Internationalization of Chinese Construction Equipment Firms
“Take-off Drivers & Entry Strategies”
Authors: Michael Halak, Supervisor: Hans Jannson Charlene Reinke Subject: Business Administration Program: Growth Through Innovation & International Marketing Level and Semester: Masters Thesis, Spring 2011
STATUTORY DECLORATION
“We declare that all writing in this master thesis have be complete by us and no other sources have been used in its creation other than those that have been specified. Furthermore we declare that all quotations have been clearly indicated and that Linnaeus University is the only institution this thesis has been submitted to for examination purposes.”
May 24, 2011 ______
Michael Halak Charlene Reinke
Michael Halak | Charlene Reinke
ACKNOWLEDGEMENTS
We would like to say thank you and express our gratitude to our Linnaeus University professor and advisor, Hans Jansson. His support and supervision helped to guide us through our research work and has resulted in a master thesis that we are proud of.
We are grateful for the support and cooperation that our case company Volvo Construction Equipment: Region International has shown us, in particular our contact Tim Richardson. Tim provided us with several useful pieces of information and always took the time to answer any questions we had.
Thank you to our classmates and friends in Kalmar. With your help we have learned a lot about ourselves and about other countries and cultures around the World. You are all great friends and truly amazing people, and have made this year one that we will never forget.
Last but not least, we would like to extend our genuine admiration and gratitude to our families. Your constant encouragement and support throughout this year abroad is appreciated more than you will ever know.
Michael Halak | Charlene Reinke 2
ABSTRACT
Since the induction of China into the World Trade Organization (WTO) in 2001 the business world has become a much different place. With the Chinese economy now open domestic firms have began to purse business abroad, many of which becoming quite successful in a short period of time. International Chinese construction equipment firms have started to steal market share from established firms, cutting into a significant portion of their profits and jeopardizing the livelihood of many small and medium sized organizations.
The global construction equipment industry is in a state of change, with a number of new Chinese entrants starting to flourish in emerging country markets. Often times, domestic firms lack monetary resources, preferring to purchase two lower quality, less expensive Chinese machines, rather then one higher priced, superior quality unit. International firms who build their business on high priced, high tech, quality machines with extensive after sales service are beginning to explore different strategies to help them compete in new market conditions.
This master thesis investigates how Chinese construction equipment firms internationalize (i.e. how they enter new markets and how they are driven to exit their own). For this, the institutions of China and Brazil are comparatively analyzed, Porter’s five forces model is used to analyze the Chinese construction equipment industry, while distinct resources, capabilities and key success factors are defined and analyzed for Sany and Xuzhou Construction Machinery Group (XCMG). After careful analysis, the authors bring to light various take-off drivers, patterns and strategies of Chinese construction equipment firms when internationalizing or venturing abroad. Chinese construction equipment firms are beginning to follow their Western counterparts, focusing their efforts on product quality and extensive customer service. Warranties, parts centers, aftermarket service and strategically placed research and development facilities are becoming more greatly utilized, expanding the quality and offerings of Chinese firms, while adding to the customers perception of overall value. These key insights expand the knowledge base associated with Chinese construction equipment firms in developing markets, while unlocking new theoretical perspectives for supplementary research.
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TABLE OF CONTENTS
1 INTRODUCTION...... 7! 1.1 BACKGROUND...... 8! 1.2 RESEARCH BACKGROUND...... 9! 1.2.1 Volvo Construction Equipment...... 9! 1.2.2 Commissioning Firm’s Interest ...... 9! 1.3 RESEARCH PROBLEM ...... 10! 1.4 PURPOSE OF THE THESIS ...... 10! 1.5 RESEARCH QUESTIONS ...... 11! 1.6 DELIMITATIONS ...... 11! 1.6.1 Industry...... 11! 1.6.2 Case Companies ...... 11! 1.7 LIMITATIONS...... 12! 1.7.1 Approach to Analysis...... 12! 1.7.2 Translation ...... 12! 1.8 OUTLINE ...... 13! 2 METHODS AND METHODOLOGY ...... 14! 2.1 PURPOSE OF RESEARCH ...... 15! 2.2 RESEARCH LOGIC...... 15! 2.3 RESEARCH APPROACH ...... 15! 2.4 RESEARCH METHOD ...... 16! 2.4.1 Case Study Design...... 16! 2.4.2 Case Company Selection ...... 16! 2.5 DATA COLLECTION ...... 17! 2.6 DATA ANALYSIS ...... 17! 2.7 QUALITY OF RESEARCH ...... 18! 2.7.1 Validity ...... 18! 2.7.2 External Validity...... 18! 2.7.3 Reliability ...... 18! 2.8 ETHICS IN RESEARCH ...... 19! 3 LITERATURE REVIEW...... 20! 3.1 INTERNATIONALIZATION...... 21! 3.1.1 Internationalization Process Model ...... 21! 3.1.1.2 1977 Uppsala Internationalization Process Model...... 22! 3.1.1.2.1 State Variable: Market Knowledge and Market Commitment ...... 22! 3.1.1.2.2 Change Variable: Current Activities and Commitment Decisions...... 23! 3.1.1.3 2009 Uppsala Internationalization Process Model...... 23! 3.1.1.3.1 Business Networks...... 23! 3.1.1.3.2 State Variable: Knowledge Opportunities & Network Position...... 24! 3.1.1.3.3 Change Variable: Learning, Creating and Trust-building & Relationships Commitment Decisions ...... 24! 3.1.1.3.4 2009 Uppsala Internationalization Process Model Overview ...... 25! 3.1.2 Take-Off Process Model...... 25! 3.1.2.1 First Stage ...... 25! 3.1.2.2 Second Stage...... 25! 3.1.2.3 Third Stage ...... 26! 3.1.2.4 Third/Fourth Stage ...... 26! 3.1.2.5 Drivers For Take-Off...... 26! 3.1.3 Business Marketing Entry Strategy ...... 26! 3.1.3.1 Entry Mode ...... 27! 3.1.3.2 Entry Node...... 27! 3.2 STRATEGIC ANALYSIS...... 28! 3.2.1 Industry-Based View...... 28! Michael Halak | Charlene Reinke 4
3.2.1.1 Porter’s Five Forces...... 28! 3.2.1.1.1 Threat of Substitutes...... 28! 3.2.1.1.2 Threat of Entry ...... 29! 3.2.1.1.3 Degree of Rivalry ...... 29! 3.2.1.1.4 Bargaining Power of Buyers ...... 29! 3.2.1.1.5 Bargaining Power of Suppliers ...... 29! 3.2.1.1.6 Porter’s Five Forces Framework Overview...... 30! 3.2.2 Institutional-Based View ...... 30! 3.2.2.1 Terpstra’s Model ...... 31! 3.2.3 Resource-Based View ...... 32! 3.2.3.1 Step One & Two: Identification and Assessment of a Firms Resources and Capabilities...... 32! 3.2.3.1.1 Resources of the Firm...... 32! 3.2.3.1.2 Tangible Resources ...... 32! 3.2.3.1.3 Intangible Resources ...... 32! 3.2.3.1.4 Human Resources...... 33! 3.2.3.1.5 Organizational Capabilities ...... 33! 3.2.3.1.6 Classifying Capabilities...... 33! 3.2.3.1.7 Resources, Capabilities and Competitive Advantage Overview ...... 33! 3.2.3.2 Step Three: Appraising a Firm’s Resources and Capabilities...... 34! 3.2.3.2.1 Establishing Competitive Advantage: Scarcity and Relevance...... 34! 3.2.3.2.2 Sustaining Competitive Advantage: Durability, Transferability and Replicability ...... 34! 3.2.3.2.3 Appropriating Returns to Competitive Advantage ...... 35! 3.2.3.2.4 Appraising the Strategic Importance of Resources and Capabilities Overview ...... 35! 3.2.3.2.5 Appraising Resources and Capabilities: Importance and Relative Strength...... 35! 3.2.3.3 Step 4: Developing Strategy Implications ...... 36! 3.2.3.4 Analyzing Resources and Capabilities Overview...... 36! 3.2.4 Integrating the Three-Leading Perspective: A Triad ...... 37! 4 EMPERICAL STUDY...... 38! 4.1 INDUSTRY-BASED VIEW ...... 39! 4.1.1 Construction Equipment Industry: China ...... 39! 4.1.1.1 Threat of Substitutes...... 40! 4.1.1.2 Threat of Entry ...... 42! 4.1.1.3 Degree of Rivalry ...... 43! 4.1.1.4 Bargaining Power of Buyers ...... 44! 4.1.1.5 Bargaining Power of Suppliers ...... 46! 4.2 INSTITUTIONAL-BASED VIEW ...... 47! 4.2.1 China ...... 47! 4.2.1.1 Law ...... 47! 4.2.1.1.1 Emission Standards ...... 47! 4.2.1.1.2 China’s Emission Standards...... 47! 4.2.1.1.3 Legal System...... 48! 4.2.1.2 Politics...... 48! 4.2.1.2.1 World Trade Organization ...... 48! 4.2.1.2.2 Stimulus Package...... 48! 4.2.1.3 Technology and Material Culture ...... 49! 4.2.1.4 Social Organization...... 49! 4.2.1.5 Education...... 49! 4.2.2 Brazil ...... 50! 4.2.2.1 Law ...... 50! 4.2.2.1.2 Localization of Components...... 50! 4.2.2.1.3 Legal System...... 50! 4.2.2.2 Politics...... 51! 4.2.2.2.1 World Trade Organization ...... 51! 4.2.1.2.2 Government Spending ...... 51! 4.2.2.3 Technology and Material Culture ...... 51! 4.2.2.4 Social Organization...... 51! 4.2.2.5 Education...... 52! 4.3 RESOURCE-BASED VIEW...... 52! Michael Halak | Charlene Reinke 5
4.3.1 Identification and Assessment of Resources and Capabilities ...... 52! 4.3.1.1 Case Company: Sany Heavy Industries Co Ltd ...... 52! 4.3.1.1.1 Resource 1: Distribution/Dealership Network...... 53! 4.3.1.1.2 Resource 2: Brand...... 53! 4.3.1.1.3 Resource 3: Plant and Equipment...... 53! 4.3.1.1.4 Resource 4: Location...... 54! 4.3.1.1.5 Resource 5: Financing ...... 54! 4.3.1.1.6 Capability 1: Research and Development...... 54! 4.3.1.1.7 Capability 2: After Sales Service...... 55! 4.3.1.1.8 Capability 3: Employee Training ...... 55! 4.3.1.1.9 Capability 4: Manufacturing Know-How...... 56! 4.3.1.1.10 Capability 5: Corporate Social Responsibility...... 56! 4.3.2 Case Company: Xuzhou Construction Machinery Group...... 57! 4.3.2.1 Resource 1: Plant and Equipment...... 57! 4.3.2.2 Resource 2: Location...... 57! 4.3.2.3 Resource 3: Brand...... 58! 4.3.2.4 Resource 4: Distribution Network...... 58! 4.3.2.5 Capability 1: Research and Development...... 59! 4.3.2.6 Capability 2: Manufacturing Know-How...... 59! 4.3.2.7 Capability 3: Training...... 60! 4.3.2.8 Capability 4: Sales and Marketing...... 60! 4.3.2.9 Capability 5: After Sales Service...... 61! 5 ANALYSIS ...... 62! 5.1 INDUSTRY-BASED VIEW ...... 63! 5.1.1 Construction Equipment Industry: China ...... 63! 5.1.2 Take-Off Drivers: China...... 65! 5.2 INSTITUTIONAL-BASED VIEW ...... 65! 5.2.1 Institutional Analysis...... 66! 5.2.1.1 Legal Systems ...... 66! 5.2.1.2 Politics...... 66! 5.2.1.3 Technology and Material Culture ...... 67! 5.2.1.4 Social Organization...... 67! 5.2.1.5 Education...... 67! 5.2.2 Take-Off Drivers: China...... 67! 5.3 RESOURCE-BASED VIEW...... 69! 5.3.1 Key Success Factors...... 69! 5.3.2.1 Resource and Capability Appraisal: Sany ...... 70! 5.3.2.2 Resource and Capability Appraisal: XCMG...... 71! 5.3.3 Resources and Capabilities: Take-Off Drivers and Entry Strategy ...... 72! 5.3.3.1 Take-Off Drivers: China...... 72! 5.3.3.2 Entry Strategy: Brazil...... 74! 6 CONCLUSIONS ...... 76! 6.1 GENERAL CONCLUSIONS...... 77! 7 RECOMMENDATIONS...... 79! 7.1 RECOMMENDATIONS...... 80! 7.1.1 Volvo Construction Equipment: Region International Recommendations ...... 81! 7.1.2 Volvo Construction Equipment: Corporate Recommendations ...... 82! BIBLIOGRAPHY...... ERROR! BOOKMARK NOT DEFINED.! REFERENCES ...... 91!
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1 INTRODUCTION
BACKGROUND
RESEARCH PROBLEM
RESEARCH QUESTION
DELIMITATIONS
OUTLINE
The purpose of this chapter is to introduce the research problems and define the research questions that will be the focal point of this thesis. Background information will be provided to give context to the study. Furthermore, delimitation, limitations and the thesis outline will be presented.
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1.1 BACKGROUND
A business world that was once segmented is now becoming a single global entity. As growth in local markets slow, or firms seek natural resources, intellectual property or strategic advantage, companies often look to the global marketplace to fulfill their ever- growing needs.i With China’s recent transition from an inward-looking planned economy to a more market-oriented one,ii a number of Chinese firms have begun to internationalize and explore their potential on a global scale.
While China has quickly become the largest car market in the world, some of its key players have begun to venture abroad.iii The current globalization efforts of Chinese car companies closely resemble that of the Japanese and Korean car industries of the past. When Japan first launched their cars into the American market,1 they did so by filling a gap for inexpensive compact vehicles. Initially low quality and weak branding plagued the Japanese, however over time manufacturing processes and product quality improved, and consumer’s perceptions changed regarding the brand and its valueiv. Though the Koreans did not venture into the US market until many years later,2 they followed the same strategy as the Japanese at the outset.v The lessons learned by past internationalizing automobile firms directly parallel the car industry of China today. “The country is now by far the largest market in the world, and is destined to be of increasing importance to all international manufacturers”,vi with the construction equipment industry being no exception.
The construction equipment industry is one of the largest and fastest growing markets in China. As of 2005 the industry consisted of 15,545 construction equipment design firms, 104,297 construction firms and employed upwards of 40 million people.vii In the first half of 2010 the Chinese construction equipment market surged 78% over that of 2009, far beyond even the most optimistic forecasts.viii With Chinese construction equipment firms beginning to expand into foreign markets, competing companies look to better understand their Chinese rivals in hopes of predicting future strategies and protecting themselves from losses. The more prepared these companies are for the Chinese, the quicker and easier it will be to adapt to new strategies and market changes.
1 Toyota first entered the American car market in 1968. 2 Hyundai first entered the American car market in 1986.
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1.2 RESEARCH BACKGROUND
This section will provide a brief overview of the commissioning company and their interest in regards to this master thesis.
1.2.1 Volvo Construction Equipment
Volvo Construction Equipment (VCE) is a division of the Volvo Group, one of the World’s leading suppliers of Transport Solutions for commercial use. They are a full service provider offering everything from machinery and parts, to financing, rentals and customer service. Construction Equipment is one of twelve separate industrial segments,3 with Heavy Infrastructure comprising 35%, accounting for a majority of the segments.ix
VCE is divided into four distinct regions based on their geographical position.4 This thesis will focus solely on Region International, which can be further subdivided into Latin America, Africa, Middle East, Turkey, Russia, CIS5, Australia and New Zealand. In 2008 Region International made up 26% of VCE’s total business, with their largest markets consisting of Brazil, Russia, Turkey, South Africa, and Australia.x
1.2.2 Commissioning Firm’s Interest
China is the biggest construction equipment market in the world in terms of sales volume and revenue,xi and shows no signs of slowing down in the near future.xii As this industry continues to grow and exceed forecasted expectations, many Chinese firms have decided to internationalize and peruse new markets around the world. By entering these markets the Chinese put pressure on construction equipment firms presently competing in these regions.
As VCE is active in many different markets around the planet, the globalization of Chinese construction equipment firms will have a direct barring on their future success. By better understanding their Chinese rivals and the strategies they employ, VCE hopes to have the capacity to anticipate and cope with their tactics, thereby maintaining their competitive advantage.
Brazil is by far VCE’s most prosperous market within Region International, selling 1,606 units in 2009; South Africa came in second with 422 units sold.xiii They are the largest and most powerful country in South America, and have been endowed with an abundance of natural resources. Due in large part to their growing agricultural, mining, manufacturing and service sectors, Brazils economy is on the rise.xiv Taking into account the aforementioned information, Brazil will be the focus for exploration and analysis in
3 Mining, Quarries & Aggregates, Energy Related Industry (Oil & Gas), Heavy Infrastructure, Utilities, Road Construction, Building, Demolition, Recycling Industry, Industrial Material Handling, Forestry Industry and Agriculture & Landscaping. 4 Region America, Region Asia, Region Europe and Region International 5 CIS: Formed during the dismantling of the former Soviet Union. Consisting of: Armenia, Azerbaijan, Belarus, Kazakhstan, Kyrgyzstan, Moldova, Tajikistan, Turkmenistan, Uzbekistan, and Ukraine. Michael Halak | Charlene Reinke 9
this thesis. Likewise, China will also be investigated and compared to that of Brazil in order to give the study context, and create a better understanding of the differences and similarities between them. Two Chinese construction equipment firms will be looked at in regard to their activities within China and Brazil, which will be narrowed down from a group of seven original candidates.
With Chinese construction equipment firms beginning to expand into foreign markets, VCE Region International looks to better understand their Chinese rivals in hopes of predicting future strategies and protecting themselves from losses. The more prepared they are for the Chinese, the quicker and easier it will be for them to adapt to new strategies and market changes. By carefully obtaining and analyzing collected data on the Chinese industry, Brazil and China’s institutions and case companies within both markets, the authors attempt to unveil patterns and potential strategies that may be applied to both Brazil and other developing economies within VCE’s Region International, thereby potentially giving them an advantage over their Chinese competitors.
1.3 RESEARCH PROBLEM
With its huge market, rapid growth, and recent shift to a market oriented economy, China is predicted to pass the USA in GDP6 by 2020.xv Many Chinese construction equipment companies are starting to expand into foreign markets, and are in the process of going global. The majority of these companies offer low cost construction equipment alternatives. This poses a threat to other firms within the industry, especially those who provide a more complete, comprehensive service and repair package with every machine, but also compete at the higher end of the cost spectrum. Initial areas of concern are developing countries, as many do not have extensive monetary resources and are therefore less likely to purchase construction equipment at higher price points.
Since the globalization of Chinese construction companies is a recent phenomenon, little research has been completed in this interest area. The present study looks to unlock new theoretical perspectives for supplementary research, and contribute to the knowledge of Chinese construction companies in developing countries.
1.4 PURPOSE OF THE THESIS
The purpose of this master thesis is to provide a greater understanding of the Chinese construction equipment industry; specifically those firms that have the potential of effecting emerging economies and show promise when going global within the foreseeable future. By providing an in depth analysis of these firms, this thesis brings to light patterns and strategies used by Chinese construction equipment companies when venturing abroad. How the Chinese utilize the Brazilian market and the specific
6 Gross domestic product (GDP) refers to the market value of all goods and services produced within a country in a given period. Michael Halak | Charlene Reinke 10
strategies they implore will impact competing construction equipment companies around the world.
1.5 RESEARCH QUESTIONS
This section consists of the main research question and two sub research questions. These are the main questions that will be explored in this thesis.
Main Research Question
How do Chinese construction equipment firms internationalize?
Sub Research Question
How do Chinese construction equipment firms enter new markets (entry strategy)?
Sub Research Question
How are Chinese construction equipment firms driven to internationalize (take-off drivers)?
1.6 DELIMITATIONS
Delimitations concern the characteristics that limit the scope or parameter of the study concerning the cognizant decision of exclusions and inclusions made throughout the progression of the thesis to provide focus. xvi
1.6.1 Industry
The focus of this master thesis concentrates on the construction equipment market, and therefore its results are predominantly applicable to firms that operate within this industry.
1.6.2 Case Companies
Only Chinese construction equipment companies with the likelihood of going global within the boundaries of Region International will be considered as case companies. This thesis will therefore primarily apply to firms doing, or planning on doing business in this select geographical location.
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1.7 LIMITATIONS
This thesis’ limitations encompass the characteristics that set boundaries on the results of the study, based on the design or process that establish internal and external validity. xvii
1.7.1 Approach to Analysis
Seven pre-selected case companies were analyzed and narrow down to two based on their entry into the Brazilian market. The original seven Chinese construction equipment companies were identified and provided by a source at Region International, as the Chinese companies in which VCE Region International held interest. As the authors were provided these companies and their suitability was not personally research by them, the possibility of other Chinese companies being more likely to globalize and better suited for this research project does exist.
