Okay. Well, welcome everybody to Wood Dale. A couple logistical items before we start. When we finish, there is going to be boxed lunches available in the back. Then the buses are going to leave at the same place that they dropped you off, right at noon. Grab a lunch, go back to where they dropped you off, and they will take you back to the airport. If you need anything, something goes wrong in between, then Michelle Lowe is going to be back in the back right-hand office back there. Just look for her and she can help you out. All right? This is the Danaher in the Emerging Markets day. We have got the agenda here.
I will not go through it in detail, but we will start with Larry with some opening remarks, and then hand it over to the operating company folks to talk about each of the regions. Then we will finish up with two of our operating companies to go into a little bit of a to-from on where they have been, what they have been able to do in the emerging markets over a period of time, and give you some examples in just a particular operating company. Then at the end, we will have about a 15-minute Q&A. We are going to bring Larry back up with the EVPs and have a Q&A at the end. We are also going to have Q&As at the end of each of the sections. China, India, Latin America, each will have about a 10-minute Q&A as well. Forward-looking statements.
With that, I will turn it over to Larry.
Good morning, and thanks to those of you joining on the webcast. We are thrilled to do this half-day session on our emerging markets business, but I want to apologize first. Doing it here at the DBS University in Wood Dale in Illinois, is exactly the wrong place to have this conversation. We should be at Gemba. We should be in Brazil, we should be in India, we should be somewhere in China. Thank you, Cliff. I know many of you have been with some of our businesses in the regions around the world. But I thought, obviously, given our proximity to a number of our businesses here and many of your home offices, this would be a good compromise to give you an in-depth look at what we are doing in the emerging markets, and more importantly, what we are going to do going forward.
I think it's particularly timely and obviously good fun for those of us who have been at this for a while. Because it wasn't all that long ago that emerging markets at Danaher meant sending some salesperson once a quarter on a milk run around the region. What we did on the ground relative to sourcing and production was really all around cost arbitrage. But today, as we aspire to maintain our leadership positions as the world changes, as we try to build that premier global enterprise that we think we are building, obviously being on the ground in places like India and China and playing as locals, not only at the high price points, but throughout the price point continuum.
Doing that, leveraging all of our global strengths, but in a way very much attuned to the local competitive dynamics, let alone customer demands, is how we think we play and ultimately win. So to give you a good in-depth look at that today is our objective, and obviously, let's pepper the day with a lot of questions and make sure we walk out by 11:30 AM with a clear sense as to where we're headed in probably the most important parts of the world as we look over the next decade. So with that in mind, just a quick look at where we are on a Danaher-wide basis. Obviously, we had a very good first half.
It seems like a long time ago, but when we talked with you in July relative to the second quarter results, we were very pleased to see core growth up 7.5% and to see that as broadly based as it was. Obviously, we had good fall-through, good execution on the cost side. Our core operating margin was up 160 basis points in the second quarter, and in turn, that's what helped us drive nearly 30% adjusted EPS year on year. But it seems like such a long time ago, given the headlines and obviously the turbulence in the equity markets since we were together on that earnings call. Just to give you a quick update on what we've seen thus far in the third quarter. If you go back to the earnings call, you'll remember we were talking about 6%-8% core at that time.
We thought we'd be in the $0.66-$0.71 per share EPS range at that time. I think we feel very good with that guidance here today, given what we've seen. I think July and August basically played out to expectations in that regard. Certainly, as we look across the portfolio, we are seeing some, but I think it's very modest impact from the headlines to date. I think the businesses that have been the clear out-performers for us thus far have been our Test & Measurement business, with particular, I think, strength at our Tektronix Comms business, the pieces of the Tektronix acquisition we don't talk a lot about. But given the advent of the iPhone and all the data demands on networks, Tektronix Comms is very well-positioned to help mobile carriers deal with that. Our life sciences and diagnostics businesses, Beckman, have continued to be very strong for us.
Clearly, AB SCIEX with their new products and year two of the integration of the two halves of that JV performing very well. Maybe at the other end of the spectrum, our automation businesses, the motion businesses, Kollmorgen particularly, clearly seeing a slowing in build rates with a number of our OE customers is particularly pronounced in technology end markets, but I would not say it is exclusively a dynamic there. And dental as well, particularly on the equipment side where we see, I think, some challenges in Europe at this point would be the other business that I would highlight. From a geographic perspective, I think what we have seen thus far is very much in line with the way we described the second quarter. You will recall we talked about the emerging markets leading the way, still true through two months. And the U.S. doing better than Europe.
I would say thus far, we really haven't seen any widening in the gap of the performance between Europe and the U.S., despite all the yanks relative to the currency issues and the debt issues on the continent. As we look at the rest of the year, I think we, again, would reiterate our confidence in the guides that we have talked about for the full year, the $275 million to $282 million range. But I think we are mindful that the environment is likely to get more challenging as we go forward. Our crystal ball is no better, no worse than anyone else's right now, I suspect. But as we have shared with a number of you, we are taking a lot of action right now to make sure that in the fourth quarter, we are in position to have a meaningful quiet restructuring program underway.
Those projects are being compiled. We have been reviewing them literally every month so that when we get toward the end of the year, we will be in a position to spend, I think, at least $50 million on quiet restructuring. And that excludes, by the way, just to be clear, what we are going to do with Beckman Coulter. Beckman will see a significant restructuring spend here in the third quarter as we begin to achieve that $250 million cost reduction at Beckman. That includes, I think many of you know by now as it is leaked out, a 1,000-person headcount reduction at Beckman, which is underway, and again, you will see that here in the third quarter.
So I think to be in a position, despite everything that we did in 2008 and 2009 and through parts of 2010, to have another wave of structural cost reduction come out in the fourth quarter positions us well for whatever may come in 2012. We will obviously be keen to give you a full update in more detail on the third-quarter earnings call, and obviously, in turn again, when we are together in December at our year-end wrap-up meeting. But all in, we really like what we are in terms of what we can control, the existing businesses, the new businesses, Beckman, and some of the other deals that we have done. And obviously quite optimistic as we get past year with Beckman and get back on 2 feet with respect to the deal game.
If things are sloppy, obviously, in turn, valuations will be more attractive for a strategic active acquirer like Danaher. Hopefully that's helpful. September's an important month for us in the quarter, but given the fact that we're all together this week, we thought it'd be helpful to give you a little bit of a sense as to what we're seeing and what we're doing in a rather interesting time here. Let me move on to really the agenda, and that is talking about Danaher in the emerging markets. Again, when you look at where we are today, I think we're very proud of what we've achieved, but really look forward and see just, I think, boundless potential across our businesses.
It's interesting when you look at where we are today, 22% of revenue, it seems modest, but when you look at Danaher pro forma with Beckman, it's a $4 billion business. That's bigger than the Danaher that I became CEO of 10 years ago. Just a dramatic change in the footprint that we have in the emerging markets and obviously the way we go about playing and winning in these spaces.
I think the story that we're going to try to tell you today is that the investments that we have been making have been evolving and have been paying off, whether we're talking about what we do in terms of low-cost region sourcing and production, in turn, global product development, which is for us, R&D in those low-cost regions, and in turn, the way we've been driving growth, both with respect to our go-to-market activities tailored for local demand, but also the way we've been increasingly adapting our products through a process which we call localization for those local needs. That'll give you a sense of where we're headed, but also, in turn, we want to make sure you understand the other opportunities that aren't necessarily a part of our past, but are very much a part of our future. Our newer businesses are under-penetrated in emerging markets.
There's no reason they should be structurally, so we're going to get after that. Beckman is a great emerging market play, given the market dynamics they serve, let alone their positions in them. While we talk a lot about China and, by extension, the BRICS, that's not the entire opportunity set there, and you'll see that through the course of the day. More importantly, I hope what you walk away from this session with a sense of is that our number one core value, the best team wins, is very much alive and well in the emerging markets. We've got a little bit of the team here, obviously lots of folks that we'd love to get you in front of. We think they're very much the reason we've been growing profitably, and will continue to do so in these parts of the world.
Just a quick look at low-cost region sourcing, obviously very much an important part of our improved cost structure and the earnings you have seen us drive over time, but also an important part of how we have gotten smarter about operating on the ground. This represents nearly 30% of our sourcing today. We have doubled that since 2005, so we are proud of that. Obviously, you see that in the earnings over time, but again, an integral part of making sure we are more of a local company in these countries. From a production perspective, lots of different ways to cut this, but we thought it was interesting to look at our China exports. We have our most significant manufacturing footprint in China. We have doubled our exports out of China to the point today where we are pushing up against $800 million in sales in that regard.
That really provides a bit of the bedrock for our operations in the emerging markets. Talked about global product development, a very important part of this program for us. Again, what started off probably more or less as a labor arbitrage has really now helped us be smarter, quicker in our new product development and in turn setting us up to drive more localized R&D to meet the needs of the emerging markets. We have now in excess of 1,200 engineers and scientists around the world in emerging markets working on development projects for Danaher. That is twice where we were not that long ago. The key positions are in China and increasingly in India, but not the only places where we are doing global product development.
I think what is interesting here is that this is where, when you visit us in the innovation center in China, you see Danaher come together and help all of our operating businesses, frankly, do something they probably would struggle with if they were operating independently. We often flex together to be Danaher when that makes sense, and I think you will see a number of examples, this being one, through the day, where with a very thin corporate layer on top, we are able to marshal those resources to make sure that Danaher gets the full benefit of our size and our breadth without that being a burden. Again, I think helping our businesses do things on the ground that they would not otherwise do.
That is very much the model we are deploying currently in India, and you will see a bit of that through the course of the day to make sure that we not only have the cost structure in R&D where we want it to, but in turn, we have these assets on the ground to drive more localization. This is a slide some of you will recall from last year's year-end meeting. I think we were very pleased with the headcount investment that we made in 2010, and the way in which we were able to put it into growth drivers rather than letting just that headcount come back in a more natural way. 14% of the adds last year were in emerging markets versus 2% in the developed markets.
And as you can see, those headcounts were really in the functional areas that drive growth, sales, marketing, both up double digits with R&D up 6% on an adjusted basis, given we do have some third-party engineering going on, up nearly the same amount. So when we talk about dynamic resource allocation, making sure we are putting money where it should reside at an operating level, you very much see that play out here in the 2010 numbers, and I think we are of the view that 2011 very much being constructed on a similar foundation. I mentioned localization. You will see a lot of examples during the course of the day. I just want to make sure everybody is on the same page in terms of our strategic intent here.
We really have built these strong positions, these branded positions, both on a direct and on a distributed basis with our Western brands, often with our Western high price point products. Rather classic. I am not sure we are much of an outlier in that regard. But I think having done that now, we are really now looking to make sure that we localize those products, be it in terms of some of the packaging, some of the displays, as you see in some of the examples from Fluke and Tektronix and Hach, but in turn, drive more localized products, often at the mid price point, perhaps the opening price point segments of those markets to take full advantage of our brand, full advantage of our distribution, full advantage of our service networks.
Taking advantage of the opportunity the growth in those segments represents, but at the same time, obviously from a defensive perspective, engaging local competition constructively, profitably in those tiers of the market where they are more entrenched than we are. We think it is good offense, we think it is good defense, and through the day, you will see some examples where we are making progress, but still much work to do. Talk about the mix of businesses across the Danaher portfolio. 22% of sales without Beckman, 22% with Beckman. We think that is a good number. We are probably headed to 30% without really doing, not much more than playing and winning locally. But I think what is interesting is if you look at the businesses that have been with us the longest, businesses like Videojet and Hach-Lange, they are the ones that are leading the pack.
Think of Videojet, 37%, Hach-Lange up 30%. So those are the aspirational goals that we have set in front of the rest of our businesses. If you look at where life sciences is at sub 20%, and that is ex Beckman. Industrial at 19%, let alone dental at 15%. Plenty of running room here, and it is just, I think, more a matter of getting these businesses to follow the same path the other businesses have, like Test & Measurement and like environmental, to be more active in China, the rest of the BRIC countries, and then more broadly. So we will get after this, and I think this under-penetration that you see today is strictly nothing but upside. No structural impediments to having those businesses at or above the Danaher averages in time.
That is the organic story, and I think that then sets the stage for us to play our inorganic plays in these markets. We've had, I think, some modest but important strategic success thus far. Nine transactions in emerging markets over the last five years. I think we'll pepper through the day in the presentations examples of how these businesses have not only come into Danaher and been integrated to drive performance, but also have been important parts of our strategy, be it with respect to distribution, technology, brand in those markets and with respect to a broader emerging market play.
I mentioned Beckman Coulter. We won't spend a lot of time on Beckman. I think having spent the last two days with the Beckman team, yesterday with the molecular team, the day before with the life sciences team, we feel very good about where we are with respect to this integration. Obviously, a lot of focus in the near term relative is the cost reduction, but I think we'll be able to very effectively impact every aspect of this business through DBS in the months and years to come.
From an emerging market perspective, this was a key part of the decision calculus when we made the call to go forward with Beckman. We really like the footprint that they had. Again, 22% of sales in emerging markets, a $300 million business in China that has been a very strong performer in that market, taking market share, in part because of the team, in part because of a combination of an integrated sales and service network that is unique in that market. That's really all part of a 17% compounded growth rate that the company has put up for many years now.
Obviously, a lot of work to do, but we're excited about where these businesses are today. They've been less impacted, frankly, from some of the other issues that have impacted the Beckman businesses here in the U.S. and in Europe. I think over time, you'll see significant synergies coming from Beckman's combination with the rest of Danaher's life sciences and diagnostics businesses. We're already seeing those opportunities present themselves in India and China, where both the clinical and the research agendas of the government fit very well with what we're doing today, hence the growth you've seen this report, let alone what Beckman's doing and can do with us as we move forward. I think as we have built up our emerging market position, as you saw in one of the earlier slides, it has largely been a China story, for obvious reasons.
I think we were very focused there. We weren't trying to do all things everywhere, but we really wanted to make sure we understood how to play and win in emerging markets in China first. We've extended those lessons throughout the BRIC countries. I think now, as we look at the rest of the world, we're very well positioned to seize these opportunities. When Jim Lico and I were together in the Middle East in January for a week, we met with the team, and they were very keen, I think, to embrace DBS, embrace the lessons that we have learned elsewhere, and with the full support of the organization, get after all the opportunities that they see there. So this is about a $1 billion footprint for us today. Again, outside of the BRICs, very much top of mind for all of the Danaher operating businesses.
As we look to drive deeper penetration here, just the share play, let alone the underlying macro tailwinds, I think positions our businesses very well for continued growth. The best team wins. You will see a little bit of the team today. We are serious about that. I think you know a lot of what we do through our annual operating cycles to make sure that we have got the right folks on the bus and they are in the right seats. This is no less an imperative in emerging markets. Again, I think when you look at where we have been most successful, it really has been on account of the team.
In no small part because of local leadership. We are very proud, as you travel the globe, and you will meet two of our local leaders here today, that many of our businesses today are led by locals. Locals who are very much a part of the Danaher culture, who have a command of the Danaher Business System and really are, I think, driving the growth that we have had today. We have been able to keep this team together. We have been growing with them, they have been growing with us. Just look at some of these tenure numbers. 16 years, average tenure for our senior leaders in China. That is unheard of. It is not as if they cannot find work. Believe me, all the other companies that you cover are calling them with great frequency.
Latin America, very much the same thing. They understand we have got a unique culture, that we are very committed to what they are doing, and we are just obviously having a lot of fun doing it. We are pleased with that. More broadly, because it does take a village. You can see that the turnover numbers in both China and India that we see, and we never want any turnover, but to have mid-single-digit voluntary attrition, where folks are leaving of their own accord, and we are probably half of local market benchmarks.
We are doing something there in terms of a culture, in terms of creating an environment where folks know that we are part of a unique story under construction and they want to be part of it. We do not have enough people on the team today, given the growth that we project. We are continuing to make sure that our recruiting and development activities are tuned up as high as they can, again, very much with the local talent pools in mind for the Danaher growth that we aim for and that we anticipate.
Just to summarize, I think we are very pleased with the investments we have made. I think you will see lots of examples through the day of how they have paid off. We will hit a little bit on the things to come. Matt, I think, is going to talk a little bit about Esko, for example. Again, will not spend a lot of time on Beckman, but feel very good about their play here. As long as we continue to build out the team, we should continue to drive a high-growth, profitable business in the emerging markets. With that, since Matt said no questions after my section, I am going to move it along and introduce Jim Lico.
Jim, in addition to being a member of the Office of the Chief Executive, our OCE, an Executive Vice President with operating responsibility for our Test & Measurement business and half of our environmental platform, also oversees our China and India efforts. We have split the world with respect to the emerging markets at the OCE level. Jim has Asia and India. Dan Daniel, who will be up a little bit later, has Latin America. Tom Joyce, who could not be here today, has Eastern Europe and Russia. For some reason, Tom finds his assignment at Beckman Coulter all-consuming and sends his regrets. He could not be here today. Jim, it is all yours.
