Former Sany America CEO Mike Rhoda may have said it best when he talked to Construction Equipment about the inevitability of Chinese construction equipment manufacturers coming to the U.S. “I think anyone who’s been in this industry for a few decades has seen this pioneering of the North American market, first by the Japanese, then by the Koreans, and now clearly by the Chinese,” Rhoda told CE. “The interesting thing about it...is that the pioneering time-span is compressed. I think each successive wave learns from the previous ones, so things happen faster. Most of the folks [speculating about further Chinese entry into the market] fall into the ‘when’ camp, not the ‘if’ camp. I’m one of them.”
Indeed, the Japanese (Komatsu, Kobelco, Takeuchi) and the Koreans (Doosan) are entrenched and well accepted in the U.S. These, and other manufacturers, have successfully introduced a variety of product categories, developed solid dealer networks, executed joint ventures with U.S. manufacturers (Hitachi-Deere), and have even purchased American brands (Doosan-Bobcat).
Chinese manufacturers face challenges in establishing distribution and a foothold in the U.S. market; fleet managers are challenged to think outside traditional OEM offerings and learn what Chinese manufacturers might offer; and U.S. manufacturers will be challenged to adapt to—and counter—new competition.
But no matter what has been learned from previous entries, the Chinese face a different U.S. equipment market than the Japanese and Koreans did years ago.
Despite an advantage in manufacturing costs, there is now more competition, fewer truly capitalized and experienced available dealer partners, and distinctly different emissions regulations separating China and the U.S. All the while, Caterpillar, identified by two generations of Asian manufacturers as the biggest bogey of them all, has only grown larger (Komatsu’s company slogan upon entering the U.S. in 1967 was “Encircle Caterpillar”).
Before delving into the specific challenges facing Chinese manufacturers, the equipment managers looking to evaluate unfamiliar offerings, and the U.S. manufacturers girding for new competitors from across the Pacific, it is important to learn the players.
It’s not to the point where you can’t tell the players without a scorecard—but it might get there—because the Chinese are coming in increasing numbers.
Sany, already a world leader in concrete pumping equipment thanks to its 2012 purchase of Putzmeister, also offers an assortment of cranes, excavators, and compact excavators (introduced at Conexpo 2014) in the U.S.
It has built an ambitious, if not somewhat empty, headquarters in Peachtree City, Ga. Currently, it offers the most products “on the ground” of any Chinese manufacturer that has entered the U.S. Until recently, it had been signing up dedicated excavator dealers rather regularly.
Sany has often had the most product categories displayed at North American trade shows, even if those products are not available here. Adding to the confusion is the fact that the company has gone through two CEOs in the past three years. First was well-known former CNH and Volvo executive Tim Frank, then former Doosan executive Rhoda.
Mike Rhoda articulated Sany’s strategy in an exclusive interview last year, relating two important points. First, Sany sees itself as a global brand, not a value brand, but if low price is an attribute, so be it.
“[Sany has] had tremendous success in China and the way they’re coming into North America is with the tools they have to work with,” Rhoda said. “Anyone who’s spent time in Asia understands that the cost structures there, specifically in China, are going to present potential value propositions to contractors in North America and everywhere else, and that’s one of the tools they have working for them.
“So we’re coming in not as a cutthroat, low-priced brand, we’re coming in, I think, with a position of strength in the quality of the products, based on their designs, and based on state-of-the-art manufacturing within Sany’s infrastructure in China,” Rhoda said.
The second point Sany America stressed was that their business model includes robust customer and product support through a traditional dealer network—the lack of which has traditionally been an Achilles’ heel for Chinese OEMs seeking a foothold in the U.S.
“We’re bringing people aboard who understand customer expectations, and primary among those are customer and product support,” Rhoda said. “We’re trying to put together an overall value proposition for the customer that includes meeting that support requirement, and also giving them a more attractive entry. You can’t have one and succeed without the other, in my view.”
The most well thought-out and most interesting market strategy among the Chinese thus far is from SDLG, which is 70 percent owned by Volvo. It offers four Chinese-made wheel loaders through 14 Volvo dealers as value-priced, lower-tech alternatives to premium brands such as Caterpillar, John Deere, and Case, and yes, premium-priced Volvo loaders.
It does not sound like Volvo is worried about cannibalization.
“Volvo’s share isn’t that dominant that we can’t enhance it,” says Al Quinn, SDLG North America’s director, who spent nine years with Volvo as a regional VP, among other positions.
SDLG management in the U.S. recently hit the road to explain the strategy.
Quinn says the venture initially set out to offer a “difference in choice.”
“This started out as an experiment,” Quinn reveals. “SDLG was bought for China and developing markets, then Volvo looked around and asked, ‘Are there other segments that want this type of product, and are there customers with a different set of needs?’”
The strategy SDLG and Volvo finally settled on is offering value-priced wheel loaders, with “value technology,” according to Quinn, and premium distribution at a price point that is fixed across North America.
Value technology means low technology, such as dry brakes versus wet brakes, and systems and components “that you can work on yourself,” Quinn says. The dry brakes are exposed, meaning there’s no need to take the wheels off for access. SDLG loaders, like their Volvo counterparts, feature Deutz engines, allowing commonalities of parts and service. Extended warranties are offered through Volvo.
