Страница:
Today, your first management job out of business school could be melding the specialties of a knowledge team that is one-third in India, one-third in China, and a sixth each in Palo Alto and Boston. That takes a very special kind of skill, and it is going to be much in demand in the flat world.
Rule #5: In a flat world, the best companies stay healthy by getting regular chest X-rays and then selling the results to their clients.
Because niche businesses can get turned into vanilla commodity businesses faster than ever in a flat world, the best companies today really do get chest X-rays regularly-to constantly identify and strengthen their niches and outsource the stuff that is not very differentiating. What do I mean by chest X-rays? Let me introduce Laurie Tropiano, IBM's vice president for business consulting services, who is what I would call a corporate radiologist. What Tropiano and her team at IBM do is basically X-ray your company and break down every component of your business and then put it up on a wall-size screen so you can study your corporate skeleton. Every department, every function, is broken out and put in a box and identified as to whether it is a cost for the company or a source of income, or a little of both, and whether it is a unique core competency of the company or some vanilla function that anyone else could do— possibly cheaper and better.
“A typical company has forty to fifty components,” Tropiano explained to me one day at IBM, as she displayed a corporate skeleton up on her screen, “so what we do is identify and isolate these forty to fifty components and then sit down and ask [the company], 'How much money are you spending in each component? Where are you best in class? Where are you differentiated? What are the totally nondifferenti-ated components of your business? Where do you think you have capabilities but are not sure you are ever going to be great there because you'd have to put more money in than you want?'”
When you are done, said Tropiano, you basically have an X-ray of the company, identifying four or five “hot spots.” One or two might be core competencies; others might be skills that the company wasn't fully aware that it even had and that should be built up. Other hot spots on the X-ray, though, might be components where five different departments are duplicating the same functions or services that others outside the company could do better and more cheaply and so should be outsourced-provided there is still a savings to be made once all the costs and disruptions of outsourcing are taken into account.
“So you go look at this [X-ray] and say, 'I have these areas here that are going to be really hot and core,'” says Tropiano, “and then let go of the things that you can outsource, and free up those funds and focus on the projects that could one day be part of your core competency. For the average company, you are doing well if 25 percent is core competency and strategic and really differentiating, and the rest you may continue to do and try to improve or you may outsource.”
I first got interested in this phenomenon when an Internet business news headline caught my eye: “HP bags $150 million India bank contract.” The story on Computerworld.com (February 25, 2004) quoted a statement by HP saying that it had inked a ten-year outsourcing contract with the Bank of India in Mumbai. The $150 million contract was the largest ever won by HP Services in the Asia-Pacific region, according to Natarajan Sundaram, head of marketing for HP Services India. The deal called for HP to implement and manage a core banking system across 750 Bank of India branches. “This is the first time we at HP are looking at the outsourcing of the core banking function in the Asia-Pacific region,” said Sundaram. Several multinational companies competed for the contract, including IBM. Under the contract, HP would take charge of data warehousing and document-imaging technology, telebanking, Internet banking, and automated teller machines for the whole bank chain.
Other stories explained that the Bank of India had been facing increasing competition from both public— and private-sector banks and multinational corporations. It realized that it needed to adopt Web-based banking, standardize and upgrade its computer systems, lower its transaction costs, and generally become more customer-friendly. So it did what any other multinational would do-it gave itself a chest X-ray and decided to outsource all the funtions it did not believe were part of its core competency or that it simply did not have the internal skills to do at the highest level.
Still, when the Bank of India decides to outsource its back room to an American-owned computer company, well, that just seemed too weird for words. “Run that by me again,” I said, rubbing my eyes. “HP, the folks I call when my printer breaks, won the outsourcing contract for managing the back room of India's 750-branch state-owned bank? What in the world does Hewlett-Packard know about running the backroom systems of an Indian bank?”
Out of curiosity, I decided to visit the HP headquarters in Palo Alto to find out. There, I met Maureen Conway, HP's vice president for emerging market solutions, and put the above question directly to her.
“How did we think we could take our internal capabilities and make them good for other people?” she answered rhetorically. In brief, she explained, HP is constantly hosting customer visits, where its corporate clients come to its headquarters and see the innovations that HP has brought to managing its own information systems. Many of those customers go away intrigued at how this big company has adapted itself to the flat world. How, they ask, did HP, which once had eighty-seven different supply chains-each managed vertically and independently, with its own hierarchy of managers and back-office support-compress them into just five supply chains that manage $50 billion in business, and in which functions like accounting, billing, and human resources are handled through a companywide system? What computers and business processes did HP install to consolidate all this efficiently? HP, which does business in 178 countries, used to handle all its accounts payable and receivable for each individual country in that country. It was totally chopped up. Just in the last couple of years, HP created three transaction-processing hubs-in Bangalore, Barcelona, and Guadalajara-with uniform standards and special work flow software that allowed HP offices in all 178 countries to process all billing functions through these three hubs.
Seeing the reaction of its customers to its own internal operations, HP said one day, “Hey, why don't we commercialize this?” Said Conway, “That became the nucleus of our business process outsourcing service... We were doing our own chest X-rays and discovered we had assets that other people cared about, and that is a business.”
In other words, the flattening of the world was both the disease and the cure for the Bank of India. It clearly could not keep up with its competitors in the flattening banking environment of India, and, at the same time, it was able to get a chest X-ray and then outsource to HP all those things that it no longer made sense to do itself. And HP, having done its own chest X-ray, discovered that it was carrying a whole new consulting business inside its breast. Sure, most of the work for the Bank of India will be done by HP employees in India or Bank of India employees who will actually join HP. But some of the profits will find their way back to the mother ship in Palo Alto, which will be supporting the whole operation through its global knowledge supply chain.
Most of HP's revenues today come from outside the United States. But the core HP knowledge and infrastructure teams who can put together the processes that win those contracts-like running the back room of the Bank of India-are still in the United States.
“The ability to dream is here, more than in other parts of the world,” said Conway. “The nucleus of creativity is here, not because people are smarter-it is the environment, the freedom of thought. The dream machine is still here.”
Rule #6: The best companies outsource to win, not to shrink. They outsource to innovate faster and more cheaply in order to grow larger, gain market share, and hire more and different specialists-not to save money by firing more people.
Dov Seidman runs LRN, a business that provides online legal, compliance, and ethics education to employees of global companies and helps executives and board members manage corporate governance responsibilities. We were having lunch in the fall of 2004 when Seidman casually mentioned that he had recently signed an outsourcing contract with the Indian consulting firm MindTree.
“Why are you cutting costs?” I asked him.
“I am outsourcing to win, not to save money,” Seidman answered. “Go to our Web site. I currently have over thirty job openings, and these are knowledge jobs. We're expanding. We're hiring. I am adding people and creating new processes.”
Seidman's experience is what most outsourcing is actually about— companies outsourcing to acquire knowledge talent to grow their business faster, not simply to cut costs and cut back. Seidman's company is a leader in one of those completely new industries that just appeared in the flat world-helping multinationals foster an ethical corporate culture around an employee base spread all over the world. Although LRN is a BE company-founded ten years before Enron exploded-demand for its services surged in the PE era-post-Enron. In the wake of the collapse of Enron and other corporate governance scandals, a lot more companies became interested in what LRN was offering-online programs for companies to forge common expectations and understandings of their legal and ethical responsibilities, from the boardroom to the factory floor. When companies sign up with LRN, their employees are given an online education, including tests that cover everything from your company's code of conduct to when you are allowed to accept a gift to what you need to think about before hitting Send on an e-mail to what constitutes a bribe of a foreign official.
As the whole issue of corporate governance began to mushroom in the early 2000s, Seidman realized that his customers, much like E*Trade, would need a more integrated platform. While it was great that he was educating their employees with one online curriculum and advising boards on ethics issues with another, he knew that company executives would want a one-stop Web-based interface where they could get a handle on all the governance and ethics issues facing their organizations— whether it was employee education, the reporting of any anomalous behavior, stewardship of a hard-earned corporate reputation, or government compliance-and where they could get immediate visibility into where their company stood.
