Thursday, June 22, 2006

The World is Flat 2

This is part 2 of the notes on The World is Flat by Thomas Friedman.

Some of the ten flatteners noted by Friedman have been around for many years. However, Globalization 3.0 as Friedman proposed did not occur until 2000, the reason being that the flatteners have to collaborate with each other and synergize before their effect can be felt. Friedman noticed that the flatteners converged in around 2000. There is actually a triple convergence at that time.

The Triple Convergence

Convergence No. 1 - The ten flatteners emerged in the 1990s. For them to work together in a complementary, mutually enhancing fashion, they needed time to converge. The tipping point arrived around 2000. The net result was the creation of a global, web-enabled playing field that allows for multiple forms of collaboration in the sharing of knowledge and work in real time, without regard to geography and distance.

Convergence No. 2 - The convergence of the ten flatteners is not enough to make the world flat. The business world has to adapt itself to the new tools. It has to be comfortable with, and develop the sorts of horizontal collaboration and value-creation processes and habits that could take advantage of this new and flatter playing field. The convergence of the flatteners begot the convergence of a set of business practices and skills that would get the most out of the flat world. And then the two began to reinforce each other.

Convergence No. 3 - The third convergence is the new players entering the new playing field. While western countries were the first to adapt to the new game, three billion players from the developing countries suddenly found themselves being able to compete in the flattened world. The access of so many people to the tools of collaboration and the unlimited pages of information gave rise to a global community that is able to participate in all sorts of discovery and innovation.

The flattened world poses many challenges to individuals, companies and countries. The viewpoints of Friedman are mainly IT-based, a world connected by networks of information, networks of communication, networks connecting production and services, and also a network of global transportation and logistics. The main point is: anything that can be done in the next room can be done anywhere else in the world. With call centres connected by high speed fiber optics between continents, many services, including customer hotlines, help desks, promotional calls, tax returns, diagnosis of X-ray images, remote surgery, data entry, can be done in other parts of the world for you in real time. The worldwide production and movement of goods have also developed to an extent that even many local industries with deep ethnic roots are facing worldwide competition.

How can companies cope?

While the individuals could make use of the new tools to explore the flat world, it is the companies which are really facing critical competition. Friedman highlighted some rules and strategies for companies to compete in the flattened world.

Rule No. 1 - When the world goes flat, and you are feeling flattened, reach for a shovel and dig inside yourself. Don't try to build walls.

Rule No. 2 - And the small shall act big... One way small companies flourish in the flat world is by learning to act big. And the key to being small and acting big is being quick to take advantage of all the new tools for collaboration in reaching farther, faster, wider and deeper.

Rule No. 3 - And the big shall act small... One way that big companies learn to flourish in the flat world is by learning how to act really small by enabling their customers to act really big.

Rule No. 4 - The best companies are the best collaborators. In the flat world, more and more business will be done through collaborations within and between companies, for a very simple reason: The next layer of value creation, whether in technology, marketing, biomedicine, or manufacturing, are becoming so complex that no single firm or department is going to be able to master them alone.

Rule No. 5 - In a flat world, the best companies stay healthy by getting regular chest X-rays and then selling the results to their clients.

Rule No. 6 - The best companies outsource to win, not to shrink. They outsource to innovate faster and more cheaply in order to grow larger, gain market share, and hire more and different specialists, not to save money by firing more people.

Rule No. 7 - Outsourcing isn't just for large companies. It is also for idealists and the social entrepreneurs.

Reform wholesale and reform retail

For countries facing the challenge of the flat world, Friedman noted that many developing countries were trying to copy the model of success of others but some were unable to get it right. He examined the process of development and defined the reform needed.

Reform wholesale comes from the centre, and was commonplace during the era of broad macroeconomic reform in many developing countries like China, Russia, Mexico, Brazil and India. These group of reformers often relied on the leverage of authoritarian political system to unleash the market forces. They pushed their countries into more export-oriented and free market strategies based on:
- privatization of state companies,
- deregulation of financial markets,
- currency adjustment,
- foreign direct investment,
- shrinking subsidies.
- lowering of protectionist tariff barriers, and
- introduction of more flexible labour laws.

These leaders knew that more open and competitive markets are the only sustainable vehicle for growing a nation out of poverty, because they are the only guarantee that new ideas, technologies, and best practices are easily flowing into the countries and that private enterprises, and even government, have the competitive incentive and flexibility to adopt those new ideas and turn them into jobs and products.

However, the problem for any globalizing countries lies in thinking they can stop with reform wholesale. In a flattened world, reform wholesale is no longer sufficient to keep countries on a sustainable growth path. Reform retail is necessary. Following reform wholesale, a country has to look at four key aspects of the society:
- infrastructure,
- regulatory institutions,
- education and
- culture.

The idea of reform retail is to enable the greatest number of people to have the best legal and institutional framework within which to innovate, start companies, and become attractive partners for those who want to collaborate with them from elsewhere in the world.

Friedman also attempted to delve into the present world conflict by expressing how the Muslim world and terrorism were creating barriers to unflatten the world. I find part of arguments very biased on the American angle. Surely terrorism is something that everyone should condemn. But terrorists are also taking advantage of the flat world to advance their cause. It may not be a desirable outcome, but is an unavoidable by-product of globalization. In the Muslim world, there is a different set of belief and value. Although their development is at present not in step with the western world, time will tell what role they will play in globalization.

The book contains a lot of examples and arguments which are all quite interesting. I can only capture those which struck me most. I recommend you to read this book which is a joy to read just for the language.

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