Manufacturing Set for Revival

Feature Article | December 21, 2010 by Bernd Seidel

Im Interview: Peter Löscher, Vorstandsvorsitzender der Siemens AG (Foto: Siemens)

The interview: Peter Löscher, CEO of Siemens AG (image: Siemens)

Do you think that the financial crisis is over?

Peter Löscher: Growth has returned, and all signs suggest that the worst is over. But it will take some time before the economy is back to precrisis levels. What’s more, the economy is growing at two speeds: While the advanced economies are seeing growth of about 2% to 3%, the emerging economies are developing at above-average rates – 6% or 7%.

Such fastgrowth markets became even more important during the financial crisis. We expect this trend to continue in the next few years. By 2014, the emerging economies are likely to account for one half of the world’s economic growth.

How does this financial crisis differ from those of the past?

Löscher: This crisis is different because it is more far-reaching – more countries were affected than ever before. The financial crisis will force many advanced economies to reindustrialize.

What changes do you expect?

Löscher: The service industries, starting with banking and finance, will no longer dominate the economy. We need to regain the balance between manufacturing and services.

But before there can be a revival in manufacturing, we need to find the people who can drive this development. To combat the skills shortage we hear so much about, we at Siemens see diversity as a key component of our business strategy.

Read on: Three global megatrends

Economic analysts are questioning the paradigm of constant growth: Markets are saturated, and in some areas demand is kept artificially high. Is there an alternative to constant growth? And what might it be?

Löscher: We think that three global megatrends will shape how society develops over the coming years and decades. Urbanization, demographic change, and climate change are the three big challenges that we have to overcome.

The population is growing, particularly in developing countries. At the same time, people are living longer. As a provider of health care solutions, we are continually working to improve the quality of healthcare provision and reduce its cost.

Increasing urbanization is another megatrend. Already more than one half of the world’s population lives in cities, and this is going to increase.

People need clean air, clean water, reliable and efficient infrastructures and energy supplies – all as sustainable as possible. Just by using existing Siemens solutions, we could reduce global carbon emissions by 40%.

Can you give us a couple of examples?

Löscher: Of course. Singapore uses Siemens technology to get one quarter of its drinking water from waste water. The subway in Norway’s capital city, Oslo, has new rolling stock that uses 30% less energy than the trains it replaced, and up to 95% of the materials used can be recycled.

Siemens’ technology is used for the congestion pricing system that has helped reduce the volume of traffic in central London. And the traffic lights fitted with modern LEDs that are found in Berlin, Budapest, Vienna, and other capital cities use 80% less electricity than conventional traffic lights. And these are just a few examples.

Read on: The potential of green technology

Siemens always says sustainability is part of corporate responsibility. Are profitable growth and sustainable business practices compatible, given the constraints and global economic challenges a company faces?

Löscher: Economic and ecological aspects are not mutually exclusive. Quite the contrary, in fact. Back in the mid-19th century, the guiding principle of the founder of our company, Werner von Siemens, was to develop ground-breaking technical innovations that brought benefits to customers and society alike.

And that is just as true today. Siemens is the largest provider of green technologies and solutions. They now account for a third of our sales, and in 2009 – the worst year of the crisis – this segment grew by 11%.

How high do you rate the potential of green technology overall?

Löscher: Green technology will be the leading industry of the 21st century. Experts estimate that this market will double to around €3,000 billion in the next 10 years. Our plan was to increase our sales of green products to €25 billion by 2011. We will achieve this target a year earlier.

Read on: How effective are economic stimulus packages

How does your sustainability strategy affect your customers and suppliers?

Löscher: At Siemens, we have set ourselves the goal of being the first manufacturer worldwide to have an entirely environmentallyfriendly supply chain. In the next two years, we will invest up to €100 million in our own locations to improve their energy efficiency and reduce their environmental impact.

We are also involving our suppliers in this initiative. We have selected 1,000 of our largest suppliers, whose production processes are particularly energy intensive, and offered to send our experts to give them an environmental and energy check.

We expect that these suppliers alone could reduce CO2 emissions by 1.5 million tons, and energy costs by about €170 million per year.

How effective are economic stimulus packages in your opinion? You announced that you could win orders worth over €15 billion from stimulus packages worldwide. How are things looking now?

Löscher: We are doing well. In the last three quarters alone, as a result of the international stimulus packages, we received orders worth over €4 billion right across our three divisions: industry, energy, and heath care.

Increased governmental spending was an important step in the right direction and quickly helped stabilize the economy. And it is still having positive effects.

Read on: IT has a vital role in today’s world

Besides green technologies, what does Siemens intend to focus on – now and in the near future?

Löscher: We want to continue expanding our activities in growth markets. Siemens operates in 190 countries, and has been in some of them for more than 100 years. Through this global presence, we are ideally positioned to benefit from rapid growth in emerging markets.

In the past four years, we have more than doubled our sales in the BRIC countries – Brazil, Russia, India, and China. Service business is another growth area. With our broad installed base, we can maximize business opportunities for delivering services to customers.

For instance, a third of all energy generated from gas turbines worldwide comes from Siemens plants. By providing more services, we can strengthen our offering across all of our three divisions.

How can we use IT to help us act and react better in a volatile world?

Löscher: IT has a vital role in today’s world and helps make companies competitive. So managing business with IT and integrating software with industrial solutions are becoming increasingly important.

At Siemens, our 17,000 software developers are working on an innovative way to combine our expertise in the manufacturing, energy, and health care sectors with IT expertise.

Today we use smart grids, we integrate technical and business systems in power plants, we handle patient data efficiently in the health care sector, and manage product lifecycles in manufacturing industries. None of this would have been conceivable without innovative IT.

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