1.7.2 Translation
Due to the nature of the topic, much of the information gathered was in a language other then the authors’ native tongue (Chinese and Portuguese). “Google Translate” and “Translator Free” software was used to decode many of the articles. Due to this fact, the possibility of a translator error must be accounted for, thereby skewing sections of the data used in the composition of this thesis.
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1.8 OUTLINE
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2 METHODS AND METHODOLOGY
PURPOSE OF RESEARCH
RESEARCH LOGIC
RESEARCH APPROACH
RESEARCH METHOD
DATA COLLECTION
DATA ANALYSIS
QUALITY OF RESEARCH
ETHICS IN RESEARCH
The methods and methodologies will be presented in this chapter. Research logic, approach and methods are suggested for the study. Types of data collection and analysis are discussed including choice rational for the case companies to be studied. Maintaining quality and ethical research is also discussed.
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2.1 PURPOSE OF RESEARCH
The purpose of research can be categorized as: Exploratory, Descriptive, Explanatory, or Predictive depending on the type of information required of the phenomenon being studied and based on the implications of set research.
According to Gulatixviii a topic that is new, underdeveloped and lacks strong theoretical frameworks is considered Exploratory. Currently the information on Chinese construction equipment exporters is barren. This knowledge gap combined with a lack of developed theoretical frameworks lends the purpose of this research to gain a better understanding of Chinese construction equipment firms, while potentially uncovering their current and future strategies. Therefore the purpose of this thesis is Exploratory in nature.
2.2 RESEARCH LOGIC
The logical flow of research can take two main paths or a combination between them. These paths are either deductive or inductive. Deductive approaches take existing theory and develop or test propositions to contest, validate or discover propinquities in reality. Divergent to deduction, inductive approaches are founded upon ‘grounded theory’7 where data systematically aids in the creation of theory.
Combining deductive and inductive approaches is most commonly referred to as abduction. Dubois and Gaddexix take the notion of abduction and construct “systematic combining”, defining it as: “a process where theoretical framework, empirical fieldwork, and case analysis evolve simultaneously (…) for [the] development of new theories”.xx
As “[a]n abductive approach is fruitful if the researcher’s objective is to discover new things (…) [and the] main concern is related to the generation of new concepts and development of theoretical models, rather than confirmation of existing theory”,xxi it follows that the purpose of this research and the abductive approach is in tandem, and thus will be the logical basis for the research.
2.3 RESEARCH APPROACH
Data accumulated in research and analysis of set data can be categorized as either quantitative or qualitative. Quantitative research tests existing theory, while qualitative research seeks to construct new theory. These approaches are not mutually exclusivexxii and can be used synergistically throughout the research-topic’s life cycle. A parallel between quantitative and qualitative research, and deductive and inductive approaches can be made respectively.xxiii As deductive and inductive approaches will be combined in
7 “(…)[T]he investigator as the primary instrument of data collection and analysis assumes and inductive stance and strives to derive meaning from the data. The end result (…) is a theory that emerges from, or is “grounded” in, the data-hence, grounded theory.” (Merriam) PG 17 Michael Halak | Charlene Reinke 15
an abductive approach for this research, both quantitative and qualitative approaches will be used with a qualitative emphasis.
2.4 RESEARCH METHODS
Yinxxiv identifies the following research methods in the area of social science: experiment, survey, archival analysis, history and case studies. Deciding which method is most suitable to the study at hand is determinant of three conditions (a) the type of research question(s) posed, (b) the researcher’s control over events, and (c) how contemporary the phenomenon being studied is.xxv As the issue at hand is contemporary in nature both historical and archival analysis are extraneous. Furthermore, because the researchers have inside access to a multi national company, the authors will utilize this access and conduct a case study to fully exploit this resource.
2.4.1 Case Study Design
According to Yinxxvi four case study designs exist: holistic single-case, holistic multiple- case, embedded single-case and embedded multiple-case. Single case study designs have a solitary focus and design their research around one business entity. A holistic single- case study focuses on the chosen business entity as a whole, where embedded single-case study designs focus on multiple units within the business entity. Multiple-case study designs center their attention on multiple business entities. Holistic multiple-case study designs focus on multiple business entities, but each entity is researched as a whole unit. On the contrary, embedded multiple-case study designs focus on several business entities, including sub-units within those entities.
Yin explains each method further, and defines criteria the researcher can use to determine which case study design is most suitable for the research. Because the research being carried out has a strong focus on Chinese competitors, a holistic multiple-case study design will be utilized.
2.4.2 Case Company Selection
In regards to selecting an appropriate case company to study, Yin states the following: “Sometimes, the selection is straightforward because you have chosen to study a unique case whose identity has been know from the onset of your inquiry. Or, you already may know the case you will study because of some special arrangement or access that you have.”xxvii
At the onset of this study, VCE Region International provided a list of seven regions in order of importance (Brazil, Russia, Turkey, South Africa, Australia, Chile and Saudi Arabia). Furthermore, they gave a list of the top Chinese competitors of interest including Xuzhou Construction Machinery Group (XCMG), Sany Heavy Industries, Zoomlion, Liugong, Changlin, Lovol and Longgong. As Brazil is VCE Region International’s most important region, it has been selected as the focal region for this research. Furthermore, the top Chinese competitors of XCMG and Sany Heavy Michael Halak | Charlene Reinke 16
Industries have internationalized into Brazil and will be the two case companies studied in this thesis.
2.5 DATA COLLECTION
In quantitative research three techniques can be used for data collection: interviews, observation and analyzing documents.xxviii Data collection can be divided further into primary data and secondary data. The analyzing documents technique and secondary form of data collection will be utilized throughout the study.
Data derived from books, published articles, peer-reviewed articles, company reports and databases are considered secondary data. This type of data will be relied upon to gain insight into the research problem, triangulate theories and form theoretical frameworks.
2.6 DATA ANALYSIS
Qualitative research data analysis is highly intuitive and relies on the researchers’ style of empirical thinking. xxix Different techniques have been published in recent years to aid in the intuitive data analysis process. A constant comparative method utilizes grounded theory and is attuned to inductive qualitative research.xxx As exploratory research does not seek to build substantive theory, it is well suited with the constant comparative method and will be employed throughout this research.
Data analysis can be completed at different times throughout the research. According to Merriamxxxi simultaneously analyzing and collecting data is the most suitable method in qualitative research. As an abductive approach is the foundation of this research, the transition between qualitative and quantitative research will be constant, thus continuously analyzing the data and formulating theoretical frameworks will be simultaneously completed.
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2.7 QUALITY OF RESEARCH
Case study research requires validity tests to commence throughout the research process to ensure the validity. Yinxxxii describes construct validity, internal validity, external validity and reliability as the four commonly used tests in social science as they pertain to case studies.
2.7.1 Validity
Validity encompasses the valuation of the research findings and if they match reality.xxxiii Yinxxxiv makes a distinct difference between explanatory case studies and exploratory case studies, noting that internal validity only concerns the former. Thus, because this research is exploratory, internal validity is irrelevant to the quality of the research.
Validity concerns the legitimacy of inferences made from empirical data within the research framework. Stated else wise, construct validity measures the degree to which the empirical data chosen is subjective and relevant to the research questions.xxxv Construct validity is obtained by using a multitude of data sources (data triangulation), evaluators (investigator triangulation), perspective (theory triangulation) and methods (methodological triangulation). As a whole this process is called triangulationxxxvi.
The research will employ a triangulation method to maintain construct validity. Multiple data sources will be used to collaborate overlapping resources, which study the same phenomenon. Investigator triangulation will be obtained by having two investigators assigned to the project. Utilization of discerning evaluators and faculty will also add to the construct validity. The same techniques used for data triangulation will be used for both theory and methodological triangulation.
2.7.2 External Validity
The ability for the results of the case study to lend itself to generalization is external validity. Yinxxxvii goes on to state, “generalization is not automatic (…), a theory must be tested by replicating the findings (…) a second or third [time], where the theory has specified that the same results should occur” .xxxviii
As the purpose of this research is exploratory and multinational company specific, there is no such attempt to generalize theory, but rather to build on the cornerstone of the topic so that one-day theoretical frameworks will be in place that can be tested, and ultimately generalized.
2.7.3 Reliability
Reliability in the traditional research sense is the replicability of research findings.xxxix According to Merriam,xl the intricacies of human behaviour and interpretation prevent qualitative research from being replicated the same way as scientific studies because the
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goal of qualitative research is not to take the human element out of the research, but rather understand it. With this distinction made between quantitative and qualitative research “The question then is not whether findings will be found again but whether the results are consistent with the data collected”.xli Thus in qualitative research it is more important to have dependability than reliability. Dependability can be achieved by triangulation, stating the researcher’s assumptions, detailed description of data collection and detailed accounts of decision-making.xlii
To created dependability the researchers will use the above-mentioned triangulation methods. Limitations and delimitations will be clearly outlined. Data collection will be described in detail, including details such as how certain categories were derived and how decisions were made throughout the research. Other methods used are as follows: (a) as the work progresses both internal and external persons will be involved in challenging theories etc., (b) bias of the researchers is limited by their initial knowledge of the subject and their weak personal links to Volvo, Linnaeus University and Sweden, (c) an abductive approach limits the likelihood that data will be forced to match theory and vice versa.
2.8 ETHICS IN RESEARCH
In qualitative research ethical dilemmas are most commonly linked to data collection and the interpretation of findings.xliii As all multinational companies safeguard privileged information, VCE Region International will have the opportunity to read over the report and determine its sensitivity. If the information is considered confidential and VCE Region International requests the information to stay internal, the paper will be unavailable publicly until VCE Region International approves public release.
The findings are available to the external and internal individuals who will be involved in the challenging of theory and editing of content. Utilizing a multitude of sources available in this area will enable the researchers to understand and minimize their personal biases.
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3 LITERATURE REVIEW
INTERNATIONALIZATION
INTERNATIONALIZATION PROCESS MODEL
TAKE-OFF PROCESS
ENTRY STRATEGY
STRATEGIC ANALYSIS
INDUSTRY-BASED VIEW
INSTITUTIONAL-BASED VIEW
RESOURCE-BASED VIEW
TRIAD-BASED VIEW
This chapter reveals the prevalent theories and theoretical frameworks that are synergistic to the research. These theories were discovered through a literature review. Internationalizations of firms are introduced as well as the fundamentals of strategic analysis.
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3.1 INTERNATIONALIZATION
Internationalization can be defined as the tendency of corporations to operate and pursue business transactions across national borders.xliv Within the competitive realm of business, internationalization has taken on many facets including: trade, investment and ownership, manufacturing and sourcing, markets and customers, financing, and technology and R&D.xlv Throughout the years numerous frameworks have been constructed so that we may better understand the internationalization process. The Uppsala Process Model and Take-Off Process framework are described below.
3.1.1 Internationalization Process Model
Johanson & Vahlne created the Uppsala Internationalization Process Model in 1977. However, over time companies, their environments and their business practice have substantially changed. Economic and regulatory environments differ, and theoretical advancements have been made. In 2009, they revised their original model and published the “Business network internationalization process model” to take into account the changes in the business market. Both Uppsala models are used to explain the characteristics of the internationalization process of a firm, and consist of two different variables: “State” and “Change”. Each variable affects the other, with the outcome of one decision representing the input of another.xlvi The purpose of describing the internationalization process model is to give the reader a comprehensive understanding of internationalization as it is used in this thesis. Therefore, this model will not be directly applied in the analysis section of this thesis, but will be underlying knowledge that the researchers possess to create well-rounded, informed analyses and conclusions.
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3.1.1.2 1977 Uppsala Internationalization Process Model
Initially the original framework proposed that often times businesses would initially establish foreign sales in markets that closely resembled their own in terms of psychic distance8. Furthermore, firms tend to internationalize incrementally, increasing their dedication with each step in the establishment chain. They typically will use agents to begin exporting into foreign markets, which progresses into the establishment of a sales subsidiary and then into the firm producing goods within the host country itself. The slow pace of internationalization can be contributed to the lack of information about the specific market, which often times results in uncertainty and is traced back to differences between the countries (i.e. language, culture, etc.).xlvii
Figure 1: 1977 Uppsala Internationalization Process Modelxlviii
3.1.1.2.1 State Variable: Market Knowledge and Market Commitment
Market knowledge is a specific form of knowledge including the comprehension and awareness of opportunities and threats, as well as the general market environment. It encompassed the understanding and performance of various activities including supply and demand, distribution channels, transferability of money, and terms of payment. Knowledge that is based on an individuals experience is not easily acquired and is considered to be a crucial aspect of success. A firm decides on how much to commit, based on their knowledge of the market.xlix
Market commitment refers to the overall commitment of the organization to the cause, and the quantity of total resources allocated to it. The greater the specialization of resources within a particular market and the harder it is to attain them, the greater the degree of commitment by the company. Likewise, the greater degree of knowledge a firm has about a market, the more valuable the resources are and the more the company is committed to the market. Probable types of committed resources may include employees and marketing functions.l
8 “The sum of factors preventing the flow of information from and to the market. Examples are differences in language, education, business practices, culture, and industrial development.” (Johanson & Vahlne, 1977) Michael Halak | Charlene Reinke 22
3.1.1.2.2 Change Variable: Current Activities and Commitment Decisions
To a large degree, a company’s experience is based on the performance of their current business activities or current activities in general. Market experience is not born overnight and generally takes a long-term learning process to achieve. Companies try to add to this experience by hiring experienced employees, thereby strengthening their knowledge base. This explains the reason for many company’s slow and gradual internationalization process, which usually occurs in incremental steps.li
Commitment decisions are the choices a company makes regarding its commitment to the allocation of resources into foreign operations. The company’s perceived opportunities and threats in the market, and their level of business and market experience, many times have a tremendous influence on these decisions. Every stage of commitment produces both an economic and an uncertainty effect. While the economic effect relates to an augmented degree of operations in the market, the uncertainty effect concerns the inability or difficulty in predicting future market conditions and its influencing values.lii
3.1.1.3 2009 Uppsala Internationalization Process Model
Johaanson & Vahlne’s core argument in their current paper and 2009 Uppsala model is made up of two parts and based on business networks. The first argument states that markets are networks of relationships where firms are joined to one another in numerous complicated, and often times invisible patterns. Insidership in relevant networks is thereby essential for successful internationalization, where as outsidership is considered a liability. Second, relationships offer the possibility for building trust, commitment, as well as the potential for learning, all of which are important preconditions for internationalization.liii
Much of the theory from the 1977 Uppsala process model is identical to the current model. The current one simply updates the concepts for the twenty-first century and adds onto the original theory. To prevent redundancy only new theory from the 2009 paper will be discussed below.liv
3.1.1.3.1 Business Networks
In the revised 2009 Uppsala model, business networks have become a large part of the internationalization process. A business network is a web of close long-term relationships consisting of a companies significant customers and suppliers. This company’s customers and suppliers are further involved in a multitude of additional relationships, continuing the relationship cycle and comprising of an enormous business network. When firms enter these relationships they benefit from access to an extensive knowledge base, as knowledge is exchanged in direct relationships throughout the network. This flow of knowledge allows companies to obtain information about its partners’ resources, capabilities, strategies, needs and other relationships. Johanson & Vahlne state that a firm’s internationalization decisions are considerably effected by their
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relationships and network partners. If a network partner develops a respectable position in a foreign market, often times this will motivate the company to follow suit and pursue its partner abroad. On the other hand if the company lacks valuable partners, they may choose to enter a market with the expectation of easily connecting with established firms such as agents or distributors.lv
In today’s World, business opportunities play a major role in choosing what foreign markets to enter. While in the past these decisions were based more on the degree of psychic distance between the two countries, psychic distance is no longer a large issue for most companies today, as information on foreign markets is readily available. Due to this fact firms tend to make bolder, more risky business decisions, while at the same time use a wider rage of operating modes that are easier to control and are often more valuable to the company.lvi
3.1.1.3.2 State Variable: Knowledge Opportunities & Network Position
Recognizing opportunities is the most significant principle of knowledge that drives the internationalization process, while developing opportunities is important in constructing relationships. Capabilities, strategies, needs, and direct or indirect network related businesses are seen as other important elements of knowledge.lvii
Johaanson & Vahlne state that the internationalization process occurs within a network. If during the relationship building process both parties benefit, then learning, mutual trust and commitment building are often the outcome, leading to the partnership and network position of the parties involved.lviii
3.1.1.3.3 Change Variable: Learning, Creating and Trust-building & Relationships Commitment Decisions
Day-to-day business activities play a vital role in increasing a company’s knowledge, trust and commitment. Learning through experience is shown to be the most important type of learning.lix
When discussing relationships in these terms, one is referring to a company’s commitment to its networks or associations. Firms often alter their level of commitment in their relationships, which in most cases can be viewed through changes in entry modes, organizational changes in the size of investments and in the level of the company’s dependence. There are two way a company may choose to exploit their relationships: They may use them to develop new relationships, build bridges to new networks, or fill structural holes, or secondly, to simply shield or support the company’s present network of strategic relationships.lx
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3.1.1.3.4 2009 Uppsala Internationalization Process Model Overview
Figure 2: 2009 Uppsala Internationalization Process Model
3.1.2 Take-Off Process Model (Exit Strategy)
The take-off process model is an emerging theory that involves four initial stages of internationalization. It is defined as “the transformation of the firm between domestic and foreign markets”.lxi Drivers for take-off and entry strategies will be the basis for analysis and aid in providing answers relative the questions proposed in this thesis. The detailed knowledge of the different stages of the entry mode and node are provided for an inclusive introduction of the theory for the reader. Although not all of the information provided below will be directly utilized for analysis and conclusion purposes, it is knowledge required by the reader to have a higher level of comprehension of the theories that are both directly and indirectly applied in this thesis.
3.1.2.1 First Stage
In the initial stage of the framework, firms operate purely in the domestic market, having no international business or foreign market knowledge. Firms begin to development the conditions necessary to internationalize and depart into the market for the first time. Firms from emerging country markets will find this highly relevant, considering that the source of their competitive advantage are formed at different rates depending on the marketization process, or how fast the domestic markets evolve.lxii
3.1.2.2 Second Stage
Firms start to gain an understanding of foreign market business opportunities, which can be ignited by threats from imports, or customers and competitors internationalizing. Companies begin to passively respond to unsolicited order, still mainly focusing on the domestic market, while viewing the export market as dangerous and threatening. Though there is little need and no future plans to export, businesses may begin researching foreign markets. Firms at this stage have no internationalization or foreign market experience.lxiii
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3.1.2.3 Third Stage
Domestic representatives, most often times trading companies, are used by producers as sales hubs in foreign markets. Many times sales occur in trade fairs within international markets, but are located in the companies home market. There is never any direct relation with the foreign market, and the producer never has to leave home. By building on experience from indirect exporting, the company begins to export directly to parties in the foreign country market.lxiv
3.1.2.4 Third/Fourth Stage
Firms can reach this stage in two ways, through direct or indirect means: directly from the pre-export stage through direct exporting, and indirectly through the indirect exporting stage. Companies start to develop a devotion to foreign markets and customers and are actively responding to internationalization drivers in a trial and error manner. They are now directly active in the foreign market and are busy building up both an export organization and their internationalization know-how.lxv
3.1.2.5 Drivers For Take-Off
Often times there are numerous barriers that hinder small or medium size businesses in their international expansion. Zhou and Leonidou speak of three key internal obstacles pertaining to resources, capabilities and a company’s chosen export business approach. Four external barriers also exist involving the home and host environment, while financing constraint is often another issue to be dealt with. These factors can be defined as internal and external drivers, with external drivers being further broken down into push and pull factors.lxvi
3.1.3 Business Marketing Entry Strategy
The business marketing entry strategy consists of four factors that should be considered when entering a local market network. These factors include the entry mode, entry node, entry process and entry role. Entry mode pursues the question, “shall the MNC9 export, establish a company of its own or cooperate through forming a joint venture?” While entry node looks at “how shall the MNC plug into the local market network? Either the multi national corporation links up to the customers directly through forming dyads10 or indirectly through establishing triads11, using an intermediary such as a distributor or an agent.” lxvii Entry modes and entry nodes will further be examined below.
