News

For domestic engineering machinery companies, with the improvement of product strength in recent years, the mission of domestic substitution has been basically completed, and going overseas has become the next natural thing. Due to the characteristics of the industry, the target market for engineering machinery equipment is not developed regions, but mainly developing countries. Among them, India, as a populous country with a dirty environment, crowded roads, and huge room for improvement in infrastructure construction, is often considered to be the next region for major infrastructure development.

In the fourth quarter of last year, India's GDP grew by 8.4% year-on-year, higher than 8.1% in the third quarter. This is largely due to India's actions in infrastructure construction such as paving roads, expanding railways and upgrading power grids. Both the Indian government and the private sector have begun to reap the benefits of infrastructure construction, and this momentum is likely to continue.

In the 2024 annual budget, the Indian government will continue to allocate US$134 billion to national infrastructure projects, which is enough to show the market space for India's infrastructure. This is why domestic engineering machinery companies almost have to go to India when they go overseas, and even regard it as the most important target direction.

However, in recent years, there have been many negative opinions about the Indian market, including the business environment, population quality, government integrity, etc. In fact, the geopolitical issues between China and India are more serious than the economic issues. How to balance risks and opportunities has become a problem that domestic construction machinery companies must think about when entering the Indian market.

Overall, leading domestic construction machinery and equipment companies have basically launched corresponding layouts in the Indian market. Sany Heavy Industry has completed the localized production project in India and started production. In order to ensure that Indian assembly personnel understand production technology and processes, Sany also specially sent Indian workers to the factory in Loudi, Hunan for training, and established an after-sales service mechanism at the same time as the production layout.

XCMG has also bet on the Indian market - it has developed a customized product portfolio for India's construction conditions and established a management and manufacturing team. According to official descriptions, XCMG has doubled its local sales after building a factory in India, and plans to set up India as a manufacturing center for Southeast Asia and South Asia, while deepening its presence in the Indian market and expanding coverage to neighboring countries.

Zoomlion has officially disclosed that its sales in India have doubled every year in the past three years. The company's new main engine yard in Mumbai covers an area of more than 20,000 square meters, which can meet the market's spot demand for various Zoomlion products. In addition, the Zoomlion India Industrial Park is already under construction, and the first phase of the project will be completed and opened this year.

The current stage of development of China's leading engineering machinery companies is very similar to the development history of international giant Caterpillar in the 1950s. Caterpillar's experience in global expansion has also brought very valuable experience to domestic engineering machinery leaders.

In its early days in 1925, Caterpillar's business was mainly agricultural tractors. After World War II, developing countries rose one after another, and infrastructure investment and urbanization stimulated a large demand for equipment. At the same time, the emergence of American companies such as John Deere, Terex, and Oshkosh intensified the internal competition in China, so Caterpillar's management assessed the situation and started global expansion.

With its first-mover advantage in bulldozer technology, Caterpillar quickly became the absolute leader in the construction machinery industry. From the 1960s to the 1980s, Caterpillar accelerated its layout in the European and parts of the Asian market, gradually becoming a global construction machinery giant.

My country's leading engineering machinery companies are basically following the globalization route that Caterpillar once took, that is, expanding to regions where engineering technology products are not as strong through the accumulation of technology and capital in the local market, and then expanding to the world.

In many of these market segments, Chinese manufacturers such as Sany Heavy Industry and XCMG have the largest market share, and their influence is gradually surpassing American and Japanese giants such as Caterpillar and Komatsu. Driven by the "Belt and Road" initiative, Chinese engineering machinery leaders have natural advantages in most countries and regions along the "Belt and Road". Increasing the layout in India is also a key step for Chinese engineering machinery to go overseas.

Of course, opportunities come with risks. The Indian market itself is not only far from perfect, but also puts great pressure on Chinese companies.

