Andrew Delios
Description: Andrew Delios is the Vice Dean and a Professor in the Department of Strategy and Policy at the National University of Singapore Business School. His work focuses on strategies around foreign direct investment and multinational corporations. In this episode we talk about the role of multinational corporations in the economic growth of developing countries, and how firms weigh cultural and political uncertainty in their decision to globalize. Lastly, Delios touches on corporate responsibility in the face of climate change and China’s Belt and Road Initiative.
Websites:
Publications:
Uncertainty, imitation, and plant location: Japanese multinational corporations
Resources:
MSc Strategic Analysis and Innovation
Academy of International Business Conversation
Books:
International Business: An Asia Pacific Perspective
China 88: The Real China and how to Deal with it
Show Notes:
[0:00:01] Introduction and Background
[0:06:19] Work Experience and International Exposure
[0:09:25] Researching Corporate Strategies
[0:18:05] Implications of Research in Business
[0:21:00] Incentive Structures in Academia
[0:22:39] Balancing Curiosity and Relevance
[0:31:28] Multinational Corporations Definition
[0:36:46] Multinationals in Developing Economies
[0:39:59] Uncertainty in Dealing with China
[0:46:02] Political Uncertainty in China
[0:48:55] Importance of China in Innovation
[0:53:44] Safeguarding Core Capabilities
[1:00:33] Infrastructure Development and the Belt and Road Initiative
[1:08:50] Addressing Climate Change in Corporate Strategy
[1:12:46] The Asymmetric Benefits of Globalization
Unedited AI Generated Transcript:
Brent:
[0:02] Welcome, Professor Andrew Delios. Thank you for coming on today.
Andrew:
[0:05] Yeah, thank you very much for having me on the Discovering Academia podcast.
Keller:
[0:09] We'd love to start off by hearing a little bit more about your story, how you got to NUS, and what got you interested in business strategy.
Andrew:
[0:15] I arrived at NUS as a consequence of decisions that were external, motivated by factors external to me more so than internal to me.
The only internal decision for me was to actually live and work in Asia, which I had as an aspiration as a consequence of some part-time and other jobs that I'd done while I was anundergraduate and graduate student.
Student the external factors were that um when i was looking to work within asia there were certain countries that were receptive to my family in terms of giving us visas to be able towork here in certain countries that were not and singapore was one of the places that was receptive to us, so we decided to to move here partly because of the um of the ability to be able towork here based on the visa situation, but also because NUS was an interesting and good place to be.
Keller:
[1:12] And what year was that?
Andrew:
[1:14] That was, I joined NUS in 2001.
Keller:
[1:16] Okay.
Andrew:
[1:17] And prior to that, I was working in Hong Kong. So that was 1998 to 2001.
Keller:
[1:21] Okay.
Brent:
[1:21] Yeah. And then could you tell us a little bit more about where you've worked in the world? Because it's quite an extensive list.
Andrew:
[1:28] Yeah. So I've worked in many different countries. I've worked in the US.
I've worked in Canada. I worked in Hong Kong, Japan, Singapore, Vietnam, India, China, Australia, and others. Some of these were like career type jobs.
Others were like odd part-time jobs.
But they were all founded on the idea, I just wanted to explore and understand the world a lot better.
And you can understand a lot of the world from traveling in it, but you understand a lot more when you live and embed yourself in a society.
And what better way to do that than actually to work in a place?
Brent:
[2:05] Yeah. So how long was your shortest stay in each one of these countries?
Andrew:
[2:09] Sometimes it was as, as, as, as few as a few days, as short as a few days.
And of course, the longest has been here in Singapore for more than 20 years.
Brent:
[2:17] Sure. Where are you from originally?
Andrew:
[2:20] I'm Canadian, but I was born in the, uh, I was born in the UK, but my dad is Greek, but he was born in Egypt.
Brent:
[2:27] Truly a man of the world.
Keller:
[2:30] Do you have any tips for the audience of a lot of people want to work internationally, but they don't really know how to position themselves to do that.
But you've obviously been able to do it quite successfully.
Andrew:
[2:40] Yeah, the first step is to do what you're doing right now. Take the chance to be able to study overseas, pick out some places where you'd like to go, find out if you like it or don't likeit, and start to make those kinds of explorations because you have to understand for yourself whether your aspiration matches your character, in the sense that not everybody is suited toworking overseas.
So for example, within my family, I have two sisters who live within miles of where they grew up and they're intrigued by things outside of their world, but at the same time, they're really,really in their comfort zone and in their best place close to home.
So you got to discover, is it really appropriate for me?
And then you have to start to think about, okay, then how do I position myself to be able to work overseas?
Should I work with a company that would then place me overseas and kind of an expatriate position, or do I need to take opportunities to live in different places and connect to the localjob market?
Do I need to study overseas and then connect to job markets via my studying overseas?
Or basically, what is my plan for connecting to the local environment so that I can understand what are the work opportunities, connect to those opportunities and secure them?
So it's kind of a staging process to discover who you are, what exists, and then also begin that process of embedding yourself.
Brent:
[3:59] Certainly. And also, could you talk about a bit like what you've done?
Because you're not, I would probably argue that you're not a traditional academic.
You've held many different roles during your time researching. So, yeah.
Where have you like, have you just been an academic here at NUS or like, how has that worked for you?
Andrew:
[4:18] Yeah, I'd say my, first of all, academics are not a uniform lot.
Brent:
[4:22] Yeah.
Andrew:
[4:23] Where we tend to be an idiosyncratic bunch and as students, you've probably seen lots of different characters.
Definitely. Definitely. So there's no questions along those lines.
So typical, but yes, even from the wide variance that exists, I would say I'm fairly atypical. And I'm atypical in the sense that, you know, there's many different jobs that I've held and I'veheld very, very simple jobs.
Most simple job was probably cleaning shoes.
So that I did when I was 14 or 15 or 16 years old.
And then there's been a consequence of other kinds of jobs where I worked with my hand instead of my brain.
But that doesn't really address your question, which is the point.
But what kind of things have I done during academics that differentiate me from other academics? The first thing is a scope of activities I do within the institution.
So for those who are not familiar with academics, there's basically three different roles that any full-time faculty can fulfill.
They boil down to teaching, research, and service, which is basically administration or leadership positions.
[5:25] As with most people, they tend to have a skill in one particular area.
But for me, I find I'm able to do all three of those areas reasonably well.
And I don't want to project false humility, but I also don't want to be like egregiously boasting, but I believe I do that well.
And I do well because I've had a good background in terms of each of those different areas independent being in academics.
So for example, I used to manage a small business when I was doing my MBA, which helped me with the administrative side of things.
Before I became an academic, I taught English in Japan for about two years, which helped me on the teaching side of things.
And I've always really loved reading and writing, which are foundational to research. They're not core to research, but they're foundational to research.
So that has helped me. So in other words, I've had some foundation across these different areas that have facilitated my ability to work in those different areas.
[6:15] So unlike most academics, I find interest and ability to work in those three verticals.
Work Experience and International Exposure
[6:20] So currently when I do teaching at NUS, as a vice dean, I'm not supposed to do any teaching, I'm very limited, but I actually do about three times the load of a normal facultymember, just because I love it. And they pay me for it as well.
So there's obviously not a, it's not a selfless motivation, but it is something that I do enjoy and I gain a lot of gratification out of it and I want to excel in it.
And like anything else, if you want to excel, even if you have a baseline capability, you got to put in the reps to be able to do it well.
So my first passion actually in academics was, was in research and I totally love the research process.
It engages me, it excites me and it challenges me, but it's not the be-all and end-all of academic life.
And in fact, if it was a be-all and end-all of academic life, I wouldn't be here in the present day because it's a little bit too boring to keep doing the same thing for 30 or 40 or 50, 50 years.
[7:13] So I've probably decreased the amount of research that I do, but I still do research and I do it in somewhat different ways by forming teams and so that there's less that I have to dotime-wise, even though I don't want to sacrifice the quality by reducing my time into it.
Then the third part is also the service, the administration, where I'm a vice dean.
And I really enjoy this part of the process because it connects me to another part of the university that people typically don't see, which is the administrative apparatus, which is very complex.
What most people don't tend to look at when they're looking at universities is just what a unique administrative system it is.
And it's a large organizational animal that takes a lot of skill to navigate through it, whether you're within your own business unit, whether you're within your own business, or whether you're within the broader corporate, which is the university.
