Vol. 1 No. 1

Chinese-Chinese Wave To Hit

Combating Future Price War

So far, North America and Europe have seen only a relatively small number of construction equipment-related product lines manufactured and directly sold by Chinese (Chinese-Chinese) and Indian (Indian-Indian) manufacturers. However, during 2008-2009 this will change fast. Just look at the number of these companies joining AEM and exhibiting on their own at CONEXPO-CON/AGG 2008 in March.

As further evidence, Latin America and Asia are swarming today with equipment sold on price from these two low-cost manufacturing powerhouses. The 2008 World of Concrete (WOC) had numerous Chinese manufacturers exhibiting on their own outside of the Chinese Pavilion and, as we all know, SANY has stepped up to the plate with a future U.S. manufacturing facility.

If we think that manufacturing in or buying product from Chinese andIndian companies will be a continuing solution to remaining price competitive, we need to think twice. Many manufacturers haveemployed one or both of these options to remain either price responsive or to drive the competitive bar even lower.

A Low Yet To Be Seen
The bottom line is cheap imports from both countries will continue to drive a new low in equipment pricing. We’ve already seen this in scaffolding, concrete saw blades, trowels, other hand tools, and even in complicated slipform pavers where the price of one unit was close to US$140,000 less than the U.S. manufactured machine the Chinese emulated. At WOC, SANY was pricing their concrete pumps, motor graders and loaders as much as 40% lower than comparable North American manufacturers.

We are also now witnessing many major equipment dealers investigating and/or taking on these far lower priced lines, especially in excavation equipment, with the plan to offer North American contractors who buy on price,
a low-cost line.

They Will Come
So, will North American contractors buy Chinese-Chinese and Indian-Indian manufactured and sold equipment like their counterparts in Latin America and Asia? BMG’s 16 years of experience says “YES” – since about 30% of contractors today primarily buy on price, we can expect to see anywhere from 25-50% of those contractors to line up – especially if they can cost out equipment on a single job or two. Pressuring these contractors further will be the continued slowing of the U.S construction equipment market. Equality in design and availability of service and parts to support this foreign equipment will certainly influence a portion of these price buyers, but there will still be a market for them.

Four Solutions That Work
Based on BMG’s experience helping manufacturers compete in North America and globally, here are four ways to expand your business, without competing against lower pricing.

1. Sell innovative and/or premium, performance-driven equipment at a premium price to those 60% of the contractors who see the value in such quality equipment and support and recognize how it helps make them successful.
2. Related to #1, focus on the niche markets that traditionally require innovative and performance-driven equipment and can expense it over a longer period of time, including mining, aggregate, road and bridge building, transportation, utility, pipeline, municipalities, etc.
3. Do what Caterpillar just did and acquire a Chinese manufacturer for the flexibility to compete for its dealers and customers.
4. Develop and sell a lower-cost product line to your specifications, but without the bells and whistles, and use it as an initial price-sensitive door opener and then up-sell. This strategy has helped several manufacturers regain their retail business and has actually led to greater sales than expected with their premium brand lines.

For those manufacturers facing the Chinese-Chinese and Indian-Indian threat, preparing for it now with strategic planning and the execution of solid strategies and tactics will certainly provide your company with many options.

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Capital Performance: Now For Your Web Site

You’ve invested in your site and it’s fully supportive of your product, brand and corporate image. But, how do you know that it’s working for you? Monitoring your Web site probably encompasses the traditional gauges much like hits, page views, time spent on the site, downloaded files, and possibly sales or sales leads. More sophisticated evaluations may prove if visitors found your site through search engines rather than direct navigation to it. Now – evaluating your Web site activity is moving to expanded levels. Those simple gauges of yesterday have now grown to include the many doorways that are used to locate your site.

“It’s normal practice to evaluate human capital performance, so consider evaluating your Web capital performance.”

The new gauges include RSS feeds, e-mail promotions, and even offline advertisements that drive consumers to a dedicated URL. Let’s not stop there. Videos, blogs, forums and personalized start pages offer more ways for customers to interact with your site. There are also new ways to watch this on-site behavior and help segment your customer-base for targeted marketing programs.

