Analysis of Contemporary Business Tendencies
In his book “The World is Flat” Thomas Friedman addressed issues of contemporary global business environment and its latest changes over the past thirty years. The author analyzed the history of global business development applying the term “flat” to the world as a space for business operating and the term “flattener” for the factors influencing global business changes (Friedman, 2005).
The current paper is devoted to the critical analysis of three chapters of the book. Three factors making impact on business development are reviewed using material from the second chapter of the book. An analysis of practical implementation was made tracing experience of several businesses employing chosen concepts.
Review of the third chapter is devoted to the Triple Convergence explanation and analysis of the Triple Convergence impact on every day life.
The sixth chapter review is devoted to the analysis of contemporary tendencies of the human resources market development and potential competitive advantages of a worker.
1. Three Factors Influencing Contemporary Business Environment
Friedman outlined ten forces “which flattened the world”, among them are: increased interaction between nations due to the political changes that occurred at the end of the twentieth century; implementation of World Wide Web; work flow software; accustoming of “community-developed software”; outsourcing; offshoring; supply-chaining; insourcing; in-forming; “the steroids” (factors that amplify the effects of supply-chaining, outsourcing, uploading, off-shoring, insourcing, and in-forming) (Friedman, 2005).
For the purposes of the current paper three factors that make an impact on global business were chosen: computerization, offshoring and supply-chaining.
1.1 Computerization and World Wide Web Development
The end of 1980’s and the beginning of 1990’s were marked by several turning points concerning global computerization. In May, 1990, Microsoft represented new operating system, Windows 3.0, which was easier than previous version and promoted popularization of personal computing. People obtained new tools for exchanging information with the speed increased many times. Friedman called this period “The New Age of Creativity” (Friedman, 2005).
Friedman (2005) described PayPal as an example of advanced web technology utilization. PayPal was created in 1998 to serve Internet money transactions between buyers and sellers of eBay auction (another advanced web product which is a version of an online bazaar). PayPal offered opening accounts to anyone who had electronic mailing address. It was one of the first electronic ways of transferring money which significantly simplified money turnover and popularized e-commerce.
Lately, computerization penetrated all the spheres of contemporary life and now it is impossible to imagine a company which does not have its own web site. Most of the companies use the advantages of computerization and Internet, thus, it can be identified as the factor which made positive impact on development of businesses. The companies running different business increased their sales due to developing their own sites and expanding all over the world. Tesco, General Motors, Wal-Mart, DaimlerChrysler and many other large, middle and small companies apply this strategy to increase their sales and attract more customers.
Offshoring is another product of globalization. Offshoring means shifting production from the home country to another country in order to obtain additional competitive advantages.
When thinking about offshoring advantages nothing but Chinese experience first comes into mind. Friedman (2005) stated that after China entrance into World Trade Organization, it has become an attractive country to maintain offshoring due to several particularities. Operating in aggressive competitive environment requires constant monitoring of price of the product as one of the main competitive advantages. Low wages of Chinese workers and favorable tax policy enabled many American companies to essentially cut variable costs and tax payments. In addition, Chinese government implemented new pension plan which compensated health care costs, retirement benefits and housing (Friedman, 2005).
Friedman (2005) gives an example showing the difference in wages between American and Chinese workers: if machinist in America got a wage of three to four thousand dollars, Chinese factory worker was happy with getting one and a half hundreds dollars.
In accordance with information provided by Office of Senator Lieberman (2004), such companies as Dell, IBM, Bank of America, General Motors, Citibank, Delta Air Lines, Oracle, Prudential, and DaimlerChrysler are using offshore outsourcing in other countries including China. Many manufacturing processes are placed in China, namely: computer screens, portable cigarette lighters, eyeglass frames and many other goods.
On the other hand, Chinese offshoring had significantly shortened the number of working places in the United States and influenced labor costs in the whole world. Therefore, offshoring seems to be a mixed blessing depending on who takes part in it.
One of the vivid examples of offshore outsourcing is General Motors Corporation. General Motors Corp. uses the advantages of offshore production of its vehicles. At the same time the Corporation imports approximately one-third of sales to Asian region. General Motor Corp. is planning to increase the number of vehicles manufactured at offshore plants and sales by 98% in 2010-2014. American taxpayers objected this decision because it threatens with the loss of 21,000 jobs (Oak, 2009).
Maintaining an efficient supply chain has become a significant target of the companies which operate on globalized market. Effective supply chain helps increasing the connections between retailers, suppliers and customers. Friedman’s example of ultimate supply chain refers to Wal-Mart – the biggest retailer in the world. Friedman (2005) stated that Wal-Mart succeeded in nothing but making an efficient supply chain by handling product in an intelligent way.
The innovation of Wal-Mart was as follows: the information about sold item is transferred directly from the checkout line to the central command to report changing demand. In case if demand is changing quickly, a message is sent to the suppliers in accordance with demand immediately so they could supply needed items as soon as possible (Friedman, 2005).
