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CNBC Transcript: Volkmar Denner, CEO, Bosch

Following is the transcript of a CNBC interview with Volkmar Denner, CEO, Bosch. The interview was broadcast on CNBC on 20 March 2017.

All references must be sourced to a "CNBC Interview".

Interviewed by Eunice Yoon, Beijing Bureau Chief, CNBC at China Development Forum 2017.

Eunice Yoon: So I just want to first get your take on Baden-Baden and the G20 finance ministers meeting, what do you think of the messaging that came out of there?

Volkmar Denner: Well I think generally it's a concern to reduce all kinds of free trade. I think it's in the benefit of all countries and all industrial players and therefore I think also of mankind that we have a free trade globally. And especially let's say for a company like Bosch, a global player, we have experienced this over our whole history which is 130 years, how beneficial free trade is, and therefore I strongly believe that we should continue to grow in this way.

EY: Angela Merkel and Wolfgang Schaeuble have also been very supportive of free trade. How disappointed do you think they are about this outcome?

VD: Well I think they have promoted personally free trade, and therefore I think they most probably will be disappointed because Germany is a country, of course, that's relying heavily on export. And since we are strong industrial nation we rely on good relations to all the countries we do trade with. And therefore Germany has supported the negotiations on free trade agreements, be it in Asia with the TPP...or with the Western world. We see that it's getting difficult to realize these free trade agreements so therefore I think for them, but also for the German industry, it's for us a concern.

EY: Another concern or at least the big point of discussion has been the body language between Angela Merkel and Donald Trump that they're meeting in Washington D.C.. We already heard one of Trump's advisers say that Germany is a currency manipulator. Both leaders obviously see very differently the immigration issue as well as the refugee issue. Do you think that we're seeing a turn for the worse, the relationship between Germany and the United States?

VD: Well I've not been present, therefore I cannot comment on the body language. But it's clear that, there is currently a lot of concern about the future direction of U.S. politics. But I also believe that the ties between Germany and the United States that have developed over decades are so close, that I really hope that things will turn to the better. I still rely on the checks and balances in the United States that is at the end will improve the situation.

EY: As you said you're a big exporter. What does all this, seemingly more hostile environment, mean for you?

VD: As a company or as a country?

EY: As a company.

VD: Well as I said, we at Bosch rely on good trade relations. But Bosch always has put emphasis to produce and design locally. So during all the history of the company, we have gone to our customers very, very early. So for example Bosch has been in China for more than 100 years. If you believe what, how times have been 100 years ago it's nearly unbelievable that a company did these steps so early and the same is true whether you go to United States or even countries like South Africa. We have a history of more than 100 years. So our policy always is to go local, to produce locally, and to contribute to the local society, and therefore export-import relations are less of a matter. But if you look at modern industry there are so many components, parts of a final product that are shipped around the world. Take for example semiconductors, core part of every electronic product and this is only possible today if we have free trade as much as possible around the globe.

EY: One of Trump's advisers Peter Navarro has talked about repatriating the whole international supply chain to the United States. He said that we shouldn't rely on big box factories, where you are creating, what he says in quote "American products which are actually foreign components". How realistic do you think that is?

VD: Well on the one side I think it's understandable because losing manufacturing jobs to low-cost locations of course is a burden for the people that are directly concerned. And therefore I think the policy that we have been following in in Germany I always considered to be a better one, because we really are proud to manufacture goods and we have done a lot to keep manufacturing inside the country competitive, although we of course also have very high wages. So by driving innovation, by driving high tech manufacturing, Germany is competitive in many areas. So our situation is different. Now to turn this around for the United States having lost so many manufacturing jobs over time I think will be very very difficult.

EY: Do you think that Bosch would consider opening up factories or a new factory in the United States to fend off any criticism especially if the relationship between Germany and the U.S. take a turn for the worse?

VD: Bosch is, of course, a manufacturer in the United States, and not only manufacturing as I said earlier, we are also have R&D, of course, in the United States. So we have a long history.

EY: But will there be more of a commitment?

VD: Well, we keep investing in new products in the United States so we keep investing in our facilities there. There's no question. So for example, beginning from research we have big research centers in the United States over development up to manufacturing, everything the whole value chain is present in the United States. And we keep investing in this market. I think the main concern is, so far we consider the NAFTA region as one region economically. If this is changed especially in the relation between the United States and Mexico, this of course is a burden for us and we urgently need to know what the real regulations will be in terms of taxes or whatever. So in order to take it reasonable economical decisions where to invest, we need clarity.

EY: What kind of scenarios, and then, running through your head in order to try to prepare yourself for a possible change in NAFTA?

VD: Well in light of the numbers that have been at least hovering around, it's impossible I think, to really prepare for a certain scenario so that's why I say we need clarity as soon as possible. Today we are of course in a situation where we have to wait what will happen.

EY: What are your plans in China. How do you see your business in China developing especially when you have some significant rivals in China?

