The manufacturing sector has long offered a window into the changing nature of work and the evolution of technology. Clare Scherrer, global co-head of the Industrials Group in Goldman Sachs' Investment Banking Division, discusses how industrial businesses are managing technology and workforce investments amidst economic and political change.
This podcast was recorded on February 27, 2017.
The information contained in this recording was obtained from publicly available sources and has not been independently verified by Goldman Sachs. Neither Goldman Sachs nor any of its affiliates makes any representation or warranty as to the accuracy or completeness of the information contained in this recording and any liability as a result of this recording is expressly disclaimed. This recording should not be relied upon to evaluate any potential transaction. Goldman Sachs is not giving investment advice by means of this recording, and this recording does not establish a client relationship with Goldman Sachs.
Copyright 2017 Goldman Sachs. All rights reserved.
This is an unofficial transcript meant for reference. Accuracy is not guaranteed.
Hello and welcome to Exchanges Goldman Sachs, where we discussed developments currently shaping markets industries in the global economy, objects Ewart, call by the carpet.
patients here at the firm, whether you listening to this in your car or on an airplane. While writing the train, the company, the built that mode of transportation.
falls under the industrialists, umbrella and Goldman Sachs Industrial are clear. Shares territory clears the Global co headed
Austria's for investment, banking division and she's here today to talk about how this big
of huge machines and big work forces is adapting to shifting politics in the digital age. Clear welcome to the programme. Thank you.
so industrialism misleadingly, simple name for a pretty wide ranging space. Your vertical encompass
is aerospace and defends automobiles capital, goods, transportation infrastructure, just to name a few as the
new heads up that operation globally. How do you think about the industrial space for management standpoint when I think about managing the group Jake, I think about two imperatives. One thing is: are we global, and the second thing is I we coordinated with our colleagues and telecom,
media and technology. The reason I focus angle ability is because, twenty years ago, we used to have crossed
border emanate, which was unusual or the minority when you think
about emanate today, especially if your based in Europe
the way I am almost every deal as cross border
and so, if we really want to be leading edge and giving our clients the best advice, we have tat experts in every corner of the world and one plus one equals three in terms of tying our advice together, the other collaboration I focus on his with technique,
Oh gee, I will come onto that. I think our discussion, because
increasingly hardware companies manufacturing companies are looking at how they can add intelligence, how they can collect data, make it meaningful and also how they can surround the hardware and the software with services to give there and customer the best product in the best result.
Should we expect more hybrid businesses cropping up were older, traditional manufacturers or other acquiring or building neurons of in house technology when you think about a truck driving down the highway, a class eight truck, it's no longer just about the truck it's about the steering system, the braking system. What's the interface between
those systems, so that, if you think about collision avoidance systems or you think about driver assist in case the driver become sleepy. So all those precursors to autonomous driver
In other words, people are no longer thinking about the components or the subsystems there, thinking about how they integrate that as a whole to create a solution, because, if you put a product in the field and you d,
as part of a solution, and you monitor it and service it. There's a feedback loop, so you're, better able
design and engineer the next generation of the product and the continuing revenue stream-
and it goes veneering revenue stream, because you'll have a bigger share of the customers, spend two the extent you can solve bigger problems for them
and it's also more value. Add for your customer, if you're thinking about the cost of the product over the life cycle of the product,
so shifting gears clear today around the world seems to be talking about politics.