So I enjoy all of those challenges.
[8:07] Then independent of that, the other point I think you're referring to is what are my so-called extracurricular activities, like being involved as a business owner.
Now, I wasn't the business, the only business owner. I was a minority owner in the business.
But I believe that as a business professor, if you're not able to execute your skills and learn from these activities, then you're diminishing your value. you.
And the axiom that I really hate, but unfortunately, there's a piece of truth to it, is those who can't do teach.
And I want to show that, yeah, those who teach can actually do.
And we need legitimately in the classroom, I believe.
And so I wanted to bump up my skills in that regard.
Keller:
[8:49] So did you start that business or start your work there after you had been a professor?
Andrew:
[8:53] Correct. So I joined the business because it was being run by a close friend of mine and he needed some outside equity to help develop the business.
And then I, as when I of course put in the money, I wanted to be more substantively involved so I could see what was happening with the business and, and understand a lot more about it.
So it was, it occurred after I'd been here for about eight years and then I, and then Then I became involved with the business, but I couldn't take such a large role that I didn't have time to,of course, focus on my core activities within the business school.
Researching Corporate Strategies
Brent:
[9:26] Definitely. So how do you go about researching corporate strategies?
Because it's not like a laboratory where you can control the environment.
So just kind of want to pick your brain on like, what does that look like?
How do you approach that research to then dive into the research?
Andrew:
[9:43] Yeah. Yeah, I doubt you know how good a question that is.
Because when you phrase it in that way, you actually capture the essence of the challenge, which is how to isolate the phenomena that you want to be able to investigate, or how do you isolate the relationships you want to be able to investigate.
So when you say you go into a lab, you have a very controlled situation.
You can vary X and see the effect on some other variable, on the outcome variable.
And because you control for everything else, you can have reasonable assurance about causation, aside from correlation, so to speak.
That doesn't exist in the business world. We can't tell half the businesses not to hire X type of people and the other half to do this and set up that.
That said, there are natural experiments that we can observe where some organizations have done something and some have not.
And there's various kinds of empirical techniques, one of which is called difference-in-difference approach, which allows us to do that kind of semi or natural kind of experiment.
[10:42] But generally, those don't exist. So our typical research models in business tend to be one of three approaches.
One is what we call strict qualitative research and observational research where we embed ourselves in organizations or we speak to individuals and we try to understand what are some of the processes that they've undertaken to achieve certain kind of outcomes, whether it be various kinds of growth activities or whether it is how to manage a joint venture or how to make an acquisition or whatnot. not.
The second one is a survey research where we carefully construct a series of questions, send it out, receive the data, then analyze it looking for those trends.
And the third one, which is the one that tends to dominate my research, which is large N research, N meaning the number of cases.
And then we gather huge amounts of data. And then we look for the trends that exist in the data as guided by some kind of theorizing about what would be the about what would be therelationships.
So that was the bulk of my research and I conducted that research.
[11:44] Largely when I was a PhD student, I constructed a very, very large database with my thesis advisor, as well as another student who was two or three years ahead of me.
And this was a database on Japanese companies. So it was published by a company in Japan called Toyo Keizai Inc.
And they surveyed every listed company in Japan to understand what was happening with their overseas foreign subsidiaries.
And they published a book, I'm showing you with my fingers, about this thick, which is about 600 pages if you were to stack them.
All written in Japanese. And because I'd lived in Japan for a while and I was able to read Japanese, I had to code that all into a database.
And then we subsequently analyzed it. But the good thing is that we did that repeatedly and we came up with a very, very unique source of information where we could track what werehappening with Japanese multinationals, what countries they invested in, why they invested in those countries, what kind of entry modes did they use, joint ventures, acquisitions orwhatnot.
How did they manage those in terms of their employee base, how many expats, how many locals, and so many other related questions.
Now that was back in the 1990s, early 2000s. Those same data are now available electronically, so we don't have to do such a process.
But at that time, it was a very unique and proprietary source of information, which enabled us to take a lead on understanding multinational firms in general, as well as Japanese firms inspecific.
Brent:
[13:07] And then before we dive into some of the specifics of that research, Oftentimes, I think you wrote a paper about the critique of, oh, so many of these like surveys or case studies arejust that, like just case studies in social sciences.
So could you explain how the work you guys do actually expands beyond just whatever location you're saying?
So let's say Japan, like these firms and like the data you got from the Japanese firms actually expand beyond just Japan in the late 1990s, 2000s and how it's applicable to like larger trends.
Andrew:
[13:47] Sure. So the word we use to describe that question you asked is something called generalizability.
And one of the issues we always face is what's the generalizability of the research? research.
This was a particularly pronounced question for us studying Japanese multinational firms back in the early 2000s, because much of the knowledge of multinationals that we'd had wasfounded upon something called the Harvard Multinational Enterprises Project.
So in the late 1970s, early 1980s, Harvard charged about 200 undergrads to go to all the major multinationals in the world and implement a survey.
So it wasn't a mail survey.
It was a mail-in survey. It was basically the idea that you would have people show up at your doorstep, so to speak, speak to the right person in the corporate office and ask them a wholebattery of questions.
It was really, really a long list of questions.
And that became our foundational knowledge for what we understood about multinational firms.
Now, at that time, nobody asked about the generalizability of the research because the bulk of the academic community and indeed the bulk of the multinational firm activity was based inthe US. So the US became our baseline case.
[14:59] So everybody looked at Japanese multinational firms as being unusual, and they were unusual in some respects.
For example, through the last parts of the 1990s and early into 2000s, most firms around the world didn't use joint ventures.
But the unique thing about Japanese firms was about 45% of their foreign entries were made by joint ventures.
So then we know that trend is not generalizable. But is the reason why companies go into joint venture firms generalizable? or are the success factors about the longevity or otherperformance indicators of Japanese firms generalizable?
So we always have to try to address that question.
So the simplest way to ask that question is just say, prove it with another data set.
The more complicated way to answer that question is to say, hey, what is it that's unique about these companies that might limit the generalizability of these results?
[15:51] So that's always a question we ask and it's always a question we have to demonstrate Because we do not want to generate an isolated set of knowledge that solves a curiosity about,hey, what is this person or what is this company doing, but doesn't contribute to a broader set of knowledge.
The other thing that's very critical in research is to frame things with theory.
And theory is what's meant to be that underlying foundation that increases a generalizability.
And then we would expect that if we align ourselves with theory and management, or theories on strategic practices, or theories on whatever, every other area of business, then we have abroader case for generalizability.
Because now we're not just basing it upon observed empirical trends.
We're basing it upon some kind of underlying logic, which is then supported by empirics.
Keller:
[16:46] What is the goal for a lot of this research? Is it intended to help navigate the businesses themselves to be more efficient?
Is it for policy? Is it just to kind of provide regular students a better understanding of what is often a very confusing business world?
Andrew:
[17:00] Old okay now you're pricking the bear so the problem is why i'm saying that is because i believe we're not bold enough with our with our aspirations for what we have to do withour research and one of the one of our big problems in academic research and this is in general um but it's also more profound for business research people in business schools because wedo have, constituencies who are important to the world which are you know uh for-profit and non-for-profit organizations.
[17:28] Why it bothers me is because we don't focus enough on the practical implications of our research, but consultant companies do.
So often when I read reports from any of the big consultant companies like McKinsey, Bain, so on and so forth, they're actually taking our research and modifying it, adapting it, and thenleveraging it to provide advice to corporates. We don't do enough of that.
So often we're just happy to address a question in a way that's satisfactory to our colleagues, right?
And I don't believe that's very effective because we can't speak to a closed community. We have to open it up.
Implications of Research in Business
[18:06] So this means that, yes, we need to develop knowledge that's useful for businesses and useful for educational practices.
Now, we're slowly moving in that direction, but in order to move in that direction more effectively, we have to improve the quality of our research methods.
So what we've done with our research is we have reasonable methods that can establish correlation.
We know two variables are connected in a positive and negative order.
[18:31] Perhaps not at all. But then the next step is to establish causation.
[18:35] So definitely A precedes B. So we know if we modify A in some way, B is going to increase, decrease, or if no relationship, not change at all.
Then the next step that we have to be able to take in order to increase the applicability, and this is why I say you break the bear because we don't focus enough on it, is effect size, whichmeans that we know A, changing A will lead to a positive change in B.
But how much will a given change in A lead to a given change in B?
