By Rachita Prasad
Siemens AG and its India arm expect to clock a growth rate of 10 percent in the digital business till financial year 2025, said Peter Körte, Chief Technology Officer and Strategy Officer, Siemens AG. Körte, along with Sunil Mathur, Managing Director and Chief Executive Officer, Siemens Ltd, spoke exclusively to Moneycontrol’s Rachita Prasad at the “Siemens India Innovation Day 2023”.
The company announced the induction of four partners, including Tata Consultancy Services, to expand its digital platform, Siemens Xcelerator, in India. Körte and Mathur spoke on the opportunities and the challenges in digital expansion, globally and in India.
Siemens Xcelerator is an integrated portfolio of software, services, and an application development platform aimed at helping companies go digital.
The German engineering major sees decarbonisation as a major theme globally. In India, it sees more opportunities in the digitisation of small and medium enterprises. Edited excerpts of the interview:
Since you launched Siemens Xcelerator last year, what has been your biggest learning?
Peter Koerte: We are very happy with Xcelerator. On a global level, it’s growing in double digits. We now have 120 partners across the world, and have very good traction in the market. We’ve learned along the way that customers want to hear their solutions in their own language, which means if you are a dairy company, you want to hear the solutions expressed in food and beverage terms. We are making our verticals end-market specific. We said, let’s not cover everyone, but focus on three verticals — food and beverage, commercial buildings, and hospitals.
How has the growth been in India?
Sunil Mathur: In India, there’s a lot of interest in multiple areas. There’s an interest in logistics, data centres, energy efficiency, buildings, pharmaceuticals, etc. There are large, medium, and small companies that are interested in digitisation. The large ones are more natural adaptors. Medium ones are picking up pace, and the small ones are still experimenting. The growth in India has been in double digits. When we talk about double digit growth in the global business, it’s really big. In India we are starting from a very low base, but it will pick up. We are seeing the pace increase over time.
How are Indian companies planning to go digital — do they order turnkey project execution or are they buying solutions and making piecemeal investments?
Mathur: Nobody will take a turnkey project and say, “here’s my factory, turn it upside down.’’ It will always be modular; one step at a time, and slowly you start interconnecting. It’s like in any enterprise business, nobody gives you the whole thing in one go. Particularly in brownfield projects as it is a running factory.
Does that make the space all the more competitive as one order does not ensure you may be the chosen vendor for the next one?
Koerte: Since you know the architecture, systems, and have already built the connectivity, as the incumbent you have an advantage. Also, not every vendor is going to have all the solutions that you require in some segments, so you need to be open from the very beginning. That’s why, when we speak of Siemens Xcelerator, the idea is to be open and interoperable, and work with others. There is a tremendous benefit for our customers because they feel they have flexibility, they feel less locked in.
You had all stakeholders under one roof for ‘Siemens India Innovation Day 2023.’ What are you most excited to present to them?
Koerte: We talk about digitisation and decarbonisation — being more energy efficient, resource efficient, more sustainable, and how to get there. We are really excited about other technologies like the industrial metaverse, artificial intelligence (AI), and generative AI.
Most of the energy-guzzling industries, like metals, are struggling to address decarbonisation and at the same time trying to protect their EBITDA (earnings before interest, taxes, depreciation, and amortisation), because it comes at a cost. Is it difficult to get customers on board or are they beginning to see the financial returns on their investments in decarbonisation?
Mathur: From an India perspective, if you look at an energy guzzling industry like hotels, energy is 50-55 percent of their cost. So they will recover their investments on energy reduction / decarbonisation in 1.5 years. Hence, they are fast adapters.
Energy comprises 60 percent of the cost of manufacturing cement. The cost of a kilo of cement is half that of a kilo of old newspapers. If I can bring the energy cost down by 10 percent, the savings will go straight to the bottomline. Thus, if you go in for decarbonisation, it will support your bottomline. Besides, commodity industries are also investing in decarbonisation to meet regulatory requirements.
Koerte: Some of these industries require longer term investment. Think about green steel, the companies will charge a 40 percent premium for it, and it will also give them the ability to differentiate their offerings.
