Machinery Makers Eye Opportunities Further Afield
www.chinatrucks.com: Africa has become an increasingly important investment destination for Chinese machinery and auto companies. Liugong Machinery Co, based in Liuzhou in the Guangxi Zhuang autonomous region in South China, has listed Africa as one of its "second home markets", along with Southeast Asia, Russia and Central Asia.
As tax barriers increase and profit margins get slimmer, Chinese manufacturers have to try other approaches to explore overseas markets, including building "complete knock-down" plants, where machinery is delivered in parts and assembled locally and procuring materials locally.
Qin Yong, deputy general manager of international business at Liugong Machinery, said the most popular models in these markets are loading machines and excavators.
South Africa is the "superstar" in the African market. During the first three quarters of 2012, Liugong Machinery sold 830 units in South Africa and gained revenue of 390 million yuan ($62 million), up 117 percent year-on-year. The company is represented in most African countries with around 30 dealerships.
Domestic truck sales are also stalling sharply. Major commercial vehicle manufacturer Dongfeng Liuzhou Motor Co estimates its truck sales will drop 50 percent from 60,000 last year to 30,000 in 2012 due to shrinking demand.
Huang Ziqiang, deputy general manager of Liuzhou Motor, said the greener pastures are overseas and the domestic truck market is almost saturated. The company has exported trucks to Southeast Asia, Africa and South America.
SGMW, a joint venture in which SAIC Motor Corp, Liuzhou Wuling Motors Co and GM China have stakes, is also treating Africa as one of its most important overseas markets. A factory has already been established in Egypt, serving the North African and Middle Eastern markets.
Qin said Liugong Machinery attributes its success in overseas market 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.
Qin said Liugong's greatest advantage remains its machinery's competitive pricing. Compared with renowned brands such as Caterpillar, the loading machine produced by Liugong is a third of the price. But as more Chinese companies enter emerging markets, the price competition is getting fierce.
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 Inc, a Chinese engine maker.
Exporting products is the first step and Liugong machinery 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 Huta Stalowa Wola SA to supply clients in eastern and southern Europe.
"The Chinese government is offering duty refunds for export companies, but that's not what companies need the most," he said. "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."
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