The World is Flat

Thomas L. Friedman

Introduction3 eras of Globalization• 1492 - 1800 Columbus and the new world 1.0• 1800 – 2000 world shrank from medium to small 2.0• 2000 - ? Small to tiny…. 3.0

Flat world, convergence of PC, fiber optics, and work flow software

Occurred around 20003.0 differs from earlier eras

Introduction1.0, 2.0 driven by European, US individuals and business3.0 non-western, non-white, diverse group MphasiS Indian accountants able to do outsourced accounting work from any US state and govt. CPA firms send work2003 - 25,000 US tax returns2004 – 100,0002005 – 400,000 done in India!Virtual Tax Room software developed

IntroductionWhat will stay in US?“the accountant who wants to stay in business will be the one who focuses on creative, complex strategies, like tax avoidance or tax sheltering, managing customer relationships”70,000 accounting grads starting at $100/monthIn 10 years Indians will be doing a lot of what is now done in the US

IntroductionAdvances in compression technology, CAT scans transmitted to India using InternetSome medium hospitals in US radiologists outsource reading CAT scans to doctors in India and Australia Reuters has 2300 journalists, 197 bureausprovides breaking news (earnings etc)hired 6 reporters in Bangalore, for flash headlines, tables

They have technical and financial skills

IntroductionA company releases its earnings to Reuters, Dow Jones, Bloomberg; race to be firstWages and rents in Bangalore less than 1/5th Western capitals2004 Reuters 300 employees; goal: 1500Analyst in Bangalore earns $15,000 $80,000 in NY, London

Off-shoring1960’s in New London (CT), parents worked at Electric Boat, Navy Yard, Coast GuardSkills went out of use; region changed; mill towns saw mills closeChange is hard; but change is naturalCurrent hot debate about off-shoring similar to debate at Electric Boat 50 years agoWork goes where it can be done effectively and efficiently

Off-shoring24/7 Call Center in Bangalore– 2500 work phones selling credit cards,etc– Tracing lost luggage– Computer help desks– Calls transferred by satellite, fiber optic– Dell, Microsoft as customers

Children starting salaries higher than parents retiring incomeEmployees keep US time245,000 Indians answering phones

Off-shoring24/7: 4000 employees in S. India– $200/month for 6 months– $300-400 after that + transportation, meals, life

insurance, medical coverage for family– Total cost closer to $600 – 700/month

Employees are trained to sound American, learn local shows and weather etc…24/7 runs MS Windows, on PCs with Intel chips, phones from Lucent, A/C by Carrier, and bottled water from Coca-Cola.90% 24/7 shares owned by US investorsUS lost some jobs, exports TO India from 2.5 to 5 billion in 2003

Off-Shoring225 Texas Instruments US patents to Indian operationBangalore is developing high speed broadband wireless technologyBecause of time difference, while US sleeps, they work, ready in the morning

Off-shoringJapan outsourcing low-end jobs to Chinese (who speak Japanese)Japan once colonized ChinaChina is focused on leading the world, and will take all the work the Japanese outsourceDalian is the locus of outsourcingJapanese hire 3 Chinese software engineers for one Japanese2800 Japanese Cos in China

Off-shoringDalian has 22 Universities, 200,000 students> 50% engineering or science gradsThey spend a year studying Japanese or EnglishJapan moved R&D, software development here, US Cos also exploring DalianTheir English not as good as India, but they pick from a larger pool

Off-shoringNeeleman, Jetblue CEO started ‘homesourcing’400 reservations agents working from home2004, Friedman in Baghdad– Soldier monitoring images from a laptop– US Drone over Iraqi village feeding images to

laptop– Drone flown by expert in Las Vegas– Images viewed by: marines, US Command

(Tampa), Central Command HQ (Qatar), Pentagon, and CIA

– Technology flattened the hierarchy; battlefield leveled

ChangesForrester Research projecting over 3 million service and professional jobs would move out of the US by 2015 Interstate Highway 55 in Cape Girardeau, MO – drive through lane of a McDonald’s taking

orders, is not even in the restaurant or even in this state

– The order taker is in a call center Colorado Springs, 900 miles away

ChangesMcD’s Mo: software cuts order time by > 30 seconds, to one minute 5 seconds, less than half of the average two minutes and 36 sec for all McDThis Drive-through now handles 260 cars per hour

More ChangesNamitha in Cochin, India, starts her day before 4:30 a.m. – 7000 miles away near Chicago, 14 year-old

John sits at his computer ready for his hour- long geometry lesson - E-tutoring

– Namitha works for Growing Stars– 1000s of Indian teachers coach US. students in

math, science or English for about $20/hour instead of $400 in the U S

Friedman considers changes as fundamental as Gutenberg’s Printing Press

How the World became Flat1. Flattener 1. 11/9/89 Berlin Wall2. 8/9/95 – connectivity; web, Netscape3. Work flow software4. Uploading5. Outsourcing 6. Off-shoring7. Supply chaining8. Insourcing 9. In-forming10. The steroidsThe triple convergence

Flattener 1: The Wall comes downCommunism makes people equally poor, Capitalism makes people unequally richBerlin wall collapse ripple effect reaches India1991 India out of hard currency, PM opened economyTrade controls abolished, 3 % growth 1994 7 % growthWorld appears more seamless

Flattener 1Amartya Sen (Nobel Economist): “Berlin wall not only kept people inside East Germany, it prevented a global view of the future… we could not think of the world as a whole.”“Women’s freedom, which promotes literacy, tends to reduce fertility, child mortality, increase employment opportunities for women, …”

Flattener 1Wall collapse allowed adoption of common standardsCommon standards create flatter, more level playing fieldPaved way for European Union, EuroCause of collapse not clear– Information revolution began in 1980s– Totalitarian systems had monopoly on information and

force– Ordinary people could access computing – Rise in Windows, Apples, fall of Wall, set flattening in

motion

Flattener 1PCs made content in digital formOne person with a typewriter vs with a PCGave individuals power to create/disseminate informationWindows translated into 38 languages; PC in their own languageEmails through ISPs No way to stop digital representation of everything – and a global exchange

Flattener 1“Breakthrough constrained by architectural limits… missing infrastructure” Mundie, MS ExecInternet not yet emergedBin Laden, Reagan saw Soviets as “evil empire”Bin Laden saw US as evil too; his alternative to market capitalism – political IslamMany in Muslim lands thought they brought the Wall down through religious zeal