 Thank you all for joining us this morning. My name is Allison Chantel. I'm the U.S. Editor-in-Chief of Business Insider, and we're here to talk about innovation. Just very broad, but we will try to make it very interesting for all of you. And at the last 10 minutes, we'll open it up to any audience questions in case there's something we missed that you really want to hear about. So to set the scene, as you all know, the world is in the midst of tremendous change, and not just from a technology and innovation standpoint, but from a geopolitical one as well. You have countries that are tightening their borders and trying to act a little bit more independently, maybe in their own perceived best interests. But at the same time, you have this fourth industrial revolution happening, and the pace of innovation that is required really requires us all to be more collaborative. So it's really a tough position to be in if you're running a business right now or trying to navigate one. And actually, the CEO of Cisco is here with us today, Chuck Robbins, and he spoke at a conference not too long ago in November, and summed up the craziness of this past year pretty well. So I'm gonna open with a quote from him. He said, the geopolitical dynamics and implications on business are real. Whether it's Brexit or the Italian referendum, you've got the French elections next year. You've got the German elections next year. You've got issues in South Korea. We've gone through what we saw in Brazil, geopolitical dynamics in Russia, and we have the issues and concerns relative to China. But other than that, it's incredibly stable. Everything is really easy to navigate. So with that, we're gonna spend the next hour exploring a bunch of these issues and discussing the major drivers that are transforming innovation globally. So I'd like to ask each of you to please introduce yourselves and just spend a couple of minutes discussing the trends you're seeing in innovation as well as the top things that are on your mind. Thank you, Addison. Thank you, Chuck. Well, my name is Francis Gary. I'm the bureaucrat on the podium. I'm director general of something called the World Intellectual Property Organization. So we provide a number of services amongst other things and a lot of innovation passes through us last year, about 230,000 international patent applications. We also administer a number of standards, about 26 multilateral treaties. What are we seeing? Well, first, I think it's really, some of the things that I'm going to say are fairly obvious. First, innovation is becoming much more multipolar. That's, I think, the lesson in the last 20 years. If you go back 20 years, about 7.6% of international patent applications came out of Asia last year, 43%. 43% compared to about 26% USA, about 27% Europe. So the real game changer in this, of course, as we all know, is China. The numbers are astronomical. Of course, they're numbers. We don't really have metrics for quality. If we did, we wouldn't need a venture capital industry. So this is certainly one massive change. I'd say another change that we're seeing amongst governments is that I don't really know many governments in the world who do not have innovation as a fairly central part of their economic strategy. And that applies to the advanced economies. It applies to the middle-income economies. It applies to the lower-income economies. No one wants to compete on the price of labor. But the theory is a lot different from the practice. So you've got everyone wanting innovation, everyone aspiring to be innovation-based economies, but not all that many are. There's a fair amount of stability, apart from China, in the innovation economies. Some of the challenges, we'll get into those, so perhaps I've spoken enough and I'll leave it at that at this point. Okay. Hi, it's my honor to be here. Thank you, Alison, for having me. I'm Shailendra Singh. I'm a managing director at Sequoia Capital. We're a venture capital firm for the last 45 odd years, started in Silicon Valley. I'm based in Singapore, and I lead our investment efforts in India and Southeast Asia. Over the last 11 years, we have made about 150 investments in these geographies. There's about 2 billion people in India and Southeast Asia, about $4.5 trillion of GDP today, which is forecast to become roughly 14 to 15 trillion of GDP in 2030. In the next 10, 12 years, our fund horizons typically tend to be 10 to 15 years. And it's quite remarkable the changes we are seeing, led by technology and innovation in these emerging markets. And so we feel very fortunate to partner with some great founders, have a front row seat. The things we are most excited about is that to the point Francis just made, innovation is getting highly democratized. It does not matter anymore where a company or an app or a new piece of technology is born. Our maybe idealistic world view is that, as the world gets polarized, maybe innovation will actually bind us back together. We see young companies with 100 people, but have 15 nationalities in them because they're beginning to be so global, so early on. So we are pretty optimistic about what the future holds, how many of the emerging markets will embrace industrialization and capitalism in a connected world, and whether it's artificial intelligence or it's low cost smartphones, or it's very low cost, high speed data access in countries like India, or it's financial inclusion through an Aadhar scheme that the government of India launched that has now a billion people on electronic KYC, we see so many interesting and varied drivers in emerging markets that we think are quite interesting. Some of them are gonna impact the developed world over time. I'm with Khan, I'm with PepsiCo. I don't think I need to introduce PepsiCo to anybody in this audience. If I think about innovation in the context of your question, there's two sides to this. On the challenges side, and I'm coming at it from a food company perspective, we have, as we keep hearing at this meeting and others, two and a half billion more mouths to feed in the next three decades. We have a billion people hungry today, two and a half more billion people. No more land, diminishing resources. About 40% of the world's population very soon will be in water-deprived areas. And how do we now increase our efficiency of food production, distribution, and all the things that go with it with natural resources that are actually are declining and not growing? And so without global innovation, it can't be done. The second part of this is food and the food system is the most globalized supply chain of any industry. You can go to any supermarket and you will find products and ingredients in those products from dozens of countries in any supermarket just about anywhere in the world. And so this is gonna take global innovation. On the opportunity side, and we can get into some of the opportunities and challenges, as the consumers have become connected, as social media and information is, as digitization is coming, new industries are helping traditional industries rethink their operations, their supply chain, their efficiencies in new ways. So there's gonna be lots of, I look forward to that conversation. Thanks, so Chuck