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Grundfos moves further forward
feature company interview
Grundfos moves further forward Grundfos is adopting a global strategy of growing its markets and product segments through a policy of strategic acquisitions and astute investment in R&D and manufacturing facilities. World Pumps recently met up with Jens Jørgen Madsen, group president, and Søren Ø Sørensen, group executive vice president Grundfos Group, who detailed the company’s strategy and the international trends currently influencing the pump industry.
World Pumps (WP): Grundfos has in recent months purchased PACO from Sulzer Pumps. How does this acquisition fit into Grundfos’ general strategy and does this represent a move into the US market?
Figure 1. Jens Jorgen Madsen, group president.
Jens Jørgen Madsen (JJM): It is relevant to say that this acquisition fits into our North American strategy. For a long time the company has discussed how it can improve its position in the American market, as it is the largest pump market in the world and Grundfos has a relatively small share of the market. Having undertaken a longterm study of the market, we recognized that we did not have the products that were a market fit nor did we have the necessary sales and distribution infrastructure. Therefore, the PACO acquisition is a strategic development that solves these issues and gives us a stronger presence in North America.
That’s the first point. From a product point of view, it fills a gap and extends our product range.
an element of speeding up our general sales power in the marketas well as R&D and production in Mexico.
WP: With regard to sales – one thing that I have noticed is that Grundfos goes into countries because it wants to increase its sales areas. Is there an established PACO sales structure already in the USA?
WP: Will the production plant in Mexico be making all the different types of pumps?
JJM: They do have quite a strong presence, with their own branches on the West Coast. However, on the East Coast they work through distributors. WP: I understand that the PACO purchase is one of several developments that Grundfos is undertaking, including opening manufacturing facilities in Mexico. JJM: The PACO acquisition is one of four developments that relate to our strategy for North America. The second one is the Mexico set-up, where we’re going to establish a low-cost production base for the American market. For many years we have been vulnerable to big changes in the dollar exchange rate, so we want to produce and buy more in dollars than we have been able to so far. The third element in this acceleration strategy is adding to the sales force in our established sales organisation in the USA to get more power in the market. The fourth and final element is to build up a product development unit in the USA, which should be seen as part of our central R&D activities. So there’s an element of sales, there’s an element of adding distribution and products from the PACO acquisition and there’s
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0262 1762/06 © 2006 Elsevier Ltd. All rights reserved
JJM: It’s too early to say. However, as with our Hungarian manufacturing facilities, we will take it step by step. One of the main aims of the factory is to make us less dependent on the dollar. I can tell you that right now we are very happy that the PACO deal went through and, when we make this a success, there could be other areas where we could implement a similar strategy. WP: Turning to Alldos, they’re producing quite different types of metering pumps to those of Grundfos. How far is Grundfos going towards becoming a complete package provider of turnkey systems? SØS: That would definitely be too much to say. By bringing Alldos into our portfolio, we’re now able to provide a much larger product range. We are also in a position where we can provide systems, monitoring systems. With Alldos we have the competence of system sales and monitoring but I don’t see Grundfos going into these facility management systems as it is not one of our strengths. WP: Is there not the possibility that you may begin to compete against some of your own customers? SØS: That’s always a classic conundrum, which becomes an issue when you integrate more products
WORLD PUMPS July 2006
feature company interview into your range. The route that we are following does not conflict with our customers. The Hilge hygienic pump is a new area for us, but because we were previously not strong in that area we’re not really seeing conflict with customers. You could say that if you make five acquisitions in twoand-a-half years somebody will say that the Grundfos strategy is to grow by acquisition. That is absolutely not the case. We have in the past and will in the future mainly expand through organic growth. We develop our own products, produce our own products and sell our own products. However, in the field of strategic opportunities, there are some areas in which we accept that this path will simply take too long if we want to be serious. If there is already a well-driven, good, profitable company in that window of strategic opportunities then we’ll look at it. WP: Another acquisition is that of Brisan Turbo. SØS: Brisan Turbo South Africa is a fine, small company making submersible pumps for the agricultural market sector not only in South Africa but also in the surrounding countries. Here we can take this product range into the market and then introduce our higher quality products. That way we can offer a combination of premium and less expensive technologies. We are already selling the premium product through our own South African company, but we get an extra opportunity with Brisan. There is another very interesting aspect to this acquisition. Before we took over, Brisan was a customer of Franklin, the largest producer of submersible motors in the world. You could say that Grundfos is more or less the only other supplier of submersible motors in the world and we will strengthen that position. As a result we have been able take more than 25 000 motors away from Franklin and replace them with Grundfos Tesla motors. This demonstrates that we are trying
