Schaeffler Group鈥檚 President Automotive Aftermarket Asia-Pacific and President Region Southeast Asia/Pacific Micah Shepard shares with EKONID the company鈥檚 strategy in navigating their business during the global pandemic.
Q: Could you share with us a short summary of Schaeffler and its activities in Southeast Asia?
The Schaeffler Group is a global automotive and industrial supplier. The technology company generated sales of approximately 14.4 billion euros in 2019. With around 84,200 employees, Schaeffler is one of the world鈥檚 largest family companies and, with approximately 170 locations in over 50 countries, Schaeffler is shaping the future of automotive and industrial sectors in Asia Pacific with increased research and development activities in the areas of robotics, industry 4.0 with focus on digital manufacturing, autonomous and electrified mobility solutions, development of fuel cell technology (Schaeffler Group is a steering member of the Hydrogen Council) and additive manufacturing. Schaeffler is strengthening the local manufacturing and engineering footprint in the Asia Pacific region to meet the growing customer requirements of localization and application development.
Schaeffler has been present in Southeast Asia since 1975. The sub-region has been a pivotal part of Schaeffler鈥檚 transformation and growth in the Asia Pacific region where the company has over 1,000 employees across 4 production & reconditioning facilities, R&D facilities, and Sales offices located in 8 countries. The main locations in Southeast Asia, besides Singapore HQ, include Vietnam, Thailand, Australia, Indonesia, Malaysia, New Zealand, and Philippines. In the four countries of Thailand, Vietnam, Malaysia and Singapore, we are also jointly certified as Schaeffler Technology Centers (STC), which is part of a Global Technology Network (GTN) within Schaeffler that connects engineering and development hubs worldwide. This additional resource enables us to quickly implement our full array of engineering and service know-how on a local level.
Q: Indonesia is the largest market in Southeast Asia, and Schaeffler is present in Indonesia in the form of PT Schaeffler Bearings Indonesia. How has the business in Indonesia been developing in the last couple of years?
As mentioned earlier, Asia Pacific has been identified as a pivotal part of Schaeffler鈥檚 transformation and growth. Along with parallel efforts to develop Schaeffler鈥檚 footprint across the region, the Indonesian market is very important to us hence. We had our first sales office set up in Jakarta in 2008. And in 2009, we opened our sales office in Surabaya. After understanding and consolidating our position in the market, we opened our new Jakarta office in 2014.
Since then, we have seen the largest growth in our sales which enabled us to develop and further grow the team to what we have today, with offices opening in Medan in 2018 and Banjarmasin in 2019.
Q: Indonesia does not hide its ambition of becoming a more industrialized state with manufacturing as the main driver to its economic growth. It has introduced incentives in the form of tax holidays and tax breaks for companies that invest in R&D as well as vocational training. How does Schaeffler perceive the development of Indonesia鈥檚 industry investment climate and is there any plan to expand Schaeffler's business in Indonesia?
Schaeffler Group sees Indonesia as an ambitious country with plans to become a top 10 world economy led mainly by their "Making Indonesia 4.0" strategy鈥� which borrows its name from Germany's Industry 4.0, whereby machines are connected to the internet for efficient manufacturing. This will lead to the manufacturing sector contributing 21% to 26% of gross domestic product by 2030 from the current 17.9%. The focus will be on developing the food and beverage, textile and garment, automotive, chemical and electronics industries. We are also exploring our other focus sectors such as Cement, Pulp & Paper, Palm Oil, Steel, Mining, etc. As such, we see huge opportunity for growth and expansion of PT Schaeffler Bearings Indonesia.
Q: Moving on to the topic of the year, how has COVID-19 affected Schaeffler鈥檚 business in Southeast Asia? How is Schaeffler navigating its business amidst the COVID-19 pandemic?
The global COVID pandemic has had major impacts economically in Southeast Asia due to the prolonged shutdowns in countries such as Indonesia and Philippines, restricted movement of people, and reduction of the tourism industry also further adding to the increase in unemployment rates and lower GDPs expectations. Schaeffler is navigating the crisis by first ensuring the safety of our employees and key business partners by implementing measures to reduce risk such as WFH 鈥� work from home, significantly reduced travel, wearing face mask, practicing social distancing, temperature checks, etc. As a result, we only had two confirmed COVID-19 cases, whom have all recovered.
The Southeast Asia business, like most companies, has been impacted by the pandemic in many ways. The first came as a result of the Supply Chain disruptions. The second wave became a demand-oriented challenge with many of our Automotive & Industrial OEMs plant shutdowns due to the softening of demand. The third wave started the liquidity challenges. Further lockdowns and prolonged ASEAN border closures has further impacted business. Schaeffler SEA had a major reduction in sales in Q2 and is currently experiencing the 鈥淟 Shape鈥� recovery with the 4th Quarter seeing steady improvements. With such a deterioration of the sales, strict cost controls measures were implemented to secure profitability. We did this without taking any drastic regional headcount reductions.
The world has been changed by the crisis and there are some positive developments. We have adopted our digitalization strategy in many aspects of our business. We have launched our digital sales & marketing strategy using platforms such as Facebook and YouTube, virtual factory tours, virtual customer trainings & Digital Distributor Days, and we also launched new products for Industry 4.0 such as OPTIME. In addition, we are rethinking our Supply Chain strategy to be closer to the market called, 鈥淚n the Region, for the Region鈥�. By doing so we can secure our supply chain and adapt quickly to the market requirements.
Q: Many companies, understandably, expressed doubt about a recovery in the near future, and even in the short term (1-2 years). What is the outlook for Schaeffler鈥檚 business in Southeast Asia? What policies would Schaeffler like to see from Indonesia, and to a larger extent, Southeast Asian countries where Schaeffler has a presence, in regards to the handling of the COVID-19 pandemic that ensures that businesses can recover from this global health crisis?
It鈥檚 difficult to predict the outlook in Southeast Asia until there is a proven and safe vaccine available and faster testing capabilities to deal with the challenges of the pandemic. According to Oxford Economics, ASEAN expects a slow recovery, with up to 2 years before returning the 2019 output levels. To advance the recovery ASEAN countries must work closer together by sharing information and resources to fight the pandemic. Also, ASEAN should use this pandemic as a chance to synchronize trade and make it easier to do business across this region - like the EU who has had a faster economic recovery.
Opening the borders to allow the movement of people for tourism while reducing quarantine periods is also key. In Thailand, 15 Million people work directly or indirectly for this industry with up to +15% of the GDP so this has a major impact on the economy.
From an economic policy perspective, supporting companies and/or individuals with government stimulus cash injections, reducing interest rates, & taxes have proven to increase demand while managing inflation. Malaysia Excise Tax reductions for cars was one good example of restarting the automotive industry. And in Singapore wage support scheme helped reduce the negative impact on businesses.
Lastly, businesses need certainty, so there needs to be a plan to manage the inflections while keeping the economies open.
ASEAN and specifically Indonesia has a bright future ahead so Schaeffler is proud to be a local partner in this market.