Robbins, I am the CEO of Cisco. And I believe that we have been on an unbelievable journey over the last three decades in building out what we now see as the global internet that probably has 18 to 20 billion connections. And we're embarking right now on an expansion of the internet at a scale that none of us have ever seen. And I don't think we really completely understand yet. By 2030, there are some estimates that would suggest there will be 500 billion connections to the internet, 500 billion. And that is a massive exponential shift from where we are today. And those will be mostly things and not necessarily computers, iPads, iPhones, and other computing devices. In fact, if you look at 2014 and 2015, the percentage of devices that were connected to the internet that were not phones or tablets was only 30%. And Q3 of last year, it was 58%. So now there are more things, machine to machine connections that are actually occurring on the internet than there are phones and tablets today. So we're hitting this inflection point where we're connecting vehicles. There are over 10 million vehicles connected to the internet today. We're connecting refrigerators, we're connecting vending machines, we're connecting elevators, we're connecting everything. Which represents an unbelievable opportunity for us to drive innovation and to create opportunity for people all around the world to actually innovate and be entrepreneurs all around this next wave of build out that we see coming. It does give the opportunity that you mentioned. Curiosity has existed all around the globe for a long time. The technology now is enabling that curiosity to turn into innovation that can be used on a global scale. And we think that's an amazing thing. We think that technology is going to be unbelievably pervasive. Computing will be pervasive across the world, across these fully distributed technology architectures that will allow you to do anything, anywhere with any piece of data at the moment it's created. And that is completely different than the computing models that we've seen in the past. And this is gonna represent a tremendous change for us. All of that has to be done in a very secure way which creates yet another opportunity for innovation. Security, security, security. It could be the biggest enabler or the biggest inhibitor of progress as we move forward in this space. I would contend that it will not inhibit because a lot of us will continue to solve that problem. And the benefits of these connections and of this expansion will outweigh the risks. That's what society's proven over the last decade. And then the last thing which I think gets at the crux of the key messages here in Davos this week are that this is a massive opportunity for all of us. But at the same time, there's a massive obligation, particularly by the leaders here, to make sure that the benefits of all of this innovation, the benefits of what is occurring in this massive expansion can be felt by people at all levels in and all locations all around the world. So it's exciting. Great. Well, one thing I wanted to start with as you mentioned that we're all in a room of leaders. Donald Trump, as you know, had a big tech summit a few weeks ago and Chuck was in the room. I have to, of course, he was there. Chuck was there and a lot of the highest market cap companies in tech were represented as well. Apple CEO, Tim Cook was there. Google's Eric Schmidt was there. Sheryl Sandberg, Jeff Bezos, an amazing room of people. What was bugging them all? What was top of mind? What happened in that room? Okay, we're all gonna keep this between us, right? Even though it's streaming on the internet right now. So first of all, I would tell you that it was an incredibly constructive meeting and I think that everybody who walked in that room put behind them whatever their political views were during the election and I'll say even the Trump team, everyone's looking forward. Everyone's looking forward at how do we work together now to actually, to solve challenges, to create jobs, to do the things that need to be done. And again, this was particularly focused on the US market, obviously. And we discussed issues of tax, we discussed trade, we discussed immigration, we discussed innovation, entrepreneurship, job creation and it was a very engaging discussion. It was a lot of interactive dialogue, lots of laughs and it was a very constructive meeting and I came out from a business perspective very optimistic about what it might mean for global business because the US and the global economy are so intertwined that you can't impact them independent of each other and so I think that the changes that are being contemplated will not only be good for the US but will also draw the global economy. One thing you mentioned is immigration and I think that's a big issue, especially with the tightening of borders theme. You have Brexit, a lot of European companies are tightening their borders for security reasons. The wall in the US, that's supposedly being built. So what are the implications of this tightening of border and this kind of siloed mentality for the long run? Is it good for the short term even? And especially in the US we have things like H1B visas that could be at risk. So what are your all thoughts on that? You have to have an opinion on this. Yeah, I think in the venture capital world, engineers are the lifeblood of innovation. So I think most countries that want to be at the forefront of innovation have to figure out how are they going to have world-class research and engineering capabilities within their borders so that their local companies are creating the next new platform and so on. And increasingly it won't matter where people build those companies or where they're born. They will have, the App Store has made it possible for a new app to have 100 million users in a few days. And almost every new disruptive company we back, the main challenge they face is how fast can they grow? And can they keep servers up? Can they keep infrastructure up and running so that they can get to the most amount of users around the world? And these days you discuss thoughtling growth. So that's the pace at which new innovation goes around the world. In such a world it would be a big mistake to say, hey, I don't want to maximize my chances of having that innovation happen in local companies. So our view is that around the world people should welcome engineers and especially R&D talent because it can be a very, very big source of the next big potential, big disruptive company being born in their shores versus somewhere else. Obviously my background is R&D and having come from life sciences and pharmaceuticals and now in food. R&D is already global. I don't care which industry you're in. And innovation, there used to be a definition of discovery was something you discovered in your own lab. Discovery today is about discovering new ideas. It doesn't matter where that idea came up. And most innovation doesn't come up with one idea from one lab in one location. Most global companies and global enterprises have a global R&D network. And global teams work on these solutions. And I think it will be arrogant to think that any one ecosystem or any