[LEHMANN ] Good afternoon, ladies and gentlemen. I'm delighted to be here, very proud to be associated with this conference and Nikkei and Stanford University. I said yesterday that those of you who are here will know that my nationality is French. And I know that in Japan the French have an image of being rude, and I am going to confirm that image. But I do want to say one thing; it is that, yes, we are rude, and many Japanese interpret our rudeness to the Japanese as being anti-Japanese. But I wish to assure you that in our rudeness we are quite global. We are rude to everybody, and including to ourselves.

I should perhaps also just mention that, as you know, France is a Catholic country in the sense that the vast majority of the population is Roman Catholic. But in fact, only 8 percent of France's Catholics attend church regularly. So 92 percent do not, and I am part of that 92 percent. But I do occasionally go to church, go to Mass, and I tell my children when I come out that I feel very good. And this has nothing to do with being sort of spiritually enriched. I feel very good, because when I come out of Mass in France, I feel very young, because the 8 percent of the French Catholic population who go to church regularly are mainly septuagenarians, octogenarians, and so on. And so I come out feeling like a young man in comparison to all these people.

Now I have to tell you in order to make sense of my story that I was born in 1945, and that is in my CV, but the Nikkei, for whatever reason, didn't include it; they put everybody's age but mine. Maybe Miss Hayama thought that I was lying and that I'm probably much older than that. But my looks simply reflect not my age but my lifestyle over the recent decades.

Now, so what? Well, we've been talking about the 21st century. And it has not escaped me that -- now I'm going to be rude -- that all the speakers from Japanese industry were over 60 years old. These are men whose accomplishments -- and they are significant -- lie in the past. They are very healthy 60-year-olds, and there are many people for whom I have great respect. And therefore, I don't want my remarks to be at all interpreted as being critical of these gentlemen. Rather, the question I'm raising is to say, is it not a reflection of the atmosphere in which Japan finds itself right now? And to discuss the 21st century, are there any leaders who are in their 40s? The people who will be the real owners of the 21st century as opposed to the people whose careers have been mainly in this one? And I know this is a sensitive subject, and therefore I'm raising it, and I'm also glad to be leaving immediately afterwards. I will avoid taking the fire. But, you know, when I make these remarks often and I say to people that there is problem in Japan in regards to age and so on, and they say, well, that is our culture. But that is not true. My Ph.D. is in economic history in the Bakumatsu and early Meiji period. And if in the 1860s it had been decided that old daimyo would continue to run Japan rather than the young samurai, I don't think that Japan would have achieved the very great success that it had.

So this is one of the thoughts that comes to mind, from looking at Japan, that I personally, and I am going to be -- you know, Glen Fukushima is American but of Japanese extraction, so he's polite. I'm French and, therefore, I'm not. And I will make no apology for being an outsider making critical remarks. I make a lot of critical remarks in my own country and I welcome critical remarks from foreigners. But it seems to me that really looking at the challenges that lie ahead for Japan in the 21st century, I would identify two. One is rejuvenation. I really feel that unless and until there is a sense of dynamism -- at least giving the opportunity to young people, to provide leadership. Again, it might have struck some people that Jack Welch, whom everybody has been quoting and therefore I will join the crowd and quote him, saying that he is retiring next year after 20 years as the head of GE. He's retiring at an age when most Japanese presidents begin.

So again, the point I'm making is, I think that we do not need rules saying that leaders should be the age of 38-and-a-half, but, then again, do not exclude these people. I think that is one of the very important lessons.

The other very important lesson, and the other for me absolutely essential for the future of Japan in this global age, is globalization. But I think, again, if I may be so direct, I think very often when the Japanese talk about globalization they talk about globalization sort of in-out. We are global because we have set up a factory in Ireland or because we have done this and that in Thailand or because we have... That is not global. Some of you may know Yukawa Masao formerly of Mitsubishi Corporation, now retired. He wrote a very interesting article which appeared in an American newspaper called the Washington Quarterly, where he made the same comment. He said that Japanese, for them globalization is always a denominator rather than numerator; that globalization also means globalizing domestically. And I think and hope..... in the future when we have the 25th Nikkei conference, or maybe hopefully before that, that we will be seeing young leaders of Japanese companies; we might also see one or two foreign leaders of Japanese companies. And I must say that as a Frenchman I am very often embarrassed, but on this occasion rather proud that the person at Renault who initiated the collaboration with Nissan, Carlos Ghosn, is a Brazilian of Lebanese extraction. The French are known for being very chauvinistic, and we are, but nevertheless I think we are maybe a little bit ahead of Japan in globalization, through examples such as these.

