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units to come together in ways that distinguish us and
provide competitive advantage looking to the year 2000.

We selected three areas, namely, the systems and
telecommunications area, and there we are trying to drive
beyond our strategy in design work with commercial clients
towards implementation activities. We are also looking at
exploiting some of the advanced technologies we see in our
Government work, for instance space technology in helping
commercial industries take advantage of those kinds of
thrusts. Then, in the emerging markets like China, India,
Korea, we feel that there is a project engineering need
and a management consulting need, and if we combine the
strengths of both units we will have a bigger impact in
those markets.

Lastly, in the development area I think there are two
challenges that really face us. We are starting to talk
about something we call "B2K" - "Beyond 200", and it is
really an issue for us in terms of positioning Booz Allen
in the next century. What really are we compared to our
competitors around the world, and I think it has to be
something around being a world leader in technology and
business, because those are the two great strengths of our
company and no other management consulting company at
least has the technology arm that we do. So it goes back
to this linkage idea and really making it work for us.

In a personal way I believe that the challenge we
face is our growth. We have almost doubled the size of our
company in the last two years also the partnerships.
So we have goa to this year, after our
elections in Our only have 250/260
partners. Keep together in a spirit of
co-operation - and not compet and moving together
a challenge that is a really a challenge. It was
the reason we have learned by play is that because we
worldwide, and certainly the challenge has more than
doubled over the last couple of years.

So that is really the agenda and some of the issues
facing Booz Allen these days. Before I close I thought
that since Ralph, our President in Washington, is here,
and Ralph had some fairly exciting happenings there, our
business is really booming, maybe you would like to take a
minute---

DR KISSINGER: Could I ask a question about your China business? When you say you aim at state run Chinese, obviously

MR STASIOR: Right.

DR KISSINGER: ---enterprises because they are trying to get rid of most of those

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Lastly, in the development area I think there are two
challenges that really face us. We are starting to talk
about something we call "B2K" - "Beyond 200", and it is
really an issue for us in terms of positioning Booz Allen
in the next century. What really are we compared to our
competitors around the world, and I think it has to be
something around being a world leader in technology and
business, because those are the two great strengths of our
company and no other management consulting company at
least has the technology arm that we do. So it goes back
to this linkage idea and really making it work for us..

In a personal way I believe that the challenge we
face is our growth. We have almost doubled the size of our
company in the last four years and also the partnerships.
So we have gone from 140 partners to this year, after our
elections in October we will probably have 250/260
partners. Keeping the partnership together in a spirit of
co-operation - teamwork, governance, and moving together
and not competing internally is really a challenge. It was
a challenge that I faced in 1990 and I think that largely
the reason we are so successful today is that because we
have learned better how to work together as a partnership
worldwide, and certainly the challenge has more than
doubled over the last couple of years.

MR STASIOR: Right.

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MR STASIOR: Yes, but our office in Hong Kong and our partners there were really talking with the large industrial companies and trying to stimulate business as they were privatized looking towards the long term.

DR KISSINGER: And how does that work?

MR STASIOR: Well, everyone is willing to have conversations but that is about it, and so the long term started to look longer than we felt we might be able to sustain so we decided that in addition to that kind of long term marketing we would also begin to work with some of the multi-nationals that were trying to do business in China as a way of building the critical mass there. But basically the Chinese are not yet ready for the management consulting industry.

DR KISSINGER: No, I would not have thought so, certainly not the State run enterprises.

MR SHRADER: Thank you. The last few times I have been with the Board I have had a chance to talk about our business and many of the changes that we are making and as Bill pointed out I think all I would like to comment on this time is the fact that we can point to some success as being a full measure of how well we are doing in the restructuring that we have had.

Bill mentioned for you the $700 million win had at GSA, that is the largest single contract that we have ever signed.

MR FREIDHEIM: Probably by a factor of five at least!

MR SHRADER: An interesting sidelight to that is that the client officer who runs that business, it is a telecommunications based business, happened to be in Argentina when we got word from the Government that they were ready to sign. He tried his best to make it best to make it back to the States and he got run out of town, or kept out of town by the hurricane that was passing through that very day, and so the obligation fell to me to go sign it. One of the happy things that you get to do is every now and again a break comes your way, so I actually went down to pen the contract with GSA to make it happened. That is something we are very proud of and as Bill said the advantage to that is it gives us a foundation to do work across the entire Government at a very high level and a lot of perspective across all of the Government's telecommunications---

DR KISSINGER: What exactly is it?

MR SHRADER: It is called "The Transportation Systems Centre", but it is basically set up into zones across the entire United States as well as offshore and in each of those zones we are the contractor of choice to go in and actually do the telecommunications - design work, analysis

5

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# THE IMPACT ON BUSINESS OF CHANGES IN WORLD LEADERSHIP

A. DR. KISSINGER: I will make very few remarks, and then ask David Young and Yoshio to make some comments and maybe that will stimulate me into further reflections and stimulate others as well. We

The question, what does one mean by "changes of world leadership"? It can have at least three meanings. One is the changes within each country and obviously major changes are going to be taking place in a number of countries. Maybe in Britain, sooner or later in China, and they are surely in the process of taking place in Japan. I think most of Another place where have to be analysed on a country by country basis where and the major significance to if there is a change in Party, and above all, if there is a change in generation. I think the topic that we discussed this morning is extraordinarily relevant to this discussion.

I cannot assess what it means for business, but it seems to be the essence, at least in the United States, and maybe in other Western countries that I know, the essence of the generation that has grown up on the information technology we saw this morning in a major way. Represents change, alteration in the type of political leader. I do not attach a value to this, but it is a fact.

In the United States when I started advising political leaders they asked me what to think. Now, when political leaders ask my opinion they ask me what to say. They do not really care very much about the long term consequences they have no time.

I started out as an adviser to Nelson Rockefeller. He had antediluvian by pre existing standards. He spent three nights each week studying the subject matter and trying to educate himself on issues. No politician worth his salt would waste his time on such a futile enterprise today in the United States. They would go to focus groups, they would take public opinion polls, and they would then try to develop a position. But they would not really internalise it, so they are quite unpredictable.

The trouble with Kennedy's campaign in America right now is that he really belongs to the Rockefeller generation, but he is forced to conduct a Clinton-type of campaign with which he is extremely uncomfortable. But he does not have the courage or the strength and the conviction or whatever, on the management skills to take over and say "I will do this my way". So he just does not look genuine to the public, even though in my view he is more genuine than the other party because he at least had some relationship to the substance.

I think in Germany some of your younger people will come to Schroder, who will be in my mind, and the Clinton-type of approach to politics. I do not know how I would assess

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what this does to their attitude to the business, because it makes them all extremely tactical, but also extremely volatile.

In my view, in America Clinton and his people are very far left by conviction (if they have any convictions) but very centrist in what they actually do. But, if given half a chance, they would like to go Left but they just do not dare to do it in the present climate. So if we had big would be unemployment, and an economic crisis, I think they are capable of being quite radical. I think in Western societies, if the present style of politics continues, there will be the emergence of demagogic Left and demagogic Right,ving Parties - not quickly but, say, over a five or ten year period, because there is the strange phenomenon that, on the one hand, politicians have never been more eager to please the public. They are abject in but, trying to please the public and never have they been more despised by the public. They do not gain popularity as a result of their frenzied efforts. I do not think, for example, that Clinton in the United States is very popular. You have the anomalous position that 56% of the people do not think they can believe what he says, but 53% say they are going to vote for him, and it is due to the fact that they cannot imagine Dole as President. So he is the only one to vote for.

This creates (in those countries that I know) an extremely volatile situation. It is not true in Germany yet because Kohl, whatever one thinks of him, and I think very highly of him. He is a very dominating figure. His think the successors are more on the American side in either Party in Germany.

Japan, you will have to talk about. I do not think Japan can be assessed by European and American criteria. I personally believe that, after two or three elections, there will be a one Party system again in Japan.

MR OKAWARA: Two Parties after two more elections.

DR KISSINGER: No, I think there will be one dominant Party with a second Party. I just do not believe that our pluralistic democracy has been up to now the Japanese line. China is quite different. I do not think that Ding's death will affect the day-to-day operation of the in place Government at all. But it may free energies for leadership contests that cannot happen while he is there, and there may be some changes in leadership which I do not believe should not will make a huge difference in the operation of the Chinese Government as we have seen it, but it will be more modern. I think they will be driven more by the abnormal changes that are taking place economically which will require a greater degree of constitutionalism, and a greater degree of predictability. If the problem will be the next change of leadership. What is the mechanism by which they will continue changing leaders? When people ask me, I have to tell them this: I know the Chinese leaders. I see them more frequently than I do the American

67

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HAK OUTLY

the instinct

Based on the

DR KISSINGER: I believe that the instincts of these Asian Governments that I know, namely, India, Indonesia, Japan and China, is for a somewhat managed use of the economy and to try to manipulate it to the National benefit. It is not a crime - mercantilism was a respected economic theory for several centuries, and free trade is ~~very~~ much an extent of American idea.

LORD YOUNG: Adam Smith, please.

DR KISSINGER: It may not even be necessarily true, but when free trade was developed, Britain had a monopoly. Of course, free trade is desirable for monopolies. Every country that developed its industry, Germany, France, Japan, developed it under some kind of protection. Everybody beats up on Japan, and Japan, if only because of its culture, is a somewhat protected market. But the Chinese, the Indians of the IndONESIANS, ~~anybody who knows~~ these Countries I cannot imagine any of them saying "unrestricted free trade, no matter what it does to our industry". Because, after all, with the essence of free trade you can argue that it is to the benefit of everybody, but somebody wins and somebody loses. If the losers have a political system they can throw into the fight they will try to do it.

PROF PEKAR: That is why Adam Smith would not agree with you, Henry. He would have said everybody wins on free trade.

DR KISSINGER: Everybody wins on a statistical basis. But it is not possible that everybody wins. If New England had a political unit, it would protect itself to some extent even before it was somewhat industrialised. Lord Riskin is neighbour of mine in Connecticut and he would go up in smoke. The Chicago school absolutely would disagree with this and I am not saying they are wrong. If it could work for 100 years, they may turn out to be absolutely right. I am saying, from what I know of the political system I think I cannot conceive that the Chinese, for example, will say "No matter what they dis甫 to Kwan Chow we are going to have free trade and we are going to let our Country be flooded by Japanese goods". It just will not work that way. I could be wrong.

MR OKAWARA: If we follow your argument there is no qualification on China to become a member of WTO?

DR KISSINGER: I would actually be in favour of letting China into the WTO for political reasons. For one thing the United States has broken a promise to China by not letting them into the WTO. One of these TPR arguments we are going to try and promised them that if they settled it we would not oppose their entry to WTO.

