Looking Beyond Borders

Speaker Name: John P. Clancey
Speaker Title: President and CEO
Speaker Company: Sea-Land Service Inc.

John ClanceyBefore I begin, I'd like to give you a thumbnail sketch of what Sea-Land does. I know if you look at brochures or see pamphlets about Sea-Land, you normally will see a ship. And although we have lots of them and though they are very, very expensive, they are a very small part of what we do and represent about 10 percent of our annual costs.

Where we spend money is information technology, distribution, logistics, and we operate and manage intermodal and trucking operations in various parts of the world. Very few people know it but, for instance, we manage the Trans-Siberian Land Bridge. There are times when we question that, but it is slowly but surely an improving situation. We have the most comprehensive infrastructure system in China where we see growth in phenomenal rates, as you just heard from the prior speaker.

Sea-Land was founded in the state of North Carolina by Malcolm McLean who is now in his early eighties, lives in New York, and still today has as many ideas as he did the day when he founded the company. From that he built what became the largest ocean carrier container company in the world. He eventually sold it to R. J. Reynolds, becoming their largest shareholder, and went on to do another dozen things, and every time I speak to him he has a new investment or project on line.

Today Sea-Land operates in a hundred countries and territories. Every day our system globally grows about a hundred miles that's a hundred miles into the interior of China, a hundred miles farther into the Commonwealth for Independent States (CIS), farther into Brazil, into the mountains of Argentina and on and on. So you can see that because of our global presence, we are at the heart of the changes in global commerce that are taking place around us everyday.

As the CEO, I rack up a good deal of frequent flyer miles. In fact, my accountant has told me that my grandchildren won't be able to use all of them. As an example, I'll leave here the minute I've finished speaking and I'll fly to New York, then from New York to London for a meeting tomorrow at Heathrow, from Heathrow to Dubai for an evening meeting with our associates, on to Aman to meet with the government, back to London for another meeting, and I'll be back for a meeting Thursday afternoon in Charlotte.

That might sound like a very quick trip, but that's the way people are traveling today. I carry a phone that I can use in every other country in the world except the United States, but allows me, when I'm in those countries, to call Asia and to call the Middle East. By the time I land, I'll get a pack of faxes and every time I get to a hotel I can plug in and communicate with the world.

As I travel from country to country it continues to amaze me just how much communications is doing for the world we live in and how this high speed communications is knitting this world together as one vast market, one very, very large market. It's creating a new class of international citizenry. Robert Doran touched on a number of these issues at our luncheon today and briefly with you. I was glad to see that a person who is responsible for some of my money, those of the taxes I pay, shares similar views with me about where the world is growing.

The globe today is a class where nationalities seem to be fast giving way to personalities. Everywhere I go, people sort of look the same, predominately in your age group. There are Coca Cola machines, there are baseball caps, there are Nikes, there are Sonys, McDonalds and Burger Kings, and that's in hundreds and hundreds of countries. They have the same desires and the same goals and they speak the same language, at least economically, if not by language itself.

But nowhere, absolutely nowhere, has the impact of globalization been greater than it has in business and in commerce. In fact we have to face it the philosophical, ideological, political and military competition that has defined the interaction between nationalities and man from the beginning of time is over. Capitalism has obviously been declared the winner and, with that, we're witnessing the globalization of the world economy at an astounding pace.

I spend a lot of time with our customers and with some of the most senior people, and I'm continually amazed, whether it's in Asia or the United States, or wherever, that some of the most senior people are not really cognizant of how global their businesses are becoming. They really haven't taken in that their international sales are growing at double-digit and their domestic sales are growing at 3 to 5 percent. So the new battle, the new battlefront, is economic competition, and that's what I would like to excite you about this afternoon.

I'll begin briefly to explore the trends in globalization, but my message to you this afternoon, young men and women of Appalachian State University, is three-fold. First, globalization is perhaps the key business imperative of the balance of the twentieth century and, without question, it is the key imperative of the twenty-first century the century where you will all begin your business careers.

Second, from my unique vantage point within Sea-Land, I see everything that is taking place and I can attest personally to the challenge and excitement to be found in the changing dynamics of global trade, because it is my job to guide the company through it, exciting as it may be at times. When you wake up and you find out that the Mexican peso has collapsed 30 percent, you know that your business is going to crash in the next ten days. With what's happening with the Southeast Asian currencies, we know what has to take place. The product shift in manufacturing that is now taking place in Asia is Nike and Reebok, The Limited and The Gap, as they shift production from North and Central Asia to Southeast Asia, to the Indian subcontinent, to South America and to Eastern Europe.

