CHENGDU - Siemens AG announced on Monday it will set up an industrial automation manufacturing and research and development (R&D) base in Chengdu, Sichuan province, a move to further exploit China's western market and enhance R&D capability in the nation.

The base will be Siemens' largest digital factory in China and the third R&D center for its industrial automation business, following ones in Germany and the United States. It is scheduled to begin operations by the first half 2012.

The idea behind the digital factory is to cover the whole production chain - covering design, manufacturing, logistics, marketing and sales - digitally and integrate the use of IT systems throughout, which is expected to shorten the time it takes products to reach the market by 50 percent, Siemens said.

The factory will produce high-end PLC (programmable logic controller) serial products, besides meeting local demand - 30 percent of the products are expected to be exported - the company said.

The R&D center will be a part of Siemens' global industrial automation network and will focus first on the Chinese market and ultimately contribute to the international business. Marc Wucherer, president of the Industry Sector of Siemens North East Asia, said that the center will require a large investment, not only for the company in China but also globally, but he did not name a precise amount.

"We are building the most modern digital factory in China by setting global standards in manufacturing efficiency and productivity, and providing individualized products to customers," Wucherer said. "This will help drive the industrial upgrade of the region and cultivate talents of high calibers in the long run."

Siemens entered western China, including Sichuan, very early. Its cooperation with the province dates to 1995, when the first Siemens Sichuan office was established. Now the company has more than 10 offices in the western regions, four of them in Sichuan.

When Premier Wen Jiabao visited Germany in June, Siemens signed a Memorandum of Understanding (MOU) with the National Development and Reform Commission, China's economic planner. An important part of the MOU was further promoting development of the nation's central and western regions.

Sichuan is the transportation hub connecting central and western China and has attracted 161 Fortune 500 companies, according to Wei Hong, executive vice-governor of the province.

A number of Siemens' counterparts, such as Schnieder Electric, ABB Ltd and General Electric Co, have established a presence in the province in the fields of infrastructure construction, logistics and R&D as well as regional distribution.

"For R&D facilities, it's good in Sichuan, because many of China's leading research institutes and universities, yielding a rich talent pool are there," said Cheng Jianguo, an analyst of China Securities Co Ltd.

"However, given the rising labor cost and relatively laid-back lifestyle in western China, foreign enterprises should rethink their managing strategy and consider attracting local people with corporate management experience who have returned from overseas to do team-leading," he said.

In the 2010 fiscal year (Oct 1, 2009 to Sept 30, 2010), revenue in Siemens China, excluding Osram and Siemens IT Solutions and Services, totaled 5.5 billion euros ($7.62 billion), up 17 percent year-on-year.