Competing in a Flat World: Building Enterprises for a Borderless World [Tapa blanda]

Victor and William Fung, group chairman and group managing director respectively of a Hong Kong-based multinational corporation specialized in sourcing, have partnered with Jerry Wind, a Wharton marketing professor and co-author of the illuminating The Power of Impossible Thinking: Transform the Business of Your Life and the Life of Your Business (2005) about strategic inflection points, to provide an exceptional how-to book focused on drilling down globalization to the level of existing businesses. The Fung brothers are authorities on the topic since their firm, Li & Fung, is one of the world's largest trading conglomerates managing the supply chain for high-volume, time-sensitive consumer goods through a network of sixty-six offices in over forty countries. Instead of investing in production facilities, the Fungs have mastered supply chain management by providing the convenience of a one-stop shop for customers through a coordinated package which runs the gamut from product design and development through raw material and factory sourcing, production planning and management, quality assurance, and export documentation to shipping consolidation.

Without the burden of unnecessary overhead, the Li & Fung business model has allowed the company to generate over $7 billion in annual revenue on an employee base of only 7,000. It is the unprecedented geographic flexibility of the firm's operations that epitomizes what Thomas Friedman talks about in his groundbreaking book, The World Is Flat: A Brief History of the Twenty-first Century, when he elaborates on how the combination of information technology and instantaneous telecommunications has rendered the traditional need for a local labor market obsolete. Through the brothers' own example, Li & Fung has by necessity, a non-hierarchal organizational structure that allows them to respond quickly to customer needs. With this insightful book, they encourage firms to orchestrate among a variety of contracted suppliers and maximize technology and logistics to make the production process as seamless as possible.

This intricate coordination effort has been made even more complex by the escalating growth of niche markets demanding an even greater variety of products than what has been offered before. The need to service these segments concurrently has given rise to dispersed manufacturing which translates into multiple sourcing at different stages of production. The co-authors manage to explain clearly the steps that companies need to take to optimize their supply chains. Different industries have different levels of flexibility, and the scope and depth of Li & Fung's 9,000-plus network will not apply to all who read this book. Wind is particularly effective in showing how the lessons learned by the Fung brothers can apply to the non-manufacturing sector. It is not only the dynamic nature of managing the supply chain that remains pertinent no matter what industry, but also adherence to a consistent perspective on the customers' holistic needs.

The co-authors outline the three dimensions that make for a successful framework of supply chain management. The first is to balance the firm's interests with those of the network create by creating "big-small" companies that combine scale and agility. The second is the move away from traditional notions of control toward a specifically network-centric viewpoint given that the suppliers and consumers are more empowered than ever to upset the cart. The third is currently the most nebulous, the paradigm shift in the strategies and competencies necessary to succeed in a flat world. The co-authors wisely view this last dimension as a work-in-progress, as customer needs and the expectation to respond to them continue to evolve at an even faster rate. This is strongly recommended reading for the forward-looking executive.

Those who have read Thomas Friedman's The World Is Flat no doubt recall an assertion he makes in his introduction to the second expanded version: "My use of the word `flat' does not mean equal (as in `equal incomes') and never did. It means equalizing, because flattening forces are empowering more and more individuals today to reach farther, faster, deeper, and cheaper than ever before, and that is equalizing power - and equalizing opportunity, by giving so many more people the tools and ability to connect, compete, and collaborate. In my view, this flattening of the playing field is the most important thing happening in the world today, and those that get caught up in measuring globalization purely by trade statistics - or as a purely economic phenomenon instead of one that effects everything from individual empowerment to culture to how hierarchical institutions operate - are missing the impact of this change."

Curiously, there is no reference in Friedman's book to Li & Fung, Hong Kong's largest export trading company, which has been "a flat business for a flat world" since the early 1980s. In an interview by Joan Magretta that appeared in the Harvard Business Review (September-October 1998), Group Chairman Victor Fung explains how Li & Fung reinvented itself to become and remain fast, global, and entrepreneurial. The company's new role (then and now) is to be a "network orchestrator."

In this book, Victor Fung, William Fung, and Yoram (Jerry) Wind explain how to build an enterprise for a borderless world, one that can "embrace the flat world" and understand how it works so as to take full advantage of the many new opportunities it offers. "Those that cannot adapt quickly enough to these new realities will fall behind or be bought out by those who have learned how to compete in a flat world. The opportunities are as broad as the world." They then pose the question to which their book is a rigorous and eloquent response: "How do you need to remake your organization, management, and mindset to seize these opportunities?"

