#NDTVProfitAtWEF | ABB Chairman Peter Voser talks about year of lower interest rates, AI and sustainability, India view, and more.
Watch him in conversation with Niraj Shah on the sidelines of #Davos2024. #WEF
Read all #WEF2024 updates: https://bit.ly/420ODMW
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Watch him in conversation with Niraj Shah on the sidelines of #Davos2024. #WEF
Read all #WEF2024 updates: https://bit.ly/420ODMW
_______________________________________________________
For more videos subscribe to our channel: https://www.youtube.com/@NDTVProfitIndia
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TVTranscript
00:00 One of the big guests on the NDTV network this year
00:03 is Mr. Peter Woeser of ABB.
00:05 I've written this down.
00:06 He's a Swiss national, but calls himself foremost
00:10 a global businessman.
00:11 And therefore, this is the best stage
00:13 to talk to somebody with that mindset.
00:15 Mr. Woeser, thanks.
00:17 Thanks indeed for taking the time out and speaking to us
00:19 here at NDTV Profit.
00:21 It's a pleasure.
00:21 Thanks for having me.
00:23 Tell us, at the start of calendar year '24,
00:26 in a world which is looking fragmented,
00:31 we're calling this the opposite of globalization, which
00:35 is slobalization in some sense.
00:37 How do you feel about business momentum and business
00:41 confidence as you look ahead for 2024,
00:44 or albeit the next two, three years?
00:48 I think during 2023, we all experienced
00:52 that we did forecast a slowdown, but it actually
00:56 never happened in a big way.
00:58 So we have learned out of that.
01:00 I think we are carefully still optimistic for '24.
01:05 I think we are looking at two different halves.
01:07 I think the first half will be more
01:09 challenged than the second.
01:11 And I think you need to take a regional lens as well.
01:15 I think the US, India, Asia except China,
01:20 I think will actually just grow in the normal way, which
01:24 means strong growth.
01:27 Europe is lagging, has structural issues,
01:31 has also had to deal with the pandemic, the wars,
01:35 high energy prices, cost inflation on wages, et cetera.
01:38 So we'll be slower.
01:40 And China, I would also say they will most probably
01:42 recover towards the second half of the year
01:45 because they have some consumer consumption issues which
01:49 they need to sort out.
01:51 So I think personally, I'm a half glass full person anyway.
01:55 And I don't see any other thing for '24 than that.
01:59 OK, and the glass getting filled will probably
02:02 happen in the second half of the calendar.
02:04 Yes, I would say so, yes.
02:05 It's more because you see during 2023,
02:09 we experienced that what we call the short cycle
02:13 products and orders, they were starting to slow down.
02:16 At the same time, the late cycle big project business
02:20 started to come in.
02:21 So the order books and the revenue books
02:23 were still actually quite well developed.
02:26 But I think in the first half of next year,
02:28 you will see the larger projects slowing down.
02:32 Most probably, the short cycle business
02:35 will come up a little bit later in the year
02:38 towards the end of second quarter,
02:40 but normally third and fourth quarter.
02:44 OK, it's also a year where in--
02:47 or maybe not just the year, but maybe many years of higher
02:52 than the past 15 years of interest rates being there.
02:56 So higher for longer.
02:59 But in a calendar year, where we'll see interest rates
03:01 possibly come lower.
03:02 How do you think the world adjusts to--
03:05 or how do you think corporates like yourself
03:07 adjust to higher rates, different IRRs, projects,
03:12 different multiples as well, discounting for various assets,
03:16 including equity or acquisitions?
03:18 Tell us a bit about that.
03:20 I think over the last four years, ABB has transformed.
03:24 And we have actually performed very well,
03:27 including our India business.
03:29 And we achieved our financial targets
03:31 a year earlier than expected.
03:33 That means we go into this interesting period, '24, '25,
03:39 with a strong balance sheet, a well-performing business.
03:43 And that gives us the opportunities.
03:46 So I think we are facing clearly a business environment
03:50 where generations have never lived
03:52 through high interest rates, have never
03:54 lived through inflation.
03:56 And I think, therefore, companies
03:58 need to prepare themselves.
03:59 These are different risks which we now have to manage.
04:02 We have to educate the middle management, who
04:05 for the first time have to deal with these issues.
04:08 Now, on the other side, there's a huge opportunity.
04:11 Given the strengths we have in the company,
04:13 we hopefully can take advantage of lower multiples.
04:17 Because lower multiples means you can also
04:19 do acquisitions, strengthen your businesses,
04:22 your divisions which we have.
04:24 And we will be watching for that.
04:27 It may take a few months more before the multiples
04:29 really come down.
