Thomas Richterich, Nordex
Release Date: 2011-02-04
Nordex just released its Q3 results, and while these nine months have been relatively hard for the industry, Nordex has been doing relatively well still reporting growth. what are the main questions that you have asked yourselves this year, and what has emerged as to where the company should go in the coming years and how to reposition Nordex?First of all the beginning of 2009 showed a lot of insecurities in terms of financing, and you have to be aware that roughly 90% of our customers are using debt financing to build wind farms, and today there is not enough liquidities in the market to finance all the project to build new wind farms and new wind turbines. The situation has changed a bit during the year 2009, but not a lot, and we are still waiting for our customers to get more liquidity. Internally, we have taken 2009 as a chance to reshape our strategy. In the past Nordex has been growing fast, on an average rate of 50% per year, and a growth slightly above 50% on the period 2004-2009. When such a growth happens, there is always the possibility that some structures, some people, and some processes may not be growing in the same way as the rest of the business. That is why 2009 gave us the opportunity to reposition Nordex.
On a more general basis, the industry has started to change in 2008-09. Today it has become an international industry with a high potential to industrialise and automate the production. Starting with processes, if you look at Nordex’s production, we have invested throughout 2009 a total of €70million in all our production facilities - and mainly in Germany - to assemble complete new technology to paint rotor blades, to obtain new partially automated technology to build the rotor blades, and we have also started line production and new production processes for the assembly of nacelles. Nordex did not only invest in Germany. We consecrated money to the USA for the Americas region, where the company celebrated the groundbreaking ceremony in 2009 for its new assembly plant in Jonesboro, Arkansas; in Dongying, China the group invested in new testing facilities for rotor blades. As far as assembling and production of rotor blades is concerned, we had to have more industrialised processes and production structures. The second angle on which changes have been operated is internationalisation. Nordex’s market in the future will be divided in 3 big regions Asia, Europe and American, each of them accounting for a third of the global market. Therefore we have built global headquarters in Germany, plus three regional branches in Germany for Europe, in China supervising the Asian market, and in the USA to take care of the American market. These are internal structures that Nordex is building to adapt to the requirements of the market and be more international. The supply chain of our company has also completely changed between 2004 and 2009. From 2004 and until early 2008, it was important to understand the needs of one’s supply chain. The global value chain was fully loaded, and in order to grow as such a pace as Nordex did, we needed to convince suppliers of the importance to build up capacities. In 2008 and at the beginning of 2009 we have discovered that our suppliers have invested a lot to build bigger facilities and increase their capacities not only in Europe but also in India, China and the USA as the rest of America.
What comes up in the strategy of Nordex is a strong focus on profitability, and you mentioned the importance of the automation of your production, as well as the role of your supply chain. How global or local does your supply chain have to be in order to find a good balance?
When talking about core components, we are looking for suppliers who have facilities in all the three different regions and with whom we can have legal frame agreement, but involve local costs. In general, we feel that Nordex facilities (Germany, China and USA) must have a local supply chain and get their components from local suppliers. There are two reasons for this decision in China: price reduction and import duty costs. First of all prices in China are around 20% cheaper than in Europe, so we have to convince all our supply base to build production facilities in China in order to be able to reduce costs and offer competitive prices. In the United States, local supply comes from the high transportation costs and the high volatility of the Euro-Dollar exchange rate. So on a general basis Nordex needs local supply chain, but global suppliers of core components.
Nordex was one of the first companies to go to China, and invited its suppliers to join the group in its expansion, and settle in the country to follow the local content rule. When can we expect Nordex to source its components from more local sources and what part will Chinese components have in Nordex’s turbines?
The law requires 70% of local content for certain economic reasons, but it will be 100% for Nordex. These components will not only come from Chinese company, but they could also come a subsidiary of European or American companies. The only criteria is that components have to be produced in China. We need it to be competitive. If you look at the production of rotor blades, 40% to 50% of the costs are labour related costs, which are cheaper in China, so local Chinese production is crucial to have a competitive cost basis in the country, especially against Chinese competitors.
