CEOs optimistic as Davos convenes

2017-01-17
China Daily

Editor’s note: The World Economic Forum is held in Davos, Switzerland from Jan 17 to 20. The prospects of the Chinese economy and how it will intertwine with the global economy against the backdrop of increasing uncertainties will be among the topics to be discussed at the forum. We interviewed 18 chief executives from leading multinational companies to share their outlook on China as well as their corporate strategies in 2017. China Daily will publish three full-page special reports of the executives’ views over three days.

1. What’s your expectation for China’s economic growth in 2017? In this regard, what are the major opportunities and challenges for China?

2. How would you align your business strategy with the main themes of China’s 13th Five-Year Plan like innovation, upgrading of manufacturing capability, green growth and urbanization?

3. What are your expectations with regard to 2017 revenue and profit of your business in China?

4. What kind of impact will a stronger US dollar and a more flexible renminbi exchange rate have on your business in 2017?

5. Do you plan to increase your investment in China?

Maximilian Foerst, president, Zeiss China

A1 Even China’s economy is undergoing a slowdown; we are looking today at a China growth rate of approximately 6.7 percent — still one of the most dynamic markets worldwide.

We see much progress in the Made in China 2025, and medical reform. This is actually offering us a lot of growth opportunities as Zeiss is primarily active in the areas of healthcare, research, vision care and of manufacturing excellence. These are all sectors of the Chinese economy that are growing above the average.

From an industrial standpoint, the upgrade of the economy relies very much on the upgrade of capabilities in the manufacturing sector. With our partners in China, we focus on supporting industry with tools and solutions that can enable them to continuously increase efficiency and quality.

A2 Zeiss’ business scope is very much in line with the set priorities of the 13th Five-Year Plan as we focus on solutions for improved research and technology, healthcare, and manufacturing excellence.

A3 We are planning to maintain the double digital annual growth rate that we have achieved in the past years.

Our sustainable growth momentum and industry dynamics we see here are fueling us with great confidence in the Chinese market prospects.

A4 Zeiss has a very geographically well-balanced business portfolio, meaning that we benefit from natural hedging and the currency fluctuation will only have limited impact on our business.

We manufacture in the euro, US dollar and renminbi areas. Our China organizations are importing goods from US dollar- and euro-dominated areas for sales in China, and also exporting products to the euro and US dollar zone. These flows will offer us a long-term natural hedging.

A5 Yes. With innovation in China being set as a strategic national priority, this is a particular area where investments will accelerate. We will also continue investing in our staff and infrastructure. We will keep hiring personnel, creating jobs and continuously improving our talent development and training efforts.

Kokubo Kenichi, vice-president and executive officer of Hitachi Ltd, chairman of Hitachi (China) Ltd

A1 I don’t think we have anything serious to worry about as the Chinese government is carrying out a series of guiding policies to promote the real economy. The share price has gradually gone up. The yuan has entered a slowly depreciating period after some control measures were adopted. Although the investment of some manufacturing is decreasing, retail performs very well, especially online shopping, which has been growing by 20 to 30 percent annually.

A2 We will provide IT solutions to help improve operational efficiency and service in Chinese hospitals. China will strengthen environmental protection, so the electric vehicle will develop rapidly. As we have products for motors and frequency converters, we hope to expand in the related business in the electric vehicles sector. We have embarked on cloud-based design, technology and purchasing to realize cloud-based management.

A3 In the 2015 fiscal year, we had more than 40,000 employees to run 180 subsidiaries in China. The Chinese market contributed 11 percent of the group’s overall sales with 1.05 trillion yen ($8.9 billion). We hope to lift the revenue here to 1.1 trillion yen in FY2018 by focusing on manufacturing and social innovations that align with China’s development. It means that from 2016 to 2018, the annual compound growth rate of sales will be 10.5 percent in China.

A4 We will continue to support sustainable development and improve quality of life for people in China through social innovation.

A5 We have to expand the business to some new fields to adapt to the change in China. This country is no longer just a manufacturing base with low cost. It has become an enormous market where we can make a profit as there are a lot of wealthy people. In the past we had core businesses such as elevator, construction machinery, high-speed railway and automatic teller machines. To comply with the digital wave in China, we will transform from a product-based provider to a solution-based provider in the future.

Gavin Liu, president, Westinghouse Electric Company, Asia region

A1 I have every expectation that China will continue its trajectory of strong economic and strategic growth in 2017 and beyond.

Nuclear energy is a cornerstone of China’s energy expansion plans because of its attributes related to safety and carbon-free emission benefits, and it fosters energy independence, energy security and industrial innovation. So this creates market participation opportunities for energy companies such as Westinghouse, and also creates a platform for joint technology partnerships and innovation.

With rapid development in energy comes the challenge of synchronizing industrial and supply chain capacities. One approach is to leverage global supply chains to meet the needs of peak demand during expansion.

A2 We are fortunate that Westinghouse’s business capabilities and interests are closely matched to China’s national energy strategies and the main theme.

Our business strategy for China is framed around cooperation and collaboration. By leveraging its global expertise, Westinghouse is to help its China customers absorb the AP1000 plant technology. Successful and wide deployment of this technology improves opportunities to grow the global AP1000 plant fleet. In turn, there is the potential to create more opportunities for our China partners as well as Westinghouse.