So Seidman faced a double challenge. He needed to do two things at once: keep growing his market share in the online compliance education industry, and design a whole new integrated platform for the companies he was already working with, one that would require a real technological leap. It was when faced with this challenge that he decided to enlist MindTree, the Indian consulting firm, in an outsourced relationship that offered him about five well-qualified software engineers for the price of one in America.
“Look,” said Seidman, “when things are on sale, you tend to buy more. MindTree offered a sale not on last season's closeout, but on top-notch software engineering talent that I would have been hard-pressed to find elsewhere. I needed to spend a lot of money defending and extending my core business and continue to take care of my customers, who were working off my current programs. And at the same time, I had to make a giant leap to offer my customers what they were asking for next, which was a much more robust and total online solution to all their ethics, governance, and compliance questions. If I don't meet their needs, someone else will. Partnering with MindTree allows me to basically have two teams-one team [mostly Americans] that is focused on defending and extending our core business, and the other team, including our Indian consultants, focused on making our next strategic leap to grow our business.”
Since ethics is at the core of Seidman's Los Angeles-headquartered business, how he went about outsourcing was as important as the ultimate results of the relationship. Rather than announcing the MindTree partnership as a done deal, Seidman conducted an all-hands town hall meeting of his 170 or so employees to discuss the outsourcing he had in mind. He laid out all the economic arguments, let his staff weigh in, and gave everyone a picture of which jobs would be needed in the future and how people could prepare themselves to fit in. “I needed to show my company that this is what it would take to win,” he said.
Have no doubt, there are firms that do and will outsource good jobs just to save money and disperse it to shareholders or management. To think that is not happening or will not happen is beyond naive. But firms that are using outsourcing primarily as a tool to cut costs, not enhance innovation and speed growth, are the minority, not the majority-and I would not want to own stock in any of them. The best companies are finding ways to leverage the best of what is in India with the best of what is in North Dakota with the best of what is in Los Angeles. In that sense, the word “outsourcing” should really be retired. The applicable word is really “sourcing.” That is what the flat world both enables and demands, and the companies that do sourcing right end up with bigger market shares and more employees everywhere-not smaller and fewer.
“This is about trying to get bigger faster, about how we make our next leap in less time with greater assurance of success,” said Seidman of his decision to source critical areas of development of his new platform to MindTree. “It is not about cutting corners. We have over two hundred clients all over the world now. If I can grow this company the way that I want to, I will be able to hire even more people in all our current offices, promote even more people, and give our current employees even more opportunities and more rewarding career paths-because LRN's agenda is going to be broader, more complex and more global... We are in a very competitive space. This [decision to use outsourcing] is all about playing offense, not defense. I am trying to run up the score before it's run up on me.”
Rule #7: Outsourcing isn't just for Benedict Arnolds. It's also for idealists.
One of the newest figures to emerge on the world stage in recent years is the social entrepreneur. This is usually someone who burns with desire to make a positive social impact on the world, but believes that the best way of doing it is, as the saying goes, not by giving poor people a fish and feeding them for a day, but by teaching them to fish, in hopes of feeding them for a lifetime. I have come to know several social entrepreneurs in recent years, and most combine a business school brain with a social worker's heart. The triple convergence and the flattening of the world have been a godsend for them. Those who get it and are adapting to it have begun launching some very innovative projects.
One of my favorites is Jeremy Hockenstein, a young man who first followed a time-honored path of studying at Harvard and going to work for the McKinsey consulting firm, but then, with a colleague from McKinsey, veered totally off course and decided to start a not-for-profit data-entry firm that does outsourced data entry for American companies in one of the least hospitable business environments in the world, post-Pol Pot Cambodia.
Only in a flat world!
In February 2001, Hockenstein and some colleagues from McKinsey decided to go to Phnom Penh, half on vacation and half on a scouting mission for some social entrepreneurship. They were surprised to find a city salted with Internet cafes and schools for learning English-but with no jobs, or at best limited jobs, for those who graduated.
“We decided we would leverage our connections in North America to try to bridge the gap and create some income-generating opportunities for people,” Hockenstein said. That summer, after another trip funded by themselves, Hockenstein and his colleagues opened Digital Divide Data, with a plan to start a small operation in Phnom Penh that would do data entry-hiring locals to type into computers printed materials that companies in the United States wanted in digitized form, so that it could be stored on databases and retrieved and searched on computers. The material would be scanned in the United States and the files transmitted over the Internet. Their first move was to hire two local Cambodian managers. Hockenstein's partner from McKinsey, Jaeson Rosenfeld, went to New Delhi and knocked on the doors of Indian data-entry companies to see if he could find one -just one-that would take on his two Cambodian managers as trainees. Nine of the Indian companies slammed their doors. The last thing they wanted was even lower-cost competition emerging in Cambodia. But a generous Hindu soul agreed, and Hockenstein got his managers trained. They then hired their first twenty data-entry operators, many of whom were Cambodian war refugees, and bought twenty computers and an Internet line that cost them $100 a month. The project was financed with $25,000 of their own money and a $25,000 grant from a Silicon Valley foundation. They opened for business in July 2001, and their first work assignment was for the Harvard Crimson, Harvard's undergraduate daily newspaper.
“The Crimson was digitizing their archives to make them available online, and because we were Harvard grads they threw some business our way,” said Hockenstein. “So our first project was having Cambodians typing news articles from the Harvard Crimson from 1873 to 1899, which reported on Harvard-Yale crew races. Later, actually, when we got to the years 1969 to 1971, when the turmoil in Cambodia was all happening, they were typing [Crimson stories] about their own story... We would convert the old Crimsons, which were on microfilm, to digital images in the United States through a company in Oklahoma that specialized in that sort of thing, and then we would just transfer the digital images to Cambodia by FTP [file transfer protocol]. Now you can go to thecrimson.com and download these stories.” The Cambodian typists did not have to know English, only how to type English characters; they worked in pairs, each typing the same article, and then the computer program compared their work to make sure that there were no errors.
Hockenstein said that each of the typists works six hours a day, six days a week, and is paid $75 a month, twice the minimum wage in Cambodia, where the average annual income is less than $400. In addition, each typist receives a matching scholarship for the rest of the workday to go to school, which for most means completing high school but for some has meant going to college. “Our goal was to break the vicious cycle there of [young people] having to drop out of school to support families,” said Hockenstein. “We have tried to pioneer socially responsible outsourcing. The U.S. companies working with us are not just saving money they can invest somewhere else. They are actually creating better lives for some of the poor citizens of the world.”
Four years after starting up, Digital Divide Data now has 170 employees in three offices: Phnom Penh; Battambang, the second-largest city in Cambodia; and a new office in Vientiane, Laos. “We recruited our first two managers in Phnom Penh and sent them to India to get trained in data entry, and then, when we opened the Laos office, we recruited two managers who were trained by our staff in the Phnom Penh office,” Hockenstein said.
This tree has scattered all kinds of seeds. Besides the Harvard Crimson, one of the biggest sources of data-entry work was NGOs, which wanted the results of their surveys about health or families or labor conditions digitized. So some of the first wave of Digital Divide Data's Cambodian workers left the company and spun off their own firm to design databases for NGOs that want to do surveys! Why? Because while they were working for Digital Divide Data, said Hockenstein, they kept getting survey work from NGOs that needed to be digitized, but because the NGOs had not done enough work in advance to standardize all the data they were collecting, it was very hard to digitize in any efficient manner. So these Cambodian workers realized that there was value earlier in the supply chain and that they could get paid more for it-not for typing but for designing standardized formats for NGOs to collect survey data, which would make the surveys easier and cheaper to digitize, collate, and manipulate. So they started their own company to do just that-out of Cambodia.
Hockenstein argued that none of the jobs being done in Cambodia came from the United States. This sort of basic data-entry work got outsourced to India and the Caribbean a long time ago, and, if anywhere, that is where the jobs were taken from. But none of this would have been possible to set up in Cambodia a decade ago. It all came together in just the last few years.
“My partner is a Cambodian,” said Hockenstein. “His name is Sophary, and until 1992 he was living in a refugee camp on the Cambodia-Thai border while I was living in Harvard Square as an un-dergrad. We were worlds apart. After the UN peace treaty [in Cambodia], he walked home ten days to his village, and now today he lives in Phnom Penh running Digital Divide Data's office.” They now instant-message each other each night to collaborate in the delivery of services to people and companies around the world. The type of collaboration that is possible today “allows us to be partners and equals,” said Hockenstein. “It is not one of us dominating the other; it is real collaboration that is creating better futures for the people at the bottom and the top. It is making my life more meaningful and creating concrete opportunities for people living on a dollar or two a day... We see the self-respect and confidence that blossoms in people who never before would have had an on-ramp into the global economy.”
