“The view of globalization has been shaken”

Frank Stührenberg, Managing Director of Phoenix Contact, about globalization, decoupling strategies and new opportunities in this situation.

Are we facing a different world of globalization today than we were two years ago?

Yes, we have a fundamentally different situation than we had a year ago, I would even say than we had three months ago. The war situation has fundamentally changed something. It has also shaken a paradigm for me. Personally, as a company, in the industry and as an exporter, we believed that the talk of “change through trade” had substance. We thought that if we employed 250 people in Russia in jobs that were fit for the future and in our open corporate culture, we could have a small positive impact on society. I admit: This assessment has shaken mightily. The view of globalization, its positive dynamics and the growth it has brought in recent years has been shaken.

How do you see the geopolitical challenges for companies?

It is already the case that the relationship between the USA and China, the strategy of decoupling is having an impact on the global market. The self-evident cooperation between the Western and Far Eastern world will no longer exist in this way. China is also focusing on certain industries whose development it wants to have in its own hands. Europe in between has to react to this situation, which will not be a short phase. From the perspective of a technology company from Germany, however, there is also an opportunity in this.

What’s needed now is smart localization or regionalization.

And what is that?

Stronger local value creation, such as is currently being pursued in the USA and also in Europe, also means investment in machinery and equipment. For us, this means that we will develop the individual regions of the world more “locally for locally” – instead of driving value chains that are fully integrated and synchronized across the globe. What’s needed now is smart localization or regionalization, without allowing the effort required of a company to become too great.

How difficult is it to transform supply chains now?

Delivery reliability and dependability remain our highest standards. We are currently having our difficulties with this, as is everyone in the industry. Our company, which has deeper internal value creation, can still navigate. We are not dependent on international contract manufacturers. After a year of fighting for the scarce leftovers that were still on the market in electronics, all buffers now seem to be slowly exhausted. We are already concerned about these disruptions. The issue of logistics capacity no longer being available is also critical. At some point, this is no longer in your own hands.

Does the local agility of national companies help here?

Since the beginning of our internationalization, we have tried to set up units in the countries that had as strong a local footprint as possible. Local management, a company culture of its own, for example in the marketing process, local warehouses, its own portfolio, no dependence on shared service centers for order management and invoicing, its own logistics competencies. This has enabled us to circumvent some problems. In China and the USA, as in Germany, we fully mapped the entire process and made sure that we could develop local supplier structures. Metal parts for clamps are not sent around the world by the ton, but are delivered to assembly in China by local suppliers. This helped us last year to compensate for bottlenecks in Europe as well. In the USA, we have an electronics production facility that we are currently expanding. 

What are your plans for China?

As is the way with plans at the moment. We had a plan for this year, we also had a plan for last year… Even though things are currently changing month by month, China remains the largest market outside Germany.  As things stand, you can’t think about electromobility, which is such an important topic for us, without China, so we have to find a position in the market. In the current five-year plan, however, China is avowedly relying on its own cycle with national value chains for certain technologies, industries and markets. The desired self-sufficiency in the energy sector – in generation and distribution – in electromobility and in smart manufacturing are fields of action that play a key role in our business with China.  We take great pleasure in participating in China’s open international circuit and network intensively.

How is PhoenixContact responding to these new circumstances?

Instead of simply waiting and hoping that everything will remain as it was, we have to adjust to the situation. We are preparing to network with Chinese companies to a much greater extent than before by building up even more of our own development and software expertise in China. We want to do more than just standard supply business with Chinese customers; we want to arrive at specific, aggregated solutions with them. The position of our plants should be such that even large and important Chinese companies say that they want PhoenixContact in China and close to them. Because our role can theoretically be covered by Chinese competitors, we need so much innovative edge that it is not so easy to replace us. This also means not taking every step alone as a company in the future, but moving out of our comfort zone and also working more closely with Chinese partners. But all of this must be done without blindly ignoring everything that is being announced politically – the very size of this market demands that we do so.

I am confident that we will not miss out on the necessary as well as the leap innovations.

Do all these challenges affect the company’s innovative strength?

There’s no question about it: all the exogenous influences – pandemic, supply shock, war, deglobalization – tie up enormous capacities. Nevertheless, I am very confident for our company that we will not miss out on the necessary innovations and also the leap innovations. We just have to force ourselves to prioritize and focus more clearly now. In previous years, it was great to be able to present a hundred new products every year, even if twenty of them were variations on old products. Now we only have enough for 80 or 60 product innovations that really matter. And we remain strategically focused – on “Empowering the all electric society”. The energy transformation of the world remains large and technologically challenging, and we have the right people and sufficient resources in our projects. Just because we can’t get a container from China right where we want it, we won’t let up a millimeter in terms of innovation potential.

Laura Venema
27.05.2022
von Laura Venema