Chinese Manufacturers Talk Strategies for Our Shores

May 26, 2015

Two of the more enigmatic Chinese OEMs, at least to U.S. observers, are LiuGong and Shantui. Construction Equipment sat down with each company at the recent Intermat show in Paris to get an inside view of the companies’ plans.

Together with Volvo’s very active SDLG, they begin to paint a picture of how Chinese iron makers see the U.S. market.

China's Challenge

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. In the second article in this series, Chinese OEMs discuss their product plans and early efforts to gain U.S. dealer networks.

Part I: New Players in the Game

“North America is a very tough and high-end market,” says Zeng Guang’an, Chairman of LiuGong. “We know it is a big challenge for us to penetrate and be successful, but our vision is to be a global company. North America is the No. 1 market in the world, so our goal is to achieve certain market shares in North America for earthmoving equipment: wheel loaders, excavators and Dressta dozers.”

Like most Chinese brands, LiuGong has other products it would like to bring to the U.S. in time. Its backhoe loaders, skid steers and motor graders are candidates. “We may launch the new skid steer loader or a backhoe in North America, because it’s a very big market for backhoes and skid steer loaders,” Zeng says. “In China, we have almost zero market [for these], so these are two products for outside China and especially for North America.”

The company will not be bringing a motor grader over any time soon. “For the motor graders, we know that in North America compared to other countries, the market is bigger, but it’s also very complicated technology so we don’t have the motor grader at this moment for North America,” Zeng says.

He indicates that with more people on board, and more understanding about the customers and the technology required in North America, the motor grader may be added to the plan.

Cost is also a consideration. “A few years ago, we sold some skid steers there, but with the continued changes of the tiered emissions [standards], that’s the trouble for Chinese manufacturers, because we have to buy the engines,” Zeng says.

“For LiuGong, we buy the engines from Cummins for the United States, they’re shipped to China, we put them in the machines, and then we ship to the United States—the logistics costs are too high, so we lose any advantages in cost. When we build the backhoes and skid steers, they’re more expensive [to build] than any manufacturer in North America or Europe, so that’s big trouble with the Chinese manufacturers,” he says.

Another barrier to introducing additional machines and, in some ways, sales of the current wheel loader and excavator offerings, is trust. Zeng says that customers may be holding on to old perceptions of inferior Chinese manufacturing.

“Chinese manufacturing methods have improved a lot from 20 or 30 years ago, even from 5 or 10 years ago, so we can build good machines, but the people still don’t have the confidence,” Zeng says. “It takes some time to make people really trust the LiuGong products in the market. It will help in the next few years when we have more and more new products, which will be designed by a global team.”

The company has been working to shore up its international credentials, hiring industry veterans David Beatenbough as its VP with responsibility for R&D, and Howard Dale as its VP of Global Sales for Dressta. Both have international experience with CNH Industrial.

“We’re not merely experts only in China like before; now we have more experience from outside China, from North Americans, Europeans, and some other countries, so we can design good machines for all the countries,” Zeng says.

It has also been working to establish additional boots on the ground in the U.S. In part, that means additional dealers to the 20 or so the company has (including Dressta). Zeng says they choose carefully.

“For the dealers, I think it’s important they should offer a good value for the machinery. If a dealer is only in it for the money, that’s not a good dealer. We think if they have a good value for the pieces, especially some capability to support the customers—this is No. 1. So we ask that they must have the parts, must have service technicians, and must have quick response to the customers,” Zeng says. “The dealers should also have some experience in our industry; this is very important.”

LiuGong has been aggressive of late with announcements on an international stage, announcing a new R&D facility in China and a new Tier 4-Final wheel loader series for the North American market.

The company’s new R&D facility is part of a large commitment to research. LiuGong has 1,000 engineers dedicated to R&D, some 10 percent of total employees. It spent $68 million on R&D in 2014, and says it’s China’s only certified “National Earthmoving Technology Research Center.”

LiuGong hopes the R&D efforts will set them apart from other Chinese manufacturers, as well as its concerted effort to learn markets from local perspectives. “Most of the Chinese product manufacturers, they don’t have business in the United States. LiuGong is there. We are focusing on the features, and we feel we are first on the quality and the technology. We know this is very important. If you don’t have a good machine, you have nothing,” Zeng says.

“And secondly, we do invest in the support, for the warehouse and the people, all these things. We have a big warehouse in Houston, and we have support through all the dealers. This is huge money; you have to pay for [market entry] first,” he says.

“And thirdly, I think it’s important that we have local people,” he says. “In North America, we have only a few Chinese guests to support and make connections between China and the United States. We know the local people can provide the best service and support through the dealers, and they have the better understanding of the market. Together, these three things differentiate us from other Chinese brands.”

Shantui currently offers three crawler dozers and has one dealer in the U.S. (Florida), but has seven prospective dealers in negotiations, with a dealer in West Virginia poised to join the fold imminently.

Will Zhu, vice general manager with responsibility for North America, says more products are coming. “In the second half of this year, we will develop new products for the U.S., more dozers and excavators, both with Cummins engines from the U.S.,” he says.

The company’s dealer efforts are ongoing. “We are advertising for dealers, and researching,” Zhu says. Shantui is using a diverse mix of tactics, including highway billboards, Internet research and meetings at major trade shows such as Intermat, Conexpo and Bauma.

“We intend next year to have agreements with 10 new dealers; we will decide on a presence in 10 states,” Zhu says. He indicates the southeastern U.S. is a prime target. “In the second half of the year, we want to establish a spare parts warehouse in Florida, and perhaps a U.S. office in Georgia.”

Both Zhu and Zeng stress that market knowledge must be shown and general quality and reliability concerns must be addressed before Chinese iron can gain more significant acceptance here. Zeng points out that the huge infrastructure development in China over the past 10 to 20 years was accomplished almost entirely with Chinese equipment. That, he says, is an important message to North America.

“All these huge projects, the Three Gorges Dam, and others, were done with mostly Chinese equipment,” he says. “How could this be accomplished if the equipment was not tough and of high quality?”

Zhu cites difficult mining projects in Greece and Serbia where Shantui dozers stood side-by-side with European and American crawler dozer brands. “Our performance in other countries has been perfect,” Zhu says.

One Chinese manufacturer seems to be avoiding  product and dealer struggles altogether due to its partnership with a brand already in the U.S.

SDLG, 70 percent of which is owned by Volvo, has a head start in that it is signing on with established Volvo dealers to sell its wheel loaders. In just over a year, SDLG reports that it has signed 23 dealers with 40 combined locations. SDLG’s lower spec’d, value-priced loaders are positioned as alternatives to used machines.

SDLG director Al Quinn explains: “There are lots of features on higher-priced machines that our customers don’t need, don’t want or can’t necessarily afford. SDLG can offer them a wheel loader that doesn’t break the bank or lose their return on their investment if it’s not in continual usage.”

LiuGong’s Zeng won’t go that far in naming a niche, particularly on price. “On the price point, we still have some advantages compared to the major brands like Cat and John Deere,” Zeng says. “They’re higher than us; today our price is between the Japanese and the Koreans. In North America, we are somewhere in the middle, and we cannot call ourselves a premium brand, but maybe in the future.”

The Chairman laughs when he delivers that last remark, but seems very serious in saying LiuGong will not be going with a value-brand proposition. “We do have two brands, LiuGong and Dressta; they have different pricing systems. We don’t have two brands with two different pricing strategies [value and premium]. That is not good for LiuGong,” he says.