Vision 2050: Is Xuzhou the Next Peoria?
The future of the global supply of construction equipment depends largely on one thing: The ability of the industry to attract good talent.
Spring 2008
Unless addressed, the inability of the construction industry to attract talent, especially design engineers, service technicians and machine operators, will bring a host of global implications. A continued lack of workers will lead to more outsourced, offshored designs, costly and inadequate service and demand for more reliable and simpler-to-operate machines.
Structural changes are coming due to the high cost and shortage of technicians combined with sky-high oil prices. Rising labor and transport costs will drive demand to larger machines, while versatile, multipurpose machines will replace simpler ones. Demand for mini machines will also expand dramatically.
Barring a serious return to protectionism by developed nations, it is inevitable that a significant proportion of production will be transferred to emerging nations, especially China. This trend is already well under way. Chinese makers are dipping their toes into western markets, offering startlingly low prices and aided by favorable currency exchange rates.
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It's a mistake to see China as a larger version of Japan; a half-century of communism has left no legacy of product support.
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Initially, it is likely that customers in developed nations will be disappointed with the product quality and especially the support they receive, but eventually the emerging manufacturers will overcome this. Soon, the price pressure will force global brand leaders to begin to export products from offshore plants to their "home" markets, leading to plant closures and unemployment in North America, Europe and Japan.
The path being pursued by the Chinese was first navigated 30 years ago by the Japanese, whose market entry similarly benefitted from low prices facilitated by a combination of manufacturing efficiency and currency exchange-rate control. Ultimately, Japan's strong global market positions have been sustained by exceptional product quality—and certainly in the case of mini machines—design innovation. For manufacturers of U.S. and Europe, that transition was incredibly painful, with numerous plant closures and massive layoffs. In North America, more than 60 machinery plants permanently closed between 1982 and 1987. Caterpillar Inc. alone laid off over 35,000 employees, some 40% of its global workforce. Predictably, this caused intense trade friction, anti-dumping charges and trade tariffs.
The future of distribution is highly tenuous. Rental will continue to expand globally and consume the traditional roles of the distributor. Unless manufacturers follow the "CatRent" model, they will face the potential of their own brands fading away. But the shortage of qualified distributors will also create a market-entry barrier for new suppliers of medium-to-large-sized machinery. This will be a key factor favoring the global brand leaders sourcing from emerging nations against the indigenous manufacturers from China, India and the like.
Equipment is now a mature sector, lending itself to low-cost manufacturing. The already eye-popping production volumes of mainstream earthmoving and lifting machinery in emerging nations will continue to grow and vastly exceed all previous levels. However, the growth of Chinese manufacturers on the world stage will likely bring regulatory and safety issues. It is a huge mistake to consider the Chinese as a larger version of the Japanese; a half-century of communism has left no legacy of sophisticated client or product support.
The development of more energy-efficient designs and noncarbon power sources is essential. Solar energy offers potential for machinery that works outdoors. Unless alternate power sources are tapped, oil shortages and high costs will, in time, become overarching issues severely hitting operating and transport costs.
Globalization will not be good for all consumers. Prices may be lower, but product choice will be narrowed as products become commodified. Brand leaders will face more hurdles to leverage a margin. And some top brands will be bought and likely transformed by Chinese, Russian or Indian ownership. The comfort of familiarity may become a dewy-eyed memory.
