By Holger Paul and Katrin Pudenz
The VDMA members have voted you onto the VDMA Board of Chairmen for the next four years. What goals have you set yourselves for your term of office?
Welcker: For one thing, I want to drive our political issues forward - even more so in the run-up to the German federal elections in 2017. For another, I want to make the service VDMA offers even better. That means both acting as a partner for our members abroad and offering a wide range of advice and other services for specialist topics. My final topic is something I like to call "setting free" - cutting red tape wherever possible in the interests of our member companies.
Haeusgen: This interview is taking place just after the American election, so it is very important to me - in general, but now even more so - that VDMA advocates a free economic system. Our commitment to free markets worldwide is also important, as of course is our commitment to a German market that is open to technologies from all over the world. Living internationality is a challenge for VDMA itself, too. That is why I want to work to make membership easier for other European companies. We in Bavaria have set our focus on Austria and have already had some success, which I would like to build on.
Basler: To start with, I would like to get a good grasp of all the issues. My interests stem from my field of expertise: new technologies, digital technology, digitalization. Building on this, I am also interested in the topic of education - universities and schools - and in doing business with technology. I would be delighted if this could be my field of activity at VDMA.
What core demands do you, the Board of Chairmen, have for policymakers and the next German government?
Welcker: The core demands always come from the issues of the day. We at VDMA have to pick up on discussions taking place in public life. Market isolation is one example; our position is very clear in favor of open markets. We will also have to contribute to the discussion on the refugee crisis. And of course, we need to make sure that we can steer policymakers away from constantly interfering to direct the market and towards more principles for a basic order in a market economy.
Basler: We also need to try to steer the framework conditions in such a way that start-ups, new companies and spin-offs are encouraged. Given the new technologies, a large proportion of innovation activities will have to be shifted in this direction. Policymakers still need a great deal of dialog in this field. Although digitalization is on everybody's lips, policymakers are yet to understand much about the consequences of it.
Haeusgen: I would expect policymakers to be much bolder than they have been so far in advocating the fundamental principles of free trade and a free world. Of course, this also includes better information for the public in order to overcome prejudices. The same goes for hostility to technology and business. I would like to ask politicians to work to provide explanations and create more openness.
Given the election of Donald Trump, and potentially also of Marine Le Pen or other populist candidates in the near future, should we be worried that policymakers could pay even less attention to the needs of free entrepreneurship?
Haeusgen: Definitely. It is all about freedom. All the people you have mentioned are politicians whose policies ultimately amount to reducing freedom. If this stance remains popular, our politicians will also be tempted to restrict our freedom - wherever and however they can.
Basler: Willingness to defend liberal economic principles is falling significantly in the political arena.
What does that mean for VDMA and for you?
Welcker: We need to constantly advocate a social market economy, the most liberal rules possible and the principle of personal responsibility.
What impact will the result of the presidential election in the USA have on the mechanical engineering industry?
Welcker: I think the impact will be relatively slight in the short term. Already the markets are showing signs that the American economy can and wants to come to terms with Mr. Trump.
Haeusgen: At the moment, nobody knows what economic policy Donald Trump will actually pursue. There are another ten weeks until he takes office, followed by the first hundred days. We need to expect up to six months of uncertainty until we can really see which direction the Trump administration will take in terms of business policy. And because uncertainty generally leads to reluctance to invest, some business decisions may well be put off or not made at all.
Basler: Of course, we can try to think positively and say that, after the double blow of Brexit and the US presidential election, the opposite will happen in Europe and that we will increase our focus on constructive topics that move us forward in the world economy. We should take the situation as an opportunity to gather our strength and concentrate on what really matters.
What might the future of the EU without the United Kingdom look like and what consequences will Brexit have for mechanical engineering?
Welcker: The British have always been a liberal voice and a key ally in this regard. The balance of power will shift when the British leave the EU. It will become more difficult to push through and fight for liberal economic principles, at least to some extent. We need to try to enable good relationships and good exchange of goods and services at a market level - but of course without losing sight of the danger that other EU states might then say, "OK, then we’ll leave too." It is a fine line for policymakers to tread.
Africa was a topic very close to former VDMA President Dr. Reinhold Festge’s heart. How do you see Africa as a future market?
Welcker: Africa is extremely important for various sectors in mechanical engineering - just think of the resources mined there. But Dr. Festge has always been clear that it takes a lot of staying power there. Africa remains a challenge. It offers great opportunities, but exploiting them is not easy.
Haeusgen: If we look at the specialist fields in VDMA and in mechanical and plant engineering, different countries are relevant for different aspects. Some specialist fields are of interest right now for African countries in their various stages of development - for example those related to the raw materials industry or food processing. For other segments of mechanical engineering, Africa will only become a relevant market in the next five to ten years.
What is your assessment of the markets in Brazil, Russia, India and China - the famous BRIC states?
Welcker: Political changes in particular have produced huge differences between these countries. We now have only very limited access to Russia, given the sanctions and everything that goes with them. Through political chaos and corruption, Brazil itself has created a very severe crisis that probably cannot be resolved in the short term. China undoubtedly remains one of the markets in the world with big opportunities for growth. Although the engine there is not running quite as fast as it was three years ago, the country is still an incredible driving force in the world economy, and we need to continue to support this. The same essentially applies to India. We will have to focus on all these markets, but each demands totally different approaches and measures.
