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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 all9

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 1800to 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

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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 thedynamic

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

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 calledThe 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 myjourney 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 Bangalore-

and 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 de12

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

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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

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 inthe 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