WORLD PUMPS July 2006
to be a serious alternative to Franklin on submersible motors. WP: Moving on, you have moved into Russia, China, India and other countries so what is your global strategy? JJM: There are two top priorities. Number one is Eastern Europe, with Russia as the main driver. That’s where we see the fastest and most straightforward growth because we already have our product portfolio in place. The limiting growth factor in that part of the world is finding, training and retaining qualified people. The second priority is the Far East with China as the main driver. I believe that in 2005 we achieved growth of 20% in Eastern Europe and 16% growth in the Far East. These regions are now developing a sizeable internal market share that really matters. If we can continue growth of 20% and 15% then it will really contribute to our annual growth target. Our acceleration strategy in the USA is also high on the agenda as is our desire to protect and to develop our core business in Western Europe where we have high market shares. WP: What do you see as the main threats in Western Europe? JJM: The economy in Western Europe is, in my opinion, losing ground compared to the rest of the world. Take Germany for example; for ten years now we have not seen any growth in Germany. Although we are now starting to see some movement, I am a little worried that France and Italy are becoming dormant. In some strange way, the UK is doing better than some of the other big countries.
where you have low market share and also adding value onto your product portfolio in areas where you’re already strong. WP: Going back to top-end business, what is Grundfos’ view of the Euro zone? JJM: If I look at it from a Grundfos point of view it’s clearly an advantage to have fewer currency risks. To have one Euro zone is for us a good thing as it definitely takes risks out of our currency exposure. The weak US dollar is, of course, a problem and it has been so for many years. WP: What about Japan? How do you see things developing there? SØS: I’m still very optimistic about Japan. Grundfos has, over the past two years, grown on average between 14% and 15% there. So we have expanded our business heavily in Japan. We are definitely the largest foreign pump manufacturer active in Japan. WP: What do you put this success down to? SØS: We are the main supplier to the Japanese machine industry, with around 80% of the market. This is really a fantastic niche we have established and we have consolidated our position there over the years. Good management has of course been influential in maintaining our
Figure 2. Søren Ø Sørensen, group executive vice president, Grundfos Group.
In such circumstances it takes talent to create growth, and we have been able to create 5-6% growth in Western Europe, which we consider to be very good. Part of this also comes from new initiatives and also the new energyefficient pumps we marketed last year in the circulator business – that has really been a success. So this is the way to grow: by moving into new areas
www.worldpumps.com 17
feature company interview business in the face of Japanese competition. We have very good products there and we have an excellent local organization that understands the Japanese way of doing business.
SØS: Yes, mainly in China and then of course also the Far East region but always when we establish these major production units in our globalisation strategy, it’s mainly to supply the local market.
WP: Turning to China: is there a country that you’ve particularly learned from – and have you been able to apply the lessons learnt to China?
WP: Does India also come under that same category – because you have a presence in India too?
SØS: I don’t think we can say that we have implemented any particular lessons. I think we are looking at China more as a unique opportunity in which we need to do more or less everything long term. We need to have our production base in place and, in common with all the markets that we enter, we always establish ourselves with local teams. WP: Do you see China becoming the main hub in terms of low-cost production for the future?
18
www.worldpumps.com
SØS: Yes it does. We are not currently exporting products from India, as our factory is only 18 months’ old. WP: You say that you are still committed to investing heavily in product development. What percentage of turnover are you investing? SØS: These days 4.5% of our turnover goes on R&D, which last year represented 75 million. We are trying to invest in all the segments where we want to be serious players. One area
where we have made a considerable investment is wastewater because that is a new area that we are going into. Wastewater probably has the highest potential and is the fastest growing market and there will be a lot of infrastructure construction going on in East Europe and Russia. It is Grundfos’ policy to be responsible, planning ahead not only to optimise short-term opportunities, but also to think ahead for the long term. We intend to invest in R&D, invest in globalisation and production and invest in new markets. In this way we will keep our position and will continue to be leaders in technology. ■ CONTACT Grundfos Management a/s Poul Due Jensens Vej 7 DK-8850 Bjerringbro, Denmark. Tel: +45-8750-1400 E-mail: [email protected] www.grundfos.com
WORLD PUMPS July 2006
Grundfos moves further forward Grundfos is adopting a global strategy of growing its markets and product segments through a policy of strategic acquisitions and astute investment in R&D and manufacturing facilities. World Pumps recently met up with Jens Jørgen Madsen, group president, and Søren Ø Sørensen, group executive vice president Grundfos Group, who detailed the company’s strategy and the international trends currently influencing the pump industry.