9 MNC is an abbreviation of multinational corporation 10 Dyads are direct links from the firm to consumers 11 Triads are indirect links from the firm to the consumer. IE: a firm uses an intermediary to sell products to their consumers. Michael Halak | Charlene Reinke 26
3.1.3.1 Entry Mode
Market entries take place in one of two ways, either through intermediaries (agent or distributor), or through ones own representative in the importing or exporting county (subsidiary). Exporting, foreign domestic investment or joint ventures are all represented forms of entry modes under this context. The type of entry mode that is chosen by a firm is largely affected by the extent of their resources. Larger companies generally have a great deal of economic and managerial resources to invest in the establishment of their own representation in their market of entry. Smaller businesses often do not have this luxury.lxviii
3.1.3.2 Entry Node
The internationalization process is divided into two parts. The external part encompasses the geographical spread to the international country market, while the internal part focuses on kinds of entry modes and establishment in a country. External factors can further be broken down into two areas: customer and context. Customers are examined based on how relationships are established. Establishment points in networks are called entry nodes (i.e. dealing directly with customers or indirectly through intermediaries). Entry modes may become entry nodes, where the seller network is linked with the local networks of the foreign market.lxix
The most important network for the seller is that of the buyers network. Sellers connect to the buyer’s foreign market network or develop entry nodes in two ways. Entries occur directly with customer and/or suppliers or indirectly through intermediaries. Direct relationships, or dyads, are created between the buyer and seller, with connections either involving the seller’s unit in the buyer’s country, or from the seller’s location outside the buyer’s country. In the former case dyads are created through the foreign domestic investment entry mode by a subsidiary in either the importing or exporting country. The later case involves an entry mode of trade or export. Indirect relationships or triads, similarly entail trade as the entry mode. It concerns an outside party or different form of entry mode and often implores an agent, dealer or distributor to act as an intermediary. The configuration of the local market network and the planned international business strategy are both illustrations of aspects that influence the entry node.lxx
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3.2 STRATEGIC ANALYSIS
The purpose of strategic analysis in business is to gain valuable insights that aid in the comprehension of issues. Using frameworks, the capability to recognize, classify and realize pivotal factors pertinent to strategic decisions is invaluable in the contribution to understanding the complexities in regard to strategic decisions. Although strategic analysis does not intend to give answers, it provides insights that enable well-informed strategic decisions.lxxi
Historically two leading perspectives have dominated strategic analysis: Industry-Based View and Resource-Based View.lxxii Recently the importance of formal and informal institutions has emerged, adding an Institutional-Based View to the mix. These perspectives with their respective frameworks will be explained in further detail along with a triad framework connecting the perspectives.
3.2.1 Industry-Based View
Since its inception in 1980, the industry-based view (IBV) defines a firm’s success as dependant on how it can compete within the industry.lxxiii Today the IBV further theorizes that the internationalization strategy of emerging economies is dependant on the degree of competition within their home market.lxxiv In 1980 Michael Porter created a framework dubbed Porter’s Five Forces, which identifies the industry-level external forces, aiding in the identification of external opportunities and threats.lxxv This framework will be discussed in greater detail below.
3.2.1.1 Porter’s Five Forces
Porter’s five forces model identifies four structural variables within an industry that influences competition and profitability.lxxvi A fifth element is added to complete the five sources of competitive pressure. “These five forces of competition include three sources of “horizontal” competition: competition from substitutes, (…) entrants, and (…) established rivals; and two sources of “vertical” competition: the power of suppliers and (…) buyers”.lxxvii
3.2.1.1.1 Threat of Substitutes
A substitute is a viable alternative to a product or service in the market. The availability of substitutes in an industry determines the price sensitivity of the consumers. The more substitutes exist for a product, the greater price sensitivity consumers have. If the price rises in and industry with substitutes, the demand will trend down. The threat of substitute products can impose limits on price increases, lowering turnover and profitability. On the contrary, if substitutes are scarce than consumers are insensitive to price increases and demand will remain unchanged creating an opposite affect on profitability.lxxviii
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3.2.1.1.2 Threat of Entry
New entrants in the market can threaten already established companies by increasing competition and lowering profitability. Entry barriers12 into the market can thwart threats of new entrants. When the market holds high entry barriers, the industries have higher profits as a result of lower competition.lxxix Alternatively when the entry barriers are low, profit margins decrease and competition increaseslxxx.
3.2.1.1.3 Degree of Rivalry
Intensity of competition between established companies in an industry is dependant on the interactions between six factors: concentration, diversity of competitors, product differentiation, excess capacity and exit barriers and cost conditions: scale economies and the ratios of fixed and variable costs. Industries that have fierce price competition aided by these six factors are less desirable as they can result in industry-wide losses.lxxxi
3.2.1.1.4 Bargaining Power of Buyers
A market is less attractive when a lack of balance in the bargaining process favours the buyer. The ability of the buyer to leverage their size and concentration, undifferentiated products, price sensitivity and information, creates buyer power.lxxxii Pressure from buyers can force prices down and lower profitability in the market, making it less attractive.lxxxiii
3.2.1.1.5 Bargaining Power of Suppliers
Suppliers can gain bargaining power over producers when their product is of importance, few substitutes exist, switching costs of the producer is high and suppliers are concentrated. When suppliers leverage their power over the value chain, they can control prices and quantities. High bargaining power of suppliers can make a market unattractive for new entrants.lxxxiv
12 Entry barriers include: Capital Requirements, Economies of Scale, Absolute Cost Advantage, Product Differentiation, Access to Channels of Distribution, Government and Legal Barriers and Retaliation. Michael Halak | Charlene Reinke 29
3.2.1.1.6 Porter’s Five Forces Framework Overview
Figure 3 below is a visual summary of Porter’s Five Forces as described in the previous section of this thesis. This framework will be applied to the construction equipment industry in China to explore potential take-off drivers of Chinese construction equipment firms from their home market.
Figure 3. Porter’s Five Forceslxxxv
3.2.2 Institutional-Based View
Institutions consist of the formal and informal rules that a society functions on and consist of regulative, normative and cognitive structures.13 The recent serge of research on emerging economies has led to a new institutional-based perspective on internationalization. This dynamic of strategic management was largely ignored because previous studies focused on developed economies, more specifically the United States, and did not require knowledge on the underpinnings of a country’s institutions.lxxxvi The theoretical framework of Terpstra and David’s cultural model or Terpstra’s Model, can be used to identify institutions and their dimensions.lxxxvii
13 Regulative structures develop enforcement mechanisms, normative forms values and norms, and cognitive is present though thought styles within the society. (Jansson, 2007) Michael Halak | Charlene Reinke 30
3.2.2.1 Terpstra’s Model
According to Janssonlxxxviii Terpstra’s model is superior to the mainstream models of PEST and STEP14 because it encompasses “every aspect of society, [and] the similarities as a cultural phenomenon or as an institutional phenomenon become more apparent”.lxxxix The model divides society into law, language, politics, technology and material culture, social organizations, education, values and attitudes, religion and language. Understanding the institutions in the firm’s home country and that of the county they are entering provides foundational knowledge that can, in part, be reflected strategically.xc
Figure 4 below is a summation of Terpstra’s Model in its entirety. The legal, political, technological and material culture, social organization and educational institutions within China and Brazil will be studied and analyzed to gain a fundamental understanding of the similarities and differences between the two countries. The empirical data collected will not encompass all sub-categories of the institutions; instead the researchers will determine and limit those aspects of China and Brazil’s institutions that are relevant in the context of the construction equipment industry. The empirical data collected will provide insight into the take-off drivers of the Chinese construction equipment firm in the analysis section of the thesis.
Figure 4: Terpstra’s Model Summarizedxci
14 PEST: political, economic, social and technological environment. STEP: Social, technological, economic and political environment. Michael Halak | Charlene Reinke 31
3.2.3 Resource-Based View
“The resource-based view excels in identifying the internal strengths and weaknesses [of a firm]”.xcii Analyzing a company based on its strengths and weaknesses dates back to the 1960s when the SWOT15 analysis was introduced.xciii In more recent years the role of resource and capabilities as the driving force for strategy has emerged.xciv This method allows the identification of a firm’s specific resources and capabilities from key success factors in the industry, resulting in a greater understanding of their strategies. As the resource-based view does not consist of one predominate theoretical framework (such as Porter’s five forces or Terpstra’s model), the theoretical methods of Grantxcv will be introduced below.
3.2.3.1 Step One & Two: Identification and Assessment of a Firms Resources and Capabilities
Using the resource-based view for strategic analysis of firms starts by identifying and assessing their resources and capabilities. A definition of these two dimensions as well their assessments are explored in this section.
3.2.3.1.1 Resources of the Firm
A firm’s resources are assets owned by the firm that are used as inputs for production. The resources can be further characterized as tangible, intangible or human and are not necessarily found within the confines of financial ledgers or among other official documents of the firm.xcvi
3.2.3.1.2 Tangible Resources
Assets that physically exist in the form of plants, equipment, land and mineral reserves as well as financial assets including cash, securities and borrowing capacity are considered tangible resources. These assets are the easiest of the three types of resources to identify and assess because they are recorded on the firm’s financial statements.xcvii
3.2.3.1.3 Intangible Resources
Intangible resources are those assets that a firm owns, but do not have a physical form. Although intangible resources do not exist physically, nor are they recorded on financial statements, they have greater value than tangible resources for the majority of firms. Intangible resources include technological assets (patents, copyrights and trade secrets), reputation (brands, relationships) and corporate culture.xcviii
15 SWOT is an acronym for: Strengths, Weaknesses, Opportunity and Threats. Michael Halak | Charlene Reinke 32
3.2.3.1.4 Human Resources
Similar to intangible resources, human resources are not recorded on the firm’s financial statements. However, this is not because there is a lack of physical form, but rather because the company does not own their employees. Human resources are comprised of the skills and capabilities of the employees. Employee’s tacit knowledge, skill, know- how, capacity for communication, collaboration and motivation creates value for the company in the form of human resources.xcix
3.2.3.1.5 Organizational Capabilities
As resources are not productive in themselves, a firm’s ability to utilize their resources to provide a product or service of value is known as organizational capabilities. Firms that use these organization capabilities to create greater value for customers relative to their competition have created a distinctive capability. These distinctive capabilities create the firm’s core competencies and are pivotal to the firm’s strategy and performance.c
3.2.3.1.6 Classifying Capabilities
In order to understand a firm’s core competencies, their capabilities must be examined in detail, which is done by organizing the capabilities via classification. A functional analysis classifies capabilities based on their functional area within the organization.ci The functional classification of organizational capabilities is summarized below:
Figure 5: A Functional Classification of Organizational Capabilitiescii
3.2.3.1.7 Resources, Capabilities and Competitive Advantage Overview
Figure 6: The Links Among Resources, Capabilities and Competitive Advantageciii
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3.2.3.2 Step Three: Appraising a Firm’s Resources and Capabilities
After identifying and assessing the resources and capabilities of the firm, they must be appraised to understand their importance in terms of generating profits for the company. The potential for resources and capabilities to generate profits is dependant upon their ability to establish and sustain a competitive advantage while appropriating returns on it.civ This section will include an explanation of the three success factors listed above, complete with assessing the importance and relative strengths of the firm’s resources and capabilities, and an overview.
3.2.3.2.1 Establishing Competitive Advantage: Scarcity and Relevance
Establishing a competitive advantage through a resource or capability requires two conditions to be present: scarcity and relevance. Scarcity refers to the abundance of resources or lack thereof. When a resource is scarce within an industry and is not required to be competitive with in that industry, then the firms who possess that resource has established an advantage over their competitors. Another dimension of establishing a competitive advantage is the relevance of the resource or capability in terms of the industry’s key success factors. The resource or capability must be congruent with the key success factors to create a competitive advantage.cv
3.2.3.2.2 Sustaining Competitive Advantage: Durability, Transferability and Replicability
Establishing a competitive advantage from resources and capabilities is not sufficient alone to create profitability, but rather their ability to sustain their competitive advantage is required to perpetuate profits. The sustainability of a competitive advantage relies on how durable, transferable and replicable the resource and capabilities are. Durability refers to the firm’s capacity to maintain their competitive advantage.16 The transferability of a competitive advantage refers to the ability of a competitor to obtain the advantage through acquisition. Lastly, if a firm is unable to buy the resource or capability that creates the competitive advantage they may attempt to imitate them. The more difficult it is for firms to replicate the resource or capability, the more sustainable they are to the originating firm.cvi
16 Durability in context: The durability of technology is low because of fast technological changes, while a competitive advantage created by a brand name is extremely durable over time. Michael Halak | Charlene Reinke 34
3.2.3.2.3 Appropriating Returns to Competitive Advantage
When the competitive advantage is intrinsically tied to the firm’s human resources, the profits do not necessarily end up with the company. Retention of employees is pivotal to the firm’s competitive advantage and the profits are shared between the employees and the firm. Thus, the ability to gain profits from a competitive advantage while retaining key resources (human resources) reflects the firm’s ability to appropriate returns on the competitive advantage.cvii
3.2.3.2.4 Appraising the Strategic Importance of Resources and Capabilities Overview
Figure 7: Appraising the Strategic Importance of Resources and Capabilitiescviii
3.2.3.2.5 Appraising Resources and Capabilities: Importance and Relative Strength
Once the strategic importance of the firm’s resources and capabilities is complete, those linked to their competitive advantage are now assessed based on importance and relative strength to the firm’s competitors. Importance is concerned with assessing which resources and capabilities are pivotal for sustainable competitive advantage. Some resources and capabilities are needed to be competitive in the industry, while others create a competitive advantage. When they are linked to a firm’s competitive advantage, they are assessed as having a higher importance than those needed to compete. Assessing relative strength is a form of benchmarking resources and capabilities to those of the firm’s competition. Benchmarking gives context to the strength of a firms resources and capabilities within the industry. Bringing together importance and relative strength creates an understanding of a firm’s key strengths and weaknesses.cix
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3.2.3.3 Step 4: Developing Strategy Implications
With the firm’s key strengths and weaknesses exposed, understanding strategy implications on how to exploit strength and limit vulnerabilities or weaknesses is explored through developing strategy implications. This includes exploring methods to maximize the effectiveness of resources and capabilities that have relative strength, and to use methods such as outsourcing to reduce the resources and capabilities that create weaknesses within the companies. To formulate strategies in order to maintain and create competitive advantages in the future, firms should use implications mentioned above accordingly.cx
3.2.3.4 Analyzing Resources and Capabilities Overview
The resource-based view summarized in figure 8 will be the theoretical framework used to obtain empirical data on the Chinese construction equipment firms of Sany and XCMG. Although this section encompasses the theories of the resources-based view in its entirety, not all aspects will be explicitly applied and stated in this thesis. The purpose of utilizing this view is to understand the resources and capabilities of Sany and XCMG to gain a greater understanding of their entry strategies. Thus, due to constraints, the researchers believe the reader would benefit more from a macro view of the resource- based view as opposed to a micro approach that would inundate the reader with too much detail. Instead, the researches utilized all aspects of the theory above as guidance for the empirical and analysis sections of this thesis, and included them for the reader to have the same knowledge set as the researchers, as opposed to omitting the information for congruency between the literature review chapter and the empirical and analysis chapters. It is believed this would be the most beneficial approach.
Figure 8: Framework for Analyzing Resources and Capabilitiescxi
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3.2.4 Integrating the Three-Leading Perspective: A Triad
The previous section explained in detail the three-leading perspectives of strategic analysis: industry-based view, institution-based view and resource-based view. “Insightful as each (…) perspective is, none of them is likely to be strong enough to sustain on its own; rather, it is the combination of their insights that lead to a better and more insightful understanding of the complex phenomenon.”cxii This perspective is represented in the framework in figure 9, and will be utilized as a base for the empirical study and analysis of this thesis.
As explained previously, industry, institutional and resource-based view theories comprised in the strategic analysis section, will be extensively used as the frameworks for the empirical data collected. The take-off drivers and entry strategy theories previously detailed will be the base theories used to analyze the empirical data collected from the utilization of the frameworks introduced in the following section. This method will enable a thorough explanation to the proposed questions for this thesis.
Figure 9: Triad-Based Viewcxiii
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4 EMPERICAL STUDY
INDUSTRY-BASED VIEW: CONTRUCTION EQUIPMENT
INSTITUTIONAL-BASED VIEW: CHINA AND BRAZIL
RESOURCE-BASED VIEW: SANY AND XCMG
This chapter encompasses the research data collected for this thesis as it pertains to the relevant theories explored in the literature review of chapter three. The information obtained through this chapter’s research will be utilized to form an analysis in chapter 5.
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4.1 INDUSTRY-BASED VIEW
The Porter’s five forces model will be the basis for the collection of empirical data on the construction equipment industry in China. In the preceding chapter these external forces will be analyzed at an industry-level, as to develop a true representation of industry conditions and gain a greater understanding of the take-off drivers for Chinese construction equipment companies.
4.1.1 Construction Equipment Industry: China
Five forces of the industry will be addressed within Michael Porter’s framework including: the threat of substitutes, threat of entry, degree of rivalry and the bargaining power of both buyers and sellers. Within this section figures will be used to reinforce the literature, though the writings will not mirror all aspects of the figures exactly, as the information required to do so was considered inadequate.
The figures used in this section take into account a number of different attributes within each force, with their industry strength being represented by a numerical value between 1 and 5. The lower values (1 and 2) are viewed as weak, 3 is moderate, while the higher values of 4 and 5 are considered to be strong aspects of the Chinese construction equipment industry. Small circles are used to pinpoint the level of each attribute and when connected form a shaded area within the figures. This area helps to form a picture of the force and corresponds to its relevant strength within the industry.
Figure 10: Industry Overviewcxiv
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Figure 10 (above) represents the Chinese construction equipment industry as a whole and summarizes the details presented in this industry-based view section. It should be used as a reference to fully understand the application of the figure as it pertains to the supporting text. The details of the Chinese construction equipment industry as a whole are further explained below to provide further explanation.
Bargaining Power of Buyers: Moderate Buyers are fragmented, with all sizes of business having a demand for equipment.cxv
Degree of Rivalry: High to Moderate The construction equipment market in China is characterized by fierce competition, due to the large number of established firms, high fixed costs and high barriers to exit.cxvi
Threat of Entry: Moderate Small-scale entry into the market is possible through specialized manufacturing, but usually takes place on a local rather than an international scale.cxvii
Threat of Substitutes: Moderate Direct substitutes are low and almost non-existent, though there are numerous cheap alternatives and switching costs among buyers are low.cxviii
Bargaining Power of Suppliers: Moderate Most suppliers have low differentiation with little to set them apart from others and bestow manufacturers the benefit of relatively low supplier switching costs.cxix
4.1.1.1 Threat of Substitutes
The threat of substitutes commonly refers to a viable alternative to a product or service in the market.cxx This category comprises of three variables including: direct substitutes (known as beneficial alternatives), cheap alternatives, and the degree of switching costs present within the market.cxxi
The threat of direct substitutes within the Chinese construction equipment market is low due to the extremely specialized purpose of the machinery produced.cxxii A poor direct substitute that does exist is human labour, however the great amount of time and heavy capital expense required to perform the same function does not make it a viable option.cxxiii No beneficial alternative products currently exist that has the ability to perform the same functions as construction equipment, at a comparable cost.cxxiv
Used construction equipment that is sold privately must be examined. This equipment is a cheaper alternative than the equivalent new product and may be practical for small contractors that have less capital at their disposal. However, the absence of a warranty, trouble finding older parts and higher engine emissions are all deterrents of this form of substitute. Companies that purchase new equipment meeting emission standards may Michael Halak | Charlene Reinke 40
qualify for tax incentives, thereby consequently reducing the threat of cheap alternative substitutes. Equipment rentals are yet another cheap alternative, although usually only used by small firms without upfront assets, for a short periods of time. The cheap alternative products that exist and are used in the Chinese market today are considerably high.cxxv
Switching costs among construction equipment firms are very low, as there are many competitive firms within the market and much of the equipment produced is similar.cxxvi
Product replacement or enhancement is possible, but future direct substitutes can only be realized by adding value via technology, comfort, maintenance, etc. As there are no legitimate direct substitutes available within the market, the Chinese construction equipment industry faces a moderate risk of substitute products.cxxvii
Figure 11: Threat of substitutescxxviii
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4.1.1.2 Threat of Entry
The threat of new entries within the market will depend on the degree of barriers to entry that exist. The simpler it is for potential competitions to enter the industry, the higher the competition within it.cxxix Barriers that deter entry, including: high initial investments and fixed costs, economies of scale, brand loyalty of customers, protected intellectual property, and government regulation, will be further discussed below.cxxx
“In 2006, the top five producers supplied more than 30% of the market.”cxxxi To enter the market and compete directly with these firms would require a significant outlay of capital to establish production plants, which involve high fixed costs, offset by economies of scale.cxxxii Conversely, the potential exists for small-scale entry by short-line and specialty manufacturers. Small-scale entrants would most often function on a local rather then a global level, operating in individual markets. Large market players hold considerable intellectual property assets such as patents, licenses and trademarks, many possessing strong established brands that are recognized Worldwide. Regulations governing manufacturing and operations exist in this market, often adding additional costs when developing products. Some of these policies include international environmental laws that restrict the use, transfer and disposal of certain substances, and emission control standards. The Chinese market continues to grow at an astonishing pace and is expected to continue in the future. Prospective new entrants may be attracted by market potential, creating a moderate overall threat of entry.cxxxiii
17Figure 12: Threat of Entrycxxxiv
17 Incumbents Acquiescent - The degree of resistance provided by firms currently in the market place. IP - Intellectual Property Michael Halak | Charlene Reinke 42
4.1.1.3 Degree of Rivalry
This force depicts the intensity of competition among existing players in an industry. A highly competitive market with fierce rivalry results in pressure on prices, margins and hence, on the profitability of players in the industry.cxxxv
The construction equipment market in China is fragmented, comprising of hundreds of competitors, but is dominated by a limited number of large multinational players.cxxxvi “However, this industry is more concentrated than most equipment manufacturing industries in China due to intense competition among both domestic and foreign participants.”cxxxvii The market comprises of three types of firms; large foreign multinational companies who are rapidly increasing their competitiveness and market share within the Chinese construction industry, a small number of large domestic corporations who control a sizable portion of the local market and a large number of small and medium sized domestic manufacturers who mostly compete in low value- added products. Competition amongst larger firms is intense due to factors such as equipment manufacturers’ high fixed costs and buyers’ low switching costs. While many smaller firms try to squeak out profits by differentiating themselves from others, this creates vicious competition, adding to an already chaotic environment.cxxxviii
Many foreign multinational enterprises decided to enter the Chinese construction equipment market by way of mergers and acquisitions. With this method they are able to familiarize themselves with the market, acquire the control on brands and often times significantly improve profitability at a low cost.cxxxix
Chinese construction equipment companies have developed rapidly over a relatively short period time. Many have developed a strong manufacturing capacity, but their capital, management and technological capacities lag behind international firms.cxl There are, however, a small number of large domestic manufacturers that can compete with many of the foreign construction equipment firms in the aforementioned areas.
