Siemens’ resilience

Siemens in China

  Siemens began operating in China as early as 1872, when it supplied China with its first pointer telegraph, and delivered China’s first steam generator and its first tram at the end of the 19th century. In 1985, Siemens signed a comprehensive memorandum of cooperation with the Chinese government, becoming the first foreign company to cooperate deeply with China.
Siemens’ Chinese market revenue and order volume continue to expand

  In China, almost all consumers have heard of Siemens more or less. But for a long time, Chinese people’s impression of Siemens is often closely linked with home appliances, such as Siemens refrigerators, washing machines or dishwashers.
  In fact, consumers can still buy home appliances with the Siemens brand logo, but these products have no connection with Siemens. In 2014, Siemens sold a 50% stake in the joint venture BSH Home Appliances to the Bosch Group for 3 billion euros, divesting its home appliance business. Since then, BSH has been authorized to use the Siemens brand and continue to independently manufacture and sell home appliances.
  Since its establishment in 1847, Siemens, which has a history of 175 years, has developed step by step and grown into a huge group, whose business has covered energy, home appliances, telecommunications, transportation, medical care and other aspects. With the rapid development of the global industry, Siemens, which once led the trend of the times, has gradually shown some “oldness” and has to adjust its direction and pace. Selling the home appliance business and withdrawing from the home appliance field is one of the actions.
  For a global industrial giant like Siemens, “turning around” is not easy. In the past 15 years alone, Siemens has experienced several crises of declining revenue.
  However, despite the slow action and occasional pains in the process, Siemens still maintains a growth trend in a longer time dimension. Although the revenue was greatly affected during the epidemic, the gross profit margin also broke through in the past two years. The 30% bottleneck reached 36.5% in fiscal 2021. This seems to be in line with the famous saying of Siemens founder Werner von Siemens: “I will not sell the future for short-term interests.”
  In 2019, “Harvard Business Review” rated Siemens as the most successful digital transformation in the past 10 years. One of the industrial manufacturing enterprises. How a huge company can cope with the ever-changing global market environment and maintain growth, Siemens has given its own answer with nearly 200 years of practice.
From “addition” to “subtraction”

  The development history of Siemens basically corresponds to the development history of the global industry.
  In 1847, Werner von Siemens and Johann Georg Halsk invented the pointer telegraph technology and co-founded a telegraph factory, the predecessor of Siemens. The following year, Siemens built a telegraph line spanning 500 kilometers from Berlin to Frankfurt, which was the longest telegraph line in Europe at the time.
  A more milestone is that in 1866, Siemens developed a practical generator, which became an important symbol of human beings entering the electrical age. Electricity gradually replaced steam as a new power. Siemens also officially started business expansion, and successively produced the world’s first elevator, the first electronic public transportation system, the first tram, and also produced telephones, radios, electron microscopes, etc., and began to set foot in electronics. Medical equipment has touched almost every field of industrial city development.
  Siemens’ globalization also started at this time. In 1850, Siemens set up a representative office in London, and in 1868, commissioned by the British government, built a telegraph line from London to Calcutta, India, 11,000 kilometers long. As early as the 1870s during the Chinese Westernization Movement, Siemens’ DC generators and telegraph equipment entered China, opening up China’s modern telecommunications business.
  Before “World War II”, Siemens had become the world’s largest electrical engineering company. The fields involved in the early stage of the establishment also basically laid the company’s core business in the future: power generation, energy, telecommunications, home appliances, transportation, lighting, and medical care.
  With the opening of the third scientific and technological revolution, automation has become a new productive force. Siemens also quickly followed. In 1958, it launched the first transistor control system, SIMATIC, and has since developed industrial software such as programmable logic controllers (PLCs). . The word SIMATIC, which is a combination of “Siemens” and “Automatic” (automation), has become the brand name of Siemens automation products. In the era from electrification to automation, Siemens has completed the first transformation.
  However, by the end of the 20th century, Siemens gradually became powerless. The establishment of a free market has forced Siemens to face more intense competition in the global market. A more deadly problem comes from within the company. Since Carl Hendz Cusker took over as CEO in the 1980s, Siemens has carried out a lot of investment and acquisition work, and the already huge business system has become more and more bloated, dragging down the company’s overall operation and development.
  If the key to its strategy in the previous stage was the “addition” of expansion and diversification, then after entering the 21st century, Siemens’ development philosophy has become “subtraction”, and it has begun to drastically shrink and streamline its business lines.
  In 2005, Siemens sold its mobile phone business to BenQ for 250 million euros. At the same time, Siemens’ telecommunications business has also begun to integrate. In 2007, Siemens and Nokia merged the telecommunications equipment business of the two companies, and each invested 50% to establish Nokia Siemens Networks. Since then, Siemens has successively sold the enterprise communications division, the home and office telecommunications equipment division, and sold its 50% stake in Nokia Siemens Networks to Nokia in 2013. So far, communications, which was once Siemens’ business, has been completely stripped out.
  In May 2014, the then President and CEO of Siemens, Joe Kaeser, released the “2020 Company Vision”, announcing that Siemens will focus on digitization, automation and electrification in the future. At the same time, the company’s organizational structure was adjusted and reorganized on a large scale. The original three business areas of industry, energy, and medical were cancelled and merged into nine groups. The management turned to be flat. In the same year, Siemens sold its shares in BSH and exited the home appliance market.

