AMERISOURCE BERGEN EVENT, Charlotte, NC – MAY 1, 2012

Ladies and gentlemen, please welcome Amerisource Bergen Chief Marketing

Officer, Gina Clark.

GINA CLARK: Okay, welcome back. Great start to the morning. So now we have

the pleasure of having Jeffrey Garten, the former Undersecretary of Commerce for

International Trade and the Juan Trippe Professor of International Trade, Finance and

Business of Yale School of Management to be our next speaker. At the intersection of

global politics, economics, investment and financial markets, there are few people who

can surpass Jeffrey’s insight and high level experience. As Undersecretary of Commerce

for International Trade during the Clinton administration, he helped US companies

access foreign markets, especially the emerging markets of China, India and Brazil – you

heard us talk about those just this morning. Garten also spent 13 years on Wall Street

as the Managing Director of Lehman Bros. and the Blackstone Group. During this time

he specialized in debt restructuring in Latin America and restructured some of the

world’s largest shipping companies in Hong Kong. Additionally Garten is the author of 5

books including The Big Ten, Emerging Markets and How They Will Change our Lives,

and Politics of Fortune, a New Agenda for Business Leaders which the Washington Post

has said, “the book that every CEO in America should read.” Jeffrey’s commentary and

analysis have also appeared in the New York Times, the Wall Street Journal, the Financial

Times, Newsweek, Harvard Business Review, and Foreign Affairs. And you may have

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heard of his wife, Ina, better known as “The Barefoot Contessa.” Please join me in

welcoming Jeffrey Garten.

* * *

When I introduce myself as the husband of the Barefoot Contessa, I’m

guaranteed a good reception. You know it’s not so easy being her husband because for

every hour you spend eating her food you need at least 2 or 3 hours of exercise and

people who have never seen me before always wonder how come I am not blown up

like a balloon. And what they don’t realize is that actually I have very good metabolism

and I exercise a lot. I should be rail thin and what you’re seeing here is really much

more than the weight that I actually should be.

It’s a great pleasure to be here today. I have been asked to talk about

globalization and sort of how it relates to you. And as you know, this is an enormous

subject and I could go on for a long, long time talking about globalization, but what I’m

going to promise you is something that’s much shorter. Now some of you are probably

thinking that a lot of people say that, and then they just go on and on and on. I don’t

know how many of you are old enough to remember the Latin American dictators who

used to start a speech at 2:00 in the afternoon and somewhere around 8 or 9 in the

evening they haven’t even gotten to their conclusion. But I’m not going to do that

because I was once really seared by the experience of being in an audience and hearing

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someone say I’m going to be really short and then he went on and on and on. In fact,

the guy went on so long that somebody in the audience got up and started to walk out.

And the speaker, being kind of egocentric, stopped and pointed at the guy as he was

leaving. “Excuse me, sir, where are you going?” the speaker asked. And the fellow

turned around and said, “I’m going to get a haircut.” The speaker couldn’t believe it!

He said, “You’re going to get a haircut? Why didn’t you get a haircut before you came?”

And the guy looked at him and said, “I didn’t need one before I came.”

* * *

I’m going to talk for a while and then we’re going to have a panel and the panel is

going to engage a little bit with what I said and then we’re going to bring you into that.

I want to start with just a little bit about the environment for globalization, the

world economy that we’re in. Then I want to talk about some key trends that I think are

really important to you. I’d like to then discuss the implications for any global strategy

that you might have. And I’ll say at the outset I’m going to strike a very cautionary note.

And then I’d like to talk about the features that I think that make a great global

company, some of the features you might want to think about if they don’t already

characterize you. And then finally I’d like to end up offsetting my cautionary view about

the next few years with something that’s much more optimistic in terms of where the

world economy is headed over the longer term.

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Current Environment

So I’ll start with the environment and make two points really. The first is that

there is very little visibility in terms of what the world economy is going to be over the

next couple of years. We are still in the wake of the financial crisis and still in the wake

of the aftermath of the great recession. As a matter of fact, we have a two-track global

economy. We have very slow growth in the advanced industrial countries and we have

much faster growth in the developing world and one big question, which nobody can

really answer, is the nature of the link between these two. Is it possible that the

developing countries can somewhat decouple from the West, with their dynamism and

their growth continuing to grow? Or is the world so integrated that there really is no

great growth scenario for the developing countries unless they can sell to us? And there

is lots of debate about this; I’m not going to try to resolve it. Only to say it’s very foggy

in terms of what the next couple of years are going to look like.