So Hockenstein and his partners are getting calls now from Mongolia, Pakistan, Iran, and Jordan from people who want to provide IT services to the world and are wondering how they can get started. In mid-2004, a client approached Digital Divide Data to digitize an English-Arabic dictionary. Around the same time, Hockenstein's office received an unsolicited e-mail from a company in Iran that was running a data-entry firm there. “They found us through a Google search in trying to find ways of expanding their local data-entry business beyond the borders of Iran,” said Hockenstein. So Hockenstein asked the Iranians whether they could do an English-Arabic dictionary, even though the language of Iran is Farsi, which uses some but not all of the same letters as Arabic. “He said they could,” said Hockenstein, “so we partnered on a joint project for this client to digitize an Arabic dictionary.” What I like most about the story, and why it is so telling of the flat world, is Hockenstein's kicker: “I still have never met the guy [in Iran]. We did the whole deal over Yahoo! instant messenger and e-mail. We wired him the money through Cambodia... I invited him to my wedding, but he wasn't able to come.”
Geopolitics and the Flat World
ELEVEN: The Unflat World, No Guns or Cell Phones Allowed
Hmrara. No guns or cell phones allowed? Guns I understand, I said, but why cell phones?
Silly me. It was because some people were bringing cell phones with cameras into locker rooms, covertly taking pictures of naked men and women and then e-mailing them around the world. What will they think of next? Whatever the innovation, people will find a way to use it and abuse it.
While interviewing Promod Haque at Norwest Venture Partners in Palo Alto, I was helped by the firm's public relations director, Katie Belding, who later sent me this e-mail: “I was chatting with my husband about your meeting with Promod the other day... He is a history teacher at a high school in San Mateo. I asked him, 'Where were you when the world went flat?' He said it just happened the other day at school when he was in a faculty meeting. A student was suspended for helping another student cheat on a test-we're not talking the traditional writing answers on the bottom of your shoe or passing a note, though...” Intrigued, I called her husband, Brian, and he picked up the story: “At the end of the period, when all of the tests were being passed up to the front of the classroom, this student very quickly and slyly pulled out his cell phone and somehow snapped a picture of some test questions, and instantly e-mailed it to his friend who was taking the same test the next period. His friend also had a cell phone with a digital camera and e-mail capabilities and was apparently able to view the questions before the next period. The student was caught by another teacher when he pulled out the cell phone between periods. It is against the rules to have a cell phone on campus-even though we know that all the kids do-so the teacher confiscated it and saw that the kid had a test on it. So the dean of discipline, at our regular faculty meeting, opened by saying, 'We have something new to worry about.' Essentially he said, 'Beware, keep your eyes open, because the kids are so far ahead of us in terms of the technology.'”
But things aren't all bad with this new technology, noted Brian: “I went to a Jimmy Buffett concert earlier this year. Cameras were not allowed, but cell phones were. So then the concert starts and everyone suddenly starts holding up their cell phones and taking pictures of Jimmy Buffett. I've got one right on my wall. We were sitting in the second row and the guy next to us held up his cell phone, and I said, 'Hey, would you mind e-mailing me some of those? No one will believe we sat this close.' He said 'Sure,' and we gave him a card with our e-mail [address]. We didn't really expect to see any, but the next day he e-mailed us a bunch.”
My trip to Beijing described earlier fell right after the fifteenth anniversary of the Tiananmen Square massacre, which happened on June 4, 1989, that is, 6/4/89. My colleagues at the Times bureau informed me that on that day the Chinese government censors were blocking SMS messages on cell phones that contained any reference to Tiananmen Square or even the numbers 6 and 4. So if you happened to be dialing the phone number 664-6464, or sending a message in which you told someone you would meet at 6 p.m. on the 4th floor, the Chinese censors blocked it using their jamming technology.
Mark Steyn, writing in the National Review (October 25, 2004), related a story from the London Arabic newspaper paper Al-Quds al-Arabi about a panic that broke out in Khartoum, Sudan, after a crazy rumor swept the city, claiming that if an infidel shook a man's hand, that man could lose his manhood. “What struck me about the story,” wrote Steyn, “was a detail: The hysteria was spread by cell phones and text messaging. Think about that: You can own a cell phone yet still believe a foreigner's handshake can melt away your penis. What happens when that kind of technologically advanced primitivism advances beyond text messaging?”
This is not a chapter about cell phones, so why do I raise these stories? Because ever since I began writing about globalization, I've been challenged by critics along one particular line: “Isn't there a certain technological determinism to your argument? To listen to you, Friedman, there are these ten flatteners, they are converging and flattening the earth, and there is nothing that people can do but bow to them and join the parade. And after a transition, everyone will get richer and smarter and it will all be fine. But you're wrong, because the history of the world suggests that ideological alternatives, and power alternatives, have always arisen to any system, and globalization will be no different.”
This is a legitimate question, so let me try to answer it directly: I am a technological determinist! Guilty as charged.
I believe that capabilities create intentions. If we create an Internet where people can open an online store and have global suppliers, global customers, and global competitors, they will open that online store or bank or bookshop. If we create work flow platforms that allow companies to disaggregate any job and source it to the knowledge center anywhere in the world that can perform that task most efficiently at the lowest cost, companies will do that sort of outsourcing. If we create cell phones with cameras in them, people will use them for all sorts of tasks, from cheating on tests to calling Grandma in her nursing home on her ninetieth birthday from the top of a mountain in New Zealand. The history of economic development teaches this over and over: If you can do it, you must do it, otherwise your competitors will-and as this book has tried to demonstrate, there is a whole new universe of things that companies, countries, and individuals can and must do to thrive in a flat world.
But while I am a technological determinist, I am not a historical determinist. There is absolutely no guarantee that everyone will use these new technologies, or the triple convergence, for the benefit of themselves, their countries, or humanity. These are just technologies. Using them does not make you modern, smart, moral, wise, fair, or decent. It just makes you able to communicate, compete, and collaborate farther and faster. In the absence of a world-destabilizing war, every one of these technologies will become cheaper, lighter, smaller and more personal, mobile, digital, and virtual. Therefore, more and more people will find more and more ways to use them. We can only hope that more people in more places will use them to create, collaborate, and grow their living standards, not the opposite. But it doesn't have to happen. To put it another way, I don't know how the flattening of the world will come out.
Indeed, this is the point in the book where I have to make a confession: I know that the world is not flat.
Yes, you read me right: I know that the world is not flat. Don't worry. I know.
I am certain, though, that the world has been shrinking and flattening for some time now, and that process has quickened dramatically in recent years. Half the world today is directly or indirectly participating in the flattening process or feeling its effects. I have engaged in literary license in titling this book The World Is Flat to draw attention to this flattening and its quickening pace because I think it is the single most important trend in the world today.
But I am equally certain that it is not historically inevitable that the rest of the world will become flat or that the already flat parts of the world won't get unflattened by war, economic disruption, or politics. There are hundreds of millions of people on this planet who have been left behind by the flattening process or feel overwhelmed by it, and some of them have enough access to the flattening tools to use them against the system, not on its behalf. How the flattening could go wrong is the subject of this chapter, and I approach it by trying to answer the following questions: What are the biggest constituencies, forces, or problems impeding this flattening process, and how might we collaborate better to overcome them?
Too Sick
I once heard Jerry Yang, the cofounder of Yahoo!, quote a senior Chinese government official as saying, “Where people have hope, you have a middle class.” I think this is a very useful insight. The existence of large, stable middle classes around the world is crucial to geopolitical stability, but middle class is a state of mind, not a state of income. That's why a majority of Americans always describe themselves as “middle class,” even though by income statistics some of them wouldn't be considered as such. “Middle class” is another way of describing people who believe that they have a pathway out of poverty or lower-income status toward a higher standard of living and a better future for their kids. You can be in the middle class in your head whether you make $2 a day or $200, if you believe in social mobility-that your kids have a chance to live better than you do-and that hard work and playing by the rules of your society will get you where you want to go.
