Niels B. Christiansen, Danfoss

Release Date: 2009-10-16

Niels B. Christiansen, President and CEO of Danfoss, was interviewed by Greentechfocus to discuss Danfoss contribution in producing better, greener and more efficient energy and the prospects of cooperation with the booming Chinese green energy market

In September 2008 you took over the position of President and CEO of Danfoss from the son of the founder. How was that experience?

I've been here for four years and the latest period as the vice-CEO, so it has not been a big change. The biggest change has probably been in the media. Probably it was an emotional moment from my predecessor and son of the founder’s perspective, but he will continue as Chairman of the Board, so I think it's just the next logical step. It hasn't been too dramatic.

Having a background in very different industries, why did you decide to join this company four years ago?

In the past, I ran the company that invented the Bluetooth headset so it was more closely related to IT and telecoms. It was a global company and was working with other multinational companies such as Nokia, Motorola, and Siemens. Basically I am interested in companies that are on the forefront combining R&D and engineering with the ambition to match the complexity of these two areas at a global level. That is where I can add something, and I think Danfoss is a prime example of such company. It is by Danish standards a large global company. Being Danish, in my mind this is probably the most interesting company to run.

As one of the flagship companies in Denmark, you must have had a lot of outsider knowledge about Danfoss. After having joined the company what were the biggest surprises?

I was quite surprised of how my thoughts, feelings and expectations were confirmed. Danfoss has a very strong reputation and it is well known that Danfoss has good fundamental values. The strong Danfoss culture is one of our differentiation factors. People really like to work with us. I would probably say that I was surprised that it really was so special. When we do something, we tend to do it right and do it globally, and that feels good

Well, of course it's quite remarkable that for such a global company that you're still located here in a rural part of Denmark. What does that say about the corporate culture?

Large companies around the world tend to have their headquarters where they were founded. It doesn't really mean much, because I often get the question, "Why don’t you move the headquarters to somewhere like London?" It is not important because we are not making all the decisions from one location in Denmark. Danfoss has different business units around the world, with different management teams. The company is global and where the top four guys are sitting is least interesting. I moved from Copenhagen to here and before I had been living in Paris and Switzerland. As soon as I made the decision I realised I had never thought about the inconvenience of the location. But I think on reflection this is as good a place as anywhere else. The only thing you cannot afford to do is limit the geographic area you recruit from. We think globally in what we do, and we will leave the headquarters in the area where the family founded the company, which really doesn't influence much how we think globally. At the end of the day, this flexibility is what’s really important.

Energy efficiency has traditionally been an area of focus for Danfoss, which role is it playing today as the climate change debate is increasing the momentum for companies with a strong energy efficiency portfolio?

We have a strong focus on energy efficiency. The best, greenest and cheapest energy you can ever have is the energy you're not using. It doesn't help us much to put up a lot of windmills if we keep on wasting energy while using it.

At the moment the division between energy efficiency and renewable energy is getting blurry. EU legislation for instance states that if you use a heat pump in your private house, it will take one part electricity to make four parts heating, and the three parts of heat that you can actually take from the air or soil that is renewable energy. We have a competitive advantage in areas such as heat pumps and different kinds of technologies ranging from just using energy smartly to being part of a renewable energy source. That is happening right now, so the definitions are changing.

Danfoss has 75 years of experience and it more or less was founded as an energy efficiency company. I think the biggest and most visible milestone was when we introduced the radiator thermostats in the beginning of the 1970s. That was when we had the first energy crisis and in Denmark we were not allowed to drive on Sundays. Given our geographical location, Denmark spends quite a bit of energy on heating in the wintertime, but just by putting all these radiator thermostats on all heating radiators people could save you between 20% and 30% of their energy consumption. Very quickly legislation to support radiator thermostats was created in Denmark which was then passed throughout Europe. Now it is spreading into the entire Eastern European sphere, and that has been a very typical example of our products providing more energy saving than other solutions.

Our business splits into three different divisions. We have the heating division, the refrigeration division and the air conditioning division. The heating division offers a lot of different products such as radiator thermostats and heat pumps. These products will generate and utilize energy more efficiently, so less power will be required to heat a house. Air conditioning is of course for cooling, and requires a tremendous amount of energy. For instance, in the US almost 20% of the total electricity consumption is used for air conditioning. This amount can clearly be reduced by using better controls and compressors. Danfoss’ products offer higher quality, greater energy saving and are therefore typically a little bit more expensive. We offer premium products that outperform in terms of quality, reliability, and energy saving. That is how we are differentiating ourselves. Energy saving is not a new concept. To some extent, we were joking that we were an energy saving company before the concept came around. As a result, it is very deeply rooted in everything we do and manufacture.

