Jurg Oleas, German Energy Agency
Release Date: 2010-12-03
In the 5 years when you have been in GEA, you sold 20 companies, acquired 30 and started to focus on energy and food, hence bringing a lot of changes. What is the philosophy and vision that you have brought to the company over the past 5 years?We want to become a truly global company. This means that even though our company is managed from Bochum (Germany) we want to be present in the markets with the biggest potential for market growth like Brazil, Russia or China. We are also focussing the company to become one of the main suppliers for delicate food processing, which represents 50% of our business, and energy processing that represents approximately 25-27% of our business. Of course we are also present in areas such as marine, petrochemicals, chemicals etc. But these are minor activities for GEA Group. We believe in the fast growing regions of this world, including Vietnam, Thailand etc, since from the moment where a country has an access to wealth, and there is an inflow of money, food and energy are the first resources needed to build further growth. We want to be part of this growth and want to provide these rising economies with efficient solutions.
As you mentioned GEA wants to become truly international, and every time the company enters a new market, it has to create a different value proposition and compete with the local players. What is GEA’s added value in these markets where the group tries to develop its activities?
Technology. GEA’s backbone is a culture of innovation, which is a premium to survive in the long term, a driver for growth in these new markets and a way to climb to the top there. However we often enter new markets by following our customers. For example we enter Laos since one of our customers built an instant coffee plant in the country. We would not have chosen this country for our expansion strategy as demand there was too small and we would have to wait for many years before the local business really develops to a level that is satisfying for us, but our customer was satisfied with GEA’s services, and therefore pulled the group with him when he got this order. It is the traditional way new markets are developed especially in the food industry where customers build baby food or milk powder plants and pull GEA with them. Then our group establishes a strong presence in the country and develops its business locally in the different areas.
Your business, engineering solutions, is about increasing efficiency and optimizing processes. With the financial and economic crisis, we can imagine that your customers have changed their behaviours compared to two years ago. How has it impacted the way you do your business over the past 18 months?
To start with, we have to look at the notion of efficiency. Indeed many people believe the key to more efficiency relies in energy consumption, heat consumption et cetera, and of course we provide our customers with solutions to increase their energy efficiency. But efficiency does not only come from energy, and it has a lot to do with water, especially in the food business. For example in the soft drink industry, to fill a pet bottle with orange juice, this bottle has to be cleaned and be bacteria-free beforehand. For each litter of orange juice, this process will use 20L of clean water, which is a waste of resource. Last September, during Drinktec (World Fair for Beverages and Liquid Food Technology) GEA presented for the first time a new filling line that does not require any water to clean the bottle, and the blowing & filling is done is a aseptic room which provides a very efficient and effective solution for our clients. GEA will be offering this solution to its customers from 2010 on. Clearly we knew it would give us a tremendous advantage and we have made sure we would make this solution work.
When you present such solutions to your client, where is, in their reaction, the balance between their concerns on cutting costs and their will to be green?
I think that it is still the first option that prevails. But they are aware that both go hand in hand. Wastewater is an important issue obviously because it damages the environment, but also because it will become more and more expensive. The majority of our customers still look at our solutions from an economic point of view, but they are fully aware that food processes of the future have to be organised by taking into consideration the environment. Another factor to take into account is the changing socio-political environment, with the creation of new taxes. For example many European countries have imposed new taxes and provide green passes for buildings; there is no obligation to build greener, but taxation is changing depending on whether buildings have a green energy pass or not. To help our customers face this change, we provide them with heating, ventilation and cooling systems for large commercial buildings, like the ones we use ourselves here in Germany. There is a huge potential in this branch in China, since the country is fully aware of the all problematic in this situation, and every time I go to China, I see these changes appear. It is clear that Chinese have environment as their main focus now. I have been surprised by the amount of e bikes that have popped out for example, and I am always extremely excited to travel to China and monitor by myself how fast the country has evolved. There are now lots of trees around highways and factories when it used to be no man’s lands. GEA inaugurates a new factory every year, and demands and expectations have evolved over the years to become much greener.
What caught you by surprise in the demand of your products from China?
China’s tremendous growth potential surprised me. And I could not imagine that that growth would be so well organised. The reliability of local authorities also astonished me, and when these authorities promise to help, they will. Last but not least business is done without lawyers, only between professionals, whether they are engineers, accountants or else. For example we cannot buy land, but can lease it for 99 years, and contracts for that are prepared without lawyers. It is still a nice world to work in, and one can rely on people. It is as it used to be in Germany 40 years ago, contracts are still simple and rely on trust. It is also one of the secrets of China’s fast growth: there are no obstacles to slow China’s growth, and they even do it now without doing any harm to the environment.
What do you believe are GEA Group’s milestones projects that established the reputation of your company and enabled you to work today in such a way that people trust you?
The biggest part of our dry cooling towers, for example, is being built in China, not only for Chinese power plants but also for power plants around the world. What I like there is that the head of businesses are Chinese, sales representatives are Chinese, engineers, workers etc. are Chinese. We are some large practise where we don’t employ any westerner anymore. I believe that customers and our Chinese counterparts appreciate the fact that we do not work too much with expatriates. We use expats during the start up part of the business, but once the factory is running it is a work done by Chinese with Chinese. It appears that only at the top there is a GEA logo, but no one could say whether it is a pure Chinese factory owned by Chinese or a factory owned by foreigners.
