Authors: Thomas L. Friedman
“So China is eating Mexico's lunch,” concluded Rosen, “but more due to the Mexican inability to capitalize on successes and induce broader reform than to China's lower wage workers per se.” In other words, it's reform retail, stupid. According to the Doing Business in 200S report, it takes an average of fifty-eight days to start a business in Mexico, compared with eight in Singapore and nine in Turkey. It takes seventy-four days to register a property in Mexico, but only twelve in the United States. Mexico's corporate income tax rate of 34 percent is twice as high as China's.
The McKinsey Quarterly report “Beyond Cheap Labor” noted that since 2000, as China joined the WTO and started to take advantage of the flattening of the world, Mexico lost 270,000 assembly jobs, and hundreds of factories closed. But the main advice the report had for Mexico and other middle-income countries feeling squeezed by China was this: “Rather than fixating on jobs lost to China, these countries should remember a fact of economic life: no place can remain the world's low-cost producer forever-even China will lose that title one day. Instead of trying to defend low-wage assembly jobs, Mexico and other middle-income countries should focus on creating jobs that add higher value. Only if more productive companies with higher-value-added activities replace less productive ones can middle income economies continue down the development path.”
In short, the only way for Mexico to thrive is with a strategy of reform retail that will enable it to beat China to the top, not the bottom, because China is not focused on beating Mexico as much as it is on beating America. But winning that kind of race to the top takes intangible focus and will.
You cannot maintain rising standards of living in a flattening world when you are up against competitors who are getting not only their fundamentals right but also their intangibles. China does not just want to get rich. It wants to get powerful. China doesn't just want to learn how to make GM cars. It wants to be GM and put GM out of business. Anyone who doubts that should spend time with young Chinese.
Said Luis Rubio, president of Mexico's Center of Research for Development, “The more self-confidence you have, the more it diminishes your mythologies and complexes. One of the great things about Mexico in the early 1990s was that Mexicans saw that they could do it, they could make it.” A lot of that self-confidence, though, has been lost in Mexico in recent years, because the government stopped reforming. “A lack of self-confidence leads a country to keep chewing on the past,” added Rubio. “A lack of self-confidence [in Mexico] means that everyone in the country thinks the U.S. is going to take Mexico to the cleaners.” That is why NAFTA was so important for Mexico's self-confidence. “What NAFTA accomplished was to get Mexicans to think forward and outward instead of inward and backward. [But] NAFTA was seen [by its architects] as an end more than a beginning. It was seen as the conclusion of a process of political and economic reforms.” Unfortunately, he added, “Mexico did not have a strategy for going forward.”
Will Rogers said it a long time ago: “Even if you're on the right track, you'll get run over if you just sit there.” The flatter the world gets, the faster that will happen. Mexico got itself on the right track with reform wholesale, but then, for a lot of tangible and intangible reasons, it just sat there and reform retail stalled. The more Mexico just sits there, the more it is going to get run over. And it won't be alone.
Out of clutter, find simplicity. From discord, find harmony. In the middle of difficulty, lies opportunity.
—Albert Einstein
As I conducted interviews for this book, I kept hearing the same phrase from different business executives. It was strange; they all used it, as if they had all been talking to each other. The phrase was, “Just in the last couple of years...” Time and again, entrepreneurs and innovators from all different types of businesses, large and small, told me that “just in the last couple of years” they had been able to do things they had never dreamed possible before, or that they were being forced to do things they had never dreamed necessary before.
I am convinced that these entrepreneurs and CEOs were responding to the triple convergence. Each was figuring out a strategy for his or her company to thrive or at least survive in this new environment. Just as individuals need a strategy for coping with the flattening of the world, so too do companies. My economics tutor Paul Romer is fond of saying, “Everyone wants economic growth, but nobody wants change.” Unfortunately, you cannot have one without the other, especially when the playing field shifts as dramatically as it has since the year 2000. If you want to grow and flourish in a flat world, you better learn how to change and align yourself with it.
I am not a business writer and this is not a how-to-succeed-in-business book. What I have learned in researching this book, though, is that the companies that have managed to flourish today are the ones that best understand the triple convergence and have developed their own strategies for coping with it-as opposed to trying to resist it.
This chapter is an effort to highlight a few of their rules and strategies:
Rule #1: When the world goes flat—and you are feeling flattened—reach for a shovel and dig inside yourself. Don't try to build walls.
I learned this valuable lesson from my best friends from Minnesota, Jill and Ken Greer. Going to India gave me an inkling that the world was flat, but only when I went back to my roots and spoke to my friends from Minnesota did I realize just how flat. Some twenty-five years ago Jill and Ken (whose brother Bill I profiled earlier) started their own multimedia company, Greer & Associates, which specialized in developing commercials for TV and doing commercial photography for retail catalogs. They have built up a nice business in Minneapolis, with more than forty employees, including graphic artists and Web designers, their own studio, and a small stable of local and national clients. As a midsize firm, Greer always had to hustle for work, but over the years Ken always found a way to make a good living.
In early April 2004, Ken and Jill came to Washington to spend a weekend for my wife's fiftieth birthday. I could tell that Ken had a lot on his mind regarding his business. We took a long walk one morning in rural Virginia. I told him about the book I was writing, and he told me about how his business was doing. After a while, we realized that we were both talking about the same thing: The world had grown flat, and it had happened so fast, and had affected his business so profoundly, that he was still wrestling with how to adjust. It was clear to him that he was facing competition and pricing pressure of a type and degree that he had never faced before.