Because that's what people are interested in. If I increase my R&D spending by 10%, will my innovation output increase correspondingly or not correspondingly?
Now, the innovation question is much more complicated than that, but that's just an example, right?
So when we change something at one dimension, people would want to know how much can I expect to change in another direction?
They know it's contextualized. They know it's not definitive.
They know it's not like a law of gravity that works in some kind of ways, but they do want to see some kind of measurable, demonstrable effect between what they modify within theirdecision power and what would be the outcome.
And that's really where we sit as a field on the cusp of being able to answer those questions more directly.
Then the second sorry the second the second question related to that is are we asking are we actually asking questions that are relevant to managers and students or are we just askingquestions that are relevant to ourselves and if they're just relevant to ourselves and they're relevant to nobody do.
Brent:
[20:04] You think that's because the reward structure in academia isn't set up to like really worry more about like kpis and like getting the most impact and that type of thing Because it'sabout citations, publications, getting tenure, not making more money, having a bigger, like, what is the, what would need to shift in the incentive structure of academics to like make that abigger focus?
Andrew:
[20:29] It's a big question and it's much more than incentive structures.
Because first of all, publishing research in any field, whether it's social sciences or physical sciences or elsewhere, is a very complicated process.
And already we're considerably challenged to do so. So, so to move the field forward in terms of its ambitions about what are the implications of the research is a, is a big step, is a bigstep already.
[20:54] So to be able to do this, yes, we would have to change reward structures and some institutions do this.
Incentive Structures in Academia
[21:00] So for example, there's IMD based out of Switzerland. They're heavily management focused.
[21:08] So what they do or what they have done, I'm not sure what their current policies are, but I remember their previous policies, is they tell their faculty, you have to engage in researchX number of hours or X kind of output, X, create X output of research.
Now, how that research is defined is up to the faculty.
So they could do very specific case studies, they could cascade consulting into research, but they have more of an open field with respect to research.
So that allows them, their incentive structure is flexible enough, has enough flexibility in it to allow people to pursue questions that have practical interest and not be penalized in theacademic environment.
At an institution like NUS and at any big state institution in the US, like Ohio State or ASU or any of these places, they don't do that.
They want to publish in good academic journals.
And that incentive structure reinforces the kinds of behaviors we've been talking about.
About so in institutions like this it's never never going to change or at least when i say never never at least within my my my time as an academic and probably for the next the nextgeneration but to untangle those incentive structures we also have to alter the research process so they're the issues are systemic beyond incentive structures except for those uniqueinstitutions such as imd who have basically divorced themselves from that kind of um academic world.
[22:38] So to speak.
Balancing Curiosity and Relevance
Brent:
[22:40] And then, do you see an advantage of academia being able to ask, quote-unquote, less relevant questions for the sake of curiosity since they aren't profit-driven?
Because I know one professor we talked to here, what he liked about academia is I have the ability to be curious and ask different questions and not have to worry about the implications.
So, do you think there's a benefit for asking for the sake of asking?
Andrew:
[23:08] No. No.
Brent:
[23:09] No.
Andrew:
[23:10] What time did you wake up this morning?
Brent:
[23:11] What, 8 a.m.? Yeah.
Andrew:
[23:13] Is that relevant to anybody?
Brent:
[23:15] No.
Andrew:
[23:15] We've addressed it. We might want to investigate why you go to wake up at certain times or what's the variance or what is it?
A bit of a ludicrous thing, but there has to be some relevance.
So yes, we want freedom to pursue questions of interest.
And we do want to have that flexibility to have a wide range of questions being asked because there's enough uncertainty about what's important that we need kind of a scattershotapproach to maybe have 10 very unconnected questions being asked, but then accepting the subsequent proved relevance of them, of only two of them being proved relevant.
So we do have to have some independence, but we can't just move into tangents where we don't, where questions are just not asked. And in fact, that's a primary reason for rejectingresearch.
People will say that, yeah, you're asking a question, but it doesn't mean anything to anybody. So I think what that other person was referring to is they want the independents to choose aquestion that they pursue within the broader scope of what the field sees as reasonably acceptable.
So even though the person has said that, they've failed to contextualize that their choice is conditioned upon what at least some section of our field feels is important.
Once some section of that field believes it's important, then there's a reasonable amount of community that suggests importance. Okay.
Brent:
[24:33] Yeah.
Keller:
[24:34] And then with the research not being able to make full causation for a given company or a given industry, and that being different from consulting, is there a limitation of dataavailable to institutions versus what consultants get that might be causing that?
Or is it just an issue of asking broader, or not broader, bolder, rather, questions?
Andrew:
[24:54] There's a couple of items related to that. One is that, I would say consulting firms are not as uptight about causation as we are as a field.
So as academics, we're always highly, highly critical of work, and not in a bad way, but in a way that we want to ask questions to try to ensure that the research that is published is asrobust as possible.
For consulting firms, they're more willing to work with causation and infer causality.
And so they're less perplexed by that foundational element to their epistemology.
[25:29] So these are fundamentally different pursuits. With respect to resources, often consulting companies are more well-resourced than academics.
And so that once they've decided that they can pursue a particular area, they can throw a lot of money at it, a lot of people at it, and make it into commercially viable proposition so it isn'ta money-losing operation.
Whereas for most research in a business school, it's generally a cost-center-based approach, not a profit-center-based approach. So consultant companies will choose questions that theyknow will have a commercial interest.
They'll throw resources at it.
They'll do it with reasonably strong research standards, but they won't get caught up in the whole rigmarole of theory and causation.
Instead, they'll just develop something that is of interest to managers where they can come in and say, look, if we're doing M&As, here's two or three things you need to think about. ofwe're doing M&As across the world.
Here's where some succeed and others don't succeed.
Here's a few things you need to think about. And that's what managers are looking for.
They're not looking for somebody to solve all of their problems.
They're just helping them to narrow their range of choices and reduce the uncertainties that they face.
And this is particularly profound at senior levels in management where the level of uncertainty is much, much greater.
And the impact of any decision they make is much more profound throughout the whole organization.
Brent:
[26:52] Are there partnerships occurring between consulting firms and academics?
Because I'm sure they have access to a way greater range of data because they've worked with, especially the top ones, they've worked with so many companies for so many years.
But then I also could see there being proprietary issues with that as well if they open up their access to the data to academics that ask the questions too.
So are there partnerships occurring? Is there a data imbalance that makes it a lot easier for them to do their job versus as academics certainly.
Andrew:
[27:23] Some of their data i'd love to have access to but there are proprietary nature's nature to it and it could also be based upon confidentiality reports that they sign with their dataproviders or their their um their data sources and that's independent of any just uh organizational commitment to hold or not uh to hold or release uh release data but there are partnershipsand some of these partnerships are amongst the most fruitful that we've seen in terms terms of generating new knowledge.
So I've had colleagues of mine who have worked with consultants and they've generated actually books instead of academic papers, but also academic papers or both academic papers andbooks that then address a very, very tangible issue.
And they do it in a rigorous way. And I think it helps people substantially managing organizations.
So it's not the standard, but where it does occur, it can generate fairly positive results.
But because the The KPIs, so to speak, for consultants and academics are different.
It's difficult to find a mutually beneficial project.
Brent:
[28:26] That makes sense. And then one of the professors I had this summer, he got pulled into a hedge fund.
Have you been asked to sit in on strategy meetings or boards or get pulled into different projects like that?
Andrew:
[28:40] There was a story about NYU finance PhDs. and they would be pulled out of their PhD program by the second or third year to move into some of those big funds because they havethese superior technical skills.
And when they were facing the dollars that they would have from these companies, particularly there was upside benefits versus what they would gain in academic career, which isactually not bad as a finance professor.
They would then just say, why do I need two or three more years of this stuff? And I'm going to go.
So there's poaching that does occur, but that's when someone has a very precise, technical sort of skills.
So the ambiguity with someone from my background, which is a strategy that exists with respect to the corporate community is, hey, what value can you add?
And generally they cannot discern that value from your CV or from your webpage.
It's only when they interact with you and they speak with you and then those opportunities emerge.
So I would say we don't have cold calls from consulting companies or that's very, very rare, but it's more when we develop the relationships with these companies based upon mutualwork, whether it's in an an educational program or some other program, then some of those, those opportunities do, do come up.
Keller:
[29:49] Then we've mentioned it a few times, the multinational corporations.
