Grounded with an enduring partnership
The successful relationship between Siemens and Saudi Arabia started in the mid-1800s, when Siemens founder Werner von Siemens personally led a team to lay telegraphic cables under the Red Sea; at a time when the region had little infrastructure.
Siemens’ first business contact in Saudi Arabia was in 1929 in the western Hijaz region (where Jeddah, Mekkah, and Medinah are located). This was followed by the firm’s very first official business transaction in the early 1930s, when visionary local businessmen imported and subsequently installed power-generation equipment. It was this initial investment that paved the way for the advanced power infrastructure that is found today in the Kingdom.
In the 1950s Siemens established some core developments which truly helped set the stage for its future impact in the country. Due to a rapidly growing customer base, by 1952 the company sent its first resident engineer to Saudi Arabia. Two years later came many significant milestones, including the first phone call in Saudi Arabia’s history by King Saud via the use of Siemens technology, which paved the way for the Kingdom’s first telecommunications network installation by Siemens.
New hub redefines local manufacturing
As the Kingdom of Saudi Arabia approaches a new wave of industrialization and localization policies under the helm of Vision 2030, Siemens has also committed to expand and diversify its local investment.
The Siemens Dammam Energy Hub (SDEH), established in 2014, is the company’s flag-ship production facility in Saudi Arabia. The SDEH is the first gas-turbine facility of its kind in the country and is the largest in the Middle East. In 2016, the first “Made in KSA” gas turbine was launched. This was a historic milestone, and Siemens took pride in this turbine being built in Saudi Arabia, for Saudi Arabia and by Saudi Arabian talent.
Siemens also received the Saudi Water and Electricity Forum (SWEF) Award, which further emphasizes the strength of its relationship with local partners. With the capacity to build up to 10 turbines annually, the SDEH showcases the firm’s use of cutting-edge technologies and the development of local capabilities to produce highly efficient engineering masterpieces. Siemens is also continuing to develop local supply chains, along with its strong commitment to increasing innovation and industrialization in line with Vision 2030.
Training initiatives and knowledge transfer
The SDEH also highlights Siemens’ continuously expanding local footprint in Saudi Arabia. The project, however, also required addressing some of the challenges that comes along with staffing and transferring knowledge to a facility of such proportions.
At the beginning of the project, Siemens launched a massive training program for local talent, in partnership with the Saudi Petroleum Services Polytechnic (SPSP), an initiative overseen by the Ministry of Energy, Industry and Mineral Resources and the Technical and Vocational Training Corporation – the government’s vocational training arm. As a result, by the end of 2016, newly qualified Saudi Arabian gas-turbine experts built the first of six F-class gas turbines for Saudi Aramco’s integrated gasification combined-cycle power plant in Jazan.
Besides those related to the SDEH, Siemens is also investing in its partnerships with academic institutions. The company recently announced a €100m investment in industrial software for universities aiming to build up the most advanced local digital capabilities, and to prepare Saudi Arabian students and future leaders for the “fourth” industrial revolution. This industrial software includes digital twinning capabilities for integrated design, engineering and manufacturing. It will also facilitate next-level industrial research and capacity build-up. Effat University and King Saud University have already received the software, and it is currently being introduced at other universities.
Siemens has also been working with multiple institutes, including the Siemens developed a vocational training concept modeled around the German dual system, in partnership with Colleges of Excellence. The concept was implemented in October 2017 with the intake of the first local students starting their Rail Technician training at the Saudi Railway Polytechnic in Qassim. In addition, the dual approach is being implemented with Business Administration trainees at Siemens sites across the Kingdom, the majority of whom are local female talent.
A local impact
In terms of helping achieve Vision 2030 goals, Siemens has taken a very unique approach. By co-creating and working with a number of public and private customers, including Saudi Aramco, Saudi Electricity Company and the Saline Water Conversion Corporation, Siemens was able to identify crucial issues for the Kingdom. Despite being a foreign investor, Siemens took pride in considering itself as having the same characteristics as if it was inherently a Saudi company. This mentality is what helped the company to achieve significant results in terms of economic growth, development of human capital, environmental protection, quality of life and overall transformation of the society.
By actively electrifying, automating, digitizing and innovating, Siemens’ investments will have a direct or indirect impact on several key Vision 2030 targets such as:
Vision 2030 is also working towards having three Saudi cities ranked in the top-100 cities in the world. In its November 2016 “Smart Cities Saudi Arabia” report, Siemens featured a comprehensive analysis of some specific challenges and technological opportunities within the main Saudi cities. In the capital city of Riyadh, for instance, by equipping Lines 1 and 2 of the Riyadh Metro with energy-efficient and driverless inspiro metro trains, Siemens is addressing two key challenges – unhealthy levels of air pollution and unsafe roads.
