The global competitive playing field is being leveled. The world is being flattened.

it is now possible for more people than ever to collaborate and compete in real time with more other people on more different kinds of work from more different corners of the planet and on a more equal footing than at any previous time in the history of the world-using computers, e-mail, networks, teleconferencing, and dynamic new software.

3 Eras of Globalization

The first lasted from 1492-when Columbus set sail, opening trade between the Old World and the New World-until around 1800.This era is called Globalization 1.0.

Globalization 1.0 was about countries and muscles. That is, in Globalization 1.0 the key agent of change, the dynamic force driving the process of global integration was how much brawn-how much muscle, how much horsepower, wind power, or, later, steam power your country had and how creatively you could deploy it.

3 Eras of Globalization

In Globalization 1.0, the primary questions were: Where does my country fit into global competition and opportunities? How can I go global and collaborate with others through my country?

The second great era, Globalization 2.0, lasted roughly from 1800 to 2000. In Globalization 2.0, the key agent of change, the dynamic force driving global integration, was multinational companies (i.e. went global for markets and labor) and the Industrial Revolution (i.e. steam engine and the railroad, falling telecommunication costs).

It was during this era that we really saw the birth and maturation of a global economy, in the sense that there was enough movement of goods and information from continent to continent for there to be a global market, with global arbitrage in products and labor.

The big questions in this era were: Where does my company fit into the global economy? How does it take advantage of the opportunities? How can I go global and collaborate with others through my company?

In the year 2000 we entered a whole new era: Globalization 3.0. While the dynamic force in Globalization 1.0 was countries globalizing and the dynamic force in Globalization 2.0 was companies globalizing, the dynamic force in Globalization 3.0 is the newfound power for individuals to collaborate and compete globally.

And the lever that is enabling individuals and groups to go global so easily and so seamlessly is not horsepower, and not hardware, but software- all sorts of new applications-in conjunction with the creation of a global fiber-optic network that has made us all next-door neighbors.

Individuals now ask, where do I fit into the global competition and opportunities of the day, and how can I, on my own, collaborate with others globally?

Globalization 1.0 and 2.0 were driven primarily by European and American individuals and businesses.

Globalization 3.0 is going to be more and more driven not only by individuals but also by a much more diverse—non-Western, non-white-group of individuals. Individuals from every corner of the flat world are being empowered.

How did this flattening process

happened?Anything that can be digitized can be outsourced to

either the smartest or the cheapest producer.

How to strive in this flat world? Everyone has to focus what exactly is their value-

add.

For example: US tax returns

In 2003, 25,000 US tax returns were done in India. In 2004, the number was 100,000. In 2005, it is expected to be 400,000.

India developed a software product called VTR – Virtual Tax Room – to enable US medium size accounting firms to easily outsource tax returns.

For example: US tax returns

In doing so, India is taking the grunt work (very little creativity needed to prepare a tax return), this is what will move overseas.

What will stay in America: Designing of creative complex strategies, like tax avoidance and tax sheltering, and managing customer relationships.

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

In many small and some medium-size hospitals in the US, radiologists are outsourcing reading of CAT scans to doctors in India and Australia. Since CAT (and MRI) images are already in digital format and available on a network with a standardized protocol.

Work moves where it can be done best.

Work gets done where it can be done most effectively and efficiently.

Change is hard. Change is hardest on those caught by surprise. Change is hardest on those who have difficulty changing too. But change is natural; change is not new; change is important.

Outsourcing: call center jobs

Call center jobs are low-wage, low-prestige jobs in America, but when shifted in India (Asia) they become high-wage, high-prestige jobs.

Although the great majority of the calls are rather routine and dull, competition for these jobs is fierce – not only because they pay well, but because you can work at night and go to school during part of the day, so they are stepping-stones toward a higher standard of living.

Outsourcing

Is challenging traditional norms and ways of life.

In a flat world, one can stay in their home country, make a decent salary, and not have to be away from families, friends, food and culture.

More and more American and European companies are outsourcing significant research and development tasks in India, Russia, and China.

India and China prepared for the

21st century India provides companies access to a broad

spectrum of highly qualified people. In addition to fresh graduates, which are around 2.5 million per year, India’s business schools produce around 89,000 MBAs per year!

China is now becoming the country that develops the largest number of university graduates.

