The World Is FlatThe World Is Flat

by Thomas L. Friedmanby Thomas L. Friedman

• Christopher Columbus went to “India” and discovered America

– The world is Round

• Thomas L. Friedman went to India and find America.

– The world is Flat

Destination-India

Globalization

• Time period:1942-1800-Columbus’s Voyage

– Open trade between the Old World and the New World, “Indians”

– Force driving: Countries

– Steam Power, Horse Power, Wind Power

– World: Large to Medium

Globalization

A macro view: Country to Country Affair

• Where does my country fit into global competition?

• How can I go global and collaborate with others though my country?

Globalization

• Force driving: Multinational Companies• Went global for markets and labor

– Decrease in Transportation Cost– Decrease in Communication Cost

• Multinational Companies’ Affair– Where does my company fit into global economy?– How can I go global and collaborate with others though my

company?

• Individual Affairs• Where do I fit into global competition?• How can I, on my own, collaborate with others globally?

Infosys: software designing company

– Infosys : Producing specific software programs for American or European companies

– Virtual Meeting We could be sitting here, somebody from New

York, London, Boston, San Francisco, and maybe the implementation is in Singapore, so the Singapore person could also be live here

Infosys Overview

• End-to-end IT Consulting Services company• Pioneer of industry-defining Global Delivery

Model– Most respected company in talent-rich India

• Annual revenues of $ 754 Million for FY 03, Revenue of $216 Million for Q4 FY 03

• ~15,000 employees; 345 clients; 87.5% repeat business (for Q4 FY 03)

Software OutsourcingInternational indexed cost comparisons in software development,

1994

0

200

400

600

800

1000

1200

1400

Programmer System Analysis

USA

Japan

Indian

Outsourcing --- Tax preparation

• Jerry Rao– Owner of an Indian accounting firm, MphasiS

• MphasiS– Do outsourced accounting work from any

state in America and the federal government– Have tied up with several small and medium-

sized CPA firms in US– http://www.naukri.com/gpw/mphasis3/index.ht

m

Outsourcing --- Tax preparationUS

Accountants

A Computer Sever

SCANSCAN

India

Accountants

DO the WORKDO the WORK

Data protection and privacy

The Indian accountants

•can see the data on his screen

•cannot download or print out the data

•are not allowed to take a paper and pen into the working place

– Can you imagine what will happen in a decade? – You will assume that your accountant has

outsourced the basic preparation of your tax returns.

25,000100,000

400,000

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

2003 2004 2005

Number of U.S. Tax Return Cases Done in India

Outsourcing --- Tax preparation

Outsourcing --- Reuter News Bulletins

Raw data•Speed matters•Not much skills

Analysis & Comments•Value-added work

• skills•experiences•connections

Outsourcing --- News Bulletins

• By the summer of 2004, Reuters has 300 staffs in Bangalore, aiming eventually for a total of 1,500

Raw data•Outsourcing to India•Quality guaranteed

•20% discount on cost

• US Accent

• UK Accent

• Canadian Accent

Outsourcing --- Call Services

http://www.247customer.com/

Outsourcing --- Call Services

• "24/7 Customer" call center– “Outbound”: selling everything, i.e.

credit cards– “Inbound”: solving problems, i.e. lost

luggage

Satellite

“Outbound” Operators

“Inbound” Operators

India

Customers

US

Outsourcing --- Call Services

• Jobs in Indian call center– High-wage– High-prestige– Competitive

• 700 applications/day• 6% are hired

• Currently, about 245,000 Indians are answering phones or dialing out to all over the world.

Outsourcing --- Call Services

A manager of 24/7 said

– A lot of American industry has come into Bangalore

– I can work for a multinational sitting right here.

– In the flat world I can stay in India, make a decent salary, and not have to be away from families, friends, food, and culture.

What can they do?