  Judging from the changes in Siemens’ revenue and gross profit margin over the years, Kaiser’s adjustment to Siemens has played a significant role after taking office. In the 2014 fiscal year, Siemens’ revenue has fallen for two consecutive years to only 71.92 billion euros, even less than the level of seven years ago. After the official operation of the new structure in fiscal year 2015, Siemens’ decline was quickly reversed, and its revenue has increased for three consecutive years.
  In 2018, Siemens once again streamlined its organizational structure, abolished the hierarchy of business groups, and established three major operating companies, three strategic companies, and a service business company. “Decentralization” is at the heart of this adjustment.
  After this adjustment, Siemens’ core focus has shifted to digital business, and the two major businesses of energy and medical have also been split into independent joint-stock companies, each of which is listed on the Frankfurt Stock Exchange. In recent years, companies such as General Electric, Philips and other large multinational companies that also have diversified businesses have also embarked on the road of streamlining. In this regard, Siemens is at the forefront.
  According to Siemens’ latest annual report, the company’s four main businesses are digital industry, intelligent infrastructure, transportation and Siemens Healthcare. It is worth noting that after a substantial “downsizing”, Siemens still retains the core business that touches urban development. This is the core logic of this company that has not changed for more than 100 years, and it is also its cleverness. This will make it easier for it to get the support of various governments, so that it can grow significantly. In fiscal 2021, Siemens has received orders for train combinations in the United States, including dual-electric, hybrid battery vehicles and related services, with an order value of 2.8 billion euros, the largest order Siemens has ever placed in the Americas.
  As Kaiser said: “It’s not the biggest companies that really survive, but the ones that are the most adaptable.”
A Chinese company called Siemens

  Since Siemens’ business is closely related to urban development, developing countries have always been an important target market for Siemens. China is undoubtedly one of them. In Siemens’ global revenue in fiscal year 2021, the Chinese market accounted for 13% of Siemens’ revenue, making it the second largest overseas market after the United States.
Changes in Siemens’ revenue and gross profit margin in the past 15 years

Data source: Siemens Annual Report
Siemens’ global business structure has undergone several streamlining and adjustments

Source: Based on public information
Siemens has been selling and divesting businesses for nearly two decades, shrinking business lines