But that’s not all. We still have an enormous amount of financial fragility. It is a

vast overstatement to say that the financial system has healed itself. In fact, nobody

knows the answer to this question, but we may be on the cusp of a major financial crisis

emanating from Europe. On the other hand, we just might skirt it. No one knows.

So this issue of little visibility is obviously a critical ingredient in thinking through

any strategy at least in the medium term.

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And there’s even a bigger trend and I would say that way to describe this is that

the world is in a major transition from one order to another. The old order was one in

which the United States and Europe basically governed the world, set the rules,

enforced the rules such as they were. It was an order in which the rest of the world

aspired to adapt a system that was very much like the US and Europe. That order is in

the process of crumbling. And nobody quite knows what the new order will be like.

One way to kind of understand this is to think about what happened when the

world that had been governed by Britain gave way to a world that was really centered

on the US. That transition happened in the first half of the 20th century. But it

happened amidst enormous chaos because that baton between one leader and another

is never passed smoothly – never has been in history. What I am saying is that in

addition to the sheer economic uncertainties, we have enormous political uncertainties

as well.

Megatrends/Next Two Decades

What I’d like to do is kind of peer through these sort of megatrends and give you

a little more precise picture of what I think is going to characterize the next decade or

two. And the word I’d like to use, the word that sums all this up, is the word

“supercycle.” I think that we are in what is called a supercycle and that this is one of the

few supercycles that has existed in the last couple of centuries. A supercycle is a major

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historical transformation in which there are enormous shifts in economics, in politics,

and in social values. Everything shifts. For example, the source of demand shifts. The

way money flows, new investment patterns – they also change. New technologies

emerge. There are huge social movements in a supercycle and there are new political

and geopolitical arrangements.

There have only been two supercycles in the last 500 years. One was the

industrial revolution, which started in England and came to the United States and just as

one little indication of that, we were an agrarian society with 98% of our population

living on the farms. We ended up as an industrial society with only 2% of people living

on the farms. And yet, we acquired massive productive agricultural capability. So the

industrial revolution was one supercycle. The other one was right after World War II,

when all of Europe and Japan were decimated, and when those countries came back

very strong, regenerating an enormous amount of industry and productive capability.

So what is this supercycle that we are in right now? How would you look at it?

One thing you would look at is the rise of emerging market economies. We are clearly

seeing a major shift of economic forces from the west to the east and the south. Just

ten years ago, less than 35% of the global GDP was centered in emerging markets and

today it’s over 50% and climbing. In fact, emerging market nations are growing 2 to 3

times as fast as the west and Japan. And at a time when people around the world are

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becoming much more productive, we are going to increase world population in this

century by over 3 billion people. All but 100,000 are going to be in emerging markets.

When I say emerging markets, I think of a few things that are directly relevant to

every global company. One is the rise of the middle class. If you go back 30 years and

forward 30 years, you take those 60 years, 5 billion people will entered the global

middle class. This will have constituted an enormous appetite for goods and services of

the kind that the world has never seen – and that’s why this is a supercycle. And if you

add to that the hyperurbanization that is taking place – just for example today, 180,000

people moved from the countryside to the city. Now how do I know it’s 180,000?

Because it averages 180,000 people moving from the country to the city every single day

for 40 years. Or to put it another way, the world is urbanizing to the tune of 6 New York

Cities every year. Now that’s not necessarily new cities – that can be expansion of old

cities, but for the first time in history, most of the world is headed towards urbanization.

And when you add this to the middle class anyway, what you have here is almost an

unlimited demand for all kinds of goods and all kinds of services – whether it’s housing,

transportation, health care, education. This is growth in demand which is almost

beyond imagination in the next several decades. It also brings a whole host of problems

as well. Pressure on the globe’s resources, in urban areas the communication of

diseases and the acceleration of crime. So we’re obviously entering a new kind of

world, but I think on balance, it’s a world of considerable opportunity.

