With a mixture of pragmatism and innovative thinking, chief executive Heinrich von Pierer has skilfully guided the company through times of boom and bust

Siemens is a heavyweight manufacturer in a country whose economy is sliding almost by the day.

Many of its competitors have suffered deep financial problems that have brought them to the brink of collapse. Its main sales region - the euro zone - faces at least one more year of low growth.

Yet Mr Heinrich von Pierer, chief executive of the 155-year-old German electrical goods company, is looking forward to 2003 with relative confidence.

Since he took over in October 1992, Mr von Pierer has, with a mixture of pragmatism and innovative thinking, dodged many of the problems that have engulfed rivals as they have wrestled with the telecommunications boom-and-bust, turbulence in the global economy and financial strains caused by unwise acquisition sprees.

At the same time, he has successfully internationalised its operations, which range from power stations and body scanners to cookers and mobile telephones, to reduce the risks to its business of downturns in any one country. Last year Siemens earned just 20 per cent of its €84 billion revenues from Germany, compared with 50 per cent in 1992.

Siemens is now the world's sixth biggest manufacturer, behind its arch-rival General Electric of the US, and the four biggest carmakers. "Only Fifa, the Catholic Church and Coca-Cola are more global," says Mr von Pierer.

Yet although the US is the company's biggest market, accounting for 24 per cent of its revenues, Germany, where Siemens has 41 per cent of its workforce, remains central. Mr von Pierer has some pointed remarks about the government of Mr Gerhard Schröder, which was re-elected two months ago. "I'm not happy about what has been happening. On tax, for instance, a lot of progress was made in the past legislature, but what the government is announcing now does not look very promising. I can see that they need more money. But the way they are going about raising it is questionable."

Even so, sitting in his capacious first floor office overlooking the bulbous spires of Munich's baroque Theatinerkirche, Mr von Pierer sounds far more serene than many of his fellow German bosses.

Despite his differences with the government, Mr von Pierer believes that running industrial companies in Germany is by no means a lost cause. "Germany is a rich country and its problems are exaggerated. No one talks about the positive elements. We have a fantastic infrastructure."

This conciliatory tone reflects the way Siemens has dealt with the country's highly regulated economy, voracious tax system, costly welfare infrastructure, and, above all, its inflexible labour market. Rather than defy the powerful IGMetall trade union, for example, Siemens recently agreed to renounce thousands of job cuts at two underperforming units in exchange for flexible working hours and a performance-related compensation scheme.

Still he accepts that job numbers in Germany will decline as labour-intensive activities are moved abroad. Another key part of Mr von Pierer's strategy has been to keep a broad business mix. "The attitude towards a broader portfolio of businesses has changed a lot," he notes. "My good friends from Marconi followed the advice of the analysts when the fashion was for focusing on core competences. Siemens was criticised as stubborn and hesitating. 'The chief executive cannot make up his mind,' financial analysts said. Now they still say the chief executive is stubborn but they mean it as a compliment."

For all this, Mr von Pierer bristles when he hears Siemens described as a conglomerate, arguing that the group is unified by a knowledge of information technology. "Automation, medical equipment, telecoms, navigation systems, lighting, power generation, instrumentation and controls, transportation systems, signalling: they are all linked. We have 32,000 software engineers, more than Microsoft, which makes us the biggest software group in the world."

However, there are plenty of challenges ahead. While Siemens had an acceptable year in 2002, with a 24 per cent rise in net profits to €2.6 billion, sales and orders will probably be down next year, Mr von Pierer says, refusing to give further details.

Each Siemens operating division has been set ambitious targets to improve or maintain margins in the next two years. But many doubt whether the targets are achievable; the company's power machinery division, in particular, looks like suffering a marked downturn due to the collapse in gas turbine orders over the past two years.

On top of this, Siemens' once promising telecommunications business has been a particular worry since 2000, with restructuring charges and hefty write-downs burdening the group's bottom line with operating losses of €519 million in 2001 and €325 million in 2002.

While admitting to the problem, Mr von Pierer says it is by-and-large restricted to the carrier unit of ICN, the division's fixed-network segment. Despite Mr von Pierer's satisfaction about the mobile side of the business, a question mark also hangs over these units.

Mr von Pierer is expected to stand down in late 2004, at the age of 63. His task for the rest of his time at Siemens will be to keep the company in the premier league of the industrial world.