Outside influences

Whenever you meet a senior manager or executive in the construction equipment business they usually have &hydraulic oil in their veins'. Most have worked in the industry all their lives, often with the same company.

On the one hand this goes a long way to giving the industry its (generally) friendly relationship-oriented drive. The same people crop up time and again, and over the years business relationships develop a strong element of personal friendship.

But it could be argued that this strength is also a source of weakness. Where are the ideas from outside? Where do the fresh approaches come from? How innovative can the industry be if its senior mangers have only been exposed to one specific sector and business model?

In years gone by this &promotion from within' was a defining feature of Japanese corporations across all sectors. The concept corporate loyalty and the expectation of a &job for life' meant many people's careers were invariably spent with one company.

This all makes the appointment of Tsutomu Sakurai as president of Komatsu Europe an intriguing one. Although he started his career with Komatsu in the mid-1970s, he left the company in 1995 to join Applied Machinery, a US corporation with annual sales over € 8 billion, which leads the world in the supply of equipment for the manufacture of integrated circuits.

Mr Sakurai has been back with Komatsu for just under a year, and acknowledges that his appointment has elements of the extraordinary to it. “It's very unusual for a Japanese company to appoint an executive who has just spent 10 years working for another company. It's the first time Komatsu has done it,” he said.

But while Mr Sakurai's appointment is a break from the norm for both the company and the industry in general, Komatsu's choice of president for its European business sends a strong message about what the company feels is needed.

“The semi conductor business is a completely different business to this one. It moves very quickly. But maybe this different business culture can make a positive impact on Komatsu's business model, and I think that's why Komatsu put me into the most traditional market - Europe,” said Mr Sakurai.

“It's very unusual for a Japanese company to appoint an executive who has just spent 10 years working for another company. It's the first time Komatsu has done it.”

Manifesto

“What do I want to do?” asked Mr Sakurai, “At the moment we're moving towards more market solutions. We have already established a retail finance company, and we now offer a captive finance operation locally. We also offer various leasing options.”

It sounds simple enough, but Mr Sakurai's vision entails a re-think of how Komatsu approaches the European market.

“In the semi-conductor industry, everything is done by the manufacturers, and no-one has a dealer or distributor. The manufacturer takes care of the full life cycle of the product, and that is the best approach for quality assurance.

“Dealer networks are very important, but I think this industry needs to mix and match between direct sales and distribution. Manufacturers that just believe in this 19th century dealer distribution model will lose market share, because they simply can't provide solutions,” he stated.

One aspect of &delivering solutions' that has played on the minds of many European manufacturers over recent years is how to approach the equipment rental sector. The market has matured at an incredible pace, with many contractors freeing-up capital by outsourcing their non-core, or even all their equipment needs to rental companies.

But the way manufacturers have addressed the growth in rental has varied widely. At one extreme is Caterpillar, which has encouraged its dealers to set up Cat Rental Store franchises. At the other end of the scale is JCB's chairman, Sir Anthony Bamford, who has frequently described such initiatives as manufacturers &competing with their customers.'

“I have a very clear view on this,” said Mr Sakurai, “There is captive rental, like Caterpillar does, and I am totally against that. Customers need a lot of different equipment and there is just not one supplier. Even Caterpillar does not have a total range of products - it doesn't offer concrete mixers and cranes and so on.”

“So I think if we went for a manufacturer-oriented rental house it would be very limiting. It is not a solution, whereas third-party rental houses can buy what they like.

“The other point is that manufacturers are not very good at this kind of daily turnover business. None of them have ever succeeded in any industry. Nobody.

“Manufacturers that just believe in this 19th century dealer distribution model will lose market share, because they simply can't provide solutions.”

“Day to day businesses like rental are completely different, and today none of these captive rental houses are profitable. There may be artificial profits because manufacturers can offer discounts on the equipment, but it's not the right way.”

Mr Sakurai's approach is to focus on supplying independent rental houses with high quality machines, through a newly established central sales team

“If our products and solutions are better than others we will succeed. The rental market is our customer, and I have set up a direct sales team here that is targeting the top 20 or 30 rental companies in Europe,” he said.

According to Mr Sakurai, this model also fits better with the increasingly cross-border nature of European rental. “Rental machines move around so much that the old geographic territories don't mean anything. Customers don't want to have to talk to a new dealer every time they move a machine around. That's not a solution,” he said.

After the boom

Like most manufacturers, Komatsu is reaping the benefits of a buoyant European market, but Mr Sakurai is mindful of the future. As well as changing the way the company conducts its new equipment sales, he feels there is a place for the semi conductor industry's &cradle to grave' mentality, which means more active management of used equipment markets.

“I want to utilise this good period to reform the way we do business, including used equipment. Sooner or later the peak demand will end and there will be an abundance of used equipment in Europe. I'm preparing for that period when we will have a lot of equipment to export to places like North Africa and the Middle East.

“The good thing about European equipment is that it has the lowest engine and noise emissions, and low fuel consumption. They are the most sophisticated and environmentally friendly machines, and that is becoming more and more important worldwide. Low specification used equipment will not be attractive in a few years, because governments all over the world are developing laws on sustainability and environmental protection. People will prefer to buy high-spec used European equipment,” he said.