After the Fighting in Gaza

"Massive international aid"? Who's got the bucks? China?

Fatah, a moderate group? Fatah lost popular support in Gaza in favor of Hamas due to its corruption. Fatah also gained the financial and military support of Israel and the US after Hamas won 56% of seats in the Palestinian parliament, and engaged in bloody conflict with Hamas, which Hamas won, driving Fatah to the West Bank. Israel/US miscalculated on Fatah's strength in Gaza, miscalculated (ignored) the public support Hamas had, and miscalculated by trying to capitalize on the split in Palestinian politics, arming and training Fatah rather than accepting the democratically elected, that is, the people's choice in Gaza, Hamas to negotiate with. Israel/US imposed the blockade, the complete break down of negotiations, and basically created the conditions that led to Hamas' resisting Israel's apartheid policies against Gaza, and the current massacre.

It is also noteworthy that some of the rocket fire that originates from Gaza is from extremist Fatah elements that think the Abbas-led wing of Fatah has gone soft on Israel, and not from Hamas. Fatah is "moderate" only in the sense that they are the politicians Israel calls "moderate" and chooses to talk with.

I also take issue that Israel can defeat Hamas militarily. The US won the battles in Iraq, easily defeating the Iraqi forces, but given the recent SOFA agreement, we have lost what was the intended purpose of the war: a US-friendly Iraqi democracy as an island in the middle east. Proof of this? Iran's president can announce his trips to Iraq weeks in advance and move about the country unhindered. A US official goes to Iraq in secrecy and can only move around under the heaviest of military escorts. The major consequence of the war in terms of geopolitical alignments is the new Iran/Iraq alliance.

And in like manner with Israel and Hamas. Israel will beat the living day lights out of Hamas fighters, but in doing so, they empower a new generation of resistance, perpetuating the cycle of violence.

From Juan Cole:

Nancy Kaminer of MIT can count and therefore so does her article. She demonstrates that after the Israel-Hamas truce was concluded in mid-June, 2008, for four months there were virtually no rockets fired at Israel. The rockets began again after two Israeli attacks that killed several Palestinians. Kaminer analyzes periods of mutual violence and relative calm in the past few years and finds that in 80% of the cases, it is Israel that has re-initiated the violence. Her well-grounded analysis demonstrates the falsehood of the allegations that it is impossible to deal with Hamas or that it has always been Hamas that has started the fighting.

Kaminer's findings make perfect sense if it is remembered that Israel is by far the stronger party and dominates the scene.

Nancy Kaminer article:

http://www.huffingtonpost.com/nancy-kanwisher/reigniting-violence-how-d_b_155611.html

So, sdemetri, doesn't one have to ask, therefore, why did the Israelis kill the Palestinians in October? Were they doing something bad or was Israel trying to provoke a violent Palestinian response for some reason? It just seems to be an endless tit-for-tat with each side providing near endless justifications for WHATEVER they do.

Hamas is certainly not a group of angels, but, in answer to your question, I don't know.

Here's a production from the Jewish perspective:

http://www.terrorismawareness.org/what-really-happened/

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.

While I Was Sleeping

Your Highnesses, as Catholic Christians, and princes who love and promote the holy

Christian faith, and are enemies of the doctrine of Mahomet, and of all idolatry and

heresy, determined to send me, Christopher Columbus, to the above-mentioned countries

of India, to see the said princes, people, and territories, and to learn their

disposition and the proper method of converting them to our holy faith; and

furthermore directed that I should not proceed by land to the East, as is customary,

but by a Westerly route, in which direction we have hitherto no certain evidence that

anyone has gone.

- Entry from the journal of Christopher Columbus on his voyage of 1492

No one ever gave me directions like this on a golf course before: "Aim at either

Microsoft or IBM." I was standing on the first tee at the KGA Golf Club in downtown

Bangalore, in southern India, when my playing partner pointed at two shiny

glass-and-steel buildings off in the distance, just behind the first green. The

Goldman Sachs building wasn't done yet; otherwise he could have pointed that out as

well and made it a threesome. HP and Texas Instruments had their offices on the back

nine, along the tenth hole. That wasn't all. The tee markers were from Epson, the

printer company, and one of our caddies was wearing a hat from 3M. Outside, some of

the traffic signs were also sponsored by Texas Instruments, and the Pizza Hut

billboard on the way over showed a steaming pizza, under the headline "Gigabites of

Taste!"

4

No, this definitely wasn't Kansas. It didn't even seem like India. Was this the New

World, the Old World, or the Next World?

I had come to Bangalore, India's Silicon Valley, on my own Columbus-like journey of

exploration. Columbus sailed with the Nina, the Pinta, and the Santa Maria in an effort

to discover a shorter, more direct route to India by heading west, across the Atlantic,

on what he presumed to be an open sea route to the East Indies-rather than going south

and east around Africa, as Portuguese explorers of his day were trying to do. India

and the magical Spice Islands of the East were famed at the time for their gold, pearls,

gems, and silk-a source of untold riches. Finding this shortcut by sea to India, at

a time when the Muslim powers of the day had blocked the overland routes from Europe,

was a way for both Columbus and the Spanish monarchy to become wealthy and powerful.

When Columbus set sail, he apparently assumed the Earth was round, which was why he

was convinced that he could get to India by going west. He miscalculated the distance,

though. He thought the Earth was a smaller sphere than it is. He also did not anticipate

running into a landmass before he reached the East Indies. Nevertheless, he called

the aboriginal peoples he encountered in the new world "Indians." Returning home,

though, Columbus was able to tell his patrons, King Ferdinand and Queen Isabella,

that although he never did find India, he could confirm that the world was indeed

round.

I set out for India by going due east, via Frankfurt. I had Lufthansa business class.

I knew exactly which direction I was going thanks to the GPS map displayed on the

screen that popped out of the armrest of my airline seat. I landed safely and on

schedule. I too encountered people called Indians. I too was searching for the source

of India's riches. Columbus was searching for hardware-precious metals, silk, and

spices-the source of wealth in his day. I was searching for software, brainpower,

complex algorithms, knowledge workers, call centers, transmission protocols,

breakthroughs in optical engineering-the sources of wealth in our day. Columbus was

happy to make the Indians he met his slaves, a pool of free manual labor.

I just wanted to understand why the Indians I met were taking our work, why they had

become such an important pool for the outsourcing

5

of service and information technology work from America and other industrialized

countries. Columbus had more than one hundred men on his three ships; I had a small

crew from the Discovery Times channel that fit comfortably into two banged-up vans,

with Indian drivers who drove barefoot. When I set sail, so to speak, I too assumed

that the world was round, but what I encountered in the real India profoundly shook

my faith in that notion. Columbus accidentally ran into America but thought he had

discovered part of India. I actually found India and thought many of the people I

met there were Americans. Some had actually taken American names, and others were

doing great imitations of American accents at call centers and American business

techniques at software labs.

Columbus reported to his king and queen that the world was round, and he went down

in history as the man who first made this discovery. I returned home and shared my

discover)' only with my wife, and only in a whisper.

"Honey," I confided, "I think the world is flat."

How did I come to this conclusion? I guess you could say it all started in Nandan

Nilekani's conference room at Infosys Technologies Limited. Infosys is one of the

jewels of the Indian information technology world, and Nilekani, the company's CEO,

is one of the most thoughtful and respected captains of Indian industry. I drove with

the Discovery Times crew out to the Infosys campus, about forty minutes from the heart

of Bangalore, to tour the facility and interview Nilekani. The Infosys campus is

reached by a pockmarked road, with sacred cows, horse-drawn carts, and motorized

rickshaws all jostling alongside our vans. Once you enter the gates of Infosys, though,

you are in a different world. A massive resort-size swimming pool nestles amid

boulders and manicured lawns, adjacent to a huge putting green. There are multiple

restaurants and a fabulous health club. Glass-and-steel buildings seem to sprout up

like weeds each week. In some of those buildings, Infosys employees are writing

specific software programs for American or European companies; in others, they are

running the back rooms of major

American- and European-based multinationals-everything from computer maintenance to

specific research projects to answering customer calls routed there from all over

the world. Security is tight, cameras monitor the doors, and if you are working for

American Express, you cannot get into the building that is managing services and

research for General Electric. Young Indian engineers, men and women, walk briskly

from building to building, dangling ID badges. One looked like he could do my taxes.

Another looked like she could take my computer apart. And a third looked like she

designed it!

After sitting for an interview, Nilekani gave our TV crew a tour of Info-sys's global

conferencing center-ground zero of the Indian outsourcing industry. It was a

cavernous wood-paneled room that looked like a tiered classroom from an Ivy League

law school. On one end was a massive wall-size screen and overhead there were cameras

in the ceiling for teleconferencing. "So this is our conference room, probably the

largest screen in Asia-this is forty digital screens [put together]," Nilekani

explained proudly, pointing to the biggest flat-screen TV I had ever seen. Infosys,

he said, can hold a virtual meeting of the key players from its entire global supply

chain for any project at any time on that supersize screen. So their American designers

could be on the screen speaking with their Indian software writers and their Asian

manufacturers all at once. "We could be sitting here, somebody from New York, London,

Boston, San Francisco, all live. And maybe the implementation is in Singapore, so

the Singapore person could also be live here . . . That's globalization," said Nilekani.

Above the screen there were eight clocks that pretty well summed up the Infosys workday:

24/7/365. The clocks were labeled US West, US East, GMT, India, Singapore, Hong Kong,

Japan, Australia.

"Outsourcing is just one dimension of a much more fundamental thing happening today

in the world," Nilekani explained. "What happened over the last [few] years is that

there was a massive investment in technology, especially in the bubble era, when

hundreds of millions of dollars were invested in putting broadband connectivity

around the world, undersea cables, all those things." At the same time, he added,

computers became cheaper and dispersed all over the world, and there was an explosion

of software-e-mail, search engines like Google, and

7

proprietary software that can chop up any piece of work and send one part to Boston,

one part to Bangalore, and one part to Beijing, making it easy for anyone to do remote

development. When all of these things suddenly came together around 2000, added

Nilekani, they "created a platform where intellectual work, intellectual capital,

could be delivered from anywhere. It could be disaggregated, delivered, distributed,

produced, and put back together again-and this gave a whole new degree of freedom

to the way we do work, especially work of an intellectual nature . . . And what you

are seeing in Bangalore today is really the culmination of all these things coming

together."

We were sitting on the couch outside of Nilekani's office, waiting for the TV crew

to set up its cameras. At one point, summing up the implications of all this, Nilekani

uttered a phrase that rang in my ear. He said to me, "Tom, the playing field is being

leveled." He meant that countries like India are now able to compete for global

knowledge work as never before-and that America had better get ready for this. America

was going to be challenged, but, he insisted, the challenge would be good for America

because we are always at our best when we are being challenged. As I left the Infosys

campus that evening and bounced along the road back to Bangalore, I kept chewing on

that phrase: "The playing field is being leveled."

What Nandan is saying, I thought, is that the playing field is being flattened .. .

Flattened? Flattened? My God, he's telling me the world is flat!

Here I was in Bangalore-more than five hundred years after Columbus sailed over the

horizon, using the rudimentary navigational technologies of his day, and returned

safely to prove definitively that the world was round-and one of India's smartest

engineers, trained at his country's top technical institute and backed by the most

modern technologies of his day, was essentially telling me that the world was flat-as

flat as that screen on which he can host a meeting of his whole global supply chain.

Even more interesting, he was citing this development as a good thing, as a new

milestone in human progress and a great opportunity for India and the world-the fact

that we had made our world flat!

In the back of that van, I scribbled down four words in my notebook: "The world is

flat." As soon as I wrote them, I realized that this was the

8

underlying message of everything that I had seen and heard in Bangalore in two weeks

of filming. The global competitive playing field was being leveled. The world was

being flattened.

As I came to this realization, I was filled with both excitement and dread. The

journalist in me was excited at having found a framework to better understand the

morning headlines and to explain what was happening in the world today. Clearly, it

is now possible for more people than ever to collaborate and compete in real time

with more other people on more different kinds of work from more different corners

of the planet and on a more equal footing than at any previous time in the history

of the world-using computers, e-mail, networks, teleconferencing, and dynamic new

software. That is what Nandan was telling me. That was what I discovered on my journey

to India and beyond. And that is what this book is about. When you start to think

of the world as flat, a lot of things make sense in ways they did not before. But

I was also excited personally, because what the flattening of the world means is that

we are now connecting all the knowledge centers on the planet together into a single

global network, which-if politics and terrorism do not get in the way-could usher

in an amazing era of prosperity and innovation.

But contemplating the flat world also left me filled with dread, professional and

personal. My personal dread derived from the obvious fact that it's not only the

software writers and computer geeks who get empowered to collaborate on work in a

flat world. It's also al-Qaeda and other terrorist networks. The playing field is

not being leveled only in ways that draw in and superempower a whole new group of

innovators. It's being leveled in a way that draws in and superempowers a whole new

group of angry, frustrated, and humiliated men and women.

Professionally, the recognition that the world was flat was unnerving because I

realized that this flattening had been taking place while I was sleeping, and I had

missed it. I wasn't really sleeping, but I was otherwise engaged. Before 9/11,1 was

focused on tracking globalization and exploring the tension between the "Lexus"

forces of economic integration and the "Olive Tree" forces of identity and

nationalism-hence my 1999 book, The Lexus and the Olive Tree. But after 9/11, the

olive tree wars became all-

9

consuming for me. I spent almost all my time traveling in the Arab and Muslim worlds.

During those years I lost the trail of globalization.

I found that trail again on my journey to Bangalore in February 2004. Once I did,

I realized that something really important had happened while I was fixated on the

olive groves of Kabul and Baghdad. Globalization had gone to a whole new level. If

you put The Lexus and the Olive Tree and this book together, the broad historical

argument you end up with is that that there have been three great eras of globalization.

The first lasted from 1492-when Columbus set sail, opening trade between the Old World

and the New World-until around 1800.1 would call this era Globalization 1.0. It shrank

the world from a size large to a size medium. Globalization 1.0 was about countries

and muscles. That is, in Globalization 1.0 the key agent of change, the dynamic force

driving the process of global integration was how much brawn-how much muscle, how

much horsepower, wind power, or, later, steam power-your country had and how

creatively you could deploy it. In this era, countries and governments (often inspired

by religion or imperialism or a combination of both) led the way in breaking down

walls and knitting the world together, driving global integration. In Globalization

1.0, the primary questions were: Where does my country fit into global competition

and opportunities? How can I go global and collaborate with others through my country?

The second great era, Globalization 2.0, lasted roughly from 1800 to 2000, interrupted

by the Great Depression and World Wars I and II. This era shrank the world from a

size medium to a size small. In Globalization 2.0, the key agent of change, the dynamic

force driving global integration, was multinational companies. These multinationals

went global for markets and labor, spearheaded first by the expansion of the Dutch

and English joint-stock companies and the Industrial Revolution. In the first half

of this era, global integration was powered by falling transportation costs, thanks

to the steam engine and the railroad, and in the second half by falling

telecommunication costs-thanks to the diffusion of the telegraph, telephones, the

PC, satellites, fiber-optic cable, and the early version of the World Wide Web. It

was during this era that we really saw the

10

birth and maturation of a global economy, in the sense that there was enough movement

of goods and information from continent to continent for there to be a global market,

with global arbitrage in products and labor. The dynamic forces behind this era of

globalization were breakthroughs in hardware-from steamships and railroads in the

beginning to telephones and mainframe computers toward the end. And the big questions

in this era were: Where does my company fit into the global economy? How does it take

advantage of the opportunities? How can I go global and collaborate with others

through my company? The Lexus and the Olive Tree was primarily about the climax of

this era, an era when the walls started falling all around the world, and integration,

and the backlash to it, went to a whole new level. But even as the walls fell, there

were still a lot of barriers to seamless global integration. Remember, when Bill

Clinton was elected president in 1992, virtually no one outside of government and

the academy had e-mail, and when I was writing The Lexus and the Olive Tree in 1998,

the Internet and e-commerce were just taking off.

Well, they took off-along with a lot of other things that came together while I was

sleeping. And that is why I argue in this book that around the year 2000 we entered

a whole new era: Globalization 3.0. Globalization 3.0 is shrinking the world from

a size small to a size tiny and flattening the playing field at the same time. And

while the dynamic force in Globalization 1.0 was countries globalizing and the dynamic

force in Globalization 2.0 was companies globalizing, the dynamic force in

Globalization 3.0-the thing that gives it its unique character-is the newfound power

for individuals to collaborate and compete globally. And the lever that is enabling

individuals and groups to go global so easily and so seamlessly is not horsepower,

and not hardware, but software- all sorts of new applications-in conjunction with

the creation of a global fiber-optic network that has made us all next-door neighbors.

Individuals must, and can, now ask, Where do I fit into the global competition and

opportunities of the day, and how can I, on my own, collaborate with others globally?

But Globalization 3.0 not only differs from the previous eras in how it is shrinking

and flattening the world and in how it is empowering indi-

11

viduals. It is different in that Globalization 1.0 and 2.0 were driven primarily by

European and American individuals and businesses. Even though China actually had the

biggest economy in the world in the eighteenth century, it was Western countries,

companies, and explorers who were doing most of the globalizing and shaping of the

system. But going forward, this will be less and less true. Because it is flattening

and shrinking the world, Globalization 3.0 is going to be more and more driven not

only by individuals but also by a much more diverse - non-Western, non-white-group

of individuals. Individuals from every corner of the flat world are being empowered.

Globalization 3.0 makes it possible for so many more people to plug and play, and

you are going to see every color of the human rainbow take part.

(While this empowerment of individuals to act globally is the most important new

feature of Globalization 3.0, companies-large and small-have been newly empowered

in this era as well. I discuss both in detail later in the book.)

Needless to say, I had only the vaguest appreciation of all this as I left Nandan's

office that day in Bangalore. But as I sat contemplating these changes on the balcony

of my hotel room that evening, I did know one thing: I wanted to drop everything and

write a book that would enable me to understand how this flattening process happened

and what its implications might be for countries, companies, and individuals. So I

picked up the phone and called my wife, Ann, and told her, "I am going to write a

book called The World Is Flat." She was both amused and curious-well, maybe more amused

than curious! Eventually, I was able to bring her around, and I hope I will be able

to do the same with you, dear reader. Let me start by taking you back to the beginning

of my journey to India, and other points east, and share with you some of the encounters

that led me to conclude the world was no longer round-but flat.

Jaithirth "Jerry" Rao was one of the first people I met in Bangaloreand

I hadn't been with him for more than a few minutes at the Leela

Palace hotel before he told me that he could handle my tax returns and

any other accounting needs I had-from Bangalore. No thanks, I de-

12

murred, I already have an accountant in Chicago. Jerry just smiled. He was too polite

to say it-that he may already be my accountant, or rather my accountant's accountant,

thanks to the explosion in the outsourcing of tax preparation.

"This is happening as we speak," said Rao, a native of Mumbai, formerly Bombay, whose

Indian firm, MphasiS, has a team of Indian accountants able to do outsourced

accounting work from any state in America and the federal government. "We have tied

up with several small and medium-sized CPA firms in America."

"You mean like my accountant?" I asked. "Yes, like your accountant," said Rao with

a smile. Rao's company has pioneered a work flow software program with a standardized

format that makes the outsourcing of tax returns cheap and easy. The whole process

starts, Jerry explained, with an accountant in the United States scanning my last

year's tax returns, plus my W-2, W-4, 1099, bonuses, and stock

statements-everything-into a computer server, which is physically located in

California or Texas. "Now your accountant, if he is going to have your taxes done

overseas, knows that you would prefer not to have your surname be known or your Social

Security number known [to someone outside the country], so he can choose to suppress

that information," said Rao. "The accountants in India call up all the raw information

directly from the server in America [using a password], and they complete your tax

returns, with you remaining anonymous. All the data stays in the U.S. to comply with

privacy regulations. . . We take data protection and privacy very seriously. The

accountant in India can see the data on his screen, but he cannot take a download

of it or print it out-our program does not allow it. The most he could do would be

to try to memorize it, if he had some ill intention. The accountants are not allowed

to even take a paper and pen into the room when they are working on the returns."

I was intrigued at just how advanced this form of service outsourcing had become.

"We are doing several thousand returns," said Rao. What's more, "Your CPA in America

need not even be in their office. They can be sitting on a beach in California and

e-mail us and say, 'Jerrv> you are really good at doing New York State returns, so

you do Tom's returns. And Sonia, you and your team in Delhi do the Washington and

Florida

13

returns.' Sonia, by the way, is working out of her house in India, with no overhead

[for the company to pay]. 'And these others, they are really complicated, so I will

do them myself."

In 2003, some 25,000 U.S. tax returns were done in India. In 2004, the number was

100,000. In 2005, it is expected to be 400,000. In a decade, you will assume that

your accountant has outsourced the basic preparation of your tax returns-if not more.

"How did you get into this?" I asked Rao.

"My friend Jeroen Tas, a Dutchman, and I were both working in California for

Citigroup," Rao explained. "I was his boss and we were coming back from New York one

day together on a flight and I said that I was planning to quit and he said, 'So am

I.' We both said, 'Why don't we start our own business?' So in 1997-98, we put together

a business plan to provide high-end Internet solutions for big companies. . . Two

years ago, though, I went to a technology convention in Las Vegas and was approached

by some medium-size [American] accounting firms, and they said they could not afford

to set up big tax outsourcing operations to India, but the big guys could, and [the

medium guys] wanted to get ahead of them. So we developed a software product called

VTR- Virtual Tax Room-to enable these medium-size accounting firms to easily

outsource tax returns."

These midsize firms "are getting a more level playing field, which they were denied

before," said Jerry. "Suddenly they can get access to the same advantages of scale

that the bigger guys always had."

Is the message to Americans, "Mama, don't let your kids grow up to be accountants"?

I asked.

Not really, said Rao. "What we have done is taken the grunt work. You know what is

needed to prepare a tax return? Very little creative work. This is what will move

overseas."

"What will stay in America?" I asked.

"The accountant who wants to stay in business in America will be the one who focuses

on designing creative complex strategies, like tax avoidance or tax sheltering,

managing customer relationships," he said. "He or she will say to his clients, 'I

am getting the grunt work done efficiently far away. Now let's talk about how we manage

your estate and what you are

14

going to do about your kids. Do you want to leave some money in your trusts?' It means

having the quality-time discussions with clients rather than running around like

chickens with their heads cut off from February to April, and often filing for

extensions into August, because they have not had the quality time with clients."

Judging from an essay in the journal Accounting Today (June 7, 2004), this does, indeed,

seem to be the future. L. Gary Boomer, a CPA and CEO of Boomer Consulting in Manhattan,

Kansas, wrote, "This past [tax] season produced over 100,000 [outsourced] returns

and has now expanded beyond individual returns to trusts, partnerships and

corporations . . . The primary reason that the industry has been able to scale up

as rapidly as it has over the past three years is due to the investment that these

[foreign-based] companies have made in systems, processes and training." There are

about seventy thousand accounting grads in India each year, he added, many of whom

go to work for local Indian firms starting at $100 a month. With the help of high-speed

communications, stringent training, and standardized forms, these young Indians can

fairly rapidly be converted into basic Western accountants at a fraction of the cost.

Some of the Indian accounting firms even go about marketing themselves to American

firms through teleconferencing and skip the travel. Concluded Boomer, "The accounting

profession is currently in transformation. Those who get caught in the past and resist

change will be forced deeper into commoditization. Those who can create value through

leadership, relationships and creativity will transform the industry, as well as

strengthen relationships with their existing clients."

What you're telling me, I said to Rao, is that no matter what your profession-doctor,

lawyer, architect, accountant-if you are an American, you better be good at the

touchy-feely service stuff, because anything that can be digitized can be outsourced

to either the smartest or the cheapest producer, or both. Rao answered, "Everyone

has to focus on what exactly is their value-add."

But what if I am just an average accountant? I went to a state university. I had a

B+ average. Eventually I got my CPA. I work in a big accounting firm, doing a lot

of standard work. I rarely meet with clients.

15

They keep me in the back. But it is a decent living and the firm is basically happy

with me. What is going to happen to me in this system?

