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The Flat World Debate Revisited


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Thomas Friedman's The World Is Flat: A Brief History of the Twenty-First Century has sold millions of copies and picked up numerous accolades. But his thesis has not gone uncontested, especially in academic circles. IESE Business School professor Pankaj Ghemawat has been a particularly vocal critic--coining the term "globaloney" to refer to the exaggerated perception that the world is flat. Who is right?

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The Flat World Debate Revisited

  1. 1. ONLINE MAY 6, 2013strategy+businessThe Flat World DebateRevisitedThe opposing views of Thomas Friedman and Pankaj Ghemawat on thestate of globalization have significant implications for multinationals.BY JOHN JULLENS
  2. 2. www.strategy-business.com1The success of Thomas Friedman’s The World IsFlat: A Brief History of the Twenty-First Centuryis nothing short of astonishing. First publishedin 2005 by Farrar, Straus and Giroux, it’s since soldmore than 4 million copies and picked up numerousaccolades along the way, including a Business Book ofthe Year award from the Financial Times and GoldmanSachs. The book (and its updated versions) has retainedits relevance over the years and is still on the recom-mended reading list of many MBA programs.Friedman’s globalization thesis has not gone uncon-tested, however, especially in academic circles. PankajGhemawat, the Anselmo Rubiralta Professor of GlobalStrategy at IESE Business School in Barcelona, has beenparticularly vocal in his criticism. Starting with an acer-bic Foreign Policy article in 2007, he’s carried out a ver-itable anti-Friedman campaign in books, articles, andspeeches. In 2011, with IESE senior research associateSteven A. Altman, he released the first DHL GlobalConnectedness Index to measure cross-border interac-tions. Ghemawat appears to have developed the index asan antidote to the hallucinating effects of a condition hecalls “globaloney,” meaning the exaggerated perceptionthat the world is flat.Who is right? How flat is the world?Although Friedman certainly wrote with his cus-tomary flair in The World Is Flat, he nevertheless fellwell short of supporting his provocative thesis with con-vincing data and analysis. Instead, The World Is Flatconsists mainly of personal observations and anecdotes.He groups them into 10 structural changes he calls flat-teners, such as outsourcing, offshoring, and “supplychaining.” And he wrote about two key trends: theadoption of more collaborative business processes andthe addition of 3 billion Chinese and Indian consumersto the global marketplace. It is this “triple convergence”that, according to Friedman, has flattened the worldover the last two or three decades and changed the rulesof the game forever.Ghemawat backs up his contrarian view, that theworld is actually only about 10 to 25 percent globalized,with a fascinating set of statistics. The expanded versionof his DHL Global Connectedness Index, released inNovember 2012, measures the depth and breadth of 10types of international flows—and finds them lacking.For example, who knew that cross-country-border tele-phone calls represent at most 7 percent of all voice call-ing? Or that first-generation immigrants account foronly about 3 percent of the world’s population? Or,more significantly, that foreign direct investment typi-cally accounts for less than 10 percent of all investmentin a given year?Nevertheless, one can’t help but feel thatGhemawat is not being entirely fair in his critique. First,The Flat World Debate RevisitedThe opposing views of Thomas Friedman and Pankaj Ghemawat on the stateof globalization have significant implications for John Jullens
  3. 3. no reasonable person who has read The World Is Flatcould come away thinking that Friedman truly believesthe world is, in fact, flat today. More important, it isquite clear that the business leaders interviewed in thebook didn’t believe so either.Second, although much of Friedman’s supportingevidence is indeed anecdotal, his thesis still reflects thecollective experience of numerous senior business lead-ers, and is clearly still relevant to the issues these execu-tives grapple with on a daily basis.Third, although convincing, Ghemawat’s statisticsdon’t necessarily contradict Friedman’s flatteners direct-ly. For example, is the local nature of telephone calls andInternet traffic really inconsistent with Friedman’s off-shoring and outsourcing trends? Does the domestic vol-ume of social networking activity truly negate theimpact of uploading as an important flattener?In fact, Ghemawat’s overly literal interpretation ofFriedman’s book may obscure some of its biggest flaws.The real problem with The World Is Flat is not so muchthat it overstates—even considerably—the flatness oftoday’s world. The crucial conceptual error inFriedman’s thesis is that he assumes his 10 flattenerswould automatically and rapidly lead to a more inter-connected and, therefore, flat world. But the oppositehas often been the case. The empirical evidence suggeststhat the global economy is increasingly being driven byurban clusters and, if anything, becoming more insteadof less “curved.”The danger of Friedman’s flat-world thesis is that itcould cause executives to misinterpret the trends theyobserve in their own businesses and make potentiallyserious strategic errors. Instead of pursuing an aggressivelocalization strategy, for example, executives from multi-national firms often decide to “wait it out” in emergingmarkets such as China and India. They hold the mis-taken belief that demand-side and supply-side condi-tions will soon flatten and converge with those indeveloped markets. They may, for instance, believe thatChina’s retail environment will consolidate relativelyquickly; as a result, they may fail to invest in localizeddistribution channels that are more appropriate fortoday’s market conditions. In reality, such consolidationis highly unlikely to occur within any reasonable plan-ning horizon. And the impact of such wishful thinkingis far from trivial. It could result in missed profit oppor-tunities, but could also cause multinationals to fail tocheck the advance of competitors from these emergingmarkets until it is too late.The world is still far from flat today, and, in manyindustries, it’s likely to retain its curvature for quitesome time to come. Executives should be wary of rely-ing too much on Friedman’s superficially persuasive, butseriously flawed, evidence. Instead, they would do wellto adopt a more analytical approach for evaluating howflat their world actually is, now and in the future. Thiswill require a deep, fact-based understanding of the spe-cific flatteners in each of their businesses, as well as acareful consideration of whether to ignore, adapt to, ortry to shape those drivers.On balance, Ghemawat wins the argument handsdown. +2John Jullensjohn.jullens@booz.comis a partner with Booz &Company based in Shanghai.He co-leads the firm’s engi-neered products and servicespractice in Greater China. Heblogs at
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