KUKA and VW are the two main sectors of German. Or you should say, the core technology shaping the economics of the German market. German Robotics along with their involvement in the Automotive industry contributes strong economic as well as influential support in the arena of world technology.
Mr. Reuter, EX -boss of KUKA "Every CEO should work immediately and intensively to make their company more resilient to geopolitical crises."
As per Herbert Diess, VW Boss, "We have to make moral compromises."
So what opinion do the two leaders hold about the dependencies in China?
In an interview conducted by Handelsblatt with the former KUKA boss, Mr. Reuter shares his views and experiences handling challenging situations at KUKA. (The interview is translated from German to English and the important facts have been shared)
Mr. Reuter shares his viewpoint "In the past ten years, development has accelerated that seems naïve today. Due to zero interest rates, money no longer had any costs, and military security no longer had a price. Then there were the supply chains, which were brutally trimmed for efficiency."
"The policy of "change through trade" and the convergence course derived from it by Angela Merkel must be fundamentally reconsidered."
Mr. Reuter, the war in Ukraine turned many companies into geopolitical players. In such a conflict, does a top manager have to stop doing business in Russia, or does he still have an obligation to his employees first?
In such exceptional situations, only the primacy of politics can count as a benchmark alongside the canon of values of the West. The federal government sets the direction and limits. The war is one terrible catastrophe, and all economic self-interest and considerations must disappear behind it.
Do you believe in a turning point in globalization?
This turning point was reached about two years ago. The pandemic has made the excessive dependencies visible. The time of growing, growing, growing is definitely over. We have to reduce dependencies at all levels - especially with a view to China.
Does that mean that when in doubt, company bosses have to forego opportunities if they can lead to new dependencies?
Exactly, although that's easier said than done. As a CEO, it remains the first duty to achieve economic profits and secure your own company's market position and jobs.
Then where do you draw the red lines?
In the past, we have clearly overdone it on many occasions when it comes to efficiency gains. We entered into one-sided delivery dependencies too carelessly. When it comes to suppliers, for example, we focused on too few countries and regions. We have analyzed these economically but paid too little attention to political risks.
As a member of the Supervisory Board at Müllermilch, the most recent geopolitical decisions have not affected you. The company has no business in Russia. The government got involved when you were head of the industrial robot manufacturer Kuka. In 2016, Berlin wanted to prevent the entry of the Chinese investor Midea. How do you rate the – ultimately unsuccessful – attempt today?
Back then, the overall geopolitical situation was completely different. Yes, even then there was fierce competition between the three major regions of North America, Europe, and Asia. But the emphasis was on "competition".
And today? Is there economic warfare with companies?
The bandages used to fight have become tougher, without me wanting to speak immediately of "economic warfare". Even Western politics, which has allowed companies to act relatively freely within the framework of a market economy, is pursuing a renationalization of foreign trade policy. It controls the economy with a stronger industrial policy.
In the case of Kuka, Berlin feared that top German technology would be sold out to China. Wrongly?
I thought it was right that the then economics minister, Sigmar Gabriel, took a closer look at the Kuka case. This also applies to his interest in robotics remaining in Europe and Germany. At the same time, I am and will remain a liberal market economist and consider permanent state intervention to be wrong.
Globally, does Europe even have a chance to compete on an equal footing with the American and Chinese tech companies, which are often perceived as aggressive?
This is certainly possible in some fields. However, we have to concentrate and shouldn't even try to play in all areas.
Mr. Reuter, Ex KUKA BOSS, also mentions in his interview, "German politicians should care more about start-ups than stock market dinosaurs".
Is it something the Indian market should focus on more?
In the next podcast interview with Herbert Diess, VW boss, view on the effect of the war, "stagflation", "I hope it doesn't come to that. But it is in Europe in particular that we will feel the effects of the war. For Germany, it is about the question of energy supply. The other dimension is geopolitical, and that's more long-term."
This means?
The question is whether we will experience bloc formation again, whether we will go back to a time of isolation, closed borders, and limited travel options. There are also signs that the conflict over technology dominance between the USA and China is becoming even more acute.
Then what kind of world is this?