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Now when I say that emerging markets are arising, I’m also talking not just about

their markets, but also about their companies. We are seeing the growth of global

companies coming out of developing countries in a way nobody could possibly have

envisioned just ten years ago. In every single area, western companies are going to face

excruciating competition from companies whether they’re from China or India, or

Indonesia or Africa; it doesn’t matter, they’re coming from everywhere. And the reason

that they are is that their own countries have been liberalizing, but maybe more

significantly it has become so easy to get capital, to get technology, and to get talent.

So the first feature of the supercycle is emerging markets. The second is a big

structural change in the developed world. It’s no secret that whether we talk about the

US or Japan or Europe, there is a massive deleveraging of debt that is taking place and

that will continue to take place in my view for the next decade at least. Now what is this

deleveraging mean? It means that the national finances of all of these countries are

going to undergo a major transformation. We will see the slashing of budgets, the

drastic reduction of all kinds of subsidies for energy, agriculture, national health care

systems, and we’re going to see the very substantial raising of taxes. We’re also going

to see enormous focus on dealing with aging populations. The US has many of these

problems but on a relative basis we look reasonably good! Now you could look at this

one of two ways – you could say this is an enormous downer. This is a recipe for slow

growth and recession. Or you could say that in fact, we are on the cusp of releasing a

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tremendous amount of new energy. And I think it’s the latter and I think the United

States is actually going to be taking the lead and those people who are extremely

pessimistic are going to be proved wrong. Because I think that in the effort to deal with

our debt, we’re going to unleash a massive amount of creativity and innovation and

private initiative. And the US is going to lead here, we’re going to lead first of all in the

area of energy where in the next ten years or so we’re going to separate ourselves from

Middle East energy, and begin to be a major exporter of natural gas ourselves. I think

we’re going to lead in the return of a lot of manufacturing, particularly very highly

sophisticated manufacturing.

And I think just behind us is going to be Japan. When the sky is darkest, people

are really missing the opportunities, but I think that what we’re going to see because

Japan is under so much pressure, I think we’re going to see the advent of a society in

which dealing with the aged is going to become a growth industry. And Japan is going to

open up; it is going to become a much more integral part of Asia. It is going to release

the energy locked up in its closeted services, and I think that in Europe, under all the

pressure that exists, is going to emerge a European Union that is smaller and much

more integrated than it is now. It won’t have Greece, it may not have Portugal, it may

not even have Spain. But what is left is going to be a real dynamo. So I think that in this

supercycle – and none of this is going to happen in the next few years – we’re going to

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see enormous release of initiative and innovation from the developed world forced by

having to deal with the excruciating debts.

Now the third theme of the supercycle is what I would call more globalization.

Everywhere you look the world is becoming smaller and more integrated. Whether it’s

complex supply chains; whether it’s the massive amount of money that is moving across

borders no matter how regulations are put up; whether it’s the Internet and all the

social media, the world is being subject to more and more globalization. And I think that

this too is going to create a new energy and a new set of opportunities for businesses

around the world. It’s also going to result in a level of hypercompetition that we have

not seen in our lifetimes. Because companies like yours will not just be competing with

other western companies, but as I mentioned before, what I like to call emerging blue

chips, multinational companies coming out of emerging markets, are going to put up an

enormous fight – within their countries, within other emerging markets, and also as

they come into the US. Because I think that the essence of this increasing globalization

and more competition is going to be far more incoming investment in the US than we

have ever seen. We’re going to need the money; it’s going to be part of our

deleveraging. And rather than companies being our paper, buying our securities,

they’re going to come into greenfield Investments and they’re going to be making an

enormous number of acquisitions because they have the funds and they have the

wherewithal to do it.