I think it would be of some marginal advantage to have them in the WTO because we could try to apply WTO Rules.

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MR OKAWARA: Exactly, that is the Japanese argument that the United States are saying that there is no bargain price for membership. That is the argument by United States.

DR KISSINGER: Because we do domestic politics. I think strategically, no matter what I think about that happens to free trade, I would try to pursue it as far as it goes, and it is therefore in my opinion desirable to have them in WTO. This is one of those both way arguments in which they are afraid of constituting a threat to the United States, and you know the Taiwanese are very active.

Why do you not make a few observations, Yoshio?

MR OKAWARA: One thing when you mentioned about the Chinese attitude towards Japan, we are very much aware of the problem, but recently our situation has become much more ticklish. The Chinese are now blaming the Japanese on two accounts. One is (inaudible) by Prime Minister Hashimoto at the end of July, they claimed that this is an indication that the Japanese Prime Minister is not seriously concerned about the past, or the Japanese history with the neighbouring Countries.

The second issue is a territorial question of Shikoku Islands. These are a group of, some would say a light Conservative element, put up a lighthouse on Shikoku Island. Chinese, Taiwanese both claim that Shikoku belongs to China therefore this action by the Japanese group of Conservatives should be strongly discouraged and reprimanded by the Japanese Government. So far the Japanese Government has not taken any strong stance on that matter. Therefore, this is a most unfriendly, some would say "hostile" attitude by Japan against China.

DR KISSINGER: They also blame you increasingly for Taiwan - at least to us and to the other Asians.

MR OKAWARA: In the case of the Taiwan Strait tension, only Japan took a very clear stance in supporting US action. Other Asian nations were somewhat nervous in taking a specific stance. That might be one of the reasons why the Chinese are blaming Japan, but we have been explaining to the Chinese that we find the basic position to China remain unchanged in 1973, therefore on this question we should make an effort to continue dialogue so that both sides share the same interests, not cause a problem, in Asia. There is a patient effort on both sides, but the indication is that even though there is no demonstration and other isolated activity by China in Hong Kong the Chinese authorities seem to be trying to calm down the situation in the hope that the relationship with Japan would not deteriorate further.

Were you aware of the observation that the connection with the Chinese Military Red Army, there is some story told by an American Expert that Chinese Red Army seemed to be a really strong group, and even Chinese leadership cannot contain their mood. Is that the reason why the

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Taiwan Strait situation was made worse as a result of military group pressure? I wonder whether you can clarify that matter?

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KISSINGER: I think the Chinese are going to use nationalism to keep the Country unified rather than Communism, and the Army is one of the best organised units, and the one unit that has a command system that goes all over the Country and is not so dependent on regional support, and for this reason also I believe that the Army has a very significant influence, and perceives itself, I mean, the challenge to the intellectual property rights that is really basically a Hollywood issue to be taken up done by the United States alone, without any support from the other countries. My recommendation was to make joint ventures with the PLA and let them then control the other half. I think that would have been a more effective way of settling the problem making half-baked agreements that will not be observed and then have to be renegotiated every two years.

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MR

OKAWARA: Sure. Henry mentioned about the change of generation. Certainly, in Japan a generation change is taking place. Prime Minister Hashimoto is to attend United Nations General Assembly meeting early next week, and it is very possible that on October 20, a General Election will be held. So far Mr Hashimoto seems to be somewhat hesitant, until he sees the situation of Okinawa Base Mission, the result of recent announcement or measure by the Japanese Government. We know that to help the situation in Okinawa the Governor of Okinawa has agreed to accommodate the Japanese Government position on solving the US Base Mission in Japan. Therefore Mr Hashimoto feels that now he can go to the Election, which is why October 20 has been suggested as a very possible date of election.

After the Election, what would happen is not clear at all, even for Japanese political experts because LDP is not so popular even today after, some say, the bad reputation of that Party which has dominated the situation for 35 long years, and they are still plagued by scandalous activity during that long period.

At the same time there is some internal problem between the older generation and the younger generation and therefore there is no clear consensus inside LDP. Another problem for LDP is that when they go to Election next month it is not likely that they can obtain a majority. In order to have a majority LDP has to get 256, but it is very likely that the maximum they could obtain will be just over 200. Therefore they have to go to some kind of coalition that they have been doing today, but who would be the right partner in that coalition is not clear at all, because recently Mr Hatoyama and Mr Kan have announced the formation of a new Party to which some of the Socialist members and some of the (inaudible) members

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Israel, $800 in Jordan, and Palestine is about $1,100 you get all the ingredients of an explosive situation.

I think there are areas where the United States will really have to assert considerable authority. It is a binder box, and my belief is it is far more dangerous than the Far East, because nobody knows China as well as Henry does, but I have been there many times in my life, and I have also met the leadership many times, and nobody ever understood the basic principle by which a man rises to the top of that, and it is enormously complex. But the one thing you do know is that the Chinese are Chinese first and political second, and you see overseas Chinese are as loyal to China even when China was communist, even though they were capitalist, and if you look at them all, they all want to go back and reinvest in China and help China. So China will be Nationalist all the way through.

Also, historically China has always looked inwards rather than looking outwards. I suspect that is not the danger spot in the world. The danger spot is very much still the Middle East and Russia.

DR KISSINGER: I agree. What do you think about Saudi Arabia?

LORD YOUNG: The succession, they say, has taken place and they are waiting and it is going to happen. My main worry is that Iran is creating an enormous amount of difficulty there. As Saudi runs into financial difficulties, and unless they can curb the excess expenditure of many of the sons, I think there are again going to be tensions coming in there, and it seems very difficult---

DR KISSINGER: I do not think the West has a clue what to do if there is an upheaval there.

LORD YOUNG: If we had a clue we would not be attacking Saddam Hussain, because if we remove Saddam Hussain then there is a good chance that Iraq will become Fundamentalist, and already Sudan is Fundamentalist, and Egypt is very nervous about Fundamentalism and it is a very destructive force. I just do not understand for one second what on earth Clinton is doing, other than trying to win the Election he has already won, in all this posturing and firing off of missiles.

DR KISSINGER: I agree with you about Russia, and I think one of the test cases will be what happens in Ukraine. If Ukraine disintegrates, then we will be in an Imperial phase again.

LORD YOUNG: Quite true, not very cheerful, but that is the way I see it.

DR KISSINGER: I have never met a Russian who accepts the independence of Ukraine. They do not demarcate the border---

LORD YOUNG: Or Chechenia.

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DR KISSINGER: Chechenia is not technically part of their territory, but Ukraine is a country of 60 million, and is fundamentally considered illegitimate by Russians. We have the additional problem of central Asia. If India, China, Indonesia all industrialise, there will be pressure on the energy supplies. So the direction of the pipelines from central Asia should be of strategic concern. If they all go through Russia, it could create a very complicated situation in five to ten years from now.

LORD YOUNG: Up to now the chief route for energy oil has been Japan. Japan has been a great consumer of energy. India is now growing very fast, and is getting very hungry, as is China. But India certainly will be the first ones looking very much today for gas and looking for energy supplies.

DR KISSINGER: Central Asia will become an area---

MR OKAWARA: A major source of supply.

DR KISSINGER: Yes.

MR NOHRIA: If all these leadership changes take place at about the same time, as you describe these leadership changes, it seems like several of these Countries are ready for some kind of leadership change, not all of which we can predict or forecast. But they are happening in very close temporal space. Is there, in your experience, anything that happens when all of a sudden you have now eight or ten different leaders who have not had the history of having negotiated with each other through years---

DR KISSINGER: There are two different situations. One is that leadership changes in a stable environment; but these leadership changes are taking place in a fluid environment.

MR NOHRIA: Precisely.

DR KISSINGER: I do not think China will be aggressive. It will want to be treated respectfully and therefore Bradley Island, that sort of issue, will have to be handled with some care. I do not think they are going to march into other countries, but they will have such a huge market that the other Asian countries will have to take them seriously.

India will conduct the policies that used to be conducted from Calcutta. New Delhi under the Viceroy's, when they were conducted by Indian Civil Servants, which means it will try to play a dominant role between Singapore and aden. Not all of which is bad for us because it will have to be against the Fundamentalists. All I am doing is trying to change the environment. So on top of the leadership changes in the 10th Century, in Europe, there is no written exercise to stabilise growth. There is no stabilising power because we are behaving like

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companies on either their retailing business, or their
upstream business in Thailand.

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MR SHRADER: Thai Airlines.

MR STASIOR: But again if we are treating them as project offices and as long as we have work there we have a presence, but we are not seeing it as a permanent presence and we might want to rethink that, because the volume of business in South East Asia is certainly growing.

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DR KISSINGER: Shall we go on to the next topic - "CEO and the Internet"? Bruce?

MR FREIDHEIM: This is at the urging of David Young that we have this topic on the Agenda, and it does turn out that we have done a considerable amount of work on it which Bruce will describe.

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DR KISSINGER: I am at least one member of this outfit who does not know how to use a computer, so do not take anything for granted.

MR PASTERNACK: We have been trying, we have sent people up there.

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DR KISSINGER: I am awestruck by what they can do, but they failed to get it into my head.

MR PASTERNACK: One of our young staff told Henry that he thought he could teach him in one day.

MR STASIOR: He tried the one day?

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MR PASTERNACK: He did, and it did not work! I am actually going to try and set up the three areas we are going to cover today that are business related---

DR KISSINGER: I must say he did a good job, he left a book for me. It is entirely my fault. I am from a different educational background

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MR PASTERNACK: We have another approach - my wife is actually teaching "Introduction to the Internet" in California, so if you come out to California, she runs a little seminar.

LORD YOUNG: I hope you took the course.

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MR PASTERNACK: I know better than that.

DR KISSINGER: The thing that happens to me is when I get frustrated I try to shut the thing off but I did not know I have to work my way back.

MR WALDENSTRÖM: Even if you unplug it it goes on because it has batteries.

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For the most part - I know there is more to come but certainly in the recent past - we are much further alone in terms of these classes of technology at least operating at a level of standardisation that allows us to operate with each other. Even as recently as five or ten years ago the success of the web would have been in doubt only because we could not get supplies of technology products to agree how to pass data across a wire. So we are getting there - it is not done yet, but we are making substantial improvement.

So that this sense of being the central communication model I can select someone in Indonesia, I can select someone in New York from Philadelphia. Finally, the suppliers of the software products are not doing battle at a low level of standardisation. Netscape has built its entire philosophy of its software development around open standards. Microsoft took the exact opposite tack, and it is a somewhat unnerving thought that this little needling $250/500 million company is being so successful with the contrary philosophy to Microsoft.

For the most part the internet, the exciting part from a business standpoint, if not from a political and military standpoint is the inter-operability of people, humans. The communications potential, the ability to interact, it is for real. This is something that we do naturally now, either one on one or with a phone. Finally through this class of technology we can do it through computers.

