The Last Word: Klaus Kleinfeld

If Siemens's 48-year-old ceo, klaus kleinfeld, has a motto, it must be: "If you can't beat 'em, join 'em." After realizing that Siemens couldn't compete with Nokia's cell-phone technology last year, Kleinfeld sold the company's handset division, and then, this summer, merged his telecom-equipment business with Nokia's. Since taking over at the beginning of last year, he's also cut Siemens's head count and put pressure on German unions to loosen labor rules. It seems to be paying off: the 160-year-old company--Germany's largest by market capitalization--boasted third-quarter net profits this year of almost $1 billion, double those of the same period last year, with revenues reaching $27 billion. He spoke with NEWSWEEK's Emily Flynn Vencat. Excerpts:

Kleinfeld: Change doesn't have a value by itself. So I look at what's happening around the globe. What I see are three things: population growth, aging societies and the fact that more and more of the economic power is concentrated in megacities with more than 10 million inhabitants. The one fundamental thing you need in growing economies is energy. In an aging society, you need affordable health care. In big cities, you need strong infrastructure--like good mass-transportation systems. We are in all those fields--in energy production, health care and public and private infrastructures like mass transportation and industrial automation. We've got big-time tail wind.

Germany is the third largest economy in the world. What has happened and what needs to continue to happen is the flexibilization of the labor market. In most large businesses, for example, there will be a fluctuating volume of work that needs to be done. The labor force needs to be flexible so that it can grow and shrink with those cycles, and you don't have to hire and fire people.

My impression is that the government clearly understands which areas need to be taken care of. Health-care reforms and tax reforms are in discussion. When you go a level deeper, you always find some areas where, from an industrial perspective, we would love to have some improvement. But, overall, the topics that are being addressed are the right topics.

I don't believe it's declining. There are some great companies headquartered in the U.S. that are performing outstandingly well. In my view, the fundamental advantage of the U.S. is that it attracts a lot of excellent, bright people from around the world. It has the immigrant spirit--there is the sense that you can make it there. I hope that even with the increased security concerns this advantage is not diminished. The one area that U.S. companies do need to improve on is internationalization. That is understood by most of the leaders of large U.S. companies, and they are working extremely hard on internationalizing their organizations.

It is a pretty significant opportunity, given our strength in health care. The fact that people today have high life expectancies is only good news as long as the quality of life is good even in old age. If that's not the case, that's not good news. In today's world, roughly 80 percent of total health-care costs are spent in the last five years of life. Besides that, those five years are not very nice years. The medical industry today is in the same position that many of our industries were in the 1980s, and, like then, we're realizing that we need to make the process leaner and cheaper, while maintaining high quality. At the core of this is early detection of disease, and a focus on prevention.

Changing the energy mix is one of the most fundamental challenges our planet is currently going through. There will have to be a mix of different energy sources. One thing that is clear is that the best, most efficient use of energy is when you can save it. The other thing, when it comes to energy production, is the need for new technologies. We at Siemens are building the biggest, most efficient gas turbine in the world right now at a cost of €500 million. Finally, renewables--hydro and wind power--are really important. Wind power will most likely be able to supply 6 percent of the worldwide energy needs [in the future].

We wanted to make a difference in a real, significant way to improve the health in a Chinese region where many of the endemic health problems were caused by unclean water. Given the fact that our business has a significant presence in China--almost 40,000 employees--and we are also strong in water filtration and health-care diagnostics, we thought it was a good idea.