Yes. I think we should transition a little bit into that.
So could you explain, first of all, what they are and then the role that they've been playing in developing nations, especially in East Asia?
Andrew:
[30:02] Yeah. So I'm just finishing a textbook. It's not a brand new textbook.
It's the ninth edition of an existing textbook and it's called Transnational Management. So it deals exactly with those multinational issues.
[30:13] The first author of that textbook is a guy named Chris Bartlett and he's based out of Harvard Business School. and he was around Harvard, he's in his 80s now and he was atHarvard Business School at the time that Harvard Multinational Enterprises project was being created.
And his first edition of that textbook was in the 1990s and it was based upon research, that kind of research that was done where they began to actually understand what are the structureand strategy issues associated with multinational firms.
Now that textbook has continued to progress and it was joined by my supervisor, Paul Beamish, and now I'm joining it as a ninth edition as kind of like the last author, But for whateverreason, they asked me to take part in it.
So what we see about multinational firms is they're – first of all, a multinational firm is a company that operates in more than two countries. Simple as that.
So a multinational is – it could be a very small company, but it could also be a tremendously large companies.
But not all large companies are multinational companies. For example, the biggest company in Indonesia, a private company, is a company called PT Astra. They have over 200,000people working for them, but they have very, very limited international exposure.
In fact, most of the Indonesian companies do.
So large doesn't equate to multinational. Again, it's a simple definition that they have an operational base in two different countries.
Multinational Corporations Definition
[31:28] So a company that just purely exports, we would not call a multinational company, even though they're engaged in international business.
Brent:
[31:35] What about the subsidiaries?
Andrew:
[31:37] Yeah, so they'll have subsidiaries.
Brent:
[31:38] Right?
Andrew:
[31:38] So some of these can be very, very large. So the Japanese companies that we studied, the largest, Those that had the largest footprint internationally based upon their subsidiarieswould have almost a thousand of them.
Brent:
[31:50] Wow.
Andrew:
[31:51] Now, but that doesn't mean they have direct operational control.
So we define a minimum equity holding of about 20% to be in a subsidiary.
So typically they, these kinds of companies, because they're wholesale trading companies, what they call the Sogo Shosha in Japan, they partner with at least two other companies and theyjust have a minimum presence.
And that presence gives them insight into what's happening as well as the equity ownership gives them some right to the cash flows from the operations.
So when we think about multinational companies, we think about companies like Toyota, or maybe GM, or even in the present day, Amazon, TikTok, they're all multinational companies.
So again, operational base in more than two countries, and typically many, many countries.
Very, very few multinational companies operate everywhere in the world.
We find most of them are highly regionalized. So if a company is based out of Asia, and it's multinational, it typically only derives most of its revenues and does situate most of itsoperations in Asia.
So multinational doesn't mean global, but it typically means multi-country, which typically cascades into regional.
So that's how we define them. Now, the second part of your question was- In developing.
Brent:
[33:00] What role are they playing in developing economies?
Andrew:
[33:02] Yeah. So this is why I referred to that book on transnational management.
Because if we go back in history to 1950s and 1960s, multinational firms were seen seen as evil entities because they were regarded as companies that exploited.
[33:18] Their local environments. So for example, some company, let's just go to GM, would want to source its raw materials, they want to vertically integrate to source raw materials, eventhough it doesn't do so, but just just as an example.
So it would then go to some country that had the requisite deposits of tin or iron or whatever, even though the US would probably have that.
But they would set up and then just set design that operation to minimize costs, exploit as much as possible in order to improve their cost structure domestically.
So there was no concern about the local environment, nothing related to ESG, just go in, exploit, arbitrage differences internationally.
We call those exploitative multinationals and that developed a lot of a negative reputation and it's why we saw in the 1950s and 1960s a wave of nationalization where multinational firmsthat had situated assets in different countries and lost those assets because they They were basically nationalized.
They were taken over by others and they were kicked out. Thank you very much. See you later.
That's not the trend in the present day. The trend in the present day is we see multinational firms as being more transformative, which I believe is a much transformative to theenvironments in which they operate, which I believe is an extremely positive outcome in many, many ways.
But one of the most positive outcomes is for the people who work in those multinational.
[34:40] Firms. firms, because now you're looking, for example, if I'm working for Unilever, I'm going into India.
And yes, I can sell soap in India, or I can sell any of my fast moving consumer goods in India.
[34:54] At the end of the day, do I want my career to be about having generated, improved the ROI for Indian operations from 5% to 6% or ROS or whatever?
Is that something I want to go home and tell my kids about? Or is that something I want to brag to my friends about? No.
[35:09] But given the resources that are available to multinational firms, they can actually help to correct some of the deficiencies or address, pardon me, not correct, address some of thedeficiencies that exist in operational environments.
So there's a reason why I gave the example of Unilever, because this is actually what they did.
So when they were selling soap in India, they understood soap as being the major way to combat some insidious diseases that were killing millions of children before they reached the ageof five.
So basically waterborne diseases that are cascaded into the individual because they don't have proper sanitation.
Transportation so yes they needed to sell soap but they needed to sell soap in a way that had a very very wide scale distribution and they had to ignore what was the maximizing the pnlrelated ideas to maximizing the reach of the soul and so they were able to do this through a variety of partnerships with government and other areas and they could transform theenvironment through educating literally millions of families about the importance of very very simple simple hygiene And this became a very powerful outcome and a very powerfulmotivator.
And when you talk to people who worked in Unilever in India, Hindustan Lever, they felt a tremendous amount of pride in what was done.
And there's this really great commercial on YouTube that shows this Indian guy.
It's about three minute long commercial walking on his hands for like two minutes.
Brent:
[36:37] I think I've seen it. Yeah, yeah, yeah.
Andrew:
[36:38] And that's the foundation for it because his child survived to five and it was the first of one of several children to actually survive to that age.
Multinationals in Developing Economies
[36:46] But that was as a consequence of the multinationals. So we want to see multinationals to be more transformative to the environment and use the economic power that they have, theresource power that they have, not just to have generate sensible careers, not just to generate money to stakeholders, but actually start to address some of those issues that are not beingaddressed in these different environments. Right.
Keller:
[37:08] What do you think caused that shift from the exploitive multinational to where we are today?
Was it the world trade, you know, different agreements within those organizations?
Or is it just a shift in how business owners and business managers view themselves in the world?
Andrew:
[37:22] Number two, and academics are foundational to that. And this is where we encourage in our institution to address these issues directly.
So when I teach to several different groups about multinational management, and I make sure we spend a lot of time considering this, and we go through a progression.
I don't want to walk you through all of my pedagogy, but we walk from a premise that people are.
[37:45] If we go back to the words of Oliver Williamson, who was at UC Berkeley, who was a Nobel laureate, he talks about people as being self-interested and opportunistic in theirbehaviors, which is true, right?
We want to benefit ourselves, but we want to also create organizational structures that constrain self-interested behavior.
And we want to create educational environments that suggest, hey, yes, you can be self-interested, But being self-interested doesn't mean you can ignore others.
So as we progress through our modules, we talk about where you can take action and where even if you're just in the first few years of your work and have a very limited scope ofresponsibilities, where you can understand that the decisions that you make can either perpetuate problems or begin to address those different problems.
And we go through a number of examples to reinforce that behavior.
And then by the end of the module, we understand, hey, a lot more is possible.
So for example, we had, as an example of that, we had the chief legal counsel for KFC and Taco Bell come speak in my class.
And one of the things they've done in South Africa is they have a food distribution program.
So what you might not know is that in KFC, there's a sell by date to chicken.
And in Taco Bell, there's a sell by date to tacos.
But that doesn't mean the food is bad. It just means that the restaurant has decided that.
[39:07] They don't want to risk any kind of, they don't, they don't want to have any risks related to foodborne diseases or, or, or whatever.
So they, they, they, they, um, have excessive caution.
So, but what to do with that food if it's still good? So they actually distribute that food to like 200,000 children per day or something like that.
Yeah. It's a phenomenal number, right?
But then if you also look at KFC and Yum! Brands, they have like literally hundreds of thousands of locations worldwide.
So it's not that much, but that's something that they've consciously done.
Be much easier for them to just toss that waste.
But instead, no, they figured out how to create another supply chain to get that food into the needy.
And again, this is something that the guy is really, really proud about, and he feels it's important.
And it's not just him, of course, it's what the community does.
And the corporates have to devote efforts to that.