For the most part the results are in. The large Fortune 500 companies are putting their money where their mouths are. There are lots of folks that expect to do substantial amounts of business, vis a vis the internet. It is not a secret, now how do I do it? That is the tougher part, that is what ahead. Web presence is admittedly a weak indicator of adoption, but nonetheless, whole bunches, 80% of the large Fortune 500 companies, have a web presence. It may be mundane, it may be simplistic, most of them are today, but the Fortune 500 companies are at least getting to the point where there is some sort of information.

DR KISSINGER: Am I going to get thrown out of this meeting if I ask exactly what a "web presence" is? I know Peter knows it, but I do not?

MR DALLAS-FEENEY: Essentially it is an electronic site.

DR KISSINGER: You buy that, or what do you do?

MR DALLAS-FEENEY: You would craft it in the form that you would write software. Booz Allen has its own web site so someone could log on to the worldwide web, put in the proper resource level---

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DR KISSINGER: If I want to buy from you I dial up your web site and within that I will then learn what you have to offer?

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MR DALLAS-FEENEY: We have a lot of material available for you there so you can learn - not enough yet, but a lot - and you can do transactions with us.

MR WALDENSTRÖM: What kind of transactions?

MR DALLAS-FEENEY: You can actually do purchase and sale transactions if we actually have an existing credit relationship. We do not do the kind of things that you do via a credit card, many folks do issue a credit card, but you have to have a credit relationship with us.

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DR KISSINGER: That is a phone book type thing which tells you how to dial up these Web sites?

MR DALLAS-FEENEY: There is an address, if you know the address you go direct, or you do it through Netscape, another searcher.

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LORD YOUNG: You can put the name down and you can get 500 companies in the same area.

MR DALLAS-FEENEY: Henry, you are touching on something that I think is profoundly significant to adoption. You have to go out, you have to do the act of dialling up, writing this rather complicated string of characters to say "www.monsanto.com" and go to that location. That is an act that you have to perform right now.

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DR KISSINGER: I cannot type.

MR DALLAS-FEENEY: Bob's company has got to excite you enough to want to do that. In your case my guess is it would be easy. You have built relationships with customers that are a bit more mature than your standard consumer goods.

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MR SHAPIRO: The model that is going to get interest, there are already a number of them out there, but folks like IBM are trying to create the equivalent of a shopping mall around the internet where ease of access and visualisation become just what they would be if you were actually visiting a shopping mall, although it is a very large mall indeed. You can ask it a lot of questions. "I want to buy a gift for my daughter. She is 14 years old. She is interested in the following things. Direct me to some places that might have those sort of things".

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MR WALDENSTRÖM: And they will then show colour photographs and actual videos, showing how this product works?

MR SHAPIRO: It will allow you to change colour so you see how the colour looks and the size, and so on.

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manuscript out on the net and get peer review by a Co-operative association of my colleagues, what do I need you for? Why do I have to spend $100,000 on these journals?"

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LORD YOUNG: And save two years.

MR DALLAS-FEENEY: Right, exactly. It was to compress the time as well. So this is clearly a threat for a tiny little piece of Reed Elsevier's business, and in Amazon Books - this is the crummy little garage start up, it is a small business right now, Kleinwort Perkins is a venture capital firm in San Francisco that has pumped $10 million into these books, but essentially Amazon Books is trying to reinvigorate the personal book adviser. It has created a window in the internet to provide you with powerful search mechanisms and say "What kind of things do you like?" "Needlework, 18th century, baroque", and it will allow---

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MR SHAPIRO: 3 million titles.

MR DALLAS-FEENEY: ---3 million titles accessible on loan.

DR KISSINGER: 3 million titles of books?

MR DALLAS-FEENEY: Yes, and they will get them to you in 48 hours.

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LORD YOUNG: Is there not a company that puts the first chapter of every book on the net?

MR DALLAS-FEENEY: Barnes & Noble and Borders are terrified. They are just thinking "Oh God, another little David coming up to the Goliath."

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DR KISSINGER: But how about authors?

MR STASIOR: You can sample any CD now on the thing.

DR KISSINGER: Do people still buy books, or do they get the whole thing on the internet?

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MR DALLAS-FEENEY: Amazon is simply a directory. It helps you figure out, "I want a book from Henry Kissinger, and I want it about Vietnam", well there is lots of stuff, so "Which one do you want?" and now the search engine takes over. So these are just some examples that this is not a benign event. This is a significant event.

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DR KISSINGER: You know one thing that happens for political type people as a result of this, you cannot let any comment go unanswered, no matter how trivial it is. No matter in what ragged journal it appears, if you do not get an answer into the computer it will develop a life of its own. Seriously, that is true.

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MR SHAPIRO: The corollary to that is now more and more people are finding access to that web and putting their material in. I do not know how you are going to be able to respond.

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DR KISSINGER: The diplomatics are the ones who put their material in the political world.

MR SHAPIRO: The notion of hitting the ball back over the net I think gets harder and harder because of the size of the game.

DR KISSINGER: On the net I do not understand, but in newspapers I really think that any public person, or publicly aware person, if there is a comment about you in a newspaper you must answer it, because otherwise it gets a life of its own. It sounds petty but it has to be done.

MR DALLAS-FEENEY: You could essentially create a piece of software to crawl the web and say: "Are they talking about me today? What lies are they telling about me?" and essentially trap that and provide that response.

Just imagine though that everybody around the world wants to do that, think of the traffic---

DR KISSINGER: You can already get whatever they say about you every day.

MR DALLAS-FEENEY: Sure. I guess to your point earlier in terms of wanting to understand what is being said on the Web, the newspapers are a sort of well defined form. You can pick up the "Post, "The Times", and folks know where to look. You may not read the Irish "Echo" and pick the same thing up. I think in terms of the internet it is somewhat chaotic right now. It is not an organised forum in which to conduct debate.

DR KISSINGER: No, it is Lexus, or Nexus or whatever the thing is - is that part of the internet?

MR DALLAS-FEENEY: That is Reed Elsevier's product line. The point is that the forum, almost the Roberts' Rules of orders for conducting communications on the internet really is not well formed now.

DR KISSINGER: So you are saying that on top of what, say Lexus picks out that is already published, there is a whole universe of people who could step into the internet?

MR DALLAS-FEENEY: Oh yes, exactly. When I wanted to go use Lexus or Nexus I had to go to a librarian historically, and that is a waste of my time and effort because many times when I do a search I am not sure exactly what I am looking for and I want to do this inductively.

LORD YOUNG: Time shifting has changed, when that Comet hit Jupiter I picked up a Hubble photograph of it four hours later. It is absolutely amazing.

DR KISSINGER: When what hit?

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technology actually allows you to do large money transfers, then the peril to taxing authorities in being able to regulate what is going on, and anti-crime agencies to control flows of funds. It can now take place wholly outside the bank systems that are believed to be controlled.

DR KISSINGER: Is that not extremely dangerous?

MR SHAPIRO: Oh yes.

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DR KISSINGER: If this character in Singapore could create $28 billion in a couple of days, and that was without the internet.

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MR DALLAS-FEENEY: It did not surprise me, but it confirmed, I think, what most of us said. Bruce and I had met with Jim Barksdale, who is the CEO of Netscape just a few months ago, and as Jim was talking through some topics he said "The number one issue that will get my time and attention, money and so on, is to demonstrate to the consuming public the relative security of the internet". Because he understands that if this is perceived as a chaotic, non-secure environment for conducting commerce, the adoption will fall off vociferously.

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MR SHAPIRO: The last thing I will say on this, it seems to me to be a huge topic that is worth the attention of a lot of folks in this room---

DR KISSINGER: But can you tap it?

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MR SHAPIRO: ---to the extent that he makes it a secure system, secure to users, he is threatening sovereign power, and it is not clear that Governments can allow him to make this as secure a system as users would want.

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MR DALLAS-FEENEY: He is pushing, or behind a Bill - I forget which number it is - around the Encryption Standards, he wants the bigger data set. The more digits I have to encrypt something the harder it is to crack it, and that is something that is very controversial. It can be done, but the intelligence communities do not really get excited about getting a better encryption technique because it is going to take more computing power to crack it. So it is a controversial issue in my mind, and I am not sure how it is going to work its way out.

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LORD YOUNG: But no American legislation can stop that spreading. It is one of the nonsenses, that you cannot buy a cheap bit of software in the United States and export it if it has got encryption, but everybody does and takes it home, and you can just introduce the encryption from Europe.

MR DALLAS-FEENEY: It seems to me, David, that the powers of commerce, and the opportunity to make a buck are---

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DR KISSINGER: Unless you get a global agreement.

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DR KISSINGER: AIG for example is not doing that?

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MR DALLAS-FEENEY: I do not know AIG *per se*, but I do know that ETNA is doing it, and they are basically gathering the provider network to them, because they are helping them do their job better.

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MR FREIDHEIM: AIG is very much up to speed on this.

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DR KISSINGER: What advantage, why do they then leapfrog competitors?

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MR DALLAS-FEENEY: I think, Henry, to some degree, in the past they tried to differentiate themselves on a commodity, a network, an information exchange. Prue will, if they keep their security environment will always have information that is peculiar to their member base, and so the knowledge about the health of their members is what is particularly important to them. They will always keep that asset. It is not something that US Healthcare, or ETNA, or Columbia or anybody else should know about. So it must have penetrated from a security standpoint---

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MR WALDENSTRÖM: The database is proprietary.

MR DALLAS-FEENEY: It is about their members, the health of their members.

MR WALDENSTRÖM: And there are advantages, how you can use the database in a different way.

DR KISSINGER: It gives Prudential better use of its database, which is it has always had but did not know how to use.

MR WALDENSTRÖM: In a way, yes. They can build the database in a better way. They can continue building new databases all the time that they use in a different way on the internet and by being ahead on the database they are then always ahead on the internet. That is basically the way they can create lasting advantage.

MR SHAPIRO: I am very interested in the point you are about to get to about micro-segmentation, in fact, mass marketing targeting individuals.

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MR DALLAS-FEENEY: My personal experience has been both in the internet base and also interactive TV---

DR KISSINGER: What I am trying to understand is does this give well managed companies an additional leg up or does it give mediocre companies a way of levelling the field?

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supply it. I can enter into a long term relationship with
you, knowing a great deal about your needs, and being able
to adapt my offerings to meet your needs.

Once you have gone into IBM's mall and said "I would
like to buy something for my daughter whose birthday is
next week. She is 13 years old and has the following
interests", next year two weeks before your daughter's
birthday, I may want to send you a message. I start to
know you in a way that only very good retailers can know.
That is another point - the ability to serve the specific
needs of individual customers.