used in London, where maybe the den from the United States is a little less lab, but perhaps only because you ve got your own uncertainty ashore through with black said, and a lot of european elections,
How is the political environment Europe having an impact on corporate strategy, particularly what comes to hiring and capital investment? First
I would say that the din from the? U S is actually quite loud in Europe, because most clients in Europe are not quote European there actually global with a european headquarter, so in terms of how they are reacting to tramp, in particular their focused on what could be potential tax reform, and I think it's having to implications. The first is while they are trying to focus on business as usual, there are decisions which are being delayed and where companies are proactively taking a pause and, in other cases there making contingency plans and I'll give you an example of both european Headquartered company that has a non core division where most of the manufacturing is in China and the largest customer bases in the? U S. This is the exact profile of a company who would be most impact,
if there were a border adjustment tax and acted in the? U S, so this is a company that otherwise would move forward with divesting its non core division is now pausing in saying that wouldn't be a wise thing to do, because, even though its at the moment, a low probability that it be eighty would go through. Perhaps I should pause and wait until there's more certainty. So I understand the financial profile have what I'm selling and the capital gains tax implications and move forward at a time when I have better visibility. Another example of contingency planning is one of our clients in Mexico who has most of their supply chain in Mexico, but their selling too
U S, and while they certainly would not today, with what is now and put a manufacturing facility in the? U S, it's something that they must think about, because again, there of the profile that could be greatly impacted said there began to think about contingency plans:
With respect to what's going on in Europe, we have a lot going on. We have article fifty being triggered in the UK to facilitate breaks it. We have elections in.
France, Germany, the Netherlands, we have a referendum in Turkey. The list goes on me
Finally, I am saying this impact clients, because they want to avoid capital raising during any period when there could be volatility in the markets and that's a pretty wide period of potential volatility, depending on the outcome of those elections. So we're seeing clients looking to raise capital now try to get ahead of that, or else there being very careful about assuming what windows will be open because,
rule. You want to raise capital when you can not when you need it and in an ideal world, when you can and when the markets are not volatile and investors are looking to put money to work. Turning back to transfer. Second, the eagle
MC agenda, that the new administration has outlined, has generally been interpreters. Pro growth, in fact, when you look at it from the perspective of the companies in your space, allow the proposals, whether its tax reform infrastructure, investment, increase defence spending are
the attractive, but your job is in large part about risk management. So when your advice,
clients, but the U S, strategies currently when it seems like there's so much on the table, that could be the opportunity for them. How are you thinking about that? When we look at where growth will come from this year? Goldman Sachs research does expect world GDP to increase, but where is that growth coming from its in large part, coming from the? U S and its also coming a little bit from developing markets who are turning the corner from a very challenging year last year? Are economic forecasts are for Europe to be a little bit weak relative to last year? So exactly as you said, our european clients are looking to increase their exposure in the? U S. Sometimes they can do this through simply investing in product development in marketing initiatives, and sometimes they need to do this through emanate because of what there
global footprint looks like so, we are seeing a renewed interest in european companies despite the strong dollar in finding ways to continue to grow their footprint. In the? U S, so you mentioned the strong dollar. Obviously, divergent monetary policies led to a pretty big uptake in the: U S: dollar versus the pound versus the Euro. How replies on both sides of the pond dealing with the relative strength of the dollar against the local currencies in the UK in Europe? The dollar strengthening is having a huge impact on how people plan and actions that they're taking to manage risk. I see clients right
more sensitivities to foreign exchange movements, and why are they doing that? Because they want to be correct as much as possible with investors when they're, giving them guidance for their forward performance and increasingly the ethics movement can really swing things and immaterial way, and so the really trying to be as thoughtful as possible in a world that uncertain where we can predict the magnitude and direction of certain currency movements, but am also seeing people really take action behind those sensitivities and hedge currency, where they didn't
for an example of that is. We were working with a client in Europe who is a Euro based company. They were acquiring a company in the EU
and paying dollars- and there was a fair amount of time that was going to pass between signing and closing of the transaction and they really
and to know with certainty how many euros they would need to deliver to satisfy the dollar purchase price is a company that really had not heretofore thought about hedging, because here too, for they always quote self insured.