"It is a good question," said Rao. "We must be honest about it. We are in the middle

of a big technological change, and when you live in a society that is at the cutting

edge of that change [like America], it is hard to predict. It's easy to predict for

someone living in India. In ten years we are going to be doing a lot of the stuff

that is being done in America today. We can predict our future. But we are behind

you. You are defining the future. America is always on the edge of the next creative

wave ... So it is difficult to look into the eyes of that accountant and say this

is what is going to be. We should not trivialize that. We must deal with it and talk

about it honestly ... Any activity where we can digitize and decompose the value chain,

and move the work around, will get moved around. Some people will say, Yes, but you

can't serve me a steak.' True, but I can take the reservation for your table sitting

anywhere in the world, if the restaurant does not have an operator. We can say, Yes,

Mr. Friedman, we can give you a table by the window.' In other words, there are parts

of the whole dining-out experience that we can decompose and outsource. If you go

back and read the basic economics textbooks, they will tell you: Goods are traded,

but services are consumed and produced in the same place. And you cannot export a

haircut. But we are coming close to exporting a haircut, the appointment part. What

kind of haircut do you want? Which barber do you want? All those things can and will

be done by a call center far away."

As we ended our conversation, I asked Rao what he is up to next. He was full of energy.

He told me he'd been talking to an Israeli company that is making some big advances

in compression technology to allow for easier, better transfers of CAT scans via the

Internet so you can quickly get a second opinion from a doctor half a world away.

A few weeks after I spoke with Rao, the following e-mail arrived from Bill Brody,

the president of Johns Hopkins University, whom I had just interviewed for this book:

Dear Tom, I am speaking at a Hopkins continuing education medical meeting for

radiologists (I used to be a radiologist) ... I

16

came upon a very fascinating situation that I thought might interest you. I have just

learned that in many small and some medium-size hospitals in the US, radiologists

are outsourcing reading of CAT scans to doctors in India and Australia!!! Most of

this evidently occurs at night (and maybe weekends) when the radiologists do not have

sufficient staffing to provide in-hospital coverage. While some radiology groups will

use teleradiology to ship images from the hospital to their home (or to Vail or Cape

Cod, I suppose) so that they can interpret images and provide a diagnosis 24/7,

apparently the smaller hospitals are shipping CAT scan images to radiologists abroad.

The advantage is that it is daytime in Australia or India when it is nighttime here-so

after-hours coverage becomes more readily done by shipping the images across the globe.

Since CAT (and MRI) images are already in digital format and available on a network

with a standardized protocol, it is no problem to view the images anywhere in the

world ... I assume that the radiologists on the other end . . . must have trained

in [the] US and acquired the appropriate licenses and credentials. . . The groups

abroad that provide these after-hours readings are called "Nighthawks" by the

American radiologists that employ them. Best, Bill

Thank goodness I'm a journalist and not an accountant or a radiologist. There will

be no outsourcing for me-even if some of my readers wish my column could be shipped

off to North Korea. At least that's what I thought. Then I heard about the Reuters

operation in India. I didn't have time to visit the Reuters office in Bangalore, but

I was able to get hold of Tom Glocer, the CEO of Reuters, to hear what he was doing.

Glocer is a pioneer in the outsourcing of elements of the news supply chain.

With 2,300 journalists around the world, in 197 bureaus, serving a

17

market including investment bankers, derivatives traders, stockbrokers, newspapers,

radio, television, and Internet outlets, Reuters has always had a very complex

audience to satisfy. After the dot-com bust, though, when many of its customers became

very cost-conscious, Reuters started asking itself, for reasons of both cost and

efficiency: Where do we actually need our people to be located to feed our global

news supply chain? And can we actually disaggregate the work of a journalist and keep

part in London and New York and shift part to India?

Glocer started by looking at the most basic bread-and-butter function Reuters

provides, which is breaking news about company earnings and related business

developments, every second of every day. "Exxon comes out with its earnings and we

need to get that as fast possible up on screens around the world: 'Exxon earned

thirty-nine cents this quarter as opposed to thirty-six cents last quarter.' The core

competency there is speed and accuracy," explained Glocer. "You don't need a lot of

analysis. We just need to get the basic news up as fast as possible. The flash should

be out in seconds after the company releases, and the table [showing the recent history

of quarterly earnings] a few seconds later."

Those sorts of earnings flashes are to the news business what vanilla is to the ice

cream business-a basic commodity that actually can be made anywhere in the flat world.

The real value-added knowledge work happens in the next five minutes. That is when

you need a real journalist who knows how to get a comment from the company, a comment

from the top two analysts in the field, and even some word from competitors to put

the earnings report in perspective. "That needs a higher journalistic skill

set-someone in the market with contacts, who knows who the best industry analysts

are and has taken the right people to lunch," said Glocer.

The dot-com bust and the flattening of the world forced Glocer to rethink how Reuters

delivered news-whether it could disaggregate the functions of a journalist and ship

the low-value-added functions to India. His primary goal was to reduce the overlap

Reuters payroll, while preserving as many good journalism jobs as possible. "So the

first thing we did," said Glocer, "was hire six reporters in Bangalore as an

experiment.

18

We said, 'Let's let them just do the flash headlines and the tables and whatever else

we can get them to do in Bangalore.'"

These new Indian hires had accounting backgrounds and were trained by Reuters, but

they were paid standard local wages and vacation and health benefits. "India is an

unbelievably rich place for recruiting people, not only with technical skills but

also financial skills," said Glocer. When a company puts out its earnings, one of

the first things it does is hand it to the wires-Reuters, Dow Jones, and Bloomberg-for

distribution. "We will get that raw data," he said, "and then it's a race to see how

fast we can turn it around. Bangalore is one of the most wired places in the world,

and although there's a slight delay-one second or less-in getting the information

over there, it turns out you can just as easily sit in Bangalore and get the electronic

version of a press release and turn it into a story as you can in London or New York."

The difference, however, is that wages and rents in Bangalore are less than one-fifth

what they are in those Western capitals.

While economics and the flattening of the world have pushed Reuters down this path,

Glocer has tried to make a virtue of necessity. "We think we can off-load commoditized

reporting and get that done efficiently somewhere else in the world," he said, and

then give the conventional Reuters journalists, whom the company is able to retain,

a chance to focus on doing much higher-value-added and personally fulfilling

journalism and analysis. "Let's say you were a Reuters journalist in New York. Do

you reach your life's fulfillment by turning press releases into boxes on the screen,

or by doing the analysis?" asked Glocer. Obviously, it is the latter. Outsourcing

news bulletins to India also allows Reuters to extend the breadth of its reporting

to more small-cap companies, companies it was not cost-efficient for Reuters to follow

before with higher-paid journalists in New York. But with lower-wage Indian reporters,

who can be hired in large numbers for the cost of one reporter in New York, it can

now do that from Bangalore. By the summer of 2004, Reuters had grown its Bangalore

content operation to three hundred staff, aiming eventually for a total of fifteen

hundred. Some of those are Reuters veterans sent out to train the Indian teams, some

are reporters filing earnings flashes, but most are journalists doing

19

slightly more specialized data analysis-number crunching-for securities offerings.

"A lot of our clients are doing the same thing," said Glocer. "Investment research

has had to have huge amounts of cost ripped out of it, so a lot of firms are using

shift work in Bangalore to do bread-and-butter company analysis." Until recently the

big Wall Street firms had conducted investment research by spending millions of

dollars on star analysts and then charging part of their salaries to their

stockbrokerage departments, which shared the analysis with their best customers, and

part to their investment banking business, which sometimes used glowing analyses of

a company to lure its banking business. In the wake of New York State Attorney General

Eliot Spitzer's investigations into Wall Street practices, following several

scandals, investment banking and stockbrokerage have had to be distinctly

separated-so that analysts will stop hyping companies in order to get their investment

banking. But as a result, the big Wall Street investment firms have had to sharply

reduce the cost of their market research, all of which has to be paid for now by their

brokerage departments alone. And this created a great incentive for them to outsource

some of this analytical work to places like Bangalore. In addition to being able to

pay an analyst in Bangalore about $15,000 in total compensation, as opposed to $80,000

in New York or London, Reuters has found that its India employees tend to be

financially literate and highly motivated as well. Reuters also recently opened a

software development center in Bangkok because it turned out to be a good place to

recruit developers who had been overlooked by all the Western companies vying for

talent in Bangalore.

I find myself torn by this trend. Having started my career as a wire service reporter

with United Press International, I have enormous sympathy with wire service reporters

and the pressures, both professional and financial, under which they toil. But UPI

might still be thriving today as a wire service, which it is not, if it had been able

to outsource some of its lower-end business when I started as a reporter in London

twenty-five years ago.

"It is delicate with the staff," said Glocer, who has cut the entire Reuters staff

by roughly a quarter, without deep cuts among the reporters. The Reuters staff, he

said, understand that this is being done so

20

that the company can survive and then thrive again. At the same time, said Glocer,

"these are sophisticated people out reporting. They see that our clients are doing

the exact same things. They get the plot of the story . . . What is vital is to be

honest with people about what we are doing and why and not sugarcoat the message.

I firmly believe in the lesson of classical economists about moving work to where

it can be done best. However, we must not ignore that in some cases, individual workers

will not easily find new work. For them, retraining and an adequate social safety

net are needed."

In an effort to deal straight with the Reuters staff, David Schlesinger, who heads

Reuters America, sent all editorial employees a memo, which included the following

excerpt:

Off-shoring with Obligation I grew up in New London, Connecticut, which in the 19th

century was a major whaling center. In the 1960's and 70's the whales were long gone

and the major employers in the region were connected with the military-not a surprise

during the Vietnam era. My classmates' parents worked at Electric Boat, the Navy and

the Coast Guard. The peace dividend changed the region once again, and now it is best

known for the great gambling casinos of Mohegan Sun and Foxwoods and for the

pharmaceutical researchers of Pfizer. Jobs went; jobs were created. Skills went out

of use; new skills were required. The region changed; people changed. New London,

of course, was not unique. How many mill towns saw their mills close; how many shoe

towns saw the shoe industry move elsewhere; how many towns that were once textile

powerhouses now buy all their linens from China? Change is hard. Change is hardest

on those caught by surprise. Change is hardest on those who have difficulty changing

too. But change is natural; change is not new; change is important. The current debate

about off-shoring is dangerously hot. But the debate about work going to India, China

and Mexico is actually no different from the debate once held about submarine work

leaving New

21

London or shoe work leaving Massachusetts or textile work leaving North Carolina.

Work gets done where it can be done most effectively and efficiently. That ultimately

helps the New Londons, New Bedfords and New Yorks of this world even more than it

helps the Bangalores and Shenzhens. It helps because it frees up people and capital

to do different, more sophisticated work, and it helps because it gives an opportunity

to produce the end product more cheaply, benefiting customers even as it helps the

corporation. It's certainly difficult for individuals to think about "their" work

going away, being done thousands of miles away by someone earning thousands of dollars

less per year. But it's time to think about the opportunity as well as the pain, just

as it's time to think about the obligations of off-shoring as well as the

opportunities. . . Every person, just as every corporation, must tend to his or her

own economic destiny, just as our parents and grandparents in the mills, shoe shops

and factories did.

"The Monitor Is Burning?"

Do you know what an Indian call center sounds like? While filming the documentary

about outsourcing, the TV crew and I spent an evening at the Indian-owned "24/7

Customer" call center in Bangalore. The call center is a cross between a co-ed college

frat house and a phone bank raising money for the local public TV station. There are

several floors with rooms full of twenty-somethings- some twenty-five hundred in

all-working the phones. Some are known as "outbound" operators, selling everything

from credit cards to phone minutes. Others deal with "inbound" calls-everything from

tracing lost luggage for U.S. and European airline passengers to solving computer

problems for confused American consumers. The calls are transferred here by satellite

and undersea fiber-optic cable. Each vast floor of a call center consists of clusters

of cubicles. The young people work in little

22

teams under the banner of the company whose phone support they are providing. So one

corner might be the Dell group, another might be flying the flag of Microsoft. Their

working conditions look like those at your average insurance company. Although I am

sure that there are call centers that are operated like sweatshops, 24/7 is not one

of them.

Most of the young people I interviewed give all or part of their salary to their parents.

In fact, many of them have starting salaries that are higher than their parents'

retiring salaries. For entry-level jobs into the global economy, these are about as

good as it gets.

I was wandering around the Microsoft section around six p.m. Bangalore time, when

most of these young people start their workday to coincide with the dawn in America,

when I asked a young Indian computer expert there a simple question: What was the

record on the floor for the longest phone call to help some American who got lost

in the maze of his or her own software?

Without missing a beat he answered, "Eleven hours."

"Eleven hours?" I exclaimed.

"Eleven hours," he said.

I have no way of checking whether this is true, but you do hear snippets of some oddly

familiar conversations as you walk the floor at 24/7 and just listen over the shoulders

of different call center operators doing their things. Here is a small sample of what

we heard that night while filming for Discovery Times. It should be read, if you can

imagine this, in the voice of someone with an Indian accent trying to imitate an

American or a Brit. Also imagine that no matter how rude, unhappy, irritated, or ornery

the voices are on the other end of the line, these young Indians are incessantly and

unfailingly polite.

Woman call center operator: "Good afternoon, may I speak with . . .?" (Someone on

the other end just slammed down the phone.)

Male call center operator: "Merchant services, this is Jerry, may I help you?" (The

Indian call center operators adopt Western names of their own choosing. The idea,

of course, is to make their American or European customers feel more comfortable.

Most of the young Indians I talked to about this were not offended but took it as

an opportunity to

23

have some fun. While a few just opt for Susan or Bob, some really get creative.)

Woman operator in Bangalore speaking to an American: "My name is Ivy Timberwoods and

I am calling you . . ."

Woman operator in Bangalore getting an American's identity number: "May I have the

last four digits of your Social Security?"

Woman operator in Bangalore giving directions as though she were in Manhattan and

looking out her window: "Yes, we have a branch on Seventy-fourth and Second Avenue,

a branch at Fifty-fourth and Lexington . . ."

Male operator in Bangalore selling a credit card he could never afford himself: "This

card comes to you with one of the lowest APR . . ."

Woman operator in Bangalore explaining to an American how she screwed up her checking

account: "Check number six-six-five for eighty-one dollars and fifty-five cents. You

will still be hit by the thirty-dollar charge. Am I clear?"

Woman operator in Bangalore after walking an American through a computer glitch: "Not

a problem, Mr. Jassup. Thank you for your time. Take care. Bye-bye."

Woman operator in Bangalore after someone has just slammed down the phone on her:

"Hello? Hello?"

Woman operator in Bangalore apologizing for calling someone in America too early:

"This is just a courtesy call, I'll call back later in the evening . . ."

Male operator in Bangalore trying desperately to sell an airline credit card to

someone in America who doesn't seem to want one: "Is that because you have too many

credit cards, or you don't like flying, Mrs. Bell?"

Woman operator in Bangalore trying to talk an American out of her computer crash:

"Start switching between memory okay and memory test. . ."

Male operator in Bangalore doing the same thing: "All right, then, let's just punch

in three and press Enter . . ."

Woman operator in Bangalore trying to help an American who cannot stand being on the

help line another second: "Yes, ma'am, I do

24

understand that you are in a hurry right now. I am just trying to help you out. . ."

Woman operator in Bangalore getting another phone slammed down on her: "Yes, well,

so what time would be goo . . ."

Same woman operator in Bangalore getting another phone slammed down on her: "Why,

Mrs. Kent, it's not a ..."

Same woman operator in Bangalore getting another phone slammed down on her: "As a

safety back . . . Hello?"

Same woman operator in Bangalore looking up from her phone: "I definitely have a bad

day!"

Woman operator in Bangalore trying to help an American woman with a computer problem

that she has never heard before: "What is the problem with this machine, ma'am? The

monitor is burning?"

There are currently about 245,000 Indians answering phones from all over the world

or dialing out to solicit people for credit cards or cell phone bargains or overdue

bills. These call center jobs are low-wage, low-prestige jobs in America, but when

shifted to India they become high-wage, high-prestige jobs. The esprit de corps at

24/7 and other call centers I visited seemed quite high, and the young people were

all eager to share some of the bizarre phone conversations they've had with Americans

who dialed 1-800-HELP, thinking they would wind up talking to someone around the block,

not around the world.

C. M. Meghna, a 24/7 call center female operator, told me, "I've had lots of customers

who call in [with questions] not even connected to the product that we're dealing

with. They would call in because they had lost their wallet or just to talk to somebody.

I'm like, 'Okay, all right, maybe you should look under the bed [for your wallet]

or where do you normally keep it,' and she's like, 'Okay, thank you so much for

helping.'" Nitu Somaiah: "One of the customers asked me to marry him." Sophie Sunder

worked for Delta's lost-baggage department: "I remember this lady called from Texas,"

she said, "and she was, like, weeping on the phone. She had traveled two connecting

flights and she lost her bag and in the bag was her daughter's wedding gown and wedding

25

ring and I felt so sad for her and there was nothing I could do. I had no information.

"Most of the customers were irate," said Sunder. "The first thing they say is, 'Where's

my bag? I want my bag now!' We were like supposed to say, 'Excuse me, can I have your

first name and last name?' 'But where's my bag!' Some would ask which country am I

from? We are supposed to tell the truth, [so] we tell them India. Some thought it

was Indiana, not India! Some did not know where India is. I said it is the country

next to Pakistan."

Although the great majority of the calls are rather routine and dull, competition

for these jobs is fierce-not only because they pay well, but because you can work

at night and go to school during part of the day, so they are stepping-stones toward

a higher standard of living. P. V. Kannan, CEO and cofounder of 24/7, explained to

me how it all worked: "Today we have over four thousand associates spread out in

Bangalore, Hyderabad, and Chennai. Our associates start out with a take-home pay of

roughly $200 a month, which grows to $300 to $400 per month in six months. We also

provide transportation, lunch, and dinner at no extra cost. We provide life insurance,

medical insurance for the entire family- and other benefits."

Therefore, the total cost of each call center operator is actually around $500 per

month when they start out and closer to $600 to $700 per month after six months.

Everyone is also entitled to performance bonuses that allow them to earn, in certain

cases, the equivalent of 100 percent of their base salary. "Around 10 to 20 percent

of our associates pursue a degree in business or computer science during the day

hours," said Kannan, adding that more than one-third are taking some kind of extra

computer or business training, even if it is not toward a degree. "It is quite common

in India for people to pursue education through their twenties-self-improvement is

a big theme and actively encouraged by parents and companies. We sponsor an MBA program

for consistent performers [with] full-day classes over the weekend. Everyone works

eight hours a day, five days a week, with two fifteen-minute breaks and an hour off

for lunch or dinner."Not surprisingly, the 24/7 customer call center gets about seven

hun-

26

dred applications a day, but only 6 percent of applicants are hired. Here is a snippet

from a recruiting session for call center operators at a women's college in Bangalore:

Recruiter 1: "Good morning, girls."

Class in unison: "Good morning, ma'am."

Recruiter 1: "We have been retained by some of the multinationals here to do the

recruitment for them. The primary clients that we are recruiting [for] today are

Honeywell. And also for America Online."

The young women-dozens of them-then all lined up with their application forms and

waited to be interviewed by a recruiter at a wooden table. Here is what some of the

interviews sounded like:

Recruiter 1: "What kind of job are you looking at?"

Applicant 1: "It should be based on accounts, then, where I can grow, I can grow in

my career."

Recruiter 1: "You have to be more confident about yourself when you're speaking.

You're very nervous. I want you to work a little on that and then get in touch with

us."

Recruiter 2 to another applicant: "Tell me something about yourself."

Applicant 2: "I have passed my SSC with distinction. Second P also with distinction.

And I also hold a 70 percent aggregate in previous two years." (This is Indian lingo

for their equivalents of GPA and SAT scores.)

Recruiter 2: "Go a little slow. Don't be nervous. Be cool."

The next step for those applicants who are hired at a call center is the training

program, which they are paid to attend. It combines learning how to handle the specific

processes for the company whose calls they will be taking or making, and attending

something called "accent neutralization class." These are daylong sessions with a

language teacher who prepares the new Indian hires to disguise their pronounced Indian

accents when speaking English and replace them with American, Canadian, or British

ones-depending on which part of the world they will be speaking with. It's pretty

bizarre to watch. The class I sat in on was being trained to speak in a neutral

middle-American accent. The students were asked to read over and over a single

phonetic paragraph designed to teach them how to soften their r's and to roll their

r's.

Their teacher, a charming eight-months-pregnant young woman

27

dressed in a traditional Indian sari, moved seamlessly among British, American, and

Canadian accents as she demonstrated reading a paragraph designed to highlight

phonetics. She said to the class, "Remember the first day I told you that the Americans

flap the 'tuh' sound? You know, it sounds like an almost 'duh' sound-not crisp and

clear like the British. So I would not say"-here she was crisp and sharp-'"Betty bought

a bit of better butter' or 'Insert a quarter in the meter.' But I would say" -her

voice very flat-"'Insert a quarter in the meter' or 'Betty bought a bit of better

butter.' So I'm just going to read it out for you once, and then we'll read it together.

All right? 'Thirty little turtles in a bottle of bottled water. A bottle of bottled

water held thirty little turtles. It didn't matter that each turtle had to rattle

a metal ladle in order to get a little bit of noodles.'

"All right, who's going to read first?" the instructor asked. Each member of the class

then took a turn trying to say this tongue twister in an American accent. Some of

them got it on the first try, and others, well, let's just say that you wouldn't think

they were in Kansas City if they answered your call to Delta's lost-luggage number.

After listening to them stumble through this phonetics lesson for half an hour, I

asked the teacher if she would like me to give them an authentic version-since I'm

originally from Minnesota, smack in the Midwest, and still speak like someone out

of the movie Fargo. Absolutely, she said. So I read the following paragraph: "A bottle

of bottled water held thirty little turtles. It didn't matter that each turtle had

to rattle a metal ladle in order to get a little bit of noodles, a total turtle

delicacy . . . The problem was that there were many turtle battles for less than oodles

of noodles. Every time they thought about grappling with the haggler turtles their

little turtle minds boggled and they only caught a little bit of noodles."

The class responded enthusiastically. It was the first time I ever got an ovation

for speaking Minnesotan. On the surface, there is something unappealing about the

idea of inducing other people to flatten their accents in order to compete in a flatter

world. But before you disparage it, you have to taste just how hungry these kids are

to escape the lower end of the middle class and move up. If a little accent modification

is the price they have to pay to jump a rung of the ladder, then so be it-they say.

28

"This is a high-stress environment," said Nilekani, the CEO of Infosys, which also

runs a big call center. "It is twenty-four by seven. You work in the day, and then

the night, and then the next morning." But the working environment, he insisted, "is

not the tension of alienation. It is the tension of success. They are dealing with

the challenges of success, of high-pressure living. It is not the challenge of

worrying about whether they would have a challenge."

That was certainly the sense I got from talking to a lot of the call center operators

on the floor. Like any explosion of modernity, outsourcing is challenging traditional

norms and ways of life. But educated Indians have been held back so many years by

both poverty and a socialist bureaucracy that many of them seem more than ready to

put up with the hours. And needless to say, it is much easier and more satisfying

for them to work hard in Bangalore than to pack up and try to make a new start in

America. In the flat world they can stay in India, make a decent salary, and not have

to be away from families, friends, food, and culture. At the end of the day, these

new jobs actually allow them to be more Indian. Said Anney Unnikrishnan, a personnel

manager at 24/7, "I finished my MBA and I remember writing the GMAT and getting into

Purdue University. But I couldn't go because I couldn't afford it. I didn't have the

money for it. Now I can, [but] I see a whole lot of American industry has come into

Bangalore and I don't really need to go there. I can work for a multinational sitting

right here. So I still get my rice and sam-bar [a traditional Indian dish], which

I eat. I don't need to, you know, learn to eat coleslaw and cold beef. I still continue

with my Indian food and I still work for a multinational. Why should I go to America?"

The relatively high standard of living that she can now enjoy-enough for a small

apartment and car in Bangalore-is good for America as well. When you look around at

24/7's call center, you see that all the computers are running Microsoft Windows.

The chips are designed by Intel. The phones are from Lucent. The air-conditioning

is by Carrier, and even the bottled water is by Coke. In addition, 90 percent of the

shares in 24/7 are owned by U.S. investors. This explains why, although the United

States has lost some service jobs to India in recent years, total exports from

American-based companies-merchandise and services-to India have grown from

29

$2.5 billion in 1990 to $5 billion in 2003. So even with the outsourcing of some service

jobs from the United States to India, India's growing economy is creating a demand

for many more American goods and services. What goes around, comes around.

Nine years ago, when Japan was beating America's brains out in the auto industry,

I wrote a column about playing the computer geography game Where in the World is Carmen

Sandiego? with my nine-year-old daughter, Orly. I was trying to help her by giving

her a clue suggesting that Carmen had gone to Detroit, so I asked her, "Where are

cars made?" And without missing a beat she answered, "Japan."

Ouch!

Well, I was reminded of that story while visiting Global Edge, an Indian software

design firm in Bangalore. The company's marketing manager, Rajesh Rao, told me that

he had just made a cold call to the VP for engineering of a U.S. company, trying to

drum up business. As soon as Mr. Rao introduced himself as calling from an Indian

software firm, the U.S. executive said to him, "Namaste," a common Hindi greeting.

