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Growth strategies in the global construction equipment market – Capturing growth markets in BRIC and

Growth strategies in the global construction equipment market Capturing growth markets in BRIC and beyond

Market survey

Munich, October 2011

Contents

Contents Page A. Global market survey on construction equipment 50 senior management and industry expert interviews

Page

A. Global market survey on construction equipment 50 senior management and industry expert interviews conducted among manufacturers, dealers and suppliers

B. Key growth priorities in the global construction equipment industry Regional growth focus on BRIC and other emerging market regions (e.g. Africa and Middle East),

3

8

evaluation of products/product properties, leasing/aftermarket services and key market challenges

C. In-depth review of survey findings Detailed results from interviews regarding prospective growth regions, attractive products, differentiating product properties/services and market challenges

D. Conclusive implications for construction equipment players Actionable recommendations and areas of focus regarding markets, products, competitiveness and

growth strategies

© 2011 Roland Berger Strategy Consultants

12

29

2

A. Global market survey on construction equipment

A. Global market survey on construction equipment 3
This study identified key growth opportunities, important levers and market challenges in the global construction

This study identified key growth opportunities, important levers and market challenges in the global construction equipment industry

Study scope

PRODUCTS Core construction vehicles and equipment, as well as associated financial, rental and after-sales services
PRODUCTS
Core construction vehicles and equipment,
as well as associated financial, rental and
after-sales services
MARKETS
Global markets, including TRIAD 1) and top
growth markets such as BRIC
COMPANIES
Leading global construction and off-highway
machinery OEMs and their component and
service providers
machinery OEMs and their component and service providers 1 OPPORTUNITIES 2 KEY GROWTH LEVERS 3
machinery OEMs and their component and service providers 1 OPPORTUNITIES 2 KEY GROWTH LEVERS 3
machinery OEMs and their component and service providers 1 OPPORTUNITIES 2 KEY GROWTH LEVERS 3
1
1

OPPORTUNITIES

2
2

KEY GROWTH LEVERS

3
3

MARKET

TRENDS

4
4

MARKET

CHALLENGES

1) North America, Europe and Japan

Source: Roland Berger

4

Our study comprises the results from 50 interviews with industry experts located in the six

Our study comprises the results from 50 interviews with industry experts located in the six construction equipment lead markets

Study participants by geographical distribution

# 5 GERMANY USA # 15 # 5 # 15 # 5 BRAZIL INDIA #
# 5
GERMANY
USA
# 15
# 5
# 15
# 5
BRAZIL
INDIA
# 5

SUM: 50 INTERVIEWS

RUSSIA

CHINA

n
n

= Number of interviews conducted

Source: Roland Berger

> 50 senior managers and industry experts from global and regional players in key markets were interviewed

> Markets covered include the US and Germany with a focus of 30 interviews

> Additionally all

BRIC markets were

covered with 20 interviews in total

5

Roland Berger study findings are based on senior management inter- views and insights from industry

Roland Berger study findings are based on senior management inter- views and insights from industry experts along the entire value chain

Study participants by company type and position held [no. of interviews conducted]

PARTICIPATING SEGMENTS

1)

Equipment

manufacturers

Components

suppliers

Dealers

Independent industry experts

Source: Roland Berger

34 8 6 2
34
8
6
2

… REPRESENTED BY

experts Source: Roland Berger 34 8 6 2 … REPRESENTED BY Vehicle manu- facturers > Vice

Vehicle

manu-

facturers
facturers

> Vice President

> Deputy General Manager

> Sales Manager

> Marketing and Sales Executive

> Director of Strategic Marketing

> Product Manager

> Business Development & Account Mgmt. Executive

Suppliers > Business Development & Account Mgmt. Executive > Global Manager > Head of Marketing > Senior

> Global Manager

> Head of Marketing

> Senior Sales and Marketing Executive

> Marketing and Business Development Director

> Director of Operations & Industrialization

> Director of Supply Chain

Dealers & Industrialization > Director of Supply Chain > Regional Director > General Manager > Chief

> Regional Director

> General Manager

> Chief Commercial Manager

> Sales and Marketing Director

> Product Development Director

Experts
Experts

> Global industry analyst

6

We conducted a global and comprehensive survey covering most important company size segments along the

We conducted a global and comprehensive survey covering most important company size segments along the entire value chain

Study participants by company size and type [no. of interviews conduced] 1)

REVENUE Equipment Components SEGMENTS manufacturers Suppliers 13 Large > EUR 5 bn 2 Medium EUR
REVENUE
Equipment
Components
SEGMENTS
manufacturers
Suppliers
13
Large
> EUR 5 bn
2
Medium
EUR 1-5 bn
14
5
Small
< EUR 1 bn
7
1
SUM
34
8

