Tuesday, June 20, 2006

The World is Flat

The World Is Flat - A brief history of the globalized world in the 21st century by Thomas Friedman

In 1492, Christopher Columbus sailed from Spain to India, taking a westerly route across the Atlantic, thinking it would be easier to go round the back of the world to reach India instead of going pass the dangerous Cape of Good Hope. He only reached West Indies but proved that the world is round. In 2005, Thomas Friedman took a plane from America and headed east to India, trying to figure out that the world is flat, globalized and without barriers.

There was a time when the world was round and far away places beyond the horizon could not be seen, and then it was globalized and flattened. It was a long process relative to modernization. Thomas Friedman perceived three versions of globalization starting from the exploration of Christopher Columbus. From 1492 to about 1800, it was Globalization 1.0. It was about countries and muscles, and about countries exploring the new world. Countries were forcing their way to trade with the new world and colonization. The primary question was about how did a country fit into the global competition and opportunities. Globalization 1.0 shrank the world from a size large to a size medium.

The second era, Globalization 2.0, lasted from 1800 to 2000. It shrank the world from medium size to small. The key agent of change, and the dynamic force driving global integration was multinational companies, driven by first the falling transportation costs, and then by the falling telecommunication costs. It was the birth and then the maturation of global economy with sufficient movement of goods and information between continents, thus creating a global market.

Globalized 3.0 took off around 2000 and shrank the world from small to tiny, and flattening the playing field at the same time. With the movement of information improved so drastically that it empowered the individuals to participate in the globalization. While the dynamic force in Globalization 1.0 was countries competing, and that in Globalization 2.0 was companies competing, we find in Globalization 3.0 the power for individuals to collaborate and compete globally. Thomas Friedman saw ten forces that flattened the world and led to Globalization 3.0.

Flattener No. 1 - The 9th November 1989, when the Berlin Wall came down. This event was not just about the wall, but the collapse of the Soviet Union. The result was the end of the cold war and the opening up of the entire Soviet Bloc. In a sense, the world view was expanded and the two worlds became one.

Flattener No. 2 - 9th August 1995, when Netscape went public. Netscape was a symbol for web browsers, among many competitors. The success of Netscape in 1995 marked an important phase in computing that the PC-based computing platform was changed to an Internet-based platform. Millions of computers then integrated on the Internet and were working under global networks.

Flattener No. 3 - Work Flow software. With the Internet connecting people to people, and people to their own applications, there came the proliferation of work flow software which directly connected applications to applications. Such software enables applications in different locations of the world to work together as one.

Flattener No. 4 - Open-sourcing, the self-organizing collaborative communities. They are more than Linux, Apache and OpenOffice, but include many freeware and user-based projects. It is an important flattener because it makes available many free tools, from software to encyclopedias, to millions of people around the world. The open-source approach challenges hierarchical structure with a horizontal model of innovation.

Flattener No. 5 - Outsourcing, starting from Y2K. The chain of events leading to the present state of outsourcing to India is interesting. It started in 1951 when India under Nahru established seven Indian Institutes of Technology (IIT) for educating elites in sciences, engineering and medicine. IIT were very successful in producing large number of talents. However, India did not have sufficient jobs for them. Came Y2K, there was a crisis on software maintenance and USA was much in need of knowledgeable hands for the job. Many talented Indian engineers were recruited by American consulting firms to handle the work. When the Y2K crisis was over, many Indian engineers returned home, but contacts had been established. In parallel, the IT boom created a large demand in telecommunication and many companies invested heavily in laying cross-continent optical fiber connections. The IT bubble then burst, and the costs of using the now over-supplied high speed connections fell drastically, making broadband connection between India and USA exceptionally cheap. When IT demand picked up again, Indian engineers, many worked in USA on Y2K work, were again in demand. With convenient telecommunication and work flow software, they found it easy to work remotely in India serving American firms, earning a good salary which was very cheap at the American level, while living at home Indian style. Thus began the vast out-sourcing centres in India, and also in many other developing countries.

Flattener No. 6 - Offshoring. On 11th December 2001, China formally joined WTO. It meant China was agreeing in principle to make its own competitive playing field as level as the rest of the world. Offshoring of manufacturing to China, Russia and some developing countries became commonplace. Friedman quoted an African proverb on the competition: a gazelle must run faster than the fastest lion or it will be killed; a lion must outrun the slowest gazelle or it will starve to death; it doesn't matter whether you are a lion or a gazelle, you'd better start running. The movement of goods around the globe is so convenient and without barrier that it makes offshoring a flattening tool. There was a group of American CEO discussing the production of their companies. All but one had already set up production plants in China. Everyone agreed that this lone company would be the first to go bankrupt.

Flattener No. 7 - Supply-chaining. Large companies are now able to commandeer their suppliers around the world for just-in-time supplies to stock store shelves and to meet production needs. Walmart has a worldwide system connecting its suppliers and a hub in Arkansas to receive supplies and despatch goods to its outlets. Friedman also quoted an example based on his experience of ordering a notebook computer. His telephone order was taken by a call centre in India and was relaid to a production plant in Malaysia. The parts for building the computer were automatically ordered from more than 30 suppliers in many different countries which automatically adjusted their stocks and delivered the required parts to the plant at the exact time. A Malaysian technician assembled the computer, tested it, and despatched it through UPS across the Pacific to Friedman's home. These were all done within a few days.

Flattener No. 8 - Insourcing. You may think that the flattened world allows a company to outsource some of its backroom functions, offshore its production, and better collaborate with its suppliers, but the bottom line is that the company still has to maintain a shop front and client relations. Come insourcing, and this may have changed. Friedman quoted the example of UPS which has transformed itself from delivery service to a client network for other companies. With teams of UPS staff regularly contacting citizens physically on a daily basis, UPS expanded its services to cover the delivery of goods for companies to their clients, and at the same time handled the billing and collection of payment of cash or credit cards. A company can focus on its core business and leave all the peripheral functions to other contractors around the world.

Flattener No. 9 - Informing. Think Google, Yahoo, MSN. In a flat world, information is just a few keystrokes away. Besides knowledge you would like to seek, there are many other information about almost everything and everyone if you care to search. In the age of superpower search, everyone is a celebrity. There is no class boundaries or education boundaries.

Flattener No. 10 - The steroids. The steroids that empower the individuals to take advantage of the availability of information and immediate communication in the flat world are the modern age equipment which is digital, mobile, personal and virtual. These include mobile phone, notebook computer and PDA. The up-to-date models of these digital equipment are wireless and can communicate with the world instantaneously. Their personal and mobile nature enables individuals to collaborate and compete in the flat world with their virtual presence anywhere anytime.

I find the above observations of Thomas Friedman quite narrow for the topic of globalization. It is heavily IT-based and American-based. The book mentions some modern factors concerning globalization which affect the American way, but leaves out the grave impact of the global finance and politics. However, the ten flatteners only occupy one-third of the book and are merely an introduction. I shall record his other views in the next round of notes.

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