Heinrich von Pierer, Siemens AG
Release Date: 2010-06-07
What have you been doing in the last two years?The last activity I had in connection with China was chairing the conference on the Chinese-German dialogue for civil societies a month ago in Berlin; the co-chair was the former mayor of Shanghai. The discussion was on social, commercial and environmental issues specifically looking where we could increase the cooperation between the two countries in the area of environmental protection. I’ve also founded a consulting company that works on topics such as the environment, energy and Asia with a focus on China.
When you look at your curriculum vitae it’s not obvious that you would have such an interest in China yet nevertheless you were chairman of APA for a long period and continue to work with China; where does this interest come from?
It began with the activities of my company; when I took over Siemens in 1991/1992 we had a conference on Asia Pacific activities in Beijing that year. During this solely Siemens conference I found out that our activities were not in line with the foreseeable development of Asia, especially China, so in 1992 we started an Asia-Pacific initiative at Siemens placing China at the centre. We encouraged the politicians to join as well; Helmut Kohl was very interested in China, so I would accompany him on his visits there and with the help of the government we founded the Asia Pacific Committee of German Business very early on; this gave a great push to German companies to take similar steps. Of course, at first it was not so easy to convince people at Siemens as well as other companies to look eastward.
You mentioned the initial conference in Beijing which was an eye-opener to the opportunities that were there; how ready was Siemens to enter China at the time?
We had certain activities already present; I personally had a bit of a disappointment in the late 1980s when we spoke with China about the transfer of nuclear technology and we got very close to a deal with a letter of intent for four nuclear power stations. However, China was afraid to get involved during the financial crisis and had seen the development in Brazil at the time and decided to stop this process after we had spent a lot of money on the project and was already well progressed. We had multiple negotiations and delegations of Chinese industrialists, scientists and politicians visiting Germany visiting almost every week; we enjoyed the discussions very much but nothing came of it in the end. It was at this time that I realised a lot of things were on the horizon, when we started our Asia Pacific initiative in the 1980s we had an office in China of perhaps 10 people located in a hotel: today Siemens has more than 40,000 employees in China. We signed an agreement with the Chinese government that they had never signed with any other company in the world; it was a document that concentrated on the development of cooperation through technology transfer as well as founding joint ventures. Today as I said, the mushroom has grown and now Siemens operates around 80 or more companies in China with a large office building in Beijing starting mainly from scratch.
In general, companies who enter China are concerned about their intellectual property while Chinese government heavily promotes technology transfer; what made you believed that this was the way to go so early on?
Nobody could anticipate the speed of development in China but as a business man you have to be optimistic; there is a big market with ambition and a fanatic will to improve living conditions of the people. Additionally, we had very reliable partners on the other side that would keep their promises and help us overcome the obstacles we faced with our initial operations. In principal it worked very well and we made money right from the beginning; I once gave an interview to the Financial Times where they asked me if Siemens was making money which I affirmed but I played it down because I didn’t think our Chinese partners would be so enthusiastic about our gains. The response was actually quite the opposite; we found some criticism from the Chinese who knew we were doing well and wondered why we were not telling the Western audience about this. For the Chinese, Siemens served as a role model, they supported us in order to attract other German and international companies both in order to receive more foreign investment and show that you could be successful in China. In regard to intellectual property, you have to transfer technology through agreements and of course you could find copies elsewhere but when we told the Chinese government about the issues they would work to find the source of the problem and eliminate it. It was not so significant and issue for us but small and medium sized companies suffered more from this problem. The Asia Pacific committee developed a specific scheme just to help these smaller companies enter the market; it is part of the game in China to enter by establishing local facilities and if you do this you must transfer technologies.
I spoke with Minister Lagarde in France two months ago and she was very proud of the way the French flagship companies such as EDF and Alstom have entered China and taking local companies under their wing; is this something we have seen in Germany?