The material is carefully organized and then presented within twelve chapters, followed by a Conclusion in which they ask their reader, "Are you ready to compete flat out?" Those who read, absorb, and then apply Fung, Fung, and Wind's advice will be well-prepared to answer that question in the affirmative.

Of special interest to me is what they have to say in Part III as they focus on value creation. Specifically, in Chapter 9, how to capture the "soft 3$"by looking beyond the factory:

"Markdowns are a flaw in the manufacturing process. They mean that a product has lost value because it was not the right product at the right time at the right place."

"In a flat world of unpredictable demand, avoiding markdowns, stockouts, and expensive whipsaws in the supply chain is harder and more important."

And then in Chapter 10, how to sell to the source by bridging marketing and operations:

"For companies that are sourcing from China, India, and other emerging markets, sometimes insights from emerging consumer markets come from the floors of their own factories or call centers."

"The challenge is to ride the wave of consumer market growth without getting too far ahead or behind."

"Sourcing can [also] offer insight into many different areas, including regulations and policies, risks, competition, detailed market information, and market shifts."

As I hope these brief excepts indicate, Fung, Fung, and Wind are relentless empiricists and hardcore pragmatists who identify the "what" of "flat-out competition" but devote most of their attention to explaining the "how" of achieving and then sustaining success.

Who will find this book to be of greatest value? In my opinion, they include decision-makers in organizations that are preparing to become a global network "orchestrator" or have only recently initiated efforts to become one; also, decision-makers in other organizations that are part of supply chains of one or more orchestrators. Moreover, I think this book should be required reading in undergraduate and graduate schools of business it will help the next generation of C-level executives to help their organizations to take full advantage of opportunities that, by then, are certain to have increased in terms of their nature and number as well as their potential ROI and, yes, their peril.

Those who share my high regard for this volume are urged to check out Vijay Mahajan and Kamini Banga's The 86 Percent Solution: How to Succeed in the Biggest Market Opportunity of the Next 50 Years, Kenichi Ohmae's The Next Global Stage: The Challenges and Opportunities in Our Borderless World, and C.K. Prahalad's The Fortune at the Bottom of the Pyramid: Eradicating Poverty Through Profits as well as Enterprise Architecture as Strategy: Creating a Foundation for Business Execution co-authored by Jeanne W. Ross, Peter Weill, and David Robertson, Dean R. Spitzer's Transforming Performance Measurement: Rethinking the Way We Measure And Drive Organizational Success, Richard Ogle's Smart World: Breakthrough Creativity and the New Science of Ideas, and Harvard Business Review on Managing the Value Chain.

The phrase, "flat world" is one of those that would have been best left unused, substituted by a more accurate one. In databases, a flat file is one where the data is in one large file with no relationship connections. When there are multiple entities with connections between them, we use the term relational database. Also, the phrase "flat world" seems to mean that everyone operates on the same level surface, which is hardly the case. There are now and always will be advantages to locating specific business activities in one location over another.
In the context of business and this book, the phrase "flat world" is used to refer to the situation where business entities have complex relationships with entities in other countries. The manufacturing process is one where the phrase "country of origin" for a product no longer has any real meaning. The parts that are created to make the final product are often manufactured in several different countries and in many cases different steps in the assembly are performed in different countries. In this situation, the only phrase that is applicable is, "country from which the finished product is shipped."
This modern world means that there are companies that serve the role of what the building trades call "general contractor." This is the person or company who organizes all of the steps in the building of a home, from the first spade of excavation until the last bit of landscaping. The general contractor may not even so much as pound a single nail in the construction, yet is essential to the development of the final product.
This book is generally a case study of a company called Li & Fung that is the manufacturing equivalent of a general contractor. Having relationships with organizations literally around the world, Li & Fung is the brains and organizational prowess behind the manufacture of many goods without actually doing any manufacturing themselves. This requires an enormous amount of organization and timing, as segments of the end product are assembled in different countries, following the path of least cost. Those segments must then be shipped to sites in other countries, where the supply must be timely enough to keep the next plant functioning.
If you are interested in the way business will be done from now on, then this is the book for you. As a political junkie, I listen to some of the candidates for the American Presidency state how they are going to repeal American trade agreements, specifically NAFTA. This is of course ridiculous, the multilateral trade agreements are what have made this distributed assembly possible and any unilateral action would lead to a trade war and a very severe economic downturn. If you are a doubter, read this book and learn how deep the international relationships are between companies.