Wall Street Journal reported that Caterpillar Inc has slipped in a crucial part of the Chinese construction market.
The company which has made sales of construction machinery in China a top priority has lost market share to local rivals there over the past five years in one of the most important product categories hydraulic excavators.
Strong demand from China and other emerging markets has buoyed US based Caterpillar and rivals such as Komatsu Ltd of Japan over the past few years amid weak sales in North America, Europe and Japan. But they and most other foreign manufacturers haven't increased production capacity in China fast enough to keep up with demand for excavators, the fastest-growing part of the construction market there.
According to previously unpublished data from Off-Highway Research, a London based research and consulting firm that has allowed Sany Heavy Industry Co and a host of smaller Chinese rivals to increase their market shares. Sany and some of those other Chinese companies now are seeking toeholds in the US and European markets.
A Caterpillar spokesman said the company due to report second quarter earnings Friday, doesn't comment on market shares but said it sells a wide variety of construction and mining equipment in China, not just excavators.
Mr David Phillips MD of Off-Highway which sells its research to manufacturers and other interested parties said Chinese companies are gaining market share at home partly because stock offerings have given them plenty of cash to invest in new plants. They also get tax breaks and other incentives from local Chinese governments and can afford to take a long term view of the market rather than focusing on short term profits.
He said that standard hydraulic excavators and weighing 6.6 short tonnes or more and propelled by tracks rather than wheels accounted for nearly USD 20 billion of sales industry wide in China last year. The data exclude so called mini excavators typically used on small sites. Of the 220,000 standard excavators sold world wide last year about 65% went to buyers in China.
Caterpillar which has 12 manufacturing plants and 8,500 employees in China is rushing to expand its excavator production capacity there. Last year Caterpillar relocated Mr Richard Lavin president of the company global construction equipment business from the headquarters in Peoria, Ill to Hong Kong so he can keep a closer eye on the Chinese market.
Mr Lavin said at an industry trade show in Las Vegas in March said "We have got to win in China. The market is so huge that, over the long term, if we don't lead in China we're not going to be the global industry leader, adding that excavators were becoming increasingly important in China.”
China market for construction equipment has cooled in recent months as higher interest rates imposed by the Chinese authorities to fight inflation, slow construction. Even so, China remains the world largest market for excavators digging machines with articulated hydraulic arms that are used in the construction of buildings and infrastructure such as ports and highways.
According to Off Highway Caterpillar sales of standard excavators in China quadrupled to 9,920 units in 2010 from 2,470 units in 2005. Because the overall market grew much faster though, Caterpillar market share fell to 7% last year from 11% in 2005. Caterpillar doesn't break out sales of individual products.
It is unclear how Caterpillar has done in that product category so far this year. Preliminary data from Off Highway for the first half show the company market share in large excavators was little changed from 2010. But analysts at Morgan Stanley said in a report last week that Caterpillar excavator sales in China rose 52% in the first half from a year earlier falling short of Sany 97% rise but exceeding overall market growth of 29%.
(Sourced from online.wsj.com)
