Christian Schmid, Gebr. Schmid
Release Date: 2009-12-21
Your company is a perfect example of a shift from traditional industries to green industries. Why did Gebr. Schmid enter the solar industry, and which role has China come to play since you entered this industry eight years ago?The decision to enter the photovoltaic industry was based on a benchmark study of the key knowhow available in our company at the time. We found that photovoltaic panels presented a great opportunity to use a lot of our technology and gave us the opportunity to support the development of photovoltaic industry from typical niche products and laboratory-like factories to mass production. Gebr. Schmid entered the photovoltaic industry in 2001, so right at the time when this industry really developed into a proper industry. Since approximately 1998, China is one of our major markets. Our company has moved some of its production facilities in the country and even considers China as a “home market”. We are very happy to see the strong development of the local Chinese solar market and the development of the green industries in the country.
Globalization, the financial crisis and competition from China have changed the dynamics in the industry, and many German companies are transferring solar panel production to Asia. Has this impacted your business model and approach to the market?
It is not the first time that we see this development. The electronic industry shifted production from USA and Europe to China in the years 2000-2001. We see the photovoltaic business in general as a global business, with growth areas in China, India, the USA and it is clear that we have to work hard to make sure that European manufacturers do not lose in this game. Basically, this competition between countries and regions is a normal trend for us, and we are wherever our customers want us to be. We do not doubt that we have to adapt to the situation, and have already done it ten years ago in the electronic industry so it isn’t a new phenomenon that Gebr. Schmid has to face. More than 60% of our employees are located in Asia; we produce in China, Taiwan, Japan and USA. So for us it is not different to do business in China or Europe, we are used to it and can handle it. We don’t feel like other companies who can’t talk to their customers any more.
You entered this industry based on a match between your competences and those needed in the photovoltaic industry. Which role has Gebr. Schmid since then played in the innovation process?
At the moment we are technology leaders in silicon based technologies. We are not concentrated on thin-film, we are concentrated on wafer based technology. Gebr. Schmid invests the highest amount of R&D among companies active in this business. Over the past 3 years, our company invested around €80 millions in R&D only, ranging from basic research for new cell concepts for our customers worldwide to bringing this new cell technology into mass production.
Solar panel manufacturers’ development strategies are based on the continuous improvement of cell efficiency and cost competitiveness while adjusting their business strategy to address the rapid globalization of their industry. What do you expect to be the dominant industry trends?
We foresee developments in two different directions: technological advancement towards grid parity and vertical integration. Everybody in the photovoltaic industry is moving towards grid parity. To achieve this one can reduce manufacturing costs by lowering capital expenditure; reducing the amount of consumables used in the final product or using different materials, upgrading the yield by minimizing breakage, or going in the direction of higher efficiency. On the other hand there is the vertical integration concept. This means that companies are involved in activities ranging from silicon production and cooler-wafer production to cell and module production with the objective of taking advantage of the synergy effects between these different activities. That means that companies could produce high efficiency cells by already influencing the silicon produced at the beginning.
In the end, as an equipment manufacturer you have to optimize everything to minimize production costs. From a production perspective China is one of our major hubs. In this market we are not only facing local Chinese competition but are also competing with companies from Taiwan and Japan over the past 10-15 years. The combination of our technological strength in Germany and production facilities in China enables us to offer price competitive products based on high technology. Overall, we can offer to our customers quite nice packaged deals.
Since you can provide state of the art technology and production systems, do your customers only need to bring a good dose of ambition and a bag full of money to be successful?
Obviously money is always important in a business where growth is a crucial factor to compete and become one of the leaders in the game. However, I would say that one of the most important criteria is industrial production know-how. As turnkey suppliers, we can provide our customers with up to 90% performance and the last 10% will come from the fine tuning of the production lines, qualification of the employees, and will be related to their management style and business strategy.
The vast majority of the €80 million investment in R&D was spent on research taking place in Germany. Are you planning to increase R&D activities in other locations, such as China?
We have centralized our R&D infrastructure in Germany, which is complemented by local R&D in coordination with our customers. We cannot duplicate every R&D process worldwide, but we invite our customers to Germany to work with our interdisciplinary teams on the development of their products. So far this process has been working pretty well.
Many Chinese solar panel manufacturers have global ambitions. What is the contribution that Gebr. Schmid can make to their international success?
Most of the Chinese players are already following the right track to become global players, and they do not need our help to establish their name in the world. What we can do to help them is setting up a high quality manufacturing environment, support them on the development of new technology, and upgrade their facilities, but of course we are not responsible for their marketing in china.
We are having more discussions with international companies that fear Chinese manufactures rather than with Chinese companies that have problems becoming competitive in today’s environment. The situation has already changed in the photovoltaic industry and China will dominate this market. Of course, Gebr. Schmid can help Chinese manufacturers to grow faster, reduce their costs further, and raise their quality level. But I repeat, China is on a pretty good track already.
In the light of your high R&D investment, what is your position on making your intellectual property available in the Chinese market?
