Thank you, John [Klein]. It's interesting that "change" comes back as a theme in your introduction. And indeed, the world has changed since Dr. Willis Carrier invented modern air conditioning back in 1902.
And think of how much Carrier has had to change to remain, for more than one hundred years, No. 1 globally.
And by the way, think of how much Dr Carrier's invention changed the world, changed the way we live. Florida and Singapore were swamps before our air conditioning systems could make living and working possible in hot and humid climates and, like our sister company Otis elevator, we made possible living and working in skyscrapers.
And think how much UTC has changed since it acquired Carrier back in 1979. Back then, more than two-thirds of UTC revenues were dependent on aerospace. Today, it's about a third. Back then, a little more than a third of UTC revenues were generated outside the U.S. Today, it's about 60 percent.
And as John mentioned, Carrier has become UTC's largest division, and we have one of the highest potentials for growth.
So change is a key topic here, and I am here this evening to tell you Carrier's story. How do we sustain our leadership in a fiercely competitive global market place?
Before I get into this, I thought I'd give you a few facts about Carrier, because I am guessing that Carrier is the least-known UTC division in Connecticut.
Maybe it's because we don't manufacture anything in the state - which I'll talk about in a bit. Or it might be because we don't build exotic flying machines for the Pentagon like Pratt or Sikorsky.
Or maybe it's because we are the new kid in town, having been Connecticut-based for only 14 years.
In any case, Carrier is a UTC division you should know more about. With revenues expected to be in excess of $12 billion this year, I calculate Carrier would rank on its own as the 6th largest Connecticut-based company in revenues (that would be following GE, UTC, the Hartford, Aetna and Xerox).
We'd be one of the fastest growing too, since we tripled our revenues from less than $4 billion since we moved our headquarters to Connecticut in 1991.
We employ 45,000 people worldwide, half of them in the U.S. We have 75 plants, also half of them in the U.S. We do business in 172 countries and we operate on every continent. Our brands are household names around the world, whether here in the U.S. or in places such as Japan, Brazil, Philippines, Italy or Kuwait.
We are No. 1 worldwide, and in most of our markets, including the U.S. and I'll add also here in Connecticut. We lead in air conditioning systems, but also lead in heating systems and refrigeration systems.
We have tremendous scale. Last year, we shipped 10 million units. Do the math: that's more than 27,000 units a day, 1,000 units every hour, one unit sold every three seconds, and that's 24/7.
So enough of that recruiting pitch; you want to know how we did this and what's our formula.
At the risk of disappointing the audience, I'd say our recipe has been pretty much basic, and I'd think our principles can apply to any business represented in this room, regardless of size and scope.
Our recipe for success has been a constant balance and focus on growth and productivity.
The drivers behind our growth story are innovation and globalization.
Innovation is part of our DNA. We invented air conditioning, and kept reinventing it for 100 years. We've always had a culture where we are ready to reinvent ourselves and our products.
Globalization, being there early -- wherever our markets developed -- and with the best products and distribution systems adapted to serve our local customers' needs.
And productivity is what kept us alive and strong.
And we'll see that our sustainability also comes thanks to our focus on sustainable practices for our employees, our production systems, our processes and our products.
Let me talk about our growth story first. We've grown from less than $2 billion in 1979 when UTC acquired Carrier, to a more than a $12 billion company today. And of course, we'd like to think that it's all because we're very smart, but that would be forgetting that gravity matters.
We've grown because our markets have grown, and that's because our products address important consumer needs, and we were smart and agile enough to adapt to our changing markets.
And that is where UTC had a tremendous influence on Carrier. UTC took Carrier global, much as they had done earlier with Otis.
I recall how one UTC executive, and one of the architects of this transformation, put it when I probed him on his strategic instincts 20 years ago, and he said quite modestly, "Well, when I looked at what Carrier was doing, I found that they were in the business of making people comfortable -- comfortable at home and in the office, regardless of climate. Carrier made it nice and warm inside in a cold Connecticut winter, and nice and cool inside in a muggy summer day in Texas." And he thought it was good, and people liked it, and he observed that markets were under-developed outside the U.S., and he could not find any good reason why people outside the U.S. would not like it to be comfortable at home or in the office, particularly if they lived between the 35th parallels, where it's mostly hot and humid and where most of the world's population lives.
And that vision changed Carrier, because UTC pushed Carrier all over the world. We acquired market leaders or set-up shop in all key Asian, Latin American, European and Middle Eastern markets.
Demographics work for us: The most populous countries in this world -- China, India, Southeast Asia -- have a large and fast-growing population, growing standards of living, and it gets hot and humid in all those places.