Though the market is booming, many products produced by Chinese construction equipment firms are suffering overcapacity and low profitability. When output value is growing rapidly, fierce industry competition leads to lower profit growth than revenue growth. As downstream demand growth slows many firms may fall into a passive situation, whereby they have to rely on price competition to survive. However, many do not have the sufficient bankroll and vitality for long-term development and an industry shakeout will occur.cxli “Consolidation is expected as intensifying competition and rising technological requirements force small and inefficient operations to exit the industry.”cxlii
Construction equipment companies are highly dependant on the end-users industry conditions. Most players diversify and try to protect themselves, as they produce products for more then one industry. Firms are therefore not as highly dependent on sales from one industry, but on the market overall. Companies strive to differentiate themselves through specific functionality and brand reputation, whereby alleviating some Michael Halak | Charlene Reinke 43
of the intense rivalry between them. Though strong market growth prevents rivalry between established competitors from boiling over, overall market rivalry conditions are considered to be at a moderate to high level.cxliii
18Figure 13: Degree of Rivalrycxliv
4.1.1.4 Bargaining Power of Buyers
The buyers bargaining power relates to the amount of pressure they can impose on margins and volumes. Pressure from buyers can force down prices and lower a firm’s profitability in the market, thereby making it less attractive.cxlv
In China, buyers are fragmented due to the diversified nature of the construction equipment market. The Buyers are comprised of mining, agribusiness and construction companies in a market, which have a considerable number of large and medium sized businesses requiring products. Larger buyers are of grave importance to construction equipment firms, as the loss of their business would adversely affect revenues.cxlvi
Construction equipment prices in the global market are often much higher than in China. The prices of foreign manufacturers may be anywhere between 50%-150% higher than local companies. Largely due to this huge difference in cost, the majority of Chinese domestic users prefer cheap, local, homemade products with slightly lower quality.cxlvii “There is a hint however, some Chinese buyers are beginning to expect machine quality and sophistication more on par with more developed global markets. Komatsu claims to be selling more of its PC200 Hybrid excavators in China than in any other market of the world.”cxlviii Chinese contractors purchase these higher cost machines not because they are interested in the lower air emissions, but rather for the machines fuel-efficiency advantages. These same buyers are interested in the power and reliability of a hydraulic system. As Forbes magazine points out, this is a large reason that Doosan, Komatsu, Hitachi, Hyundai and Caterpillar accounted for 75% of Chinese excavator sales through
18 Zero Sum Game - A situation in which one participant's gains result only from another participant's equivalent losses. The net change in total wealth among participants is zero; the wealth is just shifted from one to another.
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the first seven months of 2010.cxlix Varied requirements among buyers allow construction equipment manufacturers to differentiate themselves by providing specific products and services to meet customer needs.cl
A buyer’s bargaining power depends on its type, which can be broken down into three categories; large corporations, medium sized corporations and small businesses. Large corporations use their size and potential purchasing volume to influence construction equipment firms. Medium and small corporations on the other hand, are forced to rely on other factors such as low switching costs and the large number of competitors in the market, as they have little influence in terms of volume. They often use the market to their advantage in order to obtain favourable prices, as the Chinese construction equipment industry is highly competitive. A buyer’s bargaining power may be limited however, depending on the number of competitive dealers in their region.cli
By creating globally recognized brands, a number of leading market players have established a high degree of brand identification and loyalty. Buyers can be influenced by a brand’s strong reputation, thereby weakening their bargaining power. Inversely however, recent economic difficulties have prompted many businesses (particularly small/medium) to shop around before making a purchase.clii
It is improbable for most buyers to integrate backwards into machinery manufacturing, thus strengthening the power of construction equipment firms. Most buyers are in the construction industry and posses expertise in infrastructure, not in equipment manufacturing. Buyer would also need a large bankroll to finance such an expensive endeavour. With a number of products lacking differentiation and switching costs being relatively low, buyer’s bargaining power is reinforced. Within today’s Chinese construction equipment market, buyers possess a moderate overall degree of bargaining power.cliii
19Figure 14: Bargaining Power of Buyerscliv
19 Oligopsony Threat – The threat associated with a market in which there are only a few large buyers for a product or service. Michael Halak | Charlene Reinke 45
4.1.1.5 Bargaining Power of Suppliers
The term 'suppliers' relates to all sources of inputs required by a business to provide a good or service. When suppliers leverage their power over the value chain, they have the ability to control prices and quantities.clv
As raw materials such as steel and aluminum retain a low level of differentiation, often times there is little to distinguish one supplier from another. Construction equipment manufacturers tend to incur low switching costs when changing suppliers who peddle such materials, except when there are long-term contracts and obligations involved. Substantial price variations are evident in regards to raw materials. Construction equipment firms may attempt to enter into long-term contracts with suppliers and use hedging strategies in order to overcome price fluctuations. Suppliers, who offer highly differentiated or value-added goods such as engineered components, often possess strong bargaining power. A number of firms within the Chinese market are vastly reliant on single suppliers. Often times this is the outcome of components that are produced in joint development between company and supplier. The more a firm relies on a supplier, the greater the power that supplier has over them. Within the market overall, suppliers hold a moderate level of bargaining power.clvi
20Figure 15: Bargaining Power of Suppliersclvii
20 Oligopoly Threat – The threat associated with a market form in which a market or industry is dominated by a small number of sellers. Michael Halak | Charlene Reinke 46
4.2 INSTITUTIONAL-BASED VIEW
Terpstra’s model will be the basis for collecting empirical data on the institutions within China and Brazil. In the preceding chapter these institutions will be analyzed comparatively to potentially unveil take-off drivers of Chinese construction equipment firms.
4.2.1 China
This section will encompass empirical data on the legal, political, technological and material culture, social organizational and educational systems as it pertains to the Chinese construction equipment industry.
4.2.1.1 Law
Under the legal institution of China, emission standards and China’s legal system were chosen as they have a direct effect on the construction equipment industry. Emission standards as a whole will be explained before China specific standards are introduced.
4.2.1.1.1 Emission Standards
The construction equipment industry is segmented into the off-road categorization for emission standards. These standards govern the amount of pollutants off-road engines can emit on a part(s) per million (PPM) bases. Since the inception of emission standards the PPM is continually decreasing, resulting in stricter requirements. In continued efforts to reduce emissions, standards change in phases to allow time for inventory to be sold and to allow time for the innovation of new technologies that can accommodate stricter standards.clviii
Currently there are no unified standards applied worldwide. The European Union bases standards on a stage basis, where North America has implemented a tiered system. Lobbying efforts by manufacturers for worldwide congruency in emission standards resulted in the European Union adopting comparable standards to the North American tiered system. These similarities are reflected in the third and fourth stages of the European Union’s emission standards.clix
4.2.1.1.2 China’s Emission Standards
In 2007 China adopted the European Union’s emission standards system and began implementing Stage 1 standards. Since 2010 China has required off-road vehicles to uphold Stage 2 emission standards. Forthcoming in 2014, China plans to increase these standards again to Stage3A/Tier 3.clx
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4.2.1.1.3 Legal System
China’s legal system has been developed under communist rule. As a result, the existing laws are not used to restrict the power of the government, but rather they are used by the government as an instrument to gain power over situations to their benefit. This socialistic approach to legal matters is not congruent with the ideologies of an objective set of laws and regulations that are pivotal to building trust in the market economy.clxi
Ambiguity from laws that are too broad creates a subversion of the formal system by utilizing connections within the Chinese administration. This creates a gap between the regulations of laws and the actuality of how business is preformed. This gap enables businesses to partake in bribery to gain favour.clxii In fact, China is the most likely country to use bribery in the construction industry when dealing with the public sector.clxiii
4.2.1.2 Politics
The World Trade Organization and China’s stimulus package are the focus for the political section of the institutional-based view.
4.2.1.2.1 World Trade Organization
China officially joined the World Trade Organization (WTO) December 11, 2001. In becoming a member China committed to make changes in their construction equipment industry policies, regarding tariffs, distribution, tendering requirements and trading rights, among others.clxiv
The WTO agreement had China eliminating tendering requirements by 2003 and by 2004 China committed to reduce tariffs on construction equipment by over 50% from approximately 13.5% to 6.5%. Trading and distribution rights would now allow any entity to import construction equipment into China in its entirety without restriction. China further opened distribution rights by permitting foreign companies to utilize all forms of distribution services. Lastly, China committed to uniformly applying taxes and tariffs of domestic and foreign businesses alike.clxv
4.2.1.2.2 Stimulus Package
In 2008 the Chinese government announced a US $585 billion stimulus package that set aside US $450 billion dollars towards the construction industry. Of the monies devoted to the construction industry US $265 billion dollars was allocated to road, rail, power and airport infrastructure. Since the stimulus package rollout, China’s construction equipment industry has seen 10% growth annually and is one of the World’s largest hubs for the construction equipment industry. With the countries continual growth China’s wheel loader sector has seen the greatest success, becoming approximately 5 times larger than the rest of the World.clxvi
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4.2.1.3 Technology and Material Culture
The WTO released a statement in 2009 regarding intellectual property rights in China as a result of an official complaint launched from the United States. The release stated that China must address copyright infringements with more complex laws.clxvii
In 2010 at a construction equipment exposition in Germany, several companies reported copyright theft against Chinese competitors, which later resulted in the removal of their equipment from the exposition and legal charges being filed. China’s inability to create truly innovative products within the construction equipment industry has resulted in domestic companies reverse engineering foreign products and reproducing them under their own brand. As a result some foreign companies in the construction equipment industry have stated their intentions to move their production from China to protect their intellectual property.clxviii
4.2.1.4 Social Organization
Socially, China has low levels of individualistic ideologies maintaining a collective mental stance resulting from the communist regime. Culturally the Chinese are committed to groups including, but not limited to; family, extended family and extended relationships. In collectivist cultures, loyalty is dominant. This is reflected in China’s ability to foster strong relationships where everyone assumes responsibility for members of their group.clxix
In China it is socially accepted to have high levels of inequality in power and wealth within society. Social status and clout are accepted to be intrinsically valued to their cultural heritage as opposed to earned overtime by the individual. China’s power distance between their social members is high relative to World averages.clxx
4.2.1.5 Education
China’s education system fosters skills of memorization over analytical abilities. The ability to memorize commences at a young age, when children spend approximately 5 hours a day for 9 years memorizing Chinese characters. Memorization is the key to excelling in standardized exams given in school, entrance exams, job recruitment and promotions. China relies so heavily on exams as a method of assessment, that it has been claimed an individual in China will have more examinations in a lifetime then anywhere else in the World.clxxi
Cheating in China’s education systems is rampant. Out of 900 students surveyed, 80% admitted to cheating. School officials have uncovered high-level schemes, included cheating rings, during exams. According to students, cheating is an acceptable practice that is considered a way of saving time. Students feel no regret or embarrassment towards cheating on exams. Although school officials and the Chinese government
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monitor exams and punish individuals caught, cheating continues to grow and is not limited to the confines of the educational system.clxxii
4.2.2 Brazil
This section will encompass empirical data on the legal, political, technological and material culture, social organizational and educational systems as it pertains to the Brazilian construction equipment industry.
4.2.2.1 Law
The same legal institutions researched for China will be researched for Brazil to ensure comparable data is collected. Brazil’s emission standards and legal systems will be explored. Furthermore, Brazil’s localization of components has been included, as it will directly affect Chinese construction equipment firms entering the market.
4.2.2.1.1 Brazil’s Emission Standards
Currently Brazil has no emission standards in place for off-road vehicles. 21 Brazil has committed to implementing emission standards on off-road vehicles commencing in 2015. Brazil will begin enforcing Stage 3A/Tier 3 requirements in 2015.clxxiii
4.2.2.1.2 Localization of Components
Brazil’s legislation currently requires that all products manufactured within the country consist of 60% domestically produced components as a minimum. The legislation allows foreign companies to manufacture equipment components abroad, if they are produced in Brazil. Enforcement of this legislation is inconsistent, as sometimes the 60% rule is enforced on the value of the components, while other time it is based on the quantity used.clxxiv
4.2.2.1.3 Legal System
Brazil’s legal system resembles that of other democratic countries. The judicial system is represented on different levels from local to federal governing bodies. Brazil’s laws have a strong foundation and are aimed toward a legal framework that deters corruption. Although Brazil’s laws reflect anti-corruption efforts, the ineffective enforcement of these laws allows corruption to continue. Corruption is most common on local levels where bribes are utilized to minimize taxes and sway impartialities of judicial members. Anti-corruption initiatives are constantly evolving, becoming stronger and continually making progress.clxxv
21 See section “4.2.1.1.1 Emission Standards” for an introduction to emission standards.
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4.2.2.2 Politics
Politically the Word Trade Organization and government spending is the focus of this section for Brazil.
4.2.2.2.1 World Trade Organization
Brazil is a founding member of the WTO originating January 1, 1995.clxxvi In 2009 the WTO began placing pressure on Brazil to lower tariffs in order to stimulate trade during the economic crisis. Currently Brazil imposes a 14% to 18% tariff on non-agriculture goods. Additional duties and taxes are 20% to 25% over and above the original tariffs imposed. Brazil’s imports are highly regulated with no congruent regulations in place, allowing different legislations to be imposed on the national, state and municipal levels.clxxvii
4.2.1.2.2 Government Spending
In 2010 the Brazilian government committed US $235 billion to the construction of roads, bridges, ports, airports and sewage plants, via their stimulus package. Brazil’s government will also commit monies to upgrading infrastructures in the next 5 years as they have been granted hosting rights to the 2014 World Cup and the 2016 Summer Olympics. clxxviii
4.2.2.3 Technology and Material Culture
Intellectual property rights in Brazil adhere to WTO standards. Brazil’s legal system strictly enforces intellectual property legislation, keeping copyright infringements in check. Although rigorous systems are in place to uphold this legislation, infringements still occur.clxxix
With lower copyright infringements in Brazil than other developing countries, Brazil has to innovate. Stimulus by the Brazilian government via their Innovation Law and public funding for new enterprises has led to innovation agencies obtaining international licenses for their innovations.clxxx
4.2.2.4 Social Organization
Brazil’s society shares a collectivist mentality within their culture that honours relationships over societal rules. Culturally, commitment to relationships within groups such as family, extended family and extended relationships is of paramount importance to collectivist societies. Trust is built via relationships. Society as a whole protects and aids members within their group.clxxxi
Strict laws, rules, policies and regulations imposed by the government reflect the need for stability in Brazil from a social context. Brazil’s society demands stability via control to
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avoid the unexpected, while their risk aversion translates into an inability to have wide acceptance of change. clxxxii
4.2.2.5 Education
Brazil’s education system is compulsory for children from ages 7 to 14. Due to over crowded schools, distance from the school to home, among other reasons, only 33% of children continue on to high school. More affluent neighbourhoods are privy to better school systems including non-subsidized private schooling. These students are more likely to be literate and peruse higher education.clxxxiii
The Brazilian education system relies heavily on examinations to determine an individual’s capacity to understand the curricular material. As a result, students believe their ability to obtain scholarships and higher education is intrinsically connected to their ability to take tests, as opposed to their actual capacity to understand the material. Private tutoring involving exam specific learning and drills is a successful tool to those who can afford it. Cheating is also used by many students to ensure success on an exam and is socially accepted if it results in the student passing. Parents are only concerned with the grade on the exam rather then the methods used to obtain set grade. Students gain social status by being an expert in passing exams as opposed to actually knowing the material.clxxxiv
4.3 RESOURCE-BASED VIEW
Empirical data on Sany Heavy Industries Co. Ltd and XCMG have been collected to identify and assess each company’s resources and capabilities. This information will be analyzed in chapter 5 to potentially uncover entry strategies of Chinese construction equipment firms.
4.3.1 Identification and Assessment of Resources and Capabilities
The theoretical methods of Grantclxxxv will be used to identify and assess the resources and capabilities of both Sany and XCMG. A firm’s resources are the assets that they own, which are used as inputs for production, but often times are not found within the confines of financial ledgers. Capabilities on the other hand, are a firm’s ability to utilize these resources to provide a product or service of value.
4.3.1.1 Case Company: Sany Heavy Industries Co Ltd
The Sany Group was originally founded in 1989,clxxxvi with the Heavy Industries division being established 5 years later in 1994.clxxxvii The business is of Chinese decent with their headquarters domestically located in the Changsha Economic Technological Development Zone. Since the induction of Sany Heavy Industries Co Ltd (Sany) the firm has grown at an annualized rate of 50%, even with the economic downturn created by the global crisis. They are involved in all aspects of the construction equipment industry,
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producing over 120 different kinds of machinery in 25 categories. Sany’s product lineup includes: concrete pumps, truck mounted concrete pumps, concrete batching plants, asphalt batching plants, rollers, asphalt pavers, motor graders, truck crane, crawler crane, graders, pavers, compactors, hydraulic excavators, etc. The firm owns a post-doctoral research centers in China which is one of the country’s top technological development centers, responsible for the development of hundreds of key technologies and over 536 authorized patents.clxxxviii Sany has 5 factories in China, 4 plants across the United States, Germany, India and Brazil and 24 support centers internationally. They have more than 53,000 employees in over 120 countries and are among the top 50 global manufacturers of construction equipment.clxxxix
4.3.1.1.1 Resource 1: Distribution/Dealership Network
The construction equipment portion of the Sany Group, Sany Heavy Industries Co Ltd, is comprised of 24 sales companies worldwide.cxc Within the Brazilian market eleven distributors represent the Sany name and line of products, whether imported or produced at the recently established national factory.cxci As Sany is still new to Brazil their network of dealers is modest, though they will continue investing in this area as the company gains market share and a larger presence is required.cxcii Currently dealers are present in the states of Sao Paulo, Minas Gerais, Rio de Janeiro, Espirito Santo and the southern country, representing 4 crane and earth moving segments.cxciii
4.3.1.1.2 Resource 2: Brand
The Sany group is one of the most successful enterprises in China and currently employees’ more than 60,000 people in over 120 countries around the World.cxciv In 2010 Sany’s annual sales volumes for excavators topped 12,000 units, giving the brand the top selling excavator in China. The previous year, Sany outperformed Caterpillar in market share among excavators in China and is viewed as a major competitor by Komatsu, the world's number one brand of excavators.cxcv Sany produces a full range of construction related equipment (though locally manufactured offerings in Brazil are limited) and in recent years has grown at a rate of 50% per annumcxcvi. Sany is among the top fifty construction equipment manufacturers globally, with a goal to become a world famous brand in the sector and be listed among the world’s top five hundred enterprises. The brand is well known domestically and becoming increasingly so in Brazil and other foreign markets. With the company’s mix of good quality, low cost, and after-market service Sany is becoming synonymous with good customer value.cxcvii
4.3.1.1.3 Resource 3: Plant and Equipment
As construction equipment is sophisticated and highly complex, the machinery that produces them has to be equally so. In February 2010 the Sany Group made their single largest overseas investment ever, spending US $200 million to build a state-of-the-art factory and research and development facility in Brazil.cxcviii Here they will design, develop and produce their most popular products in the region, consisting of excavators,
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crawler cranes and truck cranes. With this new facility, they will be capable of producing up to 100 excavators per month and assembling 500 cranes per year.cxcix
4.3.1.1.4 Resource 4: Location
The Sany Group is an international conglomerate with 5 industrial parks in China, and 4 factory/R&D facilities in America, Germany, India and now Brazil.cc According to Sany’s President Xiang Wenbo, “Sany plans to build plants in overseas markets in Indonesia, Russia, North African countries and South Africa.”cci Recently, a national manufacturing/R&D hub was constructed in the city of Sao Jose dos Campos, Vale do Paraíba, Brazil, which is scheduled to open early 2011.ccii Besides this hub, Sany currently operates three factories in Brazil, generating foreign revenues in upwards of US $30 million in 2010.cciii
The locations of Sany’s factories are crucial, as Brazil’s market is highly regulated, containing not only national and state regulations, but differing legislation among municipalities. Import tariffs are also high, beginning at around 14-18%, with an additional 20-25% being added from duties and customs fees.cciv
4.3.1.1.5 Resource 5: Financing
In December 2010 the Sany Group established Sany Auto Finance Co Ltd, a business created to provide financial services to satisfy needs of the construction equipment industry. They are responsible for providing leasing, loans, insurance, trust and financial service solutions to their Chinese domestic customers. This marks an important milestone for Sany, which should help to boost their main business and global strategy. In the future, Sany’s industrial and financial business will become interdependent, with their financial products and services gradually integrating into all sections of their industrial and value chains. Sany is the first among Chinese construction equipment companies to integrate industrial and financial capital. Even though it is only at the start- up stage, Sany plans to gradually expand to new markets including America, Germany, India, Brazil, Hong Kong, etc in the years to come. Most notably, Sany plans to set up a financial leasing company in Brazil in 2012, enforcing its overall commitment to the market.ccv
4.3.1.1.6 Capability 1: Research and Development
The Sany Group "#$%&'!()&*'&+,&'!-.!()&$#!/0$+$(1!(-!2#&/(&!$..-,/($,&!'-+3($-.'!(-! 23'(-*&#'4!$**&%$/(&!/.%!5-#&'&&/0+&!.&&%'6!!7)&1!realize the importance of R&D, and every year invests 5-7% of sales toward the research and development of new technologies.ccvi Sany presently holds 536 registered patents and have generated over 70 key technologies,ccvii most recently the SY75C3EH motor-driven small hydraulic excavator.ccviii They are one of only a handful of firms that possess the ability to develop such technologies. This recent feat was independently developed by Sany Heavy Machine Co Ltd, and adopts the world’s advanced motor-driven technology.
