
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10 of one specific discipline (Risius & Spohrer, 2017).
of
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13 Moreover, this study calls for more substantial empirical research. The current literature is dominated by
Int
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15 conceptual papers and case studies. Additionally, the focus has been primarily on cryptocurrencies and
16
17 public blockchains, while research on private and permissioned blockchains and their applications in other
er
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19
business sectors is scarce. Moreover, research on how private and permissioned blockchains impact the
20
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21
22 different economic agents involved in these blockchains is needed. Blockchain’s large potential is shown
23
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24 in international finance, banking and insurance, supply chain management and logistics, and marketing
25
26 and advertising, and demonstrates the need for more empirical studies in these areas. Future research
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27
28
might, for example, focus on how firms construct smart contracts to implement strategic decisions and
29
30
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31 the performance implications of automated strategy-making (Murray et al., 2019), or conduct

32
33 comparative studies of users’ perceptions of traditional and blockchain-based international supply chains
us

34
35 (Risius & Spohrer, 2017). Lastly, more research on the regulatory aspects of blockchain is needed in order
36
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37 to derive sound recommendations for resolving the complex challenges of global governance.
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3 References
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6 Accenture. (2018). Blockchain in Logistics: Perspectives on the upcoming impact of blockchain technology
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8 and use cases for the logistics industry. Available at:
9 https://www.logistics.dhl/content/dam/dhl/global/core/documents/pdf/glo-core-blockchain-
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11 trend-report.pdf
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13 Alchian, A.A. (1989). Property Rights. In: Eatwell J., Milgate M. & Newman P. (eds.) The Invisible Hand.
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