Prof. Dr. Burchard Schwenker, Roland Berger Strategy Consultants
Release Date: 2009-11-12
When you took over daily operations from founder Roland Berger in 2003, what was one piece of advice he gave you?Continue to work hard and take care of quality. This goes back to the nature of our business. It's all about quality. Quality leads to people, clients and business.
While the economic and financial crisis has had an important impact on global economic development over the past year, the advance of globalization is destined to continue for the foreseeable future. How have these two developments affected the areas of focus for Roland Berger and where you want to position the company in terms of areas of excellence?
Our firm has always played a major role in Germany. Starting in the 1990s our aim, and our strategic challenge, was to really globalize and internationalize our business. First of all, we expanded our network, to Central and Eastern Europe and Asia, specifically Japan. The impact of our efforts increased from off around 1995 by moving into China and Russia. Thirdly, globalization as we know it today became the driving force behind global economic growth around 2000. Since then, the further internationalization of our firm and a real global support for our clients is one of my main tasks.
What has been crucial in the positioning of Roland Berger Strategy Consultants to successfully transform your German and European reputation into a truly international one when entering the highly competitive global strategy consulting arena?
Stemming from Europe we are used to a unique variety of countries, languages and political systems, cooperating and thus competing for best solutions. Thus, we have a lot of experience in dealing with different cultures. This is one of the reasons, why I am a believer in Europe: it encompasses two main sources of power: diversity and creativity. Diversity, and only diversity, leads to creativity, and creativity then leads to competitive advantages. That is true for entire economies and also for a single company. In the end, this leads to strategic advantages of big European corporations compared, for example, to the US. This is not only analytical insight, it gives us also a competitive edge over competitors from the US it is one reason why we have been successful in globalizing our firm.
Would you define Roland Berger Strategy Consultants as a European company?
We are a European firm with German background. I always highlight both elements, because they blend, especially since Germany plays an important role in Europe. Let's look at the post-crisis landscape. I believe there are two main outcomes from the current troubles. In the years before the crisis many people believed that financial services were crucial for advancing the virtual knowledge society, which would change the world and the way we do business. I have always believed in industrial expertise. Many people were saying that a country like Germany with its large manufacturing industry is somehow outdated and not competitive. The crisis has shown exactly the opposite, and one of the outcomes is that industrial competence counts, agin. Germany is very well positioned here, as 24% of our GDP comes from manufacturing, and that figure is growing.. The same goes for continental Europe, where manufacturing represents about 18% of GDP. It is simply not true, that high-quality services are moving everywhere and anywhere in the world. They are still best developed in combination with industrial centers of excellence to create new high-value offerings and solutions. This is e.g. important in green technology and it is why I believe continental Europe is very well positioned for the challenges ahead.
Can we say that the financial and economic crisis offers an opportunity for Germany and Europe to reposition themselves on the international market?
I would agree because the second outcome of the financial crisis is that the American management model, which has dominated the world's business thinking for ages, has in a way failed. One of the causes of this failure is its focus on short-term thinking, financial rewards and capital markets. European traditions in contrast offer are centered around long-term thinking. Over the past few years there has been a big debate about the business perspective, whether short- or long-term thinking is better. I think the crisis has decided this debate: long-term thinking makes sense. We will have to tackle some long term challenges after the crisis and long term thinking is necessary here, e.g. went it comes to green tech And there is a second reason to be optimistic about being European: . Our companies are deeply embedded in society, especially regarding our employment policy. The same idea of "harmony" applies for the rest of Europe, l especially for Scandinavia, and it has played a big role in alleviating the crisis. And thirdly, one source of European strengths is our traditional humanistic education because it aims at interdisciplinary thinking. It is an important way to create a platform for sound judgments in these complex times and sets us apart from the American approach. Thus, I believe that Europe can benefit from the crisis.
Climate change and the economic rise of China are also undeniably long-term trends. Do you believe that the crisis has opened people's eyes to these developments?
That is true, and it is very good news that the Chinese economy is still reporting 8% growth. I have always been a believer in the V curve scenario: that the downturn has now stopped and that the big economies will start growing in the spring or summer of next year, significantly and hopefully sustainably, which is one of the most important things. My preconditions for this positive V curve view are the economic developments in the US, China and Russia. I very much believe that if we get positive signals from there – we are talking psychology – it will impact many other economies. That is the reason why so many people were looking at China's development. The big research institutes failed with their forecasts, and just a few months ago nobody believed that the growth figure for China would be as impressive as it currently is. The IMF was looking at around 6% growth and many people were thinking that China would collapse if the growth rate reached around 5-6%. The exact opposite happened.
Were the experts at Roland Berger surprised as well?
