Post on 28-Jul-2015
Environmental Analysis and Current State of the Earthmoving
and Construction Equipment Industry (ECE) in India
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Table of Contents
Introduction...................................................................................................................................5
PEST Analysis................................................................................................................................. 5
Political Trend............................................................................................................................5
Economic Trent..........................................................................................................................6
Social Trend............................................................................................................................... 8
Technological Trend...................................................................................................................9
The Volvo CareTrackTM telematics system...........................................................................9
ACERT Technology................................................................................................................. 9
Information and Communication Technology.....................................................................10
Current State of the Industry in terms of the ‘five forces’ framework proposed by Michael
Porters......................................................................................................................................... 10
Threat of substitute-LOW........................................................................................................10
Bargaining power of suppliers-HIGH........................................................................................11
Bargaining power of buyers-MODERATE.................................................................................11
Inter-firm rivalry-MODERATE...................................................................................................12
Barriers of entry-LOW..............................................................................................................12
Industrie’s attractiveness.............................................................................................................13
Key Players in the Industry..........................................................................................................14
JCB India...................................................................................................................................14
Bharat Earth Movers Ltd (BEML).............................................................................................14
Jessop Co. Ltd.......................................................................................................................... 15
L&T Case, L&T Komatsu...........................................................................................................15
Ingersoll-Rand India Ltd...........................................................................................................15
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Introduction
The Earthmoving and Construction Equipment Industry (ECE) in India is at the breaking point in
its evolution and is ready to experience booming growth. Rapid economic growth in India is
known to create exponential growth in several industries. The infrastructure is growing strongly
which is without doubt spurred by the nation’s rapid economic development. According to the
study, ECE Vision 2015: Scaling new heights in the Indian Earth Moving and Construction
Equipment Industry, conducted by leading management consulting firm, McKinsey & Company,
the Indian ECE industry has the potential to grow fivefold from its current size of US$2.3 billion
to approximately US$12–13 billion by 2015, growing at 24% CAGR.
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PEST Analysis
Political Trend
The Government of India has permitted 100 percent foreign direct investment (FDI) in
construction and development projects.
Before this decision, only non-resident Indians (NRIs) and persons of Indian origin (PIOs) were
permitted to invest in the housing and real estate sectors. Conditions for foreign entities to
come into the sector were very restrictive. They were not allowed to make any equity
investments in the sector and the area of their involvement was limited to providing
engineering, architectural and design services. Foreign companies were allowed to invest
upfront US$10 million in wholly-owned subsidiaries and US$5 million in joint ventures, with a
lock-in period of three years.
Some of the key specifications are
US$ 2 million limit on lump sum payments under the automatic route.
Royalty to be levied as 5 per cent on domestic sales and 8 per cent on exports, net of
taxes.
The depreciation on general plant and machinery is proposed at about 15 per cent.
Specific initiatives by the Government of India that positively impact the engineering sector are
Tariff protection on capital goods has been removed.
Various initiatives are focussed on infrastructure development and construction.
The GoI has also introduced initiatives to increase power generation and improve the
quality of power supply.
Custom duties on various equipments have been reduced.
Economic Trent
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As the economic situations in the world improves; the Earthmoving and Construction
Equipment Industry (ECE) is also expected to grow. India and China, being least affected nations
by the economic slowdown and a relatively fast recovery on account of the huge investments
expected in creation of infrastructure are expected to be key contributors to the growth of the
global construction equipment market. India is expected to be the major contributor (after
Japan) with its share in global sales of construction increasing from 5% in 2009 to 7% in 2013.
The five year plan in India expects an investment of about 494 USD billion during the period
2007-12. CRISIL Research estimates that investment to the tune of Rs. 12,280 billion is expected
to materialize during the period from 2009 to 2012. Roads (22% share of total investments) are
expected to be the major area of investments with the Hon. Minister for Road Transport and
Highways targeting construction of 7000 km of roads per year. Real estate growth is also
expected to pick up mostly towards small size, no-frills, mid income category houses; the
demand for luxury homes and commercial real estate still being on a lower side.