Said Mr. Rao, "A few years ago nobody in America wanted to talk to us. Now they are

eager." And a few even know how to say hello in proper Hindu fashion. So now I wonder:

If I have a granddaughter one day, and I tell her I'm going to India, will she say,

"Grandpa, is that where software comes from?"

No, not yet, honey. Every new product-from software to widgets-goes through a cycle

that begins with basic research, then applied research, then incubation, then

development, then testing, then manufacturing, then deployment, then support, then

continuation engineering in order to add improvements. Each of these phases is

specialized and unique, and neither India nor China nor Russia has a critical mass

of talent that can handle the whole product cycle for a big American multinational.

But these countries are steadily developing their reseach and development

capabilities to handle more and more of these phases. As that continues, we really

will see the beginning of what Satyam Cherukuri, of Sarnoff, an American research

and development firm, has

30

called "the globalization of innovation" and an end to the old model of a single

American or European multinational handling all the elements of the development

product cycle from its own resources. More and more American and European companies

are outsourcing significant research and development tasks to India, Russia, and

China.

According to the information technology office of the state government in Karnataka,

where Bangalore is located, Indian units of Cisco Systems, Intel, IBM, Texas

Instruments, and GE have already filed 1,000 patent applications with the U.S. Patent

Office. Texas Instruments alone has had 225 U.S. patents awarded to its Indian

operation. "The Intel team in Bangalore is developing microprocessor chips for

high-speed broadband wireless technology, to be launched in 2006," the Karnataka IT

office said, in a statement issued at the end of 2004, and "at GE's John F. Welch

Technology Centre in Bangalore, engineers are developing new ideas for aircraft

engines, transport systems and plastics." Indeed, GE over the years has frequently

transferred Indian engineers who worked for it in the United States back to India

to integrate its whole global research effort. GE now even sends non-Indians to

Bangalore. Vivek Paul is the president of Wipro Technologies, another of the elite

Indian technology companies, but he is based in Silicon Valley to be close to Wipro's

American customers. Before coming to Wipro, Paul managed GE's CT scanner business

out of Milwaukee. At the time he had a French colleague who managed GE's power

generator business for the scanners out of France.

"I ran into him on an airplane recently," said Paul, "and he told me he had moved

to India to head up GE's high-energy research there."

I told Vivek that I love hearing an Indian who used to head up GE's CT business in

Milwaukee but now runs Wipro's consulting business in Silicon Valley tell me about

his former French colleague who has moved to Bangalore to work for GE. That is a flat

world.

Every time I think I have found the last, most obscure job that could be outsourced

to Bangalore, I discover a new one. My friend Vivek Kulkarni used to head the

government office in Bangalore responsible

31

for attracting high technology global investment. After stepping down from that post

in 2003, he started a company called B2K, with a division called Brickwork, which

offers busy global executives their own personal assistant in India. Say you are

running a company and you have been asked to give a speech and a PowerPoint

presentation in two days. Your "remote executive assistant" in India, provided by

Brickwork, will do all the research for you, create the PowerPoint presentation, and

e-mail the whole thing to you overnight so that it is on your desk the day you have

to deliver it.

"You can give your personal remote executive assistant their assignment when you are

leaving work at the end of the day in New York City, and it will be ready for you

the next morning," explained Kulkarni. "Because of the time difference with India,

they can work on it while you sleep and have it back in your morning." Kulkarni

suggested I hire a remote assistant in India to do all the research for this book.

"He or she could also help you keep pace with what you want to read. When you wake

up, you will find the completed summary in your in-box." (I told him no one could

be better than my longtime assistant, Maya Gorman, who sits ten feet away!)

Having your own personal remote executive assistant costs around $1,500 to $2,000

a month, and given the pool of Indian college grads from which Brickwork can recruit,

the brainpower you can hire dollar-for-dollar is substantial. As Brickwork's

promotional material says, "India's talent pool provides companies access to a broad

spectrum of highly qualified people. In addition to fresh graduates, which are around

2.5 million per year, many qualified homemakers are entering the job market." India's

business schools, it adds, produce around eighty-nine thousand MBAs per year.

"We've had a wonderful response," said Kulkarni, with clients coming from two main

areas. One is American health-care consultants, who often need lots of numbers

crunched and PowerPoint presentations drawn up. The other, he said, are American

investment banks and financial services companies, which often need to prepare glossy

pamphlets with graphs to illustrate the benefits of an IPO or a proposed m

.

.

If the prospect of this flattening-and all of the pressures, dislocations, and

opportunities accompanying it-causes you unease about the future, you are neither

alone nor wrong. Whenever civilization has gone through one of these disruptive,

dislocating technological revolutions- like Gutenberg's introduction of the printing

press-the whole world has changed in profound ways. But there is something about the

flattening of the world that is going to be qualitatively different from other such

profound changes: the speed and breadth with which it is taking hold. The introduction

of printing happened over a period of decades and for a long time affected only a

relatively small part of the planet. Same with the Industrial Revolution. This

flattening process is happening at warp speed and directly or indirectly touching

a lot more people on the planet at once. The faster and broader this transition to

a new era, the more likely is the potential for disruption, as opposed to an orderly

transfer of power from the old winners to the new winners.

To put it another way, the experiences of the high-tech companies in the last few

decades who failed to navigate the rapid changes brought about in their marketplace

by these types of forces may be a warning to all the businesses, institutions, and

nation-states that are now facing these inevitable, even predictable, changes but

lack the leadership, flexibility, and imagination to adapt-not because they are not

smart or aware, but because the speed of change is simply overwhelming them.

And that is why the great challenge for our time will be to absorb these changes in

ways that do not overwhelm people but also do not leave them behind. None of this

will be easy. But this is our task. It

47

is inevitable and unavoidable. It is the ambition of this book to offer a framework

for how to think about it and manage it to our maximum benefit.

I have shared with you in this chapter how I personally discovered that the world

is flat. The next chapter details how it got that way.

::::: TWO

The Ten Forces That Flattened the World

The Bible tells us that God created the world in six days and on the seventh day he

rested. Flattening the world took a little longer. The world has been flattened by

the convergence often major political events, innovations, and companies. None of

us has rested since, or maybe ever will again. This chapter is about the forces that

flattened the world and the multiple new forms and tools for collaboration that this

flattening has created.

Flattener #1

11/9/89 When the Walls Came Down and the Windows Went Up

The first time I saw the Berlin Wall, it already had a hole in it. It was December

1990, and I was traveling to Berlin with the reporters covering Secretary of State

James A. Baker III. The Berlin Wall had been breached a year earlier, on November

9, 1989. Yes, in a wonderful kabbalistic accident of dates, the Berlin Wall fell on

11/9. The wall, even in its punctured and broken state, was still an ugly scar across

Berlin. Secretary Baker was making his first visit to see this crumbled monument to

Soviet communism. I was standing next to him with a small group of reporters. "It

was a foggy, overcast day," Baker recalled in

49

his memoir, The Politics of Diplomacy, "and in my raincoat, I felt like a character

in a John le Carre novel. But as I peered through a crack in the Wall [near the Reichstag]

and saw the high-resolution drabness that characterizes East Berlin, I realized that

the ordinary men and women of East Germany, peacefully and persistently, had taken

matters into their own hands. This was their revolution." After Baker finished looking

through the wall and moved along, we reporters took turns peering through the same

jagged concrete hole. I brought a couple of chunks of the wall home for my daughters.

I remember thinking how unnatural it looked-indeed, what a bizarre thing it was, this

cement wall snaking across a modern city for the sole purpose of preventing the people

on the other side from enjoying, even glimpsing, freedom.

The fall of the Berlin Wall on 11/9/89 unleashed forces that ultimately liberated

all the captive peoples of the Soviet Empire. But it actually did so much more. It

tipped the balance of power across the world toward those advocating democratic,

consensual, free-market-oriented governance, and away from those advocating

authoritarian rule with centrally planned economies. The Cold War had been a struggle

between two economic systems-capitalism and communism-and with the fall of the wall,

there was only one system left and everyone had to orient himself or herself to it

one way or another. Henceforth, more and more economies would be governed from the

ground up, by the interests, demands, and aspirations of the people, rather than from

the top down, by the interests of some narrow ruling clique. Within two years, there

was no Soviet Empire to hide behind anymore or to prop up autocratic regimes in Asia,

the Middle East, Africa, or Latin America. If you were not a democracy or a

democratizing society, if you continued to hold fast to highly regulated or centrally

planned economics, you were seen as being on the wrong side of history.

For some, particularly among the older generations, this was an unwelcome

transformation. Communism was a great system for making people equally poor. In fact,

there was no better system in the world for that than communism. Capitalism made people

unequally rich, and for some who were used to the plodding, limited, but secure

Socialist

50

lifestyle-where a job, a house, an education, and a pension were all guaranteed, even

if they were meager-the fall of the Berlin Wall was deeply unsettling. But for many

others, it was a get-out-of-jail-free card. That is why the fall of the Berlin Wall

was felt in so many more places than just Berlin, and why its fall was such a

world-flattening event.

Indeed, to appreciate the far-reaching flattening effects of the fall of the Berlin

Wall, it's always best to talk to non-Germans or non-Russians. Tarun Das was heading

the Confederation of Indian Industry when the wall fell in Berlin, and he saw its

ripple effect felt all the way to India. "We had this huge mass of regulation and

controls and bureaucracy," he recalled. "Nehru had come to power [after the end of

British colonial rule] and had a huge country to manage, and no experience of running

a country. The U.S. was busy with Europe and Japan and the Marshall Plan. So Nehru

looked north, across the Himalayas, and sent his team of economists to Moscow. They

came back and said that this country [the Soviet Union] was amazing. They allocate

resources, they give licenses, there is a planning commission that decides everything,

and the country moves. So we took that model and forgot that we had a private sector . . .

That private sector got put under this wall of regulation. By 1991, the private sector

was there, but under wraps, and there was mistrust about business. They made profits!

The entire infrastructure from 1947 to 1991 was government-owned . . . [The burden

of state ownership] almost bankrupted the country. We were not able to pay our debts.

As a people, we did not have self-confidence. Sure, we might have won a couple of

wars with Pakistan, but that did not give the nation confidence."

In 1991, with India running out of hard currency, Manmohan Singh, the finance minister

at that time (and now the prime minister), decided that India had to open its economy.

"Our Berlin Wall fell," said Das, "and it was like unleashing a caged tiger. Trade

controls were abolished. We were always at 3 percent growth, the so-called Hindu rate

of growth-slow, cautious, and conservative. To make [better returns], you had to go

to America. Well, three years later [after the 1991 reforms] we were at 7 percent

rate of growth. To hell with poverty! Now to make it you could stay in India and become

one of Forbes's richest people in the world ... All the years of socialism and controls

had taken us downhill to

51

the point where we had only $ 1 billion in foreign currency. Today we have $ 118

billion . . . We went from quiet self-confidence to outrageous ambition in a decade."

The fall of the Berlin Wall didn't just help flatten the alternatives to free-market

capitalism and unlock enormous pent-up energies for hundreds of millions of people

in places like India, Brazil, China, and the former Soviet Empire. It also allowed

us to think about the world differently-to see it as more of a seamless whole. Because

the Berlin Wall was not only blocking our way; it was blocking our sight-our ability

to think about the world as a single market, a single ecosystem, and a single community.

Before 1989, you could have an Eastern policy or a Western policy, but it was hard

to think about having a "global" policy. Amartya Sen, the Nobel Prize-winning Indian

economist now teaching at Harvard, once remarked to me that "the Berlin Wall was not

only a symbol of keeping people inside East Germany-it was a way of preventing a kind

of global view of our future. We could not think globally about the world when the

Berlin Wall was there. We could not think about the world as a whole." There is a

lovely story in Sanskrit, Sen added, about a frog that is born in a well and stays

in the well and lives its entire life in the well. "It has a worldview that consists

of the well," he said. "That was what the world was like for many people on the planet

before the fall of the wall. When it fell, it was like the frog in the well was suddenly

able to communicate with frogs in all the other wells... If I celebrate the fall of

the wall, it is because I am convinced of how much we can learn from each other. Most

knowledge is learning from the other across the border."

Yes, the world became a better place to live in after 11/9, because each outbreak

of freedom stimulated another outbreak, and that process in and of itself had a

flattening effect across societies, strengthening those below and weakening those

above. "Women's freedom," noted Sen, citing just one example, "which promotes women's

literacy, tends to reduce fertility and child mortality and increase the employment

opportunities for women, which then affects the political dialogue and gives women

the opportunity for a greater role in local self-government."

Finally, the fall of the wall did not just open the way for more people

52

to tap into one another's knowledge pools. It also paved the way for the adoption

of common standards-standards on how economies should be run, on how accounting should

be done, on how banking should be conducted, on how PCs should be made, and on how

economics papers should be written. I discuss this more later, but suffice it to say

here that common standards create a flatter, more level playing field. To put it

another way, the fall of the wall enhanced the free movement of best practices. When

an economic or technological standard emerged and proved itself on the world stage,

it was much more quickly adopted after the wall was out of the way. In Europe alone,

the fall of the wall opened the way for the formation of the European Union and its

expansion from fifteen to twenty-five countries. That, in combination with the advent

of the euro as a common currency, has created a single economic zone out of a region

once divided by an Iron Curtain.

While the positive effects of the wall coming down were immediately apparent, the

cause of the wall's fall was not so clear. There was no single cause. To some degree

the termites just ate away at the foundations of the Soviet Union, which were already

weakened by the system's own internal contradictions and inefficiencies; to some

degree the Reagan administration's military buildup in Europe forced the Kremlin to

bankrupt itself paying for warheads; and to some degree Mikhail Gorbachev's hapless

efforts to reform something that was unreformable brought communism to an end. But

if I had to point to one factor as first among equals, it was the information revolution

that began in the early- to mid-1980s. Totalitarian systems depend on a monopoly of

information and force, and too much information started to slip through the Iron

Curtain, thanks to the spread of fax machines, telephones, and other modern tools

of communication.

A critical mass of IBM PCs, and the Windows operating system that brought them to

life, came together in roughly this same time period that the wall fell, and their

diffusion put the nail in the coffin of communism, because they vastly improved

horizontal communication-to the detriment of the exclusively top-down form that

communism was based upon. They also greatly enhanced personal information gathering

and personal empowerment. (Each component of this information revolu-

53

tion was brought about by separate evolutions: The phone network evolved from the

desire of people to talk to each other over long distances. The fax machine evolved

as a way to transmit written communication over the phone network. The PC was diffused

by the original killer apps-spreadsheets and word processing. And Windows evolved

out of the need to make all of this usable, and programmable, by the masses.)

The first IBM PC hit the markets in 1981. At the same time, many computer scientists

around the world had started using these things called the Internet and e-mail. The

first version of the Windows operating system shipped in 1985, and the real

breakthrough version that made PCs truly user-friendly-Windows 3.0-shipped on May

22, 1990, only six months after the wall went down. In this same time period, some

people other than scientists started to discover that if they bought a PC and a dial-up

modem, they could connect their PCs to their telephones and send e-mails through

private Internet service providers-like CompuServe and America Online.

"The diffusion of personal computers, fax machines, Windows, and dial-up modems

connected to a global telephone network all came together in the late 1980s and early

1990s to create the basic platform that started the global information revolution,"

argued Craig J. Mundie, the chief technology officer for Microsoft. The key was the

melding of them all together into a single interoperable system. That happened, said

Mundie, once we had in crude form a standardized computing platform-the IBM PC-along

with a standardized graphical user interface for word processing and

spreadsheets-Windows-along with a standardized tool for communication-dial-up

modems and the global phone network. Once we had that basic interoperable platform,

then the killer applications drove its diffusion far and wide.

"People found that they really liked doing all these things on a computer, and they

really improved productivity," said Mundie. "They all had broad individual appeal

and made individual people get up and buy a Windows-enabled PC and put it on their

desk, and that forced the diffusion of this new platform into the world of corporate

computing even more. People said, 'Wow, there is an asset here, and we should take

advantage of it.'"

54

The more established Windows became as the primary operating system, added Mundie,

"the more programmers went out and wrote applications for rich-world businesses to

put on their computers, so they could do lots of new and different business tasks,

which started to enhance productivity even more. Tens of millions of people around

the world became programmers to make the PC do whatever they wanted in their own

languages. Windows was eventually translated into thirty-eight languages. People

were able to become familiar with the PC in their own languages."

This was all new and exciting, but we shouldn't forget how constricted this early

PC-Windows-modem platform was. "This platform was constrained by too many

architectural limits," said Mundie. "There was missing infrastructure." The Internet

as we know it today-with seemingly magical transmission protocols that can connect

everyone and everything-had not yet emerged. Back then, networks had only very basic

protocols for exchanging files and e-mail messages. So people who were using computers

with the same type of operating systems and software could exchange documents through

e-mail or file transfers, but even doing this was tricky enough that only the computing

elite took the trouble. You couldn't just sit down and zap an e-mail or a file to

anyone anywhere-especially outside your own company or outside your own Internet

service-the way you can today. Yes, AOL users could communicate with CompuServe users,

but it was neither simple nor reliable. As a result, said Mundie, a huge amount of

data and creativity was accumulating in all those computers, but there was no easy,

interoperable way to share it and mold it. People could write new applications that

allowed selected systems to work together, but in general this was limited to planned

exchanges between PCs within the network of a single company.

This period from 11/9 to the mid-1990s still led to a huge advance in personal

empowerment, even if networks were limited. It was the age of "Me and my machine can

now talk to each other better and faster, so that I personally can do more tasks"

and the age of "Me and my machine can now talk to a few friends and some other people

in my company better and faster, so we can become more productive." The walls had

fallen and the Windows had opened, making the world much flatter than it

55

had ever been-but the age of seamless global communication had not dawned.

Though we didn't notice it, there was a discordant note in this exciting new era.

It wasn't only Americans and Europeans who joined the people of the Soviet Empire

in celebrating the fall of the wall-and claming credit for it. Someone else was raising

a glass-not of champagne but of thick Turkish coffee. His name was Osama bin Laden

and he had a different narrative. His view was that it was the jihadi fighters in

Afghanistan, of which he was one, who had brought down the Soviet Empire by forcing

the Red Army to withdraw from Afghanistan (with some help from U.S. and Pakistani

forces). And once that mission had been accomplished- the Soviets completed their

pullout from Afghanistan on February 15, 1989, just nine months before the fall of

the Berlin Wall-bin Laden looked around and found that the other superpower, the

United States, had a huge presence in his own native land, Saudi Arabia, the home

of the two holiest cities in Islam. And he did not like it.

So, while we were dancing on the wall and opening up our Windows and proclaiming that

there was no ideological alternative left to free-market capitalism, bin Laden was

turning his gun sights on America. Both bin Laden and Ronald Reagan saw the Soviet

Union as the "evil empire," but bin Laden came to see America as evil too. He did

have an ideological alternative to free-market capitalism-political Islam. He did

not feel defeated by the end of the Soviet Union; he felt emboldened by it. He did

not feel attracted to the widened playing field; he felt repelled by it. And he was

not alone. Some thought that Ronald Reagan brought down the wall by bankrupting the

Soviet Union through an arms race; others thought IBM, Steve Jobs, and Bill Gates

brought down the wall by empowering individuals to download the future. But a world

away, in Muslim lands, many thought bin Laden and his comrades brought down the Soviet

Empire and the wall with religious zeal, and millions of them were inspired to upload

the past.

In short, while we were celebrating 11/9, the seeds of another memorable

date-9/11-were being sown. But more about that later in the book. For now, let the

flattening continue.

56

Flattener #2

8/9/95 When Netscape Went Public

By the mid-1990s, the PC-Windows network revolution had reached its limits. If the

world was going to become really interconnected, and really start to flatten out,

the revolution needed to go to the next phase. And the next phase, notes Microsoft's

Mundie, "was to go from a PC-based computing platform to an Internet-based platform."

The killer applications that drove this new phase were e-mail and Internet browsing.

E-mail was being driven by the rapidly expanding consumer portals like AOL, CompuServe,

and eventually MSN. But it was the new killer app, the Web browser-which could retrieve

documents or Web pages stored on Internet Web sites and display them on any computer

screen-that really captured the imagination. The actual concept of the World Wide

Web-a system for creating, organizing, and linking documents so they could be easily

browsed-was created by British computer scientist Tim Berners-Lee. He put up the first

Web site in 1991, in an effort to foster a computer network that would enable

scientists to easily share their research. Other scientists and academics had created

a number of browsers to surf this early Web, but the first mainstream browser-and

the whole culture of Web browsing for the general public-was created by a tiny start-up

company in Mountain View, California, called Netscape. Netscape went public on August

9, 1995, and the world has not been the same since.

As John Doerr, the legendary venture capitalist whose firm Kleiner Perkins Caulfield

& Byers had backed Netscape, put it, "The Netscape IPO was a clarion call to the world

to wake up to the Internet. Until then, it had been the province of the early adopters

and geeks."

This Netscape-triggered phase drove the flattening process in several key ways: It

gave us the first broadly popular commercial browser to surf the Internet. The

Netscape browser not only brought the Internet alive but also made the Internet

accessible to everyone from five-year-olds to eighty-five-year-olds. The more alive

the Internet became, the more consumers wanted to do different things on the Web,

so the more they de-

57

manded computers, software, and telecommunications networks that could easily

digitize words, music, data, and photos and transport them on the Internet to anyone

else's computer. This demand was satisfied by another catalytic event: the rollout

of Windows 95, which shipped the week after Netscape took its stock public. Windows

95 would soon become the operating system used by most people worldwide, and unlike

previous versions of Windows, it was equipped with built-in Internet support, so that

not just browsers but all PC applications could "know about the Internet" and interact

with it.

Looking back, what enabled Netscape to take off was the existence, from the earlier

phase, of millions of PCs, many already equipped with modems. Those are the shoulders

Netscape stood on. What Netscape did was bring a new killer app-the browser-to this

installed base of PCs, making the computer and its connectivity inherently more useful

for millions of people. This in turn set off an explosion in demand for all things

digital and sparked the Internet boom, because every investor looked at the Internet

and concluded that if everything was going to be digitized-data, inventories,

commerce, books, music, photos, and entertainment-and transported and sold on the

Internet, then the demand for Internet-based products and services would be infinite.

This led to the dot-com stock bubble and a massive overinvestment in the fiber-optic

cable needed to carry all the new digital information. This development, in turn,

wired the whole world together, and, without anyone really planning it, made Bangalore

a suburb of Boston.

Let's look at each one of these developments.

When I sat down with Jim Barksdale, the former Netscape CEO, to interview him for

this book, I explained to him that one of the early chapters was about the ten

innovations, events, and trends that had flattened the world. The first event, I told

him, was 11/9, and I explained the significance of that date. Then I said, "Let me

see if you can guess the significance of the second date, 8/9." That was all I told

him: 8/9. It took Barksdale only a second to ponder that before shooting back with

the right answer: "The day Netscape went public!"

58

Few would argue that Barksdale is one of the great American entrepreneurs. He helped

Federal Express develop its package tracking and tracing system, then moved over to

McCaw Cellular, the mobile phone company, built that up, and oversaw its merger with

AT&T in 1994. Just before the sale closed, he was approached by a headhunter to become

the CEO of a new company called Mosaic Communications, forged by two now-legendary

innovators-Jim Clark and Marc Andreessen. In mid-1994, Clark, the founder of Silicon

Graphics, had joined forces with Andreessen to found Mosaic, which would quickly be

renamed Netscape Communications. Andreessen, a brilliant young computer scientist,

had just spearheaded a small software project at the National Center for

Supercomputing Applications (NC SA), based at the University of Illinois, that

developed the first really effective Web browser, also called Mosaic. Clark and

Andreessen quickly understood the huge potential for Web-browsing software and

decided to partner up to commercialize it. As Netscape began to grow, they reached

out to Barksdale for guidance and insight into how best to go public.

Today we take this browser technology for granted, but it was actually one of the

most important inventions in modern history. When Andreessen was back at the

University of Illinois NCSA lab, he found that he had PCs, workstations, and the basic

network connectivity to move files around the Internet, but it was still not very

exciting-because there was nothing to browse with, no user interface to pull up and

display the contents of other people's Web sites. So Andreessen and his team developed

the Mosaic browser, making Web sites viewable for any idiot, scientist, student, or

grandma. Marc Andreessen did not invent the Internet, but he did as much as any single

person to bring it alive and popularize it.