So those were the sort of remarks that came to my mind, off the cuff, from listening to the very interesting discussions that have been held over the course of a day and a half.

Now I have a presentation, and one of the problems when you have a presentation of this kind is that you have to go through it. If you have transparencies you can say.... I'm stuck with this, and it's too long.

So I'm going to be going through some of it very, very quickly. But what I will offer to do is that some of these slides I won't really allow enough time to discuss them, or even for you to read them, but for anybody here who has any interest whatsoever in seeing this material a lot more leisurely, to please send me e-mail. That's lehmann@imd.ch and I will send this to you by return e-mail so you can have a look at it.

Anyway, having said that, let me go through this very quickly. The first point I want to make in presenting this transparency is really the fact to underline that since 1989 we have been experiencing over this last decade a really revolutionary new environment. And this revolutionary new environment is driven by two forces. One is a sort of change in the global environment, and the other one is a significant exponential increase in the development of information technology. And simply what I wanted to say is, if you had a number of developments taking place before 1989, 1989 saw a number of trigger events which led among other things to all these things I indicate on the right side. Rapid developments and what we call globalization leading to a world economy. Prior to 1989 the number of people who were involved in the market global economy were about 1 billion; now it is almost 6 billion. And throughout the world you've seen that this enormous convergence of policies and globalization among other things refers to a truly global economic revolution that has happened geographically. Just a couple of things. LA stands for Latin America, not Los Angeles. And the points that I also want to refer to are, not only have you seen exponential change in regard to the sort of geographical boundaries of globalization but also of course developments in capital markets and so on.

Now, again, if I could quote something -- of course I can, because everybody's been doing it -- Jack Welch was saying yesterday, nobody predicted this; nobody could have predicted this. And again, the point that you made, therefore, the important thing is not to predict the future. You can't do that. The important thing is to react. And this is where I feel very.... I lived in Japan throughout the second half of the '80s. I've been in Japan for, actually in and out, for many decades, for as many decades as I've been alive. But throughout the second half of the '80s, Japan was extremely successful; it was extremely successful in international environment which was different, and a technological environment that was different. And my president is no longer here, and therefore I can refer to him politely. The last point that he made about learning -- and I think the Japanese were so successful in the second half of the '80s that they forgot to learn. And then the world changed, and there was great difficulty reacting and adapting to it.

This is one of the transparencies that I'm probably not going to be spending any time on, but simply saying that we've gone through the first decade with the globalization phenomenon, what about the second decade ahead? And simply, some of the points that I want to point out here are, on one hand you have this globalization phenomenon, and on the other one is the fact that globalization, among other things, means the ability to understand local cultures, discrete cultures to understand people from different cultures in order to engage them into cooperation.

And finally the point that I'm quite convinced of that in the course of the next decade, this is why I was a little bit concerned about some of the remarks being made saying in 20 years' time this, and in 30 years' time that. We don't have that kind of time. My sense is that in the next decade you are going to see a significant shake-up of countries and companies that you are going to see as winners and losers. This happens in any revolutionary context, and I think it's going to happen in this one.

And what kind of revolutionary context are we talking about? I think one of the elements that comes out of this sort of globalization phenomenon is that you have a sort of competitive paradigm, where on one hand corporations are competing aggressively for global market share, and mainly through investment, and countries are competing for investment share.

One of the points that our colleague at IMD who directs this competitiveness yearbook makes is that the countries that today are competitive are not the countries that are aggressive; it is the countries that are attractive. How can you attract not only the money but the right brains, the talent, and so on forth? And at a meeting I was at last week in the U.K., at Wilton Park, one of the comments on Japan was that Japan -- and this is in reference to the question of start-ups asked to Kobayashi Yotaro -- was that a lot of bright young Japanese entrepreneurs are leaving Japan. They're setting up enterprises in Ireland, in California, and so on and so forth. So, you see, part of the element is: How can you be an attractive country, not an aggressive country, so that not only a lot of foreigners want to come and put their money here, put their best people here, but also that you retain your own money and your best and the brightest people? (This is a platitude on globalization on..... You can get it in the e-mail.)

But the other comment that I wanted to make, and this sort of fits in with some of the things that Jack Welch said, is that there are many ways of looking at the world, and part of the role of academics is to discover new ones, even when there is no change. But fortunately now there is change. And one of the ways that I've put this thing together is to say we can look at the world through this evolution of value-added. And you say the tonnage. And this refers obviously to the cost per unit of weight. So when you are in tonnage you are using a lot of material, but the cost is relatively small. And you go through the kiloage and this represents levels of competitiveness.