The case of Siemens, a company that has established and maintained a strong local partnership in the Kingdom, can be seen as a best practice for modeling profitable relationships between foreign investors and local stakeholders leading towards achieving the goals of Vision 2030.
Arja Talakar, CEO, Siemens Saudi Arabia
How would you describe Siemens’ overall experience as foreign investor since its Saudi market entry?
Since the installation of Siemens power-generation equipment in the Kingdom and our partnership with E.A. Juffali & Brothers, we have been here, every step of the way, co-creating with Saudi Arabia. To be honest, it doesn’t feel as if we are “foreign investors” in Saudi Arabia. We consider Saudi Arabia home. From the outset, we have worked directly with a host of public and private customers and have developed a great partnership with the Kingdom, whether in terms of expanding our presence, focusing on localization, setting up our Siemens Dammam Energy Hub and partnering on the path of electrification, automation and increasingly, digitalization.
What challenges has Siemens traditionally faced while navigating the regulatory environment?
Every market has its own challenges and the Saudi market is no exception. However, many of the challenges an investor faced – let’s say in the 1990s – were addressed by setting up SAGIA, the Kingdom’s investment promotion agency. We are going through what is the foundation for an even brighter Saudi Arabia. Vision 2030 is a great roadmap, which I am confident will succeed and flourish with the right regulatory environment and investment-friendly policies. We are very confident in the prosperity and economic development of the Kingdom.
In this context, localization is extremely important for investors, not only for creating employment but also for adding economic value through manufacturing and supply-chain development. Investment in manufacturing industries requires a longer-term market view, and localization will be a vital element to ensure sustainable development of the local industries. We believe that the Kingdom has the potential to become a regional manufacturing hub and an industrial heavyweight. Global best practices prove that creating “champions” in strategic industries through active support is a better alternative than a project-by-project approach and that is what the Kingdom is trying to achieve.
What’s your perspective on the investment incentives provided by Saudi Arabia to investors like Siemens?
For us, the biggest reason to consider investing further in Saudi Arabia is the attractiveness of the market. With a solid domestic market and the creation of champions, Saudi Arabia is progressing on the path towards becoming an export-centric nation. Even geographically, Saudi Arabia is ideally located, with easy access to European, Asian and African markets. New regulations providing more incentives for companies willing to invest in the country are coming up, and previously strict requirements are being removed.
Given the growth of local value chains and SME ecosystems, what opportunities do you see for collaboration with prospective investors?
Under Saudi Vision 2030, the Kingdom plans to raise the contribution of SMEs from currently 20% of GDP to 35%. It is true that a strong SME value chain is a great enabler, not just for overall economic development, but also for large-scale industries. We believe that the strong value chain of SMEs is essential for developing the industry in Saudi Arabia. Therefore, more than half of our procurement value goes towards SMEs. We are moving in the right direction and our local SME supplier base is growing.
In what areas can collaboration between investors and academia strengthen local R&D capabilities?
We believe that partnership between academia and industry is imperative for research and capacity build-up. Siemens is very mindful of the fact that investing in our partnership with universities will pay long-term dividends for the country overall while benefiting the industry in the process. And, while we think that investment in partnerships with universities is extremely important, another area that also needs to be focused on is technical and vocational training. For example, Germany is renowned for its dual education system, and together with our partners we developed and implemented this in Saudi Arabia.
What approach has Siemens adopted for the training of Saudi staff?
Once a person joins Siemens, there is a whole range of training options available. Being a company focused on digitalization means new technologies and information pours in everyday and it is imperative that we stay up to date. We have a huge Siemens knowledge pool to tap into. We also conduct a lot of local and international trainings to support the development and growth of our employees. Additionally, all the vocational trainings and university programs that we work on through partnerships contribute to skill development. Developing the right skill set is one of the first and most important steps for sustainable development.
What strategic recommendations would you give to prospective investors?
Vision 2030 and the push to diversify the economy will create immense opportunities. This is the time for investors to come in and I think there is no better blueprint to guide them towards potential growth sectors than the Vision 2030. Entertainment and tourism is set to grow, the service sectors are going to develop further and, of course, technology and industrialization will be at the heart of the economy of Saudi Arabia.