Thanks, Larry. Good morning. As Larry mentioned, I think we put China first on the agenda in many respects because that is where our focus has been for a lot of years. One of the things I hope you take away from this presentation and the discussion is really about where we can go over a number of years. Because as we talk throughout the day, I hope what you see with the China part of the presentation is really a construct, a framework, if you will, for what we will continue to do in all of our emerging markets. We just happen to be farther along in China.
As we go through the examples and some of those things, and certainly as we get into the other presentations of the day, hopefully you will see that and you will be able to see what we can do in some of the other parts of the world. We have a very good market in China for our portfolio today, about $7 billion. Low double-digit growth. Almost $2 billion in sales here in total. We always look back in history. That is bigger than the Danaher that I started with 15 years ago. China is a big business for us. Really across the portfolio, I will show that in a minute. Good mix.
As you can see here amongst our segments, all in the 20% here, like you saw in the global picture that Larry just showed, dental remains a good opportunity for us, and I will talk a little bit about that as we go forward. The drivers here, whether it be government investment in life sciences, whether it be our environmental, obviously the environmental challenges that a country like China has, or the alternative energy, places like solar energy are opportunities for businesses like Fluke. Electronics, as China continues to be both a big R&D and manufacturing center for electronics, that provides lots of opportunities. The largest single wireless network in the world, for instance, as well. Those kinds of opportunities present themselves.
And then obviously infrastructure, whether it is the obvious, which is the infrastructure like in buildings and things like that, but also in things like railroads, which present opportunities for a lot of our businesses. Great drivers here. Across the portfolio, again, you can see fairly evenly mixed, with dental being a bit of the outlier, but really a great opportunity. The drivers really present themselves as large opportunities in all the businesses, not only for the big businesses. The way I like to think about this, and hopefully you will too, is that the large businesses have incredible leverage. Large brands, and known brands within the country, large infrastructure in which to leverage the businesses off of. They've continued. That leverage really gives you great opportunity. That scale gives you great opportunity.
But then also we have an opportunity then to benchmark across the businesses and incubate businesses like our dental businesses. Brands are important here. Talked a lot about, last night, a little bit about protection of brands and things like that, but we feel we have great strength with our brands, and they continue to resonate. That brand continue to resonate with consumers. Maybe a little bit of a history here. If we look back maybe a little bit more than 10 years ago, you can see today, in the presentation, a variety of data around a number of ways we look at the business. But you can see a huge increase in sales, obviously, almost all of our major, certainly all of our major operating companies and most of our operating companies are represented, both not only with sales folks, but also with manufacturing and R&D capability.
You can see almost 800 engineers there, almost 10 manufacturing facilities, plus sourcing capability. We'll talk about this a little bit later, but the market coverage is important here. Traditional businesses that generally sold on the coastal cities in places like Beijing and Shanghai now are moving west, and we talked about the second and third-tier cities, but really building that huge infrastructure and that sales framework for a country this large is an enormous competitive advantage as we go forward. That really drives all of those things, really help us not only drive our large domestic sales, but also export sales as we continue to localize products for that market that we can also take to other parts of the world, both not only in emerging markets, but in many cases, our R&D centers have become technology centers for global products.
They're not only developing products maybe for other emerging markets, but in many cases, our businesses have built technology centers around certain product lines that they will leverage for the entire world. Then finally, you'll hear this as Larry just mentioned, how we sort of manage the world. In most of these major regions, we have what we call management boards, and I'll talk a little bit about that. I think it's somewhat unique. In December, we sort of bragged on four of our businesses that have become the $100 million club. As you saw on the Beckman chart, Beckman at $300 million now raises the bar on the $100 million club. The guys are all talking about the $500 million club now.
We have several businesses that will be a little competitive in that regard and a lot of other businesses that are entering that $100 million range as well. Obviously, why is that size important? It really is not necessarily, other than generally when you get to that size and scale, you have tremendous leverage, you have tremendous scalability in the region. Winning in China really starts with leadership, and for us, it means culture, it means bringing our values to the region, but it also means being local, building a team that is local, people who understand consumers in that market, but also share the values of DBS. That is really what our leadership framework is really about, whether it be with the management board or how we incubate businesses. That really becomes the number one part of our success story over the last 10 or so years.
Localization is also very important, having products. Again, Larry mentioned this distinction, but just to maybe to make sure it is all clear. When we talk about localization, we are really talking about that effort that designs and develops products and services for the market of China, or in the case of the other emerging markets in India or whatever. The global product development centers are really R&D engineers, R&D centers that are really focused on products for the global market. Maybe more than just one, maybe the entire world, maybe certain regions. We have both of those capabilities and are building both of those capabilities in China. Then finally, I talked a lot about this leverage point, whether it be on the go-to-market or manufacturer or procurement. That is an important part of winning, not only in our past but also in our future.
We are in pretty good position. We will go a little bit deeper into all those areas. First, let me talk about our China Management Board and the reason why this maybe is just as important is not necessarily that you understand the specifics of what we do, but understand what our real strategy is around this. Essentially, as you know, one of the great strengths of Danaher is our independent operating environment and how our operating leaders really have the autonomy to really drive and run their business. That has always been a great part of our past and our future. But in China, and in several of our emerging markets, we have put an overlay structure, fairly small, not huge, but very focused on driving Danaher and the Danaher agenda and the Danaher priorities in that country.
In the case of China, it first starts with accelerating core growth, helping the businesses there make sure that they are taking all the advantages of the marketplace. It could be everything from helping benchmark on how to expand. It could be leveraging, understanding how to move into second and third-tier cities, how to expand distribution, how to do market segmentation, things like that. It could be in brand management, it could be on the web. It could be all of those things that we really try to bring skill sets at the Danaher level in order to support the businesses over there. Talent is an enormous part of this.
Larry mentioned our great emerging market retention, and that really the biggest part of that is not necessarily being the highest salary provider, but rather giving people the opportunities to grow their careers, to train them, to give them new skills, and to make them better managers, and then to give them more opportunities. A business that goes from $100 million to $1.7 billion over 10 years, you can imagine, needs a lot more leaders, has a lot more significant jobs, and that is an opportunity, and that is why our retention is so high. The board really focuses on that and how to make sure we can move people between businesses at times and to make sure that our talent agenda is first and foremost in all of our operating companies.
Culture, as I mentioned before, is critical here, making DBS, spreading DBS, making DBS a part of who we are in all the regions and in this case, China. Then finally, compliance. Obviously, in these parts of the world, we want to make sure that our compliance is fine, but more importantly, that our integrity is critical. The board, through their work, really continues to build our values with, first and foremost, making sure that integrity is at the top of the list. So that is really the agenda for the China Management Board. It is made up of mostly operating leaders. We have a full-time leader who runs the business, along with three vice chairman of the management board. Those are operating leaders.
It is really mostly made up of operating leaders, and you will hear from a couple of our folks, Daniel and Jai, who will tell you a little bit about how they do that in both India and Latin America. That board construct is a really important part of how we believe we continue to be successful in the future. I like the Leica story here. We will talk about incubation, and incubation here is really, what we mean by that is helping the business get started. In this case, it was when we bought Leica, they already had a good China business. It was a good business, but we were able to, by bringing DBS to the business, by bringing more functional support to them, by bringing in a seasoned Danaher leader into that business, we have been able to really demonstrate great success over the years.
You can see the growth rates here over the last few years at almost 30%. It has really been a great Leica story, but it has also been a story of helping Leica be successful by filling in the gaps that they had in their business. The student here becomes the teacher, because now Leica is really helping places like AB Sciex and Beckman on the life sciences side, helping them become part of Danaher, help filling in the gaps for those businesses. That is a really important part of, as businesses become part of Danaher, how we help them be successful. The other end of the spectrum is our dental business. Dental did not have a major presence in China a few years ago. We put in a new leader there from one of our businesses. We brought the support infrastructure.
The China Management Board helps that business get started, helps them build capability. They are developing development capability, R&D capability in the Danaher Development Center. They are really utilizing the framework and structure of Danaher to grow at a really fast pace. Here you can see, not only feet on the street growing at a great rate, but their channel growing even greater. We are bringing channel management skills to that business through the other businesses within Danaher. One of our vice chairman of the China Management Board works with that business to bring expertise and benchmark to really move them fast. They are going to grow in China because of the market. What we are trying to do is accelerate that process.
The other advantage here is, a lot of our key strategic accounts here are hospitals, so there is a lot of good leverage with our Leica business and some of our life science business as well. We also bring some leverage and synergy through that. Hopefully what you see here is a smaller business growing at a very rapid number, year to date, greater than 50%, really, since we started that incubation process, and we will really help that business continue to accelerate their growth through supporting them with resources. Larry mentioned some overall numbers that we show in terms of growth and resources in the business. Here you can see probably the takeaway here is significant resource adds in both R&D and sales and marketing to drive growth, while a very limited increase in headcount both at the G&A level and on the operations level.
The idea there is great productivity. We are adding tremendous. Our export sales are going up. Our manufacturing capacity is significantly expanding in China, but we are doing that through DBS, so we are doing that with limited headcount. We do not really just think about China as well because labor costs are low, we will just add. We really continue to bring the DBS skills. For the last four years, many of you know we hand out a best plant award within Danaher on a global basis. The last four years in a row, that plant that has won that award has been in China. Great DBS capability being built there, and allowing us not only to have great productivity, to have great capacity, do that with limited capital infrastructure, but also to be able to divert those resources into growth. I mentioned leadership here being important.
Again, this is one place where we really do have a Danaher presence. Being a part of a bigger company is important to many of our. In a place like China, our China associates really see that as a big advantage. We have more Danaher discussion with our associates, probably in emerging markets, more than we do anywhere else in the world. We really make sure that our recruiting and retention policies are similar to what we do corporately. We build the Danaher brand on campus, at engineering schools, in the life sciences, and in the MBA programs to make sure that we can continue to build local capability and local talent for the growth in the years to come. You can see the growth in associates. You can see today the significant increase in internal fill.
Today we are filling seven out of every 10 jobs, senior jobs there, with folks within our organization. Really ramping up our talent process to make sure that we can not only recruit but retain our best people. Larry mentioned the 16-year tenure of our senior leaders in China. That is not only because our folks like winning and they feel a part of a winning organization, but it is also because they are getting the skills to continue to lead organizations that are significantly bigger than they were, say, three or four years ago. This idea of what do we do with R&D, both from a global product development but also a localization perspective, is really important here. I will give you a good example of that in a minute of how it drives growth.
The Danaher Development Center and the localized capability that we have in country is really important here. Over 800 engineers today, 15 operating companies have R&D capability. Really what is important here is if you think about it, the reason why our retention is so good, particularly in our technical ranks, is because we put these groups together. If you can think about it, rather than having 10 companies hiring five or six people at a time and being in a separate place, they are coming into an infrastructure where they can basically go in, immediately hire people. They have got the HR practices. They have got all of the capability, the technical training, all of that immediately. We basically incubate any business who wants to come into the Danaher Development Center, and they can immediately start up.
It probably cuts a year to two years of launch time for a company who rather than starting out at a separate R&D center, if they come into the Danaher Development Center, they are going to build that capability very quickly. Maybe not only is the products and the growth a good testament to success there, but in the first five years of the Danaher Development Center, we did not lose a single employee. I sort of defy anyone to find an R&D organization, in a region like China that has 100% retention. It is because of the center, and really helps us build capability. You can see today, we still have a modest amount of revenue from localized products, and it remains a great opportunity to continue to leverage that. Some of our bigger businesses, that percentage would be much better.
A good example of how this all comes to play is at Fluke. Go back a few years, limited product set, mostly in the high price point. If you think about a pyramid with high price point product, generally global companies sort of maintain their share in that part of the market. In the case of Fluke, there really wasn't a mid price point. There really was just a low price point. There was a high price point and a low price point. By developing local products for that market with local development capability, having a cost structure that was right for the market because of local manufacturing capability, they have significantly expanded their product set. They have been able to significantly gain share, and they have created the mid price point.
This mid-price point gets created by people who couldn't afford the high price point but wanted better product than existed from domestic competition. They've significantly driven growth and significantly driven presence through that massive expansion of the mid-price point. You can see the brand awareness numbers are now in the 70% range, and that's basically because they've gotten the volume part of the market. They're now touching so many more consumers today. One of the examples you'll hear from, I think, in the businesses with Jon and Matt, is you'll hear examples of how they're doing similar things to really try to drive position.
It helps you significantly expand distribution because you've got more channels who want your products now, and you really have the opportunity then to build a very strong framework, competitive fence, if you will, around those domestic competitors that are at the low price point. This really helps us drive go to market as well. We've had a major push to expand our go to market. You can see here, and one of the things you can probably see more so than anything on this slide is the significant expansion of second and third tier city feet on the street. So a big push to really make sure that we're building our presence in the second and third tier cities. That we're not just adding salespeople in Shanghai, but we're really taking advantage of the entire country and the growth opportunity that exists there.
Really important here to continue to build our brand. So we really continue to, whether that's through partnering with key universities or channel programming, it's really a really important part of really our long-term competitive advantage. Key account penetration remains a great opportunity. You get businesses like Test & Measurement or segments like Test & Measurement or in life sciences, where sometimes the customers overlap, the opportunity to pick those key accounts and sell maybe, go to those universities or other key customers with a broader product suite gives us an opportunity to leverage different businesses that, quite frankly, is somewhat unique, relative to other parts of the world. I mentioned brand, and it really is a great story for our businesses in China.
You can see here against competition, it's a bit of an average of an average here, but the two real key areas here, I think, are the two ends of the continuum here. One being, you sort of assume that quality is going to be better, and you can see that in the middle part. That clearly, we have a quality advantage. But really, the idea here is that the real success of our mid-price points, you can see in the value for the price. You really see today that consumers in China are really seeing the value of those mid-price point products because they see us versus competition, that are generally lower in price, as a good value. At the other end of the spectrum, you can see the high probability that people are going to recommend us versus competition.
By bringing that kind of value, it really speaks to the competitive advantage of being local, that is really what our businesses are really driving. Secondly, you can see the value of the competitive advantage that we are building by the likelihood that they are going to recommend us versus competition. That is the kind of strategy we really work with all of our businesses throughout the region to try to drive. We continue to drive significant brand research in country to make sure at the operating company level, we have that kind of success. I think through the years, we have talked a lot about China as a manufacturing and sourcing center. It is no surprise that this continues to be a big part of what we are trying to do.
A number of manufacturing facilities over there, incredible sourcing capability. We have a lot of suppliers over there, 1,500 suppliers. Our direct material spend is pretty significant over there. We have really brought our procurement practices to the organization over there. All of our businesses have sourcing representation. We have a Danaher sourcing office to support our operating companies. Both the combination of DBS implemented into our manufacturing facilities as well as great sourcing capability really gives us a very strong cost advantage in the region.
Maybe one other thing on that is one of the pushes we have now is we will start to move some of our manufacturing, not necessarily move, but add manufacturing capability into the western part of China. As we continue to expand our manufacturing and sourcing footprint over the next few years, you will start to see us move a little bit west as well. Maybe in summary, just to hopefully you get a sense for the framework.
A couple of important things are really about clearly how leadership matters in this part of the world. Our China Management Board, we think is a little bit of a unique way to make sure that we have competitive leverage in the region and make sure that we have the resources available to all of our operating companies to be successful. If you had a continuum, every one of our companies is somewhere on that continuum around the ways that you need to improve, whether it be in sourcing or manufacturing or product development or go to market or branding or the web, for instance. We have by making sure that we have local leadership combined with the China Management Board, we really get the best of both worlds, and we get that benchmarking. Our team over there is incredibly good at sharing best practices amongst each other.
Maybe one of the best places in the world for businesses getting together, on a frequent basis to really see what other people are doing, make sure that if there is a good idea somewhere else, they will copy it. This idea of localized products, hopefully, is a real important part of our competitive advantage, yet continues to be a great opportunity for growth. It is a good success story, but we are just in the first or second inning of that game. We have got a long road to continue to do that. We think we have got, through our R&D center there, we have got a tremendous ability to continue to build on what we have accomplished so far. The go-to-market and the expansion that we have had you see is more recent, last few years. Really, that continues to have good legs for growth.
Not only does the market dynamics good long term in this market, but also the feet on the street that we've added and continue to add, really represents growth in the years to come. Finally, DBS is hopefully one of the things that resonates with all of our presentations today for you is that DBS is not a developed market part of our culture. It's a global part of our culture. It gets adapted a little bit differently by country, and I think that's one of the unique things that we've done is to make sure that it's not the exact same everywhere, but the values are the same. Our organization sees that as a constant part of how we lead and how we manage these businesses on a global basis. With that, I'll take any questions.
How are we going to? Matt, you want to just? Mike? Dean?
