Overview
Sany is a Chinese-based multinational company specializing in construction machinery. Since its creation in 1994, it has grown to the leading company in the domestic market and, starting from the mid 2000s, reached out to the global scene, where it quickly became recognized and acclaimed for the fair pricing and, recently, environmentally friendly policies. The company is known for its prominent R&D department, which was strengthened by the 2012 acquisition of German-based Putzmeister, a leader in concrete pumping equipment. While facing serious expenses caused by the Recession and the decline of demand, Sany remains one of the most viable competitors for Komatsu, one of the global leaders in heavy machinery.
Products
Currently, the company is comprised of nine divisions and subsidiaries, each specializing in its own range of products (Sany Group, “Sany Products” par. 1).
The excavators, produced by Sany Heavy Machinery (Kunshan) Co., Ltd.
Coal mining equipment, a relatively recent introduction, is manufactured by Sany Heavy Equipment Co., Ltd.
Stationery and truck-mounted concrete pumps, as well as concrete mixers, are produced by concrete pump division, recently expanded by the acquisition of the German-based competitor, Putzmeister.
Several types of cranes, including the rough terrain and all-terrain varieties, manufactured by Mobile crane division.
A separate entity, port machinery division, is responsible for the maritime equipment, in particular, the cranes and reach stackers used in ports.
Rollers, pavers, and other road construction equipment, produced by road construction division.
Crawler cranes, manufactured by Sany Science and Technology Co., Ltd.
A separate division, Sany Heavy Machinery (Beijing) Co., Ltd., is allocated for the production of pile drivers.
Finally, as a response to sustainability concerns, Sany Electric Co., Ltd, is responsible for the wind power machinery.
External Factors
Two major factors have been responsible for the unprecedented growth of Sany and its current competitive capacity.
Business Environment
The rapid growth of the construction equipment market that occurred in China in the late nineties and early 2000s created an excellent opportunity for the company. The pace of industrialization, coupled with the decent raw material base, has created the need for the modernization and expansion of the factories, which, in turn, created the demand for highly specialized construction machinery. More importantly, the rate of urbanization, together with the current demographic situation makes the housing one of the country’s overall priorities. While the former could be discarded with the arrival of recession, the latter is a persistent trend and will likely remain a noticeable actor in the following decades. Even despite the impact of the recession, the market is projected to rise: the investment in construction is expected to increase by US$ 770 billion by 2016 (Technavio par. 4). Obviously, such conditions are extremely beneficial for the industries in question to thrive.
Domestic competition
Naturally, the setting also leads to the emergence of a multitude of companies, creating fierce competition. Along with Sany, several major companies have emerged around the same time frame, including SDLG, Liugong, and Zoomlion, among others. They all offered a comparatively equal level of quality at a comparable price, which prioritized the role of effective management and marketing decisions. Besides, the low-end quality of equipment compared to the American and European analogies, especially at the early stage preceding the international orientation, served an additional isolating factor contributing to the setting where the Chinese companies had an opportunity to develop separately from the more developed global competitors. As a result, Sany became proficient and competitive enough by 2006, when it first entered the international arena – the move which otherwise would unlikely lead to success.
Key Decisions
Throughout the course of its development, the company has taken a number of significant decisions. Some of them can be isolated as the definition for the company’s performance and the position on the global market scene. The most prominent of these decisions is the acquisition of the Putzmeister Holding GmbH, a joint venture with Austrian-based Palfinger, and several changes in company policies which contributed to its stability and liquidity.
Acquisition of Putzmeister Holding GmbH
Prior to 2006, Sany was chiefly oriented at the domestic market. While China presented excellent opportunities for the heavy construction equipment considering a rapidly growing domestic market, it only accounted for a small percentage of the global market. By 2006, when the company has started internationalizing, the Chinese market accounted for only 15% of the total heavy machinery sold worldwide (Alon, Fetscherin, and Gugler 112). Thus, starting in 2007, the company started exploring international business opportunities. In late 2006, $60 million were invested in establishing a manufacturing base in India, and a year later, another $60 million were allocated for an R&D base in the United States (Alon, Fetscherin, and Gugler 111). However, aside from that, the international arena was primarily explored by export tactics. Both the investments and the export of goods became a success by 2009, and the decision was made to expand to the European market in a similar way.