New intelligent systems are now developing to identify a visitor’s click-stream, analyzing what content they are interested in and accommodating the user with content and options that will keep them engaged and on your site. This analysis of on-site behavior will help you understand how the users are utilizing your Web site and its content. You will now be able to ensure that
on-site promotions will be optimally effective, even with multiple product categories and products, and serving visitors in different phases in the sales cycle. The right campaign or content will always be directed at the right time to the right visitor, with reports backing up the proof of the system’s performance.

This new year opens up new opportunities. It’s normal practice to evaluate human capital performance, so consider evaluating your Web capital performance. It may not be on your “to do” list for 2008, but when you consider that most customers have reviewed your Web site before purchasing your product or service, it should be toward the top of the list. Evaluate the content and tone that your Web site remits, and dive into the statistics of your site. Remember your visitors are on your site to discover, learn, compare, consume, join, discuss, complain and sometimes purchase. What you should measure is whether visitors are doing those things successfully. Are you achieving the results you envision?

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Boycott The U.S. Slowdown

While there are pockets within the U.S. construction equipment industry that will still do well in 2008, many other segments are exposed to and will experience the negative effects of the slowing economy.

This continues to be especially true if tied heavily to new home construction. For example, in Fort Wayne, Indiana (population 350,000), within the last year the number of local custom home builders has dropped from 35 to 5.

So how does a manufacturer boycott the slowdown? There are opportunities and strategies that will actually help many manufacturers grow during this time. However, it takes commitment, an action plan and precision execution.

Here are several strategies that can work in a down market:

• Target Canada
• Expand into niche, profitable markets
• Offer the best financing package
• Tie marketing to street-level sales
• Expand internationally
  

Hot Canada
Close by and spending more on infrastructure development in the next few years than the past several years combined is Canada. Also, add the exploding Oil Sands development in Alberta and the 2010 Winter Olympics in Vancouver. Canada has escaped the U.S. mortgage fiasco since its government controls prevent such situations. As a result, housing values are still escalating and so is the volume of new home construction.

The other good news is that generally the Canadian economic cycle follows that of the U.S. in about 3 years; however tradition may be broken since the U.S. financial industry helped kick-start the natural cycle of the U.S. economy.

Tap Into Niche Markets
Not all is doom and gloom. U.S. niche markets that include road building, bridge reconstruction, mining, aggregate, oil and gas pipeline, utility, municipality and transportation continue to hold strong. The market size may be smaller than general construction and you have to work harder to be successful, but they are generating strong returns because these markets generally value innovation, premium quality equipment and strong support. And, they are typically willing to pay for it.

Stand Out With The Best Financing
Especially with commodity equipment, the tougher economic conditions will make it even harder for many contractors to justify and pay for new equipment. With similar equipment from different brands, many contractors will quickly lean more toward the manufacturer who offers the most advantageous financing. So sharpen those pencils and push for leading edge versus competitive financing.

Drive Marketing Down To Street Level
The closer and more customized you can drive your marketing efforts during a downturn, the better results you will have. And, take the next step by sending interested contractors directly to the appropriate dealership or rental store closest to them. Even the right salesperson is possible as well. Corporate will lose some control, but the customer will be talking to the right salesperson within a few hours or less versus a few weeks. And, the dealers or rental stores will truly believe you have their best interest at heart. Certainly, a true win-win for all and quite economical since you can back off from some upper level, national promotion.

Tap Select International Markets
With the U.S. dollar so low, there are international markets eager for U.S. equipment, especially in Mexico, Central America, Eastern Europe, Russia and the Middle East for those companies that have focused completely or primarily on the North American market.

However, this is not a quick fix by any means and requires some serious resources and personnel to drive the process. But there are ways to electronically sell some types of equipment and enter some markets faster than others. Either way, an international sales thrust makes sense for the long-term.

There are many ways to compete and thrive during a slowdown, and these are just a handful of them. We always keep in mind that companies can grow in these times by starting with a positive, open-minded approach that leads to new ideas.

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