Mayor Xia Deren (Dalian, China)

In manufacturing, Chinese people first were employees and working for the big foreign manufacturers, and after several years, after we have learned all the processes and steps, we can start our own firms. Software will go down the same road…

First we will have our your people employed by the foreigners, and then we will start our own companies. It is like building a building. Today, the US, you are the designers, the architects, and the developing countries are the bricklayers for the buildings. But one day I hope we will be the architects.

Cheap, quick, and reliable

telecommunications lines Blogs have given the people a chance to

stop yelling at their TV and have a say in the process.

We are going to see the digitization, virtualization, and automation of almost everything.

The gains in productivity will be staggering for those countries, companies, and individuals who can absorb the new technological tools.

Globalization 3.0: Speed and breath of flattening

the world! The introduction of printing happened over a

period of decades and for a long time affected only a relatively small part of the planet. Same with the Industrial Revolution.

This flattening process is happening at warp speed and directly or indirectly touching a lot more people on the planet at once. The faster and broader this transition to a new era, the more likely is the potential for disruption, as opposed to an orderly transfer of power from the old winners to the new winners.

The lack of leadership, flexibility and imagination to adapt may not be because they are not smart or aware, but because the speed of change is simply overwhelming.

Objective of the book: The world is flat Since change is inevitable and unavoidable,

the book aims to offer a framework for how to think about change and manage it to our maximum benefit.

The Ten (10) Forces that Flattened the

WorldThis is about the forces that flattened the world and the multiple new forms and tools for collaboration

that this flattening has created

Flattener #1: 11.09.89

The fall of the Berlin Wall

The fall of Soviet communism – liberated the peoples of the Soviet Empire.

It tipped the balance of power across the world toward those advocating democratic, consensual, free-market-oriented governance, and away from those advocating authoritarian rule with centrally planned economies.

The Cold War

Struggle between two economic systems – capitalism and communism

With the fall of the wall, there was only one system left.

More and more economies would be governed from the ground up, by the interests, demands, and aspirations of the people, rather than from the top down, by the interests of some narrow ruling clique.

Effect of the fall of communism

Communism was a great system for making people equally poor, while, capitalism made people unequally rich.

Nations opened its economy India (Manmohan Singh, finance minister)

Three years later (after the 1991 reforms) we were at 7% rate of growth. To hell with poverty! Now to make it you could stay in India and become one of Forbes’s richest people in the world…

All the years of socialism and controls had taken us downhill to the point where we had only $1 billion in foreign currency. Today we have $118 billion… We went from quiet self-confidence to outrageous ambition in a decade.”

The fall of Berlin Wall unlocked enormous pent-up energies for hundred of millions of people in places like India, Brazil, China and the former Soviet Empire.

Now, we look at the world as a single market, a single ecosystem, and a single community.

Women’s freedom, which promotes women’s literacy, tends to reduce fertility and child mortality and increase the employment opportunities for women, which then affects the political dialogue and gives women the opportunity for a greater role in local self-government.

The fall paved the way for the adoption of common standards – standards on how economies should be run, on how accounting should be done, on how banking should be conducted, on how PCs should be made, and on how economies papers should be written.

Common standards create a flatter, more level playing field.

The fall of the wall opened the way for the formation of the European Union and its expansion from 15 to 25 countries. The euro as a common currency has created a single economic zone out of a region.

Cause of the wall’s fall?

There was no single cause The Reagan administration’s military buildup

in Europe forced the Kremlin to bankrupt itself paying for warheads

Information revolution that began in the early- to mid- 1980s (i.e. fax machines, telephones, IBM PCs and the Windows operating system)

The diffusion of PCs, fax machines, Windows, and dial-up modems connected to a global telephone network create the basic platform that started the global information revolution.

PC-Windows-model platform provided the basic protocols for exchanging files and e-mail messages

It was the age of “Me and my machine can now talk to each other better and faster, so that I personally can do more tasks” and the age of “Me and my machine can now talk to a few friends and some other people in my company better and faster, so we can become more productive.

Flattener #2: 08.09.95

When Netscape Went Public

The next phase: from a PC-based computing platform to an Internet-based platform (e-mail and Internet browsing)

New app, the Web browser, which could retrieve documents or Web pages stored on Internet Web sites and display them on any computer screen, enable scientists to easily share research (in 1991). But the first mainstream browser for the general public was Netscape (1995).

Netscape helped make the Internet interoperable.

The more alive the Internet became, the more consumers wanted to do different things on the Web, so the more they demanded computers, software, and telecommunications networks that could easily digitize words, music, data, and photos and transport them on the Internet to anyone else’s computer.

