Wärtsilä’s three business segments – Marine Solutions, Energy Solutions and Services – compete against the best engineering companies in the world. Their competitors include GE, Siemens, Caterpillar, Rolls-Royce, Mitsubishi, Hyundai, MAN and Alstom, as well as many local companies in different countries.
Wärtsilä has been innovative in transforming and redirecting its business – which is why it has succeeded.Wärtsilä has a turnover of just over EUR 5 billion, a staff of just under 19,000, and it operates in 70 countries. The company’s turnover has grown by a fifth in the last five years.
Jaakko Eskola (57), who has headed the company since November of last year, has been with Wärtsilä for 18 years. He was promoted to president and CEO of the Group from his previous position as the director of marine solutions and a substitute for the former president and CEO Björn Rosengren. Now Wärtsilä has a Finnish CEO once more.
According to Eskola, success requires investment, pioneering, and innovative new products.
"Customers do not come to us with a shopping list of X, Y and Z. We need to be proactive and develop our products in collaboration with our customers," he explains.
Concerns over cuts to research funding
Eskola joins the long line of business managers who are worried about cuts to public-sector research and product development appropriations.
Having been a research scientist at VTT for a year himself, Eskola sees cooperation with Tekes, VTT, and universities as vital for the company.
"If Finland’s innovation machinery is not working properly and our research institutions’ resources are cut, we cannot be competitive globally. Co-operation with different companies and partners in Vaasa is also important for us, as the area is home to a unique cluster of mechanical and electrical engineering competence," he says.
Last year, Wärtsilä made it to the Guinness World Records book with its new Wärtsilä 31 engine.
"It is the most efficient four-stroke diesel engine in the world and more environmentally friendly than its competitors, plus a great example of Finnish know-how," Eskola explains.
In medium-speed engines, Wärtsilä’s market share of 50–60 per cent makes it the leading company in the world. Multi-fuel engines are becoming more common, and renewable fuels are playing an increasingly important role.
A couple of decades ago, the company also invested in large, low-speed two-stroke engines, but they were not a hit. The strategy was revised, and the line of business outsourced to a joint venture of Wärtsilä and the China Shipbuilding Corporation.
Markets and the fear of change
Wärtsilä has revised its product portfolio as the market has evolved. Engines now only represent a third of its marine segment. Propellers, pumps, automation systems, exhaust gas cleaners, ballast water management systems, and ship design account for two thirds of the segment’s turnover.
Wärtsilä invested in a propulsion system testing unit in Järvenpää in 2013.
"A considerable proportion of our propeller product development takes place in Finland, and VTT has been an important partner for us in that respect. Vaasa is the R&D centre for our engine manufacturing business, and we intend to bring more of our engine product development to Finland in the future," Eskola says.
Wärtsilä is used to rapid changes in the Marine Solutions market. Demand for offshore solutions – one of Wärtsilä’s strengths – was still growing rapidly in the early 2000s, when oil prices were high.
"Now there is hardly any demand for offshore solutions. We used to have hundreds of orders for vessels per year, while the number of orders has been a few dozen in recent years and we are yet to get a single order this year," he explains.
Wärtsilä became interested in building exhaust gas cleaning systems for ships a few years ago, but Eskola admits that demand has not yet met expectations. Many ships are now running on cheap diesel. However, there is still a possibility that the market will mature as environmental standards become stricter.
Ballast water cleaning systems for ships is an interesting new product. The International Maritime Organisation (IMO) is expected to make a decision on ballast waters on the basis of the Paris Agreement before the end of this spring.
"They could be big business, if only the IMO would make its decision. There are 40,000 ships in the world but also at least 50 companies that can offer some kind of way to clean ballast waters," he says.
Fewer new ships will be constructed this year than last year, and the number last year was lower than the year before. The slowing down of world trade and the lengthening of the life of old ships are hurting the shipbuilding industry.
Wärtsilä is still a shipbuilding company, even though it no longer builds ships.
"We have put together a package for actual shipbuilding companies that incorporates our Marine products and our ship design service. That is why we are also able to offer what we call an integrated bridge for ships," Eskola says.
