Excavating Construction Equipment Opportunities and Challenges

Is the earth about to move under the US $70 billion global construction equipment (CE) industry? We have identified four topics with significant strategic implications for CE companies worldwide:

Cyclicality

Faced with the breakneck pace of business cycles in mature markets, CE players need to find new ways to predict and take the edge off the industry's wild swings. We have developed a simple regression model that effectively describes demand trends. Based on an aggregated version of this model, we developed long-term CE market forecasts for key global markets, which suggest significant future growth for North America and Western Europe but a continued decline for Japan. While smart forecasting represents one element of our proposed approach for reducing the margin impact of a market downturn, another option is to establish a diversified and flexible business model.

CE Growth in China

China is by far the largest emerging market for construction equipment. While within China local brands dominate the wheeled loader market, foreign brands capture a greater share of the market for crawler excavators, due to their superior technology.

Global players should consider entering the Chinese wheeled loader market as quickly as possible. Localizing production in China could significantly boost a CE company's global competitiveness. However, to be competitive in wheeled loaders, Western players must rethink their operational approaches and product offerings. While global OEMs continue to control China's excavator market, local players have steadily taken share away from low-cost foreign manufacturers. To fight back, foreign low-cost producers need to tap new ways to reduce costs, such as improving the range of value-added services they offer or providing new levels of customer support. They can also increase their local content levels and explore opportunities to adjust product specifications to include only the features customers really want and are willing to pay for.

The Challenge from Emerging CE Manufactures

The threat from low-cost players entering mature markets will likely come in two waves. In the first, low-cost South Korean players will further expand their mature-market presence. In the second, beginning around 2012, Chinese players will begin entering mature markets in the low-cost-product segment. In the face of these developments, mature-market players must act now to improve their cost position. They clearly require a defensive strategy focused on improving cost efficiency and further exploiting the existing advantages in technology, distribution networks, and brand positioning. Conversely, players from emerging countries seeking to expand into mature markets must improve their technology and product quality and begin to build sales and service networks. They must also position their brands competitively in the low-cost segments.

Customer Needs

Our research into customer needs reveals that basically all industry players should work more effectively to tailor their business systems to different needs. We conducted a global customer survey that revealed four distinct, needs-based customer segments. We found that these segments vary in size across regions, and especially between developed and emerging markets. We also learned that many global CE brands are positioned relatively consistently across regions but that all players could further sharpen their brand profiles to address customer needs even better and more efficiently.

 

Executive Leadership

 Mr. James Moore

Mr. James Moore

 Mr. David Solomon

Mr. David Solomon

Productivity Solutions

We help companies create dynamic performance measurement with a focus on what really matters to the business. We build dashboards that serve as barometers of ongoing business performance and help companies devise tailored compensation systems that will reward actions and behaviors that advance the organization's goals and drive decision effectiveness. more