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The World is Flat
Thomas L. Friedman
Introduction3 eras of Globalization• 1492 - 1800 Columbus and the new world 1.0• 1800 – 2000 world shrank from medium to small 2.0• 2000 - ? Small to tiny…. 3.0
Flat world, convergence of PC, fiber optics, and work flow software
Occurred around 20003.0 differs from earlier eras
Introduction1.0, 2.0 driven by European, US individuals and business
3.0 non-western, non-white, diverse group
MphasiS Indian accountants able to do outsourced accounting work from any US state and govt. CPA firms send work
2003 - 25,000 US tax returns
2004 – 100,000
2005 – 400,000 done in India!
Virtual Tax Room software developed
IntroductionWhat will stay in US?
“the accountant who wants to stay in business will be the one who focuses on creative, complex strategies, like tax avoidance or tax sheltering, managing customer relationships”
70,000 accounting grads starting at $100/month
In 10 years Indians will be doing a lot of what is now done in the US
IntroductionAdvances in compression technology, CAT scans transmitted to India using Internet
Some medium hospitals in US radiologists outsource reading CAT scans to doctors in India and Australia
Reuters has 2300 journalists, 197 bureaus
provides breaking news (earnings etc)
hired 6 reporters in Bangalore, for flash headlines, tables
They have technical and financial skills
IntroductionA company releases its earnings to Reuters, Dow Jones, Bloomberg; race to be first
Wages and rents in Bangalore less than 1/5th Western capitals
2004 Reuters 300 employees; goal: 1500
Analyst in Bangalore earns $15,000 $80,000 in NY, London
Off-shoring1960’s in New London (CT), parents worked at Electric Boat, Navy Yard, Coast Guard
Skills went out of use; region changed; mill towns saw mills close
Change is hard; but change is natural
Current hot debate about off-shoring similar to debate at Electric Boat 50 years ago
Work goes where it can be done effectively and efficiently
Off-shoring24/7 Call Center in Bangalore– 2500 work phones selling credit cards,etc– Tracing lost luggage– Computer help desks– Calls transferred by satellite, fiber optic– Dell, Microsoft as customers
Children starting salaries higher than parents retiring income
Employees keep US time
245,000 Indians answering phones
Off-shoring24/7: 4000 employees in S. India– $200/month for 6 months– $300-400 after that + transportation, meals, life
insurance, medical coverage for family– Total cost closer to $600 – 700/month
Employees are trained to sound American, learn local shows and weather etc…24/7 runs MS Windows, on PCs with Intel chips, phones from Lucent, A/C by Carrier, and bottled water from Coca-Cola.90% 24/7 shares owned by US investorsUS lost some jobs, exports TO India from 2.5 to 5 billion in 2003
Off-Shoring225 Texas Instruments US patents to Indian operation
Bangalore is developing high speed broadband wireless technology
Because of time difference, while US sleeps, they work, ready in the morning
Off-shoringJapan outsourcing low-end jobs to Chinese (who speak Japanese)
Japan once colonized China
China is focused on leading the world, and will take all the work the Japanese outsource
Dalian is the locus of outsourcing
Japanese hire 3 Chinese software engineers for one Japanese
2800 Japanese Cos in China
Off-shoringDalian has 22 Universities, 200,000 students
> 50% engineering or science grads
They spend a year studying Japanese or English
Japan moved R&D, software development here, US Cos also exploring Dalian
Their English not as good as India, but they pick from a larger pool
Off-shoringNeeleman, Jetblue CEO started ‘homesourcing’
400 reservations agents working from home
2004, Friedman in Baghdad– Soldier monitoring images from a laptop– US Drone over Iraqi village feeding images to
laptop– Drone flown by expert in Las Vegas– Images viewed by: marines, US Command
(Tampa), Central Command HQ (Qatar), Pentagon, and CIA
– Technology flattened the hierarchy; battlefield leveled
ChangesForrester Research projecting over 3 million service and professional jobs would move out of the US by 2015
Interstate Highway 55 in Cape Girardeau, MO – drive through lane of a McDonald’s taking
orders, is not even in the restaurant or even in this state
– The order taker is in a call center Colorado Springs, 900 miles away
ChangesMcD’s Mo: software cuts order time by > 30 seconds, to one minute 5 seconds, less than half of the average two minutes and 36 sec for all McD
This Drive-through now handles 260 cars per hour
More Changes
Namitha in Cochin, India, starts her day before 4:30 a.m. – 7000 miles away near Chicago, 14 year-old
John sits at his computer ready for his hour- long geometry lesson - E-tutoring
– Namitha works for Growing Stars– 1000s of Indian teachers coach US. students in
math, science or English for about $20/hour instead of $400 in the U S
Friedman considers changes as fundamental as Gutenberg’s Printing Press
How the World became Flat1. Flattener 1. 11/9/89 Berlin Wall2. 8/9/95 – connectivity; web, Netscape3. Work flow software4. Uploading5. Outsourcing 6. Off-shoring7. Supply chaining8. Insourcing 9. In-forming10. The steroidsThe triple convergence
Flattener 1: The Wall comes downCommunism makes people equally poor, Capitalism makes people unequally rich
Berlin wall collapse ripple effect reaches India
1991 India out of hard currency, PM opened economy
Trade controls abolished, 3 % growth 1994 7 % growth
World appears more seamless
Flattener 1Amartya Sen (Nobel Economist): “Berlin wall not only kept people inside East Germany, it prevented a global view of the future… we could not think of the world as a whole.”
“Women’s freedom, which promotes literacy, tends to reduce fertility, child mortality, increase employment opportunities for women, …”
Flattener 1Wall collapse allowed adoption of common standards
Common standards create flatter, more level playing field
Paved way for European Union, Euro
Cause of collapse not clear– Information revolution began in 1980s– Totalitarian systems had monopoly on information and
force– Ordinary people could access computing – Rise in Windows, Apples, fall of Wall, set flattening in
motion
Flattener 1PCs made content in digital form
One person with a typewriter vs with a PC
Gave individuals power to create/disseminate information
Windows translated into 38 languages; PC in their own language
Emails through ISPs
No way to stop digital representation of everything – and a global exchange
Flattener 1“Breakthrough constrained by architectural limits… missing infrastructure” Mundie, MS ExecInternet not yet emergedBin Laden, Reagan saw Soviets as “evil empire”Bin Laden saw US as evil too; his alternative to market capitalism – political IslamMany in Muslim lands thought they brought the Wall down through religious zeal