Capital Equipment News April 2015

COMMENT

EXPERIENCING THE SHIFT IN GLOBAL BUSINESS CULTURES

C hina as a country, to the outside world, is definitely aiming to a brighter future. Having travelled to China on a number of occasions, I have experienced some of the diversity that exists and seen development in infrastructure to rival the biggest in the western world. The Red Dragon is definitely breathing heavily at the moment and much of the fire is blowing in the direction of the African continent. It is well known that China is in the forefront of development on the African continent, having contributed favourably to the economic infrastructure of many an Af- rican nation. Now, with the signing of trade agreements between South Africa and Chi- na, further development in that direction is no doubt imminent. Not wanting to delve into the political arena, I do believe that the resurgence of China as a world power has only been in the post-Mao era when total reform was initiated and free market changes were introduced. After a century of turmoil, Chinese history has become the story of average citizens. The 21 st century for China has been one of very little political change which has giv- en the nation an opportunity to transform. Clearly there are factors that cannot be ig- nored when looking for reasons why China is striving for global economic acceptance. For three decades the economy has grown at an average of rate of nearly 10%, and more people have been lifted out of poverty than any other country at any time. China has become home to the biggest urbanization in

human history – an estimated 150 million people have left the rural areas to work in the factory towns of the coast. This influx of readily available labour has created the explosion of manufacturing en- terprises to accommodate the workforce that has been unleashed, at least in the econom- ic sense. So the products have to go some- where; the global arena. The world economy is facing tough competi- tion from China, particularly the international truck makers and construction equipment manufacturers, as Chinese vehicles have already cornered their domestic market and are now poised for an assault on the export market. According to a report published by Alix Part- ners, the automotive consultants, China has year on year since 2010, produced almost half the world’s commercial vehicles and construction equipment due to strong local demand and increasing exports to emerging markets, where China’s products are priced at least at half the price of that of global manufacturers. With the Chinese government providing the correct stimulus, China, in 2009, was the only major market to show growth in the number of vehicles produced, while the rest of the world was going through economic anguish.This strong growth enabled China to boost its share of the global market which today stands at close on 50%.

have benefitted has been Europe where Chinese trucks cannot compete because they do not meet the emission standards. This will, however, not be the case in time to come as more and more technology is in- corporated in their vehicles as a result of the JVs that most Chinese manufactures have entered into with European manufacturers. As far as construction equipment is con- cerned, the Tier 3 engine specifications are still acceptable for markets in Eastern Eu- rope. Chinese equipment manufacturers who have had joint ventures with USA companies previously are now fully owned by their Chi- nese partners as in the case of the Dressta/ Liu Gong who have set up their manufactur- ing facility in Poland. But in emerging markets, which Alix expects to produce 58% of growth in commercial ve- hicle demand by 2014 – China’s lower cost and lower technology commercial vehicles are posing stiff competition to global truck makers. Chinese exports of commercial ve- hicles, mostly to emerging markets in Africa and south-east Asia, have risen since 2010 and are still on the rise. At the moment, the cost factor gives Chinese vehicles a distinct advantage but if market forces dictate the need for more sophisticat- ed, electronically controlled vehicles there must be an inevitable narrowing of the price gap to bring them in line with their European counterparts.

Pierre Sanson, Editor.

The only area where global manufacturers

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