So here -- I just want to ask you, anybody recognized these patterns?
The one on the left is the pattern arms flows in the world, recent data.
The pattern on the other side there, is the pattern of immigration.
Both of these I’m going to argue are illustrations of structure,
structure linking the world and structure --
we’ve been talking about performance and control
and I’m going to argue that structure has something to do with performance.
So companies want to perform and one way is international expansion.
So companies think by going multinational
they can do a really great job on their performance.
Let’s look at, you know, what the theory tells us.
So theory tells us, if you want to do well abroad,
you’ve got to transfer your technology,
you’ve got to localize your cost structures so you can be competitive,
and you’ve got to adopt your offer, otherwise, people won’t buy,
whether in telecommunications or in construction.
This is what theory tells us.
And theory is, of course, right.
That’s why you need capabilities.
If you don’t have capabilities,
you won’t have anything to transfer and localize.
But if you’re gonna do that transfer stuff and create value,
you need to have confidence. If you go to a foreign country
and you don’t operate with confidence and commitment,
all those three things we said, transfer, localize, adopt -
now, what’s the problem with confidence?
The problem is contracts are incomplete.
Contracts are incomplete at home.
But there are people waiting to pick your pocket when you go abroad.
They’re imperfect.
So the problem is really about value capture.
Performance means value capture.
Capabilities means value creation.
Ask this gentleman, former head of BP in Russia, you know.
Somebody who’s waiting to also capture value is a public actor, the government,
and they have a different design.
Sovereign wealth funds in the United States,
Chinese investors wanting to go to Australia or the United States.
Governments have a different design, or ask this gentleman,
the CEO of Dannon whose venture in China went belly up.
So there are private actors, his own partner.
They have a disagreement. They have distrust on value capture.
Yes, you can create value. You have capabilities.
But can you capture value or will your venture go belly up?
So public actors and private actors
are waiting to capture value, divert value.
How do you enjoy yourself?
You can’t internalize. You can’t write good contracts.
Well, this is where I think we need to look at a broader structure.
So one element of structure really is about how countries
are linked on two dimensions, economics and security.
Trade is a hugely important linkage.
Today, China-Japan linkage is becoming stronger.
We’ve seen China and Africa both guns and money.
Crate is great, energy is wonderful, guns are even better.
The basic issue is can you constrain a foreign government’s discretion?
The way to constrain that is if you have power and
if they depend on you for security, Japan-USA, for example,
Middle East-United States, it’s not culturally similar.
And the question is what about those private actors?
What about those employees, partners? You need to watch them like a hawk.
Monitoring is really important. How do you monitor?
You’ve got to depend on your people.
X-Box, how come this is so obvious doesn’t happen all the time?
X-box will not move equally to any foreign country.
If you have immigration, that’s where those links come in.
European is going to South America much easier.
Trying to get U.S. executives to go to South America, much harder, right,
and this pattern is for India and the U.K., so in Brazil, Fiat.
Italy is the largest source country of immigrants into Brazil.
Fiat -- after coming 50 years after GM, is the leader in Brazil,
one reason, because they can send their people,
they can send their technology.
We did a study on this which is published in this journal
with my co-author Metin Sengul, 600 companies in about 30 countries
and we put guns and immigration into the performance.
What’s the bottom line? Think not only of market strategy,
but think of your CEO who wants to perform abroad of non-market strategy.
IBM in China is a great example of good non-market strategy.
Of course, when you have the big guns, it always helps, always helps.
Bottom line, there is a structure to the macro economy.
It’s not a visible structure.
If you are a CEO who’s interested in performance
and wants to manage that risk, look for the value capture ties.
And if can’t find them all over the markets you want to go,
focus your attention.
Thank you very much.