Interdependence Between NAFTA & International Strategy of Siemens AG

Sachiko Miyake, Anna Lee, César Martínez

NAFTA

• RIA between Canada, Mexico and USA (1994)• Liberalization of trade and investment flows• Gradual reduction of trade tariffs,

Complete eradication by 2008

PEST Analysis on NAFTAPolitical Economical

•Formation of complimentary political organization and behavior*

•Democratic movements, empowerment of civil society capacity of less developed member country*

•Pressure to prioritize the group benefit over the domestic*

•NOTE: Kyoto Protocol in 1998*

•Free competition, improved FDI opportunities and ease of market access by small-medium enterprises•Phase-out of tariffs, unbiased cost benefits for all participants1. Consumer’s perspective: better price2. Enterprise’s perspective: higher profit margin•32.3% of USA’s export goes to Canada and Mexico (2011)•From 1993 to 2010; 218% increase on total merchandise trade•FDI from USA to Canada and Mexico; 75% growth from 2003 to 2009 (624 bil.)

PEST Analysis on NAFTASocial Technological

•Virtually every country is involved in some form of RIA

•NAFTA population 1. In 1994: 363 millions 2. In 2009: 452 millions

•Age structure – Median Age* 1. Canada: 41 years 2. Mexico: 27.1 years 3. USA: 36.9 years

•Obama’s 2012 budget plan:

1. Increase in governmental research on renewable energy by 70%

2. Increase in research and experimentation tax credit for companies by 20%*

•Boost in innovation potential of USA power generation industry

Siemens AG

• High Quality Engineer and Export-orientation• Present in more than 190 countries• Energy / Healthcare / Industry / Infrastructure &

Cities• USA: the single largest market• Siemens Energy: major and thriving profit

generator• Innovation, Economies of Scale and Complete

Package of Services

History, Scandal and Awakening

• Founded in 1874 in Berlin, Germany• Bribery Scandal 2006-2008:

- Damaged reputation and market value

- 2.6 billion USD expenditure in fines and investigation fees

• Major reconstruction by a new external CEO, Peter Löscher

Peter Löscher

Trade Map: Siemens Energy

What is a gas turbine

Animation: http://www.energy.siemens.com/hq/pool/hq/energy-topics/videos/Siemens_SGT100_Animation.swf

1) Compressor2) Diffuser3) Combustion chambers4) Turbine (blades)

Siemens Performance in NAFTA

International Strategy

Sectorial Profit Distribution (2011)

40%

46%

14%

Industory Sector

Energy Sector

Healthcare Sector

Source: Siemens Global Website

Siemens Energy Revenue by Region (2011)

56%28%

16%

Europe, C.I.S., Africa, Middle East

Americas

Asia

Source: Siemens Global Website

Siemens in NAFTA Region

MEXICO• Active since 1894• Largest provider of

mechanical energy• Demand for

sustainable energy

CANADA• Active since 1867• Hamilton plant in

1896• Whitby

Cogeneration plant in 1998

USA• Active since 1854• 100 + facilities• Largest single

national market

• Turnkey Contract to power plant, 2013

• Cutting-edge turbines for maximum efficiency and ecological benefits

Performance in Mexico

• Gas Turbine factory in Hamilton since 1896

• Shut Down in 2011

☞ New Production Line in Charlotte, USA

Performance in Canada

• Cogeneration Plant in 1998

• Combination of heat and power to generate electricity

• Higher efficiencies than other forms of power generation

Performance in Canada

• $350M Investment in new plant in Charlotte, USA,2011

• Expansion of the steam turbine manufacturing plant

• 60 % Sold in USA 40% Sold outside

• First two turbines to Mexico

Performance in USA

• Increasing Demand for Cleaner Power Plant

• Charlotte as a Hub for North American Market

• Economics of Scale, logistical Cost

Performance in USA

Strategy Transnational International Multidomestic Regional

WorldwideMarkets

Yes Yes No No

Worldwide location of

Separate Value Chain Activities

Yes No No No

Global Products Yes Yes No No

Global Marketing Yes Yes No No

Global Competitive

Moves

Resources from any country

used to attack or defend

Slight strategic variation but

identical resource from

HQ

No No

Siemens Multinational Strategy

Year GDP Tariffs (%) (US-MX) Exports

1990 $ 6,314,596.09 5 $ 13,045.00 1991 6,539,127.13 5 7,281.00 1992 6,907,278.43 5 9,697.00 1993 7,255,414.04 5 5,595.00 1994 7,710,196.68 5 9,854.00 1995 8,025,043.28 0 4,615.00 1996 8,486,927.15 0 8,969.00 1997 9,056,091.80 0 87,801.00 1998 9,590,308.20 0 123,464.00 1999 10,195,136.64 0 53,446.00 2000 10,885,912.91 0 100,247.00 2001 11,243,060.32 0 202,575.00 2002 11,637,910.70 0 171,690.00 2003 12,197,978.00 0 87,429.00 2004 12,984,034.82 0 35,039.00 2005 13,858,088.12 0 143,279.00 2006 14,753,799.29 0 55,135.00 2007 15,492,639.76 0 74,093.00 2008 15,846,367.94 0 61,629.00 2009 15,410,506.60 0 103,860.00 2010 16,093,164.39 0 82,877.00

Trade analysis

$5,000,000.00 $10,000,000.00 $15,000,000.00 $20,000,000.00 $-

$50,000.00

$100,000.00

$150,000.00

$200,000.00

$250,000.00

GDP

Expo

rts

0 1 2 3 4 5 6 $-

$50,000.00

$100,000.00

$150,000.00

$200,000.00

$250,000.00

ExportsLinear (Exports)

Tariff

Expo

rts

y = 55,560 + 0.003*GDP - 12,893.11*Tariffs

Regression Statistics

Multiple R 0.598

R Square 0.357

Adjusted R Square 0.286

Standard Error 49,039.159

Observations 21.000

Conclusion

NAFTA AFFECTS SIEMENS INT. STRATEGY• GDP growth & 0% T• Transnat. Strategy• Differentiation• MX emerges as KEY profit provider– Synergy: NAFTA & Mining

Keep spending on R&D to be the leader