Capital Equipment News June 2021

EDITOR'S COMMENT

THE ‘DRAGON’ IS GAINING GROUND

O nce dismissed as low-end pabilities and now compete head-to-head with multinational companies on their home turf as well as in emerging markets such as Africa. Indeed, China has driven the growth of machinery production worldwide in recent years. To provide context, three Chinese manufacturers now rank among the top 10 construction equipment makers in the world, according to the 2021 Yellow Table – an annual ranking of construction equipment firms. XCMG and SANY ranked third and fourth respectively, ahead of global heavyweights such as Volvo Construction upstarts, many would agree that Chinese construction equipment makers have built up their ca-

Equipment, Hitachi and Liebherr. All man- ufacturers that moved up in the ranking list are from China, showing the vigor- ous development of Chinese equipment manufacturers. The most impressive was Zoomlion, which moved five places from 10 th to fifth position. In fact, having produced and delivered 100 000 excavators in 2020, SANY has for the first time become the number one ex- cavator manufacturer in the world (by vol- ume). The ascent of the ‘dragon’ has been fuelled in part by the rise of the middle market in rapidly developing economies, where customers have boosted demand for ‘good enough’ products that empha- sise price competitiveness and sufficient functionality rather than customisation and the most advanced technologies. These products occupy the middle ground between the low-cost products that have been a mainstay of Chinese cost innovators and the premium products typ- ically offered by leading multinationals. Demand for good-enough products is also increasing in developed markets such as Europe and North America, as companies seek to reduce supply chain costs in the face of persistent economic uncertainty. Chinese companies are adding to their competitive strengths by building skills that go beyond cost advantages. In research and development, this means gaining access to advanced technology through either aggressive investments or acqui- sition of companies that have developed cutting-edge capabilities over the years. To reach upper-end customer segments and accelerate brand development, some Chinese companies have acquired a competitor with a premium brand. Using a dual-brand strategy, the acquiring company keeps both the premium and the low-cost brands in the market, each serving specific price segments. For example, China’s Sany Heavy Industry acquired a majority stake in Putzmeister, a leading German manufacturer of high-tech concrete pumps. SANY remains focused on operations in China, while Putzmeis- ter continues as a premium brand. The

acquisition also gave SANY access to Putzmeister’s innovative pump technology. Elsewhere, in 2008, Zoomlion acquired CIFA, one of the world’s biggest concrete machinery manufacturers, in a transaction recorded as the largest ever European acqui- sition by a Chinese company at the time. With this approach, Chinese challeng- ers will continue to build momentum. In this new competitive landscape, European companies can expect to see their tradi- tional advantages diminish in areas such as advanced technology, brand strength, quality and reliability, as well as familiari- ty with customers. China’s increasing prominence in the local market is especially noteworthy. Brands such as LiuGong, SANY, XCMG and FAW (on the commercial vehicle side of things), are making their mark in the local market. For example, the SANY brand has grown in leaps and bounds in the past four years under the dealership of Goscor Earthmoving in South Africa. At the start of 2020, SANY ranked 9 th in the South African excavator market, before moving to 5 th position by the end of the year. LiuGong has enjoyed great success in the mining sector, with the brand making sig- nificant headway into both hard and soft rock mining segments in recent years. FAW has gained a strong foothold in the local commercial vehicle market. The company recently saw its 7 000 th locally assembled vehicle rolling out of its Coega manufacturing plant. This marked another significant milestone for the Chinese brand that took the top spot in the Heavy Commercial Vehicle segment of the local market for the first time in the first quarter of this year and to date maintains this achievement by outselling various well-known and established brands. The rise of Chinese challengers in the capital equipment sector will persist over the long term. Chinese companies will continue to invest heavily in R&D, expand their offerings of high-value products and pursue aggressive acquisition strategies to gain access to technology, brands and markets. b

Munesu Shoko – Editor

capnews@crown.co.za

@CapEquipNews

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CAPITAL EQUIPMENT NEWS JUNE 2021