Richard Erb 11 -2004 Name Education

Richard Erb / 11 -2004

Name Education Age Business experience : Richard Erb : Diploma in Biology minor subject Chemistry : 55 years : 2 years software development : 14 years sales and marketing 4 years purchasing Actual position : Managing Director Fujitsu-Siemens Taiwan and China Since 1992 in Asia (Singapore, Tokyo, Beijing, Hongkong, Taipei, Suzhou) Richard Erb / 11 -2004

1. About China 2. Fujitsu-Siemens in Greater China Richard Erb / 11 -2004

Perception and facts Cultureshock China the supplier China the customer China the competitor China the partner Richard Erb / 11 -2004

Yellow Large Underdeveloped ? Richard Erb / 11 -2004

Perception and facts 3400 KM 1000 KM 4450 KM 1600 KM 1200 KM Richard Erb / 11 -2004

Perception and facts 45. 800. 000 internet users 310. 450. 000 fixed line phones 320. 240. 000 mobile phones 410. 000 TV sets 457. 000 Radios 170. 000 SMS Richard Erb / 11 -2004

Perception and facts Richard Erb / 11 -2004

Perception and facts Chongqing Shanghai Beijing Chengdu Harbin Tianjin Wuhan Qingdao 30 Mio (15 Mio central city) 20 Mio (13 Mio central city) 12 Mio 10 Mio 9 Mio 7 Mio Richard Erb / 11 -2004

Perception and facts Cultureshock China the supplier China the customer China the competitor China the partner Richard Erb / 11 -2004

Cultureshock China Language 400 sounds * 4 tones = 1. 600 sounds 56. 000 characters / 1. 600 sounds = average 35 meanings per sound Richard Erb / 11 -2004

Cultureshock China Relationship in China is much more important than in Germany. People usually know schoolmates from different classes Richard Erb / 11 -2004

Cultureshock China Family Relationship Germany grandmother grandfather mother‘s brother = uncle grandmother grandfather mother‘s sister = aunt father‘s brother = uncle aunt mother aunt nice nephew nice uncle father uncle nephew father‘s sister = aunt me nephew nice Richard Erb / 11 -2004

Cultureshock China Family Relationship China 外婆外公奶奶 grandmother grandfather wai gong wai po mother‘s brother = jio fu mother‘s sister = ai yi 媽媽 grandmother grandfather nai yie 爸爸阿姨舅父 biao ge biao jie 表姊 biao di biao mei 表妹表弟表妹叔叔姑姑嬸嬸姑丈 buo mu yi jang 表弟 father‘s sister = gu gu 伯母 jio ma 表姊表哥 father‘s younger brother = shu father 姨丈表哥 father‘s older brother = buo 伯伯 mother 舅媽爺爺 me tang ge tang jie shen gu jang tang ge tang jie biao ge biao jie 堂哥堂姐表哥表姊 tang di tang mei biao di biao mei 堂弟堂妹表弟表妹 Richard Erb / 11 -2004

Cultureshock China Relationship in China is much more important than in Germany Each family relation has its own name People usually know schoolmates from different classes Business in China is done based on relationship Contracts may support the business, but are not mandatory Business in Europe is done based on contracts Relationship may support the business, but are not mandatory Mistrust between people without established relationship is not necessarily impolite No business without lunch or dinner Richard Erb / 11 -2004

Cultureshock China Behaviour Example: Negotiations about future business partnership In western countries it is not unusual to give a leap of faith to the future business partner. This behaviour is based on the assumption, that the future partner will follow the agreed contractual terms and conditions In China it is not unusual to start with a lack of trust to the future business partner. This behaviour is based on the fact, that contractual terms and conditions Sleeping in the same can not always be enforced bed, but dreaming different dreams This can lead to a situation, where the western partner shows his trust and the chinese partner shows his mistrust. The western part is concerned, because the future partner shows openly a lack of trust. The Chinese partner is concerned, because the western partner is so naïve to trust someone he does not yet know. Both behave different, however, both are right from their personal point of view Richard Erb / 11 -2004

Cultureshock China Behaviour a “YES” must not necessarily mean “YES” Richard Erb / 11 -2004

Cultureshock China Business opportunities Examples for business difficulties based on cultural differences Karaoke systems in Germany Tanning salon in China Advertisement Richard Erb / 11 -2004

Cultureshock China Why can’t they behave like us ? Why should they ? Richard Erb / 11 -2004

Perception and facts Cultureshock China the supplier China the customer China the competitor China the partner Richard Erb / 11 -2004