In many ways, the line between those who are in the flat world and those who are not is this line of hope. The good news in India and China and the countries of the former Soviet Empire today is that, with all their flaws and internal contradictions, these countries are now home to hundreds of millions of people who are hopeful enough to be middle class. The bad news in Africa today, as well as rural India, China, Latin America, and plenty of dark corners of the developed world, is that there are hundreds of millions of people who have no hope and therefore no chance of making it into the middle class. They have no hope for two reasons: Either they are too sick, or their local governments are too broken for them to believe they have a pathway forward.
The first group, those who are too sick, are those whose lives are stalked every day by HIV-AIDS, malaria, TB, and polio, and who do not even enjoy steady electricity or potable water. Many of these people live in shockingly close proximity with the flat world. While in Bangalore I visited an experimental school, Shanti Bhavan, or “Haven of Peace.” It is located near the village of Baliganapalli, in Tamil Nadu Province, about an hour's drive from downtown Bangalore's glass-and-steel high-tech centers-one of which is aptly called “The Golden Enclave.” On the drive there, the school's principal, Lalita Law, an intense, razor-sharp Indian Christian, explained to me, with barely controlled rage in her voice, that the school has 160 children, whose parents are all untouchables from the nearby village.
“These kids, their parents are ragpickers, coolies, and quarry laborers,” she said as we bounced along in a jeep on the potholed roads to the school. “They come from homes below the poverty line, and from the lowest caste, the untouchables, who are supposed to be fulfilling their destiny and left where they are. We get these children at ages four and five. They don't know what it is to have a drink of clean water. They are used to drinking filthy gutter water, if they are lucky enough to have a gutter near where they live. They have never seen a toilet, they don't have baths... They don't even have proper scraps of clothing. We have to start by socializing them. When we first get them they run out and urinate and defecate wherever they want. [At first] we don't make them sleep on beds, because it is a culture shock.”
I was typing frantically in the back of the jeep on my laptop to keep up with her scalding monologue about village life.
“This 'India Shining' thing [the slogan of the ruling Bharatiya Janata Party, BJP, in the 2004 election] irritates people like us,” she added. 'You have to come to the rural villages and see whether India is shining, and you look into a child's face and see whether India is shining. India is shining okay for the glossy magazines, but if you just go outside Bangalore you will see that everything about India shining is refuted... [In the villages] alcoholism is rife and female infanticide and crime are rising. You have to bribe to get electricity, water; you have to bribe the tax assessor to assess your home correctly. Yes, the middle and upper classes are taking off, but the 700 million who are left behind, all they see is gloom and darkness and despair. They are born to fulfill their destiny and have to live this way and die this way. The only thing that shines for them is the sun, and it is hot and unbearable and too many of them die of heatstroke.“ The only ”mouse“ these kids have ever encountered, she added, is not one that rests next to a computer but the real thing.
There are thousands of such villages in rural India, China, Africa, and Latin America. And that is why it is no wonder that children in the developing world-the unflat world-are ten times more likely to die of vaccine-preventable diseases than are children in the developed flat world. In the worst-affected regions of rural southern Africa, a full one-third of pregnant women are reportedly HIV-positive. The AIDS epidemic alone is enough to put a whole society into a tailspin: Many teachers in these African countries are now afflicted with AIDS, so they cannot teach, and young children, especially girls, have to drop out either because they must tend to sick and dying parents or because they have been orphaned by AIDS and cannot afford the school fees. And without education, young people cannot learn how to protect themselves from HIV-AIDS or other diseases, let alone acquire the life-advancing skills that enable women to gain greater control over their own bodies and sexual partners. The prospect of a full-blown AIDS epidemic in India and China, of the sort that has already debilitated southern Africa, remains very real, largely because only one-fifth of the people at risk for HIV worldwide have access to prevention services. Tens of millions of women who want and would benefit from family-planning resources don't have them for lack of local funding. You cannot drive economic growth in a place where 50 percent of the people are infected with malaria or half of the kids are malnourished or a third of the mothers are dying of AIDS.
There is no question that China and India are better off for having at least part of their population in the flat world. When societies begin to prosper, you get a virtuous cycle going: They begin to produce enough food for people to leave the land, the excess labor gets trained and educated, it begins working in services and industry; that leads to innovation and better education and universities, freer markets, economic growth and development, better infrastructure, fewer diseases, and slower population growth. It is that dynamic that is going on in parts of urban India and urban China today, enabling people to compete on a level playing field and attracting investment dollars by the billions.
But there are many, many others living outside this cycle. They live in villages or rural areas that only criminals would want to invest in, regions where violence, civil war, and disease compete with one another to see which can ravage the civilian population most. The world will be entirely flat only when all these people are brought into it. One of the few people with enough dollars to make a difference who has stepped up to this challenge is Microsoft chairman Bill Gates, whose $27 billion Bill and Melinda Gates Foundation has focused on this huge, disease-ravaged, opportunity-deprived population. I have been a critic of some of Microsoft's business practices over the years, and I do not regret one word I have written about some of its anticompetitive tactics. But I have been impressed by Gates's personal commitment of money and energy to address the unflat world. Both times I spoke to Gates, this is the subject he wanted to talk about most and addressed with the most passion.
“No one funds things for that other 3 billion,” said Gates. “Someone estimated that the cost of saving a life in the U.S. is $5 or $6 million— that is how much our society is willing to spend. You can save a life outside of the U.S. for less than $100. But how many people want to make that investment?
“If it was just a matter of time,” Gates continued, “you know, give it twenty or thirty years and the others will be there, then it would be great to declare that the whole world is flat. But the fact is, there is a trap that these 3 billion are caught in, and they may never get into the virtuous cycle of more education, more health, more capitalism, more rule of law, more wealth... I am worried that it could just be half the world that is flat and it stays that way.”
Take malaria, a disease caused by a parasite carried by mosquitoes. It is the greatest killer of mothers on the planet right now. While virtually no one dies of malaria today in the flat world, more than 1 million people die from this disease each year in the unflat world, about seven hundred thousand of them children, most of them in Africa. Deaths from malaria have actually doubled in the last twenty years because mosquitoes have become resistant to many antimalarial drugs, and commercial drug companies have not invested much in new antimalarial vaccines because they believe there is no profitable market for them. If this crisis were happening in a flat country, noted Gates, the system would work: Government would do what it needed to do to contain the disease, pharmaceutical companies would do what they needed to do to get the drugs to market, schools would educate young people about preventive measures, and the problem would be licked. “But this nice response works only when the people who have the problem also have some money,” said Gates. When the Gates Foundation issued a $50 million grant to combat malaria, he added, “people said we just doubled the amount of money [worldwide] going to fight malaria... When the people who have the need don't have the money, it takes outside groups and charities to get them to the point where the system can kick in for them.”
Up to now, though, argued Gates, “we have not given these people a chance [to be in the flat world]. The kid who is connected to the Internet today, if he has the curiosity and an Internet connection, is as [empowered] as me. But if he does not get the right nutrition, he will never play that game. Yes, the world is smaller, but do we really see the conditions that people live in? Isn't the world still really big enough that we don't see the real conditions that people live in, the kid whose life can be saved for $80?”
Let's stop here for a moment and imagine how beneficial it would be for the world, and for America, if rural China, India, and Africa were to grow into little Americas or European Unions in economic and opportunity terms. But the chances of their getting into such a virtuous cycle is tiny without a real humanitarian push by flat-world businesses, philanthropies, and governments to devote more resources to their problems. The only way out is through new ways of collaboration between the flat and unflat parts of the world.
Rule #5: In a flat world, the best companies stay healthy by getting regular chest X-rays and then selling the results to their clients.
Because niche businesses can get turned into vanilla commodity businesses faster than ever in a flat world, the best companies today really do get chest X-rays regularly-to constantly identify and strengthen their niches and outsource the stuff that is not very differentiating. What do I mean by chest X-rays? Let me introduce Laurie Tropiano, IBM's vice president for business consulting services, who is what I would call a corporate radiologist. What Tropiano and her team at IBM do is basically X-ray your company and break down every component of your business and then put it up on a wall-size screen so you can study your corporate skeleton. Every department, every function, is broken out and put in a box and identified as to whether it is a cost for the company or a source of income, or a little of both, and whether it is a unique core competency of the company or some vanilla function that anyone else could do— possibly cheaper and better.
