Dion Metzemaekers, NKT Cables
Release Date: 2009-06-03
Since you took over as CEO of NKT Cables seven years ago the industry climate has been favourable for your company, and the underlying long term trends are positive, but the financial and economic crisis undoubtedly has had an effect on business. What are the priorities on your short and long term agenda?Top of the agenda is surviving the crisis. Quite clearly, the current economic climate is causing difficulties but we are happy to see the banking sector finally picking up again. We have been struggling with the situation directly and indirectly. If you doubt when your customers will be able to pay their bills, then that is not a good situation to be in. We have seen more and more customers struggling with that and therefore we are very pleased to observe that it seems that the banking sector is picking up again. That should ultimately lead to us having more confidence again that our customers will be able to pay their bills, because that is a very important aspect of running the business. We see growth opportunities and have undertaking large investment projects. We are building a new factory in Cologne, we are setting up a joint venture in China focussed on the high voltage cable side, and we have invested massively in the production of railway equipment. Basically, all of that costs money and is a burden on your financial capabilities. Therefore it is very important that our customers are able to pay their bills; that my top priority right now.
As you observed, 2005, 2006, 2007 and the first half of 2008 have been good years for cable companies like NKT Cables. Electricity infrastructure and railway infrastructure have been very good segments, and to an extent these sectors are still good. If you take a long term perspective, for example the next thirty years, then I am convinced that we are positioned quite nicely to see huge growth in that arena because of rising electricity consumption. Perhaps that growth will not be as large as everyone has predicted, because the crisis will have an impact there, but then we will see changes in the infrastructure and the growth of alternative energy sources. We believe that in the next thirty years the total infrastructure for electricity infrastructure will undergo a major makeover. This will affect the infrastructure, it will affect the connections, and it will affect the transmission and distribution of electricity. We have to be very well positioned to participate. We are helping our customers to be more efficient in the transmission and distribution of electricity, which means reducing the losses that always occur when you transport energy from A to B. The way we set up our cable systems gives our customers the opportunity to halve those losses. Therefore, we believe that this approach is very favourable in the current circumstances and we believe that we have a good future in front of us. Right now, 2009 is a year of staying on top of our game and making sure that we will survive. We believe, by the way, that we can manage to do that.
You stated that you can reduce energy losses by 50%, what is the benchmark you use for this statement?
If a traditional connection causes 20% losses then halving that means that we reduce it from 20% to 10%. We are looking at traditional historic performance of the existing solutions in the market.
For many companies the crisis is a wake up call and catalyst to enter into new strategic direction. What has been the wake-up call for NKT Cables?
The wake-up call is to be selective in making your bets. If you do business with customers that are ultimately are not going to make it, then you are not going to make it. The wake-up call really is to make sure that your team up with the right partners, with companies who not only have the ambition but also the strength to realize their ambitions. In the past, some part of the business was just taking in order, acknowledging the orders, delivering the product, sending the invoice and then getting the bill paid, but that is no longer applicable. Nowadays I sometimes tell my people to take ten orders of €1 million orders rather than €10 million order to minimize the risk. Making sure that you are on top of your cash flow, and getting that notion accepted within the company which is changing the way in which we do business, has been an important wake-up call.
This sounds very market and customer focussed, but what are your ambitions on the product innovation side in order to meet your customers’ needs of tomorrow?
Our focus is on helping customers to become more efficient in transmitting and distributing energy. This means that we are focussing not just purely on the cable but also on the importance of truly understanding how the cable is operated. The generation capacity of the power plant, the setup of the network, the number of connections, and the daily variance in the load all affect the solution that we will eventually offer the customer to live up to our promise to help reduce losses. More than ever before it is essential to understand the application of the product rather than just consider the product as a specified element. That is our approach. We are not only talking about the cable, but also about the connecting devices and monitoring software that follows the temperature development in the cable and then sends signals to the user that the temperature development suggests that certain actions have to be taken to minimize the losses in the cable. We have developed this software solution in-house.
Are you primarily working with utilities or grid operators?
We are working with both, and we are seeing differences market by market based on who is the leading player who provides that specifications that we need to respond to. This could be the grid operator, a utility, or the operator of a power plant, and in some countries there are companies who control all these activities. This is different in each market.
The European market is very mature and competitive, but the rise of renewable energy is destined to change market dynamics. To which extent do you believe this to shake up the competitive balance and how are you planning to take advantage of this opportunity?
For example, we understand the implications of developing a large offshore or onshore wind farm. We look beyond the immediate requirements of that wind farm, and try to define what will happen when the wind farm is linked to the grid. We identify potential bottlenecks, highlight the existence of these bottlenecks to our customers, and work together to develop solutions to minimize the impact of these bottlenecks. It creates a total new ballgame in communicating with your customers and understanding what they need. We want to offer cable solutions based on our understanding of the problems that our customers are facing. This is the name of the game we are trying to play right now.