And urbanization is another galactic force working for us. Every year, 15 million people in China move from the country to the city. For perspective, that's one New York City every year. As more people move from the countryside into urban areas, their need for indoor comfort grows.
Had Carrier not gone global, we would have long lost our leadership position. Today, 70 percent of the world market is outside the U.S. That's up from about 50 percent three decades ago. We forecast that 75 percent of the world market will be outside the U.S. by 2020. And, because penetration of air-conditioning outside the U.S. is still a fraction of the 80 percent level here, international growth will continue, and at higher rates.
So we went global, and that very fact will continue to transform Carrier over time.
Key to our success in global markets is to act local. Customers in India or Spain don't have the same needs as those in the U.S.: Their homes are smaller; their wallets are thinner, so you just can not expect they will buy what you make in your domestic plants. We made a lot of acquisitions over time to expand our geographic and product and technology reach. And then we brought our distribution systems and technology and management processes to those companies, and we are well-positioned for continued growth.
We also constantly look at expanding our target markets. We started in the industrial cooling business, then we moved to offices. In the mid-'50s we pioneered cooling in homes, and then we moved into the heating business, realizing there were distribution synergies, particularly as we were moving the technology from self-contained window units to central ducted systems providing comfort all year long.
Then we went global. And then we moved to refrigeration, and that's because our core technologies of compression, heat-exchange and controls were the same needed to preserve food, same technologies, but operating at lower temperature.
We expanded into refrigerated trucks, trailers, containers, then to stationary equipment at food processing points, food storage and, more recently, food retail, which are the display cases that keep food fresh in your supermarkets.
And like air conditioning, we took refrigeration global. The growth opportunities here are even greater than in air conditioning because Asia has yet to move to the frozen food economy, which typically comes right along with urbanization.
We also moved within our markets. Think of the U.S.: There are 120 million residential systems installed. And because those systems eventually need to be replaced -- and on average that's every 17 years -- the market is moving from new construction to replacement. And our distribution model needs to adapt to this fact. And it's good for us because we have become less dependent on housing starts, and also because replacement units are almost always better, more sophisticated systems.
Window units were replaced by central ducted units. The next trend is for more efficient and smarter systems, systems with multiple zones in your home that can be controlled individually for greater energy savings, and also better indoor air quality with sophisticated filtration and humidity-control systems that also keep us healthier.
Sounds simple: globalization, demographics, urbanization, moving to replacement and adjacent markets. It is, and success depends on the ability to adapt. And I call it execution. At the end of the day, execution is what makes the difference between survival and growth.
Let's turn our attention to productivity. I define productivity simply as doing more with less, and it has been the driving force behind Carrier and UTC's sustained performance over the last 15 years.
UTC has brought productivity disciplines to Carrier with its lean manufacturing system and, with it; we've more than doubled the physical throughput over the last decade, with a work force only 20 percent larger.
Over the last four years alone, we've grown 40 percent -- that's $4 billion -- and with a work force essentially flat.
Productivity is a powerful force behind our sustained leadership and growth over a century. And productivity is also the most powerful force in our economy. In the U.S., productivity is jumping at 5 to 7 percent per year. Take out inflation, take out price change, it's raw, physical volume productivity, units per person. And there's no end in sight.
We attribute these gains to lean manufacturing and Japanese quality methodologies. The lean manufacturing process is the most powerful thing we've done at UTC in decades.
Quite simply, it's process mapping and process re-engineering. It converts work that was sequential to simultaneous work that's located together within manufacturing cells.
Japanese quality methodologies are the essence of simplicity. Process control happens at the point of work, instead of traditional, end-of-line inspection. This reduces turnbacks and builds employee confidence at the same time.
And productivity is key if you compete in the global market place. And that's even more critical if you are a century-old company, because chance is you have legacy costs that new entrants in your market don't have.
Beyond growth and productivity, another powerful force behind our success is found in our focus on sustainability.
UTC and Carrier believe that successful businesses improve the human condition. To that end, we maintain the highest ethical, environmental and safety standards no matter where we do business, and we encourage our employees' active role in their communities.
We believe that the sustainability of our company comes with a focus on sustainable practices of our employees, our production systems, our processes and our products.
We sustain our employees with the richest education program on the planet, and that's the generous UTC Employee Scholar Program. The bottom line is that we believe companies can no longer guarantee jobs, but they can guarantee opportunity. And that's what we do when we pay all education costs for our employees up front -- tuition and books -- and give our employees paid time off to study. We set no course or degree limitations, and we award employees with $10,000 worth of UTC stock when they graduate.
