APC 2009 Annual Report Download - page 32

2009 REGISTRATION DOCUMENT SCHNEIDER ELECTRIC30
DESCRIPTION OFTHEGROUP, ITSMARKETS ANDITSBUSINESSES
1RISK FACTORS
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5. Risk factors
Risk factors related to the Company’s
business
The Group operates worldwide, in competitive
and cyclical markets
The worldwide markets for the Group’s products are competitive
in terms of pricing, product and service quality, development and
introduction time and customer service. The Group faces strong
competitors, some of whom are larger or developing in certain
lower cost countries. The Group is exposed to cyclical fl uctuations
in the rate of economic growth of, and level of capital expenditures
in, the various countries in which it operates, though the impact of
downturns in a particular market may be limited by the diversifi ed
nature of its end user markets.
As the Group also operates in emerging or developing countries
for approximately 30% of its business, it is exposed to the risks
associated with those markets.
The Group’s wide international presence exposes it to many
economic, legal and political risks in its host countries. These include
risks arising from social unrest (particularly, strikes and walk-outs),
political instability, unforeseen regulatory changes, restrictions on
capital transfers and other obstacles to free trade, and local tax laws,
all of which may have an adverse effect on the Group’s business,
results of operations or fi nancial position.
The Group has implemented procedures designed to protect it from
the effects of these risks, which are generally beyond its control,
and to manage them as effectively as possible. Among these
procedures are the Principles of Responsibility updated in 2009
(see C hapter2  § 2 - Sustainable Development - Framework). The
protection provided by these measures may nevertheless prove to
be inadequate.
The growth and success of Schneider Electric’s
products depends on its ability to develop new
products and services and adapt to the market
and to customer needs
The markets in which the Group operates experience rapid and
signifi cant changes due to the introduction of innovative technologies.
Introducing new technology products and innovative services,
which Schneider Electric must do on an ongoing basis to meet
customers’ needs, requires a signifi cant commitment to research
and development, which may not result in success. The Group’s
revenue and margins may suffer if it invests in technologies that do
not function as expected or are not accepted in the marketplace or
if its products, systems or service offers are not brought to market
in a timely manner, become obsolete or are not responsive to our
customers’ requirements.
To meet these challenges, the Group has an R&D budget which, at
around 5 % of revenue, is among the highest in the industry. R&D and
forward-looking engineering involves some 7,5 00 employees around
the world, a number of them in development centres located in over
25 countries. This ongoing commitment has allowed the Group to
accelerate time to market and leverage the technology of strategic
partners with whom it has also forged alliances to expand its line up
or geographic coverage. The Group has brought together all of its
electrotechnical, electronic, electromechanical, software and other
technical competencies by creating technology parks in China, the
US, France and Japan.
Support centres have also been established in Mexico, India and
China to provide the technology parks with additional skills and
development capacity at a very competitive cost.
The Group’s business growth depends on its ability to develop,
deepen and enhance customer relationships. The Group must
constantly offer customers innovative solutions built around
high quality products and services incorporating leading-edge
technologies that are closely tailored to customer needs and
expectations. However, the Group does not have any exposure with
a particular customer. Its ten largest customers represent less than
25% of total revenue.
Increasing customer satisfaction rates represents an important
source of competitive advantage for the Group. It closely tracks the
results of the quarterly surveys conducted in more than 80 countries
among all types of customers. Improvement targets are set for each
country as part of the One company programme , backed by specifi c
action plans and progress monitoring procedures.
The Group’s strategy involvesgrowth through
acquisitions, joint ventures and mergers that
may be difficult to identify and/or execute
The Group’s strategy involves strengthening its capabilities through
acquisitions, strategic alliances, joint ventures and mergers. Changes
in the scope of consolidation during 2009 are described in Note2 to
the consolidated fi nancial statements (see Chapter5).
External growth projects are examined in detail by the Business
Units, country organizations and corporate functions (Strategy,
Finance, Legal Affairs and Human Resources) concerned under a
rigorous internal process developed and led at Group level. A launch
committee is responsible for initiating the review process to identify
the risks and opportunities associated with each external growth
project, while a validation committee reviews the results. Projects
that successfully come through the review process are submitted
for approval to the Group Acquisitions Committee made up of the
main members of Senior Management . The largest projects require
the prior approval of the Management Board and, in some cases,
the Supervisory Board.
External growth transactions are inherently risky because of
the difficulties that may arise in integrating people, operations,
technologies and products, and the related acquisition, administrative
and other costs.
The Group has therefore developed a process for integrating newly
acquired businesses that extends over a period of six to 24months
depending on the type and size of the newly acquired unit. The
integration scenario for each acquisition varies depending on whether