one lab has the brain power and the idea is to solve major complex problems. And it's these major issues, much of which is being discussed at this meeting that we're taking on as leaders. And as leaders we have to keep our virtual borders open and our thinking open because it's those networks of ideas that then come together. We pick the best ones and iterate from there. There was historically a perspective that you had great ideas come out of so-called developed worlds and those ideas were then transferred around the world as innovations that has changed too. We're seeing ideas coming from emerging markets that are solving local problems that actually come back to develop markets, the so-called reverse innovation that disrupt established markets. So this is the world we're living in. It isn't just innovations faster. It's iterating faster and it's crossing borders already. Our systems, thanks to industries that are in the digital, have already opened those borders up from an innovation, ideation, and transfer of knowledge. That is not gonna stop. So go ahead. I think that one of the things that we actually talked about in the meeting with the President-elect was to separate the two issues. There's immigration control and border issues and then there's high-skilled immigration and there are two different issues and he agreed with that. And I think that when I talk to leaders of other countries around the world, everyone's trying to think through what their high-skilled immigration strategy is because everyone's struggling to have the best and brightest working inside their borders. And so I think when you look at Silicon Valley, even 44% of the startups are started by immigrants. So we see the combination and the whole value of the entire focus that all of us have had on diversity for the last decade is to bring different ways of thinking because that actually spurns innovation. It generates new ideas. And I think you see this happening all around the world. We are engaged in building out digital acceleration plans at the head of state level in seven, eight countries around the world. And you look at France as an example and you go to the CES show in Las Vegas. And I think France now was the third company with the third most startups at the event, right? So this innovation as entrepreneurship is happening all around the world. And I think one of the key challenges we face is if you come back to the other issue is if we begin to lock down borders, then you actually, you diminish the benefit of innovation inside your country. So Europe as an example, Europe would benefit greatly from a single digital market because that would allow innovators to have access to a much broader market. Instead, some of those innovate and then feel like they have to move to a larger market like the US to have access to enough size for their solutions, their products, whatever they're building. So it's a complicated one but all these issues are tied together. Great, and to take that further to expand into the global landscape, Francis, you have a lot of stats on this. You put together a great report. And patents are one way to indicate where innovation is happening. And one particular thing I noticed is that China, they filed the first country ever to file what a million plus patents this past year and they filed almost more than the next five countries combined. So what is happening in that part of the world? Why are they suddenly innovating so much? It seems... So let me make a preliminary comment to the China which is that when you look at the statistics in intellectual property, I know that intellectual property is not all of innovation. You know, it's a necessary but not sufficient condition of a healthy innovation ecosystem. But when you look at those, it stands in stark contrast to the world economic performance. They have consistently outperformed the world economy for the last 10 years throughout the whole of the global crisis. We have patent applications rising worldwide by between five to 10%. A lot of it driven by China, but not just China. So this is a stark contrast and if you like, it's one measure of the knowledge economy and the vibrancy of innovation. Now China, the numbers are astronomical as I said. In terms of international patent applications which are often considered to be the quality ones when a company looks for protection beyond its own borders internationally, this is what it thinks is the good piece of technology. When you look at that, you have the US leading at about 26% and you have Japan at about 20% and then you come to China at about 13.5% in 2015. Well, last year, they were up on that figure between 45 and 50%. I mean, this is just astonishing. And then you go to Korea, which is about 6.5% and then you drop to France, which in UK about 3.5%. So the Chinese performance is astronomical. Now a lot of people will say, well, you know, the quality. But as I said earlier, I don't think there are metrics for quality first. Secondly, they're the second largest investor in research and development worldwide. They're investing this year in 2016 with nearly $400 billion in R&D compared to about $540 billion for the US. So if the quality is not there now, which I'm not saying it's not, it's going to be there, given the investment in education and everything else. So this is a game changer, a complete game changer and it's part of the new world. And Shalindra, you've been in the Southeast Asia market for a while now. Sequoia launched a China office in 2005, I believe, and India in 2006. So you've seen about a decade of change happening in this part of the world. What have you seen happen over the last decade and what's happening now? Look, I think I definitely echo the thoughts between China and the rest of Asia, Sequoia has over 500 investments just in Asia. And so in the last 10, 11 years, we took this view that large numbers of engineers in these countries and big, to your point, earlier unified single markets will allow for disproportionate upside created and companies created disproportionately large when they get things right. And that's certainly how things seem to be playing out. So we think the innovation in China is real, absolutely real. And in many cases, Chinese companies have, at Sequoia, we call them, often when companies around the world launch with similar models, people say, hey, these are clones so this is Uber of X or what have you. We call them clones, mutants and new species. So we think what people sometimes be little as clones are actually sometimes very powerful mutants. You could argue was WhatsApp itself a mutant. Messaging had been around for a while and WeChat had already succeeded and so on and so forth. Perhaps Dropbox, both these are Sequoia-backed companies, was it also a mutant? File sharing had been around for a while. So what you find happening in places like China, Southeast Asia, India is that because industry structures are different and there's no incumbent software sometimes sitting there and no traditional infrastructure, companies can mutate into much more powerful business models. And then the West when they realize that and when it gets to scale, then only then to your point earlier, it sometimes starts