So the more we see that, the more we realize, hey, there are these tangible spillovers, which is reflective of a change in mindset.
Uncertainty in Dealing with China
[40:00] That's partly what's becoming de facto practice practice in the organizational community, but our business institutions have to feed into that process.
Brent:
[40:11] And then is there even conversations about the fact that, so like with Unilever in India, if you have more kids surviving, everyone understands, oh, Unilever, they did this, like theIndian government's going to be more likely to help them out on deals, give them more access.
Ultimately, it might be like a five, 10-year loss on the P&L, but after the period where you've established and you've really helped the community, you open up so much more deal flowand like all these other opportunities.
Like, is that ever part of the conversation too? Like, yes, it's for charity.
Yes, it's to benefit, but it's like also long-term, there is a strategic benefit.
Andrew:
[40:46] Definitely. So you don't want to make that the primary reason why you do things.
But at the same time, we like to say that corporate CSR is not charity.
There has to be something in it for the company. So the Unilever was not losing money.
Brent:
[40:59] Yeah.
Andrew:
[40:59] It's just the margins were less than what they would have had otherwise.
But certainly in terms of...
Reinforcing their reputation in the corporate community in India, that's really important.
And why India is particularly important, a particularly important place to do that is because there's a lot of skepticism about multinational firms in India.
And we just have to go back to the Bhopal disaster in 1984 from Union Carbide to understand why some of that persists.
But that's just one example of many others where multinational firms did things that It led them to be vilified, and they have to re-correct their reputation.
Brent:
[41:38] Could you give a brief explanation of what that event was?
Andrew:
[41:41] Bhopal?
Brent:
[41:41] Yeah.
Andrew:
[41:41] Oh, very brief?
Brent:
[41:43] Yeah, sure.
Andrew:
[41:43] Yeah. Tens of thousands of people died from gas being released from Union Carbide plant.
Brent:
[41:49] Wow. I understand the distrust.
Keller:
[41:52] Yeah, okay.
Brent:
[41:52] Yeah.
Keller:
[41:54] So when firms are looking to go international, what are some of the things that they can use to think about that decision of, like, maybe where to go.
I got to get that lecture on the AAA framework.
Yes. Maybe giving a concise version of that or some of the other ways that a firm can decide on where to go, when to go, and how exactly they need to approach that market.
Andrew:
[42:13] Yeah. So the first consideration is we have to think about why we're going into international markets.
And the way I break it down is, is it an opportunistic decision?
Is it a strategic decision? Or is it a long-sighted decision?
So the example you gave about India and the positive spillovers from those branding efforts are what I call long-sighted decision.
We know there's going to be a cascade into a better brand and better corporate replication, but it's going to be far down the road.
If we're a long-sighted company, we're going to be thinking about those issues because these are decisions we take today that make us a much more powerful company 10 years down theroad.
Most companies don't think about those kinds of issues. So either they're operating in the opportunistic or strategic direction. The opportunistic is.
[42:56] I'm selling these shoes and I've got this person contacting me.
Let's just say I'm based in the US. I'm selling these shoes and I got this person contacting me from Brazil and they're interested in importing them.
Oh, great. I can get an extra revenue stream. Why don't I just set up an import contract?
So that was never part of our core strategy of expansion.
All it's seen is a low hanging fruit where I can grab some extra revenues.
That's often a primary driver for internationalization.
[43:26] But it's not one that's sustainable in the long term because it doesn't really feed into what's our capability base and how we differentiate ourselves and how we succeed incompetition.
So then the strategic approach is that, hey, we actually make really unique shoes.
Where would we be able to sell these shoes? Who would be willing to pay for them? Who would cover our price point at maybe $250 per pair of shoes?
What do we need to do to be able to do this? Which kind of markets would then be suitable?
So that's the process we would have to go through. So when we're operating in the strategic realm, now that we've eliminated the international national opportunistic.
Then we have to go through our standard processes of understanding the markets and learning about them.
But then those processes mimic what we would be doing on our domestic market, but we have to think about what's different.
And then of course, the different things are easy things like language and culture, more different things like the political and regulatory environment.
Most companies are really good at understanding language, culture, although there's always pitfalls to it.
But where they're really weaker is in understanding the political regulatory environment, which speaks to a lot of the uncertainty emerging around whether we should be doing business inChina in the present day.
Brent:
[44:29] Yeah. Let's dive into that a little bit more then. What is going on and how do firms deal with this uncertainty?
Andrew:
[44:37] They deal with fear. Seriously, they're scared.
And it's frightful. And there's one of the most interesting trends we've observed within organizations and individuals is when uncertainty levels increase, their propensity to mimic othersalso increases.
So we get this kind of hurt. In financial markets, it's called hurting behavior, which leads a lot to momentum.
So in different kinds of phenomena, it takes different terminologies, but the baseline idea is greater than uncertainty, the greater the memetic behavior.
[45:17] So the challenge within China right now is there's just a lot of uncertainty.
It's very, very difficult to read the environment.
It doesn't make it impossible, but it's difficult to read.
Much different than the American political process where much is telegraphed and given.
And in any democratic system, politicians have to signal what they want to do.
Now, whether they do it or not, there's still a reasonable process.
Moreover, the legislative process is also transparent.
A bill is created. We can see whether there's going to be support in the various houses and so forth.
And then whether or not the final authority, the executive will sign it into law is there. And we know how to intersect in that process.
And this is where there's not a lot of uncertainty. Unfortunately, in China, it's a black box process or it's a gray box, not quite black box, but it's gray box.
But it's very difficult to read those gradations of gray about what's happening with the uncertainty in those markets.
Political Uncertainty in China
[46:03] That uncertainty in China, which is caused by a greater concentration within the center, which is President Xi Jinping and his six, seven-man Politburo, is completely really, reallydifficult to read. read.
Moreover, this is exacerbated by the tensions that exist between China, the US, and increasingly the rest of the Western world.
And even into the ACN now, there's a lot of uncertainties about dealing with China.
So when you have difficulty to read, and then you have your home country governments telling you to stay away from there, then the cascade is to get out of the country.
[46:45] Now, the challenge is that this is the opposite of what was occurring 20 years ago, where everybody was going into the country under the same uncertain, less uncertain because itwas still an authoritarian government.
But at that time, their processes were more, what we could say, were slightly more, had slightly more checks and balances.
So there's a word that's used in China to describe the checks and balances, which are typically occurred through a multi-party, multi-system state, is they have something called the intra-party politics, which is in Chinese is dāng ne ming zhu.
Okay, so this is, But what President Xi did is he basically eliminated all the factions.
So now the senior leadership is just basically people who are his best buddies, right?
It's called like literally an all boys network because it is all boys and all old.
[47:31] So they just make decisions and then they give out those decisions.
But the thing is, why I say it's a gray box is because if you look, they actually signal the same way the Fed in the US signals where interest rates are going, they also signal because theydon't want to have too much unpredictability.
But it's very difficult to read those signals. And as I mentioned, most companies don't have the political skills.
So they don't know how to interpret those signals. In fact, there was a report from EY Ernst & Young that surveyed companies in 19, just post-COVID or during COVID, and they said,what is your weakest corporate capability?
And 75% of them said, we just don't do political analysis very, very well.
So anyway, it's a bit of a gray box. It's very difficult to interpret those signals, which creates the uncertainty, which creates a mimetic behavior, which is then exacerbated by this situation.
And the consequence is that many companies are actually downplaying China to too great degree.
Degree and so that's so us as academics we have to try to address this to say hey look please be more careful and think about why you're making this decision and yes we know it'suncertain we know there's lots of challenges to it we know there might even be corporate policy saying you have to recast your assets but don't forget this is a very important market thathas a lot of positive attributes particularly in areas like e-commerce and and uh uh electric vehicles and and so forth.
Importance of China in Innovation
[48:55] So let me ask you a question.
China is very important with respect to innovation.
[49:01] In 2022, what percentage of US patents had a scientist as one of the contributors to that patent who was based in a Chinese institution?
Brent:
[49:15] Maybe 60?
Andrew:
[49:17] 60%. No, it's about one third. But that's a lot.
Brent:
[49:20] Right?
Andrew:
[49:21] So what I'm trying to say is is China, most people would have guessed 10%.
So I appreciate that you went the other way.
Maybe that's a consequence of being here as well. So you appreciate that China is going to be a very important contributor to knowledge in the world.
