Interview: Doosan Infracore Construction Equipment CEO Tony Helsham

When Tony Helsham retired in February after 25 years with Volvo, it looked like the industry was losing a well-known and outspoken executive. But within a few months he had taken the job as CEO of one of the industry’s most enigmatic players, Doosan Infracore Construction Equipment. Chris Sleight reports.

After 25 years at Volvo Construction Equipment, including stints heading hauler manufacturer Euclid in the 1990s, the company's Korean excavator business following its acquisition from Samsung in 1998, and then the top job form 2000 to 2008, you would think Tony Helsham would be ready for a rest. But not a bit of it.

His promotion two years ago to a senior vice president role on the board of parent company Volvo AB seemed a curious move for someone who was clearly very engaged in the construction equipment business, and so it proved when he left the post and Volvo this February, just 18 months later.

Taking up the story, Mr Helsham said, "I figured I wasn't really cut out to be a staff guy, having been heavily involved all my life in the operations side. So I decided it was time to move on. Despite the economic conditions, a couple of interesting opportunities came up."

The opportunity he ended up taking was becoming CEO of Doosan Infracore Construction Equipment. They may both make construction equipment, but in terms of their history and place in the market, Doosan and Volvo are worlds apart.

Volvo is one of the grand old names of the industry. In contrast, Doosan wasn't even in the industry six years ago. Its first step came in 2005 when it bought a 51% stake in Daewoo's construction equipment business from the Korea Development Bank (KDB) and Korean Asset Management Company (KAMCO) - two state-owned entities that was set up in the wake of the 1997 Asian currency crisis to restructure the country's industry and act as creditors while companies regained health.

Although it was a big deal (US$ 1.7 billion) the transition from Daewoo to Doosan - from one Korean owner to another - didn't cause many waves in the industry. But that all changed in 2007 when Doosan bought Bobcat and the remaining pieces of Ingersoll Rand's construction equipment division - including its portable power business - for a whooping US$ 4.9 billion.

To iC's knowledge it is the highest value acquisition ever made in the construction equipment industry and it underlined Doosan's serious intentions, as did the acquisition of articulated dump truck manufacturer Moxy in 2008.

According to Mr Helsham, it was these deals that first piqued his interest in the company. "When they bought Bobcat and Moxy we started to sit up and say, 'What are these guys doing?' That was a hell of a gutsy move when they bought Bobcat. All of us realised that these guys wanted to be something when they grow up."

And it is this pioneering spirit and the challenge it represents that is what appeals to Mr Helsham.

"Doosan has been an interesting entrant into this industry at a time when everyone is saying 'Why would you want to get into this business?' To be part of that from the early stages, and to try and get this new group with all its different pieces, into a top tier global player is a hell of a challenge and I'm enjoying it immensely," he said.

Expanding on the point he added, "This is not a mature company and we're attacking a lot of the basic building blocks to get it up to what the owners aspire to. That makes it very exciting."

Priorities

Top of Mr Helsham's 'to do' list is ironing out the wrinkles in the distribution network. Before he joined, the company had decided it would keep both the Doosan and Bobcat brands alive - Bobcat for compact equipment and Doosan for heavy machines.

That means the company has lots of options when it comes to firming up its dealer network, but perhaps some tough decisions too.

"In some cases that means strengthening the Bobcat distribution and augmenting it with heavy equipment. In other cases it means setting up the right heavy equipment distribution. There is always going to be a mix of compact and heavy distribution. Sometimes they will be combined and sometimes they will be different," said Mr Helsham.

It would seem though that in many cases the Doosan and Bobcat dealerships will be different.

Mr Helsham said, "The capital investment, facilities and support for heavy equipment is much greater than for compact equipment, so if you put them both together you're burdening the compact sales with that overhead cost. On the opposite side if we're asking compact dealers to take on the heavy equipment, they have to make investments in things like service vehicles.

"Selling a mining truck or a shovel and a skid steer loader is like chalk and cheese. There are synergies, but they tend to be internal things like - things like the after market, sales & marketing, IT and back-office synergies and so on. But what you have to be careful of is the public face. What you can't do is just shove it all together with one dealer and say 'I want you to sell everything'."

But one thing is clear - the two brands will remain. "Don't expect in my lifetime that I will ever change the Bobcat brand," said Mr Helsham, with his characteristic directness.

"There are two companies where the brand is so strong that you couldn't change it. One is Caterpillar - and I don't think we ever have to worry about it - and the other is Bobcat. People don't buy a skid steer loader, they buy a Bobcat," he added.

To acquire or not to acquire?