Christine is a very charming lady, I know her very well. Of course companies here have the support of the German government but of course the support here is different from the support structure in the USA or France. The Chinese have done a good job balancing between the Japanese, French, Germans and Americans never taking only one road; they know how to play the competition. The French also tried to establish an Asia-Pacific committee but I think it is slightly against the French mentality; my conclusion was they were never as successful as our Asia-Pacific initiative in Germany. We run two committees in parallel in Asia, one representing the government and the other industry, and they work together; this same initiative was tried in Africa as well as South America but it has never been as successful as the Asia focus. The markets were open with a fast growing economy while the whole of Asia is interesting as well; Japan, India, Thailand, Singapore, Malaysia or Vietnam, they all presented opportunities. South Korea was slightly more difficult as it was very much dependant on the Americans so we had little chance for main projects in the beginning; there was a strong American military influence as well as a commercial ties. This was different in China where the Americans missed their chance in the beginning; their approach has changed but much later on than it should have.
What companies would you benchmark Siemens international performance against?
Well, Siemens is in many different fields, so you must take this into account; if you look at medical for example you have to look at General Electric, Phillips as well as Toshiba. In power at the beginning ABB was very strong but they had to give up due to problems with the gas turbines, and now they are a strong competitor in transmission distribution; today you have to consider again General Electric as well as Alstom and the Japanese companies. Automation is a very successful activity for Siemens especially in China where it has developed low cost equipment; in this segment you need to consider Rockwell and some strong Japanese competitors too. Communication under Siemens was a completely different world where we competed against Alcatel, Nortel, Lucent and Ericsson. Clearly we had to look at a lot of different competitors especially in regards to business in China because the Chinese want to buy the newest but also proven technology. For example in rail, Siemens ICE is the most modern technology and despite being the best train available it was compared against the proven French TGV; today however the ICE train is the most successful in China.
In the years that Siemens grew significantly in China during the late 1990s and into the 2000s happened to be during the time of Chirac and Schröder; do you think there was a competition at the time between the two presidents for who would sign the most contracts?
Yes I do, there was competition at times with Kohl and his counterparts in other countries and later with Schröder as well. The two of them behaved differently, Kohl was more of a political visionary as far as EU and Asia were concerned he knew the political background and was a very well educated man. Schröder was a very active man that was strong when it came to business understanding and he knows the essentials, he was a very strong supporter for us and he was very well respected. Merkel is more distant, while she understands the necessity of political backing in China but she does not talk as much about business issues rather she brings up some issues that are not to the liking of the Chinese at times. The Americans did a good job with Hillary Clinton’s first foreign visit as Secretary of State by having her go to China not Europe; she spoke only about business and not one word about human rights. This may be a little surprising for a country like the US but here you can see the different attitudes and approaches to entering a country.
The Chinese delegations are in the US now discussing economics and climate change…
This is a little strange because, in my opinion, if you want to talk about renewable technology you have to talk to the Germans; they Americans really don’t know about wind and other technologies. Perhaps that is too strong a term, but it is the Germans who are leading in this field, so naturally you should talk to the best in the industry.
Germany is recognised as the world leader in many renewable technologies but they seem to be out manoeuvred by the Americans at the moment; what’s going wrong for the Germans at the moment?
I wouldn’t say this; on the surface this is a political show, G2 is a strange and unrealistic concept because the Chinese would never do this, they need to balance their relations. You cannot forget the second biggest nation contributing to their economy is their neighbour Japan; moreover, the Chinese see Germany as the leading partner in Europe and previous dialogue between the two has been kept behind closed doors. The Chinese know they can have much more collaboration and openness from the Germans in terms of technology transfer and the creation of local activities. In wind there has been a lot of collaboration and the government made sure to distinguish that German companies producing locally are consider local in the tendering process, however the outcome of the most recent round of contracts does not seem to reinforce this idea. This is why I would like to see Chinese adopt more than the basic WTO rules including additional agreements that run parallel with the organization such as the Human Act. Additionally something needs to be done about the topic of forced technology transfer; right now if you want to gain a contract or job in China you have to transfer technology and in certain cases not only to your own local subsidiary but also to Chinese competitors as well.
We have been getting the impression that business not politics is driving the engine of the economic cooperation between Germany and China at the moment; where do you feel the push has been coming from?
