Another in a series of byte-sized one-on-one visits with construction industry insiders. International Construction Products plans to sell heavy equipment through its website, ICPDirect.com. The brainchild of Tim Frank, former chairman/CEO of Sany America, ICP’s business model rests firmly on the Achilles Heel of import success: customer support and a broad dealer network.
After letting the initial dust settle from ICP's Conexpo launch, I talked with CEO Wes Lee, whose experience in global marketing spans decades, about the company’s business model.
1. Describe the lightbulb that went off for an online marketplace linking China to competitive western markets.
I’ve seen the evolution and how quickly the products have evolved in China. As I’ve seen the tremendous change, I’m thinking to myself, there’s a huge wave coming. When you couple that with the need of the Chinese manufacturers to broaden their geographic scope of sales, it’s inevitable that they’re going to come to the Americas.
Tim [Frank] thought all of the previous Chinese manufacturers and their partners in the U.S. had failed to deliver. Anyone can build a good machine; it’s how you support it that counts.
In the traditional distribution channel, we all know that most of the big players are already taken, the guys with the big bags of money are taken. The smaller players can only buy what their balance sheet will allow them, a few machines at a time. We thought there had to be a better way to do that, hence the vision of the Internet.
The model works if—and I strongly emphasize if—you have a Chinese partner that understands why it didn’t work previously, is willing to listen, and wants to do it the right way.
2) Your website states that you are “putting your name and reputation” on your ability to qualify manufacturers and distributors. How do you vet them?
We looked at the players in China, the ones that had the financial muscle to support this kind of effort, greater than $1 billion in sales. LonKing is an exclusive distribution agreement for Canada, the U.S., Mexico, Central America.
They have to build product that we vet as acceptable and ready for for North American use. LonKing worked with Tim to put components in these machines that are recognizable by North American customers. We need domestic availability of parts.
[Distribution] is a real unique piece of the aftermarket or customer support side of the equation. We have to have a good quantity and well-qualified list of servicing dealers. It has worked amazingly well, and the reason it has worked amazingly well is because we have a lucrative package of incentives for these servicing dealers. We incent them with things that manufacturers don’t do. 1) We give them a premium above their retail shop labor rate. We’re giving them a built-in margin of 25 to 30 percent above the traditional manufacturer’s rebate on warranty work. 2) We’re giving them parts reimbursement at full list. They’re getting another 25 to 30 percent mark up opportunity on the parts they use. 3) We give them up to $300 travel time and mileage for each warranty claim. We’re covering that dealer, so we’re picky about who we sign up as a servicing dealer. And we have some major players.
These are not highly sophisticated machines, so they’re easy to service. Any technician who has been trained and is worth his salt can service these machines.
3. It’s a high-volume, low-margin business model. Amazon has warehouses and UPS; how does your back-end work?
LonKing is making product available to build within a short period of time and put on a ship here until we get enough of a footprint so we can bring product in and have an Amazon or Dell kind of footprint. Ultimately we will have product here that we can distribute.
LonKing will deliver to our ports. We’ve teamed up with local-port providers to receive goods. We have a 100-point inspection in China, then it’s duplicated at the receiving port under our supervision. The customer picks the machine up at designated pickup locations after inspection.
These machines are built tough. The parts of this machine that have to stand and live are there. We’ll have no problem with these machines living a good life. I have no doubt that with the components we have, and the warranty we have. We’ve also teamed up with a dedicated finance arm that is providing us with operating lease residuals. You’ll get the value of having a low-cost machine at the front and not get beaten to death on the back end when you have to sell it. All this, of course, is dependent on population.
We are low-margin, but we have not skimped on the back end.