SDLG aims to be No 1 Chinese player in India“Partnership with SDLG is giving us a fairly good position to play in that very important wheel loader market in China,” Benoit Rimaz, President, Volvo CE Investment (China)SDLG (Shandong Lingong Construction Machinery Co.) is a leading construction equipment manufacturer in China and one of the top global sellers of wheel loaders. The SDLG brand is successful among customers and focused on reliable, competitive equipment that give value for money and low operating costs. After acquiring stake in SDLG, Volvo CE is being benefited in terms of playing an important role in the wheel loader market. During a recent visit to SDLG’s facility in Linyi, China, Subhajit Roy speaks to Benoit Rimaz and finds out why Volvo would like to establish SDLG as the most preferred Chinese brand in the world.How significant is the Chinese market for Volvo CE?The Chinese construction equipment (CE) market is a big part of Volvo CE’s overall business. The market is almost equal to the size of rest of the world put together, so as a company we always wanted to be here. Though, we are present in China for years, we have increased our focus in this market about a decade back. We set up a factory in Shanghai in 2003, and that’s when our position in the Chinese market has taken off mostly in excavator segment which was our main equipment. Then the market for articulated haulers and big wheel loaders was much smaller.During the year 2011-12, the market in China has dropped significantly by almost 30-40 per cent as the demand of commodity dropped because of less export and less construction activities locally. However, being in the premium segment of market, we get affected a little bit less. Today China is our 2nd home market, and we consider there is lot of growth potential.How do you look at the Indian market for construction equipment?In India, looking at the infrastructure demand, the potential is huge. However, it’s a challenging market because the awarded projects aren’t always executed in time.In Volvo CE, we are very well positioned in Indian market, having a production facility in Bangalore. We have invested significantly to continue develop our position in Indian market.For construction equipment, how do you position Indian market as compared to Chinese market?Today the size of Indian market is smaller compare to China. However, the direction and need are quiet similar as we have seen in China— you need to build power projects, roads and bridges, airports, housing etc.One of the big differences in China is the political decision to grow the economy by building infrastructure. The Indian process is more democratic in a way that delays the project execution. The central government cannot decide alone about its spending; it’s a complicate system altogether but needs are quiet similar.What is the position of Volvo CE in Chinese market?Volvo CE is looking at being a premium construction equipment supplier in China. Being in this premium category, one cannot compare us in terms of volume as we are not trying to be a volume producer. We would never be No 1 in volume because the premium market is a small portion of the total market. We are trying to be the premium supplier and a total solution provider. Our customers are more concerned about total cost of operation than buying a machine at certain lower price. For Volvo CE, there is more long-term look.In 2006, Volvo CE bought a 70 per cent stake in SDLG; what was the prime reason behind this acquisition?Earlier in China, we were mostly producing and selling excavators. We could not sell wheel loaders in large numbers as imported wheel loaders were very different than locally manufactured wheel loaders. So we wanted to penetrate in that huge part of market where we didn’t play into. We looked at various suppliers of Chinese wheel loaders and found a good potential match with SDLG or Shandong Lingong Construction Machinery Co.SDLG is a leading construction equipment manufacturer in China and one of the top global sellers of wheel loaders. The SDLG brand is successful among customers and focused on reliable, competitive equipment that give value for money and low operating costs.Today partnership with SDLG is giving us a fairly good position to play in that very important wheel loader market in China.How do you complement each other?We are clearly learning from each other. SDLG has been learning in terms of management techniques, quality concept, and lean manufacturing. At the same time, Volvo CE is being benefited in terms of playing an important role in the wheel loader market which would not be possible by importing equipment from Sweden. Also, the economy of scale allows us to be better with our supplier as we have been sharing supplier.Is SDLG also benefited from Volvo CE’s sales and business network?Yes, they are but not in China. In China, we have separate network but in overseas we are helping SDLG for getting faster access in many of the developing markets.What kind of strategies you have to make SDLG a global brand?Earlier they were facing challenges in terms of penetrating into overseas markets due to lack of experience. Now, we are implementing discipline on quality. We are also looking at after-market and trying to bring a Chinese brand with a different proposition to the world. We are not going fast as we have to do it rightly.As of now, we are concentrating our focus on few selected markets. Recently, in India, we have many success stories to share. For a customer in India, we have supplied adequate spare parts in a container; so he doesn’t have to worry about sourcing of spare parts. This kind of support makes the difference. Now we are doing a lot of activities on brand building, and we would like to establish SDLG as a premium product among value segment in the world.