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Rechargeable storage batteries and electric motors replace the common fuel system and engine. The result being, an energy-saving, quieter, more adaptable and environmentally friendly excavator, made possible by Sany’s leading engineers and R&D efforts.ccix “The successful development of this product displays Sany Heavy Machinery’s strength in independent R&D and technological innovation, marking a new height in the company’s R&D capability.”ccx Jack Tang, President of Sany America states, Sany will “continue our progress in recruiting some of the best engineers in the world, and will provide them with an environment that will allow them to push the boundaries of innovation and quality in our brand of construction equipment.”ccxi
4.3.1.1.7 Capability 2: After Sales Service
With a mission to build greater value for its customers, Sany Heavy Industries recently released a document divulging its new standard of care. The new service regulations are structured on an international level, extending not only to China, but Brazil, America, Europe, etc, across the globe. Three sets of standards are defined, and are made up of letters and numbers. The first, S250, represents Sany’s pledge to be a market leader in attendance, replacement parts and maintenance techniques, and to develop effective communication between them and their customers. Next, S123 illustrates Sany’s promise to act on solving all problems within one day, reach the place of service within two days of receiving notice, and to provide a maintenance technician, care specialist and development engineer trio to solve maintenance problems. Lastly, S315 demonstrates their commitment to providing training to operators, maintenance and equipment administrators, while offering free technical explanations, daily maintenance, routine maintenance, upgrades and oil filters to all customers.ccxii
Sany’s business philosophy is centered on the concept of “helping customers to succeed”.ccxiii One of the ways they do this is by attempting to provide above average service to all customers. Sany uses a model named “One, two, three, four. Complete care for all”, which includes the principles of easy online problem solving assistance, 2 days of free technical course training, 3 inspections before delivery, and 4 comprehensive equipment checks throughout the warranty period. The Chinese construction equipment firm also attempts to bestow speedy delivery of machinery, first-rate technical care, online part and equipment manual request pages, online maintenance videos and a variety of extended tailored training programs.ccxiv Sany currently has a parts center in greater Sao Paulo, Brazil, and has plans to invest in six other regional centers in the south, southeast and northeast in the coming months.ccxv As they try to add value to their overall business offerings, Sany becomes ever more committed to providing excellent customer and after sales service.
4.3.1.1.8 Capability 3: Employee Training
Sany Heavy Industries currently has approximately 150 employees in Brazil, with the workforce expecting to grow to 380 people (consisting of 85% Brazilians) by the end of 2011. Employees receive continuous training throughout their years with the company.
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Often times international plant associates will travel to China to train, acquiring the necessary skills and knowledge needed in the manufacturing of construction equipment. They experience the company’s culture, the same as a Chinese worker, for a three-month period. Managers are usually sent to a training facility to meet the business objectives of the manufacturer.ccxvi With the formation of Sany Finance, the Sany group is looking to establish a globally based network that will be used to attain, cultivate and retain employees.ccxvii Tang Xiuguo, one of the original four founding members of the Sany Group, states that “by 2015, Sany Finance will have more than 3000 employees and will become an important base to train talents in the fields of finance, law and so on. It will help the group to educate a lot of medium and high level management persons.”ccxviii
4.3.1.1.9 Capability 4: Manufacturing Know-How
The motto of the Sany Group is, “Quality Changes the World. Premium Products Better the World.” The company believes that providing quality products are a crucial component in adding value to the firm’s overall offering. Through their manufacturing knowledge and expertise, Sany is focused on developing and manufacturing quality industry-leading products, while still remaining competitively priced.ccxix This strategy is currently paying dividends as Sany’s last year’s revenue in Brazil reached US $30 million and is expected to hit US $1.2 billion in 2015.ccxx According to Sany President Xiang Wenbo, "Sany won the trust of overseas customers through its high-quality products and good service.”ccxxi As the numbers show, many customers agree with this statement. When ask about his company’s choice in purchasing Sany equipment, Barclay Branch, Senior Sales Representative at Golden Arrow Concrete Pumping simply stated, “good quality, good service – good performance and value.”ccxxii
4.3.1.1.10 Capability 5: Corporate Social Responsibility
As Sany’s aphorism “Quality Changes the World. Premium Products Better the World” clearly states, the company is not only interested in the financial aspects of the business but the human side as well.ccxxiii They utilize a recycling program and have above average emission standards, regardless of the nation in which they dwell. In turn, these corporate social responsibility activities help to create and add value to the Sany brand and their line of products.ccxxiv After a devastating earthquake a tsunami hit Japan in March 2011 and damaged one of its nuclear power plants. Sany quickly responded by donating the equipment and support necessary to repair it. Nuclear radiation was leaking into the air and without Sany’s kind gesture, the situation might have been much worse.ccxxv The Sany Group’s mission states, “we commit ourselves to social responsibilities, regardless of the nation, spreading the excellence of Sany's corporate culture to the World.”ccxxvi
“In a rating published (…) on May 29 by the Center for Market Capitalization Management and Research of Chinese Listed Companies, which aimed at appraising the development of the Chinese securities market in the past 20 years, Sany Heavy Industry won three awards: "Listed Company with Greatest Potential for Sustainable Growth",
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"Listed Company Most Favored by Investors", and "Listed Company Doing the Most in Corporate Social Responsibility."”ccxxvii
4.3.2 Case Company: Xuzhou Construction Machinery Group
Xuzhou Construction Machinery Group (XCMG) is a Chinese company founded in 1989, and today ranks 1st in China and top 10 in the World construction equipment industry. The firm offers a complete assortment of products including: construction lifting equipment, road machinery, road and maintenance machinery, compaction equipment, loaders, bulldozers and graders, excavators, concrete pump machinery, railway construction, aerial fire-fighting equipment, special dedicated vehicles, special chassis, trucks and engineering mechanical parts.ccxxviii XCMG operates in over 130 countriesccxxix with 240 plus dealers around the world and has been exporting equipment to Brazil since 2007.ccxxx They are one of the largest, most technically advanced construction equipment manufacturers in China,ccxxxi controlling approximately half of the domestic market.ccxxxii Over the last few years XCMG has continuously and rapidly intensified their internationalization strategy, becoming a leading brand in the markets of Poland, Kazakhstan, Russia, India, and Brazil.ccxxxiii According to Chairman Wang Ming, “the company wants to take advantage of the on-going financial turbulence to buy assets in Europe and United States,”ccxxxiv and “will continue to expand major overseas markets and markets surrounding these areas.”ccxxxv
4.3.2.1 Resource 1: Plant and Equipment
Though XCMG has been importing machines into the Brazilian market since 2007, they have only recently begun assembling equipment within the country.ccxxxvi The construction equipment company will invest between US $22 and US $40 million to set up three assembly plants with their distributors [Success Imports & Exports, Sao Paulo Brazil and GTM Construction Machinery (BMC)]. With their distributors help, XCMG employees will use pre-assembled part kits (imported from China) and an assembly line method to locally produce cranes and wheel loaders, with excavators, rollers, compactors and motor graders to be added in the future.ccxxxvii In the short term this will help XCMG to reduce development costs, however future plans involve the local production of equipment using a majority of local parts.ccxxxviii In China XCMG uses top-of-the-line production technologies and owns the largest in-house manufacturing and assembly facility in the nation.ccxxxix They have invested large amounts of capital in their state-of- the-art “intelligentized” machining equipment, while adopting the automotive manufacturing procedures used in the production of entry loaders.ccxl In the years to come, similar plant and equipment technology will be transferred for use in the Brazilian market.ccxli
4.3.2.2 Resource 2: Location
XCMG currently owns three assembly plants located in Sao Paulo, Recife and Rio de Janeiro, and two parts distribution centers in Sao Paulo and Recife, Brazil. “Initially, we will continue to bring the whole machines. Secondly, we will bring in two parts, the chassis and crane for assembly here. In the third step, we planned to occur in up to five Michael Halak | Charlene Reinke 57
years, we have the complete assembly in Brazil,” said Tang Dexin, vice president of XCMG.ccxlii The construction equipment produced in Brazil will not only be used to fill the needs of the local market, but also many neighbouring countries and may even be shipped as far as Africa.ccxliii It is expected that the domestic market will supply 35% of parts used in the assembly of XCMG Brazil construction equipment.ccxliv Due to Brazil’s highly regulated market and considerable tariffs, duties and custom fees, is it important that XCMG’s plants and factories are local and comply with domestic parts and content regulation. Imports are available and taken care of through their distributor, but often times are expensive due to taxes.ccxlv On average 15% of XCMG’s production is exported to foreign markets, with 2.5% going to Brazil. With the increase of sales in the Brazilian market in recent years the construction equipment firm looked to reach 4% exports in 2010, driven by the high percentage of equipment parts intended for assembly in the region. XCMG strives to win a market share of at least 8.5% in Brazil, which annually produces about 13,000 machines in the construction machinery category.ccxlvi
4.3.2.3 Resource 3: Brand
With XCMG ranked 1st in China and top 10 in the world among construction equipment manufacturers, the company has developed good brand equity. They are extremely well known and highly regarded in China, and are beginning to develop a strong reputation for value in Brazil and many of their other markets around the World.ccxlvii In 2010 XCMG’s net profits rose 68% year-on-year with revenues increasing 21.81% to 25.21 billion Yuan.ccxlviii The firm aims to achieve revenues of 35.2 billion Yuan in 2011,ccxlix and is shooting for 100 billion Yuan by 2015.ccl In 2007 XCMG began exporting construction equipment to Brazil and their annual construction equipment sales reached 240 units, with a solid market reputation.ccli “In recent years, XCMG has constantly transformed their mode of growth, and has progressively shifted from relying on scale and speed to relying on brand, quality, high-end and lean management and benefit increase.”cclii They continue to be strong in brand equity, which they earn through heavy marketing, quality manufacturing and service.
4.3.2.4 Resource 4: Distribution Network
XCMG controls 147 distributors in China and continues to expand on its number of foreign dealers.ccliii Currently they have a network of 100 overseas dealers, with Brazil possessing 16, plus 2 distribution centers in Recife and Sao Paulo, and a third being built in Rio de Janeiro. The distribution centers are responsible for providing spare parts and maintenance to the entire nation.ccliv "In a few years, we’ll have 20 more overseas dealers and build five more parts centers in addition to the assembly factories we have now in Brazil and Poland,” remarked XCMG Chairman Wang Min.cclv JM Machinery, a member of the JMalucelli Parana company, controls XCMG’s distribution of equipment in the southern states of Brazil and Sao Paulo, while the states of Minas Gerais, Rio de Janeiro and Espirito Santo are the responsibility of Tractorbel.cclvi XCMG has a strong presence in northeast Brazil with authorized dealers in several states, as well as a significant presence in the north and south.cclvii
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4.3.2.5 Capability 1: Research and Development
XCMG leads the technical development of China’s earthmoving machinery products, possessing solid production technologies and the biggest in-house manufacturing and assembling industrial unit in the country.cclviii They have won several awards at the national level for their innovative designs and good quality,cclix with 70% of their products achieving the top technical level domestically and 20% internationally.cclx The construction equipment enterprise recently announced their investment of US $150 million to build a domestic R&D center that will be completed in five years time. It will consist of 13 individual technology research and testing facilities and will be one of the largest, most technologically advanced units in China. The centre will be used to develop the firms next generation of heavy machinery, commercial vehicles and passenger cars.cclxi XCMG places a great amount of emphasis on R&D, to meet the needs of markets locally and abroad. “XCMG has established a technological development system led by its national classified Technical Colloquium (TC), through which a larger number of high tech, high value added products have been initiated continually.”cclxii Presently they have no plans in building an R&D center in Brazil, instead opting to work on R&D domestically.
4.3.2.6 Capability 2: Manufacturing Know-How
XCMG Brazil offers the companies complete segment of over 200 machines (that can be imported from China), with locally assembled offerings consisting of hydraulic excavators, wheel loaders, backhoes, graders and rollerscclxiii. When compared with international brands there equipment possesses relatively high quality that is fairly reliable, but generally does not compete with many of the top manufacturers. XCMG construction equipment is often economical in terms of maintenance and operations, while comprising a moderately high level of durability and technical capacity.cclxiv They have won several domestic accolades for their groundbreaking designs and overall good quality equipment, which stems from their competency and skills in manufacturing.cclxv
Below is a statement from one of XCMG’s Brazilian customers regarding the quality of XCMG’s products:
"The XCMG machines are great because they have great quality, good price and easy handling. Moreover, maintenance is much simpler, since the machines are mechanical and not electronic, like most competitors. It is not necessary to hire a mechanic to fix it, which becomes much more practical and cheaper after the machines warranty period expires because maintenance can be done very easily. Besides the advantages of price and practicality, they are bigger and stronger, optimizing our production and increasing profits. If Chinese products really have this quality, it will eventually dominate the market."cclxvi
Arimathea Coast (Group Henrique Lage)
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4.3.2.7 Capability 3: Training
A number of times a year XCMG holds training seminars for its employees. In November 2010 the XCMG Overseas Distributors Association was held in Shanghai, consisting of group leaders and general managers of their subsidiary companies. Approximately 300 industry delegates and overseas businessmen from 40 countries also took part in the event to discuss the company’s future development. The meeting helped to educate its employees and gave them the opportunity to communicate with XCMG, hopefully expanding their cooperation with the company in the future.cclxvii
4.3.2.8 Capability 4: Sales and Marketing
Every year XCMG holds numerous promotional days to introduce their company’s current product offerings to potential customers and strengthen brand awareness. The construction equipment firm held many of these marketing activities during the opening month of 2011, which resulted in 140% growth in sales revenue year on year, as well as 228% growth in concrete machinery sale in the month of January. A pump truck meeting was held for their customers on January 29th, marking the prelude of market sales for the new year.cclxviii In March 2011 XCMG participated in CONEXPO, the American Engineering Machinery Exposition, for the sixth time in its history. Over the years, they have gradually become the focus of the international market, which is often covered by various media.cclxix
In September 2010 XCMG held their first annual customer day in Vitoria, the east port city of Brazil, in which 80 Brazilian customers participated. During that same month, and within the same city, a new product promotion and user experience day was put on over five days, with the help of XCMG’s local dealers. It marked the company’s first major event that they hosted in Brazil and the biggest of its kind in terms of variety of products and scale within a single country. Much of the event was held at a 5-star hotel where “more than 100 XCMG distributors and key accounts from all over Brazil were present.”cclxx Some of the events included a news conference on XCMG’s development strategy in Brazil, a XCMG product quality tour and a hands-on product experience where customers got to use and interact with the equipment. Throughout the event “there was an active interaction between business personnel and distributors and key accounts, who communicated with each other on the performance of the new products.”cclxxi After seeing and experiencing the new products many distributors and key accounts took pride in working with XCMG. Several Brazilian media attended the entire event, providing extensive and comprehensive coverage. “A preliminary statistic after the activity showed that the purchase inclination for earthmoving machinery alone amounted to more than 150 units, valued at over US $10 million US dollars. The success of this promotion and experience activity enhanced the confidence of distributors and XCMG key accounts, and was a significant impetus for XCMG to foster a new growth point and maintain its momentum in its export to Brazil.”cclxxii
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It is predicted that XCMG will hold about 50 promotional activities worldwide during 2011.cclxxiii
4.3.2.9 Capability 5: After Sales Service
Globally, XCMG has a customer-focused approach, with their main emphasis on providing top quality equipment with excellent after sales services. They place great importance on supporting businesses after the sale, providing technical assistance, a robust spare parts supply and trained mechanics to service customers.cclxxiv Denis Sacchetti who holds a sales position with Tractorbel states, "we're strong in the service sector and among the various modalities available sales, we can offer a contract including the maintenance of the product."cclxxv XCMG has their own sales network around the World, by which they can supply consulting and after-sale services to their local customer.cclxxvi
Below is a statement from one of XCMG’s Brazilian customers regarding the quality of their after sales service:
“XCMGBrasil has a great advantage over competitors in the post-sale. This results from the speed and quality in service, the repair and replacement of parts, which is only possible due to good stock of the company in Pernambuco, without the need to wait for equipment to come from China to be replaced. The XCMG Brazil has evolved over time and is winning because of their market niche”cclxxvii .
Santiago (Codequip Hydraulic Cranes)
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5 ANALYSIS
INDUSTRY-BASED VIEW: CONTRUCTION EQUIPMENT
INSTITUTIONAL-BASED VIEW: CHINA AND BRAZIL
RESOURCE-BASED VIEW: CASE COMPANIES
This chapter incorporates the theoretical aspects explored in the literature review of chapter three and the empirical findings in chapter four to appropriate an analysis conducive to the research topic. The chapter will be separated into industry-based view, institutional-based view and resource-based view.
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5.1 INDUSTRY-BASED VIEW
Since China’s recent entrance into the WTO the domestic market has changed immensely, with many local companies deciding to internationalize and pursue a horizontal take-off. For this to take place successfully, certain market and industry conditions known as drivers must exist. The following section will analyze and discuss these factors with regard to the construction equipment industry in China.
5.1.1 Construction Equipment Industry: China
There are very few viable substitutes within the Chinese construction equipment industry. Though a lack of substitute products normally results in consumers who are insensitive to price increases, a highly competitive market, low switching costs and low product differentiation manage to limit equipment prices to some extent. While no feasible direct substitutes exist, there are a number of cheap alternative products throughout the Chinese market, including privately sold used construction equipment and rental machinery. The high costs associated with long-term equipment rental, along with the absence of a warranty, trouble finding older parts and higher engine emissions related to privately sold used equipment make these options undesirable to many consumers.
There are a number of entry barriers present in the Chinese construction equipment industry that act as a deterrent to possible new entrants looking to penetrate the market. The large initial capital investment, together with an industry that is plagued with high fixed costs and large conglomerates possessing economies of scale will limit the likelihood that new organizations enter the industry. Large established players hold significant intellectual property assets, along with strong brand equity and often times show significant signs of customer loyalty. Stringent governmental regulations on manufacturing and operations exist that impede prospective firms by adding additional costs and headaches. Though these barriers may thwart many smaller and medium sized businesses from attempting to enter the industry, large-scale firms with the correct resources should have little problem. The potential for small-scale entry by short-line and specialty manufacturers does exist within the booming Chinese market. As the Chinese market continues to surpass growth expectations it is conceivable that many construction firms will continually be attracted by its potential. The number of new emerging entrants threatens previously established firms by increasing competition and lowering profitability within the market. If a large number of companies were to enter the market and future growth were to drop, the industry may go through a consolidation period, eliminating many of the smaller, unprofitable companies, as supply would out way demand.