1) Additionally two industry expert interviews conducted

Source: Roland Berger

Dealers

STUDY APPROACH:

> Telephone interviews with than 50 global top executives and

2 1 3
2
1
3

industry experts

Vehicle manufacturers

Suppliers

Retailers and dealers

SCOPE/COVERAGE:

> Study comprises leading global companies, as well as large

regional enterprises and regional

players

> All relevant products from

new/used equipment sales to
6 after sales and leasing/financing

> Global key markets

7

B. Key growth priorities in the global CE industry

B. Key growth priorities in the global CE industry 8
Growth opportunities for construction equipment industry are in BRIC and newly emerging markets – Consolidation

Growth opportunities for construction equipment industry are in BRIC and newly emerging markets Consolidation is expected

Key findings (1/3)

BRIC MARKETS continue to be the major growth focus due to large investments in roads, ports and other infrastructure

> Brazil is very attractive due to its continuing economic growth and political stability

> China and India are growing markets, dominated by local Joint Ventures, however room for new market entrants still available

Also OTHER EMERGING REGIONS, such as Africa and Middle East are increasingly attractive for CE companies with large investments planned and various construction OEMs about to enter these markets

> In particular South Africa and North African countries are very promising

> Also Middle East, ASEAN and Latin America are considered very attractive markets

COMPETITION IS INCREASING in the whole industry, along the entire value chain, especially in TRIAD markets Market consolidation is key result

> Recent mergers, e.g. Caterpillar (Bucyrus), Terex (Demag) show the extent of ongoing industry consolidation

Source: Roland Berger

9

Beyond core construction machinery offer based on distinctive product differentiation, financial and AM service key

Beyond core construction machinery offer based on distinctive product differentiation, financial and AM service key for growth

Key findings (2/3)

Source: Roland Berger

Among core construction machinery, EXCAVATORS AND WHEEL LOADERS are the most important product segments with BACKHOE LOADERS catching up

> Most important technological trends are connectivity, monitoring of vehicle functions and emissions reduction

> Most relevant and differentiating key components are engines and transmissions

> Most important distinguishing factors on the market are QUALITY, PRICE AND

AVAILABILITY OF REPLACEMENT PARTS

> Product range, customization and quality have the strongest rise in importance

LEASING IS GAINING IMPORTANCE compared to other financing options, especially loans However, strong regional differences can be observed

> Leasing is considered most important in the future in e.g. Brazil, Russia, China, Germany

> Importance of joint equipment ownerships is rising, however, it is still not as competitive

compared to leasing/loan financing options

10

Regional specifics play a fundamental role and have to be implemented in comprehensive growth strategies

Regional specifics play a fundamental role and have to be implemented in comprehensive growth strategies

Key findings (3/3)

1) E.g. by Caterpillar, Komatsu, Terex

Continuously high importance of COMPREHENSIVE AFTERMARKET SERVICES

Large investments are currently made to expand service locations 1)

> Availability of replacement parts however is still the most important criterion, closely followed by the demand for a professional key account management and round-the-clock services

> Full service offerings including financing, insurance and service is the fourth most important

aftermarket service

GROWTH REQUIREMENTS and MARKET CHALLENGES are strongly diverse

across different geographical markets

> Growth enablers in BRIC countries tightly linked to governm. support and market regulation

> TRIAD markets for CE are mostly saturated with entrenched competitive landscape

Most important KEY MARKET CHALLENGES are emissions regulations, import duties/restrictions and pressure from emerging market competitors

> Strong regional differences in market challenges

> Regulations are most important in Europe and USA

> Pressure from emerging market competitors in BRIC

> Import restrictions in Brazil, China and Russia

Source: Roland Berger

11

C. In-depth review of survey findings

C. In-depth review of survey findings 12
1
1

MOST ATTRACTIVE REGIONS

1 MOST ATTRACTIVE REGIONS BRIC countries are considered the most attractive growth regions, rating significantly better

BRIC countries are considered the most attractive growth regions, rating significantly better than TRIAD countries

Rating of attractiveness regarding growth potential by key regions

Brazil 4.4 China 4.1 BRIC India 4.1 Russia 3.9 Europe 3.1 NAFTA 3.0 TRIAD Japan
Brazil
4.4
China
4.1
BRIC
India
4.1
Russia
3.9
Europe
3.1
NAFTA
3.0
TRIAD
Japan
2.6
Low
High
(1)
(5)

Source: Roland Berger

CITATIONS FROM STUDY PARTICIPANTS

BRAZIL

RUSSIA

B RAZIL R USSIA I NDIA C HINA

INDIA

B RAZIL R USSIA I NDIA C HINA

CHINA

"Attractiveness of Brazilian market is due to the positive economic growth and political stability" "Attractive due to growth, however, antiquated manufacturing base, dependency on strong oil pricing, and political problems can inhibit growth." "Russia weakens itself due to the frequent introduction of new policies, e.g. unfavorable customs regulations" "Limiting factors of lack of growth in middle economic class, cultural issues, and weaknesses also in education system" "We as component supplier are heavily pushed by our OEM clients to follow them to China"