“A lot of Chinese manufacturers who enter in the Indian market don’t care about the after-market. They only care about the volume; they don’t look after the customers. In SDLG, we use Volvo channels to take care of customers by after-market support”
– Wang Zhizhong, Board Chairman and CEO, SDLGAt the same time, you need to be innovative with your products…We would like to continue with product innovation because we are in this business of our products. Our proposition to our customer is that we are trustworthy partners who are going to be there selling reliable products. Our core competency is lies in “reliability in action”. We need to offer reliable service and be a reliable organisation which would be accessible across the globe. It’s not easy to make a business around the world. We are learning and moving fast in achieving this.What is your investment plan for SDLG to make it a global brand?If the market demand grows, we have to add 20-30 per cent of capacity which is easy to do in our existing facility. We are enhancing our capacity in South America and Brazil.Also, we will continue to study the various markets demand. If market offers very good potential for us in terms of volume, we will increase our local presence. The logical conclusion is whenever it makes sense we look at making further investment. However, we feel that our direct distribution from Chinese manufacturing base will continue to be the preferred option in near future.How much you have invested in Brazil plant?We are investing around $10 million to set up a manufacturing facility in the Brazilian state of São Paulo, sharing the Volvo’s existing complex in Pederneiras.With the commencement of operation of this facility, SDLG is going be the first Chinese company to produce construction equipment in Brazil. Unlike many other companies, we always maintain a very low profile. We feel that we should do things by being quiet. We prefer to be under promise and over deliver in our action.Do you have any such plan for Indian market?In India, we want to clearly position ourselves as premium product among value segment. And to do that, we need to gain the trust of our clients in India. We should have adequate infrastructure, especially to support after-sales market. Today almost anybody can sell machine, but gaining trust of the customer is more important.
As we are fairly new in India, we need to learn and position ourselves in the market. We are quite optimistic about the expected market growth in India. Once we are positioned ourselves and market starts growing, we’ll be expanding further.India is a potential growing market that we are going to watch closely but we want to deliver our promise first. If we fail in delivering our promise, it doesn’t matter how much we invest in India, we will fail.Isn’t it difficult to promote two different brands within a group? Volvo CE is a premium brand whereas SDLG is a value brand. With the introduction of dual branding policy, we have been able to address the concerns related to cannibalisation.
“Though we face lot of competitions from existing players, we believe our strong focus on after-market support would actually enhance our brand to develop”
– B Sridhar, Head – SDLG Business, Volvo India
When it comes to Indian market, how do you complement each other?We have two different brands. Volvo, being the premium side of the market, was missing a large part in markets like China, India and Latin America. So we decided to set up our 2nd brand SDLG to cater to the demand of different sectors with different needs. SDLG products may not have all the technologies that the Volvo premium products have, but they will surely meet the demand of a cost-effective entry level machine.
For example, in Brazil, the 100 per cent of the market was dominated by foreign players till 2010. Today, a huge 50 per cent is captured by Chinese manufacturers. If we had done nothing, we’d have lost 50 per cent of the potential market. With the entrance of SDLG, we could approach at least 80 per cent of the potential market which was beyond Volvo’s reach earlier.In China, Volvo is not having any significant presence as in the wheel loaders market as it tends to be a premium brand. Almost 85 per cent of the wheel loaders market in China is still dominated by only four domestic players. If we had not come in to the alliance with SDLG, we would have totally out of this huge market. So, with the association of two brands of different target clients, we have able to spread our wings.On the other hand, SDLG is benefitted with the Volvo’s approach of total solution and total cost of ownership provider. The production line has become more efficient with the adoption of lean manufacturing; so we have bettered the quality.What’s your strategy for Indian market?First, we want to be successful in the wheel loaders segment. We need to establish the SDLG as the premium product among value segment overseas, and we want to be the No 1. Also, we would like to establish SDLG as the most preferred Chinese brand for our customers in India.