We are very active on the IP side and applied for 120 patents in the last 3 years. We have a global IP philosophy and have obviously been very active in China, where we applied for a lot of patents. The situation used to be “forget about applying for patents in China”, but this situation has completely changed today. Indeed, most of our customers are listed companies that have to care about IP issues; otherwise they would face problems on the stock market. As a result, we are feeling comfortable in China on the IP side. Of course, we always have to be faster than our local competitors in the development of new technologies. One of the strengths of Germany is its high innovation potential. We have to produce these innovations at a reasonable price level, which we manage to do by manufacturing at both our German and local Asian facilities. By supplying the latest technology, at a high quality level and with a reasonable price, Gebr. Schmid makes it quite difficult for the competition to follow. Moreover this market requires a high level of basic knowledge for new entrants, and is therefore quite difficult to penetrate.
What has surprised you the most since you entered the photovoltaic industry a decade ago?
We never expected the solar business to grow so fast. Every year we forecast the growth rate for the year to come, and every forecast we made has been too low. Over the past ten years we grew from a company with 250 employees into a group employing 1800 people today. On a global scale there are not many industries where you can find such a growth rate.
What have been the main challenges to keep up with this rapid growth and the expansion and internationalization of your organization over the past decade?
The most important change was the transformation from being a regional German company to a global group of companies, which meant integrating different philosophies and people. We are a typical family owned company and want to keep this spirit even though we are now much bigger. We have no interest in becoming listed, and the future of Gebr. Schmid will be family owned. As the CEO of a family owned company, I don’t have to think before talking to someone and issue a press release after every decision. It is especially helpful to have such flexibility in an industry that changes as fast as the photovoltaic industry.
Gebr. Schmid is almost 150 years old and has undergone tremendous change since it was founded. What could be identified as Gebr. Schmid’s core philosophy that remained the same over this long period?
In the past 145 years a lot of changes have taken place; we have moved from the wood business to the steel industry and then entered the electronics business. Nevertheless, we still take our decisions in a family-like way of thinking. We take our decisions depending on the long term strategy, and follow our vision even though it may not be the most profitable solution in the short term. Gebr. Schmid treats all the members of the group as family members. This was very unusual for our Chinese and Taiwanese organizations and factories. It was quite a challenge to adopt all these new family members in Asia, but it has been a real success. Success is always based on people; the company can arrange a structure, an environment, a network but each and everyone has to be motivated to be better than the competition.
What are the advantages that being a family owned business has given you in China?
Indeed in China it was an advantage to be a family owned company, but I would say that our main advantage is being more flexible. If one wants to be successful in Asia, many adjustments to the local situation are required and for a family owned company these adjustments are much easier to make. Had we been a listed company, we would have had to think about the possible reactions on the stock market before taking any decision.
What does it take to become a global company?
Basically we are already a global company. We own production facilities in all major markets that are the USA, China, Taiwan, and Japan. We can handle the global demand, as long as Africa does not become a huge market. We are very well positioned in the USA, Asia and Europe, and reached our expectations there. We also reached a size where we can support enough R&D activity, since the challenges coming up now are eating resources in R&D. We will need resources and possibility, and we have prepared the company quite well for that, and this will enable us to be competitive in this market.
You stated that you have always underestimated the development of the photovoltaic industry in the past. What will the industry look like in five years from now? Should we talk about grid parity in 5 years?
We expect photovoltaic to be one of the leading technologies for power, since it is one of the only sources of renewable energy that is really unlimited and available in everyplace in the world. I think we already have grid parity in some places. In the Southern parts of Europe, grid parity could be reached in approximately three years. Nobody believed how fast costs of photovoltaic could go down, and we learnt in the past years that what seemed to be impossible is possible; the entire industry is learning how to adjust to these new parameters. We are looking at a nearly unlimited market for the future. By looking at the role that photovoltaic can play in the global energy market, we can reasonably assume that capacities will grow by 40% to 50% in the next 1 to 2 years.
The potential is there, but the general public does not have any idea of what is going on in the R&D side. The steps taken in the last 12 to 18 months in terms of cell efficiency and production concepts will enable manufacturers to produce with higher yields and lower costs. These developments are now ready to go onto the market. The market situation is, of course, driving our technology development. In the last 3 years, one of the main concerns of our customers was to increase production capacity. Today we are in a situation where 30-40% of the companies in this business will disappear. These are the companies that are not competitive, do not have the right technology and do not invest in R&D continuously. The successful ones will grow, and we will see new players moving in the market, since this sector will be even more in competition with traditional energy sources. In 3-5 years the solar industry will definitely compete with traditional energy sources and power plants.
China has identified the potential of this technology started to invest in the domestic application of photovoltaic capacity. What is the role that photovoltaic could play in the development of China’s energy mix?
Photovoltaic is the perfect solution for China. When travelling in the country, one sees that China wants to enhance the quality of life of its people, enhance longevity, and create better air quality. Upgrading China’s energy mix will enhance the quality of life in the country. China now has a strong local photovoltaic industry and has everything to become successful in this industry. China has the whole value chain from silicon to wafers and modules, and only has to create a strong local market. There is a chance for a new energy revolution. Green energy will always be a mix of different energy sources including wind, photovoltaic, and biomass even though it is always delicate to balance between the need for food and the need for energy. Photovoltaic is the most flexible in terms of application, being easy to install on roofs or wherever, and not linked to any specific location. Therefore we are confident China will understand the opportunity. We also see the same development trends in India where an important part of the new electrification of the country will be based on photovoltaic.
| Company: | Gebr. Schmid |
| Position: | CEO and President |
| Country: | Germany |