Growth strategies in the global construction equipment

market Capturing growth markets in BRIC and beyond

Market survey
Munich, October 2011

Construction_Study_final_mit_Ansprechpartnern.pptx

Contents

Page

A. Global market survey on construction equipment

50 senior management and industry expert interviews conducted among manufacturers, dealers and
suppliers
B. Key growth priorities in the global construction equipment industry
Regional growth focus on BRIC and other emerging market regions (e.g. Africa and Middle East),
evaluation of products/product properties, leasing/aftermarket services and key market challenges
C. In-depth review of survey findings
Detailed results from interviews regarding prospective growth regions, attractive products,
differentiating product properties/services and market challenges
D. Conclusive implications for construction equipment players
Actionable recommendations and areas of focus regarding markets, products, competitiveness and
growth strategies

2011 Roland Berger Strategy Consultants

12

29

A. Global market survey on construction equipment

3

This study identified key growth opportunities, important levers and

market challenges in the global construction equipment industry
Study scope
PRODUCTS

Core construction vehicles and equipment,

as well as associated financial, rental and
after-sales services

MARKETS

Global markets, including TRIAD1) and top

growth markets such as BRIC

COMPANIES

Leading global construction and off-highway

machinery OEMs and their component and
service providers

1 OPPORTUNITIES
2 KEY GROWTH
LEVERS
3 MARKET
TRENDS
4 MARKET
CHALLENGES

1) North America, Europe and Japan

Source: Roland Berger

Our study comprises the results from 50 interviews with industry

experts located in the six construction equipment lead markets
Study participants by geographical distribution
RUSSIA

#5
GERMANY
USA

# 15

# 15
BRAZIL

#5

# 5 CHINA
#5
INDIA

SUM: 50 INTERVIEWS
n

= Number of interviews conducted

Source: Roland Berger

> 50 senior
managers and
industry experts
from global and
regional players in
key markets were
interviewed
> Markets covered
include the US and
Germany with a
focus of 30
interviews
> Additionally all
BRIC markets were
covered with 20
interviews in total
5

Roland Berger study findings are based on senior management interviews and insights from industry experts along the entire value chain
Study participants by company type and position held [no. of interviews conducted]
PARTICIPATING SEGMENTS1)
Equipment
manufacturers

34

Components
suppliers

Dealers

Independent
industry experts
Source: Roland Berger

REPRESENTED BY

Vehicle
manufacturers

Suppliers

Dealers

Experts

>
>
>
>
>
>
>
>
>
>
>
>
>
>
>
>
>
>

Vice President
Deputy General Manager
Sales Manager
Marketing and Sales Executive
Director of Strategic Marketing
Product Manager
Business Development & Account Mgmt. Executive
Global Manager
Head of Marketing
Senior Sales and Marketing Executive
Marketing and Business Development Director
Director of Operations & Industrialization
Director of Supply Chain
Regional Director
General Manager
Chief Commercial Manager
Sales and Marketing Director
Product Development Director

> Global industry analyst

We conducted a global and comprehensive survey covering most

important company size segments along the entire value chain
Study participants by company size and type [no. of interviews conduced]1)
REVENUE
SEGMENTS

Equipment
manufacturers

Large
> EUR 5 bn

13

Medium
EUR 1-5 bn
Small
< EUR 1 bn

SUM

Components
Suppliers

14

34

1) Additionally two industry expert interviews conducted

Source: Roland Berger

Dealers

STUDY APPROACH:
> Telephone interviews with than
50 global top executives and
industry experts
Vehicle manufacturers
Suppliers
Retailers and dealers
SCOPE/COVERAGE:
> Study comprises leading global
companies, as well as large
regional enterprises and regional
players
> All relevant products from
new/used equipment sales to
after sales and leasing/financing
> Global key markets
7

B.

Key growth priorities in the global CE industry

Growth opportunities for construction equipment industry are in

BRIC and newly emerging markets Consolidation is expected
Key findings (1/3)

1.

BRIC MARKETS continue to be the major growth focus due to large investments in

2.

Also OTHER EMERGING REGIONS, such as Africa and Middle East are increasingly
attractive for CE companies with large investments planned and various construction
OEMs about to enter these markets
> In particular South Africa and North African countries are very promising
> Also Middle East, ASEAN and Latin America are considered very attractive markets

3.

