INTERVIEW: Daring to be different

With revenues last year of US$ 1.27 billion, Lonking is one of the larger Chinese construction equipment manufacturers. But at no.23 in the latest Yellow Table ranking of the industry’s largest companies, it is some way adrift from the big three of Sany, Zoomlion and XCMG, which were placed no.5, no.6 and no.11 respectively.

Far from suffering an inferiority complex, president & CEO Qiu Debo does not subscribe to the ‘big is beautiful’ doctrine that has seen many of his domestic competitors chase top-line growth at any cost. Strategies of growth by acquisition and rapid international expansion need to be done right, he says.

Speaking through a translator, Mr Qiu said, “In the last couple of years, lots of Chinese manufacturers have tried to go overseas but found it difficult. You need a lot of time to get the product right and there are lots of different requirements in different regions.”

And on the subject of overseas acquisitions he added, “I think a lot of Chinese companies still lack the ability to manage foreign companies. Some of the big Chinese companies in the industry clearly don’t compare in terms of management to other international players of a similar size.”

Summarising the difference in Lonking’s philosophy, he said, “We have the same general aims as most, but while most Chinese manufacturers think about getting big first and then getting stronger, we want to be strong first.”

The Lonking way

Lonking’s plan for overseas growth is to edge up from current exports of some 4,000 machines per annum to about 10,000 in the next three to five years. That would account for about 20% of the company’s revenues, but the longer term aim is to take the ratio of domestic sales to exports to 50:50.

So how does Mr Qiu plan to achieve this? First, it seems it will all be about organic growth. “We will not consider acquisitions for the next five years or so. We need to work on management of what we do right now. We are not convinced that there have been great successes for acquisitions by Chinese companies overseas,” he said.

His vision for Lonking is for a more measured international expansion “We are putting more resources into overseas markets. We have strengthened the management, facilities and worked on product quality. We believe you need to build up our channels first, with the right distribution and aftersales support. Says some manufacturers have started with a distribution model, been dissatisfied and then gone direct, undermining dealers.

And one day the company might manufacture overseas, but for now the company is all about exports. “Before we manufacture overseas we want to achieve a certain level of market share in key areas and sell a mix of products. I am open-minded about all the options, including joint ventures or our own subsidiaries, but we have not reached that stage yet.”

Domestic market

Meanwhile, the Chinese market itself is readjusting to much lower equipment volumes after the remarkable stimulus-driven boom of 2010 and 2011. Although the morale is low for some manufacturers, Mr Qiu regards the current state of the market as a return to normality.

“The situation is not bad – it has returned to reasonable growth. In previous years, growth was too high to be sustained,” he said.

But that is not to say that it hasn’t been a painful transition. “At the start of 2012 we started some changes. We are working more on cash flow, financial management and productivity, rather than producing high volumes of machines at any cost. 2012 was a tough year. We made 5,000 redundancies and our profit fell, but this year you will see changes and the figures will improve,” said Mr Qiu.

Looking ahead he concluded, “There is still a long way to go to move China to a consumer economy, so I think for the next few years our industry will continue to benefit from infrastructure building.”

“In five years’ time there will be fewer Chinese manufacturers but I believe Lonking will be one of them and will be even more healthy than now. “Lonking won’t be the biggest but we will be one of the strongest in product quality, financial management and internal management.”