Hey, Jim. Maybe you can provide some additional color on what localization means for a couple of the businesses, give some specific examples. For something like Tektronix, oscilloscopes are going to be as sophisticated in China for semiconductor fabrication as they are in Silicon Valley. Is it the language that you're changing on? Then maybe also for Fluke, just some examples of what you had to change in order to increase penetration for those types of businesses when you're measuring some of the same sophistication and calibrations that exist in developed markets.
Yeah. Good. Maybe specifically around Tek. You're at the very high end of the market, generally not a huge amount of difference. But that customer base is relatively focused. If you look at the broader part of the market, mid-range, low end, maybe lower end of, say, the oscilloscope market, it's really a couple things. One is features that might matter more to the end user. It's certainly local language. It's service capability, so building out our service capability. One of the challenges, particularly on the high end of the market, can often be that sending a high-end instrument back to the United States or back to the developed world is a pretty big hassle. So making sure that we have service capability. At the high end, it's very much around service capability, software support, things that are maybe more supportive to the sale.
And then the lower end, it is probably more around price point. It is generally taking cost out around features that are not necessarily used. Those are the big things. The core technology of waveforms and things like that is generally the same, but the user experience and what they specifically do is generally different. We will take features out or change features specific to that. Fluke is a good example. LED testing, for instance, is a real big part of what they do in China. That is not a big deal for the rest of the world, but in China it is a big deal. A digital multimeter feature, for instance, would be an LED tester. It is things like that are really feature.
One of the keys we did not talk about, I probably should have, is this idea of not only having an R&D support in region, but product planning. What we would call people who are marketers, kind of a combination of marketer and engineering, technical person who lives in the market. We have significant product planning capability in most of our major businesses today, and they are out in the region, and they are planning the products of the future. They are with end users, and they are always trying to come up with what is that feature that is specific to the Chinese end user. Right?
I got it here, Jim. Could you just address a little bit more what you are doing on exports? The essence of my question is around labor costs. Most of your footprint is still in the East. You have had pretty dramatic growth in exports. Where are you actually exporting to? Is it to other EMs, and are you finding any issues with the labor costs in the East as you think about executing that export strategy?
It is a good question. I would say, number one, if you think about our exports, most of our major businesses have a factory in region, and that factory is probably, certainly exporting products. It differs among businesses. Take an example of a Fluke, for instance. Fluke is going to build some range of product lines for the global market. It might be a price range that is maybe a little bit more competitive around the world, and they will build that entire product range for the entire world. There will be another segment, which is what I call emerging market segment, and that is really products maybe that are a little bit lower price point, and they may be more focused on emerging markets. You would have to throw percentages around, but you would probably say that. Then there is the localized products. Some of those overlap.
Global, generally in a facility like that, maybe 50%-60% of the sales are going to be still global, and the rest of them are going to be in maybe some of those other parts. But it's a broad range. It's going to vary by business, so every business is going to be a little bit different. On balance, maybe to the more specific part of your question around cost. Clearly, in any emerging market, you have wage inflation that's higher than in other parts of the world. I think one of the advantages that we have being in China is that we're still all emerging market labor rates have higher inflation than the U.S., but we have the lower starting base.
If you look out a few years, though, you certainly want to start to think about going into the interior of the region in order to make sure that we take advantage of the cost structure, the difference in cost structure that's occurring right now. I would say that it's not an imperative today. We look at this pretty closely to really make sure we've got the right cost advantage versus other parts of the world. The advantage that we have is we have factories in pretty much every low-cost region, so we have good comparison sets. We don't have to buy data or anything like that. We can just look at our own factories.
The eastern part still remains very competitive, but if you were to look out a number of years, you'd say we need to start thinking about other locations, whether they be in China or maybe even other locations like a Vietnam or something like that. You're panning out, so.
Thanks very much. Jim, just to follow up on Jeff's question on the cost structure. To what extent, when you start thinking about moving inland, west, and north as supply chain, will it really be an impediment? How much have you looked at that? That's often sort of an equalizer to the labor differential that you might get.
Yeah. We were talking about this a little bit last night, and one of the things is when everybody thinks about the labor cost, and they're always, "Well, labor is a small percentage of the cost." But when you take the cumulative effect of the supply chain, labor becomes a bigger part. It's a very important part of the decision of where if you're going to do something differently. We know this game pretty well. You've got to build the supply chain first. That's why you don't just move west with a facility. What you've got to do is start to build out your supply chain. That's one of the advantages of having the significant sourcing capability that we have in region is that that's really what we're doing today.
We're building the supply chain out in other parts of China and in other parts of the world. We're starting to develop. That would be a key part of the decision of moving manufacturing to other low-cost regions would be how fast the supply chain can develop. If you were to say, how far along are you? I think we're pretty far along in developing some pretty good major sources, if you will, in sort of the western part of China. It differs by operating company, though, because obviously different important sources for different businesses.
Okay. Just diving into one of the businesses, you're talking about Beckman Coulter being a $300 million business already that you're starting with in China. What are Beckman's biggest challenges as opposed to the other businesses that you're looking at within China? Where do you see what are the biggest issues for them in China and as far as their moving forward and growing?
Well, I'm probably also going to defer to Larry at some point in time, but I would tell you a couple things come to mind. As Larry mentioned before, the sales and service network that they have is incredibly good. That's obviously a huge advantage to what they have, and obviously they're now our biggest business there. They don't have a huge manufacturing footprint there. They don't have a huge sourcing footprint there. So those are two opportunities for us and a great leverage opportunity for them. Obviously, if you think within life science and diagnostics, for instance, Leica has a great capability there. So they don't have to look too far within the segment to find capability there to leverage off of. So those are two big areas that jump to mind.
There is always an opportunity for all of our businesses to expand R&D, to make sure that we can continue to build product, design product for the local market. That would be the third area. I don't think it is necessarily an enormous gap, but remains a great opportunity.
Jim, two questions. The first one is, looking at Danaher's corporate tax rate, it has gone from the high 30s about 10 years ago to the mid-20s today. Has China been a material contributor to helping that happen?
Yeah.
The second is, when you are looking at the business itself and the cash that is being generated in China, when you are looking at redeployment of that cash, is there a bias towards redeploying that cash locally? How much of that is sort of organic investment, and what opportunities do you see inorganically within the area as well?
All right. Dan, are you going to take the tax question? I will hand that one off.
Thanks, Jim. On taxes, I mean, all the international operations by and large contribute to that overall 25% rate, but I don't think China has any disproportionate impact. Regarding cash, I mean, our bias is obviously to continue to invest heavily within the country, though we've got a very good sort of pipe getting that money out. For example, with the Beckman deal, we took a fair amount of money out of China that will help fund that, but by and large, the bias is to keep that in there both organically and put it to work inorganically as well.
We do have sort of an emerging market, M&A agenda, if you will, for each of the regions and the boards work at cultivating. We're always working on things like that in China, so it's an active part of all the business leaders' agenda as well.
Your China sales, so it's just over 10% of the company if you include exports. What percent of your capital budget goes to China? If you were to look out, say, five years, the 7,000 employees, the 10 facilities, I mean, how many of those would you hazard to guess, given the progress you've made in supply chain, are actually going to be what you would describe as non-eastern? Like, how many new facilities?
Oh, total amount. Well, I don't think you're going to see a massive expansion of facilities over there. We've been incredibly successful at utilizing our current footprint to expand capacity. Excuse me. So number one is we don't spend a significant amount of capital in China today. Quite frankly, when you look at our facilities expense in the facilities we have started over there, it's pretty low. Certainly, people think about $5 million facilities or something like that. We've never come close to spending that kind of money on a facility over there. So we don't spend a lot of money on facilities, nor have we historically, because we've generally been able to get a lot out of our capacity footprint. You take Tektronix, for instance. I think we've increased sales out of that facility probably 5x since we bought the company.
We haven't spent a dime on expanding the footprint. We've done some stuff within. So it's pretty small. To the question of what our facility number might look like, I would think we'll probably add a couple of facilities there over the next five, six years as we think about moving west, but I don't think it'll be another 10 or 12 or anything like that. Relative to associates, if I were to think about just China, it'd probably be fair to say that we'll probably double that workforce over the next 5 years, because that's kind of the rate we've sort of been at. It'll probably be more in R&D and sales, because that's what it's been so far.
My question kind of goes to your planned restructuring, right? Some of the pull forward that you plan to do in the fourth quarter. It might be even a question for Larry, but if you look at your world ops, right, from a productive capacity, is there an opportunity still to fill up Chinese factories with products that in turn could be re-exported just because of the productive cost basis that you have there? Maybe is there a way to put that into a context for us?
I would say just maybe if the operating with Dan and Larry have kind of communicated to all the operating companies is to look at your overall rooftops. Look at where opportunities would be. It differs a lot by operating company. You got FDA things with some of the medical facilities, so you've got different reasons for maybe not doing things. But our percent of low-cost manufacturing is still below 50%. So that would suggest there's still some opportunity. I don't know. Larry, Dan, anything? Is that good? We're moving on. All right. Well, unfortunately, I'm not leaving, so you got a few more minutes with me. As Larry mentioned, I have the good fortune to work with the China and India management boards. That's a fun part of the job, obviously. It continues to be a great opportunity for us. So we'll transition here.
Depending on where you're at, we'll either be moving east or west. Since it's, for me, and living in the West Coast, it's 12.5 hours ahead. So 12 and a half hours. Jai Shankar, who's our President of Danaher India, Jai and I will split the presentation here. Again, as I mentioned before, the continuum here, right? China's on one end. India's probably on the other end in terms of our evolution of Danaher and our success in India. So we still have a lot of opportunity in India. It remains a great opportunity. If you remember back to the China slide, we said $7 billion of available served market. Here you've got two. So while we're lower in market, we're much lower in sales, so it really speaks to the share opportunities for us in our markets. Again, low double-digit growth.
About a quarter of a million dollars in sales here. Here you see a little bit larger mix of domestic sales. This is primarily because we have less manufacturing capability in India than we do in a place like China. We have a couple of facilities. The segment mix, somewhat similar. Not too dissimilar than what, but on a lower base. Good drivers here. High single-digit GDP growth over the next few years. 7% basically this year, a little over 7% GDP growth, so good GDP growth. You have a big push. A lot of people think of India as a service country, but there is a lot of push into not only continuing the service economy, but bringing a manufacturing economy to the region, investing in infrastructure. Those drivers you saw in China, those are also drivers here.
Big rising disposable income, so with more consumers means people spending more money on things like dental. Obviously, there is continued opportunity for our business. Great growth through some of our key sectors, both in healthcare and in education. This is a country that is going to continue to spend a lot of money on education. In businesses like our life science business, like our Test & Measurement businesses that serve into the education market, there is lots of opportunities with the rising investments in education that are going on in the country. The government is more involved here in the economy, particularly in some key areas like the environment, power infrastructure, telecommunications. That anticipated investment over the next several years is going to drive a fair amount of growth as well.
These drivers are not only, they are kind of broad against many of our businesses, many verticals, but they also have some staying power over the next five years or more. Smaller size, but again, somewhat equally distributed amongst the platforms or segments here, as you can see. This is another country that has some great brands. Our consumers over there appreciate our brands a lot better, and we are just growing our brand capability over there to continue to leverage those brands. In many cases, we were earlier in that high price point triangle I was talking about a little bit, so our business is probably a little bit more to the high-end market here, but therein lies part of the great opportunity. Jai will talk a little bit about how we are taking advantage of that going forward.
Just to give you a sense of where we are at, we are about 10 times bigger than we were five years ago. Lot more operating company presence over the last few years. Our associate base has gotten a lot bigger. Over 700 people there today. Two manufacturing sites, plus a significant demo capability there. A big R&D presence, both on the direct side, over 300 Danaher associates in R&D, but also a big relationship with many of the collaboration with people like Larsen & Toubro's engineering development organizations. We have not only the capability to build our own development teams, but we have access to some really great partnerships to get technology individuals and to grow our technology capability. By and large, our R&D capability over here today is mostly around global product development.
In other words, being a part of developing products or developing specific products for the global market. The advantage is retasking some of that effort, adding to that effort to develop more localized product. That is a huge advantage. It is easier to start from that base than it is to start something from zero. Because if you have people who understand the core technology and they understand the core product capability, getting them then to build local preference is a little bit easier. Good market coverage. We continue to expand. Last year, we did our first acquisition there. So, we bought a business for Glaxo there. Again, as we mentioned, here we have a management board as well. Jai is here, who leads that business and lives in country. Really, I think, again, another great advantage to what we are trying to do in the country.
Good growth over the last few years. You can see 40-some percent. We think this is obviously on a little bit lower base. But a great opportunity and really represents, I think, good success amongst many of our operating companies. With that, I will introduce Jai Shankar. Jai has been with us for three and a half years. He has got a broad background in leadership and general management in India with some great multinational companies. Jai leads our China management board. He will tell you a little bit about what that means and a lot of the great things he is doing. Okay, Jai.
Thank you, Jim. As Jim just alluded to, we started off 2005 with about a couple of centers in India. Today, we have a very large footprint. As you can see, we cover the length and breadth of India today. One of the key things in India here is that service is a very key differentiator. So today we are able to go and reach the end customers in terms of service because we are spread in pretty much all the states, over 29 states in India. So what does it take to win in a market like India? There are five key aspects which we believe is extremely critical for us to be successful, and I am going to be alluding to each of these in the next few slides.
It starts off by being very local and having an aggressive local strategy for us to go in the marketplace, led by local leadership. The second one is to have a localized product, which is very relevant to the marketplace to drive that growth. Need for local acquisitions to drive. Leveraging DBS in the local market and underlying that with local leadership. So the lowest common denominator in each of these five aspects is actually being local here. I will go through each one of these in the next few slides. The first one being go to market in terms of commercial execution. Typically, Jim mentioned about a lot of operating companies wanted to come to India in the last few years.
When they step into the Indian market, we typically do a local landscape in terms of understanding the lay of the land, understanding the competitive landscape there in terms of what really goes on. The first thing that comes out is that we have need for coverage. What we have started doing is to go to the tier 2, tier 3, and tier 4 markets now in the last few years. We started off with being the key metros, 8 to 15 cities initially in 2005. Now we cover more than 200 top cities in India. The second thing that we've started doing in the local marketplace is to identify segments, very focused segments, where we can actually drive our growth from. We've started investing in feed and street to drive that business.
Just to give you an example in terms of numbers, we put in the first half, we've got more than 150 focused associates driving that growth in the local marketplace. The local market dynamics, typically in India, being a B2B market there, is primarily using distribution channel initially. What we have done is increased our number of channel partners from 10 to over 100 today. It's not so important to have a number game there. It's more important to have quality channel partners in there. So in the last few years, we've been really investing in time and effort in terms of training some of these people. We use a lot of DBS tools to train our partners, channel partners, and understanding what kind of working capital they keep, what kind of inventory they hold, some of the go-to-market strategy.
More importantly, we also spend a lot of time in terms of compliance training so that they remain compliant and understand the way we want to do business in the local marketplace. Key account, we've got a lot of key account, and we have a holistic approach in terms of addressing some of those key accounts. I think as I mentioned earlier, service is a very key offering. It starts off by localizing products and giving product offerings which are very relevant to the local marketplace, and also giving outstanding service capabilities to supplement that. An example there today is, as you saw from the last slide, we have service capabilities and GVR currently gives customer response times of less than 24 hours to some of our key customers.
Another example of go-to-market strategy, I'm going to take the example of Fluke here in India in terms of what we did. As we reflected back in the beginning of the year, when we looked at the Fluke business, we were getting incremental growth and we wanted to get quantum growth. We did a Kaizen, the DBS Kaizen, in the month of January. We had a global DBS leader coming down to India along with the Indian leaders. We put our heads together to say, "What do we want to do in the Indian marketplace to drive this business?" It is being led by a single resource, a single master distributor. We put a plan to say, "What is it we want to do to drive this business moving forward?" The India leadership, India board, was part of this Kaizen.
We spent a lot of time in terms of understanding and giving a local color to what the market opportunities exist and how we want to structure that. What we ended up doing was having a very focused approach to the tiers that we were not covering. Today, we have expanded in the last six months to going up to tier 4 markets, and that meant putting feet on the street. We have increased feet on the street from the distributor by over 33%. We have also identified some of the key segments and verticals that we were not really represented fully, and especially the segments like railways and defense and education, they are under-penetrated, and so we put a lot of people and effort in terms of intensifying that segment. We have already started getting good sales productivity.
The first half numbers are upwards of 50%, and we want to sustain that growth momentum for the Fluke business, and we want to get at least about 10 times market share in the next couple of years. The second aspect of winning in India is definitely being local, as local as possible, and having localized products. As Jim mentioned earlier, we have a very good, capable R&D team here, specifically working on product development, and I want to give you a couple of examples here. The first one is a local product. In fact, there was a question earlier mentioned about what kind of localization initiatives are being done to drive some of the market. Last year, we launched a brand called Polo for Fluke.