– Information collection– PowerPoint presentations– Research

Outsourcing --- Remote Assistant

Why choose them?– Efficient

• Usually be done overnight

– High Quality– Cheap

• $1,500-$2,000 USD/month• Fresh graduates’ salary are 3-4,000 USD/Month in the

U.S

Outsourcing --- Remote Assistant

Outsourcing --- Remote Assistant

http://www.b2kcorp.com/meetourpeople.html

• Hire your assistant here

10 Forces changed the World

(1) 11/9/89 (Fall of the Berlin Wall) (2) Netscape (the internet) email, and web browsers(3) Work Flow Software (4) Open-Sourcing (In 2006, retitled 'Uploading') (5) Outsourcing (6) Offshoring (7) Supply-chaining (8) Insourcing (9) In-forming (10) Amplifying technologies, or "steroids"

Flattener 1: Berlin Wall

• Constructed in 1961

• Built during the post World War II period of divided Germany

• A long separation barrier between West Berlin and East Germany,

permanently closed the border between East and West Berlin for a period of 28 years

The Fall of Berlin Wall: 1989

NOVEM

BER

9

How it helped flattening the world?

• Liberated captive peoples of the Soviet Union

• Free market capitalism and energies from people in India, Brazil, China

• Away from centrally planned economies, toward free-market- oriented governance

• Opened the way for more people to tap in others’ knowledge pools

• Global view of future

Flattener 2: Netscape

• Created the 1st mainstream browser and the whole culture of Web browsing for the general public

• Netscape went public on 9th August, 1995– The world has not been the same since

Digitization

• Words, music, data, films, files, and pictures

• Turned into bits and bytes-combinations of Is and Os

• Stored on a microprocessor, or transmitted over satellites and fiber-optic lines.

How it helped flattening the world?• 1st broadly popular commercial browser to

surf the Internet

• Stimulated a massive growth in network– Student: download it for free– Individual: Free trial and encourage to buy– Company: Free trial for 90 days and

encourage to buy

How it helps flattening the world?

Netscape brought the Internet alive and made the Internet accessible to everyone

• Internet-e-mail-browser phase Helped globalization!!!

More people wanted to use it

More demand of computers,

software and the Network

More alive the Internet

Flattener #3 Work Flow Software

How can these works operate?

Ans: By internet

How can they do this over the internet?

Ans: Application of Work Flow Software

Example of Work Flow Software

• Production of animated films via a global supply chain

Recording session – near the artist, in NY and LADesign and direction – San FranciscoWriter network – London, NY, Chicago, LA……Animation and Editing – Bangalore and San Francisco

• Combination of PC and e-mail

Window-enabled PC – ability to create and manipulate digital content likes words, data and pictures

Flattener #3 Work Flow Software

• It also standardized the business process.

• Internet connection

• Internet banking

Flattener #3 Work Flow Software

• Suddenly more people from more different places found that they could collaborate with more other people on more different kinds of work and share more different kinds of knowledge than ever before.

• We were not just able to talk to each other more, we were able to do more things together.

• Work flow platform are enabling us to do for the service industry what Ford did for manufacturing.

• We are taking each task apart and sending it around to whomever can do it best, and then we reassembling all the pieces back together at headquarters.

Flattener #5: Outsourcing

• having another company perform some specific, but limited function

reintegrating their work back into overall operation.

Flattener #5 Outsourcing

• India

Flattener #5 Outsourcing

Four stages:

1.Before mid-1990s• Have many talented engineers• From Indian Institutes of Technology• Cannot provide good jobs for them• excellent engineers go to America to

work • Fiber-optics line built in 1996

Flattener #5 Outsourcing

2. Late 1990’s• The scare of Y2K bug• Urgently need computer

remediation (Huge, tedious)• Only India get enough software

engineers to complete this task.• Most important: at very low price

Flattener #5 Outsourcing

3. Early 2000 • dot com bubble had not yet burst• Engineering talent was scarce• Start to turn to Indian Companies→Delivery of complex system with great quality

4. After the dot com bust• American IT companies suffered in the boom• Reduce the cost for the same work• Increase outsourcing knowledge work to India Can find surplus English-speaking engineers at any price

• Research institute at Tsingtao could connect to Lucent’s computers in America over night.– No additional cost

• In past, different countries, different things– Kids in India with a cheap Pc learn the same

operating system that is running in some of the largest data centers in America.

What can be outsourced?

• Any activity where we can digitize and decompose the value chain, and move the work around, will get moved around.

