Even as the American and European markets continue to languish after the global economic crisis, the world is looking towards the BRIC nations (Brazil, Russia, India and China) to lead the recovery. The dynamics of these important emerging markets are going to demand huge levels of investment in infrastructure, which will serve construction equipment manufacturers well over the long term. No surprise then, that by 2015, `Chindia' is expected to control over 60 per cent of the global demand. Equipment India finds out the details.
India has weathered the economic downturn more effectively and resiliently than many other economies. From a developing nation just two decades ago, India today has emerged as one of the nations shaping the world economy, and a preferred investment destination—one of the world's most rapidly growing markets. Currently, India has the fourth largest construction equipment market in the world and its share in the global demand has grown from three per cent in 2006 to six per cent in 2010. It is likely to grow further to eight per cent by 2015 as its growth rate is expected to outpace most other markets over the next few years.
The positive sentiments are back and will continue in 2011, with infrastructure in the country set to grow substantially and huge investment planned by the government. The Planning Commission has projected that investment in infrastructure would almost double at $1,025 billion in the 12th Plan, compared to $514 billion in the 11th Plan. It is no wonder then, that Off-Highway Research is very bullish indeed about the prospects of the Indian construction equipment industry and believes that there will be sustainable growth in the coming years, albeit probably at levels lower than those witnessed in 2010.
According to the data from Off Highway Research, China, the largest and fastest growing market in the world, now constitutes nearly half of the production and consumption of global demand compared to 20 per cent in 2006. The American and European markets continue to languish after the global economic crisis, and their share of the global market has declined from 25 and 21 per cent in 2006 to 11 and 13 per cent in 2010, and is expected to go down further in the coming years.
Samir Bansal, General Manager, India, Off Highway Research, says, "The above change in the structure of global demand will force all manufacturers to increasingly move their production bases to places where the most active markets exist, and that will mean that there will be an increasing focus on production in India and China. And when that happens, component production will surely follow." Samir further adds, "China and India are both expected to benefit immensely from this massive change in the structure of demand, and both can look forward to high levels of inward investment. Obviously, this will have huge implications for everyone's future business models in terms of the location of production facilities, the development of component suppliers, logistics, used equipment disposal and financing."
Momentum is a concept from physics; in scientific terms, momentum is not simply the movement of an object but also the power residing within that moving object—the faster an object moves, the more powerful it becomes. After a spell of global gloom in 2008-09, the Indian economy showed remarkable recovery in 2010; and that momentum is fast picking up. At six per cent growth in the economy, infrastructure grows at 12 per cent which in turn, fuels the growth of the construction equipment by 20 per cent. According to Arun Maira, Member Planning Commission, "India is now poised to grow at nine per cent pa and the manufacturing and machine tools industry plays a vital role in economic growth. India is fast emerging as a global manufacturing hub."
"The Indian manufacturing sector is coming of age. TAL is getting ready to fully meet up with the current and futuristic machining demands, and other manufacturing solutions requirements, in a cost-effective and reliable manner," says Atam P Arya, Managing Director, TAL Manufacturing Solutions. According to Ravi Kant, Chairman, TAL Manufacturing Solutions, "Imperatives of competitiveness and growth are driving manufacturing opportunities being shifted to India, in a number of engineering sectors, including automotive, construction, aerospace, railways, energy, etc. The challenges to meet corresponding productivity, costs, and delivery and quality requirements are in turn driving the introduction of new machines. I am confident that TAL will be able to seize this opportunity and take the lead to cater to the new emerging demands, as well as other challenges of this new market."
Premier is also a leading manufacturer of very large, heavy-duty CNC machines such as vertical turning centres and customised special purpose machines. These machines are generally used in heavy engineering sectors such as railway workshops, heavy machinery manufacture, earthmoving companies, etc. In the last three years, Premier has invested nearly Rs 300 crore to expand and modernise its Pune plant, of which nearly Rs 150 crore is exclusively used to upgrade its CNC machine building capability. Says Maitreya Doshi, Chairman and Managing Director of Premier, "CNC machines are a key focus of our company and we are actively looking for domestic and global acquisition opportunities to supplement our organic growth. We believe there is a significant manufacturing cost advantage compared with the West, and our long-term plan is to enter markets beyond India."
Talking about the recovery of the market and the surging demand Olof Persson, President and CEO, Volvo CE, said, "The global construction equipment industry is recovering faster than predicted earlier, and this sharply rebounding market had a positive impact on Volvo Construction Equipment (Volvo CE)'s financial performance during the second quarter 2010 financial results." Volvo CE clocked an impressive growth of 73 per cent, and registered an operating margin of 13.6 per cent, compared to the negative 13.8 per cent in Q2 2009. Olof says, "The total world market for heavy, compact and road equipment increased by 43 per cent during the period, when compared to last year; this was strongly driven by demand from BRIC markets (Brazil, Russia, India and China) which increased by 63 per cent."