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In this supercycle there’s going to be also a lot of shifting politics around the

world. There’s going to be a recipe for a lot of confusion, but also another way to

release a tremendous amount of energy because right now over the last several

decades under the auspices of the US we had a very kind of predictable system of

capitalism with basically one set of rules that everyone was adhering to. I think we’re

going to see a lot more diversity now, and while that’s going to be a real headache in

terms of planning a corporate strategy, it’s also going to unleash a lot of new ideas, a lot

of new techniques, and we’re going to go from something that is more tightly controlled

to something that is much more decentralized. It used to be that we had a world that

was more or less governed by the US and then it was the US and Europe and Japan, and

now it’s the US, Europe, Japan and a number of emerging markets, and that sheer

diversity in my view is going to create a number of business opportunities.

Now let’s look at the implications here. To me, one of them is that the medium-

term looks dicey but the long-term looks good. The next three to five years, just to take

an arbitrary period of time, is one of great uncertainty and great volatility. I think it’s

akin to going into a long wind tunnel – you can see the light on the other side, but when

you’re in that tunnel, you are being thrown from pillar to post. I think another analogy

would be that the next few years constitutes a real obstacle course. Because everything

I said in the short-term translates into things that you can’t predict, a ball that is

bouncing in a way that you just don’t know. I mentioned the possibility that we may be

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on the precipice of a Euro crisis, but you know there are a lot of other things in the air

that I think also could put a monkey wrench in the wheel. For example, all the major

central banks in the world have lowered interest rates almost to zero. And if they

haven’t already, they’re moving in that direction. There is so much liquidity in the

world, there is almost a certainty in my view that sometime in the next couple of years,

there’s going to be a massive tightening and when that happens, interest rates are going

to go higher or, if the central banks wait too long, we’re going to find ourselves in a

global inflationary environment far more dramatic than anything we’ve seen since the

1970’s. This isn’t the end of the world, but all I’m saying is the next 3 to 5 years this is

not a scenario in which you want to be caught in and in which it’s easy to plan.

Another short-term problem, 3 to 5 years, could very well be that China

stumbles. I happen to be a bull on China over a long period of time – in fact I just came

back from China where I teach a course and I bring my students there year for a couple

of weeks. And even the Chinese officials are really concerned that they can handle all

the pressures that are arising in an economy that is growing so fast and really has

outgrown the ability of an authoritarian government to control everything. If China

stumbles, the rest of the world economy is going to be sent for a loop because all of the

commodity prices that are holding up so many emerging markets are basically tied to

the demand in China, just to take one example.

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I think that we could very well have a big problem with the dollar. We have been

really lucky because our interest rates are so low, the debt burden on a national debt is

only a fraction of what it should be. If interest rates go up, we come under enormous

debt pressure. A lot of the investors around the world who are holding trillions of

dollars could get very nervous and we could find ourselves in a currency crisis.

Beyond these crises in the short term, everything I said about the supercycle also

translates into the need to navigate among a lot of governments that are marching to

their own drummers in contrast to the past. So that’s going to be very tough because

you can talk all you want about globalization, but it’s not one world out there, but it’s

many worlds from the standpoint of policy. And those many worlds are spawning other

worlds. So it’s very, very tough in the short term.

Now why am I raising these things? I’m raising them because the implication is

that you have to calibrate your global ambition very carefully. For the longer term to

me, it is extremely clear that this is the only way a company like yours will be great.

Eighty-five percent of the world market is outside of the US. There’s just too many

things going on in terms of opportunities, in terms of new ideas, in terms of new

consumers, not to be there. But if you calibrate your ambition too much in the short

term, you’re very likely to be disappointed. And there’s a real risk of second guessing

yourself when the short-term results don’t accord with the longer-term ambition. In a

way it’s a classic dilemma between short term and long, only this time the short-term is

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particularly fraught. In fact if you could wind back the clock, the best short-term would

have been to go global in the 1990s when the tide was rising and everything was moving

in the right direction. This is not that now and the bottom line here is the need for a lot

of courage, a lot of persistence, and a lot of education of all the constituencies, your

board, your employees, your customers, your investors, that going global is absolutely

the right thing, it’s really the only choice, but the short-term could be very rocky.

* * *

Characteristics of Great Global Companies

Now what are some of the features that I think should characterize a company in

order to succeed in this global environment that I described? Well first of all I don’t

want to imply any discontinuity and to say that a great company needs to totally

reinvent itself. I’m not saying that at all. But there are just some features that could use

some particular emphasis if you’re thinking about a global strategy.

