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8.3 Global and Chinese Construction Machinery Markets

The internationally highest selling five types of excavating and loading machinery are as follows: hydraulic excavators, mini excavators, wheel loaders, bulldozers, and backhoes. Of these, hydraulic excavators have the largest share. Since 2008, due to urban infrastructure and resource development in China, India, and other emerging nations, global demand for hydraulic excavators has risen sharply. These countries have more than a 60 % market share, which now dwarfs that of Japan, North America, or other developed markets (Fig. 8.3).

Evidently, whether a construction machinery manufacturer succeeds is absolutely dependent upon its success in China and other emerging markets. HCM ranks third in global sales. Caterpillar, ranking first, is strong in transportation equipment such as wheel loaders, but weak in hydraulic shovels. HCM, on the other hand, is overwhelmingly strong in hydraulic excavators, but weaker in transportation equipment. Number two Komatsu's strength lies in its optimum balance of products in its portfolio.

Fig. 8.3 Global demand for hydraulic excavators (units: in thousands) (Source: Hitachi Construction machinery)

In examining country-wise demand for hydraulic machinery, China has the largest market for hydraulic excavators in the world. Demand for hydraulic excavators diminished somewhat in 2009 due to the 2008 economic crisis, although the impact of the crisis was set off by the Chinese government's economic policies (infrastructure construction in the country's interior). In examining region-wise demand structures, the Huadong region, including its coastal areas that are experiencing ongoing development, has the largest market. However, it is expected that future demand will originate from the interior sources such as large government development projects in western China and plans to promote growth in northeastern China. These trends are becoming particularly evident in light of lessened construction demand from export bases along the coast due to the recent economic crisis (Fig. 8.4).

In terms of competition for the Chinese market, Japan clearly has the largest share, dueling with its second place counterparts in South Korea (Doosan Infracore and Hyundai Heavy Industries). Hyundai Heavy Industries' share of the six-ton-orlarger hydraulic excavator market dropped significantly between 2002 and 2008, with Komatsu gaining some market share during that period. As of 2008, HCM held a market share of slightly less than 20 %, Komatsu of more than 20 %, and Doosan Infracore, Hyundai Heavy Industries, and Caterpillar each held between 10 and

Fig. 8.4 Chinese demand for hydraulic excavators (units: in thousands) (Source: Hitachi Construction machinery)

20 %. In the less-than-six-ton hydraulic excavator market segment, in which Doosan Infracore had a virtual monopoly, Hyundai Heavy Industries, HCM, and Komatsu increased their market share from 2002 to 2008, while that of Doosan Infracore dropped dramatically. As of 2008, Hyundai Heavy Industries and Doosan Infracore each had a 30 % market share, while HCM had nearly 20 % and Komatsu less than 10 %. As seen from these figures, Komatsu is HCM's largest competitor in China in the six-tons-or-larger segment, while Doosan Infracore and Hyundai Heavy Industries are the largest competitors in the less-than-six-ton segment. Komatsu has a long history in the Chinese market, first exporting finished products to China in the 1950s and subsequently working to help state-owned enterprises on technology improvements during the late-1970s through the mid-1990s. Their serious efforts to enter the Chinese market began in 1995, with the creation of three JVs around that time: Komatsu Changlin Construction Machinery Co., Ltd. and Komatsu Changlin Foundry Corporation, both with Changlin Co., Ltd.; and Komatsu Shantui Construction Machinery Co., Ltd, with Shantui Construction Machinery Co., Ltd. Komatsu currently has eight production facilities in China, procures most of its parts locally, and is dramatically increasing its share in the Chinese market. However, Komatsu also faces issues, such as slow decision-making, due to the JV arrangement and sales channel distribution problems resulting from using the JV sales network. Doosan Infracore belongs to the Doosan Group and is a Korean manufacturer of construction machinery. In 2007, the company announced its mid-term goal of becoming the world's third largest construction machinery manufacturer after Caterpillar and Komatsu by 2012. Within Korea, Doosan competes with the general heavy industries manufacturer, Hyundai Heavy Industries.

In addition to foreign firms, local companies in China have increased their competitiveness. This is due to startups being established by engineers from former foreign firms, the purchase of strategic parts, and the supply of low cost parts. The market share of these local firms has risen to 20–30 %. For example, Sany Group Co., Ltd. is a large construction machinery manufacturer that looms as a fierce competitor. Sany Group is a private company listed on the Shanghai Stock Exchange. In 2007, the company planned to construct factories in India and the state of Georgia in the US. Sany focuses on research and development, and has more than 2,000 employees dedicated to R&D, which is about 10 % of its total employees. In addition, it pays higher wages compared with other companies in the industry, and is said to attract top talent.

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