04:31 Now, in terms of interest rates, that's
04:34 where I'm most probably a little bit more conservative.
04:37 I don't see that many interest rate changes in '24.
04:41 I think even the US most probably
04:44 will be very careful, given that the US economy is still
04:47 growing, so that the inflation is not yet at the level
04:51 where it should be.
04:54 So therefore, I think it's also towards the latter part
04:58 of the year where we will see that.
05:00 I don't think Europe will actually see interest rate
05:04 reductions in 2024.
05:07 That's '25.
05:08 Wow.
05:08 And hence, what you said becomes even more interesting,
05:11 Mr. Boser, because yesterday, for example,
05:13 we were talking to the PWC chairperson who
05:16 was saying that in a clutch of the global CEO survey
05:19 that they did, there are a plethora of companies and CEOs
05:24 who've never seen high interest rates
05:27 and will find it very difficult to navigate.
05:29 So my question is maybe not for ABB,
05:31 because you guys have been there, seen that, done that all.
05:34 But for a lot of your clients as well,
05:36 do you expect, quote unquote, "challenging times"
05:40 because of unprecedented economic factors surrounding
05:44 them?
05:45 Yeah, I would agree to that.
05:46 And that needs to be managed.
05:48 And that's why also I said that I see the larger projects
05:53 coming down in '24, because I think some of the companies
05:57 will really maybe review their capital expenditure because
06:02 of the increased cost if you have
06:05 to finance that through debts.
06:06 And I think this will play out in '24.
06:10 On the other side, we have come out of COVID.
06:15 Actually, the economy was booming the last two,
06:19 three years.
06:20 And in some parts of the world, as I said at the beginning,
06:23 we don't see the big effect there yet.
06:25 And therefore, I think there will be also
06:27 a compensating effect.
06:29 But there is no doubt that some customers will struggle,
06:33 miss the higher costs for debt, increased wage costs.
06:36 Their margins are coming down.
06:38 And normally, one of the first thing companies do
06:40 is actually to slow down capital expenditure.
06:43 And that indirectly, then, we will actually feel.
06:46 And that's why this crossover of short cycle orders
06:51 and the large project is very important.
06:53 And when that comes, I think I sleep better
06:57 than when I see that the short cycles are coming up again.
07:00 Do other nuances come into play here?
07:02 There's a lot of talk in the web as well about AI,
07:07 predominantly.
07:07 Yes, sustainability.
07:09 Yes, merger cooperation, et cetera, rebuilding trust.
07:11 But AI seems to be finding its way into every conversation.
07:14 I would love to think of how you,
07:18 as leading such a large company, think about AI
07:21 and whether it is disruptive or whether it's actually
07:25 a transformative technology, if you will, for the world
07:30 at large and for corporates over the course
07:32 of the next few years.
07:34 It's a transformation.
07:36 It is all about capturing a market which is there.
07:40 AI, together with digitalization,
07:45 will actually allow companies to automate
07:50 their manufacturing installation in a very different way.
07:55 Therefore, the productivity gains and what
07:58 comes out of AI in terms of business opportunities
08:03 will, in my opinion, be very significant
08:06 and will be needed to stay competitive for companies.
08:10 Now, in the case of ABB, we obviously have both sides.
08:13 So we use AI internally for our back office, customer service
08:19 centers, but also for our manufacturing.
08:22 But at the same time, we are running roughly 120 pilot
08:25 projects for customers in order to help them, actually,
08:29 through our robotics, our automation,
08:32 our electrification products, to take full advantage of AI.
08:36 Now, the B2B space is not the B2C space.
08:40 So it will take time because it is attached
08:44 to infrastructure investments.
08:46 It's attached to new manufacturing investments.
08:49 So it will take time.
08:50 And the companies are not yet ready.
08:52 They are still digesting the digitalization.
08:55 And quite clearly, to apply AI in the right way,
08:59 you need to have your data cleaned.
09:01 You need to have all the process steps
09:04 you have to have clear in order to apply AI.
09:07 So this will take a little bit more time.
09:10 And I think, also in the survey of PwC, most CEOs, actually,
09:15 they claim that they're already ready for AI.
09:19 I will put an enormous question mark behind that
09:22 because I think the full scale of that, we don't know yet.
09:25 And a lot of cleanup needs to happen still on the data side
09:29 because, as you know, if you have data,
09:32 you will get AI out of data which are not prepared for this.
09:37 Then you may get the wrong result out of it.
09:40 And that's what you can't have because we are not
09:43 in the consumer business where you just bring out
09:46 a new update of your mobile phone software.
09:49 We supply manufacturing places.
