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Hauf: It will take, so to speak, at least two reincarnations for India to take off. India is a huge market but is still lacking infrastructure, as it has the last few decades. We are not only talking about energy, but also waste treatment, sewage systems, and administration. These are the biggest hurdles that discourage foreign companies from investing there.
Matties: What do you see happening in China? It seems like they plateau and then the government steps in. At some point there's going to be a shift, or a bubble will pop.
Hauf: I don't think that we are talking about a bubble, but somehow China is peaking. Like you said, we saw growth rates of high double-digits during the last decade. Now we're talking about 4–5% growth in our industry, while China is now peaking at about 7% GDP growth, which they need as a minimum to sustain their economy. This would be heaven in Europe, but this is the bottom line here in China. They need further growth, and growth way above 7% to keep pursuing like that. If you look at the investment behavior of the PCB industry, they'd rather concentrate on countries outside of China.
We have seen investments in Malaysia. A lot of activities are going on in Thailand, especially from Japanese companies. Vietnam is a little bit far off at the moment, but companies are evaluating primarily outside of China. Of course, there will be still investments and expansion in China, but not with the passion of the past.
Matties: And what do you think is happening in Japan?
Hauf: Actually, our company is quite successful in Japan. We have a growth rate of 10–15%, or nearly 10–15% are new customers. The Japanese electronics industry is investing outside of Japan. Japan’s economy is not down, but it is more than consolidated. I’d say it is negatively peaking.
Matties: They have a long way to come back, so maybe that will create a lot of opportunity?
Hauf: I think Japan is still a rich country, no doubt about that, but to come out of this hole will take a long, long time. We do not expect further substantial growth within Japan in the near future.
Matties: When you look at Europe at this point, what do you see there?
Hauf: During the last five years Europe developed much better than expected in the electronics industry. And there is a lot of development going on, of course, with Germany at the heart and kind of being the locomotive. We can sustain our business model and mass production will not shift back.
Matties: It's really the automotive industry and Germany that's driving that, would you agree?
Hauf: Yes and there are a lot of qualifications going on for the automotive industry—local companies that are producing in Asia, or companies that are supporting all these developments. Plus, there is the tendency of the European automotive industry to keep a European mixture alive—similar to the Americas. The mass production will come from outside, but the development and the technology is kept in Europe. This is our business model and has been, especially in Germany, for the last 50 years.
Matties: That is interesting, because I see German manufacturers like Schmoll and others that bring their products here. They build in Germany and ship it here, rather than building in China, yet they're still successful in China.
Hauf: It is like that. Of course, all those companies had different plans when they started relocating to China, building up manufacturing and assembly in China, and relying on a supply chain that so far never existed here.
We have had the same experience today, where I think China and the Chinese infrastructure have reached a point where we can revive these plans. A lot of companies are now reviving their original strategies, with serious plans to manufacture here and not just assemble.
So far, the exercise of building in Germany or in Europe and shipping it has been more or less at the same cost as to go through the entire worldwide supply chain organized by you.
There's a huge price discussion of course, now a little bit drawn back by the help of the dollar. If we at Atotech are accounting in dollars, we get a big hit, sales- and margin-wise, but also a positive effect in terms of cost, if we account like that. This keeps the entire thing running.
Plus, like I've talked about, there is an amazing rising cost in China. In my opinion this helps the world economy, and it helps the Chinese people to get on a different level, slowly but surely. The overall number of people in China—we're not talking about the coast belt and some islands in the middle—are still waiting to be on that socio-economic level.
Matties: But for the people that are in that belt, the transformation has been like a rocket ship.
Hauf: Look, if you want to hire a good engineer in the belt right now, you have to pay the same salary that you pay in Europe. Look at operators—here [in China] you have to calculate a monthly overall cost of probably $900. It would be the same in many countries in Eastern Europe. There you just do not have the necessary infrastructure for our industry, and the number of specifically educated people.
Matties: With the labor cost approaching the same or on par, do you think the manufacturing of large volumes will still stay in China, or do you see it coming back to Europe?
Hauf: I see it staying in China. I do not see it coming back to Europe.
Matties: But as far as Germany or even America goes, what was the advantage of continuing to manufacture mass quantities here in China?
Hauf: If you are talking about the typical Chinese worker, there is still a huge gap where you have to compare labor cost of $900 per month with what you would pay in the U.S. for the same amount of labor, which is around $3,500.
Matties: This brings back the automation equation, because that's the great equalizer. If I'm setting up a factory or if I have an existing factory, I can just start replacing people with automation.
Hauf: If you have a product that can be manufactured with a lot of automation, then you are absolutely right. As history has shown, once an industry moves or shifts it is hard to bring it back. For example, take the optics industry, once leading in Germany and leading in Europe; it's fully automated nowadays, but in Asia. Once a technology shifts to a different region, the entire infrastructure shifts there, leaving countries such as in Europe or elsewhere in the situation of having to build up this infrastructure again. Once it moves, it's gone.
Matties: That's why I started looking at things like printed electronics, because that's new and new infrastructure has to be formed for it. It seems like if we're coming in with a new model, then that has cleared the way for something new to come into America or Europe.
Hauf: I agree. These are promising technologies and these are technologies that have a future, but this future begins, believe me, in 10 years. Not right now.
Matties: But 10 years really does fly by. We've been at this for how many years? (Laughs)
Hauf: Yeah, but we also talk at the same time about energy and energy efficiency, where the Western world is leading. We're not only talking about communication. Look at the automotive industry: fully automated. I doubt that manufacturing a car in China is much cheaper than in Europe. It's just the location. It's the delivery time and to be close to the market. You pressure your suppliers, and do it like you are just as close to the market, and this is it. Once it moves, it’s gone. The automotive industry is one of the industries that really kept an eye on staying in Europe, which is still a huge market. The same applies to America. There are no visible tendencies to manufacture them in Asia and then re-import them.
You also have the Japanese model, where you export cars and the Japanese consumer that relies on high quality is re-importing this car because they are built to a better standard (laughs). This is the ridiculous part of the world's economy.
Matties: Uwe, thank you very much for your time.
Hauf: Thank you. It is always nice speaking with you.