If we forget about the financial crisis for 30 seconds, what is happening right now can be split into three different trends. The underlying trends right now are globalization, the climate change problem and rising energy prices. It is likely that these long term trends will continue well into the future and that is why we are investing strongly in product development to make sure that we stay ahead in terms of energy efficiency. The climate challenge, for us, translates into the need for more energy efficiency because that is the easiest way to limit CO2 emissions.

Take for instance, district heating, that is a very energy efficient solution. A normal power plant operates at around 40% efficiency. This means that 60% of the energy generated by burning whatever fossil fuel is lost while creating CO2 emissions at the same time. The 40% of the energy is transformed into electricity which is then being spent on different things such as inefficient air conditioning systems. By connecting a district heating system, you can immediately increase the efficiency of the power plant from 40% up to 80% or 90%, which basically enables you to say that all the heating is free or renewable. That's also why district heating is being now looked at as a renewable energy, because you're utilizing energy that you already have. It's for free, because before, you didn't use it. It is important to create a thorough understanding in society that the source of heating is actually freely available by combining power plants and district heating systems. We are world leaders in the components and controls for district heating systems. This is a big market in Denmark, Eastern Europe, and it is becoming very big in Russia and China.

If we were in a position today to redesign heating systems around the world there is no doubt we should go for more district heating solutions. It is much more complicated to implement district heating systems in France which has a large installed base of electrical heating systems, but if you build it from scratch as you have the opportunity in China or Russia then you want to go for district heating right away. This is an area where we really can save a lot of energy. Basically, our focus is on areas that are built around energy efficiency.

The last area is motion control for electric motors. We typically say what we sell motion control systems in one year that will save a power plant’s worth of energy. That is the impact of operating electric motors efficiently with our system. Energy efficiency is spreading through everything we do. It's extremely important for Danfoss.

The general public expects politicians to take the lead addressing the climate change challenge. What is the role that the corporate community should play in your opinion?

First of all, politicians should make it very clear that a lot of the solutions and technologies that we need are already there. We don't have to wait for new technologies and innovations, the solutions are there but for different reasons they are not being utilized. The business community, of course must make that visible to governments around the world.

In Denmark we saw a good example in the refrigerator market. Most people are astonished when they learn how much energy their refrigerator is using. The Danish government gave a monetary incentive of 500 Danish Kroner to people to buy a new, more energy efficient refrigerators. The 500 Danish Kroner gave refrigerator manufacturers the opportunity to buy slightly better compressors which resulted in a swing from less energy efficient compressors to high efficiency ones. Manufacturers started to manufacture A++ refrigerators which save a lot of energy and consumers bought them. Those 500 Danish Kroner were saved within a year or less, but for some reason those consumers would not have made the decision without this incentive. The question is who should do what. Should the compressor manufacturer do a lot of advertising to educate the end consumers about the benefits of buying a product includes their superior compressors? Of course, that would never pay off. That is why there is a need for incentive and legislation sometimes to make things happen.

I participated in a trip with The Danish Prime Minister Rasmussen to China, where I had the opportunity to talk to Chinese leaders and share my vision on the implementation of energy efficiency measures. One way is establishing standards or guidelines. We have conducted large demonstration projects in China where we put radiator thermostats into big apartment blocks to prove that it works. What typically happens in the absence of radiator thermostats is that the first apartment has too much heat, so people open the window, whereas in the last apartment they are freezing. We are investing in these demonstration projects because the solutions is ready but people don’t feel the need to invest in these opportunities. Moreover, contractors no not have an incentive to spend more money on materials because he will be able to sell the apartment anyway. The person buying the apartment will pay for the number of square meters, and not for the heating system. If you buy expensive radiator thermostats and save a lot of energy, you will still be paying the same bill every month, so why would you? You have to either get around saying if you spend less energy then you pay less, or you have to set energy efficiency standards.

What was the response that you received to these demonstrations?

The demonstration projects prove the point, but we are a long way away from making this happen. There are big opportunities in China right now but it’s going to take some time. Also there's a lot of discussion around how to make sure that people pay for what they consume. If people can save 20-25% of their energy consumption, and it will be helping the global climate issue, why wouldn’t they just invest in saving money? I think that there will be minimum energy efficiency requirements in China; that is also how European countries have gone about it. The Chinese government is now thinking about introducing legislation for passive houses, which basically do not require any spending on heating, even in cold areas. They reuse energy, are highly insulated and have clever heating systems. It is definitely possible but it must meet a market demand. Otherwise, it's not happening.

Who is helping who when you join the Prime Minister on a visit to China? Is the Prime Minister helping you to convince your Chinese counterparts about the potential of your energy efficiency solutions?