And third, with change comes opportunity, and to me there is an extraordinary bright future, and international business careers are waiting for those of you who have a keen business sense, for which you are getting superior grounding here at Appalachian. A zest for adventure is also important. I always thought I lived right on the edge, but recently I was in a Moscow office and our associates from all of the areas of the CIS were in, and I began to lecture them, or that's how I heard they read it later on, about being careful where they travel, being careful what they eat, being careful with this and that. I left and for the next ten minutes they talked about what an old fuddy-duddy I was.

And most important is to have a global perspective. Let's take advantage of our high perspective from the mountains of Boone, North Carolina, to look at world trade from an eagle's standpoint. The bottom line is, today and continuing throughout your lifetime, globalization and the integration of supply and demand on a global scale will be the dominating factor of modern business. As business men and women, globalization will impact your daily life in fundamental and profound ways. And I'm glad to know the leaders of Appalachian are helping to prepare you for that.

As I stand here in these beautiful mountains, the fires of globalization are raging all around us. First, there is the unprecedented world integration of markets for goods, services, and capital. Second is the exponential growth of communications and world-base knowledge CNN, MTV, BBC. Every time anybody walks into a hotel, a television is usually on in the lobby, and in every country of the world you have access to English language television broadcasts. With the click of a button on the remote control, you can flip to the local language if you can speak it.

Third, and something that is really propelling us along, is the reduction of barriers to trade which include the liberalization of trade laws in most countries, a globalization of corporate practices and production and distribution, the world car, the clothes you wear (you'll see them in almost every country of the world) and by improved communications. And finally, there are the increased demands of customers for the best products, when and where they want them, at the lowest cost.

The progress of globalization. While world output has increased by 110 percent over the past 25 years, world trade has increased by 230 percent. World trade will reach the 6 trillion dollar mark by the year 2000. And that's a 50 percent increase since 1994. World merchandise exports have doubled the portion of world output from 10 percent to 20 percent and will probably hit 30 percent by the year 2003 or 2004. World exports are forecasted to grow at a minimum of 7 percent and, most significantly, world trade is not only advancing in quantity, it's changing in nature.

Earlier growth was fueled by the assembly of electronics in Asia, the knitting of clothes in Southeast Asia, the manufacturing of automobile parts to ship anywhere. The next wave, which has been greatly accelerated by enhanced technology, will be knowledge intensive shifts such as data processing, software programming, and global services. Two years ago, we made the headlines twice in The New York Times; we weren't too excited about it. It was because we had shifted a great deal of our data processing assets and programing to India. We did it because the workforce was more available, they treat us very well in terms of tax and capital, and we have more business outside the United States than we do in. So we look at the globe as a real opportunity.

The impact of globalization is far greater on developing countries. In the next 25 years, the gross domestic product (GDP) of developing nations will increase from 40 percent of world trade to 65 percent. The growth rates of developing nations will double those of nations such as our own. In 25 years, which will be more than half of your working careers, nine of the world's 15 largest economies will be those considered today to be developing nations. In ten years, the GDP of East Asia will exceed the GDP of the United States by more than a trillion dollars. It's easy to see. If you look at a map and you take Lotstoltnia on the north and the Siberian frontier to Bombay in the south, you have 68 percent of the world's population. It's where the population is growing faster than any other place in the world. It is where wealth is being created at a pace faster than any place else in the world. And you have an enormous engine that's going to drive them forward because of the cost effectiveness and their desire to conquer global markets.

In addition, the mobilization of capital is being accelerated by improved communications. The fact is that, today, the international language of commerce is not English or Spanish or Japanese, but it's MasterCard, Visa, and American Express. After emerging from the doldrums of the seventies and eighties, the United States, today, is very well positioned. Thus far the United States has been one of the big winners in the world trend towards globalization.

The United States is the leading investor abroad. We import more than any other nation, and we export more than any other nation. Unfortunately we need to export more. And the U.S. share of the growing world GNP is keeping pace in the mid-20 range.