but the magnitude of the acquisition they were doing and also the magnitude of swings were saying in the currency market made them think differently this time and act on some hedging strategies. When we talk about transaction,
one of the things we ve seen? A lot of in Europe is an influx of chinese investment, particularly
the medium sized, highly specialised manufacturing companies that have traditionally exports to China. So how
sensitive. Have european companies been to foreign investment? How receptive have european governments been
chinese investment. And what does that investment mean for the future of european manufacturing? We ve seen an incredibly unprecedented level at China Investment into Europe. However, that has been tempered at the end of the year by some new restrictions on currency weaving China. It has also been tempered by
the? U S and to a lesser extent, Germany and some other european governments taking a stricter interpretation on what assets are vital to national security. So I think if we take those recent developments which tamper a little bit, the enthusiasm is still the case that chinese companies are
looking to expand overseas. They went through a period of many years where they were building local champions and now they're, really taking action to build global champions
and they value the management talent that exists in Europe? In the? U S, they value the technology know how the manufacturing knowhow, and so, in some cases where China has invested in Europe. There have been some very positive results from that. Firstly, because it enables the european Company to then have better access to the chinese markets which, prior to the chinese investment they
had been struggling with. What's the right way to access the chinese market, it also can allow chinese capital to flow into support european strategies and then, finally, from an emanate perspective, when european clients are looking to the best non core assets, the chinese buyers or wealth of potential
there's that we can turn to in the past. They ve always been willing to look at things, but not actually pull the trigger, but do you find chinese companies
actually willing to pay up in the past. They were real,
to Revalue driven, but they seem to be really putting aside value in favour of growth. I would agree with you I would say the tide has really turned very much to the opposite.
which is they now feel as though they must pay up, perhaps even though
but more to be the
in the end because there are sometimes political sensitivities that need to be worked through, and so there really
putting their money where their mouth is in terms of their strategy to have more globally to their businesses, so the industrial spaces oil.
a place that highlights the changing nature of work, whether it's the admin,
assembly line over a hundred years ago, or the offering a manufacturing which we saw
in the eightys and Ninetys end today, critically, the growth of automation, how our advances
firm robotics. You talk a little bit about the beginning, affecting how industrial companies conceive of their need for talent. The factory of the future is a very data, rich environment, so suppliers are connected to the manufacturer, who are connected to their customers and our further connected to their end product and how its used in the field, software robotics and intelligent,
Solutions are becoming pervasive, so I think we are going to be headed toward a more data rich environment, but at the end of the day, humans need to provide the intellect and the judgment to sort through. What do we do with all this data, because its otherwise just state? It's not judgment, and it's not anything that can be acted on.
In developed countries has been the service sector where allow the job growth has been constrained in recent years today.
we have a present in the. U S is talk a lot about job growth in manufacturing and there's a lot of political emphasis on manufacturing. He said the ceos of old line is industrial
but to see him a couple times now. So how does that political,
This is on manufacturing, help or hurt industrial companies that are trying to operate today. I think that today companies have to think about what are responsible policies for their customers, but also their employees. They have a lot of constituents whom they need to.
Look out for and depending on what the product is their manufacturing or who their selling it too. They need to really think about what puts them in and advantaged position globally to sell to their customers, but
part of being in a globally advantaged position, is having a workforce who skilled, whose loyal and who really can be a competitive advantage for you
the capital can be an advantage, but a workforce who skilled and loyal can also be an advantage. And so I think that increasingly, the rules that applied over the last decade about where supply chains were based and how they were being constructed. Some of those rules are changing.
Potentially in some cases and pretty material ways, and so I think it allows people to reopen the equation and think
the human input versus the machine and put and think about what,
the right answer, given that your solving for a lot of constituents
ass, it is pushing you mentioned earlier for more environmentally friendly production. Where's that mean for the businesses you work with
we're saying a lot of exciting business models that are looking for capital which address environmental needs? One example over the past couple of years is smart meters, so if energy is a scarce
source one of the ways that we can expand or stretch the energy generation capabilities that we have as for and consumers to conserve. So if they have a smart meter which shows to them very clearly how much their spending
on electricity and gives them information. They can then make the choice to conserve in a more real time too,
Isabel Way and study
have shown that people who have a smart me
in their home, sometimes conserve up to fifteen percent of their electricity consumption, which means their electricity but goes down. So that's really interesting example of technology that can cause
change in behaviour. Another example where we see some really interesting innovation is, and water technology, and a very simple of that is irrigation-
So farmers around the world went to grow more with less and when you think
but what the various inputs are in areas where water is scarce. Water is actually one of the rate limiting factors for
How much you can grow and can you grow more with less so we ve seen some developments
drip irrigation and
that irrigation is administered to the crops and how'd it in
or that you're getting just the maximum efficiency and maximum productivity from a scarce resource. So I think we're sing, exciting business models that investors, one who invest and because it secular growth. So many of the issues you described old line, industrial businesses are cyclical and so there's obviously cyclical growth. But investors are looking for opportunities where they can have true secular
growth. I think also some of the old by companies that you mentioned are very happy to put money to work, to be environmental leaders, because they know that increasingly that's a factor that investors are looking toward and frankly, potential employees are looking toward investors and employees.
