Siemens AG

What will be the long-term impact of the global recession, especially for European engineering firms like Siemens? And what is the way forward?

If you look at the global capital goods and infrastructure industry, you will find that the global ‘wheel’ has stopped spinning. Basically, the global export-import trade is driven by Europe, China and the US. The current situation will change when the wheel starts spinning again — when China will actively export to Europe and Europe will start exporting capital goods to China, and the US will start consuming again. The European economy comprises smaller independent economies acting as a group. But this has complicated matters. These economies ought to know where they should be by 2020 or 2032. Only if they know where they are going to be by, say, 2020, can they devise and design strategies on how to get there. You cannot unify an economy with so many different social and fiscal systems. Factors that make an economy strong are domestic demand and consumption, financial and natural resources and technological know-how. Any good economy should have all these factors. In Europe, countries like Germany, Austria and Italy are strong in know-how but have very little consumption. Most European countries do not have sufficient natural resources. So, if I get the opportunity to shape up the European economy, I will extend it to the east, to Poland, Turkey and, eventually, Russia. By adding them, we can create a very powerful economic union. Russia has abundant natural resources. Domestic demand in Russia or Poland is large, while know-how is good in Turkey. That is just what is needed for Europe’s future.

You recently unveiled the ‘One Siemens Financial Framework’ programme to boost the profit margin from 9.5 per cent now to 12 per cent by 2014. But that includes divestment of businesses like power and water technology, retrenching around 6,000 people and closing some units. What will be its impact on your Indian businesses?

We have invested heavily in India in the past few years and now have to optimise productivity and capacity. Siemens India has to grow its business to make more profits. We have heavily invested in the last four years in new sites and doubled capacity. The programme is not meant to cut people or pull out businesses from India, which has high growth potential. The case is different in Europe, which has structural issues — it is not the same it was 20 years ago and there is need for reallocation of wealth and cost control. India or Brazil is different.

Does the 2014 profit margin target look achievable in the current global scenario?

It is doable. It is not rocket science. If there is no further collapse of the global economy, 12 per cent profit margin is achievable. We hope the markets will revive in 2013 and our numbers will be better. I see industrial automation in China and the energy and infrastructure push in Turkey, Indonesia and parts of Latin America as engines of growth. (A few weeks after this interview, on 25 July, Siemens said it did not expect to achieve its profit margin target for 2014. This eventually led to the exit of former CEO Peter Loescher.)

In these troubled times, which countries would you bet on for growth?

The US is the most critical and the biggest economy. With its massive shale gas resources, the US has the opportunity to get re-industrialised in a big way with energy-intensive industries. Brazil has good consumption, demand and infrastructure. Today, Brazil is very sensitive about global trade, and if it is willing to open itself to the world, it can grow. Over the long term, China will be a very powerful economy; it is bumpy today due to administrative and government shuffling. It’s a passing phase though, and China will eventually become a very large economy with focus on high-end manufacturing — high-quality products and areas like aerospace and high-end industrial infrastructure and automation. Among the BRIC (Brazil, Russia, India, China) nations, India has high domestic demand and consumption. Its society is well-educated, and it is blessed with good demographics. The only problem is that it lacks the right industrial infrastructure for development, for which it needs better public support. For an economy to grow and deliver, adequate infrastructure is important. And that can be provided only by an effective government.

Many multinational firms complain that India’s patent laws are weak. Do you agree?

No. When an overseas firm enters a new country to tap opportunities, it should be prepared to share knowledge and help its economy to grow. And India is a very talented country in terms of creating intellectual property resources in services, software, information technology, etc., as well as entrepreneurial talent — think about the Tatas, or the Ambani brothers. The country knows how to effectively deal with and respect intellectual property rights. It has lots of opportunities in energy, mobility, healthcare and infrastructure. For example, the country meets half of its coal demand through imports; this requires good logistical systems to transport it. It’s the same with agriculture, the largest contributor to its economy. Food has to be transported to all areas to avoid scarcity. Better healthcare can bring down healthcare costs for the people.

How do you compare India’s growth with other growing economies?

It depends on the stage at which the other economies are. China has had good infrastructural development and is now moving towards automation and high-profile manufacturing. China has a scarcity of qualified people, but that’s not the case with India. China is now at the third level of growth — infrastructure, automation and high-end manufacturing — and it can then look at consumption. Brazil is still looking at mechanisation and industrialisation. India is looking to develop its infrastructure and has a long way to go before it can catch up with China — by the time a firm gets permission to use land in India, a factory gets built in China.

There have been many acquisitions during the recession, and Siemens too acquired two firms. Will this trend continue?

In a recession, every challenge comes with opportunities. It forces companies to have a strong balance sheet and a globally well-distributed structure. We, at Siemens, have a strong balance sheet and global market access, which, we believe, provide us a good opportunity to strengthen our portfolio and focus on strong areas like energy management, industrial automation, healthcare, mobility and infrastructure development. Source:businessworld