We very much believed in China's economic resilience, but I am not sure about the target of 8% economic growth for 2009. I always believed in around 7%, which is sufficient to send a motivational signal. I also believe in the Russian economy, which is supported by the current development of the oil price. Russia is budgeting its oil at USD 40/barrel, which means there is a surplus of about USD 30/barrel at current prices. When I was moderating a panel at the St. Petersburg Global Economic Forum in June, my impression was that there is great willingness to invest at least part of this additional money in infrastructure and equipment. That would help German and European exports a lot, and would also support the V curve. As I said, China is a third precondition for this positive V curve. Based on its current growth, China is certainly contributing to the world's economic development, no doubt about it.
China is increasingly making its green development ambitions clear, Europe has long been a frontrunner in this field, the US seems to have the ambition to catch up quickly after dragging its feet in recent years, and even Russia has announced its intention to invest in renewable energy and green technology. What do you believe will be the impact of the climate negotiations and the ambition level of the different countries when it comes to the geopolitical balance of power? Are you expecting a little shake-up?
It is difficult to answer that, as you can imagine. It is a crucial point because we can only get back to sustainable growth if we find a way to positively combine ecological needs with future growth, especially in the BRIC states. The development of green technology so far has shown that at least in industrialized countries it is possible to gain economic growth potential by combating climate change. The European 20-20-20 target is an ambitious goal, but I think they should try to bring a little more ambition into it. What is really necessary is that European countries speak with one voice at Copenhagen. Regarding the US, there is currently a lot happening following the announcement of big investments in green technology as part of what is called the "green recovery." The US really believes that green technology offers huge growth potential especially for industry and, as I said, for the combination of industry and services. However, my personal view here is that green tech is not all that new in the US. I was always under the impression that the Americans played a very interesting game with George W. Bush as the "bad guy" in the climate change debate. In doing so, this created an umbrella for green tech to build up within American industry. General Electric, for example, has become a real green-tech company, which was very smart, because with George W. Bush in charge no one really saw the American capabilities in green tech. It created some leeway to develop strengths without the danger of expectations, so the US is today stronger than we believe. The stimulus packages in the US and in Europe are also helping by creating a big new market and new competition. Also, China has dedicated a very reasonable amount of its stimulus package to green tech. One reason why governments are willing to spend so much money on green tech is because there is more and more belief that we can combine meeting environmental needs with driving future economic growth. In Germany this discussion goes back to the late 1980s, and looking back it played an important role by preparing our society for these kinds of chances.
Germany has comfortably become a world leader in green technology areas such as wind and solar power, but often the innovator or front runner is not the one who captures the mass market and will be successful in the long term. What has to be done here?
I couldn't agree more. The German industry is very well positioned with double-digit market shares in almost all important areas. But that is also where I see our weaknesses. Our companies are much too small and far too local to really compete on the global scale. If I am right, about 80% of the green-tech companies in Germany have annual sales of less than EUR 20 million. That has been a strength for technology development but is becoming a weakness as these companies are not big and powerful enough and too domestic to tackle foreign markets. The question is how to grow our companies and create at least clusters that are big enough to really compete internationally and exploit the potential of the growing markets in the US or China.
Are these companies handicapped by the German engineering philosophy that drives companies to pursue technological excellence to a level that places their products out of touch with the performance requirements for the mass market? Or do German family-owned businesses simply not have the required mindset for globalization?
I think it is both. It has a lot to do with how we have approached green-tech issues. The strengths of the German green-tech industry are based on the fact that it draws on manufacturing, electronics and services, all three of which are traditionally strong industries in Germany.
We have seen a dispute in industry over whether Germany's long-term ambition to obtain 50% of its energy needs from renewable energy sources, as well as initiatives to reduce CO2 emissions, will negatively affect the competitive strengths of the traditional industries. This was a huge discussion in 2005 and 2006 when these initiatives were getting started. As you know, we work closely with the Ministry of Environment on these kinds of issues, and I remember very well the first presentation I gave about our findings in October 2006. We had the belief that this combination of environmental needs and economic growth could work. I got a lot of responses from traditional industries saying that we were overestimating the potential and endangering our cost positioning. I also got responses from the green side saying that you only get to a better balance by reducing growth, rather than driving it higher. That has changed. I would say today more or less everybody agrees, which is illustrated by the fact that big companies have started to move into green tech. Companies such as Siemens and Bosch have made it their main priority, and also automakers are currently on this path with e-mobility.
E-mobility is an issue that will take a few years before we see an impact, but it offers an opportunity to capitalize on our innovative capabilities.
While Germany is one of the world's technology leaders in wind power, solar power, e-mobility and energy efficiency, China is already the largest manufacturer of solar panels and wind turbines and has set very ambitious targets for electric cars and energy efficiency. How should the German companies capitalize on the complementarities between their technology and experience and China's green development ambitions?