to come back to the developed world saying, hey, this is smarter if you can build a whole ecosystem. So we're seeing that happen a lot in China where Chinese companies are evolving from being product companies to building platform companies at a very rapid pace. And unlike the West where we think, hey, a young startup or an emerging company should be highly focused, they don't think like that. In the Asian culture, people want to dominate and monopolize a big part of the ecosystem. So they try to build platforms. They have multiple product streams, typically sometimes adjacent to each other. And hence the big scale and focus on R&D. So we think it's very real. We think India, China, Southeast Asia, I mean other parts of the world, probably not at the scale of China, but we think this trend will continue and the innovation is for real, that's our view. And so give me an example of a mutant, something that by clone, I guess you mean, the Uber of India has launched. So then how does that mutate and change? Yeah, so I'll give an example. We have a portfolio company in Indonesia called Gojek which started with ride hailing on motorcycles. Jakarta is a highly congested city. In Indonesia, this company evolved from not just doing, they discovered accidentally that a motorcycle delivery network was a very low cost logistics network for building a food delivery business and a logistics business and eventually a payments business. So this business launched in January of 2015 in Indonesia and it has now raised $750 million to grow its business across four different product categories. So Uber is trying to do food delivery, Uber may potentially do payments in the future, Uber may do logistics in the future, but this company which mutated from the same model has actually leapfrogged because it found a different business model which was more applicable to their country's industry structure and we continue to see that. For example, VChat and their platform approach to having so many services on the same message behind messaging is candidly ahead of the curve of how US messaging companies have perhaps evolved and we will continue to see more and more examples of this we think. So you are starting to see more copycats in the US mimicking what's happening in China and other markets. So QR codes were big in China first and mobile payments and micro payments and all sorts of things. And even in Silicon Valley, you see them kind of cloning off each other. Amazon Echo was a hit and then Google came out with Google Home, Facebook copied Snapchat features and what 20 times last year. So is this a troubling sign for the US? Is Silicon Valley in danger of being dethroned here or is this just part of what you need to do when you're a big company these days? We certainly don't think so. We just feel like, versus 80% of the world's innovation in Silicon Valley, maybe now that's more distributed and innovation can come from any quarters and it's actually quite surprising. It comes from where you least expect it almost. That's the only thing we know. Sometimes we ask ourselves, we can run into companies in places we don't have an office or we've never been. Those founders have never been to our countries. I'll give you a very interesting stat. In India, we did the math of the top 100 downloaded apps. Only 27 are from Indian companies. 73 of the top 100 apps are from foreign companies. Now the same could apply to other countries too. So it is possible in the future that in the United States of the top 100, maybe 40 apps are foreign apps. And these were born somewhere else. So we think we will continue to see this trend, but we don't think that Silicon Valley is about to be deep, deep down or anything like that. Yeah, what about your year there? Is there anything changing? Are you guys afraid of China or anything? No, not at all. We actually, we think that, in fact, we work very deeply around the world to actually help countries think about building more effective innovation strategies. So we have, as I was saying earlier, we have a formal program called Country Digital Acceleration. And we have formal engagements at the head of state level in India, Israel, Italy, UK, Germany, France. We're working in Saudi right now, the Netherlands, Mexico, we got a few of these. And these cover everything from how does technology help you drive GDP growth? Typically there's a smart cities element associated with it, typically there's a, we might go in with Sequoia or the local, some local VCs and bring in our money to create an innovation fund. We might help set up innovation centers and try to churn and create an environment where startups can thrive. So we actually, we view it as a, has a very good thing. We don't view it as a competitive thing. And I think the trend that you mentioned earlier, it was funny because about cloning and mutants as you were describing what those are, I just think back 100 years ago, I don't know that it's anything new, right? We've seen it in every industry forever. And all the way from automobiles to, I look at even in my career in the technology arena, even with an IBM mainframe, you saw companies making, try to replicate an IBM mainframe, try to replicate third party stores devices. And then we went into networking hardware and you see competitors come out and take the exact same product, change it a bit, try to make it a slightly better. I think it's just something we've seen forever. But I think Silicon Valley is alive and well. There's a lot of innovation coming out, but we think there's enough opportunity and frankly, there are enough problems to solve around the world that we should encourage innovation all over this great planet, so. And what are some of the top problems that people are trying to tackle in China and India in particular and then also now in Silicon Valley? There tend to be themes with startups as they emerge. Everyone's trying to tackle logistics all of a sudden. What's the hot thing right now? Well, AI is being talked about a lot. I think I saw so many talks at the World Economic Forum on Artificial Intelligence. There is definitely, it's the new hot thing where founders are walking in with AI-first ideas and candidly, while we are big believers in AI and we think there'll be a lot of progress in it. There's also going to be a lot of noise around it and it's possible it'll be abused for a bit and everybody will claim to have some major AI strategy. But if I were to pick one, I'd say that is one. I think the other big one is definitely how financial services is being impacted by technology, whether it's payments or it's traditional banking and so on. So I'd say those are the two that we see the most. And the obvious one is the mobile wave which is for the emerging markets that is still a very big phenomenon. And just the fact that low cost mobile connected devices are available now at scale for the first time is in and of itself a huge driving force for innovation. And with artificial intelligence in particular, can you just explain exactly what that is? People are crying that it's gonna kill us all and we're gonna build these robots that are gonna attack us someday. Explain what it is and really the implications that we can see in the