According to Eskola, in the future, it will be possible to operate ships with fewer or no crew members. The military sector is also interested in Wärtsilä’s know-how in the remote operation of ships.
"We have a long-established and fruitful partnership with VTT. I am also familiar with VTT myself, as I worked there for a year," says Jaakko Eskola.
At the heart of an energy revolution
Wärtsilä’s second product segment, Energy Solutions, which is slightly smaller than the Marine sector, is literally in the heart of the world’s energy revolution.
The world is moving away from fossil fuels, and investments in renewable energy already account for 80 per cent of all energy investments.
Wärtsilä manufactures and also often runs diesel and gas plants, many of which provide load-following capacity for wind and solar power plants. The company has already raised its market share in power plants of less than 500 MW to just over 10 per cent.
"There is a lot of growth potential for us in that in the future," Eskola says.
Wärtsilä is also involved in the solar power business. The company is currently working on its first solar power project in Jordan, which involves annexing a solar power plant to a 250 MW diesel generator.
Wärtsilä builds large solar power plants of more than 10 MW as well as hybrid power plants, which combine diesel engines and solar panels. Wärtsilä is the first company to offer large-scale hybrid power plants.
Wärtsilä expects the annual sales of its solar power business to reach EUR 300 million by 2020.
The company’s power plants are often built next to large wind farms and solar farms to provide immediate access to load-following capacity. Among the most notable competitors for Wärtsilä’s power plants are turbine power plants, which are at their best in producing base load power.
Can the move away from fossil fuels threaten Wärtsilä’s diesel and gas power plant business?
"I doubt it. Or at least not for several years yet. There has been talk of stopping the use of oil for a long time, and the sulphur and carbon dioxide emissions from gas are considerably lower. Moreover, there is still a lot of gas left around the world," Eskola says.
Renewable energy and energy storage
Wärtsilä is interested in energy storage, not just to provide load following capacity, but also because there are already ships that run completely on electricity.
"We definitely want to be involved in enabling more efficient use of renewable energy and the development of energy storage," Eskola says.
Wärtsilä is one of the leading providers of maintenance services in the world. Its Services segment already accounts for 44 per cent of the company’s turnover. The percentage jumped up four percentage points last year.
And what significance does the industrial internet have for the company’s service business?
"We have been providing remote maintenance services analogically for 20 years. Digitalisation, real-time control, and efficient data analyses have now also been added to our services," Eskola explains.
Unlike Kone, one of the global leaders in the elevator and escalator industry, for example, Wärtsilä does not provide maintenance for its competitors’ engines and equipment.
"Our own products account for more than 90% of our maintenance business. It is a strategic choice. It ensures that our customers come to us for their new purchases and parts in the future as well," he says.
Last year, Wärtsilä acquired the German MSI, which specialises in digital automation, navigation and electrical systems for ships as well as dynamic location services.
"This means that we are no longer just providing remote maintenance but are able to collect information about the engines and propellers of our customers’ ships all over the world in a new way. I can even access the data on my personal computer," Eskola says.
A pioneer in research and development
Wärtsilä spent 2.6 per cent of its turnover, i.e., EUR 132 million, on research and development last year. The company’s R&D budget has been among the top three in Finland for years.
Although Wärtsilä’s turnover has increased, its R&D spending has remained almost unchanged. Why?
"We are always re-evaluating the adequacy of our R&D budget. A few years ago, we invested heavily in new products that are now on the market," Eskola explains.
One of the most exciting of Wärtsilä’s new R&D projects is Hercules 2, which received almost EUR 17 million from the EU’s Horizon 2020 funding instrument last October. The aim is to build a ship engine that runs on biomass, waste, and gas-based mixtures over the next three years.
The project is coordinated by Wärtsilä and the University of Vaasa, and the project team consists of 11 businesses, VTT and Aalto University.
The company is also exploring the potential of 3D printing in the production of parts. To this end, it has joined a project led by VTT and Aalto University.
"We can have hundreds of millions of euros of our capital tied up in materials and equipment at any one time. If even a few per cent of that could be released with the help of new manufacturing technology, the impact would be substantial," Eskola explains.