13

1
1

MOST ATTRACTIVE REGIONS

1 MOST ATTRACTIVE REGIONS Beyond BRIC, Africa and Middle East have also become the upcoming growth

Beyond BRIC, Africa and Middle East have also become the upcoming growth priorities of the construction equipment industry

Most attractive growth regions beyond BRIC and TRIAD markets [% of all mentions]

AFRICA 29%
AFRICA
29%

> South Africa is the single most attractive African country

> North Africa is also a promising growth region, e.g.

Algeria

Egypt

Morocco

Libya

MIDDLE EAST

25%
25%

> Named countries include:

U.A.E

Saudi Arabia

Qatar

Afghanistan

Iran

1) Excluding Brazil: Brazil is included in the BRIC specific analysis

Source: Roland Berger

ASEAN

15%
15%

> Indonesia is by far the most attractive country

in ASEAN regarding

growth options

> Other countries

include:

Thailand

Vietnam

LATIN AMERICA 1)

15%
15%
include: – – Thailand Vietnam LATIN AMERICA 1 ) 15% > Following Brazil, Argentina is regarded

> Following Brazil, Argentina is regarded the second most attractive market in

Latin America

> Other countries

include:

Uruguay

Chile

OTHERS

16%
16%

INCLUDING:

> Australia & New Zealand

> Far East

>

Central Asia

14

ORGANIC VS INORGANIC GROWTH − BACKUPAll companies interviewed consider organic growth in current and entry to new markets – Two

ORGANIC VS INORGANIC GROWTH − BACKUP All companies interviewed consider organic growth in current and entry

All companies interviewed consider organic growth in current and entry to new markets Two out of three consider inorganic growth

Growth options pursued by CE companies [%]

TYPE OF

EXPANSION

CURRENT

MARKETS

Through gain

of market

shares

NEW

MARKETS

Through

market entry

ORGANIC

18% 0% 82%
18%
0%
82%

All companies interviewed consider organic growth in current markets with most of them having implemented all necessary measures18% 0% 82%

0% 44% 56%
0%
44%
56%

All companies interviewed

consider organic growth to new markets – Only slightly more than half of Only slightly more than half of

them have taken measures

for implementation

Currently in implementationthan half of them have taken measures for implementation Planned Not intended Source: Roland Berger INORGANIC

measures for implementation Currently in implementation Planned Not intended Source: Roland Berger INORGANIC

Planned

for implementation Currently in implementation Planned Not intended Source: Roland Berger INORGANIC (through

Not intended

Source: Roland Berger

INORGANIC (through M&A)

21% 36% 43%
21%
36%
43%

Around 2/3 of companies consider inorganic growth in current markets.21% 36% 43% However only 21% have taken actual measures

However only 21% have

taken actual measures

21% 38% 42%
21%
38%
42%

Around 2/3 of companies

consider inorganic growth to new markets. However only 21% have taken21% 38% 42% Around 2/3 of companies actual measures

actual measures

15

ORGANIC VS INORGANIC GROWTH − BACKUPLarge and medium sized CE companies focus on inorganic growth to further penetrate existing and

ORGANIC VS INORGANIC GROWTH − BACKUP Large and medium sized CE companies focus on inorganic growth

Large and medium sized CE companies focus on inorganic growth to further penetrate existing and enter new markets

Influence of company size 1) on growth ambitions [%]

TYPE OF

EXPANSION

ORGANIC

CURRENT

MARKETS

Through gain

of market

shares

SMALL 9% 0% 91%
SMALL
9%
0%
91%
MEDIUM 15% 0% 85%
MEDIUM
15%
0%
85%
LARGE 0% 28% 72%
LARGE
0%
28%
72%

NEW

MARKETS

Through

market entry

SMALL 27% 0% 73%
SMALL
27%
0%
73%
MEDIUM 0% 45% 55%
MEDIUM
0%
45%
55%
LARGE 0% 41% 59%
LARGE
0%
41%
59%
0% 73% MEDIUM 0% 45% 55% LARGE 0% 41% 59% Planned Not intended at all Currently

Planned

73% MEDIUM 0% 45% 55% LARGE 0% 41% 59% Planned Not intended at all Currently in

Not intended at all

Currently in implementation/realization45% 55% LARGE 0% 41% 59% Planned Not intended at all 1) Company size by revenues:

1) Company size by revenues: Small: < EUR 1 bn, Medium: EUR 1-5 bn, Large: > EUR 5 bn

Source: Roland Berger

INORGANIC (through M&A)

