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When Business & the Environment Collide

On September 18, the CEO of {complink 4929|Siemens AG} announced that it would be exiting the nuclear power business. “The chapter is closed for us,” group CEO Peter Loscher told Der Spiegel. “We will no longer be involved in managing the building or financing of nuclear plants.”

And it's a big chapter. The global nuclear market is estimated at about $1.5 trillion. Siemens' decision came on the heels of the German government's vote at the end of June to shutter the country's aging nuclear power plants by 2022 and replace them with renewable power sources, such as wind and solar. The government set a goal for renewable energy to account for 35 percent of the national energy consumption by 2020, up from about 18 percent today.

The decisions by Siemens and the German government were influenced by the devastating March 11 earthquake and tsunami in Japan that crippled the Fukushima nuclear power plant and resulted in radiation pollution of the land and ocean around the plant. (See: Avnet Survivor Account of Japan Earthquake: Part 1.)

Siemens is a very large conglomerate with revenue in 2010 of $105 billion. Its energy division, of which nuclear power is a part, is the company's second-largest in terms of revenue. Siemens will still make “non-nuclear” equipment that can be used in nuclear plants, but its focus now has shifted to increasing its position in renewable energy, a sector that already generates about a third of its total sales.

So think about the series of events that resulted in this profound decision. A single industrial disaster, albeit a very large one, drove a country halfway around the world to change its energy policy, which led one of the world largest industrial corporations to exit a big, growing, and very lucrative business.

There are a couple of takeaways for business leaders in this story. First, underlying environmental issues played a key role in Siemens' decision. A fear of a nuclear accident and the demand for cleaner, low-carbon energy alternatives likely were responsible for the shift. Second, the decision was made quickly, just six months after the Fukushima disaster. Rather than hanging on to its nuclear business and facing increasingly hostile domestic and international public and political criticism, Siemens got ahead of the curve and can now focus on building its image as a company dedicated to a greener future.

We live in tumultuous times, where businesses must respond quickly to external events and to changing public and political opinions. If your company were faced with a challenge similar to the one Siemens faced, could you act as decisively?

23 comments on “When Business & the Environment Collide

  1. prabhakar_deosthali
    September 30, 2011

    By taking this decision Siemens has aligned itself with the German Goverment's policy of shutting down all the nuclear power plants in the next 10 years.

    There has been a great awakening among common people about the pssoble disasters  associated with Nuclear power plants. With so much of the safeguards built in into the nuclear power reactor design – the danger of radiation leaks and their harmful effects still looms large – the Fukushima incident has highlighted this risk.

     

    With so many  alternate energy generation options available now ( This was not the case may be 20 years back )  why should one play with a potentailly dangerous thing as nuclear energy.

     

    May be the coglomerate such as Siemens has seen this long term doomsday for Nuclear power and acted to safeguard its business.

     Here in India where there is an acute shortage of generation capacity, the public opinion is still strongly against the upcoming nuclear power plants.

  2. Bruce Rayner
    September 30, 2011

    Thanks for hte comment – I thnk Siemens is taking the 'long view' and betting that public opinion will continue to mount against nuclear – at least in the West. The Fuk disaster shows clearly the social cost and the risks involved. Whether public opinion against nuclear will be strong enough to stop or slow India's plans to build nuclear power plants is another question. With an accute shortage of power and the growth of the economy, is there an alternative? 

  3. Tim Votapka
    September 30, 2011

    This is a bold step indeed, and impressive due to the speed with which it was handled. Aside from the nuclear debate, you have to admire the precedent it sets for decision making, particularly among global conglomerates.

  4. FLYINGSCOT
    September 30, 2011

    The cynic inside me wants to ask how much did Siemens project it was going to make from maintining its nuclear business.  At the end of the day I reckon it was a dollars and cents decision and not purely altruistic.

  5. Himanshugupta
    September 30, 2011

    I think that this is a step taken in hurry. I is hard to believe that Siemen can align its future strategy based on the policy change of just one country. There is an actue power shortage in developing countries and Nuclear seems to be the cheapest option available…i still have to think whether it is the safer than coal/petrol fuel. The Fuk disaster is for sure of awakening but are we really going to abandon this technology? Germany can subsidize the renewable energy but i donot think that all developing countries can do that. I am not against the renewable energy but i want to have all the options remain open.

