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IT company in Russia, the largest IT company in the Middle East, and the largest IT

company in South Africa. Is HP an American company if a majority of its employees

and customers are outside of America, even though it is headquartered in Palo Alto?

Corporations cannot survive today as entities bounded by any single nation-state,

not even one as big as the United States. So the current keep-you-awake-at-night issue

for nation-states and their citizens is how to deal with corporations that are no

longer bounded by a thing called the nation-state. To whom are they loyal?

"Corporate America has done very well, and there is nothing wrong with that, but it

has done well by aligning itself with the flat world," said Dinakar Singh, the hedge

fund manager. "It has done that by outsourcing as many components as possible to the

cheapest, most efficient suppliers. If Dell can build every component ofits computers

in coastal China and sell them in coastal America, Dell benefits, and American

consumers benefit, but it is hard to make the case that American labor benefits."

So Dell wants as flat a world as possible, with as little friction and as few barriers

as possible. So do most other corporations today, because this allows them to build

things in the most low-cost, efficient markets and sell in the most lucrative markets.

There is almost nothing about Globalization 3.0 that is not good for capital.

Capitalists can sit back, buy up any innovation, and then hire the best, cheapest

labor input from anywhere into the world to research it, develop it, produce it, and

distribute it. Dell stock does well, Dell shareholders do well, Dell customers do

well, and the Nasdaq does well. All the things related to capital do fine. But only

some American workers will benefit, and only some communities. Others will feel the

pain that the flattening of the world brings about.

Since multinationals first started scouring the earth for labor and markets, their

interests have always gone beyond those of the nation-state in which they were

headquartered. But what is going on today, on the flat earth, is such a difference

of degree that it amounts to a difference in kind. Companies have never had more

freedom, and less friction, in the way of assigning research, low-end manufacturing,

and high-end manufacturing anywhere in the world. What this will mean for the

long-term

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relationship between companies and the country in which they are headquartered is

simply unclear.

Consider this vivid example: On December 7, 2004, IBM announced that it was selling

its whole Personal Computing Division to the Chinese computer company Lenovo to create

a new worldwide PC company-the globe's third largest-with approximately $12 billion

in annual revenue. Simultaneously, though, IBM said that it would be taking an 18.9

percent equity stake in Lenovo, creating a strategic alliance between IBM and Lenovo

in PC sales, financing, and service worldwide. The new combined company's worldwide

headquarters, it was announced, would be in New York, but its principal manufacturing

operations would be in Beijing and Raleigh, North Carolina; research centers would

be in China, the United States, and Japan; and sales offices would be around the world.

The new Lenovo will be the preferred supplier of PCs to IBM, and IBM will also be

the new Lenovo's preferred supplier of services and financing.

Are you still with me? About ten thousand people will move from IBM to Lenovo, which

was created in 1984 and was the first company to introduce the home computer concept

in China. Since 1997, Lenovo has been the leading PC brand in China. My favorite part

of the press release is the following, which identifies the new company's senior

executives.

"Yang Yuanqing-Chairman of the Board. [He's currently CEO of Lenovo.] Steve

Ward-Chief Executive Officer. [He's currently IBM's senior vice president andgeneral

manager of IBM's Personal Systems Group.] Fran O'Sullivan-Chief Operating Officer.

[She's currently general manager of IBM's PC division.] Mary Ma-Chief Financial

Officer. [She's currently CFO of Lenovo.]"

Talk about horizontal value creation: This new Chinese-owned computer company

headquartered in New York with factories in Raleigh and Beijing will have a Chinese

chairman, an American CEO, an American CPO, and a Chinese CFO, and it will be listed

on the Hong Kong stock exchange. Would you call this an American company? A Chinese

company? To which country will Lenovo feel most attached? Or will it just see itself

sort of floating above a flat earth?

This question was anticipated in the press release announcing the new company: "Where

will Lenovo be headquartered?" it asked.

Answer: "As a global business, the new Lenovo will be geographically dispersed, with

people and physical assets located worldwide."

Sort that out.

The cold, hard truth is that management, shareholders, and investors are largely

indifferent to where their profits come from or even where the employment is created.

But they do want sustainable companies. Politicians, though, are compelled to

stimulate the creation of jobs in a certain place. And residents-whether they are

Americans, Europeans, or Indians-want to know that the good jobs are going to stay

close to home.

The CEO of a major European multinational remarked to me, "We are a global research

company now." That's great news for his shareholders and investors. He is accessing

the best brains on the planet, wherever they are, and almost certainly saving money

by not doing all the research in his backyard. "But ultimately," he confided to me,

"this is going to have implications down the road on jobs in my own country-maybe

not this year but in five or fifteen years." As a CEO and European Union citizen,

"you might have a dialogue with your government about how we can retain capabilities

in [our own country]-but day by day you have to make decisions with the shareholders

in mind."

Translation: If I can buy five brilliant researchers in China and/or India for the

price of one in Europe or America, I will buy the five; and if, in the long run, that

means my own society loses part of its skills base, so be it. The only way to converge

the interests of the two-the company and its country of origin-is to have a really

smart population that can not only claim its slice of the bigger global pie but invent

its own new slices as well. "We have grown addicted to our high salaries, and now

we are really going to have to earn them," the CEO said.

But even identifying a company's country of origin today is getting harder and harder.

Sir John Rose, the chief executive of Rolls-Royce, told me once, "We have a big

business in Germany. We are the biggest high-tech employer in the state of Brandenburg.

