The world is now traversed by a global communications network that knows no boundaries. But there is a real danger that regulatory forces may hinder the development of trade that is fed by information, says Andy Green

Until 1492, the accepted wisdom was that the world was flat. Europe was at its centre, with the other known continents scattered around it. Parts of Africa were thought to hang over the edge, in danger of slipping into a dark realm inhabited by unholy beasts.

Columbus’s voyages changed our view. Members of the Flat Earth Society may maintain it’s all an elaborate hoax, perpetuated using mirrors, but the rest of us have long accepted that the world is round. Set out in any direction and, all being well, you’ll eventually find your way home.
So why is it that, after 500 years, the eminent New York Times journalist, Thomas Friedman, is again telling us the world is flat? [1] Is he right? And if he is, what are the implications for governments and business?

Global trends
As you’ll imagine, Friedman isn’t suggesting a return to Middle Ages thinking. Rather, he’s highlighting other changes in the world – fundamental changes that are reshaping the global economy.
My job means I speak with people in businesses and government bodies all around the world, and it’s clear to me that there are four trends at work. All are increasingly making location irrelevant, levelling the playing field on which business operates and eliminating barriers to participation.
The first – and most advanced – is the switch to digital. Correspondence, designs, sales presentations, spreadsheets, purchase orders, phone calls, still and moving images – such things are the lifeblood of modern business and, these days, all can be converted into digital form, stored in databases and moved quickly from place to place through global data networks. Among other benefits, this allows work to be moved to people, reducing the need for them to travel to work.
The second trend is globalisation of the work force. India, China and other countries in Asia Pacific have invested heavily in their people’s education. At the same time, the skills and experience of Eastern European countries and Russia have become easier to access. The result is a global pool of highly skilled people who, now that high-performance data networks have reached most parts of the world, can be employed as easily as those available locally.
Third is the rapidly escalating power of computers and IT. Linked by networks, IT systems not only allow customers to serve themselves, but can increasingly automate the tasks a business must complete to deliver its products and services. Computers connect supply chains, negotiating deliveries. They can turn services on and off, configure them to the customer’s requirements and arrange for billing and payment. They can speak to customers and, in limited situations, even understand their replies. What’s crucial, however, is that computers have no understanding of geography. Once connected to the Internet, they’re happy to serve everyone equally.
Finally, there’s the trend towards outsourcing. Businesses have been outsourcing tasks for centuries – the construction of new buildings, for example. It has never made sense to do everything in house, and probably never will. What’s new today is that there’s more work that can be outsourced – especially ‘back office’ tasks like payroll administration, purchasing, software development and the operation of customer support centres. For many businesses, there is no longer a commercial advantage to be gained from having your own people do this work – indeed, advantage is more likely to result when a partner is engaged that has greater expertise in the area and can deliver higher quality and a lower cost. And, given the global reach of today’s digital networks, that partner can as easily be on the other side of the world as in the next city.

Just impediments?
Each of these trends is significant on its own. Together, however, their power to reshape the world is immense – virtually unstoppable.
With products like food, cars and washing machines, borders and geography mattered. It took time to ship goods from Asia to Europe or the United States and nations could set their own technical standards and safety regulations, rejecting imports that failed to comply. Taxes could be collected as goods moved between countries and the volume of imports could easily be regulated – just as it was recently when the ‘Bra War’ between Europe and China delayed shipments of clothes through Europe’s ports.
But trade in physical goods is becoming an ever less important part of the global economy. Services already dominate in European and North America – in 2005, for example, nearly 70 per cent of the EU’s active work force were employed in the service sector.
National borders can impact the supply of services as well, of course. The European example demonstrates clearly that this is the case – despite the high numbers working in the services sector, only 20 per cent of today’s trade between EU member countries is in services. Most service suppliers operate within one country and, when you consider the regulatory situation, it’s easy to see why.
Here are some examples:
In one member state, the distance between opticians has to be fixed at 350 metres while, in another, there’s a limit of one driving school per every 15,000 people. [2]
A carpentry diploma obtained in one EU country does not authorise the holder to exercise that profession in another. [3]
It cost one major retailer €200,000 to research the adjustments it would need to make to its sales strategy to open in another EU country. [3]
A clothes retailer accustomed to organising sales according to fashion seasons found they could only be held twice a year in another EU country. To enter the new market, it had to create new promotional campaigns and rework its contracts with suppliers. [3] 
In one EU country, there are over 700 national and local regulations that apply to the opening of a new shop. [4]

New borders
Regulations like these impede business, increasing costs without increasing value, and are a particular burden on the part of the economy that’s key to future employment and prosperity – small and medium-scale enterprises.
That they will eventually go is not really in question – the knowledge-based digital networked economy is coming of age and is no respecter of national borders. What’s at issue is when current regulations should be dismantled, and how.
Some are trying to resist the change – the governments in China and other countries, for example, who are trying to limit their citizens’ access to the Internet. Others, like the European Commission, agree on the principles but are debating the details. In 2000, Europe’s leaders agreed their goal was “to make the EU the most competitive and dynamic knowledge-based economy in the world” but faced stiff opposition to its plan to eliminate regulations and create a single market for services.
Increasingly, it doesn’t matter where your software is written or your calls are answered. What matters is getting the best and most responsive people on the job so you can stay ahead of the competition. If countries put barriers in your way, the global reach of digital networks makes it easy to go somewhere else.
What governments and regulators really need to focus on are the new ‘borders’ of the future – the ones between those who have skills and those who don’t, between people who speak the right language and those who don’t, between those who are flexible and those who resist change, and between entrepreneurial ‘go getters’ and those whose approach is ‘wait and see’. These are the factors that will separate success from failure in the years ahead.
And there’s no room for complacency. The countries of Asia Pacific are ‘manufacturing’ knowledge at an alarming rate. India had nearly 50 million graduates in 2004, for example, compared to 20 million in 2001. Today, 35 per cent of the country’s students are studying sciences. Contrast that to the picture in much of Europe where young people are increasingly reluctant to enter university and interest in science or engineering is muted.
Knowledge isn’t the end in itself, of course, what matters is what you do with it. An entrepreneurial culture is going to be essential in the future. When it comes to business, those in the Western Europe haven’t been good at seizing opportunity and doing whatever it takes to win. A survey among MBA students in France suggested that 40 per cent wanted to join government after graduating, for example, while only 14 per cent wanted to start their own business. Contrast that to the United States where some 50 per cent wanted to start a business.
These are issues that countries wanting to succeed in the knowledge-based digital networked economy really must address – and quickly. The economic world of the future won’t be free of regulation, but it will be flat. And those whose laws and regulations arbitrarily distort trade may well find themselves in danger of falling off the edge of the map.                                         

References
[1]Thomas Friedman, ‘The World is Flat - A Brief History of the 21st Century’, Farrar, Straus and Giroux, 2006, ISBN 0-374-29279-5
[2]Alan Johnson, UK Minister for Trade & Industry, BBC Online, February 2006
[3] EU report, 2002
[4]Speech by Charlie McCreevy, European Commissioner for Internal Market and Services, February 2006

• Andy Green is CEO of BT Global Services

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