To answer very bluntly, China has the most attractive stimulus package of all BRIC countries, which is a major improvement. I remember discussions five or six years ago about this topic and I did not have the impression that China was willing to tackle these issues. This has changed within the past three years and China is now a huge market for renewable energy and electric cars. At the same time there are still some weaknesses, particularly with regard to the grid. Combining that with the most innovative country on these kinds of issues, which is Germany, would make a lot of sense.
Many German companies have experienced difficulties in conducting business in China. They saw a huge market with huge growth potential, many opportunities and a need for advanced technologies, but they were somewhat naïve in entering the Chinese market and underestimating the country's business culture. As a result, not too many corporations have successfully turned opportunities into profit, which is the reason why some companies are now afraid to move into China. On the other hand, self-confidence regarding our industrial strength in Germany has risen as a result of the crisis. Nowadays many people have personal experience in China. The number of top managers who have traveled to China to get an impression of the country has dramatically increased. The Olympic Games also played a big role because many people visited the country. It was a great event that illustrated that the Chinese are able to produce, create and design. I believe the Olympic Games have changed the way many people see China. I genuinely believe that you need to go not only to China but to each and every country where you want to develop your business. You need to be open to different cultures, and I believe that Europeans can really do that. It is not only the market potential of China but also the country's ambition to play a role in combating climate change and thus help to solve one of the world's biggest problems. That is changing the picture that many people here have of China.
What role can Roland Berger play in enhancing trade, cooperation and technology exchange between Germany and China?
I would say it goes both ways. We are supporting Chinese corporations and institutions in getting to know Germany better. What I was saying regarding the German view of China also applies the other way around. China needs to know more about Germany, the diversity of European culture and the threats that many people see when Chinese companies move to Europe. Five or ten years ago the strategic question for many European corporations was "how to go to China". But the real strategic question is also "how to compete when China comes to Europe". Of course some politicians are threatened by the idea that China is investing great amounts of money in Germany and is trying to take over the country. That is not true. Trade and investment goes in both directions, and we can bring more knowledge about Germany and Europe to China and the other way around. We can bring people together to create a common understanding of culture, business needs and opportunities, and support companies in tackling them. It is difficult to quantify the number of actions that need to be taken. To me, it is more about taking time to really discuss the political differences, bring people together and align their understanding of the structure and nature of the countries. Based on that platform, more business can be developed. A major mistake that many firms made when entering China was not taking enough time to understand how China works.
Do you believe that over the next five years there will be shift in the balance between your activities supporting German companies in China towards assisting Chinese companies entering Germany?
One of our success factors in China goes back five or six years when we decided that we needed to do more work for Chinese clients and domestic institutions simply to get a better understanding of China. From a purely financial point of view it was much more attractive to work for international clients in China than for Chinese corporations, but we saw it as an investment. At first, we have worked around 60% of our time with Chinese clients and around 40% with international clients, nowadays 90% of our work in China is local. We are currently benefitting from this approach because the development of the international consulting business in China is more or less flat, while our domestic business is growing significantly. And, our impression is that we are embedded in Chinese society better than some of our competitors, so our strategy is paying off. It is always difficult to say that one understands a culture inside out, but I would say that we have a good understanding of the Chinese business landscape, and that is why we can support European clients exploring the Chinese market and Chinese clients in Europe as well. We have strong growth ambitions in China. It is always difficult to make a forecast during a crisis, but the ambition is to double our size in China in the coming five years.
The green-tech business offers China the chance to create some of its first global brand names with truly Chinese roots. When these companies want to go global, what would be the main benefit they can gain from working with Roland Berger Strategy Consultants?
The main benefit is working with a consulting firm that is European, knows Europe as well as China and understands how to deal with diversity and turn it into competitive advantagesmany international firms have made and are still making the mistake of approaching Europe as one single market, although it comprises twenty-seven different markets and languages. Chinese companies can expect to get help in exploring the different European markets and creating the right networks. We have a good understanding of the ways in which the competitive advantages of German firms in areas such as research and development, innovation management, high-quality production and project management, which plays an important role especially in the green-tech area, complement China's strengths in medium level technology where economies of scale and cost competitiveness are crucial. Bringing German and Chinese corporations together offers a wide spread of opportunities and could lead to huge synergies. In the past, many Chinese corporations took a good look at the US to adapt the American management model to their needs, but this is changing as a result of the crisis. They are increasingly interested in Europe and the way European companies are organized.
We have learned from the financial and economic crisis that self-confidence, courage, original thinking and really looking at one's own strengths and capabilities are key drivers of success. Shifting the culture to this more optimistic thinking is a big issue in Germany, but given the huge success of China in tackling the crisis, and the future potential of Europe, it makes a lot of sense to bring these two areas as close together as possible. That goes back to one of my favorite quotes by Winston Churchill, who once said: "A pessimist sees a lot of difficulties in every opportunity. An optimist sees an opportunity in every difficulty."
| Company: | Roland Berger Strategy Consultants |
| Position: | CEO |
| Country: | Germany |