B2B companies in emerging economies: SIEMENS in China

According to a recent study by the United Nations Conference on Trade and Development (Unctad), companies are shifting their foreign direct investment focus to emerging markets. The top three target countries until the end of 2012 are China, India and Brazil; the US, which was the number one target country for years, is now in fourth place. Russia and Mexico are in fifth and sixth place respectively, followed by Vietnam, Indonesia, Thailand, Poland and Malaysia.

German engineering conglomerate Siemens is part of this shift. For Siemens, growth in the Asia Pacific region, particularly Southeast Asia and emerging countries, is a primary strategy for the future. The company plans to continue to invest heavily in strengthening operations in key emerging markets, including India and China. Its investment into these countries will add hundreds of local personnel and allow the markets to be responsible for their own business and marketing, a strategy that differs from Siemens’ competitors.

Siemens has a long history of business with China, beginning in 1872 when it exported its proprietary pointer telegraphs to the nation. Today, China is the company’s third-largest market, behind Germany and the US. Siemens employs 43,000 Chinese in 90 joint ventures and has 61 regional offices. In the most recent quarter, Siemens reported a 35% increase in orders from China.

Siemens has continued to invest in China and has generated billions of euros’ worth of orders. The company announced that its environmental portfolio was expected to generate €4 billion in 2010, constituting 40 percent of the company’s China orders for the year. As of September 2009, revenues in China were €5.8 billion, representing 7% of Siemens’ global revenues; recent sales there have grown more than 14 percent.

Siemens China CEO Mei Wei Cheng recently said that the company’s strategy in China is focused on long-term development, and that the company must adapt to the changing market. The outlook for Siemens in China appears bright, as the company’s services can help China in such areas as urbanization, environmental protection, and demographic change. Siemens will focus on being more of a local company (Cheng was recently hired as the company’s first Chinese CEO in China) and on expanding its green technologies, which make up a significant part of its Chinese business today. Siemens also plans to develop its local R&D, as well as to invest in energy-saving and environmentally friendly technologies and solutions in China. Being more local allows the company to serve the entire Chinese market, including rural areas, in all sectors including healthcare. In addition, Siemens hopes that it can be seen as a local company rather than as an importer of high-end products.

China’s booming economy means more investments in infrastructure and an increased demand for green technologies. According to Peter Löscher, president and CEO of Siemens, “China has a very, very ambitious but very clear energy plan. We just deployed 1,400 kilometers [870 miles] of high-voltage direct current transmission line from Yunnan down to Guangdong, with an overall transmission loss of 5 percent. By 2050 the target of China is to have renewable energies be 25 percent of their energy mix. As they change their energy mix, we are able to help in all areas.” The company hopes to capitalize on the growing demands in the Chinese market. Some examples include:

-Helping China to create the world’s largest high-speed rail network. Last year, Siemens signed a $1 billion deal—one of its largest projects—with the Chinese Ministry of Railways to build the first 100 high-speed trains for the new network that will run between Beijing and Shanghai.

-Expanding global manufacturing for wind turbine plants in China. The plants produced will be used in China as well as exported. Siemens believes that China could become the world’s largest market for wind energy in the coming years.

-Preparing for the healthcare boom in China. The nation is planning to spend $125 billion upgrading its healthcare system, including building hospitals and clinics and expanding healthcare services to almost all citizens. Siemens is looking toward a rapid increase in its medical-imaging sales.  

For Siemens and other foreign industrial companies in China, there is growing concern over China’s handling of foreign investment, intellectual property, and technology transfers; as well as growing competition from domestic companies. However, with a renewed and strong focus on long-term development, local R&D and business, and green technologies, Siemens seems to be in China for the long run.

Eco-branding: SIEMENS

Even though the color of their logo is “petrol” (a shade of green from Pantone), they can still go green: Siemens, a supporter of DESERTEC, is one of leading companies in the field of clean energy.

According to the Siemens Energy website’s “Clean Energy” page, the company is focusing on many aspects of alternative energy, including renewable sources such as wind power, steam turbines, and solar-thermal power; efficiency increases aimed at reducing CO2 emissions; “gasification,” focusing on low-carbon power generation; and environmental systems and services that offer performance enhancement and maintenance in order to reduce pollution generated by power production.

Siemens is one of the largest electronics and industrial engineering companies in the world, and is the largest such company in Europe. Headquartered in Germany, the global company has operations in three main sectors: Industry, Energy, and Healthcare. These are subdivided into 15 separate categories, including industry automation, drive technologies, building technologies, OSRAM, industry solutions, mobility, fossil power generation, renewable energy, oil and gas, energy service, power transmission, power distribution, imaging and IT, workflow and solutions, and diagnostics. 