"The Mosaic browser started out in 1993 with twelve users, and I knew all twelve,"

said Andreessen. There were only about fifty Web sites at the time and they were mostly

just single Web pages. "Mosaic," he explained, "was funded by the National Science

Foundation. The money wasn't actually allocated to build Mosaic. Our specific group

was to build software that would enable scientists to use supercomputers that were

in remote locations, and to connect to them by the NSF network. So we built [the first

browsers as] software tools to enable researchers to

59

'browse' each other's research. I looked at it as a positive feedback loop: The more

people had the browser, the more people would want to be interconnected, and the more

incentive there would be to create content and applications and tools. Once that kind

of thing gets started, it just takes off and virtually nothing can stop it. When you

are developing it, you are not sure anyone is going to use it, but once it started

we realized that if anyone is going to use it everyone is going to use it, and the

only question then was how fast it would spread and what would be the barriers along

the way."

Indeed, everyone who tried the browser, including Barksdale, had the same initial

reaction: Wow! "Every summer, Fortune magazine had an article about the twenty-five

coolest companies around," Barksdale recalled. "That year [1994] Mosaic was one of

them. I not only had read about Clark and Andreessen but had turned to my wife and

said, 'Honey, this a great idea.' And then just a few weeks later I get this call

from the headhunter. So I went down and spoke to Doerr and Jim Clark, and I began

using the beta version of the Mosaic browser. I became more and more intrigued the

more I used it." Since the late 1980s, people had been putting up databases with

Internet access. Barksdale said that after speaking to Doerr and Clark, he went home,

gathered his three children around his computer, and asked them each to suggest a

topic he could browse the Internet for-and wowed them by coming up with something

for each of them. "That convinced me," said Barksdale. "So I called back the headhunter

and said, Tm your man.'"

Netscape's first commercial browser-which could work on an IBM PC, an Apple Macintosh,

or a Unix computer-was released in December 1994, and within a year it completely

dominated the market. You could download Netscape for free if you were in education

or a nonprofit. If you were an individual, you could evaluate the software for free

to your heart's content and buy it on disk if you wanted it. If you were a company,

you could evaluate the software for ninety days. "The underlying rationale," said

Andreessen, "was: If you can afford to pay for it, please do so. If not, use it anyway."

Why? Because all the free usage stimulated a massive growth in the network, which

was valuable to all the paying customers. It worked.

60

We put up the Netscape browser, said barksdale, and people were downloading it for

three-month trials. I've never seen volume like this. For big businesses and

government it was allowing them to connect and unlock all their information, and the

point-and-click system that Marc Andreessen invented allowed mere mortals to use it,

not just scientists. And that made it a true revolution. And we said, 'This thing

will just grow and grow and grow.'"

Nothing did stop it, and that is why Netscape played another hugely important

flattening role: It helped make the Internet truly interoperable. You will recall

that in the Berlin Wall-PC-Windows phase, individuals who had e-mail and companies

that had internal e-mail could not connect very far. The first Cisco Internet router,

in fact, was built by a husband and wife at Stanford who wanted to exchange e-mail;

one was working off a mainframe and the other on a PC, and they couldn't connect.

"The corporate networks at the time were proprietary and disconnected from each

other," said Andreessen. "Each one had its own formats, data protocols, and different

ways of doing content. So there were all these islands of information out there that

were disconnected. And as the Internet emerged as a public, commercial venture, there

was a real danger that it would emerge in the same disconnected way."

Joe in the accounting department would get on his office PC and try to get the latest

sales numbers for 1995, but he couldn't do that because the sales department was on

a different system from the one accounting was using. It was as if one was speaking

German and the other French. And then Joe would say, "Get me the latest shipment

information from Goodyear on what tires they have sent us," and he would find that

Goodyear was using a different system altogether, and the dealer in Topeka was running

yet another system. Then Joe would go home and find his seventh-grader on the World

Wide Web researching a term paper, using open protocols, and looking at the holdings

of some art museum in France. And Joe would say, "This is crazy. There has to be one

totally interconnected network."

61

In the years before the Internet became commercial, explained Andreessen, scientists

developed a series of "open protocols" meant to make everyone's e-mail system or

university computer network connect seamlessly with everyone else's-to ensure that

no one had some special advantage. These mathematical-based protocols, which enable

digital devices to talk to each other, were like magical pipes that, once you adopted

them for your network, made you compatible with everyone else, no matter what kind

of computer they were running. These protocols were (and still are) known by their

alphabet soup names: mainly FTP, HTTP, SSL, SMTP, POP, and TCP/IP. Together, they

form a system for transporting data around the Internet in a relatively secure manner,

no matter what network your company or household has or what computer or cell phone

or handheld device you are using. Each protocol had a different function: TCP/IP was

the basic plumbing of the Internet, or the basic railroad tracks, on which everything

else above it was built and moved around. FTP moved files; SMTP and POP moved e-mail

messages, which became standardized, so that they could be written and read on

different e-mail systems. HTML was a language that allowed even ordinary people to

author Web pages that anyone with a Web browser could display. But it was the

introduction of HTTP to move HTML documents around that gave birth to the World Wide

Web as we know it. Finally, as people began to use these Web pages for electronic

commerce, SSL was created to provide security for Web-based transactions.

As browsing and the Internet in general grew, Netscape wanted to make sure that

Microsoft, with its huge market dominance, would not be able to shift these Web

protocols from open to proprietary standards that only Microsoft's servers would be

able to handle. "Netscape helped to guarantee that these open protocols would not

be proprietary by commercializing them for the public," said Andreessen. "Netscape

came along not only with the browser but with a family of software products that

implemented all these open standards so that the scientists could communicate with

each other no matter what system they were on-a Cray supercomputer, a Macintosh, or

a PC. Netscape was able to provide a real reason for everyone to say, 'I want to be

on open standards for everything I do and for

62

all the systems I work on.' Once we created a way to browse the Internet, people wanted

a universal way to access what was out there. So anyone who wanted to work on open

standards went to Netscape, where we supported them, or they went to the open-source

world and got the same standards for free but unsupported, or they went to their

private vendors and said, 'I am not going to buy your proprietary stuff anymore ...

I am not going to sign up to your walled garden anymore. I am only going to stay with

you if you interconnect to the Internet with these open protocols.'"

Netscape began pushing these open standards through the sale of its browsers, and

the public responded enthusiastically. Sun started to do the same with its servers,

and Microsoft started to do the same with Windows 95, considering browsing so critical

that it famously built its own browser directly into Windows with the addition of

Internet Explorer. Each realized that the public, which suddenly could not get enough

of e-mail and browsing, wanted the Internet companies to work together and create

one interoperable network. They wanted companies to compete with each other over

different applications, that is, over what consumers could do once they were on the

Internet-not over how they got on the Internet in the first place. As a result, after

quite a few "format wars" among the big companies, by the late 1990s the Internet

computing platform became seamlessly integrated. Soon anyone was able to connect with

anyone else anywhere on any machine. It turned out that the value of compatibility

was much higher for everyone than the value of trying to maintain your own little

walled network. This integration was a huge flattener, because it enabled so many

more people to get connected with so many more other people.

There was no shortage of skeptics at the time, who said that none of this would work

because it was all too complicated, recalled Andreessen. 'Tou had to go out and get

a PC and a dial-up modem. The skeptics all said, 'It takes people a long time to change

their habits and learn a new technology.' [But] people did it very quickly, and ten

years later there were eight hundred million people on the Internet." The reason?

"People will change their habits quickly when they have a strong reason to do so,

and people have an innate urge to connect with other people,"

63

said Andreessen. "And when you give people a new way to connect with other people,

they will punch through any technical barrier, they will learn new languages-people

are wired to want to connect with other people and they find it objectionable not

to be able to. That is what Netscape unlocked." As Joel Cawley, IBM's vice president

of corporate strategy, put it, "Netscape created a standard around how data would

be transported and rendered on the screen that was so simple and compelling that anyone

and everyone could innovate on top of it. It quickly scaled around the world and to

everyone from kids to corporations."

In the summer of 1995, Barksdale and his Netscape colleagues went on an old-fashioned

road show with their investment bankers from Morgan Stanley to try to entice investors

around the country to buy Netscape stock once it went public. "When we went out on

the road," said Barksdale, "Morgan Stanley said the stock could sell for as high as

$14. But after the road show got going, they were getting such demand for the stock,

they decided to double the opening price to $28. The last afternoon before the offering,

we were all in Maryland. It was our last stop. We had this caravan of black limousines.

We looked like some kind of Mafia group. We needed to be in touch with Morgan Stanley

[headquarters], but we were somewhere where our cell phones didn't work. So we pulled

into these two filling stations across from each other, all these black limos, to

use the phones. We called up Morgan Stanley, and they said, 'We're thinking of bringing

it out at $31.' I said, 'No, let's keep it at $28,' because I wanted people to remember

it as a $20 stock, not a $30 stock, just in case it didn't go so well. So then the

next morning I get on the conference call and the thing opened at $71. It closed the

day at $56, exactly twice the price I set."

Netscape eventually fell victim to overwhelming (and, the courts decided,

monopolistic) competitive pressure from Microsoft. Microsoft's decision to give away

its browser, Internet Explorer, as part of its dominant Windows operating system,

combined with its ability to throw more programmers at Web browsing than Netscape,

led to the increasing slippage of Netscape's market share. In the end, Netscape was

sold for $10 billion to AOL, which never did much with it. But though Netscape may

64

have been only a shooting star in commercial terms, what a star it was, and what a

trail it left.

"We were profitable almost from the start," said Barksdale. "Netscape was not a

dot-com. We did not participate in the dot-com bubble. We started the dot-com bubble."

And what a bubble it was. "Netscape going public stimulated a lot of things," said

Barksdale. "The technologists loved the new technology things it could do, and the

businesspeople and regular folks got excited about how much money they could make.

People saw all those young kids making money out of this and said, 'If those young

kids can do this and make all that money, I can too.' Greed can be a bad thing-folks

thought they could make a lot of money without a lot of work. It certainly led to

a degree of overinvestment, putting it mildly. Every sillier and sillier idea got

funded."

What was it that stimulated investors to believe that demand for Internet usage and

Internet-related products would be infinite? The short answer is digitization. Once

the PC-Windows revolution demonstrated to everyone the value of being able to digitize

information and manipulate it on computers and word processors, and once the browser

brought the Internet alive and made Web pages sing and dance and display, everyone

wanted everything digitized as much as possible so they could send it to someone else

down the Internet pipes. Thus began the digitization revolution. Digitization is that

magic process by which words, music, data, films, files, and pictures are turned into

bits and bytes-combinations of Is and Os-that can be manipulated on a computer screen,

stored on a microprocessor, or transmitted over satellites and fiber-optic lines.

It used to be the post office was where I went to send my mail, but once the Internet

came alive, I wanted my mail digitized so I could e-mail it. Photography used to be

a cumbersome process involving film coated with silver dug up from mines halfway

across the world. I used to take some pictures with my camera, then bring the film

to the drugstore to be sent off to a big plant somewhere for processing. But once

the Internet made it possible to send pictures around the world,

65

attached to or in e-mails, I didn't want to use silver film anymore. I wanted to take

pictures in the digital format, which could be uploaded, not developed. (And by the

way, I didn't want to be confined to using a camera to take them. I wanted to be able

to use my cell phone to do it.) I used to have to go to Barnes & Noble to buy and

browse books, but once the Internet came alive, I wanted to browse for books digitally

on Amazon.com as well. I used to go to the library to do research, but now I wanted

to do it digitally through Google or Yahoo!, not just by roaming the stacks. I used

to buy a CD to listen to Simon and Garfunkel-CDs had already replaced albums as a

form of digitized music-but once the Internet came alive, I wanted those music bits

to be even more malleable and mobile. I wanted to be able to download them into an

iPod. In recent years the digitization technology evolved so I could do just that.

Well, as investors watched this mad rush to digitize everything, they said to

themselves, "Holy cow. If everyone wants all this stuff digitized and turned into

bits and transmitted over the Internet, the demand for Web service companies and the

demand for fiber-optic cables to handle all this digitized stuff around the world

is going to be limitless! You cannot lose if you invest in this!"

And thus was the bubble born.

Overinvestment is not necessarily a bad thing-provided that it is eventually

corrected. I'll always remember a news conference that Microsoft chairman Bill Gates

held at the 1999 World Economic Forum in Davos, at the height of the tech bubble.

Over and over again, Gates was bombarded by reporters with versions of the question,

"Mr. Gates, these Internet stocks, they're a bubble, right? Surely they're a bubble.

They must be a bubble?" Finally an exasperated Gates said to the reporters something

to the effect of, "Look, you bozos, of course they're a bubble, but you're all missing

the point. This bubble is attracting so much new capital to this Internet industry,

it is going to drive innovation faster and faster." Gates compared the Internet to

the gold rush, the idea being that more money was made selling Levi's, picks, shovels,

and hotel rooms to the gold diggers than from digging up gold from the earth. Gates

was right: Booms and bubbles may be economically dangerous; they may end up with many

people losing money and a lot of companies

66

going bankrupt. But they also often do drive innovation faster and faster, and the

sheer overcapacity that they spur-whether it is in railroad lines or automobiles-can

create its own unintended positive consequences.

That is what happened with the Internet stock boom. It sparked a huge overinvestment

in fiber-optic cable companies, which then laid massive amounts of fiber-optic cable

on land and under the oceans, which dramatically drove down the cost of making a phone

call or transmitting data anywhere in the world.

The first commercial installation of a fiber-optic system was in 1977, after which

fiber slowly began to replace copper telephone wires, because it could carry data

and digitized voices much farther and faster in larger quantities. According to

Howstuffworks.com, fiber optics are made up of strands of optically pure glass each

"as thin as a human hair," which are arranged in bundles, called "optical cables,"

to carry digitized packets of information over long distances. Because these optical

fibers are so much thinner than copper wires, more fibers can be bundled into a given

diameter of cable than can copper wires, which means that much more data or many more

voices can be sent over the same cable at a lower cost. The most important benefit

of fiber, though, derives from the dramatically higher bandwidth of the signals it

can transport over long distances. Copper wires can carry very high frequencies too,

but only for a few feet before the signal starts to degrade in strength due to certain

parasitic effects. Optical fibers, by contrast, can carry very high-frequency optical

pulses on the same individual fiber without substantial signal degradation for many,

many miles.

The way fiber-optic cables work, explains one of the manufacturers, ARC Electronics,

on its Web site, is by converting data or voices into light pulses and then

transmitting them down fiber lines, instead of using electronic pulses to transmit

information down copper lines. At one end of the fiber-optic system is a transmitter.

The transmitter accepts coded electronic pulse information-words or data-coming from

copper wire out of your home telephone or office computer. The transmitter then

processes and translates those digitized, electronically coded words or data into

equivalently coded light pulses. A light-emitting diode (LED)

67

or an injection-laser diode (ILD) can be used to generate the light pulses, which

are then funneled down the fiber-optic cable. The cable functions as a kind of light

guide, guiding the light pulses introduced at one end of the cable through to the

other end, where a light-sensitive receiver converts the pulses back into the

electronic digital Is and Os of the original signal, so they can then show up on your

computer screen as e-mail or in your cell phone as a voice. Fiber-optic cable is also

ideal for secure communications, because it is very difficult to tap.

It was actually the coincidence of the dot-com boom and the Telecommunications Act

of 1996 that launched the fiber-optic bubble. The act allowed local and long-distance

companies to get into each other's businesses, and enabled all sorts of new local

exchange carriers to compete head-to-head with the Baby Bells and AT&T in providing

both phone services and infrastructure. As these new phone companies came online,

offering their own local, long-distance, international, data, and Internet services,

each sought to have its own infrastructure. And why not? The Internet boom led everyone

to assume that the demand for bandwidth to carry all that Internet traffic would double

every three months-indefinitely. For about two years that was true. But then the law

of large numbers started to kick in, and the pace of doubling slowed. Unfortunately,

the telecom companies weren't paying close attention to the developing mismatch

between demand and reality. The market was in the grip of an Internet fever, and

companies just kept building more and more capacity. And the stock market boom meant

money was free! It was a party! So every one of these incredibly optimistic scenarios

from every one of these new telecom companies got funded. In a period of about five

or six years, these telecom companies invested about $ 1 trillion in wiring the world.

And virtually no one questioned the demand projections.

Few companies got crazier than Global Crossing, one of the companies hired by all

these new telecoms to lay fiber-optic cable for them around the world. Global Crossing

was founded in 1997 by Gary Winnick and went public the next year. Robert Annunziata,

who lasted only a year as CEO, had a contract that the Corporate Library's Nell Minow

once

68

picked as the worst (from the point of view of shareholders) in the United States.

Among other things, it included Annunziata's mother's first-class airfare to visit

him once a month. It also included a signing bonus of 2 million shares of stock at

$10 a share below market.

Henry Schacht, a veteran industrialist now with E. M. Warburg, Pincus & Co., was

brought in by Lucent, the successor of Western Electric, to help manage it through

this crazy period. He recalled the atmosphere: "The telecom deregulation of 1996 was

hugely important. It allowed competitive local exchange carriers to build their own

capacities and sell in competition with each other and with the Baby Bells. These

new telecoms went to companies like Global Crossing and had them install fiber

networks for them so they could compete at the transport level with AT&T and MCI,

particularly on overseas traffic . . . Everyone thought this was a new world, and

it would never stop. [You had] competitive firms using free capital, and everyone

thought the pie would expand infinitely. So [each company said,] 'I will put my fiber

down before you do, and I will get a bigger share than you.' It was supposed to be

just a vertical growth line, straight up, and we each thought we would get our share,

so everybody built to the max projections and assumed that they would get their share."

It turned out that while business-to-business and e-commerce developed as projected,

and a lot of Web sites that no one anticipated exploded-like eBay, Amazon, and

Google-they still devoured only a fraction of the capacity that was being made

available. So when the dotcom bust came along, there was just way too much fiber-optic

cable out there. Long-distance phone rates went from $2 a minute to 100. And the

transmission of data was virtually free. "The telecom industry has invested itself

right out of a business," Mike McCue, chief operations officer of Tellme Networks,

a voice-activated Internet service, told CNET News.com in June 2001. "They've laid

so much fiber in the ground that they've basically commoditized themselves. They are

going to get into massive price wars with everyone and it's going to be a disaster."

It was a disaster for many of the companies and their investors (Global Crossing filed

for bankruptcy in January 2002, with $12.4 billion in debt), but it turned out to

be a great boon for consumers. Just as the na-

69

tional highway system that was built in the 1950s flattened the United States, broke

down regional differences, and made it so much easier for companies to relocate in

lower-wage regions, like the South, because it had become so much easier to move people

and goods long distances, so the laying of global fiber highways flattened the

developed world. It helped to break down global regionalism, create a more seamless

global commercial network, and made it simple and almost free to move digitized

labor-service jobs and knowledge work-to lower-cost countries.

(It should be noted, though, that those fiber highways in America tended to stop at

the last mile-before connecting to households. While a huge amount of long-distance

fiber cable was laid to connect India and America, virtually none of these new U.S.

telecom companies laid any substantial new local loop infrastructure, due to a failure

of the 1996 telecom deregulation act to permit real competition in the local loop

between the cable companies and the telephone companies. Where the local broadband

did get installed was in office buildings, which were already pretty well served by

the old companies. So this pushed prices down for businesses-and for Indians who

wanted to get online from Bangalore to do business with those businesses-but it didn't

create the sort of competition that could bring cheap broadband capability to the

American masses in their homes. That has started happening only more recently.)

The broad overinvestment in fiber cable is a gift that keeps on giving, thanks to

the unique nature of fiber optics. Unlike other forms of Internet overinvestment,

it was permanent: Once the fiber cables were laid, no one was going to dig them up

and thereby eliminate the overcapacity. So when the telecom companies went bankrupt,

the banks took them over and then sold their fiber cables for ten cents on the dollar

to new companies, which continued to operate them, which they could do profitably,

having bought them in a fire sale. But the way fiber cable works is that each cable

has multiple strands of fiber in it with a potential capacity to transmit many terabits

of data per second on each strand. When these fiber cables were originally laid, the

optical switches-the transmitters and receivers-at each end of them could not take

full advantage of the fiber's full capacity. But every year since then, the optical

switches

70

at each end of that fiber cable have gotten better and better, meaning that more and

more voices and data can be transmitted down each fiber. So as the switches keep

improving, the capacity of all the already installed fiber cables just keeps growing,

making it cheaper and easier to transmit voices and data every year to any part of

the world. It is as though we laid down a national highway system where people were

first allowed to drive 50 mph, then 60 mph, then 70 mph, then 80 mph, then eventually

150 mph on the same highways without any fear of accidents. Only this highway wasn't

just national. It was international.

"Every layer of innovation gets built on the next," said Andreessen, who went on from

Netscape to start another high-tech firm, Opsware Inc. "And today the most profound

thing to me is the fact that a fourteen-year-old in Romania or Bangalore or the Soviet

Union or Vietnam has all the information, all the tools, all the software easily

available to apply knowledge however they want. That is why I am sure the next Napster

is going to come out of left field. As bioscience becomes more computational and less

about wet labs, and as all the genomic data becomes easily available on the Internet,

at some point you will be able to design vaccines on your laptop."

I think Andreessen touches on what is unique about the flat world and the era of

Globalization 3.0. It is going to be driven by groups and individuals, but of a much

more diverse background than those twelve scientists who made up Andreessen's world

when he created Mosaic. Now we are going to see the real human mosaic emerge-from

all over the world, from left field and right field, from West and East and North

and South-to drive the next generation of innovation. Indeed, a few days after

Andreessen and I talked, the following headline appeared on the front page of The

New York Times (July 15, 2004): "U.S. Permits 3 Cancer Drugs from Cuba." The story

went on to say, "The federal government is permitting a California biotechnology

company to license three experimental cancer drugs from Cuba-making an exception to

the policy of tightly restricting trade with that country." Executives of the company,

CancerVex, said that "it was the first time an American biotechnology company had

obtained permission to license a drug from Cuba, a country that some industry

executives and scientists say is surprisingly strong in

71

biotechnology for a developing nation . . . More than $1 billion was spent over the

years to build and operate research institutes on the west side of Havana staffed

by Cuban scientists, many of them educated in Europe."

Just to summarize again: The PC-Windows flattening phase was about me interacting

with my computer and me interacting with my own limited network inside my own company.

Then came along this Internet-e-mail-browser phase, and it flattened the earth a

little bit more. It was about me and my computer interacting with anyone anywhere

on any machine, which is what e-mail is all about, and me and my computer interacting

with anybody's Web site on the Internet, which is what browsing is all about. In short,

the PC-Windows phase begat the Netscape browsing-e-mail phase and the two together

enabled more people to communicate and interact with more other people anywhere on

the planet than ever before.

But the fun was just beginning. This phase was just the foundation for the next step

in flattening the flat world.

Flatten

Work Flow Software

Let's Do Lunch: Have Your Application

Talk to My Application

I met Scott Hyten, the CEO of Wild Brain, a cutting-edge animation studio in San

Francisco that produces films and cartoons for Disney and other major studios, at

a meeting in Silicon Valley in the winter of 2004.1 had been invited by John Doerr,

the venture capitalist, to test out the ideas in this book to a few of the companies

that he was backing. Hyten and I really hit it off, maybe because after hearing my

arguments he wrote me an e-mail that said, "I am sure in Magellan's time there were

plenty of theologians, geographers, and pundits who wanted to make the world flat

again. I know the world is flat, and thank you for your support." A man after my own

heart.

72

When I asked him to elaborate, Hyten sketched out for me how animated films are

produced today through a global supply chain. I understood immediately why he too

had concluded that the world is flat. "At Wild Brain," he said, "we make something

out of nothing. We learn how to take advantage of the flat world. We are not fighting

it. We are taking advantage of it."

Hyten invited me to come and watch them produce a cartoon segment to really appreciate

how flat the world is, which I did. The series they were working on when I showed

up was for the Disney Channel and called Higglytown Heroes. It was inspired by all

the ordinary people who rose to the challenge of 9/11. Higglytown "is the typical

1950s small town," said Hyten. "It is Pleasantville. And we are exporting the

production of this American small town around the world-literally and figuratively.

The foundation of the story is that every person, all the ordinary people living their

lives, are the heroes in this small town-from the schoolteacher to the pizza delivery

man."

This all-American show is being produced by an all-world supply chain. "The recording

session," explained Hyten, "is located near the artist, usually in New York or L.A.,

the design and direction is done in San Francisco, the writers network in from their

homes (Florida, London, New York, Chicago, LA, and San Francisco), and the animation

of the characters is done in Bangalore with edits from San Francisco. For this show

we have eight teams in Bangalore working in parallel with eight different writers.