In 2009, €100 million was invested in the R&D base development in Germany. It is important to note that at the time of the investments, one of the products developed by Sany, the concrete pumping equipment, ranked third in the European market, after two German companies, Putzmeister (first place) and Schwing (second place). The chief advantage of German competitors was the superb scientific and engineering base, which notably coincided with the emphasis on R&D displayed by Sany Group. Thus, in 2012 Sany announced the acquisition of Putzmeister Holding GmbH. Currently, Sany Group holds a 90% share of the German leader, with the remaining 10% belonging to CITIC PE. Aside from being the first instance of acquisition of the world-leading brand by the Chinese enterprise, it signifies an unprecedented synergy of engineering achievement, and displayed significant results as soon as the early 2013, when Putzmeister achieved a 30% sales growth despite being impacted by the economic recession (Sany Group, “Top 10 Events” par. 4).
Joint Ventures: Palfinger
A similar goal was pursued the same year when Sany established a joint venture with an Austrian company Palfinger, which specializes primarily in truck-mounted cranes (Sany Group, “Top 10 Events” par. 10). However, the motivation was somewhat different for this venture. Besides the opportunities presented by the partnership solely from the cooperative perspective, this joint venture also increases the efficiency of global functioning for Sany. Previously, many of the components were not manufactured internally but purchased from European firms, and, in some cases, exported back to Europe. Thanks to the European-based joint venture, this part of the production cycle can be safely eliminated, increasing the company’s efficiency. Besides, the European-based operations provide additional opportunities for the HR department, which the company has fully taken advantage since 2012 – currently, the company employs more than 300 international staff members. Finally, the integration into the European market offered cultural and social insights which are among the most important factors in the global market.
Ranking and Size Policies
While 2012 was visibly a year that marked the start of more proactive expansion policies for Sany. Counterintuitively, roughly at the same period the company has made a decision to limit its growth to the most significant and financially viable options. According to the expert opinion, the year 2011 signified a turning point for the majority of the companies which operated in the domestic heavy construction equipment market in China. The uncontrolled and poorly researched horizontal growth of companies has led to the decline of their profitability (Sany Group, “Top 10 Events” par. 18). Sany, on the other hand, displayed more modest growth rates and continued to downscale them throughout the years, which was one of the reasons for its relative stability in the aftermath of the recession.
SWOT Analysis
Considering the information presented above, it is now possible to assess SWOT of Sany Group.
Strengths
- The domestic market remains favorable and is expected to provide significant demand in the subsequent decade;
- Relatively low labor costs of the workforce in China, which remains the dominant source of employees for Sany;
- The acquisition of Putzmeister Holding GmbH, leading to the dominant position in the concrete machinery segment;
- Modest growth policy, leading to the relative stability during the recession;
- Attractive pricing model;
- The leading position in the domestic market and growing recognition on the global arena;
- Diverse product line, covering most of the heavy construction industry and expanding to “clean energy” field.
Weaknesses
- Dependence on the market demand, highly sensitive to economic recession;
- The unstable situation in the current real estate sector in China;
- High cost of the recent administrative expenses and taxation;
- The persistent image of the low-end quality manufacturer.
Opportunities
- The Chinese market, where Sany holds dominant position, is expected to grow;
- New profitable acquisitions are possible;
- The possibility to expand to related markets;
- Further expansion in the environmental field;
- Developing countries, such as India and Thailand, may create significant demand in the foreseeable future.
Threats
- Future economic crises which severely impact the target markets;
- Strict environmental regulations, which Sany may not be able to catch up with;
- Possible increase in labor costs.
Financial Performance
The favorable conditions in the domestic market, the timely and well-calculated move to the global market, the appropriate acquisitions, and the wise managerial policies has resulted in impressive financial performance throughout the years. For instance, in 2007, when the company first entered the global market, its total market share was about 2% but was steadily growing by approximately 2% per year, reaching an estimated 8.5% in 2011 (Alon, Fetscherin, and Gugler 111). By this time, the market was experiencing heavy downfall due to the recession, so the share did not grow since then, especially considering the policy of limiting the growth and focusing on profits instead. The sales revenue displayed a similar pattern of impressive growth throughout the latest decade, with a setback around 2011 to 2014, concurrent with the general situation of the market. For instance, the sales revenue of 2009 displayed a 46.4 percent increase over the previous year (Alon, Fetscherin, and Gugler 111).
