"Forces to be Reckoned" - Part 1

This is the first of a two-part article to review and discuss the NY Times best-selling book: “The World is Flat,” by Thomas L. Friedman. This month we’ll identify “The Ten Forces that Flattened the World.” And next month in Part II, I will address some affects of these forces on our industry.

I haven’t done a book report since grade school, but I remember a typical summarizing comment. “I liked this book and recommend that you read it.” I can’t think of a better reference than this if you are in business today and plan to stay competitive. As an overview I want to share some highlights of the book. Friedman does a masterful job in defining the state of the business world today, rich with examples and insights to which we can all relate. What can we learn from his research and how can we apply the lessons to ensure the continued growth and success of our organizations?

Two weeks ago our management team at Greco Apparel convened in our office in the Dominican Republic for five days of training for our new ERP (Enterprise Resource Planning) data base system from New Generation Computing (NGC). Our trainer from NGC was in the midst reading the book referenced above as required by her company. I also was in the process of reading it myself and thought Friedman did an excellent job in identifying and organizing current global trends that affect the way we all conduct business today. This past week we exhibited at Material World in NYC and I attended a seminar given by Fred Isenberg, vice president, sales, at NGC in which he referenced Friedman’s book to prompt and challenge the thinking of the attendees. Were we aware of the trends? How have we organized our corporations’ responses to answer these global challenges and changes? If you haven’t read the book yet, here are some points to ponder.

Prepare your thinking to be challenged. If you have not allowed for these trends in your business your competitive edge will be dulled. Stanford economist Paul Romer says “Everyone wants to grow but nobody wants to change.”

What follows are, according to Friedman, a summary of “The Ten Forces that Flattened the World.” The title of the book, The World is Flat, derives from the realization that due to technology and political changes the playing field of the world has been leveled or flattened. People or companies in China or India can now (and do) have a global economic impact just as those in the USA or other developed countries can:

#1 The Berlin Wall Falls – November 9, 1989 - This served to liberate all captive peoples of the Soviet Union and tipped the balance of power across the world toward those advocating democratic, consensual, and free market governance and away from those advocating authoritarian rule with centrally planned economies.

# 2 Netscape Goes Public - August 9, 1995 - The world becomes really interconnected by going from a PC-based computing platform to an internet-based platform. The power and value of email and web browsers are released.

# 3 Work Flow Software- Interconnectedness allows people in disparate locations to design, buy, sell and keep track of inventories. Now an accountant can do somebody else’s taxes from half a world away.

# 4 Open Sourcing- Self organizing collaborative communities enable shared knowledge to accelerate creativity, delivery of goods and services and info rmation. This technology has morphed into “blogs” which are self organizing communities to share info rmation of common interests.

# 5 Outsourcing- Call centers in India for example became possible because of upgrades to computer systems in response to potential problems stemming from the change to Y2K. Simon and Schuster can pay $50 per month to have books typed by hand into a computer versus $1000 per month in the US. Ironically enough, the fiber optics necessary to support bandwidth was purchased at deeply discounted prices after the dot.com bust of 2000. Hence huge losses by US shareholders enabled India to establish an industry at very low cost!

# 6 Offshoring- China joins the WTO (World Trade Organization) on December 11, 2001, and this gave a boost to this form of collaboration. Offshoring, which has been around for decades, is different from outsourcing. Outsourcing means taking some specific, but limited, functions that our company was doing in-house, such as research, product development, call centers or accounts receivable- and having another company perform that exact same function for you and then reintegrating their work back into your overall operation. Offshoring, by contrast, is when a company takes one of its factories that has been operating in the US and moves the whole factory to China. There it produces the very same product in the very same way, only with cheaper labor, lower taxes, subsidized energy and lower health care costs. Keep in mind that China is both a great market for the goods and services they consume and a great supplier to the rest of the world.

# 7 Supply Chaining - Look to Wal-Mart as the master of this phenomenon. For example, through Wal-Mart, HP will sell 400,000 computers from 4,000 Wal-Marts in one day during the Christmas season! To orchestrate this accomplishment, HP standards must interface with Wal-Mart’s. Using technology including RFID (Radio Frequency Identification Microchips) and satellite feed for instant inventory control supply chain engineering is enhanced. For increased efficiency and lower cost, warehouse forklift operators wear headphones, giving instruction in either English or Spanish, to direct loading and unloading. It is a million tiny innovations like this that differentiate Wal-Mart’s supply chain. Without sophisticated supply chain management, controlling the volume of business would be extremely difficult. In 2004 Wal-Mart purchased $18 billion worth of goods from China. To put this in perspective, this one company bought more goods from China than China sold to Russia, Australia or Canada.

# 8 Insourcing- Fed Ex and UPS are not just delivering packages, they are doing logistics helping to synchronize the global supply chain for companies large and small. For example, in its Louisville, KY hub, UPS runs its own Toshiba laptop and printer repair workshop to service warranty work. There is no need for Toshiba to have laptops shipped to their own service center while UPS provides quick repair and return at a lower cost! In another case, if you order underwear from Jockey.com, a UPS employee who manages Jockey products at a UPS warehouse will actually fill the order, bag it, label it and deliver it to you.

# 9 In-forming - Enter the era of Google, Yahoo! and MSN Web Search. Sergy Brin, Google co-founder, said “Someone with internet access, whether a university professor or a kid in Cambodia have the same basic access to overall research info rmation that anyone else has. It is a total equalizer.”

# 10 The Steroids - Digital, Mobile, Personal and Virtual. Combination cell phones, PDA’s (Personal Digital Assistants [Palm Pilot]) with wireless service allows access to the internet, email and other people anyplace in the world from almost anywhere in the world. After scanning bar codes on products from factories, warehouses or retail locations, inventory info rmation is instantly available to transmit and utilize.

Next month, we’ll examine some of the strengths, weaknesses, opportunities and threats associated with these world changes. How is our industry affected and what can we do to both remain competitive and assure long-term profitable growth?

Joseph Greco is president of Greco Apparel. Visit them on the web at www.grecoapparel.com