Basically, it came out of a DBS that we did from understanding customer insights and saying, "What does the local market really need?" So we put a market landscape there to understand what the price points were, where the competing landscape was, and launched the brand last year. In the same breath, what we are also currently doing is to launch a clamp meter in India in Q4. Pretty much looking at the right market segments and looking at the right kind of price points so that we have the right kind of products for the local marketplace. In fact, to give an additional color to typically how we look at some of the products and the tweaks that is really required for the local markets. One of the local insights that came out of the Fluke Clamp Meter was, worldwide, the clamp meter clamps jaws are shrinking in size.
But in the Indian market, we realized there is a need for us to have a larger jaw because still the local market use a lot of copper, which is a conductor there in the local marketplace. To that extent, we tweak. We may not necessarily manufacture, given the revenues and scale and size in India. We might manufacture it outside, but get it down in India with some of those tweaks in the product. We also launched a product called Frontier for the GVR business last year. Since last year, we have been working on this product. This is absolutely locally indigenized and done by the local R&D team and executed. We launched this brand a month back.
We're looking at a couple of million dollars in terms of revenues coming in this year, and I think the good thing is that I think it's got a potential of almost $20 million coming by 2014. We've got a great local capability in terms of execution. What we do is we use our local GPD partners and also the local team for our global product development. One example we want to share with you is an application that we did for Tektronix Comms, which has already got a business impact of $7 million by 2011. Acquisitions. We did the first acquisition in India last year. We acquired the PDP business of L&T. What it really got to us was local capabilities in terms of manufacturing, in terms of service, and R&D to be able to localize our products in the local marketplace.
We've also got an outstanding install base as part of the acquisition. When I look back in 2007, when we started the GVR business in India, we had just about four associates, and we generated revenues of about $6 million. What today we have is about 175 associates and likely to generate upwards of $40 million for this business in India. As part of my job as a board member and as part of a key leader in India, I spend a lot of time in terms of looking at target companies in India and doing a lot of cultivation work, and we have an active acquisition pipeline here in India. DBS. Given the growth story in India, it is very important for us to understand process and systems in a market like India.
We use a lot of DBS in India, and it starts off with the board. The board takes leadership in terms of understanding what the market requirements are. I think many of you probably got exposed to what we do in DBS yesterday. What we do is select and pick what is really required for the local marketplace in terms of execution. We start off by, let's say we teach about two manufacturing sites in India. These are our temples of teaching. We put our commercial leaders, we put our new associates who have joined the organization through an intense Kaizen and a shop floor exposure in the market, in the manufacturing site so that they get exposed to some of the tools, DBS tools.
Some of the Danaher leaders also wear the cap of tutoring and mentoring some of the associates in terms of core growth, in terms of some of the DBS commercial tools that we actually have, and it's really started paying dividends. From a people perspective, we need to have the right kind of people to drive the business in India from a core growth perspective. What we've been trying to do is to focus on the quality of people that we hire on board. We've started doing campus hiring since 2009. This is primarily for engineers, since 2009. What we also do is to rotate a lot of people across our operating companies and give exposure to some of the leaders in terms of managing the business.
We have a Danaher India leadership program for high-potential leaders. We put them through an 18-month orientation process. We give them a significant amount of exposure so that they can get the opportunity to actually manage larger businesses as we move forward. I think the critical piece in this slide is about the profile of people that we have in India today. We have almost 30% of the associates are either PhDs or doctorate degrees. If you add the fleet of engineers that we have in here, we almost have about 80% of our associates being either engineers or postgraduates with their doctorate degrees. In summary, I think India has got very good macroeconomic drivers. We continue to invest in customer-facing initiatives. We have an active acquisition pipeline. We continue to use DBS for sustaining our growth.
Undermining all this is local leadership here at the local marketplace. Thank you.
This is sort of a question for both China and India. When you are sizing that market size today, $7 billion China, $2 billion India, is that what you are seeing as total sales in your space today, or is that what you are looking at as the opportunity for sales as more cities are penetrated? Just sort of both for China and India, there are 100 tier 2 and 3 cities in China. You are in 10 of them. How many of them do you touch? In the same way in India, with your 21 sales offices and 45 distribution centers, how much of the population or how much of GDP do you think you are really touching in those countries today?
I will take the China. First, the way the market definition is really whatever our global market definition is for the product line for the businesses tend to be the global product, the served market for these markets. It is not just the markets if we are in one city, it is the whole country, and it is all the price points. It does not include adjacent markets that we might want to get in that we are not in. So it is pretty focused on the businesses we are in today, and it is sort of our traditional served market.
calculation. That's number one. If we look at China, to your question of how much, we cover the majority of the country. If you look for most of the businesses, let's take the $100 million club, the four businesses over $100 million. I would say in most cases, those businesses, at this point in time, are touching the majority of the GDP at this point. They might not necessarily have somebody in every city, but they'll have sales people that maybe go to certain parts of the country. We still have opportunities to continue to add. Just because a city is 5 million people doesn't mean it necessarily can take three salespeople. It might need the market to grow a little bit or whatever. But by and large, as it relates to China and our big businesses, we have pretty good coverage.
I think it's pretty much the same for India, too. I think today we cover more than the top 200 cities in India. This is pretty much the capitals of each of these states. We don't go to the rural markets as such. We pretty much have spread across each of these 29 states that we are present in India today.
The advantage, just to maybe add on India, I think that you've been working on too, is the add channels. Because a lot of our businesses don't necessarily have expanded channels. One of the reach opportunities in India, still in China too, is to build distribution networks that have the capability to sell products and reach more customers. That's in both regions. Questions?
Just a quick clarification. You're saying the $7 billion and the $2 billion is a global number, not a market for-
No.
That is just China, just India.
Just in the regions. Yeah, I am sorry.
It takes away export capabilities. It does not include export capabilities, does include building in China to export to other parts of the world.
Domestic market sales.
Domestic market. Thank you.
Yeah.
Jai, the question I have is, India has some somewhat unique issues associated with corruption and government bureaucracy. Can you talk to us a little bit about what you've done to overcome those hurdles in India?
Sure. What we do is we have a very proactive approach to what we do in India. As I mentioned earlier, we start off with, we use a lot of distributors. We do a lot of training for distributors to understand the way we work in the local marketplace. When any associate join our organization, we do an intensive program in terms of training them to understand the way we want to work in the local marketplace. There's a huge amount of work which actually gets into training and developing people to understand the way we work.
Over here.
One quick question. You have 11 management board members in China and nine in India. How many of them are foreigner? How many are local leaders, which means born or have spent a lot of time in China or India? Second question is following that gentleman's question, is your business in China and in India growing so fast, are you worried about diluting the DBS into so many people there? Also it is relatively easy to tell manufacturing people or R&D people to do whatever, the DBS way. Now you have sales team, they are more entrepreneurial. They do whatever they want to do. Do you face more challenge as your size gets bigger and your business gets deeper into local markets? It is a question for both things.
Okay. All local leaders for the first one. The second one, I think one of the biggest things in terms of. Can I go ahead and answer the other one?
Yeah, yeah.
I think the biggest strength, if you have in a market like India, is actually DBS. We have a very good retention, as Larry mentioned earlier, and Jim mentioned earlier, because we actually teach a lot of DBS process and systems in place for which they want to really work with us. We really do not find a problem about going and cascading DBS to a larger pool of people. Also what we do is we have a lot of people who do master black belts in terms of what they want to specialize in. All of this off the top of being and leading some of those DBS initiatives in the local marketplace, every board member takes on a specific role in terms of what he wants to do and cascade. We kind of share that effort in the local marketplace.
In the case of China, all of our China board members are local leaders or have been in the local market except for one, and that's a transition that's occurring over time. So pretty much 90, if you took the two boards together, 98% of the board members are all local. That's an important dynamic. I think, quite frankly, just to echo what Jai said, and I don't think the two regions are any different, DBS is an advantage in every function. I don't think how it's applied is different, but the fact that there's structured approach to what we do, really kind of goes pretty well in both structures. One reason for that is that you don't have a lot of experience in these regions with managers who have a lot of management experience. They typically come in with really less than 10 years of management experience.
One of the big challenges we have when we implement DBS in the developed world is the not invented here syndrome, where people, we buy a new business, and one of the challenges is everybody thinks their way is better. So one of the big challenges we have to do is to convince people that, hey, there's a better way. In China and India, that's almost nonexistent because people, they really don't have that much experience in that kind of environment. So they sort of gravitate to it more so than anything. So really, our adoption curve, in the developing world, Dan will talk a little bit about this when he talks Latin America, but at least in Asia, I can tell you, has been exceptionally good. I don't think it matter, it really doesn't have a functional difference to it really at all.
Maybe the other part of it is because you're growing, use the sales force to your example. Because you're growing that sales force so quickly, one of the advantages is you've got lots of new people who are always coming in, and so the opportunity to not only train the new people but continue to train the current people is pretty big.
Hi, guys.
Over here.
For both markets, can you talk about the profiles of exports versus domestic sales and where you see them going in the future?
The profile for domestic and export?
Yeah.
Okay. I think for India, we have got 75/25.
75/25.
For India, and I don't—50/50, 5/45?
45/55.
I'm wondering, country that you're expecting the export.
For China. Did you get that?
[inaudible]
You want to speak to what might it look like going forward?
I think we've started the localization initiatives. I think given the scale of revenues that we have, we've leveraged some of the other markets for us to manufacture locally. But the intent is to actually look at local manufacturing capabilities because it gets us sourcing and local supply chain capabilities also along with that. I think that's the way it's really heading now.
Just to finish, I think China probably ends up being more domestic over time. Just the way the growth rates work, it will probably end up being a little bit more domestic over time. That's probably the nature of these regions, is that over time, the domestic part of the manufacturing will likely be more. Over here.
Yeah, maybe a question more for Jim. When you're thinking about the ability to manufacture on a large scale rapidly, obviously China, a lot of companies have found it much easier to do that in China so far than in India because of infrastructure differences, land acquisition cost issues in India and so on. At what point do you feel that the manufacturing ability in India is going to be as easy, or how quickly is the gap closing, if you like, in terms of the ability to do large-scale manufacturing in different parts of India with a similar supply chain and logistics?
We do some of our, I think, some of our more challenging manufacturing today in India. Our two plants that are there today are for Gilbarco Veeder-Root, obviously, with the acquisition of Larsen & Toubro and in our motion business. So pretty involved manufacturing. I think in terms of having the talent and the capability there to be able to do it, I don't think is an issue. I think the thing you point out is the supply chain. The infrastructure's a bit of a challenge, but quite frankly, I think that's becoming less of an issue. Obviously, you really have two things that are left. One is the supply chain, and that's really an industry-by-industry conversation. You're seeing a big push into things like healthcare and life sciences. That probably brings more supply chain capability to the world, to that part of the region.
Electronics is coming, but it's nowhere near what China is. You're starting to see some of the sort of supply chain infrastructure, which is, as you point out, pretty important to rapid expansion of domestic capacity. All right. I think we are done, Matt. Is that right?
Yep.
All right.
Thank you.
Jim, Jai, thank you. Just maybe hit on two points, one from a, back to Cliff's question, from a compliance perspective. Cliff, I would just add to what Jai said, and it is really not an Indian dynamic. I think we find these challenges around the world. Obviously, we have got to set the tone on the ground, but also we try to make sure we set that tone and then some from a senior leadership level in the businesses right down through the organizations. We need to make sure that folks don't think that is Jai's responsibility or Samuel and team in China's responsibility. It is everyone's responsibility to make sure we are conducting ourselves at the highest standards possible. But it is a belts and suspenders story as well.
We certainly have been augmenting what we do from a compliance, from an internal audit perspective as well, so that we have those checks and balances in place.
I was looking less as compliance as a speed of implementation because of that need for that compliance or that bureaucratic inertia.
Well, even with the-
Is Asia really different, or am I making too much of it?
I think it's a fair question, but the clock speeds are so much faster in these parts of the world. Even with those challenges, we tend to move much more quickly and are able to get much more done in the course of a day, a week, a month, a quarter, a year in places like India and China than we do in the West.
Thanks.
I need more of my neighbors in Washington, D.C. to understand that dynamic. But we're just a small company. We do what we can. The other dimension here is around localization. I just want to underscore this point. Certainly, you'll hear all us talk a lot about doing R&D in China for China. That's a part of that. But really, there's leverage to be had. Certainly, given the mass that we have now in China, we're learning a lot. Jim talked about the importance of product planning in that regard. But much of what we're able to do there is applicable. Now, we don't accept that as a given and blindly assume it works in China, it's going to work in Brazil, it's going to work in Turkey.
But there are opportunities, particularly at those lower price point segments, back to Dean's question, to get at discrete architectures that apply around those users in ways that they might not apply in the West. To the extent that we really get our arms around that and are implementing that aggressively, both with the specification in mind and obviously a cost target, we can do that well, we can do that profitably, and help augment the growth that we are enjoying at the high price point. So with that, I think we want to shift gears and talk about Latin America. As I mentioned, we really don't have a VP of international at Danaher. We divide the globe amongst those of us in the OCE.
Dan Daniel, one of our EVPs who in his day job has responsibility for our industrial technologies segment, also looks after Latin and South America. He's very ably assisted in that regard by Daniel Lassner, who has had a number of key positions with us in the region through his career, and currently is the chair of the Latin American board. So they're going to come up and give you an update on what we're doing there. Gentlemen.
Thank you, Larry, and good morning, everyone. The Danaher story in Latin America has certainly been one of exciting growth over the last few years, but I think it's equally a story of potential as we go forward. Our collective revenues today are approaching $600 million, and we see a very clear path to a business that's north of $1 billion of revenues in the next couple of years. Part of that is it's a strong and large market. Overall, $5 billion of served markets across our operating segments. We see Latin America as a double-digit growth market with sales spread very evenly and well across our operating segments. The collective economies of Latin America expect to grow mid-single digits, much faster than developed markets over the coming years.
I think if you take the collective GDP of all the economies in Latin America, it's not too far behind China. So, very large and high-growth economies in Latin America. As we think about the region, it's really about Brazil, Mexico, and the rest of Latin America, with very attractive end markets. A rapidly growing middle class that's going to drive healthcare spending, certainly over the years. It's a relatively young demographic, so that certainly bodes well for the long term as well. It's a market that's very rich in natural resources in Brazil and Chile and lots of different markets, heavily driving some infrastructure investments today and certainly going forward over the coming years. Also, markets very heavily driven by strong internal demand, largely not an export-driven economy in the region, and it's that strong internal consumption that's helped power through a recession and driving very strong growth today.
As I said, strong sales across our operating segments and really the history of our business in Latin America began with Daniel and the Gilbarco Veeder-Root team, 15+ years ago. Like our leaders in China, in Latin America, we have some folks with some bulletin boards in the locker room talking about $100 million club. We have a couple of operating companies just around the corner from that. Jon Clark's water business is one of those. Fluke and Tektronix, very strong emerging market exposure. Latin America is no different in that. Daniel now leading our dental business in Latin America, combined KaVo and Sybron, significant opportunities in the region, and really in early stages of growth in that business. I think the same holds true for our life sciences businesses overall. Tom's medical business is relatively early stages of development.
Beckman Coulter, strong presence in Latin America, certainly going to help our overall penetration in life sciences and medical technologies. Matt's product identification business is another one that is just around the corner from that $100 million club in the region. So, through the first half of 2011, the nice thing is we have seen strong growth across all of these operating segments, growth in the 20% range, and expecting that to hold up strongly throughout the rest of the year. I think if we go back 10 years and look at our business, it was primarily Daniel and Gilbarco Veeder-Root with a handful of companies. Today we have 25 different opcos that are operating companies that are doing business in the region. Just about 2,000 employees, 12 manufacturing sites. Really have just started to build out our R&D and engineering capabilities in the region.
I will talk a bit about product localization a bit later. Basically have the market coverage from a country standpoint and incubating companies that are just in their early stages of growth and development and building out that structure is certainly important to us today. We have put in place the management board, same type of structure and philosophy that you saw in China and India. Nine experienced operating leaders with an average of 13 years of tenure. All local leaders, have no expats on the board or certainly in our operating key leadership positions in the region. Again, we think of the business in Latin America as a billion-dollar business. It is roughly $600 million today. Beckman Coulter will strengthen that. It is not too many years of that double-digit growth until that is where we are.
As we think about our support and our strategies, that is the kind of business we are thinking about Latin America over the next few years. One of the great strengths of the marketplace has been the strong internal consumption that really powered through the last global downturn. When other markets were down significantly, the region and our business as well was flat. We have certainly seen that accelerate since the downturn into 15%-20% growth across the board and certainly do not see any signs of that changing in the very near future, and again, that strong internal demand and consumption has a lot to do with that. I think our presence in the region is fairly complete. What we will continue to do is add in commercial offices, some manufacturing facilities where the local demand requires it for those businesses.