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Analysis of macroeconomic trends and a detailed study of end-use sectors growth show that,
the domestic market spending on earthmoving and construction equipment is likely to be a
cumulative US$ 40 billion between 2007 and 2015. This implies annual growth of about 17 per
cent a year for the next eight years and would create an annual domestic market of US$ 8
billion in 2015. Key sectors driving demand are likely to be roads (US$ 8 billion cumulative
demand), irrigation (US$ 8 billion cumulative demand), urban and residential construction (US$
5 billion cumulative demand), and mining (US$ 5 billion cumulative demand). While the timing
of this demand may be a bit uncertain, as it depends on the actual pace of infrastructure
spending, certainty about this level of demand is high.
Social Trend
The growth in this sector is determined by the continued dominance of price-focused and
value-focused customers in India. As many as 70 to 80 per cent of customers in India are price-
and value-focused compared to less than 40 to 50 per cent of all customers in developed
markets. Currently, the market is dominated by comparatively lower cost multi-use backhoe
loaders, which have specific features tailored to India (e.g., strengthened body structures for
rough use, modified cabin design to accommodate operator and helper). This dominance of
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price- and value focused customers is likely to continue even up to 2015. This is due to the
growing trend to subcontract earthwork by large construction players, coupled with dispersed
infrastructure development, necessitating different subcontractors for different projects. Even
in China, despite a decade of continuous growth, customer education and evolution, 60 to 70
per cent of customers remain price- and value-focused. The proportion of customers
demanding more sophisticated features, products and services akin to global offerings will also
increase, although it will be much smaller in number than price- and value-focused customers.
As a result, demand for India-specific products and products with India-specific features will
continue to be significant.
Technological Trend
The Volvo CareTrackTM telematics system Volvo Construction Equipment launches the Volvo CareTrackTM telematics system. Using
GPRS/ GSM (mobile network) to send information, the new technology will enable users to
track the location of their machines, fuel consumption, speed and hours of operation and the
time for next service. The data on machines will be available securely and instantaneously to
any remote online connection. Employing fault reporting, activity warnings and remote
diagnosis, this technology will help Volvo dealers and machine owners to identify and resolve
machine problems faster and proactively.
ACERT TechnologyCaterpillar's ACERTTM technology for truck engines is an exclusive, breakthrough solution for
emissions reduction. The result of more than $500 million in research and development, ACERT
technology not only improves emissions—it does so without sacrificing fuel-efficiency,
reliability, long life or operating costs
Information and Communication TechnologyKomatsu has been engaged in the research and development of information and
communication technology (ICT), which enables remote management of equipment by
obtaining information regarding machine locations, operating conditions and vehicle health, via
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state-of-the-art GPS, remote sensing and telecommunication technologies), control technology
and artificial intelligence. Equipment with control systems and management systems using
these technologies has been rapidly penetrating the construction and mining equipment
market
Current State of the Industry in terms of the ‘five forces’ framework proposed by Michael Porters
Threat of substitute – LOW
Threat of substitute-LOW
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Every construction equipment has a specific purpose
Substitutes could only be through value addition through technology, comfort
maintenance etc.
Complete substitution may not happen in near future.
Product replacement or enhancement is possible
Bargaining power of suppliers-HIGH Suppliers have not kept pace with growth in demand, leading to delayed deliveries
Import of some critical components
Volatility of steel prices impacting production cost
Less number of suppliers for high demand
In this industry, the suppliers of iron, engines etc enjoy supremacy over the manufacturers. For
example, KOEL (Kirlosker Oils & Engines limited) is the major supplier of engines to the industry,
and therefore enjoys a lot of freedom. The engine service is done by the KOEL engineers.
Inevitably, the companies have to maintain good relationship with KOEL.
Bargaining power of buyers-MODERATE Earlier, manufacturers/sellers held sway because of huge demand
With the entry of new players, this trend expected to change
Manufacturers now are providing end-to-end solutions to buyers
Strong increase in demand
Price sensitive market
Customers need to be trained in technology, equipment usage
In Earthmoving Industry, buyers have good bargaining power as the price differentials are very
less. The cost of shifting from one brand to another is negligible.
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Inter-firm rivalry-MODERATE Price and service are the differentiators
Lack in sharp differentiation leading to competition in price
Huge demand for construction equipment in future
For most industries, this is the major determinant of the competitiveness of the industry.
The competitive rivalry is not on the basis of price, but on the basis of after sales service &
spare parts availability.