Another part that is driving a lot of people crazy
right now is the issue of property protection. How this
is going to work - all I can say is I do not have a clue.

DR KISSINGER: Eventually we will be run by a oligarchy of
experts.

LORD YOUNG: Except the internet is flattening the experts.
There are so many more---

MR SHAPIRO: It may be very democratising, I am not sure what
its implications ultimately are. Certainly, we have
started to say the world now gets divided into classes of
people who have access and facility with this kind of
system, and those who do not - "the haves" and "have nots"
- that may exacerbate class differences.

DR KISSINGER: I can understand individual transactions how
this works, but many events depend upon the relationship
and the interpretation of the relationship of events to
each other. When this becomes the premium form of
knowledge where is the knowledge for the relationship of
events, which has been the essence, at least, at the
highest level?

MR WALLENBERG: You can buy anything over this machine but at
the same price because the machine cannot differentiate on
price, whether it be a large customer or a small customer?

MR DALLAS-FEENEY: Yes, it can be made intelligent.

LORD YOUNG: Let us put it another way, accumulated knowledge
took off with the birth of printing. Henry, there is
another thing which this is doing, which is really going
to keep growth growing geometrically. It was only the
birth of printing, the invention of printing that allowed
accumulated knowledge to go. From that geometrically it
started to slow in the forties because people were
reinventing the whole time. There was no way of knowing
what had already been found out, and researchers all
around the world were finding they were wasting years on
doing something which somebody else had done, because The
British Library and others were years behind.

IBM invented the computer, the worldwide for which
was going to be 12, 7 in the United States, and that was

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not one of the best of forecasts. Today, knowledge spreads
within days, and scientists who are doing research - I am
Chairman of University College, London - we have one of
the largest research establishments in this Country, we do
global research. Every scientist everywhere around the
world talks to each other whatever the Government says.

DR KISSINGER: I agree with you, this will change human
consciousness - more even than the invention of printing,
even the protection of the world around before printing
people learned by epic poetry. They trained their memories
by road. Printing had one advantage over this that
precisely because it could not encompass all the knowledge
you had to think conceptually which meant that you had to
protect. This thing saves you from thinking conceptually.
I do not know what it means.

MR WALDENSTRÖM: Henry, is not one way to think about it,
rather than try to speculate where it will go, to take the
other way round and say that ultimately it could
potentially be all information available to everybody, and
rather speculate where we will stop before it gets to that
stage. You talked about availability to everybody, Bob,
and I think that it is like the telephone. We are starting
up these centres of access and I can imagine just like
there is a telephone booth for a payphone in almost every
poor village across the world more or less, there is no
reason why there could not be a little terminal with a pay
slot in it in every village in the world.

DR KISSINGER: I have no trouble with---

MR WALDENSTRÖM: That would respond to the fact that---

DR KISSINGER: ---Anything depends on knowledge.

MR WALDENSTRÖM: Then the second question is what information
is on it? Then again, if it is not proprietary right, or
secret information, I do not see any reason why the rest
would be on it.

DR KISSINGER: Yes, but the more information you have the
more crucial it becomes to understand what it means.

MR SHAPIRO: One of the things that is fundamentally unclear
to me at least is whether this set of tools leads to a
greater ability to control or to an absolute abolition of
the ability to control.

LORD YOUNG: I think the latter.

MR SHAPIRO: My suspicion is the latter.

DR KISSINGER: To control what? The flow of information?

MR SHAPIRO: I think it is more than the flow of information.
There are power relationships that come as a result of ---

DR KISSINGER: That is what I am concerned about.

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LORD YOUNG: It erodes national sovereignty, there is no question about that, because although the American Government cannot do many things it still thinks it can do in terms of knowledge - nor could the Chinese Government--

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MR WALDENSTRÖM: It erodes corporate sovereignty too. It permeates completely the tip of the corporate structure in terms of information and products.

DR KISSINGER: But up to now great leaders in either business or politics were the people who could organise the existing information and project it into the future, and then take you from where you were to where you have not been. I do not see how this process enables you - I mean, it enables you to collect a lot of information, but how you take the next step I just do not know. What do you think, David? Can a Churchill emerge in such a system?

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LORD YOUNG: I think leaders still emerge because there are still people, it is still the vision that people have. What this does is something entirely different, and we have not talked much about the intranet but twenty/thirty years ago business used to be organised on military lines, on a hierarchical system, and I know even ten years ago that when you were talking about the future people did not want to bring those on the cutting edge who were dealing with it because they were too low down the organisations, they never saw it. Every Chief Executive used to be protected by a dragon lady sitting outside his office who would stop anybody coming in. Today, anybody in this organisation, and when I was back at Cable & Wireless, can send an E-Mail straight through and nobody would know. If somebody felt strongly about the company doing something wrong I would get to hear of it. I got a lot of rubbish in there but it led the information---

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DR KISSINGER: Did you have time to read it all?

LORD YOUNG: Oh yes, yes, I made sure I had time to read it, because often they were the people you wanted to get to see, and you physically cannot get out to see them. Some of it was nonsense, some of it was abusive.

MR WALDENSTRÖM: Do you not get so many messages that you ask your secretary to go through them first, and you are back where you started?

LORD YOUNG: No, but I think a lot of people do that.

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MR SHAPIRO: Let me give two examples of things that---

DR KISSINGER: Do you use it?

MR SHAPIRO: Yes, I do. Now, with Lotus mode you have E-mail anonymous access. E-mail the had to have the courage to say "Mr Shapiro, Sir, there is something going on here which is awful". Now, they can do it anonymously.

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thing, only it is a lot faster and it allows thousands and
thousands of people to participate.

DR KISSINGER: During the War the British were geniuses at putting out disinformation.

LORD YOUNG: By accident. (Laughter)

MR WALDENSTRÖM: That is a good example of the disinformation.

DR KISSINGER: If somebody really worked at this scientifically---

MR SHAPIRO: It is a threat, but in any case - I pass along - it is changing the way we work, and it is going to change it a lot.

MR STASIOR: I think the other thing to say here is that there is already powerful software that does a knowledge and event correlation and that sort of thing over vast periods of time, and just however you programme it. It does not apply judgment to it but it can bring very, very strange things into play that someone might not notice and therefore has a form of intelligence and distillation that it is difficult for any human analyst to have that kind of stand and scope and memory. So not only is the data being assembled and it is available but it can be analysed in very powerful ways.

MR WALDENSTRÖM: If I go into a shop in New York and buy a very expensive tennis racquet, they will call up American Express and say "Are you really the user of this card because you do not play tennis? You have not bought any tennis equipment for five or ten years and you live in Paris". So they get a signal immediately on their database because they know exactly my buying pattern over years and they fear that my card has been stolen because I would not buy a very expensive tennis racquet in New York City. That is the way it is now. They ask me my mother's maiden name, it is on that database and that is fine.

LORD YOUNG: Mobile telephones get cloned. All the telephone companies now have it, we had it a long time ago, they look at everybody's account every day. If it jumps up they cut it off straight away.

DR KISSINGER: It happened to me on my AT&T credit card in China when I was a guest of the Government. They noticed I had a lot of phone calls from Asia and I was cut off and I threw 100 fits until I got the Chairman, I think, and I said "Come one". (Laughter) So I had to charge everything to the Chinese. There was absolutely no way I could break through.

LORD YOUNG: "Henry Kissinger" they said, "Pull the other one!" (Laughter)

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MR DALLAS-FEENEY: I am going to get off the dias here in two minutes because I know there are other things to talk about, but I am personally very pleased that this has created the storm that it has. It is good. There is money to be made here, and money to be lost.

On the other side, if you are thinking from the corporate IT executive, the CEO probably should get ready because senior systems executives are going to come with handout saying "We have got some major transformations to make within the four walls of our supply of information technology". You do not have to do it overnight, that is one of the nice things here, but to some degree you are going to have to change a whole bunch of stuff to be able to fully optimise this long term use. That is something I think quite honestly that can take five years, ten years to do. But for the most part it is not going to be without a price.

I think some of the very simplistic notions that I want to leave, the opportunity is now, this is not something that I think we can wait ten years to address. There are some opportunities in the intelligent application areas, the knowledge based applications.

Finally, in terms of the customer centric (?) stuff, because it is not clear what the demand profile is, the buying behaviours and so forth, be patient with that, but experiment with it. For the most part virtually every one of the clients I am dealing with right now are at least exploring the customer direct part of this, if not going in whole hog - it depends up on the risk appetite.

MR PASTERNACK: There are two other points here. Chris mentioned in that very busy chart there are a whole variety of applications that are, we term "enterprise-wide" applications, whether it is procurement, customer interface, innovation, things that not only cut across the enterprise that you are operating in, but also the companies with which you interact outside your own boundaries. The issue of boundaryless-ness which Jack Walsh talks about is in fact being enable in a lot of ways by this technology.

The second point as the CEO take away - and we have talked around this issue a little - is "What does it do to the business model, the Corporation?" What is at the centre, what gets distributed? Where does their distribution take place, and what do you really have to do as a Corporation versus do virtually - if you want to use that term. I think there are a couple of big CEO top management take-aways and it is the kind of thing we are going to be focusing on when we do this session in Davos this year.

DR KISSINGER: It ought to be a tremendous opportunity for Booz Allen, business is going to need advice on how to handle this technology.

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DR KISSINGER: Because you mentioned large numbers.

PROF PEKAR: Large numbers.

MR FREIDHEIM: Yes, I think on Bob's question, you did not quite hit it yet. Is the United States more focused on set up alliances than---

PROF PEKAR: In numbers. In numbers that is true

MR SHAPIRO: That would bring the average size down.

PROF PEKAR: Right, it would bring the average size down. What I was trying to get at is that if you looked at the numbers you would be fooled by the massive amounts of investment in a few of the alliances that are happening, and that investment is growing.

DR KISSINGER: When you mention IBM and Kodak, they are probably, from the numbers you mentioned, disproportionately powerful in relation to their allies. You think they are allies for some apparently limited joint objective?

PROF PEKAR: In certain alliances that is true, in the more transactional alliances that is true.

DR KISSINGER: Have you got some examples in mind of what is the disparity between say, Kodak and IBM and some of its allies - are they about equal?

PROF PEKAR: Again, it is a skew distribution. You would find that out of the 800 alliances for IBM the majority of those would be small. IBM aligning themselves with small companies for whatever reason they would do that. But at the same time you would find probably 10% to 15% of those alliances, alliances between IBM and large companies, such as Motorola, Hewlett Packard, developing something of some significance.

DR KISSINGER: Are they making these alliances for strategic reasons or balance sheet reasons?