Windows 95 became the operating system used by most people worldwide, which had built-in Internet support.

What led to the dot-com stock bubble?

Because every investor looked at the Internet and concluded that if everything was going to be digitized – data, inventories, commerce, book, music, photos, and entertainment – and transported and sold on the Internet, then the demand for Internet-based products and services would be infinite.

This led to the dot-com stock bubble and a massive overinvestment in the fiber-optic cable needed to carry all the new digital information.

This wired the whole world together and without anyone planning it, made Bangalore a suburb of Boston.

Browser technology

The most important inventions in modern history

Provides a user interface that displays contents of other people’s Web sites.

The more people had the browser, the more people would want to be interconnected, and the more incentive there would be to create content and applications and tools.

Once that kind of thing gets started, it just takes off and virtually nothing can stop it.

Browser technology

By the late 1990s the Internet computing platform became seamlessly integrated, which is a huge flattener because it enabled so many more people to get connected with so many more other people.

What stimulated investors to believe that demand for Internet usage and Internet-related products would be infinite is digitization.

Everyone wants everything digitized as much as possible so they could send it to someone else down the Internet pipes.

Digitization

Digitization is the magic process by which words, music, data, films, files, and pictures are turned into bits and bytes – combinations of 1s and 0s – that can be manipulated on a computer screen, stored on a microprocessor, or transmitted over satellites and fiber-optic lines.

Overinvestment

As investors witness the digitizing of almost everything, they thought if everyone wants all the stuff digitized and transmitted over the Internet, the demand for Web service companies and the demand for fiber-optic cables to handle all this digitized around the world is going to be limitless! No one can lose if one invests in this.

Thus was the bubble born. This bubble attracted so much new capital to the Internet industry that drove innovation faster and faster.

The dot-com boom sparked a huge overinvestment in fiber-optic cable companies, which then laid massive amounts of fiber-optic cable on land and under the oceans, which dramatically drove down the cost of making a phone call or transmitting data anywhere in the world.

Fiber-optic began replacing copper telephone wires in 1977 because it could carry data and digitized voices much farther and faster in larger quantities.

Fiber-optic

Because these optical fibers are much thinner than copper wires, more fibers can be bundled into a given diameter of cable than can copper wires, which means that much more data or many more voices can be sent over the same cable at a lower cost.

Copper wires can carry very high frequencies but only for a few feet before the signal starts to degrade in strength due to certain parasitic effects. Optical fibers, by contrast, can carry very high-frequency optical pulses on the same individual fiber without substantial signal degradation for many, many miles.

In a period of about 5 or 6 years, telecommunication companies invested about $1 trillion in wiring the world. No one questioned the demand projections.

It turned out that while business-to-business and e-commerce developed as projected, they still devoured only a fraction of the capacity that was being made available.

When the dotcom bust came along, there was just way too much fiber-optic cable out there. Long-distance phone rates (US) went from $2 a minute to 100 minutes. And the transmission of data was virtually free.

Dotcom bust

The telecom companies laid so much fiber in the ground that they’ve basically commoditized themselves.

Just as the national highway system that was built in the 1950s (US) flattened the United States, broke down regional differences, and made it so much easier for companies to relocate in lower-wage regions, like the South, because it had become so much easier to move people and goods long distance, so the laying of global fiber highways flattened the developed world.

Overinvestment of fiber-optic

It helped break down global regionalism, create a more seamless global commercial network, and made it simple and almost free to move digitized labor-service jobs and knowledge work-to-lower-cost countries.

This overinvestment is permanent: once the fiber cables were laid, no one was going to dig them up and thereby eliminate the overcapacity.

When telecom companies went bankrupt, the banks took over and then sold their fiber cables for ten cents on the dollar to new companies.

Fiber cable

Each fiber cable has multiple strands of fiber in it with a potential capacity to transmit many terabits of data per second on each strand.

So as the switches (the transmitters and receivers) keep improving, the capacity of al the already installed fiber cables just keeps growing, making it cheaper and easier to transmit voices and data every year to any part of the world.

This highway wasn’t just national. It was international.

To summarize:

PC-Windows flattening phase was about me interacting with my computer and me interacting with my own limited network inside my own company.

Internet-e-mail-browser phase flattened the earth a little bit more. It was about me and my computer interacting with anyone anywhere on any machine. It’s me and my computer interacting with anybody’s Web site on the Internet which is what browsing is all about.

