I have enjoyed reading Thomas Friedman’s work over the years, but I have to say that I am not a big believer in the Flat World hypothesis. Although intellectually appealing in many ways, it is not supported by scientific evidence. Decades of international business research has demonstrated that companies that span national boundaries face enormous risks and challenges. Moreover, a casual glance at the popular press on just about any given day provides countless examples of companies whose international expansion efforts have foundered because they failed to account for the additional costs imposed by institutional distance (for background, see my posts So You Want to Do Business in  a Developing Country, Tata and Jaguar, Tesco’s Venture into the U.S.).

In fact, just this week I received an email from Mike Malone of ABC News calling my attention to a recent article addressing the Flat World debate (see Navigating a Flat and Bumpy World). Mike writes:

Despite the title of a best-selling book of a few years back, it turns out that the world isn’t flat. And, despite all of the leveling forces being unleashed by the Internet, global business and social networks, it won’t be getting any flatter in our lifetimes.

But don’t believe the growing legions of naysayers to Tom Friedman’s book either, because nearly all of them begin by accepting his underlying premise … and then set out to debunk it by showing how pockets of entrenched cultural differences won’t succumb to Twitter and the iPhone.

As many recent stories have shown, if your business follows Friedman’s advice you are very likely to get blindsided by markets with rules that are alien — even antithetical — to our own.

Although Mike writes mostly about how technology impacts globalization and tries to find common ground between those who adhere to a Flat World view and those who subscribe to a Spiky World view, I thought his opening salvo (quoted above) was spot on.

Another good example of how the world is not so flat can be found in Qantas’s latest trouble in Vietnam (see Jetstar Creates a Jet Stir in Vietnam, ht Steve). According to Crikey:

The $US50 million ($A53.9 million) Qantas investment in Jetstar Pacific has flown into an ideological chasm in the ranks of the Communist Party and government in Vietnam and it isn’t clear how it can escape.

…ideologues in the [Vietnamese Communist] party are waging a glorious struggle against the oppression of the people and their cultural identity from the subversive forces of global capitalism, or words to that effect.

And if that weren’t enough evidence, last week BA and Iberia formally announced that they will merge (see Uniting in the Sky). What strikes me as interesting is not the deal itself, as I actually think that this deal makes a fair bit of operational sense. The potential for synergies are enormous. However, what struck me as odd is that BA and Iberia will be maintaining separate corporate offices and operations (one in Spain and one in the UK):

…while the pair will combine their businesses they will maintain separate corporate operations. This will allow both to maintain their roles as the national flag-carriers while keeping valuable bilateral international landing rights that go along with that status.

That may be; however, maintaining separate operations will also keep their costs elevated and reduce their competitiveness in a market that is often characterized as global. If companies can’t find a way to benefit from economies of scale in a global, homogeneous goods market like the airline industry (or even the automobile industry), …how flat is the world, really??

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