Unfortunately, while Wal-Mart customers enjoy the advantages of the cooperation with the biggest retailer, saving fifty billions dollars on discounts, employees of the Company are prone to criticize it. Besides, cutting wages forces other similar companies match new requirements. Thus, this Company also experiences dual nature of supply-chaining.
Whirlpool also embarked on a global overhaul of its supply chain in 2001. The Company had issues connected with inventory management. Then the Company implemented an advanced planning and scheduling system which included integration and optimization of supply chain. The integration of supply chain had boosted inventory availability for more than ten percents (Anthes, 2005).
Nicon management also realized that efficient supply chain plays crucial role in distribution of products. The Company was concerned about speedup of a new product (digital camera) provision. There was a need in high-profile product line to improve the customers’ service performance. Finally, Nicon implemented an innovative distribution strategy in cooperation with United Parcel Service which allowed synchronizing supply chain, including transportation, customs brokerage, freight and logistics. This path gave the Company the possibility to provide the consumers with the latest products quicker than its competitors (“Nicon Focuses on Supply Chain Innovations”, n.d.).
2. The Triple Convergence Analysis
The author described three convergences which are connected with Web-enabled platform, technology and demography changes. It is obvious that the triple convergence affects our every day life; therefore it is important to know new rules and take advantage from this knowledge. The first convergence is the convergence of ten factors listed by Friedman (2005). This platform enables people in the world to cooperate and has great future. The tendency of developing this platform is such as the one will succeed who will get the infrastructure to connect with it (Internet access), knowledge and education to be able to tap into this platform, and the governance to be able to benefit from its advantages (Friedman, 2005, p. 206).
The second convergence is considered with regard to overwhelming integration and shift from vertical to horizontal organizational structure which is more democratic and people-oriented. It is significantly tied to the changes in technology and innovation implementation. It is important not to miss those changes and use new possibilities.
The third convergence is connected with demographic component. Globalization opened new possibilities for those countries which were considered the outsiders. Among them are such countries as Russia, China, India, Eastern Europe, Latin America, and Central Asia.
Friedman (2005) considers triple convergence (new players, new playing field and new processes) the most important force which will shape contemporary global economics and politics.
3. External global environment is quickly changing, there is only one possibility to keep up with it: to change oneself constantly improving one’s skills. The author urges young people to ponder the way their jobs remain untouchable, i.e. insured against outsourcing.
Friedman (2005) outlined four untouchable categories of workers, namely: “special”, “specialized”, “ancored”, and “really adaptable”. “Special” workers are special personalities like Bill Gates, Oprah Winfrey, Grace Kelly or Michael Jordan. They possess certain gift or skills which cannot be outsourced being able to expand global market to supply their goods and services.
“Specialized” workers include a range of lawyers, brain surgeons, accountants, robot operators or cutting-edge computer architects, etc. The main distinctive feature of these workers is that they are in high demand and are not fungible. For example, a work which can be digitized or easy substituted is fungible (basic accounting, unskilled labor).
“Anchored” workers are such as plumbers, nurses, waitress, electricians, doctors and lawyers who work in a specific location or involve personal contact with a client, patient or a customer. These jobs cannot be digitized and are not fungible offering wage in accordance with local market conjuncture. Anchored jobs might have fungible parts and can be outsourced.
Really adaptable workers have to acquire new knowledge, skills and expertise, being able to create value. One has to be ready to do unusual part of a job; be “skillfully and socially adaptable” (Friedman, 2005, p. 242).
The book of Friedman contains useful information concerning tendencies of globalization and detailed analysis of contemporary business environment. The author outlined ten main forces that impact contemporary global business, made conclusions and gave useful practical advises regarding survival in highly competitive environment.
The book can be of a great interest to the wide circle of readers including young people, professionals and management.
Anthes, G.H. (2005, June 2005). Case Study: Supply Chain Whirl. Retrieved from http://logistics.about.com/gi/o.htm
Friedman, T.L. (2005). The Ten Forces That Flattened The World. In Merujuk (1st ed.). The World is Flat, pp. 48-224. New York: Farrar, Straus and Giroux.
Friedman, T.L. (2005). The Triple Convergence. In Merujuk (1st ed.). The World is Flat,
pp. 173-200. New York: Farrar, Straus and Giroux.
Friedman, T.L. (2005). The Untouchables. In Merujuk (1st ed.). The World is Flat,
pp. 237-249. New York: Farrar, Straus and Giroux.
Nikon Focuses on Supply Chain Innovation - and Makes New Product Distribution a Snap. (n.d.). Retrieved from http://logistics.about.com/gi/o.htm
Oak, R. (2009, September 5). GM Offshore Outsourcing U.S. Jobs. Retrieved from http://www.economicpopulist.org/content/gm-offshore-outsourcing-us-jobs
Office of Senator Lieberman J.I. (2004, May 11). Offshore Ooutsourcing and America’s Competitive Edge: Losing Out in the High Technology R&D and Services Sectors (No 20510). Washington, DC: U.S. Government Printing Office.