4.- Topic D: Business level strategy
Introduction to the issues:
For decades, Siemens has developed technically commercial and sophisticated producs in two core market areas which are M1 and M2.
M1 consists of high values added solutions like high-speed trains, wind turbines, and CT scanners for the premium market while the M2 consists of a mass-produced solution like smoke detectors and industrial sensor systems for the middle market sectors.
Because Siemens has traditionally positioned both M1 and M2 products as being advanced and sophisticated, it means that they were sold at higher prices in developed countries.
As the years progressed and Siemens Company evolved into other advanced emerging markets such as Brazil, China and India in the early 80s, their first attempt was to import and sell M1 products manufactured in abroad while they attempted to develop M2 products locally.
Both attempts, abroad and local yielded poor results as the Chinese and Indian clients considered the M1 products too costly and o the other hand, M2 product failed to address their specific needs. (Prabhu, 2013).
As times progressed to the 1990s, the Chinese firms began to ascend the value chain by producing innovative and more sophisticated solution of standard quality, these solutions were made available, affordable and dependable.
In addition, Siemens is well up in the charts as leaders in industry 4.0 which is the digitization of industrial production and automation, now they are focussing on digitization of other sectors such as trains and medical technology this means they will have to devise ways of staying afloat by beating its competitors and ensuring success. (Thomas, 2017).
Due to the new approach taken by the Chinese firms in creating a more afordable and dependable product to the market, a new market segment was created known as M3 and this was immediately cornered by the Chinese group. (Prabhu, 2013).
As Siemens realised this, they knew they were in competition with this new adaptation. Thus, a wake-up call for Siemens to maintain their territory in the business world. This means that they will have to come up with other ways to win in emerging economies like China and to successfully serve the growing M3 segments. (Prabhu, 2013).
Thus, Siemens had to create a new range of solutions that were simple, reliable, of good quality and affordable. (Prabhu, 2013).
The company also faces major competitions from the GE Energy. Other competitors exist for product lines such as Aldstorm Grid and ABB for smart grids. (Martin, 2015)
Also, another competition faced by Siemens is GE. As it stands, Siemens and GE are both competing for the control of the internet of things and the industry 4.0 market. Although the competition is to be expected because they are both big firms that has been known through the years for its success, the way they are both going about making their point is quite different. (Thomas, 2017).
The pressure mounted on GE is huge as the chairman of board of directors Jeff Immelt and GE power CEO are being tasked to make more profit and improve cash flow from the digital division by their investors. “We want to transform GE Digital into a highly profitable business between 2018 and 2020”. (Thomas, 2017).
GE developed and started marketing Predix some years ago while Siemens made it known that they were expanding Mindsphere for all business sectors just last year ending. A report by Moran Stanley analyst Ben Uglow stated that “With a coherent strategy, GE is spearheading this development with its fast commercialization of Predix”, Siemens stands out in caparison to this statement with its “unique and wide-ranging portfolio”. (Thomas, 2017).
Their conflicts of interest thus, have logical reasons behind them as Siemens has a decentralised structure while GE is more centralised in their structure which led to one of their board of director losing his job because he had the sole responsibility of investing $5 billion since 2013 in the digital side of business and this has only yielded losses. (Thomas, 2017).
Moreover, while GE is known for using Six Sigma to perfect their product and quality processes, they also want to become the 10 largest software producers in the world by 2020 using agile start-ups. Meanwhile, Siemens incorporates the Agile mentality is strongly applied in the Next47 business unit which funds up their start-up ideas with $1billion in the first five years. (Thomas, 2017).