Interview: Liugong's Zeng Guang'an
By Chris Sleight09 November 2010
Liugong has long been viewed as one of the more serious equipment manufacturers to emerge from China over the last decade. It was established in the late 1950s and has more than 50 years' experience building wheeled loaders. In fact its strong presence in the enormous Chinese wheeled loader market means it is reckoned by some to be the largest manufacturer of these machines in the world - ahead of the household names like Caterpillar, Komatsu and Volvo.
But Liugong today is about more than just the Chinese market, and more than just wheeled loaders. Its portfolio now includes excavators, cranes, graders, rollers, pavers, milling machines, skid steer loaders and backhoe loaders, and it is growing all the time.
Despite terrible market conditions around the world over the last two years, Liugong continues to invest in its export infrastructure, as president Zeng Guang'an explained.
"We will open another three subsidiaries this year. One in Singapore for south east Asia, another in Dubai for the Arabic markets, and a third in Johannesburg, South Africa for the sub-Saharan markets. So by the end of this year we will have nine regional subsidiaries for the international markets taking care of service, parts, marketing and so on. It's a big change for us to move things closer to the markets, but of course there is a lot of support from the home factory."
As well as these sales subsidiaries, the company has an ambitious plan to open various manufacturing facilities around the world. Indeed, Liugong make history last August when it became the first Chinese construction equipment manufacturer to open a factory outside its home market with the inauguration of a 177000 m2 wheeled loader plant in Pritampur, near Indore in India.
Liugong invested US$ 30 million in the facility, which is designed to put out as many as 2000 wheeled loaders per year, as well as excavators, backhoe loaders, compaction equipment and forklift trucks. However, according to Mr Zeng, things have got off to a slower than expected start.
"We're working on improving the skills of the workers, because they were very poor. We also looked at the efficiency and safety, which has improved a lot. Now we can produce 30 wheeled loaders per month, which is only a proportion of our sales - we're still importing machines from China.
I think in the next year we'll reach 500 or 600 machines per year. The sales have not been bad so far, and next year we would hope to break even," he said.
But undaunted by this, the company is looking to other key regions to set up factories, and one of the highest priorities is Latin America. Interestingly, the company seems to have learnt some tough lessons from its experiences in India, but at the same time Mr Zeng is more up-beat about Latin America.
Brazil looks the favourite location, partly because it is by far the largest market in the region and partly because tariffs make imports uncompetitive. This also goes for components, and the rule is that equipment built in Brazil has to have at least 60% of its content sourced locally to avoid this penalty.
But according to Mr Zeng, the country has a lot going for it as a potential manufacturing base for Liugong.
"We could definitely source a 60% in Brazil - engines, cabs, cylinders and so on, it would just be a few things like drive lines that would come from China. That is different to India say, which is very poor in terms of suppliers. They have a good manufacturing base with suppliers and skilled people," he said
Another region high on the priority list is Eastern Europe, and here the plot thickens, because earlier in the year the company was rumoured to be looking at acquiring a Polish construction equipment manufacturer.
Mr Zeng's enigmatic reply when asked about this was, "If a rumour becomes true, it's true. Otherwise it's just a rumour."
Whether this turns out to be truth or rumour, the question of organic growth vs. acquisition is one Mr Zeng has obviously grappled with, and his instincts seem to point towards organic growth.
"If you buy a facility, that's faster, you save all the time it takes to build a factory, but any business you can buy is usually in big trouble, and that is a challenge. How do you manage that and set up a new strategy and merge it with our strategy? So if we built our own factory, it's less risk, you can put good people in place, but your growth will be slower."
Having the network and manufacturing footprint is part of the jigsaw for Liugong. The other half is its range, which has grown fast over the last few years from the core of wheeled loaders.
Overseeing this is vice president for product development David Beatenbough, an American whose career includes time with CNH among others.
Explaining the driving forces behind the company's plans he said, "We basically have two things to do. We need to maintain our strength in China, and we have to build strength and leadership outside China. That means a lot of our product development is going to be focussed on products that meet the needs of international markets.
"There are two thrusts to that expansion. One is expanding our range, and the second is customising our product range to suit the markets. We're working pretty aggressively in both areas.
"Using the excavators as an example, today we have a 4 tonne model and we go up to a 36 tonne model. We're working on machines that are both bigger and smaller than those and we're also working on models to fill some gaps in the range."
Perhaps the biggest challenge for any Chinese manufacturer is to overcome the perception of its products being 'cheap and nasty', particularly if they are going to be successful in more developed markets like Europe and the US.
It is a challenge that Korean manufacturers like Hyundai and Doosan have faced before, as have the likes of Komatsu and Hitachi from Japan. According to Mr Beatenbough, it is a key area of the company's development.
"We recognise that for the advanced markets we need a lot of operator comfort features. So we've got a new cab that is about 18 months away from production. I hate to use the old phrase, but it is 'state of the art'. It truly is globally competitive in terms of operator comfort and features.
"Then there's efficiency, which is not limited to the advanced markets. Everyone's interested in that. So we've spent a lot of effort on optimising our control systems. Six months ago we launched a new version of our control system that gives us about +10% more productivity and at the same time our fuel consumption goes down by -10% to -12%, all through better matching of the engine to the pump through the electronic controls. The next generation of controls will see a similar step jump."
In terms of technical challenges, the big one for all equipment manufacturers at the moment are the pending Interim Tier 4 and Stage IIIB engine emission laws in the US and Europe. These regulatory barriers are such that many Chinese manufacturers have chosen not to tackle them, preferring instead to focus on emerging markets where there is little or no regulation on exhaust emissions.
However, in doing this, they are turning their backs on two of the largest markets in the world. Recognising this, Liugong is putting considerable efforts into its interim Tier 4/Stage IIIB compliant machines.
"It's been a challenge for us. A lot of the challenge has been that the engine suppliers have not been ready, and it has been difficult to get prototype engines when we needed to start our development work. But we have them now, and we have prototype excavators and loaders under test right now.
"One of the big challenges with the Tier 4 engines is the cooling system, and I'm very pleased to say that we've resolved that in a reasonably sized package. I'm very pleased to get over that hurdle, because six months ago that was keeping me awake at night," said Mr Beatenbough
Watch this space
Liugong is by no means the largest Chinese construction equipment manufacturer. XCMG, Sany and Zoomlion are all ahead of it, and it was placed 21st in iC's 2010 Yellow Table ranking of the world's largest construction equipment manufacturers (see April 2010 edition of iC).
But considering it moved up five places on the previous year, and according to Mr Zeng, "It is the best year in our history," with first half revenues up +65%, it looks set to keep on climbing. Liugong is certainly one of the most internationally minded manufacturers China has to offer, and if it can time its investments in markets like Brazil, Europe and elsewhere well and offer good machines it has a good chance to become a serious player in the global industry.