How Innovation Helps Emerson Grow and Prosper in China

Honorable Vice Premier Madame Wu Yi,

Distinguished guests,

Ladies and gentlemen,

On behalf of Emerson, I would like to thank you for this great honor to share our thoughts with you regarding economic development and investment inside China. For many years, Emerson has participated in this important conference and I am delighted to be here

addressing this gathering today -- a tremendous honor.

Emerson’s business philosophy includes a commitment to doing business without borders -- we are a global company. We applaud China and the CIFIT conference for its ongoing success in promoting bilateral trade and investment. Business is all about building relationships among countries and business communities, and CIFIT is making tremendous contributions to China’s growth and relationships.

Emerson’s relationship with China and her people has been long and rewarding for all of us. We first entered China in the late 1970s through a technology transfer in industrial pressure transmitters, and today Emerson has more than 40 local enterprises, including manufacturing engineering and sales offices throughout China.

In recent years, both Emerson and China have cooperated closely on many technologies and new product innovations and both parties have grown tremendously. We will continue to invest for the future, so we can continue to deliver to our customers and investors. Today I hope to share with you some of our experiences and strategies for our global growth so that you can benefit from what we have learned.

For those of you not familiar with Emerson, we are a broad global technology and engineering leader in developing and delivering innovative solutions to our customers -- with over $22b in sales in 2007. We serve the process industry; electronics and electronic equipment manufacturers; computer and telecom companies; a wide range of industrial manufacturers; power and energy industries and much more. We employ more than 136,000 people, operate in 274 manufacturing locations worldwide and market our products in 150 countries. We are truly a global technology and innovation company -- touching most parts of the manufacturing world.
We understand and are committed to global investment and we are particularly committed to China. In fact, China is Emerson’s biggest business partner outside the U.S. and is among the fastest-growing regions for Emerson’s businesses. Since 2002, China has been the largest sales market for the company outside of the U.S.

Today, we have more than 33,000 employees working in China -- more in this country than any other outside North America. When Emerson says that people are our most important asset, we mean it. And that’s why I am especially proud to mention that Emerson has been recognized as one of China's top employers for 2007 in the shanghai region for our highly regarded operating environment in which people can and do make a positive difference.

As a technology company, Emerson is focused on innovation around the world and in China. For example, we have established engineering centers in Shanghai, Suzhou and Nanjing as well as Qingdao, Shenzhen, and Xi’an.

Our growth in China and around the globe is the result of our continued efforts to develop innovative new technologies and products that our customers want. In fact, in the last two years, we introduced 650 major new products, an increase of 92 percent over the 338 products we introduced between 2002 and 2004.

Over the years, new products as a percent of sales have grown steadily. This year, new products introduced in the past five years are expected to represent 36 percent of our sales. Our goal is to take that key measurement to 40 percent.

However, innovation comes with a price tag attached. Last year we invested nearly $800 million for engineering, development and customer solutions engineering, and this year we will be in the $900 million range. We focus on addressing trends and in working closely with our customers. As a result of these investments, we expect to have 600 patents by the end of 2007 -- we have developed some truly outstanding and innovative technologies -- this is critical to our long-term success.

The fact that we continued to invest, even during the economic downturn in the early years of this decade, shows our commitment to innovation and its importance to our future. By doing so, we have been able to stay ahead of the competition in meeting our customers’ needs.

I know that many companies here today are considering investment opportunities around the world. As CIFIT enters its 11th year, the Ministry of Commerce and the conference organizers have done an outstanding job in increasing the international character of this event. This can only increase the opportunities for China and for companies interested in investment and growth.

From Emerson’s perspective, when we evaluate investment opportunities anywhere around the world, we have several considerations in mind, including: Ease of doing business; the quality of the infrastructure; the education level and skill base of the labor force; the cost of labor, material and logistics; and the structure of the labor laws.

As our business has expanded globally, we have remained responsive to local markets.  Particularly in a dynamic and highly competitive business environment like China, our ability to stay competitive and grow requires that we continue to innovate – more rapidly and with true game-changing technologies. A significant amount of our innovation focuses in China – and we share these priorities with the government – deals with energy efficiency and improving the environment we operate in.