When we were young we couldn't even go to Saint Petersburg. We hardly had any contacts and couldn't go to China. The world was closed and smaller, and it developed more slowly. I am afraid that we will now have to deal with such scenarios again.
This is bad news for Germany in particular, an economy that depends on foreign trade like no other.
This is an extremely negative scenario for Germany, and it would also pose a threat to the German business model. Because Germany lives in an open world, from exports, from trade, from access to raw materials. In an isolated world, we would develop more slowly than other regions and would no longer play the role that we have today due to our economic power.
What do you mean by that?
We have a say because we are a major respected nation invested in China and the US. As that importance diminishes, so does our influence.
Does the business have to make moral compromises?
We have to make moral compromises. We can't, we shouldn't make them on our claim. We rightly defend our ideals. Europe has the best social system: human rights, democracy, peace, and freedom of speech. If the world were like Europe everywhere, it would be better. We should defend these values with vehemence, but of course, that is easier to do from a position of economic strength.
At the World Economic Forum in Davos, it was repeatedly discussed that the global elites had to decide on a "moral change".
We have to be role models. But you can't be a role model based on moral standards alone, that can only be achieved through economic success. Therefore, we cannot confine ourselves to working or being economically active only with democracies that fully meet our values. That's a maximum of ten percent of the world's population.
In this context, what do reports from China trigger in your mind, which have again shown a dramatic picture of the oppression of Uyghurs in the Xinjiang region, where VW also operates a plant? Do you compromise?
We have been dealing with Xinjiang for many years. Our joint venture partner, SAIC Volkswagen, has a small factory there. Economically, the location is rather insignificant.
Then you can simply close the plant in protest against the Chinese actions.
We could. But we don't do it because we believe that our presence makes a positive difference.
I beg your pardon?
We travel there, making sure, like everywhere else in the world, that our working standards are enforced, and cultural and religious differences are respected. I believe that the presence of SAIC Volkswagen will improve people's situation.
Even though, the car sales market in China experienced a meaningful downfall. But he states "China will remain the engine of growth. The country has a fantastic education, and there is also relatively good equality of opportunity. And you can see that the Chinese simply want innovation and progress. and more prosperity."
What does this mean for your car business?
Although China is already the largest car market in the world, relatively few vehicles are sold by the population. In terms of stock, China has 250 to 300 cars per 1000 inhabitants. In Germany we are around 600, in the USA there are even around 800. These figures alone make it clear that China will remain by far the largest growth market.
How does that fit in with the fact that you earn less and less in China every year?
We continue to have the highest revenues, sales, and returns in China. We earned well in the first three months of this year. Electrification is also making good progress there. China shouldn't just be understood as a simple sales market.
Rather?
You also have to see the country as a market for the future that will advance the whole world technologically. If you decoupled from China, you decoupled from growth and technological advances.
The debate is going in a different direction: has the German economy become too dependent on China?
As the market leader in China, we are asked this again and again. I say: No, we are the market leader in the market that is growing the fastest and is the technological leader. And we want to stay that way for as long as possible. In addition, we also want to grow in other regions of the world. For example in the USA, where we currently only have a market share of around four percent.
The two important opinions, about the Dependable relationship seen between Germany and China. Both the market leaders, from different sectors shared their opinions about the role of dependencies and how it affects the shift in the Geopolitical activities.
One leader suggests reducing the dependencies whereas the other leader shows China is just not a sales market but an important player to be a change in the global technology platform.
"We cannot confine ourselves to working or being economically active only with democracies that fully meet our values. That's a maximum of ten percent of the world's population." Very fact-based opinion by Mr. Diess shows the present pressure felt by each leader due to the unexpected uncontrollable circumstance. Where do the other Asian countries belong in such factual arguments?
So, one of the leaders suggests finding other regions to expand their dependencies and focus on relying on their countries. Can India be a valuable dependable country with the current opportunities?
As per Mr. Reuter, Ex KUKA BOSS, "German politicians should care more about start-ups than stock market dinosaurs".
Is it something every country should focus on more? Can we as emerging countries learn from the problems faced by Germany related to dependencies? And focus on a more harmonious needful partnership to let the market grow and don't get lost as a weak link in the global platform.
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