wanna, invest their time and energy in capital in companies that have ideals that day care about so clear, even at the firm enough for twenty years, you have
been a senior woman in what's historically been male dominated field, critically the industrial space so
Some of those important lessons you ve learned in terms of navigating your career, the muslim
lesson I have learned in my career is to always solicit direct and honest feedback, and this piece of advice applies
men and women alike. We all have our strengths and we
says, and we all have blind spots to our self awareness. I think it's very important to solicit regular and candid feedback.
and when doing so, one has to be a good listener. It's very easy to get defensive and say why the person whose giving you that feed,
might be mistaken when, in fact, what you should do is not to
can listen and take it on board related to that, however, is that you should be resilient. So when you get constructive feedback
you shouldn't. Let that get you down. You should actually celebrate that. Someone cared enough about you to give you some things that you could work on to improve your forward, and I would say that,
for women in particular its very important to make sure that the guy
as you are working with our as candid with you as the guy's, their working with, because sometimes not always, but sometimes
a man can be a little bit hesitant to give harsher critical feedback to a woman when, in fact, that's exactly what you need. If you're trying to shore up your weaknesses and played your strength, then
Senor women, is still not as high as we would like it to be, and one of the things I think it's important for women to realise is that we all tend to judge a book by its cover until we start reading the book and I'll give you a very funny example of that
was flying to MILAN to meet with an italian client and when we land and we're going through customs and immigration, my italian male colleagues
phone call from the sea. He said you didn't tell me Clare who you're bringing
meeting as a woman- and I saw my Italian,
Holly begin to panic and wonder why in the world to see making that comment and then
see yo said this is a problem
They have not made a reservation for lunch. At a fine restaurant, we were going to be eating
The company cafeteria and my colleague said well Clare, covers and dust
come now. She eats allotted
to raw materials.
That isn't that interesting that that's what he was worried about and we got to the company. We started the meeting at the cafeteria eating sandwiches.
in minutes into the meeting he no longer was focused on me being a woman, he was focused on my content. He was focused on the fact
I actually knew the most about the topic he wanted to cover within the Goldman Sachs Network and the cover of the book didn't matter. The content of the book is what matters so
when I'm advising young women. I tell them that the sooner
the more often they can talk in front of their clients and really deliver advice and judgments. The better because then
People are not judging them by how they look they're, not judging the book by the cover, their judging the book by the content, and that's the way that young women can really set themselves up to succeed. Clare thanks for joining us today is a fascinating discussion cover a lot of ground. Thank you, Jake. That concludes this episode of exchanges of Goldman Sachs. If you join this episode, please leave us a comment on our Itunes
age or other platform where you consume podcast, thanks for listening the spot Castro's recorded on February, twenty seventh, two thousand. Seventy, the information contained in this recording was obtained from publicly available sources and has not been independently verified by Goldman Sachs. Neither Goldman Sachs nor any of its affiliates makes any representation or warranty,
to the accuracy or completeness of the information contained in this recording and any liability as a result of this recording is expressly disclaimed. This recording should not be relied upon to evaluate any potential transaction. Goldman Sachs is not giving investment advice by means of this recording, and this recording does not establish a client relationship with Goldman Sachs.
Transcript generated on 2021-10-14.