Strong presence in Brazil, a growing presence in Mexico, and initial presence in some of the key countries that are growing well, such as Chile, Colombia, and throughout the rest of the Latin American region. You can see our business today is a bit heavily skewed towards Brazil. I think longer term, you see that trend more towards 50%. We see tremendous opportunities in Mexico. In fact, that is one of the Latin American board's initiatives who has helped identify opportunities for operating companies that may be a bit under-penetrated in Mexico, continue to see our business growing there, and the rest of Latin America taking a bigger share of the pie over the future as well. As you can see today, we are a growing percentage of Danaher's business and only see that continuing in the near future.
I think the formula in Latin America that has helped us grow and succeed is largely what will take us forward in progress as well. We have added several feet on the street. Our total commercial team is now over 300 in the region. That is up significantly over the last couple of years. We have made some acquisitions that Daniel will talk to you about in the last couple of years, so we have been able to augment our organic growth with some inorganic M&A activity. Expect to see that continue in the future. DBS, like most parts of Danaher, are a heavy focus on the commercial growth processes and driving those commercial tools throughout the organization, not just to help incubate, but also the companies that we have acquired, but also from an existing business standpoint.
For example, two weeks ago, our president of our Videojet business, also a Latin American board leader, conducting training session for all the commercial leaders in the region. Just like the rest of the world, we expect Danaher leaders not just to lead, but to teach DBS, and we have got a strong growth team that is helping our teams advance. Our management board is all made up of local leaders in the region, long tenure, strong experience, no expats, and that just does wonders for understanding the local nuances of the marketplace and helping us accelerate growth. Product development in Latin America has been less about localization historically, it will be more so in the future. Historically, really two parts to the region. NAFTA is driven by North American product designs. Mexico, the Andean region, the Mercosur region, Brazil, heavily influenced by European designs.
But increasingly operating companies finding opportunities for localized products, developing their engineering teams, and building out those capabilities in the region with product development, product planning, and creating local organizations to drive further growth from unique product needs in the region. A key part of our leadership is our Latin American board. Daniel has had 17 years with Danaher, largely in the Gilbarco Veeder-Root business, now has the combined dental business. He has really been the foundation of our leadership team there, has taught us a lot about the region and what winning looks like. So I will let Daniel talk about our board, some success stories, and a little bit more about the M&A activity we have had.
Thank you, Dan. Buenos dias. Good morning, everyone. You are right, almost 17 years with Danaher. I think Larry and I both didn't have any gray hair those days. But the board that we created over the last five years has been significant to help all the companies in the region, not only to apply our existing principles, but also to help us grow. The main priorities we have in that board today are basically around growth, talent, and compliance. In growth, what do we do? Most of us, most of the operating companies today in Latin America, have the job to help incubate when that is necessary for new companies coming into the region, but also help them build additional commercial capabilities whenever they need.
We use the experienced people in those companies that have been with Danaher for many, many years, helping those new companies coming along in learning our culture, learning the way we do business. DBS, as was mentioned, is also a key part. Yes, we do a lot of DBS applied to sales, but if you walk through any of our factories today in Latin America, they all look exactly the same as if you walk through a factory in the U.S. So they really do all apply all our DBS principles, and they continue to improve year after year. I mentioned the M&A guidance and support, which is key. On talent, we definitely play a key role. We help develop most of our leaders.
Also, as we grow in the region, we create career opportunities for our leaders, for our managers, myself being one of them after 15 years with Gilbarco, I am now leading the cable group, the dental group in Latin America. So we start seeing a lot of that helping our growth. And compliance, of course, is a key portion of what we do in our daily business. I am going to go through a couple of interesting examples of what we call localization, particularly in go-to-market. Fluke is, you have seen Fluke a lot in our presentation, but really is a great example. I particularly am electrical engineer, so I always admire Fluke. But particularly in Brazil, we have had a lot of growth over the past years. But as Jim mentioned, no different from China, always in the high price point.
The Fluke team identified a very good opportunity in the mid-price point, particularly for Brazil. So the team went down there, made a Kaizen, went to Gemba, and understood that there is a tremendous opportunity for that product. We brought in a product that was developed originally in China for that mid-price point product, and you will see the results are fantastic. The share in channels grew from zero to 20% after that initial rollout. And again, even targeting new markets within Brazil, we were able to continue to grow and sell more products into Brazil. So a very, very good example of go to market and changing the game after many, many years of operating in the same country. The next example we have is Tektronix. As many U.S.-based companies, Tektronix used to work through a master distributor going into Latin America and also into Brazil.
In 2010, the idea was to, okay, let's go to Gemba, increase the number of distributors, increase the number of sales associates and marketing people to increase our share. Again, you see the result there, two times year-over-year in 2011 led, of course, by Brazil, but we will be able to expand that experience into other countries in Latin America. Those are only two. We have plenty of those in Latin America, but we selected these two to show to you. As Dan mentioned, quite a bit of M&A activity in the last 24 months. We are basically just getting started. Most of the growth you saw in Latin America has been through organic growth and companies that were acquired in the rest of the globe. But we are starting now very proactively to look for companies in Latin America, and here are three examples of those.
The first one is the Hexis Científica in Brazil. It was acquired by the Water Quality Group, and Jon is going to expand a little more into particularly that acquisition. The next one is Armida. Armida is in Mexico. It was a Videojet distributor for many, many years. Just by acquiring that company, we were able to access the whole Mexican market with a significant install base and adding easily $10 million in revenue per year. The last one that we did over the last three months, that was in Brazil, a company called Stratema. Stratema manufactures dispensers for the Brazilian market, and that is going to give us not only, of course, that increased revenue, but also a fantastic ability for us to localize products, particularly for the Brazilian and Latin American market. So three really good examples that jump-started our path to inorganic growth, in Latin America.
Of course, with that comes the team, mostly the board and the managers have been participating in this M&A activity, and with that, we are developing more people to help us continue to do this work. As you know, doing acquisitions in emerging market is not as simple as we do in the rest of the world. It takes a bit longer for us to do that, and the key thing is for us to really understand and have the right team so we go in there and look for the right opportunities. Dan?
I would just underscore on the M&A activity, a point Daniel made there really about the involvement of the experienced set of leadership and the board members in these acquisitions. It gives a broad perspective. As Daniel said, sometimes M&A in an emerging market is a little bit tricky, but that experienced mindset, it really helps out. I think the thread that runs through all three of those really is about how we grow and penetrate the local markets, both in terms of product localization, go to market in the case of Videojet in Mexico with Armida, a direct path to market to serve global consumer products companies. So we will continue to look and seek opportunities to help us penetrate, from a local market standpoint.
Like all of our businesses, really the best team wins is a key core value, and nowhere is it more important than in Latin America, where we have a strong growth business, and building the team for the future is critical. Our key priorities in that area are to continue to develop strong growth leaders in the region, local product talent, and engineering talent, to help take advantage of localization opportunities as they develop in the region. We do not have a large infrastructure supporting the Latin America businesses. Two areas where we are adding some support structure in place really is around human resources to help us build and attract the talent we need for that billion-dollar business versus what we have today. Certainly, with heavy regulatory structure, maintaining compliance, adding some support in that area as well.
In addition, from a recruiting standpoint, going out in the marketplace as an $18 billion Danaher versus a $20 million operating company, and driving some consistent process in our recruiting processes in the region is a focus as well. This is a colorful slide. It is a colorful region. Overall, we are going to continue to focus on driving organic growth across all of our key businesses and platforms. We will support that with M&A activity, where we have opportunities provide themselves. Like everywhere, we have one bar, one standard globally for Danaher, and set that very high in Latin America like we do with the rest of the globe. It is going to be exciting few years ahead in the region with the World Cup coming to Brazil, the Olympics not too long after that. I can tell you the folks down there are excited about that.
What is exciting, I think for all of us, is there will continue to be investment in infrastructure and what should remain a very strong market going forward. With that, be happy to address any questions you have in the region. Yes, sir.
What were the multiples you guys paid for these properties in either, as a sales or EBITDA, however you look at it?[inaudible] The recent one for GVR combined about one times revenues.
You all mentioned the board that you have. Are these Danaher people, outsiders? Coming from, who are these people? Where do they come from and what is their obligation to Danaher?
In addition to Daniel and myself, this is eight operating company presidents in the region. They are all Danaher employees. They are all experienced Danaher leaders. Their day job is running their business. In addition to that, we ask them to put their Danaher hat on to help drive those three key priorities: growth and helping support and incubate companies that are not in the region, talent, and compliance. So it is an important part of their function as well, but they are all strong Danaher leaders and have been with us for a while.
Thanks. Given a $600 million business and a $5 billion market, should I take away from everything that you have said, the biggest challenge to growing faster is channel, or is it fragmentation? What is really preventing you from reaching a bigger part of that served market? Not to take away from the great growth to this point, what is really the biggest barrier that you are facing looking at this whole business?
I would say, in some cases, it has been a relatively late start. Some of our companies have really been in the region for a few years versus 10 or 15 years, like Daniel's Gilbarco Veeder-Root business. We have been able to see very rapid growth around that, but a late start in some cases is really the reason why we are probably a lower share of that developing market we see in some other places. I think going forward, it is really how do we develop and attract and build the commercial talent to support the kind of growth that we have, and also localization and product development in the region as we continue to find opportunities in certain product lines to grow with more customized product. I think that is really what is going to be our throttle going forward. Dan, you want to add to that?
No, that is exactly right. If you look at the companies that have been there for a longer time, we have shares for 30%-60% in Latin America, so it is significant. The rest are just coming in, by some of the examples that you just saw. It is go to market, in some cases, people, but it is a start that is getting us there. Definitely it is going to get us there.
Why not pursue acquisitions more aggressively then? Is it because it is a late start to your sense?
Well, we are looking at acquisitions, but it's a slow process.
Over here, it's Cliff Ransom. Maybe we can use Latin America as an example, but if you have a comment on how this works globally within Danaher. When you think about Yokoten, the spreading of best practices. In Latin America, does it come to you, from you? If it comes to you or from you, to what regions does it go? How do you do that kind of benchmarking across the company, particularly on big initiatives?
In terms of talent, are you referring to, Cliff?
Anything. Standard work, talent, way you apply DBS, creation of management boards. A couple of us spent some time with your guys in China a couple of months ago. It's really a powerful tool.
Definitely, yeah.
I do not know where it started. I do not know who pushed it where. I am trying to figure out, because you are organized geographically as well as functionally.
Who leads, who pushes, who pulls?
Well, I think, first off, in terms of our development of the region overall for Danaher, we have certainly looked at our model in China and some of the things that have made us successful there as some of the key steps and priorities for us going forward. In terms of how we drive DBS in the region, really very similar to how we do it in the rest of the world. For example, in the water business, some very strong experience and processes at the business in the developed markets. Combine that with, say, a new acquisition, a company like Hexis in the existing water business, and some localized opportunities that come globally, but also from a local standpoint as well. I think it is both a push and pull in the region.
Right.
Strong experience and success in the global operating companies and some local initiatives that are a little bit different and unique for success in the region.
I will give you an example. We run Kaizens, for instance, in Latin America. We invite people from other companies to participate in that. They participate in the Kaizen, and at the same time, they bring ideas from the other opcos. That happens within the region and also all of us folks participating in the opcos, we go to Kaizens or we go participate in meetings with our same company. It is across region and global, how we spread out the news.
Yeah, just looking at Latin America as potentially an exporting zone. Could you talk about the mix of your business today over there? Then the Mexico initiative, you talked about investing more over there and seeing the growth accelerate. Is that going to be export driven or primarily targeting the domestic market?
I can take that. Latin America, even though we all look at the same region, is very different. If you exclude Mexico, and if you look at today, the amount of exports out of Latin America is very small. It used to be a locals region, it is not anymore. Most of the growth you see, particularly in Brazil and Latin America, is because of the internal consumption and the internal needs, right? Mexico has been a mix between needs for Mexico and an export mostly to the U.S., as you all know, right? Our intention when we talk about investing in Mexico is not investing in Mexico necessarily as a locals region, which we already have. We have, like, four factories there today, but it is mostly for supply to the U.S.
We believe we're under-penetrated in Mexico for the Mexican market, and that's what we're looking at.
We will break now and we will come back at 10:25.
Can I just take one minute?
Yes.
Sit down. One of our guys, still trying to be a polite host. The idea that these management boards, just to be absolutely clear, is really in lieu of a heavy Danaher structure on the ground, creating work for the businesses. This is still very much an op-co-centric approach, pipes right down the brands to running the businesses on the ground. So those boards and some staff are really there as that thin corporate layer in region to be Danaher. So when we bring those operating leaders together, as Dan talked about, it really is in lieu of that overhead, operating leaders who own the businesses, sharing with each other, to your question, Cliff, what's working, what's not, be it a best practice, be it talent, compliance issues, maybe some joint opportunities around customers.
Or frankly, selling as Danaher might be more relevant than it is here or in Western Europe. That's really how it works. In terms of the learning, Cliff, it's coming from all different directions and that may sound chaotic. It probably is, but culturally, we're recruiting folks who believe in Kaizen. They're hungry to learn. They're happy to teach. To that point, Daniel's actually going to be hosting the entire Danaher leadership team, the third week of October, where we're going to have our quarterly meeting in Brazil. A lot of trips to Gemba, a lot of other sessions in and around that visit. We'll be teaching, and I think we'll be learning at the same time. Megan, we're going to take half hour here, and we'll come back and get into the operating company reviews. Great.
After Dan, Daniel, and Daniel's Lassner' s presentation, I was asked during the break if it helps to be named Dan to work at Danaher. All I can say is it certainly helped Dan Comas. When I first set foot in this building in early 2002, we were obviously in the course of doing due diligence on Videojet, a company we ultimately bought and have had a great run with. One of the opportunities we flagged at the time with our board was the fact that it felt like a company where no one had a passport, despite the fact that the products have great global application.
We thought it would be fun, particularly since we're here, to have Matt Turcotte, the Group Executive with responsibility for what is now our Product Identification platform and President of Videojet, to come give you an update on how Videojet has risen to the top of the Danaher league table with respect to emerging market penetration. Matt's been with us for five years, doing a great job here at VJ and PID. Matt, it's all yours.
Thanks, Larry. I do have a passport. It's got lots of stamps in it. In fact, I had to get those extra pages put in so you get more stamps. I got to tell you a little bit about the success that Product ID's had in the emerging markets, as well as some of the opportunities ahead. Just introducing you to Product ID. Product ID is made up of Videojet and Linx, which are the coding and marking businesses that are the leader in the coding and marking industry and have been with us for a while, as well as Esko Artwork, who we acquired earlier this year. The leader in software for packaging design, as well as some key digital solutions for printing and cutting of packaging. Overall, it's about a $6 billion market, of which 2.5's in the emerging markets, and some healthy growth drivers.
In addition to some of the general market drivers that were discussed in some of the earlier presentations, some of the specific drivers for us are growth in the amount of stuff that gets packaged, as well as proliferation of that packaging and increase in the amount of information that gets put onto that packaging. Also more recently, some specific increases around the focus on supply chain integrity and brand consistency and brand integrity, and all those are creating some positive growth drivers for us. Our key customers are primarily CPG customers, as well as folks that design and produce packaging for them. But in the emerging markets, there is also a little larger portion than other markets of industrial in wiring, cable, and pipe as the infrastructures are being built out in those markets. We are a little over 30% emerging markets in the platform.
As Larry said, Videojet is above that at 37%, and it is pretty widespread. You can see from the pie, while China is the largest portion of our emerging markets, really, there is a very broad spread geographically, not just among BRIC, but also among beyond BRIC. This shows the growth of PID's emerging markets, focusing in on Videojet and Linx for the next few slides. The growth of PID's emerging markets, since we bought Videojet and the 25% growth there. You can see that over the period, over half of the growth has come from emerging markets. In the last five years, more like two-thirds of the growth has come from emerging markets and well-balanced between the BRIC and beyond BRIC. In the earlier years, this was more fueled by acquisition, particularly Willett, which was a much more global company than Videojet.
But in the last five years, it has really been driven by the organic growth investments of feet on the street, channels, localization of products, and marketing, which I am going to talk about more later in the presentation. As we have driven growth, we have also improved margins. The gross margins were pretty good back in 2002, actually, but we have driven 800 basis points of improvement since then. Localization of supply and production has been a big part of that with our factory in Zhuhai, China, and that has benefited our whole global business, not just the emerging markets. But it has also benefited China some more because of the proximity of Zhuhai and some of the advantages that that creates in terms of serving customers well and having flexibility.
We put local ink plants into China and Brazil for good responsiveness to customers on that critical fast turn part of our business model, and also for lowest landed cost. Finally, we have been increasing our focus on localized products in order to be able to get to more of the market and have attractive margins as we address that additional part of the market, but also to stratify our product line and keep strong margins on our global products. So I talked about feet on the street. This shows over the past five years how we have increased the feet on the street in these markets by over 50%. China has become a smaller part of the pie, but in fact, in the last couple of years, feet on the street there grew more than 10%.