SMALL MEDIUM LARGE 10% 24% 30% 35% 40% 40% 50% 30% 41% SMALL MEDIUM LARGE
SMALL
MEDIUM
LARGE
10%
24%
30%
35%
40%
40%
50%
30%
41%
SMALL
MEDIUM
LARGE
5%
22%
30%
33%
45%
50%
50%
20%
44%
FOCUS AREA

16

COMMENTS

COMMENTS

ORGANIC VS INORGANIC GROWTHCOMMENTS COMMENTS Product portfolio expansion is considered a key priority with room for M&A deals, whereas

COMMENTS COMMENTS ORGANIC VS INORGANIC GROWTH Product portfolio expansion is considered a key priority with room

Product portfolio expansion is considered a key priority with room for M&A deals, whereas pure extension of value chain is less favored

Consideration and implementation of growth options [%]

TYPE OF

EXPANSION

ADDITION

OF NEW

PRODUCTS

EXTENSION

OF VALUE

CHAIN

OVERALL DEGREE OF CONSIDERATION

ORGANIC

INORGANIC

7% 41% 52%
7%
41%
52%

4%

Not considered

at all

 

Considered

96%

through organic

and/or inorganic

 

Not considered

31%

at all

 

Considered

69%

through organic

and/or inorganic

&
&
69% through organic and/or inorganic & 4% 37% 59% & 23% 40% 38% 6% 38% 55%
69% through organic and/or inorganic & 4% 37% 59% & 23% 40% 38% 6% 38% 55%
4% 37% 59%
4%
37%
59%
through organic and/or inorganic & 4% 37% 59% & 23% 40% 38% 6% 38% 55% Currently
&
&
organic and/or inorganic & 4% 37% 59% & 23% 40% 38% 6% 38% 55% Currently in
23% 40% 38%
23%
40%
38%
6% 38% 55%
6%
38%
55%

Currently in implementation& 4% 37% 59% & 23% 40% 38% 6% 38% 55% Planned Not intended Source: Roland

& 23% 40% 38% 6% 38% 55% Currently in implementation Planned Not intended Source: Roland Berger

Planned

40% 38% 6% 38% 55% Currently in implementation Planned Not intended Source: Roland Berger > Most

Not intended

Source: Roland Berger

> Most companies consider adding further products to

their product portfolio

> Degree of implementation is low, especially for the inorganic option, indicating further M&A potential

> Extension of value chain is not as attractive to the majority of companies, with 1/3 not considering it at all

> Around 1/4 of companies is currently extending its value chain through organic growth

17

ORGANIC VS INORGANIC GROWTH − BACKUPProduct portfolio extension especially for large and medium player is intended through M&A − Small

ORGANIC VS INORGANIC GROWTH − BACKUP Product portfolio extension especially for large and medium player is

Product portfolio extension especially for large and medium player is intended through M&A − Small player focus on organic value chain ext.

Influence of company size 1) on growth ambitions [%]

TYPE OF

EXPANSION

ADDITION

OF NEW

PRODUCTS

EXTENSION

OF VALUE

CHAIN

ORGANIC

SMALL 27% 0% 73%
SMALL
27%
0%
73%
MEDIUM 5% 35% 60%
MEDIUM
5%
35%
60%
LARGE 6% 44% 50%
LARGE
6%
44%
50%
SMALL MEDIUM LARGE 18% 18% 15% 35% 41% 50% 35% 64% 24% FOCUS AREA
SMALL
MEDIUM
LARGE
18%
18%
15%
35%
41%
50%
35%
64%
24%
FOCUS AREA

Currently in implementation/realization18% 18% 15% 35% 41% 50% 35% 64% 24% FOCUS AREA Planned Not intended at all

64% 24% FOCUS AREA Currently in implementation/realization Planned Not intended at all 1) Company size by

Planned

FOCUS AREA Currently in implementation/realization Planned Not intended at all 1) Company size by revenues: Small:

Not intended at all

1) Company size by revenues: Small: < EUR 1 bn, Medium: EUR 1-5 bn, Large: > EUR 5 bn

Source: Roland Berger

INORGANIC (through M&A)

SMALL MEDIUM LARGE 5% 0% 22% 33% 45% 41% 50% 50% 44% FOCUS AREA SMALL
SMALL
MEDIUM
LARGE
5%
0%
22%
33%
45%
41%
50%
50%
44%
FOCUS AREA
SMALL
MEDIUM
LARGE
0%
11%
11%
44%
45%
28%
55%
61%
44%

18

4
4

MOST ATTRACTIVE PRODUCTS

4 MOST ATTRACTIVE PRODUCTS Rating of most attractive core construction equipment vehicles ranks excavators and wheel

Rating of most attractive core construction equipment vehicles ranks excavators and wheel loaders as most attractive products

