Foreign brands withdrew for a reason, the domestic construction machinery brand rose strongly.

A foreign brand withdrawal from the Chinese market news, become the construction machinery industry recently concerned about the hot topic.

 

A foreign brand withdrawal from the Chinese market news, become the construction machinery industry recently concerned about the hot topic.

With nearly 130 years of history of Japanese construction machinery manufacturers - Kato Manufacturing Co., Ltd. has announced that it will be dissolved and liquidated in Kunshan City, Jiangsu Province, the hydraulic excavator manufacturing and sales subsidiary - Kato (China) Construction Machinery Co. In addition, Kato Zhongjun (Xiamen) Construction Machinery Co., Ltd. (hereinafter referred to as “Kato Zhongjun”) in August gradually began liquidation procedures. A series of frequent actions, means that Kato will completely withdraw from the Chinese market.

In fact, Kato is not the first foreign brands from the Chinese market exit. Three years ago, John Deere announced that since November 1, 2021, will gradually stop the construction machinery sales in China. Case New Holland Industrial Group announced that since December 31, 2022, to stop the construction machinery and equipment sales business in the Chinese market.

Behind several news, both the strong rise of domestic construction machinery brands, but also foreign brands of bitter helplessness. The former “generation of the king of the machine”, exit the Chinese market, is the strategic adjustment of the direction of business development, or the price war led to the lack of profit? Is the domestic enterprises crowded market share, or to India and other low-cost labor countries in Southeast Asia, the transfer of manufacturing plants? Their exit, and to the Chinese construction machinery industry to bring what reflection and opportunity?

 

 

Timely stop loss business situation is difficult to improve.

Severe sales environment continues to affect the business situation is difficult to improve, Kato announced the withdrawal of China in time to stop losses. Behind it, there may be a product positioning and market demand does not match the reason.

KATO - Kato, was considered to be “high quality” synonymous with senior practitioners of construction machinery in China is no stranger, especially in the eighties and nineties of the last century, a large number of second-hand excavators from Japan into China, with more than a decade of the machine is still solid, durable, less problems.

Public information shows that Kato was founded in 1895, Japan's well-known construction machinery company, its product range covers all types of cranes, excavators, etc. 2023 global engineering machinery 50 list shows that Kato ranked 48, with an operating income of 483 million U.S. dollars.

In 2004, Kato Manufacturing invested in a factory in Kunshan and established Kato China, mainly producing hydraulic excavators. As China's economy grew at a rapid pace, so did the demand for construction machinery, and for a period of time around 2010, Kato's China business drove the growth of the entire company. As of the end of 2023, the company had 75 employees and the factory building covered 27,977 square meters.

Although Kato once held the aura of being one of the world's top 50 construction machinery companies, its presence in the Chinese market has become weaker in recent years. The company's operations have been struggling for the past two to three years. in fiscal year 2022, Kato's revenue fell and it lost money. Its statement shows that in the last nine months of 2022, Kato China had a loss of 589 million yen, or about 30 million yuan, on revenue of 1.884 billion yen; in the same period of 2023, its revenue was only 1.489 billion yen, with a loss of 888 million yen, a widening of the loss.

From this point of view, in order to reduce inventory, Kato China decided to stop production in March this year, only committed to business activities, but with the continued impact of the severe sales environment, the business situation is difficult to improve, announced the withdrawal of China in time to stop the loss, not unexpected, but also in line with Kato prudent and conservative business style.

As Kato's official statement said: due to the past two years, China's market demand continued to decline, as well as fierce price competition, resulting in the company's business in a very severe state. Considering the factors such as the increase of inventory in the factory due to low sales and the inability of Chinese domestic demand to recover, the company decided to suspend the production of the factory for the purpose of production adjustment.

Behind this, there may also be a mismatch between product positioning and market demand. “People familiar with Kato know that Kato excavator domestic market product positioning and marketing strategy has been to take the high-end route, with excellent product quality and technology to win customers to digest the limited production capacity, mainly by low sales, high profits to survive.” A person in the construction machinery industry for many years, told reporters, “Kato the same tonnage of product prices, sometimes higher than similar domestic brands, and even more than Caterpillar and Komatsu and other first-line international brands. Therefore, Kato excavators in the Chinese market has maintained a low market share, but the reputation is not bad.”

 

 

The pattern of change, the rapid rise of domestic brands.

It is in the market environment of domestic brands pressing step by step, the survival space of foreign brands is seriously compressed.

In fact, this business positioning in 2019 years ago may still be relatively successful words, but with the domestic excavator brand influence and product quality continues to improve, especially in the last 10 years to XCMG, LiuGong, Shandong Lingong, Zoomlion, Sany Heavy Industry, etc. as the representative of the rapid rise of the independent brand, greatly squeezing the Japanese, Korean, European and American excavator's living space.

Think back to 2000, when the Chinese excavator market, foreign brands accounted for more than 95% of the market share of China's excavators, the local brand sales of only 502 units, accounting for 5% of the total market. In the economically developed and competitive Guangdong and other regions, the sales of domestic excavators are almost zero. In 2010, the market share of domestic brands was only about 30%. But by the end of 2020, the share of domestic brands in China's excavator market has exceeded 70%.

In 10 years' time, the market share of domestic and foreign capital is opposite. From design to technology, from the engine to the pump valve, from market development to brand marketing, domestic brands continue to break new ground and conquer the city. This strong rise, not only in quantity, but also the rise of quality, reflected in the full range of machine categories.

