Editor's Comment: More Chinese acquisitions
By Chris Sleight03 August 2012
This column will be the third time in four months that I have written about a Chinese construction equipment manufacturer buying a European company. At the start of the year it was Liugong's acquisition of HSW, followed in short order by Sany's acquisition of Putzmeister. Now, in a strikingly similar deal, XCMG has acquired German concrete pump, mixer and placing equipment maker Schwing Stetter.
Many of the same reasons that Sany acquired Putzmeister apply here. Schwing makes premium products, which will open the door to new customers and markets for XCMG. More importantly, Schwing has worldwide distribution, which will be a great boon to XCMG as it seeks to build export sales across its full product portfolio.
In terms of products, the XCMG-Schwing deal perhaps makes more sense than Sany-Putzmeister. Whereas Sany was already a strong player in concrete placing equipment, claiming market leadership in China, concrete equipment is much more of a strategic addition for XCMG, which has historic strength in other areas such as mobile cranes.
Another interesting aspect of the deal is that coming as it does on the heels of Sany's acquisition of Putzmeister and Zoomlion's 2008 acquisition of Cifa, it puts the lion's share of the world's concrete pump and placing boom sector into Chinese ownership.
But the big picture for Sany, XCMG and Zoomlion alike is export sales. The timing is crucial, as the Chinese market is now in its first real downturn following a period of more than 10 years of remarkable growth. The extent of the slump was illustrated by annual results from both Hitachi and Komatsu. Komatsu's sales in China were down -40% in the 12 months to the end of March, wiping US$ 1.6 billion off its top-line revenues. Hitachi meanwhile saw a -34% decline, equivalent to US$ 850 million).
But what is most interesting is that while both figures were significant in terms of overall revenues, both manufacturers saw their profits and margins improve last year. This is a striking fact. The revenues Komatsu lost in China last year would be equivalent to about 7.5% of its global sales, so to lose this but improve margins indicates that the missing business was not particularly profitable.
And this underlines the main reason Chinese manufacturers are so keen to export. The volumes they sell domestically may be huge, but competition is fierce, buyers are price-sensitive and margins are thin as a result.
So little wonder then that China's manufacturers are keen to branch out from their domestic market, and to do that they not only need products, but also distribution. Chinese products in this sector have come a long way in the last ten years, but building good distribution networks takes decades
Perhaps more than anything else, the access to new markets, including mature regions like Europe and North America, has been the real prize for Liugong, Sany, XCMG and Zoomlion alike.