PROF PEKAR: In the US, I will speak against the US, if you looked at the alliances in the US you would find that probably of the companies I mentioned, Kodak, Hewlett Packard, IBM, half of those alliances would be strategic, the other half would be transactional. That is growing though. The US is beginning to realise that strategic alliances are much more powerful than transactional alliances, but right now we are on the learning curve.

LORD YOUNG: Have you taken cultural differences into account, because it is my impression going back that in Japan half per cent to five per cent people consider they are part of the same family and work together, often less than half a per cent; in Germany probably 10%. But if you get to the UK or to the States you are probably talking more about

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not have to invest in mine, and we can add value to the market place if we get a bigger bank for the buyer. That is what we are beginning to see.

That is true in every industry that we looked at and you have that in your chart. People are beginning to see because of that that the success rate is high; that the returns are high. Our survey work shows this. In 1990 Booz Allen did a study with the Wall Street Journal and with one of the Newspapers in Japan [Nihon Keizai Shimbun]. This was reported in the Wall Street Journal on alliances, and what we found was that only 17% of US executives saw alliances as successful in 1990.

Actually, I can tell you, I looked at that data, one-third thought they were downright dangerous. In five years, we have seen an enormous change, an enormous change of perception of alliances. US executives now mirror Asian and European Executives on the value and success of alliances. So there is a change going on in the boardroom, and I can tell you we do a lot of speaking at different companies, and we see this all the time.

A lot of people feel that alliances are just in certain industries. That is another myth. If you look at the 15,500 alliances from 1994 to September, 1995, they are in every industry. As I mentioned before to you, if you look at the electrical utilities industry which is an industry that is locally based, and regionally based generally who would have thought that since 1992 we are seeing a growth rate of alliances of 57%. I am working with one of Booz Allen's clients in the electrical utility industry, and it does not surprise them at all that that has happened.

But it is in every industry across the board worldwide, from financial services, the pharmaceutical to energy, the computer software. One of the drivers for that, and I thought I would throw this up because I was at a pharmaceutical company and we were talking about what is driving them in alliances and they have a huge number of alliances, is the cost of drug development. I put this up to 359 million, I was politely told it is now 500 million.

DR KISSINGER: In these pharmaceutical companies do they manage each alliance separately.

PROF PEKAR: They manage each alliance separately, and I will show you the difficulty that they are having doing that.

MR SHAPIRO: You should know that 12 years is no longer true. Best practice in the industry is now seven years, because an awful lot of time has gone into trying to figure out how---

MR DORMANN: It is linked to the topic we had earlier.

DR KISSINGER: How long does it take to negotiate an alliance?

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PROF PEKAR: Six to nine months if you have some experience.

MR WALDENSTRÖM: That is an important point.

PROF PEKAR: Remember they are not transactionally driven.

DR KISSINGER: Then acquisitions?

PROF PEKAR: Actually acquisitions are much quicker. That is why investment bankers do not like them because they cannot figure out how to get a fee.

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DR KISSINGER: You mean in alliances?

PROF PEKAR: In alliances, right. But they will. Lawyers do not like them either because the contract does not reflect the relationship, which is another thing we see.

DR KISSINGER: What do you mean?

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PROF PEKAR: If you have 70% of an alliance, and I have 30%, if you exercise your 70 all the time, against my 30, I am going to be very unhappy. So, what happens is we work together even though we have 70:30. Now, the 70:30 is used to split up the proceeds, and it may be used to a contribution of investment, but---

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DR KISSINGER: But it does not give you an additional weighed in decision.

PROF PEKAR: Yes. Mackinzie talks about 50:50 that that is the best alliance, and every time I speak against him I always ask people in the audience how many are married. Everybody raises their hand and then I ask how many have a 50:50 relationship with their wife? and nobody raises their hand. Then I say "Well, how can you have a 50:50 relationship with a stranger, if you cannot get it with your wife?"

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MR DORMANN: Perhaps in the US they can. (Laughter)

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DR KISSINGER: But Peter, do they think they have less than 50? (Laughter)

PROF PEKAR: I am going to really go through this so if I go over you please stop me. In these questionnaires we asked 60 questions on best practices. We had executives like yourselves go through 60 questions on rating your best practice. For example, we have a flow of alliances that starts out with strategy, screening for partners, tradeables, opportunity definition - there is one missing here - stakeholder analysis. You have that in your book. There are eight boxes, it is a road map of how to do alliances.

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The reason we did that is because most companies start in the opportunity definition. Somebody knocks on your door and says "I got an opportunity". Most companies

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couple of you a note to go through some of the experiences
you have all had. Jürgen, why do you not go first?

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MR DORMANN: Well, what causes those growing trends into partnerships? Is it becoming global? The changes taking place are so challenging that you cannot cope with all aspects so you have to make sure you set your priorities right, looking at your portfolio and analysing your capabilities. Do you feel you are in a position to get a footprint globally? If you are not in a position you have to make up your mind, there are different possibilities - looking for alliances, technical ones, regional ones, acquisitions you have mentioned. Probably one of the best options you can choose is to look at the value of your business. How will the value of your business develop over time if you do not do anything? Analyse your competitors - what is the value of your business to anyone else?

This globalisation, technology changes, probably having less but more capable and stronger competitors, not having sufficient resources to be a key player in all the areas you are in forces you to set your priorities. So it is very strategic and long term, based on a tough analysis of your own technological and other innovational capabilities to sort out that business. At least, in our industry, chemicals, pharmaceutical, it is one of the driving forces.

MR FRIEDHEIM: How active has Hoerscht been in the alliance arena?

MR DORMANN: We have increased the speed dramatically in the last five to ten years, and we are most active in those areas where we are not sufficiently prepared for the technological skills, from the resources, or because we decided let us look at ten divisions, for example, theoretically. Those three, having the highest priorities, here we go on our own. But for the others to keep or to increase in value we have to look for partners, either regional, technology and others.

How do we do it? The question arose earlier if you run a sizeable company, your management levels recruited by different nations, I do not know whether this US/European/Asian fragmentation really describes the picture of the pick up members, because our teams are formed in such a way that we offer for such a negotiation an international team, not a European team. That is helping to capture early enough the cultural and other differences.

PROF PEKAR: The really good companies in this see this alliance skill as a core capability, and some of the best companies will not allow you to benchmark against them.

DR KISSINGER: Like whom?

PROF PEKAR: Hewlett Packard will not let you in. We know them very well because we have helped them, but they will not

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going to play itself out. But that capability for us is
going to be critically important.

DR KISSINGER: Do you think your practises are peculiar to your industry, or the general conclusion if you had to write a ---

MR SHAPIRO: I would say issues like trust, issues like understanding your partner awfully well are so banal that they are probably common.

DR KISSINGER: They tend to break up when they do because interests tend to diverge. Is that the case? Can that happen here too, or do interests remain constant?

MR SHAPIRO: It certainly has happened in the past. When we enter into joint ventures historically, I do not know if we were conscious at the time, we suddenly became conscious, is that most of the joint ventures that we have entered into are transitional arrangements of one kind or another.

DR KISSINGER: Is that so understood by the other party?

MR SHAPIRO: Sometimes yes, sometimes no.

DR KISSINGER: So understood by you?

MR SHAPIRO: What I think I am saying is that at the time we entered into many of these there was not a lot of thought given to the long term future and not enough imagination applied to how circumstances might change. They tended to be of the nature well, we have this product and this technology, we would like to get it into this market place, let us work together to do it, without really thinking about how the world was likely to change and what impact that would be on the respective interests of the parties. But we have had an awful lot of joint ventures that have been terminated, frequently by us backing out because our interest no longer fit. Japan has been a particular source of that for us. In pharmaceutical in particular we started relationships a long time ago that we then spent years trying to extricate ourselves from because the realities had changed at great cost and enormous effort.

So, I think the diplomatic parallel applies. Whether it is going to apply to these marriages of capabilities is probable, but I do not exactly how that is going to play out.

MR WALDENSTRÖM: My experience always is that trust is a very important ingredient, particularly in unstable structures. You are dependent on a goodwill structure to resolve all those things that can go wrong as you go along. In a 50:50 situation it is very acute and if you do not have a good trust base and understanding between the two management teams you quickly get into problems. My question is how do you institutionalise the trust because very often the

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initiators have a good understanding. For example, if you and Jürgen here decide on a joint venture you trust each other and you do it, but then you go on to other things, or you retire and these things can live for 20 years. How do you organise within your company that this trust gets institutionalised between two large companies?

MR SHAPIRO: You know I have seen it happen both ways. What sometimes happens is that parent companies themselves may or may not have a good relationship, but within the venture itself there is even more trust among the people who originally started Company A and Company B than there is with their parent companies themselves.

DR KISSINGER: It depends also what you are asking of trust. I would think that if you and Jürgen formed an alliance, being both strong personalities you cannot solve your problems by trust. Of course you would have to trust yourselves but you would have to define common objective.

MR SHAPIRO: I do not mean "trust" in a weak or sentimental way that is a warm feeling about somebody. Trust, I think, is based on realism.

DR KISSINGER: Once you have common objectives I think then on a lower level it is important.

MR DORMANN: We have to develop, we have to create the climate in the company which regards an alliance - and I am exaggerating a little here - as a normal thing. Traditionally, if you have a narrow either (?) or geographical mind, you are extremely successful over years in running a business by this corresponding culture you are in danger of not becoming acceptable on a global basis. So what do we have to do?

The easy thing is to talk about what we try to do. German roots, more than 100 years, very traditional approach, more or less successful. We try to realise the changes and anticipate them and the teams are formed in a much broader sense. So if you look who is running the divisions and the businesses those are not Germans, one-third of them are German - there are Americans, Brazilians and Asians. So we create a culture which tends to be tolerant against other cultures, we do not give up good elements of traditional German culture, but we are much more flexible in learning to adapt to other cultures. You have to have this openness because if you have a rigid culture and the two top guys - I will shorten it by saying "have to trust their reliability on each other, it would not work, because the team having to make it happen is not used to it. So we have to come out of the rigid boxes that people are used to to develop such a climate so that those things can be arranged.

DR KISSINGER: But do you not think you need some definition of what you are trying to do, because I know one case where I was involved advising and the two principals said

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"We do not sue each other, we trust each other, we are
going to solve everything"---

MR DORMANN: That is not enough.

DR KISSINGER: ---and that is a disaster.

MR DORMANN: The point I wanted to make all the ideas that you have in raising this question, certainly there has to be a clear sense of what do we want to reach? How are we going to do it? Why are we doing it? What are you bringing to the party? What are we bringing to the party? If all this is there, then you will fail if you have on one side, you will certainly fail if you have it both sides, very rigid, narrow minded people knowing everything better than the others.

So all this theoretical, logical, set up has to be
there. That is not enough. In addition, those cultural
and human issues have to come in.