World Pumps (WP): Grundfos has in recent months purchased PACO from Sulzer Pumps. How does this acquisition fit into Grundfos’ general strategy and does this represent a move into the US market?
Figure 1. Jens Jorgen Madsen, group president.
Jens Jørgen Madsen (JJM): It is relevant to say that this acquisition fits into our North American strategy. For a long time the company has discussed how it can improve its position in the American market, as it is the largest pump market in the world and Grundfos has a relatively small share of the market. Having undertaken a longterm study of the market, we recognized that we did not have the products that were a market fit nor did we have the necessary sales and distribution infrastructure. Therefore, the PACO acquisition is a strategic development that solves these issues and gives us a stronger presence in North America.
That’s the first point. From a product point of view, it fills a gap and extends our product range.
an element of speeding up our general sales power in the marketas well as R&D and production in Mexico.
WP: With regard to sales – one thing that I have noticed is that Grundfos goes into countries because it wants to increase its sales areas. Is there an established PACO sales structure already in the USA?
WP: Will the production plant in Mexico be making all the different types of pumps?
JJM: They do have quite a strong presence, with their own branches on the West Coast. However, on the East Coast they work through distributors. WP: I understand that the PACO purchase is one of several developments that Grundfos is undertaking, including opening manufacturing facilities in Mexico. JJM: The PACO acquisition is one of four developments that relate to our strategy for North America. The second one is the Mexico set-up, where we’re going to establish a low-cost production base for the American market. For many years we have been vulnerable to big changes in the dollar exchange rate, so we want to produce and buy more in dollars than we have been able to so far. The third element in this acceleration strategy is adding to the sales force in our established sales organisation in the USA to get more power in the market. The fourth and final element is to build up a product development unit in the USA, which should be seen as part of our central R&D activities. So there’s an element of sales, there’s an element of adding distribution and products from the PACO acquisition and there’s
16
0262 1762/06 © 2006 Elsevier Ltd. All rights reserved
JJM: It’s too early to say. However, as with our Hungarian manufacturing facilities, we will take it step by step. One of the main aims of the factory is to make us less dependent on the dollar. I can tell you that right now we are very happy that the PACO deal went through and, when we make this a success, there could be other areas where we could implement a similar strategy. WP: Turning to Alldos, they’re producing quite different types of metering pumps to those of Grundfos. How far is Grundfos going towards becoming a complete package provider of turnkey systems? SØS: That would definitely be too much to say. By bringing Alldos into our portfolio, we’re now able to provide a much larger product range. We are also in a position where we can provide systems, monitoring systems. With Alldos we have the competence of system sales and monitoring but I don’t see Grundfos going into these facility management systems as it is not one of our strengths. WP: Is there not the possibility that you may begin to compete against some of your own customers? SØS: That’s always a classic conundrum, which becomes an issue when you integrate more products
WORLD PUMPS July 2006
feature company interview into your range. The route that we are following does not conflict with our customers. The Hilge hygienic pump is a new area for us, but because we were previously not strong in that area we’re not really seeing conflict with customers. You could say that if you make five acquisitions in twoand-a-half years somebody will say that the Grundfos strategy is to grow by acquisition. That is absolutely not the case. We have in the past and will in the future mainly expand through organic growth. We develop our own products, produce our own products and sell our own products. However, in the field of strategic opportunities, there are some areas in which we accept that this path will simply take too long if we want to be serious. If there is already a well-driven, good, profitable company in that window of strategic opportunities then we’ll look at it. WP: Another acquisition is that of Brisan Turbo. SØS: Brisan Turbo South Africa is a fine, small company making submersible pumps for the agricultural market sector not only in South Africa but also in the surrounding countries. Here we can take this product range into the market and then introduce our higher quality products. That way we can offer a combination of premium and less expensive technologies. We are already selling the premium product through our own South African company, but we get an extra opportunity with Brisan. There is another very interesting aspect to this acquisition. Before we took over, Brisan was a customer of Franklin, the largest producer of submersible motors in the world. You could say that Grundfos is more or less the only other supplier of submersible motors in the world and we will strengthen that position. As a result we have been able take more than 25 000 motors away from Franklin and replace them with Grundfos Tesla motors. This demonstrates that we are trying
