The World is Flat...

Friday, March 24, 2006

Chapter 2: The Ten Forces that Flattened the World

Friedman lists 10 major worldwide events that he credits as being central to the increase in globalization. He calls these events “flatteners”, as he states that they opened up and flattened the world increasing the ease of transfer of information, goods and services across and between countries and cultures. As you will see these flatteners are not just business related. They deal with both economic markets as well as cultural events. Some of them are more obvious then others, but an argument can be made for all of them as to their effect on bringing the world together.

The first force, the falling of the Berlin Wall, is not only a political flattener but an economic one as well. Politically, the collapse essentially ended the Cold War, signified the failure of communism in East Germany, and reunited a divided country. As well as bringing David “the Hoff” Hasselhoff to international fame. Economically it opened up Eastern Germany to the technological advances of the west as well as increasing the market base for Western Germany, although Western Germany did have to spend significant tax dollars to rebuild and bring up Eastern Germany.

The second force is the day Netscape went public on the Stock Market. This event is significant because a seemingly overnight success became available to every man, woman and child willing to invest their money in hopes increasing their wealth off of their peers. The continued conjunction of the internet, e-mail, and web browsing pushed Netscape higher as it was the leading application for browsing the web, holding 80% of the market share in a market that was just on the edge of exploding to heights not seen before.

Third, Friedman lists workflow software. These are programs that automate a process in business. An example is the automated process involved in producing automobiles. The frames and panels are automatically welded together, and then automatically painted. This lessens the need for human labor and continues the expansion of programming standards into everyday work life. The combination of these first three flatteners comes what Friedman calls “the genesis movement for the flattening of the world”

The fourth force listed is open sourcing. This are self organizing communities that work together to expand knowledge free of barriers. This is commonly done through the internet in examples such as linux, an open source operating system, and wikipedia, an open source online encyclopedia. This ability to openly improve products and broaden knowledge allows people to work together and receive compounding benefits from their work.

Friedman’s fifth force is outsourcing. A topic very much talked about today, Friedman says really got primed to go in preparation for Y2K. This is because so much of the software had to be rewritten to be compliant, that many companies sent the work out to programmers in India to handle the work. This started a trend of outsourcing today that is seen throughout many industries where work can be shipped overseas to be completed at a much lower cost to the companies. Friedman sees this as flattening the world because it brings companies on different continents together to complete a task.

His sixth flattener is offshoring. Friedman begins his discussion of the topic by explaining the effects that China’s membership in the WTO has had on the way companies due business across the world. Suddenly the rules of the game had changed in a way that previous attempts to open the Chinese market had failed to do. China agreed to treat all international firms in the same manner as all domestic firms with respect to laws, regulations, and lending. For the first time, companies can operate with the same access to subsidized utilities and tax breaks that domestic firms have enjoyed.

Global companies can now utilize the benefits of cheaper labor and lower overhead to manufacture goods for sale in their home markets and gain a strong foothold in increasingly important emerging markets like India and China. This process of offshoring is beneficial to countries like the United States because manufacturing jobs in China create higher-paying importing and sales jobs at home.

China is flirting with the idea of capitalism. The prospect of being able to operate a business with capitalistic efficiency at a fraction of the cost is very attractive. Though the idea is not yet a reality, those companies that chose to ignore the possibility will be closing their doors in 10 years while their competitors are opening new ones.

Supply-chaining is what Friedman identifies as the next flattener. Wal-Mart has become the world’s largest and most profitable retailer by buying from its suppliers at the deepest possible discounts. Wal-Mart itself is not the flattener. It is the result of decades of investment in information technology and logistical support systems. All of these systems were bred out of necessity.

Wal-Mart was founded in Bentonville, Arkansas in the figurative middle-of-nowhere. In order to continue growing as a corporation, the retailer had to devise a cost-efficient manner for delivering goods to its stores which were located in rural areas across the nation. It made fiscal sense for Wal-Mart to create its own distribution network and then to buy all of its products directly from its suppliers. This distribution network has been integrated with information and communications technologies to the point that each supplier knows exactly when and where one its products has been sold as soon as a Wal-Mart cashier scans the bar code.

By itself, this accomplishment is impressive but not life changing. There are now at least four Japanese restaurants in Bentonville. Wal-Mart carries so much buyer power that it has changed this sleepy Arkansas town into an improbable center of commerce. But, the rules of the game are still the same. Being able to provide goods at the lowest possible price has always been a driving force behind competitiveness. China has done more to emphasize this fact than any single retailer. Wal-Mart has just manifested this certainty through its centralization of its suppliers and its communication amongst its stores.

The eighth flattener is labeled as insourcing. Freidman’s first example involves what is actually happening when the consumer has a problem with a warrantied laptop from Toshiba. The Toshiba tech support will tell you to drop the computer off at a UPS store and UPS will ship it to Toshiba where it will be fixed. In actuality, your computer is being shipped to Louisville and fixed by UPS personnel in a facility dedicated to computer and printer repair. UPS has begun to perform more than just logistics tasks. They have created even greater efficiencies by centralizing computer repair for millions of computer users.

UPS has become much more than just a package delivery company. They run warehouses for companies like Nike and manage shipping and distribution for companies like Papa John’s. The most important part of insourcing is not that large companies use UPS for their logistics and distribution but that small companies can do the same thing for a similar price and compete globally.

This type of service is unique in that it is not specific to large or small companies. UPS can help companies of any size streamline their operations. UPS has leveled the playing field for every player in the game and has certainly flattened the world in a similar respect.

Google, Yahoo, and MSN Web Search all led to the ninth flattener of in-forming. Some of the flattening of the world can be attributed to the information revolution that extends from the growth of the Internet. Well, that is to say that access to the Internet and all of its information has transformed the way we do business. Friedman likens this process to an individual being able to create their own supply chain.

With the ubiquity of access to the Internet and the power of the search engine, every individual is capable of entertaining and informing themselves without relying on traditional channels. Movie box offices have felt this effect in recent years. People are able to entertain themselves for almost no cost by browsing the internet or pirating the movie they would have seen the theaters.

Lastly, Friedman identifies digital, mobile, personal, and virtual components as “The Steroids” which furthered the flattening of the world. The explosion of personal digital assistants has been fueled by the level of integration that modern communications technology allows. People can hold in their hand a computer that is more powerful than anything that existed 15 years ago and can communicate the data contained on those devices with any individual around the world - very impressive.


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