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Sun 4 Dec 2005 04:00 AM

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Exporting ideas

Fujitsu Siemens is keen to alter the region’s perception of the company as just a PC vendor. And as its CEO Bernd Bischoff explains, innovation and differentiation will be its calling cards

|~|bischoffbody.jpg|~|Fujitsu Siemens is looking to scale up its resources accordingly as sales in the MEA region continue to grow.|~|There is much more to Fujitsu Siemens than meets the eye. In the Middle East and Africa region, the vendor is often perceived as nothing more than a desktop and notebook vendor.

In reality, Fujitsu Siemens has a much more expansive product portfolio and is already well established as an enterprise IT infrastructure provider in Western Europe.

At its recent Visit conference held in Augsburg, Germany, thousands of Fujitsu Siemens partners and customers witnessed firsthand the breadth of the vendor’s product portfolio and also toured the company’s cutting-edge manufacturing operation.

Digital home technologies, mobility and dynamic datacentre solutions took centre stage as Fujitsu Siemens showcased its full range of products, demonstrated the breadth of its portfolio and its ability to meet the IT needs of consumers and large enterprises alike.

As well as promoting the quality of its products and its ability to innovate, the challenge for Fujitsu Siemens now is to replicate its European enterprise success in the Middle East and build up the channels-to-market capable of taking these products and solutions into the enterprise IT market in the region.

The European IT powerhouse has so far resisted the growi- ng trend for vendors to shift the vast bulk of their manufacturing operations to the Far East.

Fujitsu Siemens admits that manufacturing in Germany is much more expensive, but remains steadfast in its belief that the benefits in terms of quality, reliability and physical proximity to its customer and partner base more than make up for the additional operating costs incurred.

Plans for a local assembly facility in the Middle East are still under consideration, but even before any such move is
finalised, Fujitsu Siemens reckons that its current supply chain and manufacturing operations offer a vast range of value-adds to customers and partners.

Fujitsu Siemens remains committed to manufacturing in Germany — despite the costs involved — and reckons that this decision provides a range of benefits.

IT Weekly speaks to Bernd Bischoff, CEO at Fujitsu Siemens, about its plans for a local assembly plant, the importance of the Middle East market and what next for the firm.

Fujitsu Siemens obviously has very impressive production facilities here in Germany. You have discussed the importance of your supply chain at great length. What are your plans in terms of final configuration and manufacturing in the Middle East itself? Will we see a facility there soon?

We are thinking about it. I would not say we have concrete plans. We are discussing with some countries. It can happen.
What sort of timeline are we looking at? That depends on some agreements that we are currently working on.

We have different models. Right now we do have the potential to assemble in the Middle East working with a partner.

Normally, for this type of situation, we do look to work together with a local partner.

It is all about the flexibility and the lead times that having a local assembly and configuration facility offers — it is not necessarily about the cost.

How important to Fujitsu Siemens are the emerging markets, such as the Middle East and Africa? As they grow how do you allocate resources accordingly?

We look to allocate resources along with the revenue growth.
If I take for example Russia, we have multiplied the employees two-and-a-half times and we expect revenue to grow four- to-five times during the next two-and-a-half years.

You cannot wait until the revenue is there before you start adding the employees but at the same time you cannot just double the employees overnight.

We expect Fujitsu Siemens sales in the MEA region to
continue growing rapidly and will scale up our resources
in the region accordingly.

Fujitsu Siemens has massive breadth in its product portfolio. Why are some of these products still not available — or at least not visible — outside Western Europe?

It is not many products where that is the case. Very often there is a problem with supporting some of the products in a specific region in terms of the network and structure of support and service people.

It is not always there in the same way that it is in Western Europe. We have the same competencies and training for partners in the Middle East that we have in Western Europe.

So it is exactly the same strategy, but sometimes it takes more time to find the partner capable of supporting the product in emerging markets.

Fujitsu Siemens is one of the most high profile examples of a joint venture company, since its foundation in 1999. What are the advantages and disadvantages of having that type of joint venture set-up?

I don’t see any disadvantages. The reason why they did it was because alone both companies were too small, so that is why the company was formed.

And the 50:50 model is very helpful — we can harness the strength of both Fujitsu and Siemens. The strategy is that we want to continue working together.