Flattening #3: Work Flow Software

Example of an all-American animation show being produced by an all-world supply chain. The recording session is located near the

artist, usually in New York or L.A., the design and direction is done in San Francisco, the writers network in from their homes (Florida, London, New York, Chicago, LA and San Francisco), and the animation of the characters is done in Bangalore with edits from San Francisco. For this show (Higglytown Heroes), there are 8 teams in Bangalore working in parallel with 8 different writers.

The recording of the artists are done over the Internet.

Standardization

For the world to get really flat, all our systems had to be interoperable with all the systems of any other company.

Applications such as XML and SOAP created the technical foundation for software program-to-software program interaction, which was the foundation for Web-enabled work flow. They enabled digitized data, words, music, and photos to be exchanged between diverse software programs so that they could be shaped, designed, manipulated, edited, reedited, stored, published, and transported-without any regard to where people are physically.

Once Microsoft Word got established as the global standard, work could flow between people on different continents much more easily, because we were all writing off the same screen with the same basic toolbar.

For example: Paypal enabled people, individuals, to accept credit cards. One could pay you as an individual seller on eBay with a credit card. This leveled the playing field and made commerce more frictionless.

New Global Platform

The falling walls, the opening of Windows, the digitization of content, and the spreading of the Internet browser seamlessly connected people with people as never before. Then work flow software connected applications to applications, so that people could manipulate all their digitized contents, using computers and the Internet, as never before.

People are not just communicating with each other, people are now able to collaborate –to build coalitions, projects, and products together– more than ever.

The next 6 flatteners represent the new forms of collaboration which this new platform empowered.

Flattener #4: Open-sourcing,

Self-Organizing Collaborative

Communities Open source movement involves thousands of people

around the world coming together online to collaborate in writing everything from their own software to their own operating systems.

“open-source” comes from the notion that companies or ad hoc groups would make available online the source code –the underlying programming instructions that make a piece of software work– and then let anyone who has something to contribute improve it and let millions of others just download it for their own use for free.

A new form of collaboration that have been facilitated by the flat world.

Open-source is nothing more than peer-reviewed science. The reward is reputation.

Apache is one of the most successful open-source tools, powering about two-thirds of the Web sites in the world. And because it can be downloaded for free anywhere in the world, people from Russia to South Africa to Vietnam use it to create Web sites.

Apache

In 1997, most Webmasters depended on a Web server program developed at the University of Illinois’s National Center for Super-computing Applications (NCSA). But the NCSA Web server couldn’t handle password authentication.

Behlendorf wrote new codes, a ‘patch’ to the NCSA Web server, that took care of the problem. However, he wasn’t the only one writing new codes on the NCSA Web server.

While the Web grows, it kept creating new problems for Web servers to cope with, so patches of one kind or another proliferated.

All these patches were slowly building a new modern Web server, open-sourced style. Everyone had his or her own version, trading patches here and there. Until one day, the group of Behlendorf took the future into their own hands and released their own (Web server) version that incorporated all their patches.

By February 1999, they completely rewritten the original NCSA program and formalized their cooperation under the name “Apache.”

Bellendorf and his open-source colleagues – most of whom he had never met but knew only by email through their open-source chat room – had created a virtual, online, bottom-up software factory, which no one owned and no one supervised.

Bellendorf: we started with eight people who really trusted each other, and as new people showed up at the discussion forum and offered patch files posted to the discussion form, we would gain trust in others, and that eight grew to over one thousand. We were the first open-source project to get attention from the business community and get the backing from IBM.

Apache proved to be both a better technology and free. It became a standard vanilla Web server architecture – which allowed heterogeneous computer systems and devices to talk to each other, displaying e-mail and Web pages in a standard format – that was constantly being improved for free by an open-source community.

The Apache collaborators did not set out to make free software. They set out to solve a common problem –Web serving– and found that collaborating for free in this open-source manner was the best way to assemble the best brains for the job they needed done.

To compete in the 21st century

There is no future in vanilla for most companies in a flat world. The commercial future belongs to those who know how to make the richest chocolate sauce, the sweetest, lightest whipped cream, and the juiciest cherries to sit on top, or how to put them all together into a sundae.

Commercial software companies have to start operating further up the [software] stack to differentiate themselves. The open source community is basically focusing on infrastructure.

Wladawsky-Berger, IBM VP for technical strategy and

innovation Summed open-sourcing up: This emerging

era is characterized by the collaborative innovation of so many people working in gifted communities, just as innovation in the industrial era was characterized by individual genius.