Source: Based on public information

  Consistent with the logic of global growth, Siemens in China also closely follows the development pace and policy direction of Chinese society, and maintains close cooperation with the Chinese government. This is also the strategy emphasized by all Siemens China CEOs. Former China CEO Hermann (Lothar Herrmann) even publicly stated, “We consider ourselves a Chinese company”.
  As early as 1904, Siemens opened its first permanent office in China in Shanghai. Although the holding company of Siemens in China was officially established after 90 years, Siemens has participated in the construction of large-scale infrastructure in Chinese cities many times before that.
  In 1978, Siemens held the first “Electronics and Electrical Technology Expo” in Shanghai, attracting nearly 40,000 technical experts in the industrial field. In 1984, Siemens participated in the construction of China’s first long-distance HVDC transmission line, which can transmit 1,200 megawatts of power from the Gezhouba Hydropower Station in the middle reaches of the Yangtze River to Shanghai. In 1989, Siemens received an order to build Line 1, the first subway line in Shanghai, to provide a complete set of mechanical and electrical equipment for Line 1.
  Siemens’ construction achievements in China have won the trust of the Chinese government, and virtually, it can also help it avoid many risks. In 1994, Siemens (China) Co., Ltd. was established—the first foreign-funded enterprise to set up a holding company in China after the reform and opening up.
  After officially entering China, as China continues to increase investment in infrastructure, Siemens has also successfully received many “big orders”: 350 million euros for electric locomotives, 1.8 billion yuan for the Capital Airport T3 terminal Baggage handling system, China Mobile and China Unicom’s mobile communication network equipment and service purchase agreement totaling 1.4 billion yuan… It can be said that Siemens’ business development is closely integrated with the needs of China’s rapid development after reform and opening up.
  As a multinational company, Siemens maintains a keen sense of Chinese policy. In 2006, the State Council of China launched the Eleventh Five-Year Plan for Energy Conservation and Emission Reduction, advocating various industries to vigorously carry out energy conservation and emission reduction work. Siemens immediately played the “green card”. In 2007, Hausmann Richard, the then President and CEO of Siemens China, said that 5 billion yuan of the additional investment of 10 billion yuan would be invested in technological innovations related to energy conservation and environmental protection. More than half of its sales in China will come from the fields of energy conservation and environmental protection.
  With its products, technologies and solutions related to environmental protection in power generation, power transmission, lighting, construction, transportation, etc., Siemens subsequently won contracts for the 2008 Beijing Olympics and the 2010 Shanghai World Expo, becoming the two largest companies in the world. The event’s “green supplier”. Among them, Siemens has obtained contracts related to the Shanghai World Expo with a value of more than 1 billion euros.

  The transformation route of “Electrification-Automation-Digitalization” implemented by Siemens in the world is also followed in China. To this end, Siemens has invested heavily in research and development in China, and has successively established a high-tech technology center, Siemens China Research Institute, an automation product research and development center, an intelligent manufacturing innovation center, a global robot research and development center, and an artificial intelligence laboratory in China. As of fiscal 2021, Siemens has 20 R&D centers in China with more than 4,800 R&D and engineering personnel.
  Since 2016, Siemens’ revenue and order share in China has basically maintained an expanding trend. By fiscal year 2021, Siemens’ revenue in China accounted for 13.2%, an increase of 5.1 percentage points compared with 2016; the proportion of orders also reached 12.7%, an increase of 4.8 percentage points compared with 2016.
  The growth of Siemens’ four main businesses is inseparable from the huge contribution of the Chinese market. In Siemens’ analysis for fiscal year 2021, China has been specifically mentioned many times. Taking the digital industrial business as an example, in fiscal year 2021, the revenue and order value of this business increased by 16% and 10% year-on-year respectively. Siemens pointed out that the recovery of China’s manufacturing industry is the main driving force for growth, and the recovery of other countries is the same. Not as strong as the Chinese market.
  In July this year, Siemens announced that it will upgrade the Siemens Electrical Products China headquarters in Suzhou to China and East Asia headquarters, and its responsibilities will be extended to South Korea, Japan and other East Asian businesses. The position of the Chinese market in the Siemens Group has been further consolidated.
Industrial giants become technology companies

  In 2015, Siemens, once a global electrical giant, started calling itself a technology company.
  Also starting from fiscal year 2015, Siemens has set a certain target profit margin range for each business group with reference to the profit margin level of its main competitors. In fiscal 2021, the digital industry has the highest target profit margin among all businesses, ranging from 17% to 23%, which also represents Siemens’ new transformation direction.
Among the four main businesses, the digital industry has the highest target profit margin range