And if part of the success of firms is based upon their abilities to innovate, be at the cutting edge of various technologies, then you can't be completely divorced from that market.
Brent:
[49:44] So, yes. Was the patent holder, the contributor, was it a Chinese national or like an expat living in China?
Andrew:
[49:52] It would, it would, it was a very tight definition is a Chinese national working at a Chinese institution.
So that even ignores Chinese nationals who are working in American institutions or, or which would basically be the case because that's where the most patents are generated or foreignnationals working in Chinese institutions.
So probably underestimates. So the actual answer is, is likely between one third and 60%. Okay.
Brent:
[50:15] Yeah.
Andrew:
[50:16] Yeah.
Brent:
[50:17] Because I know there's a theme or like an argument online that China steals a lot of like IP. They have.
Andrew:
[50:24] Yeah.
Brent:
[50:24] Yeah.
Andrew:
[50:24] There's even a whole industry that was created they call Shanjai, which is the fake products industry.
So sometimes that's just like fake LV bags, fake Nike shoes and stuff.
But yeah, they've pulled a lot of technology into the country.
And then the big issue is now that they've come up to the technological edge.
Can they start to move from imitation to an innovation environment?
Yeah. So when, you know, China's economic miracle, where they went from basically an agrarian society to a sophisticated technological society, couldn't have been done on indigenousinnovation.
Brent:
[50:55] Yeah.
Andrew:
[50:56] There's something called time compression diseconomies.
It means that regardless of how many resources you throw at a process, you can't compress time too much.
Brent:
[51:09] Yeah.
Andrew:
[51:09] So if China was to organically develop all of the technology that would have taken it from where it was in the 70s to where it is in the present day, exactly.
Brent:
[51:18] You're shaking your head.
Andrew:
[51:19] They wouldn't have been there. So there's no question this is happening.
And unfortunately, that corporate theft is still happening.
And unfortunately, some of it is state-sponsored, one can reasonably say.
Brent:
[51:29] Because looking forward into China's growth potential, given the fact that they do steal, and a lot of foreign national companies are getting scared of China, especially post-COVID,realizing how much they had on the line in China.
As firms pull out and try to diversify their risk, do you see China's growth potential being as strong as it was originally projected, especially pre-COVID?
Andrew:
[51:54] So there's another good question. So the idea is not to remove yourself, but the idea is how, if we accept prima facie that this risk exists, how do we guard against it?
And unfortunately, many companies didn't do so under the corporate greed that existed that led them to go into China in the early 2000s and late 1990s and early 2000s that allowed thattheft to exist.
So there was no disguising this in public policies in China at that time.
China allowed a lot of joint ventures to be created in entering that country.
And when those joint ventures were being set up, they're saying, hey, look, we want to transfer managerial and technical skills from foreign companies to our local companies. That wasstated.
It wasn't a hitting. Moreover, it was supported by the type of organizational structures that were set up, meaning that any foreign company that was coming in typically took a minorityownership position in their joint venture.
They had a private company join it as a joint venture.
And then they also had a state company or it'd be a typically tripartite or maybe, or a two party joint joint venture, but usually the foreign partner was in a minority equity position.
So it allowed Chinese firms to get much better insight into the, into the technology of these companies.
Brent:
[53:15] Yeah.
Andrew:
[53:16] And, and that doesn't always exist. So for example, I mentioned before about PT Astra, they have a lot of technology joint ventures joint ventures with Japanese companies, butthey've never actually tried to backwards vertically integrate or re-engineer the processes so they could dump the Japanese partners. They were quite comfortable.
But then again, they never explicitly had industrial policy to do so.
So people ignored the signals in the past. Now we know that that is there.
Safeguarding Core Capabilities
[53:44] So if we know that's there and we know the market is important, then the strategic approach and the long-sighted approach is to think about how we put in the proper organizationalorganizational safeguards to limit, reduce, or ideally stop the unwanted flow of our core, capabilities, of our differentiable capabilities, be it technology or other things to the localcompanies.
Brent:
[54:11] Yeah. Having the no mandate is funny because I was talking with an investor from Singapore who has done work in China.
And he's like, he got on one deal, he got specifically close to like one of the Chinese nationals. And he said, oh, yeah, I like you as a friend, but like, I don't care about you whatsoever.
Like, yeah, I'm here to benefit my country, my company. If that means screwing you over, I'll happily do it. You are irrelevant to me.
You are here because it's benefiting us more than it's benefiting you.
Like we will like Chinese people do not enter deals unless it is more beneficial to the Chinese.
Andrew:
[54:43] I think that's a good example.
Brent:
[54:45] I don't know if that's the case everywhere.
Andrew:
[54:47] But it does describe a mindset that we have to be careful of.
And that mindset would exist elsewhere as well.
Brent:
[54:52] Yeah, definitely.
Keller:
[54:53] And why do you think firms are deciding, even though there is a general pullback from China, firms are staying in China despite the fact that labor costs have gone up.
Andrew:
[55:02] Yes.
Keller:
[55:03] And it's no longer, when we were growing up, we always thought, oh, you go to China because it's cheap labor. Yeah. Do I understand that's no longer true? Yes. Why are firmsstaying there?
Andrew:
[55:10] Yeah, that's another really good question. So someone asked me that a few years ago, and I gave the answer, and this was on CNA, and then the response became a very big TikTokphenomenon, because I was talking about the positive aspects of the business environment in China.
So China has not been cheap for more than 15 years.
In fact, 10 or 15 years ago, I just put together the variable labor costs, and even compared to Indonesia, China was more expensive labor-wise.
But labor is just one component to the cost of production.
Other things that people look for are, for example, an ecosystem of firms who are either your competitors or suppliers and buyers.
We've had a great big ecosystem develop in multiple industrial areas in China, whether it's in all throughout Guangdong, or whether it's in the Bohai Bay area, or whether it's in Shanghai,Nanjing, Jiangsu area.
There's great industrial ecosystems. It's difficult to be the first one to leave.
Some companies have left. So for example, Intel didn't leave, but they did decide to situate one of their big, not, yeah, is it Intel? Sorry, it's Intel.
They did decide to set up one of their big factories in District 9 in Ho Chi Minh City, which was a brand new plant.
Samsung subsequently set up something that starts the creation of a new ecosystem.
But what Vietnam doesn't do, what China does, is develop awesome infrastructure.
And so it's very, very easy to get around China. China. Have you guys visited there yet?
Brent:
[56:38] We're going to.
Andrew:
[56:39] You're going to be there.
Brent:
[56:39] Tuesday, yeah.
Andrew:
[56:40] So you'll see it. You'll see it. Roadways, railways, high-speed rail, it works really, really well.
So for you as a business manager, you think, hey, can I get my goods in and out of the country?
Can I get people to work there? Can I connect to the firms that I need to be able to connect to? Can I move goods as I want to be able to move goods?
These are all non-issues within China, zero.
Go to Vietnam? Yeah, you can build something, but you can't move it because the roads are not being built.
So even though Vietnam is an authoritarian government like China's government is, they're not a commercially oriented government as much as China's was, who for decades operatedunder the idea we need to improve the economic prospects of the country.
So it's because all those other features of the business environment soften the impact of the increased wages and give companies a very, very good reason to be there because the cost baseis much lower for these other dimensions, and therefore when we accumulate all the costs, it's still a very cost effective place.
Keller:
[57:40] Are there other nations with a similar infrastructure that can compete with that?
I know a lot of companies I heard are moving to India as a hedge against China for manufacturing.
Does their infrastructure even come close?
Andrew:
[57:52] Not exactly. Again, good point. Not even close. Not even close.
I'll give you an example. A few years ago, I traveled to Hyderabad, which is a nice area in the south of India. The airport is is, is awesome.
It works really, really well. I think it was, is operating in, in, in, in, it might or might not be, but I think it's operated with some, uh, uh, inputs from Changi airport.
So you go to the airport, you arrive, you get through quickly, 35 minutes, you're out of the airport with your luggage, you get in a car, you drive on the road. It's a good highway.
10, 10 kilometers on the highway or six miles, uh, for you guys, if you don't mind, uh, all of a sudden the highway stops.
[58:30] And then there's this little side detour, dirt detour, like literally a dirt road, then you join the highway again.
And then it stops again. So you have this lack of implementation of infrastructure in India. Now, that's been improving the past few years.
And that's where Mr. Modi took over as prime minister.