I think one of the things that perhaps you can think about is that Japan has been, and Japanese companies -- when I say Japan I very often mean Japanese companies -- have been remarkably successful in the tonnage, kiloage, and gramage. And there, a lot of the qualities of discipline, hard work, and so on and so forth apply. Now you are in this new age, the vacuum age, where the emphasis is on creativity, in the absence of hierarchy and so on, and where the significant challenges lie. And this I took up before the conference essay; you may have seen that in two issues ago of the Economist that was a special 4-page issue on Mr. Jack Welch. And so I'm quoting from the article that appeared on 18th of September, and they said, "Mr. Welch's biggest legacy will be in getting GE to confront three big external shocks; these are globalization, the move from manufacturing to services, and the Internet." And again, I point this out because, with all due respect that, and you'll find an exception here and there, but many Japanese companies in the course of this last decade have not necessarily been that successful because they have failed to react to these three external shocks, which are globalization, the move from manufacturing to services, and the Internet. The point being made here is in many respects the same as the issue of the tonnage to the kiloage.

This is something perhaps again rather American, but simply when you say how people sometimes debate, you say we're living through a revolutionary age, how can you justify that. This is again an interesting thing that came out of the Economist which was looking simply at the issue of pay. But they are stating, if you look at the evolution, the number of billionaires that you have in the United States over a period of time, and of course the number increased quite dramatically between 1982 to 1996.

A more interesting figure, in a way, is to look on the right-hand side in terms of proportion of billionaires to workers, and you find that 1900 and 1996 are roughly comparable. And then you say to yourself, who were the billionaires in 1900? These were people in the transport industry, in the meat-packing industry and freezing industry, in the oil industry. And the wealth now has been coming mainly through this vacuum age that I'm talking about.

Now when one is confronted with this sort of significant degree of change that's going on as we are right now, one of the things that you could suggest is you say, if you take a time dimension as being of roughly 1980 to about 2000, and then you measure change in whatever way, you can say that around about 1989 all of a sudden the developments that were taking place in regard to the information technology and in fact in return to the explosion of markets, developed on a truly exponential basis, things took off much faster. And then, institutions and mentalities were able to adapt. So that you have this gap which exists, between the way that the external economy is developing, the way that the technology is developing, and the process of institutional and adaptation -- cultural adaptation, adaptation of people -- and of course you would find that this gap narrows or widens depending on enterprises, societies, and so on and so forth. And again, this is a very fundamental challenge that exists at this particular moment. Many Japanese companies should be not so much looking inside but looking outside and asking, "What are the changes that are taking place? And how do we adapt these?" Not, "What is our culture? How do we adapt it to the external environment? What is the external environment?" and then go on from there into the cultures and the structures.

And therefore, it seems to me that the Japanese corporate dilemma in the course of this particular decade, and therefore... You can say the 1990s in many respects will have to be seen in Japan as the lost decade. The lost decade for the national economy and the lost decade for many of the corporations which were lacking a sense of direction and gained a sense of confusion. And what was responsible for this, I would argue, was the failure to get quickly enough on the information technology train.

Here again, I refer to this article by Yukawa, and if you send me an e-mail I can give you the exact reference. Because very interestingly he points out just in a page and a half or two, some of the structural and cultural barriers in the introduction of information technology into Japanese companies. And I thought it was very, very interesting what he had to say.

I know that the gu-ro-ba-ru (global) is part of the jargon in Japan, but I think there is a failure to understand globalization, particularly globalization out-in; a failure of corporate restructuring, cultural change, rejuvenation. And I think this is in many respects perfectly understandable. If Japan had not done well in the '80s, it would have adapted much better in the '90s. What one got a sense of for a long time with a sort of sense of denial was "What we have is fine. All we need to do is adapt it slightly rather than bring about a great change." A failure to move to a service, knowledge economy.

When I was living here in Japan in the 1980s, I was working with a lot of foreign companies that were desperately trying to get into the Japanese market by investment. And they were failing to do so effectively for a whole variety of different reasons. But I would say that in the 1980s the inability of foreign companies to get into Japan was their problem. In the 1990s the fact that Japan should have so little foreign investment -- I mean, it is tiny. People say there is a great deal coming, but it is very small. Again, in the penultimate issue of the Economist they give flows of inward investment in various countries. In Japan, it is 0.1 percent of the GNP. So it is still very, very, very, very small. Yes, it is bigger than before, but it is still very small.

And I think the fact that there is so little foreign presence in Japan, so little global presence in Japan makes it difficult for Japanese to globalize externally. I think there is a very strong correlation here. And therefore I see this as no longer necessarily being a foreign problem; it is a Japanese problem to a significant extent.