“A typical company has forty to fifty components,” Tropiano explained to me one day at IBM, as she displayed a corporate skeleton up on her screen, “so what we do is identify and isolate these forty to fifty components and then sit down and ask [the company], 'How much money are you spending in each component? Where are you best in class? Where are you differentiated? What are the totally nondifferenti-ated components of your business? Where do you think you have capabilities but are not sure you are ever going to be great there because you'd have to put more money in than you want?'”
When you are done, said Tropiano, you basically have an X-ray of the company, identifying four or five “hot spots.” One or two might be core competencies; others might be skills that the company wasn't fully aware that it even had and that should be built up. Other hot spots on the X-ray, though, might be components where five different departments are duplicating the same functions or services that others outside the company could do better and more cheaply and so should be outsourced-provided there is still a savings to be made once all the costs and disruptions of outsourcing are taken into account.
“So you go look at this [X-ray] and say, 'I have these areas here that are going to be really hot and core,'” says Tropiano, “and then let go of the things that you can outsource, and free up those funds and focus on the projects that could one day be part of your core competency. For the average company, you are doing well if 25 percent is core competency and strategic and really differentiating, and the rest you may continue to do and try to improve or you may outsource.”
I first got interested in this phenomenon when an Internet business news headline caught my eye: “HP bags $150 million India bank contract.” The story on Computerworld.com (February 25, 2004) quoted a statement by HP saying that it had inked a ten-year outsourcing contract with the Bank of India in Mumbai. The $150 million contract was the largest ever won by HP Services in the Asia-Pacific region, according to Natarajan Sundaram, head of marketing for HP Services India. The deal called for HP to implement and manage a core banking system across 750 Bank of India branches. “This is the first time we at HP are looking at the outsourcing of the core banking function in the Asia-Pacific region,” said Sundaram. Several multinational companies competed for the contract, including IBM. Under the contract, HP would take charge of data warehousing and document-imaging technology, telebanking, Internet banking, and automated teller machines for the whole bank chain.
Other stories explained that the Bank of India had been facing increasing competition from both public— and private-sector banks and multinational corporations. It realized that it needed to adopt Web-based banking, standardize and upgrade its computer systems, lower its transaction costs, and generally become more customer-friendly. So it did what any other multinational would do-it gave itself a chest X-ray and decided to outsource all the funtions it did not believe were part of its core competency or that it simply did not have the internal skills to do at the highest level.
Still, when the Bank of India decides to outsource its back room to an American-owned computer company, well, that just seemed too weird for words. “Run that by me again,” I said, rubbing my eyes. “HP, the folks I call when my printer breaks, won the outsourcing contract for managing the back room of India's 750-branch state-owned bank? What in the world does Hewlett-Packard know about running the backroom systems of an Indian bank?”
Out of curiosity, I decided to visit the HP headquarters in Palo Alto to find out. There, I met Maureen Conway, HP's vice president for emerging market solutions, and put the above question directly to her.
“How did we think we could take our internal capabilities and make them good for other people?” she answered rhetorically. In brief, she explained, HP is constantly hosting customer visits, where its corporate clients come to its headquarters and see the innovations that HP has brought to managing its own information systems. Many of those customers go away intrigued at how this big company has adapted itself to the flat world. How, they ask, did HP, which once had eighty-seven different supply chains-each managed vertically and independently, with its own hierarchy of managers and back-office support-compress them into just five supply chains that manage $50 billion in business, and in which functions like accounting, billing, and human resources are handled through a companywide system? What computers and business processes did HP install to consolidate all this efficiently? HP, which does business in 178 countries, used to handle all its accounts payable and receivable for each individual country in that country. It was totally chopped up. Just in the last couple of years, HP created three transaction-processing hubs-in Bangalore, Barcelona, and Guadalajara-with uniform standards and special work flow software that allowed HP offices in all 178 countries to process all billing functions through these three hubs.
Seeing the reaction of its customers to its own internal operations, HP said one day, “Hey, why don't we commercialize this?” Said Conway, “That became the nucleus of our business process outsourcing service... We were doing our own chest X-rays and discovered we had assets that other people cared about, and that is a business.”
In other words, the flattening of the world was both the disease and the cure for the Bank of India. It clearly could not keep up with its competitors in the flattening banking environment of India, and, at the same time, it was able to get a chest X-ray and then outsource to HP all those things that it no longer made sense to do itself. And HP, having done its own chest X-ray, discovered that it was carrying a whole new consulting business inside its breast. Sure, most of the work for the Bank of India will be done by HP employees in India or Bank of India employees who will actually join HP. But some of the profits will find their way back to the mother ship in Palo Alto, which will be supporting the whole operation through its global knowledge supply chain.
Most of HP's revenues today come from outside the United States. But the core HP knowledge and infrastructure teams who can put together the processes that win those contracts-like running the back room of the Bank of India-are still in the United States.
“The ability to dream is here, more than in other parts of the world,” said Conway. “The nucleus of creativity is here, not because people are smarter-it is the environment, the freedom of thought. The dream machine is still here.”
Rule #6: The best companies outsource to win, not to shrink. They outsource to innovate faster and more cheaply in order to grow larger, gain market share, and hire more and different specialists-not to save money by firing more people.
Dov Seidman runs LRN, a business that provides online legal, compliance, and ethics education to employees of global companies and helps executives and board members manage corporate governance responsibilities. We were having lunch in the fall of 2004 when Seidman casually mentioned that he had recently signed an outsourcing contract with the Indian consulting firm MindTree.
“Why are you cutting costs?” I asked him.
“I am outsourcing to win, not to save money,” Seidman answered. “Go to our Web site. I currently have over thirty job openings, and these are knowledge jobs. We're expanding. We're hiring. I am adding people and creating new processes.”
Seidman's experience is what most outsourcing is actually about— companies outsourcing to acquire knowledge talent to grow their business faster, not simply to cut costs and cut back. Seidman's company is a leader in one of those completely new industries that just appeared in the flat world-helping multinationals foster an ethical corporate culture around an employee base spread all over the world. Although LRN is a BE company-founded ten years before Enron exploded-demand for its services surged in the PE era-post-Enron. In the wake of the collapse of Enron and other corporate governance scandals, a lot more companies became interested in what LRN was offering-online programs for companies to forge common expectations and understandings of their legal and ethical responsibilities, from the boardroom to the factory floor. When companies sign up with LRN, their employees are given an online education, including tests that cover everything from your company's code of conduct to when you are allowed to accept a gift to what you need to think about before hitting Send on an e-mail to what constitutes a bribe of a foreign official.
As the whole issue of corporate governance began to mushroom in the early 2000s, Seidman realized that his customers, much like E*Trade, would need a more integrated platform. While it was great that he was educating their employees with one online curriculum and advising boards on ethics issues with another, he knew that company executives would want a one-stop Web-based interface where they could get a handle on all the governance and ethics issues facing their organizations— whether it was employee education, the reporting of any anomalous behavior, stewardship of a hard-earned corporate reputation, or government compliance-and where they could get immediate visibility into where their company stood.
So Seidman faced a double challenge. He needed to do two things at once: keep growing his market share in the online compliance education industry, and design a whole new integrated platform for the companies he was already working with, one that would require a real technological leap. It was when faced with this challenge that he decided to enlist MindTree, the Indian consulting firm, in an outsourced relationship that offered him about five well-qualified software engineers for the price of one in America.
“Look,” said Seidman, “when things are on sale, you tend to buy more. MindTree offered a sale not on last season's closeout, but on top-notch software engineering talent that I would have been hard-pressed to find elsewhere. I needed to spend a lot of money defending and extending my core business and continue to take care of my customers, who were working off my current programs. And at the same time, I had to make a giant leap to offer my customers what they were asking for next, which was a much more robust and total online solution to all their ethics, governance, and compliance questions. If I don't meet their needs, someone else will. Partnering with MindTree allows me to basically have two teams-one team [mostly Americans] that is focused on defending and extending our core business, and the other team, including our Indian consultants, focused on making our next strategic leap to grow our business.”
