Going the extra yard

Machinery makers find scooping up bigger overseas market share is down to listening to customers' needs

Going overseas is no longer as easy as loading the products on a ship and selling them quickly in the Middle East or North Africa.

Machinery manufacturers such as Liugong Machinery Co have to go out of their way to listen to foreign clients and modify products to suit local conditions.

Sitting in his office in Liuzhou, Qin Yong, deputy general manager of international business at Liugong Machinery, has encountered circumstances he never imagined.

In Thailand, for example, a major producer of rice, most loading machines are bought for shoveling grain. But a machine with a regular arm cannot reach the bottom of the country's standard rice piles, so Liugong Machinery had to develop a specially extended-arm machine for the Thai market.

Another adaptation has been necessary for Brazilian farms, where insects regularly fly into mowers, damaging their heat radiators during the grass-cutting season. Here, the company revised the radiator part to make it less accessible to insects.

Like other Chinese machinery companies, Liugong Machinery's major export destinations are emerging markets such as Southeast Asia, Russia, Central Asia and Africa, which Qin calls "the second home markets".

The unprecedented attention to overseas markets is partly due to the sluggish domestic market of the past two years.

The most popular models in these markets are loading machines and excavators.

Wang Xiaohua, president of Liugong, says the market has seen a turning point since 2011.

"The past 10 years have been golden years for the Chinese market, but over the next decade, it will slow down and see modest growth," he says. "I don't think China's machinery market will create another miracle as it did in 2009 and 2010."

Liugong's financial report shows revenue in the third quarter down 27 percent to 2.57 billion yuan ($412 million, 318 million euros) from the same time last year.

Wang predicts that many small-scale manufacturers will close down in the next three to five years. "Currently there are about 200 manufacturers, but only 10 percent are needed," he says.

His company's efforts to concentrate on overseas markets seem to have paid off. This year, Liugong's export volume is expected to reach 10,000 units. Five years ago, it was only 2,700 units.

Since 2002, the company's export volume has increased by 70 percent every year, and the value of its exports has risen from $4 million to $500 million.

It aims to make overseas sales one-third of overall sales by 2015. Currently, they represent about 24 percent of total sales volume.

The past five years in particular have seen demand surge from Latin America, the Asia-Pacific, and the former Soviet republics.

Qin says Liugong Machinery puts its success in overseas markets down to good distribution networks and after-sales service.

It has signed agreements with local distributors to sell products, so the brand can respond quickly to customers' needs.

"Building overseas networks is very expensive and time-consuming. It is made much easier by cooperating with local distributors," Qin says.

In terms of research and development, the company has hired 140 local experts as they "have more knowledge of the global market".

Although Liugong has made impressive achievements in overseas markets, it is yet to enter the mature markets such as western Europe.

"To enter these markets, we need to meet the high standards set by these countries, which emphasize noise control and operation comfort," Qin says.

He admits the biggest advantage of Liugong Machinery is still competitive pricing. Compared with well known brands such as Caterpillar, the loading machine produced by Liugong is a third of the price.

Qin says the company is following the route Japan took during the 1970s and 1980s, when products were cheap and lacking in strong brands.

"But as costs increase, price competitiveness will fade out, and we have to improve the product reliability and build our brand, so we can earn a better profit margin in the future," he adds.

Lack of technology to produce key components is another challenge on its way to becoming a world-class company.

Currently, hydraulic parts are purchased from Japan, the power train from Europe, and engines from Cummins.

But the situation is changing slowly. Earlier this year, Liugong partnered with Cummins to build an engine company in Liuzhou, which will start operation next year. The total investment amounts to 1.65 billion yuan.

Exporting products is the first step and Liugong is seeking cooperation in various forms. In 2009, the company established a "complete knock-down" company in India, and earlier this year, it acquired Polish bulldozer company HSW to supply clients in eastern and southern Europe, and Russia.

The CKD form is just temporary, says Qin. "Liugong Machinery eventually needs to operate locally in the target markets," he says.

"Back in the 1990s, the foreign governments welcomed us building CKD plants and assembling machines in their countries, but now they expect much more from us - we have to create jobs and help to build the supply chain for them."

Huang Ziqiang, deputy general manager of Liuzhou Motor, says companies need support from the Chinese government when exploring overseas markets.

"The Chinese government is offering duty refunds for export companies, but that's not what companies need the most," he says.

"I wish the government could provide more legal services to us, so that we can get around various barriers and settle down in the target markets."

Contact the writers at wangchao@chinadaily.com.cn and huoyan@chinadaily.com.cn

Huang Feifei in Nanning contributed to this story.

(China Daily 12/28/2012 page16)