Regardless of the various views on global climate change, it is a certainty that energy production and consumption is one of – if not the most – important environmental issues of the 21st century. A recent headline on the front page of ‘China daily’ demonstrates the emphasis the government at all levels is placing on the environment. It says, “Green effort key to future of officials … Accountability system makes environment protection a top priority.”

For Emerson, this is not just a “Green” issue. It is a global business issue – a huge business challenge and a potential driver

of growth. Our businesses have been well-positioned as leaders for many years in addressing and solving energy and environmental resource needs and developing innovative solutions for our customers – we invest in solutions that are more environmentally friendly.

A few years ago, as energy efficiency became more important in China, Emerson took an active part in the formulation of China’s national standard on air-conditioning energy efficiency levels. Emerson participated in the formulation and issuance of three national energy efficiency standards and marking systems for air-conditioning products in August 2004. These standards and marking systems have been in effect since March 1, 2005 and have played an important role in raising energy efficiency, reducing energy consumption, and improving the overall technological level of China’s air-conditioning products. There is more to come as these and other efforts continue to focus on reducing China’s energy usage while delivering the necessary cooling for people’s comfort. These standards must continue to be implemented in China, at the highest possible efficiency levels, as they are in Europe and the United States.

Emerson is also a leading supplier to the global wind turbine market, and we are extending our technology presence in China in this area. In Xi’an, engineers from Emerson’s Leroy Somer and Network Power China divisions are working together to create new, more efficient systems that make up the core of a wind turbine -- a Chinese solution. We are also expanding the range of our power alternators to meet the needs of the Chinese market, allowing for a greater variety of windmill sizes. Having our manufacturing and engineering resources located in China will allow us to move quickly on this important initiative to help the Chinese expand the use of windmills cost effectively.

Another of our key products that combines world-class technology, energy conservation and environmental preservation is the Copeland digital scroll technology. It is having a positive impact on China, especially in the heating and air-conditioning sector, and is the core technology of our Emerson Climate Technologies business. We consider the digital scroll to be the innovative technology to help the world address new standards for refrigerants and for energy efficiency. Not only is the technology welcomed by consumers, it also plays an active role in solving electrical power shortage issues in China due to its high energy efficiency capabilities.

And now, our next-generation digital scroll technology designed in China can be used not only for cooling, but also for highly efficient heating. A Suzhou-based engineering team that included 14 local engineers developed a compressor design that can increase heating capacity by 30 percent while reducing operating costs by up to 40 percent. Overall, it can save over 75 percent of energy compared to other heating methods. The Ministry of Construction, in fact, has endorsed it as “world leading technology.” -- which it is.

Another example of our partnership and investment in China’s future is Emerson’s contribution to China’s economic development through helping the industries we serve to grow and increasingly adapt their operations to meet international standards. We frequently work side-by-side with our manufacturing partners and suppliers here to develop new systems, overcome engineering challenges and deliver world-class service to customers.

For example, last year in Wuxi, Emerson Appliance Solutions established a unique, joint engineering facility in conjunction with our customer, Wuxi Little Swan Company. Through this cooperation we develop advanced controls for future Little Swan appliances, including washing machines and clothes dryers, which are sold domestically as well as exported to the North American market under a major US brand.

Looking ahead, we clearly see challenges and opportunities in front of us within China. The key to remaining a winner and maintaining our momentum will be our ability to innovate and then execute with this innovation. The goals are simple: to grow, stay ahead of our customers’ needs and ahead of our competitors solutions. Then all will prosper -- our employees, our customers and our investors.

Emerson remains very positive about China’s economic growth prospects, and their abilities to adapt to the latest technologies and tap into the strong pool of local talent. Emerson will continue to bring our established management processes, our technological know-how and strong ethical value system that is both robust and highly successful. Together Emerson and China will continue to innovate, and will continue to be a winning combination.

Once again, I would like to thank the Ministry of Commerce and the CIFIT conference for giving me the opportunity to talk to you today. Have a good day and thanks for listening.