This efficiency has allowed us to contract with fifty 'stars' for the twenty-six

episodes. These

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The World is Flat

Thomas L Friedman

To Matt and Kay and to Ron

Contents

How the World Became Flat

One: While I Was Sleeping / 3

Two: The Ten Forces That Flattened the World / 48

Flattener#l. 11/9/89

Flattener #2. 8/9/95

Flattener #3. Work Flow Software

Flattener #4. Open-Sourcing

Flattener #5. Outsourcing

Flattener #6. Offshoring

Flattener #7. Supply-Chaining

Flattener #8. Insourcing

Flattener #9. In-forming

Flattener #10.

The Steroids Three: The Triple Convergence / 173

Four: The Great Sorting Out / 201

America and the Flat World

Five: America and Free Trade / 225

Six: The Untouchables / 237

Seven: The Quiet Crisis / 250

Eight: This Is Not a Test / 276

Developing Countries and the Flat World

Nine: The Virgin of Guadalupe / 309

Companies and the Flat World

Geopolitics and the Flat World

Eleven: The Unflat World / 371

Twelve: The Dell Theory of Conflict Prevention / 414

Conclusion: Imagination

Thirteen: 11/9 Versus 9/11 / 441

Acknowledgments I 471 Index I 475

:::::How the World Became Flat

::::: ONE

While I Was Sleeping

Your Highnesses, as Catholic Christians, and princes who love and promote the holy

Christian faith, and are enemies of the doctrine of Mahomet, and of all idolatry and

heresy, determined to send me, Christopher Columbus, to the above-mentioned countries

of India, to see the said princes, people, and territories, and to learn their

disposition and the proper method of converting them to our holy faith; and

furthermore directed that I should not proceed by land to the East, as is customary,

but by a Westerly route, in which direction we have hitherto no certain evidence that

anyone has gone.

- Entry from the journal of Christopher Columbus on his voyage of 1492

No one ever gave me directions like this on a golf course before: "Aim at either

Microsoft or IBM." I was standing on the first tee at the KGA Golf Club in downtown

Bangalore, in southern India, when my playing partner pointed at two shiny

glass-and-steel buildings off in the distance, just behind the first green. The

Goldman Sachs building wasn't done yet; otherwise he could have pointed that out as

well and made it a threesome. HP and Texas Instruments had their offices on the back

nine, along the tenth hole. That wasn't all. The tee markers were from Epson, the

printer company, and one of our caddies was wearing a hat from 3M. Outside, some of

the traffic signs were also sponsored by Texas Instruments, and the Pizza Hut

billboard on the way over showed a steaming pizza, under the headline "Gigabites of

Taste!"

4

No, this definitely wasn't Kansas. It didn't even seem like India. Was this the New

World, the Old World, or the Next World?

I had come to Bangalore, India's Silicon Valley, on my own Columbus-like journey of

exploration. Columbus sailed with the Nina, the Pinta, and the Santa Maria in an effort

to discover a shorter, more direct route to India by heading west, across the Atlantic,

on what he presumed to be an open sea route to the East Indies-rather than going south

and east around Africa, as Portuguese explorers of his day were trying to do. India

and the magical Spice Islands of the East were famed at the time for their gold, pearls,

gems, and silk-a source of untold riches. Finding this shortcut by sea to India, at

a time when the Muslim powers of the day had blocked the overland routes from Europe,

was a way for both Columbus and the Spanish monarchy to become wealthy and powerful.

When Columbus set sail, he apparently assumed the Earth was round, which was why he

was convinced that he could get to India by going west. He miscalculated the distance,

though. He thought the Earth was a smaller sphere than it is. He also did not anticipate

running into a landmass before he reached the East Indies. Nevertheless, he called

the aboriginal peoples he encountered in the new world "Indians." Returning home,

though, Columbus was able to tell his patrons, King Ferdinand and Queen Isabella,

that although he never did find India, he could confirm that the world was indeed

round.

I set out for India by going due east, via Frankfurt. I had Lufthansa business class.

I knew exactly which direction I was going thanks to the GPS map displayed on the

screen that popped out of the armrest of my airline seat. I landed safely and on

schedule. I too encountered people called Indians. I too was searching for the source

of India's riches. Columbus was searching for hardware-precious metals, silk, and

spices-the source of wealth in his day. I was searching for software, brainpower,

complex algorithms, knowledge workers, call centers, transmission protocols,

breakthroughs in optical engineering-the sources of wealth in our day. Columbus was

happy to make the Indians he met his slaves, a pool of free manual labor.

I just wanted to understand why the Indians I met were taking our work, why they had

become such an important pool for the outsourcing

5

of service and information technology work from America and other industrialized

countries. Columbus had more than one hundred men on his three ships; I had a small

crew from the Discovery Times channel that fit comfortably into two banged-up vans,

with Indian drivers who drove barefoot. When I set sail, so to speak, I too assumed

that the world was round, but what I encountered in the real India profoundly shook

my faith in that notion. Columbus accidentally ran into America but thought he had

discovered part of India. I actually found India and thought many of the people I

met there were Americans. Some had actually taken American names, and others were

doing great imitations of American accents at call centers and American business

techniques at software labs.

Columbus reported to his king and queen that the world was round, and he went down

in history as the man who first made this discovery. I returned home and shared my

discover)' only with my wife, and only in a whisper.

"Honey," I confided, "I think the world is flat."

How did I come to this conclusion? I guess you could say it all started in Nandan

Nilekani's conference room at Infosys Technologies Limited. Infosys is one of the

jewels of the Indian information technology world, and Nilekani, the company's CEO,

is one of the most thoughtful and respected captains of Indian industry. I drove with

the Discovery Times crew out to the Infosys campus, about forty minutes from the heart

of Bangalore, to tour the facility and interview Nilekani. The Infosys campus is

reached by a pockmarked road, with sacred cows, horse-drawn carts, and motorized

rickshaws all jostling alongside our vans. Once you enter the gates of Infosys, though,

you are in a different world. A massive resort-size swimming pool nestles amid

boulders and manicured lawns, adjacent to a huge putting green. There are multiple

restaurants and a fabulous health club. Glass-and-steel buildings seem to sprout up

like weeds each week. In some of those buildings, Infosys employees are writing

specific software programs for American or European companies; in others, they are

running the back rooms of major

American- and European-based multinationals-everything from computer maintenance to

specific research projects to answering customer calls routed there from all over

the world. Security is tight, cameras monitor the doors, and if you are working for

American Express, you cannot get into the building that is managing services and

research for General Electric. Young Indian engineers, men and women, walk briskly

from building to building, dangling ID badges. One looked like he could do my taxes.

Another looked like she could take my computer apart. And a third looked like she

designed it!

After sitting for an interview, Nilekani gave our TV crew a tour of Info-sys's global

conferencing center-ground zero of the Indian outsourcing industry. It was a

cavernous wood-paneled room that looked like a tiered classroom from an Ivy League

law school. On one end was a massive wall-size screen and overhead there were cameras

in the ceiling for teleconferencing. "So this is our conference room, probably the

largest screen in Asia-this is forty digital screens [put together]," Nilekani

explained proudly, pointing to the biggest flat-screen TV I had ever seen. Infosys,

he said, can hold a virtual meeting of the key players from its entire global supply

chain for any project at any time on that supersize screen. So their American designers

could be on the screen speaking with their Indian software writers and their Asian

manufacturers all at once. "We could be sitting here, somebody from New York, London,

Boston, San Francisco, all live. And maybe the implementation is in Singapore, so

the Singapore person could also be live here . . . That's globalization," said Nilekani.

Above the screen there were eight clocks that pretty well summed up the Infosys workday:

24/7/365. The clocks were labeled US West, US East, GMT, India, Singapore, Hong Kong,

Japan, Australia.

"Outsourcing is just one dimension of a much more fundamental thing happening today

in the world," Nilekani explained. "What happened over the last [few] years is that

there was a massive investment in technology, especially in the bubble era, when

hundreds of millions of dollars were invested in putting broadband connectivity

around the world, undersea cables, all those things." At the same time, he added,

computers became cheaper and dispersed all over the world, and there was an explosion

of software-e-mail, search engines like Google, and

7

proprietary software that can chop up any piece of work and send one part to Boston,

one part to Bangalore, and one part to Beijing, making it easy for anyone to do remote

development. When all of these things suddenly came together around 2000, added

Nilekani, they "created a platform where intellectual work, intellectual capital,

could be delivered from anywhere. It could be disaggregated, delivered, distributed,

produced, and put back together again-and this gave a whole new degree of freedom

to the way we do work, especially work of an intellectual nature . . . And what you

are seeing in Bangalore today is really the culmination of all these things coming

together."

We were sitting on the couch outside of Nilekani's office, waiting for the TV crew

to set up its cameras. At one point, summing up the implications of all this, Nilekani

uttered a phrase that rang in my ear. He said to me, "Tom, the playing field is being

leveled." He meant that countries like India are now able to compete for global

knowledge work as never before-and that America had better get ready for this. America

was going to be challenged, but, he insisted, the challenge would be good for America

because we are always at our best when we are being challenged. As I left the Infosys

campus that evening and bounced along the road back to Bangalore, I kept chewing on

that phrase: "The playing field is being leveled."

What Nandan is saying, I thought, is that the playing field is being flattened .. .

Flattened? Flattened? My God, he's telling me the world is flat!

Here I was in Bangalore-more than five hundred years after Columbus sailed over the

horizon, using the rudimentary navigational technologies of his day, and returned

safely to prove definitively that the world was round-and one of India's smartest

engineers, trained at his country's top technical institute and backed by the most

modern technologies of his day, was essentially telling me that the world was flat-as

flat as that screen on which he can host a meeting of his whole global supply chain.

Even more interesting, he was citing this development as a good thing, as a new

milestone in human progress and a great opportunity for India and the world-the fact

that we had made our world flat!

In the back of that van, I scribbled down four words in my notebook: "The world is

flat." As soon as I wrote them, I realized that this was the

8

underlying message of everything that I had seen and heard in Bangalore in two weeks

of filming. The global competitive playing field was being leveled. The world was

being flattened.

As I came to this realization, I was filled with both excitement and dread. The

journalist in me was excited at having found a framework to better understand the

morning headlines and to explain what was happening in the world today. Clearly, it

is now possible for more people than ever to collaborate and compete in real time

with more other people on more different kinds of work from more different corners

of the planet and on a more equal footing than at any previous time in the history

of the world-using computers, e-mail, networks, teleconferencing, and dynamic new

software. That is what Nandan was telling me. That was what I discovered on my journey

to India and beyond. And that is what this book is about. When you start to think

of the world as flat, a lot of things make sense in ways they did not before. But

I was also excited personally, because what the flattening of the world means is that

we are now connecting all the knowledge centers on the planet together into a single

global network, which-if politics and terrorism do not get in the way-could usher

in an amazing era of prosperity and innovation.

But contemplating the flat world also left me filled with dread, professional and

personal. My personal dread derived from the obvious fact that it's not only the

software writers and computer geeks who get empowered to collaborate on work in a

flat world. It's also al-Qaeda and other terrorist networks. The playing field is

not being leveled only in ways that draw in and superempower a whole new group of

innovators. It's being leveled in a way that draws in and superempowers a whole new

group of angry, frustrated, and humiliated men and women.

Professionally, the recognition that the world was flat was unnerving because I

realized that this flattening had been taking place while I was sleeping, and I had

missed it. I wasn't really sleeping, but I was otherwise engaged. Before 9/11,1 was

focused on tracking globalization and exploring the tension between the "Lexus"

forces of economic integration and the "Olive Tree" forces of identity and

nationalism-hence my 1999 book, The Lexus and the Olive Tree. But after 9/11, the

olive tree wars became all-

9

consuming for me. I spent almost all my time traveling in the Arab and Muslim worlds.

During those years I lost the trail of globalization.

I found that trail again on my journey to Bangalore in February 2004. Once I did,

I realized that something really important had happened while I was fixated on the

olive groves of Kabul and Baghdad. Globalization had gone to a whole new level. If

you put The Lexus and the Olive Tree and this book together, the broad historical

argument you end up with is that that there have been three great eras of globalization.

The first lasted from 1492-when Columbus set sail, opening trade between the Old World

and the New World-until around 1800.1 would call this era Globalization 1.0. It shrank

the world from a size large to a size medium. Globalization 1.0 was about countries

and muscles. That is, in Globalization 1.0 the key agent of change, the dynamic force

driving the process of global integration was how much brawn-how much muscle, how

much horsepower, wind power, or, later, steam power-your country had and how

creatively you could deploy it. In this era, countries and governments (often inspired

by religion or imperialism or a combination of both) led the way in breaking down

walls and knitting the world together, driving global integration. In Globalization

1.0, the primary questions were: Where does my country fit into global competition

and opportunities? How can I go global and collaborate with others through my country?

The second great era, Globalization 2.0, lasted roughly from 1800 to 2000, interrupted

by the Great Depression and World Wars I and II. This era shrank the world from a

size medium to a size small. In Globalization 2.0, the key agent of change, the dynamic

force driving global integration, was multinational companies. These multinationals

went global for markets and labor, spearheaded first by the expansion of the Dutch

and English joint-stock companies and the Industrial Revolution. In the first half

of this era, global integration was powered by falling transportation costs, thanks

to the steam engine and the railroad, and in the second half by falling

telecommunication costs-thanks to the diffusion of the telegraph, telephones, the

PC, satellites, fiber-optic cable, and the early version of the World Wide Web. It

was during this era that we really saw the

10

birth and maturation of a global economy, in the sense that there was enough movement

of goods and information from continent to continent for there to be a global market,

with global arbitrage in products and labor. The dynamic forces behind this era of

globalization were breakthroughs in hardware-from steamships and railroads in the

beginning to telephones and mainframe computers toward the end. And the big questions

in this era were: Where does my company fit into the global economy? How does it take

advantage of the opportunities? How can I go global and collaborate with others

through my company? The Lexus and the Olive Tree was primarily about the climax of

this era, an era when the walls started falling all around the world, and integration,

and the backlash to it, went to a whole new level. But even as the walls fell, there

were still a lot of barriers to seamless global integration. Remember, when Bill

Clinton was elected president in 1992, virtually no one outside of government and

the academy had e-mail, and when I was writing The Lexus and the Olive Tree in 1998,

the Internet and e-commerce were just taking off.

Well, they took off-along with a lot of other things that came together while I was

sleeping. And that is why I argue in this book that around the year 2000 we entered

a whole new era: Globalization 3.0. Globalization 3.0 is shrinking the world from

a size small to a size tiny and flattening the playing field at the same time. And

while the dynamic force in Globalization 1.0 was countries globalizing and the dynamic

force in Globalization 2.0 was companies globalizing, the dynamic force in

Globalization 3.0-the thing that gives it its unique character-is the newfound power

for individuals to collaborate and compete globally. And the lever that is enabling

individuals and groups to go global so easily and so seamlessly is not horsepower,

and not hardware, but software- all sorts of new applications-in conjunction with

the creation of a global fiber-optic network that has made us all next-door neighbors.

Individuals must, and can, now ask, Where do I fit into the global competition and

opportunities of the day, and how can I, on my own, collaborate with others globally?

But Globalization 3.0 not only differs from the previous eras in how it is shrinking

and flattening the world and in how it is empowering indi-

11

viduals. It is different in that Globalization 1.0 and 2.0 were driven primarily by

European and American individuals and businesses. Even though China actually had the

biggest economy in the world in the eighteenth century, it was Western countries,

companies, and explorers who were doing most of the globalizing and shaping of the

system. But going forward, this will be less and less true. Because it is flattening

and shrinking the world, Globalization 3.0 is going to be more and more driven not

only by individuals but also by a much more diverse - non-Western, non-white-group

of individuals. Individuals from every corner of the flat world are being empowered.

Globalization 3.0 makes it possible for so many more people to plug and play, and

you are going to see every color of the human rainbow take part.

(While this empowerment of individuals to act globally is the most important new

feature of Globalization 3.0, companies-large and small-have been newly empowered

in this era as well. I discuss both in detail later in the book.)

Needless to say, I had only the vaguest appreciation of all this as I left Nandan's

office that day in Bangalore. But as I sat contemplating these changes on the balcony

of my hotel room that evening, I did know one thing: I wanted to drop everything and

write a book that would enable me to understand how this flattening process happened

and what its implications might be for countries, companies, and individuals. So I

picked up the phone and called my wife, Ann, and told her, "I am going to write a

book called The World Is Flat." She was both amused and curious-well, maybe more amused

than curious! Eventually, I was able to bring her around, and I hope I will be able

to do the same with you, dear reader. Let me start by taking you back to the beginning

of my journey to India, and other points east, and share with you some of the encounters

that led me to conclude the world was no longer round-but flat.

Jaithirth "Jerry" Rao was one of the first people I met in Bangaloreand

I hadn't been with him for more than a few minutes at the Leela

Palace hotel before he told me that he could handle my tax returns and

any other accounting needs I had-from Bangalore. No thanks, I de-

12

murred, I already have an accountant in Chicago. Jerry just smiled. He was too polite

to say it-that he may already be my accountant, or rather my accountant's accountant,

thanks to the explosion in the outsourcing of tax preparation.

"This is happening as we speak," said Rao, a native of Mumbai, formerly Bombay, whose

Indian firm, MphasiS, has a team of Indian accountants able to do outsourced

accounting work from any state in America and the federal government. "We have tied

up with several small and medium-sized CPA firms in America."

"You mean like my accountant?" I asked. "Yes, like your accountant," said Rao with

a smile. Rao's company has pioneered a work flow software program with a standardized

format that makes the outsourcing of tax returns cheap and easy. The whole process

starts, Jerry explained, with an accountant in the United States scanning my last

year's tax returns, plus my W-2, W-4, 1099, bonuses, and stock

statements-everything-into a computer server, which is physically located in

California or Texas. "Now your accountant, if he is going to have your taxes done

overseas, knows that you would prefer not to have your surname be known or your Social

Security number known [to someone outside the country], so he can choose to suppress

that information," said Rao. "The accountants in India call up all the raw information

directly from the server in America [using a password], and they complete your tax

returns, with you remaining anonymous. All the data stays in the U.S. to comply with

privacy regulations. . . We take data protection and privacy very seriously. The

accountant in India can see the data on his screen, but he cannot take a download

of it or print it out-our program does not allow it. The most he could do would be

to try to memorize it, if he had some ill intention. The accountants are not allowed

to even take a paper and pen into the room when they are working on the returns."

I was intrigued at just how advanced this form of service outsourcing had become.

"We are doing several thousand returns," said Rao. What's more, "Your CPA in America

need not even be in their office. They can be sitting on a beach in California and

e-mail us and say, 'Jerrv> you are really good at doing New York State returns, so

you do Tom's returns. And Sonia, you and your team in Delhi do the Washington and

Florida

13

returns.' Sonia, by the way, is working out of her house in India, with no overhead

[for the company to pay]. 'And these others, they are really complicated, so I will

do them myself."

In 2003, some 25,000 U.S. tax returns were done in India. In 2004, the number was

100,000. In 2005, it is expected to be 400,000. In a decade, you will assume that

your accountant has outsourced the basic preparation of your tax returns-if not more.

"How did you get into this?" I asked Rao.

"My friend Jeroen Tas, a Dutchman, and I were both working in California for

Citigroup," Rao explained. "I was his boss and we were coming back from New York one

day together on a flight and I said that I was planning to quit and he said, 'So am

I.' We both said, 'Why don't we start our own business?' So in 1997-98, we put together

a business plan to provide high-end Internet solutions for big companies. . . Two

years ago, though, I went to a technology convention in Las Vegas and was approached

by some medium-size [American] accounting firms, and they said they could not afford

to set up big tax outsourcing operations to India, but the big guys could, and [the

medium guys] wanted to get ahead of them. So we developed a software product called

VTR- Virtual Tax Room-to enable these medium-size accounting firms to easily

outsource tax returns."

These midsize firms "are getting a more level playing field, which they were denied

before," said Jerry. "Suddenly they can get access to the same advantages of scale

that the bigger guys always had."

Is the message to Americans, "Mama, don't let your kids grow up to be accountants"?

I asked.

Not really, said Rao. "What we have done is taken the grunt work. You know what is

needed to prepare a tax return? Very little creative work. This is what will move

overseas."

"What will stay in America?" I asked.

"The accountant who wants to stay in business in America will be the one who focuses

on designing creative complex strategies, like tax avoidance or tax sheltering,

managing customer relationships," he said. "He or she will say to his clients, 'I

am getting the grunt work done efficiently far away. Now let's talk about how we manage

your estate and what you are

14

going to do about your kids. Do you want to leave some money in your trusts?' It means

having the quality-time discussions with clients rather than running around like

chickens with their heads cut off from February to April, and often filing for

extensions into August, because they have not had the quality time with clients."

Judging from an essay in the journal Accounting Today (June 7, 2004), this does, indeed,

seem to be the future. L. Gary Boomer, a CPA and CEO of Boomer Consulting in Manhattan,

Kansas, wrote, "This past [tax] season produced over 100,000 [outsourced] returns

and has now expanded beyond individual returns to trusts, partnerships and

corporations . . . The primary reason that the industry has been able to scale up

as rapidly as it has over the past three years is due to the investment that these

[foreign-based] companies have made in systems, processes and training." There are

about seventy thousand accounting grads in India each year, he added, many of whom

go to work for local Indian firms starting at $100 a month. With the help of high-speed

communications, stringent training, and standardized forms, these young Indians can

fairly rapidly be converted into basic Western accountants at a fraction of the cost.

Some of the Indian accounting firms even go about marketing themselves to American

firms through teleconferencing and skip the travel. Concluded Boomer, "The accounting

profession is currently in transformation. Those who get caught in the past and resist

change will be forced deeper into commoditization. Those who can create value through

leadership, relationships and creativity will transform the industry, as well as

strengthen relationships with their existing clients."

What you're telling me, I said to Rao, is that no matter what your profession-doctor,

lawyer, architect, accountant-if you are an American, you better be good at the

touchy-feely service stuff, because anything that can be digitized can be outsourced

to either the smartest or the cheapest producer, or both. Rao answered, "Everyone

has to focus on what exactly is their value-add."

But what if I am just an average accountant? I went to a state university. I had a

B+ average. Eventually I got my CPA. I work in a big accounting firm, doing a lot

of standard work. I rarely meet with clients.

15

They keep me in the back. But it is a decent living and the firm is basically happy

with me. What is going to happen to me in this system?

"It is a good question," said Rao. "We must be honest about it. We are in the middle

of a big technological change, and when you live in a society that is at the cutting

edge of that change [like America], it is hard to predict. It's easy to predict for

someone living in India. In ten years we are going to be doing a lot of the stuff

that is being done in America today. We can predict our future. But we are behind

you. You are defining the future. America is always on the edge of the next creative

wave ... So it is difficult to look into the eyes of that accountant and say this

is what is going to be. We should not trivialize that. We must deal with it and talk

about it honestly ... Any activity where we can digitize and decompose the value chain,

and move the work around, will get moved around. Some people will say, Yes, but you

can't serve me a steak.' True, but I can take the reservation for your table sitting

anywhere in the world, if the restaurant does not have an operator. We can say, Yes,

Mr. Friedman, we can give you a table by the window.' In other words, there are parts

of the whole dining-out experience that we can decompose and outsource. If you go

back and read the basic economics textbooks, they will tell you: Goods are traded,

but services are consumed and produced in the same place. And you cannot export a

haircut. But we are coming close to exporting a haircut, the appointment part. What

kind of haircut do you want? Which barber do you want? All those things can and will

be done by a call center far away."

As we ended our conversation, I asked Rao what he is up to next. He was full of energy.

He told me he'd been talking to an Israeli company that is making some big advances

in compression technology to allow for easier, better transfers of CAT scans via the

Internet so you can quickly get a second opinion from a doctor half a world away.

A few weeks after I spoke with Rao, the following e-mail arrived from Bill Brody,

the president of Johns Hopkins University, whom I had just interviewed for this book:

Dear Tom, I am speaking at a Hopkins continuing education medical meeting for

radiologists (I used to be a radiologist) ... I

16

came upon a very fascinating situation that I thought might interest you. I have just

learned that in many small and some medium-size hospitals in the US, radiologists

are outsourcing reading of CAT scans to doctors in India and Australia!!! Most of

this evidently occurs at night (and maybe weekends) when the radiologists do not have

sufficient staffing to provide in-hospital coverage. While some radiology groups will

use teleradiology to ship images from the hospital to their home (or to Vail or Cape

Cod, I suppose) so that they can interpret images and provide a diagnosis 24/7,

apparently the smaller hospitals are shipping CAT scan images to radiologists abroad.

The advantage is that it is daytime in Australia or India when it is nighttime here-so

after-hours coverage becomes more readily done by shipping the images across the globe.