Rating of top-5 core construction equipment products Current and future trends

TOP-5 TODAY AND PROSPECTED CHANGE IN ATTRACTIVENESS

1. Excavators 2. Wheel loaders Backhoe 3. loaders Skid steer 4. loaders Motor 5. graders
1.
Excavators
2.
Wheel
loaders
Backhoe
3.
loaders
Skid steer
4.
loaders
Motor
5.
graders

Future attractiveness:

Source: Roland Berger

t r a c t i v e n e s s : Source: Roland Berger

Increasing

t i v e n e s s : Source: Roland Berger Increasing Stable COMMENTS >

Stable

v e n e s s : Source: Roland Berger Increasing Stable COMMENTS > Excavators will

COMMENTS

> Excavators will remain number 1 construction equipment, as they continue to develop into multi-functional applications

> Among top-5 construction equipment, only backhoe loaders expand in attractiveness

> Skid steer loaders and motor graders have declining attractiveness

Decreasing

and motor graders have declining attractiveness Decreasing IMPACTING TECHNOLOGICAL TRENDS CONNECTIVITY > Electrical

IMPACTING TECHNOLOGICAL TRENDS

CONNECTIVITY

> Electrical control devices/GPS

applications (e.g. Caterpillar accugrade technology)

MONITORING

> Realtime monitoring of activity and performance, e.g. vehicle parts operation detection

module

> Equipment failure monitoring computer

EMISSIONS REDUCTION

> Viable hybridization applications are still to be developed

19

4
4

MOST ATTRACTIVE PRODUCTS

4 MOST ATTRACTIVE PRODUCTS Within CE products, transmission and engine are and remain the most attractive

Within CE products, transmission and engine are and remain the most attractive components, but body trading up

Rating of attractiveness of selected products 1)

ATTRACTIVENESS OF KEY COMPONENTS

POSSIBLE STRATEGIES

4.1 Transmission 1st 4.0 Engine Body/ 3.7 Undercarriage 2nd Auxiliary 3.6 modules KEY COMPONENTS
4.1
Transmission
1st
4.0
Engine
Body/
3.7
Undercarriage
2nd
Auxiliary
3.6
modules
KEY COMPONENTS
Undercarriage 2nd Auxiliary 3.6 modules KEY COMPONENTS POTENTIAL FOR DIFFERENTIATION OUTSOURCING WHERE REQUIRED

POTENTIAL FOR

DIFFERENTIATION

3.6 modules KEY COMPONENTS POTENTIAL FOR DIFFERENTIATION OUTSOURCING WHERE REQUIRED 1) Grades from highest (5) to
3.6 modules KEY COMPONENTS POTENTIAL FOR DIFFERENTIATION OUTSOURCING WHERE REQUIRED 1) Grades from highest (5) to

OUTSOURCING WHERE REQUIRED

1) Grades from highest (5) to lowest (1)

Future attractiveness:

u t u r e a t t r a c t i v e n

Increasing

e a t t r a c t i v e n e s s :

Stable

t t r a c t i v e n e s s : Increasing Stable

Decreasing

Source: Roland Berger

COMMENTS

> For the best use of

captive resources, focus

on the most attractive components

> Engine and transmission are in general most attractive for growth ambitions due to role in

fuel efficiency and

emission reduction

> Body/undercarriage are gaining importance due to product differentiation

> Auxiliary modules are least attractive for OEMs as supplied by common/ regional suppliers

20

4
4

PRODUCT PROPERTIES FOR DISTINCTNESS

4 PRODUCT PROPERTIES FOR DISTINCTNESS Quality, price and replacement services are the most important characteristics on

Quality, price and replacement services are the most important characteristics on the market Quality in top-3 in most markets

Ranking of product characteristics regarding potential to be distinguished on the market

GLOBAL RANKING (current) 1)

TREND

on the market GLOBAL RANKING (current) 1 ) TREND 1. Product quality 4.5 2. Purchasing price
1. Product quality 4.5 2. Purchasing price 4.2 3. Supply of replace- ment parts 4.2
1.
Product quality
4.5
2.
Purchasing price
4.2
3.
Supply of replace-
ment parts
4.2
4.
Local/on-site
4.0
service capabilities
5.
Maintenance and
4.0
service costs
6.
Costomized vehicle
3.7
configurations
7.
Breadth of product
range offered
3.4
8.
In-house capabilities
for core vehicle compon.
3.2
9.
Coverage of used
2.9
equipment
Low
High
(1)
(5)
Future attractiveness:
Increasing
Stable
Decreasing

1) Grades from highest (5) to lowest (1)

Source: Roland Berger

Grades from highest (5) to lowest (1) Source: Roland Berger The three properties PRODUCT RANGE, CUSTOMIZATION

