How flat is the world?

I'm off to India for a couple of weeks (I have a family wedding in Bangalore), so I'm looking forward to visiting. I'm a 'Bama boy born and bred, but I always enjoyed visiting the "motherland", and since this is my first time going as an adult, I'm interested to see how different the experience is.

Before I leave though, I wanted to put down some thoughts I had following a VC networking reception I went to last week. I don't want to mention the fund by name, but basically, they would like to be the VC fund of choice for American entrepreneurs of middle eastern origin - specifically for business models built on the idea of outsourcing "intellectual" work to the middle east. They want to set up the region as the destination of choice for research and engineering design outsourcing, claiming that India and China are both set up for low skill/low wage outsourcing, and so will not be competitors in the area.

Obviously, key concerns with dealing with the region are stability, infrastructure, talent pool, etc. Unfortunately, their answer to any question in this area was "Dubai". They acknowledged the problems, but seemed to think that everything could be solved by locating in Dubai. However, this seemed at odds with their value proposition - that being able to tie into the ENTIRE region was how their fund could add value.

Another related topic that I was skeptical on was their ability to brand the entire North Africa, Middle East and Pakistan region as a unified whole. In all of their comparisons, they related this region to India, Israel, or China - their models on how to break into a new area. They talked about how each of these regions had groups that came to America and grew into the first generation of entrepreneurs, which then led them to build out industrial bases in their home countries. They are counting on the same level of national affinity among MENA-Americans to locate their offshoring in the middle east. However, unlike India, or China, the multi-national nature of MENA may pose a problem. Since they want to locate everything in Dubai, but recruit entrepreneurs from the entire region, I'm not sure how big an advantage they will have when it come to an entrepreneur from, say, Tunisia.

One last note - they made it clear over and over that they don't want to compete on a cost basis with China/India, but that the middle east is still "50% as expensive as Silicon Valley". Now, I didn't see exact numbers, but if they are using the 50% discount from SV as a selling point, that would seem like a tough sell, since there are probably several cities in the US itself where engineering talent could be had for close to that level, with much less hassle.

In general, I've seen plenty of presentations, articles, and conversations talking about "XXX" will be the next India or China. Invariably, XXX is some arbitrary compilation of geographic/political entities needed to support a big enough base to make a comparable number of entrepreneurs, faculty, or engineers to India or China. However, no matter how much technology has lowered barriers between cultures, the fact is a group of nations that happen to border one another will never enjoy the same economies of scale that you can accomplish within a unified, relatively homogeneous nation, such as India or China. In both of these countries, a big push to their growth was their national government's investment in education, and later, in infrastructure. Finding a larger group of countries that can coordinate well enough to replicate this is a daunting challenge. While the world may be flattening, there are still some hills at the borders.