It is absolutely driven by business but this is part of the German system which is very different than the French for example; if you talk to Christine Lagarde she feels a much bigger responsibility to help industry than say her German counterpart zu Guttenberg. With the elections coming up in September zu Guttenberg wanted to travel in July to China but he didn’t end up leaving for two reasons: the problems with Opel as well as other companies and the conflict with the G20 L’Aquila Summit.
Earlier you mentioned competition between European countries for big contracts; at that time it was important to come back with billions in contracts and if it was 15 for Chirac and only 12 for Schröder it was considered a defeat. If you looked at these contracts however you would notice they were a lot of hot air; the contents were letters of intent for projects that were never realised or conducted on a much smaller scale. The Chinese began to get fed up with the squabbling over contract numbers so they finally put an end to it and we supported this because it was misleading; the government will sign a contract today but it has nowhere near the visibility in the headlines of the press as it used to. The strength of German companies is their ability to move separately from the government; of course in China you need general political backing and it would not make sense to ignore this. For example if the Chinese by and ICE train it is because of the technology, with or without the support of the German government.
Many of the people we have spoken with here in Germany are rightly proud of their technology; do you believe this over-reliance and overconfidence in engineering competence is also the biggest risk for Germany?
One has to avoid over-engineering and making things too sophisticated which are only applicable for a small segment of the market. For example, in the medical field you can continue to improve the performance of an MRI scan with better pictures, but what I proposed to Wen Jiabao with the help of Mr. Schröder was completely different; I suggested building a system of local hospitals for the towns. While they would not be at the same technological sophistication level as hospitals in Shanghai or Beijing, these locations would provide for local s helping them both from a social perspective as well as in general health of the rural populations. In this instance you would not have MRI’s manufactured in Germany but instead locally in China because you can never get engineers who are used to thinking at a higher level and therefore used to constant improvement, to suddenly work at a lower level. I believe today the Chinese are following a similar plan, hopefully with the help of Siemens. In a country like China where you have hundreds of applications, over-engineering is a real risk, so you need to be sure you are producing low-cost products in the region. Germany is a leader in the area of technological innovation, and with the advent or renewable energy and green technologies, Germany has become a leading nation again in areas outside of traditional activities, which I think is a great success. If you try to understand the interest of the Chinese you notice that their political focus must firstly be on the United States because it is the only remaining superpower and they have to be on equal terms. Secondly they have to focus on their neighbour Japan, which has a very strong technological base and is tightly interconnected as they have brought a lot of manufacturing facilities to China. While the economics are closely related, politically there can be difficulty sometimes because the Chinese remember previous conflicts and atrocities. Next the Chinese have to consider Russia as their biggest neighbour and of course there are always possibilities for tensions; this evaluation excludes the smaller headaches such as North Korea. After these considerations you can ask what is the role of the Chinese in Europe and within this how Germany plays a part. Sometimes the German view is a bit too central; people think we are the middle of the world. Yet the Chinese are the ‘kingdom of metal’, almost everything is being built there. So what role can Germany play as a middle power in all of this? The government behaves well and the key elements of foreign policy are easy to grasp: Unilateral, French-German Alliance, America and Israel. What of this is interesting for the Chinese? We are a well behaved middle power that has always supported a Chinese policy, which is a normal reaction to Chinese support of one Germany policy; this means relations are very good, the dialogue is now open so topics like human rights can be brought up. Yet the main thing the Chinese are interested in is German technology, and the strength in the medical, industrial, chemical and power sectors which requires the presence of players such as Siemens, BASF, Bayer as well as the automotive industry. Moreover, there are middle-sized companies filling out the market, many of which are ‘hidden champions’, which have more than a 50% market-share in their industry and nobody knows it. Companies such as Mennekes, Trumpf, and Wurth represent the strength of Germany and provide the backbone of industry, but they are prudent in the case of their know-how and they don’t give away their key technology. The problem now is how to defend this position of high-technology from generation to generation; your advantage may disappear in 5 or 10 years. A generation ago companies like ThyssenKrupp and Bayer had technological advantages that lasted 40 years, yet today you can lose your lead in two or three years. One challenge for everyone right now is the Chinese Technology Initiative run by Wan Gang with goals in many different sectors and I have no doubts that they will be successful.