I was recently at a dinner with Chancellor [Gerhard] Schroeder. And he said to me,

'You are a

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German company, why don't you come along with me on my next visit to Russia'-to try

to drum up business there for German companies." The German chancellor, said Rose,

"was recognizing that although my headquarters were in London, my business was

involved in creating value in Germany, and that could be constructive in his

relationship with Russia."

Here you have the quintessential British company, Rolls-Royce, which, though still

headquartered in England, now operates through a horizontal global supply chain, and

its CEO, a British citizen knighted by the queen, is being courted by the chancellor

of Germany to help him drum up business in Russia, because one link in the Rolls-Royce

supply chain happens to run through Brandenburg.

Sort that out.

From Command and Control to Collaborate and Connect

Before Colin Powell stepped down as secretary of state, I went in for an interview,

which was also attended by two of his press advisers, in his seventh-floor State

Department suite. I could not resist asking him about where he was when he realized

the world had gone flat. He answered with one word: "Google." Powell said that when

he took over as secretary of state in 2001, and he needed some bit of information-say,

the text of a UN resolution -he would call an aide and have to wait for minutes or

even hours for someone to dig it up for him.

"Now I just type into Google 'UNSC Resolution 242' and up comes the text," he said.

Powell explained that with each passing year, he found himself doing more and more

of his own research, at which point one of his press advisers remarked, "Yes, now

he no longer comes asking for information. He already has the information. He comes

asking for action."

Powell, a former member of the AOL board, also regularly used e-mail to contact other

foreign ministers and, according to one of his aides, kept

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up a constant instant-messaging relationship with Britain's foreign secretary, Jack

Straw, at summit meetings, as if they were a couple of college students. Thanks to

the cell phone and wireless technology, said Powell, no foreign minister can run and

hide from him. He said he had been looking for Russia's foreign minister the previous

week. First he tracked him down on his cell phone in Moscow, then on his cell phone

in Iceland, and then on his cell phone in Vientiane, Laos. "We have everyone's cell

phone number," said Powell of his fellow foreign ministers.

The point I take away from all this is that when the world goes flat, hierarchies

are not being leveled just by little people being able to act big. They are also being

leveled by big people being able to act really small - in the sense that they are

enabled to do many more things on their own. It really hit me when Powell's junior

media adviser, a young woman, walked me down from his office and remarked along the

way that because of e-mail, Powell could get hold of her and her boss at any hour,

via their BlackBerrys-and did.

"I can't get away from the guy,'' she said jokingly of his constant e-mail instructions.

But in the next breath she added that on the previous weekend, she was shopping at

the mall with some friends when she got an instant message from Powell asking her

to do some public affairs task. "My friends were all impressed," she said. "Little

me, and I'm talking to the secretary of state!"

This is what happens when you move from a vertical (command and control) world to

a much more horizontal (connect and collaborate) flat world. Your boss can do his

job and your job. He can be secretary of state and his own secretary. He can give

you instructions day or night. So you are never out. You are always in. Therefore,

you are always on. Bosses, if they are inclined, can collaborate more directly with

more of their staff than ever before-no matter who they are or where they are in the

hierarchy. But staffers will also have to work much harder to be better informed than

their bosses. There are a lot more conversations between bosses and staffers today

that start like this: "I know that already! I Googled it myself. Now what do I do

about it?"

Sort that out.

Multiple Identity Disorder

It is not only communities and companies that have multiple identities that will need

sorting out in a flat world. So too will individuals. In a flat world, the tensions

among our identities as consumers, employees, citizens, taxpayers, and shareholders

are going to come into sharper and sharper conflict.

"In the nineteenth century," said business consultant Michael Hammer, "the great

conflict was between labor and capital. Now it is between customer and worker, and

the company is the guy in the middle. The consumer turns to the company and says,

'Give me more for less.' And then companies turn to employees and say, 'If we don't

give them more for less, we are in trouble. I can't guarantee you a job and a union

steward can't guarantee you a job, only a customer can.'"

The New York Times reported (November 1, 2004) that Wal-Mart spent about $1.3 billion

of its $256 billion in revenue in 2003 on employee health care, to insure about 537,000

people, or about 45 percent of its workforce. Wal-Mart's biggest competitor, though,

Costco Wholesale, insured 96 percent of its eligible full-time or part-time employees.

Costco employees become eligible for health insurance after three months working

full-time or six months working part-time. At Wal-Mart, most full-time employees have

to wait six months to become eligible, while part-timers are not eligible for at least

two years. According to the Times, full-time employees at Wal-Mart make about $1,200

per month, or $8 per hour. Wal-Mart requires employees to cover 33 percent of the

cost of their benefits, and it plans to reduce that employee contribution to 30 percent.

Wal-Mart-sponsored health plans have monthly premiums for family coverage ranging

as high as $264 and out-of-pocket expenses as high as $13,000 in some cases, and such

medical costs make health coverage unaffordable even for many Wal-Mart employees who

are covered, the Times said.

But the same article went on to say this: "If there is any place where Wal-Mart's

labor costs find support, it is Wall Street, where Costco has taken a drubbing from

analysts who say its labor costs are too high." Wai215

Mart has taken more fat and friction out than Costco, which has kept more in, because

it feels a different obligation to its workers. Costco's pretax profit margin is only

2.7 percent of revenue, less than half Wal-Mart's margin of 5.5 percent.

The Wal-Mart shopper in all of us wants the lowest price possible, with all the

middlemen, fat, and friction removed. And the Wal-Mart shareholder in us wants

Wal-Mart to be relentless about removing the fat and friction in its supply chain

and in its employee benefits packages, in order to fatten the company's profits. But