Value chain

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00100

0110101000

1101001011

What can be outsourced?

• Goods are traded, but services are consumed and produced in the same place.

• And you cannot export a haircut. But we are coming close to exporting a haircut, the appointment part.

• What kind of haircut do you want? Which barber do you want? All those things can and will be done by a call center far away.

• 1960s-1970s – ‘eat all of your dinner. Kids in India could not

have enough foods”

• 2000s– ‘do your homework. Kids in India are waiting

for your job.”

Flattener #6: Offshoring

• Moves the whole factory to other countries

produces the very same product in the very same way

• Only with cheaper labor, lower taxes, subsidized energy, and lower health-care costs.

China

• Every morning, a gazelle wakes up– It knows that it must run faster than the fastest

lion or it will be killed

• Every morning, a lion wakes up.– It knows that it must outrun the slowest

gazelle or it will starve to death.

• It does not matter whether you are a lion or a gazelle. When the sun comes up, you better start running.

Before joining WTO

At 1977 China first opened its tightly closed economy

• An incredible market for export

• Western manufacturers wanted to sell a great amount of goods to Chinese people

get a great loss

Before joining WTO

Reasons of loss:Not subject to world trade

rules

• Free to adopt Various trade and investment barriers

sheer bureaucratic and cultural difficulties of doing business in China

Before joining WTO

At the beginning of 1980s

• “why don’t we use china’s disciplined labor to make thing there and sell them abroad?’

• get profitthe interests of China's leaders

• RiskyPolicy may be changed in next day

• China is threat, a customer, and an opportunity.

• You had better internalize china

– You break down your business and think about which part of the business you would like to do in china, which part you would like to sell at china, and which part you want to buy from china.

• Fortune (2004) estimated that cheap import from china since the mid 1990s have saved Us roughly $ 600 billion

• Japan can recover the recession – China is the number one importer of

Japanese products.

• Easy one; to open shop at china• Difficult one: to find a ‘right’ local manager

– Too bureaucratic managers from the state-owned sector.

• You can’t do anything because they keep giving excuses: china is different

– Too cowboy mangers: got drunk on their first sip of capitalism

• You can’t sleep at night because you have no idea what they are going to do. They may do anything for money.

– New china manger• Training abroad• Growing up in china.

American and European have to run as fast as the fastest lion, china, “pretty darn fast.’

Flattener #6 Offshoring

China• Joining WTO

• Took Beijing and the world to a whole new level of offshoring

• More companies shifting production offshore

After joining WTO

2001• Protect foreign companies by international law and

standard business practices after they shifted factories offshore to China

• Foreign companies could sell virtually anything anywhere in China

• Beijing agreed to treat all WTO member nations equally

China becomes more attractive

Impact

Positive Impact:

• For manufacturers:

→lower the cost

• For consumers:

→lower the price

Impact

Negative Impact:

• For labor:

→The wage becomes lower

→labor laws and workplace standards become laxer

Supply Chain of Wal-mart

Background of Wal-mart ~Well known retailer with heavy investment in IT

• Types of industry: one stop shopping center

• Founder: Sam Walton

• Year of establishment: 1962

• First store: in Arkansas

No. of stores: 5311 units globally

Wal-Mart has expanded its business to 10 countries: U.S., Mexico, Brazil, Argentina,Germany,Puerto Rico,U.K. , South Korea, Canada and China.

Rapid growth of Wal-mart

Revenues: $315,654,000, 000 in 2005Stock value from Aug 1972 to May 2006:

Sourced from finance.yahoo.com

How well is Wal-mart doing?

Wal-mart Sears Holdings

Target Corp Costco

No. of Employees

1,800,000 1,330,001 338,000 60,500

Revenue 05' 312.65B 49.12B 52.62B 55.68B

Operating Margin

5.93% 3.83% 8.22% 2.79%

Profit Margin 3.60% 1.75% 4.58% 1.93%

Inventory Turnover

7.47 3.92 5.98 11.54

Why can Wal-mart be so successful?