Germany has a worldwide reputation for engineering solutions, and often go beyond what would be needed by its Chinese customers. To which extend does GEA offer German solutions? How German is your business and how German are your R&D capabilities?
GEA is not so much German any more. It is a conglomerate of many nations, and we do not only do R&D in Germany but also in France or Denmark. GEA cannot be identified only as a German company. GEA is located in Germany, which has been historically been the largest market for GEA, but in the past two quarters it has been overtaken by the USA. China’s importance in terms of sales grows every quarter, and from a number twelve position, we have been positively surprised to see the country has now become our third market in terms of sales, and the fourth in terms of employees. I realise that Chinese still have a big respect for German engineers and technical solutions, and truly believe that Germans are the best in the worlds not only in the automotive market, and we use it as an advantage.
Some of your recent contracts were in the power industry, and you already installed a number of plants in China. Of course in this industry there are many opportunities for repeated business. What contribution do you expect to make to the power industry in china, and where do you see Chinese competition in this field?
Our contribution in the power industry involves our dry cooling technology, for which we do not need water anymore. In the old times, power plants were cooled by sea water or by water from the river, so they had to be built on the shore sides or river side cooled. I remember as a young engineer working for ABB I commissioned a big plant on the shore of the Yangtze River, which was fully cooled by this river. Today we cannot build that kind of plant anymore, as water has suffered from thermal pollution, neither can we use power plants on the sea side. Wet cooling towers are the next cheapest available solution, but they still require a big amount of water. The water used by this technology is in the clouds that come out of the towers. GEA is the leader in the other technology available: dry cooling solutions. Our group made the first ones in South Africa ten to fifteen years ago. There was in South Africa a lack of water, so they needed a solution to dry the power plants without using any water. Two years ago we received a repeat order in South Africa, of what is today the biggest dry cooling tower under construction. Of course we offer this technology to China, where most of our orders are for dry cooling towers. This solution helps them cool power plants without using water. This can be done independently of the location of the plant, whether they are on the river side, inland, or technically even if they are located in the desert. This is a very smart solution that GEA is not alone to offer, and obviously there is a huge competition that also includes Chinese companies, but GEA is a leader in this field. But GEA is not afraid of competition, quite the opposite. Indeed the more technology becomes state of the art, the easiest it becomes to convince potential customers that besides wet cooling there is the dry cooling alternative. I think that competing with Chinese companies is not an issue for GEA, because we have similar cost levels. Our manufacturing sites are in China and we employ Chinese workforce. We are competing an arm’s length.
Indeed since China’s development in now becoming mainly inland, such a technology is meeting the country’s demands. Of course China is developing several industries, but if we look at the delicate food market, have you seen changes in demand in China?
I believe you refer to the melamine scandal in China. The origins of this scandal are that baby food legally needs a certain amount of proteins to be sold, but there is a way to cheat the system by adding melamine instead of proteins within the food, since sensors will not register the difference. None of this would have happened with GEA food processing solutions. The first reaction after this scandal was that the business went down, people were shocked. Then investments started again, based on the recognition of the importance of high quality equipments, and our company is one of the world’s leading for processing baby food and power milk, so we so demand go up again. There is a huge potential in China around milk as the country’s demand for milk is increasing, and though Chinese import milk from New Zealand, they want to develop their own herds. Today they have some little herds in Mongolia, but this is a huge challenge because the usual milk cow herd is of three to four cows in China, when to be efficient they would need hundreds or thousands of cows, as it is in Europe, the USA, or Brazil. This market has a lot of potential for GEA. Moreover demand is increasing in all types of food. As you know there is an increasing need for tailored food, food that helps one become taller for example, and Chinese are increasingly looking at what is in their food. GEA is one of the leaders in solutions that help customers mix the food in ways that get the exact needed outcome in terms of protein, vitamins, and minerals. In the end, when eating the food, consumers feel the added value in addition to being replete.
China’s economic growth will mean that the size of the middle class will increase, people will become more demanding on the quality of its food. In parallel Germany represents 14.2% of GEA’s business, the USA 13.7% and China 7.9%, but as we have discussed these figures are evolving. Given that these trends are in your favour, how do you see the part of China in GEA’s global business evolve?
GEA defines itself as an engineering company for food and energy processes and china needs a lot of energy, clean energy and food. Therefore if there is no major disruption in the world, I believe that in about ten years, China should represent about 30% of our business. During my last trip to China, I heard that the Government plans to invest $30bn in freezing equipment for food. Indeed China faces a tremendous challenge: food is produced in one part of the country, and the country is really big, so they need to safely transport food from east to west, north to south, over thousands of kilometres. The answer for safe transportation is to dry, freeze, chill or granulate food, which are processes that GEA offers.
What is your main challenge is realising this growth potential? Do you need to make clear what GEA stands for and explain to potential customers what GEA can do for them in order to see China grow from 8% of your business to 30%?