The three properties PRODUCT RANGE, CUSTOMIZATION and QUALITY have seen the strongest rise in importance

21

4
4

PRODUCT PROPERTIES FOR DISTINCTNESS

4 PRODUCT PROPERTIES FOR DISTINCTNESS Quality, price and replacement services are the most important characteristics on

Quality, price and replacement services are the most important characteristics on the market Rankings strongly depend on country

Regional ranking of product characteristics regarding potential to be disting. on the market

REGIONAL

RANKING

potential to be disting. on the market REGIONAL RANKING 1. Quality Quality Price Replacement Price
potential to be disting. on the market REGIONAL RANKING 1. Quality Quality Price Replacement Price
potential to be disting. on the market REGIONAL RANKING 1. Quality Quality Price Replacement Price
potential to be disting. on the market REGIONAL RANKING 1. Quality Quality Price Replacement Price
potential to be disting. on the market REGIONAL RANKING 1. Quality Quality Price Replacement Price
potential to be disting. on the market REGIONAL RANKING 1. Quality Quality Price Replacement Price

1.

Quality

Quality

Price

Replacement

Price

Quality

parts

2.
2.

Price

Replacement

Quality

Coverage used

Quality

Maintenance costs

parts

equipment

 
3.
3.

Maintenance

Local/on-site

Customization

Price

Maintenance costs

Local/on-site

costs

service

 

service

4.
4.

Replacement

Customization

Local/on-site

Quality

Local/on-site

Price

parts

service

service

5.
5.

Local/on-site

Maintenance

Replacement

Maintenance

Replacement

Customization

service

costs

parts

costs

parts

6.

Customization

Price

Product

Local/on-site

Product range

Product range

range

service

7.
7.

Product

Product

Maintenance

Customization

Customization

Replacement

range

range

costs

parts

8.
8.

Coverage used

In-house

In-house

Product

In-house

In-house

equipment

components

components

range

components

components

9.
9.

In-house

Coverage used

Coverage used

In-house

Coverage used

Coverage used

components

equipment

equipment

components

equipment

equipment

Source: Roland Berger

22

GROWTH POTENTIAL IN FINANCIAL SERVICESThe study reveals rising importance of leasing with loans still the no. 1 financial service

GROWTH POTENTIAL IN FINANCIAL SERVICES The study reveals rising importance of leasing with loans still the

The study reveals rising importance of leasing with loans still the no. 1 financial service However regional differentiation can be observed

Importance of financial services to realize growth potentials 1)

GLOBAL VIEW

4.0 Loans +0.1 4.1 3.8 Leasing +0.3 4.1 3.0 Insurance +0.2 3.2 Joint 2.5 equipment
4.0
Loans
+0.1
4.1
3.8
Leasing
+0.3
4.1
3.0
Insurance
+0.2
3.2
Joint
2.5
equipment
+0.3
2.8
ownerships
Today
Future
Most important for future

1) Grades from highest (5) to lowest (1)

Source: Roland Berger

REGIONAL VIEW (current)

Loans 4.3

Loans

4.3

Leasing

3.9

Insurance

3.5

 

Joint ownerships

2.8

Loans 3.5

Loans

3.5

Leasing

4.1

Insurance

2.1

 
 

Joint ownerships

2.5

Loans 4.0

Loans

4.0

Leasing

4.0

Insurance

2.8

 

Joint ownerships

2.0

Loans 2.8

Loans

2.8

Leasing

4.4

Insurance

2.4

 

Joint ownerships

 

2.2

 
 

Loans

 

4.2

Leasing

3.6

 

Insurance

 

3.0

Joint ownerships

2.4

Loans 4.4

Loans

4.4

Leasing

4.6

Insurance

3.2

 

Joint ownerships

3.2

4.6 Insurance 3.2   Joint ownerships 3.2 = Countries with leasing as number 1 financial service

= Countries with leasing as number 1 financial service in the future

COMMENTS

> Overall loans are the

number 1 financial service

> Leasing has significant importance in Germany and Russia and is on the rise

> In Brazil and China, leasing will gain importance to be the number 1 financial

service in the future

23

6
6

GROWTH POTENTIAL IN AFTERMARKET SERVICES

6 GROWTH POTENTIAL IN AFTERMARKET SERVICES Supply of replacement parts will remain most important AM service

Supply of replacement parts will remain most important AM service with further increasing importance of 24/7 and long term service

Importance ranking 1) of aftermarket services to realize growth potentials

RANKING and CHANGE of interviewed aftermarket services

TREND

RANKING and CHANGE of interviewed aftermarket services TREND 1. Supply of 4.5 replacement parts 2. Professional
1. Supply of 4.5 replacement parts 2. Professional key account customer 4.4 management 24/7 service
1.
Supply of
4.5
replacement parts
2.
Professional key
account customer
4.4
management
24/7 service
3.
4.2
availability
4.
(Longterm) service
4.1
agreements
5. Mobile service
3.9
units
6. All-in-one
3.5
solutions 2)
Low
High
(1)
(5)
Future importance:
Increasing
Stable
Decreasing

