Market Study in China: Sany looks to reduce dependence on Chinese market

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Sany Heavy Industry, the largest construction equipment manufacturer in China, has dominated the country’s booming market in recent years. Now the company has its sights set out on different markets as the Chinese construction boom slows. Although it is climbing the ranks of construction equipment companies and surpassing industry giants such as Manitowoc, the company remains reliant on the Chinese market. Today, Sany ranks as the fifth largest construction equipment company in the world and now competes with established industry leaders such as Caterpillar, Komatsu, and Hitatchi. Despite this apparent rise to dominance, 81.3% of the company’s revenues remain in China as of 2012. As evidenced by its 44% drop in net profit in the first quarter of 2013, Sany must find new markets to avoid collapsing in the slowing Chinese market.

Caterpillar’s struggles in China

Even though China’s recent increase in interest rates has slowed the Chinese construction industry, the country remains as one of the largest market for excavators. Market studies show that last year, Sany maintained its dominance in this market with a total market share of 11% for excavators compared to Caterpillars 7%. Caterpillar, the global industry leader, struggled to gain market share in the Chinese construction boom from 2008-2012. Although Caterpillar’s excavator sales quadrupled from 2005-2010, its market share shrunk from 11% in 2005 to 7% in 2012. Ed Rapp, a group president at Caterpillar, recently stated, “the best way to beat the Chinese outside of China is to compete and win with them inside of China.”  Despite this, Caterpillar is struggling to compete with China’s domestic manufacturers like Sany as shown by its recent write-down in the value of a Chinese mining-equipment manufacturer it bought last year.

Obstacles impede Sany’s entrance into the U.S. market

Similarly to Caterpillar’s struggle in China, Sany is struggling to penetrate the U.S. market. Although the company opened a factory in the U.S. in August of 2011, its lack of a dealership network poses as an immense obstacle in its entry into the U.S. market. The new Sany plant can produce about 20,000 excavators per year, but currently produces only about half of that due to the lack of demand. Since opening the factory, Sany has sold only a few hundred excavators compared to the 24,000 sold in the U.S. last year. In addition, the company lacks the core skill and technology to build some of its parts, which it purchases from other companies. This puts Sany at a disadvantage to companies like Caterpillar, especially in an unfamiliar market.

Sany is working hard to improve its presence outside of China as it hopes to attain its goal of $47 billion revenues within 10 years. Despite the company’s reliance on the Chinese market, international sales have increased in recent years.  Sany is also looking for more acquisitions and joint ventures to diversify its product line and increase sales. Sany’s investors applauded its 2012 acquisition of German Putzmeister, a manufacturer of concrete pumps. Due to increased competition in China and uncertainty in foreign markets, Sany’s future is unclear, but the company hopes that its recent string of ambitious endeavors will pay off.

Sources:

CNN

Wall Street Journal 1

Wall Street Journal 2

Forbes

Sany official website

marketing research china
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