Laying a solid foundation

Chinese heavy machine maker uses subsidiary instead of dealers for success in South Africa

Taking the road less traveled can not only bring in profits but also help build sustainable relationships, as Shantui, a Chinese heavy machine maker, discovered recently in South Africa.

But what really makes Shantui different from its global and Chinese peers is its far-sightedness in setting up a network of fully owned subsidiaries in South Africa, rather than dealers. Also on the cards are steps to broaden the network in Africa by having its own distributors, say company officials.

"We are totally focused on Africa, as we believe that it is an emerging market that offers immense long-term growth potential for our products. Our strategy hinges on setting up subsidiaries, and later distributors, in strategic markets so that we can be closer to the markets and customers with our products," says Dylan Chicken, general manager and director of Shantui Equipment South Africa (Pty) Ltd.

Chicken, who has worked for over seven years with the Chinese company, including three as a dealer, says that Shantui had anticipated it would succeed in the long run.

"When our parent - Shandong Shantui Construction Machinery Import & Export Co Ltd, based in Jining, East China's Shandong province - started its African operations in South Africa in 2009, like most of its peers it was also reliant on a network of local dealers to push its products. But it was a bad time for the company as most of the dealers were hit by the global financial crisis and eventually closed shop," Chicken says during an interview at the company's expansive office in Kempton Park in the Gauteng province of South Africa.

"Luckily for us the parent company had decided to register a subsidiary in South Africa in 2009. This became fully functional in 2010," he says.

Explaining the difference between the two approaches, Chicken says that dealers are generally independent individuals or entities who are associated with several companies and products, while a subsidiary is a divisional company owned by the parent company. What makes the subsidiary option more viable is that it enables companies to alter their marketing and distribution strategies quickly according to fast-changing market needs, he says.

"Shantui took the latter option so that it could reach out to more customers and also strengthen and be closer to the market and its customers in Africa. The South African subsidiary is much like the first-born child of our global subsidiary network," he says.

"Success is ultimately all about being present in the right markets with the right products and at the right time. The subsidiary route has enabled us to achieve this goal."

The parent company currently has 10 subsidiaries across the world. Three of these are in Africa, with Ghana and Kenya being the other two locations. The South African subsidiary is headquartered in Johannesburg and covers markets like Mozambique, Namibia, Botswana, Zimbabwe, Zambia and Madagascar.

"Apart from sales, the subsidiary also functions as a center for support, services and training," says Yue Peng, the representative of Shandong Shantui Construction Machinery in South Africa. Yue says that the subsidiary accounts for half of the parent company's overseas revenue and has over 14 South African employees.

The subsidiary currently imports construction machinery and smaller- sized mining equipment from China and distributes them in the local markets.

"Our main goal is to be a key player in the market by setting up a proper distribution network."

While setting up the distribution chain is still top priority, it does not mean that Shantui is sidestepping on innovation or quality, Chicken says.

The Chinese company has already made a good beginning and is now the third largest bulldozer supplier in South Africa, after Caterpillar from the United States and Komatsu of Japan. In excavators, it is pitted against brands like Honda of Japan and Doosan from South Korea, and in the loaders market, against Chinese peers like LiuGong and Shandong Lingong. The company also faces stiff competition from German companies in the construction machinery sector.

"Though the competition is stiff, we have some inherent advantages in South Africa. The dealer network has already lent a solid platform for us to build upon," he says.

"We did not come with zero machines, rather we had several machines in the market already. The other advantage is that we are here as a fully owned subsidiary. So we have common objectives, strategies and purpose with the parent company. Dealers, on the other hand, are interested in making profits for just themselves," Chicken says.

Yue, from the parent company, says that unlike other brands, Shantui also enjoys several price advantages.

"Pricing is the most obvious way to attract more customers and gain acceptance," Chicken says. "But that alone is not enough. Companies also need to have the requisite infrastructure to keep the network ticking, especially in terms of support and services."

"South Africa is different from other African markets," Yue says. "Customers, like those in developed markets, emphasize the manufacturer's comprehensive capabilities such as quality consistency, promptness of services and supply of spare parts as well as the global influence of the brand," Yue says.

Shantui has so far sold about 600 machines in South Africa, a market that has an estimated annual potential of 7,000 to 8,000 machines, especially for mining and construction, Chicken says.

"We expect the South African market to pick up rapidly as the government has recently launched a national infrastructure development plan."

He says that future demand will mainly come from construction, mainly roads, ports and water distribution facilities, and agriculture, which is expanding owing to rising food demand in South Africa and other African countries. Mining demand may remain flat in the long term, depending on demand from the coal sector.

"At the same time we are also taking the next step by setting up a full-fledged distribution network. The subsidiary model needs support from a robust distributor network, especially in terms of brand promotion and product placement. If we have a mature distribution network in place, we will be able to reach out and service more markets," Chicken says.

"It has been a slow and difficult process for Chinese companies to establish their products in South Africa. But the process has been much more easier than in other African markets."

"Chinese brands are making rapid strides in quality, especially during the past five years. This is remarkable, considering that it took over 20 years for most of the Japanese brands to make a mark," he says.

Contact the writers through lijiabao@chinadaily.com.cn

(China Daily Africa Weekly 05/30/2014 page19)