Supply chain:

a method of collaborating horizontally – among suppliers, retailers, and customers to create value

Wal-mart Supply Chain Flow Chat

Manufacturer

Manufacturer

Manufacturer

Retail Store

Retail Store

Retail Store

Point of sale terminal

Satellite system

Bar code, RFID

Radio, headphone

Distribution center

Company Headquarter

Distribution Center

• 108 centers in USA

• Place that various goods are gathered, sorted and delivered to different store

• About 80% of merchandises shipped from centers

• 24 hours operation

Minilift Trucks

• Inside distribution centers• equipped with headphone• Computer give direction to driver in voice

– What merchandises to transport– Where the merchandises should be carried to– Which truck the merchandises be loaded

• Report progress, ahead or behind schedule

Benefit: productivity and efficiency

Bar Code System

• Standardized bar code system– Pallets passed through conveyor belt are scanned

automatically

• Product codes are transferred to centralized computer system

• Matching with the computer database and generate useful information– What it is. What quantity it is. Which packing

compartment and truck to go. Which store to go

RFID

• Radio Frequency Identification System• Use radio waves to identify objects• Tags with microchip and antenna built in

– Store data (type, quantity, manufacturer, expired date…)

– Generate HF signal to transfer data

• Allow Wal-mart to keep track of pallets at various stage of supply chain

Large-scale satellite system

• Installed in 1987• to improve communication• Link all of the stores to headquarter, giving Wal-

Mart’s central computer system real-time inventory data.

• Allow sales data to be collected and analyzed daily, and enable managers to adjust immediately.

• Daily information of individual store can be compared.

CPFR Program

• A Collaborative Planning, Forecasting, and Replenishment program.

• Just-in-time inventory program began.

• Advantage: – To reduce carrying costs.– Less excess inventory.– Cost of goods is estimated to be 5 to 10

percent less.

Suppliers• As Wal-Mart grew, its relationships with some suppliers evolved into

partnerships– Sharing information electronically to improve performance.– How do they share information?

• Open its databases• Retail Link private extranet system: - to see exactly how its products are selling and when it might need

to up its production - to give more than 2000 suppliers computer access to point-of-sale

data• Advantages: - Gain more information about the customers. - Shelves will always be stocked with the right items at the right time.

Electronic data interchange (EDI)

• Enabled an estimated 3600 suppliers (about 90% of Wal-Mart’s dollar volume) to receive orders and interact with Wal-Mart electronically.

• Later expanded to include forecasting, planning, replenishing, and shipping applications.

How Wal-mart affects suppliers

– Wal-mart imported 18 billion worth of goods from 5,000 Chinese suppliers in 2004

– Ranked as China’s 8 biggest trading partner ahead of Russia, Australia and Canada

• Used power to squeeze domestic suppliers’ profit

How Wal-mart affects dometic workers

• Domestic workers :– Face keen competition from overseas markets,– offshore manufacturing – Close down of factories– Loss of jobs

How Wal-mart affects economy

• Reallocation of capital and technology to the foreign markets

• Less to employ domestic workers and invest in local economy

• Decline in labor productivity and real incomes of the country

How Wal-mart affects dometic workers

• Unemployment is a structural problem ,rather than a cyclical problem

• Mismatch of job skills with the market demand

• Unskilled labors cannot match with increasing skilled labor demand

• Not loss of job , but cannot find a job matches with their skills

How Wal-mart affects economy

• may not necessarily imply a decrease in real income and productivity

• For example,• Globalization and lower technology cost,• Lead to higher American productivity growth added $230 billion extra GDP between 1995

and 2002• Equivalent to extra 0.3% points of growth a year

Flattener #8 Insourcing

What is insourcing?• the delegation of operations or jobs from

production within a business to outsiders that specialize in that operation

• such as a subcontractor

Flattener #8 Insourcing

Case studies UPS Founded in 1907 Messenger service →Dynamic supply-chain

manager Synchronizing global supply chains

Flattener #8 InsourcingWhy UPS?