COMPETITION IS INCREASING in the whole industry, along the entire value chain,

roads, ports and other infrastructure

> Brazil is very attractive due to its continuing economic growth and political stability
> China and India are growing markets, dominated by local Joint Ventures, however room for
new market entrants still available

especially in TRIAD markets Market consolidation is key result

> Recent mergers, e.g. Caterpillar (Bucyrus), Terex (Demag) show the extent of ongoing
industry consolidation

Source: Roland Berger

Beyond core construction machinery offer based on distinctive

product differentiation, financial and AM service key for growth
Key findings (2/3)

4.

Among core construction machinery, EXCAVATORS AND WHEEL LOADERS are the
most important product segments with BACKHOE LOADERS catching up
> Most important technological trends are connectivity, monitoring of vehicle functions and
emissions reduction
> Most relevant and differentiating key components are engines and transmissions
> Most important distinguishing factors on the market are QUALITY, PRICE AND

AVAILABILITY OF REPLACEMENT PARTS

> Product range, customization and quality have the strongest rise in importance

5.

LEASING IS GAINING IMPORTANCE compared to other financing options,

especially loans However, strong regional differences can be observed

> Leasing is considered most important in the future in e.g. Brazil, Russia, China, Germany
> Importance of joint equipment ownerships is rising, however, it is still not as competitive
compared to leasing/loan financing options

Source: Roland Berger

10

Regional specifics play a fundamental role and have to be

implemented in comprehensive growth strategies
Key findings (3/3)

6.

Continuously high importance of COMPREHENSIVE AFTERMARKET SERVICES

Large investments are currently made to expand service locations1)
> Availability of replacement parts however is still the most important criterion, closely followed
by the demand for a professional key account management and round-the-clock services
> Full service offerings including financing, insurance and service is the fourth most important
aftermarket service

7.

GROWTH REQUIREMENTS and MARKET CHALLENGES are strongly diverse

8.

Most important KEY MARKET CHALLENGES are emissions regulations, import

duties/restrictions and pressure from emerging market competitors
> Strong regional differences in market challenges
> Regulations are most important in Europe and USA
> Pressure from emerging market competitors in BRIC
> Import restrictions in Brazil, China and Russia

across different geographical markets

> Growth enablers in BRIC countries tightly linked to governm. support and market regulation
> TRIAD markets for CE are mostly saturated with entrenched competitive landscape

1) E.g. by Caterpillar, Komatsu, Terex

Source: Roland Berger

11

C.

In-depth review of survey findings

12

MOST ATTRACTIVE REGIONS

BRIC countries are considered the most attractive growth regions,

rating significantly better than TRIAD countries
Rating of attractiveness regarding growth potential by key regions
CITATIONS FROM STUDY PARTICIPANTS
Brazil

4.4

China

4.1

India

BRAZIL

BRIC

RUSSIA

4.1

Russia

3.9

Europe

3.1

NAFTA

3.0

Japan

TRIAD

2.6
Low
(1)

Source: Roland Berger

INDIA

CHINA
High
(5)

"Attractiveness of Brazilian market is

due to the positive economic growth
and political stability"
"Attractive due to growth, however,
antiquated manufacturing base,
dependency on strong oil pricing, and
political problems can inhibit growth."
"Russia weakens itself due to the
frequent introduction of new policies,
e.g. unfavorable customs regulations"
"Limiting factors of lack of growth in
middle economic class, cultural
issues, and weaknesses also in
education system"
"We as component supplier are heavily
pushed by our OEM clients to follow
them to China"
13

MOST ATTRACTIVE REGIONS

Beyond BRIC, Africa and Middle East have also become the
upcoming growth priorities of the construction equipment industry
Most attractive growth regions beyond BRIC and TRIAD markets [% of all mentions]
AFRICA

29%
> South Africa is the
single most attractive
African country
> North Africa is also a
promising growth
region, e.g.
Algeria
Egypt
Morocco
Libya

MIDDLE EAST

25%
> Named countries
include:
U.A.E
Saudi Arabia
Qatar
Afghanistan
Iran

ASEAN

15%
> Indonesia is by far the
most attractive country
in ASEAN regarding
growth options
> Other countries
include:
Thailand
Vietnam

