How to Compete in a Global Age

Tom Friedman insists that the “The World is Flat.”  Richard Florida says that it isn’t; in fact the world is “spiky” with towers of activity and flatlands of obscurity.  Both offer compelling, but seemingly polar opposite views of the way our world is changing around us and what we need to do to compete.

Who is right and how should it affect the way we run our businesses?

To be honest, both men have their detractors and I myself find both a bit too in love with their own conclusions for my taste.  However, their ideas do have some merit.  The business and marketing environment is transforming as never before and if we don’t understand the forces at work, we’re liable to get run over by the unstoppable locomotive of change.

Therefore, it makes sense to examine both propositions and give the matter a little thought.

Friedman’s Flat World

On a trip to Bangalore, Friedman found himself amazed at what he saw.  A high-tech metropolis in a third world country filled with very capable middle class, net-enabled people.  He sees first hand how they can collaborate and compete with their first world counterparts while earning a fraction of first world salaries.

My own experience living in Eastern Europe mirrors Friedman’s India observations.  In Kiev, it is not uncommon to hire a young girl who looks like a supermodel, can do econometric modeling and speaks five languages.  While skill sets are impressive, starting salaries amount to less than minimum wage back in the US (a few hundred dollars per month).  When I go home I wonder, “How can we compete?”

Flatteners and Convergences

In his book, Friedman posits that the flat world is a result of three factors:

The Fall of the Berlin Wall: The end of communism opened up a large portion of the world.  I witnessed this unfold myself in Eastern Europe during the late ‘90s.  The end of the Cold War helped to change the incentives for non-aligned third world countries as well.  International commerce is thriving to an extent not seen since before the first World War.

Technology: The internet and mobile devices have made the world more connected.  Moreover, costs of connection have plummeted.  20 years ago, a call between cities was expensive and therefore one thought twice before dialing. Today, through internet telephony, calls throughout the world are dirt cheap; virtually free.

Business Process Innovation: In the past 20 years, Companies have adapted to the new political and technological realities.  Firms have transformed the way they do business. Multinational organizations are increasingly the rule rather than the exception.  Even if you work for a company based in your own country, you likely have international co-workers.

Friedman’s vision is far reaching and compelling.  It amounts to a wake-up call for the Developed World.  As the energies, talents and ambitions of the Third World are unleashed, the playing field is drastically transformed.  Fareed Zakaria paints a similar picture in his book, The Post-American World.

Having spent over a decade in Emerging Markets, the message hits home for me personally.  Some of the most tragic casualties of the Cold War were the lost achievements of those who did not lack endowments, but opportunities to actualize them.  Now that walls, physical as well as those of time, place and ideology have come down, it seems inevitable that a great flattening takes place.

Or is it?

Florida’s Spiky World

Soon after Friedman’s book came out, Richard Florida published an article (pdf) in The Atlantic Monthly proclaiming that the world is not flat at all, but “spiky.”  Furthermore, he insisted that it was getting more so, not less.

Florida wasn’t making idle claims; he came armed with reams of data.  Populations, economic activity, patents, scientific citations – you name it – all are concentrated in relatively few places.  In startling contrast to Friedman’s flat world where everyone is equal, he insists that the greatest challenge we face is to manage growing inequality while not limiting, and benefiting from, the progress made in the centers of world activity.

The Creative Class

The article wasn’t a knee-jerk response on Florida’s Part, but based on his research on the Creative Class and his book describing the phenomenon.  He points out that economic development is driven by a core class of people who create new things.  Moreover, because collaboration is crucial to innovation, these people tend to concentrate themselves in particular places.

While he doesn’t dismiss that communication technology permits long distance collaboration, he does make a strong case that collaboration is predominantly a short distance phenomenon.  After all, innovation doesn’t just take place exclusively in labs and on white boards, but also in kitchens, hallways, on cocktail napkins, etc.

Finally, Florida asserts that innovative people congregate in specific places not by chance, but because they are attracted there by specific attributes.  Furthermore, he describes three mutually dependent conditions that draw them: Talent, Technology and Tolerance.

The first two conditions are well known, attracting lots of smart people and giving them the tools to work with are common sense solutions that civic planners have focused on for years.  However, the last point is original and counterintuitive (and also controversial, there are some serious people who dispute Florida’s analysis).

The implications of Florida’s work are interesting and deserve some further  examination.  After all, top quality engineers can go anywhere, why wouldn’t they want to go to a place that has an active bohemian culture which fosters creative thought.  NY times columnist David Brooks calls these people “Bourgeois Bohemians”  or “Bobos” for short.

The Soviet Union had “secret cities” where they shipped scientists to, but if they had the choice they would probably want to go somewhere nice, with good music, restaurants and lots of free thought.  Maybe good coffee does make good science.

A Post Soviet Example

Creative cities are not exclusively a western phenomenon.  In Poland, Warsaw is the capital of government and commerce.  Having spent some great years there, the city is a special place for me, but having been destroyed in World War II nobody would describe it as beautiful (although it is improving).

With its central location and history, Warsaw has its share of creative people and interesting things to do, but they aren’t immediately apparent.  It manages to overcome its unfortunate inheritance with energy and enthusiasm.  It is also a tolerant place, not only overcoming much of it’s ugly history of antisemitism, but it has become the home of a thriving gay culture as well.  A basket case 20 years ago it now competes favorably against many Western European cities as a business center.

Polish cities like Krakow, Wroclaw and Poznan have beautiful Old Towns and are culturally very vibrant.  They are also hotbeds of hi-tech activity that outperform their size and infrastructure. Each has spawned internationally competitive technology firms.

Russia presents a stark contrast.  Moscow is probably the least tolerant place I’ve ever been.  While there is no shortage of financial and infrastructure investment, public spaces in the city center are almost non-existent.  Clubs promote “face control” rather than cool music.  Racial violence is commonplace.

One goes out at night in Moscow to be seen in “VIP sections” rather than to meet and converse with interesting people.  Social life centers on exclusion rather than inclusion.  I have no desire to live there again and it is no wonder that companies have to pay huge salary premiums to lure talented people.  Otherwise, no one would go.

Despite a well educated population and vast oil and mineral wealth, I know of no Russian company that is competitive in an intellectual capital business outside of the former Soviet Union.  In Silicon Valley, however, it is not hard to find successful entrepreneurs with Russian surnames.  Change the substrate and you change the organism.

How to Compete in a Global Market

Jane Jacobs, from whom Richard Florida borrowed heavily, said that “When a place gets boring, even the rich people leave.”  I would suggest that the same goes for companies.  Increasingly commerce and community are inextricably linked.

In truth, there is no reason to assume that Friedman’s and Florida’s ideas are mutually exclusive; in fact they appear to be mutually reinforcing.  If people can work anywhere, they will probably choose to go someplace where they can do interesting things and meet fascinating people.  In a world that increasingly runs on talent,

In the new potentially flat, but actually spiky world time and place have become choices rather than constraints and complexity increases exponentially.  Therefore, it is ironic that the evidence points to a surprisingly simple answer to the question of how to compete in a globalized world:

Create a place that people want to go to.

– Greg