  6. Ashu001
    September 30, 2011

    Bruce,

    I agree.For so many fast developing countries out there;nuclear is slowly but surely working out as not just the most cost-effective option but also the least polluting(if you implement all the required safeguards in place and not skimp on safety standards as the TEPCO people did at Fukushima).

    What is more likely to happen is this-Germany's loss will be Korea(& Japan's) Gain as these countries move to the fore-front of nuclear power suppliers for most of the Developing world.

    Regards

    Ashish.

  7. Ashu001
    September 30, 2011

    Prabhakar,

    I don't see too many Indians refusing to switching on their ACs(& coolers) in the sweltering summer heat or for that matter refusing to watch all their favorite shows on High End TVs  or for that matter stop using refrigerators,washing machines and all the latest gizmos today.

    All this requires tremendous-tremendous amounts of electricity.

    So where is this electricity going to come from(if nobody is open to the option of building newer power plants/whether they be Coal/Natural gas or Nuclear???).

    Most Coal power plants are on standby because of lack of Coal(thanks to all those maoist insurgents who are refusing to let miners mine) and now this opposition to nuclear.

    It makes no sense.

    And then they expect to have 24 hour,reliable power supply???

    What gives???

    This is just an extension of the very famous NIMBY[Not in My Backyard] phenomenon that played out in America for the longest amount of time.Everyone wants to drive the latest SUV but nobody wants a refinery to refine the Crude into Gasoline in their own State/locality.

    Regards

    Ashish.

  8. Bruce Rayner
    September 30, 2011

    Many leading environmentalists agree that nucler is an important energy source in the process of weaning ourselves off petroleum and coal-based power plants. Many argue that the world can't make the transition without nuclear. So in the short-term it has to be among the option for large-scale power generation, especially in developing nations that are so power hungry.
    As for Siemens, it will still be producing turbines and other equipment used in nuclear power plants and I believe it will continue to honor the service contracts for the plants it built until they are retired. It just won't pursue new nuclear-specific business. 

  9. Ashu001
    September 30, 2011

    Himanshu,

    Spoken like a true pragmatist and realist.

    Unfortunately,too many of those types get drowned out by the idealists who believe its possible to save the world and use their Ipads at the same time;after all its not like you can run your ipad on your own bio-energy as of yet.Can you???

    Wish if it were true folks.But till that time happens we need all the Energy we can get.

    Regards

    Ashish.

  10. Taimoor Zubar
    September 30, 2011

    I don't see anything wrong with the decision itself, but the timing is just not right. Decisions like these can't be a short-term strategy where the actions are implemented immediately. As pointed out earlier, there is already acute shortage of cheap power resources and this action will make it worse. An ideal approach would have been to gradually cut down the dependency on nuclear power while investing into alternate means of energy generation.

  11. prabhakar_deosthali
    October 1, 2011

    Ashish,

    “I don't see too many Indians refusing to switching on their ACs(& coolers) in the sweltering summer heat or for that matter refusing to watch all their favorite shows on High End TVs  or for that matter stop using refrigerators,washing machines and all the latest gizmos today.”

     

    You have said it right.  The people in the urban India are consuming most of that generated capacity while the people in rural areas have to bear with 12 hour black-outs everyday. They can run their pumps to water their farms, can't  enjoy most of the TV programs as no electricity

    When new plants are built ,the locations are normally in the remote rural areas – the local people loose their land, home and habitat. They are exposed to all kind of possible hazards of these power plants, and return they gain nothing. All that generated power is flown to the urban centers to run those centralise AC plants of office complexes and shopping malls.

     

    With alternate energy generation techniques such as solar energy, wind energy there power generation is distributed, the hazards are minimum and benefit is localised.

    That may be the reason why the public opinion is against building of such nuclear power plants.