LORD YOUNG: I spent five years managing an alliance, nothing else, but it was unusual because it was 70 alliances, but it was horizontal, it was one industry only, which is telecommunications and it was standard PTT. The reason was very simple, that every nation, even the Caribbean Islands liked to control their own telephone system. So in the main it was minority interests - some were majority, but the main was minority. That is quite a difficult act to put together and to keep going. The answer to how we did it, is that we did it with great difficulty, and it was an enormous waste of time because you have to keep on bonding people, by getting them together three or four times a year, all round the world, talking for two or three days together about absolute nonsense, so they would have coffee together and then be on first name terms the whole time. It is this real thing.

The biggest problem we had was culture. This is one
thing that has not come through as clearly as that. What
is bog-standard American business practice is obscene in
Europe and unknown in Japan, and that is hiring and
firing. Practices which are absolutely standard in the
States would cause a riot if they were done in Europe
would never be tolerated.

When you start moving people round you have got to be
tremendously careful with the people, that the do not go
in and apply their own practices to different
environments. Added to that you, particularly in Countries
in the Far East you get very different practices and you
get different attitudes. So, it is something in which
personnel management, human resources, whatever you call
it, is incredibly important.

Now, this is a very unusual case because there was
not that much transfer of technology because it was almost
the same technology everywhere, so it was not a joint
venture that was out to make newfound technology or a new

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KISSINGER: I will make very few remarks, and then ask David Young and Yoshio to make some comment and maybe that will stimulate me into further reflections and stimulate others.

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The question what does one mean by "changes of world leadership"? It can have at least three meanings. One is changes within each Country and obviously major changes are going to be taking place in a number of Countries, maybe in Britain, sooner or later in China, and they are in the process of taking place in Japan. I think most of those have to be analysed on a Country by Country basis and the major significance is if there is a change in Party, and above all if there is a change in generation. I think the topic that we discussed this morning is extraordinarily relevant to this discussion.

I cannot assess what it means for business, but it seems to be the essence, at least in the United States, and maybe in other Western Countries that I know. The essence of the generation that has grown up on the information technology we saw this morning is a major alteration in the type of political leader. I do not attach a value to this but it is a fact.

In the United States when I started advising political leaders they asked me what to think. Now, when political leaders ask my opinion they ask me what to say. They do not really care very much about the long term consequences, they have no time.

I started out as an adviser to Nelson Rockefeller. He is antediluvian by present standards. He spent three nights each week studying the subject matter and trying to educate himself on issues. No politician worth his salt would waste his time on such a futile enterprise today in the United States. They would go to focus groups, they would take public opinion polls, and they would then try to develop a position. But they would not really internalise it, so they are quite unpredictable.

The trouble with Gould's campaign in America right now is that he really belongs to the Rockefeller generation, but he is forced to conduct a Clinton type of campaign with which he is extremely uncomfortable, but he does not have the courage or the strength and the conviction or whatever, or the management skills to take it over and say "I will do this my way". So he just does not look genuine to the public, even though in my view he is more genuine than the other party because he at least had some relationship to the substance.

I think in Germany some of your younger people, Schroder would be in my mind and the Clinton type of approach to politics. I do not know how I would assess

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what this does to their attitude to its business, because
it makes them all extremely tactical, but also extremely
volatile.

In my view in America Clinton and his people are very
far left by conviction, if they have any convictions, but
very centrist in what they actually do. But, if given half
a chance they would like to go Left, they just do not dare
to do it in the present climate. So if we had big
unemployment, we had an economic crisis I think they are
capable of being quite radical. I think in Western
Societies, if the present style of politics continues
there will be the emergence of demagogic Left and
demagogic Right wing Parties - not quickly but say, over a
five or ten year period - because there is the strange
phenomenon that on the one hand politicians have never
been more eager to please the public. They are abject in
trying to please the public and never have they been more
despised by the public. They do not gain popularity as a
result of their frenzied efforts. I do not think, for
example, that Clinton in the United States is very
popular. You have the anomalous position that 56% of the
people do not think they can believe what he says, but 53%
say they are going to vote for him, and it is due to the
fact that they cannot imagine Doyle as President. So he is
the only one to vote for.

This creates (in those Countries that I know) an
extremely volatile situation. It is not true in Germany
yet because Kohl, whatever one thinks of him and I think
very highly of him, he is a very dominating figure, I
think the successors are more on the American side in
either Party in Germany.

Japan you will have to talk about. I do not think
Japan can be assessed by European and American criteria. I
personally believe that after two or three elections there
will be a one Party system again in Japan.

DR KISSINGER: No, I think there will be one dominant Party with a second Party. I just do not believe that our pluralistic democracy has been up to now the Japanese line. China is quite different. I do not think that Dang's death will affect the day to day operation of the Government at all. But it may free energies for Leadership contests that cannot happen while he is there, and there may be some changes in leadership which I do not believe will make a huge difference in the operation of the Chinese Government as we have seen it, but it will be more modern. I think they will be driven more by the abnormal changes that are taking place economically which will require a greater degree of constitutionalism, and a greater degree of predictability. Then the problem will be the next change of leadership. What is the mechanism by which they will continue changing leaders? When people ask me I have to tell them this. I know the Chinese leaders. I see them more frequently than I do the American

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leaders. I know them, I know their families. I have meals with them every time I am there. I have been there 29 times, and yet if you asked me "Which people are going to go into what room to make what decisions to determine the successors, by what procedure it is determined who has won and who has lost, I know no more than the British Ambassadors in Beijing in 1860 when an Emperor was poisoned and they had a gang of eight instead of a gang of four, and the gang of eight suddenly was replaced. So I have no clue.

Last year I was there at the height of a crisis with the United States over Taiwan, and I saw Li Pang and a number of others - they were not talking to our Government at the time - so I wound up as the sort of intermediary and with Li Pang I could not get very far, they were listening politely. But then I had a business working at Sidiq and suddenly the door opened and Dang's daughter came in with an interpreter and made a statement about what she thought about that particular Taiwan revolution, about some of the proposals I had put forward. Then suddenly it happened, they had not rejected that. So he could do that much.

Now, I find it hard to believe that any of the people I know there can achieve Dang's position I think Chang Si Min is apparently consolidating his position, but even that is something that you cannot say for sure, because on the one hand he appoints on paper all the military people, but I think it is just as likely that the military tell him who should be appointed and all he does is to ratify it.

One thing the Chinese do better than any Government I know is strategic analysis of the World situation. Mao was outstanding, Chow was outstanding, Dang was outstanding - I mean one could have world class discussions of where is the World going? What is China trying to do? What do they want from the United States?

This April, right after the crisis, after the aircraft carriers were in the Taiwan Straits, I had the following experience. I was in China and I was invited to visit the Defence Academy on very short notice. When I was there they had 17 Generals waiting for me to give me a briefing on the world situation as they saw it, which I must tell you was really brilliant, outstandingly brilliant. We have not got one who could do what they did.

I have just been there on what they call the 21st Century Forum, where they had a number of World Leaders for discussion. It was a rather worrisome experience to me, both of these events, because the basic analysis they made was extremely hostile to Japan, extremely disdainful of the United States. So we do not benefit from their dislike of Japan and it was based on the proposition that they were achieving a position of self-defence for which they did not need anybody, so although they were much too polite to say it, all my great theories about the balance

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of power in Asia and the United States is an essential
component of it I have to say frankly in terms of their
analysis was not true.

Then, what the Generals had said to me in a very
excellent forum, really reappeared at that 21st Century
World Forum, Takisheido was there for Japan, and made a
totally incomprehensible speech. That did not make any
difference what he or anyone else said because the Chinese
line was perfectly plain, namely, that Japan is a great
menace to the security of Asia; that the Americans should
leave and go home - militarily that would be very welcome,
to contribute to the economy, and the Europeans had a
contribution to make, technological assistance, but that
was the theme. There were only two Americans there, all
the rest were Asian leaders. The theme to the Asians was
that the Americans should leave really, and the Japanese
should be contained. That was the basic theme.

MR FREIDHEIM: This is from more than just the Chinese, there
are other Asians that felt the same way?

DR KISSINGER: No, actually the other Asians, Le Kwan Yew was
there and he wants the Americans to stay, and the
Indonesian President also wanted the Americans to stay. So
it was a sort of three cornered thing in the sense that
the chap - I do not want to be offensive but the South
East Asians are not wild about the Japanese. Nobody wants
the Japanese to extend their defence billet there, but
nobody except the Chinese, they urged the United States to
leave.

MR OKAWARA: Only China?

DR KISSINGER: Only China.

MR OKAWARA: Wanted the US to leave?

DR KISSINGER: Yes, only China wanted the United States to
leave. I had frankly not paid any attention to it myself.
When we extended the security treaty with Japan I was in
favour of it but I paid no particular attention to it, but
it happened right after the dust up in the Taiwan Straits
and we apparently changed the terms somewhat in the sense
of saying that Japan now has a role to play in a much
larger area and that this threat, against which we are co-
operating, is interpreted by the Chinese as being aimed at
them. So that was one of the triggering mechanisms.

We are now in this position as I understand it, vis a
vis China, the relations on a day to day basis are far
better with the United States than they have been for a
while because the administration has (at least for the
time being) caved all of its harassing proposals. But the
long term relationship is problematical because I think we
may be heading into a substantially nationalistic phase in
China.

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For whatever it is worth, I travelled around and saw about six Provincial Governors, and I do not believe that some chap in the East would think China is going to break up and that fears of influence can be established in China. I do not believe that. I do not think they are going to break up. If you look, for example, at the Three Gorges Project and some of these big projects, they are designed to tie China together. While I think it is quite possible that some provinces will assert more autonomy - it is not only possible, I think it is highly likely - I do not believe that the National unity will be impaired.

This gets me now to the second way this question can be interpreted - change in the global balance of power, changes in World leadership. I have this impression, Europe cannot recover without a total or political crisis of some kind. I really look at the European Unity efforts from that point of view. On the one hand one can say that Europe has to unify against some identity, but on the other hand one can also say that if these social changes are legislated by non-democratic forces it will undermine the Government authorities even more and accelerate the crisis. If the Maastricht criteria are maintained by some supra-national and if they lead to severe cuts in the social net which they have to....

Secondly, this is an idiosyncratic point and I am not any kind of economist, all my economist friends tell me I am wrong, I cannot travel around China and look at this huge productive capacity and then add to it India and Indonesia without believing that it must lead, even under conditions of free trade, to an equalisation of living standards around the World in which theirs may go up some and ours go down. I cannot visualise how it can have another outcome. I am a great admirer and friend of China. I add to it the fact that an energy crisis is very possible as all these Countries develop their own energy.

