Alexander Cutler CEO, Eaton Corporation

Eaton Corporation ended the year 2009 with total sales revenue of almost $ 12 billion. Which are the key markets that you expect will contribute critical numbers to your target of $ 13 billion this year?
The global recession of 2008-09 resulted in Eaton’s overall markets declining by 21 percent on a global basis. This year, they all grow at around six percent. At present, the fastest growth is occurring in the emerging nations which includes India.We are seeing faster growth in India than in the US or Europe or Japan. These emerging nations will grow two to three times faster than the developed nations. That’s why we announced that our goal is to have 30 percent of our sales from emerging nations by 2014, which is 20 percent now. In these five years, we are expecting growth from emerging nations to grow by 50 percent. One of the reasons why I am here is to try and identify those additional investments in areas to significantly grow our business here.

Eaton’s various businesses come under two verticals – Industrial and Electrical. Going forward, do you expect them to be of the same size or is one of them likely to grow bigger?
On a global basis, we would expect our Electrical, Hydraulics and Aerospace markets to grow faster than the vehicle markets. The reasons for this can be attributed to the fact that these markets are very attractive and that we are doing most of our acquisitions in these businesses. Having said that, the automotive and truck sectors are in classic early cycle of businesses. As economies try to recover, they tend to grow very quickly so they are having big growth this year after a very challenging year. The Hydraulic Business tends to be what we call a mid-cycle business. It is tied to agriculture, construction, industrial equipment. Interestingly enough, it is growing very quickly, faster than we thought it would as the world economy is coming back. The later cycle businesses tend to be businesses like the aerospace business. So, inspite of the economy being bad, aerospace was up last year. What we are trying to do is have a balance in our company. Our various businesses are going through various economic cycles. That strategy is working for us.

Eaton India’s truck technology business has got business from Mahindra Navistar. What are your other plans?
We have acquired two automotive plants in India. They provide passenger vehicle valves and are growing quickly as a result of all these vehicle platforms coming up. We would hope to introduce the supercharger here as well as also traction modifiers, portions of valvetrain, which tends to be the lifter and the roller bearing. We will also manufacture a line of fuel vapour valves that help eliminate the loss of fuel when one’s vehicle is being filled.

Do you have a timeframe?
We are talking to OEMs for them right now. It’s really a matter of when they decide to put what into the vehicles. In the automotive industry, it is typically a three-year period after an order is confirmed that the car starts getting produced. We have the same challenge in the truck industry. We built a new plant in end-2007 and had to double it a year ago because we probably didn’t expect the market to be so successful. We call it the high quality challenge to have!

You have introduced hybrid buses in China. What about India?
We are talking to several manufacturers here. We have about 54 million miles of experience on hybrid vehicles around the world today. We are one of the providers who actually have practical experience. We have thousands of buses running in China today and hundreds of hybrid trucks in the US. With diesel-electric having a hydraulic in two forms – series and parallel – we are able to offer this very wide range. We can offer the correct technology to our customers based on their vehicle applications. We are the only competitor in the world which produces all three of those.

Do you see the economic recovery in the US sustainable in terms of job creation, manufacturing growth?
In the US, this is a flatter recovery than has been before. There are a couple of important reasons for that. I think the whole world is trying to operate with less debt. Our view is that we are going to see a muted recovery. We are going to see a majority of the worldwide growth occuring in the emerging markets. The US is probably going to be 3-3.5 percent GDP. The disappointing region is going to be Europe. Even before the debt problem started to emerge, it looked like Europe will grow at 1.5 to two percent. Now, with these debt problems, we think it will grow at less than one percent. Again, if you look at over 15-25 years, you are going to see Europe’s share as a percentage of the global GDP coming down, Japan will also come down. The US will continue to grow but by 2050, it will probably be only 18 percent of world GDP. It was 26 percent last year. The emerging nations of the world will grow from about 33 percent to over 60 percent. That’s an enormous change which is going to take place. That’s why we are so interested in investing here.Any further expansion plans in India?We are discussing our plans for organic as well as inorganic growth. Fortunately, the company is very well financed. We don’t have a challenge for investment. We can grow them all. What we’ve been doing is meeting with

Any further expansion plans in India?
We are discussing our plans for organic as well as inorganic growth. Fortunately, the company is very well financed. We don’t have a challenge for investment. We can grow them all. What we’ve been doing is meeting with customers and trying to finalise commitments.The best indication of our confidence in the Indian economy is that we have over 1,000 engineers here. We made that investment upfront because we felt we have to have local engineering to design products that are tuned for local because India will be slightly different from China or Brazil. We invested in engineering first because we needed to make unique products and be able to sell them and that we start making the plants that manufacture them. I think people make the mistake of building a plant when they haven’t even custom-engineered a product yet. Our approach has been different.

Any kind of ballpark figure of investment lined up for India?
We haven’t. We don’t as a company talk about investment numbers because every competitor would love to know what these numbers are. What we are confident about is that this growth is going to continue. We are going to see enormous infrastructure investment in India. You see it in cars because the more the economy grows, the more people buy cars. You see them in trucks because the freight movement goes up. And the horsepower in these trucks go up, and that’s where our products come in. In hydraulics as an example, if you look at a tractor three years ago, and if you look at one today, the new ones have hydraulics, higher horsepower, many more implements on them. That’s more hydraulics business for us. If you look at the industrial equipment produced in the country now, there’s more hydraulic and electrical content. The big challenge today in infrastructure is electrical infrastructure – both in generation, generation losses. The aerospace industry, where we are a big player as well, has gone through an evolution. We have seen announcements by both Airbus and Boeing to set up local services here. That business used to be done in Singapore. But with the volume of aircraft in India, that has to be locally supported here. We will ship parts to all those centres. At some point, you will see a design of a commercial aircraft here. I don’t see it happening in the next couple of years, but in China, it is the C919, in Russia, MC 21. We’ll have aerospace engineers ready when the demand arises.

You have also mentioned about inorganic growth opportunity here. Any identified areas, targets?
We are talking to a number of companies for those types of potential. As a company strategy, we are saying not just in India, but globally, our major acquisitions are happening in electrical business, in the hydraulics and aerospace businesses because we got most of the technologies you want in the automotive and truck businesses. But now let’s look at an emerging economy like India, we couldn’t wait to build an engine valve facility. It would take too long that’s why we bought the Kirloskars’ business, so we’ll remain flexible in all five of these businesses. We’ll continue to do acquisitions, but we’ll also invest in engineering the unique products for the local demand. We want to design and sell, source and sell in the country. That’s our strategy.

As of now, 55 percent of Eaton’s global sales revenue comes from outside US. How much is it from India, China? Where do you see it heading to?
Our goal is to have $ 2.5 billion by the end of this year in Asia-Pacific out of the total $13 billion It’s our fastest growing region. We have been growing at 25 percent in Asia-Pacific.