09:52 And they can't just change overnight things
09:55 because they're producing cars or they're producing iPhones
09:58 as well, et cetera.
09:59 So this needs to work.
10:00 We can't afford to send you overnight an update
10:03 that you just-- it all runs again.
10:05 So B2C and B2B is very different there.
10:09 Point well noted.
10:11 The other aspect that I wanted to talk to you about
10:13 is this article that you wrote on 18th December,
10:16 if I'm not wrong, wherein you said
10:19 that the regionalization of supply chains
10:21 is likely to reach a milestone in 2024
10:24 as more and more companies make the move to multisource
10:26 and regionalize their supply chains.
10:28 Now, I would love to understand how you think about this
10:31 because the earlier belief, or maybe the current belief,
10:34 was or is also that due to costs and due to maybe diversifying
10:43 the supply sources, in some sense,
10:46 supply chain would and should move eastwards
10:50 for the cost factor.
10:52 And by virtue of the China plus one or the Europe plus one
10:56 theory as well, a lot of Southeast Asian nations,
11:00 LATAM nations maybe, are likely to see more emphasis
11:08 on producing onshore in those regions.
11:11 Can you talk to us a bit about how
11:13 do you see about this process, both from an ABB angle
11:15 and from the world at large?
11:18 Maybe let's start with the second one,
11:20 so how I see the industry.
11:22 Because one of the big factors is
11:25 that the consumer is changing.
11:27 And here, I think supply chain and sustainability
11:30 comes together.
11:32 You have a consumer today, specifically
11:34 the younger generations, they want
11:37 to know what's the CO2 footprint of my product I buy.
11:41 So they want to have much more regionalized, localized supply
11:46 chains in order to actually buy products which
11:50 are more climate friendly.
11:51 So that's actually a market push which
11:54 we need to take into account.
11:56 On the other side, you have a resilience push,
12:00 which has its origin also in the pandemic,
12:04 but it actually started earlier, which
12:06 is a dependency on one country or one global manufacturing
12:10 place.
12:10 I think that's history.
12:12 Companies today, when they look at their risk matrix,
12:15 they will put five, six factories in place,
12:19 smaller capacity instead of one big one.
12:21 And that will be to the benefit of Asia, some of it,
12:25 to the benefit of India, some of it, but also Europe,
12:28 or through the IRA, for example, also the US,
12:32 or in the Green Deal in Europe.
12:34 So I think you will see the benefit of the supply chain
12:37 coming to the various regions in different ways.
12:40 Now, that's the industry view I have.
12:43 Now, you could argue this is inflationary,
12:47 because you have smaller batches, you transfer it around.
12:50 And that's where automation, that's where robotics,
12:54 and that's where AI comes into the game.
12:57 That gives you the productivity gains
12:59 that you actually, in a high labor cost country
13:03 like Switzerland, Germany, Austria, so in Europe,
13:06 you can produce, because you are not
13:08 producing that much with labor.
13:10 You're producing with automation, with robotics.
13:13 And I think that productivity gain at lower costs
13:17 will make it competitive versus Asia, et cetera.
13:21 Now, Asia has one advantage, because if you
13:23 look at the GDP growth over the next 10, 15 years,
13:27 where is the GDP growth going to come from?
13:30 It's Asia.
13:31 So therefore, I think if Asia just concentrates
13:34 on their demand and their manufacturing capacity in Asia
13:39 for that demand, I think you have significant growth.
13:44 Given that China plus one comes into the game also
13:47 for ASEAN countries, for example, for India, et cetera,
13:51 you will see the manufacturing capacity in Vietnam,
13:54 in Thailand, in Indonesia, the Philippines, in India
13:58 will actually grow.
14:00 Now, this will not come overnight,
14:01 because this will take a few years to install of this.
14:05 Now, ABB, we run a different supply chain structure.
14:10 We are already today, not because of the last three
14:13 years, but because of decisions 20 years ago,
14:16 we run local, regional supply chains.
14:19 So what we produce in a country, we sell in a country.
14:23 Or the other way around, if we sell in a country in China,
14:26 for example, 85% is produced in China.
14:29 So we are less dependent on now restructuring our supply chain,
14:34 because it is already local and regionalized in that sense.
14:38 That gives us a small advantage, which we have.
14:42 And we need to drive this.
14:44 I think this is a golden opportunity for India,
14:47 but India not for mass production.
14:50 It's actually high tech quality, where
14:52 you combine the new elements available, technology, robots,
14:57 with the huge knowledge base you have in India.
15:01 Young population, well-educated.
15:03 I think this is made for really for capturing
15:08 a lot of the manufacturing capacity, which
15:10 you need for India, and most probably also for export.