We are very much like a public company — the management defines the strategy and it is not like being a department of a large company.

That is why we are much more creative and flexible.

As a company, do you have the critical mass and resou- rces to compete in R&D against the likes of HP and Dell?

Of course we have less money, but we can benefit from the expertise of our parent companies. Siemens has a massive R&D budget and this is something that we can tap into.

We can leverage that and that helps us work on developing solutions for vertical markets such as healthcare as well, whe- re Siemens has considerable expertise. Both Fujitsu and Sie-mens are very large companies that offer considerable advantages to Fujitsu Siemens when it comes to benefiting from their R&D activities.

What about your revenue sources? Are you now deriving enough revenues from outside Germany?

Approximately 45% of our revenues are derived from the German market at present.

This has been our strategy since the company was founded because Germany was the majority of revenues then. We are still growing faster than our competitors in Germany, but it is a tough market environment.

We have managed to grow faster outside our home market, but simultaneously we managed to increase our market share in Germany. I think we will get the ratio to 60% of sales from outside Germany in the next two years.

Given the growth in regions such as Eastern Europe and
the Middle East I am confident that the 60% figure can be reached in the next two years.

As well as being a joint venture, you also work with other IT companies. How important, would you say, are such vendor alliances in the IT market today?

They are very important in the IT market. They are critical to our success because we are not in the applications arena.
From middleware upwards, we are partnering — we are not an IT company that wants to do everything.

Our model is also channel partner-centric. A lot of resellers acknowledge the fact that other vendors such as HP will compete with them for various services that are delivered to
the customer.

Companies like Accenture and BearingPoint like to work with us because they know that we are not competing against them.

I think it is also good from a customer point-of-view to have several suppliers because one company cannot be the best
at everything.

How are you working with your channel partners on helping ensure that they make their margins on selling your products?

To be very honest, it is the job of the distributors to ensure that they make a margin; it is not the job of the vendors.
It depends on their strategy.

It is a free market. They have to make sure that they make some money. We do try to keep the structure consistent and we do not change our channel strategy every nine months, which is something that you see other vendors doing.

Partners can rely on us and also on the consistency of our strategy.

There has been a lot of talk in the past year about the digital home concept. How ready is the market for the digital home concepts Fujitsu Siem- ens is now pushing?

Even in Germany, France and the UK, these markets are not yet ready.

And also the vendors are not ready in terms of creating solutions that have the required ease of use.

We need to make sure that it is simple and that all the devices used to create the digital home can talk to each other.

With the digital home it may be the case that you have a media server somewhere and from there you can control everything in the house.

That is where we are working at the moment — on how we can get everything working together and making sure that everything integrates smoothly together and also has a decent level of security.

I think Intel and Microsoft are playing a key role in driving standards for the digital home and we are very aligned with both of them.

How much of a role do you play in the innovation and direction of new products?

As CEO, in terms of innovation, my role is to make sure that people are not afraid to come up with crazy ideas.

We have a climate where people speak up even if it is a crazy idea — a lot of innovation comes out of crazy ideas. So we have actually started a CEO innovation award within Fujitsu Siemens.

Then we have a committee where these ideas come into and they make a decision on whether or not it is something that the company should pursue.

FlexFrame for mySAP started out life as an idea. The lead-free soldering that we do was the same. We want to follow more of these ideas that are generated within the company. We want to get more of these ideas out because differentiation is key to us.

When you differentiate you can provide more value to the customer and you can make more margin as a result.

In terms of the investment you have made in the green PC, it is admirable, but do you see the benefits across all regions you operate in?

We are below the EU directives. In the Nordic countries, 50% of the PCs that we sell are already green PCs.

In Italy it is zero, but that will change. Across Europe 20% of all PCs we sell are green PCs. In regions such as the
Middle East, over time environmental concerns will become more important.

How do you balance the need for R&D and internal investment alongside the need to st- rengthen operating margins?

You need to generate the profits to fund the R&D.
What we are striving for is 2.5% margin and I think we will be able to achieve that next year without sacrificing our R&D
investment.

With the exception of 2003, we have always had a very strong fourth quarter.

That element of seasonality is always there. We have to live with it. That is why the first half is 45% of our revenues, and the second half is 55%. ||**||

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