“Freelancers,” said Greer, speaking about these independent contractors as if they were a plague of locusts that suddenly had descended on his business, eating everything in sight. “We are now competing against freelancers! We never really competed against freelancers before. Our competition used to be firms of similar size and capability. We used to do similar things in somewhat different ways, and each firm was able to find a niche and make a living.” Today the dynamic is totally different, he said. “Our competition is not only those firms we always used to compete against. Now we have to deal with giant firms, who have the capability to handle small, medium, and large jobs, and also with the solo practitioners working out of their home offices, who [by making use of today's technology and software] can theoretically do the same thing that a person sitting in our office can do. What's the difference in output, from our clients' point of view, between the giant company who hires a kid designer and puts him in front of a computer, and our company that hires a kid designer and puts him in front of a computer, and the kid designer with a computer in his own basement?... The technology and software are so empowering that it makes us all look the same. In the last month we have lost three jobs to freelance solo practitioners who used to work for good companies and have experience and then just went out on their own. Our clients all said the same thing to us: 'Your firm was really qualified. John was very qualified. John was cheaper.' We used to feel bad losing to another firm, but now we are losing to another person!”
How did this change happen so fast? I asked.
A big part of their business is photography-shooting both products and models for catalogs, Greer explained. For twenty-five years, the way the business worked was that Greer & Associates would get an assignment. The client would tell Greer exactly what sort of shot he was looking for and would “trust” the Greer team to come up with the right image. Like all commercial photographers, Greer would use a Polaroid camera to take a picture of the model or product he was shooting, to see if his creative instinct was right, and then shoot with real film. Once the pictures were taken, Greer would send the film out to a photo lab to be developed and color-separated. If a picture needed to be touched up, it would be sent to another lab that specialized in retouching.
“Twenty years ago, we decided we would not process the film we shot,” Greer explained. “We would leave that technical aspect to other professionals who had the exact technology, training, and expertise—and a desire to make money that way. We wanted to make money by taking the pictures. It was a good plan then, and may be a good plan today, but it is no longer possible.”
Why? The world went flat, and every analog process went digital, virtual, mobile, and personal. In the last three years, digital cameras for professional photographers achieved a whole new technical level that made them equal to, if not superior to, traditional film cameras.
“So we experimented with several different cameras and chose the current state-of-the-art camera that was most like our [analog] film cameras,” Greer said. “It's called a Canon Dl, and it's the same exact camera as our film camera, except there's a computer inside with a little TV-screen display on the back that shows us what picture we're taking. But it uses all the same lenses, you set things the same way, shutter speed and aperture, it has the same ergonomics. It was the first professional digital camera that worked exactly like a film camera. This was a defining moment.
“After we got this digital camera, it was incredibly liberating at first,” said Greer. “All of the thrill and excitement of photography were there- except that the film was free. Because it was digital, we didn't have to buy film and we didn't have to go to the lab to have it processed and wait to get it back. If we were on location and shooting something, we could see if we got the shot right away. There was instant gratification. We referred to it as an 'electronic Polaroid.' We used to have an art director who would oversee everything to make sure that we were capturing the image we were trying to create, but we would never really know until we got it developed. Everyone had to go on faith, on trust. Our clients paid us a professional fee because they felt they needed an expert who could not only click a button, but knew exactly how to shape and frame the image. And they trusted us to do that.”
For a year or so there was this new sense of empowerment, freedom, creativity, and control. But then Ken and his team discovered that this new liberating technology could also be enslaving. “We discovered that not only did we now have the responsibility of shooting the picture and defining the desired artistic expression, we had to get involved in the technology of the photograph. We had to become the lab. We woke up one morning and said, 'We are the lab.'”
How so? Because digital cameras gave Greer the ability to download those digital images into a PC or laptop and, with a little magic software and hardware, perform all sorts of new functions. “So in addition to being the photographer, we had to become the processing lab and the color separator,” said Greer. Once the technology made that possible, Greer's customers demanded it. Because Greer could control the image farther down the supply chain, they said he should control it, he must control it. And then they also said because it was all digital now, and all under his control, it should be included among the services his team provided as the photographic creators of the image. “The clients said, 'We will not pay you extra for it,'” said Greer. “We used to go to an outside service to touch up the pictures-to remove red-eye or blemishes-but now we have to be the retouchers ourselves also. They expect [red-eye] to be removed by us, digitally, even before they see it. For twenty years we only practiced the art of photography-color and composition and texture and how to make people comfortable in front of a camera. This is what we were good at. Now we had to learn to be good at all these other things. It is not what we signed up for, but the competitive marketplace and the technology forced us into it.”
Greer said every aspect of his company went through a similar flattening. Film production went digital, so the marketplace and the technology forced them to become their own film editors, graphics studio, sound production facility, and everything else, including producers of their own DVDs. Each of those functions used to be farmed out to a separate company. The whole supply chain got flattened and shrunk into one box that sat on someone's desktop. The same thing happened in the graphics part of their business: Greer & Associates became their own typesetters, illustrators, and sometimes even printers, because they owned digital color printers. “Things were supposed to get easier,” he said. “Now I feel like I'm going to McDonald's, but instead of getting fast food, I'm being asked to bus my own table and wash the dishes too.”
He continued: “It is as if the manufacturers of technology got together with our clients and outsourced all of these different tasks to us. If we put our foot down and say you have to pay for each of these services, there is someone right behind us saying, 'I will do it all' So the services required go up significantly and the fees you can charge stay the same or go down.”
It's called commoditization, and in the wake of the triple convergence, it is happening faster and faster across a whole range of industries. As more and more analog processes become digital, virtual, mobile, and personal, more and more jobs and functions are being standardized, digitized, and made both easy to manipulate and available to more players.