Again speaking as an outsider, what are some of the issues that are need to be addressed. I talk about the need for a really massive and revolutionary kaikoku, and opening up of the country, sort of globalizing from the outside in, which I think ultimately will be of enormous benefit obviously to the foreign companies that are now successfully penetrating Japan, but also to the Japanese environment going into the next century.

So what does this mean? I think it means a concerted effort at trying to raise the level of inward foreign direct investment to catch up with the standard of other industrialized countries and indeed industrializing countries. Japan really is -- and we've done quite a lot of research in this area -- the outlier in terms of the influence of foreign corporations and outside corporations in their local economy.

I think there are also has to be -- and I was interested that this second subject is one that hardly came up. I mean, I think foreign acquisitions is a good thing for an economy, for a society, for an enterprise. Most of the cases that we've seen so far -- people say the situation is changing, but let's be very frank -- most of the companies that have been acquired in Japan have been salvage operations. I think what we are looking for is a great deal more business pragmatism and acquisitions taking place not just of failing companies.

Then I think again the opening up of top management to outsiders, to tap global talent. I think a comment that has been made is, the challenge in this period we're coming into now is not to manage corporations; it is to lead corporations; it is to change corporations. And very few people can do that. Peter Lorange made the point in terms of internal entrepreneurs, also leaders who are very few. And if you begin by saying, Okay. Our leaders must be male, Japanese, from within the company, from the right university, and so on, you are limiting the population. Maybe most of your leaders will be coming from that particular population, but you are excluding the wealth of potential of other talent. And I would see it as an enormous benefit to extend the opportunity.

Again, to be very frank, to companies here, if you're going to compete globally, you're going to have to be able to recruit the best resources globally. And so long as people feel that joining a Japanese company means that you will be discriminated against and that you have little, vague, or no opportunity at all to rise into the upper levels of the corporation, they are not going to join the company. Why? Why? Why? You do so briefly for a period of time, but again, when people have been talking about the importance of motivation, motivation obviously is not there if you are a second-class citizen with very limited horizons. And so I think this is a crucial aspect of the challenge of globalization.

The other thing is, obviously as a professor I'll talk about the importance of education. We have to go on surviving also. But it seems to me that part of the problem in the environment overall is not simply at the corporate level, it is also at the universities. Universities in Japan are, I would argue, almost worse than French universities. I think there is an absence of globalization, an absence of foreign elements for networks. You have these foreign professors in many Japanese universities whom I know feel like yatoi gaikoku-jin in the Meiji period, sort of coming in and then they are going to be sent out; they're not integrated into the whole.

I've been associated with lots of, in fact all of the major European business schools. Now I'm with IMD. I was associated with London Business School. London Business School had a problem in competing with IMD and, that it wasn't international enough. And when they appointed the former dean, George Bay who is Canadian, he made the point. He said, London Business School has to be transformed; it has to be able to compete with IMD. Therefore, any new recruitment if you come up with a candidate who is British, you have to prove that you were not able to find a foreigner who is just as good. And this really has brought about an enormous amount of change in the whole positioning and atmosphere of London Business School, and, you know, probably nobody from the university is here because they're not interested in learning. But the point I think that have made is that this would also be an important element in transforming the Japanese environment.

Also, I made my comment yesterday about the global language. I used to cringe with embarrassment whenever the French would go on about all the difficulty with English, et cetera, et cetera. Please learn from our mistakes. We spent ten years fighting a losing battle. English is the global language. Just go ahead, learn it, and stop talking about it. If you're talking about the 21st century, something I have to tell you is that we have one of the world's most successful MBA programs. We have enormous difficulty accepting Japanese applicants because their English is not good enough. We are in Lausanne. We teach in English, and you need this interactivity and all the rest of it. I was told -- and apparently this has been widely reported in the press, I don't know about the Nikkei -- that Japan came out second worst in Asia in TOEFL scores, beating only North Korea. That is terrible! So, kangaete-kudasai.

Don't worry. This is the last transparency. Jack Welch had the four e's which will no doubt be much more famous than Jean-Pierre Lehmann's four c's, but I would say that if you're looking at this sort of enterprise of tomorrow, the kinds of elements in the culture that you're looking at is a combination of collegiality, and this I think comes back to Peter Lorange's point, really, of a non-hierarchical basis, freely being part of the same institution. Cosmopolitanism, i.e. internationalism, with many people from different backgrounds providing different perspectives, a great deal of cross fertilization, and obviously in this age also a great deal of emphasis on creativity.

Now I started off my remarks by saying that I was rude. Let me conclude my remarks by being Japanese and apologizing for my rudeness. Gokuro-sama.