Pedro Baranda is a soccer fan and he calls it a "great win," but he's not talking about a last-minute goal that ignited a crowd and won a championship. Otis Elevator's president is referring to the company's contract to install 21 energy-efficient elevators and escalators at Rio de Janeiro's Maracana Stadium, the site of both the 2014 FIFA World Cup championship match and the 2016 Summer Olympics' opening and closing ceremonies.
The contract is one of a string of high-profile projects that Otis has won recently. Perhaps none was more significant to the company than its contract to refurbish and modernize the 68 elevators in the Empire State Building. Otis designed and installed the original elevator system 80 years ago. Those elevators transport 10 million tenants and visitors each year up and down the 1,454-foot skyscraper. The new elevators will cut energy usage as much as 30%.
Baranda attributes these wins to "customer proximity, talking to our customers and the energy efficiency of our equipment." While none of these highly competitive projects are huge in terms of Otis' overall revenue, he notes, they are very significant from the standpoint of brand recognition. But he says Otis, the global leader with more than 17% of the market, is successful because it does "a lot of small things right."
Along with installing its latest products, Otis also won a 10-year maintenance contract at the Empire State Building. And that points to a key strength of the company. More than half of Otis's nearly $13 billion in annual revenue comes from servicing more than 1.7 million elevators around the world. Otis employs 60,000 people, 53,000 of whom work outside the United States.
Building Boom in Emerging Markets
Not surprisingly, growth in Otis's new installations is coming increasingly from the BRIC (Brazil, Russia, India and China) and other emerging economies.
Baranda, a 20-year veteran of the company who was named president in February 2012, is well-prepared for this global competition. He joined the company as a research engineer at Otis parent's United Technologies Research Center in Madrid. Subsequent assignments took him to Connecticut, Mexico, Portugal and Spain, where he was appointed managing director of Otis Spain. Most recently, he served as president, South Europe and Middle East Area (SEMA).
"If you look at the four BRIC countries, they were only 10% of our new equipment orders a decade ago," says Baranda. "They are more than 50% today and they are continuing to grow, while the developing world, mainly North America and Europe, took a hit in 2008 with the global crisis and today they are about 40% below the peak that we achieved in 2008."
While China's economy has cooled in recent months, it remains the biggest market for elevators in the world. Anand Mehta, an analyst with Freedonia Group, notes that 285,000 elevators were sold in China in 2010. That represents almost half the elevators sold in the world. By comparison, in the No. 2 market, India, some 50,000 elevators were sold, while 12,900 were sold in Brazil.
Recognizing this growth, Otis is opening a new factory in Chongqing, which is expected to produce 10,000 elevators a year. The new plant in southwestern China, says Baranda, is in step with Chinese-government efforts to promote development in the interior of China. The plant is Otis's sixth facility in China.
Baranda expects flat to single-digit growth in the Chinese market, mainly in the second half of the year. He says the fundamentals for the Chinese market are "very, very good."
"It might be a hiccup this year while prices cool down in the real estate market in China but we expect it to continue to grow in the second half of the year or next year," says Baranda. "I am very bullish on China."
Otis also is expanding its product manufacturing in a number of other markets. "The key is to be one with our customers, so we will manufacture where our customers are," says Baranda. The company is building a new 200,000-square-foot facility in São Paulo, Brazil, and tripling the size of its facility in Bangalore, India. The company noted that it expects the India elevator market to reach 70,000 units annually by 2014.
Otis is also consolidating much of its U.S. manufacturing at a new factory in Florence, S.C. Baranda notes that 70% of Otis's U.S. customers are located east of the Mississippi. Otis announced the 423,000-square-foot facility will feature a 150-foot test tower, and will include engineering, a contract logistics center and field-support operations along with the manufacturing operation. The company said co-locating these functions, which are in four different cities, will reduce lead times and improve both speed to market and the customer experience. The plant will employ 360 people.
Innovation and Sustainability
Baranda said innovation "was at the birth of our industry and it continues to happen every day." Part of that innovation has come from necessity, as architects have designed taller buildings around the world, prompting Otis to develop new technology to meet the challenges. Baranda cites Burj Khalifa, the world's tallest building at 2,723 feet, in Dubai as an example. Burj Khalifa's observatory elevators are double-deck cabs that can whisk 12 to 14 people in each cab to the 124-story observatory in less than a minute.
As building environments have become more challenging, Otis has been applying computer technology to improve both the passenger experience and the responsiveness of its service personnel. Its Compass Destination Management System, for example, evaluates passenger-traffic patterns in real time and assigns elevator cars to minimize waiting time and improve travel speed. Baranda notes the elevator can "identify your needs before you get to the elevator itself, then assign you a car that takes you there in a faster and more comfortable way."
Elevators systems also are being networked so that if someone were to be trapped, mechanics can respond through a remote device and quickly free passengers without making them wait for the service personnel to get to the building. Baranda says that with service providing more than 50% of Otis's revenue, the company is focused on providing its customers with engaged employees utilizing advanced IT tools to "sustain our service advantage going forward."
Over the past decade, Otis has introduced machine room-less elevators, which allows the elevator to use less space in a building. Otis also has introduced a line of elevators, the Gen2, which use a composite steel and polyurethane belt rather than the traditional steel cable. This more flexible belt allows the company to produce a compact gearless machine, which is more efficient and provides a smoother ride.
These elevators also meet the needs of building owners looking for improved energy efficiency by offering regenerative drives, which capture energy created by the elevator and channel it back to the building's grid. Other energy-saving features include efficient LED lighting and a sleep mode that shuts down lights and the fan when the unit is not in operation. Otis says the Gen2 elevators are up to 75% more efficient than conventional elevators.
Baranda admits that "sustainability is a passion of mine." It's also a priority for Otis's parent, United Technologies (IW 500/25), which has pledged to reduce its energy consumption by 25% over the next decade. Last year, Otis announced a major environmental initiative, The Way to Green, which encompasses energy-efficient manufacturing, products and service operations. Otis has two facilities that are LEED-certified. Its manufacturing facility in Madrid uses solar panels to generate 60% of its energy needs.
Baranda says the energy efficiency of its newer products offers a huge business opportunity as building owners and tenants look to reduce utility costs. "There are about 10 million elevators that were installed prior to 2005," he notes. "There is a very good opportunity to try to upgrade the installed base into technologies that have much better energy efficiency."
For example, he points to a study that found if the million elevators installed in Italy were converted to the equivalent of Otis's Gen2 equipment, it would save the energy consumption of the city of Naples.
"The key is the green revolution is not coming, it's here and all the efforts for sustainability will pay off," says Baranda.