Construction Boom May Prompt Otis to Build Plant: Southeast Asia

Otis, whose elevators power people up and down the Eiffel Tower, is considering setting up its first plant in Southeast Asia to tap a market that could pass Western Europe by the end of the decade.

A decision on the location may be made by the middle of next year, Otis President Pedro Baranda said in an interview yesterday. China and India, along with Western Europe, are the biggest markets for elevators and escalators, he said.

Demand from Indonesia, Vietnam and Malaysia is increasing while economic growth and construction in India have prompted the United Technologies Corp. unit to expand capacity at its Bangalore factory, Baranda said. There are 0.2 elevators per 1,000 people in India compared with 11 in Western Europe, 10 in Hong Kong and 3 in the U.S., he said.

“The future of our industry is here,” Baranda said in Singapore. “It’s inevitable, because it’s driven by demographics and urbanization. We are investing in engineering and manufacturing facilities in this part of the world.”

The Philippine and Taiwan economies grew more than forecast last quarter, and Singapore’s jobless rate fell to a five-year low, signaling an upswing at the end of 2012 that underscored Asia’s role leading a global recovery.

Indonesia, Thailand and Malaysia were identified by HSBC Holdings Plc and Credit Suisse Group AG to be among the biggest beneficiaries of Japanese monetary easing and a 10.3 trillion yen ($109 billion) stimulus plan by Prime Minister Shinzo Abe, who wrapped up a tour of Southeast Asia on Jan. 18.

More Demand

“Economies in Southeast Asia should continue to lead global growth,” Song Seng Wun, a Singapore-based economist at CIMB Research Pte. “We’re already seeing urbanization happening. More money in the pocket means more demand for services, more demand for services means everything needs to be upgraded.”

Otis’s worldwide sales totaled $12.1 billion last year, little changed from the $12.4 billion a year earlier, according to a statement on its website. The Farmington, Connecticut-based company is projecting sales of between $12 billion and $12.5 billion this year, he said.

Revenue from Asia Pacific region may be almost $5 billion this year, up from less than $4.5 billion in 2012, Baranda said.

Otis’s parent United Technologies said earlier this year it expects Asian sales will increase about 7 percent to 8 percent in the next decade as construction of skyscrapers in China boosts demand for elevators and air conditioners, made by United Technologies’s unit Carrier.

Chinese Skyscrapers

Almost 60 percent of all the new tall buildings in the world are going to be in China, and that will stoke demand at United Technologies businesses such as Carrier air conditioners and Otis elevators, United Technologies Chairman and Chief Executive Officer Louis Chenevert said in February.

China’s orders for Otis, the third-biggest contributor to United Technologies’s sales, posted a 17 percent increase in the fourth quarter. That comes after three quarters of declines.

Otis’s competitor, Schindler Holding AG, abandoned a profitability target in February for its elevators and escalators business to focus on winning market share in China and India, part of billionaire Chairman Alfred Schindler’s strategic push. Schindler has already begun building new factories in China, India and Slovakia.

It is no longer strategically acceptable to focus exclusively on the optimization of the operating margin, the Ebikon, Switzerland-based Schindler said in a Feb. 19 statement.

Otis is developing new technologies for its elevators that will save energy and increase efficiencies, Baranda said. The company is offering models that can be powered by batteries, so that they can operate even during outages, he said.

Otis has been moving some of its businesses to Asia, including its global head of strategy, who moved to Shanghai as part of a strategy to be closer to customers, he said.

“We’re very bullish about the prospects in the region,” Baranda said. “The market is going to grow at significantly higher levels than the GDP for the next few decades.”