LATIN AMERICA1)

15%
> Following Brazil,
Argentina is regarded
the second most
attractive market in
Latin America
> Other countries
include:
Uruguay
Chile

OTHERS

16%
INCLUDING:
> Australia & New
Zealand
> Far East
> Central Asia

1) Excluding Brazil: Brazil is included in the BRIC specific analysis

Source: Roland Berger

14

ORGANIC VS INORGANIC GROWTH BACKUP

All companies interviewed consider organic growth in current and

entry to new markets Two out of three consider inorganic growth
Growth options pursued by CE companies [%]
TYPE OF
EXPANSION

ORGANIC

CURRENT
MARKETS

18%
0%

Through gain
of market
shares

82%

NEW
MARKETS
Through
market entry

0%
44%

Currently in implementation
Source: Roland Berger

INORGANIC (through M&A)

56%

Planned

All companies interviewed

consider organic growth
in current markets with
most of them having
implemented all
necessary measures

All companies interviewed

consider organic growth to
new markets Only
slightly more than half of
them have taken measures
for implementation

36%

21%

43%

38%

21%

42%

Around 2/3 of companies

consider inorganic growth
in current markets.
However only 21% have
taken actual measures

Around 2/3 of companies

consider inorganic growth
to new markets. However
only 21% have taken
actual measures

Not intended

15

ORGANIC VS INORGANIC GROWTH BACKUP

Large and medium sized CE companies focus on inorganic growth

to further penetrate existing and enter new markets
Influence of company size1) on growth ambitions [%]
TYPE OF
EXPANSION

ORGANIC

CURRENT
MARKETS

SMALL

Through gain
of market
shares

INORGANIC (through M&A)

MEDIUM

9%
0%

Through
market entry

SMALL

27%
0%
73%

28%

30%
72%

85%
MEDIUM

LARGE

0%
55%

MEDIUM

45%

41%

40%

59%

40%

20%

35%

50%

30%

30%

LARGE

10%

SMALL

0%

Currently in implementation/realization
Planned
Not intended at all
1) Company size by revenues: Small: < EUR 1 bn, Medium: EUR 1-5 bn, Large: > EUR 5 bn
Source: Roland Berger

SMALL

0%

15%
0%

91%

NEW
MARKETS

LARGE

MEDIUM

41%
LARGE

5%
50%

45%

24%

33%

22%

50%
44%
FOCUS AREA
16

ORGANIC VS INORGANIC GROWTH

Product portfolio expansion is considered a key priority with room for

M&A deals, whereas pure extension of value chain is less favored
Consideration and implementation of growth options [%]
4%

ADDITION
OF NEW
PRODUCTS

ORGANIC
&

Not considered
at all

4%

Considered

EXTENSION
OF VALUE
CHAIN

41%
52%

59%

Not considered

&

31% at all

6%

23%

69%

Currently in implementation
Source: Roland Berger

7%
37%

96% through organic

and/or inorganic

INORGANIC

Considered
through organic
and/or inorganic

Planned

40%
55%
38%

38%

COMMENTS

OVERALL DEGREE
OF CONSIDERATION

> Most companies consider

adding further products to
their product portfolio

COMMENTS

TYPE OF
EXPANSION

> Extension of value chain is

not as attractive to the
majority of companies, with
1/3 not considering it at all

> Degree of implementation is

low, especially for the
inorganic option, indicating
further M&A potential

> Around 1/4 of companies is

currently extending its value
chain through organic growth

Not intended
17

ORGANIC VS INORGANIC GROWTH BACKUP

Product portfolio extension especially for large and medium player is

intended through M&A Small player focus on organic value chain ext.
Influence of company size1) on growth ambitions [%]
TYPE OF
EXPANSION
ADDITION
OF NEW
PRODUCTS

ORGANIC
SMALL
27%
0%
73%

INORGANIC (through M&A)

