Global Business and Global Poverty Conference
Stanford Graduate School of Business

Introduction by John Roberts

We are now back onto our regular program and it's my pleasure to introduce Edward W. (Ned) Barnholt, who is the Chairman, President and CEO of Agilent Technologies. Ned attended Stanford, received two degrees in Mechanical and Electrical Engineering and joined Hewlett Packard in 1966, eventually rose to be head of their original business, the Test and Measurement Business, and then in 1999, Ned led the spin off of Agilent from Hewlett-Packard. Agilent is a world leader in a number of product categories, it's a high tech company that has facilities in more than 30 countries, including development and manufacturing facilities in China and Malaysia, and research labs in China. So, we call Ned to join us and speak about evolving roles in Global Economy.

Remarks by Edward Barnholt

Thank you very much. It's a real pleasure for me to be here and let me congratulate you on the opening of the Global Center for Business and the Economy. You're dealing with very important and crucial issues and I am really honored to play a role in your kickoff here today.

I'm going to talk about three different things. Clearly my perspective is that of the high tech world. As was mentioned, I joined Hewlett-Packard in 1966 when the company was about $200M in revenue. I had the opportunity to work with Bill Hewlett and Dave Packard and a lot of the lessons I will share with you are some of the lessons I learned from them over the years.

I think there are three major roles that business can play in this question of how do we improve the global economy, how do we improve the work for all of its inhabitants?

The first is the obvious and the question we think about the most. By developing presence in countries and building local businesses, hiring people, creating jobs, we can have a big impact on the economic environment of many countries around the world, not only where we have manufacturing presence but also through our other sales and marketing presence.

But I think there is a second role, a broader role I want to focus on a today. A basic philosophy of Hewlett-Packard is to be a good corporate citizen in every country and every location where we do business. That means giving back to the communities, making the communities better for us being there than not being there. This was an important role I think we can play as a business community.

To describe the third role I want to share with you some examples of things the business community is doing to help facilitate entrepreneurship and the innovation that's out there with a lot of people around the world doing good things to help improve the quality of life for poor and underprivileged people around the world.

So I'll share some experience with you and I'll draw on a lot of my experiences at HP. I've had the opportunity to participate on our Boards of Directors in China, Korea, and Japan. I've seen our development in India and other parts of the world and I'll share some perspectives with you.

First let me share a couple of perspectives on Agilent overall. We are—as of last year—a $6-billion diversified technology company with about two-thirds of our business outside the United States. More than half our employees are outside the United States and about 67% of our revenue is from outside the United States.

We have been an independent company since we spun off from Hewlett-Packard five years ago. Like the heritage of HP, we represent a lot of the original values of the company. When HP first started it was a measurement company, so Agilent represents the original businesses of HP. One of the stories I wanted to share with you is I always thought it was fascinating that in the late 50's when HP started to look at expanding, the first division they located out of Palo Alto was in Germany. Why? Because Bill Hewlett saw the growth and opportunity in Europe and he wanted to be there and grow with the economy, not import into the economy. That's been a fundamental philosophy that we have followed into other places around the world. We formed a joint venture in Japan in the early 60s. We had joint ventures in China, Korea and other parts of the world in the late 70s, early 80s; so again this notion of being early, investing early, and investing for the long term is an important notion.

Let me just share with you some of the lessons we've learned along the way in developing a presence in different places around the world. First of all, when we look at our footprint we usually start with a sales and marketing presence. We sell in 140 countries, so we have either direct distributors or direct to sales people or distributors who sell our products. We also have subsidiaries in manufacturing and some kind of R&D presence in about 30 countries. But as we look at this it is very important to recognize that we want to be there for the long term. I was doing CNBC interview and somebody asked me, with all the changes and challenges in India these days, are you rethinking your strategy? It occurred to me that if we rethink our strategy every time there is a new headline we wouldn't be in any country around the world. We have to take the long term view and I think that's the way most successful companies are operating. The goal is to build a business, to have a presence, to be there in these economies and help the economies be successful by employing people, by bringing our technology to the customers that allows them to build their local capability, to participate in the education program by hiring graduates. We want to be a partner in the growth of the countries.