Our focus in China recently has been on strengthening and growing our national accounts team. We've had some really nice share gain with key China national accounts, also on moving to more tier 2 and 3 cities. In particular, in the past year with the China board's focus on Go West, our team there has been both starting to expand more aggressively west and charting some plans for more aggressive expansion to the west. India's been a great story. We've tripled over this time period, more than doubled the size of the feet on the street. We've got a very strong leader, very strong team there. We're the market leader, and I think it's a great success story. Our leader there, very active on Jai's board, one of the folks that's helping other businesses in India in terms of coming up the curve and getting incubated.
In Latin America, we've filled out some key coverage gaps in Brazil after an acquisition that we made before this time period. More recently, end of last year, we bought Armida, our distributor in Mexico, and that's off to a great start. They're growing close to 10% in the market there year to date, and we've already gotten feedback from some of the key global accounts that our service in Mexico has significantly improved after we've made that acquisition, which was really one of the drivers there. Finally, we've been investing all across the EMEA emerging markets, focused on Russia, Poland, and Turkey from a direct standpoint. We've also put a number of resources into the Middle East, leveraging the Danaher office there as resources to manage and support our distributors that are throughout the Middle East.
Links to the distribution-based business in emerging markets and their feet on the street adds have been almost 100% increase in the channels. That's driven a lot of good growth, strong double-digit growth in this business. That business we keep focused on the portfolio distributors that have joined within the last two years as an indicator of our success in adding distributors, adding the right distributors, and onboarding them fast, and we've seen some healthy growth in that portfolio in the last 12 months. Feet on the street has been an important way to get beachheads in these countries, strong market share, strong penetration. We're also investing in marketing to improve the productivity of those feet on the street and those investments.
In the big countries here, we've put in place local marketing leaders, local marketing teams, and have been focused for a number of years on lead generation through internal sales, as well as some external telemarketing efforts. We've had some nice contributions to our growth there from those efforts. In recent time, we've been focusing on digital marketing. We've done eight local language sites across emerging markets. China, Brazil, and India all have active programs on search engine optimization and pay per click. I was with a team in China last week, and they showed me how they've seen their site visits go up, and have seen a number of those turning into leads, and that's fueled their energy around digital marketing, and we're planning on continuing to increase our investments in these areas.
This is a place where we have a lot of great sharing going on across Danaher as we are all kind of wading into this newer space over the past couple of years that I think is going to have some great benefits to our businesses everywhere in the world. Particularly in emerging markets where we have very large sales forces serving fragmented customer bases. Localization has been a key part of our success. We have been trying to make sure that we have the right products to win in these emerging markets. We started with making sure that our global products have the right low-end products. As we developed our breakthrough 1000 Series product line, we specifically designed that product line as a platform that would have a 1210 in the platform aimed at the low utilization segment.
That segment is not just in emerging markets, but by far the largest portion of that segment is emerging markets. This is our 1210 printer here. There is one around the corner when you are out there later that has got the keyboard with Chinese character overlay. When we launched this product, it was launched with 20 different character sets loaded into it. The vast majority of those are for emerging markets, traditional Chinese, Thai, the Cyrillic characters, Arabic characters. We really made sure that this was not just prepared to be a good low product for North America and Europe, but it really was first and foremost prepared to be a winner for the low end of the market that we were serving in the emerging markets. The product had great success. We have taken strong share in emerging markets with this product.
Sold over $50 million in the last two and a half years or so since we have launched the product. I do not consider that a localized product. We worked hard to make sure it had the right languages and the right keyboards, and that it could meet the needs of the emerging markets. But really, the localized products are the right two columns here. We put in place a team in the Danaher Development Center back in 2007, a team of engineers and some product planners to start to chart a course and work on adaptive products, and then ultimately fully localized products. An example of an adaptive product we did is our TTO 6210. We had a very strong DataFlex+ product that covered a decent portion of the TTO, which is ribbon-based printing market, globally.
There was an expanding opportunity below that in the emerging markets that bringing the DataFlex+ down to serve would significantly cannibalize the DataFlex+ margins. We developed the 6210, which I have got one here, which was a de-featured, de-costed product. We reduced the speeds of the product. We reduced the width. We reduced the ribbon lengths. All things that were fully acceptable to a broad range of emerging markets applications, but really differentiated the product from the applications we were winning with the DataFlex+. This is the product here, and you can see the keyboard here, those of you that are close enough, with a touchscreen with Chinese characters, and in other markets, it has got the appropriate character sets in order to be successful and easy to use in those markets.
That product has been very successful, and you can see there's been a number of adaptive products that we've done since then, taking advantage of global starts, but then adapting products for specific emerging markets' needs. Finally, we've been moving into local products which are explicitly designed just for the needs of the emerging markets. Our 3010 Laser is a good example of this. In the China market, there are a substantial amount of small laser players that play in a lower end of the market that is growing fast. While we really didn't want to address that market with our leading 10 and 30 watt products because of the cannibalization effect that would come from that, we didn't want to sit on the sidelines for that. We developed the 3010. This is a product that's got a smaller footprint. It's lower speed. It's less flexible.
It's really targeted for the needs of the most attractive opportunities in that lower-end laser segment there in China. We developed that, launched it almost a year ago, and have had some good success with this product, but have also seen the margins of our 10 and 30 watt products increase as those products have continued to grow. We accomplished both addressing the market as well as stratifying the product line. This is an area that we've been putting a lot of focus. In China now, our products from the second and third column here, so localized products, adapted or completely localized, are north of 20% and approaching 25% of our sales.
We intend to continue to be proactive here, but make the right call for each opportunity, whether it should be a global product that we get right to win in part of the emerging, or adapt, or localize. I expect the list of products in the localized to get longer and the contributions from them to get greater as we go forward and make more investments in those local teams. I mentioned earlier, moving our sourcing and then our production into China. At this point, we make over 80% of our CIJs in our factory at Zhuhai. We've also moved some of our products over there. That 3010 Laser, the first laser that we made in Zhuhai. This plant is a terrific plant. It won the best plant in Danaher the last two years based on the great productivity and quality and application of DBS.
They continue to amaze me with their passion for DBS, and they continue to improve. There's been a big focus on quality there, and we've actually put in place a 10,000 PPM clean room in order to significantly increase the cleanliness of the environment and take quality up even more this year. We don't have that anywhere else that we've made CIJ in the past, but we wanted to push this beyond what we had done anywhere else to an even better place in terms of the quality of our products. This plant's been a terrific asset to us, both in terms of being able to keep our margins up, as well as in order to keep improving the quality of our product line and improve our responsiveness to the local markets over there in Asia. Going to switch gears and talk just for a minute about Esko Artwork.
We acquired Esko Artwork early this year. As I said, they are the leader in software for designing packaging and in some key solutions for printing of packaging and cutting of packaging, specifically in flexo plate creators for the printing part and CAM tables for cutting. It is a great business. The market has some of the same underlying packaging growth fundamentals that have fueled the Videojet growth over time, and there is some nice sweeteners on top of that in terms of proliferation of packaging, and continued penetration of digital tools into that market. They have got a great business model, bringing a full solution to customers, and also a nice aftermarket stream of maintenance on all products, but particularly on the software. They had a leading position and greatly respected in the industry. Also had some really logical connects to Videojet. We are serving the same value chain.
Videojet is putting the information onto the package after it is filled. Esko is helping people to design the package and print it and cut it. That creates some interesting overlap points at the end user, with companies like Nestlé who are worrying about and thinking about both. It also creates some interesting things to think about in terms of helping customers to think about what they variabilize, where in the process of creating packaging. They have got a good start in emerging markets. Over 20% in emerging markets already. They have really gotten that by following global customers in, for example, at Tetra Pak, as they have gone global very aggressively, is standardized on Esko solutions, and it is a way that they can assure to brand owners that wherever they print the package, anywhere in the world, it is going to be the same.
That has been a good way for Esko to get into emerging markets. More recently, they launched a localized cutting table for China, that has been able to help them expand their coverage there and stratify their product line. They have been partnering with folks like DuPont and others who are in the flexo plate business, in order to drive the penetration of flexo into places like China that have traditionally been more in gravure printing technology. So really good start there, but at 24%, certainly plenty of opportunity to get them up north of 30 and on the way to where the rest of the PID platform is. We see good opportunities there. The team is already working on localization of their software for China.
I was over there last week and met with the development team that is working on that, and they are doing some of the straightforward things, like making sure all the language is right. But also some more subtle things, like making sure that the software integrates seamlessly with the adjacent software packages that folks in China are using to design packaging, and that is actually quite different from a number of other places in the world. They are also going to be aggressively investing in feet on the street and channels. Also have some really good efforts planned collaborating with others.
They have a Flexo For All initiative where they have an industry consortium of folks that make the plate makers, make the plates, make the ink, make the printers, a consortium that works together to bring awareness of the benefits to flexo to all emerging markets, and help folks to understand those benefits to speed the conversion from other technologies into flexo. Good start there. A lot of opportunity. It's a great team. The leader and the team are all still with us and embracing DBS and off to a great start and I look forward to some exciting growth from them in the emerging markets, in the years to come. We're certainly leveraging Danaher to help them.
An example is that the leader of Esko China is teamed up with one of the vice chairman from the China board as a mentor, to help him to get as fast, as far as possible. They're taking advantage of the China board. They're going through an office move over there, and they're taking advantage of the China board to help them work through the negotiations and logistics so the leader can worry about growing the business instead of working on that. They've already done some benchmarking with other businesses over there on some key things in the marketing and selling area. So off to a great start on multiple fronts here with Esko. Plenty of opportunity ahead. Not a different formula, but probably heavier weight on feet on the street and channels beyond BRIC in the future.
Also a heavier weight on localization and marketing in the future, but certainly continued investment in feet on the street in BRIC as well. We'll be working closely with Esko Artwork to get them accelerated in emerging markets from the good start that they've got. In summary, emerging markets have been a great engine of growth for Product ID in the past years. It's been both through acquisitions and organic, but certainly more organic lately. Proactive localization of our supply base and our production and our products has helped to enable strong margins as we've done that. We see lots of opportunities ahead and are really excited about where we can go with our emerging markets business across the whole platform into the future. Questions?
Broadly, Product ID's or Videojet's been outgrowing Imaje over the last 12, 18 months. What are you seeing from your key competitor in emerging markets, and has that been part of the share gain and outperformance?
Yeah, we believe that part of our share gain in the past years has come from strength in emerging markets. Part from returns on the investments that we've been making, that I've talked about, and part from having a great 1210 CIJ product and some of the other products that I've talked about that have helped us to win share.
How is your strategy different from theirs in emerging markets? What differentiates you guys?
I think we've been more aggressive in terms of feet on the street ads and maybe more proactive in terms of localizing our product line.
Thank you, Matt. Be interested in hearing what kind of safeguards you've had to make for emerging market customers from using third-party ink. What kind of problem has that been, and how has that been addressed? Secondly, maybe you can expand on your point regarding the customer base being highly fragmented in China. Just how does it change your go-to-market strategy versus developed markets and the way the Chinese customers-
Yeah
are structured?
First on inks. We design our printers and the ink to go together and work best when original ink is used in the printers. We educate customers of that, and we reinforce that and really have strong retention around the world. For sure, China is a market that has more third-party ink activity than other markets in the world. We try to work proactively to hold onto our ink on a couple of different dimensions. First and foremost, we try to have the ink work very well with the printer and have that hand in glove be something that motivates customers to stay with our ink.
Second, we try to provide fantastic service to customers, because the cost of our printer and our ink versus the packaging line that's going on is really quite small, and the downtime would be far more costly than a little bit of savings on third-party ink. Finally, we have made some specific changes to our product lines to help to strengthen retention of ink. The Videojet 1210 printer that I showed does have ink cartridges that are specifically designed to go with the printer, and it protects customers against using the wrong ink. If you're running one type of ink and then you swap it out and put a different type of ink in accidentally, you have a big problem. You have to go through a whole servicing with your printer, a lot of downtime.
We have a feature built into our Videojet 1000 Series of printers that doesn't let a customer do that. If they put the wrong cartridge in, it tells them it's the wrong cartridge, and it won't take the ink out of the cartridge. Also, if they put the makeup, which is the solvent, into the ink cartridge or vice versa, the printer won't run. Those are things that we've done to protect our customers against things that could damage the machines and create uptime problems for them. Second question was around the fragmentation of the China market. For sure it creates a coverage challenge, and I think the different approach there is, in many markets in the world, we are completely direct in Videojet, and a few we're indirect. We have few where we're mixed.
In China, we have an explicit strategy of being heavily direct, but supplementing that with channel in order to get more coverage.
How do you-
Matt? Yeah.
In a business where feet on the street and service network are important, how do you balance the advantage of being the first mover and kind of dominating the service capability relative to your competitors and making that investment early, versus growing profitably and not kind of hurting your margins because you're throwing a bunch of money to build a service network when you don't have the density to maybe justify it? You kind of know in the back of your mind, that service network creates a competitive advantage.
Well, we've learned over time that that service network is important. We know it is not optional to have it, and we definitely do not just look at the service network by itself versus appreciating and understanding the IB retention or the aftermarket retention that comes with it as part of the value proposition there. I think that keeps us in the right frame of mind in terms of the importance of adding it. Secondly, we use a lot of dynamic resource allocation globally in the business to make sure. Through this period that I just talked about, we made a lot of tough calls other places in the world to make sure we were putting ample resources into emerging markets.
We did a lot of very proactive DBS, driving procurement savings, driving productivity on the shop floor, productivity in the back office, all to free up investment for emerging markets and other great investments in the business.
Can you just talk about the difference in performance of the emerging markets businesses in 2008-2009 compared to the developed markets businesses?
Yeah
for Videojet?
Yeah. Through 2008 and 2009, our entire business was flattish 2008 and high single digits 2009. In the emerging markets, it was positive through both of those, low to mid single digits positive through both of those years. So certainly the developed markets went negative and the emerging stayed on the positive side.
Was there a difference in equipment versus consumables?
Yeah. In our business, the equipment certainly takes a wider swing, and the consumables is really more tied to how much people are producing, and it's things like food and beverages, and so it takes a narrower. So I think in emerging markets, the equipment would've gone from double digits to a little better than flat, and the consumables would've gone from double digits to sort of mid single digits.
Equipment did still stay, equipment continued to grow in emerging markets in 2009 nonetheless.
Equipment was meaningfully different from developed markets. Developed markets equipment shrank, and emerging markets equipment was in the flattish range.
I think we're going to move on.
Great. Thanks, Matt.
Thanks, sir.
Well done. One of the subtle benefits we get out of a success story like Matt and the team have written at Videojet, is we really develop our senior leadership talent in a way that makes them very portable and valuable in other Danaher businesses. You just look at what Matt's done here in the last couple of years. Rainer Blair, President at AB SCIEX, is a Videojet alum. We've pulled John Dion, who had been the Asia Pac leader for Videojet. He's in at Beckman now.
Being able to not only put these numbers up, but to build our talent that we can export into other Danaher businesses and have them just go into those roles, even if they don't have a broad global set of responsibilities, but with that mindset in terms of what's possible, let alone the sensitivities, is going to, I think, continue to yield a lot of benefit. Our final presenter of the day is Jon Clark. Jon's been with Danaher for nearly a decade. I'm sure there are weeks that make it seem longer. Jon has done a phenomenal job building up our water quality business.
Given, obviously, all of the environmental pressures that we see around the world, we thought it'd be helpful to have Jon come in and give you an update, not only on what's been happening at Hach-Lange, but some of the other parts of the water quality group. Jon?
Yes, there are weeks that feel longer. I'm happy to say this is not one of them. I want to walk you through the story on the Water Quality Group evolution in emerging markets. As Larry said, I've been with Danaher for just under a decade. When I joined Hach back in 2002, the perspective on emerging markets was really known as rest of world, and we basically categorized all the other regions that we really didn't know much about. They were managed by four individuals sitting in Loveland, Colorado, reporting into the U.S. domestic sales manager. Our distribution at the time was exclusive distribution in all those regions. So we had it being run by four people sitting in Loveland, Colorado with exclusive distributors that basically covered the entire region.
I think as you go through and see the evolution of how that business has grown, we've significantly moved away from that which we refer to as a fairly primitive model. If you look at the water space, it's roughly about a $3 billion space that we consider in the emerging markets. It has a higher growth rate than what you'll see in the overall market. Very similar to the other market dynamics that have been talked about earlier in the day. We do about $400 million in revenue, and that's really split evenly between instruments and chemistry. In some cases, people always ask, "Are you getting the same kind of chemistry pull-through in some of these emerging markets?" Our business shows that, in fact, we are able to do that.
