with M.S. Menon, President Director, Endress + Hauser
Endress+Hauser has been in Indonesia for over 20 years, a time span during which much has changed in the market and in the company’s strategy. How does the evolution of the company in Indonesia reflect the Group’s new priorities?
Indonesia is a very interesting case in this regard. When I first arrived in 1982, the primary industry in the country was O&G but Endress + Hauser actually had a strategy to grow in other industries which were not well serviced at the time such as: water, food & beverage, pulp & paper, and power. During those years, the automation business was in its early days and the main clients were governmental organizations with requirements for back office processing; the focus was more on the commercial side. Gradually the industrial sector began realizing the importance of automation and instrumentation, and Endress + Hauser accompanied this growth to become one of the most recognized players in the industry.
More recently, there has been a global shift in strategy in the Group which is targeting the oil and gas sector as one of the key markets for Endress + Hauser’s growth perspectives. After attaining a strong position in the other industries I mentioned, it is time to focus on the O&G sector in order to become the supplier of choice for automation and instrumentation in this booming market. We estimate that there is a great potential for substantial levels of growth in the sector over the next 3 to 4 years.
Endress+Hauser is a global company but still relies on Europe for the majority of its revenues. With developed economies lagging and emerging markets booming, particularly in Asia, how is the company adapting to this new reality?
Endress + Hauser has to be where there is growth. The European market is still the largest in absolute terms for the Group, but it is a mature market and the opportunities for growth are elsewhere. The areas identified as having the most potential are the Americas and all of Asia, from the Middle East to the Far East. Endress + Hauser’s growth in the biggest emerging powers in Asia, China and India, has been phenomenal. The Southeast Asian ‘tigers’ are also on a rapid growth path, albeit to a lesser extent. Therefore, the shift from the traditional European market towards Asia in particular has already taken place. It is a strategy without a timeframe, because they are simply the markets of the future in terms of investments and yields for the company.
To what extent is Endress + Hauser’s decision to focus on oil and gas related to the global oil boom of the last several years?
The O&G industry is one of the fastest growing in the world, and with oil prices approaching $100 USD per barrel, massive investments are going into projects everywhere in the world with potential for discoveries. Energy hungry giants like China and India are aggressively crossing their borders in order to make worldwide acquisitions which can allow them to meet their soaring domestic demands. National oil companies are also experiencing a big development in the main emerging markets like the ‘BRIC’ countries (Brazil, Russia, India, China) and Indonesia.
Endress + Hauser’s approach is therefore to go along with this trend in these dynamic economies, and do our best to acquire market share in the midst of this boom. For sure, we are not the only automation company with such a strategy, but we are determined to capitalize on this bullish environment in the oil and gas sector based on our long experience and know-how.
The opportunities, however, are not confined to the oil and gas sector itself. As a result of soaring oil prices, investments in alternative energy sources are also higher than ever and offer opportunities for us. Endress + Hauser is particularly interested in the potential of biofuel development, whether biodiesel or bioethanol, as a huge area of growth towards the future. Indonesia is already the number one producer of crude palm oil (CPO), feedstock for biodiesel, in the world. Endress + Hauser has been a big player in the CPO market for the last 20 years, practically dominating the market, so moving on towards biodiesel would be a natural progression for us. Big players from traditional energy sectors such as oil are starting to get serious about investing in renewable energies such as biofuels, and this is only bound to intensify in the future.
Indonesia is actively promoting biofuel development as an alternative energy source, and over the coming years some very large projects substantially increasing production will be completed. Our company is involved in several of these projects, and we will continue seeing biofuels as a significant driver of growth towards the future in Indonesia. One of the most interesting things about biofuels development is that, contrary to O&G which is an old and mature sector, this fledgling industry is just beginning and thus process standards and benchmarks have yet to be set.
Besides the potential in O&G and biofuels, what are the other main factors that make Indonesia a prospective market for Endress + Hauser at the present time?
First of all, Indonesia is an incredibly resources-rich country in a global context of high demand for all types of commodities, from oil & gas and minerals to forestry based products. In addition, Indonesia has made great progress over the last several years in terms of achieving political and economic stability after a difficult transition period from the old regime. Although the country still has the occasional political, social or religious disturbance, which is something normal in such a large and diverse country, it is encouraging to see that business is not necessarily affected. This fact makes it possible to have continuity and develop long-term growth plans in the country.
