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suits-"certainly makes China an attractive place to expand and add employees,"

explained Perkowski. "Anything which can be done to reduce a U.S. company's liability

for medical coverage would be a plus in keeping jobs in the U.S."

By taking advantage of the flat world to collaborate this way- between onshore and

offshore factories, and between high-wage, high-skilled American workers close to

their market and low-wage Chinese workers close to theirs-said Perkowski, "we make

our American company more competitive, soit is getting more orders and we are actually

growing the business. And that is what many in the U.S. are missing when they talk

about offshoring. Since the acquisition, for example, we have doubled our business

with Cummins, and our business with Caterpillar has grown significantly. All of our

customers are exposed to global competition and really need their supply base to the

do the right thing as far as cost competitiveness. They want to work with suppliers

who un-

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derstand the flat world. When I went to visit our U.S. customers to explain our

strategy for the camshaft business, they were very positive about what we were doing,

because they could see that we were aligning our business in a way that was going

to enable them to be more competitive."

This degree of collaboration has been possible only in the last couple of years. "We

could not have done what we have done in China in 1983 or 1993," said Perkowski. "Since

1993, a number of things have come together. For example, people always talk about

how much the Internet has benefited the U.S. The point I always make is that China

has benefited even more. What has held China back in the past was the inability of

people outside China to get information about the country, and the inability of people

inside China to get information about the rest of the world. Prior to the Internet,

the only way to close that information gap was travel. Now you can stay home and do

it with the Internet. You could not operate our global supply chain without it. We

now just e-mail blueprints over the Internet-we don't even need FedEx."

The advantages for manufacturing in China, for certain industries, are becoming

overwhelming, added Perkowski, and cannot be ignored. Either you get flat or you'll

be flattened by China. "If you are sitting in the U.S. and don't figure out how to

get into China," he said, "in ten or fifteen years from now you will not be a global

leader."

Now that China is in the WTO, a lot of traditional, slow, inefficient, and protected

sectors of the Chinese economy are being exposed to some withering global

competition-something received as warmly in Canton, China, as in Canton, Ohio. Had

the Chinese government put WTO membership to a popular vote, "it never would have

passed," said PatPowers, whoheaded the U.S.-China Business Council office inBeijing

during the WTO accession. A key reason why China's leadership sought WTO membership

was to use it as a clubto force China's bureaucracy to modernize and take down internal

regulatory walls and pockets for arbitrary decision making. China's leadership "knew

that

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China had to integrate globally and that many of their existing institutions would

simply not change and reform, and so they used the WTO as leverage against their own

bureaucracy. And for the last two and half years they've been slugging it out."

Over time, adherence to WTO standards will make China's economy even flatter and more

of a flattener globally. But this transition will not be easy, and the chances of

a political or economic crackup that disrupts or slows this process are not

insignificant. But even if China implements all the WTO reforms, it won't be able

to rest. It will soon be reaching a point where its ambitions for economic growth

will require more political reform. China will never root out corruption without a

free press and active civil society institutions. It can never really become efficient

without a more codified rule of law. It will never be able to deal with the inevitable

downturns in its economy without a more open political system that allows people to

vent their grievances. To put it another way, China will never be truly flat until

it gets over that huge speed bump called "political reform."

It seems to be heading in that direction, but it still has a long way to go. I like

the way a U.S. diplomat in China put it to me in the spring of 2004: "China right

now is doing titillation, notprivatization. Reform here is translucent-and sometimes

it is quite titillating, because you can see the shapes moving behind the screen-but

it is not transparent. [The government still just gives] the information [about the

economy] to a few companies and designated interest groups." Why only translucent?

I asked. He answered, "Because if you are fully transparent, what do you do with the

feedback? They don't know how to deal with that question. They cannot deal [yet] with

the results of transparency."

If and when China gets over that political bump in the road, I think it could become

not only a bigger platform for offshoring but another free-market version of the

United States. While that may seem threatening to some, I think it would be an

incredibly positive development for the world. Think about how many new products,

ideas, jobs, and consumers arose from Western Europe's and Japan's efforts to become

free-market democracies after World War II. The process unleashed an

unprecedented period of global prosperity-and the world wasn't even flat then. It

had a wall in the middle. If India and China move in that direction, the world will

not only become flatter than ever but also, I am convinced, more prosperous than ever.

Three United States are better than one, and five would be better than three.

But even as a free-trader, I am worried about the challenge this will pose to wages

and benefits of certain workers in the United States, at least in the short run. It

is too late for protectionism when it comes to China. Its economy is totally

interlinked with those of the developed world, and trying to delink it would cause

economic and geopolitical chaos that could devastate the global economy. Americans

and Europeans will have to develop new business models that will enable them to get

the best out of China and cushion themselves against some of the worst. As BusinessWeek,

in its dramatic December 6, 2004, cover story on "The China Price," put it, "Can China

dominate everything? Of course not.America remains the world's biggest manufacturer,

producing 75% of what it consumes, though that's down from 90% in the mid-'90s.

Industries requiring huge R&D budgets and capital investment, such as aerospace,

pharmaceuticals, and cars, still have strong bases in the U.S. . . . America will

surely continue to benefit from China's expansion." That said, unless America can

deal with the long-term industrial challenge posed bythe China price in so many areas,

"it will suffer a loss of economic power and influence."

Or, to put it another way, if Americans and Europeans want to benefit from the

flattening of the world and the interconnecting of all the markets and knowledge

centers, they will all have to run at least as fast as the fastest lion-and I suspect

that lion will be China, and I suspect that will be pretty darn fast.

