Sherif El-Henaoui , MOOG
Release Date: 2010-01-07
Sherif El-Henaoui, Marketing Manager Europe of MOOG, was interviewed by GreenTechFocus to discuss the main highlights of 2009, the way that the difference of the Chinese and European markets affects MOOG's operations and, finally, the general prospects of MOOG on the wind turbine market.2009 has been a good year for MOOG despite the economical context. What have been the main highlights of the past year?
The main highlight of 2009 was definitely the completion and integration of two acquisitions into MOOG's business, which also required the integration of the activities at our different sites in Germany and China. We leveraged complementary skills in our different businesses that could help our company to approach certain challenges in the wind business in a more holistic way. Instead of having different companies trying to optimize the sales of one component with the highest penetration possible, we now combine skills and integrate solutions. Through this process we have highlighted dependencies and we are now more competitive and offer more complete solutions to our customers. We have certainly understood the potential of going into the system solutions businesses, and not only remain a supplier of components.
A second important step that was taken in 2009 has happened at the industry level. The fact that the business didn’t grow at the same pace it did in the last 2 years gave MOOG – and other companies in the industry – the time to take a deep breath, to stop and think. It has given us the opportunity to make this business more stable. For us as supplier to turbine manufacturers who then sell their turbines to park developer, it is important to make sure that our superior technology is appreciated by the end user. In the past this market was a supplier’s market: suppliers were basically controlling the market and it was difficult to win by performance. Market success was more based on operational excellence than technological superiority. This situation is now changing, and we are now seeing more balance between buyers and suppliers in the industry. Buyers will now have more time to think about what they want. All the big utilities such as E.on and RWE will be able to plan and assess properly which technology they need, and will have a higher negotiation power when facing their suppliers. The other remarkable event in 2009 was the installation of the first “real” offshore parks. This allows us to believe that it is a credible value proposition. Offshore parks are still more expensive and more difficult to develop than other parks, but they are coming. Obviously they will become more competitive when we will realize economies of scale, but they are a good solution in places where there is no onshore land available, like Denmark or the UK.
You highlighted the advantages of offering system solutions following MOOG's recent acquisitions. Do these advantages also extend into integrated R&D activities?
We do not try to integrate our R&D activities or put everything together in one place. MOOG wants to bundle the existing capabilities to solve the challenging problems of its customers. For example, we talk about the Individual Pitch Control (IPC), which in essence is trying to optimize the inclination angle of the blades to either be more efficient or reduce the load on the structure of the tower and therefore achieve a longer lifetime. You can even think of being safer in stormy weather by “turning off” the turbine. MOOG’s R&D efforts are concentrated on this triangle of efficiency, safety, and longer lifetime of the turbine, and we have the right elements to succeed. The question is now to find the right partners who are ready to develop the next generation of wind turbine. Today, manufacturers are concentrating a lot of effort on their supply chain; they want to produce fast and deliver rapidly to make sure that their Chinese customers will accept their turbines. The next trend will be when people will think about next generation turbines, we are here talking about 112-120 meter diameter wind turbines for which Moog’s technology is relevant.
Some manufacturers traditionally develop every sub-system themselves. It has been a critical success factor for the Danish wind turbine manufacturers at the time. However we have reached a level where manufacturers should concentrate on their core competencies and trust components providers. To make an analogy, I could take the example of the automotive industry: breaks are critical for a car. When the automotive industry started every car manufacturer used to design and manufacture its own breaks, however no car manufacturer today makes the breaks in-house. In the same way, Moog ‘s product do not represent more than 2-3% of the cost of the total wind turbine, which isn’t much, and therefore we expect that as manufacturers mature they will rely more on specialized companies like Moog. We believe that because of the little volume of supply that our technologies represent for the whole turbine there is no real reason for manufacturers to in-source these components. Obviously the pitch system has a critical function and protects the installation and no company can afford this system to fail as it would immediately create bad publicity.