startup world right now and then where things are heading. Well, very simply put and I'm not no AI expert but very simply put it's the ability for algorithms to become smarter and for machines to become smarter. So we have all seen and had algorithms around us in various forms and tech products but to what extent can machine learning start to mimic human intelligence? Is essentially where AI is going. So whether it's autonomous cars or it's a better way of doing diagnostics using medical imaging techniques. Typically AI requires data to train algorithms. And so that's probably the most simplistic description and it is true that the applications for AI are really fascinating and it is indeed true that we are quite excited about some of the, you know, when we do see real material advances in efficiency or in automation, you know, we can indeed, there is a chance we can see several AI first approaches to new products. Small example, if I may Alison. You spoke about those one million Chinese applications. How are you gonna read them? So we have some translation technology based on neural network which is particularly helpful because of the structure of Chinese language compared to syntax compared to Roman languages. Let's say that's just one of a million examples about the application of artificial intelligence. All these technology buzzwords and these things are irrelevant until you find a practical use case that actually does something meaningful. And so, you know, I think about IoT or AI or whatever it is, the use case perhaps to solve the problem you were talking about earlier relative to hunger. Let me give you a couple of what would be considered not as sort of high tech problems, but technology's completely changed. Let me give two examples. One, we've known about the challenge of using land more efficiently, either from water application, nitrogen application, fertilizer or pesticide. We all know the challenges of runoff and the pollution of our water aquifer systems. The ability to digitally map a field down to the square meter. Look at light, weather, soil, moisture content using very low cost sensors. And look at seasonal variability from predictive models as now allowing what used to be very expensive equipment to do precision agriculture with smartphones in emerging markets. Very low cost technology is now allowing a rural farmer 80% of the capability of something that used to cost a $2 million combine. Completely changing, not only that farmers yield in livelihood, but also the environment and the ecosystem that affects everybody whether you're a rural resident or an urban resident. That's happening now. But let me take this one step further and I'll give an example of a challenge in the emerging world. Tuberculosis is one of the pandemics in the world today. About half of the humans that die from tuberculosis are children. Most of these children don't die because they don't have treatment. They die because the pills that have been developed are developed in a tablet form. When you crush them and you try and feed this one-year-old or two-year-old baby, toddler, this TB medicine, which they have to take for nine months, the child vomits it and spits it out, will not consume it. And so actually two things happen. The child dies because of lack of treatment, not because of availability but consumption. The second is drug resistance develops. One of my former research team members went from my team into an organization called TB.org, a non-profit funded by a number of agencies, including Gates, and they've been developing new TB drugs. But they ran and keep running into this problem. The adults take and the children don't, but that's where the mortality is. They happened to reach out to me. Literally I got a phone call saying, Memud, is there anything in the food industry that we can do to block this bitterness? Using modeling techniques, we're actually working on solving their medication problem from the food industry. And by the way, we agreed to give them the IP at no cost. I made that announcement earlier this year. So I give you that as an example, modern technology, traditional industry food and beverage, new problem, innovation isn't just virtual, digital, my latest handheld device. We sort of get lost in this conversation. These are tools to solve humanities problems. The innovation is when you take these inventions and solve these real world problems when it all comes together. My ask however is, and as I said, I came from pharmaceuticals, I now am in the food industry. It's gonna take people from different industries talking, connecting. So it's not just global across industries. And when that convergence happens, it's amazing, this TB example is, who would have thought, and yet it's so obvious, who knows more about taste, the pharmaceutical industry, the food industry. But the two had never talked. The two had never talked, they took an executive who had lived in both industries to suddenly make the connection. Why did it take that? How many more problems are we sitting there already with solutions, but because of a lack of communication, we're not solving them? So I hope if nothing else out of this meeting, we're actually gonna take on some new challenges because of these conversations. I hope that gives you a real life example. And thanks for raising that. You bet. I think one other example just in a similar vein. We, about two years ago, we were approached by one of our partners in South Africa and who had a great passion for the rhinos and was very concerned about all the poaching that was going on with the rhinos for the ivory. And they came to us and said, could we try to work together to find a way to solve this problem? And I don't have the data, a couple of my colleagues in the audience probably have the data, but we implemented a solution leveraging IoT with drones and with monitoring and technology. And I think one year there might have been 20 rhinos that were poached and killed. The first year we had this complete system implemented, they lost one. And it's just fascinating. When you bring, but you brought some people together who had this passion about rhinos that didn't know the first thing about technology, but they just assumed that there were some smart people that they could find who would care enough to work with them to actually go solve the problem. And so they do exist everywhere. They exist absolutely everywhere. And that's why I think for those of us who run businesses, I think it's very exciting obviously to run a competitively successful business, but it's equally exciting to be able to take this technology and go impact billions of people around the world. I just think it's fascinating. So how do you solve this communication issue that you all are talking about? I mean, getting across industries. So I'll give you how we've been coming on it. One of course is hiring leadership and expertise from outside your traditional areas. So in the last five years, we at PepsiCo in my different parts of my organization have probably signed 50 to 60 new contracts with startups, universities, large, small, traditional, but also non-traditional spaces. I gave you an example of these partnerships. That cross-fertilization