Fierce competition between established companies in the industry results in pressure on prices, margins and overall industry profitability. As new firms enter and the intensity increases, the market appears less desirable than it once did and many enterprises look to internationalize into new areas. The construction equipment industry in China is fragmented, comprising of hundreds of competitors, but dominated by a limited number
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of large multinational and domestic players. High Manufacturers fixed costs, and the low switching costs among buyer help to fuel the competition of larger firms, while many smaller firms try to squeak out profits by differentiating themselves, making for vicious competition and adding to an already chaotic scene. Though there are a large number of domestic firms that lag behind that of many multinationals, Chinese construction equipment firms are learning fast, with a few becoming completive at an international level. While the Chinese market is currently booming, many local firms are suffering overcapacity and low profitability, giving further evidence to support the belief that an industry wide shakeout or consolidation will occur.
Due in large part to a lack of product differentiation, and relatively low switching costs, buyers bargaining power within the Chinese market tend to exceed that of construction equipment firms. This pressure is responsible for driving down prices and lower profitability in the market, making it less attractive. Fortunately for manufacturers, the market is in a state of growth and remains profitable for the majority of firms. However, this unstable market condition may be used as a driver by domestic firms to look at other markets around the world to fulfill their needs. As construction equipment prices in the global market are anywhere between 50%-150% higher then China, the majority of domestic buyers prefer local cheap homemade products, even though they typically possess lower quality. With this price advantage over foreign multinationals, Chinese construction equipment firms may be driven to enter new global markets, especially developing ones similar to that of their own. A buyer’s bargaining power depends largely on their size, and their ability to influence construction equipment firms with potential purchasing volume. Small and medium sized buyers must rely on other methods to gain strength, such as their low switching costs and the fiercely competitive nature of the market. Due to recent economic difficulties buyers are selective and take more time with their purchase decision, thereby further strengthening their buying power.
Most suppliers in the China show a low level of differentiation, while construction equipment manufacturers incur low switching costs. Frequently suppliers in this industry have low bargaining power, with construction equipment firms holding the upper hand. Suppliers find it hard to differentiate themselves by means of quality and it is only those that produce important, highly-differentiated or value-added goods that yield substantial bargaining power and demand top dollar. The more reliant a firm is on their suppliers, the less power they have, and the greater power their supplier encompasses.
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5.1.2 Take-Off Drivers: China
As there is little threat to Chinese construction equipment companies in the form of substitutes, there appears to be no correlation between substitutes and take off-drivers found in this research.
Although there are entry barriers to new entrants into the Chinese construction market, the continual growth of the Chinese construction equipment industry may entice large multi national companies into entering the market despite entry barriers, making an already competitive market even more so. With this extra competition, small and medium sized enterprises may be forced out of the Chinese markets. If these companies possess the resources and capabilities to go global, they may utilize that option as opposed to risking the competition in their home market. Therefore, moderate to low entry barriers are potentially a take-off driver to companies that are unable to stay competitive when new entrants move into China. However, it is unclear if entry barriers are a take-off driver, or if they foster an environment for higher competition, which may be the actual take-off driver.
Like entry barriers, moderate to low product differentiation that results in low switching and moderate to high buyer power is another cause of higher competition in the Chinese construction equipment industry. As a result, these factors may be take-off drivers in themselves or they may fuel the take-off driver of high competition. There is insufficient evidence to make a distinction between the two, and can be subject to further research.
As Chinese construction equipment firms have a higher level of power over their suppliers than visa versa, there appears to be no need for firms to go global to fulfill their supplier requirement. As a result, the lower power of suppliers does not appear to be a take-off driver for Chinese construction equipment firms.
5.2 INSTITUTIONAL-BASED VIEW
In the institutional-based view China and Brazil’s legal systems, politics, technology and material culture, social organization and education were explored and researched in the empirical section of the research. During the empirical study the two countries were studied separately. This next section will bring together the empirical data and analyze the finding of China and Brazil on a comparative level. The relevance for researching the institutions of both China and Brazil is revealed in the analysis, bringing to light an understanding of the country’s similarities and differences, while focusing on the take-off drivers of Chinese construction equipment firms going abroad.
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5.2.1 Institutional Analysis
The following section is an analysis of the institutional-based view and includes an analysis of the potential take-off drivers of Chinese construction equipment firms.
5.2.1.1 Legal Systems
China has maintained higher emission standards than Brazil since 2007 and will continue to do so until Brazil’s implementation date of 2015, at which time the two countries will share parity. China’s commitment to enforce Stage 3A/Tier 3 standards by 2014 and Brazil’s steadfastness to accomplish the same by 2015, means the current disparity is coming to an end.
The Brazilian and Chinese legal systems are fundamentally different. China’s legal system has evolved from communist law, while Brazil’s is representative of a democracy. In China the law is used as an instrument of the government to gain power and in Brazil the legal system is used as a means for checks and balances, therefore restricting the government’s power. Although there are fundamental differences between the two legal systems, corruption is rampant in both. Bribery is common practice and results in ineffective law enforcement. The inability to enforce laws in Brazil makes the two legal systems similar because laws can be overlooked if a company is willing to pay for preferential treatment. Currently the longevity of bribery in Brazil is uncertain as interest groups are creating anti-corruption initiatives that are starting to gain clout. Changes in these practices can result in Chinese construction equipment firms having to change their strategies if they currently use bribery to gain favour.
Localization of components is a protectionist action by Brazil to ensure their economy gains from foreign companies selling in the Brazilian market. This legislation poses challenges for foreign companies because high taxes and tariffs on goods coming into Brazil result in lower profit margins, or in some cases losses. Therefore, Chinese construction equipment companies must have capital backing to sell products in Brazil, because in this country the most profitable method of selling products is to open a production plant locally, which requires large capital investment.
5.2.1.2 Politics
Both China and Brazil are members of the WTO, which means Chinese construction equipment companies can expect relatively the same rules and regulations imposed by local and foreign markets.
Between China and Brazil’s stimulus package monies allocated to road, rail, power and airport infrastructure, the countries have committed approximately US $500 billion. These monies have generated demand for construction equipment and created opportunities for construction equipment companies to expand. With both countries
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investing heavily in infrastructure, the economic climate in the construction industry is comparable.
5.2.1.3 Technology and Material Culture
Brazil and China’s intellectual property rights stance shows a clear division between the two countries. While Brazil adheres to WTO standards on copyright infringements and commits to upholding this legislation, China has had complaints filed against them and has been reminded by the WTO numerous times to uphold their obligatory standards. Brazil’s government continues to invest in programs to stimulate innovation and although some copyright infringements occur, the government takes action against those who break intellectual property rights. With the legislation being imposed, Chinese construction equipment firms must be cautious in Brazil to avoid legal proceedings, as infringements are taken more seriously than in China.
5.2.1.4 Social Organization
The social organization of China and Brazil are similar. Both countries have a collectivist mentality and believe relationships are important over everything else. As relationships are pivotal, sometimes the law is superceded by allegiances to those relationships. Corruption can arise as a result. With the similarities between China and Brazil, construction equipment companies will have an easier transition into Brazil from a social aspect than if they were to go into a country whose social organization was individualistic in nature.
5.2.1.5 Education
The education system between China and Brazil is similar. Both systems are predominantly examination based and foster an environment that encourages cheating. Students and parents in both countries believe cheating is a necessary component of the education system and ultimately the grade the student receives is more important than the methods used to obtain it. Chinese construction equipment companies will have the same challenges in Brazil that they face in China regarding the legitimacy of credentials held by the individuals they hire.
5.2.2 Take-Off Drivers: China
China currently enforces higher emission standards than Brazil. This reduces the number of obstacles Chinese construction equipment firms would face when entering into the Brazilian market because they can sell the same machinery in both countries. Chinese construction equipment companies are able to enter into the Brazilian market and not have to invest additional money on research and development to produce a product that meets their emission standards. This could potentially be a driver in the decision process of Chinese firms, with regard to what markets they will enter.
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The differences revealed between the legal systems in China and Brazil appears substantial, however this does not seem to effect Chinese construction equipment firms’ decisions to leave China and enter Brazil. Thus, the legal system institution does not appear to be a take-off driver for firms. However, there is a possibility that Chinese construction equipment firms overlook the legal institution in Brazil because corruption exists, creating a similar situation to that of China. Therefore, it is inconclusive if the institution of law is a take-off driver for Chinese firms.
Localization of components enforced by Brazil shows no evidence of deterring Chinese construction firms from entering the market. Firms work with the restrictions imposed by Brazilian law and continue to sell their products regardless. This section of the legal institution of Brazil shows no evidence that such laws are factors in a Chinese firm’s decision to move into Brazil.
In the political dimensions researched, China and Brazil parallel each other. Both countries are members of the WTO and both allocated a substantial portion of their stimulus packages to infrastructure that has markedly boosted construction growth. Having the same standards imposed on Chinese companies from the WTO regardless of their location (China or Brazil) has the possibility of being a take-off driver for firms, as they do not have to adjust their methods of business. Both countries are presently experiencing substantial growth in the construction sector and possess a fiercely competitive market. If a Chinese construction firm is thriving domestically under these circumstances, it may be a take-off driver for the firm to enter Brazil.
Researching the technological aspect of copyright infringements, China and Brazil have polar opposite stances on the issue. Because of the differences between the countries and the willingness for Chinese construction firms to still enter the market, the institutional aspect researched does not appear to have any bearing on the firms expanding from China to Brazil.
In terms of the social organization aspect, China and Brazil share the same collectivist qualities. This cultural connectedness may align Chinese construction equipment firm’s business antics with those of the Brazil’s. Being able to maintain relatively the same corporate culture and business practices can be a take-off driver for Chinese construction equipment firms entering Brazil.
The challenges faced by construction firms in China are the same in Brazil in terms of finding employees with valid credentials. Chinese firms would have little to adjust to from this perspective and may be an initial driver prompting firm’s take-off.
In researching both China and Brazil’s institutions, many similarities were found and were focused on, while the differences did not seem to play a role in a Chinese firms decision to take their business into Brazil. From analyzing potential take-off drivers of Chinese construction equipment firms from an institutional-base approach, it appears that
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if a firm is not financially burdened from institutional differences, than the circumstances drive take-off. To clarify, areas that do not require changes involving technologies or business practices have the potential for fostering take-off to Brazil. Although there is insufficient evidence to give certainty to this claim, there is a good possibility that this correlation exists.
5.3 RESOURCE-BASED VIEW
The resource-based view was used to explore the Chinese construction equipment companies of Sany and XCMG. Their resources and capabilities were identified and assessed in chapter four and will be appraised in the following section.
5.3.1 Key Success Factors
The key success factors in the construction equipment industry have been identified through researching the two case companies and the industry based view. The key success factors are as follows:
• Manufacturing Know-How: product quality, reliability and performance.
• After Sales Service: timeliness of repairs, repair quality and end user training.
• Brand: customer perceived value.
• R&D: creation and advancement of technical innovations.
• Distribution: proximity to buyers, equipment and part availability.
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5.3.2.1 Resource and Capability Appraisal: Sany
To assess Sany’s resources and capabilities, their industry importance and relative strength have been determined and are summarized in the table below. The resources and capabilities were determined through the empirical study of Sany and are reflected accordingly. Each resource and capability was assessed on an industry level to determine its importance as it pertains to the Brazilian construction equipment industry today. Sany’s relative strength was derived from the empirical data obtained on the company, and have been derived form the theories proposed in the literature review chapter. All numbers in the chart are reflective of a scaling system from zero to ten, with zero representing the weakest level, ten represent the strongest, and five being the market average.
Resources & Industry Sany’s Relative Comments Capabilities Importance Strength R1 Distribution 6 3 Sany is a new entrant in the Brazilian market. Currently they have eleven distributors in Brazil. R2 Brand 8 4 Although Sany’s brand is recognized in many countries worldwide, their presence in Brazil is still relatively new. R3 Plant & 4 6 Sany recently invested US $200 Equipment million for a state of the art factory and R&D facility in Brazil R4 Location 7 5 Sany upholds the industry average for location with their three factories in Brazil. R5 Financing 5 0 Currently Sany does not offer financing in Brazil, however this is an initiative they are looking at bring forth in the near future. C1 R&D 9 6 Recently Sany opened an new state- of-the art R&D facility in Brazil, but due to their struggles with innovation their R&D remains low compared to that of industry importance. C2 After Sales 7 5 Sany has only recently begun to Service implement customer service after sales initiatives, as with many of their Chinese counterparts. C3 Employee 6 5 Sany utilizes many avenues to Training adequately train and retain employees. C4 Manufacturing 9 5 The company has many claims to high quality, however this quality is relative to price and has more to do with perceived customer value than actual quality. C5 Corporate Social 3 5 Sany upholds the average CSR levels responsibility in the Brazilian construction equipment industry.
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5.3.2.2 Resource and Capability Appraisal: XCMG
To assess XCMG’s resources and capabilities, their industry importance and relative strength have been determined and are summarized in the table below. The resources and capabilities were determined through the empirical study of XCMG and are reflected accordingly. Each resource and capability was assessed on an industry level to determine its importance as it pertains to the Brazilian construction equipment industry today. XCMG’s relative strength was derived from the empirical data obtained on the company, and by employing the methods discussed in the literature review chapter. All numbers in the chart are reflective of a scaling system from zero to ten, with zero representing the weakest level, ten represent the strongest, and five being the market average.
Resources & Industry XCMG’s Relative Comments Capabilities Importance Strength R1 Distribution 6 3 XCMG is new in the Brazilian market, and at the moment have 16 operative distributor locations. R2 Brand 8 6 The firm has already developed an above average reputation of good customer value, thereby developing brand equity R3 Plant & 4 3 XCMG spent $22 and $40 USD Equipment million to set up three assembly plants with their distributors, but have yet to establish a manufacturing facility within the country. R4 Location 7 4 They hold an average number of assets in Brazil, which are expected to increase over time as needed. C1 R&D 9 6 Though XCMG has no local R&D hub in Brazil, they rely on their award winning technology based in China. $150 million (USD) is being investing in a new Chinese R&D center to be completed in 5 years. C2 After Sales 7 5 XCMG has begun to develop a Service customer-focused after sales services network throughout Brazil. They currently have 2 distribution centers, with a 3rd being built. C3 Employee 6 5 The firm uses many different ways Training to train their employee’s adequately. C4 Manufacturing 9 5 XCMG has improved a lot in this Know-How area over the years and produce moderately high quality products, however they cannot compete with many of the high–end market leaders. C5 Sales & 8 6 The manufacturer is strong in sales Marketing & marketing, holding a number of promotional events that strengthen both their brand equity and customer’s perceived value.
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5.3.3 Resources and Capabilities: Take-Off Drivers and Entry Strategy
Utilizing the resources and capabilities identified in the empirical section allowed for the appraisal of Sany and XCMG’s resources and capabilities in the previous analysis section. This information provided insights as to how these two Chinese companies employ their resources and capabilities at home, and shows how they enter the Brazilian market comparatively to that of their home. These insights allow for an analysis to commence from a resource and capability based standpoint, and focus on the driving factors within the companies that make Chinese construction equipment firms take-off into foreign markets. Furthermore, it enables a greater understanding of the firm’s entry strategy into the Brazilian market, and reflects the variety of resources and capabilities that they rely on when first entering. The drivers and entry strategies of Sany and XCMG will be analyzed in the preceding section.
5.3.3.1 Take-Off Drivers: China
In exploring the two case companies, it was discovered that both are Chinese based multi-national companies that utilize distribution networks worldwide. The size and breadth of the firms are extensive both in China and on a global scale. For example, Sany had the highest sales volume of excavators in China in 2010, while XCMG is ranked number one in China and in the top ten worldwide. With the companies enjoy high rankings and ever growing sales, their scope is continually getting larger. Despite the current economic climate both companies show continuous growth in sales units and profits. Sany and XCMG both offer a full range of construction equipment and claim to have high quality and good services relative to price. This results in a moderate to high level of perceived customer value.
The Chinese companies have invested heavily on plant and equipment in their home country, comparatively to their overseas facilities. XCMG owns the largest in-house manufacturing and assembly facility in China, while Sany has four factories/research and development facilities around the world and plans on doubling these in the years to come.
Sany is one of the first Chinese construction equipment firms to offer financial services to customers, which has only been offered since 2010. Competition from other competitors who offer these services has placed pressure on Chinese companies. Despite foreign multinationals offering finance, the majority of Chinese construction equipment companies today do not offer this service. Given the competitive nature of the construction equipment industry in China, there is a high probability that Sany will only enjoy the first mover advantage among their Chinese counterparts for a limited time. It is possible that offering financing can help Chinese companies be more competitive in foreign markets, in particular industrializing nations that can lack the financial capital for construction equipment, especially for sizeable projects.
Sany and XCMG are well knows domestically in China for their research and development innovations. These two Chinese companies have many patents and have
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been recognized in China with awards. Each company takes a different approach at research and development, showing no consistency. Sany has multiple facilities around the world and is committed to innovation. Their numerous patents may be attributed to their globally diverse research and development facilities, and their commitment to hiring highly skilled engineers. XCMG on the other hand houses all of their research and development efforts in China. Although the two companies are inconsistent with their methods of innovative strategies, they are both committed to bringing innovative products to market.
Customer service is becoming a more predominant focus of both XCMG and Sany. Over recent years they have begun to commit to greater customer service in both China and abroad. There after sales services include a multitude of offerings, from spare part guarantees, to training services, among many others. These commitments increase their competitiveness in the industry and against their well-established rivals, whom charge a premium for the quality of their products and services.
The Chinese construction equipment companies are cognizant of the importance of knowledge transfer. Both companies have programs in place for employees to continually gain knowledge through internal education from their peers. These programs encompass corporate training for managers and skill training for labourers. As a result, employees’ knowledge base continues to grow and enables the companies to provide forward reaching innovations and consistent customer service.
Sany and XCMG have the capability to produce quality products for their customers. Although their machines do not contain high-tech electronic components, they possess the know-how to produce good quality equipment in their product range, especially when evaluated based on price.
Although corporate social responsibility may not be a pre-requisite for Chinese construction equipment firms to have when looking to internationalize, it is an essential component for global firms to compete worldwide. For example, Sany’s commitment to social responsibility in China can provide them with a corporate culture that is more conducive for understanding markets cognizant of social responsibilities, thus creating an easier transition into those countries. This may not be currently necessary for internationalizing countries, but in future years when demands are placed on these countries, firms that are already implementing best practices limit the effects of these changes. With Sany and XCMG being multinational companies who both commit to corporate social responsibility, it is possible that this factor may be a take-off driver for Chinese construction equipment firms.
XCMG utilizes promotional activities such as customer days, expositions and other marketing initiatives both in China and worldwide. They create brand awareness by exposing their products to people whenever possible, and have a well developed sales and marketing strategy. The ability to market their brand is a take-off driver that creates
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opportunities for success in other markets, as they possess marketing and selling know- how founded on a domestic level.
5.3.3.2 Entry Strategy: Brazil
When entering Brazil, both companies utilized distribution centers to provide sales, service and spare parts to customers. The companies have begun with modest distribution numbers but intend to invest over the next few years to raise these numbers. Geographically, both companies have chosen similar locations for distribution, including the states of Sao Paulo, Minas Gerais, Rio e Janeiro, Espirito Santo and the southern regions.
In terms of manufacturing there is no consistency between the two companies. Currently Sany has three manufacturing plants in Brazil, with limited product offerings produced locally. XCMG on the other hand, has opened three assembly plants and two parts facilities with their distributors. XCMG plans to build a similar facility in Brazil to their one in China, however there is currently no commitment date made by the company. It is important to note however, both firms still continue to import the majority of their manufactured goods directly from China.
The firms analyzed do not currently offer financial services in Brazil. Sany plans to offer financial leasing in Brazil come 2012 to compete with other foreign competitors. Financing is a new offering by Chinese construction equipment firms, and Sany has only begun offering these services in China. At the moment XCMG has no plans to offer any form of financing service, as it is not encompassed in their entry strategy into Brazil.
Between the two Chinese construction equipment companies analyzed, there was no congruency between their stance on research and development plans within Brazil. Like their manufacturing, XCMG plans to keep their research and development efforts domestic, while Sany has invested US $200 million in a new facility to include research and development.