Data source: Siemens Fiscal Year 2021 Annual Report

  After the restructuring of the company in 2018, the digital industry has become one of the main businesses. In the following three years, the proportion of the digital industry group in Siemens’ overall revenue has continued to expand, jumping from 18.5% in fiscal 2019 to fiscal 2021. of 26.5%.
  Of course, Siemens’ layout in the digital field started earlier. Industrial software is the starting point for digitalization at Siemens. From 2001 to 2009, Siemens successively acquired a number of manufacturing execution system (MES) manufacturers, and in 2010 integrated and launched the modular platform Simatic IT.
  During this period, in 2007, Siemens acquired UGS, a US provider of product lifecycle management (PLM) software, for $3.5 billion. PLM software is an enterprise business platform that enables enterprises to digitally create, manufacture and manage products, and is widely used in many industries such as automobile manufacturing, aerospace, and machinery. After the transaction, UGS changed its name to Siemens PLM Software and became a major branch of Siemens.
  Since then, Siemens has successively acquired suppliers of industrial digital engineering software, quality management software, and electromechanical simulation software. In terms of software layout, Siemens even once became the second largest software company in Europe.
Operation of Digital Industry Group after business adjustment in 2018

Data source: Siemens Annual Report

  On the other hand, with the emergence of new Internet waves such as big data and cloud computing, Siemens has also accelerated its investment in new fields. In 2012, competitor General Electric took the lead in proposing the concept of the Industrial Internet, and launched the world’s first industrial cloud platform Predix the following year. In 2016, Siemens followed suit and officially released MindSphere, a cloud-based open IoT operating system. In 2018, Siemens acquired the low-code platform Mendix to further improve MindSphere.
  The layout and promotion of Siemens’ digital business in China has basically followed its global pace. In 2019, MindSphere landed on Alibaba Cloud in China, and as of July 2021, about 200 companies had its system accounts. In 2021, the low-code platform Mendix will start running on Tencent Cloud. Xiao Song, chairman, president and CEO of Siemens China, said in an interview last year that strengthening cooperation with state-owned enterprises and leading Chinese enterprises to help Chinese state-owned enterprises achieve digital transformation is one of the focuses of digital business in China in the future. .
  It can also be seen from this that Siemens’ digital industrial business itself is also transforming. In addition to the traditional industrial software field that has been cultivated for a long time, Siemens is also exploring technologies such as artificial intelligence, edge computing, and 5G, and is trying to combine the real world with the digital world to connect hardware and software. In 2021, Siemens Digital Industries Group has reached a cooperation with Google Cloud, hoping to combine Google Cloud’s data cloud, artificial intelligence and machine learning technologies with its own factory automation system to bring artificial intelligence to the manufacturing workshop.
  In 2021, Roland Busch succeeded Kaisa as President and CEO of Siemens. He proposed that starting from fiscal year 2022, the digital industry group will fundamentally change its business model, and software subscription services will replace software products as a new digital business model. growth point.
  Another attempt by Siemens to develop digital services is to provide transformation consulting. Under the “2020 Corporate Vision”, Siemens established the IoT Service Division, which will be renamed Siemens Aventis in 2020, responsible for integrating Siemens’ digital transformation experience and supporting the formulation and implementation of customers’ digital transformation strategies. In 2019, Suzhou Financial Leasing Co., Ltd. reached a cooperation with Siemens to launch an intelligent post-leasing management platform, which uses IoT technology to manage leased assets, which has played an important role in telecommuting during the epidemic.
  After taking office, Boleren has said many times that Siemens will not spin off its business, and will stop betting heavily on startups, but will focus on the ability to integrate core technologies such as the Internet of Things and cloud computing. Acquisitions fill the void.
  According to the latest financial report, Siemens’ Digital Industry Group’s revenue in the second quarter of fiscal year 2022 was 4.565 billion euros, accounting for 26.8% of total revenue and a profit margin of 18.1%, the highest among the four main businesses. This long-established company has demonstrated its vitality and adaptability in its long development process across time and national borders.