is opening up barriers. And then who knows what the other, the second is let's not forget that research is not just a specific question with a specific answer. Often research results and the outcome results from serendipity, right? You're looking in general spaces and we all love to manage processes that's part of research that has to be nurtured. It can't be managed. We look at the results. The process is not linear. That's the nature of research. And that also requires engagement. You have to give individuals this chance to explore. I mean, I gave a commencement speech at a university recently and I said, you have to be an intellectual nomad. You have to go where you've not been and you have to explore and engage with people you've never met. That's the nature of nomads. Our intellectual nomadic life has to continue. Yeah, so robots won't replace everything. You still have to actually talk to each other and share ideas and share a glass of wine occasionally. And we're not worried about being obsolete that quickly. Yeah, not at all. Well, so one thing you were starting to touch on and I wanted to elaborate on that before there is how corporations like yours are innovating and how you create that culture within to do that. Because it's very hard when you have tens of thousands of people thinking like a startup. And Chuck, I know you all do acquisitions. You're invested in $2 billion worth of startups and you also have a kind of unique innovation model inside the company called Spin-Ins. So explain how that works and how you motivate your staff to think innovatively. Well, I think as it relates to innovation, first of all, being a technology company that builds technology that's sold to business, there's just this belief that there's no innovation because if you can't carry it in your pocket if it's not on your phone, then it's not innovation. I just remind everybody that if we didn't do what we do, none of them would do what they do. But for us, we really needed to move from, the way we've innovated in the past is sort of linear innovation. We wanted to go fast, but it was somewhat linear. You know, we would wanna build the next fastest router to sit in the middle of the internet and help everybody process all this information that everybody wants to move around so quickly. And that was great. But what we really, what we got to was we needed, we need multiple paths of innovation all happening simultaneously and very quickly and we needed more levers. So we spend $6 billion internally every year in R&D inside the company. We have made 195 acquisitions. We've also begun in the last couple of years, we've always had a great ecosystem and a set of partnerships around the world. We have 65,000 partners that we work with every day around the world to deliver solutions to our customers. But we felt like there was an opportunity for us to come together as different companies and this is one of the things we're talking about. We're coming together and building partnerships now with really odd companies that you wouldn't think fit together to solve some of these issues because of technologies permeating industries that you would not have believed before. But even the thing we did with Apple, we actually, we had development efforts going on. They had corresponding development efforts going on that we designed together and then when we got to the end, when we were both finished, there was innovation that came to life that would not have occurred had we both not been doing the work to get there. So these deep partnerships we think are going to be the third real element that we look at. The fourth is our investment portfolio. We have 2.1 billion invested in startups around the world. We work with Sequoia, we invest in many of their companies and we're actually looking at, excuse me, how we actually invest in earlier rounds than we have historically. We've been playing typically in BC round funding and we may even move back. And then the fifth area is a complete co-development effort with our customers. So some of the large web scale players, they have such unique requirements that we actually sit in a room together and we design and then we go build and a week later we come back and we have software. They look at it, they run it, they make changes, we go back, we modify it, we come back a week later. So it's almost like a co-development agile model with the customer. And we've done this with four or five different customers and it's been very successful. So we're trying to use multiple levers, all simultaneous and move as quickly as we can. The spin and model that you reference is not actually one of the core elements of our innovation but it effectively is, all it is is that you're the series A investor in a company that has a good idea and you have an exclusive right to acquire that company if you like their technology. That's really what a spin-in is and we've done probably. It's done by your own engineers, right? Well in the historical case that has occurred a couple times, we also have done a couple that weren't done by our own engineers. Those just got all the publicity. Of course. Great. And so another challenge of being a legacy company or a relatively legacy company is that tech is changing everything. It's a complimentary term, I'm just curious. Yes, yes. Legacy. Old and white. Old and white? Yes, you've been around the block. You've been around the block, you've seen it. But how do you say relevant as everything is changing and even beyond technology, what you're experiencing now is there's this war on sugar happening and so a company like Pepsi suddenly needs to become perceived as healthy and I know you have healthy products but that is a change that's happened in recent years. So how do you both look at that and take your businesses forward? How do you adapt for today when you've been doing things a certain way for so long? So. How do you make my Fritos healthy? Yeah. Happy. And Fritos. We've been transforming our portfolio and media and different journals have been writing about this month's issue of Fast Magazine. Sorry, Fast Company has just published our journey. So we've been doing this for more than a decade and we've articulated this as its performance and purpose. We've got a performer, a company. We're a business and we have very proud brands but the transformation is happening because the consumer's changed and as the consumer's changed and our customers changed, we've evolved with it. Whether it's sugar, salt, saturated fat, nutrition, the healthier parts of our business, all of that is part of this. But the end of the day, again, innovation and transformation can happen if we have the supply chain of all the components. You can't suddenly say I'm going to now launch PradaX because we can't manufacture agricultural products. It typically takes about five years from seeding to actually having a mature crop, depending on the crop and some crops it takes a decade. And as we've been doing that, as we've been building those supply chains, we've been reaching the world. I mean, remember, somewhere about a billion and a half consumers consume one of our products every 24 hours. Now we're not reaching a billion and a half people