China the supplier In 2004, Germany imported products from China at a value of 25 bln Euro (+ 17, 3%) If China does not ship, German shops are empty The majority was represented by products of the IT industry, clothing (textile as well as leather goods) and household appliances Richard Erb / 11 -2004

China the supplier Most probably, all of you here in the audience have something which was produced in China Richard Erb / 11 -2004

China the supplier 35% of all microwave ovens are produced by Galanz in Shenzen 35% of all mobile phones are produced in China 40% of all harddisc drives, scanners, and PC housing are produced in China (Shanghai, Suzhou, Wujiang, Kunshan, Shunde, Dongguan) 50% of all shoes are produced in China 55% of all digital cameras are produced in China 60% of all bicycles are produced in China 70% of all notebooks are produced in Taiwanese factories in China 70% of all toys are produced in China 75% of all photocopiers are produced in Dongguan 80% of all PC motherboards are produced in Taiwanese factories in China 80% of all DVD players are produced in China Richard Erb / 11 -2004

Perception and facts Cultureshock China the supplier China the customer China the competitor China the partner Richard Erb / 11 -2004

China the customer In 2004, Germany exported products to China at a value of 18, 2 bln Euro (+ 24, 9%) The majority was represented by machinery and complete industrial facilities, specialized technical equipment and cars. Richard Erb / 11 -2004

China the customer ~ 100 mio people earn more than 5. 000 US$ per year ~ 40 mio people earn more than 25. 000 US$ per year ~ 300 K people earn more than 1. 000 US$ per year Swiss luxury watches 2003: 150 mio US$ revenue (+ 15%) Diamonds 2003: 1. 5 bln US$ revenue (+ 8 %) Body care 2003: 5. 5 bln US$ revenue (+ 25 %) Tourism to Germany Jan. – Jun. 2004: 344. 000 people (+ 48 %) average spending person and day: 200 Euro Expectation for 2010: 1 mio tourists p. a. Richard Erb / 11 -2004

Perception and facts Cultureshock China the supplier China the customer China the competitor China the partner Richard Erb / 11 -2004

China the competitor China is a major competitor in - Demand for raw materials - Demand for investment money - Supply of cheap labor Richard Erb / 11 -2004

China the competitor Raw material Stannous : Price increase from < 4 US$ / kg to 9 US$ / kg within 2 years (Zinn) Copper : Price increase of 70% within one year (cabling, electronics) (Kupferl) Lead : Price increase of 65% within one year (car batteries) (Blei) Nickel : Price increase of 40% within one year (steel coating) Coke : Price increase of 500% within two years (steel production) (Koks) Richard Erb / 11 -2004

China the competitor Raw material consumption in % of world consumption 2003 China Coal Steel Oil US EU Japan 31, 3 26, 0 8, 0 22, 3 11, 6 25, 1 8, 6 16, 2 17, 6 4, 4 8, 5 6, 8 In the first 6 months of 2004, the consumption of mineral oil and steel grew by 50% In 2004, China consumes: - 50% of worldwide cement production - 25% of worldwide copper - 33% of worldwide steel production Richard Erb / 11 -2004

China the competitor Raw material Richard Erb / 11 -2004

China the competitor Investment FDI CI 2003 * 2004 2003 2002 1 2 3 4 5 6 7 8 9 10 1 2 6 7 5 11 19 22 12 15 1 2 15 3 4 5 10 18 6 12 * (Foreign Direct Investment Confidence Index A. T. Kearney) China USA India Great Britain Germany France Australia Hong Kong Italy Japan Richard Erb / 11 -2004

China the competitor Investment Richard Erb / 11 -2004

China the competitor Labor cost Richard Erb / 11 -2004

Perception and facts Cultureshock China the supplier China the customer China the competitor China the partner Richard Erb / 11 -2004

Partner China In 1998, a German consortium won the contract to built the first commercially used highspeed magnetic train from Shanghai Pudong airport to the city. Part of the deal was the involvement of chinese companies and a reasonable know how transfer In 2003 we can see the first test train, completey developed and produced in a cooperation of Chinese companies and universities. Richard Erb / 11 -2004

Partner China The Yangtse River Dam Project saves annually 2 million tons of sulfur dioxide 100 million tons of carbon dioxide Power generation equivalent to 14 nuclear power stations or 22 coal-fired power stations. Compared to power generation with conventional coal-fired power stations, the Yangtse river power generation saves annually 40 million tons of coal for China Richard Erb / 11 -2004