Since ethics is at the core of Seidman's Los Angeles-headquartered business, how he went about outsourcing was as important as the ultimate results of the relationship. Rather than announcing the MindTree partnership as a done deal, Seidman conducted an all-hands town hall meeting of his 170 or so employees to discuss the outsourcing he had in mind. He laid out all the economic arguments, let his staff weigh in, and gave everyone a picture of which jobs would be needed in the future and how people could prepare themselves to fit in. “I needed to show my company that this is what it would take to win,” he said.
Have no doubt, there are firms that do and will outsource good jobs just to save money and disperse it to shareholders or management. To think that is not happening or will not happen is beyond naive. But firms that are using outsourcing primarily as a tool to cut costs, not enhance innovation and speed growth, are the minority, not the majority-and I would not want to own stock in any of them. The best companies are finding ways to leverage the best of what is in India with the best of what is in North Dakota with the best of what is in Los Angeles. In that sense, the word “outsourcing” should really be retired. The applicable word is really “sourcing.” That is what the flat world both enables and demands, and the companies that do sourcing right end up with bigger market shares and more employees everywhere-not smaller and fewer.
“This is about trying to get bigger faster, about how we make our next leap in less time with greater assurance of success,” said Seidman of his decision to source critical areas of development of his new platform to MindTree. “It is not about cutting corners. We have over two hundred clients all over the world now. If I can grow this company the way that I want to, I will be able to hire even more people in all our current offices, promote even more people, and give our current employees even more opportunities and more rewarding career paths-because LRN's agenda is going to be broader, more complex and more global... We are in a very competitive space. This [decision to use outsourcing] is all about playing offense, not defense. I am trying to run up the score before it's run up on me.”
Rule #7: Outsourcing isn't just for Benedict Arnolds. It's also for idealists.
One of the newest figures to emerge on the world stage in recent years is the social entrepreneur. This is usually someone who burns with desire to make a positive social impact on the world, but believes that the best way of doing it is, as the saying goes, not by giving poor people a fish and feeding them for a day, but by teaching them to fish, in hopes of feeding them for a lifetime. I have come to know several social entrepreneurs in recent years, and most combine a business school brain with a social worker's heart. The triple convergence and the flattening of the world have been a godsend for them. Those who get it and are adapting to it have begun launching some very innovative projects.
One of my favorites is Jeremy Hockenstein, a young man who first followed a time-honored path of studying at Harvard and going to work for the McKinsey consulting firm, but then, with a colleague from McKinsey, veered totally off course and decided to start a not-for-profit data-entry firm that does outsourced data entry for American companies in one of the least hospitable business environments in the world, post-Pol Pot Cambodia.
Only in a flat world!
In February 2001, Hockenstein and some colleagues from McKinsey decided to go to Phnom Penh, half on vacation and half on a scouting mission for some social entrepreneurship. They were surprised to find a city salted with Internet cafes and schools for learning English-but with no jobs, or at best limited jobs, for those who graduated.
“We decided we would leverage our connections in North America to try to bridge the gap and create some income-generating opportunities for people,” Hockenstein said. That summer, after another trip funded by themselves, Hockenstein and his colleagues opened Digital Divide Data, with a plan to start a small operation in Phnom Penh that would do data entry-hiring locals to type into computers printed materials that companies in the United States wanted in digitized form, so that it could be stored on databases and retrieved and searched on computers. The material would be scanned in the United States and the files transmitted over the Internet. Their first move was to hire two local Cambodian managers. Hockenstein's partner from McKinsey, Jaeson Rosenfeld, went to New Delhi and knocked on the doors of Indian data-entry companies to see if he could find one -just one-that would take on his two Cambodian managers as trainees. Nine of the Indian companies slammed their doors. The last thing they wanted was even lower-cost competition emerging in Cambodia. But a generous Hindu soul agreed, and Hockenstein got his managers trained. They then hired their first twenty data-entry operators, many of whom were Cambodian war refugees, and bought twenty computers and an Internet line that cost them $100 a month. The project was financed with $25,000 of their own money and a $25,000 grant from a Silicon Valley foundation. They opened for business in July 2001, and their first work assignment was for the Harvard Crimson, Harvard's undergraduate daily newspaper.
“The Crimson was digitizing their archives to make them available online, and because we were Harvard grads they threw some business our way,” said Hockenstein. “So our first project was having Cambodians typing news articles from the Harvard Crimson from 1873 to 1899, which reported on Harvard-Yale crew races. Later, actually, when we got to the years 1969 to 1971, when the turmoil in Cambodia was all happening, they were typing [Crimson stories] about their own story... We would convert the old Crimsons, which were on microfilm, to digital images in the United States through a company in Oklahoma that specialized in that sort of thing, and then we would just transfer the digital images to Cambodia by FTP [file transfer protocol]. Now you can go to thecrimson.com and download these stories.” The Cambodian typists did not have to know English, only how to type English characters; they worked in pairs, each typing the same article, and then the computer program compared their work to make sure that there were no errors.
Hockenstein said that each of the typists works six hours a day, six days a week, and is paid $75 a month, twice the minimum wage in Cambodia, where the average annual income is less than $400. In addition, each typist receives a matching scholarship for the rest of the workday to go to school, which for most means completing high school but for some has meant going to college. “Our goal was to break the vicious cycle there of [young people] having to drop out of school to support families,” said Hockenstein. “We have tried to pioneer socially responsible outsourcing. The U.S. companies working with us are not just saving money they can invest somewhere else. They are actually creating better lives for some of the poor citizens of the world.”
Four years after starting up, Digital Divide Data now has 170 employees in three offices: Phnom Penh; Battambang, the second-largest city in Cambodia; and a new office in Vientiane, Laos. “We recruited our first two managers in Phnom Penh and sent them to India to get trained in data entry, and then, when we opened the Laos office, we recruited two managers who were trained by our staff in the Phnom Penh office,” Hockenstein said.
This tree has scattered all kinds of seeds. Besides the Harvard Crimson, one of the biggest sources of data-entry work was NGOs, which wanted the results of their surveys about health or families or labor conditions digitized. So some of the first wave of Digital Divide Data's Cambodian workers left the company and spun off their own firm to design databases for NGOs that want to do surveys! Why? Because while they were working for Digital Divide Data, said Hockenstein, they kept getting survey work from NGOs that needed to be digitized, but because the NGOs had not done enough work in advance to standardize all the data they were collecting, it was very hard to digitize in any efficient manner. So these Cambodian workers realized that there was value earlier in the supply chain and that they could get paid more for it-not for typing but for designing standardized formats for NGOs to collect survey data, which would make the surveys easier and cheaper to digitize, collate, and manipulate. So they started their own company to do just that-out of Cambodia.
Hockenstein argued that none of the jobs being done in Cambodia came from the United States. This sort of basic data-entry work got outsourced to India and the Caribbean a long time ago, and, if anywhere, that is where the jobs were taken from. But none of this would have been possible to set up in Cambodia a decade ago. It all came together in just the last few years.
“My partner is a Cambodian,” said Hockenstein. “His name is Sophary, and until 1992 he was living in a refugee camp on the Cambodia-Thai border while I was living in Harvard Square as an un-dergrad. We were worlds apart. After the UN peace treaty [in Cambodia], he walked home ten days to his village, and now today he lives in Phnom Penh running Digital Divide Data's office.” They now instant-message each other each night to collaborate in the delivery of services to people and companies around the world. The type of collaboration that is possible today “allows us to be partners and equals,” said Hockenstein. “It is not one of us dominating the other; it is real collaboration that is creating better futures for the people at the bottom and the top. It is making my life more meaningful and creating concrete opportunities for people living on a dollar or two a day... We see the self-respect and confidence that blossoms in people who never before would have had an on-ramp into the global economy.”
