Why Isn't the World Flat?

The world isn’t flat because most types of economic activity that could be carried out within or across national borders are actually still quite concentrated domestically. Consider a few examples (that you may want to test out your intuitions about, before looking at the answers below).

As the chart below demonstrates, the levels of internationalization associated with telephone calls, cross-border migration, direct investment, stock investment, and trade as a fraction of gross domestic product (GDP) all stand much closer to 10 percent than the levels close to 100 percent predicted by many globalization gurus. The biggest exception in absolute terms - the trade-to-GDP ratio shown at the bottom of the chart - recedes most of the way back to 20 percent if you adjust for double-counting. So if someone asked me to guess the internationalization level of some activity about which I had no particular information, I would guess it to be much closer to 10 percent - also the average for the 10 categories of data in the chart - than to 100 percent. I call this the "10 Percent Presumption."

But Doesn't Globalization Have a Levelling Effect?

Some measures of internationalization, e.g., immigration, appear to have peaked before World War I. For others, e.g., direct investment, new records are being set, but this has happened only relatively recently. And finally, while there are measures along which pre- World War I levels of integration were surpassed relatively early in the post-World War II period, e.g., trade, note that the trade-to-GDP ratio has increased from 20 percent in 1979 to 27 percent by 2004. Extrapolating over the next 25 years would imply a trade-to-GDP ratio of less than 35 percent by 2030 - or perhaps closer to 30 percent, if one stripped out the effects of double-counting. Unprecedented yes, but hardly apocalyptic. Which is why international economists still focus on explaining shortfalls from complete integration rather than rapid progress towards that extreme state.

Is There a Magic Formula to Resolve the Local-Global Dilemma?

My redefinition of global strategy as being about differences actually represents an attempt to get around the rhetorical and conceptual limitations of the local vs global perspective on global strategy. From a rhetorical perspective, slogans such as "think global, act local" are meant to steer companies towards a sensible middle ground, but their vagueness has allowed them to be hijacked to promote extreme agendas. For example, Roberto Goizueta, the late Chairman of Coca-Cola, used that slogan to justify extreme standardization while, at the opposite end of the spectrum, Orit Gadiesh, the Chairman of Bain and Company, uses a variant to encourage extreme localization. Since people now apply "think global, act local" to the full spectrum of possibilities, from the most standardized to the most localized, it no longer means anything in particular.

A second, even more fundamental problem with framing the challenge of global strategy as striking a balance between the extremes of local customization and global standardization is that these extremes do not so much span a strategy continuum as correspond to two singularities in which cross-border complexities can be finessed and simple single-country approaches applied. To see this, note that if markets were totally segmented from each other, single-country approaches to strategy could be applied country by country and would imply complete localization; at the other extreme, if markets were totally integrated, there would be the equivalent of one very big country, and single-country approaches would work once again, although complete standardization rather than localization would be the implied strategy. These extremes - and linear combinations of them - are not, therefore the best reference points for a strategy that seeks to take cross-border complexities seriously.

Have Advances in Telecommunications Rendered the World Flat?

No. I’ve already mentioned above that the percentage of telephone call minutes accounted for by cross-border calls is less than 5 percent. To cite another example, the best available estimates indicate that only 20 percent of the bits transmitted over the Internet - an allegedly totally global medium - actually cross borers. Furthermore, there is general agreement that the international and particularly intercontinental share of Internet traffic is actually decreasing over time!

In addition, even where telecommunications reduce the effects of geographic distance, other kinds of distance that loom large at national borders in particular continue to matter: cultural (language, customs, religion, ethnicities, etc.), administrative/political (laws, trading blocks, colonial ties, currency, etc) geographic (physical distance, lack of land border, time zones, climates, etc) and economic (income levels, cost of natural resources, financial resources, human recourses, infrastructure, information, etc.). It is important to take a broad view of such differences, to figure out the ones that matter the most in your industry, and to look at them not just as difficulties to be overcome, but also as potential sources of value creation.