There is a huge opportunity in small and medium enterprises (SMEs) in India. What is your strategy? Is financing these projects a challenge for them?
Mathur: As far as Xcelerator goes, we have the products, use cases, and partners. So the SMEs don’t have to reinvent the wheel and spend a whole lot of money. We will offer them a SaaS model where they can tap into everything we offer on the platform.
And this is where Siemens Financial Services comes in. If companies have to invest in capex, Siemens Financial Services comes and supports them.
You appear to be upbeat about the industrial metaverse at a time when many have written off the metaverse concept. What is the opportunity and what kind of inquiries do you get on that?
Koerte: The industrial metaverse is the idea that you have like a digital replica, a digital twin, of your plant, that is running. If you have digitised everything and you have a digital world that is running in parallel, you can have a real-world impact much faster (e. g., `see’ how actions in the digital world will play out in the real world). With the digital metaverse, we see customers being more innovative, 10 times faster than before.
As we build data over time, it can also start to simulate and use AI and help come up with solutions. The industries that are most interested in this are the ones with the highest capex as this speeds up things.
If you’re a battery manufacturer today, you’re probably sold out for the next six years. Your biggest issue is you cannot build these plants fast enough, each plant costing €5 billion or more. Once you have created them, you probably have a utilisation of 70-80 percent, which is far from the 100 percent that you need. You’re going to have huge operational issues.
The digital metaverse allows you to design the plant, simulate it, and optimise it digitally, and then take up construction, which makes the commissioning faster and more efficient. It’s like you’re turbocharged, and run much faster than everybody else.
Siemens had started its digital business before Covid hit. The pandemic expedited digital adoption across industries, and you had an early mover’s advantage. Now, in the last three years, there are many companies that have entered the industrial digitisation space; has it become more competitive?
Koerte: You’re right on both counts. Everybody’s building digital competencies. We started in 2006, spent €14 billion on M&A alone, and if you add all the R&D investments, it’s going to be more than €20 billion. If you now start to do this, at today’s prices, it’s going to be twice or thrice as much. The company that we bought in 2006, today you have to pay four times more as valuations have increased. We have a huge head start, in that sense. So do we become complacent? Absolutely not, because everybody will try to get in on this. We need to be fast. Our digital revenue is at €6.5 billion (as on September 2022); we expect to report a CAGR of 10 percent till FY2025.
How much more investment are you looking to make in this space?
I cannot give you a number. Maybe every year we will invest a billion euro at least in M&A (mergers and acquisitions). M&A is cyclical, it always depends on what targets are available.
Siemens Xcelerator has announced four partners, including Tata Consultancy Services (TCS), in India. What role would they play and are you looking at adding more partners?
Koerte: We are doing this to provide better service to our customers. It makes a lot of sense to have pre-integrated solutions because then you don’t have to do it over and over again. We have a partner, we have a relationship with the customer, and we can bring this all together. So it makes us much more valuable to our customers.
Mathur: We have got system integrators, partners who stitch everything together, and we concentrate more on what we can scale. If we were a closed system, then he wouldn’t be able to adapt to a customer’s specific requirements, but Xcelerator is an open system, and it allows different systems to talk to each other.
When you look at the Indian market, what are the biggest opportunities here?
Mathur: India has always been a fast-mover on digitisation. We are, more or less, digital natives. There is massive adoption by data centre users, global as well as local. Pharmaceutical companies who are now connected to the US are using digitisation to develop higher quality local drugs over here. The entire food supply chain will also start getting digitised.
The large companies, the Unilevers, the Nestles, the Tatas, etc., they can only do so much within their companies. They have to get connected to their supply chains. There are companies that are now dictating that they want their supply chains to be linked so that they can extend their efficiencies to their end customer. It is still slow, but it will gather momentum.
What about the challenges in India?
Mathur: I think the challenge is how do we get this to the small and medium enterprises. There are issues of regulations, cyber security, etc. At some point you’re going to need industrial 5Gs, and those requirements are also under discussion. Cyber security laws are a critical part; there are conversations going on there.
But broadly, the market is there, and the demand is there — those are not hindering factors. They are not slowing down adoption.