Dick Flanagan, Publisher with Klaus Kleinfeld, President and CEO of Siemens AG at the CEO Leadership Series hosted by the National Chamber Foundation. US, BRIC to Compete Globally
By Klaus Kleinfeld

Dick Flanagan, Publisher with Klaus Kleinfeld, President and CEO of Siemens AG at the CEO Leadership Series hosted by the National Chamber Foundation. Klaus Kleinfeld's observations of a global company in the US is no accident. From 2001 to 2004, he led the global company's USA

Thirty two percent of the world market is based here in the U.S., so it obviously is the biggest market that exists for us, and it will take quite a while to be overtaken by China, and I'll talk about it a little bit later. It has superseded Germany which was once our most important region. We have sales of roughly $21.4 billon here, that's about twenty percent of our total $107 billion sales that we have worldwide.

If Siemens US were a separate company, we would still be a Fortune 100 company, and I think that shows not only the size of Siemens but it shows also the big achievement of Siemens in the U.S. We employ more than 70,000 people here in the U.S. and that number is certainly growing. Worldwide we have more than 480,000 global employees.

Numbers Only Part of Story

But frankly that's one side of the story, it doesn't give you a full feel of how important this region is for us. I mean the way we have structured our organization is not that we look at the country just as a market. We look at a country as a full resource idea. I mean our company was founded roughly a 160 years ago, and it was founded as an international company, and today we have roughly 70 business fields. Ten of those 70 business units are headquarterd and run out of the U.S. Customers are here and that's another very, very important point. We are in quite a number of business fields where innovative and the most entrepreneurial customers are located. We need to partner with them, because they are the ones that give us opportunity to work in the forefront, and literally not just to set the trend, set it together with our customers, but use them to strengthen the U.S. market to have a global role.


This also requires investment, and look at our investment pattern. I mean R & D is obviously something very, very important. We invested last year $1.2 billion in the U.S. alone out of our roughly $6 billion total R & D investment. We have seven thousand researchers located here in the U.S., out of our roughly fifty thousand research and developers worldwide. In terms of patents, we have 12,000 patents in the U.S. and 62,000 worldwide. We have spent over the last years more then ten billion dollars in acquisition activities.


One of the strong businesses is environmental and energy. I mean the future and probably already today's power generation needs to be clean power.

Wheelabrator was acquired for its pollution control systems for fossil fuel plants, guaranteeing cleaner energy production. There is a 66 percent increase in orders in its first full year with us.

We have become in the last year one of the largest wind companies. Our Fort Madison, Iowa factory just produced its first blades for wind turbines three weeks ago will full capacity expected by August. I have to tell you, in case you want to order, we are booked out worldwide.

U.S. Filter is another great example of an environmentally friendly waste water services company we acquired as well.


Another growth area is industrial automation, industrial infrastructures. We bought Robicon, which opens a whole new market segment here in the U.S. One of the largest acquisitions and the most recent one, UGS is a company that is very strong in digital computer-aided manufacturing system, and product lifecycle management systems.

They grow the design products for the CDC system that tested out in a computer-aided manufacturing environment. We are a leader in real automation, in real manufacturing automation.


Healthcare is another great growth area for us. You see that we built up this business pretty much here investing in the U.S. We bought Shared Medical in Pennsylvania in 2000 and is a market leader in IT?systems for hospitals and healthcare. In 2005, we fully acquired CTI. And last year we bought Diagnostic Product Corporation and Bayer Diagnostics. So with that we have been creating the first integrated healthcare, global medical diagnostic company.

Historically European firms have been accounting for 70 percent of the foreign direct investment, which is pretty amazing. About one third of this is actually in manufacturing industries, and you then look at the numbers, you'd say that foreign companies employ 5.1 million Americans. So in a way it shows that what I have personally experienced here, and have valued from the first moment on together with my family is this great immigrant spirit that the country has, and has really all kinds of shapes and forms. And I think this spirit is also showing that the country is open, not only for investment from the outside but also for business and for companies that want to play here in this marketplace. And certainly I mean the size of the whole market also matters for many and its 13 trillion U.S. economy and it will be in 2020, 19 trillion.


What also I think couldn't be valued high enough is the robust and excellent educational system. A lot of great skilled professionals are produced here, every day, and frankly I think what you might not value enough in my view is that those schools are bringing you… are really attracting the best and the brightest from all around the world. And they like it so much that they won't ever want to leave. It's very, very important to keep the machine going, and I think it's getting to be more important in the future.

There are five hundred courses on entrepreneurship and business in the top universities. And another pretty interesting aspect also on entrepreneurship is this great idea of investors, and I don't just mean to talk about Silicon Valley or a Route 128, I mean there are many examples of areas where this has been to a really stable customer structure.

The risk capital market is a strong market. Venture capital companies account for about 1.8 trillion of the 13 trillion U.S. economy.

U.S. filed 34 percent of all patents in the world in 2006, Japan is far behind at the number two spot with 18 percent, and Germany is in third place with 12 percent. It only takes five days to create a business here, it takes 24 in Germany and 35 in China, if ever.