So we are living now in a five year period of relative calm from which we can all benefit. But after the China have bought all the machinery that they need from us and produced their own goods, and India follows suit I think we then will have issues of the distribution of the world balance of power in which I do not believe that the Asian Nations will operate by free trade. But even if they do either way these are concerns - I have not applied what this means to individual businesses, but I think that in each Country we are on the verge of fundamental changes in politics for reasons closely related to what we heard this morning. I really believe a new human consciousness is developing that is quite different from what we have known before and whose consequences are very difficult to assess. But just as the shift to printing produced a global revolution with changes of balances, emergence of new nations, and what was associated with it - the age of science, the role of discovery - and really nations who followed traditional patterns like Spain went from Empire

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to second rate status over a period of centuries so I
suspect the same thing is going to happen now.

Those are the changes that will occur in my judgment.
I personally believe that being a member of the Western
world I would like to see America and Europe, as it were
the Western hemisphere, tie itself together more to brave
some of these possible storms. But these are policy
prescriptions that is not a prediction of what is going to
happen.

So I will define change in leadership in two ways.
Leadership within each Country and leadership within the
world, and as an American the thing that borrows me most
is in the Cold War the danger we faced was defeat. In the
present world the danger we face is irrelevance. We have
the technology but many of our perceptions are really not
relevant to what people are trying to do.

Again, to go back to China, if we want a deal with
China on nuclear weapons it is absolutely ridiculous to
send assistant Professors to lecture them about non-
proliferation as an abstract talk. If we want to deal
with them on nuclear weapons we have to talk to them about
the danger they face having nuclear powers at their
borders, and face the fact that if they help Pakistan they
help Pakistan because they do not want to face the Indian
nuclear power alone, and that except for Pakistan they
really do not want nuclear weapons around their borders.
Britishers of the 19th century would have no trouble
coming to a quick deal on non-proliferation with the
Chinese---

LORD YOUNG: Helped by a gun boat.

DR KISSINGER: Yes, but I mean those are deals that can be
made, but if one looks as India develops, entirely new
political situations arise. I know the Indonesians fairly
well, and I have a little game I play with Suharto which
is every time I see him I ask him to rank the dangers to
him. It has always been "Japan, China and Russia" and
somewhere else. Now, it is "Japan, China and India",
Russia has been dropped from the list.

We have just sent an Assistant Secretary of State to
Indonesia to visit prisons in which Human Rights activists
are held, and he shook hands with the prisoners there and
we are going to be surprised if Indonesia does strange
things.

So the problem of the American role is not to be a
huge economic power and huge military power, but I do not
know whether we have the message to which others can
relate in the forthcoming period. I do not know whether
this is what you had in mind, but these are some of my
concerns.

MR OKAWARA: Why do you say you are somewhat sceptical about the free trade in Asia?

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DR KISSINGER: I believe that the instinct of those Asian Governments that I know, namely, India, Indonesia, Japan and China it is for a somewhat managed use of their economy and to try to manipulate it to the National benefit. It is not a crime - mercantilism was a respected economic theory for several centuries, and free trade is a sort of American idea---

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DR KISSINGER: It may not even be necessarily true, but when free trade was developed Britain had a monopoly. Of course, free trade is desirable for monopolies. Ever Country that developed its industry, Germany, France, Japan, developed it under some kind of protection. Everybody beats up on Japan, and Japan if only because of its culture is a somewhat protected market. But the Chinese, the Indians, the Indonesians, anybody who knows these Countries I cannot imagine any of them saying "unrestricted free trade, no matter what it does to our industry". Because after all with the essence of free trade you can argue that it is to the benefit of everybody, but somebody wins and somebody loses. If the losers have a political system they can throw into the fight they will try to do it.

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DR KISSINGER: Everybody wins on a statistical basis. It is not possible that everybody wins. If New England has a political unit it would protect itself to some extent before it was somewhat industrialised. Lord Riskin is neighbour of mine in Connecticut and he would go up in smoke. The Chicago school absolutely would disagree with this and I am not saying they are wrong. If it could work for 100 years they may turn out to be absolutely right. I am saying from what I know of the political system I think I cannot conceive that the Chinese, for example, will say "No matter what disgust to Kwan Chow we are going to have free trade and we are going to let our Country be flooded by Japanese goods". It just will not work that way. I could be wrong.

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DR KISSINGER: I would actually be in favour of letting China into the WTO for political reasons. For one thing the United States has broken a promise to China by not letting them into the WTO. One of these IPR arguments, we promised them that if they settled it we would not oppose their entry to WTO.

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DR KISSINGER: Because we do domestic politics. I think strategically, no matter what I think about what happens to free trade I would try to pursue it for as far as it goes, and it is therefore in my view desirable to have them in WTO. This is one of those both way arguments in which they are afraid of constitutitives in the United States, and you know the Taiwanese are very active.

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KISSINGER: I think the Chinese are going to use
nationalism to keep the Country unified rather than
Communism, and the Army is one of the best organised
units, and the one unit that has a command system that
goes all over the Country and is not so dependent on
regional support and for this reason also I believe that
the Army has a very significant influence and perceives
itself, I mean the challenge to the intellectual property
rights - it is really basically a Hollywood issue - is
done by the United States alone, without any support from
the other Countries. My recommendation was to make joint
ventures with the PLA and let them then control the other
half. I think that would have been a more effective way of
settling it than making half-baked agreements that will
not be observed and then have to be renegotiated every two
years.

MR

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might be joined and form the nucleus of the third Party.
But to what extent their effort will succeed is not clear
at all.

Some people say that they would obtain more than 100,
and would become the second Party after LDP and exceeding
the number of the New Progressive Party which is headed by
Ozowa (?).

The problem with the New Progressive Party is that
they are split inside the Party, one is Ozowa's Group and
another opposing group headed by Huda in between Hosoka
and Prime Minister, but Hosoka seems now to be joining
hands with Ozowa in the hope that he can come back to
(inaudible) after next Election. Therefore it is not clear
whether the New Progressive Party can obtain a sufficient
number of seats at next month's election. Inside LDP
there is animosity against Ozawa and his group, therefore
there is no possibility for LDP to form a coalition with
New Communist Party as long as Mr Hashimoto is in power in
the position of Leader of LDP.

But inside LDP there are some of the older generation
who are interested in joining up with Ozawa because they
feel policy-wise they are much closer to the Ozawa Group,
whereas the younger generation are much more liberal
therefore they really hate Ozawa's policy orientation.

At the same time with another result of the Election
the Social Democrats will lose substantially and they are
hugely interested in joining hands with the newly formed
Hotema (?) Group. However, some of the members of the
Hotema Group are hostile to accommodate socialist members
under one group because that will tarnish the image of the
new Party.

This is the situation, that even though after the
Election Mr Hashimoto will continue to be the Leader and
perhaps the Prime Minister of the coalition Government,
which Party will be the coalition partner of LDP is not
clear at all. That is the reason why I told you earlier
that Mr Hashimoto's position is not necessarily solid.

DR KISSINGER: Is it possible to create a Government without the LDP?

MR OKAWARA: I do not think so. Some people suggest that the new Party will be so popular among the majority of the younger generation they might exceed the number of LDP seats, but it is unlikely in my personal view.

DR KISSINGER: I was in Japan last year and a friend organised a meeting with 20 people - they were from a generation I knew best, much more outspoken, much more direct, much less polite - still very polite but not as exquisitely polite as the others and does that mean there will be a more national orientation among groups like this?

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MR OKAWARA: Earlier I mentioned the change of generation. So far we have the leaders who participated directly in the post-War Japanese reconstruction and high gloss economy in the post-War period. But younger leaders, including Mr Hashimoto and Ozawa and Hutta and others, they have not such experience in participating in the Nation building effort during the past 30 year period. Therefore, those new generation have no personal experience with working with the United States in the Nation building effort. In that sense they feel much freer in their behaviour.

At the same time, even though they feel that Japan should stand on its own, a substantial number of people recognise the importance of alliance with the United States. Therefore, even though we may have a new Government after October, the basic policies stance of the Japanese Government as far as foreign policy is concerned will remain unchanged, however, occasionally you may sense some nationalistic activities by younger leaders.

From the business point of view many business people are very unhappy with the current coalition because this is a very unnatural marriage between Conservative and Socialist, and on many important issues Socialists simply will block the effort of the LDP which is supported by the business community, in order to help internal taxation and other matters.

Therefore, unless the coalition should take a new form not much improvement in Japanese policy matters can be expected. This is the Japanese business attitude. That is the reason why they hope that the new coalition should be based on policy co-ordination rather than simply marriage of convenience in order to stay in power.

DR KISSINGER: David?

LORD YOUNG: I would really like to look at three changes in Leadership, one which probably will not happen, one which almost certainly I believe will happen, and one which just has happened.

First, and as we are in London then I may as well speak from a British standpoint, many people here are increasingly concerned about the personal agenda of Chancellor Kohl and the drive towards federalisation of Europe and a single currency along criteria which at best will lead to stagnation and at worst will lead to fairly strong deflation, coupled with increasing and less productive environment, because there is no doubt about it Europe is now no longer competitive with regions of the world. I am not concerned about the manufacturing capability of either China or India. If that comes up so will come up 2 billion more consumers, and there is going to be an enormous demand generated in India and in China and we may have no future in manufactured goods, but we are going to have an enormous future in other ways of wealth creation which may come about.

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I think there are areas where the United States will really have to assert considerable authority. It is a tender box, and my belief is it is far more dangerous than the Far East, because nobody knows China as well as Henry does, but I have been there many times in my life, and I have also met the leadership many times, and nobody ever understood the basic principle by which a man rises to the top of that, and it is enormously complex. But the one thing you do know is that the Chinese are Chinese first and political second, and you see overseas Chinese are as loyal to China even when China was communist, even though they were capitalist, and if you look at them all, they all want to go back and reinvest in China and help China. So China will be Nationalist all the way through.

DR KISSINGER: I agree with you about Russia, and I think one of the test cases will be what happens in Ukraine. If Ukraine disintegrates then we will be in an Imperial phase again.

LORD YOUNG: Or Chechenia.

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DR KISSINGER: Chechenia is not technically part of their territory, but Ukraine is a Country of 60 million, and fundamentally considered illegitimate by Russians. We have the additional problem of central Asia. If India, China, Indonesia all industrialise there will be pressure on energy supplies. So the direction of the pipelines from central Asia should be of strategic concern. If they all go through Russia, it could create a very complicated situation in five to ten years from now.

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DR KISSINGER: Yes.

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DR KISSINGER: You have two different situations. One is leadership changes in a stable environment, but these leadership changes are taking place in a fluid environment.

MR NOHRIA: Precisely.

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DR KISSINGER: I do not think China will be aggressive militarily. It will want to be treated respectfully and therefore, Bradley Island, that sort of issue will have to be handled with some care. I do not think they are going to march into other Countries, but they will have such a huge market that the other Asian Countries will have to take them seriously.