MEDIUM

LARGE

5%

6%
35%

44%

50%

60%

SMALL
33%

MEDIUM
22%

LARGE
0%

5%
45%

50%

41%

50%

44%
FOCUS AREA

EXTENSION
OF VALUE
CHAIN

SMALL

MEDIUM
15%

18% 18%
50%
64%

LARGE

SMALL

35%

41%
35%

24%

MEDIUM
0%

11%
44%

44%

LARGE

55%

11%

45%

61%

28%

FOCUS AREA
Currently in implementation/realization
Planned
Not intended at all
1) Company size by revenues: Small: < EUR 1 bn, Medium: EUR 1-5 bn, Large: > EUR 5 bn
Source: Roland Berger

18

MOST ATTRACTIVE PRODUCTS

Rating of most attractive core construction equipment vehicles ranks

excavators and wheel loaders as most attractive products
Rating of top-5 core construction equipment products Current and future trends
TOP-5 TODAY AND PROSPECTED
CHANGE IN ATTRACTIVENESS

1.

Excavators

2.

Wheel
loaders

3.

Backhoe
loaders

4.

Skid steer
loaders

5.

Motor
graders

Future attractiveness:

Increasing

Source: Roland Berger

COMMENTS
> Excavators will remain number
1 construction equipment, as
they continue to develop into
multi-functional applications
> Among top-5 construction
equipment, only backhoe
loaders expand in
attractiveness
> Skid steer loaders and motor
graders have declining
attractiveness

IMPACTING
TECHNOLOGICAL TRENDS

CONNECTIVITY

> Electrical control devices/GPS

applications (e.g. Caterpillar
accugrade technology)

MONITORING
> Realtime monitoring of activity
and performance, e.g. vehicle
parts operation detection
module
> Equipment failure monitoring
computer

EMISSIONS REDUCTION
> Viable hybridization applications
are still to be developed
Stable

Decreasing
19

MOST ATTRACTIVE PRODUCTS

Within CE products, transmission and engine are and remain the

most attractive components, but body trading up
Rating of attractiveness of selected products1)
ATTRACTIVENESS OF KEY COMPONENTS

POSSIBLE STRATEGIES

KEY COMPONENTS

4.1 Transmission

POTENTIAL FOR
DIFFERENTIATION

1st
4.0

3.7

Engine

Body/
Undercarriage

2nd
3.6

1) Grades from highest (5) to lowest (1)

Source: Roland Berger

OUTSOURCING
WHERE REQUIRED

Auxiliary
modules
Future attractiveness:

Increasing

Stable

Decreasing

COMMENTS
> For the best use of
captive resources, focus
on the most attractive
components
> Engine and transmission
are in general most
attractive for growth
ambitions due to role in
fuel efficiency and
emission reduction
> Body/undercarriage are
gaining importance due
to product differentiation
> Auxiliary modules are
least attractive for OEMs
as supplied by common/
regional suppliers
20

PRODUCT PROPERTIES FOR DISTINCTNESS

Quality, price and replacement services are the most important

characteristics on the market Quality in top-3 in most markets
Ranking of product characteristics regarding potential to be distinguished on the market
GLOBAL RANKING (current)1)

TREND
4.5

1. Product quality
2. Purchasing price

4.2

3. Supply of replacement parts

4. Local/on-site
service capabilities
5. Maintenance and
service costs
6. Costomized vehicle
configurations
7. Breadth of product
range offered
8. In-house capabilities
for core vehicle compon.
9. Coverage of used
equipment

4.2

4.0
3.7
3.4
3.2
2.9
Low
(1)

Future attractiveness:

The three properties

PRODUCT RANGE,
CUSTOMIZATION and
QUALITY have seen the
strongest rise in
importance

4.0

Increasing

High
(5)

Stable

Decreasing

1) Grades from highest (5) to lowest (1)

Source: Roland Berger

21

PRODUCT PROPERTIES FOR DISTINCTNESS

Quality, price and replacement services are the most important

characteristics on the market Rankings strongly depend on country
Regional ranking of product characteristics regarding potential to be disting. on the market
REGIONAL
RANKING

1.

Quality

Quality

Price

2.

Price

Quality

3.

Maintenance
costs
Replacement
parts
Local/on-site
service
Customization

Replacement
parts
Local/on-site
service
Customization

4.
5.
6.
7.
8.
9.

