The current economic slowdown has led Europe's largest engineering company, Siemens AG, to plan 16,750 job cuts to reduce €1.2 billion ($1.9 billion / Rs8167crore) in expenses mainly in the sales, general and administration functions by 2010 to raise profitability to the level of rivals such as General Electric Co. and ABB Ltd.

Siemens straddles various diverse engineering and electrical sectors from light bulbs and medical imaging diagnostic products to power systems and trains but generates lower sales and profit per employee than GE, with whom it competes in sectors such as health care and power generation. In 2007 it generated about $12,710 per employee last year, compared with GE's $67,914.

To raise its profiatbility while cutting flab, Peter Loescher, president and chief executive, has extensively restructured Siemens since taking charge a year ago. He wants Siemens needed to become faster and more efficient to catch up with its rivals. He was brought in from US drug firm Merck & Co, to replace Klaus Kleinfeld last year following a bribery scandal that also led to the departure of supervisory board chairman Heinrich von Pierer last year.
In April Loescher first announced the job cuts to reduce costs.

Löscher said  today ''The speed at which business is changing worldwide has increased considerably, and we're orienting Siemens accordingly. Against the backdrop of a slowing economy, we have to become more efficient.'' 

''We want to begin negotiations with the employee representatives quickly in order to make the cuts in a way that will be as socially responsible as possible. In this connection, we intend to consider the full range of instruments at our disposal – for example, transfer companies and part-time preretirement schemes. Only as a last resort will we terminate employment contracts for operational reasons,'' emphasised Siemens' chief personnel officer Siegfried Russwurm.

In November 2007, Siemens announced its intention to reduce sales, general and administrative (SG&A) costs to a competitive level. Against the backdrop of an impending global economic downturn, plans call for reducing costs in absolute terms by €1.2 billion by 2010. Some of these reductions will be achieved by cutting expenditures for IT infrastructure and for consultants.

Savings in personnel are also part of the programme to reduce SG&A costs now that the company has considerably streamlined its top management level. The Managing Board has been reduced from eleven members to eight and the CEO principle introduced at the levels below. Substantial synergies are also being generated internally following the formation on January 1, 2008 of three new Sectors – Energy, Industry and Healthcare – from the company's previous eight Groups. Siemens is bundling a large number of the administrative tasks of its roughly 70 Regional Companies into 20 Regional Clusters. By 2010, the number of Siemens' legally separate entities will have been reduced from approximately 1,800 to fewer than 1,000.

The company today presented detailed plans to achieve its cost controls saying plans call for "eliminating approximately 12,600 jobs worldwide. An additional 4,150 jobs will be affected by restructuring projects. Overall, 16,750 jobs will be affected by the planned cutbacks. In Germany, about 5,250 jobs will be affected by the planned personnel reductions. The locations making the biggest contributions will be those with the most employees: Erlangen, Munich, Nuremberg and Berlin."

Siemens intends to cut around 12,600 jobs worldwide – including some 3,500 in Germany – primarily in administration-related functions (see Overview 1).

Overview 1: Planned job cuts to reduce SG&A costs 

Besides streamlining administration-related functions, Siemens aims to restructure selected business units for other reasons as well. Worldwide, approximately 4,150 additional jobs will be affected by these planned measures (see Overview 2). ''We want to tackle the necessary restructuring measures rapidly. We've informed the employee representatives in detail of our intentions and consulted them on further steps,'' said Chief Personnel Officer Siegfried Russwurm.

Overview 2: Planned job cuts related to further restructuring measures

Planned job reductions at the individual Siemens Sectors
The industry sector is focusing on two measures. With its mobility in motion programme, the mobility division is aiming to reach and sustain a medium-term profit margin of five to seven percent. Measures include establishing standardised platforms. In the course of comprehensive restructuring, a total of 2,500 jobs will be cut worldwide. Some 700 of these jobs are in sales and administrative functions (included in Overview 1), while about 1,800 are in engineering and production, primarily in Europe. 

As part of the restructuring program underway at the electronic assembly systems business unit (EA) – the company's pick-and-place machines business – since the fall of 2007, the industry sector is planning further measures to safeguard competitiveness. To provide EA with a flexible and effective setup in global competition, 330 jobs – of which 250 are in Germany – are slated for elimination by the end of the year through measures to further simplify processes and streamline the organization accordingly. 

The healthcare sector intends to cut 1,550 jobs in administration-related functions. Plans call for eliminating approximately 350 jobs in Germany. Most of the remaining cuts will be made in the US. In connection with further restructuring measures, a maximum of about 1,250 additional positions will be eliminated – including some 250 in Germany. These cuts are expected to be made primarily in the imaging & IT and workflow & solutions divisions. Activities will focus on the continued development of future-oriented topics in order to enhance the company's competitive position in the strategically important healthcare IT business.

Further planned personnel measures
At the cross-sector business Siemens IT solutions and services, plans call for eliminating around 550 sales and administrative jobs – including some 300 in Germany. These reductions are to be achieved, in particular, by cutting IT costs within the company. Further personnel adjustments will be necessary due to such factors as requirements for increased productivity when contracts with existing customers are renewed and declining demand in the area of software development. These cuts will affect roughly 500 more employees – including about 350 in Germany. 

In addition to the above-mentioned restructuring projects, Siemens plans to sell its Segment Industrie Montage Services (SIMS) in order to ensure the continuation of the unit's service and assembly activities on a competitive basis. These plans will affect some 1,200 employees at 35 locations in Germany. Faster and more flexible, the resulting organisation will be able to acquire new customers and achieve an improved cost position in price competition primarily with small to medium-sized companies.