Since CAT (and MRI) images are already in digital format and available on a network

with a standardized protocol, it is no problem to view the images anywhere in the

world ... I assume that the radiologists on the other end . . . must have trained

in [the] US and acquired the appropriate licenses and credentials. . . The groups

abroad that provide these after-hours readings are called "Nighthawks" by the

American radiologists that employ them. Best, Bill

Thank goodness I'm a journalist and not an accountant or a radiologist. There will

be no outsourcing for me-even if some of my readers wish my column could be shipped

off to North Korea. At least that's what I thought. Then I heard about the Reuters

operation in India. I didn't have time to visit the Reuters office in Bangalore, but

I was able to get hold of Tom Glocer, the CEO of Reuters, to hear what he was doing.

Glocer is a pioneer in the outsourcing of elements of the news supply chain.

With 2,300 journalists around the world, in 197 bureaus, serving a

17

market including investment bankers, derivatives traders, stockbrokers, newspapers,

radio, television, and Internet outlets, Reuters has always had a very complex

audience to satisfy. After the dot-com bust, though, when many of its customers became

very cost-conscious, Reuters started asking itself, for reasons of both cost and

efficiency: Where do we actually need our people to be located to feed our global

news supply chain? And can we actually disaggregate the work of a journalist and keep

part in London and New York and shift part to India?

Glocer started by looking at the most basic bread-and-butter function Reuters

provides, which is breaking news about company earnings and related business

developments, every second of every day. "Exxon comes out with its earnings and we

need to get that as fast possible up on screens around the world: 'Exxon earned

thirty-nine cents this quarter as opposed to thirty-six cents last quarter.' The core

competency there is speed and accuracy," explained Glocer. "You don't need a lot of

analysis. We just need to get the basic news up as fast as possible. The flash should

be out in seconds after the company releases, and the table [showing the recent history

of quarterly earnings] a few seconds later."

Those sorts of earnings flashes are to the news business what vanilla is to the ice

cream business-a basic commodity that actually can be made anywhere in the flat world.

The real value-added knowledge work happens in the next five minutes. That is when

you need a real journalist who knows how to get a comment from the company, a comment

from the top two analysts in the field, and even some word from competitors to put

the earnings report in perspective. "That needs a higher journalistic skill

set-someone in the market with contacts, who knows who the best industry analysts

are and has taken the right people to lunch," said Glocer.

The dot-com bust and the flattening of the world forced Glocer to rethink how Reuters

delivered news-whether it could disaggregate the functions of a journalist and ship

the low-value-added functions to India. His primary goal was to reduce the overlap

Reuters payroll, while preserving as many good journalism jobs as possible. "So the

first thing we did," said Glocer, "was hire six reporters in Bangalore as an

experiment.

18

We said, 'Let's let them just do the flash headlines and the tables and whatever else

we can get them to do in Bangalore.'"

These new Indian hires had accounting backgrounds and were trained by Reuters, but

they were paid standard local wages and vacation and health benefits. "India is an

unbelievably rich place for recruiting people, not only with technical skills but

also financial skills," said Glocer. When a company puts out its earnings, one of

the first things it does is hand it to the wires-Reuters, Dow Jones, and Bloomberg-for

distribution. "We will get that raw data," he said, "and then it's a race to see how

fast we can turn it around. Bangalore is one of the most wired places in the world,

and although there's a slight delay-one second or less-in getting the information

over there, it turns out you can just as easily sit in Bangalore and get the electronic

version of a press release and turn it into a story as you can in London or New York."

The difference, however, is that wages and rents in Bangalore are less than one-fifth

what they are in those Western capitals.

While economics and the flattening of the world have pushed Reuters down this path,

Glocer has tried to make a virtue of necessity. "We think we can off-load commoditized

reporting and get that done efficiently somewhere else in the world," he said, and

then give the conventional Reuters journalists, whom the company is able to retain,

a chance to focus on doing much higher-value-added and personally fulfilling

journalism and analysis. "Let's say you were a Reuters journalist in New York. Do

you reach your life's fulfillment by turning press releases into boxes on the screen,

or by doing the analysis?" asked Glocer. Obviously, it is the latter. Outsourcing

news bulletins to India also allows Reuters to extend the breadth of its reporting

to more small-cap companies, companies it was not cost-efficient for Reuters to follow

before with higher-paid journalists in New York. But with lower-wage Indian reporters,

who can be hired in large numbers for the cost of one reporter in New York, it can

now do that from Bangalore. By the summer of 2004, Reuters had grown its Bangalore

content operation to three hundred staff, aiming eventually for a total of fifteen

hundred. Some of those are Reuters veterans sent out to train the Indian teams, some

are reporters filing earnings flashes, but most are journalists doing

19

slightly more specialized data analysis-number crunching-for securities offerings.

"A lot of our clients are doing the same thing," said Glocer. "Investment research

has had to have huge amounts of cost ripped out of it, so a lot of firms are using

shift work in Bangalore to do bread-and-butter company analysis." Until recently the

big Wall Street firms had conducted investment research by spending millions of

dollars on star analysts and then charging part of their salaries to their

stockbrokerage departments, which shared the analysis with their best customers, and

part to their investment banking business, which sometimes used glowing analyses of

a company to lure its banking business. In the wake of New York State Attorney General

Eliot Spitzer's investigations into Wall Street practices, following several

scandals, investment banking and stockbrokerage have had to be distinctly

separated-so that analysts will stop hyping companies in order to get their investment

banking. But as a result, the big Wall Street investment firms have had to sharply

reduce the cost of their market research, all of which has to be paid for now by their

brokerage departments alone. And this created a great incentive for them to outsource

some of this analytical work to places like Bangalore. In addition to being able to

pay an analyst in Bangalore about $15,000 in total compensation, as opposed to $80,000

in New York or London, Reuters has found that its India employees tend to be

financially literate and highly motivated as well. Reuters also recently opened a

software development center in Bangkok because it turned out to be a good place to

recruit developers who had been overlooked by all the Western companies vying for

talent in Bangalore.

I find myself torn by this trend. Having started my career as a wire service reporter

with United Press International, I have enormous sympathy with wire service reporters

and the pressures, both professional and financial, under which they toil. But UPI

might still be thriving today as a wire service, which it is not, if it had been able

to outsource some of its lower-end business when I started as a reporter in London

twenty-five years ago.

"It is delicate with the staff," said Glocer, who has cut the entire Reuters staff

by roughly a quarter, without deep cuts among the reporters. The Reuters staff, he

said, understand that this is being done so

20

that the company can survive and then thrive again. At the same time, said Glocer,

"these are sophisticated people out reporting. They see that our clients are doing

the exact same things. They get the plot of the story . . . What is vital is to be

honest with people about what we are doing and why and not sugarcoat the message.

I firmly believe in the lesson of classical economists about moving work to where

it can be done best. However, we must not ignore that in some cases, individual workers

will not easily find new work. For them, retraining and an adequate social safety

net are needed."

In an effort to deal straight with the Reuters staff, David Schlesinger, who heads

Reuters America, sent all editorial employees a memo, which included the following

excerpt:

Off-shoring with Obligation I grew up in New London, Connecticut, which in the 19th

century was a major whaling center. In the 1960's and 70's the whales were long gone

and the major employers in the region were connected with the military-not a surprise

during the Vietnam era. My classmates' parents worked at Electric Boat, the Navy and

the Coast Guard. The peace dividend changed the region once again, and now it is best

known for the great gambling casinos of Mohegan Sun and Foxwoods and for the

pharmaceutical researchers of Pfizer. Jobs went; jobs were created. Skills went out

of use; new skills were required. The region changed; people changed. New London,

of course, was not unique. How many mill towns saw their mills close; how many shoe

towns saw the shoe industry move elsewhere; how many towns that were once textile

powerhouses now buy all their linens from China? Change is hard. Change is hardest

on those caught by surprise. Change is hardest on those who have difficulty changing

too. But change is natural; change is not new; change is important. The current debate

about off-shoring is dangerously hot. But the debate about work going to India, China

and Mexico is actually no different from the debate once held about submarine work

leaving New

21

London or shoe work leaving Massachusetts or textile work leaving North Carolina.

Work gets done where it can be done most effectively and efficiently. That ultimately

helps the New Londons, New Bedfords and New Yorks of this world even more than it

helps the Bangalores and Shenzhens. It helps because it frees up people and capital

to do different, more sophisticated work, and it helps because it gives an opportunity

to produce the end product more cheaply, benefiting customers even as it helps the

corporation. It's certainly difficult for individuals to think about "their" work

going away, being done thousands of miles away by someone earning thousands of dollars

less per year. But it's time to think about the opportunity as well as the pain, just

as it's time to think about the obligations of off-shoring as well as the

opportunities. . . Every person, just as every corporation, must tend to his or her

own economic destiny, just as our parents and grandparents in the mills, shoe shops

and factories did.

"The Monitor Is Burning?"

Do you know what an Indian call center sounds like? While filming the documentary

about outsourcing, the TV crew and I spent an evening at the Indian-owned "24/7

Customer" call center in Bangalore. The call center is a cross between a co-ed college

frat house and a phone bank raising money for the local public TV station. There are

several floors with rooms full of twenty-somethings- some twenty-five hundred in

all-working the phones. Some are known as "outbound" operators, selling everything

from credit cards to phone minutes. Others deal with "inbound" calls-everything from

tracing lost luggage for U.S. and European airline passengers to solving computer

problems for confused American consumers. The calls are transferred here by satellite

and undersea fiber-optic cable. Each vast floor of a call center consists of clusters

of cubicles. The young people work in little

22

teams under the banner of the company whose phone support they are providing. So one

corner might be the Dell group, another might be flying the flag of Microsoft. Their

working conditions look like those at your average insurance company. Although I am

sure that there are call centers that are operated like sweatshops, 24/7 is not one

of them.

Most of the young people I interviewed give all or part of their salary to their parents.

In fact, many of them have starting salaries that are higher than their parents'

retiring salaries. For entry-level jobs into the global economy, these are about as

good as it gets.

I was wandering around the Microsoft section around six p.m. Bangalore time, when

most of these young people start their workday to coincide with the dawn in America,

when I asked a young Indian computer expert there a simple question: What was the

record on the floor for the longest phone call to help some American who got lost

in the maze of his or her own software?

Without missing a beat he answered, "Eleven hours."

"Eleven hours?" I exclaimed.

"Eleven hours," he said.

I have no way of checking whether this is true, but you do hear snippets of some oddly

familiar conversations as you walk the floor at 24/7 and just listen over the shoulders

of different call center operators doing their things. Here is a small sample of what

we heard that night while filming for Discovery Times. It should be read, if you can

imagine this, in the voice of someone with an Indian accent trying to imitate an

American or a Brit. Also imagine that no matter how rude, unhappy, irritated, or ornery

the voices are on the other end of the line, these young Indians are incessantly and

unfailingly polite.

Woman call center operator: "Good afternoon, may I speak with . . .?" (Someone on

the other end just slammed down the phone.)

Male call center operator: "Merchant services, this is Jerry, may I help you?" (The

Indian call center operators adopt Western names of their own choosing. The idea,

of course, is to make their American or European customers feel more comfortable.

Most of the young Indians I talked to about this were not offended but took it as

an opportunity to

23

have some fun. While a few just opt for Susan or Bob, some really get creative.)

Woman operator in Bangalore speaking to an American: "My name is Ivy Timberwoods and

I am calling you . . ."

Woman operator in Bangalore getting an American's identity number: "May I have the

last four digits of your Social Security?"

Woman operator in Bangalore giving directions as though she were in Manhattan and

looking out her window: "Yes, we have a branch on Seventy-fourth and Second Avenue,

a branch at Fifty-fourth and Lexington . . ."

Male operator in Bangalore selling a credit card he could never afford himself: "This

card comes to you with one of the lowest APR . . ."

Woman operator in Bangalore explaining to an American how she screwed up her checking

account: "Check number six-six-five for eighty-one dollars and fifty-five cents. You

will still be hit by the thirty-dollar charge. Am I clear?"

Woman operator in Bangalore after walking an American through a computer glitch: "Not

a problem, Mr. Jassup. Thank you for your time. Take care. Bye-bye."

Woman operator in Bangalore after someone has just slammed down the phone on her:

"Hello? Hello?"

Woman operator in Bangalore apologizing for calling someone in America too early:

"This is just a courtesy call, I'll call back later in the evening . . ."

Male operator in Bangalore trying desperately to sell an airline credit card to

someone in America who doesn't seem to want one: "Is that because you have too many

credit cards, or you don't like flying, Mrs. Bell?"

Woman operator in Bangalore trying to talk an American out of her computer crash:

"Start switching between memory okay and memory test. . ."

Male operator in Bangalore doing the same thing: "All right, then, let's just punch

in three and press Enter . . ."

Woman operator in Bangalore trying to help an American who cannot stand being on the

help line another second: "Yes, ma'am, I do

24

understand that you are in a hurry right now. I am just trying to help you out. . ."

Woman operator in Bangalore getting another phone slammed down on her: "Yes, well,

so what time would be goo . . ."

Same woman operator in Bangalore getting another phone slammed down on her: "Why,

Mrs. Kent, it's not a ..."

Same woman operator in Bangalore getting another phone slammed down on her: "As a

safety back . . . Hello?"

Same woman operator in Bangalore looking up from her phone: "I definitely have a bad

day!"

Woman operator in Bangalore trying to help an American woman with a computer problem

that she has never heard before: "What is the problem with this machine, ma'am? The

monitor is burning?"

There are currently about 245,000 Indians answering phones from all over the world

or dialing out to solicit people for credit cards or cell phone bargains or overdue

bills. These call center jobs are low-wage, low-prestige jobs in America, but when

shifted to India they become high-wage, high-prestige jobs. The esprit de corps at

24/7 and other call centers I visited seemed quite high, and the young people were

all eager to share some of the bizarre phone conversations they've had with Americans

who dialed 1-800-HELP, thinking they would wind up talking to someone around the block,

not around the world.

C. M. Meghna, a 24/7 call center female operator, told me, "I've had lots of customers

who call in [with questions] not even connected to the product that we're dealing

with. They would call in because they had lost their wallet or just to talk to somebody.

I'm like, 'Okay, all right, maybe you should look under the bed [for your wallet]

or where do you normally keep it,' and she's like, 'Okay, thank you so much for

helping.'" Nitu Somaiah: "One of the customers asked me to marry him." Sophie Sunder

worked for Delta's lost-baggage department: "I remember this lady called from Texas,"

she said, "and she was, like, weeping on the phone. She had traveled two connecting

flights and she lost her bag and in the bag was her daughter's wedding gown and wedding

25

ring and I felt so sad for her and there was nothing I could do. I had no information.

"Most of the customers were irate," said Sunder. "The first thing they say is, 'Where's

my bag? I want my bag now!' We were like supposed to say, 'Excuse me, can I have your

first name and last name?' 'But where's my bag!' Some would ask which country am I

from? We are supposed to tell the truth, [so] we tell them India. Some thought it

was Indiana, not India! Some did not know where India is. I said it is the country

next to Pakistan."

Although the great majority of the calls are rather routine and dull, competition

for these jobs is fierce-not only because they pay well, but because you can work

at night and go to school during part of the day, so they are stepping-stones toward

a higher standard of living. P. V. Kannan, CEO and cofounder of 24/7, explained to

me how it all worked: "Today we have over four thousand associates spread out in

Bangalore, Hyderabad, and Chennai. Our associates start out with a take-home pay of

roughly $200 a month, which grows to $300 to $400 per month in six months. We also

provide transportation, lunch, and dinner at no extra cost. We provide life insurance,

medical insurance for the entire family- and other benefits."

Therefore, the total cost of each call center operator is actually around $500 per

month when they start out and closer to $600 to $700 per month after six months.

Everyone is also entitled to performance bonuses that allow them to earn, in certain

cases, the equivalent of 100 percent of their base salary. "Around 10 to 20 percent

of our associates pursue a degree in business or computer science during the day

hours," said Kannan, adding that more than one-third are taking some kind of extra

computer or business training, even if it is not toward a degree. "It is quite common

in India for people to pursue education through their twenties-self-improvement is

a big theme and actively encouraged by parents and companies. We sponsor an MBA program

for consistent performers [with] full-day classes over the weekend. Everyone works

eight hours a day, five days a week, with two fifteen-minute breaks and an hour off

for lunch or dinner."Not surprisingly, the 24/7 customer call center gets about seven

hun-

26

dred applications a day, but only 6 percent of applicants are hired. Here is a snippet

from a recruiting session for call center operators at a women's college in Bangalore:

Recruiter 1: "Good morning, girls."

Class in unison: "Good morning, ma'am."

Recruiter 1: "We have been retained by some of the multinationals here to do the

recruitment for them. The primary clients that we are recruiting [for] today are

Honeywell. And also for America Online."

The young women-dozens of them-then all lined up with their application forms and

waited to be interviewed by a recruiter at a wooden table. Here is what some of the

interviews sounded like:

Recruiter 1: "What kind of job are you looking at?"

Applicant 1: "It should be based on accounts, then, where I can grow, I can grow in

my career."

Recruiter 1: "You have to be more confident about yourself when you're speaking.

You're very nervous. I want you to work a little on that and then get in touch with

us."

Recruiter 2 to another applicant: "Tell me something about yourself."

Applicant 2: "I have passed my SSC with distinction. Second P also with distinction.

And I also hold a 70 percent aggregate in previous two years." (This is Indian lingo

for their equivalents of GPA and SAT scores.)

Recruiter 2: "Go a little slow. Don't be nervous. Be cool."

The next step for those applicants who are hired at a call center is the training

program, which they are paid to attend. It combines learning how to handle the specific

processes for the company whose calls they will be taking or making, and attending

something called "accent neutralization class." These are daylong sessions with a

language teacher who prepares the new Indian hires to disguise their pronounced Indian

accents when speaking English and replace them with American, Canadian, or British

ones-depending on which part of the world they will be speaking with. It's pretty

bizarre to watch. The class I sat in on was being trained to speak in a neutral

middle-American accent. The students were asked to read over and over a single

phonetic paragraph designed to teach them how to soften their r's and to roll their

r's.

Their teacher, a charming eight-months-pregnant young woman

27

dressed in a traditional Indian sari, moved seamlessly among British, American, and

Canadian accents as she demonstrated reading a paragraph designed to highlight

phonetics. She said to the class, "Remember the first day I told you that the Americans

flap the 'tuh' sound? You know, it sounds like an almost 'duh' sound-not crisp and

clear like the British. So I would not say"-here she was crisp and sharp-'"Betty bought

a bit of better butter' or 'Insert a quarter in the meter.' But I would say" -her

voice very flat-"'Insert a quarter in the meter' or 'Betty bought a bit of better

butter.' So I'm just going to read it out for you once, and then we'll read it together.

All right? 'Thirty little turtles in a bottle of bottled water. A bottle of bottled

water held thirty little turtles. It didn't matter that each turtle had to rattle

a metal ladle in order to get a little bit of noodles.'

"All right, who's going to read first?" the instructor asked. Each member of the class

then took a turn trying to say this tongue twister in an American accent. Some of

them got it on the first try, and others, well, let's just say that you wouldn't think

they were in Kansas City if they answered your call to Delta's lost-luggage number.

After listening to them stumble through this phonetics lesson for half an hour, I

asked the teacher if she would like me to give them an authentic version-since I'm

originally from Minnesota, smack in the Midwest, and still speak like someone out

of the movie Fargo. Absolutely, she said. So I read the following paragraph: "A bottle

of bottled water held thirty little turtles. It didn't matter that each turtle had

to rattle a metal ladle in order to get a little bit of noodles, a total turtle

delicacy . . . The problem was that there were many turtle battles for less than oodles

of noodles. Every time they thought about grappling with the haggler turtles their

little turtle minds boggled and they only caught a little bit of noodles."

The class responded enthusiastically. It was the first time I ever got an ovation

for speaking Minnesotan. On the surface, there is something unappealing about the

idea of inducing other people to flatten their accents in order to compete in a flatter

world. But before you disparage it, you have to taste just how hungry these kids are

to escape the lower end of the middle class and move up. If a little accent modification

is the price they have to pay to jump a rung of the ladder, then so be it-they say.

28

"This is a high-stress environment," said Nilekani, the CEO of Infosys, which also

runs a big call center. "It is twenty-four by seven. You work in the day, and then

the night, and then the next morning." But the working environment, he insisted, "is

not the tension of alienation. It is the tension of success. They are dealing with

the challenges of success, of high-pressure living. It is not the challenge of

worrying about whether they would have a challenge."

That was certainly the sense I got from talking to a lot of the call center operators

on the floor. Like any explosion of modernity, outsourcing is challenging traditional

norms and ways of life. But educated Indians have been held back so many years by

both poverty and a socialist bureaucracy that many of them seem more than ready to

put up with the hours. And needless to say, it is much easier and more satisfying

for them to work hard in Bangalore than to pack up and try to make a new start in

America. In the flat world they can stay in India, make a decent salary, and not have

to be away from families, friends, food, and culture. At the end of the day, these

new jobs actually allow them to be more Indian. Said Anney Unnikrishnan, a personnel

manager at 24/7, "I finished my MBA and I remember writing the GMAT and getting into

Purdue University. But I couldn't go because I couldn't afford it. I didn't have the

money for it. Now I can, [but] I see a whole lot of American industry has come into

Bangalore and I don't really need to go there. I can work for a multinational sitting

right here. So I still get my rice and sam-bar [a traditional Indian dish], which

I eat. I don't need to, you know, learn to eat coleslaw and cold beef. I still continue

with my Indian food and I still work for a multinational. Why should I go to America?"

The relatively high standard of living that she can now enjoy-enough for a small

apartment and car in Bangalore-is good for America as well. When you look around at

24/7's call center, you see that all the computers are running Microsoft Windows.

The chips are designed by Intel. The phones are from Lucent. The air-conditioning

is by Carrier, and even the bottled water is by Coke. In addition, 90 percent of the

shares in 24/7 are owned by U.S. investors. This explains why, although the United

States has lost some service jobs to India in recent years, total exports from

American-based companies-merchandise and services-to India have grown from

29

$2.5 billion in 1990 to $5 billion in 2003. So even with the outsourcing of some service

jobs from the United States to India, India's growing economy is creating a demand

for many more American goods and services. What goes around, comes around.

Nine years ago, when Japan was beating America's brains out in the auto industry,

I wrote a column about playing the computer geography game Where in the World is Carmen

Sandiego? with my nine-year-old daughter, Orly. I was trying to help her by giving

her a clue suggesting that Carmen had gone to Detroit, so I asked her, "Where are

cars made?" And without missing a beat she answered, "Japan."

Ouch!

Well, I was reminded of that story while visiting Global Edge, an Indian software

design firm in Bangalore. The company's marketing manager, Rajesh Rao, told me that

he had just made a cold call to the VP for engineering of a U.S. company, trying to

drum up business. As soon as Mr. Rao introduced himself as calling from an Indian

software firm, the U.S. executive said to him, "Namaste," a common Hindi greeting.

Said Mr. Rao, "A few years ago nobody in America wanted to talk to us. Now they are

eager." And a few even know how to say hello in proper Hindu fashion. So now I wonder:

If I have a granddaughter one day, and I tell her I'm going to India, will she say,

"Grandpa, is that where software comes from?"

No, not yet, honey. Every new product-from software to widgets-goes through a cycle

that begins with basic research, then applied research, then incubation, then

development, then testing, then manufacturing, then deployment, then support, then

continuation engineering in order to add improvements. Each of these phases is

specialized and unique, and neither India nor China nor Russia has a critical mass

of talent that can handle the whole product cycle for a big American multinational.

But these countries are steadily developing their reseach and development

capabilities to handle more and more of these phases. As that continues, we really

will see the beginning of what Satyam Cherukuri, of Sarnoff, an American research

and development firm, has

30

called "the globalization of innovation" and an end to the old model of a single

American or European multinational handling all the elements of the development

product cycle from its own resources. More and more American and European companies

are outsourcing significant research and development tasks to India, Russia, and

China.

According to the information technology office of the state government in Karnataka,

where Bangalore is located, Indian units of Cisco Systems, Intel, IBM, Texas

Instruments, and GE have already filed 1,000 patent applications with the U.S. Patent

Office. Texas Instruments alone has had 225 U.S. patents awarded to its Indian

opera

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The World is Flat

Thomas L Friedman

To Matt and Kay and to Ron

Contents

How the World Became Flat

One: While I Was Sleeping / 3

Two: The Ten Forces That Flattened the World / 48

Flattener#l. 11/9/89

Flattener #2. 8/9/95

Flattener #3. Work Flow Software

Flattener #4. Open-Sourcing

Flattener #5. Outsourcing

Flattener #6. Offshoring

Flattener #7. Supply-Chaining

Flattener #8. Insourcing

Flattener #9. In-forming

Flattener #10.