The first is how to define and embrace what I would call a global mindset.

There’s a big difference between a company that is international and a company that is

global. It’s one thing to be in a lot of different markets and to operate your business for

each market. It’s another to really capitalize on the global experience. To be able to

transfer innovation from market to market, to be able to create opportunities for your

employees around the world depending on all kinds of new opportunities that arise and

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to move people so that they grow all along the way. So having a global mindset means

thinking about integrating capabilities and aggregating experiences, not just looking at

five different markets as five different markets.

A second very important feature is to look at your organization through a global

lens. Are you organized the right way? To say that, well going global is just really an

extension of what we’re doing is probably far short of the mark. First of all there’s the

issue of complexity. Many companies when they go global have a huge problem

because their organization becomes more complex and it really gums up decision

making innovation flexibility. So you have to fight that complexity through very cautious

approach to things like matrix management, matrix reporting… the lines of reporting

have to be very clear and you have to make a decision – just to take one example –

between the primacy of geography and the primacy of the product. But beyond that,

there are a lot of risks and so it’s incumbent on a global organization, a great global

organization, to build in resiliency in a way that you might not think about if all you are

is an American company. Building resiliency into supply chains for example, because

they’re bound to be interrupted; building resiliency into IT systems, because you’re

bound to run into problems that you might not run into in the US. Also in organizational

terms, it’s the height of arrogance to think that you could possibly know everything you

need to know about a foreign market just by studying it. And so somehow you’ve got to

build into your organization that local expertise and it has to be more than just the

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people that you employ as full-time employees, but something like regional or national

advisory councils that bring together people who have an enormous amount of

experience both in terms of the sector, the particular business, and also the public

policy.

If you look at companies like IBM or Intel or JP Morgan, they give a massive

amount of attention to how to organize for their global operations. They’re in constant

flux in reorganizing because they’re learning all the time. But the one common element

of all of them now is that they have stationed some of their most senior people outside

the US in direct contravention to their history and their tradition. So JP Morgan now is

running all of its investment banking activity out of Asia. IBM sends the head of its

international operations to live in Hong Kong. Now these are companies that have had a

long history in global business and they’re concluding that the degree of knowledge, the

development of instinct means that you can’t do it just from the US.

A third area is managing global talent. One of the big mistakes that a lot of

companies make is in thinking that they can go out and hire executives to run some of

their overseas operations - executives who have no history in the company itself. This is

a very dangerous path to go. On the other hand, most companies don’t have anyone

internally who can do it. So the linkage between the people who are deeply rooted in

the company and its culture and its history and new people, how you link those two

together, how you inculcate all of those things in new executives that you’ve hired, how

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you develop, how you send people who have never been outside the US to develop the

skills and the ideas and the experience, that requires a huge amount of effort. And it

never ends because you’re always learning.

The global sourcing of ideas. You’re probably all familiar with Proctor & Gamble

and how they have made it almost a cult to bring in ideas from around the world. At

first they actually set a quota. But whether it’s IBM or Proctor & Gamble or Intel,

they’re all doing more and more research abroad; they’re all searching for talent that

can provide all kinds of innovation; and they’re all doing something else too. They’re

looking at emerging markets – not just as markets that you can sell stuff into, but

markets where you can find ideas and bring them back to the US. It’s the height of

arrogance – and most Americans have that kind of arrogance – to think that somehow

the essence of doing global business is adopting your product to a foreign market,

where in fact, a lot of products in foreign markets are different than ours and the

challenge is how do you not only deal with that product, but what is it about it that we

could use here or that could be used in Europe? And whether it’s a small car that a

company like Tata has made for $2,000 or little x-ray machines that GE has developed in

India to bring back to disaster sites in the US, there is a lot of this reverse technology,

what people are calling disruptive technology from developing countries, which are

really going to be at the cutting edge of what global companies do.

