Machinery sector moves with the currency markets
What a weaker euro means for the construction sector
Competitiveness in the construction machinery sector is certainly a talking point in the region thanks to the euro (EUR) falling against the US dollar (USD). However as Construction Machinery ME discovers, while the industry’s sales figures are affected by currency fluctuations, this is not the decisive factor.
The impacts of a weaker EUR are certainly being felt here in the MENA region, explains Saif Khan, Sales Manager, GENAVCO, but as he and others describe, the situation is more complex.
“Our customers are very educated, they know the EUR is weak, so we pass on the benefit of to them. Dubai is not like other cities, you will see in most cities they will not reduce the price of equipment – it’s a totally different field here, customers expect that with a weaker currency benefits will be passed on to them.”
Saif Khan is quick to point out another curious factor pertaining to the construction sector in this region: “When the currency goes back up, buyers don’t expect you to also increase the price, so it’s a very tricky situation.
“You have advantages as well as disadvantages, but in general, you know customers are wanting benefits.”
The key to managing this situation, he points out, is to find the middle ground. There is going to be a period where suppliers in this region have to reduce margins based on the EUR currency, in order to satisfy the customer. After some time when the currency is stable, and the competition has also adjusted their prices, we will have a level playing ground. That’s a period where you can adjust the margins to their original position, though typically only on new stock.
“We [GENAVCO] have to keep a balance, keep a track on the market and how the competition is behaving and accordingly we adjust our prices.”
Asif Khan, General Manager, GENAVCO took this opportunity to share his thoughts on the reputation of German manufacturers in the Middle East and how brand reputation is impacting the current demand.
“Their perception [GENAVCO customers] is that German machines are the best in terms of quality and product support. People believe that Germans will not compromise – Germans by nature are tough.
“For this reason, I would say by and large, German brands are enjoying the number one position, in terms of the quality and reliability of their product.”
The reasons as to why customers tend to appreciate German made construction equipment and machinery is because they value the product but also the support associated with German manufactures, claims Asif Khan. Primarily all of them take their business very seriously, they are customer focussed, and as a result the customer prefers a German made product.
These thoughts are echoed by Kai Friedrich, Managing Director, Marketing and Sales Department, Liebherr-Export AG, who pointed to the fact that Liebherr products have key advantages in the current market, notably technical reliability and durability – especially in the challenging circumstances presented by the Middle East in terms of heat, humidity and dust levels.
“Our machines have been proven to be very reliable, they are certified, and as a result they are accepted by large global companies, all of which have strict safety requirements.”
One of the major competitive advantages of the construction machinery industry is that German technology is a step ahead of competition when it comes to safety issues and questions, according to a VDMA statement by Johann Sailer, Chairman of the Association, as well as managing partner of Geda-Dechentreiter. This includes the safety of machines and safety of operators alike. Furthermore, safety is becoming a decisive purchasing argument among customers all over the world, claims Sailer.
It is perhaps for these reasons that, according to the German Federal Statistics Bureau, exports of German construction equipment and building material machinery grew 45% from 2005 to 2014.
However, the statistics also show that in this same period, the German share of world exports in construction equipment and building material machinery fell from 15% to 12%.
Despite the present Euro currency situation, and the reputation of German machines and equipment in this region, there is another key factor having an effect on sales. Manufacturers are increasingly moving their manufacturing operations to China and India where labour costs are lower. This is having an additional impact in the region, says Asif Khan.
“It’s a small market, and all the major players from the world over are here. Our competitors are from Europe, and some of them are bringing their products here from China and India, locations where currency is also down.”
From a buyer’s perspective, with both European and American brands manufacturing their machines and equipment in India and China, buyers in this region are at an advantage he says, but the profit margins for suppliers are being impacted.
Asif Khan is keen to point out that the location in which the machinery is manufactured does not impact the quality, despite a persistent perception in the market place. European or American brands that build in China or India maintain the exact same standards of quality as their products made in their home countries, he says.
There are many examples whereby a European company will move their complete plant operations and relocate to China, but everything else remains the same: “Design, structure, quality control, everything is the same over there,” says Asif Khan. So the customer doesn’t see or feel any difference in the product, the only difference is the ‘made in China’ label.”
So while the EUR rate has made a temporary impact on the price of machinery in the region, there are many instances whereby popular European models are in fact being manufactured in the Far East at a lower cost, says Saif Khan. Customers in the Middle East are however savvy to the market and still expect the benefits to be passed on to them.
Further impacting the sales of European machinery is the impression that genuine Chinese brands are having in this region. While the popularity and product quality is improving, some Chinese manufacturers continue to face problems regarding the lack of support, lack of understanding of customer need and important documentation requirements, believes Saif Khan.
Saif Khan also makes sure to note that this refers to Chinese products, clarifying that European or American brands that are made in China are equally good on support as those made in their home countries.
“European or American suppliers who are just manufacturing there in China give equally good support,” he emphasises.
Looking to the future, Kai Friedrich speaks of the new challenges facing German manufacturers in their objective to convey advantages in terms of equipment design, electronics and maintenance solutions; all the advantages that are related to cost in light of the weaker Euro at present and the rise of Chinese and Indian manufacturers.
Liebherr has experienced “Positive development, especially in first half of 2015,” according to Friedrich, who explained that market figures are indicating substantial growth in equipment sales – whilst dealers and subsidiaries are also experiencing progress in sales and expansion.
In fact, market figures since the 2009 recession have shown that in the Middle East, the number of Liebherr machines exported to the region has continuously increased. Friedrich adds that in the first six months of this year, 200 machines were brought into the region – this indicates that despite ongoing geopolitical turbulences here, there remains a very positive attitude and expectation for German models.
The importance of upcoming projects in the region such as Expo 2020 in Dubai and FIFA World Cup 2022 in Qatar are seen key events in the construction calendar for German equipment to be further utilised. These thoughts are echoed by Sailer, who in a recent statement noted that some construction equipment suppliers have already begun participating in these projects, especially those that supply road, tunnel or building construction machinery.
With German engineering, durability and safety in high demand, coupled with high service from suppliers and manufacturers and quick access to spare parts, there is an optimistic outlook for the future of German construction products in this region, regardless of their manufacturing location. While the fall in value of the EUR against the USD may have an impact on sales in the region, progress remains strong. Suppliers may adjust their prices where necessary to meet the needs of the customer, and competition from the Far East will persist, but industry professionals are confident in the strength of German quality and reputation – a position strengthened by the regions big projects on the horizon.
Comparative advantages of German-made equipment
Environmental awareness is a rising topic of interest in the region, with numerous private and government schemes, initiatives and campaigns aiming to encourage sustainability. Since many German construction machinery companies offer highly efficient equipment, they hope to participate in the growing energy-cost- and environmental-awareness drive in Middle East markets. Companies are concentrating on developing ways of using raw materials and resources more efficiently, in addition to enhancing quality and automation, and facilitating integration in product processes. Comparative advantages of German made equipment in this pursuit includes their innovative construction methods and new drive systems – in addition to providing safety at work, and combining function and design, cost-efficiency and new service concepts, all of which are at the core of their efforts.
Furthermore, with growing tendencies, especially in GCC-countries to localise labour markets, there is growing pressure on employers to employ local staff. With growing limitations on working permissions for expats, it is those companies that can supply automated and efficient systems which can replace manpower that will take advantage of new market opportunities.
