Wine is the focus of this issue of The Greater Lansing Business Monthly. Wine may also be a reason why so many people have tried to argue that we are living in a flat world!

The latest great story is told by Thomas L. Friedman in his 2005 book The World Is Flat—a New York Times bestseller for more than two years which has received great attention among business people, public policymakers and academics. Clearly wine is not the reason for Pulitzer Prize-winning Friedman’s very eloquent logic about a flat world, but it seems like an appropriate tie-in to the focus of the magazine this month.

Increasingly, executives encourage their employees to read Friedman’s book; they discuss it at meetings, and strategic initiatives around the world are being implemented based on it. But how flat is the world really?

Friedman’s basic premise is that advances in technology and increased geopolitical interconnectedness are creating a global world without borders. The competitive playing field between industrial and emerging countries is leveling. This shrinking world is converging on a single integrated global system. Now, I actually agree with all these ideas, but the key question remains—is the world flat (again) because of it?

As a point of history, early Mesopotamian thought considered the world a flat disk floating in water. This logic formed the basic premise for Greek maps constructed by Anaximander and Hecataeus about 2,500 years ago. Interestingly, “the Earth is flat” was also a feature in Theodore Levitt’s classic Harvard Business Review article in 1983 on “The Globalization of Markets.” So, we have come full circle to Friedman and his flat world argument.

In particular, Friedman questions whether a firm’s home country really matters to achieve a business advantage. This is contrary to popular practices where the country has been one of the key factors affecting a firm’s performance along with initiatives implemented by the firm and the opportunities in the firm’s industries. A flat world is a nice metaphor but it is just wrong in most, if not all, economic sectors. Flatness in due time perhaps, but right now the world is round! So, let’s not fool ourselves into strategic thinking that will be a global bust for most firms.

To go beyond “globaloney” (a term coined by U.S. Representative Clare Boothe Luce in 1943 in response to Vice President Henry Wallace’s global thinking premise), the Center for International Business Education and Research at Michigan State University (MSU-CIBER) examined the international operations of 13,101 firms in 448 industries and 57 countries across 10 years (1995-2004). These are the 10 years immediately prior to Friedman’s (2005) book, and one would assume overlapping with the time period that sets the tone for his flat world premise.

On average, the country-level explained 14 percent of firms’ market performance across the industries, with the dynamics of the industry itself explaining 8.4 percent and, as expected, the firm’s operations explaining the highest percentage at 77.6. This means that the global competitiveness of a firm is tied uniquely to the dynamics of the country in which it is headquartered (or has its main operations) to the tune of 14 percent.

The results varied considerably across industries, which means that firms need to plan strategically based on the industrial environment they are in. For example, in the wine industry, the country-level accounted for 39.8 percent in return on sales, 28.8 percent in sales turnover, and 26.8 percent in overall market performance. Grapes grow better in some places than others, regardless of how flat the world is made out to be!

So, Friedman’s (2005) premise of a “flat world” has not yet been realized in most industries and certainly not in the wine industry. In fact, only the economic sector consisting of finance/insurance/real estate industries comes close to Friedman’s flat world. In this broad economic sector, the country level accounted for 0.6 percent in return on sales, 11.9 percent in sales turnover, and 8.4 percent in market performance.

Overall, in the year 2007 of the globalization game, this means that public capital is still critical in the production of output. It also places public policy in the forefront. Presidents, governors, mayors and other public policy officials play an important role in the global competitiveness of firms in their neighborhood. Policies need to be enacted that support firms’ operational efforts, with targeted efforts depending on the type of industry (some need more public attention than others). As long as such enticements are on the table along with a country’s unique human capital and resources, a flat world remains a nice metaphor but not the reality. 

		Tomas Hult, PhD, is director of the Center for International Business Education and Research (funded by the U.S. Department of Education) and professor of international business at Michigan State University. He is also executive director of the Academy of International Business. Professor Hult’s expertise is in international business strategy and supply chain management.