Environmental Analysis and Current State of the Earthmoving

and Construction Equipment Industry (ECE) in India

1 | P a g e

Table of Contents

Introduction...................................................................................................................................5

PEST Analysis................................................................................................................................. 5

Political Trend............................................................................................................................5

Economic Trent..........................................................................................................................6

Social Trend............................................................................................................................... 8

Technological Trend...................................................................................................................9

The Volvo CareTrackTM telematics system...........................................................................9

ACERT Technology................................................................................................................. 9

Information and Communication Technology.....................................................................10

Current State of the Industry in terms of the ‘five forces’ framework proposed by Michael

Porters......................................................................................................................................... 10

Threat of substitute-LOW........................................................................................................10

Bargaining power of suppliers-HIGH........................................................................................11

Bargaining power of buyers-MODERATE.................................................................................11

Inter-firm rivalry-MODERATE...................................................................................................12

Barriers of entry-LOW..............................................................................................................12

Industrie’s attractiveness.............................................................................................................13

Key Players in the Industry..........................................................................................................14

JCB India...................................................................................................................................14

Bharat Earth Movers Ltd (BEML).............................................................................................14

Jessop Co. Ltd.......................................................................................................................... 15

L&T Case, L&T Komatsu...........................................................................................................15

Ingersoll-Rand India Ltd...........................................................................................................15

2 | P a g e

Introduction

The Earthmoving and Construction Equipment Industry (ECE) in India is at the breaking point in

its evolution and is ready to experience booming growth. Rapid economic growth in India is

known to create exponential growth in several industries. The infrastructure is growing strongly

which is without doubt spurred by the nation’s rapid economic development. According to the

study, ECE Vision 2015: Scaling new heights in the Indian Earth Moving and Construction

Equipment Industry, conducted by leading management consulting firm, McKinsey & Company,

the Indian ECE industry has the potential to grow fivefold from its current size of US$2.3 billion

to approximately US$12–13 billion by 2015, growing at 24% CAGR.

3 | P a g e

PEST Analysis

Political Trend

The Government of India has permitted 100 percent foreign direct investment (FDI) in

construction and development projects.

Before this decision, only non-resident Indians (NRIs) and persons of Indian origin (PIOs) were

permitted to invest in the housing and real estate sectors. Conditions for foreign entities to

come into the sector were very restrictive. They were not allowed to make any equity

investments in the sector and the area of their involvement was limited to providing

engineering, architectural and design services. Foreign companies were allowed to invest

upfront US$10 million in wholly-owned subsidiaries and US$5 million in joint ventures, with a

lock-in period of three years.

Some of the key specifications are

US$ 2 million limit on lump sum payments under the automatic route.

Royalty to be levied as 5 per cent on domestic sales and 8 per cent on exports, net of

taxes.

The depreciation on general plant and machinery is proposed at about 15 per cent.

Specific initiatives by the Government of India that positively impact the engineering sector are

Tariff protection on capital goods has been removed.

Various initiatives are focussed on infrastructure development and construction.

The GoI has also introduced initiatives to increase power generation and improve the

quality of power supply.

Custom duties on various equipments have been reduced.

Economic Trent

4 | P a g e

As the economic situations in the world improves; the Earthmoving and Construction

Equipment Industry (ECE) is also expected to grow. India and China, being least affected nations

by the economic slowdown and a relatively fast recovery on account of the huge investments

expected in creation of infrastructure are expected to be key contributors to the growth of the

global construction equipment market. India is expected to be the major contributor (after

Japan) with its share in global sales of construction increasing from 5% in 2009 to 7% in 2013.

The five year plan in India expects an investment of about 494 USD billion during the period

2007-12. CRISIL Research estimates that investment to the tune of Rs. 12,280 billion is expected

to materialize during the period from 2009 to 2012. Roads (22% share of total investments) are

expected to be the major area of investments with the Hon. Minister for Road Transport and

Highways targeting construction of 7000 km of roads per year. Real estate growth is also

expected to pick up mostly towards small size, no-frills, mid income category houses; the

demand for luxury homes and commercial real estate still being on a lower side.

5 | P a g e

Analysis of macroeconomic trends and a detailed study of end-use sectors growth show that,

the domestic market spending on earthmoving and construction equipment is likely to be a

cumulative US$ 40 billion between 2007 and 2015. This implies annual growth of about 17 per

cent a year for the next eight years and would create an annual domestic market of US$ 8

billion in 2015. Key sectors driving demand are likely to be roads (US$ 8 billion cumulative

demand), irrigation (US$ 8 billion cumulative demand), urban and residential construction (US$

5 billion cumulative demand), and mining (US$ 5 billion cumulative demand). While the timing

of this demand may be a bit uncertain, as it depends on the actual pace of infrastructure

spending, certainty about this level of demand is high.

Social Trend

The growth in this sector is determined by the continued dominance of price-focused and

value-focused customers in India. As many as 70 to 80 per cent of customers in India are price-

and value-focused compared to less than 40 to 50 per cent of all customers in developed

markets. Currently, the market is dominated by comparatively lower cost multi-use backhoe

loaders, which have specific features tailored to India (e.g., strengthened body structures for

rough use, modified cabin design to accommodate operator and helper). This dominance of

6 | P a g e

price- and value focused customers is likely to continue even up to 2015. This is due to the

growing trend to subcontract earthwork by large construction players, coupled with dispersed

infrastructure development, necessitating different subcontractors for different projects. Even

in China, despite a decade of continuous growth, customer education and evolution, 60 to 70

per cent of customers remain price- and value-focused. The proportion of customers

demanding more sophisticated features, products and services akin to global offerings will also

increase, although it will be much smaller in number than price- and value-focused customers.

