Siemens 2015 Annual Report Download - page 29

Combined Management Report 
in our relative market position. Furthermore, we see a risk that
suppliers (and to some extent even customers), especially from
emerging countries (e. g. China), could develop into serious
competitors for Siemens. We address this risk with various mea-
sures, for example, benchmarking, strategic initiatives, sales
push initiatives, executing productivity measures and target
cost projects, rightsizing of factories, exporting from low-cost
countries to price sensitive markets, and optimizing our product
portfolio. The markets in which our businesses operate experi-
ence rapid and significant changes due to the introduction of
innovative technologies. Our operating results depend to a sig-
nificant extent on our ability to anticipate and adapt to changes
in our markets and to reduce the costs of producing our prod-
ucts. Introducing new products and technologies requires a sig-
nificant commitment to research and development, which in
return requires expenditure of considerable financial resources
that may not always result in success. Our results of opera-
tions may suffer if we invest in technologies that do not oper-
ate or may not be integrated as expected, or that are not ac-
cepted in the market place as anticipated, or if our products or
systems are not introduced to the market in a timely manner,
particularly compared to our competitors, or become obsolete.
We constantly apply for new patents and actively manage our
intellectual property portfolio to secure our technological posi-
tion. However, our patents and other intellectual property may
not prevent competitors from in dependently developing or
selling products and services that are similar to or duplicates
of ours.
Economic and political conditions (macroeconomic environ-
ment): We still see a high level of uncertainty regarding the
global economic outlook. The main downside risks stem from
the weakening growth in China and potential corrections or
even a collapse in real estate, the banking sectors or the stock
markets. The downturn could get worse, if Chinese authorities
fail to reform the state-owned enterprises in the industry and
banking sector as well, to liberalize and open the economy fur-
ther. A rapid tightening of monetary policy by the U. S. Federal
Reserve could cause a depreciation spiral among emerging
market currencies. This could lead to a renewed emerging mar-
ket crisis as debt levels of emerging market enterprises have
risen, making them dependent on favorable global financial
conditions to service foreign currency-denominated debts. Fur-
ther risks stem from increased global danger of terrorism, polit-
ical tensions (e. g. Syria and Ukraine), raw material prices, con-
fidence in the automotive sector, and low oil and gas prices.
With the closing of the acquisition of Dresser- Rand we are
further exposed to volatility in global oil and gas markets.
In general, due to the significant proportion of long-cycle busi-
nesses in our Divisions and the importance of long-term con-
tracts for Siemens, there is usually a time lag between the de-
velopment of macroeconomic conditions and their impact on
our financial results. In contrast, many activities of the Digital
Factory Division and parts of Process Industries and Drives Divi-
sion and in the Energy Management Division, react quickly to
volatility in market demand. If the moderate recovery of macro-
economic growth stalls again and if we are not successful in
adapting our production and cost structure to subsequent
changes to conditions in the markets in which we operate,
there can be no assurance that we will not experience adverse
effects. For example, it may become more difficult for our cus-
tomers to obtain financing and as a result they may modify, de-
lay or cancel plans to purchase our products and services or to
follow through on purchases or contracts already executed.
Furthermore, prices may decline as a result of adverse market
conditions to a greater extent than currently anticipated. In ad-
dition, contracted payment terms, especially regarding the
level of advance payments by our customers relating to long-
term projects, may become less favorable, which could nega-
tively impact our financial condition. Siemens’ global setup
with operations in almost all relevant economies, the wide
variety of our offerings following different business cycles as
well as different business models (e. g. product, software, solu-
tion, project and service-business) help us to soften the impact
of an adverse development in a single market.
Changes of regulations, laws and policies: As a diversified
company with global businesses we are exposed to various
product-related regulations, laws and policies influencing our
processes. Some jurisdictions around the world have adopted
certain regulations, laws and policies requiring us to extend
our recycling efforts, limit the sourcing and usage of certain
raw materials, and request that suppliers provide additional
due diligence and disclosures on sourcing and usage of the reg-
ulated raw materials. We exercise our duty within the supply
chain, as our customers request transparency in the supply
chain and as the obligation to do so already forms an element
of customer contracts. If we are unable to achieve sufficient
confidence throughout our supply chain, or if any risks associ-
ated with these kinds of regulations, laws and policies were to
materialize, our reputation could also be adversely affected.
Strategic alignments and cost-cutting initiatives: We are in a
continuous process of strategic alignments and constantly
engage in cost-cutting initiatives, including ongoing capacity
adjustment measures and structural initiatives. Consolidation
of business activities and manufacturing facilities, and the
streamlining of product portfolios are also part of these cost
reduction efforts. These measures may not be implemented as
planned, may turn out to be less effective than anticipated, may
become effective later than estimated or may not become effec-
tive at all. Any future contribution of these measures to our
profitability will be influenced by the actual savings achieved