virtually. We're physically producing, delivering, distributing and getting them in their hands every 24 hours. And so think of the infrastructure supply chain. I mean, I remind people it's one thing to reach a billion and a half people every day virtually on your computer. It's another thing to hand deliver. And so that's the transformation that's happening. And it's been going on for years. Yeah, I think there's a, there's this, we're such a society that gets so, we get so enamored with the latest flash. And you don't understand sometimes all the innovation that goes on that isn't part of the flash. And I'll tell you what you do and what we do as an example, we wake up at the beginning, first day of every fiscal year and we have to sell $50 billion worth of stuff, right? I don't have $47 billion of contracts that I signed the year before that I'm just gonna get to take, check, get paid on this year. That customer has to make a cognizant decision every year to write a check for $50 billion. So the thought that they're doing that in the absence of innovation is just somewhat silly to me. So we have to constantly innovate and you have to constantly innovate because we have to recapture that customer's loyalty every single time they need to buy a new product or they want to buy a new food product from you. And our customer does it on a weekly basis, right? Every, we have to, we wish ours did. We have to, but we're making our money a dollar at a time. That's right, I got it, I got it. We got 60 some billion dollar at a time or less. And I think I wanna come back to the comment that you made earlier, which is the way we're innovating is no longer in isolation. We have multiple stakeholders. We're innovating with inputs from all our stakeholders, customers, in our case, consumers. We have two sets of customers, the customers that sell our products and then the consumers ultimately, and then the intermediary, the shopper, right? We have to convince the shopper, we have to convince the consumer and our customer. As we do that, we've opened up our walls. We've gone in. So we have R&D teams and part development teams sitting at our suppliers' facilities now. We've learned this from other industries. The automotive industry was doing this for decades and looking at their supply chain and getting innovation coming and changing even their suppliers. Now, that's part of our responsibilities to go upstream and change the way our suppliers are innovating because as we put those components together as ingredients in our case, we produce products that are more appealing to consumers. So I think we have time for one or two more questions before I open it up to the audience. So get ready, start thinking about what you wanna ask that we haven't covered. But first, to go into the theme of Davos this year, a bit of social responsibility and role of CEOs and influencers. So one thing that is a hot topic right now is automation. It's coming, it's here, it's taking jobs. It makes sense from a business perspective because it's cheaper to use machines than humans. But then you suddenly have a lot of especially middle class roles and on up that could be displaced. So what is going to happen to the future of work and jobs and employees from your perspective? Is there any sort of clear answer that's forming or are we still just in the I don't know phase? Let me get just slightly off from a different perspective. At least I think it is going to affect the distribution of value around the world. So we've seen in the 90s and then the early 2000s of course the export offshore from advanced economies of a lot of jobs in the low tech labor intensive industries. And at least advanced manufacturing is going to impact on all of that. And the recapturing of manufacturing by advanced economies through automation and other advanced manufacturing techniques. That's going to be radical I think because we've seen the emerging economies really emerge in the course of the last 20 years. And with this, it means that they are going to be I think very much threatened. Of course, China gets this in wanting to move from made in China to created in China. But there are a lot of countries out in China out there. So that's just one perspective but I'm sure others have other perspectives on it. What do you think? I don't think we have any silver bullet answer to this. I think it's going to be the yin and yang of large companies embracing change and moving forward. I actually think one of the big new things we have observed in the last five or 10 years is that unlike before a decade ago, large companies are more keen to innovate now and more open to partnerships with young startups or with VCs or what have you than they have ever been. And that's happening across the world. In fact, we think across industries, automotive, food, pharma, healthcare, obviously information technology in all these areas, incumbents and large businesses we frequently have the benefit of even hosting CXOs from Fortune 1000 companies and they'll come to us and say, hey, talk to us about the five or 10 companies that are relevant to us in your area. And we'd love to just have a no agenda conversation about what is going on. So on the one hand, I think large companies are more eager and keen to change and this is just from an outsider's perspective. We have several senior execs here from those large companies but as an outsider, we can see that there's more motivation on the part of large companies to change. On the other hand, we'll also see more startups disrupt and actually perhaps create opportunities for new jobs. So I think whether it is reskilling or redeployment of large amounts of workforce, many, probably many small, we think a hundred small answers are probably needed and there's no silver bullet answer to a question like this. So I would agree, there's definitely no silver bullet but one thing we haven't touched on. While we all as leaders, government, non-profit as well as private sector have a responsibility to think about people and their livelihoods as automation takes traditional jobs. But there's still a lot of areas of work where we have a shortage of labor. Let me just give a couple of examples. If you think about all R&D technology in the general sense, skills within US industry and Europe, the median age is over age 50 now which means half of all of the R&D workforce in Western Europe and North America is going to retire within a decade. We actually have no idea as society of how we're going to replace that pipeline. Historically it was done globally but no longer an option. What are we going to do? Whether it's your industry, my industry, we're going to have a shortage. If I look at, and this is not just PhD and advanced level degrees, I'm talking about basic skills, lab tech up. Do we really need a bachelor's degree to train somebody to be a lab technician? Maybe it's time to rethink that. How do we retrain people to do some of that work? If you think about the aeronautical industry, aeromechanics which cannot yet be replaced in terms of maintenance of aircraft and I hope artificial intelligence isn't going to be inspecting that plane that I'm going to be on going back. About half of the US's aeronautical mechanics