What Does It Take To Compete In A Flat World

What Does It Take to Compete in a Flat World?

Published: October 31, 2007 in Knowledge@Wharton

When Thomas Friedman wrote his popular book, The World Is Flat,

one of its central arguments was that geography might soon become

history. The proliferation of information technology and

telecommunications networks has integrated the world in ways that

were unimaginable in the past -- and this has transformed how

companies produce and distribute products and services. One result of

this transformation is the rise of networks of companies that are

bound together through IT and logistics. How can firms strive for and

gain competitive advantage in such an environment? Victor and

William Fung, group chairman and managing director of Hong

Kong-based Li & Fung, and Yoram (Jerry) Wind, a professor of

marketing at Wharton, deal with this issue in their new book,

Competing in a Flat World: Building Enterprises for a Borderless

World. They recently spoke with Knowledge@Wharton.

An edited transcript follows:

A Note to Readers:

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Knowledge@Wharton: Your book, Competing in a Flat World, describes Li & Fung as "a flat business

for a flat world" and also argues that you have evolved into a "network orchestrater." What does that

mean and what implications does that have for your customers?

Victor Fung: Maybe the way to explain this is to start off by describing the fact that the way

manufacturing is done today -- versus, let's say, even as recently as 10 years ago -- has fundamentally

changed. There has been a major transformation over the last 20 years, culminating in the recent period,

because of the presence and the use of enablers like IT and logistics.

Whereas manufacturing used to be done in one factory, under one roof and in one country, today the

manufacturing process is being dispersed and being produced in stages, in many factories, sometimes

over many countries. So when you have a particular order -- let's say of 100,000 shirts -- to manufacture,

you may in fact do different stages of the production process in different factories and in different

countries. Then you put everything together to make the final product using IT and logistics.

As a result of this change, when we make any product, we have to orchestrate a network of processes and

suppliers in different parts of the world. It is very important for us to work very closely with this

network; we don't control the entire network because they are all independent contractors. Therefore,

when we talk about "orchestrating" that network, it means we have to make sure that all the pieces are

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synchronized and that the production comes out with a high quality -- and also with a very fast

turnaround time. That would allow us to be very efficient in the production process.

Knowledge@Wharton: William, would you like to add anything to that explanation?

William Fung: Well, as Tom Friedman says in his book, the world is getting flatter in the sense that it is

now easier to communicate and for parts and materials to go from one country to another for processing.

Our ability to use the best factories, at the best locations, to manufacture any order, is becoming a reality.

Instead of the factory being located close to the market where its goods are consumed, production of a

lot of labor-intensive goods can now take place in countries where labor is plentiful rather than in

countries where these goods are consumed. That accounts for the necessity of a business like Li & Fung

-- to be able to operate without borders in a flat world.

We have organized the business so that we have a very flat organization to cope with the need to respond

quickly to the needs of our customers and without a hierarchical structure. That's the flat business aspect

of the way we're organized to operate in this flat world.

Knowledge@Wharton: Li & Fung has a business history of more than 100 years;