You talk about a future division of the market as 1/31/31/3, today it is 80% Europe, how are you going to internationalise your market?
The situation we observe in China is not so different from any other market or industries in the world. If you look at the Spanish, German, Danish, Indian or American markets, you will always see the same situation, and 60% to 80% of the market is dominated by local suppliers. Therefore it is not a big surprise to see today Chinese suppliers to have about 80% of the market. It happens also in much more competitive markets, and this may come from the fact that local suppliers understand the market and its behaviour much better than international suppliers and have higher possibilities to increase their market share. What happened in China, and that we also observed in other markets around the world, is that before the wind market really took off, international players represented around 70-80% of the market. It has also happened on other industries such as mobile phones or power plants. The reason for that is simple: big international groups have very well organised market evaluation divisions and techniques, and they can see which market has the most growth potential, and they all come to the same conclusion, whatever the industry: China has very big potential. Then if the market takes off, overnight thirty or forty Chinese suppliers enter the game and take rapidly an important part of the market. The question for the wind industry will be to know whether it will mean the end of the game industry like in the container industry; if it will be like in the mobile phone industry where Siemens and Sony Ericsson were market leader, and overnight came bird, but today the giants have recovered and are the leaders again; or if it will be something in between like the automotive industry where Germans used to have huge market share that has today reduced, but where manufacturers such as Volkswagen are still producing and selling more cars than they are in Germany. We won’t know the answer to this crucial question before fifteen years. But Nordex does not want to see the outcome of this game, Nordex wants to be part of it, and this is why our company took the early decision to enter China, when the country was still rated seventh or eighth market worldwide. We always knew China would be a difficult market, but so are the Greek or Turkish markets. Therefore we are not completely surprised about the development of China. We have seen in 2009 more protectionism in China than in other countries, with the biggest tendering for about 15.2 GW project that went entirely to Chinese companies, but this will not happen again in the future since China has a lot of dependencies on other countries and has to play by the international rules.
Another thing that is changing now is that five years ago, the market was growing so fast that every produced turbine could be sold right away and competition was friendly. Are we going to witness the birth of real competition between wind turbine manufacturers who will all want to remain in the Top10?
I would not say that we did not have any competition in the past; and over the past four years Nordex has convinced more customers to choose its brand than any other company on the market. The reason for this is simple, Nordex is positioned in an upper class of the product segment, offering 2.5 MW turbines, and our unique selling point is that Nordex knows this segment much better than any other competitor since the company was the first ones to build this technology at the beginning of the years 2000, when other manufacturers were still working on the 1.3 – 1.5 MW technology. Nordex has accumulated more knowledge about this technology than its colleagues in the industry. Today the question is not to offer the biggest turbines in the world, but the most reliable ones. I feel that Nordex has more knowledge than so other players in this industry and can use this knowledge in the future to convince more customers to buy Nordex products. In 2009, we were not satisfied by the market trends because there was not enough liquidity for our customers to develop, but on the other hand we were satisfied because we had a relative development compared to other market leaders.
In the past years, when the market was growing so fast, was there any moment when it was not so clear whether you were very good sales people sales people with very good products, or were just able to run production faster than the competition?
First of all it does not help one’s business to have very good business people it the production cannot follow, it is a global business concept. At the end of the day customers could have bought from other players since we are still talking about delivery times of two years, and nobody in these years could offer a product available in the next six to fifteen months, and every customer had to wait for two years. Even under these circumstances customers were willing to wait longer for Nordex turbines than they would for some other products.
Have you seen a change in the demands from customers around the world in 2009?
Not in general. Obviously since financing costs have considerably increased in 2009, and we have noticed the low profitability in some investment projects, then some customers has always have gone back to their suppliers and negotiated the price levels. We also had some contacts in order to change payment schedules etc. but these are always normal behaviours in any market.