The United States is linked to world trade and there is no turning back. Today our trade and investment earnings and payments account for about a third of our 7 trillion dollar economy. What that equates to is $3100 for every man, woman and child in this country. In the last 10 years exports have created almost one-third of all new jobs. Foreign investment in the U.S. continues to accelerate and they continue to plow that money back into our economy. Last year there was 550 billion dollars worth of foreign investment in the U.S. and that was a gain of 20 percent over the prior year. The rising tide of globalization is raising most ships. Today, the world is enjoying growth rates that no one could have imagined. I agree with Bob Doran that the USSR is finally mending itself and East Europe is moving right along.

World inflation is the lowest in 30 years, and while the rich are getting richer, you cannot deny it when you see the facts the poor are getting rich faster. We see it all the time. First a teenager in Santos sees MTV or CNN. And pretty soon, he'll want a pair of Nikes, then a pair of Levis, then a stereo system, then a car, and then a house. I recently returned from a trip to South America, and you'd be astounded at the growth that's taking place there. China's growth is double-digit. Latin America over the past 12 months has grown 8 percent. Mexico's industrial production is up, with growth rates of 16 percent, and Argentina has come back from ??? to 13 percent in the last 10 months. Totaling it all up, it really is a good story.

Peering deeper into the crystal ball, the International Monetary Fund forecasts world trade for the next four years to the year 2000 to grow at rates unprecedented in the past. The question now is whether more synchronized growth will make it harder to keep inflation under control; and probably no one knows the answer. The popular thesis is, and I somewhat agree, that technology and global competition are fierce. We deal with all the automobile companies on every continent and they are at each other's throats; and it's quality and price, quality and price, quality and price. And no other industry can escape it. So there is a good story there on inflation. World trade will continue to grow, and it is the responsibility of individual countries, certainly the United States is no exception, to manage their own house.

Another factor fanning globalization and having an extraordinary impact on many companies, certainly Sea-Land is no exception, is that major companies are looking at world resources and asking business partners to do the same. And from Toyota, to Sony, to IBM, to Intel, they're looking to streamline their operations, to leverage information technology, to drive down working capital through leaner inventories and to enhance the overall efficiency of their operations.

One of our accounts, a computer manufacturer that will go without name, found that some of its parts, hard to believe, traveled 250,000 miles in the entire process of the manufacture of the raw material to being put in the computer. One of our major customers learned that he handled the product 39 times. When you understand that the total supply chain from beginning to end could represent 14 to 20 percent of your first cost, you get a pretty good idea of the opportunity that is there. Therefore, these products are not only looking to their own operations for solutions, but are looking to their suppliers worldwide as well. And the best companies do it very, very well.

To respond to world markets, Walmart and Toys 'R Us, for example, are looking to their service providers to do a lot of work that they historically did and we're no exception. They want to take out 500 million dollars of working capital. They want to take out activity cost, and they want to take out time. And we're being pressured to help them do it. In short, customers are demanding value, and demanding it ever increasingly. Global players, if they're going to compete, have to be able to provide that and to be low cost as well.

Sea-Land in the last five years, in response to this pressure, has been forced to take 650 million dollars out of our expense competitive with the companies that I just mentioned and many, many more. So everyone is focused on efficiency, everyone is focused on cost, and everyone is focused on value.

Alliances and partnerships and acquisitions. We have a major alliance with a significant European company. We couldn't exist unless we did have an alliance. On Friday, as an example, seven out of the ten lead stories in The Wall Street Journal were about merges or alliances and many of those dealt with the international impact.

The communication industry is a wonderful example with new technologies becoming on-stream, putting more and more pressure on them. In developing countries land lines for telephone systems are not even being thought about any longer. Mergers and acquisitions are changing that, giving them access to new opportunities. Can Worldcom, if they can't do the deal that's on the agenda with MCI, take on AT&T? Four years ago, two years ago, a month ago, you would have said that's improbable; now you have to at least give it some thought.

Another example is the deregulation of the energy industry. And right here in North Carolina, Duke Power is expanding, left, right, up and down, and is certainly no longer a local electrical utility. It's involved in Eastern Europe, it's making in-roads into Asia and that certainly will continue. And you can't compete by staying home.