Product
range
Coverage used
equipment
In-house
components

Source: Roland Berger

Maintenance
costs
Price
Product
range
In-house
components
Coverage used
equipment

Customization
Local/on-site
service
Replacement
parts
Product
range
Maintenance
costs
In-house
components
Coverage used
equipment

Replacement
parts
Coverage used
equipment
Price

Price

Quality

Quality

Maintenance costs

Maintenance costs

Quality

Local/on-site
service
Replacement
parts
Product range

Local/on-site
service
Price

Maintenance
costs
Local/on-site
service
Customization
Product
range
In-house
components

Customization
In-house
components
Coverage used
equipment

Customization
Product range
Replacement
parts
In-house
components
Coverage used
equipment
22

GROWTH POTENTIAL IN FINANCIAL SERVICES

The study reveals rising importance of leasing with loans still the no. 1
financial service However regional differentiation can be observed
Importance of financial services to realize growth potentials1)
GLOBAL VIEW
4.0

Loans

Joint
equipment
ownerships

3.8

+0.3

4.1
3.0
3.2
2.5
2.8

Today
Future

Most important for future

1) Grades from highest (5) to lowest (1)
Source: Roland Berger

+0.1

4.1

Leasing

Insurance

COMMENTS

REGIONAL VIEW (current)

Loans
Leasing
Insurance
Joint ownerships

Loans
Leasing
Insurance
Joint ownerships
Loans
Leasing
Insurance
Joint ownerships

+0.2

+0.3

Loans
Leasing
Insurance
Joint ownerships
Loans
Leasing
Insurance
Joint ownerships
Loans
Leasing
Insurance
Joint ownerships

3.5

2.8

3.5
2.1

3.9

4.3

> Leasing has significant

importance in Germany
and Russia and is on
the rise

4.1

2.5
4.0
4.0

2.8

2.0

2.8

4.4

2.4
2.2

4.2
2.4

3.0

3.6

3.2
3.2

> Overall loans are the

number 1 financial
service

> In Brazil and China,

leasing will gain
importance to be the
number 1 financial
service in the future

4.4
4.6

= Countries with leasing as number 1 financial service in the future

23

GROWTH POTENTIAL IN AFTERMARKET SERVICES

Supply of replacement parts will remain most important AM service

with further increasing importance of 24/7 and long term service
Importance ranking1) of aftermarket services to realize growth potentials
RANKING and CHANGE of interviewed aftermarket services
1.

Supply of
replacement parts

2.

Professional key
account customer
management

3.

24/7 service
availability

4.

(Longterm) service
agreements

5.

Mobile service
units

6.

All-in-one
solutions2)

4.4

ALL PRODUCT RELATED

SERVICES rank very high
on the rating scale

4.2
4.1

3.9
3.5

Increasing

1) Grades from highest (5) to lowest (1)

Source: Roland Berger

KEY FINDINGS

4.5

Low
(1)

Future importance:

TREND

High
(5)

Stable

Decreasing

2) Financing/insurance/services

ALL IN ONE SOLUTIONS

(financing/ insurance/
services) are ranked at
lower priority but with
increasing importance
Little differences across the
countries included in the
interviews were found
24

REGIONAL SPECIFICS

Growth enablers and market specifics for CE in BRIC are closely

linked to national government support and market regulation
Regional growth requirements and challenges BRIC
REGIONALITY OF
MARKET CHALLENGES
Are market trends rather
diverse depending on
the region?

KEY MARKET SPECIFICS IDENTIFIED

Brazil

> Tariffs and financing restrictions make market very difficult to penetrate without
localized manufacturing base
> However even strong differences between Brazilian regions lead to different
markets trends

No
Russia

14%

> Promising market limited mostly by market inefficiencies and political issues
> Unforeseeable changes in customer regulation can occur

86%
Yes

Source: Roland Berger

India

> Market already dominated by large global players aligned with local Indian JV
partners

China

> Growing market with room for JVs to participate

25

REGIONAL SPECIFICS

While TRIAD markets are very competitive, Africa, Middle East and
Southeast Asia have lower barriers to entry
Regional growth requirements and challenges Outside BRIC
REGIONALITY OF
MARKET CHALLENGES
Are market trends rather
diverse depending on
the region?
No
14%

KEY MARKET SPECIFICS IDENTIFIED

NAFTA AND WESTERN EUROPE > Saturated markets: Little room for growth for new competitors due to
high overall operating costs
> Users demand the utmost in quality, uptime, comfort and safety
Developing regions have lesser expectations
AFRICA