Some say that Chinese companies will become national champion and will revolutionize the industry. What is the role that they can play in the development of the industry?
This is a theoretical question, and it can be that in fifteen years the world market is dominated by Chinese suppliers as we have today in the container industry. It can also be that in twenty-five years we face the same situation as today in the automotive industry, where twenty years ago Chinese started to build up joint ventures to learn the technology and export it afterward. But as we have seen it has not happened until today as some links were missing in their business concept. I feel that we have to see carefully what will be the development of Chinese suppliers but I am comfortable saying that we can bring something to the table, and that we do not fear competition worldwide.
What do you feel will be your most successful turbines in the next five years?
The 2.5MW turbines for sure, and maybe offshore the 3 and 4 MW turbines, but these changes appears only over time. The average turbine in 2008 was the 1.4MW turbine, which means that in some regions we had 2, 3 and even offshore sometimes 5 or 6 MegaWatt turbines, but on average it was 1.4MW. I think this will increase in the next five year to be between 2.5 and 3.5MW, but maybe only in the years 2013 to 2015.
So today Nordex’s R&D efforts are more focused on enhancing the reliability and efficiency of the existing turbines than building always bigger turbines?
No. If we want to build a bigger turbine in 2014, we had to start the development yesterday.
So why didn’t you start yesterday?
We didn’t do it yesterday, but maybe a little bit earlier! But as long as we do not see an increasing demand for bigger turbines, we will not start the serial production.
What is the biggest turbine for which you plan to develop serial production in the foreseeable future?
In the onshore business, a 4MW turbine in the years 2015. There is potential for the average to grow to 2.5MW and we feel that we would still be in the upper segment of the market with a 4MW turbine. In the offshore industry, we will see different sizes, and of course they have to be much bigger. In 2015 I would say 6MW, but in 2020 it could be 8 to 10MW.
What is the role that Nordex wants to play in offshore wind?
The same role as in onshore. Nordex wants to have a global reach for the market, and wants to cover each and every market that has a potential of let’s say 5 GW on a yearly basis. But we also want to be able to use serial production. Today we do not feel that offshore has this potential, but it may have it in the years 2015, then we want to be one of the players in this field.
What have you learnt in this company from going to China every 6-8 weeks and doing business in the country?
China is different. And by travelling every now and then to China one can only understand a little about how different China is. That is why we always hire managers who have a large understanding of the local market.
What will Nordex look like in five years, and how will you be spread between Europe, the USA and Asia?
The company will be bigger! If you look at the American market we have started our activities there nearly from scratch and we want to build up operation worth $1bn sales for 2014, we won’t be able to do more. Starting from scratch and building a $1bn company in four to five years is a very intensive process, and we will not be capable of bringing it to the level of $2bn in such a short period. Looking at the Asian market it will depend on Nordex’s export capabilities, which have been started in 2009, but we feel that we can bring the business to a level between half a billion and a billion. Europe in 2015 will be the biggest region where we will be offering our products, but we aim at reducing the importance of this region from a level of 85% to around 50-60%. However our one third America, one third Asia, one third Europe goal will take a few years to be achieved.
Mr. Pedersen, one of the founders of the company, is still very active but he made the decision that someone else than himself should run the company. What does it take to run Nordex? Will you still be the man to run Nordex in five years?
Well he is a very good salesperson and I am not! And to know if I will still be the CEO in 2015 is a personal question. What I can say is that one would not be able to run a company without a perspective on the next five to ten years. The most important job of the CEO is to have a mission and a vision, and figure how to get there. Therefore the question is not to know whether i will be there in 2015 but what is the strategy today for 2015. On a personal side, i believe that my job is one of the most interesting in the industry and I cannot expect to work in any other industry.
If we were to interview you again in 2015 and asked you what the highlight of the last five years was, what do you hope that you can tell us then?
That we have increased our market share from 4% to 8%. It would be reusing the growth of the past in the future.
| Company: | Nordex |
| Position: | CEO |
| Country: | Germany |