Founded in 1847 in Germany, the company initially manufactured and installed telegraphic systems. An American subsidiary was established in Chicago in 1892. In 1923, the company began producing radio receivers for the consumer market and established a Tokyo subsidiary, Fuji Denki (later Fuji Electric). In the 1960s, the company underwent a major reorganization and all subsidiaries fell under the control of the parent company, then called Siemens AG. In 1978 Siemens became GE’s main rival, and in 1992 the company joined with IBM and Toshiba to develop 256MB chips for microprocessors. During the 1990s, the company underwent major restructuring before finally being listed on the NYSE.  

According to some sources, Siemens struggled for a long time with poor management. The company even faced a bribery scandal that emerged between 2006 and 2008. When the dust finally cleared, Siemens had lost two things: a huge amount of money in fines, and the trust of its stakeholders.

However, Siemens’s recovery was a fast one, thanks to the “Speed, speed, speed” approach espoused by new CEO Peter Löscher, who he joined Siemens in 2007. After reorganizing and restructuring the company, Löscher concentrated on developing Siemens’s involvement in technically advanced infrastructure like energy and transport systems, as well as in areas where the company could bundle products and services together, such as health care and energy controls for buildings.

Löscher also took Siemens in an entirely new direction—a focus on renewable energy, especially wind power. In 2005, when Siemens only had 5 percent of the global market in wind energy, the company prioritized the development of offshore wind turbines instead of trying to compete directly with the existing leaders in wind technology. This strategy proved highly effective; the company is the biggest supplier of offshore turbines, and its share of the total market has grown.

As Löscher recently told Businessweek, Siemens is “the company with the biggest, deepest, and broadest green portfolio.” Apparently, it has achieved its current success by cleaning up its operations from the inside out.

Eco-branding: DESERTEC

Greek mythology tells the story of Icarus, who dared to fly higher and closer to the sun than any man. As everyone knows, his ambition brought him to a tragic end. We hope that the 21st century “challenge to the sun” will have a happier ending for mankind and the world.

In 2009, the U.S. Global Change Research Program concluded that human-induced emissions of heat-trapping gases are the main cause of the global warming observed over the past 50 years. These emissions come mainly from the consumption of fossil fuels, as well as from deforestation, agricultural practices, and other activities. Some scientists, however, theorize that solar activity has also contributed to climate change to a greater or lesser extent. Although this theory might be a minority opinion, it takes us back to the idea of challenging the sun. Perhaps the sun could simultaneously be both the cause of and the solution to global warming.

One such challenge to the sun or the solution, the DESERTEC project, is now moving off the drawing boards and becoming a reality. The project’s near-term goal is to bring solar power from the Sahara Desert to Europe and beyond within five years.

So what is DESERTEC?

DESERTEC is the brainchild of Dr. Gerhard Knies of the Trans-Mediterranean Renewable Energy Cooperation. At the DESERTEC Industrial Initiative Assembly in Munich, on July 13, 2009, Knies pointed out that “within six hours, deserts receive more energy from the sun than humankind consumes within a year.” According to the group’s website, DESERTEC “is an integrated concept which includes energy security and climate protection, as well as drinking water production, socio-economic development, security policy and international cooperation.”

The DESERTEC Foundation, a non-profit organization founded in 2008, is part of the DESERTEC Industry Initiative (DII) which is led by Munich Re, a German reinsurance company. DII is a consortium of 18 companies, including Munich Re; ABB, a Swiss-Swedish power and automation technology company; Abengoa Solar, a Spain-based company focused on energy and the environment; the M+W Group, a Germany-based engineering and construction company; Cervital, an Algerian food manufacturer; NAREVA of ONA group, a Moroccan-French industrial and financial services company; Red Electrica, a Spanish company supplying power transmission systems and electricity grids; Deutsche Bank, an international bank based in Germany; RWE, a German public utility supplying electric power and natural gas; Enel, an Italian energy company; Saint-Gobain Solar, a France-based manufacturing company; e.on, a Germany-based energy company; Schott Solar, a German manufacturing company; HSH Nordbank, a German commercial bank; Siemens, a Germany-based engineering conglomerate; Flagsol, a Germany-based solar-thermal power plant company; Terna, an Italian power transmission power grid company; and the DESERTEC Foundation.
The shared mission of the DESERTEC Foundation and DII is the rapid global implementation of the DESERTEC concept, which is centered on making use of the solar and wind energy available in the world’s deserts.

DII is focused on the EUMENA (Europe, Middle East, and North Africa) region. The deserts of the Middle East and North Africa (MENA) supply sufficient sunlight and wind conditions to be energy sources for the region. The long-term goal, according to DII, is “to satisfy both a substantial part of the energy needs of the MENA countries and to meet about 15% of Europe’s electricity demand by 2050.”

While DESERTEC is associated with Germany and Germany-based companies, another energy project, TRANSGREEN, is linked to France and French companies. TRANSGREEN aims to develop an underwater electricity network connecting both sides of the Mediterranean as a part of the Mediterranean Solar Plan.

From a branding perspective, it is interesting to note the differences in the names these groups have chosen and in the focus of their strategy. One, DESERTEC, is all about energy supply, while other, TRANSGREEN, emphasizes changing (transforming) energy sources.