Example of open-source: OpenOffice.org, Gimp, Linux, Firefox

Controversial side of open source

Why would so many people be ready to write software that would be given away for free? Partly it is out of the pure scientific challenge, which should never be underestimated.

Partly it is because they believe that open-source software can be kept more fresh and bugfree than any commercial software, because of the way it is constantly updated by an army of unpaid programmers.

If everyone contributes his or her intellectual capital for free, where will the resources for new innovation come from?

Microsoft: The virtuous cycle of innovation, reward, reinvestment, and more innovation is what has driven all big breakthroughs in the industry. The software business as we have known it is a scale economic business (large investment to develop software and then low marginal cost in producing).

Bill Gates: You need capitalism to drive innovation.

Point: open-source is a big flattener

It makes available for free many tools, from software to encyclopedias, that millions of people around the world would have had to buy in order to use.

Apache and Linux have each helped to drive down costs of computing and Internet usage in ways that are profoundly flattening.

Flattener #5: Outsourcing, Y2K

India was what is known in the banking world as “the second buyer.”

When the bubble burst, the American shareholders were left holding either worthless or much diminished stock. The Indians, in effect, got to be the second buyers of the fiber-optics companies.

They didn’t actually purchase the shares, they just benefited from the overcapacity in fiber optics.

India is a country with virtually no natural resources that got very good at doing one thing – mining the brains of its own people by educating a relatively large slice of its elites in the sciences, engineering, and medicine.

Nehru, India’s first prime minister, set up the first of India’s seven Indian Institutes of Technology (IIT). Given India’s 1 billion-plus population, this competition to gain entry and graduate from these IITs produces a phenomenal knowledge meritocracy.

It’s like a factory, churning out and exporting some of the most gifted engineering, computer science, and software talent on the globe.

India could never have afforded to pay for the bandwidth to connect brainy India with high-tech America, so American shareholders paid for it.

In the railroad overinvestment, the benefit was confined to America. In the case of the digital railroads, it was the foreigners who benefited. India got to ride for free.

Jack Welch: India is a developing country with a developed intellectual capability.

Book publishers would ship its books over to India and pay Indians $50 a month (vs. $1,000 in the US) to type them by hand into computers, converting the books into digitized electronic files that could be edited or amended easily in the future.

American doctors and hospitals would outsource medical transcripts to HealthScribe India (1/5 of the cost per line compared to doing it in the States).

Two Events (late 1990s)

1. The fiber-optic bubble was starting to inflate, linking India with the United States

2. The Y2K computer crisis – the so-called millennium bug

The Y2K bug was a result of the fact that when computers were built, they came with internal clocks. In order to save memory space, these clocks rendered dates with just six digits. Ergo, they would only go up to 12/31/99. When January 1, 2000 hits, older computer were poised to register 01/01/00 instead of 01/01/2000. The computer would think it was 1900 all over again.

This computer remediation work was a huge, tedious job. Who in the world had enough software engineers to do it all? Answer: India!

This event was a huge flattener. The combination of the PC, the Internet, and fiber-optic cable had created the possibility of a whole new form of collaboration and horizontal value creation: OUTSOURCING.

Any service, call center, business support operation, or knowledge work that could be digitized could be sourced globally to the cheapest, smartest, or most efficient provider.

For Indian industry, Y2K represented the biggest opportunity. Y2K required every single computer in the world to be reviewed.

And the sheer number of people needed to review line-by-line code existed in India. The India IT industry got its footprint across the globe because of Y2K.

Y2K became the engine of growth for India, the engine of being known around the world.

India was lucky that it could exploit all that undersea fiber-optic cable.

The boom laid the cable that connected India to the world, and the bust made the cost of using it virtually free and also vastly increased the number of American companies that would want to use that fiber-optic cable to outsource knowledge to India.

The American IT companies needed those Indian engineers not just because there were a lot of them, but precisely because they were low-cost.

The dot-com bubbles was only one aspect of globalization, and when it imploded, rather than imploding globalization, it actually turbocharged it.

Lucent: everyone found prices flat to declining and markets stagnant, yet they were still spending huge amounts of money running the backroom operations of their companies, which they could no longer afford.

Cost pressure were enormous and the flat world was available, so economic were forcing people to do things they never thought they would do or could do…

Globalization got supercharged for both knowledge work and manufacturing.

Fortune favors the prepared

mind.Louis Pasteur