The Sweet Smell Of Demand

For a glimpse of the kind of future Siemens Chief Executive Klaus Kleinfeld envisions for his company, head for the Indian city of Kalwa, outside Mumbai. At Siemens' sprawling complex there, more than a half-dozen factories make a broad range of industrial equipment. The newest is a 130,000-square-foot plant that will produce giant electrical transformers. Although the facility isn't scheduled to reach full capacity for months, India's hunger for electricity is so intense that orders have been rolling in fast—which should help Siemens' sales to India's power industry keep climbing after doubling last year to $447 million.

Despite the low-tech construction methods—women in saris carry pans of dirt on their heads and men lift steel girders into place with ropes and pulleys—Kalwa is infused with the energy and drive that come with booming growth. Those are exactly the traits Kleinfeld wants to instill in Siemens worldwide. Even as he tussles with German unions and struggles to slash costs at home, Kleinfeld is pushing ahead with big expansions in India, China, Russia, and elsewhere.

In Germany, the debate is about how to manage job cuts. But in much of the rest of the world, Siemens has the opposite problem: It can barely keep pace with its growth. In Asia, Siemens' sales jumped 28% in fiscal 2006, to $16.7 billion, or 15% of the company's overall revenues. The expansion means a nine-story Bangalore office building—completed in 2005 and intended to provide enough growing room for years—is nearing capacity as the company offers a bonus to employees who get a friend to sign up.

One such worker is Vishnu Swaminathan. The 31-year-old earned his doctorate from Duke University in 2003 and since then has been a researcher for Siemens. Swaminathan found a way to produce a digital video camera for about $100—or 10% of what outside suppliers were charging. The low-cost camera will make it possible for Siemens to sell traffic lights that can, for example, switch to green when too many cars build up in a given direction. "It's no longer about cheap labor, but about high value," says Gerd Hoefner, a vice-president at Siemens Information Systems Ltd. in Bangalore.

Success in India is also about getting the right products to market quickly. Siemens learned that lesson the hard way when it was slow to introduce low-cost mobile phones in the country, missing out on what proved to be the fastest-growing cellular market in the world. Now, Siemens seems to be getting smarter. The Medical Solutions Div., for instance, sells X-ray scanners in India without some nonessential features, to make them more affordable.

As India gets richer, it is growing in importance for Siemens. Last year the company sold some $1 billion in goods there, giving it a comfortable lead over rivals such as General Electric Co. in providing the technology India needs to keep traffic flowing smoothly, produce reliable electricity, and supply drinkable water. GE, with sales in India of $700 million, is coming on strong, though for now there seems to be plenty of room for both titans. Says Anil Laud, a former IBM executive who oversees Siemens' operations in Bangalore: "One really has to live here to see how it is thriving."

By Jack Ewing in Kalwa, India

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