One of the lessons we have learned is that local talent and partnerships are key. Over and over again we have tried to have U.S. managers manage our activities outside the United States only to see them fail. It was when we installed local management teams that our activities really started to takeoff.s

The next point though, is the one I want to focus on and that is this notion of making a contribution both socially and economically to the country where we participate. We do encourage our employees to spend time; we actually encourage our employees to spend up to half a day a month on company time working on volunteer projects in their own local countries. Different countries have different programs. For example, in Malaysia we have a large operation in Penang where employees have adopted a nearby fishing. They work in the schools and help educate the kids; they work with the local authorities to help build houses, improve the water supply, use our engineering talent to improve the infrastructure of the village. In China, one of the big issues now is educating the population in Western China. We have about 1,000 employees in China and about 400 in Bejing. They decided to adopt children in Western China and are now providing education to 600 children, mostly young girls who wouldn't otherwise have an opportunity for education. We actually brought about a dozen of those kids to our headquarters in Bejing—the first time they had ever been to a big city.

So by giving back and doing projects like this I think we can really begin to make a difference as a company. One of the programs that we've been doing since we launched Agilent five years ago is called "Agilent After School" where we put together a bunch of scientific experiments that help kids understand science principles. As you can probably imagine our creative engineers love this. We now have over 60 or so of these experiments that we've developed and we have taught kids all over the world& Every one of our companies worldwide takes part in this Agilent After School Program. In China, last year, they had 3,000 kids at one meeting doing the Agilent After School Program in Bejing. So again, little things that companies can do using your knowledge, using your skills, using your expertise can really make a big difference.

The last point is that as we develop our presence in countries, it is important to have patience, persistence, and have a plan and a set of values of what you're trying to accomplish as you move forward.

This is a picture of David Packard; I put it up here because I wanted to say a few words about our China activities. Dave Packard went to China in the mid'70s, developed a personal friendship with Xhao Hui-Min, and we were one of the first western companies to form a joint venture in 1985. Dave was so intrigued with what has happening in China and the power of China he was actually writing a book about China when he died in 1996. But I think China really does represent a terrific opportunity and we have continued to build the presence of Agilent over the past five years. Actually we're up to nearly 1,000 employees now. We have even moved some of our advanced research activities there, and we've moved manufacturing, R&D, and as I mentioned we have a very broad social and philanthropic footprint in the country. So, I think these are examples of putting a presence in a country, going in early, helping to grow with the country, providing jobs, giving back to the community.These are the kinds of things I believe responsible companies need to do.

Another thing we can do is through our philanthropic activities and through our knowledge and expertise in scientific areas we can help foster innovation and creativity and the use of technology to help improve the world. I happen to be on the board of the Tech Museum of Innovation in San Jose. The Tech Museum, about four years ago linked up with the United Nations to try and identify individuals around the world who were using technology in very basic ways to improve the quality of life, improve the environment, improve the health care system, to do something that was going to improve the lot for many people, particularly in the underdeveloped world. This has been a very, very successful program; this will be our fourth years now that we're doing this. We have just closed the applications. We have 400 nominees this year from 72 countries, we bring the top five in each one of five categories together in San Jose to share their experiences and what they have done with others. The winner gets a $50,000 cash award to go off and develop ideas even further.

Last year we took this one step further. We actually linked these 25 people that were there in San Jose for last year's awards with previous winners and with foundations, the Packard Foundation, The Hewlett Foundation and others. They are now beginning to be exposed to some of the good work these people are doing and also beginning to add funding, not just to the winners, but to other participants in these award categories.

Let me give you a couple of examples of some of the awards because I think it is really a terrific example of ingenuity at it's best. There is an organization called'"he Free Play Foundation In South Africa" which brought windup solar powered radios to people in some of the poorest regions in Africa. These radios with a little solar panel are the main link with the outside world for many people in the poorest parts of Africa Broadcasts are around all kinds of health issues, They give AIDs education over this radio, all kinds of different information on what's happening in the world and how the citizens can improve their lot. In a number of villages the radio has now replaced the goat as the number one purchase that people want to make and it's a very, very low cost purchase. This is one example of very simple inventions, but it was a winner a couple of years ago.

There's an interesting company in Canada that developed a new technology for purifying water. The process is very inexpensive and is used in many, many underdeveloped parts of the world to change water purification methods. Just the identification of this company and then the recognition and the further funding allows these ideas to spread and to be used in a lot of different places.

So these are the kinds of things that we are trying to do as a business community, certainly within the high tech area. I think it is important. We all benefit by solving the issues of world hunger, world poverty and I think there are roles that businesses can play. Certainly in the high tech field we give a lot of computers, we can help educate people on the use of technology, but at the end of the day it's simple things like this solar powered radio that can make a big difference in people's lives. We're committed to be a good corporate citizen. Wherever we are we're committed to continue to give back to the communities where we're located and work with organizations like the Tech Museum and the United Nations to spread the great work that individuals are doing without a lot of recognition and reward to spread that word and to get it more broadly adapted across the world.