Corruption has always been a chronic disease in this country. It is not uncommon to hear news of officials abusing their power and accepting bribes in India. For example, at the end of last year, it was reported that 3.53 billion rupees were seized from the home of a member of parliament in India. In addition, India's strong religious belief system and primitive caste system are not conducive to the construction of a modern enterprise management system. Especially for the labor-intensive manufacturing industry, these problems will inevitably affect operational efficiency.

The most fatal thing is that as the geopolitical conflict between China and India deepens, India is almost completely rejecting applications from Chinese citizens to visit India. It is said that India only issued about 700 visas to Chinese citizens last year. Apple, a company as expensive as Apple, had to come forward to coordinate the relevant matters of Chinese personnel traveling to India.

This means that as India is an important stop for Chinese engineering machinery to go overseas, companies have to deal with a variety of complex issues to cope with various possible emergencies.

Apart from India, a global engineering powerhouse, from a global perspective, although Sany, Zoomlion, and XCMG have achieved considerable growth in their overseas business in recent years, there is still a gap compared to Caterpillar's more mature international business.

The most obvious point is that the reason why my country's construction machinery industry can vigorously develop overseas business is mostly because it relies on price advantages to attack the market. According to data released by Soochow Securities, the price of Sany Heavy Industry's small excavator is about 250,000 yuan, while the prices of Caterpillar and Komatsu are about 300,000 yuan. The price of Sany Heavy Industry's medium excavator is about 650,000 yuan, while the prices of Caterpillar and Komatsu are between 750,000 and 800,000 yuan. The price difference between China and foreign countries for large excavators above 50 tons can reach more than 800,000 yuan. This is an important reason why construction machinery manufacturers represented by Sany Heavy Industry can seize market share overseas from international giants such as Caterpillar and Komatsu, because Chinese products are really cost-effective.

The service capabilities of domestic construction machinery manufacturers are equally important. Especially during the epidemic, the flow of personnel was hindered, but Chinese engineers were still able to stay overseas for a long time and work overtime to respond to needs, which foreign companies simply cannot do. For large-scale machinery and equipment, regular maintenance and operation are particularly important. Customers can spend less money to get better services, which is an important factor in the success of domestic construction machinery companies going overseas. It is very difficult to make enough profits while maintaining low prices and high-quality services.

At present, American, Japanese and European companies do not have a price advantage, and their important markets are developed regions such as Europe and the United States. Even if Chinese machinery relies solely on cost-effectiveness, it is difficult to break into the markets of these developed countries. If they want to grab more market share from international giants, they must highlight their price power and service capabilities, occupy the market in more countries around the world, and bet on the next wave of infrastructure construction.

The reason for such a large increase, in addition to the recovery of performance, also means that the capital market has high expectations for the construction machinery industry. According to the hype logic at the time, China's construction machinery is entering a replacement cycle and will achieve import substitution and a new journey to go overseas, and the leading companies have great potential. Investors immersed in the secondary market have certainly heard a lot of similar stories, but few of them have really come true after the crazy hype. But China's construction machinery companies are different. The grand expectations at the time now seem to be fulfilled.

Generally speaking, the average service life of construction machinery is about 10,000 hours, and a round of equipment replacement is required every 8 years. From the second half of 2016 to the first half of 2021, benefiting from the shantytown renovation policy and the start of a new round of renewal cycles, the industry's sales have seen more than 50 months of positive growth, forming the basic foundation of the last round of construction machinery positive cycle. With the continuous improvement of technology, the product quality of domestic brands is getting better and better, and the market share is increasing overall.

In terms of overseas expansion, Caterpillar once believed that Chinese companies did not pose a threat in the international market. But today is different from the past. Caterpillar and Komatsu have begun to pay more attention to these competitors that were once not rivals. As mentioned above, relying on the improvement of product quality, sufficient cost-effectiveness, and perfect after-sales service, Chinese construction machinery companies have snatched a large market share from international giants.

Of course, while domestic construction machinery companies are conquering the market, they also need to consider how to make more profits in the future, so that they can create greater value for their employees, shareholders, management and society in this round of overseas expansion. After all, there is no king of any era who can only work hard all the time.

Source: Mechanical Intelligence Bureau