Siemens Energy Facing Strong Competition from GE Energy
Case Type: business competition/competitive response.
Consulting Firm: Towers Watson 2nd round job interview.
Industry Coverage: Energy.
Case Interview Question #00308: Your client is Siemens AG (FWB: SIE, NYSE: SI). Siemens is a global engineering conglomerate headquartered in Berlin, Munich and Erlangen in Germany. The company has three main business sectors: Industry, Energy, and Healthcare. Siemens Energy Sector is the market leader in manufacturing of power 
equipment in the U.S. market, providing a wide range of products, solutions and services for power generation, transmission and distribution.
You have been asked by the CEO of Siemens Energy Sector to assess the threat of a new competitor in the U.S. market. The new competitor is a joint venture formed between a leading U.S. competitor GE Energy and a major Mexican manufacturer. The new competitor will manufacture power equipment products in Mexico and ship them into the U.S. Their current Mexican operations will remain unchanged and you are only concerned about the U.S. market. Question: What are the issues and what options does the client have?
Additional Information: (to be divulged during the course of interview)
Table 1. Comparison of client and competitor
| Category | Client | Competitor |
| Customer | Any company that generates power; mostly utilities and large manufacturing facilities. | Any company that generates power; mostly utilities and large manufacturing facilities. |
| Purchasing Decision | Traditionally based on quality; utility deregulation has made customers more price sensitive. | Traditionally based on quality; utility deregulation has made customers more price sensitive. |
| Market Share | No. 1 (Best Brand Name) | No. 5 |
| Relative Price | High | Low |
| Product Quality | High | Moderate |
| Distribution Method | Small sales force | Distributors |
| Other Products | None | Many complementary |
| Promotion | None | Heavy, to gain share in U.S. market |
| Manufacturing Capabilities | Automated, well-run | Very manual, trouble integrating after JV |
Table 2. Cost Issues (Example of Product Costs)
| Cost (Labor and Material) | Client | Competitor |
| Labor Rates | $10/hr | $2/hr |
| Amount of labor used per unit | 10 hours | 25 hours |
| Total Labor Cost | $100 | $50 |
| Material cost | $20/unit | $22/unit |
| Amount of material used per product | 20 units | 20 units |
| Total Material Cost | $400 | $440 |
| Total Cost (Labor + Materials) | $500 | $490 |
Take Aways:
- Less expensive labor rate in Mexico, but less productivity as well.
- Client sources material cheaper than the competitor, which saves money in total cost.
- Overall cost difference is not as great as we may have originally believed.
Possible Answers:
1. Issues
You can structure the analysis around the 4 C’s (or 3 C’s- Customers, Cost, Competitor). At a minimum, you have to study the cost issues. You want to find out what advantage, if any, will accrue to the competitor for operations in Mexico. Once you analyze this area, you should discover that the cost is not really different. Otherwise, you end up making cost-reductions recommendations.
You should also consider the issue of the different value proposition of the client vs. the competitor (high cost and quality vs. lower cost and quality) in an environment where the purchasing decision is becoming price driven. Additionally, the competitor has the ability to offer a wide range of complementary products that the client does not manufacture.
2. Recommendations
A key point to exploit is that the client and competitor have different value propositions. The client is the selling not just a “Cadillac,” but really a Cadillac engine. The competitor is selling the entire Honda car.
a. Cost Reduction Opportunity
Joint venture (JV) could be catalyst for change to reduce costs further. Since the market is becoming more cost conscious, this could be worth pursuing.
b. Changing Value Proposition
- Segment the market, target your customer, and position the product to make sure it is reaching the right quality-conscious consumer. Don’t damage your brand image.
- Create a slightly different, lower cost/lower quality product to reach other attractive segments. This also prevents the competitor from gaining in your market.
- Develop complementary products or relationships to package with your product. Manufacturing other products may not be a core strength, but partnering with another manufacturer could be worthwhile for the right market segment.