Partner China In the early nineties, a German consortium won the contract to built 8 power generators (each 700 MWatt for the Yangtse river project. Part of the deal was the involvement of chinese companies and a reasonable know how transfer to enable them to built the other 16 generators. In the late nineties, China was able to offer large power generators to a project in Iran. Richard Erb / 11 -2004

Partner China What does China need ? - know how in managent and controlling - know how in marketing -technical know how in special areas (ex. server computer) Richard Erb / 11 -2004

Investments into our future „Germany is China’s largest European investor, between 1990 and 2003 German companies have done direct investments in an amount of 9 billion Euro” (German president Koehler in Wirtschaftswoche Special Edition Nr. 1, 30. 09. 2004) Richard Erb / 11 -2004

Investments into our future Richard Erb / 11 -2004

Investments into our future Population 80 Mill Population 20 Mill Richard Erb / 11 -2004

Investments into our future ? Richard Erb / 11 -2004

1. About China 2. Fujitsu-Siemens in Greater China Richard Erb / 11 -2004

Fujitsu-Siemens in Greater China In 1999, Siemens Germany and Fujitsu Japan decided to join their European it activities. Fujitsu became responsible for Americas and Asia Pacific and Fujitsu Siemens Computers took the sales region EMEA. Americas EMEA Asia / Pacific SCENIC Deskpower CELSIUS LIFEBOOK PRIMERGY PRIMEPOWER Millennium BS 2000 GS 8000 FSC Ownership Richard Erb / 11 -2004

Fujitsu-Siemens in Greater China Purchase Volume per Region * ROA = Rest of Asia e. g. China / Taiwan, Korea Richard Erb / 11 -2004

Fujitsu-Siemens in Greater China With the growing importance of China and Taiwan as a supplier of high quality IT products, it became necessary to establish an organization in the region. In 2001, a purchasing office was established in Taiwan. Until 2004, this office became the hub for 36 employees from purchasing, engineering, product marketing and service. In 2004, a logistics office was established in Suzhou. In the future, additional engineering and purchasing staff will be added to the existing logistics employees. Richard Erb / 11 -2004

Fujitsu-Siemens in Greater China Major Tasks • Supplier selection select the best available supplier in terms of total cost of ownership • Contract negotiation negotiate and sign master purchase agreement • Product sourcing provide information about new opportunities and future products • Joint development Develop products in cooperation with local engineering teams • Quality assurance • Purchasing & Logistics • Risc management • Relationship management Qualification and test of products Buy products and ensure on-time delivery Manage riscs which may endanger product availability Establish excellent relationship in order to secure product availability Richard Erb / 11 -2004

Fujitsu-Siemens in Greater China Joint development • Supplier selection select the best available supplier in terms of total cost of ownership • Contract negotiation negotiate and sign master purchase agreement • Product sourcing provide information about new opportunities and future products • Joint development Develop products in cooperation with local engineering teams • Quality assurance • Purchasing & Logistics • Risc management • Relationship management Qualification and test of products Buy products and ensure on-time delivery Manage riscs which may endanger product availability Establish excellent relationship in order to secure product availability Richard Erb / 11 -2004

Fujitsu-Siemens in Greater China PC value chain 1980’s Development Purchasing Production Testing & Qualification Logistics Sales & Marketing Service 1990’s Development Purchasing Production Testing & Qualification 2004 Development Purchasing Production Testing & Qualification others Development Purchasing Production Testing & Qualification Richard Erb / 11 -2004

Fujitsu-Siemens in Greater China Joint development China: Moving up the value chain Unix Server Intel Server Blade Server PC Richard Erb / 11 -2004

Fujitsu-Siemens in Greater China Joint development How to prevent to get caught? Team up Find a win-win proposition If you can‘t beat them, join them ! Discover your strenght and weaknesses Maintain a technology headstart Invest in R&D Richard Erb / 11 -2004

Fujitsu-Siemens in Greater China Joint development • Supplier selection select the best available supplier in terms of total cost of ownership • Contract negotiation negotiate and sign master purchase agreement • Product sourcing provide information about new opportunities and future products • Joint development Develop products in cooperation with local engineering teams • Quality assurance • Purchasing & Logistics • Risc management • Relationship management Qualification and test of products Buy products and ensure on-time delivery Manage riscs which may endanger product availability Establish excellent relationship in order to secure product availability Richard Erb / 11 -2004