The Steroids Three: The Triple Convergence / 173

Four: The Great Sorting Out / 201

America and the Flat World

Five: America and Free Trade / 225

Six: The Untouchables / 237

Seven: The Quiet Crisis / 250

Eight: This Is Not a Test / 276

Developing Countries and the Flat World

Nine: The Virgin of Guadalupe / 309

Companies and the Flat World

Geopolitics and the Flat World

Eleven: The Unflat World / 371

Twelve: The Dell Theory of Conflict Prevention / 414

Conclusion: Imagination

Thirteen: 11/9 Versus 9/11 / 441

Acknowledgments I 471 Index I 475

:::::How the World Became Flat

::::: ONE

While I Was Sleeping

Your Highnesses, as Catholic Christians, and princes who love and promote the holy

Christian faith, and are enemies of the doctrine of Mahomet, and of all idolatry and

heresy, determined to send me, Christopher Columbus, to the above-mentioned countries

of India, to see the said princes, people, and territories, and to learn their

disposition and the proper method of converting them to our holy faith; and

furthermore directed that I should not proceed by land to the East, as is customary,

but by a Westerly route, in which direction we have hitherto no certain evidence that

anyone has gone.

- Entry from the journal of Christopher Columbus on his voyage of 1492

No one ever gave me directions like this on a golf course before: "Aim at either

Microsoft or IBM." I was standing on the first tee at the KGA Golf Club in downtown

Bangalore, in southern India, when my playing partner pointed at two shiny

glass-and-steel buildings off in the distance, just behind the first green. The

Goldman Sachs building wasn't done yet; otherwise he could have pointed that out as

well and made it a threesome. HP and Texas Instruments had their offices on the back

nine, along the tenth hole. That wasn't all. The tee markers were from Epson, the

printer company, and one of our caddies was wearing a hat from 3M. Outside, some of

the traffic signs were also sponsored by Texas Instruments, and the Pizza Hut

billboard on the way over showed a steaming pizza, under the headline "Gigabites of

Taste!"

4

No, this definitely wasn't Kansas. It didn't even seem like India. Was this the New

World, the Old World, or the Next World?

I had come to Bangalore, India's Silicon Valley, on my own Columbus-like journey of

exploration. Columbus sailed with the Nina, the Pinta, and the Santa Maria in an effort

to discover a shorter, more direct route to India by heading west, across the Atlantic,

on what he presumed to be an open sea route to the East Indies-rather than going south

and east around Africa, as Portuguese explorers of his day were trying to do. India

and the magical Spice Islands of the East were famed at the time for their gold, pearls,

gems, and silk-a source of untold riches. Finding this shortcut by sea to India, at

a time when the Muslim powers of the day had blocked the overland routes from Europe,

was a way for both Columbus and the Spanish monarchy to become wealthy and powerful.

When Columbus set sail, he apparently assumed the Earth was round, which was why he

was convinced that he could get to India by going west. He miscalculated the distance,

though. He thought the Earth was a smaller sphere than it is. He also did not anticipate

running into a landmass before he reached the East Indies. Nevertheless, he called

the aboriginal peoples he encountered in the new world "Indians." Returning home,

though, Columbus was able to tell his patrons, King Ferdinand and Queen Isabella,

that although he never did find India, he could confirm that the world was indeed

round.

I set out for India by going due east, via Frankfurt. I had Lufthansa business class.

I knew exactly which direction I was going thanks to the GPS map displayed on the

screen that popped out of the armrest of my airline seat. I landed safely and on

schedule. I too encountered people called Indians. I too was searching for the source

of India's riches. Columbus was searching for hardware-precious metals, silk, and

spices-the source of wealth in his day. I was searching for software, brainpower,

complex algorithms, knowledge workers, call centers, transmission protocols,

breakthroughs in optical engineering-the sources of wealth in our day. Columbus was

happy to make the Indians he met his slaves, a pool of free manual labor.

I just wanted to understand why the Indians I met were taking our work, why they had

become such an important pool for the outsourcing

5

of service and information technology work from America and other industrialized

countries. Columbus had more than one hundred men on his three ships; I had a small

crew from the Discovery Times channel that fit comfortably into two banged-up vans,

with Indian drivers who drove barefoot. When I set sail, so to speak, I too assumed

that the world was round, but what I encountered in the real India profoundly shook

my faith in that notion. Columbus accidentally ran into America but thought he had

discovered part of India. I actually found India and thought many of the people I

met there were Americans. Some had actually taken American names, and others were

doing great imitations of American accents at call centers and American business

techniques at software labs.

Columbus reported to his king and queen that the world was round, and he went down

in history as the man who first made this discovery. I returned home and shared my

discover)' only with my wife, and only in a whisper.

"Honey," I confided, "I think the world is flat."

How did I come to this conclusion? I guess you could say it all started in Nandan

Nilekani's conference room at Infosys Technologies Limited. Infosys is one of the

jewels of the Indian information technology world, and Nilekani, the company's CEO,

is one of the most thoughtful and respected captains of Indian industry. I drove with

the Discovery Times crew out to the Infosys campus, about forty minutes from the heart

of Bangalore, to tour the facility and interview Nilekani. The Infosys campus is

reached by a pockmarked road, with sacred cows, horse-drawn carts, and motorized

rickshaws all jostling alongside our vans. Once you enter the gates of Infosys, though,

you are in a different world. A massive resort-size swimming pool nestles amid

boulders and manicured lawns, adjacent to a huge putting green. There are multiple

restaurants and a fabulous health club. Glass-and-steel buildings seem to sprout up

like weeds each week. In some of those buildings, Infosys employees are writing

specific software programs for American or European companies; in others, they are

running the back rooms of major

American- and European-based multinationals-everything from computer maintenance to

specific research projects to answering customer calls routed there from all over

the world. Security is tight, cameras monitor the doors, and if you are working for

American Express, you cannot get into the building that is managing services and

research for General Electric. Young Indian engineers, men and women, walk briskly

from building to building, dangling ID badges. One looked like he could do my taxes.

Another looked like she could take my computer apart. And a third looked like she

designed it!

After sitting for an interview, Nilekani gave our TV crew a tour of Info-sys's global

conferencing center-ground zero of the Indian outsourcing industry. It was a

cavernous wood-paneled room that looked like a tiered classroom from an Ivy League

law school. On one end was a massive wall-size screen and overhead there were cameras

in the ceiling for teleconferencing. "So this is our conference room, probably the

largest screen in Asia-this is forty digital screens [put together]," Nilekani

explained proudly, pointing to the biggest flat-screen TV I had ever seen. Infosys,

he said, can hold a virtual meeting of the key players from its entire global supply

chain for any project at any time on that supersize screen. So their American designers

could be on the screen speaking with their Indian software writers and their Asian

manufacturers all at once. "We could be sitting here, somebody from New York, London,

Boston, San Francisco, all live. And maybe the implementation is in Singapore, so

the Singapore person could also be live here . . . That's globalization," said Nilekani.

Above the screen there were eight clocks that pretty well summed up the Infosys workday:

24/7/365. The clocks were labeled US West, US East, GMT, India, Singapore, Hong Kong,

Japan, Australia.

"Outsourcing is just one dimension of a much more fundamental thing happening today

in the world," Nilekani explained. "What happened over the last [few] years is that

there was a massive investment in technology, especially in the bubble era, when

hundreds of millions of dollars were invested in putting broadband connectivity

around the world, undersea cables, all those things." At the same time, he added,

computers became cheaper and dispersed all over the world, and there was an explosion

of software-e-mail, search engines like Google, and

7

proprietary software that can chop up any piece of work and send one part to Boston,

one part to Bangalore, and one part to Beijing, making it easy for anyone to do remote

development. When all of these things suddenly came together around 2000, added

Nilekani, they "created a platform where intellectual work, intellectual capital,

could be delivered from anywhere. It could be disaggregated, delivered, distributed,

produced, and put back together again-and this gave a whole new degree of freedom

to the way we do work, especially work of an intellectual nature . . . And what you

are seeing in Bangalore today is really the culmination of all these things coming

together."

We were sitting on the couch outside of Nilekani's office, waiting for the TV crew

to set up its cameras. At one point, summing up the implications of all this, Nilekani

uttered a phrase that rang in my ear. He said to me, "Tom, the playing field is being

leveled." He meant that countries like India are now able to compete for global

knowledge work as never before-and that America had better get ready for this. America

was going to be challenged, but, he insisted, the challenge would be good for America

because we are always at our best when we are being challenged. As I left the Infosys

campus that evening and bounced along the road back to Bangalore, I kept chewing on

that phrase: "The playing field is being leveled."

What Nandan is saying, I thought, is that the playing field is being flattened .. .

Flattened? Flattened? My God, he's telling me the world is flat!

Here I was in Bangalore-more than five hundred years after Columbus sailed over the

horizon, using the rudimentary navigational technologies of his day, and returned

safely to prove definitively that the world was round-and one of India's smartest

engineers, trained at his country's top technical institute and backed by the most

modern technologies of his day, was essentially telling me that the world was flat-as

flat as that screen on which he can host a meeting of his whole global supply chain.

Even more interesting, he was citing this development as a good thing, as a new

milestone in human progress and a great opportunity for India and the world-the fact

that we had made our world flat!

In the back of that van, I scribbled down four words in my notebook: "The world is

flat." As soon as I wrote them, I realized that this was the

8

underlying message of everything that I had seen and heard in Bangalore in two weeks

of filming. The global competitive playing field was being leveled. The world was

being flattened.

As I came to this realization, I was filled with both excitement and dread. The

journalist in me was excited at having found a framework to better understand the

morning headlines and to explain what was happening in the world today. Clearly, it

is now possible for more people than ever to collaborate and compete in real time

with more other people on more different kinds of work from more different corners

of the planet and on a more equal footing than at any previous time in the history

of the world-using computers, e-mail, networks, teleconferencing, and dynamic new

software. That is what Nandan was telling me. That was what I discovered on my journey

to India and beyond. And that is what this book is about. When you start to think

of the world as flat, a lot of things make sense in ways they did not before. But

I was also excited personally, because what the flattening of the world means is that

we are now connecting all the knowledge centers on the planet together into a single

global network, which-if politics and terrorism do not get in the way-could usher

in an amazing era of prosperity and innovation.

But contemplating the flat world also left me filled with dread, professional and

personal. My personal dread derived from the obvious fact that it's not only the

software writers and computer geeks who get empowered to collaborate on work in a

flat world. It's also al-Qaeda and other terrorist networks. The playing field is

not being leveled only in ways that draw in and superempower a whole new group of

innovators. It's being leveled in a way that draws in and superempowers a whole new

group of angry, frustrated, and humiliated men and women.

Professionally, the recognition that the world was flat was unnerving because I

realized that this flattening had been taking place while I was sleeping, and I had

missed it. I wasn't really sleeping, but I was otherwise engaged. Before 9/11,1 was

focused on tracking globalization and exploring the tension between the "Lexus"

forces of economic integration and the "Olive Tree" forces of identity and

nationalism-hence my 1999 book, The Lexus and the Olive Tree. But after 9/11, the

olive tree wars became all-

9

consuming for me. I spent almost all my time traveling in the Arab and Muslim worlds.

During those years I lost the trail of globalization.

I found that trail again on my journey to Bangalore in February 2004. Once I did,

I realized that something really important had happened while I was fixated on the

olive groves of Kabul and Baghdad. Globalization had gone to a whole new level. If

you put The Lexus and the Olive Tree and this book together, the broad historical

argument you end up with is that that there have been three great eras of globalization.

The first lasted from 1492-when Columbus set sail, opening trade between the Old World

and the New World-until around 1800.1 would call this era Globalization 1.0. It shrank

the world from a size large to a size medium. Globalization 1.0 was about countries

and muscles. That is, in Globalization 1.0 the key agent of change, the dynamic force

driving the process of global integration was how much brawn-how much muscle, how

much horsepower, wind power, or, later, steam power-your country had and how

creatively you could deploy it. In this era, countries and governments (often inspired

by religion or imperialism or a combination of both) led the way in breaking down

walls and knitting the world together, driving global integration. In Globalization

1.0, the primary questions were: Where does my country fit into global competition

and opportunities? How can I go global and collaborate with others through my country?

The second great era, Globalization 2.0, lasted roughly from 1800 to 2000, interrupted

by the Great Depression and World Wars I and II. This era shrank the world from a

size medium to a size small. In Globalization 2.0, the key agent of change, the dynamic

force driving global integration, was multinational companies. These multinationals

went global for markets and labor, spearheaded first by the expansion of the Dutch

and English joint-stock companies and the Industrial Revolution. In the first half

of this era, global integration was powered by falling transportation costs, thanks

to the steam engine and the railroad, and in the second half by falling

telecommunication costs-thanks to the diffusion of the telegraph, telephones, the

PC, satellites, fiber-optic cable, and the early version of the World Wide Web. It

was during this era that we really saw the

10

birth and maturation of a global economy, in the sense that there was enough movement

of goods and information from continent to continent for there to be a global market,

with global arbitrage in products and labor. The dynamic forces behind this era of

globalization were breakthroughs in hardware-from steamships and railroads in the

beginning to telephones and mainframe computers toward the end. And the big questions

in this era were: Where does my company fit into the global economy? How does it take

advantage of the opportunities? How can I go global and collaborate with others

through my company? The Lexus and the Olive Tree was primarily about the climax of

this era, an era when the walls started falling all around the world, and integration,

and the backlash to it, went to a whole new level. But even as the walls fell, there

were still a lot of barriers to seamless global integration. Remember, when Bill

Clinton was elected president in 1992, virtually no one outside of government and

the academy had e-mail, and when I was writing The Lexus and the Olive Tree in 1998,

the Internet and e-commerce were just taking off.

Well, they took off-along with a lot of other things that came together while I was

sleeping. And that is why I argue in this book that around the year 2000 we entered

a whole new era: Globalization 3.0. Globalization 3.0 is shrinking the world from

a size small to a size tiny and flattening the playing field at the same time. And

while the dynamic force in Globalization 1.0 was countries globalizing and the dynamic

force in Globalization 2.0 was companies globalizing, the dynamic force in

Globalization 3.0-the thing that gives it its unique character-is the newfound power

for individuals to collaborate and compete globally. And the lever that is enabling

individuals and groups to go global so easily and so seamlessly is not horsepower,

and not hardware, but software- all sorts of new applications-in conjunction with

the creation of a global fiber-optic network that has made us all next-door neighbors.

Individuals must, and can, now ask, Where do I fit into the global competition and

opportunities of the day, and how can I, on my own, collaborate with others globally?

But Globalization 3.0 not only differs from the previous eras in how it is shrinking

and flattening the world and in how it is empowering indi-

11

viduals. It is different in that Globalization 1.0 and 2.0 were driven primarily by

European and American individuals and businesses. Even though China actually had the

biggest economy in the world in the eighteenth century, it was Western countries,

companies, and explorers who were doing most of the globalizing and shaping of the

system. But going forward, this will be less and less true. Because it is flattening

and shrinking the world, Globalization 3.0 is going to be more and more driven not

only by individuals but also by a much more diverse - non-Western, non-white-group

of individuals. Individuals from every corner of the flat world are being empowered.

Globalization 3.0 makes it possible for so many more people to plug and play, and

you are going to see every color of the human rainbow take part.

(While this empowerment of individuals to act globally is the most important new

feature of Globalization 3.0, companies-large and small-have been newly empowered

in this era as well. I discuss both in detail later in the book.)

Needless to say, I had only the vaguest appreciation of all this as I left Nandan's

office that day in Bangalore. But as I sat contemplating these changes on the balcony

of my hotel room that evening, I did know one thing: I wanted to drop everything and

write a book that would enable me to understand how this flattening process happened

and what its implications might be for countries, companies, and individuals. So I

picked up the phone and called my wife, Ann, and told her, "I am going to write a

book called The World Is Flat." She was both amused and curious-well, maybe more amused

than curious! Eventually, I was able to bring her around, and I hope I will be able

to do the same with you, dear reader. Let me start by taking you back to the beginning

of my journey to India, and other points east, and share with you some of the encounters

that led me to conclude the world was no longer round-but flat.

Jaithirth "Jerry" Rao was one of the first people I met in Bangaloreand

I hadn't been with him for more than a few minutes at the Leela

Palace hotel before he told me that he could handle my tax returns and

any other accounting needs I had-from Bangalore. No thanks, I de-

12

murred, I already have an accountant in Chicago. Jerry just smiled. He was too polite

to say it-that he may already be my accountant, or rather my accountant's accountant,

thanks to the explosion in the outsourcing of tax preparation.

"This is happening as we speak," said Rao, a native of Mumbai, formerly Bombay, whose

Indian firm, MphasiS, has a team of Indian accountants able to do outsourced

accounting work from any state in America and the federal government. "We have tied

up with several small and medium-sized CPA firms in America."

"You mean like my accountant?" I asked. "Yes, like your accountant," said Rao with

a smile. Rao's company has pioneered a work flow software program with a standardized

format that makes the outsourcing of tax returns cheap and easy. The whole process

starts, Jerry explained, with an accountant in the United States scanning my last

year's tax returns, plus my W-2, W-4, 1099, bonuses, and stock

statements-everything-into a computer server, which is physically located in

California or Texas. "Now your accountant, if he is going to have your taxes done

overseas, knows that you would prefer not to have your surname be known or your Social

Security number known [to someone outside the country], so he can choose to suppress

that information," said Rao. "The accountants in India call up all the raw information

directly from the server in America [using a password], and they complete your tax

returns, with you remaining anonymous. All the data stays in the U.S. to comply with

privacy regulations. . . We take data protection and privacy very seriously. The

accountant in India can see the data on his screen, but he cannot take a download

of it or print it out-our program does not allow it. The most he could do would be

to try to memorize it, if he had some ill intention. The accountants are not allowed

to even take a paper and pen into the room when they are working on the returns."

I was intrigued at just how advanced this form of service outsourcing had become.

"We are doing several thousand returns," said Rao. What's more, "Your CPA in America

need not even be in their office. They can be sitting on a beach in California and

e-mail us and say, 'Jerrv> you are really good at doing New York State returns, so

you do Tom's returns. And Sonia, you and your team in Delhi do the Washington and

Florida

13

returns.' Sonia, by the way, is working out of her house in India, with no overhead

[for the company to pay]. 'And these others, they are really complicated, so I will

do them myself."

In 2003, some 25,000 U.S. tax returns were done in India. In 2004, the number was

100,000. In 2005, it is expected to be 400,000. In a decade, you will assume that

your accountant has outsourced the basic preparation of your tax returns-if not more.

"How did you get into this?" I asked Rao.

"My friend Jeroen Tas, a Dutchman, and I were both working in California for

Citigroup," Rao explained. "I was his boss and we were coming back from New York one

day together on a flight and I said that I was planning to quit and he said, 'So am

I.' We both said, 'Why don't we start our own business?' So in 1997-98, we put together

a business plan to provide high-end Internet solutions for big companies. . . Two

years ago, though, I went to a technology convention in Las Vegas and was approached

by some medium-size [American] accounting firms, and they said they could not afford

to set up big tax outsourcing operations to India, but the big guys could, and [the

medium guys] wanted to get ahead of them. So we developed a software product called

VTR- Virtual Tax Room-to enable these medium-size accounting firms to easily

outsource tax returns."

These midsize firms "are getting a more level playing field, which they were denied

before," said Jerry. "Suddenly they can get access to the same advantages of scale

that the bigger guys always had."

Is the message to Americans, "Mama, don't let your kids grow up to be accountants"?

I asked.

Not really, said Rao. "What we have done is taken the grunt work. You know what is

needed to prepare a tax return? Very little creative work. This is what will move

overseas."

"What will stay in America?" I asked.

"The accountant who wants to stay in business in America will be the one who focuses

on designing creative complex strategies, like tax avoidance or tax sheltering,

managing customer relationships," he said. "He or she will say to his clients, 'I

am getting the grunt work done efficiently far away. Now let's talk about how we manage

your estate and what you are

14

going to do about your kids. Do you want to leave some money in your trusts?' It means

having the quality-time discussions with clients rather than running around like

chickens with their heads cut off from February to April, and often filing for

extensions into August, because they have not had the quality time with clients."

Judging from an essay in the journal Accounting Today (June 7, 2004), this does, indeed,

seem to be the future. L. Gary Boomer, a CPA and CEO of Boomer Consulting in Manhattan,

Kansas, wrote, "This past [tax] season produced over 100,000 [outsourced] returns

and has now expanded beyond individual returns to trusts, partnerships and

corporations . . . The primary reason that the industry has been able to scale up

as rapidly as it has over the past three years is due to the investment that these

[foreign-based] companies have made in systems, processes and training." There are

about seventy thousand accounting grads in India each year, he added, many of whom

go to work for local Indian firms starting at $100 a month. With the help of high-speed

communications, stringent training, and standardized forms, these young Indians can

fairly rapidly be converted into basic Western accountants at a fraction of the cost.

Some of the Indian accounting firms even go about marketing themselves to American

firms through teleconferencing and skip the travel. Concluded Boomer, "The accounting

profession is currently in transformation. Those who get caught in the past and resist

change will be forced deeper into commoditization. Those who can create value through

leadership, relationships and creativity will transform the industry, as well as

strengthen relationships with their existing clients."

What you're telling me, I said to Rao, is that no matter what your profession-doctor,

lawyer, architect, accountant-if you are an American, you better be good at the

touchy-feely service stuff, because anything that can be digitized can be outsourced

to either the smartest or the cheapest producer, or both. Rao answered, "Everyone

has to focus on what exactly is their value-add."

But what if I am just an average accountant? I went to a state university. I had a

B+ average. Eventually I got my CPA. I work in a big accounting firm, doing a lot

of standard work. I rarely meet with clients.

15

They keep me in the back. But it is a decent living and the firm is basically happy

with me. What is going to happen to me in this system?

"It is a good question," said Rao. "We must be honest about it. We are in the middle

of a big technological change, and when you live in a society that is at the cutting

edge of that change [like America], it is hard to predict. It's easy to predict for

someone living in India. In ten years we are going to be doing a lot of the stuff

that is being done in America today. We can predict our future. But we are behind

you. You are defining the future. America is always on the edge of the next creative

wave ... So it is difficult to look into the eyes of that accountant and say this

is what is going to be. We should not trivialize that. We must deal with it and talk

about it honestly ... Any activity where we can digitize and decompose the value chain,

and move the work around, will get moved around. Some people will say, Yes, but you

can't serve me a steak.' True, but I can take the reservation for your table sitting

anywhere in the world, if the restaurant does not have an operator. We can say, Yes,

Mr. Friedman, we can give you a table by the window.' In other words, there are parts

of the whole dining-out experience that we can decompose and outsource. If you go

back and read the basic economics textbooks, they will tell you: Goods are traded,

but services are consumed and produced in the same place. And you cannot export a

haircut. But we are coming close to exporting a haircut, the appointment part. What

kind of haircut do you want? Which barber do you want? All those things can and will

be done by a call center far away."

As we ended our conversation, I asked Rao what he is up to next. He was full of energy.

He told me he'd been talking to an Israeli company that is making some big advances

in compression technology to allow for easier, better transfers of CAT scans via the

Internet so you can quickly get a second opinion from a doctor half a world away.

A few weeks after I spoke with Rao, the following e-mail arrived from Bill Brody,

the president of Johns Hopkins University, whom I had just interviewed for this book:

Dear Tom, I am speaking at a Hopkins continuing education medical meeting for

radiologists (I used to be a radiologist) ... I

16

came upon a very fascinating situation that I thought might interest you. I have just

learned that in many small and some medium-size hospitals in the US, radiologists

are outsourcing reading of CAT scans to doctors in India and Australia!!! Most of

this evidently occurs at night (and maybe weekends) when the radiologists do not have

sufficient staffing to provide in-hospital coverage. While some radiology groups will

use teleradiology to ship images from the hospital to their home (or to Vail or Cape

Cod, I suppose) so that they can interpret images and provide a diagnosis 24/7,

apparently the smaller hospitals are shipping CAT scan images to radiologists abroad.

The advantage is that it is daytime in Australia or India when it is nighttime here-so

after-hours coverage becomes more readily done by shipping the images across the globe.

Since CAT (and MRI) images are already in digital format and available on a network

with a standardized protocol, it is no problem to view the images anywhere in the

world ... I assume that the radiologists on the other end . . . must have trained

in [the] US and acquired the appropriate licenses and credentials. . . The groups

abroad that provide these after-hours readings are called "Nighthawks" by the

American radiologists that employ them. Best, Bill

Thank goodness I'm a journalist and not an accountant or a radiologist. There will

be no outsourcing for me-even if some of my readers wish my column could be shipped

off to North Korea. At least that's what I thought. Then I heard about the Reuters

operation in India. I didn't have time to visit the Reuters office in Bangalore, but

I was able to get hold of Tom Glocer, the CEO of Reuters, to hear what he was doing.