Both XCMG and Sany have created a selling platform that includes providing value to their customers. The companies have committed to selling quality products (relative to their price), with a high level of customer service, as to generate the perception of value from their customers. Their commitment to service has been successfully executed in Brazil, as parts are readily available and both companies have maintained their service promises. XCMG and Sany both launched customer service initiatives in Brazil immediately upon entry into the market and continue to maintain and improve upon their level of service provided.
With customer service being predominant in Sany and XCMG’s strategies, employee training has become of significant importance as they look to provide competitive customer service. Adequate training was provided to local employees from both firms as they entered the market, with the hope of maintaining the level of service the companies Michael Halak | Charlene Reinke 74
committed to. All employees are provided with training relevant to their position, for example: managers attend training in China to absorb the company culture and gain an understanding of business objectives.
The quality of products produced in China is maintained in Brazil from Sany and XCMG’s entry into the market. Proper training and transfer of manufacturing know-how has allowed the companies to continue with quality standards of the firm as a whole.
Sany enters Brazil with the same corporate social responsibility standards as in China. Regardless of local emission standards or environmental policies being lower in Brazil, Sany maintains higher standards. It is unknown if all Chinese companies use this same method, however it is important to note that Sany does not turn the lower standards of Brazil into higher profit margins.
XCMG uses the same marketing and selling techniques as they do in China. In fact, they hosted the industry’s biggest new product exposition of its kind. A heavy marketing strategy since entry into the Brazil has proved successful with up to 150% sales increase from a marketing initiative. There is insufficient information to know if this is a general entry strategy, however it is a notable entry strategy worth future research.
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6 CONCLUSIONS
GENERAL CONCLUSIONS
In this chapter, general conclusions on take-off drivers and entry strategies are drawn for the Chinese construction equipment industry. The conclusions formulated are those that are most relevant from the research commenced and will provide the basis for recommendations in the proceeding chapter.
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6.1 GENERAL CONCLUSIONS
In an industry as competitive as construction equipment, understanding competitors’ strategies are accentuated. Many westernized firms have relied on their perceived superior technologies, customer service and branding to differentiate themselves from Chinese construction equipment firms, while justifying premium prices for their products and services. The breadth of this research was to understand Chinese construction firms’ strategies as they pertained to entry strategies and take-off drivers. Each piece of empirical data alone did not appear to offer any insights, however the analysis of the findings revealed answers outside the researcher’s personal propositions. Dominated by western perspectives, new light was shed on how Chinese construction equipment firms, as a competitive force, have great potential for success.
A caveat that must be stated is as follows: the general conclusions below are strictly based on the research commenced in this thesis. Further research on this topic must be carried out to provide a greater understanding of which conclusions were derived from coincidental facts, and which truly reflect the construction equipment market. With this stated, the following remarks are reflective of the most important findings from the analysis portion of this thesis.
The Chinese construction equipment firms appear to rely on the resources and capabilities that are well developed in their home market when internationalizing. Their core business practices are adhered to and little to no changes are made upon entry. Firms rely on their resources and capabilities in the same manner for both countries, for example: XCMG houses their research and development facilities in China, while Sany diversifies these same facilities by having international locations. Both companies continued these same practices upon entry into Brazil.
A unique discovery was made in the resources and capabilities section of the empirical study. It was believed that because of high tariffs, and barriers when exporting goods into Brazil, construction equipment firms would open manufacturing plants in Brazil to avoid border complications and expenses. However, this was not the case. It appears that when choosing an entry strategy on manufacturing, each company evaluates the viability of opening manufacturing facilities internationally based on their domestic resources and capabilities. If the company possesses a core competency in manufacturing at home, then they are more likely to keep manufacturing in house, as opposed to attempting to transfer these capabilities to another facility. When deciding whether to open a new facility abroad, companies are likely to either rely on a cost- benefit approach, or simply on the resources they currently possess.
China has many similarities between themselves and other emerging economies, both socially and economically. The social aspects of these similarities were found in the institutional-based view. On the other hand, the industry-based view revealed that construction equipment firms in China face heavy competition, while maintaining steady industry growth. A large reason for this serge in growth is due to the influx of Michael Halak | Charlene Reinke 77
government monies allocated to infrastructure from the stimulus package. The researched firms are thriving in the Chinese market despite fierce competition, and have learned how to maximize their resources and capabilities to flourish in the current industry environment. With other emerging country markets sharing similar industry trends, it is conceivable that Chinese construction firms will thrive in these markets too. The accumulations of the aforementioned factors are the main take-off drives that allow Chinese firms to explore exiting their market. Many emerging economies appear to be attractive to the Chinese because there seems to be little to no adjustments required when entering, therefore making it an economical choice.
Chinese construction equipment firms are beginning to follow their western counterparts by employing many of the same strategies. Firms are beginning to not only offer, but also commit to providing timely and efficient customer service. Warranties are being offered with several service follow-ups, and commitments have been made to provide spare parts when needed. Customer’s perceptions of quality are rising and Chinese equipment is gaining value in the eyes of the consumer. Firms are also beginning to offer full services for their products, including financing and after sales services. Furthermore, Chinese construction equipment firms are strategically building research and development facilities internationally to benefit from cultural ingenuities that foster innovation.
In summation, Chinese construction equipment firms maintain purpose in their decision- making, which is reflected strategically. They have begun to emerge from a past of inferior products offering and cost savings, in which quality and customer service were sacrificed for the bottom line. Ultimately they have learnt how to create construction equipment in an efficient and inexpensive manner, while managing to produce a more reliable product, and services that consumers demand. Chinese construction equipment firms are strong competitors in their industry today, and will continue to create more value for their consumers in the future.
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7 RECOMMENDATIONS
RECOMMENDATIONS FOR:
VOLVO CONSTRUCTION EQUIPMENT
REGION INTERNATIONAL
This chapter encompasses the researcher’s recommendations to Volvo Construction Equipment and Region International. The recommendations are derived from the results of the empirical data and analysis of this thesis.
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7.1 RECOMMENDATIONS
Over the past few years the global construction equipment market has changed dramatically with the recent global recession only acting to magnify the effects. Since China’s inception into the WTO in 2001, and recent adoption of an open market economy, the industry has been significantly reshaped with regard to competition and profit margins. Chinese construction equipment firms who once offered low priced, lower quality machines, with little to no after-sales service, started to re-invent themselves and create havoc for foreign multinationals. Today these companies still offering products that are low priced, but now have improved quality and reliability, and offer an extensive array of after sales services.
With Chinese equipment rapidly improving over the last decade, many customers around the world have begun to take notice of their overall customer value. In the West, most customers are concerned about the total cost of ownership of an excavator over its ten to twenty year life span. To serve this type of market, most companies design equipment to be more capital intensive upfront, but more cost efficient to own over the long term. These premium machines often include state-of-the-art technology, and are supported by a network of dealers with divisions responsible for rebuilding and extending the life of big machines.
China, like many developing countries (including Brazil), is not an ordinary market. The average construction equipment customer in China thinks more short term, looking to purchase a basic machine with lower upfront cost, while saving enough money to buy a second machine in the future. This way one unit is operational, while the other is being repaired inexpensively. These types of machines are almost seen as being disposable, with the equipment often being dumped or sold after a couple of major jobs. This all leads us to the big question: how does a company that extols its innovation, quality, durability, technology and dealer support, go head-to-head against companies that are ready to sell two disposable machines for the price of one good one?
When examining this question there are a number of aspects that one must keep in mind:
1. The solution must not demean, weaken or undermine the VCE brand or corporate image in any way.
2. Any recommendation that involves VCE’s sister company Shandong Lingong (SDLG) or the creation/acquisition of a new construction equipment firm will involve some level of cannibalism, where VCE may loose sales because they are taken by their affiliate company. Though this is not ideal, the end result is intended to boost the overall earning power of VCE combined with their affiliated firm.
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3. Though a number of the solutions are already being utilized by VCE, the intent in examining them is to emphasize their importance, suggest greater focus in the area, or suggest changes that may make them more profitable.
4. The majority of the recommendations are based on solving VCE’s largest issue in Brazil and emerging country markets, which is price.
7.1.1 Volvo Construction Equipment: Region International Recommendations
Focus on Refurbished Machines and Rentals
Focusing on selling second-hand, factory refurbished machines and equipment rentals in both Brazil and other emerging country markets will allow VCE to offer a lower priced alternative to regions that may be sparse with regard to cash flow. It will also let VCE sell off some of their dormant equipment, which is likely to have accumulated during the resent recession. Though VCE is currently active in these two areas, both may require increased utilized in the future.
Focus on Shandong Lingong (SDLG) Brand
The Brazilian market is similar to that of China’s, with many customers’ preferring basic low technology machines that cost much less than products produced by Western construction equipment firms. With this being said, SDLG is in a better position to succeed in many emerging markets and VCE should support them in anyway that they can.
Start a Large Scale Marketing Campaign
Whether you are a customer that believes in purchasing cheap, technology scares machinery, or thinks it is smarter to buy higher priced, superior quality equipment, all of these customers have the same thing in common, they all want the best value for their money. Most often, value coincides with the amount of money spent per foot of earth moved, and the total useful lifetime of the machine. VCE could employ a marketing campaign utilizing statistics to change customer’s perceptions and make them see the value in VCE products. It would act to educate consumers about their equipment and stress the value added features that save them time and money in the long run. VCE would essentially attempt to change the Brazilian market from the inside out, by altering the perceived level of customer value associated with their products.
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7.1.2 Volvo Construction Equipment: Corporate Recommendations
Acquire Another Chinese Manufacturer or Start One of Your Own
With the success of SDLG it may be wise to either acquire a second Chinese construction equipment firm, or simply start one of VCE’s own.
VCE could use its previous experience gained from the joint venture purchase of SDLG, to aid in its acquisition of a new Chinese firm. However, complex acquisitions can often take managements attention away from other beneficial means of building business. Though it is never easy to purchase a healthy Chinese firm, especially in the construction equipment industry, it would help to expand the business and give VCE another log in a very large fire. If the right opportunity comes along (an underperforming factory, for example) and the government approves the purchase, it may end up being quite lucrative in the long run.
If VCE decided to launch a new OEM22 line of construction equipment, they would carry a different brand name and use local designs, although with inspectors and other “soft inputs” from VCE. It would not be required to own the factory, but simply contract the production capacity. The separate brand would create a division between the high quality standard of VCE, while offering several of the advantages of working with the international brand. VCE would offer the new brand alongside its own in China, eventually making its way to Brazil and other developing markets around the world.
Create Synergies23 Between VCE & SDLG and Study Chinese Equipment Firms
VCE could create synergies between their two brands in which they would better share information and work together, with the end goal being to increase the level of knowledge and efficiency within both companies. It may even be possible for SDLG to develop parts for a few of VCE’s machines.
As a number of Chinese construction equipment firms have become relatively good over the past decade, VCE could study these companies operations, including their product designs, with the hope of driving down costs and encouraging innovation.
22 OEM (original equipment manufacturer) - the company that acquires a firm and refuses to incorporates it into its own brand name. 23 Synergies - Cooperative interaction among groups, especially among the acquired subsidiaries or merged parts of a corporation that creates an enhanced combined effect. Michael Halak | Charlene Reinke 82
Michael Halak | Charlene Reinke 83
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xxxvi Ibid. xxxvii Ibid. xxxviii Ibid. xxxix Merriam, S. (1992). Qualitative Research and Case Study Applications in Education. xl Ibid. xli Ibid. xlii Ibid. xliii Ibid. xliv dictionary.com. "Internationalization." Retrieved March 2, 2011, from http://dictionary.reference.com/browse/internationalization. xlv Cavusgil, S. T. (1991). "Internationalization of business and economic programs: issues and perspectives." Retrieved March 7, 2011, from http://findarticles.com/p/articles/mi_m1038/is_n6_v34/ai_11610803/. xlvi Johanson, J. and J.-E. Vahlne (2009). "The Uppsala internationalization process model revisited: From liability of foreignness to liability of outsidership." Journal of International Business Studies: 1411-1431. xlvii Ibid. xlviii Ibid. xlix Kazlova, A. and B. Ullmann (2010). When Wind Goes Vertical: Can a start-up company make use of its born global potential to revolutionize the wind turbine industry?, Linnaeus. Masters: 169. l Ibid. li Ibid. lii Ibid. liii Johanson, J. and J.-E. Vahlne (2009). "The Uppsala internationalization process model revisited: From liability of foreignness to liability of outsidership." Journal of International Business Studies: 1411-1431. liv Ibid.
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lv Kazlova, A. and B. Ullmann (2010). When Wind Goes Vertical: Can a start-up company make use of its born global potential to revolutionize the wind turbine industry?, Linnaeus. Masters: 169. lvi Ibid. lvii Johanson, J. and J.-E. Vahlne (2009). "The Uppsala internationalization process model revisited: From liability of foreignness to liability of outsidership." Journal of International Business Studies: 1411-1431. lviii Ibid. lix Ibid. lx Ibid. lxi Jansson, H. and S. Soderman Initial Internationalization of Chinese Privately-Owned Enterprises - The Take-off Process. Kalmar, Linnaeus University: 10. lxii Ibid. lxiii Ibid. lxiv Ibid. lxv Ibid. lxvi Ibid. lxvii Jansson, H. (2009). International Business Marketing in Emerging Country Markets: The Third Wave of Internationalization of Firms. Cheltrnham, Edward Elgar Publishing Limited. lxviii Ibid. lxix Ibid. lxx Ibid. lxxi Grant, R. (2010). Contemporary Strategic Analysis. lxxii Y.Yamakawa, M.Peng, et al. (2008). "What Drives New Venture to Internationalize from Emerging to Developed Economies?" Entrepreneurship Theory and Practice 1042(2587): 17. lxxiii Porter, M. (1980). "Industry Structure and Competitive Strategy: Keys to Profitability." Financial Analysts Journal 36(4): 30-41.
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lxxiv Y.Yamakawa, M.Peng, et al. (2008). "What Drives New Venture to Internationalize from Emerging to Developed Economies?" Entrepreneurship Theory and Practice 1042(2587): 17. lxxv Porter, M. (1980). "Industry Structure and Competitive Strategy: Keys to Profitability." Financial Analysts Journal 36(4): 30-41. , Y.Yamakawa, M.Peng, et al. (2008). "What Drives New Venture to Internationalize from Emerging to Developed Economies?" Entrepreneurship Theory and Practice 1042(2587): 17. lxxvi Grant, R. (2010). Contemporary Strategic Analysis. lxxvii Ibid. lxxviii Ibid. lxxix Ibid. lxxx Ibid. lxxxi Ibid. lxxxii Ibid. lxxxiii Ibid. lxxxiv Ibid. lxxxv Ibid. lxxxvi Y.Yamakawa, M.Peng, et al. (2008). "What Drives New Venture to Internationalize from Emerging to Developed Economies?" Entrepreneurship Theory and Practice 1042(2587): 17. lxxxvii Jansson, H. (1997b). International Business Strategy in Emerging Country Markets: The Insitutional Network Approach. lxxxviii Ibid. lxxxix Ibid. xc Y.Yamakawa, M.Peng, et al. (2008). "What Drives New Venture to Internationalize from Emerging to Developed Economies?" Entrepreneurship Theory and Practice 1042(2587): 17. xci Jansson, H. (1997b). International Business Strategy in Emerging Country Markets: The Insitutional Network Approach.
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xcii Chermack, T. and B. Kasshanna (2007). "The Use and Misuse of SWOT Analysis and Implications for HRD Professionals." Human Resources Development International 10(4): 383-399. , Y.Yamakawa, M.Peng, et al. (2008). "What Drives New Venture to Internationalize from Emerging to Developed Economies?" Entrepreneurship Theory and Practice 1042(2587): 17. xciii Chermack, T. and B. Kasshanna (2007). "The Use and Misuse of SWOT Analysis and Implications for HRD Professionals." Human Resources Development International 10(4): 383-399. xciv Grant, R. (2010). Contemporary Strategic Analysis. xcv Ibid. xcvi Ibid. xcvii Ibid. xcviii Ibid. xcix Ibid. c Ibid. ci Ibid. cii Ibid. ciii Ibid. civ Ibid. cv Ibid. cvi Ibid. cvii Ibid. cviii Ibid. cix Ibid. cx Ibid. cxi Ibid.
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cxii Y.Yamakawa, M.Peng, et al. (2008). "What Drives New Venture to Internationalize from Emerging to Developed Economies?" Entrepreneurship Theory and Practice 1042(2587): 17. cxiii Ibid. cxiv datamonitor.com (2011). "Machinery in China." Retrieved May 7, 2011, from http://wenku.baidu.com/view/4fed6b91daef5ef7ba0d3c25.html. cxv Ibid. cxvi Ibid. cxvii Ibid. cxviii Ibid. cxix Ibid. cxx QuickMBA (2010). "Porter's five Forces." Retrieved April 13, 2010, from http://www.quickmba.com/strategy/porter.shtml. cxxi datamonitor.com (2011). "Machinery in China." Retrieved May 7, 2011, from http://wenku.baidu.com/view/4fed6b91daef5ef7ba0d3c25.html. cxxii Ibid. cxxiii Haisten, M. (2009) Caterpillar Inc. 2011 cxxiv Aman Begliyev, C. L. L., Emill Melliz, Jia Jia, Paul Young, Ruosi (Rose) Huang (2009) CAT. 10 cxxv datamonitor.com (2011). "Machinery in China." Retrieved May 7, 2011, from http://wenku.baidu.com/view/4fed6b91daef5ef7ba0d3c25.html. cxxvi Aman Begliyev, C. L. L., Emill Melliz, Jia Jia, Paul Young, Ruosi (Rose) Huang (2009) CAT. 10 cxxvii Foundation, I. B. E. (2009). "Construction Equipment." Retrieved May 7, 2011, from http://www.scribd.com/doc/34678605/Construction-Equipment-171109. cxxviii datamonitor.com (2011). "Machinery in China." Retrieved May 7, 2011, from http://wenku.baidu.com/view/4fed6b91daef5ef7ba0d3c25.html. cxxix QuickMBA (2010). "Porter's five Forces." Retrieved April 13, 2010, from http://www.quickmba.com/strategy/porter.shtml.
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cxxx datamonitor.com (2011). "Machinery in China." Retrieved May 7, 2011, from http://wenku.baidu.com/view/4fed6b91daef5ef7ba0d3c25.html. cxxxi (2009). "Construction Machinery in China." Retrieved April 2, 2011, from http://www.cceddie.net/News/view.asp?findid=7741. cxxxii Haisten, M. (2009) Caterpillar Inc. 2011, cxxxiii datamonitor.com (2011). "Machinery in China." Retrieved May 7, 2011, from http://wenku.baidu.com/view/4fed6b91daef5ef7ba0d3c25.html. cxxxiv Ibid. cxxxv QuickMBA (2010). "Porter's five Forces." Retrieved April 13, 2010, from http://www.quickmba.com/strategy/porter.shtml. cxxxvi (2009). "Construction Machinery in China." Retrieved April 2, 2011, from http://www.cceddie.net/News/view.asp?findid=7741. cxxxvii Ibid. cxxxviii datamonitor.com (2011). "Machinery in China." Retrieved May 7, 2011, from http://wenku.baidu.com/view/4fed6b91daef5ef7ba0d3c25.html. cxxxix Intelligence, C. R. (2010) Research Report on Chinese Construction Machinery Industry, 2010-2011. 2011, cxl Ibid. cxli Ibid. cxlii (2009). "Construction Machinery in China." Retrieved April 2, 2011, from http://www.cceddie.net/News/view.asp?findid=7741. cxliii datamonitor.com (2011). "Machinery in China." Retrieved May 7, 2011, from http://wenku.baidu.com/view/4fed6b91daef5ef7ba0d3c25.html. cxliv Ibid. cxlv QuickMBA (2010). "Porter's five Forces." Retrieved April 13, 2010, from http://www.quickmba.com/strategy/porter.shtml. cxlvi datamonitor.com (2011). "Machinery in China." Retrieved May 7, 2011, from http://wenku.baidu.com/view/4fed6b91daef5ef7ba0d3c25.html. cxlvii Intelligence, C. R. (2010) Research Report on Chinese Construction Machinery Industry, 2010-2011. 2011,
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cxlviii Stewart, L. (2010). "Battle for China’s Construction-Machinery Market Will Turn on Rising Quality Expectations." Retrieved May 7, 2011, from http://www.forconstructionpros.com/interactive/2010/08/26/battle-for- china%E2%80%99s-construction-machinery-market-will-turn-on-rising-quality- expectations/. cxlix Ibid. cl datamonitor.com (2011). "Machinery in China." Retrieved May 7, 2011, from http://wenku.baidu.com/view/4fed6b91daef5ef7ba0d3c25.html. cli Aman Begliyev, C. L. L., Emill Melliz, Jia Jia, Paul Young, Ruosi (Rose) Huang (2009) CAT. 10 clii datamonitor.com (2011). "Machinery in China." Retrieved May 7, 2011, from http://wenku.baidu.com/view/4fed6b91daef5ef7ba0d3c25.html. cliii Ibid. cliv Ibid. clv QuickMBA (2010). "Porter's five Forces." Retrieved April 13, 2010, from http://www.quickmba.com/strategy/porter.shtml. clvi datamonitor.com (2011). "Machinery in China." Retrieved May 7, 2011, from http://wenku.baidu.com/view/4fed6b91daef5ef7ba0d3c25.html. clvii Ibid. clviii Incorporated, E. P. (2011). "Emission Standards: Europe: Nonroad Engines." Retrieved April 6, 2011, from http://www.dieselnet.com/standards/eu/nonroad.php. clix Ibid. clx Incorporated, E. P. (2011). "Emission Standards: China: Nonroad Engines." Retrieved April 12, 2011, from http://www.dieselnet.com/standards/cn/nonroad.php. clxi Lam Yow Thim, C. Z. (2004). "The development of the construction legal system in China." Construction Management and Economics 22: 9. clxii Ibid. clxiii KHL. Retrieved April 15, 2011, from http://www.khl.com/magazines/international- construction/detail/item30832/Construction-companies-most-likely-to-pay-bribes/. clxiv WTO (2011). "China and the WTO." Retrieved April 3, 2011, from http://www.wto.org/english/thewto_e/countries_e/china_e.htm.