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Flattener #7

Sup ply-Chain ing

Eating Sushi in Arkansas

I had never seen what a supply chain looked like in action until I visited Wal-Mart

headquarters in Bentonville, Arkansas. My Wal-Mart hosts took me over to the

1.2-million-square-foot distribution center, where we climbed up to a viewing perch

and watched the show. On one side of the building, scores of white Wal-Mart trailer

trucks were dropping off boxes of merchandise from thousands of different suppliers.

Boxes large and small were fed up a conveyor belt at each loading dock. These little

conveyor belts fed into a bigger belt, like streams feeding into a powerful river.

Twenty-four hours a day, seven days a week, the suppliers' trucks feed the twelve

miles of conveyor streams, and the conveyor streams feed into a huge Wal-Mart river

of boxed products. But that is just half the show. As the Wal-Mart river flows along,

an electric eye reads the bar codes on each box on its way to the other side of the

building. There, the river parts again into a hundred streams. Electric arms from

each stream reach out and guide the boxes-ordered by particular Wal-Mart stores- off

the main river and down its stream, where another conveyor belt sweeps them into a

waiting Wal-Mart truck, which will rush these particular products onto the shelves

of a particular Wal-Mart store somewhere in the country. There, a consumer will lift

one of these products off the shelf, and the cashier will scan it in, and the moment

that happens, a signal will be generated. That signal will go out across the Wal-Mart

network to the supplier of that product-whether that supplier's factory is in coastal

China or coastal Maine. That signal will pop up on the supplier's computer screen

and prompt him to make another of that item and ship it via the Wal-Mart supply chain,

and the whole cycle will start anew. So no sooner does your arm lift a product off

the local Wal-Mart's shelf and onto the checkout counter than another mechanical arm

starts making another one somewhere in the world. Call it "the Wal-Mart Symphony"

in multiple movements-with no finale. It just plays over and over 24/7/365: delivery,

sorting, packing, distribution, buying, manufacturing, reordering, delivery,

sorting, packing . . .

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Just one company, Hewlett-Packard, will sell four hundred thousand computers through

the four thousand Wal-Mart stores worldwide in one day during the Christmas season,

which will require HPto adjust its supply chain, to make sure that all ofits standards

interface with Wal-Mart's, so that these computers flow smoothly into the Wal-Mart

river, into the Wal-Mart streams, into the Wal-Mart stores.

Wal-Mart's ability to bring off this symphony on a global scale-moving 2.3 billion

general merchandise cartons a year down its supply chain into its stores-has made

it the most important example of the next great flat-tener I want to discuss, which

I call supply-chaining. Supply-chaining is a method of collaborating

horizontally-among suppliers, retailers, and customers-to create value.

Supply-chaining is both enabled by the flattening of the world and a hugely important

flattener itself, because the more these supply chains grow and proliferate, the more

they force the adoption of common standards between companies (so that every link

of every supply chain can interface with the next), the more they eliminate points

of friction at borders, the more the efficiencies of one company get adopted by the

others, and the more they encourage global collaboration.

As consumers, we love supply chains, because they deliver us all sorts of goods-from

tennis shoes to laptop computers-at lower and lower prices. That is how Wal-Mart

became the world's biggest retailer. But as workers, we are sometimes ambivalent or

hostile to these supply chains, because they expose us to higher and higher pressures

to compete, cut costs, and also, at times, cut wages and benefits. That is how Wal-Mart

became one of the world's most controversial companies. No company has been more

efficient at improving its supply chain (and thereby flattening the world) than

Wal-Mart; and no company epitomizes the tension that supply chains evoke between the

consumer in us and the worker in us than Wal-Mart. A September 30, 2002, article in

Computer-world summed up Wal-Mart's pivotal role: "'Being a supplier to Wal-Mart is

a two-edged sword,' says Joseph R. Eckroth Jr., CIO at Mattel Inc. 'They're a

phenomenal channel but a tough customer. They demand excellence.' It's a lesson that

the El Segundo, Calif.-based toy manufacturer and thousands of other suppliers

learned as the world's largest retailer, Wal-Mart Stores Inc., built an inventory

and supply chain man-

agement system that changed the face of business. By investing early and heavily in

cutting-edge technology to identify and track sales on the individual item level,

the Bentonville, Ark.-based retail giant made its IT infrastructure a key competitive

advantage that has been studied and copied by companies around the world. 'We view

Wal-Mart as the best supply chain operator of all time/ says Pete Abell, retail

research director at high-tech consultancy AMR Research Inc. in Boston."

In pursuit of the world's most efficient supply chain, Wal-Mart has piled up a list

of business offenses over the years that has given the company several deserved black

eyes and that it is belatedly starting to address in a meaningful way. But its role

as one of the ten forces that flattened the world is undeniable, and it was to get

a handle on this that I decided to make my own pilgrimage to Bentonville. I don't

know why, but on the flight in from La Guardia, I was thinking, Boy, I would really

like some sushi tonight. But where am I going to find sushi in northwest Arkansas?

And even if I found it, would I want to eat it? Could you really trust the eel in

Arkansas?

When I arrived at the Hilton near Wal-Mart's headquarters, I was stunned to see, like

a mirage, a huge Japanese steak house-sushi restaurant right next door. When I

remarked to the desk clerk who was checking me in that I never expected to get my

sushi fix in Bentonville, he told me, "We've got three more Japanese restaurants

opening up soon."

Multiple Japanese restaurants in Bentonville?

The demand for sushi in Arkansas is not an accident. It has to do with the fact that

all around Wal-Mart's offices, vendors have set up their own operations to be close