Caterpillar, Sany Heavy Take Digs at Each Other; Each Lays Claim to No. 1 Ranking in China, but It Depends How You Parse It

Caterpillar, Sany Heavy Take Digs at Each Other

Each Lays Claim to No. 1 Ranking in China, but It Depends How You Parse It

JAMES R. HAGERTY

March 7, 2014 2:57 p.m. ET

LAS VEGAS— Caterpillar Inc. CAT -0.56% reported progress in its long struggle to win a bigger slice of the Chinese market, the world’s biggest battleground for makers of construction equipment.

In excavators, the most important category of equipment, “we’re in the lead position by a fairly nice margin,” Doug Oberhelman, Caterpillar’s chief executive, said at a trade show here last week.

Caterpillar began exporting equipment to China in the 1970s and started setting up factories there in the 1990s, but faced tough competition from a number of Chinese rivals and foreign competitors such as Komatsu Ltd. 6301.TO +0.13% of Japan. In the past year, though, the Peoria, Ill., company has gained market share.

While acknowledging Caterpillar’s gains, some local rivals contested the U.S. company’s claim to lead the excavator market. Independent data show that Sany Heavy Industry Co.600031.SH -1.05% of China remains the biggest seller. Caterpillar officials later specified that Mr. Oberhelman’s statement excluded “mini” excavators, weighing less than 12 metric tons and often used in urban sites and other confined spaces.

“By parsing the numbers to include only excavators above 12 metric tons, Caterpillar has arrived at a true statement,” a Sany representative responded. “Sany is the No. 1 supplier of excavators overall in China. No parsing required.”

Estimates from Off-Highway Research Ltd., a London-based consulting firm, put Sany at 12% of the Chinese market in 2013 for excavators weighing at least six metric tons, including the “mini” excavators that Caterpillar left out of its calculation. Off-Highway said Caterpillar and Komatsu were tied for second at roughly 9% each. Caterpillar increased its market share in 2013, while Komatsu’s share has been falling in recent years.

Excavators are used for digging, lifting heavy weights and demolishing buildings, among other things. At the Conexpo equipment show in Las Vegas, attended by more than 125,000 people, Caterpillar let attendees use an excavator to toss basketballs at a hoop, while Sany’s exhibit featured a giant crouching action figure with excavator shovels for claws. J.C. Bamford Excavators Ltd. of Britain choreographed a suite of machinery into a “Dancing Diggers” performance, accompanied by a prancing string quartet of women in black dresses. Another exhibitor, Terex Corp. TEX -0.85% , Westport, Conn., hired the band ZZ Top to entertain its customers.

Caterpillar over the past two decades has spent billions of dollars to set up 26 manufacturing plants in China and now employs more than 15,000 people there, about 11% of the company’s global total.

Ed Rapp, a Caterpillar group president whose responsibilities include China, said in an interview that Caterpillar excavators made and sold in China contained more parts produced there than did those of some Chinese rivals. Not having to import as many parts lowered costs for Caterpillar, Mr. Rapp said.

“We are in some ways more Chinese than the Chinese competitors,” said Mike DeWalt, a Caterpillar vice president.

“Caterpillar is doing much better than before,” said Shi Yang, Off-Highway’s chief representative in China. He said the slowing of construction in China in recent years shook out weaker builders that bought low-cost excavators, leaving more construction work for larger and more sophisticated builders that pay a premium for higher-quality machines. He said Caterpillar also had a stronger dealer network and financing service than rivals in China.

China accounts for about 30% of global demand for construction equipment in terms of units sold, according to Off-Highway.

China “is a very tough market,” said Zeng Guang’an, chairman of Liugong Machinery Co.000528.SZ -0.35% , another Chinese maker of construction equipment. Scores of foreign and domestic companies are scrapping for business there now, but Mr. Zeng predicted in an interview that the number would fall by half within 10 years.

While Sany, Liugong and others have proved formidable competitors at home, they are still tiny players in the U.S., Caterpillar’s home turf. Their biggest hurdle is finding good U.S. dealers to sell and service the equipment. The most experienced dealers have long been allied with Caterpillar, Komatsu and other leading brands.

Sany offers excavators in the U.S. costing about 15% less than similar Caterpillar models, said Mike Rhoda, chief executive of Sany America. Mr. Rhoda, who worked for several other international equipment makers before joining Sany late last year, said he hoped to have dealers covering about 80% of the U.S. by the end of 2014.

A former Sany executive, Tim Frank, said at the Las Vegas show that he has founded a new company, International Construction Products, to allow U.S. buyers to order Asian equipment online or via U.S. dealers at discounts of as much as 45%.

 

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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