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clxv Administration, D. o. C. I. T. (2001). "Construction Equipment." Retrieved April 3, 2011, from http://www.mac.doc.gov/China/Docs/industryfactsheets/constructioneq.htm. clxvi KHL (2011). "Construction equipment manufacturing on the rise in China." Retrieved April 5, 2011, from http://www.khl.com/magazines/international- construction/detail/item61635/Construction-equipment-manufacturing-on-the-rise-in- China/. clxvii Cole, L. (2009). "WTO tells China it must do more to combat copyright infringement." Retrieved April 7, 2011, from http://venturesdialogue.ca/mainland- china/2009/634/. clxviii Hampton, T. C. (2010). "Out-of-Court Settlement Bars JCB From Naming Asian Machinery Copycat." Engeneering News-Record 265(12). clxix Hofstede, G. (2009). "Geert Hofsted Cultural Dimensions (China)." Retrieved April 9, 2011, from http://www.geert-hofstede.com/hofstede_china.shtml. clxx Ibid. clxxi Hays, J. (2008). "Chinese Schools: Exams, Curriculum, Firecrackers and Cheating." Retrieved April 9, 2011, from http://factsanddetails.com/china.php?itemid=338&catid=13&subcatid=82. clxxii Ibid. clxxiii Volvo Construction Internal Document “EN_U_2011_02_18 Emission Reg plan .xls” clxxiv CEA, C. E. A. (2009). "Scoping Visit to Brazil." Retrieved April 12, 2011, from http://www.coneq.org.uk/Brazil_docs/Company_Visits.pdf. clxxv Business.Anti.Corruption (2011). "Brazil Country Profile." Retrieved April 15, 2011, from http://www.coneq.org.uk/Brazil_docs/Company_Visits.pdf. clxxvi WTO (2011). "Brazil and the WTO." Retrieved April 14, 2011, from http://www.wto.org/english/thewto_e/countries_e/brazil_e.htm. clxxvii TRALAC (2011). "WTO urges Brazil to reduce tariffs in effort to spur trade." Retrieved April 13, 2011, from http://www.tralac.org/cgi- bin/giga.cgi?cmd=cause_dir_news_item&cause_id=1694&news_id=62414&cat_id=. clxxviii CEA, C. E. A. (2009). "Scoping Visit to Brazil." Retrieved April 12, 2011, from http://www.coneq.org.uk/Brazil_docs/Company_Visits.pdf. clxxix Ibid.
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clxxx British.Embassy (2011). "Innovation in Brazil." Retrieved April 15, 2011, from http://ukinbrazil.fco.gov.uk/en/about-us/working-with-brazil/science- innovation/innovation-in-brazil/. clxxxi Hofstede, G. (2009). "Greert Hofstede Cultural Dimensions (Brazil)." Retrieved April 14, 2011, from http://www.geert-hofstede.com/hofstede_brazil.shtml. clxxxii Ibid. clxxxiii FMPSD (2011). "Education." Retrieved April 16, 2011, from http://www.fmpsd.ab.ca/schools/df/brazil/meducation.htm. clxxxiv Ibid. clxxxv Ibid. clxxxvi Group, S. (2011). "Corporate Overview." Retrieved March 15, 2011, from http://www.sanygroup.com/group/en-us/about/group.htm. clxxxvii Group, S. (2011). "About Sany." Retrieved March 15, 2011, from http://www.sanygroup.com/group/en-us/about/zhonggong.htm. clxxxviii Ibid. clxxxix Group, S. (2011). "Corporate Overview." Retrieved March 15, 2011, from http://www.sanygroup.com/group/en-us/about/group.htm. cxc Ibid. cxci Economico, C. B.-C. d. D. (2010). "Sany appointing 11 national distributors and consolidation of manufacturing facilities in Brazil." Retrieved March 15, 2011, from http://www.cbcde.org.br/home/noticias_detalhe.asp?paCodNoticia=3986. cxcii Tecnologia, M. (2010). "Sany initiates the assembly of equipment in the country." Retrieved March 15, 2011, from http://www.revistamt.com.br/index.php?option=com_conteudo&task=viewMateria&id=4 95. cxciii Ibid. cxciv Group, S. (2011). "Corporate Overview." Retrieved March 15, 2011, from http://www.sanygroup.com/group/en-us/about/group.htm. cxcv Online, C. C. M. B. (2011). "Annual Sales of Sany Excavators Tops 12,000 Units." Retrieved March 15, 2011, from http://www.cmbol.com/news/detail/2011/01/2011012016000996.shtm.
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cxcvi Group, S. (2011). "About Sany." Retrieved March 15, 2011, from http://www.sanygroup.com/group/en-us/about/zhonggong.htm. cxcvii Wang Qian, J. C. (2011). "Sany Heavy Industry Looks for Overseas Expansion." Retrieved March 15, 2011, from http://www.chinadaily.com.cn/bizchina/2011- 03/21/content_12214929.htm. cxcviii HKTDC (2011). "Sany Heavy plans Brazil listing for US$ 300 million ". Retrieved March 15, 2011, from http://www.hktdc.com/info/vp/a/emk/en/1/2/1/1X07C9IR/Sany- Heavy-Plans-Brazil-Listing-For-US-300-Million.htm. cxcix Economico, C. B.-C. d. D. (2011). "Sany has first excavator mounted in Brazil." from http://www.cbcde.org.br/home/noticias_detalhe.asp?paCodNoticia=4062. cc Group, S. (2011). "Corporate Overview." Retrieved March 15, 2011, from http://www.sanygroup.com/group/en-us/about/group.htm. cci Wang Qian, J. C. (2011). "Sany Heavy Industry Looks for Overseas Expansion." Retrieved March 15, 2011, from http://www.chinadaily.com.cn/bizchina/2011- 03/21/content_12214929.htm. ccii Economico, C. B.-C. d. D. (2010). "Sany appointing 11 national distributors and consolidation of manufacturing facilities in Brazil." Retrieved March 15, 2011, from http://www.cbcde.org.br/home/noticias_detalhe.asp?paCodNoticia=3986. cciii china, B. (2010). "Sany to Invest $200 million in Brazil." Retrieved March 15, 2011, from http://en.21cbh.com/HTML/2010-2-26/4NMDAwMDE2NjU4NA.html. cciv Construction Equipment Association (CEA), S. b. U. T. I. A. E. (2009) Scoping Visit to Brazil. 46 ccv Group, S. (2011). "Corporate Overview." Retrieved March 15, 2011, from http://www.sanygroup.com/group/en-us/about/group.htm. ccvi Group, S. (2011). "About Sany." Retrieved March 15, 2011, from http://www.sanygroup.com/group/en-us/about/zhonggong.htm. ccvii Online, C. C. M. B. (2010). "Sany’s First Electric Excavator Rolled Off the Production Line." Retrieved 2011, from http://www.cmbol.com/news/detail/2010/12/2010122210092929.shtm. ccviii Ibid. ccix Ibid. ccx Ibid.
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ccxi America, S. "About Sany America." Retrieved March 15, 2011, from http://www.sanyamerica.com/about-sany-america.php. ccxii Group, S. (2010). "Sany building a world-class service." Retrieved March 15, 2011, from http://www.sanygroup.com/abroad/brazil/pt-pt/media/23699_for_news_text.htm. ccxiii Group, S. (2011). "Service Commitment." Retrieved March 15, 2011, from http://www.sanygroup.com/group/en-us/service/promises.htm. ccxiv Ibid. ccxv Tecnologia, M. (2010). "Sany initiates the assembly of equipment in the country." Retrieved March 15, 2011, from http://www.revistamt.com.br/index.php?option=com_conteudo&task=viewMateria&id=4 95. ccxvi Economico, C. B.-C. d. D. (2011). "Sany has first excavator mounted in Brazil." from http://www.cbcde.org.br/home/noticias_detalhe.asp?paCodNoticia=4062. ccxvii Group, S. (2010). "Sany Auto Finance Co., Ltd. Opens- Perfect Fusion of Industrial Capital with Financial Capital." Retrieved March 15, 2011, from http://www.sanygroup.com/group/en-us/media/23155_for_news_text.htm. ccxviii Ibid. ccxix Group, S. (2011). "About Sany." Retrieved March 15, 2011, from http://www.sanygroup.com/group/en-us/about/zhonggong.htm. ccxx HKTDC (2011). "Sany Heavy plans Brazil listing for US$ 300 million ". Retrieved March 15, 2011, from http://www.hktdc.com/info/vp/a/emk/en/1/2/1/1X07C9IR/Sany- Heavy-Plans-Brazil-Listing-For-US-300-Million.htm. ccxxi Wang Qian, J. C. (2011). "Sany Heavy Industry Looks for Overseas Expansion." Retrieved March 15, 2011, from http://www.chinadaily.com.cn/bizchina/2011- 03/21/content_12214929.htm. ccxxii America, S. "About Sany America." Retrieved March 15, 2011, from http://www.sanyamerica.com/about-sany-america.php. ccxxiii Group, S. (2011). "About Sany." Retrieved March 15, 2011, from http://www.sanygroup.com/group/en-us/about/zhonggong.htm. ccxxiv Group, S. (2010). "Sany building a world-class service." Retrieved March 15, 2011, from http://www.sanygroup.com/abroad/brazil/pt-pt/media/23699_for_news_text.htm. ccxxv Yanfang Cai, T. H., Biao Lui, Xin Zou, Tengfei Ge (2011) Sany Worldwide. Sany 62m Concrete Pump truck Sent to Fukushima Nuclear Power Plant at request of Tokyo Electric Power Volume 3, Michael Halak | Charlene Reinke 103
ccxxvi Group, S. (2011). "Sany Group Mission." Corporate Culture. Retrieved March 15, 2011, from http://www.sanygroup.com/group/en-us/about/culture.htm. ccxxvii Group, S. (2011). "Sany Heavy Industry Rated "Listed Company with Greatest Growth Potential"." Top Ten Events and Honors of Sany Group in 2010. Retrieved March 15, 2011, from http://www.sanygroup.com/abroad/india/media/24530_for_news_text.htm. ccxxviii XCMG (2010). "About Us." Retrieved March 17, 2011, from http://www.xcmg.com/en-us/aboutus/qiyegaikuang.htm. ccxxix Ju Chunanjiang, L. C. (2011). "XCMG set for internationalisation." Retrieved March 17, 2011, from http://www.chinadaily.com.cn/business/2011- 03/21/content_12214917.htm. ccxxx XCMG (2011). "About XCMG." Retrieved March 17, 2011, from http://www.xcmgbrasil.ind.br/xcmg.html. ccxxxi Constructionweekonline.com (2011). "XCMG making $150 million R&D investment." Retrieved March 17, 2011, from http://www.cmbol.com/news/detail/2011/01/2011011814594053.shtm. ccxxxii Macauhub (2011). "China’s Xuzhou Construction Machinery (XCMG) to open branch in Brazil." Retrieved March 17, 2011, from http://www.cmbol.com/news/detail/2011/02/2011022509270819.shtm. ccxxxiii XCMG (2011). "XCMG took part in 2011 American Engineering Machinery Exposition CONEXPO." News. Retrieved March 17, 2011, from http://www.xcmg.com/en-us/aboutus/10941_for_xugongxinwen_text.htm. ccxxxiv International, E. (2008). "XCMG Steps Up Overseas Presence." Industrial News. Retrieved March 17, 2011, from http://www.evangelchina.com/shownews.asp?ID=47. ccxxxv XCMG (2010). "To Cooperate For A brighter Future." XCMG 2010 Bauma Shanghai. Retrieved March 17, 2011, from http://www.xcmg.com/en- us/aboutus/10552_for_BaumaShanghai_text.htm. ccxxxvi XCMG (2011). "About XCMG." Retrieved March 17, 2011, from http://www.xcmgbrasil.ind.br/xcmg.html. ccxxxvii Tecnologia, M. (2010). "XCMG announces three heavy machinery factories and three parts distribution centers in Brazil." Investments. Retrieved March 17, 2011, from http://www.revistamt.com.br/index.php?option=com_conteudo&task=viewNoticia&id=7 86. ccxxxviii Pesados, J. R. t. (2009). "HEAVY MACHINERY SECTOR ATTRACTS THE CHINESE GIANT COUNTRY " News & Events. Retrieved March 17, 2011, from http://www.jrotaner.com.br/ingles/noticias.php?id=71. Michael Halak | Charlene Reinke 104
ccxxxix Systems, O. E. (2009). "Construction Equipment (XCMG)." Products. Retrieved March 17, 2011, from http://www.orient-power.com/products/product.aspx?Prod_ID=58. ccxl XCMG (2010). "XCMG leads technical development of China earthmoving machinery products to realize historic breakthroughs – XCMG loader LW1200K, the loader with highest tonnage in China, launches brilliantly." XCMG 2010 Bauma Shanghai. Retrieved March 17, 2011, from http://www.xcmg.com/en- us/aboutus/10628_for_BaumaShanghai_text.htm. ccxli XCMG (2011). "About XCMG." Retrieved March 17, 2011, from http://www.xcmgbrasil.ind.br/xcmg.html. ccxlii Tecnologia, M. (2010). "XCMG announces three heavy machinery factories and three parts distribution centers in Brazil." Investments. Retrieved March 17, 2011, from http://www.revistamt.com.br/index.php?option=com_conteudo&task=viewNoticia&id=7 86. ccxliii Communication, L. F. D. (2009). "Successful and XCMG invest in Suape Complex." News. Retrieved March 17, 2011, from http://www.agitz.com.br/exito/noticias_interna.php?idNoticia=16. ccxliv Tecnologia, M. (2010). "XCMG announces three heavy machinery factories and three parts distribution centers in Brazil." Investments. Retrieved March 17, 2011, from http://www.revistamt.com.br/index.php?option=com_conteudo&task=viewNoticia&id=7 86. ccxlv Construction Equipment Association (CEA), S. b. U. T. I. A. E. (2009) Scoping Visit to Brazil. 46 ccxlvi Pesados, J. R. t. (2009). "HEAVY MACHINERY SECTOR ATTRACTS THE CHINESE GIANT COUNTRY " News & Events. Retrieved March 17, 2011, from http://www.jrotaner.com.br/ingles/noticias.php?id=71. ccxlvii XCMG (2010). "About Us." Retrieved March 17, 2011, from http://www.xcmg.com/en-us/aboutus/qiyegaikuang.htm. ccxlviii Vue, C. (2011). "XCMG 2010 Earnings Up 68%." Retrieved March 17, 2011, from http://www.cmbol.com/news/detail/2011/03/2011031517415647.shtm. ccxlix Ibid. ccl Ju Chunanjiang, L. C. (2011). "XCMG set for internationalisation." Retrieved March 17, 2011, from http://www.chinadaily.com.cn/business/2011- 03/21/content_12214917.htm. ccli Xinhua (2009). "China's XCMG Will Set Up Factories in Brazil Recently." Retrieved March 17, 2011, from http://info.e-to-china.com/investment_guide/57331.html. Michael Halak | Charlene Reinke 105
cclii XCMG (2010). "XCMG ranked 9th among top 10 construction machinery manufacturers." News. Retrieved March 17, 2011, from http://www.xcmg.com/en- us/aboutus/9213_for_xugongxinwen_text.htm. ccliii Brasil, X. "About Us." Retrieved March 17, 2011, from http://www.xcmgbrasil.ind.br/xcmg.html. ccliv Tecnologia, M. (2010). "XCMG announces three heavy machinery factories and three parts distribution centers in Brazil." Investments. Retrieved March 17, 2011, from http://www.revistamt.com.br/index.php?option=com_conteudo&task=viewNoticia&id=7 86. cclv Ju Chunanjiang, L. C. (2011). "XCMG set for internationalisation." Retrieved March 17, 2011, from http://www.chinadaily.com.cn/business/2011- 03/21/content_12214917.htm. cclvi Tecnologia, M. (2010). "New brand comes to competitive market." Retrieved March 17, 2011, from http://www.revistamt.com.br/index.php?option=com_conteudo&task=viewMateria&id=4 54. cclvii Brasil, X. "About Us." Retrieved March 17, 2011, from http://www.xcmgbrasil.ind.br/xcmg.html. cclviii Systems, O. E. (2009). "Construction Equipment (XCMG)." Products. Retrieved March 17, 2011, from http://www.orient-power.com/products/product.aspx?Prod_ID=58. cclix Ibid. cclx XCMG (2010). "About Us." Retrieved March 17, 2011, from http://www.xcmg.com/en-us/aboutus/qiyegaikuang.htm. cclxi Constructionweekonline.com (2011). "XCMG making $150 million R&D investment." Retrieved March 17, 2011, from http://www.cmbol.com/news/detail/2011/01/2011011814594053.shtm. cclxii Big, T. (2011). "Xuzhou Construction Machinery Group Inc." Retrieved March 17, 2011, from http://www.9346.tradebig.com/. cclxiii XCMG (2011). "About XCMG." Retrieved March 17, 2011, from http://www.xcmgbrasil.ind.br/xcmg.html. cclxiv XCMG, G. "XCMG Brazil." Retrieved March 17, 2011, from http://www.guindastexcmg.com/xcmg_brasil_34.html. cclxv Systems, O. E. (2009). "Construction Equipment (XCMG)." Products. Retrieved March 17, 2011, from http://www.orient-power.com/products/product.aspx?Prod_ID=58. Michael Halak | Charlene Reinke 106
cclxvi XCMG (2011). "About XCMG." Retrieved March 17, 2011, from http://www.xcmgbrasil.ind.br/xcmg.html. cclxvii XCMG (2010). "To Cooperate For A brighter Future." XCMG 2010 Bauma Shanghai. Retrieved March 17, 2011, from http://www.xcmg.com/en- us/aboutus/10552_for_BaumaShanghai_text.htm. cclxviii Online, C. C. M. B. (2011). "XCMG doubles the sale in January 2011." Retrieved March 17, 2011, from http://www.cmbol.com/news/detail/2011/02/2011021514215168.shtm. cclxix XCMG (2011). "XCMG took part in 2011 American Engineering Machinery Exposition CONEXPO." News. Retrieved March 17, 2011, from http://www.xcmg.com/en-us/aboutus/10941_for_xugongxinwen_text.htm. cclxx XCMG (2010). "XCMG New Product Promotion and User Experience Day Held in Brazil." News. Retrieved March 17, 2011, from http://www.xcmg.com/en- us/aboutus/10032_for_xugongxinwen_text.htm. cclxxi Ibid. cclxxii Ibid. cclxxiii Online, C. C. M. B. (2011). "XCMG doubles the sale in January 2011." Retrieved March 17, 2011, from http://www.cmbol.com/news/detail/2011/02/2011021514215168.shtm. cclxxiv XCMG (2010). "XCMG Excavators Making Active Steps and Great Performance in Exploring International Markets." News. Retrieved March 17, 2011, from http://www.xcmg.com/en-us/aboutus/9250_for_xugongxinwen_text.htm. cclxxv Tecnologia, M. (2010). "New brand comes to competitive market." Retrieved March 17, 2011, from http://www.revistamt.com.br/index.php?option=com_conteudo&task=viewMateria&id=4 54. cclxxvi XCMG (2010). "About Us." Retrieved March 17, 2011, from http://www.xcmg.com/en-us/aboutus/qiyegaikuang.htm. cclxxvii XCMG (2011). "About XCMG." Retrieved March 17, 2011, from http://www.xcmgbrasil.ind.br/xcmg.html.
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