So Hockenstein and his partners are getting calls now from Mongolia, Pakistan, Iran, and Jordan from people who want to provide IT services to the world and are wondering how they can get started. In mid-2004, a client approached Digital Divide Data to digitize an English-Arabic dictionary. Around the same time, Hockenstein's office received an unsolicited e-mail from a company in Iran that was running a data-entry firm there. “They found us through a Google search in trying to find ways of expanding their local data-entry business beyond the borders of Iran,” said Hockenstein. So Hockenstein asked the Iranians whether they could do an English-Arabic dictionary, even though the language of Iran is Farsi, which uses some but not all of the same letters as Arabic. “He said they could,” said Hockenstein, “so we partnered on a joint project for this client to digitize an Arabic dictionary.” What I like most about the story, and why it is so telling of the flat world, is Hockenstein's kicker: “I still have never met the guy [in Iran]. We did the whole deal over Yahoo! instant messenger and e-mail. We wired him the money through Cambodia... I invited him to my wedding, but he wasn't able to come.”
Geopolitics and the Flat World
ELEVEN: The Unflat World, No Guns or Cell Phones Allowed
To build may have to be the slow and laborious task of years. To destroy can be the thoughtless act of a single day.On a trip back home to Minnesota in the winter of 2004, I was having lunch with my friends Ken and Jill Greer at Perkins pancake house when Jill mentioned that the state had recently passed a new gun law. The conceal and carry law, passed on May 28, 2003, established that local sheriffs had to issue permits for anyone-other than those with felony records or declared mentally ill-who requested to carry concealed firearms to work (unless the person's employer explicitly restricted that right). This law is supposed to deter criminals, because if they try to hold you up, they can't be sure that you too are not packing a weapon. The law, though, contained a provision to allow business owners to prevent nonemployees from bringing concealed weapons into a place of business, like a restaurant or health club. It said that any business could ban concealed handguns on its premises if it posted a sign at each entrance indicating that guns were not allowed there. (This reportedly led to some very creative signage, with one church suing the state for the right to use a biblical quote as its gun-banning sign and a restaurant using a picture of a woman in a cooking apron toting a machine gun.) The reason this all came up at our lunch was that Jill mentioned that at health clubs around the city, where she played tennis, she noticed two signs now popping up regularly, one right after the other. At their tennis club in Bloomington, for example, there is a sign right by the front door that says, “No Guns Allowed.” And then nearby, outside the locker rooms, is another sign: “No Cell Phones Allowed.”
—Sir Winston Churchill
Hmrara. No guns or cell phones allowed? Guns I understand, I said, but why cell phones?
Silly me. It was because some people were bringing cell phones with cameras into locker rooms, covertly taking pictures of naked men and women and then e-mailing them around the world. What will they think of next? Whatever the innovation, people will find a way to use it and abuse it.
While interviewing Promod Haque at Norwest Venture Partners in Palo Alto, I was helped by the firm's public relations director, Katie Belding, who later sent me this e-mail: “I was chatting with my husband about your meeting with Promod the other day... He is a history teacher at a high school in San Mateo. I asked him, 'Where were you when the world went flat?' He said it just happened the other day at school when he was in a faculty meeting. A student was suspended for helping another student cheat on a test-we're not talking the traditional writing answers on the bottom of your shoe or passing a note, though...” Intrigued, I called her husband, Brian, and he picked up the story: “At the end of the period, when all of the tests were being passed up to the front of the classroom, this student very quickly and slyly pulled out his cell phone and somehow snapped a picture of some test questions, and instantly e-mailed it to his friend who was taking the same test the next period. His friend also had a cell phone with a digital camera and e-mail capabilities and was apparently able to view the questions before the next period. The student was caught by another teacher when he pulled out the cell phone between periods. It is against the rules to have a cell phone on campus-even though we know that all the kids do-so the teacher confiscated it and saw that the kid had a test on it. So the dean of discipline, at our regular faculty meeting, opened by saying, 'We have something new to worry about.' Essentially he said, 'Beware, keep your eyes open, because the kids are so far ahead of us in terms of the technology.'”
But things aren't all bad with this new technology, noted Brian: “I went to a Jimmy Buffett concert earlier this year. Cameras were not allowed, but cell phones were. So then the concert starts and everyone suddenly starts holding up their cell phones and taking pictures of Jimmy Buffett. I've got one right on my wall. We were sitting in the second row and the guy next to us held up his cell phone, and I said, 'Hey, would you mind e-mailing me some of those? No one will believe we sat this close.' He said 'Sure,' and we gave him a card with our e-mail [address]. We didn't really expect to see any, but the next day he e-mailed us a bunch.”
My trip to Beijing described earlier fell right after the fifteenth anniversary of the Tiananmen Square massacre, which happened on June 4, 1989, that is, 6/4/89. My colleagues at the Times bureau informed me that on that day the Chinese government censors were blocking SMS messages on cell phones that contained any reference to Tiananmen Square or even the numbers 6 and 4. So if you happened to be dialing the phone number 664-6464, or sending a message in which you told someone you would meet at 6 p.m. on the 4th floor, the Chinese censors blocked it using their jamming technology.
Mark Steyn, writing in the National Review (October 25, 2004), related a story from the London Arabic newspaper paper Al-Quds al-Arabi about a panic that broke out in Khartoum, Sudan, after a crazy rumor swept the city, claiming that if an infidel shook a man's hand, that man could lose his manhood. “What struck me about the story,” wrote Steyn, “was a detail: The hysteria was spread by cell phones and text messaging. Think about that: You can own a cell phone yet still believe a foreigner's handshake can melt away your penis. What happens when that kind of technologically advanced primitivism advances beyond text messaging?”
This is not a chapter about cell phones, so why do I raise these stories? Because ever since I began writing about globalization, I've been challenged by critics along one particular line: “Isn't there a certain technological determinism to your argument? To listen to you, Friedman, there are these ten flatteners, they are converging and flattening the earth, and there is nothing that people can do but bow to them and join the parade. And after a transition, everyone will get richer and smarter and it will all be fine. But you're wrong, because the history of the world suggests that ideological alternatives, and power alternatives, have always arisen to any system, and globalization will be no different.”
This is a legitimate question, so let me try to answer it directly: I am a technological determinist! Guilty as charged.
I believe that capabilities create intentions. If we create an Internet where people can open an online store and have global suppliers, global customers, and global competitors, they will open that online store or bank or bookshop. If we create work flow platforms that allow companies to disaggregate any job and source it to the knowledge center anywhere in the world that can perform that task most efficiently at the lowest cost, companies will do that sort of outsourcing. If we create cell phones with cameras in them, people will use them for all sorts of tasks, from cheating on tests to calling Grandma in her nursing home on her ninetieth birthday from the top of a mountain in New Zealand. The history of economic development teaches this over and over: If you can do it, you must do it, otherwise your competitors will-and as this book has tried to demonstrate, there is a whole new universe of things that companies, countries, and individuals can and must do to thrive in a flat world.
But while I am a technological determinist, I am not a historical determinist. There is absolutely no guarantee that everyone will use these new technologies, or the triple convergence, for the benefit of themselves, their countries, or humanity. These are just technologies. Using them does not make you modern, smart, moral, wise, fair, or decent. It just makes you able to communicate, compete, and collaborate farther and faster. In the absence of a world-destabilizing war, every one of these technologies will become cheaper, lighter, smaller and more personal, mobile, digital, and virtual. Therefore, more and more people will find more and more ways to use them. We can only hope that more people in more places will use them to create, collaborate, and grow their living standards, not the opposite. But it doesn't have to happen. To put it another way, I don't know how the flattening of the world will come out.
Indeed, this is the point in the book where I have to make a confession: I know that the world is not flat.
Yes, you read me right: I know that the world is not flat. Don't worry. I know.
I am certain, though, that the world has been shrinking and flattening for some time now, and that process has quickened dramatically in recent years. Half the world today is directly or indirectly participating in the flattening process or feeling its effects. I have engaged in literary license in titling this book The World Is Flat to draw attention to this flattening and its quickening pace because I think it is the single most important trend in the world today.
But I am equally certain that it is not historically inevitable that the rest of the world will become flat or that the already flat parts of the world won't get unflattened by war, economic disruption, or politics. There are hundreds of millions of people on this planet who have been left behind by the flattening process or feel overwhelmed by it, and some of them have enough access to the flattening tools to use them against the system, not on its behalf. How the flattening could go wrong is the subject of this chapter, and I approach it by trying to answer the following questions: What are the biggest constituencies, forces, or problems impeding this flattening process, and how might we collaborate better to overcome them?