15:13 You think India has taken some steps towards this in--
15:18 what I mean to ask is, let's assume that the knowledge base
15:21 was always there.
15:22 What was needed was maybe some policies, maybe
15:25 the global cooperation, maybe the right geopolitical moves.
15:28 You think India as a nation has taken some of those steps,
15:30 or some need to be taken as yet?
15:34 This is my personal view.
15:35 If you look at the last few years
15:37 in terms of reforms, for institutional changes,
15:40 which the current government under the leadership of Modi
15:43 has done, I think you can't reverse them.
15:46 They are there.
15:48 And I think this makes a big difference,
15:49 because doing business in India today is very different.
15:53 I think also the society feels that.
15:55 The way they have a digitalized ID now,
15:58 how they can participate in the economy,
16:02 I think this will not go away.
16:03 This is there.
16:05 Now, if you then--
16:06 so that was always a problem in the past.
16:08 You had the people, you had the capacity,
16:10 but you didn't have the infrastructure,
16:12 the institutional institutions around it to drive this.
16:16 Now, I don't think India will make the mistake that they want
16:19 to compete against China in what I call the lower quality
16:26 manufacturing, because China is very good in that.
16:29 I don't think India should compete on that.
16:31 But India can compete on the higher end of the scale,
16:34 using the latest technologies from robotics automation.
16:38 And through that, actually, with the help of the government,
16:43 drive the changes in the infrastructure
16:46 for climate change, new energy system, et cetera.
16:49 So I think this is there to stay.
16:51 So I'm very positive.
16:53 And over the last 25 years, I think
16:55 I've seen everything in India going up and down
16:58 and backwards and forwards.
16:59 But I'm very optimistic.
17:00 I was three times in India with the boards I'm on last year
17:05 in '23.
17:06 I became very positive that this train has left the station.
17:11 And your India team is doing fabulously well.
17:16 The quarterly results, every single time that I look them,
17:19 there is something, a surprise element,
17:21 a positive surprise element that comes about.
17:23 So kudos on that as well.
17:25 My one final question, really, and that
17:27 is on, as you look forth to this decade, what amongst the newer--
17:34 again, for lack of a better word, themes or topics,
17:38 interest you the most?
17:39 Or do you think will make the biggest difference?
17:41 It could be AI.
17:42 It could be sustainability.
17:44 It could be electrification.
17:45 It could be digitalization or a combination of these.
17:48 But which, to your mind, from a corporate perspective,
17:51 not from a consumer perspective, will have the most telling
17:55 impact on the way corporates do business
17:57 and on the way business would happen, per se,
18:02 across the world?
18:04 We position the ABB in the two big revolutions which
18:10 are ongoing in the world.
18:11 One is building a new energy system,
18:13 which is electrification.
18:15 And the other one is automation, robotics, which we will need.
18:18 We have demographic issues.
18:20 Quite clearly, we have the supply chain changes, et cetera.
18:23 So we position the company in those two.
18:26 And these are the big game changers for us
18:29 and has the potential.
18:31 Now, in order to capture that potential,
18:34 it needs to be done in a sustainable way.
18:37 Your purpose needs to drive you to generate a better
18:42 world for the future, to help your customers to save CO2
18:47 by energy-efficient products from ABB.
18:50 So that's something which straddles across both.
18:53 AI is exactly the same.
18:55 That's a technology which you will
18:56 apply in the two businesses.
18:59 And therefore, you will deliver productivity gains to yourself
19:02 but also to your customers.
19:04 But the fundamental thing is to be positioned
19:06 in those two big markets, which will allow
19:09 you to take the benefits of what sustainability and also
19:13 what AI and any future technology will bring.
19:17 And for that, we have now worked four or five years
19:20 to get the portfolio right.
19:21 And I think we are well-positioned.
19:23 So it's all about us now.
19:24 You cannot finger point to anybody else there.
19:27 And thank you for the words on ABB India.
19:32 I think ABB India, the team under Sanjiv's leadership,
19:35 they're doing a fantastic job growing good margins,
19:39 so I'm very proud to have them in the portfolio.
19:41 Yeah, as you should be.
19:42 I mean, they are doing wonderful.
19:44 But they have a great parent as well,
19:47 with such a strong culture and branding
19:49 that I'm sure it helps them.
19:50 But Mr. Peter Wozner, thank you so much for taking the time out
19:53 and speaking to us at the WEF.
19:54 And have a great remainder of this World Economic Forum.
19:57 Thank you very much.
19:58 And I wish you the same.
19:59 And I hope you get used to the cold.
20:02 Cross fingers for that, all 20 of them.
20:05 And viewers, thanks so much for tuning in.
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