* Chinese firms ride on emerging markets' construction boom
* Overseas expansion cushions tough domestic market
* Made inroads in Southeast Asia, North Asia, South America
* Still face uphill battle to become global players
By Fang Yan and Matthew Miller
BEIJING, Oct 30 When Guangxi Liugong Machinery
was bidding to sell wheel loaders to a Thai rice
merchant a few years ago, company president Zeng Guangan knew he
needed to customize his equipment to beat off Komatsu Ltd
and other Japanese rivals.
"Thailand has been using Japanese wheel loaders for years,"
explained Zeng. "The seating was getting higher and higher, but
the vehicle's arm wasn't long enough." That works for loading
dirt or concrete blocks, but was unwieldy for hauling rice.
Liugong's modifications won over buyers, and the
Guangxi-based firm says it now makes one of every three wheel
loaders sold in Thailand. It has also increased its marketing in
Brazil, Russia, India and Turkey, helping increase overseas
revenue to 30 percent of its total sales - up from below 9
percent in 2010.
Other Chinese machinery makers, including Sany Heavy
Industry, Zoomlion Heavy Industry Science &
Technology and XCMG Construction Machinery
, are also turning to emerging markets for growth as
they wrestle with cut-throat competition at home, exacerbated by
a supply glut - partly a legacy of heavy stimulus spending in
the wake of the global financial crisis.
Zoomlion and Sany are due to announce January-September
results later on Wednesday. Smaller rival Liugong on Tuesday
said its third-quarter profit rose 2.6 percent, while XCMG's net
income dropped 45.5 percent.
Shares in Sany and XCMG have fallen by around a third so far
this year, while Zoomlion is down 40 percent. The sector median
stock price decline is just 6 percent.
Meantime, Caterpillar Inc and Komatsu say China
remains a bright spot in a global market suffering from a
downturn in orders for mining equipment. While the global market
is forecast to grow to $189 billion by 2017, the world's two
leading equipment makers have this month cut their full-year
"Market demand (in China) may not be falling as much as
before, but the industry has yet to feel the breezes of spring,"
said Shi Yang at UK-based industry consultancy Off-Highway
Research Ltd. "Foreign companies' clients in China are mostly
big state enterprises and their business tends to be more
Chinese equipment makers are gaining traction overseas,
pulled by the construction boom underway in Southeast Asia and
South America, where new home and infrastructure building has
lifted demand for affordable earth-moving gear.
In January-June, Sany's sales outside China rose by
two-thirds from a year earlier, with growth in Asia Pacific up
more than 90 percent. Same-town rival Zoomlion - whose annual
sales of close to $8 billion make it the world's No.6
construction machinery maker - also made breakthroughs in
Thailand, Chile, Costa Rica and Ecuador with its truck-mounted
concrete pumps and concrete mixing plants.
"Emerging markets represent a good opportunity when domestic
demand is weak," said Xu Mingle, an analyst with BOC
International. "Even though export volumes remain small and
cannot offset the slump at home, it at least cushions the blow."
While Caterpillar, Komatsu and Volvo AB remain
dominant in most emerging economies, Chinese gear is making
inroads. In 2011, XCMG group won a $745 million bid to supply
cranes, concrete pumps, excavators and other equipment for a
housing project in Venezuela that Caterpillar also bid for.
A year earlier, Liugong beat Caterpillar, Komatsu and South
Korea's Hyundai Heavy Industries Co Ltd and Doosan
Heavy Industries & Construction Co Ltd to provide
wheel loaders and excavators for an afforestation campaign in
Turkey, according to Liugong vice president Luo Guobing.
"Chinese companies are certainly not yet the largest in
these markets, but they're getting really aggressive," said
Raymond Tsang, a Shanghai-based partner at consultant Bain & Co.
ALMOST AS GOOD ... AND CHEAPER
Encouraged by the rising popularity of Chinese equipment,
Samcorp, a Hong Kong based dealer, started selling Zoomlion and
Lonking Holdings Ltd's products in Peru three years
ago. It recently opened another showroom in Columbia.
"People like these products," said company director Laurence
Lam. "They are almost as good as those made by Western
companies, but 30 percent cheaper."
Chinese equipment manufacturers are also gaining access and
recognition in emerging markets as they have improved their
component sourcing, according to Hermann Beck, an executive vice
president at ZF Friedrichshafen AG. Besides the German parts
maker, Chinese firms are turning to Eaton Corp and
Cummins Inc for parts, he said.
There have also been offshore acquisitions. Over the last
five years, Chinese firms have bought a variety of struggling
European equipment makers, including Italy's CIFA Spa, Germany's
Putzmeister Holding GmbH, and Poland's Huta Stalowa Wola, which
has boosted access to Eastern Europe.
Industry executives caution that it will take time for
Chinese companies to compete against global giants such as
Caterpillar, which operates at the higher end of the value chain
and books about 65 percent of its sales outside North America.
"They're going to have to learn how to be domestic players
around the world, the way we did," said Ron DeFeo, Chairman and
CEO of Terex Corp, which now increasingly faces Chinese
companies in emerging markets.
"You can't just make it in China and ship it abroad."