Book Project: The World is Flat

Thomas Friedman
Group-10

Agneeswaran Vallinayagam Arathi krishnan Gaurav Dalvi Rohit Kalla Srivatsan Ramesh

Q.1.) Explain the following terms in your own words and provide an example for each terminology: a) b) c) d) e) f) g) h) in-forming insourcing supply-chaining offshoring outsourcing open-sourcing Business Process Outsourcing Knowledge Process Outsourcing

a) In-forming: Meaning: Flattener No.9, Informing refers to the significant increase in the amount of information that is now freely available across the world. This information is made available largely through the World Wide Web. People all over the globe have access to the same information and are therefore on the same platform in terms of their ability to undertake research and acquire information freely. Google is majorly responsible for providing this kind of a platform world over and has in fact significantly refined the search process making it easier for users to find exactly what they are looking for. Through the system of ranking websites based on the number of links pointing to them, websites appear in order of relevance and reduces the search process of the user. The downside to this however is that while it is easier to find information about things that are relevant to you, it has also become easier for other people to find personal information related to you. This causes a significant reduction in the privacy an individual enjoys. Platforms like Yahoo and MSN also allow for like-minded people located in different places across the world to communicate with each other about items of common interest. Obstacles in terms of geographical boundaries and time differences are easily bridged. Example: An example of Informing is simply how people shop nowadays. Not only have people become more aware of products that were once only available in the west, but through a simple Google search dealer information is easily acquired and the product can be just as easily purchased. Consumers are more or less on a level playing field in terms of the number of products they are exposed to and the opportunity to acquire that product. b) Insourcing: Meaning: Broadly Insourcing refers to two companies collaborating domestically in order to achieve efficiencies that would otherwise not have been possible. Specifically Thomas Friedman refers to

insourcing as one company hiring another company who is much more efficient in undertaking such operations to take care of its supply chain needs. By doing so that company is able to create for itself supply chain advantages, which otherwise only large scale companies could afford. The example used in the book is that of UPS and Toshiba. Toshiba has hired UPS to undertake its repair activities for its Laptops all over the USA. Customers complained that it took too long to repair a Toshiba laptop, so UPS (United Parcel Service) is able to harness its highly efficient distribution system by using it to collect repair and return Toshibas laptops. This increases the revenue of UPS and allows Toshiba to enjoy an efficient supply chain without having to actually own it. Example: Nokia tying up with HCL for the distribution of its products is an example of insourcing in India. c) Supply Chaining: Meaning: Flattener number 7, supply chaining is described as increasing the connections and building collaboration amongst suppliers, retailers and customers. By collaborating with these integral members of every value chain, value can be enhanced and increased through lower costs and faster service. Supply chaining helps flatten the world by allowing or facilitating every link in the supply chain to interface with each other and therefore increase efficiencies through the implementation of common standards and thereby the reduction of points of friction. Wal-Mart is used as the classic example of supply chaining, with Friedman observing that Wal-Mart does not really make or own anything other than a highly efficient supply chain. He also warns that focusing on cost reduction through supply chaining can lead to some negative activities like Walmart hiring illegal immigrant as janitors and locking night shift employees in stores overnight. Example: Dell is an amazing example of supply chaining. Although Dell is often considered the best laptop manufacturer in the world, Dell does not really manufacture anything and instead assembles components from various suppliers. Dell has very low inventory costs and runs primarily on the interests earned from its negative working capital. All this is possible because it has a well-structured and highly efficient supply chain that includes each one of its various component suppliers and an outsourced distribution system. d) Offshoring: Meaning: Offshoring refers to a situation where a company moves its production to a location outside its home country where labour, taxes, subsidized energy or health care is cheaper thereby making that outsourced process significantly cheaper for that company. China has been the primary recipient of many US Companies Offshoring plans leading to a large loss of manufacturing jobs in America. However on the flipside, offshoring allows manufacturers to produce at lower costs and therefore sell at lower prices. Another shortcoming of Offshoring, especially to a country like China is that China will eventually build capabilities other than just being a low cost labour provider. Once China is able to build its capabilities from unskilled to skilled, they can begin to compete with the offshoring companies. This could be detrimental to the home country.

Example: Many apparel retailers like Zara, Mango and GAP offshore their production to low wage countries like China and India. The cost to produce is greatly reduced by moving these facilities that not only offer low cost labour but also offer low cost raw material. e) Outsourcing Meaning: Outsourcing refers to the act of transferring the performance of a specific task undertaken by your company to another company that is specialized in this activity and who can do it cheaper. India is a major hub of outsourcing and technology has facilitated this process significantly. Through the usage of internet knowledge driven tasks like accounting and auditing, medical transcription and even software development is easily outsourced to a country like India where skilled labour is available in great supply at comparably much lower costs. All you really need is the internet, relevant knowledge or expertise and an English speaking workforce. Example: An example of outsourcing is the transfer of mortgage related services to firms in India. Most banks in the USA have outsourced services like credit verification, collection and bankruptcy documentation to BPOs and KPOs in India.