The European market is very different from the Chinese market, where the average turbine size of new installations is smaller than in Europe. How do these differences influence the way in which Moog operates?
The size of the wind turbine does not result from advancements in technologies, but comes from real geographical needs. Offshore turbines can be bigger, since there are no real constraints in terms of noise for example. Basically there is a shortage of space in Europe and we will see more repowering since the installed ones are not state-of-the-art anymore. To come back to China, the country has a good potential to jump several development steps since there is no need to go through all the turbine sizes before getting the bigger ones. I don’t think that China will wait for years to close the gap and use 5MW turbines, the country already thinks about that now. Moog tries to use developments made in one market in their markets, and we do not use different designs in China and Europe. We cannot afford to be less strict, even though costs targets are different. Since volumes are much higher in China the lower cost target are achievable through measures as local sourcing. And this is the only difference between the Chinese and European market: the need for local content in China. Moog has learnt slowly but surely that in order to do business in China one has to play it the Chinese way. This means as we entered the market with our “European” designs, we were in contact with local suppliers and started looking for alternatives for certain components to meet the local content requirement [without affecting the quality]. Moog looks for the components that will make a real difference in the performance of the turbine, and won’t make any compromises on that side!
What are your perspectives on MOOG’s Chinese competition?
There are always two kinds of competition. Chinese competitors who use the advantages of local sourcing to develop a competitive product create a healthy competitive environment for us. The other type of competition resembles reverse engineering. A customer buys a MOOG product not only because of its functionalities; it is also linked to our brand name and the cooperative partnership between supplier and wind turbine manufacturer. Indeed MOOG does not only supply the components, but also supports its customers a cooperative partner. For example we go offshore and fix errors if they occur, and customers prefer to have cooperative partners over saving about 5-10% on the acquisition costs. Our competitors are also increasing their quality levels, but we believe that our 10,000-15,000 systems installed, our reputation and our continuous technological progress are placing us ahead of the competition. There is no need to push competitors out of the market if we address the needs of this very demanding market. We think our pitch control systems truly answer the needs of the market because again there is a natural call for more safety, efficiency and extended lifetime of the turbine.
What have you identified as the main growth opportunities in China? Are you planning to gain market share from competitors or grow in parallel with the market growth?
It will be a combination of both. First of all, MOOG’s growth will come from a combination between market growth and the scope of supply. We have the advantage of offering more elements that are used in pitch systems than many of our competitors. Our clients see the advantage of having a stable supplier that can cover not only one but several components. However when manufacturers are getting bigger, they tend to diversify their supplier base. It is part of the game not only in China but in any market. Therefore the idea is not to get the customer to choose our product, but to have a different value proposition based on which we can gain market share over our competitors. If our customers lose market share, we won’t be able to do much to increase our share. Obviously, the solution is to choose the right customers, which in China are the local players. But which one to choose? Sinovel was not a market leader two or three years ago, and now it is. One could argue that these companies are state owned, so in the end of the day there is no real competition or leadership. Nevertheless the market knows better, and if market leadership is not only by market share.
MOOG has supplied most of the Top 10 wind turbine manufacturers in China, by using different designs and generation of designs. To summarize, growth cannot simply be quantified by market share or absolute value, Moog wants to be recognized as the leader in pitch systems and any associated technologies. If that means our company –only- grows with the market, we are fine with it! But we believe it allows to grow beyond market growth.
Where do your wind activities fit in your overall portfolio of activities in China, and what growth areas do you foresee in the coming years beyond the wind industry?
China is one of the largest markets for MOOG’s steel business. Our company provides components for steel mills and rolling mills, and typically either sells its systems through European customers or through the aftermarket channel since we do all the repair work for European-standard, state-of-the art facilities in China. Power generation is also an important industry for us in China, where Japanese and Western players (GE, Mitsubishi, etc) use our equipment in their turbines that get installed in China and we offer local support, hence reducing their O&M cost and idle time. This does not mean MOOG limits its contribution in China to the aftermarket. The last business area is aircraft and aviation, which does not fall under the industrial division [which I cover] and is very important for MOOG. There is currently a huge effort for a Chinese aircraft where MOOG is engaged. These are not short term businesses. No one can work in infrastructure and machinery in China by thinking short term; otherwise they should work in trading and not in value-adding industrial manufacturing!