Fujitsu-Siemens in Greater China Quality assurance • Supplier selection select the best available supplier in terms of total cost of ownership • Contract negotiation negotiate and sign master purchase agreement • Product sourcing provide information about new opportunities and future products • Joint development Develop products in cooperation with local engineering teams • Quality assurance • Purchasing & Logistics • Risc management • Relationship management Qualification and test of products Buy products and ensure on-time delivery Manage riscs which may endanger product availability Establish excellent relationship in order to secure product availability Richard Erb / 11 -2004

Fujitsu-Siemens in Greater China Quality assurance HP replaces defect notebook memory (27. 06. 2004) Call-back for MSI Pentium-4 -boards with defect southbridge Call-back for batteries of Apple 15´´ Power. Book G 4 (19. 08. 2004) Call-back for IBM notebook charger because of fire hazard Call-back for Dell notebook charger (01. 07. 2004) (03. 09. 2004) (08. 10. 2004) On 27. 02. 2004, the company 4 MBO declared insolvency Broad media coverage about radiation issues with the Volks-PC sold in Q 4 2002 hurt the companies reputation severely Richard Erb / 11 -2004

Fujitsu-Siemens in Greater China Quality assurance Quality is built in ! Therefore, FSC is involved in the design phase of products. Foodchain products are often bought off-the-shelve without involvement of the distributor during design. FSC is involved in qualification and testing of all products to avoid later call backs and customer complaints which lead to financial loss and customer dissatisfaction Richard Erb / 11 -2004

Fujitsu-Siemens in Greater China Quality assurance Qualification and testing - abrasion test for paint and keyboard - EMI test (radiation test) - CD and DVD Media tests - I/O interface test - safety test (power supply and charger) - mechanical tests - drop test for transportation Source assessment following international standards Field return information loop weekly feedback of field return rates to production Richard Erb / 11 -2004

Fujitsu-Siemens in Greater China Quality assurance Quality will still be remembered when the price has been long forgotten (Aldo Gucci ) Richard Erb / 11 -2004

Fujitsu-Siemens in Greater China Quality assurance • Supplier selection select the best available supplier in terms of total cost of ownership • Contract negotiation negotiate and sign master purchase agreement • Product sourcing provide information about new opportunities and future products • Joint development Develop products in cooperation with local engineering teams • Quality assurance • Purchasing & Logistics • Risc management • Relationship management Qualification and test of products Buy products and ensure on-time delivery Manage riscs which may endanger product availability Establish excellent relationship in order to secure product availability Richard Erb / 11 -2004

Fujitsu-Siemens in Greater China Risc management • Supplier selection select the best available supplier in terms of total cost of ownership • Contract negotiation negotiate and sign master purchase agreement • Product sourcing provide information about new opportunities and future products • Joint development Develop products in cooperation with local engineering teams • Quality assurance • Purchasing & Logistics • Risc management • Relationship management Qualification and test of products Buy products and ensure on-time delivery Manage riscs which may endanger product availability Establish excellent relationship in order to secure product availability Richard Erb / 11 -2004

Fujitsu-Siemens in Greater China Risc management Together with it´s partners, Fujitsu Siemens Computers does a Risc assessment on a regular basis. Generic steps of risk management: Identify Evaluate Manage Monitor Richard Erb / 11 -2004

Fujitsu-Siemens in Greater China Risc management Identified risks which may impact our relationship u u u Acts of God earthquakes weather epidemics (e. g. chicken flue) Government induced risks termination of business / export / import licenses regional power shortage / cuts changes in tax or duty structure Management induced risk loss of key personnel growth management acquisition Purchasing & procurement risk single source parts / suppliers wrong forecasting / planning Economic risks slow down / up turn (resulting in shortage / oversupply) price erosion (e. g. due to technology changes) exchange rate Richard Erb / 11 -2004

Fujitsu-Siemens in Greater China Risc management Generic risk management measures Avoid Reduce Transfer Accept Overall Risk Residual Risk Richard Erb / 11 -2004

Fujitsu-Siemens in Greater China Risc management • Supplier selection select the best available supplier in terms of total cost of ownership • Contract negotiation negotiate and sign master purchase agreement • Product sourcing provide information about new opportunities and future products • Joint development Develop products in cooperation with local engineering teams • Quality assurance • Purchasing & Logistics • Risc management • Relationship management Qualification and test of products Buy products and ensure on-time delivery Manage riscs which may endanger product availability Establish excellent relationship in order to secure product availability Richard Erb / 11 -2004

Fujitsu-Siemens in Greater China Crisis = 危險 Danger Wei xiao Wei ji 機會 Opportunity Ji hui Richard Erb / 11 -2004

Thank you for your attention Richard Erb / 11 -2004

Richard Erb / 11 -2004