About 25% of our overall R&D resources are now allocated to what we call global product development, local products, but then also being in those countries, but also supporting some of the large global platforms. We'll go through that in a little bit later because we've got some really good success stories that have come out of that effort. From a geographic mix, like a lot of the businesses, our heaviest concentration is in China, with about 31% of our revenue. I think it's also fair to say that Asia, Brazil, and Central and Latin America certainly are significant parts of our business. Some have been through organic growth as we've invested in those regions, and others, like Brazil, we've grown significantly through the acquisition of Hexis Científica. If you look at the markets, the end users are pretty much the same.
It's a municipal water facility, it's an industrial plant that's running processes, it's a natural resource agency. There's significant differences in terms of the issues that each of those end users are facing. The source water in China is significantly different than the source water that you might find in the U.S. Groundwater that you'd find in China and some of these emerging markets, significantly different contamination issues than you might find in Europe. The hydrological management in the U.S. might be more about drying up aquifers, but in some of these emerging markets, it's really about how do you manage the monsoon season. While the end user's very similar, their needs are very different.
I think as we go through, putting the kind of resources in country that can really help them understand what their issues are and provide those solutions has been a key part of how we've grown the business. If you look back over the last five years, there's been a significant growth, as Larry alluded to in his opening slide, 25% revenue growth over the past five years, share gains in all the markets, and as Jim talked about, the Hach Olongapo team was one of the core founding fathers of the $100 million. I would like to note that I believe we were the fastest to get to $100 million than the other Danaher businesses. Not that we're competitive by any stream. The first step that we really did was get people out of their cubicles in Loveland, Colorado, and put them in country.
That really was building the commercial infrastructure in all those regions, then putting in the service and the support that those customers expected if you were going to be a major player in the region. We then built out our local products through GPD and localization of some key products in some key regions that really met some of the most important contamination issues that those countries were facing in the time in terms of their water supply. Acquisitions certainly became a key part of how we grew in those regions, and we look at acquisitions really through two lenses. How do we use them to build commercial muscle in country? I think Hexis is a great example of that.
But then also, how do you go out and acquire product gaps that you may have that don't necessarily have to be in those emerging regions, but have products that certainly meet those lower price point and mid price point needs of a less sophisticated end user? Those four people that were sitting in Loveland, Colorado, have now expanded over 750 resources in all these fronts around the world. We put significant amount of investment in the people and the leadership in those regions that have helped take our revenues from 14% of our sales to 24% this year. I want to talk first about feet on the street, and I think China really represents the best example of that.
We've really significantly grown our feet on the street headcount from 30 back in 2005 to over 165 in 2010, and we're on track to continue to make investments in 2011. The first step that ST Chiu did, and by the way, ST Chiu was one of the top managers in Fluke, and when the water business became an apparent opportunity at Danaher, the Fluke team was kind enough to offer up Chiu to come in and run the water business for us, and Chiu's been there and doing a phenomenal job for the past seven years. The first thing that Chiu did was really build relationships with the key influencers in China, and those are really two people. You've got the state-owned EPA, and they were the ones who were really defining the regulations, but also defining how they were going to enforce the regulations.
Analytics is a critical part, a critical tool for them to use in order to put regulations in place, and more importantly, for them to enforce it. Every time I'm in China, I have a meeting with the state-owned EPA. About every two years, the state EPA has a tour to the U.S. and spends a day in Loveland, Colorado, understanding new applications, new issues that are being worked on at the global center, but then also exchanging with our teams these are the issues that they're facing. So a very strong cooperative effort with the SEPA. The second is Tsinghua University. For those of you that have been to China, Tsinghua University is the preeminent university to train environmental engineers, so the future plant operators, whether it's wastewater and drinking water.
Three years ago, we dedicated the Hach Laboratory, Tsinghua University, which provided a state-of-the-art learning center in that university, and we continue to be a partner with them to help develop and educate the future operators. That was the first key step, build credibility in country. The brand awareness and credibility we had made that easier, but a lot of effort in terms of building those relationships. The second was really to expand distribution. I can tell you, this caused a lot of heartache with those distributors that frankly had enjoyed a monopoly position representing our products in those countries. All of them were convinced that when we broadened distribution, they would go out of business.
In fact, as we broadened the number of distributors, everybody's business grew because you had greater awareness, greater points of contacts with the end user, and it's turned out to be a phenomenal model for us, but a beneficial model for those distributors. We've continued to expand those distributors beyond the first-tier city into the second-tier city, and we've expanded those distributors by over 3.5 times. As we've gotten into the more recent stages, we've become far more tactical and strategic in our approach to the market. We're really focusing on municipal and industrial. Not having one sales organization that calls on both of those end users, but being far more segmented in both our sales approach, but also in our marketing approach.
All in all, this has allowed us in China to significantly increase our feet on the street, but get a very, very attractive return on those resources in the meantime. The second was then really about localization of product, and really how do we then, as Matt has done and some of the other business have done, design products that are really suited for that market? A couple of things that's important to understand. If you go into a wastewater plant in the United States, odds are that operator has maybe a high school education, has been there for over 25 years, and everything he's learned has pretty much been on the ground up. If you walk into a wastewater plant in China, the person operating that lab is a PhD chemist. They don't have the same needs as somebody who's running a plant in the U.S.
Far more sophisticated, far more comfortable in developing their own methodologies to do that testing. They don't need all that intelligence in the machine, and frankly, don't want to pay for it. There's a real phenomenon here about just good enough, and in many cases, designing a product for just good enough allows you to hit that price point that makes it far more acceptable for them to use that instrumentation. We've significantly invested in those R&D resources. We've expanded from one team to, it's over seven teams. Most of these projects they're working on are global. I'm sorry, are local products. They do support some of the global platforms, where we believe there's advantage for them to develop an understanding of that technology. We've also doubled the product planning resources we had. I think Jim alluded to that.
It is critical that you have marketing resources in country that are fully engaged with the end users that can really understand how different the application is. The failed model is taking a product manager sitting in the U.S. and Europe, putting them on a plane for a week to do a nice tour around and come back and say, "You know, those guys just don't get it in China. They don't know how to do it the way we do." We've really changed that model by putting product planning resources in country to really understand that. Two examples that have come out of the DDC center. Trojan has a project code-named Nezha. If you look at the size of a small to medium wastewater plant in China, it is significantly smaller than what you'd find in Europe or the U.S. Footprint is a key issue.
How do you design a system that physically fits into a smaller area? The other is the kind of wastewater that, frankly, they're treating is a lot more toxic. You've got to get a higher degree of efficiency in a smaller amount of space. That requires a significant amount of design, both in the lamp, but also in the reactor chamber. Then finally, these operators that are running the UV systems are not as sophisticated. They don't need data telling them how the system is running, they need lights. Green is good, red is bad. Make it very intuitive, easy for them, easy to service, easy to keep the plant running, because that's critical. We're not selling UV disinfection, we're selling disinfection uptime, and that's a critical part. That was the whole advantage of developing the system.
In addition to that, we were able to design it at a much more attractive cost position that allowed us to significantly improve our profitability. At Hach-Lange, the most measured parameter in a wastewater plant is chemical oxygen demand. It is almost the critical parameter. When Hach entered the market about, or got into the market seriously about eight years ago, that was a gap, and the Chinese SEPA was saying, "How can we better manage online COD?" We took a product that had been developed in Europe, quickly got it, and what I'll call adapted it to the China market, launched it, and saw tremendous success. But over time, competitors have come into the marketplace, and all of those top-tier cities, we already have placement.
We're now into the second-tier cities, where frankly, the amount of money that they want to spend is not as high as the first tier. We've developed a mid-price point version of that COD online product code name Aspen, and launched that in a 15 minute. I wish it was 15 minutes. That would be a true breakthrough. I'll go back and give them that stretch target tomorrow. A 15-month development time. They really took a product, designed it, not completely from scratch, but had to completely redesign that. We've seen over 30% revenue growth in that critical parameter. I think some great examples of how we've gone from taking U.S. or European product, going in, getting the market started, but then coming in with designs specifically for those countries.
So, some great examples of how we've gone a lot, a lot of runway left to go, and the added resources that we've put in place, critical. I also want to mention the first team was basically in a section of the Chalouf plant in Shanghai. By moving them to the DDC center, they were then able to work with their peers. If they had a technical issue, they could just walk next door and talk to the guys at Videojet or Fluke. Design review broadened who was in a design review. It wasn't just the Hach team looking at it. They had Fluke engineers, they had Videojet engineers coming in. A lot of the pitfalls in design were actually short-circuited because we had other different set of eyes, different mindset looking in. That's really been a success.
Plus, from just a retention standpoint, they feel like they're part of a much, much bigger R&D organization. Service is critical. If you want to have credibility in the market, you've got to be able to service your products. Jim alluded to that. Taking product, shipping it back to the U.S., shipping it back to Europe, turnaround time is horrific. In many cases, high turnaround time results in high downtime. So investing in service, two examples in China and Brazil where we've made significant investments to provide stronger service. In China, a unique approach that they took, they originally started out hiring bilingual service engineers. As they got into it, they realized that first off, the pool of bilingual, technically-oriented service engineers that we could hire was fairly limited. Second is they realized we were paying up to a 40% premium for that bilingual capability.
The final point is they realized that they never had to speak English. They realized that the sense of going out and paying that premium and reducing the pool that they needed for service engineers really was counterproductive. They went in what they called kind of a low-cost service approach, where they went out and they hired service engineers that only spoke the local language. That allowed us to get them at about a 40% lower cost. That didn't mean that we spent 40% less money. That just meant we got more service engineers for the dollar. I'd say a creative approach to how do you broadly expand your service organization by thinking differently about that. In doing so, we've expanded that 80% of our customers can have a service call within 24 hours.
Brazil, through the acquisition of Hexis, really gave us that beachhead that Matt talked about is so important in having in a country. We were able to do that. We were able to broaden the services that they've offered, significantly reduced the turnaround time, and that is particularly critical in project work. If I want to go in and get the analytics for InBev in Brazil, I can't tell them if their instrument goes down, I've got to ship it back to the U.S., and we'll get back to them in 10 days. Their system's down. They need to have a service engineer that can be there within 24 hours to get that system back up and running.
If you want to bid on a project in some of these emerging markets, service capability is a critical component that they are looking at in terms of are you a qualified vendor that they can consider. Service continues to be an area that we want to invest in. We have talked a lot about acquisitions. Daniel talked about what we did at Hexis. We really look at it, as I said, through two lights. How do we broaden our distribution coverage? That was key with Hexis. They were the largest lab distributor in Brazil. We acquired them. That significantly increased our feet on the street, but we have also used them to then broaden out the focus of the business, also looking at the process side and project side.
We have seen significant growth in our revenue, both in the instruments, but also in the number of projects that we are winning. Crison was an electrochemistry product line developed in Spain. Very simple approach to the product. Three buttons. Push three buttons, you got the result. They also did some nice things in terms of putting everything in one box. Very cost competitive. We are in the process of transferring that production over to China to even drive the cost to a lower position. That product met 99% of the needs for the electrochemistry in all these emerging markets. There is an example where we went out and acquired a product line that met a gap that we had in our product line. Trident Technologies was the first real venture for ChemTreat, which is our chemical treatment business, to go international, and expanded in Mexico.
A lot of that was driven by their U.S. customers who had operations in Mexico, wanted to use the ChemTreat program, but we had to provide the infrastructure in place. Since we have done that, we have also then been able to expand within local Mexican plant and operations in order to build a presence there as well. Again, significantly increasing the feet on the street. We continue to build a funnel on acquisition opportunities in all the emerging markets, and we really look at it, as we have said, commercial capabilities, product lines, but also now looking at additional services that they could provide. Local manufacturing, we have talked a lot about the role of that.
Not only was it a key in terms of driving margin expansion for the overall business, but it really allowed us to play a much stronger role in some of these countries, particularly as made local became a requirement for you in many of the government contracts. Zhuhai is obviously the longest venture that we have had. Significant amounts, over 10% of our cost of goods sold comes from the Zhuhai factory. That is a Fluke facility. In fact, in China, we still do business in some cases as Fluke Shanghai. There is another example of where Fluke was a great incubation for us to build up our local manufacturing. Over 60% of the PPV, we realize at the analytics side, comes out of the Zhuhai business, either through the products or by managing our supply base in China.
When we acquired Hexis, we also acquired the manufacturing for two key parts, chemical reagents and laboratory glassware. If you want to play in the lab market, having the ability to provide that on a low-cost, in-country basis is critical. We see Hexis, though, as a great opportunity to start to build more products in country that frankly will allow us to avoid some of the heavy import tariffs that you face in importing into Brazil. Both of those significant ways that we've taken the manufacturing, which originally started as a cost play and really turning it into a leverageable commercial advantage. That's what we've done in the past. I think we've developed a model in terms of that approach. I wouldn't say one size fits all in that model.
It's a very adaptive model, but we believe it's a good model that we can now apply in these three new regions we want to focus on. Jai talked a lot about India. We believe that continues to be a significant opportunity for us. We'll be expanding the feet on the street, the commercial resources, putting a strategic marketer in place. That's a key change for us. Someone who can go in, segment the market, understand what the different areas are to focus on. You can be far more efficient if you're strategically going after the markets than taking perhaps more of a shotgun approach. We also believe we need in-country distribution to shorten the lead time and delivery to the customers, and also have in-country transaction capability, not through our own, but by leveraging the Danaher resources in country to provide that in-country transaction.
Southeast Asia, we're going to build a hub. We have a hub today in Singapore. We'll use that to not only grow the business in Singapore, but expand in that region, Vietnam, Malaysia, Indonesia. Larry showed the inflection point on the growth in that region. All that as we continue to invest in commercial resources, distribution, and infrastructure in that area. Then finally, in the Middle East, really want to leverage again, the Danaher Dubai office that is put in place to build out our commercial resources in the Middle East. So taking the same model that we've developed over time and adapting it to these new regions, we believe will really accelerate our opportunity to drive the growth in those regions. In conclusion, I think overall, it's a good story, but it's not over yet.
I think the inflection point needs to steepen, and that's the investment that we're willing to make and will be making. Organizational capability and the leadership has been mentioned throughout the day, critical for us to continue to build the leadership capabilities to manage and develop the 750 resources that we have, but also provide the next generation. Then finally, continuing to use the Danaher, leveraging the Danaher infrastructure. That is such a significant advantage in terms of time to money, that you're not spending your time trying to figure out how to get somebody on a payroll, how to get an office, how to get them situated. We've got resources, Danaher resources, that help those managers do that at a much faster pace.
Larry started out talking about the strength of the global brands. I want to share a story with you about the power of some of the brands that we have in the water business. One of my first trips to India, the country manager put the agenda together and asked if I could take 30 minutes of my time to meet with the leader of a city that was 250 km away from where we would be meeting. I said, "Absolutely. Happy to do it." That person drove 250 km, drove 250 km, which those who have been to India knows how long it takes to go 250 km, just because they wanted to meet the president of Hach. I hope he wasn't too disappointed after he met me. I am sure he was a little confused thinking he was meeting Kathryn Hach, and I clearly didn't meet that description.
I think what it just emphasizes is the power and the awareness and the equity of the brands in these emerging markets is significant and significantly higher than many, if not all, of our competitors. Thank you.
You started your presentation talking about the four people in Loveland, Colorado.
Right
And exclusive distribution globally. Can you talk about the transition with those relationships, the distribution relationships? Have you gone direct in these countries, or are you still indirect, and how have you managed that transition?
It's a mixed model. In China, it's a mixed model. We go direct, but we also go through distribution. In India, it's a mixed model as well. We'll go direct, and we'll go mixed. In Brazil, we're going through a mixed model now. Long term, we still believe that the best opportunity is to own that relationship, but that's an evolutionary process versus a revolutionary process. I alluded to the initial reaction that these exclusive distributors had about, "If you do that, I'll lose all this business." As I said, the model we found is everybody wins. Greater awareness. You got greater visibility, greater capabilities. We believe that that's a winning formula going forward.
Trojan's done. Here. No, in front of you.
Where?
Hi.
Oh, there you are.
Trojan's done really well over the years.
Kind of in contrast to Wedeco. ITT went and bought Nova and they had these other sort of acquisition strategies.
Right.
Now the company's busting up. Are you finding, one, that that's creating for incremental opportunities from a competitive bid standpoint or perhaps a personnel resourcing standpoint? That's my first question. Second thing is, Middle East-
I mean, they don't have any water. Isn't there an opportunity to do a lot better than the 9%?
Yeah.
I see you've got a Dubai office. Is it just that you got so much more opportunity elsewhere or what's the deal?
