Curt Hutchins, President – Asia Pacific A Transition in Global Markets: Asia Pacific is the Future © 2012 Eaton Corporation. All rights reserved. Eaton Corporation Eaton Corporation – A Premier Diversified Power Management Company Our products & services deliver reliability, efficiency, and safety for: Cities & Buildings Industrial & Machinery Information Technology Transportation Infrastructure Energy & Utilities • Founded in 1911: 2011 sales $16 billion • World Headquarters in Cleveland, Ohio, USA • Regional Headquarters in Shanghai, China; Morges, Switzerland; Sao Paulo, Brazil • Innovation Centers in the USA, China, India and Europe • Customers in 150 countries; >73,000 employees worldwide © 2012 Eaton Corporation. All rights reserved. 2 Expanding Presence in Asia Pacific APAC Manufacturing • 34 manufacturing sites • Employees ~16,000 • Distribution in 17 countries China Manufacturing • 18 manufacturing sites • Employees ~10,000 Support • 6 R&D centers • 2 shared service centers • >100 sales office 2011 Sales>$2B © 2012 Eaton Corporation. All rights reserved. The China economic landscape…is clear Peter Gerber Manager, Global Branding, Eaton Corporation © 2012 Eaton Corporation. All rights reserved. The rising power of emerging markets… Share of global GDP (1990-1995 average) 5 Share of global GDP (2011) China 10 20 China 14 Brazil, Russia & India 12 Rest of emerging world Developed world Brazil, Russia & India Rest of emerging world 23 Developed world Source: IMF, KPMG • ~55% of our revenues generated in markets outside of the U.S. • Revenues in developing economies comprise ~24% of our sales, up from 8% in 2000 • 35% of our total sales growth from 2006 – 2011 was from BRIC countries © 2012 Eaton Corporation. All rights reserved. 5 Asia Pacific is shaping future global growth… MNC's top 10 perspective host economies for 2012-2014 China 13,000 5,000 India US$ B Nominal GDP in 2015 8.2%, $12T 7.9%, $3.2T Indonesia 1,500 6.3%, $1.3T 1,000 Small size, moderate growth Small size, high growth Thailand Medium size, high growth 4.9%, $484B 500 Malaysia Large size, high growth Vietnam 5.1%, $408B Philippines 0 4.0% 6.8%, $192B 4.8%, $336B 4.5% 5.0% 5.5% 6.0% 6.5% 7.0% 7.5% 8.0% 8.5% Real GDP CAGR %, 2011-2015 Source: EIU; UNCTAD, World Investment Report 2012 © 2012 Eaton Corporation. All rights reserved. 6 China remains a large and growing source of revenue for MNCs… • Urbanization…adding about 18M new urban residents per year, by 2025 • • • • 1bn living in China cities 200+ cities with 1m+ population 170 new mass transit systems 40bn sqm of floor space built Source: China Daily, McKinsey Global Institute • Aging population, declining work force, rising income….critical shift in economy • • Shift to “consuming China” Shift from “made in China” to “‘indigenous innovation” Source:Kharas and Gertz 2010 © 2012 Eaton Corporation. All rights reserved. 7 “Consuming China”… World’s largest market for passenger cars World’s largest market for mobile phones World’s second largest market for luxury goods Car Mobile phone Air-conditioner (per 100 urban households) (per 100 rural households) (per 100 rural households) 2002 to 2011 X 20 X 12 X9 2011 total sales 14.5M 280M 49.5 M CAGR 5.2% 12% 35.2% © 2012 Eaton Corporation. All rights reserved. Source: China’s National Bureau of Statistics 8 China’s maturing market… • Increases in land prices and taxes • Environmental and safety regulations • Labor - minimum wages have risen steadily since 2005, and are now higher than many Asian countries. Rising Minimum Wages in China (USD per month, figures for Vietnam and Indonesia are for 2011) 180 160 155 160 140 112 120 100 80 60 76 59 40 20 0 2005 2008 2011 Vietnam Indonesia Source: KPMG; China’s National Bureau of Statistics; Indonesia’s Government Statistical Service; American Chamber of Commerce Vietnam © 2012 Eaton Corporation. All rights reserved. 9 Addressing Challenges with strategies for the market … Peter Gerber Manager, Global Branding, Eaton Corporation © 2012 Eaton Corporation. All rights reserved. APAC & China…are key to our growth strategy Sustained investment to accelerate localization: • R&D capabilities • Manufacturing • Management systems Eaton R&D Center (China) Eaton Shared Service Center (India) 2007-2008 Eaton Regional HQ (Shanghai, China) Eaton Manufacturing Facilities (China) Eaton Offices (China, India) 2009 2010 2011-2012 © 2012 Eaton Corporation. All rights reserved. 11 Design and scale influence manufacturing Value Proposition Mature Market Design Emerging Market Design PRODUCT DEVELOPMENT…… • Must be close to customer • Must be close to our competitors • Align value proposition with market • Jointly innovate with customers C2 Cost © 2012 Eaton Corporation. All rights reserved. C1 12 Innovation capability in China Suzhou Electrical R&D Center China Innovation Center /Vehicle R&D Center Shanghai Taipei Electrical R&D Center Shenzhen • 4 China R&D Centers – 1,200+ Engineers Electrical R&D Center • 1 Global Innovation Center • Collaborating with 8 Universities for Joint Technology © 2012 Eaton Corporation. All rights reserved. 13 Manufacturing.… Mfg Sites Space (sqm) Hourly Worker APAC 34 >577k >9k China 18 >302k >6k Challenges • Strategy • Leveraging best practices • Turnover • Wage inflation • Variability in performance © 2012 Eaton Corporation. All rights reserved. 14 Key observations for success Talent • • • • Speed • Decision making • Execution • Localization Innovation Talent acquisition & retention Structural support Leadership development Continuous improvement culture • Beyond traditional thinking • Scale • Leveraging Creativity © 2012 Eaton Corporation. All rights reserved. 15 Incorporating sustainable development objectives… Peter Gerber Manager, Global Branding, Eaton Corporation © 2012 Eaton Corporation. All rights reserved. “Doing Business Right” Building a robust compliance culture: • Management visibility and oversight into all compliance activities • Deployment of systematic structure & programs • Navigating key risks • FCPA IPR • EHS Labor • Taxation Purchasing Manufacturing EHS compliance © 2012 Eaton Corporation. All rights reserved. 17 Governments are mandating improvements in sustainability… China 12th 5-year Plan sets aggressive sustainability targets by 2015: • Lower emissions per unit GDP by 17% • Reduce energy consumption per unit GDP by 16% • 11.4% of energy needs from renewables India • Lower emissions by 24% by 2020 • Generate 20GW from solar power by 2020 Increased attention to sustainable development considerations from both public and private sectors © 2012 Eaton Corporation. All rights reserved. 18 It’s creating new industries and opportunities… Alternative Energy • • • • Solar power Wind power Wave power Bioenergy Water Use and Reuse • • • • Desalination Rain harvesting Wastewater treatment Water recycling Fuel Efficient Transportation • • • Hybrid and • electric vehicles Charging stations • More efficient Aircraft Financial Markets Carbon / Emissions trading protocols Socially Responsible Investing McKinsey estimates the clean-tech product market will reach $1.6 trillion by 2020 © 2012 Eaton Corporation. All rights reserved. 19 Achieving sustainable growth in Asia Pacific • Market opportunities are clear • Strategy is key to address challenges • Leveraging sustainability value © 2012 Eaton Corporation. All rights reserved. 20 © 2012 Eaton Corporation. All rights reserved. 21