Glocer is a pioneer in the outsourcing of elements of the news supply chain.

With 2,300 journalists around the world, in 197 bureaus, serving a

17

market including investment bankers, derivatives traders, stockbrokers, newspapers,

radio, television, and Internet outlets, Reuters has always had a very complex

audience to satisfy. After the dot-com bust, though, when many of its customers became

very cost-conscious, Reuters started asking itself, for reasons of both cost and

efficiency: Where do we actually need our people to be located to feed our global

news supply chain? And can we actually disaggregate the work of a journalist and keep

part in London and New York and shift part to India?

Glocer started by looking at the most basic bread-and-butter function Reuters

provides, which is breaking news about company earnings and related business

developments, every second of every day. "Exxon comes out with its earnings and we

need to get that as fast possible up on screens around the world: 'Exxon earned

thirty-nine cents this quarter as opposed to thirty-six cents last quarter.' The core

competency there is speed and accuracy," explained Glocer. "You don't need a lot of

analysis. We just need to get the basic news up as fast as possible. The flash should

be out in seconds after the company releases, and the table [showing the recent history

of quarterly earnings] a few seconds later."

Those sorts of earnings flashes are to the news business what vanilla is to the ice

cream business-a basic commodity that actually can be made anywhere in the flat world.

The real value-added knowledge work happens in the next five minutes. That is when

you need a real journalist who knows how to get a comment from the company, a comment

from the top two analysts in the field, and even some word from competitors to put

the earnings report in perspective. "That needs a higher journalistic skill

set-someone in the market with contacts, who knows who the best industry analysts

are and has taken the right people to lunch," said Glocer.

The dot-com bust and the flattening of the world forced Glocer to rethink how Reuters

delivered news-whether it could disaggregate the functions of a journalist and ship

the low-value-added functions to India. His primary goal was to reduce the overlap

Reuters payroll, while preserving as many good journalism jobs as possible. "So the

first thing we did," said Glocer, "was hire six reporters in Bangalore as an

experiment.

18

We said, 'Let's let them just do the flash headlines and the tables and whatever else

we can get them to do in Bangalore.'"

These new Indian hires had accounting backgrounds and were trained by Reuters, but

they were paid standard local wages and vacation and health benefits. "India is an

unbelievably rich place for recruiting people, not only with technical skills but

also financial skills," said Glocer. When a company puts out its earnings, one of

the first things it does is hand it to the wires-Reuters, Dow Jones, and Bloomberg-for

distribution. "We will get that raw data," he said, "and then it's a race to see how

fast we can turn it around. Bangalore is one of the most wired places in the world,

and although there's a slight delay-one second or less-in getting the information

over there, it turns out you can just as easily sit in Bangalore and get the electronic

version of a press release and turn it into a story as you can in London or New York."

The difference, however, is that wages and rents in Bangalore are less than one-fifth

what they are in those Western capitals.

While economics and the flattening of the world have pushed Reuters down this path,

Glocer has tried to make a virtue of necessity. "We think we can off-load commoditized

reporting and get that done efficiently somewhere else in the world," he said, and

then give the conventional Reuters journalists, whom the company is able to retain,

a chance to focus on doing much higher-value-added and personally fulfilling

journalism and analysis. "Let's say you were a Reuters journalist in New York. Do

you reach your life's fulfillment by turning press releases into boxes on the screen,

or by doing the analysis?" asked Glocer. Obviously, it is the latter. Outsourcing

news bulletins to India also allows Reuters to extend the breadth of its reporting

to more small-cap companies, companies it was not cost-efficient for Reuters to follow

before with higher-paid journalists in New York. But with lower-wage Indian reporters,

who can be hired in large numbers for the cost of one reporter in New York, it can

now do that from Bangalore. By the summer of 2004, Reuters had grown its Bangalore

content operation to three hundred staff, aiming eventually for a total of fifteen

hundred. Some of those are Reuters veterans sent out to train the Indian teams, some

are reporters filing earnings flashes, but most are journalists doing

19

slightly more specialized data analysis-number crunching-for securities offerings.

"A lot of our clients are doing the same thing," said Glocer. "Investment research

has had to have huge amounts of cost ripped out of it, so a lot of firms are using

shift work in Bangalore to do bread-and-butter company analysis." Until recently the

big Wall Street firms had conducted investment research by spending millions of

dollars on star analysts and then charging part of their salaries to their

stockbrokerage departments, which shared the analysis with their best customers, and

part to their investment banking business, which sometimes used glowing analyses of

a company to lure its banking business. In the wake of New York State Attorney General

Eliot Spitzer's investigations into Wall Street practices, following several

scandals, investment banking and stockbrokerage have had to be distinctly

separated-so that analysts will stop hyping companies in order to get their investment

banking. But as a result, the big Wall Street investment firms have had to sharply

reduce the cost of their market research, all of which has to be paid for now by their

brokerage departments alone. And this created a great incentive for them to outsource

some of this analytical work to places like Bangalore. In addition to being able to

pay an analyst in Bangalore about $15,000 in total compensation, as opposed to $80,000

in New York or London, Reuters has found that its India employees tend to be

financially literate and highly motivated as well. Reuters also recently opened a

software development center in Bangkok because it turned out to be a good place to

recruit developers who had been overlooked by all the Western companies vying for

talent in Bangalore.

I find myself torn by this trend. Having started my career as a wire service reporter

with United Press International, I have enormous sympathy with wire service reporters

and the pressures, both professional and financial, under which they toil. But UPI

might still be thriving today as a wire service, which it is not, if it had been able

to outsource some of its lower-end business when I started as a reporter in London

twenty-five years ago.

"It is delicate with the staff," said Glocer, who has cut the entire Reuters staff

by roughly a quarter, without deep cuts among the reporters. The Reuters staff, he

said, understand that this is being done so

20

that the company can survive and then thrive again. At the same time, said Glocer,

"these are sophisticated people out reporting. They see that our clients are doing

the exact same things. They get the plot of the story . . . What is vital is to be

honest with people about what we are doing and why and not sugarcoat the message.

I firmly believe in the lesson of classical economists about moving work to where

it can be done best. However, we must not ignore that in some cases, individual workers

will not easily find new work. For them, retraining and an adequate social safety

net are needed."

In an effort to deal straight with the Reuters staff, David Schlesinger, who heads

Reuters America, sent all editorial employees a memo, which included the following

excerpt:

Off-shoring with Obligation I grew up in New London, Connecticut, which in the 19th

century was a major whaling center. In the 1960's and 70's the whales were long gone

and the major employers in the region were connected with the military-not a surprise

during the Vietnam era. My classmates' parents worked at Electric Boat, the Navy and

the Coast Guard. The peace dividend changed the region once again, and now it is best

known for the great gambling casinos of Mohegan Sun and Foxwoods and for the

pharmaceutical researchers of Pfizer. Jobs went; jobs were created. Skills went out

of use; new skills were required. The region changed; people changed. New London,

of course, was not unique. How many mill towns saw their mills close; how many shoe

towns saw the shoe industry move elsewhere; how many towns that were once textile

powerhouses now buy all their linens from China? Change is hard. Change is hardest

on those caught by surprise. Change is hardest on those who have difficulty changing

too. But change is natural; change is not new; change is important. The current debate

about off-shoring is dangerously hot. But the debate about work going to India, China

and Mexico is actually no different from the debate once held about submarine work

leaving New

21

London or shoe work leaving Massachusetts or textile work leaving North Carolina.

Work gets done where it can be done most effectively and efficiently. That ultimately

helps the New Londons, New Bedfords and New Yorks of this world even more than it

helps the Bangalores and Shenzhens. It helps because it frees up people and capital

to do different, more sophisticated work, and it helps because it gives an opportunity

to produce the end product more cheaply, benefiting customers even as it helps the

corporation. It's certainly difficult for individuals to think about "their" work

going away, being done thousands of miles away by someone earning thousands of dollars

less per year. But it's time to think about the opportunity as well as the pain, just

as it's time to think about the obligations of off-shoring as well as the

opportunities. . . Every person, just as every corporation, must tend to his or her

own economic destiny, just as our parents and grandparents in the mills, shoe shops

and factories did.

"The Monitor Is Burning?"

Do you know what an Indian call center sounds like? While filming the documentary

about outsourcing, the TV crew and I spent an evening at the Indian-owned "24/7

Customer" call center in Bangalore. The call center is a cross between a co-ed college

frat house and a phone bank raising money for the local public TV station. There are

several floors with rooms full of twenty-somethings- some twenty-five hundred in

all-working the phones. Some are known as "outbound" operators, selling everything

from credit cards to phone minutes. Others deal with "inbound" calls-everything from

tracing lost luggage for U.S. and European airline passengers to solving computer

problems for confused American consumers. The calls are transferred here by satellite

and undersea fiber-optic cable. Each vast floor of a call center consists of clusters

of cubicles. The young people work in little

22

teams under the banner of the company whose phone support they are providing. So one

corner might be the Dell group, another might be flying the flag of Microsoft. Their

working conditions look like those at your average insurance company. Although I am

sure that there are call centers that are operated like sweatshops, 24/7 is not one

of them.

Most of the young people I interviewed give all or part of their salary to their parents.

In fact, many of them have starting salaries that are higher than their parents'

retiring salaries. For entry-level jobs into the global economy, these are about as

good as it gets.

I was wandering around the Microsoft section around six p.m. Bangalore time, when

most of these young people start their workday to coincide with the dawn in America,

when I asked a young Indian computer expert there a simple question: What was the

record on the floor for the longest phone call to help some American who got lost

in the maze of his or her own software?

Without missing a beat he answered, "Eleven hours."

"Eleven hours?" I exclaimed.

"Eleven hours," he said.

I have no way of checking whether this is true, but you do hear snippets of some oddly

familiar conversations as you walk the floor at 24/7 and just listen over the shoulders

of different call center operators doing their things. Here is a small sample of what

we heard that night while filming for Discovery Times. It should be read, if you can

imagine this, in the voice of someone with an Indian accent trying to imitate an

American or a Brit. Also imagine that no matter how rude, unhappy, irritated, or ornery

the voices are on the other end of the line, these young Indians are incessantly and

unfailingly polite.

Woman call center operator: "Good afternoon, may I speak with . . .?" (Someone on

the other end just slammed down the phone.)

Male call center operator: "Merchant services, this is Jerry, may I help you?" (The

Indian call center operators adopt Western names of their own choosing. The idea,

of course, is to make their American or European customers feel more comfortable.

Most of the young Indians I talked to about this were not offended but took it as

an opportunity to

23

have some fun. While a few just opt for Susan or Bob, some really get creative.)

Woman operator in Bangalore speaking to an American: "My name is Ivy Timberwoods and

I am calling you . . ."

Woman operator in Bangalore getting an American's identity number: "May I have the

last four digits of your Social Security?"

Woman operator in Bangalore giving directions as though she were in Manhattan and

looking out her window: "Yes, we have a branch on Seventy-fourth and Second Avenue,

a branch at Fifty-fourth and Lexington . . ."

Male operator in Bangalore selling a credit card he could never afford himself: "This

card comes to you with one of the lowest APR . . ."

Woman operator in Bangalore explaining to an American how she screwed up her checking

account: "Check number six-six-five for eighty-one dollars and fifty-five cents. You

will still be hit by the thirty-dollar charge. Am I clear?"

Woman operator in Bangalore after walking an American through a computer glitch: "Not

a problem, Mr. Jassup. Thank you for your time. Take care. Bye-bye."

Woman operator in Bangalore after someone has just slammed down the phone on her:

"Hello? Hello?"

Woman operator in Bangalore apologizing for calling someone in America too early:

"This is just a courtesy call, I'll call back later in the evening . . ."

Male operator in Bangalore trying desperately to sell an airline credit card to

someone in America who doesn't seem to want one: "Is that because you have too many

credit cards, or you don't like flying, Mrs. Bell?"

Woman operator in Bangalore trying to talk an American out of her computer crash:

"Start switching between memory okay and memory test. . ."

Male operator in Bangalore doing the same thing: "All right, then, let's just punch

in three and press Enter . . ."

Woman operator in Bangalore trying to help an American who cannot stand being on the

help line another second: "Yes, ma'am, I do

24

understand that you are in a hurry right now. I am just trying to help you out. . ."

Woman operator in Bangalore getting another phone slammed down on her: "Yes, well,

so what time would be goo . . ."

Same woman operator in Bangalore getting another phone slammed down on her: "Why,

Mrs. Kent, it's not a ..."

Same woman operator in Bangalore getting another phone slammed down on her: "As a

safety back . . . Hello?"

Same woman operator in Bangalore looking up from her phone: "I definitely have a bad

day!"

Woman operator in Bangalore trying to help an American woman with a computer problem

that she has never heard before: "What is the problem with this machine, ma'am? The

monitor is burning?"

There are currently about 245,000 Indians answering phones from all over the world

or dialing out to solicit people for credit cards or cell phone bargains or overdue

bills. These call center jobs are low-wage, low-prestige jobs in America, but when

shifted to India they become high-wage, high-prestige jobs. The esprit de corps at

24/7 and other call centers I visited seemed quite high, and the young people were

all eager to share some of the bizarre phone conversations they've had with Americans

who dialed 1-800-HELP, thinking they would wind up talking to someone around the block,

not around the world.

C. M. Meghna, a 24/7 call center female operator, told me, "I've had lots of customers

who call in [with questions] not even connected to the product that we're dealing

with. They would call in because they had lost their wallet or just to talk to somebody.

I'm like, 'Okay, all right, maybe you should look under the bed [for your wallet]

or where do you normally keep it,' and she's like, 'Okay, thank you so much for

helping.'" Nitu Somaiah: "One of the customers asked me to marry him." Sophie Sunder

worked for Delta's lost-baggage department: "I remember this lady called from Texas,"

she said, "and she was, like, weeping on the phone. She had traveled two connecting

flights and she lost her bag and in the bag was her daughter's wedding gown and wedding

25

ring and I felt so sad for her and there was nothing I could do. I had no information.

"Most of the customers were irate," said Sunder. "The first thing they say is, 'Where's

my bag? I want my bag now!' We were like supposed to say, 'Excuse me, can I have your

first name and last name?' 'But where's my bag!' Some would ask which country am I

from? We are supposed to tell the truth, [so] we tell them India. Some thought it

was Indiana, not India! Some did not know where India is. I said it is the country

next to Pakistan."

Although the great majority of the calls are rather routine and dull, competition

for these jobs is fierce-not only because they pay well, but because you can work

at night and go to school during part of the day, so they are stepping-stones toward

a higher standard of living. P. V. Kannan, CEO and cofounder of 24/7, explained to

me how it all worked: "Today we have over four thousand associates spread out in

Bangalore, Hyderabad, and Chennai. Our associates start out with a take-home pay of

roughly $200 a month, which grows to $300 to $400 per month in six months. We also

provide transportation, lunch, and dinner at no extra cost. We provide life insurance,

medical insurance for the entire family- and other benefits."

Therefore, the total cost of each call center operator is actually around $500 per

month when they start out and closer to $600 to $700 per month after six months.

Everyone is also entitled to performance bonuses that allow them to earn, in certain

cases, the equivalent of 100 percent of their base salary. "Around 10 to 20 percent

of our associates pursue a degree in business or computer science during the day

hours," said Kannan, adding that more than one-third are taking some kind of extra

computer or business training, even if it is not toward a degree. "It is quite common

in India for people to pursue education through their twenties-self-improvement is

a big theme and actively encouraged by parents and companies. We sponsor an MBA program

for consistent performers [with] full-day classes over the weekend. Everyone works

eight hours a day, five days a week, with two fifteen-minute breaks and an hour off

for lunch or dinner."Not surprisingly, the 24/7 customer call center gets about seven

hun-

26

dred applications a day, but only 6 percent of applicants are hired. Here is a snippet

from a recruiting session for call center operators at a women's college in Bangalore:

Recruiter 1: "Good morning, girls."

Class in unison: "Good morning, ma'am."

Recruiter 1: "We have been retained by some of the multinationals here to do the

recruitment for them. The primary clients that we are recruiting [for] today are

Honeywell. And also for America Online."

The young women-dozens of them-then all lined up with their application forms and

waited to be interviewed by a recruiter at a wooden table. Here is what some of the

interviews sounded like:

Recruiter 1: "What kind of job are you looking at?"

Applicant 1: "It should be based on accounts, then, where I can grow, I can grow in

my career."

Recruiter 1: "You have to be more confident about yourself when you're speaking.

You're very nervous. I want you to work a little on that and then get in touch with

us."

Recruiter 2 to another applicant: "Tell me something about yourself."

Applicant 2: "I have passed my SSC with distinction. Second P also with distinction.

And I also hold a 70 percent aggregate in previous two years." (This is Indian lingo

for their equivalents of GPA and SAT scores.)

Recruiter 2: "Go a little slow. Don't be nervous. Be cool."

The next step for those applicants who are hired at a call center is the training

program, which they are paid to attend. It combines learning how to handle the specific

processes for the company whose calls they will be taking or making, and attending

something called "accent neutralization class." These are daylong sessions with a

language teacher who prepares the new Indian hires to disguise their pronounced Indian

accents when speaking English and replace them with American, Canadian, or British

ones-depending on which part of the world they will be speaking with. It's pretty

bizarre to watch. The class I sat in on was being trained to speak in a neutral

middle-American accent. The students were asked to read over and over a single

phonetic paragraph designed to teach them how to soften their r's and to roll their

r's.

Their teacher, a charming eight-months-pregnant young woman

27

dressed in a traditional Indian sari, moved seamlessly among British, American, and

Canadian accents as she demonstrated reading a paragraph designed to highlight

phonetics. She said to the class, "Remember the first day I told you that the Americans

flap the 'tuh' sound? You know, it sounds like an almost 'duh' sound-not crisp and

clear like the British. So I would not say"-here she was crisp and sharp-'"Betty bought

a bit of better butter' or 'Insert a quarter in the meter.' But I would say" -her

voice very flat-"'Insert a quarter in the meter' or 'Betty bought a bit of better

butter.' So I'm just going to read it out for you once, and then we'll read it together.

All right? 'Thirty little turtles in a bottle of bottled water. A bottle of bottled

water held thirty little turtles. It didn't matter that each turtle had to rattle

a metal ladle in order to get a little bit of noodles.'

"All right, who's going to read first?" the instructor asked. Each member of the class

then took a turn trying to say this tongue twister in an American accent. Some of

them got it on the first try, and others, well, let's just say that you wouldn't think

they were in Kansas City if they answered your call to Delta's lost-luggage number.

After listening to them stumble through this phonetics lesson for half an hour, I

asked the teacher if she would like me to give them an authentic version-since I'm

originally from Minnesota, smack in the Midwest, and still speak like someone out

of the movie Fargo. Absolutely, she said. So I read the following paragraph: "A bottle

of bottled water held thirty little turtles. It didn't matter that each turtle had

to rattle a metal ladle in order to get a little bit of noodles, a total turtle

delicacy . . . The problem was that there were many turtle battles for less than oodles

of noodles. Every time they thought about grappling with the haggler turtles their

little turtle minds boggled and they only caught a little bit of noodles."

The class responded enthusiastically. It was the first time I ever got an ovation

for speaking Minnesotan. On the surface, there is something unappealing about the

idea of inducing other people to flatten their accents in order to compete in a flatter

world. But before you disparage it, you have to taste just how hungry these kids are

to escape the lower end of the middle class and move up. If a little accent modification

is the price they have to pay to jump a rung of the ladder, then so be it-they say.

28

"This is a high-stress environment," said Nilekani, the CEO of Infosys, which also

runs a big call center. "It is twenty-four by seven. You work in the day, and then

the night, and then the next morning." But the working environment, he insisted, "is

not the tension of alienation. It is the tension of success. They are dealing with

the challenges of success, of high-pressure living. It is not the challenge of

worrying about whether they would have a challenge."

That was certainly the sense I got from talking to a lot of the call center operators

on the floor. Like any explosion of modernity, outsourcing is challenging traditional

norms and ways of life. But educated Indians have been held back so many years by

both poverty and a socialist bureaucracy that many of them seem more than ready to

put up with the hours. And needless to say, it is much easier and more satisfying

for them to work hard in Bangalore than to pack up and try to make a new start in

America. In the flat world they can stay in India, make a decent salary, and not have

to be away from families, friends, food, and culture. At the end of the day, these

new jobs actually allow them to be more Indian. Said Anney Unnikrishnan, a personnel

manager at 24/7, "I finished my MBA and I remember writing the GMAT and getting into

Purdue University. But I couldn't go because I couldn't afford it. I didn't have the

money for it. Now I can, [but] I see a whole lot of American industry has come into

Bangalore and I don't really need to go there. I can work for a multinational sitting

right here. So I still get my rice and sam-bar [a traditional Indian dish], which

I eat. I don't need to, you know, learn to eat coleslaw and cold beef. I still continue

with my Indian food and I still work for a multinational. Why should I go to America?"

The relatively high standard of living that she can now enjoy-enough for a small

apartment and car in Bangalore-is good for America as well. When you look around at

24/7's call center, you see that all the computers are running Microsoft Windows.

The chips are designed by Intel. The phones are from Lucent. The air-conditioning

is by Carrier, and even the bottled water is by Coke. In addition, 90 percent of the

shares in 24/7 are owned by U.S. investors. This explains why, although the United

States has lost some service jobs to India in recent years, total exports from

American-based companies-merchandise and services-to India have grown from

29

$2.5 billion in 1990 to $5 billion in 2003. So even with the outsourcing of some service

jobs from the United States to India, India's growing economy is creating a demand

for many more American goods and services. What goes around, comes around.

Nine years ago, when Japan was beating America's brains out in the auto industry,

I wrote a column about playing the computer geography game Where in the World is Carmen

Sandiego? with my nine-year-old daughter, Orly. I was trying to help her by giving

her a clue suggesting that Carmen had gone to Detroit, so I asked her, "Where are

cars made?" And without missing a beat she answered, "Japan."

Ouch!

Well, I was reminded of that story while visiting Global Edge, an Indian software

design firm in Bangalore. The company's marketing manager, Rajesh Rao, told me that

he had just made a cold call to the VP for engineering of a U.S. company, trying to

drum up business. As soon as Mr. Rao introduced himself as calling from an Indian

software firm, the U.S. executive said to him, "Namaste," a common Hindi greeting.

Said Mr. Rao, "A few years ago nobody in America wanted to talk to us. Now they are

eager." And a few even know how to say hello in proper Hindu fashion. So now I wonder:

If I have a granddaughter one day, and I tell her I'm going to India, will she say,

"Grandpa, is that where software comes from?"

No, not yet, honey. Every new product-from software to widgets-goes through a cycle

that begins with basic research, then applied research, then incubation, then

development, then testing, then manufacturing, then deployment, then support, then

continuation engineering in order to add improvements. Each of these phases is

specialized and unique, and neither India nor China nor Russia has a critical mass

of talent that can handle the whole product cycle for a big American multinational.

But these countries are steadily developing their reseach and development

capabilities to handle more and more of these phases. As that continues, we really

will see the beginning of what Satyam Cherukuri, of Sarnoff, an American research

and development firm, has

30

called "the globalization of innovation" and an end to the old model of a single

American or European multinational handling all the elements of the development

product cycle from its own resources. More and more American and European companies

are outsourcing significant research and development tasks to India, Russia, and

China.

According to the information technology office of the state government in Karnataka,

where Bangalore is located, Indian units of Cisco Systems, Intel, IBM, Texas

Instruments, and GE have already filed 1,000 patent applications with the U.S. Patent

Office. Texas Instruments alone has had 225 U.S. patents awarded to its Indian

opera

Yesterday, this paper printed a bigoted, hate-filled op-ed piece, that smacked of anti-Semitism. Jews have a special responsibility to control the actions of Israel? Really? I think the writer yesterday has a special repsonsibility, in light of the Holocaust, to see to it that Jews are not persecuted. Thousands of rockets falling onto your homeland is more than adequate provocation for defending itself by attacking the attackers. The U.S. did it after 9/11 in Afganistan, and we had every right to do so; indeed, the Western world thought so, and supported the attack of Afganistan.

Look up the definition of Terrorizing in Maine. It is putting people in fear of imminent harm. Kids can go to jail for merely calling in bomb threats at schools, for God's sake. The writer didn't think that dropping thousands of rockets on Irsrael, targeting towns, schools, civilian areas and the like was adequate provcation? Really. The BDN could have printed her letter, if it must, but to have given her op-ed status was to be complicit in her anti-Semitism.