The subsequent years saw a slowdown in revenue rates, with the heaviest dive in 2011, and a gradual recovery further on. In 2013 press release, for instance, the company reported a 7.77% decrease compared to 2011, which was a considerable success compared to its closest competitors (Huang par. 2). The latest developments demonstrate further recovery, with the latest annual report showing a 1.2 percent growth in sales revenue compared to the previous year. It is important to note that 2014 stands out in terms of sales revenue, showing a contrasting decrease of 32.6 percent in sales revenue. However, the report ascribes it to the administrative expenses resulting, among other things, from the new manufacturing plant going fully operational, new property tax, and strengthening the control over sales expenses (Sany Group, “Annual Report 2015” 11). Admittedly, this factor introduces the most uncertainty into the analysis.
Overall, the company displays the positive tendency in revenues: while the rates are growing extremely slowly, the chief factors undermining the profitability are the weak demand of the heavy industries and the growing cost of raw materials (Sany Group, “Annual Report 2015” 9). As both factors influence the competitors at least to the same extent, it becomes clear that Sany shows signs of improvement while the 2014 data is a natural response to the changing conditions on the market.
Sustainability and Environment
Recently gradually more attention in the European and American markets has been turned to the environmental questions. This is especially relevant for the heavy machinery segment, as it requires enormous amounts of energy which most often is produced by combustible fuels. While this trend can still be ignored in the Chinese market, it becomes visible enough to influence sales in both Europe and the U.S. Thus, Sany has promptly reacted by creating the Sany Environmental Protection Technology Co., Ltd., which specializes in sustainable technologies. Aside from constantly improving the manufacturing process and decreasing carbon imprint, it works on upgrading the company’s main products. A good example of the latter is the recently developed Environmental Protection Intelligent Dump Truck (Qianqian par. 1). The vehicle is used in mining to relocate the by-products of the process and, according to the press release, consumes 3 to 8 percent less fuel than similar products offered by the competitors (Qianqian par. 2). This is achieved by the lightweight construction and smart navigation systems which optimize its path finding. Besides, the department frequently emphasizes the environment-friendly nature of their production processes and the improved sustainability of their factories. While the information which proves the latter is scarce and is not confirmed by the independent experts, the direction is clear: it aims at establishing the reputation of a responsible manufacturer who strives to reduce its environmental impact and contribute to the sustainable energy research.
Justification of Sany as a Competitor
The Sany Group was selected as a competitor of Komatsu for several reasons. First, the two companies share some similarities. Similarly to Komatsu, Sany started as a player in the domestic market and later successfully expanded to the global scale. The scope of the two can hardly be compared, with Komatsu being the second leading brand in the world while Sany recently losing its fourth place and falling behind the top ten (“Dip for Top 50 Construction Equipment Makers” par. 5). Nevertheless, Sany shows a slow but steady growth rate and has already proven to be able to withstand the critical conditions resulting from the recession. Second, Sany demonstrates the capability of expanding to the bordering markets, such as wind power industry. This is consistent with the Komatsu’s current diversity of product lines, which include military equipment and thermoelectric generators. Thus, Komatsu’s success can be an illustration for opportunities faced by Sany. On the other hand, Sany presents an interesting case of a company pursuing big opportunities with significantly lower leverage than that of Komatsu.
Works Cited
Alon, Ilan, Marc Fetscherin, and Philippe Gugler. Chinese International Investments, Hampshire: Springer, 2011. Print.
Dip for top 50 construction equipment makers 2016. Web.
Huang, Yan. Sany Heavy Industry the First to Recover from Recession. 2013. Web.
Qianqian, Zhang. Environmental Protection Intelligent Dump Truck. 2016.
Sany Group. SANY Group’s Top 10 Events in 2012. 2013. Web.
Sany Group. Annual Report 2015. 2016. Web.
Sany Group. Sany Products. 2016. Web.
Technavio. Construction Equipment Market in China is On the Rise. 2013.