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The Forbes India Show catches with Tom Johnstone, who runs the world's largest bearing company, SKF AB to figure if the manufacturing industry is really seeing a slowdown or not and whether the situation is anything like in 2008.
The world is divided when it comes to opinion on the manufacturing industry. Some say there is a slowdown, and some claim it’s a bellwether out there.
In a CNBC-TV18's special Forbes India Show, Senthil Chengalvarayan talks to Tom Johnstone, who runs the world's largest bearing company, SKF AB, to find out the reality. The Swedish giant makes bearings for products ranging from dishwashers to passenger jets.
Below is the edited transcript of the interview. Also watch the accompanying videos.
Q: Tell us how different is it time from 2008?
A: I think in summer of 2008, or let’s say the October 2008, it was quite a broad-based fall that you saw. You could see it affecting many industries in every region of the world and that’s a different picture to what we are seeing just now.
Also, we are at the end of maybe six-seven years of growth, therefore, there was a correction taking place as well. When we look at it just now, we see quite a different picture. We see some industries affected at the moment - car business in Europe, or more specifically, the truck business, renewable energy in China and railways in China… but generally, we see a different picture just now. We still positive development in number of regions and the general industry business has still held up very well.
Q: So are you less nervous today than you were in 2008?
A: I would say less nervous, but I am more uncertain because I think in a sense, in 2008, you could see things going ahead broad-based. At the moment, we are getting a number of mixed signals. I think what’s important today in this environment is to be ready to react and to be very flexible because things are going to change and they may change up or down and you have to be ride through that quickly.
Q: So your company was caught on the wrong foot in 2008 because they have not come back in the recovery quick enough?
A: I would say that the companies actually, through 2008-2009, did a fantastic job and I think what you are seeing is those companies are much better prepared now because of the message of 2008 is still very fresh in their memory. Remember at that time, we hadn’t had a major downturn for many years; so much of the industry now has been through a major downturn and therefore, we have expanded in 2009-2010 and into 2011 in a way that we are hence much more flexible that has enabled us to be able to react much faster. So I would say that industry is probably in a better period now than was then.
Q: You say the industry is better prepared, but are governments a little unsure than they were in 2008?
A: I think it’s a different situation. 2008 was a banking crisis. Basically, if you look at it, it was the financial crisis in the world and then the governments were able to step in. The governments stepped in with a slew of incentive programmes with areas to avoid unemployment etc… number of steps they could take to stimulate the economy.
I think what we are facing just now in a number of areas is more sovereign debt crisis. So therefore, the governments don’t have a huge amount of fire power to be able to do things now. Therefore they need to address their imbalances, they have got into their budgets, need to address that also through austerity measures by cutting cost. At the same time, in the country like India, you have inflation. So the government has to take steps to address inflation.
Q: So hence you say less nervous, but more uncertain because you don’t know how policy would move?
A: There was ammunition to be used and I think at that stage we don’t know which currency they have got to play with.
Q: You have worked in a number of verticals, automotive, electrical, industrial and the service verticals. Where are you seeing the most signs of stress and where are you seeing signs of perfect normalcy if at all?
A: I would say we see more stress into our automotive business, which is cars and trucks. Yes, we have had some issues, but I think that’s much more industry or country-specific, for example, as I said earlier the energy business in China has an impact on us just now, it has been a very strong growth engine for SKF for sometime in the Chinese market, but that now is an issue. However, due to the fact that the governments are now working to put things in place etc., I could say that it is sort of a breather in the wind industry for sometime.
Q: So China- the wind industry, automotive, largely in Europe and America?
Q: How are the emerging markets?
A: I see much more of it in Europe than America. North America is holding up very well in automotive segment. The developing markets for us there, the faster developing Latin America, Asia etc, the fundamentals are overall good. And if I take out one or two sectors, the fundamentals are good, we are seeing good developments in Latin America. I would say we are seeing good growth still in North America, and then among the Asian region, we have seen good growth here in India.
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