1) Grades from highest (5) to lowest (1)

Source: Roland Berger

2) Financing/insurance/services

KEY FINDINGS

Roland Berger 2) Financing/insurance/services KEY FINDINGS ALL PRODUCT RELATED SERVICES rank very high on the rating

ALL PRODUCT RELATED SERVICES rank very high on the rating scale rank very high on the rating scale

ALL IN ONE SOLUTIONS

(financing/ insurance/ services) are ranked at

lower priority but with increasing importanceONE SOLUTIONS (financing/ insurance/ services) are ranked at Little differences across the countries included in the

are ranked at lower priority but with increasing importance Little differences across the countries included in

Little differences across the

countries included in the interviews were found

24

7
7

REGIONAL SPECIFICS

7 REGIONAL SPECIFICS Growth enablers and market specifics for CE in BRIC are closely linked to

Growth enablers and market specifics for CE in BRIC are closely linked to national government support and market regulation

Regional growth requirements and challenges − BRIC

REGIONALITY OF MARKET CHALLENGES

Are market trends rather diverse depending on the region?

No 14% 86%
No
14%
86%

Yes

Source: Roland Berger

KEY MARKET SPECIFICS IDENTIFIED

Brazil

Source: Roland Berger KEY MARKET SPECIFICS IDENTIFIED Brazil > Tariffs and financing restrictions make market very
Source: Roland Berger KEY MARKET SPECIFICS IDENTIFIED Brazil > Tariffs and financing restrictions make market very

> Tariffs and financing restrictions make market very difficult to penetrate without localized manufacturing base

> However even strong differences between Brazilian regions lead to different markets trends

Russia

> Promising market limited mostly by market inefficiencies and political issues

> Unforeseeable changes in customer regulation can occur

> Unforeseeable changes in customer regulation can occur India > Market already dominated by large global
> Unforeseeable changes in customer regulation can occur India > Market already dominated by large global
> Unforeseeable changes in customer regulation can occur India > Market already dominated by large global
> Unforeseeable changes in customer regulation can occur India > Market already dominated by large global

India

Unforeseeable changes in customer regulation can occur India > Market already dominated by large global players

> Market already dominated by large global players aligned with local Indian JV partners

China

large global players aligned with local Indian JV partners China > Growing market with room for

> Growing market with room for JVs to participate

25

7
7

REGIONAL SPECIFICS

7 REGIONAL SPECIFICS While TRIAD markets are very competitive, Africa, Middle East and Southeast Asia have

While TRIAD markets are very competitive, Africa, Middle East and Southeast Asia have lower barriers to entry…

Regional growth requirements and challenges − Outside BRIC

REGIONALITY OF MARKET CHALLENGES

Are market trends rather diverse depending on the region?

No 14% 86%
No
14%
86%

Yes

KEY MARKET SPECIFICS IDENTIFIED

NAFTA AND WESTERN EUROPE

Yes KEY MARKET SPECIFICS IDENTIFIED NAFTA AND WESTERN EUROPE > Saturated markets: Little room for growth
Yes KEY MARKET SPECIFICS IDENTIFIED NAFTA AND WESTERN EUROPE > Saturated markets: Little room for growth
Yes KEY MARKET SPECIFICS IDENTIFIED NAFTA AND WESTERN EUROPE > Saturated markets: Little room for growth

> Saturated markets: Little room for growth for new competitors due to high overall operating costs

> Users demand the utmost in quality, uptime, comfort and safety Developing regions have lesser expectations

AFRICA > Major projects being serviced by multinationals > Local distribution highly dependent on stability
AFRICA
> Major projects being serviced by multinationals
> Local distribution highly dependent on stability of in country sales and
service organizations
> Political instability will continue to hinder growth
MIDDLE
EAST
> Recovery in global markets and petroleum demand will spur continued
growth
SOUTHEAST
ASIA
> Growing manufacturing base and market sophistication will make
these attractive opportunities

Source: Roland Berger

26

8
8

KEY MARKET CHALLENGES

8 KEY MARKET CHALLENGES Top-3 market challenges are import restrictions, emissions regulations and pressure from emerging

Top-3 market challenges are import restrictions, emissions regulations and pressure from emerging market competitors

Overall market challenges for construction equipment 1) across all regions

REGULATIONS

Import duties/

 

4.1

restrictions

Emissions regulations

 

4.0

Safety regulations

 

3.6

Recycling and environmental regulations

 

3.3

 

Phase-out of governmental stimulus package

Phase-out of governmental stimulus package 2.7  

2.7

 