  12. Ariella
    October 1, 2011

    You make a very important point about who benefits 

  13. _hm
    October 2, 2011

    It is difficult to uderstand why is that either nuclear energy or non-conventional enrgy like solar and wind? Why not Siemens work for both nuclear and other form of enrgy generations? This does not look sound decision. Or is it based only on commercial terms that there will not be new government money for nuclear generation and laws will be more stringent that profit margin will be very low?

    Wind enrgy also has its drawbacks – to health to be specific. Does Siemens has solution for this? Or are they going for it again because Government is giving more money there?

     

  14. elctrnx_lyf
    October 2, 2011

    I truly admire the fast decision to stop doing some thing when it is identified as not a good one. Siemens, a company of huge scale deciding to stop the complete nuclear power plant core products is indeed a great decision and big give back to socieTy. Wish the others also follow …..

  15. Anand
    October 3, 2011

    We live in tumultuous times, where businesses must respond quickly to external events and to changing public and political opinions.

    @Bruce thanks for the post. I totally agree with you that businesses must respond quickly to external events. The quick decision by siemens to exit the nuclear power business is really commendable. Will this exit impact the revenue stream of the company? What is the response of the simens share holders for this decision ?

  16. Anand
    October 3, 2011

    There is an actue power shortage in developing countries and Nuclear seems to be the cheapest option available

    @Himanshugupta I agree with you that there is an acute power shortage and nuclear seems to be cheapest option available,  but the big question is it the safest.  Japan earthquak has prooved that  Nuclear is not the safest. Moreover india is densely populated nation, and having multiple nuclear reactors poses big threat to many people staying around the reactor. I hope we will soon get some alternative for nuclear energy.

  17. Anand
    October 3, 2011

    I don't see anything wrong with the decision itself, but the timing is just not right.

    @Taimoorz, People can debate lot about the timing but ultimately if the company decides to comeout of some business,better to do it fast rather than delay the implementation. I feel Siemens feels it to risky to continue in the nuclear business.  Moreover if the company  feels this exit can help it to increase its position in renewable energy then I feel we should give credit to Siemens for taking this tough decision.

  18. Ashu001
    October 3, 2011

    Anand,

    Hope is not a winning strategy.

    People need growth(and energy) today in India.

    And Nuclear power is by far the most Energy-Dense way to do it[Less material for more energy].

    That's why nuclear has so many fans in India.

    Regards

    Ashish.

  19. Ashu001
    October 3, 2011

    Taimoor,

    Its not like they are going to stop servicing/mainatining existing nuclear power plants.

    And the market is so Big that there are many,many competitors who will spring up and absorb the space occupied by Siemens.

    Its quite easy how that can happen in an extremely competitive Global market.

    Regards

    Ashish.

  20. Anand
    October 3, 2011

    That's why nuclear has so many fans in India.

    @Ashish, I think it would be wrong to say nuclear has so many fans in India. I hope you are tracking anti-nuclear protests that are happening in TamilNadu. After nuclear tragedy in Japan every citizen is worried about safety of nuclear plants.

  21. Ashu001
    October 3, 2011

    Anand,

    I am sorry.

    I should have clarified.

    I meant among the People who really matter in the greater scheme of things-The Political Elite involved here.

    Regards

    Ashish.

  22. Taimoor Zubar
    October 3, 2011

    Ashish, nuclear power generation requires huge investment in technology and infrastructure. Surely no company can establish a plant in a span of few years. It generally takes a lot of time. So there will be some vacuum created once Siemens cuts down on the power generation.

    Secondly, if Siemens is withdrawing on the grounds of preserving the environment and reducing the risks, how does the situation get any better when other companies take it's place in nuclear power generation?

  23. Bruce Rayner
    October 6, 2011

    @anandvy I think it remains to be seen what the revenue impact will be as well as the response from shareholders. The market response so far has been modest – the biggest nuclear deal Siemens had was with Rostom, Russia's state nuclear corporation. Siemens was going to be supplying equipment and services to Rostom clients around the world. Also, you need to keep in mind that Siemens will still be providing conventional turbine and power generation equipment to nuclear plants. And that business is growing. 

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