Explaining the regional perceptible shift in sales from Europe to BRIC nations (the European market is down by almost 50 per cent whereas in BRIC markets the growth in sales is above 100 per cent in the last two years.), Olof Persson said, "As part of our objective of supporting customers in the growing BRIC markets, especially in India, we have already announced a strategic investment in our existing facility in Bangalore. We see great potential in India; the market volume will grow substantially in the coming years. We have been here for more than a decade; we have made a lot of investments and will continue to invest, not only augmenting the production capacity and products but also investing considerably in soft products like CareTrack and Telematic Solutions, and also in expanding our dealer network."
"The construction machinery industry definitely saw a downturn starting from the second half of 2008 which extended practically until the end of 2009, due to the recession. Fortunately, the investments in the construction segment bounced back, starting from the last quarter of 2009 and 2010 was definitely a very good year. Most construction equipment manufacturers are doing better than even the boom period of 2007-08, thanks to the initiatives taken by the government of India in re-enforcing their thrust on infrastructure development, sops to capital equipment manufacturers and so on. It gives me a feeling that this trend will continue and better days are ahead for the construction equipment industry in India," says Anand Sundaresan, Chief Executive Officer, Schwing Stetter India. Speaking about the trends in the world markets, he says, "If you look at the world market, there is still a cause for concern. We understand that the US market is still to recover. Europe is also in a bad situation with ongoing problems in Greece, Portugal and Ireland which is adding to the woes of European economy. Few countries in the Middle East are showing signs of improvement, but they still have to catch up a lot to reach the earlier levels. Also, a few countries in east Asia like Indonesia and Vietnam, are showing signs of huge development. This will help the construction industry, in India and overseas, who are doing business in these countries, to some extent."
Pointing out the shift of growth from the European market to the BRIC markets, and the company's capabilities of meeting the challenging demands, Sundaresan says, "The Schwing Stetter group has manufacturing facilities in Brazil since the past 20 years, in China since the past 15 years and in India since the past 10 years, besides Europe and the United States of America. The Russian market is handled directly from Germany. So, we are quite confident that the Schwing Stetter group is well prepared to address the demand from these markets."
Terex Equipment, which has set up another state-of-the-art facility at Hosur, near Bangalore, apart from the existing Greater Noida is all set for the ride and will be a part of the tremendous growth story that is unrolling in the country. Speaking to EI, Vijay Sharma, Executive Director, Terex Equipment, says, "Right uptil 2015, TEPL has ambitious plans for quadrupling its topline from present levels. To achieve this target, we have already put a strategy in place, which mainly involves introduction of a new product line comprising of soil compactors, wheeled loaders, site dumpers, and midi-excavators. We are also in the process of expanding our distribution network aggressively in order to cater to the needs of our ever-increasing customer base." Sharma adds, "2010 has been a great year for TEPL. At the end of the last quarter, we have already exceeded our annual production and sales targets for backhoes and skid steer loaders. With respect to last year, we see a minimum topline growth of 40-50 per cent. In the skid steer loader segment, we can easily project a market share of approximately 40 per cent this year."
"It is our expectation that growth in the BRIC nations will become much more sustainable and stable. The dynamics of these important emerging markets are going to demand huge levels of investment in infrastructure, which will serve construction equipment manufacturers well over the long term," says Damian Power, Global Product Line Director, Powerscreen. Power adds, "Prior to the industry downturn, India had been flagged as a growth opportunity country; although the downturn did have an impact, India has quickly bounced back. Powerscreen has experienced a strong growth in 2010 and India was a major contributor. The new factory in Hosur has supplied machines for the increasing demand. The factory also represents an important hub in terms of regional reach for Powerscreen."
The rapidly growing and very promising automobile market in India is among the first priority ones for many global players. To this effect, Denis E Trifonoff Chief Executive Officer, Kamaz Vectra Motors, says, "We knew that, to be in the competition, we needed to be strategically positioned in India and China." Denis adds, pointing out the huge potential in the Indian Ocean right-hand drive countries, "The potential is really huge; it is estimated to be around five lakh trucks per year. Our plant in Bangalore is a hub for the complete region. We have already set up in Bhutan, have appointed our dealers, and are starting to supply trucks there. The next steps are Bangladesh, Indonesia and South Africa. India is a hub as it is a perfect place for production and it's a major centre for components manufacturers."
Vipin Sondhi, Managing Director and CEO, JCB India, sums the scene up on a positive note. "The world is looking towards BRIC nations to lead the global recovery. The emerging scenario is undoubtedly positive. The worldwide global downturn of 2008-09 which hit India too, is now part of history! The earthmoving and construction equipment industry has bounced back quite convincingly from the slowdown. The performance of the industry in the first half of 2010 leads us to believe that infrastructure growth of the country remains a top priority for the government. The contractors and hirers are gearing themselves up for construction activity in 2011 and beyond. With tighter deadlines and quality parameters, the importance of specialised and reliable equipment is constantly on the rise and this augurs well for us with our widest range of earthmoving and construction machines."