f) Open-sourcing Meaning:This flattener finds his root in the academic and scientific communities where the pairs come together for private as well as Internet network to share his ideas and sagacity on a particular problem or science in order to extract a solution for the same one. The people on the Internet are drawn towards open sea - sourcing these days when they contribute his report due to his passion to science or solution of problem, progress of learning and understanding of new concepts, passion to discover things and reward in the form of the reputation. The open source is a program related to an available problem to the big public for any use and/or modification and gradation of his original structure. It has been currently adapted in the following industries across the world: 1. 2. 3. 4. 5. 6. Computer software Electronics Beverages Digital content Health and Science Robotics

Example: In 2002, Brewtopia a beer company located in Australia started an open-source brewery and invited the general population to be part of the development and ownership of the brewery, and to participate in the development of its beer, Blowfly, and decide its road to market. In return for their feedback and input every individual received shares in the company, which is now publicly traded on a stock exchange in Australia. The company is the only beer company in the world that allows the public to design, customise and develop its own beers online.

f)

Business Process Outsourcing

Meaning: The BPO has evolved of outsourcing the industry and expressly one implies contracting of the operations and the responsibilities of the certain commercial functions (or processes) a purveyor of service of third day pupil. This at first had to see with industrial signatures but later it was put in the action by most of the industries to gain the efficacy in his not principal activities. The services of BPO provide the flexibility to the client's companies in terms of transformation I fix in variable expenses, his resource management and times of response limited to environmental principal changes, the company is capable of concentrating on his principal capacities, without being loaded by the demands of bureaucratic restrictions, increasing the speed of commercial processes for the best management of the system of provisions and the company can support targets of growth avoiding commercial necks of bottle standard. Example: Coca Cola that outsourced large segments of its supply chain to Asian countries h) Knowledge Process Outsourcing Meaning: In contrast to BPO KPO it implies outsourcing of economic principal activities, that most of the time is with rival important spirit and forms an integral part of the chain of value of a company. This one needed KPOs to support analytical skills and skills advanced together with a high grade of the mastery of patent sphere. The increase of the need of specializing knowledge and mastery, creation of additional value to increase contest, anticipated for reductions of cost, and a scarcity of qualified labour was few important factors that assure the growth of KPOs. The services of KPO include all the classes of investigation and meeting of information, investigation of equity, business and study of the market, legal and medical services, formation, consultation, and investigation and development. Example: TCS, Infosys, Wipro, and many more are the well known examples of KPOs across India serving both European and American clients and have currently started focus on evaluating their business opportunities in the Southern American continent.

Q.2)

What is the China Price?

The condition of extreme low cost manufacturing in China is termed as China Price. These incredibly low cost manufacturing facilities in China are luring all the companies in the developed world to outsource their manufacturing to china. This has helped China to become the largest off-shoring destination in the world. The main reasons for China Price are the low wages paid to the labourers, workplace standards and labour laws. Chinas plan for the long term is to move up the value chain of manufacturing by venturing into design, high-end manufacturing, R&D, services and surpass the United States. Further Chinas size and economic power mean that it will soon be setting the global floor not only for low wages but also for lax labour laws and workplace standards. This is known

in the business as "the China price" China is making all countries to race at the bottom by providing cheaper products, services etc. 3) The book discusses about several forces that flattened the world. In your groups opinion, what would be another flattener? Why? The International Trade Agreements can be included in the list of flatteners. The concept of Trade has been around since the early post war times, but it is only after World War II that many countries have opened their gates for trading goods. It is also an important indicator of globalization of a country. Many bilateral and multilateral trade agreements, free Trade Agreements (FPAs), Trade Unions (like OPEC, BRIC) emerged to facilitate trade between Nations. International Trade forms a significant portion of National Income for many countries like Singapore, Hong Kong, Luxembourg which has more than 200 per cent trade as percentage of their GDPs. These are small countries which take advantage of their geographic position and act as trading Nations. The trade regulations between the countries are going to become more complex in nature. International Trade has helped the countries to engage in friendly business relationships and paved the way for other cross border partnerships like outsourcing, off-shoring as described by Thomas Friedman. However, as more and more countries are becoming open to trade, tariffs will come down and International trade is going to play a major role in the future cross-border supply chains. By the total international trade the following three tops the list: EU, United States and China.

Q4.) The book details several different rules Do you disagree with any of them? Rule #1: When the world goes flat-and you are feeling flattened- reach for a shovel and dig inside yourself. Don't try to build walls.

We completely agree with this rule, which is about how one should go forward when the competition is cut throat and there is little room for apparent differentiation. With globalization and information technology inter winding the world together, the technologies become obsolete every day. Customization and personalization are the mantras of not only customer satisfaction but also customer acquisition. The competition is not just limited to bigger companies, but also with the budding companies, freelancers and entrepreneurs, who are creating value. All this has in turn given the customer most power in the chain. Hence, companies have to be very competitive and up to date with all the new innovations and technologies.