It was one of our main challenges, and we addressed it by reorganising the company in a more simple way. One division will include all kind of heat exchangers, from the very big ones to smaller ones, so that if a customer needs a heat exchanger, whatever his business or purpose is, he knows where to go. A second division is farm technology, which is included all technologies and processes around the cow (milk, milk powder...). GEA will also have a segment called process solutions, providing solutions for customers who want to build an entire plant, often related to the food and beverage business such as breweries, wine, baby food, coffee etc. Another segment is called mechanical goods to sell single components, for example separators, pumps, valves, homogenizer, to replace something, or because the customer is building its plant with another group but wants one of our components. The last segment is called refrigeration, and its name speaks for itself, since it is related to freezing and chilling equipments. Thanks to this reorganisation, our business will become simpler.
To come back to your question, the challenge for GEA is the size of China as a country. It is always a bet on the future when investing in a location, and it is hard to know what will be the growth of this region, and how fast it will grow. For example today the region around Shanghai has become too expensive for production and we are now settling more inland. GEA is today looking for a location where to produce separators, and it is a challenge to find the right site: should it be on the north east, that is on the shore side, where shipyards are located? Should we settle in the south, where the food is? And when talking about these different sites we always have to consider that there is about 2-3000 kilometres between each of them, which represents a big challenge in terms of logistics.
What would be the direct and indirect role that the Chinese government could play in GEA’s growth in China, by setting safety and environmental standards in food and energy areas, and by supporting the development of certain provinces?
The Chinese government is talking a lot to German specialists about limitations and regulations in terms of food quality, monitoring of the food processes and standards, ingredients in food products etc. If China adopts German standards to a certain extent, it will be positive for GEA since we have developed technologies in accordance with these German standards. I think that these standards are among the top in the world, and the Chinese government is aware that food is a delicate subject that should be looked at carefully in order to avoid diseases. Moreover if one day there is a change in the one child policy, it will have tremendous implications on demand for food, opening more opportunities for GEA.
You are aiming to have 30% of your activities in China in a decade, are looking at Brazil and Russia, what will be the role of Germany in the future, and what will GEA look like in 2020?
I think that in ten to twenty years, Germany will not have any specific role within GEA. It will still be the leading economy in the European Union, and it will still be a strong country. However in the future we may be talking about the European Union in general and not about specific countries and since political blocs are being built all over the world, Europeans now they are too small to compete on that scale and need to be united. It is to me fascinating to see how global politics are changing, and how today G7 has become irrelevant, and we are now talking about G20, where everyone is aware of the importance of Brazil as the 6th or 7th strongest economy in the world for example. I still believe that Europeans will be leaders in certain technologies in ten to twenty years, and we are not afraid of having technology copied by Chinese, in the same way Japanese did in the past.
So we can say that GEA’s international positions evolved in the same way as the political situation, and you moved from G7 to G8 and now G20.
Yes indeed!
Is the same going to happen in your headquarters in Germany, and your top management team would resemble the G20 very soon? Could there be a Chinese CEO sitting here in 2010?
It could and should be. Not necessarily a Chinese, but also a Brazilian. We are one of the only large companies in Germany where the majority of the executive board is made of non Germans. Among the three of us, one of my colleagues is from Denmark and I am from South American. And we are pushing to see more board members and managers to be non Germans. It should be normal to see a CEO from China or Brazil in ten or twenty years. A very successful company to integrate such a changing environment into its structure is ABB, for whom I worked in the past. In ABB we always had Indians or South Americans as members of the executive or supervisory board, and no one could say it is a Swiss or Swedish company, but everyone will agree that it is a successful company. GEA will have to adapt to the future landscape. In the long term Brazil is going to play an extremely important role for GEA, since it is a champion in food and energy. Our group has already built factories there, and will for sure have an increasing number of middle management members from Brazil. We already employ Chinese middle managers. We can take the example of the “Best Young Manager Career” which is an event that takes place every year in Germany. GEA is always among the Top 20 in that list. This year was no exception, and one of our managers who was born and raised in China, but who came to Germany to learn the language and study engineering in Germany, got the recognition. She started her career with us and is now the managing director of one of our business units in Germany. She has a big potential so who knows where she ends up?
What would you like to add about the Sino-German relationship, about the role that GEA plays to enhance it?
I think business people in Europe are always fascinated by China, have a very pragmatic view on the Chinese society and understand how fast it develops. On a more private side, the Western world is influenced by media, has prejudices on China and a distorted image of the living conditions in the country. Things have changed and as a businessman you are a witness of this evolution. I hope that both images will come closer together. It would help us doing business in China, since we have to work a lot on the perception that the people have of the country, people who are not involved on any business with china. Indeed when China got a lot of attention in the media before and during the Olympics, and anti-chinese demonstration were held around the globe, people were asking us why we were doing business in China. But they do not understand the changes that have happened in the country. Today a visitor in China does not feel any restriction except for the Chinese language, which may not have been the case twenty years ago. One cannot be too impatient and changes have occurred in only a few decades, it is a great step, and progress that has been done.
| Company: | German Energy Agency |
| Position: | CEO of GEA |
| Country: | Germany |