SDLG parts are stocked in one location, Atlanta, and Quinn claims a 98-percent fill rate over two days.
The price point is a difference of 30 to 35 percent from the price of a premium Volvo loader, Quinn says. It’s meant to be approximately the same price point as a 3- to 4-year-old Cat or Volvo wheel loader.
Targeting specific buyers
SDLG is aiming at managers looking for machines to work under 1,000 hours a year; these are not meant to be high-production units.
“We’re targeting the smaller fleets, with less than five machines, and niches that are not high-hour,” Quinn says. He mentioned snow removal, small waste-management operations, utility yards, and work in corrosive environments as typical applications.
SDLG loaders are currently carried by 14 Volvo dealers with more than 25 locations, after starting not much more than a year prior with seven dealers and nine locations. The latest dealer is Aring Equipment, just outside Milwaukee. According to Quinn, some dealers already have 10 percent of the wheel loader market in their regions.
With the growing number of dealers, SDLG is ahead of the majority of Chinese equipment manufacturers, with the possible exception of LiuGong, and Sany, which had been signing a number of excavator dealers in the past two years to go along with its crane distributors, but has fallen silent of late. An SDLG goal for 2015 is to sign another dozen dealers. Then, there’s a coming expansion into other product categories.
Though specific dates have yet to be announced, the news that Volvo is transitioning its backhoes and motor graders to its SDLG brand gives the strategy more clarity, and the SDLG brand that much more momentum in the U.S. marketplace.
There is no word yet on whether the Volvo backhoes and graders will be “de-teched” in accordance with the low-technology focus prevalent in SDLG’s China-sourced wheel loaders.
If value-priced, niche equipment with good dealer support catches on, American OEMs will have to take notice. The possibility seems more serious as SDLG adds more product categories.
Without mentioning China specifically, Caterpillar chairman and CEO Doug Oberhelman was somewhat dismissive of the value product threat when CE broached the subject at Conexpo. “We’ve always had these players, you can remember some over the last decades, different kinds of players that have come in with very low-end product, and there’s no support network,” Oberhelman said. “There’s a certain faction of people that will buy it, and certainly in economic times like today they would be more popular than other times.”
LiuGong, which offers Dressta crawler dozers in the U.S. along with its own wheel loaders, excavators, skid steer loaders and compactors, is actively trying to recruit U.S. dealers to add to the 20-some U.S. LiuGong Construction Equipment and Dressta dealer locations.
In addition to a dealer-based business plan, part of its strategy so far has been establishing a joint venture with Cummins, to give it the gravity of partnering with a well-known engine supplier.
Zoomlion has been extremely quiet in the U.S. so far, with the exception of a noteworthy crane deal. In 2014, Zoomlion won a $20 million order for crawler cranes and rough-terrain cranes from U.S. distributor Global Cranes out of Houston, Texas. Global offers five models of Zoomlion rough-terrain cranes from 40 to 110 tons, and 10 crawler cranes from 80 to 700 tons.
In China, it offers crawler dozers and excavators, along with paving equipment.
XCMG’s U.S. presence in earthmoving equipment at this point barely fogs a mirror, with one distributor (Intensus, Cold Spring, N.Y.) as of the fourth quarter of 2014. Intensus says it distributes rough-terrain cranes, compactors, excavators, truck cranes, wheel loaders, and crawler cranes.
XCMG did make big news in response to Sany’s purchase of Putzmeister by taking a majority stake in Schwing, essentially putting the top two concrete pumping manufacturers familiar to North Americans under the control of Chinese companies. It will be interesting to see if Chinese OEMs eventually employ a similar strategy by buying one-category or short-line U.S. earthmoving equipment manufacturers. Much like Zoomlion, XCMG offers a wider range of products in its homeland, including road building machinery and piling machinery.
[UPDATE: On January 29, 2015, ICP filed an anti-trust lawsuit alleging restraint of trade against Caterpillar, Komatsu America, Volvo, and CAT Auction Services.]
By far the most curious strategy belongs to International Construction Products (ICP), an online-only equipment-sales platform set up to bring equipment from emerging Asian brands (only Lonking, so far) to Western markets with industry support such as a three-year warranty, 48-hour parts guarantee, and a service network that lets customers choose their local dealer. ICP’s online marketplace, www.icpdirect.com, initially offered 19 equipment models including excavators, wheel loaders and forklifts.
All earthmoving machines are outfitted with three years of free GPS telematics service. Additional machines that may be offered in the future are skid steer loaders, backhoe loaders, rough-terrain forklifts, and aerial work platforms, ICP has said.
ICP’s marketing has largely consisted of posting a value price versus a premium price for “a leading brand” on Twitter, with links to machine specs and information.
Tim Frank is, or was, ICP’s chairman. Frank’s LinkedIn profile indicates that ICP is in his past, and the company’s Twitter presence has gone completely silent, though its website is still up. An ICP spokesman could not provide an update on the company by press time.
It remains to be seen how these varying strategies for penetrating the U.S. market will play out, though for a number of Chinese brands it sounds like a matter of will, and not a matter of how much money is spent versus ROI.
SDLG’s Quinn, speaking about one competitor in particular, says “They won’t abandon North America. Emotionally, that would hurt a lot worse [than their expenditure]. You can’t imagine how important North America is to the Chinese.”