One of the things that marked Mr Helsham's time at Volvo was the way the company grew through acquisition. Immediately prior to taking up the CEO role he was president of the excavator business the company acquired from Samsung in 1998, a move that has seen Volvo firmly establish itself as a global force in excavators.

Other previous additions to the Volvo stable included Pel-Job (compact excavators), Zettelmeyer (wheeled excavators and small wheeled loaders) and Champion (graders), while as CEO, Mr Helsham acquired Ingersoll-Rand's road building equipment business in 2007. So it is perhaps surprising that acquisitions do not feature in his plans for Doosan.

"Id' much prefer to take what we've got and execute our long-range plan well," he said. "When it comes to heavy equipment, my first preference is to fill a few gaps we have in the excavator and loader line up, and of course we've got to launch the Tier 4 Interim models.

"Then of course we have Moxy, which fits into the heavy portfolio and marries up well with the wheeled loaders and larger excavators. But Moxy needs some very special focus to bring it back. It's had a tough time due to the increased competition, the changes of ownership and changes of management."

"When it comes to the crossover products, I want a very clear plan and strategy for the next generation of compact excavators - up to 8 tonnes. That covers both Bobcat and Doosan, and we need a clear strategy there."

"Other than that, when I look at the shift in the market dynamics - towards China, for example, and if I look at what we've got on our plate already, I don't see any need in the next few years to go out and add products through acquisitions. And the available targets are limited too."

China

The mention of China leads on to one of Doosan's undeniable strengths. Under its previous guise as Daewoo, the company was one of the first overseas manufacturers to enter the Chinese market, back in 1994. It also took the unusual step of setting up a wholly owned foreign enterprise, rather than taking the joint-venture route favoured by most other international entrants to the Chinese market.

It may have looked a risky move back in the mid-1990s, but it is a gamble that has paid off for the company, which has been a consistent market leader in the Chinese excavator business ever since. The excavator market that has gone from almost nothing ten years ago to some 140000 machines this year - about two thirds of the entire world demand, and Doosan's plant in Yantai, in China's Shandong province has the capacity to manufacture 25500 excavators per year.

"I was impressed that the people who got in there at the start and kept the pricing discipline. I think that's a good sign for our industry.

"I watched Doosan - Daewoo then - when they got in as a first mover, and I thought they were extremely gutsy. Now we're producing about 100 excavators per day, which is a lot of excavators - there's nowhere else in the world where that happens.

"So part of what attracted me to this company and influencing where it goes when it grows up? One of the attractions was getting back into the Chinese market and actively participating here," said Mr Helsham.

Of course the key question about China is whether the phenomenal growth of the last decade and the last year in particular can be sustained? It is one no one has an answer for, including Mr Helsham.

"That's the multi-zillion dollar question. Will it continue? Our prediction and the view of some of our competitors is that the wheeled loader business will start to slow. That's consistent with what's happened in other parts of the world - wheeled loaders are always first out of the gate in any market, then excavators take off.

"We're predicting a stronger rate of growth for excavators over the next five years. The rate of growth won't be as strong as what we've seen this year.

"Is it sustainable? Is it a bubble? No one knows. But the track record of the centrally planned economy and the remarkable speed with which they can turn it on and off means we are all hoping and praying that this controlled growth can continue.

"The thing that keeps me awake at night is that the current installed capacity in China and the future plans indicates that everyone is thinking along the same lines of the market continuing to grow. You're typically talking about each manufacturer putting in capacity of 20000 to 30000 excavators per year, and if everyone does that and the bubble bursts then there will be a massive problem," he said.

New battleground

Indeed, a study by specialist consultant Off-Highway Research has shown these expansion plans, along with new entrants into the excavator business mean that by about 2012, the capacity to manufacture excavators in China could be as high as 425000 machines per year, compared to about 250000 today.

Given that the capacity to build excavators in the rest of the world combined is only about 50000 machines per year, this development clearly represents a sea change in the equipment industry's dynamics. It is a controversial point, but one that Mr Helsham not only accepts, but relishes.

"This is the future battle ground - the middle market. You've got a premium market which is shrinking, you've got a low end market which is all about price, but the bulk of the market is in the middle, and that's the future battle ground for us all. That's open to all comers, because it's a price, quality, value and support proposition, and it's something the western manufacturers have never had to deal with before.

"In the past in emerging economies, all western companies have said, 'Take our premium western product, and we'll force it in because there's no competition.' That dynamic has completely changed - not just in construction equipment. That's what makes it so exciting, because it's a sea change and there are no winners and losers yet."