> Major projects being serviced by multinationals

> Local distribution highly dependent on stability of in country sales and
service organizations
> Political instability will continue to hinder growth

MIDDLE
EAST

> Recovery in global markets and petroleum demand will spur continued
growth

SOUTHEAST
ASIA

> Growing manufacturing base and market sophistication will make

these attractive opportunities

86%
Yes

Source: Roland Berger

26

KEY MARKET CHALLENGES

Top-3 market challenges are import restrictions, emissions

regulations and pressure from emerging market competitors
Overall market challenges for construction equipment1) across all regions
REGULATIONS

COMPETITION

Import duties/
restrictions

4.1

Pressure from emerging market competitors

Emissions regulations

4.0

Pressure from East-Asian

competitors (excl. China)

Safety regulations

3.6

Recycling and
environmental regulations

3.3

Phase-out of governmental
stimulus package

DEVELOPMENT
OF TOP-3
MARKET
CHALLENGES
Future development:

2.7

Shift of value creation to

low cost locations e.g. China

OTHERS
4.0
3.6
3.4

Pressure from horizontally

more integrated players

3.1

Pressure from vertically

more integrated players

3.1

Technological developments
e.g. alternative powertrains

3.5

Bottlenecks in financing /
funding

3.2

Declining market
demand

3.1

Consolidation on
demand side

3.0

RANKING
1. Import duties/restrictions

Regulation and competition

based key market challenges
are most important today

2. Emissions regulations
3. Pressure from emerging market competitors
Increasing

Stable

Decreasing

Top -3 market challenge

1) Grades from highest (5) to lowest (1)

Source: Roland Berger

27

KEY MARKET CHALLENGES

In each country, certain challenges are most relevant Some of

these however are dominant only in certain regions
Participants indicated different top-3 challenges in their respective markets
RANK

1.

Import duties/
restrictions

Emissions
regulations

Import duties/
restrictions

Import duties/
restrictions

Import duties/
restrictions

Emissions
regulations

2.

Emissions
regulations

East Asian
competition

Government
support

Horizontally
integrated players

Emerging market
competition

Import duties/
restrictions

3.

Value creation shift

to low cost

Emerging market
competition

Emerging market
competition

Emerging market
competition

Financing/
funding

Emerging market
competition

TRIAD1)
Some of the
challenges
are present in
certain countries
and regions

BRIC
TRIAD1)

> Emissions regulation

> Safety regulation
> Recycling and
environmental issues

BRIC

> Import duties/

restrictions2)

REGIONAL SPECIFICS
1) North America, Europe and Japan
Source: Roland Berger

2) Focus on Brazil, Russia, China

28

D.

Conclusive implications for CE players

29

To capture growth opportunities in BRIC and beyond, key levers to

ensures competitive positioning need to be addressed globally
FINDINGS

DETAILS

MARKETS

Target most attractive CE growth markets

> BRIC markets are today the most attractive growth regions and need to be
targeted in a country-specific way
> Windows of opportunity to tackle further growth markets beyond BRIC, e.g. Africa,
South America, ASEAN to ensure competitive advantage

PRODUCTS

Optimize product and service portfolio

> Focus on most attractive product segments (excavators, backhoe loaders) by
leveraging differentiators engine and transmissions
> Global expansion of financing and aftermarket services needed, but regional
specifics need to be considered

Enhance competitiveness on global scale

COMPETITIVE- > Optimize product offering based on harmonized vehicle platforms, but compliant
with regional market specifics (emissions, price levels)
NESS
> Actively participate in market consolidation through M&A and JVs

Formulate suitable growth strategies encompassing key CE growth priorities

> Key value proposition and product/service portfolio
> Countries targeted and footprint design
> Core competencies and differentiating technologies

Source: Roland Berger

GROWTH
STRATEGIES

30

It's character that creates

impact!
31

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RBSC shall be liable for damages due to failure to comply with its contractual or other obligations where damage is caused intentionally or by gross negligence by its
legal representatives, managers or vicarious agents. In the event of slight negligence, RBSC shall be liable only if it is in breach of its material contractual obligations.
Any liability for damage arising from injury to life, body or health shall remain unaffected.

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