The Prime Minister is helping us to get access to the right people, but he is not really carrying the message. The Prime Minister works on a different level of abstraction, basically sending the message that the climate is very important and that we need to do something on a global scale. Companies like Danfoss can bring examples of solutions that are readily available, such as radiator thermostats and district heating solutions, to the table. I don't think one should wait.

Why is Denmark big in energy efficiency? We have been focusing a lot on being energy efficient because we have very limited natural resources. Moreover, we have had extremely high taxes on energy, so if it was ever worthwhile in any country in the world to save energy, it was here. That's also why a lot of the technologies were developed and initiated in Denmark.

We talked about radiators and district heating. If we focus now on China, where do you see the greatest opportunities for Danfoss?

I think the single biggest thing China that could do is to introduce legislation for the energy efficiency of buildings, which is what the Russians are doing. Such legislation would ensure among other things that all buildings use radiator thermostats. From our side, we'll try to accelerate the upgrading of existing solutions. That would be a very simple way of saving a lot of energy in a proven fashion. From our point of view, the second thing would really be to push district heating, advance district heating into more places, and that is what is more or less happening.

China is already your second home market, whet are the future ambitions?

We have, of course, an ambitious plan, but now we are suffering from the financial crisis. When we say that China is our second home market, what we mean is the following. What characterizes a home market? In a home market you are present with a lot of people and a lot of knowledge; it is not just a country where you export for pure business reasons. Of course, in your home market you are strong, and that is why it is our home market. In your home market you have a large market share and you offer products and solutions that meet the needs of the people. In your home market you are always able to offer a solution. This is what we would like to have in China.

By making China our second home market we have decided to go from zero to 3,000 employees in less than ten years, which today represents 10% of the company’s total employees. China is now our third biggest market, after Germany and the US. But China is growing fast, so it is on track to become one of the biggest markets for Danfoss. We started by locating a lot of manufacturing in China, but now we are adding R&D facilities and we have made China the main location for some of our product lines. In these cases our Chinese colleagues are the owners of the product line, production, and R&D activities. China is becoming a very integrated and important part of the company. Two weeks ago, we opened three factories in China in one week, and we have expanded our biggest factory seven times over the past five years.

We have decided that the China is a region in itself. It is the only country in the world that reports directly to the executive committee. Since 2004, we have had a President in China who is in charge of all our divisions there, and he has been reporting directly to me. There is no other country in the world where that is the case, we are giving China special treatment.

Personally, as a manager and CEO of this company, what have you learned in the past few years from your experiences in China?

I've been travelling a lot in China over the last fifteen years. To see a country develop that quickly has been amazing. I can remember the days when you were bicycling around Beijing and there was hardly a car. That seems unbelievable today. I have a lot of respect for the way the Chinese have managed to grow so quickly for so many years in a relatively controlled manner. They have been very foresighted in the way they looked at infrastructure and focused on developing manufacturing capacity. Now, the key word everywhere is technology transfer, it is obviously the next step. I think they have planned this strategically very well and they are executing it very well. It's pretty exciting to see how China will develop. We foresee a lot of opportunities in China.

What are your expectations about the role that China will play on a global level in addressing climate change in the coming decade?

I think that until now, in reality, it has not been so high on the agenda in China. There have been bigger issues, but even in China it is becoming obvious that closing our eyes to the problem is not going to work. The signals we are getting seem serious, and climate change will hit China pretty badly in the long term if they do not take action. I think there is an understanding that China needs to find a solution. China has now become the world’s largest CO2 emitter, long before anybody thought they would. It could potentially be something that we could help them with. The Chinese government has shown willingness to help the markets and keep the country on its growth path. Maybe China should consider channelling more funds into energy efficiency, by doing that they could kill two birds with one stone. They would help to sustain economic growth, and they would start to address the climate change issue. Everything I hear is that China really wants to fight climate change, even though so far we have been a little bit disappointed or surprised that they didn't act. For five years in a row, nothing has really happened. We have carried out demonstration projects to prove the effectiveness of our solutions, but it is just a matter of time until this issue gets sufficiently high on the agenda and we start moving. I'm not going to guess now if it'll be next year or not.

I would like to give you the opportunity to send a final message on behalf of Danfoss to China about the contribution that Danfoss and Denmark make to the development of energy efficiency in China…

We have a good and long lasting relationship with China, and we have proven energy efficiency solutions already. We are very willing to continue to work with China. For instance, as a company, we have transferred a lot of knowledge around district heating in China, and we're interested in continuing this development. It’s all about taking technology solutions available in Denmark to China.

Company:	Danfoss
Position:	CEO
Country:	Denmark