Clearly, there is a commoditization of most of the services and firms have to find new and innovative ways to provide customer with the highest at the best price. Backward or forward integration in the chain is thus in focus by many of the companies. Focus on core competencies, however is critical for the sustenance and the growth in revenues in this competitive world. These core competency need to be identified by looking deep into their operations and understanding what they are best at doing. Hence, although the world has flattened and access to newer technologies and innovations is almost ubiquitous, to distinguish firms from each other, it is must to focus on core competencies to serve the customers best and outsource other activities that are not in their core in order to maintain the required differentiation and focus. Rule #2: And the small shall act big. . . One way small companies flourish in the flat world is by learning to act really big. And the key to being small and acting big is being quick to take advantage of all the new tools for collaboration to reach farther, faster, wider, and deeper. We partly agree with the rule as alliances, mergers and acquisition are part of todays business world. One needs to have a broader view of business and should be open to collaboration and working together to get a bigger chunk of market value. Alliances make companies bigger and better in terms of talent pool, knowledge, available resources and working capital. However, there is a hind sight to it too as a firm may lose its current differentiation and individuality losing some of the crucial essence when it enters into a collaboration or merger with some other company. Hence, in a bid to reach new heights faster, a company may lose out on its competitive advantage. Thus, this rule has limited applicability. Rule #3: And the big shall act small... One way that big companies learn to flourish in the flat world is by learning how to act really small by enabling their customers to act really big. Treating customer as the most important entity of ones business is what has been said in this rule. Big companies need to be customer centric and should give full attention to mke the customer delighted. They should help them take decisions and choices to reduce th search step of the purchasing decision process. One needs to be very flexible in changing its strategy and policy so as to align themselves with customer demand and only then they can expect repurchase from the customers. Customer engagement, customer relationship management, and customer delight are going to drive companys bottom line.

Rule #4: The best companies are the best collaborators. In the flat world, more and more business will be done through collaborations within and between companies, for a very simple reason: The next layers of value creation-whether in technology, marketing, biomedicine, or manufacturing-are becoming so complex that no single firm or department is going to be able to master them alone. We agree to this rule which stresses upon the importance of cross functional integration across companies and industries. It is a forward looking thought which is very prudent in that, for becoming a truly efficient and global company, it needs to stream line its supply chain and integrate with the manufacturing and Marketing. Every firm has its core competency and it should stick to that. However, it should collaborate with the other functional companies to form a super-efficient network. The collaboration with suppliers and manufacturers from all across the world is indispensable to become cost effective and best in class for the customers. 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. Chest X-rays means analysing what companys core competencies are and where the companys strength and health lies which would make profits for the company. Todays ever changing environment would need for regular self-analysis of the firms to change their strategies to best fit the demands from the market. By analysing this, firms may actually outsource non-core operations and thus can focus on their key areas of operations to provide the best of services and products to the customers. 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. Outsourcing those activities which are not core to a companys competencies is very important. However companies also need consultation from external agencies to help them excel at what they are doing. Hiring specialists and knowledge partners would enhance the capability of company to adapt to new ways of working and also newer technologies. Rule #7: Outsourcing isn't just for Benedict Arnolds. It's also for idealists. This rule is worth taking a note of. With the convergence of technology and flattening of the world, people are closer than before and thus this has led to reach out to any areas by anyone at any time. Whether its a small firm, or a large firm, it can take advantage of technology to outsource some of its functions and focus on core activities. Government support and investment from abroad has encouraged even SMEs to grow to medium and high scale and remain profitable.

Q.5) Discuss the Dell theory of conflict prevention The author begins with an assertion that free trade is the certain way of uniting people in bonds of peace. Here the author begins with an in depth foray into the supply chain symphony of the purchase of his own dell computer, which he claims to be a result of a Flat world. We might think that the classical geopolitical conflict (India-Pakistan, North KoreaSouth Korea) might act as a threat to flattening of the world. But what is interesting now is that these geopolitical threats can actually be moderated or nullified by new collaborations like supply chaining. Author argues that if countries are partners of the same supply chain or trade, they are less likely to go on war with their partners. It is in this context that the author proposes Dell Theory of Conflict Prevention. He states that no two countries that are a part of the global supply chain like that of Dells, will opt for a war as they would consider it as an interruption to their supply chain operations. A war might have serious repercussions in their economic and political scenario when the countries are global. He goes into deeply the political tension between China and Taiwan. Most of the major company heads believe that both of the countries are well aware of the intricate relationship between global supply chain and war scenarios. They are well aware of the importance of credibility in global trade scenario and are least likely to go on war. The theory doesnt say that war is prevented but it says that the decision to opt for war will be thought through at least thrice if not more. Not to say that there is a darker side to this whole supply chain phenomenon. We understand how Al-Qaeda and other terrorist networks form mutant supply chains for the purpose of destruction, not profit. In a flat world, the Internet is more likely to transmit irrationality than rationality. It is easier to transmit terror as irrationality requires less intelligence and explains more to people. There is a great risk if the terrorist organization takes up a failed state and uses its resources to spread terror as failed states have nothing to lose. And since the Dell Theory offers no explanation as to restrain the suicide supply chains, the only strategy we have is to limit their worst capabilities. That means a much more serious global effort is needed to stanch nuclear proliferation by limiting the supply. We have to find a way to get at their worst intentions and the only thing we can do is try to influence the imagination and intentions that people bring to them and draw from them.