How does it feel to be a German-Egyptian, working for a US company that does a lot of its business in China?
It feels international! I do not consider my company American, and consider myself European or Mediterranian. I see Moog as an international company more than a Chinese or American company. I truly believe that a company has to follow business opportunities wherever they are, and China today provides security for design. Let’s take the example of the magnetic train. When Germany wants to develop a high speed train connection, this started endless debates in Germany on how feasible the project is. For companies like Siemens or ThyssenKrupp that develop these projects and who did have the technology ready, it meant that there is no real stability to make proper roll out possible. They can’t plan until the last minute whether they will have to hire hundreds of engineers or not. In China, once the decision is taken to go ahead, it will happen – as it did for the magnetic train in Shanghai. How it will be done and how fast is another question, but there won’t be any doubt on whether or not the project will happen. For companies with engineering challenges, it is important to focus on how to do things rather than to also deal with the uncertainty of the realization of a project. In any market where we are present, such as the wind industry, we want to provide our customers with technology that contributes to their success and not to spend effort in debates about if or not – this is our mentality and this is my mentality.
How long will it take before MOOG’s pitch control system comes back to Europe inside a Sinovel wind turbine?
I think it is already the case in the US to have Chinese turbines in planning. For Europe, there might be a difference between Western and Eastern Europe. It will also depend on the prices in the oil industry and on the political game. However I think it will be a matter of two to three years, and will not take as much time as for example in the automotive industry where it took decades.
The biggest political game is going on right now in Copenhagen. What would and agreement there mean for MOOG’s business?
Continuity and stability! If you look back at previous agreements such as Kyoto, you can be assured that after COP15 the situation will not be worse than it was before the summit. Based on the European, Chinese and American legislations and regulations that are in place in the wind sector, I believe that there will be enough work for MOOG. However, I do not think that COP15 will have a revolutionary outcome and that everyone will rush towards solar after the summit for example. The industry in general has learned in the past not to get too excited thing like the 20/20/20 target, but rather focus on its work and on how to enhance their business on a smaller scale. I hope and expect that organizations and associations will push for more professionalization of the industry. We have to stop self-congratulation or self-celebration. Of course, it is important to feel confident about our industry, but we should only use our achievements to get to the next level, whereas today it is not leading us anywhere. To come back to the question, COP15 will give a good signal for continuity in the business, but I would not expect too much concrete action after the summit.
MOOG wants to be a world leader in pitch control system for the wind industry. What is your strategic priority in order to achieve that goal?
MOOG wants to demonstrate to wind turbine manufacturers that we are the right partner from design to aftermarket. We would like our customers and potential customers to understand which skills they can rely on. Our company has been around for over 50 years and plans to remain in the business for at least the next 50 years, so beyond the lifetime of a wind turbine.
China also want to be the number one in green industries, where do you see complementarities between Moog’s ambitions and China’s ambition?
It is a tough question, and we cannot compare MOOG to China. We are there to help Chinese companies to become number one if they are capable enough. We do not have the ambition to shape Chinese companies into something else, and if they have the right people, the right capacities and the right tactics to become world leaders then we will support them. Moreover, I do not think that any Chinese company can become a global leader by remaining entirely Chinese; it is about becoming truly global. In the end the main theme is energy security. Oil is disappearing and we have to use the best technology to make energy available to all of us in China, India, Africa or wherever else. The most important message is that we have to focus on making this industry successful. Business is a common language than many people understand, and we want to speak that language with our partners in China!
| Company: | MOOG |
| Position: | European Marketing Manager, Moog Industrial |
| Country: | United States of America |