Kleinfeld addressed the National Chamber Foundation at the U.S. Chamber of Commerce April 18th on "Investing and Competing in the U.S.--Perspectives of a Global CompanyKleinfeld addressed the National Chamber Foundation at the U.S. Chamber of Commerce April 18th on "Investing and Competing in the U.S.--Perspectives of a Global Company."


One thing that I see here is certainly that there are competitors, new nations coming on the market. Goldman Sachs coined "BRIC countries--Brazil, Russia, India and China.

In 2005, BRIC received 15 percent of global foreign value investment and contributed 28 percent of global growth between 2000 and 2005. The number one competitor here is China. Frankly, I can remember the early days of 2002. I went to some of the rooms here in Congress and the Senate, and I started to talk about China, and the people looked at me and were rolling their eyes, and said why is this man talking about China? This has changed massively is my impression. I?think everybody now in here understands what is going on there. But what is really going on there? By the year 2020, China will become the second largest economy, and 2050 predictions I have seen , China will be the largest economy worldwide.

I unfortunately sometimes see people saying well it is kind of a distribution of labor, this will be the manufacturing home of the world. Frankly, I think that people who think that way are flat out wrong. That is not the way things are working, and that is not the way things are working today, because in reality there is something much bigger that is happening there. I saw that, we are in China for over 100 years, and we have about 40,000 people working there, and also all our metrics are there and we saw points in all angles of the business we are now going to the second generation.

There is an ongoing debate about the numbers, but Duke University came out with a study and said China will graduate twice as many four year engineers as the the U.S. which is 350,000 compared to 137,000.

China launched their inevitable five year plan that calls for innovation in the high technology areas: satellites, energy, bio-medicine, computer networks and we're in the second year already. I didn't give the story about India, Russia or Brazil, so let's turn now back to the U.S. How can we stay attractive to foreign investment? Look at the numbers--last year Europe had 350 IPOs versus 235 IPOs in the U.S.

On the top of this you see stricter regulation of foreign acquisitions of U.S. companies. I was in Dubai, and it was very interesting to see the reaction there, they smelled already that something different had come up, but it was even more interesting to see the reaction from foreign companies invested here in the U.S. I think it is also going to the core of, hey, I mean what do we do here? I mean do we keep certain people out? I think we must really differentiate between those investments that truly effect U.S. national security and those that add strength to the U.S. economy.


And then we come to a very, very strong sweet spot, tougher immigration laws. Most important in my view is to continue to contribute to attract investment buyers. I think America needs to keep the immigrant spirit and this culture, because it is essential, always was, and it always will be for the well being of this nation. In the core of this is entrepreneurship, but the core of it is that in the essence is superiority of the U.S. model. And then there are a couple of things that one can't do much about it. Which one just has to manage. I mean the demographic, 77 million baby-boomers essentially retire in the coming years. That's on the one hand going to be an interesting thing about healthcare, but on the other hand, I mean we also see a large amount of knowledge that currently is active in the economy. I mean it has the risk kind of not being productive use of the economy. And the big question is, I mean in this day and age where people have average life expectancy of over 80, is that the right model? Is that also the right lifestyle model some would say? Or we need to take steps on that.

So… and before I come to a close, obviously I wouldn't want to leave this podium before addressing our zero tolerance policy. As you know, Siemens has been in the headlines recently for compliance problems. We have ZERO TOLERANCE for illegal behavior at Siemens. That is why we assembled a First Class team of compliance experts to get to the bottom of the issue. I'd like to emphasize we turned to the U.S. for much of this expertise:
--Independent law firm: Debevoise & Plimpton; Deloitte
--Anti-corruption adviser: Michael Hershman
--Company law firm: Davis Polk
--Ombudsman: Hans-Otto Jordan
--Compliance Officer: Daniel Noe.

Our clear goal is within three to five years to become the role model of transparency.

Klaus Kleinfeld assumed the position of president and chief executive officer of Siemens AG on January 27, 2005. Kleinfeld is the 11th company head in Siemens' 160 year history. Immediately prior to being named CEO, he was a member of the corporate executive committee since January 2004, and had special responsibility for the groups in Siemens' information and communications business area and regional companies in Africa, the Middle East, and the Commonwealth of Independent States.

Kleinfeld began his career with Siemens in 1987 in the corporate sales and marketing group, moving a year later to Siemens corporate planning and strategy. From 2002 to 2003, he led the company's U.S.A. region as president and chief executive officer, leading the 65,000 employees in the nearly $17 billion U.S. company, with business in healthcare technology and information management, power generation and transmission, automation and controls, lighting, information and communications technology, transportation, and building technologies. Before stepping into his role as CEO of Siemens AG, Kleinfeld established and led the Siemens Management Consulting Group (SMC), an organization formed to develop and oversee a corporate revitalization and business improvement program. Under his leadership, SMC transformed from a small corporate cost center to a highly profitable and respected consulting business that established cutting-edge practices in benchmarking, business re-engineering, and innovation.