The benefits are already evident from the increase in investments over the last few years, in both new projects and in some of those which had been left on stand-by during more uncertain times. The overall sentiment regarding the country is much more positive than before. And this is really just the tip of the iceberg; in numerous sectors with enormous potential Indonesia has only begun to scratch the surface. Furthermore, it is the largest country in the Southeast Asian region and has always been one of the main driving markets of ASEAN.
Indonesia has undergone some enormous changes over the last ten years, in economic and political terms. Do you consider that the business environment that is emerging after years of turmoil is more favorable than the previous one?
The new environment is much more conducive to business for a company like Endress + Hauser. In the past, the channels were fixed and old relationships continued existing irrespective of how they were actually impacting a company’s performance. In contrast, the new system has opened up the possibilities for everyone and allows for the creation of sustainable business relationships. The approach now is to be professional and completely business-oriented, which is the way things should be. For example, Pertamina has been reforming its entire strategy, divesting non-core business in favor of a more focused approach. Whereas its previous structure was a wehrmacht impossible to control, its new model allows it to break away from the rigid channels of the past and move forward.
Clearly, the Oil and Gas industry is one of Endress + Hauser’s target markets for future growth opportunities around the world. What is the strategy to attain important levels of recognition and market share in this competitive environment, and to what extent are the efforts made on a country or global scale?
Endress + Hauser is developing relationships with both local and international players in Indonesia’s O&G industry. Pertamina is certainly one of the main drivers in the market, but under the PSC system in Indonesia we also see all of the big international oil companies which are not only partners but also the key investors in the upstream business. For this reason, although Endress + Hauser acts locally we are addressing these companies on a global basis by talking to the engineering centers of all the key players in the O&G sector and to the main EPC firms which build for this market. At the same time, we approach local PSCs in order to make sure that Endress + Hauser is on their vendor list, giving technical support and information about our products and technology. This has proven to be a slow task at times because, despite the fact that the O&G industry is one of the most advanced in the world, it is also quite conservative and cautious about changing its methods. The process of convincing O&G companies about our solutions is a long exercise, but gradually Endress + Hauser is getting on the list of service providers for big players such as Pertamina, Total, ExxonMobil, CNOOC, and Petrochina.
What do you consider to be Endress + Hauser’s competitive edge in the automation and instrumentation market?
As any other company, Endress + Hauser has built relationships with its clients based on our products and services. However, today there are many players in the business offering good products, so the true differentiating factor is in the support we offer our customers in the after-sales area. In fact, this is the key driver of Endress + Hauser’s success and what sets us apart from the competitors. We currently have over 50% of our entire staff dedicated to after sale activities, which is why this company has reached the position it is at today. Since the early days of Endress + Hauser, when it was a small company in a market dominated by a few major players, the strategy was to focus on being number one in the service department in order to build lasting relationships. The company built on this strength and gradually climbed the ladder to become one of the key global players in today’s automation and instrumentation markets. Of course, Endress + Hauser also owes its success to its technological expertise and big efforts in R&D, but the key differentiating factor is definitely the service we offer.
In addition, Endress + Hauser’s approach is to sell solutions rather than just move boxes. We make a big effort to talk to customers in order to understand their specific needs before offering a solution. This is essential because even within the same industry each company’s conditions make every case unique. The company also dedicates a lot of time to training people locally, both from inside and outside Endress + Hauser. In fact, one of our main initiatives has been to train students on the state of the art of instrumentation while they are still in university. We decided to do this after noticing how new graduates were obsolete even before stepping into the labor market, due to an often old and outdated curriculum. In West Java Endress + Hauser has provided a university with a complete lab of our equipment so that they can catch up on the state of the latest systems and technologies in our field. The development of local skill is very important for Indonesia, since it means that professionals will be more productive for the industries in their area.
What final message would you like to send to OGFJ’s readers about Endress + Hauser’s ambitions in Indonesia 5 or 10 years down the road?
Endress + Hauser would like to be in a leadership position within 5 years time in the O&G industry, as it already is in many other sectors. This does not necessarily mean being number one in everything, but we do aspire to be among the 2-3 top players in Indonesia within our key focus areas which now include O&G.