BRIC economies still offer strong growth potential for global construction machine industry – High infrastructure investment plans are key

• Most attractive markets for construction machine producers worldwide: Brazil, Russia, India and China (BRIC), followed by Africa and the Middle East
• Strong competitive pressures along the value chain
• Leading product segments: diggers and wheel loaders, followed by backhoe loaders
• Customers want good service backup: spare parts delivery, maintenance, but also insurance and financing
• Emission requirements, import restrictions and growing competition from regional markets are key challenges

Manufacturers and exporters of construction machines are finding attractive markets in the BRIC countries, but also in Africa and the Middle East. The prospects look good thanks to massive investment in infrastructure projects. These developments will drive sustained demand for construction machines going forward. Despite the competitive pressures, companies can build long-term customer loyalty by going for high product quality along with all-round service. This is the finding of the Roland Berger study on "Growth strategies in the global construction equipment market – Growth markets in the BRIC economies and elsewhere". The survey is based on 50 interviews conducted with industry executives from all over the world.

The BRIC countries still exhibit the best growth prospects for the construction machine sector. These are the places where we will continue to see strong infrastructure development, with the building of ports and roads and other large-scale transport projects. "Brazil is becoming increasingly attractive thanks to sustained economic growth accompanied by political stability," says Norbert Dressler, Partner at Roland Berger Strategy Consultants. "China and India are also rapidly expanding markets. Although they are dominated by local joint ventures, there is still plenty of scope for new entrants to the market."

The top-level industry managers who took part in the survey all regard the BRIC economies as significantly more attractive than the markets in established industrial countries. Looking beyond these two blocs, they also see some highly attractive opportunities in other emerging markets: Africa was mentioned by 29% of respondents, the Middle East by 25%. In particular, OEMs and other companies in the industry with major investment plans have set their sights on South Africa, Algeria, Egypt, Morocco and Libya. Around 15% of the companies questioned are also interested in the ASEAN countries in Southeast Asia and certain Latin American countries like Argentina, Uruguay and Chile. They hope markets will help them to expand their businesses.

Strong competition

"Competition throughout the industry continues to heat up," notes Stephan Keese, Partner at Roland Berger. "This is why market consolidation is taking place along the entire value chain. Corporate mergers, like Caterpillar/Bucyrus or Terex/Demag, are a clear sign of this market trend." The Roland Berger study shows that while all construction machine producers would like to pursue organic growth, two thirds of them also have a strong interest in pursuing acquisitions in new markets. Moreover, 96% of respondents said they planned to extend their portfolio with new products in order to keep growing: "From this perspective, the companies are very interested in M&A deals. After all, M&A offers opportunities for the rapid integration of new solutions into their existing product portfolio," explains Dressler.

Differing customer wishes

The products most in demand are diggers and wheel-loaders, although the digger is steadily evolving into a multifunctional machine. On the demand side, these two machines are followed by backhoe loaders, compact loaders and graders. As for technological trends, customers are especially keen on construction machines with connectivity features. Integration with other control devices and GPS applications is becoming a big selling point. There is also strong demand for real-time monitoring systems that can check that machines are working smoothly and quickly to deal with any problems. What is more, markets increasingly require cleaner technologies, like hybrid powertrains, to cut emissions. Nevertheless, the overriding success factors remain quality, price and parts availability. Some clear regional differences emerge here, as Norbert Dressler explains: "The quality of a product is the factor that heads the customer ranking in the US, Germany and China. But in Brazil, price is king. And customers from Russia and India place the highest value on the quick availability of spare parts."

Service: a must

A further trend in the construction machine industry is the rising demand for service back-up. This is why manufacturers have a stronger focus on setting up local service points in their markets. More and more customers want to be able to call up a service team 24/7 and get the support they need to keep the machine running. The survey also reveals growth potential in financing and insurance.

Industry growth marked by regional differences

Despite the generally positive outlook for this industry, growth prospects will depend heavily on local factors. The economic policies pursued by a country's government and the introduction of market regulations will play a key role going forward, says another of the study's co-authors, András Tóth, Project Manager at Roland Berger. "Emission requirements, import restrictions, import duties and taxes make a big difference. Market regulation is major issue in Europe and the US, but the tight import restrictions play a larger role in countries like Brazil, China and Russia. And in the BRIC countries, we now see competitors from emerging economies pushing into the market."