And part of his mandate was to create a greater sense of decision-making power in the central government and also empower state governments to be able to make those quick decisions.
Now, one reason China can build out infrastructure quickly, aside from technical expertise, is they don't run into stakeholder barriers when they have to expropriate property or buyproperty or go through environmental assessments or any of those other things.
India is a much more diverse environment. It's a fascinating democracy, but that often leads to what we call a status quo bias or the tyranny of the minority.
So even though something is good for everybody, but because they have an open democratic system, those who are hurt by it will voice enough displeasure that it doesn't get done.
So that's part of the challenge within India and why we don't see the same kind of infrastructure or what we call enabling institutions miracle or progress that occurred in China ashappening within India.
So to your question, do any countries do this?
[59:50] Malaysia has definitely done it. Malaysia has great infrastructure.
Obviously, Singapore has done it. Japan did it.
If we remember, Japan was a bombed out country in the 19, you know, very poor country in the 1950s. Sorry, I should use those words.
Indonesia is trying to do it and they have done it. So the area, the, and about 200 kilometer radius around Jakarta, which connects to places like Bogor, Bandung, transportation times havebeen reduced by 300%.
So what used to be a seven hour journey is now down to a two hour journey, or even going from Java to Sumatra can be done within a day, within a few hours.
So definitely they made this a priority, but no one has done it to the scale or extent that China has.
Brent:
[1:00:29] And then is anyone trying to build infrastructure around the world that China is?
Infrastructure Development and the Belt and Road Initiative
Andrew:
[1:00:34] The Belt and Road Initiative?
Brent:
[1:00:35] Yeah.
Andrew:
[1:00:36] Not really, but there is kind of initiative.
I think that, I don't know enough about this. It was started by a series of Western partners, but there's not quite the devotion to it that is being done by China.
Brent:
[1:00:52] Yeah. Could you see a world where that's actually a threat to Chinese dominance?
Where if they help build infrastructure around the world, Like it might open other doors for people to go elsewhere than China.
Andrew:
[1:01:05] Essentially, we need to create better connectivity to Africa and to a few of the other markets within Asia and definitely within South Asia.
Those are the areas that really need this kind of connectivity.
Whether it's done by China or anybody else will be interesting to see.
I think we're moving into areas that I don't really know about.
So I'll just speculate or I'll just say what is off the top of my head, which could easily be incorrect.
So if anybody's listening, they should fast forward at this point in time.
But in any case, those were often done like public-private partnerships or even by aid agencies who tried to do something.
But they never really had the, how can I say, the force of the central that China had to facilitate that kind of project.
So many of these projects build a dam here, do something there.
Might have been reasonably successful, but they never had quite the comprehensive strategy or the full dedication of resources that the Belt and Road Initiative has for China.
Brent:
[1:02:05] Yeah.
Keller:
[1:02:05] And similarly to the Belt and Road Initiative, which is primarily, you know, at face value argued at, you know, creating a green world beyond the connectivity.
Do you look at climate change at all when you're factoring into global research?
And if so, how do you, I guess, weigh it across the other incentives for a firm?
Andrew:
[1:02:22] This is a major cultural shift we're facing in all institutions, but particularly for those in Southeast Asia, which is how...
Aggressively do we address climate change issues?
And the truth is that in this part of the world, we're two decades behind Europe and probably a decade behind North America in terms of thinking about these issues.
So they're essentially non-starters for most companies, although they're starting to seep into corporate talk.
Now, seeping into corporate talk is different and then seeping into corporate objectives.
[1:03:06] So if I talk to many of the major banks in this part of the world, they know sustainability is important, but they haven't cascaded it into broad level strategic objectives, into visionstatements, into mission statements.
And so it's not cascading into their lending practices as much as it could be or in other types of practices.
But if we compare it to a French company like BNP, a French bank like BNP Paribas, 2016, they provide their mission statement to say, to conclude with the words, we want a sustainableworld or something along those lines.
Once you build it into objectives instead of just corporate speak, then it actually cascades into action. And we look at what BNP does.
They do a lot on sustainability and they have what I like to call black and whites.
There's certain industries they will lend to, there's certain they won't.
Even if that industry that they won't lend to had a terrific pro forma income statement or they would be willing to accept high interest rates, they just stay away from it because they don'tbelieve it's there.
So we still have a lot to do to educate people around sustainability issues and a lot to change with respect to consumer behavior.
So let me just give you a very, very small example of it. So two small examples.
You walk around Singapore, do you ever go grocery shopping?
Keller:
[1:04:23] Yeah.
Andrew:
[1:04:23] Or you eat out all the time? You ever see how much fruit is wrapped in plastic?
Brent:
[1:04:27] Yeah, a lot. Yeah, yeah.
Andrew:
[1:04:28] It's, it's, you know, you just can't escape it. And it's, and it's ridiculous.
So a place like Francis had no more, no more, no more wrapping fruits, but I was playing golf in Thailand and I went to, to buy a boiled egg. So I found a boiled egg.
It's just one of the things that were, that were there.
Two or three, last time I, usually when I play, they're the boiled eggs, just boiled egg, right? Egg wrapped in a shell.
Now they've de-shelled the egg, but then put it in plastic. So you're thinking like.
Keller:
[1:04:52] Yeah, okay.
Andrew:
[1:04:54] It's not even more convenient for me to disrobe the egg, the plastic around the egg than it is to take off the shell.
But this is just like the complete, I think it shows a mindset that these kinds of issues are just very, very low on the priority list.
Brent:
[1:05:10] Yeah i think that's fascinating too because like a lot of climate impacts are impacting southeast asia like especially hard and before the rest of the world yeah like when it comes tolike a lot of trash and pollution all the major producers like all the major contributors like rivers are in this part of the world for the most part and then coral reefs and like the oceans likethis is especially sensitive to all these different changes so and also i would probably argue like there's still pretty agricultural driven society, this area.
So it's like, if your main economic foundation is that, but you're not taking into effect how that can change, that just seems pretty crazy that they're that much farther behind.
Andrew:
[1:05:54] It is, but there are also success stories.
So Taiwan has actually done reasonable in terms of the environmental responsibility.
So the second biggest city in Taiwan is what is called Kaohsiung.
And the major river running through Kaohsiung is Aihe, which means love river.
That used to be a tremendously polluted river, but now over a decade, they've changed it into actually a very clean river that's a tourist spot.
It has a nice walkways, lots of scenic things. So these issues can be addressed.
When countries have the resources and they've reached a level of income where environmental issues can actually, reach a level equal to economic ones.
Brent:
[1:06:39] Do you think multinational corporations are going to be driving a lot of that change here?
Andrew:
[1:06:43] Unquestionably. Yes, they have to be. They absolutely have to be.
So the difficult questions we ask is where should change come from?
Should it come from changing consumer behavior? Should it come from the regulatory environment from governments? Or should it come from organizations?
And my belief is consumers too heterogeneous a bunch.
Maybe you'll be very attuned to these issues.
You know where your shirts are made, whether uh where you know where where um you'll read labels you'll look at co2 content you'll pay for carbon when you fly all of those thingsokay good you will do it but 10 other people won't and even if uh, Half of those 10 people do convert. We still have others who won't.
So there's just way too much heterogeneity.
But in the corporate environment, I think we can see change.
And managers are serious about this, and they're concerned about it.
And we have a generation such as yourself who are attuned to these issues.
My hope is that as we grow up with that enthusiasm, it doesn't get muted when we discover the realities of corporate life.
Instead, the realities of corporate life need to reinforce that behavior rather than reduce that behavior. So small things like changing the cap size on a bottle from, you know, a centimeterthick to half a centimeter thick saves a lot of plastic.
Or what I see in takeaway in Singapore now is actually very, very little plastic.
But if you go to Vietnam and you order takeaway food, you'll see plastic wrapped in plastic wrapped in plastic.
And you'll be challenged to find your food amongst all that plastic.
And that's just simply because there's just not that mindset being developed.
Brent:
[1:08:11] Definitely.
Keller:
[1:08:12] And then you mentioned the income in developing countries and like you need income to really focus on environmental issues.
Do you think that there's a way around that where a country that is still developing with help from multinationals, with help from other nations could implement more environmentalfocused initiatives as it's still developing its income?
Andrew:
[1:08:30] Yeah, again, these are issues that are more tangential to what I do centrally.