WORLD PUMPS July 2006
to be a serious alternative to Franklin on submersible motors. WP: Moving on, you have moved into Russia, China, India and other countries so what is your global strategy? JJM: There are two top priorities. Number one is Eastern Europe, with Russia as the main driver. That’s where we see the fastest and most straightforward growth because we already have our product portfolio in place. The limiting growth factor in that part of the world is finding, training and retaining qualified people. The second priority is the Far East with China as the main driver. I believe that in 2005 we achieved growth of 20% in Eastern Europe and 16% growth in the Far East. These regions are now developing a sizeable internal market share that really matters. If we can continue growth of 20% and 15% then it will really contribute to our annual growth target. Our acceleration strategy in the USA is also high on the agenda as is our desire to protect and to develop our core business in Western Europe where we have high market shares. WP: What do you see as the main threats in Western Europe? JJM: The economy in Western Europe is, in my opinion, losing ground compared to the rest of the world. Take Germany for example; for ten years now we have not seen any growth in Germany. Although we are now starting to see some movement, I am a little worried that France and Italy are becoming dormant. In some strange way, the UK is doing better than some of the other big countries.
where you have low market share and also adding value onto your product portfolio in areas where you’re already strong. WP: Going back to top-end business, what is Grundfos’ view of the Euro zone? JJM: If I look at it from a Grundfos point of view it’s clearly an advantage to have fewer currency risks. To have one Euro zone is for us a good thing as it definitely takes risks out of our currency exposure. The weak US dollar is, of course, a problem and it has been so for many years. WP: What about Japan? How do you see things developing there? SØS: I’m still very optimistic about Japan. Grundfos has, over the past two years, grown on average between 14% and 15% there. So we have expanded our business heavily in Japan. We are definitely the largest foreign pump manufacturer active in Japan. WP: What do you put this success down to? SØS: We are the main supplier to the Japanese machine industry, with around 80% of the market. This is really a fantastic niche we have established and we have consolidated our position there over the years. Good management has of course been influential in maintaining our
Figure 2. Søren Ø Sørensen, group executive vice president, Grundfos Group.
In such circumstances it takes talent to create growth, and we have been able to create 5-6% growth in Western Europe, which we consider to be very good. Part of this also comes from new initiatives and also the new energyefficient pumps we marketed last year in the circulator business – that has really been a success. So this is the way to grow: by moving into new areas
www.worldpumps.com 17
feature company interview business in the face of Japanese competition. We have very good products there and we have an excellent local organization that understands the Japanese way of doing business.
SØS: Yes, mainly in China and then of course also the Far East region but always when we establish these major production units in our globalisation strategy, it’s mainly to supply the local market.
WP: Turning to China: is there a country that you’ve particularly learned from – and have you been able to apply the lessons learnt to China?
WP: Does India also come under that same category – because you have a presence in India too?
SØS: I don’t think we can say that we have implemented any particular lessons. I think we are looking at China more as a unique opportunity in which we need to do more or less everything long term. We need to have our production base in place and, in common with all the markets that we enter, we always establish ourselves with local teams. WP: Do you see China becoming the main hub in terms of low-cost production for the future?
18
www.worldpumps.com
SØS: Yes it does. We are not currently exporting products from India, as our factory is only 18 months’ old. WP: You say that you are still committed to investing heavily in product development. What percentage of turnover are you investing? SØS: These days 4.5% of our turnover goes on R&D, which last year represented 75 million. We are trying to invest in all the segments where we want to be serious players. One area
where we have made a considerable investment is wastewater because that is a new area that we are going into. Wastewater probably has the highest potential and is the fastest growing market and there will be a lot of infrastructure construction going on in East Europe and Russia. It is Grundfos’ policy to be responsible, planning ahead not only to optimise short-term opportunities, but also to think ahead for the long term. We intend to invest in R&D, invest in globalisation and production and invest in new markets. In this way we will keep our position and will continue to be leaders in technology. ■ CONTACT Grundfos Management a/s Poul Due Jensens Vej 7 DK-8850 Bjerringbro, Denmark. Tel: +45-8750-1400 E-mail: [email protected] www.grundfos.com
WORLD PUMPS July 2006