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India will conduct the policies that used to be conducted from Calcutta, New Delhi under the Viceroys because they were conducted by Indian Civil Servants which means it will try to play a dominant role between Singapore and Aden, not all of which is bad for us because it will have to be against the Fundamentalists. All I am saying is it is a change in the environment. So on top of the leadership changes in the 19th Century in Europe you have no written exercise to stabilise growth. There is no stabilising power because we are behaving like

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missionaries, not like Statesmen. We are lecturing
everybody about their domestic structure, and we really
have very little to say in relation to these evolving,
geo-political changes. The real problem in Russia is to
see whether or not, for the first time in 400 years,
Russia will stay within the borders it now has. That is
important. All this playing around with elections in
Moscow is irrelevant. Yeltsin or somebody else is not
decisive, that is decisive. There is no force in the
World today that operates for stability geo-politically.

The United States is a disturbing influence in many
areas in the Middle East, in South East Asia. We support
the forces that upset the equilibrium under the mistaken
notion that these are democratic forces that look to us.
The daughter of Gekano is not looking to the United States
for inspiration, in my view.

MR FREIDHEIM: But she is looking there for political support
for her own ends?

DR KISSINGER: Look, anybody who is not in power wants
democracy. (Laughter) The question is what will they do
in power. I cannot believe that the heiress of Gekano, the
people that are supporting her - anyway I do not know how
you govern an archipelago of 4,000 plus Islands with
different languages, by pluralistic, American democratic
methods. Even in China, I was in Changchun two weeks ago.
The Governor there said he does not understand the local
language, and he does not even understand the locals when
they speak Chinese because they have such a terrible
accent. He did not say that in relation to democracy, he
just stated the problem of Government.

But our pressures tend to dissolve stability,
unfortunately.

MR WALLENBERG: Is the problem not this, the very backbone of
the present Chinese system is a centralised economy?

DR KISSINGER: I do not think so. I do not think China is a
communist country right now. The Government Party in China
is called communist, it is more like Pinochet or Franco's
Spain, at the end it is a one Party system. It is more
similar to Mexico before the changes. If you challenge the
party you are in deep trouble, but if you do not challenge
the Party you can do pretty much what you want. If the
economy goes down it will not be because of their planning
but because of rampant wild capitalism coupled with
nepotism. That is the State sector, they at least think
they know what they want to do with it. So, I do not
think the centralist Asian in China is the overwhelming
problem. When Nixon met Mao the first thing Nixon said to
Mao was "The Chairman's teachings have changed the
civilisation". Mao said "No, I have changed Beijing and a
few of its suburbs". That sounded ridiculous, but he had
a point. How to govern China? If you travel around in
China, you go down the Yangtze, the only problem is you
ask yourself "How can the central Government possibly know

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what this mass of people, all of whom are super active,
are doing?" They are so family oriented. I do not think
that excessive centralisation is their problem. Flying
apart is a more serious problem than excessive central
control.

MR WALLENBERG: Except in one area and that is the area of decision making and particularly in the area of economic decision making.

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DR KISSINGER: If you go to realistic China, you go to Beijing and you talk to Shoramshi and he gives you the economic plan, and then you go to Shanghai and you ask him for their economic plan there is no necessary relationship. Then you go down to Guangzhou and you get their economic plan and that has got no necessary relationship to either Shanghai or to Beijing. This is frankly what happens in the real world.

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LORD YOUNG: They tried to ignore Beijing.

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DR KISSINGER: They tried to ignore it, I mean they
accommodate it enough to keep it together. I was in Woohan
and they now claim they have a 15% growth rate, and the
official one is 10%, and that is not even a powerful
province. I said it is interesting, how do you have 15%
when Shoramshi has just told me 9 1/2% is the target?" "Oh",
he said, "They kept us back for ten years, we had only 5%
over the next ten years. We are going 5% above". You
operate in China, do you not think that is the reality?

MR SHAPIRO: I cannot figure out what the reality is. I do
not know who you have to bring in in order to get
something done.

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DR KISSINGER: Everybody.

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MR SHAPIRO: We keep working with everybody and sometimes something happens, but I cannot see any causal relationship between what we do and what occurs. I have no idea what is going on, but we will keep at it. Do we have time for another question? Is it your sense that what appears to be the ability of terrorist organisations to penetrate Europe and the United States, and Europe in particular, is going to be anything more than a serious annoyance, or is it likely in fact to be a pivotal event which changes the nature of Society and relationships?

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DR KISSINGER: I do not know, I do not exclude it though. If you look at the rhetoric of the ethnic identities that are being developed in our Country you cannot exclude they go to terrorism. Certainly, around the world they have not exploited their capabilities. We have not exploited our reaction either. We have to start going after the terrorists, and unless they are totally locally based, the ones that come out of the Middle East cannot operate without a Country backing them and I do not see why we leave the Sudan. I do not know what you think, David?

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LORD YOUNG: I think terrorism is endemic to the West. We have it in this Country, and we are going to have it for another 400 years and nothing is going to stop it because in the end it is two or three hundred people driven by a protection racket. Spain has got the Basques. You will find Germany will have them from tend to time. We have Animal Rights terrorists here, and so why should the United States not have any.

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MR SHAPIRO: It is something more than a serious annoyance, but it is not something that changes the fundamental nature of the Society or relationship with the States that support terrorism.

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LORD YOUNG: Only one thing will really get to the heart of it and that is if terrorists start using sound missiles on airlines, because that is almost impossible to stop and that would put a check on world travel. There are real problems coming up because technology is changing. If that last thing was done by a missile, then I do not know what the answer is. The rest of it is airport security, vigilancy.

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DR KISSINGER: Our problem is that we do not address any painful issue when there is time to do something about it, or to militate it. I do not know what the answer is to terrorism.

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MR STASIOR: What is the likelihood of nuclear terrorism? I mean shooting down aeroplanes with missiles is one thing, but State sponsored nuclear terrorism is another?

DR KISSINGER: I have no way of knowing.

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LORD YOUNG: There are two Countries in the World who are looking for it, Iran and Libya, and if we let them get it then I would hate to think what Libya's height of irresponsibility in Iran because of fanaticism.

DR KISSINGER: But I think a point you made, David, is important to keep in mind. If one wants to keep the Middle East stable, you cannot attack both Iran and Iraq simultaneously and there are some people, supported by Metunyahu who would like us to add Syria to the list, but then if we had Syria, Iran and Iraq they would get nobody. The trick is to separate the moderate Arabs from the more radical ones. Saudi Arabia in my view cannot stand alone. It needs some Arab backing. Do you agree with that?

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LORD YOUNG: Absolutely. I mean I would make peace with Saddam Hussain tomorrow.

DR KISSINGER: That is impossible in the United States.

LORD YOUNG: Iran is the real danger, and if Iraq goes down---

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DR KISSINGER: We should have overthrown him and put a secular regime but we did not have a chance to do it.

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[Dr Kissinger welcomed everyone to the meeting and thanked the organisers for the Dinner the previous evening]

A DR KISSINGER: I think we are going to begin with a brief update by Bill Stasior.

BRIEF UPDATE ON BOOZ-ALLEN

B MR STASIOR: Good morning and welcome, and thanks for coming. I believe on other occasions I have talked a bit about the Firm so I will not go back extensively about either the structure or the internals of Booz-Allen Hamilton except to say that we are enjoying a good year - not our best year as compared to the last or three or four. By a good year we are on our Fiscal Plan which implies about 15% growth in revenue this year. We expect to reach a billion Dollars in revenue which is about $1.3 billion in billings to clients.

C We have about 7,000 staff worldwide and we are really divided in our performance against two major markets, namely commercial markets worldwide and Government markets worldwide, but primarily the US Government market.

D Our Government work is technology based, project engineering work and largely in the US out of our Washington office. Our commercial work is management based by dealing with business transformation and visioning and really distributed rather equally around the world with major offices in Europe, the United States, Asia and Latin America.

E This year we are seeing strengths in our US market, our Southern cone in Latin America, and Japan and Germany, and some weakness in Mexico, parts of Europe, France in particular and we are having some difficulty in getting our operation started in China. We targetted originally the State owned enterprises who are not really buying services, and now I think we really need to shift our strategy more towards the multi-nationals in that part of the world.

F In the industry sectors the strengths again are media, healthcare, banking, energy and computers and electronics, with less demand in manufacturing and consumer goods.

G I would like to tell you briefly that we are entering what we call a third phase of our visioning project, or "Vision 2000" - "V2K". As you might recall we began this project in 1992 and at that time in what we call "Phase 1" we covered the strategic direction for our commercial business, and coming out of that effort we reoriented our commercial business towards targeting a fewer, more select set of clients, building larger relationships, offering our services which are basically strategy and operations improvement and information technology in an integrated way to those clients looking

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for growth and also investing in intellectual capital. I believe that that effort was manifestly successful. "Consultant News" reported that Booz Allen was a leader in the last three years in overall growth and impact in the market in our commercial business.

In 1994 we began Phase 2 of our visioning project, that dealing with our Government project (again largely based in Washington) for the US Government. We were facing there a transition in the US Government and how it buys goods and services and in the amount that it was looking to consultants to do. So we really need to reorient the business around the ability to capture very, very large programmes. Again, I think we have been successful. I will ask Ralph Shrader, who is our President in Washington, to say a few words at the end, but we recently closed on a $700 million project for the General Services Administration to do work in the telecommunications sector, and it was the kind of victory we could not have realised before we underwent the changes in Washington.

In our Phase 3 project which kicked off just a few months ago, we are looking at what we call corporate strategy and the first situation we faced was really defining what we meant by "corporate strategy". We are using a framework developed by Andrew Campbell and Michael Gould here in Great Britain, in which they talk about the framework for corporate strategy as involving really four elements. The corporation really affects its business units in four ways: directly, through a direct influencing of their strategy and direction and through a linkage influence causing the various elements of the business portfolio to work more efficiently, because by providing shared services, and then by developing beyond the current portfolio business.

I contend that we have gone through that direct phase with our visioning "V2K" 1 and 2 projects, and they are continuing to evolve in their markets.

In the shared services area I think I mentioned last time that Booz Allen really has a very, very minimalist corporate centre. My idea is that most of the corporate functions are best done at the business unit level. So we have a small legal department with two partners. We have one partner who is in charge of our finance and control, in which case it will be a consolidation and treasury function, and then we have a systems group which, by necessity, because of the need for standards and implementation worldwide I have kept at corporate level.

We are re-engineering our finance and control department as a result of this "V2K" 3 effort, but our real emphasis is on linkage. We believe that we have not realised the synergy between our technology based consulting work and our management based consulting work, and we are looking at ways to cause our two major business

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