The machinery spree

Demand for infrastructure cements contracts for Chinese construction companies

After riding the domestic growth wave for many years, Chinese construction machinery makers are gearing up to take advantage of the huge opportunities coming their way in Africa's vast infrastructure market.

Many of these opportunities come from the continent's increasing demand for infrastructure projects, especially in fast growing markets such as Nigeria, Ghana, Ethiopia and Kenya, and are focused on sustainable development in urbanization and industrialization and in the service and communication sectors.

International players have been consolidating their presence by diversifying their localization strategies and sewing up more alliances throughout Africa.

Chinese construction machinery makers such as Xugong Group Construction Machinery Inc and Sany Heavy Industry Co Ltd have been aggressive in their marketing, and have proved to be worthy opponents in Africa for the likes of Caterpillar of the US and Komatsu of Japan.

Shantui Construction Machinery Co Ltd from Shandong province has stepped up its efforts to form ties with local dealerships to expand its market presence.

It has concentrated on selling excavators, bulldozers, pipe-layers, road rollers and wheel loaders for construction markets in West Africa and Central Africa for four years, machinery needed to develop mining, harness forest resources and work on hydro and road projects.

"We will invest $3.5 million in this market over the next two years," says Wu Bin, chief representative of the Africa business department of Shantui. "The money will be spent on adding more local dealerships, distribution warehouses, spare parts sales and leasing."

Wu, 33, who has a master's degree in precision chemical engineering marketing from Paul Cezanne University Aix-Marseille III in France, was taking time out one evening in a Chinese restaurant in central Accra. To further promote Shantui's products in African countries where few people speak English, he travels to Francophone countries such as Chad, Cameroon and Senegal once a month, he says.

The construction machinery business in Africa is unusual in that manufacturers are required to deliver goods to buyers much earlier than anywhere else, usually two months. This puts a lot of pressure on machinery makers' cash flow.

"So strengthening the dealership network is an effective way of reducing financial risk in a new market, because our African dealers are familiar with both market environment and customers," Wu says. "We're both out to make a profit, and they want a return on their outlay as soon as possible."

Shantui chose Accra as headquarters for its West and Central Africa operations and now employs about 32 African sales and service supervisors alongside 54 Chinese selling its products in Accra, Lagos and Lome.

The company sold 814 types of construction machinery in West and Central African markets last year, about 20 percent of the company's global business. Togo, Angola, Nigeria and Ghana were the main buyers, accounting for 60 percent of the machinery.

Tony Dawson-Amoah, general manager of Shantui West Africa Ltd, who was earlier in the management team of Caterpillar Inc's Middle East branch, says Chinese companies in Africa need strong local partners to handle price negotiations, delivery, payments and after-sales services.

Wu says Shantui has received encouraging responses for its moves from dealers and consumers. Last year the company sold 353 bulldozers in West and Central Africa through its 51 local dealerships, the value of those sales totaling $10 million.

"Dealerships are also essential for market segmentation, logistics and winning new customers and reputation in these regional markets," Dawson-Amoah says. "To ensure after-sales services, all our products to Africa are required to add critical components such as brake pads and transmission shafts when they are being exported from Tianjin, Shanghai and Qingdao."

Many Chinese companies, including Sany Heavy Industry Co (Kenya) Ltd, a subsidiary of Sany, are displaying the same fighting spirit they would at home. Sany has deployed various strategies to retain and grow its market share in Africa.

With 220 Chinese working in East Africa, the company is now responsible for five markets in the region: Kenya, Tanzania, Uganda, South Sudan and Ethiopia.

Li Lei, general manager of Sany Heavy Industry Co (Kenya) Ltd, says that though some international companies have a technological edge over their Chinese rivals, the current African market does not need machines with the best technology, but durable products and powerful engines that can cope with multiple tasks and tough road conditions.

Li, who has been selling Sany construction machinery in Kenya for seven years, believes the demand for it in East Africa will last at least 30 years.

Kenya's 2010 constitution has introduced fundamental changes in the management of public finances, empowering more financial autonomy to provincial governments to improve the economy and infrastructure. As a result, work on building new roads, highways, buildings and even small airports is febrile right now.

Li says many people in East Africa are keen to buy construction machinery to become contractors or to lease it out. Thanks to political stability, advanced port facilities and relatively developed logistics firms, Kenya also plays an important role in supplying construction machinery to the Democratic Republic of Congo.

In contrast to Shantui, whose West and Central African sales are being pushed along and being partly managed by 51 dealerships in 27 outlets in different countries, Sany is focusing on selling machinery to big buyers in East Africa, where demand is strong.

The company says it is now negotiating with the Ethiopian government to set up an assembly plant in Addis Ababa next year to move closer to the market. It also says that it hopes to win a bid for nine port cranes to Kenya Ports Authority this year. Uganda's National Housing and Construction Co Ltd, the Ethiopian National Defense Force and Tanzania National Roads Agency are among Sany's biggest customers in the region.

"These customers have deep pockets and like value-added services, and we hope to bring the entire gamut of products to core customers," Li says.

"This will not only add customers, but also draw more companies and rich individuals to our brand."

The Chinese company has set up direct-service platforms for its customers and sends them the latest product information, while specialists in different places offer advice on saving fuel, maintenance and component replacement. The company has a warehouse in Nairobi where spare parts are stored.

"All our African and Chinese service engineers are continually being trained on higher standards in specialized applications and product maintenance," Li says. "We are also in the process of establishing a showroom, training center, workshop and assembly factory in Nairobi.

"Chinese construction machinery makers are set to become some of the largest beneficiaries of the infrastructure boom in Africa and South America, where competitive prices, localization and working with big consumers are key," says Lu Chuan, vice-president of Xugong of Jiangsu province.

"With improved technology and evolving international expansion plans, we have to speed up so we can confront bigger challenges."

Xugong won an order for 117 machines in Guinea in January, a sales record of $10 million in its West African market. The products include more than 10 types of machinery such as dump trucks, cranes and loaders.

zhongnan@chinadaily.com.cn

(China Daily 04/19/2013 page6)