With that, let me stop and take some questions. Thank you.

Question: My question is, we keep discussing the business and business responsibility and social responsibility vs. profit. You mention that your company has programs such as half-day per month company time. How do you measure these types of programs when you're making decisions? Do you use a return on investment? Do you use moral values? How do you go about deciding what you approve, how much time or money you allocate to these?

Barnholt: Well, we don't do a return on investment analysis on each program and I guess I would differ a little bit with the previous speaker in the sense that I think companies can make profit and do well. Now there is a limit obviously, we still have to make reasonable profit, but I think it starts from a very deep fundamental belief that if you can improve the environment where your people live and work, where, if you can help improve the local communities for poor people, help educate more people, the economy will benefit. Our employees will benefit, the environment they live in will be better. It really is very difficult to put in an ROI on that, but you look at our ability to attract and retain top talent, the motivation of our people, and I think there is a very direct correlation between employees satisfaction and giving back to the community.

We went through what we call nuclear winter the last three years with the meltdown of the telecom industry. It was a very, very difficult time for the high tech field, but we did not cut back on our volunteer programs. We cut back on some of our cash philanthropy, but we still continue to give a fair amount of money. I think it was the giving back to the community that really helped employees stay motivated through the downturn because they felt good that we were doing something to help communities where we were located. I think a lot of benefits are difficult to measure in terms of employee moral and motivation. The ability to attract and retain top talent, the long-term benefit to future students, little kids that we teach math and science to today that we might be a spark into being an engineer and scientist 10 to 15 years from now, that's very difficult to measure you just have to believe that's the right thing to do.

Question: You mentioned how you've been in China for all these years, and you mention how you weathered the storm when you didn't want to be aware of what headlines say or come and go. I think there is a lot of pressure that high tech companies—particularly HP and the like—are getting because of jobs being sent abroad today. From a development standpoint it is probably a very good thing. How do you respond to your external constituents when they are facing the fact that they may not have a programming job here in the U.S. because it is being created in India or China?

Barnholt:& I think that's obviously a hotly debated topic right now. I think probably the most significant development that we are going to see in this whole century, but certainly in the next couple of decades, is globalization.&; I think the model we still have in the United States is that the United States develops technology and then moves it to different parts of the world. That model is out-of-date, it's changed. Today, you know, there is outstanding engineering talent in China, in India there are certainly big markets. I think if you just look at the growth rate over the next decade as more and more people come into the economy into China and India, there is going to be huge opportunities for companies. In fact from a consumer market point-of-view, for companies like HP that is the biggest market opportunity.

If you look at China today there is only about 200M people you might consider middle class. The rest are still very poor or farmers. In India it's about 300M people. There's another couple billion people that are going to come into the world economy over the next couple decades. I think that's only going to be good in the sense that we see them not only as consumers, become more educated on issues and again more understanding of what's going on in the rest of the world.

So from a company like us we need to recognize this global trend, we have to have a presence in the major markets like China and India. I can't sit here with 30% of my business in the United States and have all my resources in the United States. That is not a winning strategy. The way we'll win is by putting presence, as I said, in the various countries of the world. Then we have to take advantage of the cost differences in and around the world. Today in several businesses our biggest competitors are already coming out of China. Five years from now I would guess most of our competitors are going to come out of China and so for us to sit here and try to compete with a cost structure in the U.S. against Chinese competitors, I'm gonna lose. So what I must do is make sure I have resources in low cost areas where I can be a global player. I can compete in the United States, I can compete in China, I can compete anywhere in the world.

The question of course is what are the opportunities in the United States? The answer is the United States is going to have to compete on the basis of our intellectual property, just the way companies compete. We have to compete on the quality of our ideas, of our engineering talent, of our expertise in business. It's not going to be the U.S. and everybody else, it's going to be a much more horizontal world where you are going to see very good engineering and business talent from other parts of the world too. It's a difficult message for employees to accept. On the other hand, United States economy has been incredibly resilient. If you look back, the aerospace defense industry basically fell apart in the late 80s and hundreds of thousands of people lost their job when the Berlin Wall came down. Guess what? Within three to five years most of those people were re-employed and in the'90s the economy went through one of the best decades we've ever seen. So the American economy is resilient. There are new areas emerging in biotech and healthcare and others which will absorb a lot of people into the workforce, but are we going to continue to do the same thing—manufacturing high tech products the same way we did 10 years ago?… No, that's a different ball game today and we're having to go through some adjustment to ensure we stay competitive.