Global service delivery: history and context The Information and Service Economy October Bob Glushko and Anno Saxenian

Outline 1.It’s a Flat World, After All 2.Global economic integration 3.Is the world flat? 4.The new Argonauts

This is globalization 3.0 Globalization Nations globalize for resources & imperial conquest Globalization Companies globalize for markets & labor Globalization ?? Individuals & small groups globalize: connecting the world’s knowledge pools together Thomas Friedman The World is Flat: A Brief History of the Twenty-First Century, 2005

Ten forces that flattened the world 1.11/9/89- Berlin wall 2.8/9/95- Yahoo! 3.Work flow software 4.Open-sourcing 5.Outsourcing 6.Offshoring 7.Supply-chaining 8.Insourcing 9.In-forming 10.The steroids

The triple convergence “Creation of a global, web-enabled playing field that allows for multiple forms of collaboration—the sharing of knowledge and work—in real time, without regard for geography, distance, or, in the near future, even language.... new players, a new global playing field, and new processes and habits for horizontal collaboration.” Thomas Friedman, The World is Flat

The view from the Fed History of global economic integration Roman empire: common language, legal system, currency 15 th -16 th c: mercantilist European empires : increasing global trade, cross- border flows of financial capital and labor Post-WWII: global re-integration, intra- industry manufacturing trade (v. comparative advantage) Ben Bernanke, Chair of Federal Reserve Bank, 2006

What’s New, What’s Not? Historical commonalities: 1.New transportation & communication technologies a major factor in global economic integration 2.National policy choices play a critical role in the extent of integration 3.Social dislocation and resistance may result with greater openness

What is really new today? 1.Scale and pace of global integration is unprecedented 2.Core-periphery distinction less relevant as interdependencies grow 3.Geographic fragmentation of prodn, development of global supply chains 4.International capital markets more mature, capital flows greater

Is the world really flat?  The 10 percent presumption Most economic activity is still conducted domestically Most activities, like FDI in world capital formation, only 10 percent Only trade accounts for over 20 percent  Tyranny of times zones, languages, proximity to client: “home bias”  Tension: national sovereignty and global economic integration

The world is spiky: population

The spikes

The world is spiky: innovation

More perspectives  Edward Leamer “A Flat World, A Level Playing Field, a Small World After All, or None of the Above? A Review of Thomas L. Friedman, The World is Flat” Journal of Economic Literature, Vol. XLV (March 2007), pp  William Nordhaus’ spinning globe, origins of GDP

The global labor pool: 1980

Global labor pools: 1980 & 2000

The power of “gravity”

The power of gravity: 1960

The power of gravity: 1990

Is the Internet flat? hosts

Is the Internet flat? users

Why are there firms?  Coase’s theory: no longer relevant  Firms exist to accelerate talent development (Hagel and Brown) Talent is a flow, not a stock: people seek firms and locations that provide challnges, help them refresh their talent Geographic clustering and virtuous cycle: enhances opportunity to develop talent Large firms face vicious cycle: scale limits potential for talent development

Talent development in firms  Implications for managers 1.Need to develop talent, not just “attract and retain” 2.Learning, not training, is the goal 3.Need to access and motivate external as well as internal talent 4.Use IT to amplify, not automate, talent 5.Growth is key to developing talent because it creates new challenges