Too Sick
I once heard Jerry Yang, the cofounder of Yahoo!, quote a senior Chinese government official as saying, “Where people have hope, you have a middle class.” I think this is a very useful insight. The existence of large, stable middle classes around the world is crucial to geopolitical stability, but middle class is a state of mind, not a state of income. That's why a majority of Americans always describe themselves as “middle class,” even though by income statistics some of them wouldn't be considered as such. “Middle class” is another way of describing people who believe that they have a pathway out of poverty or lower-income status toward a higher standard of living and a better future for their kids. You can be in the middle class in your head whether you make $2 a day or $200, if you believe in social mobility-that your kids have a chance to live better than you do-and that hard work and playing by the rules of your society will get you where you want to go.
In many ways, the line between those who are in the flat world and those who are not is this line of hope. The good news in India and China and the countries of the former Soviet Empire today is that, with all their flaws and internal contradictions, these countries are now home to hundreds of millions of people who are hopeful enough to be middle class. The bad news in Africa today, as well as rural India, China, Latin America, and plenty of dark corners of the developed world, is that there are hundreds of millions of people who have no hope and therefore no chance of making it into the middle class. They have no hope for two reasons: Either they are too sick, or their local governments are too broken for them to believe they have a pathway forward.
The first group, those who are too sick, are those whose lives are stalked every day by HIV-AIDS, malaria, TB, and polio, and who do not even enjoy steady electricity or potable water. Many of these people live in shockingly close proximity with the flat world. While in Bangalore I visited an experimental school, Shanti Bhavan, or “Haven of Peace.” It is located near the village of Baliganapalli, in Tamil Nadu Province, about an hour's drive from downtown Bangalore's glass-and-steel high-tech centers-one of which is aptly called “The Golden Enclave.” On the drive there, the school's principal, Lalita Law, an intense, razor-sharp Indian Christian, explained to me, with barely controlled rage in her voice, that the school has 160 children, whose parents are all untouchables from the nearby village.
“These kids, their parents are ragpickers, coolies, and quarry laborers,” she said as we bounced along in a jeep on the potholed roads to the school. “They come from homes below the poverty line, and from the lowest caste, the untouchables, who are supposed to be fulfilling their destiny and left where they are. We get these children at ages four and five. They don't know what it is to have a drink of clean water. They are used to drinking filthy gutter water, if they are lucky enough to have a gutter near where they live. They have never seen a toilet, they don't have baths... They don't even have proper scraps of clothing. We have to start by socializing them. When we first get them they run out and urinate and defecate wherever they want. [At first] we don't make them sleep on beds, because it is a culture shock.”
I was typing frantically in the back of the jeep on my laptop to keep up with her scalding monologue about village life.
“This 'India Shining' thing [the slogan of the ruling Bharatiya Janata Party, BJP, in the 2004 election] irritates people like us,” she added. 'You have to come to the rural villages and see whether India is shining, and you look into a child's face and see whether India is shining. India is shining okay for the glossy magazines, but if you just go outside Bangalore you will see that everything about India shining is refuted... [In the villages] alcoholism is rife and female infanticide and crime are rising. You have to bribe to get electricity, water; you have to bribe the tax assessor to assess your home correctly. Yes, the middle and upper classes are taking off, but the 700 million who are left behind, all they see is gloom and darkness and despair. They are born to fulfill their destiny and have to live this way and die this way. The only thing that shines for them is the sun, and it is hot and unbearable and too many of them die of heatstroke.“ The only ”mouse“ these kids have ever encountered, she added, is not one that rests next to a computer but the real thing.
There are thousands of such villages in rural India, China, Africa, and Latin America. And that is why it is no wonder that children in the developing world-the unflat world-are ten times more likely to die of vaccine-preventable diseases than are children in the developed flat world. In the worst-affected regions of rural southern Africa, a full one-third of pregnant women are reportedly HIV-positive. The AIDS epidemic alone is enough to put a whole society into a tailspin: Many teachers in these African countries are now afflicted with AIDS, so they cannot teach, and young children, especially girls, have to drop out either because they must tend to sick and dying parents or because they have been orphaned by AIDS and cannot afford the school fees. And without education, young people cannot learn how to protect themselves from HIV-AIDS or other diseases, let alone acquire the life-advancing skills that enable women to gain greater control over their own bodies and sexual partners. The prospect of a full-blown AIDS epidemic in India and China, of the sort that has already debilitated southern Africa, remains very real, largely because only one-fifth of the people at risk for HIV worldwide have access to prevention services. Tens of millions of women who want and would benefit from family-planning resources don't have them for lack of local funding. You cannot drive economic growth in a place where 50 percent of the people are infected with malaria or half of the kids are malnourished or a third of the mothers are dying of AIDS.
There is no question that China and India are better off for having at least part of their population in the flat world. When societies begin to prosper, you get a virtuous cycle going: They begin to produce enough food for people to leave the land, the excess labor gets trained and educated, it begins working in services and industry; that leads to innovation and better education and universities, freer markets, economic growth and development, better infrastructure, fewer diseases, and slower population growth. It is that dynamic that is going on in parts of urban India and urban China today, enabling people to compete on a level playing field and attracting investment dollars by the billions.
But there are many, many others living outside this cycle. They live in villages or rural areas that only criminals would want to invest in, regions where violence, civil war, and disease compete with one another to see which can ravage the civilian population most. The world will be entirely flat only when all these people are brought into it. One of the few people with enough dollars to make a difference who has stepped up to this challenge is Microsoft chairman Bill Gates, whose $27 billion Bill and Melinda Gates Foundation has focused on this huge, disease-ravaged, opportunity-deprived population. I have been a critic of some of Microsoft's business practices over the years, and I do not regret one word I have written about some of its anticompetitive tactics. But I have been impressed by Gates's personal commitment of money and energy to address the unflat world. Both times I spoke to Gates, this is the subject he wanted to talk about most and addressed with the most passion.
“No one funds things for that other 3 billion,” said Gates. “Someone estimated that the cost of saving a life in the U.S. is $5 or $6 million— that is how much our society is willing to spend. You can save a life outside of the U.S. for less than $100. But how many people want to make that investment?
“If it was just a matter of time,” Gates continued, “you know, give it twenty or thirty years and the others will be there, then it would be great to declare that the whole world is flat. But the fact is, there is a trap that these 3 billion are caught in, and they may never get into the virtuous cycle of more education, more health, more capitalism, more rule of law, more wealth... I am worried that it could just be half the world that is flat and it stays that way.”
Take malaria, a disease caused by a parasite carried by mosquitoes. It is the greatest killer of mothers on the planet right now. While virtually no one dies of malaria today in the flat world, more than 1 million people die from this disease each year in the unflat world, about seven hundred thousand of them children, most of them in Africa. Deaths from malaria have actually doubled in the last twenty years because mosquitoes have become resistant to many antimalarial drugs, and commercial drug companies have not invested much in new antimalarial vaccines because they believe there is no profitable market for them. If this crisis were happening in a flat country, noted Gates, the system would work: Government would do what it needed to do to contain the disease, pharmaceutical companies would do what they needed to do to get the drugs to market, schools would educate young people about preventive measures, and the problem would be licked. “But this nice response works only when the people who have the problem also have some money,” said Gates. When the Gates Foundation issued a $50 million grant to combat malaria, he added, “people said we just doubled the amount of money [worldwide] going to fight malaria... When the people who have the need don't have the money, it takes outside groups and charities to get them to the point where the system can kick in for them.”
Up to now, though, argued Gates, “we have not given these people a chance [to be in the flat world]. The kid who is connected to the Internet today, if he has the curiosity and an Internet connection, is as [empowered] as me. But if he does not get the right nutrition, he will never play that game. Yes, the world is smaller, but do we really see the conditions that people live in? Isn't the world still really big enough that we don't see the real conditions that people live in, the kid whose life can be saved for $80?”
Let's stop here for a moment and imagine how beneficial it would be for the world, and for America, if rural China, India, and Africa were to grow into little Americas or European Unions in economic and opportunity terms. But the chances of their getting into such a virtuous cycle is tiny without a real humanitarian push by flat-world businesses, philanthropies, and governments to devote more resources to their problems. The only way out is through new ways of collaboration between the flat and unflat parts of the world.