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.

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