When I speak to groups of manufacturers or chambers of commerce wherever I am, I caution people to think very carefully if they have a customer that's all around the world let's say it's Exxon, or General Motors, or Intel. If you provide a service or a product to them in one part of the United States, the person who is capturing their business in the most difficult places, in Siberia, in Mongolia, in South America, in the sub-continent, in Africa, will eventually say, I'm doing all the hard work and now I want the easy work. And as people shrink the number of people they deal with, that is going to continue to drive a lot of competition into the graveyard, of corporate ??? in order to survive, and not only to survive and prosper in the new world. We're looking very carefully at the twenty-first century. We're carefully investing our capital, managing the network both in size and efficiency and aligning ourselves more closely with our customers.

But to do what we do and to do it well we, and every other player in the globalization market, will continue to need more highly qualified men and women to help us compete and win the race in the twenty-first century in the business that we are in. We and many companies like us are looking for young women and men who are ready to function in modern, flexible organizations, who have great communication and computer skills, who have a non-parochial view of the world, who have a lot of stamina and who can work with others of all nationalities, creeds, and experiences, and who can lean forward, overcome obstacles, take risks, make a mistake, pick up and begin again.

Before we talk about people, I hope I've convinced you that all American business is truly becoming global. I also hope I've convinced you that the change is positive and, more important, that its very exciting. But what I would like to most impress upon you is that the national and international push towards globalization offers each of you a handset of great opportunities. And those opportunities are richest for those prepared to take advantage of them. When I talk about the vast opportunities of globalization I'm not talking just about working for American companies that deal overseas. I'm talking about working for foreign firms in the United States; I'm talking about working for foreign firms in foreign countries; I'm talking about working for U.S. firms in foreign countries. I'm also talking about opportunities for creating your own globally focused companies and consulting services.

We have a good many Sea-Landers who never imagined that they would be internationalists when they were sitting where you are not too long ago. A few examples: Bill Flynn is vice president and general manager of Central Asia. We refer to it as the three Chinas: Hong Kong and Macaw, China, and Taiwan. And he's in the process of moving into his flat in the next 24 hours. Bill got his B.A. from Rhode Island and his M.A. from the University of Arizona. He started working for us in 1977 in New York, went to Florida; to Guatemala City, Guatemala; San Juan, Puerto Rico; Charlotte; then to Tokyo and to Hong Kong.

Irene Yu got a degree from the University of Hong Kong, her M.B.A. from Rutgers and her Ph.D. from New York University. She has risen through the ranks and moved back and forth between New York and Charlotte twice. And she is now vice president and chief financial officer of our biggest operating division.

After graduating from a small town in Pennsylvania, not too far from here, Garret Depiper joined Sea-Land as a sales rep in Long Beach, California. From there he went to Boston; to Genoa, Italy; back to California; to Atlanta; from Atlanta to London; from London to Rotterdam; from Rotterdam to Dubai; and back to Charlotte. Not bad for a person who up to the age of 22 had never been beyond the Alleghenies.

Bill Kenwell, a graduate of Villanova, went from New York, to Houston, to Cincinnati, to Chicago, to Hong Kong, to Taiwan, to Seattle, to Honolulu, to New Jersey, to Charlotte.

And they didn't leave me on the sidelines either. I started my career in New Jersey. I then moved to Houston, to Dallas, to Los Angeles, to San Francisco, to Chicago, to New Jersey, to New York, to Osaka, to Taipei, to Tokyo, to New Jersey, to Seattle, to New Jersey, to Charlotte, and in-between I have spent over 400 days in one hotel in Hong Kong.

These are just a few of the thousands of people that we have around the world who keep Sea-Land operating efficiently. They are young executives who are not afraid to step out, who are not afraid to take risks, and who are willing to pick up and go. Certainly it's a struggle to continue to relocate, but it is exciting and it really does enhance their portfolios of skills. Certainly the strains and challenges of living in foreign lands, of learning new languages and new ways can be significant. I can assure you the people I just mentioned, every one of them, would do it again. And there are a lot of people behind them who are running up that ladder as quickly as they can to have that same opportunity.

Many of you will recall from your American history classes, that in the 1850s when everything led to the west and often to great opportunity for the strong and the adventurous, Horace Greeley, a renown American newspaper editor, advised young Americans to, "Go west, young man, go west."

As I close my remarks, here in 1997, let me paraphrase Mr. Greeley but not by saying to go west. But, go west, east, north or south, young women and men, because great fortune and great adventure await all of you.