VD: Well the Bosch business in China has developed very, very positively over a long time. As I said we are active in China for more than 100 years. We have more than 60,000 employees in China. It's the second largest number of Bosch employees after Germany. So China is a really, really very important. We have 45 manufacturing sites in the country, 23 technical centres, so out of the 60,000 more than 10 percent of R&D are in research and development. So we have a very, very strong local footprint and this helps us to enjoy significant growth. So for example last year, we didn't publish the official numbers yet, but we had double digit growth of our sales in the country, so it's very favorable.

EY: China has ambitious plans to become a technology leader, and a lot of that is in auto technology; self-driving cars or electric vehicles, hybrids. At the same time, here, that plan initiative is really viewed as more… is one to be more supportive of local players. So I'm wondering how ambitious, so you think your company can be to try to play off of that… that plan by government?

VD: Bosch's strategy has always been to bring new technology to China. So also for the classical internal combustion engine we are one of the major suppliers of the automotive industry, also our local Chinese car manufacturers. Our subsidiary... by the way Bosch was the first foreign company to obtain a license many decades ago for fuel injection systems. So we kept bringing latest technology to China to reduce fuel consumption and to reduce emissions. And we also of course decided to actively contribute to the future electrification of cars being a hybrid or battery electric vehicles.

So we do the core components like electric motors, our power electronics locally in China. So for us it's again contributing to this change. And I could also mention something completely different because as I'm sure you know, Germany invented industry 4.0 so, very new connected industry approach and Bosch proposed to do a joint project with the DRC Development Research Center in China to study how to bring Industry 4.0 also to China. And we at Bosch we implement Industry 4.0 technology in already nine of our Chinese plants. So we do not consider this to be a German technology, we use it worldwide and this also I think is an active contribution of Bosch to improve the state of the manufacturing in China.

EY: Some of the most vocal critics of China recently have been European companies, because there's been a complaint about a lack of market access. Are you seeing the same issues?

VD: I do not see a lack of market access. But for example the restrictions to move profits that generated inside China are out of the country I think is going in the wrong direction, clearly. So we are of course also in this respect, voting for going this opening up and reform approach that China promised.

EY: So how quickly, I mean how much progress do you think the Chinese made on economic reforms?

VD: I think it's still on a quite a low level. So I think they have to keep on going along this path. Of course China has a huge transformation process to come from a manufacturing powerhouse of the world so to say, to an innovation driven society. And every, every country that has tried to do this, usually it took them very, very long time. So China is very ambitious to do this in short term but it will be a challenge definitely because innovation is something completely different than low cost manufacturing. But from what I see also during my visit here is that I see a lot of encouraging signs that also new start-ups are encouraged to grow. Again I think it's not that easy, but I see really serious steps that are taken in China towards this direction.

EY: As you see we're talking about China wanting to be a manufacturing powerhouse. China wants to be a technology powerhouse as well. And one way they've been hoping to do that is by acquiring technology from overseas. I recently heard a lot of concern I would say in Germany as well as in the United States about Chinese acquiring technology. How worried you think people should be about that?

VD: In Germany or in China?

EY: (Laughs) In Germany and China and the United States.

VD: I think it has to be a fair balance. I mean as long as foreign companies are allowed to do investments in China, the same applies vice versa. So I think it has to be balanced on both sides. Let's again reflect into what I said earlier if it's a free trade scheme where companies can invest, can also invest in local companies and in is acquisitions, and this applies vice versa… I think that's no problem for both sides.

EY: Do you think that European countries and the United States should get tougher on China? To try to even the playing field and make sure that they are able to invest in the same way that Chinese companies are able to invest?

VD: It depends on the area I would say. I mean it's clear that for example, if it's going to core technologies. Take for example battery for electric vehicles, it should be a level playing field where everybody has a chance to compete on the battery side and no one should be excluded, just as one example. So as long as it's going this way for me this is OK. But there are of course restrictions that China is imposing right now that are against this. This should be addressed openly I think. And I mean conferences like this, China Development Forum also helps at least could exchange views. Well very often the interests of one country is not the same as the interests of another company (country) But I think global economy also lives from being able to make a compromise. And so as long as this is the case I think it's fine.

EY: One more question - the image of the German auto industry has taken a hit because of the VW emissions scandal. What more do you think needs to be done to try to repair the reputation?

VD: I think we need to regain credibility. That's for sure. And this means that the steps that already have been introduced for example to come to real driving emissions so that cars should have emissions on the road comparable to what they emit during the test cycle. And for example, also that cars can be continuously retested while they are on the road. Like you have the controls in sport for example. This should be two measures to regain credibility I think, so that customers really get what is promised. Also when they experience a product on the road and that everybody in our industry knows that the product can be retested at any time and therefore has to fulfill the promise. And both things are agreed already that they will happen in Germany. And I think, and I hope that this will regain the confidence of the automotive industry. But it's something that we really have to be serious at.