Barriers of entry-LOW
Barriers of entry-LOW
Well-established players and recognised players
Cheaper imports can reduce the market share of present manufacturers
Increasing growth in demand
Players with technological know-how can succeed, as technology is the major entry
barrier
Fragmented market, dominated by a few large players
High potential growth
New players will need the right technology and product
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Industries’ attractiveness
The Indian construction industry has been on a high growth trajectory for more than a
decade, led by buoyancy in sectors such as real estate and infrastructure. The Union
Budget 2010–11 has allocated US$ 36.16 billion to the infrastructure sector, reflecting
the Government of India (GoI)’s strong focus on the development of India’s
infrastructure. Government expenditure on infrastructure is likely to result in increased
construction expenditure of nearly US$ 253. 94 billion (INR 12,189 billion) between
2008–09 and 2012–13). The industry has witnessed continuous modernization and
adoption of new technologies in recent years. India produces more than 0.4 million
engineers every year. Moreover, India’s cost of skilled labor is the lowest in the world,
with an entry-level engineer available at an average cost of about US$ 8,000 per annum.
India is the fifth-largest producer of crude steel in the world (2008), with a production
volume of 54.5 million tones.
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Key Players in the Industry
JCB India Ltd
JCB came to India in 1979.The company had a turnover of US$ 335 million in 2006–07. The
company is growing by 25 per cent to 30 per cent annually. JCB India is a subsidiary of J C
Bamford Excavators Ltd. Its products range from backhoe loaders, wheeled loaders to
excavators and skid steer loaders. It has a 70 per cent market share in the backhoe loader
segment and around 13 per cent market share in the overall Indian construction equipment
industry. It has facilities at Ballabgarh in Haryana and Pune in Maharastra. The company has 38
dealers and 206 outlets. It has a dedicated parts centre at Ballabgarh and parts distribution
depots at Chennai, Pune and Kolkata
Bharat Earth Movers Ltd (BEML)
BEML is the largest player in the earthmoving equipment sector. The company turnover was
around US$ 630 million in 2007–08. The mining and construction equipment segment is around
63.3 per cent; defence segment is about 31.8 per cent; and railways around 4.9 per cent. The
company is the largest public sector undertaking in this industry. Some of its customers are
Delhi Metro Rail Corporation, Coal India, Jessop Co. Ltd. It has facilities in Bangalore, Kolar Gold
Fields, and Mysore in Karnataka. The company has a 70 per cent market share in the domestic
earthmover industry and 12 per cent in the overall construction equipment industry. It has 33
marketing offices and has a strong foothold in the government sector.
L&T Case, L&T Komatsu Ltd.
The companies together had a turnover of US$ 156 million in 2007. Both the companies are
subsidiaries of L&T Ltd. They are joint ventures with CNH American LLC and Komatsu Asia
Pacific Pvt Ltd, Singapore, respectively. L&T Case manufactures loaders, backhoes and vibratory
compactors; while L&T Komatsu manufactures hydraulic excavators. L&T Case hold 21 per cent
market share in vibratory compactors. L&T Komatsu holds 20 per cent market share in
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excavators. L&T Case has facilities at Pithampur, Madhya Pradesh. L&T Komatsu has its
operations in Bellary, Karnataka.
Ingersoll-Rand India Ltd
The public limited company (majority owned by Ingersoll-Rand) is a market leader in
compactors and had a turnover of Rs 388 crore in 2007. It is primarily into construction
technology and compact vehicles, air solutions and climate control. The company has a 39 per
cent market share in the compactor segment. Its major products are compaction equipment,
pavers, loaders, light towers, air compressors, etc. The company has operations in Bangalore
and Ahmadabad and has a good distribution network with 22 company offices and 80
distributors across India.
Bibliography
BooksCrafting & Executing Strategy By Arthur A. Jr. Thompson, John E Gamble, A. J. Strickland III 17th Edition
McGraw-Hill
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Websiteshttp://timesofindia.indiatimes.com/hyderabad/FDI-in-construction-industry-/articleshow/
1049608.cms
http://business.mapsofindia.com/fdi-india/sectors/construction-activities.html
http://iecial.com/news_2010july.htm
http://www.inrnews.com/realestateproperty/india/construction/
indian_earthmoving_constructio.html
http://iecial.com/news.htm
www.ibef.org
http://iecial.com/conference/ECE%20Vision%202015%20-%20Executive%20Summary.pdf
http://iecial.com/news_2010july.htm
http://www.quickmba.com/strategy/porter.shtml
http://en.wikipedia.org/wiki/Porter_five_forces_analysis
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