A large part of Germany’s success is directly related to the German obsession with perfection in technology; is this characteristic now a threat as it prevents companies from entering the mass market?
There is always a danger that Germany companies will continue to improve their technology and simultaneously reduce the size of the market segment for their product. This can be seen in hospital and automation equipment; there is always a market for highly sophisticated tools for German companies to serve, but they must not forget there is a mass market as well. The German people are not stupid either, in my time as CEO this has always been recognised as an issue; we know there is a mass market but we have to consider how we engineer products for it.
You have the obsession to improve technology forever in Germany while the Chinese are very good at low-cost commercialized operations; why not take advantage of these characteristics?
I would say this is exactly what is going on right now; the Germans are undoubtedly the most successful companies in China. Look at Volkswagen for instance who originally made mistakes in China: they introduced a car model they thought could be used anywhere in the world. I was on the board at the time and I too had to learn that the Chinese do not want 2-door cars but 4-door models instead. We learned this was because the grandmother was financing the vehicle and she wanted to be able to accompany her grandchildren: you must learn to adapt and redesign your platform for Chinese preferences. For years Volkswagen only had one model in China but when competitors entered with new designs they lost a considerable amount of market share and realised that offering variety may be worthwhile. Today, Volkswagen’s market share is rising again and they are now selling more cars in China than in Germany because they have understood their lessons. The same lessons happened at Siemens when we tried to bring our instrumentation controls for machine tools to China whose industry was not as sophisticated as it is in Germany. We found we had to make a low-cost offering while developing and manufacturing it in China and if possible supply some key components from Germany. I have been asked many times if the development in China is destroying the German economy, especially the job market which is simply not the case. The containers of parts we send to China would not be possible without our manufacturing operations located there; as a rule of thumb for every four jobs in China you create or protect one job in Germany. You can only protect industry by maintaining a leading edge in technology which is why programs for innovation are so important here in Germany. If you look at the current economic situation of course companies are focused on cost reduction: if you need to survive you concentrate on food. Yet moving forward focusing on this aspect alone would be a big mistake; you need a mid to long-term view as there will be a time after the crisis where the most important thing will be your edge in technology. Therefore you can reduce everything but your costs for research and development: to do this would be like a farmer who eats his seeds.
This has been an area where Siemens has done very well and of course while they were hit by the crisis they are benefiting from many recovery packages.
Yes, Siemens has been benefiting from its leading position in technologies. You mentioned German attitudes, there was a German politician named Mr Lafontaine who said, “With the positive secondary attitudes of Germans you could also run a concentration camp.” These qualities are also exactly what the Chinese and Asian partners like and will sometimes pay more for; reliability, punctuality, consciousness of quality and commitment.
What is the role APA plays today in the relationship?
You should ask this question to Mr. Hambrecht. When we started the association it was completely new and separate from the government’s initiative in the Asia-Pacific region and has changed over time. Mrs. Merkel has a lot of domestic issues and she never has played the role of a salesman which is different from Mr. Schröder; currently I cannot see a revival of the Asia-Pacific Initiative from the government. In the beginning there was strong recognition by CEOs in APA as well as BDI, which was amazing, but the original goals of the initiative have been achieved so it does not make sense to have the CEOs meet together and raise awareness if there are members of their board taking care of the organization. The organisation is now up and running so it is simply different than when it started; Mr. Hambrecht is doing things in his own way, of course, and he is having his own successes.
APA may be routine for a lot of the companies who started it but for new companies entering China now wouldn’t it be the exact same sensation as the start of the organisation?
Yes but there are organisations and an infrastructure that help them, which is different because before it was all completely new.
It seems that in the beginning it was somewhat of an elite club of companies here in Germany to help one another enter China; is it now really accessible to any company here in the country?
