The battle between major Japanese and Chinese construction machinery companies is intensifying in Indonesia. As the growth of the Chinese market slows, China’s Sanichi Heavy Industries is accelerating its overseas expansion in search of new sources of revenue.
Komatsu, which has a stronghold in Southeast Asia, is responding by introducing mid-priced machines and expanding its maintenance bases. Who will dominate the growing market following China will also affect the power structure of the construction equipment market in Asia.
The island of Sulawesi has a high concentration of nickel smelters, which are used to make batteries for EVs, and reportedly about 70% of these smelters have Chinese capital. According to Chinese media, in the first half of May alone, more than 600 hydraulic excavators manufactured by Sanichi arrived in Sulawesi and were transported to smelters and other facilities. The number of the company’s hydraulic excavators in operation in Indonesia as a whole has exceeded 5,000.
The company’s weapons are its price competitiveness, which is said to be about 20% lower than that of Japanese companies, and its sales capabilities in conjunction with the One Belt, One Road Initiative. China outbid Japan for the construction of a high-speed railroad linking the capital Jakarta with neighboring Bandung. More than 500 units of Sanichi’s construction equipment were used in the construction of this high-speed railroad.
Uncertainty about the future of the Chinese market is behind the rush by Chinese companies to develop overseas markets. The sales volume of hydraulic excavators turned negative in April and declined by more than 20% in May compared to the previous year, a reaction to the significant growth in 2020 due to the resumption of infrastructure development after the convergence of COVID-19.
There are forecasts that the sales volume will decline by about 10% for the full year of 2021. On the other hand, sales in Southeast Asia are strong. Komatsu expects the demand for construction machinery in FY2021 (on a volume basis) to increase by 10-15% from the previous year. In particular, Indonesia, which has the largest construction equipment market in Southeast Asia, is expected to see a significant increase in infrastructure investment in 2021, partly due to Corona’s measures. The construction of roads and railroads will be a commercial opportunity for construction machinery companies.
In the January-March period, SANY’s market share in Indonesia was 21%, close to Komatsu’s 22%. In the fiscal year ending March 2010, Komatsu expects its sales in Asia, excluding China, to increase 73% from the previous fiscal year to 240.4 billion yen. It will be the fourth largest region after North America, Latin America and Japan, accounting for about 10% of the total. In Southeast Asia, the shadow of China flickers in areas other than Indonesia. In Thailand, it is believed that Chinese companies have come to account for about 30% of the market share over the past few years and are chasing Komatsu, which is estimated to have about 50%.
The question is whether Komatsu will be able to maintain its market share by introducing products in the mid-price range and providing a generous support system while keeping its distance from price competition. Or will SANY be able to make a breakthrough by bringing the balance between price and performance to the fore? The competition in Indonesia is likely to determine the future profitability in the emerging economies.
Source: Nikkei Asian Review
PSR Analysis: In the June issue of PowerTALK, I discussed the ties between Japanese automakers and the automobile industry in Southeast Asia; a similar major change is about to begin in the construction equipment segment there. In recent years, Chinese and Korean construction equipment manufacturers have been conducting sales activities to increase their market share, including setting up large booths at exhibitions in Southeast Asia. One of the strong points of the Chinese manufacturers is price. SANY has lowered the price by about 20% and improved durability and other quality features. Komatsu, on the other hand, offers excellent after-sales service through its distributors and is strong in mining equipment.
I have asked local users about their opinions, and up until five or six years ago, Chinese products were not very popular because of problems with durability and after-sales service. Many construction machines were purchased because they were inexpensive, but the market was reluctant to buy them because they did not respond well when they broke down. Today, however, the quality of Chinese brands has improved dramatically, and this is a major threat to Komatsu and other Japanese manufacturers.
The use of Chinese construction equipment is implicit in many of China’s One Belt, One Road policies, and this is one reason for the huge growth. Japanese manufacturers are trying to differentiate their products in terms of function and other factors without getting into a price war, but which will be more highly valued by Indonesia and other Southeast Asian markets, price or function? The market structure has the potential to change dramatically. PSR
Akihiro Komuro is Research Analyst, Far East and Southeast Asia, for Power Systems Research