• It’s fleet of 270 aircraft is the 11th largest in the world

• Largest private user of wireless technology in the world

• Owned 88 thousands vehicles E.g. package cars, vans, tractors and motorcycles

• On any given day, 2% of the world’s GDP can be found in UPS delivery trucks

• Maintains a think tank Operation Research Divison Specializing in “Package flow technology”

• Developed a software program Smart label on all packages Can be tracked and traced easily

Case 1. Toshiba Laptop computer warranty in charged of the picking-up and delivery

part UPS:

• insourced the repairing service as well

Flattener #8 Insourcing

Flattener #8 InsourcingCase 2. Plow& Hearth

A large national catalog and Internet retailer Specializing in “Products for Country Living” Furniture were broken when it is delivered to customers

UPS sent its ”package engineer” to help Conducted a packaging seminar Guidelines about the selection of their suppliers H&P’s purchase decision should focused on :

– Quality of products

– As well as how those products will be packaged and delivered

Flattener #8 Insourcing

Seller Buyer

Case3. eBay

Mailing label

InvoiceSelling a golf club from the internet

Buying a golf club from the internet

Golf Club Golf Club

Flattener #8 Insourcing

Case 4. Ford Motor Co. Snarled and slow distribution network Cars take more than a month to arrive Dealers lose track of the stocks and delivery schedule UPS:

• Pasting bar codes on the windshields of the cars

Flattener #8 InsourcingWhat has UPS achieved?

Since 1997, more than 60 companies have moved operations close to UPS’ hub in Louisville

Invited their customers to use the service over internet

Changing the definition of “inventory”

Flattening the world

Flattener #4 Open-Sourcing

Definition of Open Source

• Free Redistribution• Source Code are included• Derived Works • Integrity of The Author's Source Code

Flattener #4 Open-Sourcing

Needs

Users (Engineer)

Everyone

Distribute by Internet

Software Company

Distributor

Consumer

Engineer

Needs

Flattener #4 Open-Sourcing

Example of Open-Source Software:

Apache– Web server software– Start with a group of 8 people to over 1000– They had never met before but knew only by

email/chat.– The first popular open-source software

Flattener #4 Open-Sourcing

Open-Source online encyclopedia

• Originally a volunteer project• Open-Edit at 2001• Track of article status• Over 1,000,000 articles now• “A collaborative encyclopedia sounds like a

crazy idea, but it naturally controls itself.”

• Dog-shit girl

• U-tube, one korean guitarist: New York times

Flattener #4 Open-Sourcing• Advantage of open-source in a business view

http://www.computereconomics.com/article.cfm?id=1043

Flattener #4 Open-Sourcing

Why people work for free?• Pure scientific challenge

• Believe of open-source is the best way to produce software

• Karl Marx

• Google, Amazon and E*Trade– Linux operating system + Intel-based server – Customization

• Mozilla: firefox, free web broswer, – One month, 10 million dowload

Flattener #4 Open-Sourcing

Controversial of open source• If everyone contributes his or her intellectual capital for

free, where will the resources for new innovation come from?

• Bill Gates, “You need capitalism to drive innovation.”– “I will be a barber during the day and do free software at

night”

– Where is the guy at the barbershop? when your system is broke down.

Conclusion

• Communication has connect the world together, allowing instant information transmitting possible.

Competitions all over the world

• The only difference between us are:– 1) Language– 2) Time zone– 3) Geographical Location

On contrast• When you look around at 24/7's call center,

– you see that all the computers are running Microsoft Windows.– The chips are designed by Intel. – The phones are from Lucent. – The air-conditioning is by Carrier– Coke.

• In addition, 90 percent of the shares in 24/7 are owned by U.S. investors.

• This explains why, although the United States has lost some service jobs to India in recent years, total exports from American-based companies-merchandise and services-to India have grown from $2.5 billion in 1990 to $5 billion in 2003.

• So even with the outsourcing of some service jobs from the United States to India, India's growing economy is creating a demand for many more American goods and services.

• Focus:

• NOT how to fight against globalization……

• BUT Where does my company fit into the global economy?

• How the make use of resources we have?• How does it take advantage of the

opportunities?• How can I go global and collaborate with others

through my company?

Conclusion

• Ten flatteners solves the problems from distances and boarders

• The more the world is flattened, the more the power an individual can have.

• Flattened world means the success in globalization which improved international trade and multinational firms