We have continued to develop our own local capabilities by establishing an Engineering and Operations Center in Shanghai, forming joint ventures with our Chinese partners and fostering young qualified nuclear engineers.

A3 The upcoming year is going to be exciting and noteworthy for Westinghouse. We are collaborating with our Chinese strategic partners to startup Sanmen Unit 1- the World’s first AP1000 nuclear power plant and connect it to the electricity grid. The startup of Haiyang Unit 1 will follow closely. The completions of these projects serve as an important milestone and validate China’s decision to use AP1000 technology for domestic expansion.

On a broader scale, Westinghouse looks to our Asia business to be the growth engine for the future.

A4 Strengthening our local capability and localizing more of our work in China is one of the top priorities for Westinghouse in 2017. This strategic approach will help mitigate the monetary risk.

A5 Westinghouse sees many business opportunities in this market and intends to continue investments.

Mark Gibbs, global SVP and president, SAP Greater China

A1 We believe China’s economy will continue to grow steadily in 2017. As China is deepening reforms and promoting innovation, we see enormous growth opportunities driven by government initiatives, e.g., Internet+ and Made in China 2025. While China’s economy is shifting from investment and export to service and consumption, customer-facing industries are seeing higher growth than average.

We see external uncertainty as a major challenge, as the global environment is getting more complex.

A2 We have aligned our strategies accordingly. For example:

Big Data Innovation: SAP technology on Big Data and Internet of Things (IoT) to allow companies in China to re-imagine their business models and work processes

Smart manufacturing: At the 3rd World Internet Conference, “SAP Industry 4.0 Connected Manufacturing Solution” won the “Leading Internet Scientific and Technology Achievements” award.

Urbanization: Smart Traffic covers passengers and cargo. For efficiency and safety, SAP Innovation Center Nanjing is building a system to understand traffic flow of Nanjing in real-time.

A3 We will continue to focus on helping Chinese customers accelerate their digital transformation through our innovations in Cloud and Big Data.

A4 It’s an opportunity for SAP to demonstrate our greatest competitive advantage — we are a “truly global company” and a leading innovator, we have confidence in our resilience and ability to withstand fluctuations.

A5 Over the past 21 years, SAP has invested heavily in China, including a $2 billion China Growth Plan announced in 2011.

China is SAP’s second home. In 2013, SAP Greater China became a stand-alone region, reporting to the SAP Board directly. It demonstrates our long-term commitment in China.

Talented people are the most valued assets of SAP China. We will continue to invest in our people and build a diverse and inclusive culture.

Eugene Qian, China country head and chairman, UBS Group

A1 We see China’s GDP growth sliding from 6.7 percent this year to 6.4 percent in 2017, as another property downturn sees construction and related investment decelerate further, offset largely by a modest export recovery and government-led infrastructure investment. Consumption may slow modestly on slower income growth but should remain resilient.

We believe risks are broadly balanced. Key upside risks include property activity staying strong for longer and stronger-than-expected policy stimulus in 2017. Downside risks include: a sharper property adjustment, infrastructure investment falling short due to lack of investable projects, weaker exports due to softer global growth or rising protectionism, and a resumption of large capital outflows which may heighten financial market volatility.

A2 We continue to embrace digitization by rolling out new technology to improve the client experience and the way we do business.

UBS aims to be a leader in sustainability in the financial industry and to make sustainability the everyday standard across the firm. It is today’s capital allocation and investment choices that will shape the future. Investors are ready to put their money to work for a more sustainable future, UBS and other financial firms are ready to facilitate this process.

A3 In general, we believe the overall operating environment in the region will improve in 2017. We are cautiously optimistic about the business outlook for our overall China business.

A4 We expect continued monetary policy divergence between the Fed and the PBOC and capital outflows from China to weaken renminbi against the US dollar further in the coming years.

Our clients in China, both institutional clients and high net worth individuals, have increased demand for global asset allocation for diversification.

A5 We will continue to strategically invest in China.

We have announced that we plan to double head count in China over the next five years. We have also recently expanded to Wuxi, Jiangsu province, with the opening of a new Business Solutions Center in November, in addition to our presence in Beijing, Shanghai, Guangzhou and Shenzhen.

Charles-Edouard Boue, global CEO of Roland Berger

A1 China’s growth will likely be stable in absolute terms, which implies a slight decrease in percentage terms.

We think that new management models, with a focus not only on technology but also on a deep transformation of the organization and culture, are a key element of success in China’s transformation into a consumer-oriented, innovative and value-added economy.

A2 On innovation, we can help to implement European methodology in China by supporting established companies in building up innovative business models. We will continue to connect the main players — corporate and startups — of digital and technological innovation in China and in Europe.

A3 We expect the need for high value-added business services to increase.

The Chinese consulting market is progressively maturing and clients are becoming more used to working with consultants. This increases the predictability and stability of business in China.

A4 It will essentially have no impact on us directly as our revenue and costs are both in renminbi.

A5 Growth in our core consulting business will require some but limited investments.

Roland Berger aims to complement its core strategy consulting offering with other high value added services.

Many of the investments come in the form of cooperation or alliances with partners that we trust, such as our most recent joint venture with INESA in Shanghai.