How different are the problems that your customers in Europe and China, your two main markets, are facing?
Physics is the same everywhere in the world, so eventually the problems will be the same everywhere in the world, but there is a difference in the understanding of the problems and way of responding. If budgets are virtually unlimited and growth is the primary objective, then this might lead to a different approach compared with a situation where budgets have to be optimized. Indeed 2008 and 2009 have been a wake-up call, and finding the most economic solutions has become a priority. This difference of view between Europe and China is about to evaporate very soon, if it has not already evaporated. Everybody is now fully aware that energy is costly, that budgets are limited, and everybody tries to be as efficient and economic when creating the infrastructure that country or city needs.
We also need to transfer this understanding that we have developed in Europe to our company in China. It is a local business with local people that does business with local customers. We have to make sure that our local people are equipped with the information, tools and arguments that they need to bring this story as convincing in China as we are able to do in Germany or Denmark.
A couple of years ago we have made the principal decision to operate with a Chinese management team which will have full access to our technology that has been developed in Europe. We have transferred our technology to China and have put it in the hands of our Chinese people. At the same time we say to our German people that this technology has been transferred and that it is up to them to develop the next technology. This is how we make our internal life interesting and competitive.
Many European companies are concerned about intellectual property protection in the Chinese market, can we say that these companies are simply complacent and do not challenge their R&D departments at home?
I don’t want to talk on behalf of other companies, because I cannot judge what their considerations are. We have clearly chosen to transfer our technology and by doing so we enjoy good growth even in 2009 in China. The backside of that it that technology will eventually become standard or copyable by others, and then we want to be ready for the net stage of competition. Time will tell how successful we are with that strategy. So far it is working, but we are only three or four years down the road, so let’s see if my successors are still happy with my choice in thirty years.
You were already in charge of NKT Cables when the company obtained full ownership of its subsidiary in Changzhou. What are the lessons that you personally learned as the CEO of this company from working with China?
The main lesson was to have a local management team that is meeting two main requirements. First of all, a management that understands and accepts the western mentality, our way of working, thinking, and doing business. Secondly, Chinese management has to be embedded in the Chinese structure and therefore can be successful in China. Basically, we need Chinese people who can be guided from Europe to act on our behalf in China because it is NKT Cables that they are bringing to China. It is our brand and our reputation that they represent in China. We are very pleased that we have made the decision to go for a Chinese management team five years ago and we believe we have a very good team in place there. Being successful in business is to a large extent influenced by having the right people with the right motivation and the right capability, and that is the case in China.
What would you like to be the reputation of NKT Cables in China?
We want to be considered as striving for excellence in everything we do. We want to be seen as offering excellent cable solutions that do in reality meet the expectations of the customer. Excellence in offering the cable solutions that the market needs is what we want to ultimately achieve. Of course, the ultimate vision is that you achieve this in every project for every customer. This may be a very utopistic idea, but as long as we see progress on that trajectory then we believe that we are on our way to fulfilling our ambition.
Achieving critical mass is another prerequisite for the future success of NKT Cables in China. What level of market share do you need to realize in China in order to have critical mass in the different market segments in which you operate?
In the railway business we are the market leader for materials - electrification conductors - that we supply, so we have critical mass. We have a joint venture in this area and are very satisfied with our positioning in this business. In the high voltage business we are just starting in China, and critical mass would be 10-15% market share which is something that we strive to achieve five years down the road, coming from zero in 2008. The medium voltage market is so fragmented and competitive that we do not have a market share target; our goal is to find the market niches that are more in need of our solutions than the commodity part of the market. We are not in the business of selling cable by the meter; we are in the business of selling cable solutions. In medium voltage that is harder than in high voltage, therefore our focus will be on high voltage.
Having been the CEO of NKT Cables for the past seven years, what is the main goal that you will be working towards in the coming years?
Looking into China, my goal would be to get going in the high voltage market in the next two years by really getting the mindshare of some of the highly visible customers who place their trust in our high voltage cable solutions. We have a factory in Changzhou and have started a joint venture in Hejian City, Hebei Province, so we have the manufacturing infrastructure in place. We have people with the knowhow, knowledge and capability to sell our cable solutions, and I want to see the success. We have great ambitions and a high level of technological capabilities. We will convince the Chinese market that what we have on offer will meet the expectations. Mindshare comes first and market share will follow automatically, that is my goal for the next year and a half in China.
| Company: | NKT Cables |
| Position: | CEO |
| Country: | Germany |