We also extend this program for four years to employees whose jobs are relocated more than 50 miles away. This way, they can go back to school, get a degree, and then find an even better opportunity than the one they left.
To date, UTC has had more than 16,000 graduates from around the world and nearly 15 percent of our U.S. employees are currently enrolled. Since 1996, UTC has invested half a billion dollars in the program and it's one of our proudest achievements.
Beyond education, we also have an absolute commitment to workplace safety and environmental practices. We've reduced workplace related accidents by a factor of 10 in the last decade, and we're working on the next 10X improvement.
We sustain our manufacturing facilities with aggressive programs to reduce energy and water use. And we've cut those by 40 to 60 percent since 1997, saving precious natural resources.
In addition to our own environmental practices, we have a rich history of environmental leadership with our products. We develop and bring to market advanced technologies to improve energy efficiency, protect the ozone layer and improve indoor environment quality.
Carrier was the first to eliminate CFCs from our products back in 1994, and we did this worldwide, and ahead of the Montreal Protocol requirements. We were the first to introduce non-ozone-depleting products and we lead everywhere in the world with our non-ozone-depleting Puron technology. Today, we lead the industry in indoor air quality and also with the adoption of the new 13 SEER federal energy efficiency standard for residential air conditioning.
SEER is the mile-per-gallon equivalent for our industry, and stands for Seasonal Energy Efficiency Standard. Just two months from now, all Carrier residential systems shipped in the U.S. will be 30 percent more energy-efficient than the current federal standard. These gains come on top of a 40 percent energy use reduction realized over the past 20 years.
DOE calculated that 13 SEER products will save 33 million metric tons of CO2 by the year 2030 - an amount equal to pollution created by 3 million cars each year. Energy savings achieved by Carrier equipment alone will be equivalent to retiring 1 million cars off the road…
Carrier has offered 13 SEER products for several years now, but we're the only company that took this opportunity to completely redesign our product line - including 34 patent filings. When we unveil our 13 SEER products in January, they'll be 20 percent smaller, 30 percent lighter and use 40 percent less refrigerant than current models. We've invested $250 million into this new technology, from innovative platform design to manufacturing. It's our largest R&D investment to date and larger than any other competitor, and it's good for the environment.
Now let me take off my Carrier hat for a moment and put on a UTC hat to finish up with some thoughts on the State of Connecticut. UTC has been here for eight decades and we've created quite a presence in that span of time. We have 26,000 employees here and do $500 million worth of business with Connecticut suppliers, some of whom are here with us tonight. All of our business unit headquarters are here in the state. The United Technologies Research Center in East Hartford pioneers many Carrier innovations. UTC spends $2.8 billion every year in R&D - and 80 percent of that stays in-state. And we employ more than 7,000 engineers, again, right here in Connecticut.
Sustaining a leadership position, for UTC or Carrier, depends on innovation, globalization, sustainable practices and relentless focus on productivity…
It also comes down to the cost of doing business. Carrier has no manufacturing facilities in Connecticut and, to be honest, I can't imagine we'll ever manufacture anything here. That's in part because Connecticut is a small market, but the fact that Connecticut is a high-cost state does not help. It's the most expensive for manufacturing and the sixth most expensive for doing business overall.
And since we've talked a good deal about energy, Connecticut is among the highest in energy costs as well. That being said, the legislature continues to propose bills each year that make it even more expensive to do business here. Last year's "pay or play" bill is just one example. Our state government cannot rely on businesses to remedy its budget problems. I've spent a good amount of time living in Europe, and we need to keep in mind what has happened there: ballooning deficits led to ballooning unemployment rates and difficult economic conditions.
Global companies are not tied to one state or one region. We can choose where we are located. And more importantly, our customers can buy from anywhere.
CBIA's membership survey asks businesses every year: if they were to relocate or expand their businesses, would they do it in Connecticut. The most recent survey showed 57 percent would stay here. That's actually not bad, although it also says that 43 percent would consider moving or invest elsewhere.
I talked earlier about longevity and said that to be around for a long, long time, like CBIA and Carrier and UTC, organizations must be flexible. They need to respond to changing markets and changing economies. The same is true for Connecticut. As we start to think about the upcoming legislative session, I encourage all involved to keep these issues in mind.
Connecticut is a great place to live and raise a family. I've lived many places all over the world, including places like Paris, London, Buenos Aires, Singapore and I have to say I enjoy Connecticut the most. Our quality of life is driven by great businesses, many of which are here today.
Like Carrier, I bet other successful Connecticut businesses can tell us a few good stories about sustaining leadership in tough conditions. And with that in mind, let me open it up to your questions and comments and suggestions.
Thank you so much for your welcome and attention.
