Pankaj Ghemawat: The World is Not Flat. So What

Management guru, Pankaj Ghemawat

You are a hotshot executive, your passport is a riot of colours with visa stamps and you see signs of globalisation everywhere ­— in the McDonald’s outlets of Latin America, in the Coke cans left by the Chinese on African streets and in the arguments of anti-globalisation activists in Canada. There is no denying that we live in the age of globalisation. The world is, after all, flat, as Thomas Friedman put it. Even if there are some ups and downs, it will invariably be flattened by the forces of technology and trade.

If you happen to subscribe to this world view, you probably haven’t listened to Pankaj Ghemawat.

Ghemawat teaches global strategy at IESE Business School, Barcelona. At Harvard Business School, where he  taught before moving to Spain, he had the distinction of becoming its youngest ever full professor at 31. That’s where he got his PhD in business economics, but he spent a couple of years in McKinsey’s London office before returning to his alma mater to teach.

In other words, Ghemawat is a typical global soul — cosmopolitan in mindset; a believer in global standards and a votary of the government’s playing the limited role of integrator.

Except that he decided to look at hard data. What he found was chastening. Irrespective of which metric you look at — cross border trade, foreign direct investment, immigration, internet traffic, venture capital flows, mail — they all show a tendency to remain within the national borders. The world, at best, can be described as semi-globalised. “The globalisation glass is more empty than full,” he says in his recent book, World 3.0 Global Prosperity and How to Achieve It. World 3.0 here refers to a workable worldview, that accepts that the world is not integrated, as against world 2.0, a worldview that believes in one, flat world.

Yet, the tendency among businessmen is to have a world 2.0 mindset. In the developed countries, the recent financial crisis might have tempered the ‘one world’ exuberance. But in India, where Thomas Friedman got the analogy of a flat world, the idea is looked at with enthusiasm. That is not only unrealistic, but could also be dangerous.

Policymakers who believe that the world is completely integrated will fail to see the gains from further integration. Businessmen, who believe the world is one, will not adjust their strategies. Individuals, who fall for exaggerations about globalisation, will feed the anti-globalisation backlash. “I think, in addition to being a distortion, the business of overemphasising or overstating how globalised the world has become is a dangerous distortion,” Ghemawat says in a telephone interview.

Such views have pitted Ghemawat against Thomas Friedman — the poster boy of globalisation. Ghemawat is by no means against integration. He believes that we tend to underestimate the advantages of globalisation. To reap its full benefits, governments, businesses and individuals need to first appreciate that there are differences.

In some of his earlier works, he has given frameworks to make sense of where the differences lie, and to determine where the focus of businesses should be.

His primary argument is that distances still matters — not just physical distance, but also cultural distance (language, religion, ethnicities), administrative distance (legal, absence of trade agreement) and economic (consumer income, costs and availability of various resources).

These distances mean a business cannot compete everywhere. He cities the example of Dr. Reddy’s which used this framework to scale back from 50 markets to fewer than 20.

While it’s easy to see how exaggerations about global integration could mislead Indian business leaders, the same might not apply for Indian policymakers. “When I think of top policymakers in India, they are far too sophisticated. It is hard to imagine someone like Montek Singh Ahluwalia falling for something like flat world,” Ghemawat says. A stronger reason is that there are more pressing problems to deal with — such as corruption.

Besides, for large economies such as India, internal integration offers opportunities for growth that are as important as the ones offered by external integration. Ghemawat once met a Japanese automaker who told him: ‘What India needs is an internal free trade agreement, not an external free trade agreement’. Ghemawat says, “One can understand the frustrations with the supply chains that motivated this person to say this.”

 “When we conquer irrational fears and don’t let the excesses of market failure get out of hand, we can confidently reach out and improve the possibilities for ourselves and for humanity around the world,” he writes. He calls such a mindset “rooted cosmopolitanism”, a global mindset that also recognises the importance of distance. Technology, like Facebook, offers the possibility of getting such a mindset.

“One caveat. Connectivity is not the same as connection. If you look at estimates, 90-95 percent of friends on Facebook still seem to be within home countries. There is a difference between the possibilities that technology offers, and the extent to which people use the possibilities. But the fact that there are possibilities, that gives me hope,” he says.