Yeah. Let me answer the second one first, because that's it. Middle East, frankly, we were focusing on other regions. That's not a reason, and it's not an excuse. That's why it's now on our radar screen to say, how do we aggressively go after the Middle East? Because you're right, they don't have water. They are a water-stressed area. The need for either treatment or analytics, we believe would be significant. In terms of these other companies being acquired, depending on how good their integration process is, can be highly distractive to those countries. I think that we'll find that Trojan and the win-loss record will show that we certainly win more projects than Wedeco does going forward. Highly distractive to them. We believe in the technology that we have developed and are launching to be significantly better than what Wedeco has put out in the marketplace.
Our point of view is, I'm not sure Wedeco is in any better position. In fact, might even be in worse position now than they were prior to the acquisition. In terms of, I think you also mentioned Nova-
Yeah
Analytics. Everyone asks me about the acquisition about Nova Analytics, and say it's one thing to own an analytics business. It's another thing to really understand what to do with it. And I think the key is you can have all the instrumentation, but it's also about do you really understand the application? Because people aren't interested in what pH it is. They want to know, what do I do about my pH? And I think that's one of the real strengths that we continue to have, is that we have probably the strongest application expertise to help users really understand how to use the instrumentation. A couple on top of that, the service network, the breadth of coverage that we have. The breadth of the product line within the analytics that we have. Nobody has the breadth of product line that we have.
It's a tough fight for them. Good company. Certainly not discounting, but I think we're in a stronger position.
Thanks. Just on. Right here.
Yeah.
Just on ChemTreat, could you talk a little bit first about your strategy for growing that, and is there some what the real barriers are to
Okay
getting that one more? Then maybe just a quick update on the ballast opportunity
Okay
would be nice, too. Thanks.
First off, ChemTreat's been a great acquisition for us. We talked about kind of acquisitions that also help develop DBS. Their sales model that they brought was really innovative, and we've now brought that in and made that part of DBS. The runway in the U.S. market is still significant. It's a multi-billion dollar market. ChemTreat's got about 11% share. So there's still a significant amount of share gain that frankly, we continue to take in the U.S. market. Nalco will be going through a transition. We know how disruptive that'll be. We still see that as an opportunity for us to continue to get aggressive in the U.S. market.
If you want to go into a new region, you really need to be, I won't say all in, but you've got to provide a level of service that those customers are going to depend upon because you are their uptime. I think that's one of the things. We want to make sure that we can go into those countries all in and provide the level of service. That's why the Trident acquisition was so attractive to us, because it allowed us to put the infrastructure in place through acquisition to go in. So we think in the short to medium term, the runway in the U.S. is significant. It allows us to continue to aggressively grow the business in the U.S. and to grow in Mexico.
We are looking at other regions outside of that to make sure we understand what it's going to take to go into those regions, or who are potential acquisitions that we could use to get into those countries. Ballast water treatment. Ballast water treatment, as I think we've talked about, it's the management of the ballast water that's taken on a ship in one port, transported and discharged into another port. There is the IMO, which is the International Maritime Organization, is putting legislation in place that's in the process of being ratified. In order for it to be ratified, two things have to happen. You have to have 30 countries and 35% of the deadweight tonnage that is represented by those countries ratified. Right now, they have 28 countries, so they're two countries short, and they have 25% of the deadweight tonnage.
Two key countries right now, U.S. is one of them. They've not ratified it. The U.S. Coast Guard is developing their own standards. They are higher than what the IMO has proposed, and they're working through kind of finalizing that. Panama is the other country, and there's a significant amount of deadweight tonnage that is registered in the country of Panama. What does that say in terms of moving it forward? I think Trojan is developing a technology that meets both standards, meets the current IMO standards, and will meet the proposed U.S. Coast Guard standard. We are in the verification process of that literally as we speak. There's a ship that makes a pass from Rotterdam down through South America to Australia and back. We have a system on board. We're constantly pulling our verification data off of that.
We also have three third-party sites, one in San Francisco, one in Copenhagen, and one in Singapore, where our systems are in there being third-party verified. That is a key part of the verification program. We have customers lined up through our partner, which is Wärtsilä. It is a Finnish company that provides dry dock kind of engine repair service, ship infrastructure. They are one of the largest in the world, and they are our commercial partner to do that. We are working with customers today to secure business, and the key next step for us is the completion of the verification of our systems, which we are hoping to have finished by the end of the year, early part of next year. We have chosen the high road in verifying all of our systems.
Others have only verified one size of a system and then used a mathematical model to then verify the larger systems and have found that sometimes those mathematical models did not play out. We are taking the time to make sure we are fully verifying all of our systems and expect as we head into the first quarter of 2012 to be in a position to start filling some of the bookings. Technology we are developing is unique. Two critical things on a ship, space and power consumption, and our system is about 50% smaller than any of the conventional systems that are out there and uses about 40% to 50% less power. So a huge advantage for a ship owner or fleet manager to use the Trojan system.
Yeah, Dean.
Yes, Jon, just a follow-up on Trojan. Do the emerging markets have the same regulatory driver that the U.S. has in terms of adoption? The U.S. is requiring, the EPA is requiring a 10% non-chlorine alternative for disinfection.
Yeah.
Does that also exist in emerging markets?
Depends on the market. Not as much. It's not as much regulatory driven. UV is viewed in some of those emerging markets, frankly, can be more cost-effective, but also it allows for better retrofit because of the smaller footprint. That's really where the strength of a UV system is in some of those emerging markets.
Second question, one of the big drivers that we're seeing in water treatment is the whole move towards water reuse. You've seen big adoption, quick adoption by cities like Beijing.
Right
and Singapore moving towards wholesale water reuse, and that brings up the obvious need for additional testing. I am wondering, are there more products, different products, in-line testing, and how do you see this as an opportunity?
Definitely more products, not different products. The parameters that they use in water reuse, it is basically taking wastewater and just processing it to a level that meets standards. So the same instrumentation, it is just more of it would be required. I would say one of the upsides to the ballast water system that Trojan's developed is that becomes a very portable system that could also be used in muni treatment as well, off shipboard, that makes for more decentralized treatment systems, which a lot of these cities that are going through high urbanization are looking for. So we see water reuse. It depends on the country, to be honest with you. The U.S., the water reuse market has slowed a bit because residential construction has slowed down. But in some of these other regions, Singapore is a great example.
NEWater is probably the preeminent water reuse facility that is out there, and we see water reuse being certainly a high demand, and it is used in the industrial market as well.
Thank you, Jon.
Okay.
Well done.
Thank you.
Dean, as you know, the major challenge is going to be getting beyond the toilet to tap moniker that water reuse has in a lot of places. You laugh. I saw a piece in The Washington Post the other day where it was a big deal around the idea that simply we're going to water the local golf course with recycled water. We shall see. I think I'm going to be joined by my two compatriots, Jim Lico and Dan Daniel, if they're so inclined, to open it up more broadly to any questions you have before we try to wrap up. Jon?
Thanks. Maybe, as you said, just a little bit more broadly, as you think about emerging markets, historically, I think they have grown a bit more on the industrial side of the business, but as the middle class evolves, we seem to hear that they are going to care more about the quality of health, environment, food, water. I guess if you think of each of your business units, can you maybe talk about how you see each unit's core growth playing out over the next few years, and then also where maybe more M&A focus will be?
Well, I am sure these guys could get into a wrestling match relative to who is going to have the better core and who ought to get more of the acquisition capital. Again, I would just stress that what you saw today, whether it is with some of our more successful emerging market businesses like PNM, Environmental. We did not talk a lot about Gilbarco, but you saw some of that in Jai's presentation. There are just so many lessons there that are, I think, very relevant to what we are doing in Life Sciences and Diagnostics, Dental. There is no reason for us not to be able to grow at a more rapid rate. As you alluded to, the underlying clinical standards and demands are rising around the world.
The research budgets and the importance of innovation in those areas are going to be higher priorities going forward on national agendas. I just think that that combination sets us up to do very well. Now, is that going to continue to fuel double-digit growth on the order of, say, the 17% that Beckman has seen compounded themselves in China? We will see, but I would be disappointed if we did not see sustained double-digit growth through over the next 10 years in those businesses, in part because of the underlying dynamics, but also frankly because of the very modest starting point we have in that regard.
Larry?
Tobias.
Yes. Could you talk about margins? We have talked a lot about growth. I am just curious about the margins today that you see.
Yeah
overall in emerging markets, and how those compare both today, but just as you mature
Right
in the markets where you expect those to be versus your developed market businesses.
Right. Well, on balance, and it will vary a bit by region, by country, but we are at or above the corporate margins in that regard. I think that is largely due to the fact that we have gone in, and again, without putting in a lot of undue infrastructure, have really focused on building brands, building distribution, and obviously with those positions, particularly given the gross margins in those businesses, there is no reason for those businesses not to be profitable.
In turn, Tobias, I think if you hear us talk about coming down that price point continuum down the pyramid, we certainly want to tailor what we do in terms of specs and functions to the local market demand, but we will also be targeting, and you saw this in some of the examples today, cost positions that allow us not to see margin deterioration as we go into the mid and opening price points. It is all about mindset. You can go in and play and say, well, we are going to subsidize that business, or as we refer to, you can go in with the Leica rule and say that you are going to play, but you do not get to dilute your gross margin. Okay? So it is all about that mindset.
That said, there will be competitive dynamics in certain countries, in certain businesses, where we might just say, this business in this country, somebody's kind of screwed it up. It may not necessarily be that attractive financially. It may not be a strategic imperative. You might see us not be as active or as interested in that space given those economics. It will be a mix, but again, I think we have no intention of subsidizing the growth as we go forward. Shannon, all the way in the back there.
Yeah, Larry, just kind of a follow-up on the point you just made. As you've grown in these markets, have you crossed that line yet where you started to go into an area and sort of saw that it was a failing model and that part of the market was uneconomic, and how are you defining that line and avoiding sort of blowups?
Well, I wouldn't use blowups and failing models, Shannon. What I was trying to suggest was you could have some market structures that are less attractive or fundamentally unattractive. And we do have some situations that I wouldn't describe in that way today, but where we're keeping a very watchful eye so that we don't just blindly blow into every emerging market just because it's in vogue. We want to make sure we do that smartly so we get the top and the bottom line benefits. Jon?
There wasn't a ton of time spent on distribution. I know that distribution is often a key barrier to entry even in Western markets, right?
Certain companies have different strategies, whether it be tied distributors.
Could you talk a little bit about, obviously it's going to have to be at a high level, but effectively, how has the distribution in these emerging markets changed? What have you learned, and then do you feel like you need to do a refresh on the model? How do you know you have the right partners? Just a little bit more color on how that basically lines up today.
Sure.
Thanks.
It's a good point because it is absolutely critical. If you look at just the evolution, I think using Jon's example is a good one, which is you start off with a country-specific distributor who maybe has the second tier of distribution. That first evolution is to go and expand distribution, generally more regionally. I think the second part of that strategy then is to pick off verticals or to look at a different segmentation around distribution. What's really important, particularly in most of these markets, is you need to have the products at the right price point. You got to think about distribution not just as I can go and find any distributor channel partner I want. You've got to have the product line.
Part of this evolution of down to the mid-price point, you look at geographic expansion consistent with the product category, because as you get the product category to be more broad to a broader consumer base, it brings into new opportunities for distribution. You really do see every year a sort of a refresh of the channel strategy because as more localized products come into the fold, it gives you more opportunity. A good example is the Test & Measurement is a good example. Fluke never had a shop strategy to really reach a broad part of the market. Once they had the local products, they could add those shops, and they went from almost no shops to 2,000. One of those shops today is one of their top 20 customers in the world. These aren't just small sell $5,000 a year.
These are becoming more professionally managed organizations, so I think hopefully that gives you a picture.
While I was just As you're just recently turning it, how do you know you have the right partners to put together team?
Well, I was going to add to Jim's comment. We talked a lot about growth tools today and sharing best practices. I think one of those that's been consistent across the emerging markets is teams raising their game on active distributor management. Just like we do the sales force, you got some A performers, and how do you move the Cs into the Bs? Just that very proactive distributor management with some clear metrics, I think that's one of those growth processes that's very ripe for the emerging markets, and I think we've been spreading across a number of our teams.
At the end of the day, it is very simple. Are you growing faster than your market? Are you doing so profitably? Are you doing so in bounds rather than out of bounds in terms of rules, compliance, and the like? As Jim said, we will shape and morph that over time, but those are the metrics. Cliff, you had a question?
If I may, Larry, one for you and then one for Jim and Dan. If one of the biggest problems at Beckman was quality. I guess you would agree with that. I guess I have three questions. That is the first question. Was quality.
Did not tell you questions.
a major problem? I'll make it easy. If quality was a major issue, have you yet identified the root causes of those problems, and do you have a very clear picture of what the countermeasures are? Maybe you could just bring us up to date on that. Then for the two of you, as people who are running big chunks of this business, I've already said I love the local management boards, but I don't quite understand the relationship between decision-making, either being at the local management boards or how do you interface with those boards to make sure your vision, the vision of Danaher, is perpetuated?
I'll take Beckman. You all want to take the boards?
Yeah, sure. You want to go first?
Why don't you go first?
I will just maybe use a couple of examples. We certainly set out with an agenda, a set of priorities for the board every year. Each one of us sits down at the OCE level, we agree on what those things are, and then I think our job is to work with those boards. I will talk a couple things of maybe what I do, and then Dan can talk about the Latin American board. It is critical to have that set of priorities and the distinction between what the operating companies are going to do and what the board is going to do. Ultimately, we want decision-making at the operating company level in order to be faster to the market and to meet the needs of the business and not to meet some global intergalactic need.
The boards really make sure that the key priorities, for instance, take the expansion to second- and third-tier cities, a critical move in China for all of our businesses. Each business will be different to a degree, but in every situation, they are going to have that opportunity. The board's job is to make sure that everybody is moving at that pace, and they are meeting on a regular basis to look at the status, and they are communicating that not only back to the operating companies, where people might find out that they are a little bit behind their peer group, but they will also communicate that more broadly to us to figure out how to work with them.
Then just maybe more specifically, I am literally with those boards at least every quarter, to sit down for a day or two and work on those priorities and make sure all the businesses are going forward.
Yeah, and I think it is a tension for the leaders of the board. They have, obviously, a very active job leading their business, but we also ask them to take a fair bit of time to put their Danaher hat on and drive the overall priorities for Danaher in the region. I think we have been through a bit of an evolution in the last couple of years as well, as we have tried to increase sort of the responsibility and authority of those boards. Ultimately, that is not in conflict with the day-to-day decentralized approach with the operating. I think it is an evolution that we continue to increase their responsibility as the regions grow.
Like Jim, these boards are meeting in person three or four times a year, regular dialogue and discussion between those, but it is really those handful of key priorities that I think all three boards shared with you today. That is where we spend the majority of our time helping drive those across Danaher.
Cliff, at yesterday's biweekly Beckman transition team meeting, the first item on the agenda was quality, and that was not accidental. Very much important, obviously, a symbolic gesture as well, relative to that agenda. I would share with you that I think we are encouraged about the progress that they are making. Obviously, with the warning letter and some of the other things that have been flagged by third parties, I think that is actually been a good thing for us, not necessarily in the marketplace in the short term, but it has been, I think, very helpful to have others confirm what we saw in diligence and frankly, what the company themselves declared over a year ago relative to the work to be done. We have not been adding to that list.
We have been working that plan and some of the internal metrics that, frankly, are internal, I think suggest that we are making progress. But you really have, as you know, you have to go to root cause. And to me, what has happened in quality, we see in other parts of the business, and it really gets down to discipline, it gets to simplification, it gets to accountability. And obviously, I think you saw today, you have seen in other presentations and from Danaher over a long period of time, we put a lot of energy and a lot of passion around those simple concepts.
The plan that they have laid out, the plan they have been progressing in combination now with a Danaher level of accountability and discipline with an eye towards simplification, I think sets us up very well, to make sure we not only remediate what we have inherited here, but going forward, really set a much higher bar, not only for ourselves, but frankly for the space, which I think ultimately will accrue a competitive advantage to us. But we have a lot of work ahead.
Is it fair to say that when you do that kind of analysis, you have done it 50, 60 times before, but maybe not on a $3 billion basis? There is nothing new about the process, right?
When you boil it down to its core, that is exactly right. We have done this before. We have not done it at Beckman, we have not done it on this scale, but we have done the work that is required. But again, it is not simply going to be us. There is a very good team on the ground with respect to the QA/RA agenda at Beckman, and I think they have welcomed us. We have got a lot of interaction going on, not only in terms of the DBS office, but also some of our other regulated businesses so that we are helping them as best we can. But at the end of the day, it is all about doing what you said you were going to do and doing what you are supposed to do.
That is where I think a DBS level of rigor and commitment is going to help us get out of the hole that we are in and going forward, again, not lead us to merely be in compliance with those obligations, but to try to drive toward competitive advantage. So how are we doing, Matt? I think we are set. Thank you very much for coming out. Hopefully, this was helpful. Again, we appreciate your interest and look forward to the rest of the way here in 2011. Safe travels home.