Affordable is the new buzzword for Siemens, the global engineering conglomerate. The company is foraying in affordable or base level products. In an exclusive interview with Sandeep Singh and Sachin Dave, Joe Kaeser, global head, corporate finance and controlling, and managing board member at Siemens, says the firm is focusing on the ‘affordable’ segment for growth:
Q. What sort of potential does Siemens see as far as infrastructure is concerned?
A. Well, we are present in the industry, energy and healthcare business. And to put it in a nutshell: In all three sectors we do what our customers want us to do.
Q. Do you think you have been able to capture all opportunities that India offers taking in to consideration the company’s potential? And what are your plans to tap this opportunity?
A. We have been making good progress in India. Siemens India, which is also a listed company, has done a decent job in the last two years. Can it be better? Yes, it always can be better. Siemens has an extensive infrastructure portfolio which reaches from energy efficient power generation, transmission and distribution to environmental friendly train systems, water treatment solutions and healthcare technology. And most of our technology addresses the high-end segment. The challenge now is how we can capture the next layer of demand – the middle and lower market segment. When we laid out our strategy for our company many years ago, we took several things into consideration. For example the upcoming challenges such as demographic and climate change. We want to introduce products to which at least 2 billion people in the world can have access to. Take our healthcare solutions. At present many people in many countries all over the world can not afford our solutions. But there is always a demand for medical treatments. And we think Siemens has an technlogical advantage in comparision to its competitors. So the question is: How do we make these products affordable for those 2 billion people? Our answer is: With products that fulfill basic requirements and combine advanced technology with high quality and lower cost. India has a perfect demographic pyramid. There are lot of costumers in all three segments. And that is what makes India really fascinating for companies like Siemens.
Q. In percentage term how much do you think the cost will come down of the products?
A. To access the next layer of demand we need to bring down the cost by up to 70 per cent.
Q. When do you see a sure shot break through coming at those price points?
A. We have massively boosted our research and development (R&D) in India and China in healthcare and other infrastructural areas. That will show results - sooner or later.
Q. What is the kind of investment that has gone into R&D?
A. Siemens has a total of Euro 4 billion for R&D of which a quarter is invested in emerging markets. We expect this number to grow significantly.
Q. Which country is your R&D hub?
A. Our major R&D hub is in Germany. But we have strong R&D centers also in China and India, here especially for our IT solutions. India has many educated people and talents. Therefore we will see massive efforts in engineering and R&D in this market.
Q. Last year you applied for about 40 patents in India. So how do you foresee this for this year??
A. It is not just about a number in India or China or Africa, it is about meeting a certain kind of demand with our products. We have to put the R&D work to where we have our target market. And the target market is where the demand is and where the resources are to develop these products.
Q. You said you are looking at a particular market segment; there is a huge middle-class segment in India… You have a good brand especially in consumer segment, but somehow Siemens has not been able to capture the demand maybe because of price positioning and is losing to some other Indian and Korean brands. Do you see to capture this segment?
A. Siemens is very strong in the premium segment. We now want to build our strength also in the middle class segment with new products. In India we are predominantly working on technology for the healthcare segment but also in energy efficient power technology, trains, traffic management systems or solutions for clean water that could be useful for a city like Mumbai. Green technology is one of our core competencies and growth drivers. In fiscal year 2010 we will generate more than Euro 25 billion in revenue with our environmental friendly technology. This is nearly one third of our total revenue of 2009.
Q. Are there any products in green technology that you have brought in India or developed in India?
A. Yes. Especially in the energy sector we are already well under way in India with green products. We develop here for example an HVDC transformer, gas insulated switchgears and current transformers.
Q. Almost 50 per cent of your revenues in the country comes from power sector and it is being said that now you are also going aggressive on nuclear segment. Anything happening on this front? Are you tying up with any local players? And how much potential do you think nuclear sector offers/
A. Emerging economies will have more to offer than nuclear power. As you know we are working on a separation from our Joint Venture partner Areva. And once we have achieved that we will look into the next step. But in general: Nuclear definitely has a future. And if the technology risk is managed it is a clean technology. According to our sources about 400 nuclear power plants are being built in next twenty years. Depending on the size an average cost of one plant will come to around Euro 5 to 6 billion. So it’s a massive market. There are different legislations in different countries on how the risk is being allocated and shared.
Q. A major chunk of your revenues (50%) is coming from power sector. Do you see any change in this break up?
A. India has a leadership in terms of IT services and a big potential in many other areas such as power, which plays a big role in the country. In order to tap this potential, India needs to focus on infrastructure and boost it as it is the prerequisite for the growth of the country. This will bring a next level of engineering and development activities in the economy and hence provide further opportunities for our business.
Q. What is the India’s share in the global revenue and how do you see this changing in future?
A. In Fiscal 2009 it was little less than euro 3 billion which was approx 4 to 5 per cent of our total revenue in fiscal 2009. And we are about to announce our figures for this fiscal on November 11th, so let’s wait for that. If we execute our strategy as we have planned then India should grow double than Siemens in total is growing.
Q. Any investments that you are planning to make in the green tech in India?
A. Green technology is a very important segment for us, firstly because it is clean. And secondly because we see a huge market in that business. So we will continue to invest in factories in India in that area. We are planning to invest more in the green technology in India than we have already announced earlier this year (Rs 1600 crore investment) .
Q. Do you see competition intensifying in the Indian market in the years to come especially from other multinational firms?
A. Of course there will be competition but we see no need for us to worry. There is no reason why we would not be able to grow as fast or even faster than our competitors.
Q. What is the kind of investments that you are looking at in the country. going ahead?
A. Our business if focused on the mega trends of the emerging and developing economies such as demographic change, urbanization, globalization and climate change. What matters to meet these challenges is: Energy efficiency and industry infrastructure. And that is where India has a huge growth potential and where the country should focus if it is aiming at the leading spots in the global scenario. If you compare India with China, this is where it has to catch up.
Q. Would you tap the affordable market share in your consumer durable segment?
A. You have to consider that our business with home appliances is a 50:50 joint venture between Bosh and Siemens. I would not be surprised if Bosh Siemens Appliances is looking at India as a target market. In the consumer durable segment, growth happens with the number of consumers, and anyone who will not have India on its radar screen will probably miss out major opportunities.