are going to retire within a decade. Half. Who's going to replace those? So isn't it time we went to the next step and said let's bring people together. What are the jobs that are going to be opening up we already know about? How do we train those people? Which of the institutions are going to train them? And instead of worrying about the next graduate school that's going to give them an advanced PhD, we've got a lot of people who could be retrained into those and if not retrained, young people coming who are going to be looking for opportunity. Society still needs those and I'm not even going into social services, healthcare, taking care of the elderly. There's a lot of job opportunities. We just need to start getting ready now. By the way, you can't train these people virtually in a week. We better start investing in those young people and those mid-career people that are in this place now. Where's that conversation? So let me tell you what we are doing. In two minutes because we need to open it up. So I'm the chair of the IT Governors here at Davos and we're going to announce tomorrow that several companies are coming together and we're going to launch a third party that's going to facilitate a skilling and reskilling effort that we're going to begin to try to implement around the world. And from Cisco's perspective, we've had a shortage of talent for a long time. We've had a program called Network Academies that is exactly what you described. You put it in community colleges, you have to put the curriculum out, scale it through people onsite. And we've trained over seven million students to date and we have just over a million active. And within five years, we're going to try to be at two million per year that we're ramping. And that methodology could apply across exactly what you just described, it could apply. And then we can use the same methodology to take those cashiers that are working at restaurants whose jobs are going to be dislocated and give them an opportunity. It doesn't have to be training them in Cisco. It could be training them in any other field. But using that methodology, I think it's going to take the global enterprises coming together with the private sector to put these solutions in place. But we have to act now. By the way, we have a partnership with Cisco and Pepsico. Oh, there we go. The STEM connector. One million young people have been connected for STEM through that joint initiative with the New York Academy of Sciences. And that was primary funders with Pepsico and Cisco. Great. Well, I'd like to open the floor. We have time, five minutes for questions. Oh, perfect. You all were prepared. Right there. My name is Prashant Sreen. I'm a partner with Bain and Company based in Silicon Valley. I actually started my career in a corporate research lab about 15 years ago. This question is mostly focused for men more than Chuck. You hear about all these trends about how innovation is happening today. Startups, the globally distributed nature of innovation, the multidisciplinary cross-functional requirements. And for a large company, you certainly can't do all of this by yourself. You certainly can't hire all of the talent that you require. Just the amount of investment that you need to make all of this happen is enormous. And it feels different from 10 years ago, certainly from 20 years ago. And so my question is, where does this leave corporate R&D? What worries you and what actions do companies like yours need to take to ensure your R&D function stays relevant in terms of driving true research, not just incremental development? Good. So being the head of R&D, that's something I obviously wake up every day thinking about it. There's going to be a need and a balance. And that balance is now settling down to what is internal and what is external. And historically, there's always this fear. Anything I take outside, there's gonna be this IP discussion. A lot of that is starting to die down. It was in fact an inhibitor to even partnerships with academic centers. It sometimes would take us, and I used to be an academic, one to two years negotiating the intellectual property part if we could start the project, by which time it might even become obsolete. So we've learned a lot of the things and it took more than R&D, but happening. Do we have work to do? Absolutely. But I can tell you, certainly speaking from PepsiCo's perspective and in my former life in the pharmaceutical industry, we just take a look at pharmaceuticals. More than half the drugs of big pharmaceutical companies today market have not discovered in their own land. So the world has already moved on from that. I don't think it's reached maturation. It will continue. I think that applies to just what every industry that I know of. Yeah, I think there's a real quick, there's a lot of things that we need to do to ensure that we're still driving innovation internally. And I think your question is more around the R side of R&D. And for us, there's things we're doing like we need to make sure we're streamlining feature sets. For years, we built out a million features and customers might be using 37 of them. But we continue to maintain lots of these things. We're trying to streamline and get down to what and really try to optimize that so that we can have the research and big companies you tend to cut that stuff as you're trying to solve for your financial model. And so we've recreated a methodology to maintain small groups that can work on ideas that might be 12, 18 months before we get to them or they may never come to fruition. And we probably have 12 to 15 of those going on right now. So we're trying to reinvest in those and make sure we have an equal. But it's a constant balance. Okay, great. We have time for one last question. Hi, everybody. I'm Toba, Global Shaper from the Johannesburg Hub. You guys spoke about including people in innovation and things we've never seen before and precedented threats, things that individual economic actors don't necessarily think about. Do you think that it's government's role, whose job it is to think about these things, to drive and plan innovation or let's say kind of create a space for that serendipity which you spoke about? And if so, how would you suggest they do that? Let me quickly give one piece of that. It's everybody's role. I don't think government alone can do it. I don't think private sector alone can do it. We all have to do it collectively. However, and we haven't talked about government from a research perspective, what is important is government continues to fund basic research. Most companies innovation happens because it is built on the basic science invention which mostly happened in academic and government funded labs. Without that supply of basic material science, in your case, agro technology, in my case, whichever you look at, these two are linear partnerships. One leads to that and I always say, invention and innovation are not the same thing. Most very basic science occurs through government funded research, whether it happens in a private lab or a public university, it has to be done by both. Great, well thank you all so much for joining us this morning and enjoy the rest of Davos. Thanks. Thank you.