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A fifth feature of a great global company is public policy savvy. Now I won’t say

much more about this other than to say in your industry of course you deal so much

with governments and regulations – no one has to say how important that is. But it is

doubly important in many countries where the tradition of government intervention is

much higher than it is here. And I have seen companies who have tried to deal with this

massive public policy challenge by taking somebody in the US and putting them in

charge and thinking that somehow the public policy process is analogous – whether it’s

in India or China or Nigeria or any of these countries, and it isn’t. And so the better part

of valor is to be extremely paranoid that you will miss exactly how policy is made, who’s

making policy, what the trends are, what the trip wires are; and so the decision to go

abroad is a decision to really ramp up public policy expertise.

Sixth – risk management. I hope that everything I’ve said about globalization

translates into more risk. I know you have a very robust risk management process, but

when you go overseas, it has to be even more robust. One of the things that I think is

particularly valuable is the ability to run constant crisis scenarios and think about things

that are really on the outer perimeter and how you would mitigate that risk. There

could be enormous disruptions that come from policy changes, that come from

disruptive competition, that come from natural disasters, and I guarantee you will be

subject to a whole bunch of them. And the issue is not whether you can prevent them –

because in many cases you probably can’t – it’s how quickly can you recover. It’s how

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resilient are you, and to me that comes with enormous amount of analysis and I would

say, and practice.

And finally, I would say that a great global company is one with tremendous

strategic agility. Andy Grove, you used to be the head of Intel for about 20 years, had a

great saying which is, “engage, then strategize.” And what he really meant by that is

that if all you do is have a strategy and you think you’re going to adhere to it, you’re

missing the point. Particularly in the global arena, that a corporate strategy is a little like

a military strategy – it begins to fall apart as soon as you really engage. So you need

both. You need to engage and to constantly reassess your strategy. And I want to give

you one good example. No matter what analysis that you look at, you would have to

conclude that countries – China, India and Brazil – are big countries for the future, really

big markets. And yet, you know, it’s very possible that all 3 of them are going to

undergo really big problems. I already talked about China, but let’s just take Brazil.

Brazil has been growing very fast, has enormous potential, it’s a huge market, and

almost the entire thing is held up by commodity prices. It has not diversified internally,

those commodity prices are all a function of demand in China. So if you gamble

everything on Brazil and you don’t hedge, or don’t have another way of thinking about

it, you’re not strategically agile, you can make a big mistake. You can make a big

mistake with China. You can make a big mistake with India which S&P has downgraded,

I believe, almost to junk.

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So what do you do? The right strategy might be to think much more regionally.

There’s no scenario in my view that East Asia is not going to be prosperous – I just don’t

know where exactly the growth is going to come from. And likewise in Latin America.

You take most of Latin America – this is a great middle class region that will take off. By

thinking you can pinpoint exactly where it is or not having the strategic agility to move

around, that could be a big problem. So let me conclude by saying that if the short-term

looks dicey, it’s no excuse for not thinking about the long-term, which is in my

supercycle concept, we’re on the verge of something that is really unprecedented – an

era of enormous growth and enormous opportunity, enormous innovation, enormous

emancipation of human talent.

* * *

I have been writing a book for a long time, and it may take me a long time to go

further, but I want to conclude with the basic theme, because I think about this all the

time. I’m writing about ten people who built the foundations of globalization and the

ten people go back a thousand years, or it starts a thousand years ago. I have one

almost every century. They’ve done a whole bunch of different things – some have built

empires, some of been great explorers, some have built the transatlantic cable, some

created the European Union, some opened China to the world – they’re all different, but

they have one thing in common which I didn’t know when I wrote the first draft of this,

because I thought I’d just write these interesting stories and then I noticed one thing in

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common. That every one of them lived in a time of major discontinuity – that is, all the

rules that were known at the time were under great strain. And there was either a

massive economic transition or a political transition, or a revolution, or a bout of new

technology that basically created havoc and so these great changes occurred when

uncertainty was the greatest. And that’s what brings out the best in people, or the best

in a number of people who basically manage to lead progress. And I think that’s where

we are. I think we are in the middle now of both a great economic and a great political

transition and that it is a great time to take advantage of the business opportunities, but

you need a lot of courage because in that wind tunnel and that obstacle course, the

short-term always looks a lot worse than the long-term.

Thank you very much.

[We’re going to bring our leadership team up on the stage now, and have Jeffrey

interact with some Q&A, so just a moment while we bring them up.]

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