The World Is Flat

January 30, 2008

THE WORLD IS FLAT

The world we live in today is going through enormous changes in economics, technology, culture, politics, etc. The effects of the changes are not so clear, since it is hard to predict how each sector would affect the other and how society will be affected. However, analyzing past and present occurrences provides some information for experts to interpret society’s reaction in the future to different transformations. Globalization can be seen as a process in which societies around the world come together and expand through the combination of different forces. This paper will explore the effects of globalization on US companies, US society and economy, and the implications for other countries in the post-industrial world.

How it All Started

As Thomas Friedman explains in his book “The World is Flat”, globalization started “when Columbus set sail, opening trade between the Old World and the New World.” Afterwards, “multinational companies went global for markets and labor,” and around the year 2000, individuals were the ones who got into the global world. Today, individuals and small groups easily enter the global market, collaborate, and compete - a process described by Friedman as “the flattening of the world.”

According to Friedman, the fall of the Soviet Union and the Berlin Wall has shaped the face of the world tremendously. The US was the only “super power” left in the world, gaining a new status, which gave it political freedom, and helped it push towards a free global market. US multinational companies began entering European markets, and many US companies started investing on Research and Development (R&D) in countries like China and Japan.

The Flattener Forces

When Friedman talks about some of the forces that “flattened the world,” he mentions uploading, outsourcing, offshoring, supply chaining, insourcing, and in-forming. These forces are the direct result of advanced technology. Moreover, the forces were made possible thanks to the World Wide Web (which is another force Friedman mentions). Technology and Internet are the real reasons our world became flat, and the reason the above flattener forces evolved. Companies, groups, and individuals – all connected together to form one global village. US companies started to outsource the back rooms of accounting firms and forwarding Dell customers to the 24/7 call center located in India. US companies were able to reduce cost, while making India a “customer service nation” and China a “low labor cost nation”.

Implications of a Flat World

US and other developed countries have moved their production structures from agriculture to industry to services. Once reaching a peak, US employment has started to decline. The continued progress in manufacturing and productivity, income growth, and international outsourcing brought the US economy to a tough position in the post-industrial world: while manufacturing plant investment abroad has continued, many engineers in the US lost their positions. The decline in research contribution by US industry ”raises questions about implications for the future of US competitiveness in international markets and for the future existence of highly skilled jobs at home” (National Science Board, 2008).

But free trade and globalization have their benefits as well. The theory of comparative advantage, developed by the economist David Ricardo, suggests that if each country specializes in what it has a cost advantage over the others, and trades with one another, each will gain in trade, and the overall income should go up. Therefore, Friedman argues, the flattening of the world will still benefit Americans as long as education level rises, so Americans can compete for new jobs that emerge in the flat world.

Companies that want to survive the globalization process will have to be prepared to change, writes Friedman. Companies will have to come up with new strategies to handle new conditions. Competition will increase due to globalization, and if one company cannot deal with the world’s fast pace, another company will take over instead. The key word in the global era is innovation, the technological breakthrough that enhances the standard of living. The US has to do everything in its power to keep the innovations coming in order to compete. Other developed countries have started closing the gap with the US, and are engaging in research institutions and infrastructure. However, the increase in R&D of foreign nations does not necessarily mean it will bring the US economy down. Living