It was never an initiative of the big companies; I always disagreed with that and I believe a lot of small and medium sized companies participated. Yet you always have to give signals from above in big companies so that it is clear what should be done; in smaller companies the message is more obvious yet the risk is higher and the resources to enter every market don’t always exist at the same time. When I advise small to medium size companies on China I ask whether there are other markets they are yet to examine, such as the Czech Republic or Slovakia; if you’re looking to make a production facility is it really worth moving to China for a mere 10% cost advantage? China is a completely different environment, whereas you could drive over the border every week if you wanted to see how things were operating in the Czech Republic.
Companies that are involved in green technologies and renewable energy have only seen China become an interesting location in the past few years. Today there are a few big companies there, and the rest looking for a way in. When considering the DCW, it’s a nice initiative to bring small and medium sized companies to China but they cannot help anyone because they do not have the connections in China. Does it take the backing of someone like BDI to make an impact?
China is fragmented; BDI has always backed APA and Mr. Freidolin Strack is a very good man running it now while Mr. Keitel from Hochtief is the President. You’ll notice however that Hochtief has not gone to China at al because the civil construction companies are very strong there, so there has been little value added in China for them. There are no large construction companies there to my knowledge, but this is because there is little they can add to the current market; you have to use local workers and Chinese engineers are proficient in these projects.
APA has changed from the days you had to convince people about China; I was lucky because I already had a failed project there in the 1980s. Back then all Chinese statesmen, who came to Germany more regularly than now, would all visit Siemens whilst in Munich. I had an excellent evening with Li Peng as well Jiang Zemin in a biergarten with beautiful weather and a typical Bavarian thunderstorm at the end of the night which they still remember. Normally there is distance in encounters with the Chinese but at that time it was clear they loved to eat, drink and listen to music; Madame Wei and I became friends as a result of that evening. However, that was a different time; things are much more business-like today, and that goes for other regions as well.
Who are the people who first explained to you how to do business with the Chinese?
I had to learn it myself in the learning-by-doing format.
What are the sectors in which Germany can be the most successful in China in the coming years?
Green technologies, efficiency and power generation will all be focuses, as well as clean coal technology which the Chinese are very interested in. First you have to prove which technologies will be most successful in the long-term as there are different ways to go about it. There are ambitions in solar but it is not so easy; to enter the market with proven silicon technology does not make sense as there are more technological advancements to come.
What will be the Germany in the upcoming COP 15 negotiations?
I think Germany will try to play a leading role because Mrs. Merkel is convinced of the 2 degree target and she understands it well since she was Minister for the Environment, which is where I got to know her. Of course now with the election she will push to be a big voice at the conference as green energy is popular here in Germany.
The whole debate on combating global warming is always taken from a cost perspective and some say stopping the change is going to cost 1% of global GDP; is this not a large business opportunity for 1% of the world’s expenditures?
If you look at companies like GE, Siemens and ABB who have long been involved in power, this is a big chance, and if you read press releases you see these companies detailing their opportunities and participation in projects. If you look at the green initiatives of companies such as GE’s ‘ecomagination’ program they are a great way to change the image of the company, however they did not add a single new product. This would not have gone well for Siemens here in Germany due to our activity in nuclear power which is not seen as green; the whole credibility of the initiative would have been called into question. This also became a question of definition, since any product that improved consumption in some way is a green product now, even if it is in traditional power production. As an initiative however it was a very good campaign and has interested the public and received positive response.
You have to be careful with a wider definition of green technologies and their application. For example, if you evaluate Siemens’ three main sectors you see that green innovations are difficult in the medical field but easy in power; this does not mean you stop research and development in medicine. In industry you can define products where you reduce energy consumption as green but do you invest more in this sector as a result? I don’t think so. If you’re not in the field of solar people expect you to do something and it raises expectations.
If you were running Siemens again where would be your top three investment priorities?
There are still some weak parts in the portfolio; but I am too much of an outsider now to say for sure. In the existing portfolio I would definitely focus on medical and in growth areas of green technologies. For example we bought Bonus when I was there; it was clear then that single projects were no longer on the agenda and instead larger wind parks would become the focus.
| Company: | Siemens AG |
| Position: | Former head |
| Country: | Germany |