But what I understand from the COP agreements, and why there's or the COP discussions, is that developing countries want financial help from the developed countries, because theybelieve they're the ones who have benefited from egregious by environmental behavior.
Addressing Climate Change in Corporate Strategy
[1:08:50] And before those same developing countries are put to those standards, they should have some of those wealth flows given back to them to facilitate that transition. So I don'tthink the economic will trump the environmental just yet.
Brent:
[1:09:06] And then do you worry at all about a decrease in globalization, especially as like- Not at all. Not at all?
Andrew:
[1:09:12] Not at all.
Brent:
[1:09:12] Even after COVID, wars are going on, like war on stability.
Andrew:
[1:09:15] In fact, this is a question I put to my students in my class.
So in the second or third class, I asked them to, I canceled that class, like physical class, and I asked them to make a video report.
And I say, address the globalization debate.
And I just give them a few references. And I say, are we in a state of globalization, deglobalization, or something else?
And almost all of them conclude based upon their evidence that we're in a what we call globalization in a sense right so it's still globalization but it's still there but the the returns toglobalization are still very positive and the reason why people talk about deglobalization is they is they misinterpret the relocation of enterprises say from china to elsewhere as a sign thatglobalization is not continuing but deglobalization means we're not We're seeing more assets being homed than being offshored.
And still, there's much more FDI than there is whatever is the reverse of FDI, reshoring.
So yeah, we do see some things returning to their home countries, some activities, but that's far outweighed by the number of activities that are still going elsewhere.
Brent:
[1:10:22] Yeah. And do you think that's more driven by policy than it is corporate decisions?
Andrew:
[1:10:26] It's driven by corporate decisions, but policy supports it. So why people talk about deglobalization is policies are slightly less supportive to globalization.
So for 30 years, we had very, very strong policies, particularly from the US that were extremely supportive of globalization. The US actually doesn't need globalization.
It doesn't. It's a robust enough economy that it could be entirely self-sustaining.
And if you look at the history of the US for up until about the 1950s or 60s, it was largely domestically oriented because there was no reason to go elsewhere.
Work, wealthiest consumers, abundant, big country, lots of resources, heterogeneous working population have people who love to work in factories or don't mind to work in factories, havepeople who want to work in other kinds of jobs.
So there's all sorts of those, those, those, those possibilities, but, Policies facilitated the expansion of industrial enterprises, and while they might not be as conducive in the present day ormight not be as aggressively conducive in terms of their change, I still believe there's a very strong logic to globalization.
Keller:
[1:11:29] Is there any argument against globalization? mobilization?
Brent:
[1:11:35] At least a well-founded one, because I feel like there's been certain political figures around the world that are arguing a lot more on nationalistic policies.
So is there any merit there?
Andrew:
[1:11:45] I guess the merit is that you have greater control over what your companies are doing, but that doesn't mean you have greater economic benefits.
And then there's the idea that certain groups of individuals are hurt more by globalization than others, which is very true.
So there's a phrase I like to use where I say that for every American worker who was put out of a job, there should be 10 people somewhere else in the world saying thank you very muchor something like that, right?
Brent:
[1:12:15] Yeah.
Andrew:
[1:12:15] So I think it's the asymmetric benefits within an economy, and that's where policy has to be more aggressive to address it.
Now, in a socialist, more of a socialist democracy, it's a little bit easier to address because the history and the acceptance of wealth transfers, or even what we might call a national incomeor whatever.
Brent:
[1:12:40] A universal basic income?
Andrew:
[1:12:42] A universal basic income. Thank you. Yeah, I think that would be a policy that would be supportive.
The Asymmetric Benefits of Globalization
[1:12:47] But in other environments where the individual is the focus of the policymaking and individual agency is important to the culture, such as again in the US, then the idea of toomany transfers is not really suited for that.
So I think the idea, the biggest argument against it is that the benefits have been highly asymmetric, not minimally asymmetric, highly asymmetric, which has led to tremendous wealthdisparities, both in developed and developing countries.
If you walk around Singapore, you won't see it, but there are some people who are just barely surviving.
But then there are some people who are obscenely wealthy.
Now, that'll exist in every economy, but unfortunately, they're bulking up on the two deciles, the highest income and the lowest income decile.
And the same thing happens in other countries. So that's probably the biggest argument against it.
Brent:
[1:13:44] Yeah, makes sense.
Keller:
[1:13:46] And then pivoting a little bit as we start to wrap up, have you looked at all into like internal corporate governance in any of your work and, you know, like employee wellness,employee stress management and how that can help a firm?
Andrew:
[1:13:57] This is a big theme in Singapore and across Asia.
For most markets in Asia, corporate governance is not very good.
And the easiest way to look at that is to examine the performance of stock markets across Asia.
So whether the Thai stock index, Indonesia, Malaysia, Singapore, China, Philippines, you'll see these are very flat.
At the same time, the NASDAQ or the S&P have grown tremendously.
[1:14:31] And one of the reasons I attribute to this is a lack of good corporate governance that that protects the rights of minority shareholders.
These economies have all been growing at about 6% to 8% per year.
Even Singapore, not quite as fast as that, but it has been growing 3%, 3-plus percent per year.
But if you track the Singapore's stock index over a period of 15 to 20 years, you'll see it's just bounced between 2750 and 3500 for decades.
So basically, yeah, and so they pay out like 3% to 5% dividends on average.
So you make money from dividends, but you don't make money from capital appreciation.
And my point is that the governance is not strong enough to ensure that the rights of minority shareholders are protected.
So that's just one aspect of what governance should be. So the idea of good corporate governance to discipline companies to constrain the opportunistic behavior of the leaders of thosecompanies is still not in place.
And that's unfortunate. And we haven't seen it develop.
This is particularly important in what I call the four major other Southeast Asian economies, which are Indonesia, Philippines, Thailand, Indonesia, Philippines, Thailand, and the otherone doesn't come to mind right now. But anyway.
Brent:
[1:15:39] Vietnam?
Andrew:
[1:15:39] No, maybe Vietnam. Then within these countries, they have a lot of family-owned businesses that are listed on stock exchanges.
And the family tends to focus on benefits to the family and not benefits towards the minority shareholders.
And so that results in corporate governance practices that are, sorry, that results in corporate decisions that are beneficial to a small segment of society. Now, the Philippines is the most...
[1:16:07] Um affirmative case of this where what the people in power want to do whether the business or political elite is protect their own interests and they're not interested in nationaldevelopment they're not interested in organic company growth most companies in the philippines grow by acquisition not by the development of new businesses well if you grow byacquisition what are you doing you're just taking an asset that is producing something and changing it to ownership by another company but you're not actually producing much more evenand even if that company is slightly improved in its efficiency, it doesn't necessarily mean there's a great wealth gain in that economy.
So if you look at the wealthy Filipino life, it's great. You live in Makati or you live in Fort Bonifacio or you live in one of their protected housing divisions called Dasmarinas, which ifyou walk through that, you would never feel you're in the Philippines.
You'd feel you were in like a normal suburb in North America somewhere.
Somewhere so that the governance issues around getting people to think about hey i got to grow these companies hey i have to pay out to shareholders hey i have to be responsible to otherstakeholders just doesn't just doesn't exist to a robust enough degree and this is something like if i had you know a wish list about stuff i'd like to see happening in asia this would be one ofthem get people working in companies to think of someone other than themselves yeah.
Keller:
[1:17:27] What are some ways to communicate that i guess idea like how do you get someone who.
Andrew:
[1:17:31] Exactly what you guys are allowing me to do today. And I continue to hammer on this in my, in my classes and hopefully begins to be able to stick.
That's, that's the only thing I can do within this is just to give attention to the issue, give as much evidence to the issue.
Now I'm saying these in words, but I could of course show you the charts if I wanted to, to back up this, this, these ideas to show they're just not the rantings of a, of a, of a Canadianwho's unhappy living in Asia.
Keller:
[1:17:56] No, it's hardly the case.
Andrew:
[1:17:57] It's something that I've observed for 20 some odd years, and I believe there's responsibility to be able to address it.
So yeah, I just make it a point of conversation as much as possible, but I try not to make it a diatribe.
I try to make it an understanding about why these situations exist and how we can begin to address them because they're deeply, deeply systemic issues.
So it's not just a matter of saying, okay, we need to change a law, but we need to think about these issues seriously if we want to have a better world.
Brent:
[1:18:23] Well that's a great message to end on is there anything else you'd like to add before we sign off thank you thank you very much.