COMPETITION

Pressure from emer- ging market competitors

 

4.0

 

Pressure from East-Asian competitors (excl. China)

3.6

Shift of value creation to low cost locations e.g. China

 

3.4

 

Pressure from horizontally more integrated players

3.1

 

Pressure from vertically more integrated players

3.1

 

OTHERS

Technological developments e.g. alternative powertrains

Bottlenecks in financing / funding

Declining market

demand

Consolidation on

demand side

funding Declining market demand Consolidation on demand side 3.5 3.2 3.1 3.0 RANKING DEVELOPMENT 1. Import

3.5

3.2

Declining market demand Consolidation on demand side 3.5 3.2 3.1 3.0 RANKING DEVELOPMENT 1. Import duties/restrictions

3.1

3.0market demand Consolidation on demand side 3.5 3.2 3.1 RANKING DEVELOPMENT 1. Import duties/restrictions

RANKING DEVELOPMENT 1. Import duties/restrictions Regulation and competition OF TOP-3 based key market challenges
RANKING
DEVELOPMENT
1.
Import duties/restrictions
Regulation and competition
OF TOP-3
based key market challenges
MARKET
2.
Emissions regulations
are most important today
CHALLENGES
3.
Pressure from emerging market competitors
Future development:
Increasing
Stable
Decreasing
Top -3 market challenge

1) Grades from highest (5) to lowest (1)

Source: Roland Berger

27

KEY MARKET CHALLENGESIn each country, certain challenges are most relevant – Some of these however are dominant

KEY MARKET CHALLENGES In each country, certain challenges are most relevant – Some of these however

In each country, certain challenges are most relevant Some of these however are dominant only in certain regions

Participants indicated different top-3 challenges in their respective markets

RANK

different top-3 challenges in their respective markets RANK 1. Import duties/ Emissions Import duties/
different top-3 challenges in their respective markets RANK 1. Import duties/ Emissions Import duties/
different top-3 challenges in their respective markets RANK 1. Import duties/ Emissions Import duties/
different top-3 challenges in their respective markets RANK 1. Import duties/ Emissions Import duties/
different top-3 challenges in their respective markets RANK 1. Import duties/ Emissions Import duties/
different top-3 challenges in their respective markets RANK 1. Import duties/ Emissions Import duties/
different top-3 challenges in their respective markets RANK 1. Import duties/ Emissions Import duties/

1.

Import duties/

Emissions

Import duties/

Import duties/

Import duties/

Emissions

restrictions

regulations

restrictions

restrictions

restrictions

regulations

2.

Emissions

East Asian

Government

Horizontally integrated players

Emerging market competition

Import duties/

regulations

competition

support

restrictions

3.

Value creation shift to low cost

Emerging market competition

Emerging market competition

Emerging market competition

Financing/

Emerging market competition

funding

TRIAD 1)

BRIC

TRIAD 1)
TRIAD 1)
BRIC
BRIC

Some of the

challenges

are present in certain countries

and regions

> Emissions regulation > Safety regulation > Import duties/ restrictions 2) > Recycling and
> Emissions regulation
> Safety regulation
> Import duties/
restrictions 2)
> Recycling and
environmental issues
REGIONAL SPECIFICS

1) North America, Europe and Japan

2) Focus on Brazil, Russia, China

Source: Roland Berger

28

D. Conclusive implications for CE players

D. Conclusive implications for CE players 29
To capture growth opportunities in BRIC and beyond, key levers to ensures competitive positioning need

To capture growth opportunities in BRIC and beyond, key levers to ensures competitive positioning need to be addressed globally

FINDINGS

1

1 2 3 4

2

1 2 3 4

3

1 2 3 4

4

MARKETS

MARKETS

PRODUCTS

PRODUCTS

COMPETITIVE-

COMPETITIVE-

NESS

GROWTH

GROWTH

STRATEGIES

Source: Roland Berger

DETAILS

Target most attractive CE growth markets

> BRIC markets are today the most attractive growth regions and need to be targeted in a country-specific way

> Windows of opportunity to tackle further growth markets beyond BRIC, e.g. Africa, South America, ASEAN to ensure competitive advantage

Optimize product and service portfolio

> Focus on most attractive product segments (excavators, backhoe loaders) by leveraging differentiators engine and transmissions

> Global expansion of financing and aftermarket services needed, but regional

specifics need to be considered

Enhance competitiveness on global scale > Optimize product offering based on harmonized vehicle platforms, but compliant with regional market specifics (emissions, price levels)

> Actively participate in market consolidation through M&A and JVs

Formulate suitable growth strategies encompassing key CE growth priorities

> Key value proposition and product/service portfolio

> Countries targeted and footprint design

> Core competencies and differentiating technologies

30

It's character that creates

impact!

It's character that creates impact! 31
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