Change in China

Construction equipment sales in China have rocketed over recent years. In 2005 it is estimated that up to 110000 wheeled loaders were sold in the country along with something like 30000 excavators. But as Zeng Guang An, president and vice chairman of Liugong, told iC during a recent interview in Beijing, that huge growth has put real pressure on manufacturers.

“Over the next five years, many manufacturers will close and the market for wheeled loaders will decrease”, said Mr Zeng. It is with that domestic situation in mind that Mr Zeng's Liugong, and a number of other major manufacturers in China, are starting to look very seriously at export markets.

Not surprisingly, Mr Zeng has a plan for Liugong's future, both domestically and internationally. “In China the main business is wheeled loaders and over the next five years we plan to increase our market share. This year it is around 18% and we want to get it up to about 25%.” he said. “We are also”, he added “looking to increase exports and to develop new technologies and new generations of machines with new Tier III engines”.

But while wheeled loaders are Liugong's biggest product by far, Mr Zeng sees excavators as crucial to the company's future - both in China and overseas.“Liugong's share of the excavator market in 2005 was around 3% and we want to increase that by +1% a year. That's a very hard job, however, because 90% of the market is taken by foreign brands.”

So how are Chinese manufacturers to start redressing the domestic excavator market imbalance? According to Mr Zeng: “In order for Chinese brands to get more market share, we have to work very hard. First we have to improve the quality, performance, and technology in our products, then we have to build a great dealer network, and we must tackle our human resources problems. We must train our people well and invest in engineers to improve quality.”

Currently, Liugong produces two models from its new 9-series excavator range but there are plans for a six-strong range covering the 4 to 25 tonnes bracket next year, with a long-term aim to become a full-line provider.

Other product lines

Liugong also produces other product lines including road-building equipment, skid-steers, small wheeled loaders and backhoes. In the roller sector, the company is planning to introduce new compactors for export markets next year, but within China, “Our market share now is around 7%, but we are looking to increase that to 15%”, said Mr Zeng.

Also in the road-building sector, the company currently produces two models of motor grader, but there are plans to expand the range for both domestic and export markets. The current 180 hp (135 kW) grader is manufactured mainly for the domestic and developing world markets while the smaller 160 hp (120 kW) grader has a Tier III engine and is more suited to export markets. The new models planned for this year include a 200 hp and perhaps a 220 hp model (150 and 165 kW respectively). The plan, according to Mr Zeng, is to initially sell the two new graders in the domestic market but then introduce them into selected overseas markets like Russia, India and Africa.

Another product in the road-building sector, that in some ways typifies the problems facing Chinese manufacturers, is the asphalt paver. As Mr Zeng points out, around four years ago many Chinese manufacturers jumped on the paver production band wagon as road-building increased dramatically. The problem facing many manufacturers today is that the fierce competition caused by over-supply has led to drastic price reductions and cash flow problems.

Mr Zeng's view: “We have three paver models now - 12, 9 and 7 m machines, but because of the prices going down and the cash flow problems we're just watching. We keep some good customers and we're not eager to get much market share, because that can wait. In the next two or three years, many paver manufacturers will have closed.”

In the compact equipment sector - a market that is still relatively small in China - Liugong produces two small wheeled loaders, both of which have mechanical transmissions so are sold only in China and developing countries, and skid steers. Currently the company produces two skid steer models but the range is soon to be increased to four and there will be a renewed focus on export markets including the US and Europe.

Another product that hasn't caught the imagination of the Chinese market is the backhoe loader. Liugong produces a backhoe unit but according to Mr Zeng,“backhoes in China are very funny products, and the market is unclear. Currently, however, the market in China is going up and in the next five years it could reach 2000 units a year.”

Putting all its production together, Mr Zeng put the situation into a nutshell by saying, “We plan to produce 35000 machines (of all types) in 2010 with sales of CNY 10 billion (US$ 1.2 billion).” He added, “Of that CNY 10 billion around 15% will be from export turnover.”

In reply to the question of which of the categories of equipment will make up the figures, Mr Zeng said, “Wheeled loaders will be the majority. The performance, the quality, and the reliability are good. We have made loaders for about 40 years, we know the product well, so this is where we'll export more. Also, we have a full range with two options - one for China and the developing countries and the other for the United States and Europe.”

“The second biggest sector will be excavators, I think. Last year we exported 100 excavators and we can get some market share in the developing countries in Africa, India, and in places like Australia.”

Mr Zeng sees the development of Liugong's export drive in two sections, “We have a plan for the overseas market. For the first five years we'll focus on the developing countries of Africa, Asia, India and some countries from Russia. Then we have another five year plan for Europe and the US. In the first five years we have to prepare the product and then we have to know and understand the market and develop relationships and dealers, then we can start. If the products are OK and the dealers are OK then we can go ahead.”

As far as international dealers are concerned, Liugong only had five dealers outside China two years ago, by last year the number had increased to 20. “Maybe five years from now we'll have 50 dealers”, Mr Zeng said, adding, “Every year we have to get new dealers.” Most of those dealers are in Asia, Africa, Russia, Sweden and parts of northern Europe, and in 2004 the company established a sales company in Australia.

Those international dealers will, initially at least, be selling machines that will be developed specifically for export markets.“The products that we are developing for export markets will be different - we have two standards, one for China and developing countries, and one for Europe and America.” Mr Zeng said.

And there could also be some new products in the Liugong line up, according to the company's president. “In the next five years we will have new products. We're looking at dozer companies and for a chance to buy. But in China it's not so easy to handle this problem - we must make any production very efficient.”

Rental

Finally, as the interview drew to a close, the subject of rental came up. Mr Zeng said, “Yes, rental is very interesting in China. I think over the next 5 to 10 years the industry will change completely as more and more big rental companies become customers.”

It probably wouldn't be too risky to hazard a guess that rental will not be the only sector to change in China over the next ten years or so. There seems little doubt that some manufacturers are likely to go out of business, but there will be many that emerge from this period of change much leaner and stronger. Those companies will almost certainly be looking closely at the domestic market, but they will also be looking at markets overseas.