“It is worth noting that in the first half of this year, with the gradual warming of infrastructure investment, and infrastructure construction is closely related to the excavator, loader, etc. showed bottoming out and rebound trend.” China Construction Machinery Industry Association deputy secretary-general and spokesman Lv Ying further said, industrial vehicles, graders, loaders to achieve positive growth, the remaining nine categories of products continue to show negative growth, excavators cumulative decline narrowed significantly, tower cranes due to the impact of the domestic real estate investment continued to decline sharply, a decline of 57.2%.

From the excavator sales of major manufacturing enterprises, April-June this year, sales of various types of excavators were 18,822 units, 17,824 units, 16,603 units, an increase of 0.27%, 6.04%, 5.31%, has achieved three consecutive months of positive growth rates.

It is in the domestic brands step by step to press the market environment, foreign brands of the living space has been seriously compressed. At the same time, the changing construction machinery market, constantly breaking the bottom line of the price competition, from small digging to large digging, sales channels from micro-profit to no profit, and then to negative profit, the independent brand market share of the counterattack of the soaring still lingering, the industry downturn in the competitive involution but also rapid attack, not only broke the similar Kato such conservative business managers' cognition, but also a lot of practitioners feel confused about the way forward, Winter is coming.

On the other hand, as China's economy continues to deepen the transformation and upgrading, infrastructure gradually improved, it can be said that “almost touch the construction machinery domestic market incremental ceiling”. Is in the brutal competition to insist on living down the last to become the “king of the leftovers”, or find another way out to convert the track, whether it is manufacturers, agents, or construction machinery leasing and end-users, at this time may have come to the moment must hand over the answer sheet.

 

Market first leading enterprises to deer in the global.

With Kato bid farewell to the Chinese market corresponds to the leading domestic construction machinery enterprises have shifted their attention to the international market with more space.
Construction machinery industry is a strong cyclical industry, the cycle is mainly affected by downstream real estate, infrastructure, exports and other changes in demand, as well as their own equipment renewal cycle, environmental emission policies and other factors. The average cycle of the construction machinery industry is roughly 8-10 years. The latest upward cycle started in 2016 and ended in the first half of 2021, followed by a downward cycle lasting 3 years.

“The association's statistics of excavator domestic sales data have maintained positive growth in recent months, mainly due to structural changes, from the growth of small excavators, as inventory clearance, price cuts and promotions and other factors to make small excavator sales will be better. And real estate, infrastructure and other areas of the start rate is not high, the demand for medium and large excavators is difficult to improve up. At present, the industry is still in the trough wandering stage.” Jiangsu Hengli Hydraulic Co., Ltd. securities department said so.
Centaline Securities research report that, from a cyclical point of view, the construction machinery products that entered the market in 2016 gradually entered the equipment renewal cycle from 2024, the construction machinery industry is expected to rebound at the bottom. On the other hand, in recent years, the export competitiveness of the main products of construction machinery has continued to improve, and the proportion of exports has been increasing, and the future is expected to continue to expand overseas markets.

Into China's construction machinery industry, several major foreign brands, in the global market has a wealth of experience in business. Unfortunately, this kind of experience is not fully applicable to the Chinese market. In the domestic economic cycle changes in the environment, “cost-effective” is the customer's priority.

 

“Due to the unique means of production attributes of construction machinery, even in the quality and performance of a slight difference, as long as there is no downtime failure, cost-effective will always be the first in line.” The above people told reporters. In this game of technology and the market, foreign brands if you can not quickly make reasonable adjustments to the product, high price disadvantage amplification, quality advantage weakening, cost-effective will be increasingly low.

There is no market, you can only choose to withdraw. With Kato bid farewell to the Chinese market corresponds to the domestic construction machinery business leader has shifted its sights to a larger space of the international market. General Administration of Customs data show that in 2023, China's exports of construction machinery products amounted to 48.552 billion U.S. dollars, a year-on-year increase of 9.59%, the trade surplus increased by 4.468 billion U.S. dollars year-on-year, and in Europe, South America, Africa and other regions have achieved double-digit growth.

In 2023, Sany realized revenue of 73.22 billion yuan. Among them, the overseas revenue was 43.258 billion yuan, accounting for about 59% of the total revenue. Sany Heavy Industry said that benefiting from the increase in the scale of overseas sales and the improvement of product structure, the company's gross profit margin of overseas main business has steadily improved. During the reporting period, the company's international business gross profit rate of 30.78%, an increase of 4.42 percentage points, higher than the gross profit rate of 23.04% of the domestic business.

 

On July 21, XCMG machinery announcement disclosed that at present, the main export regions are Southeast Asia, Central Asia, Africa, South America, Europe, North America, West Asia and North Africa, Central America, Oceania and so on. The company's internationalized revenue accounted for 40% in 2023 and 44% in the first quarter of 2024.

Zoomlion recently disclosed data show that the year-on-year growth of overseas revenue for two consecutive years in 2022 and 2023 exceeded 70%, and the year-on-year growth of exports in the first quarter of 2024 exceeded 60%.

The head of the independent brand enterprises borrowed the ship to go to sea, “Belt and Road” along the infrastructure power burst, digitalization, new energy, supply chain driven by strong, unwilling to lie flat China's construction machinery enterprises to see the hope and opportunity, but to have a greater role in the international market, is still a long way to go.