Haeusgen: In my opinion, the term "BRIC" no longer applies. China is streets ahead of the other three countries and I consider it absolutely essential that mechanical engineering in Germany deal with China, the Chinese market and the Chinese economic system.
What other future markets are there?
Welcker: I think the other Asian markets will play an increasingly important role. Thailand has long been established as essentially an extended workbench for China, while Vietnam, Indonesia and the Philippines are the next big markets.
Haeusgen: We need to look at it in terms of the life cycles of the economies and the specialist segments. For us as technological suppliers to mechanical engineering, Japan and South Korea are highly relevant markets that I think deserve more attention both in the public discourse and in the discussion within VDMA. Japan is a mechanical engineering market at the very highest technological level, with almost the same volume we have here in Germany. But the market share of German mechanical engineering companies in Japan is almost imperceptible, so there is plenty of room for expansion.
Welcker: Japan was one of the most important export markets for us even back in the 1950s. It has been a highly-industrialized nation for decades, and there are some things that would be impossible for us without Japanese products.
Basler: The problem with Japan is that it takes time to be accepted there. That is just the Japanese culture. It takes a long time to achieve the level of trust needed to do business.
Haeusgen: But the Germans do have one advantage in Japan: there is great confidence in German technological
expertise. That is a hugely important factor. German technology is highly valued in Japan.
When it comes to Korea, other industries could follow in the footsteps of what the automotive industry has achieved there. The position the Korean construction machine is in today is truly remarkable. Its manufacturers are growing as customers for us much faster than the Chinese. And if we look at your segment, Mr. Welcker, I believe that machine tools will be the next big thing in which the Koreans put themselves in a strong position and become more international.
Basler: The same goes for semi-conductors and electronic devices.
Let us turn to Industrie 4.0. We would like to know what will be the most noticeable changes heralded by digitalization in mechanical engineering.
Welcker: If you ask me, what we need to look for now is not the individual products and individual connection, but the ideas, the fundamental attitude and the question of where new worlds are opening up.
Some people say that Industrie 4.0 is just about putting sensors everywhere and all the things they can be used for.
Basler: I see this definition of Industrie 4.0 as too narrow. That is essentially what we have been doing for a long time. What is actually exciting is where we are doing something new in terms of quality. This might happen at the level of business models, because a certain form of connection makes a new business model possible and allows supply chains to be arranged differently. But I believe that the term "Industrie 4.0" also needs to include artificial intelligence, because it is a technology that affects us all. I cannot think of an industry in which it is not important. That is another point where I would argue in favor of expanding the VDMA definition of Industrie 4.0 a little - it is too narrow for me here.
Haeusgen: The digital transformation is actually an exciting "sport" that no-one can escape. In terms of its character, it feels like more of a marathon, but with a few sprints thrown in. I find the chances and opportunities it offers incredibly exciting. But it will take quite a while before the product world in mechanical engineering changes so much that it is noticeable for outsiders. I also find the question of how to incorporate these innovations, this way of thinking, into a traditional company absolutely fascinating. I recently heard a useful saying at a start-up congress: "Be courageous, fail fast, try again".
Can German medium-sized companies do this?
Basler: They have to.
Haeusgen: It doesn't mean that a thorough German engineer is superfluous. The question is, how can I do one without neglecting the other. It is a fascinating topic.
Basler: But there is another version of that saying: "Fail fast, fail cheap". That is the key. We need to become much more agile, we need to shift further from the German engineering mentality - i.e. making sure that everything is finished before we even announce that we have something to offer - towards the Asian mentality. I sometimes talk to the customers even before my product is fully mature and use the discussion to gain more information.
Welcker: It is all about bringing good products onto the market faster and with the courage to accept that this speed might also mean failure. Then I will just have to bring out a new product.
Basler: This doesn't mean that I bring any old half-finished thing onto the market with no coordination, but simply that I incorporate waypoints into my development process at which I look for interaction with my customers. In Asia at least, this is expected in our business. That is one of the reasons why we, a relatively small company, are now building up development expertise in Taiwan. At the moment, we are adapting products based on our modular system, and we plan to open a development facility there as soon as we feel strong enough. We believe that these are exactly the things we cannot do with our European staff alone. The customers there do not want products we have thought up over here, but to be involved in the development. That needs to take place in an orderly process, of course.
What do you see as the greatest challenge facing mechanical engineering over the next four years?
Welcker: In terms of the individual companies, I think that it is exactly this increased technological, sometimes disruptive development that our members need to adapt to. That is an enormous challenge.
Haeusgen: But there is also another issue alongside the technological one: the pressure on costs and prices in the mechanical engineering supply chain. As suppliers, this affects us greatly - not least due to new market players from China, Taiwan and South Korea who are entering the market with a totally different cost structure, but who are nowhere near as far behind as five or ten years ago in terms of technology and quality. That is a huge challenge for a medium-sized company, and one that I think is not discussed often enough.
Basler: Specialist staff are another issue that is very close to my heart. We need new ideas for how and where to access the next generation, so that they are not lost to technology and receive the training they need. And to get back to my favorite topic, we need to make sure that young people are introduced to the topics of technology and business much better and earlier in the education system, ideally at school.
Welcker: Bolstering the STEM subjects is important.
Basler: Yes, but it is also important that young people learn how business works. As manufacturers, we need to be able to transform technology successfully into something that sells. And that means getting people enthusiastic about technology and business.
Gentlemen, thank you for taking the time to talk to us.