As a result, demand for India-specific products and products with India-specific features will

continue to be significant.

Technological Trend

The Volvo CareTrackTM telematics system Volvo Construction Equipment launches the Volvo CareTrackTM telematics system. Using

GPRS/ GSM (mobile network) to send information, the new technology will enable users to

track the location of their machines, fuel consumption, speed and hours of operation and the

time for next service. The data on machines will be available securely and instantaneously to

any remote online connection. Employing fault reporting, activity warnings and remote

diagnosis, this technology will help Volvo dealers and machine owners to identify and resolve

machine problems faster and proactively.

ACERT TechnologyCaterpillar's ACERTTM technology for truck engines is an exclusive, breakthrough solution for

emissions reduction. The result of more than $500 million in research and development, ACERT

technology not only improves emissions—it does so without sacrificing fuel-efficiency,

reliability, long life or operating costs

Information and Communication TechnologyKomatsu has been engaged in the research and development of information and

communication technology (ICT), which enables remote management of equipment by

obtaining information regarding machine locations, operating conditions and vehicle health, via

7 | P a g e

state-of-the-art GPS, remote sensing and telecommunication technologies), control technology

and artificial intelligence. Equipment with control systems and management systems using

these technologies has been rapidly penetrating the construction and mining equipment

market

Current State of the Industry in terms of the ‘five forces’ framework proposed by Michael Porters

Threat of substitute – LOW

Threat of substitute-LOW

8 | P a g e

Every construction equipment has a specific purpose

Substitutes could only be through value addition through technology, comfort

maintenance etc.

Complete substitution may not happen in near future.

Product replacement or enhancement is possible

Bargaining power of suppliers-HIGH Suppliers have not kept pace with growth in demand, leading to delayed deliveries

Import of some critical components

Volatility of steel prices impacting production cost

Less number of suppliers for high demand

In this industry, the suppliers of iron, engines etc enjoy supremacy over the manufacturers. For

example, KOEL (Kirlosker Oils & Engines limited) is the major supplier of engines to the industry,

and therefore enjoys a lot of freedom. The engine service is done by the KOEL engineers.

Inevitably, the companies have to maintain good relationship with KOEL.

Bargaining power of buyers-MODERATE Earlier, manufacturers/sellers held sway because of huge demand

With the entry of new players, this trend expected to change

Manufacturers now are providing end-to-end solutions to buyers

Strong increase in demand

Price sensitive market

Customers need to be trained in technology, equipment usage

In Earthmoving Industry, buyers have good bargaining power as the price differentials are very

less. The cost of shifting from one brand to another is negligible.

9 | P a g e

Inter-firm rivalry-MODERATE Price and service are the differentiators

Lack in sharp differentiation leading to competition in price

Huge demand for construction equipment in future

For most industries, this is the major determinant of the competitiveness of the industry.

The competitive rivalry is not on the basis of price, but on the basis of after sales service &

spare parts availability.

Barriers of entry-LOW

Barriers of entry-LOW

Well-established players and recognised players

Cheaper imports can reduce the market share of present manufacturers

Increasing growth in demand

Players with technological know-how can succeed, as technology is the major entry

barrier

Fragmented market, dominated by a few large players

High potential growth

New players will need the right technology and product

10 | P a g e

Industries’ attractiveness

The Indian construction industry has been on a high growth trajectory for more than a

decade, led by buoyancy in sectors such as real estate and infrastructure. The Union

Budget 2010–11 has allocated US$ 36.16 billion to the infrastructure sector, reflecting

the Government of India (GoI)’s strong focus on the development of India’s

infrastructure. Government expenditure on infrastructure is likely to result in increased

construction expenditure of nearly US$ 253. 94 billion (INR 12,189 billion) between

2008–09 and 2012–13). The industry has witnessed continuous modernization and

adoption of new technologies in recent years. India produces more than 0.4 million

engineers every year. Moreover, India’s cost of skilled labor is the lowest in the world,

with an entry-level engineer available at an average cost of about US$ 8,000 per annum.

India is the fifth-largest producer of crude steel in the world (2008), with a production

volume of 54.5 million tones.

11 | P a g e

Key Players in the Industry

JCB India Ltd

JCB came to India in 1979.The company had a turnover of US$ 335 million in 2006–07. The

company is growing by 25 per cent to 30 per cent annually. JCB India is a subsidiary of J C

Bamford Excavators Ltd. Its products range from backhoe loaders, wheeled loaders to

excavators and skid steer loaders. It has a 70 per cent market share in the backhoe loader

segment and around 13 per cent market share in the overall Indian construction equipment

industry. It has facilities at Ballabgarh in Haryana and Pune in Maharastra. The company has 38

dealers and 206 outlets. It has a dedicated parts centre at Ballabgarh and parts distribution

depots at Chennai, Pune and Kolkata

Bharat Earth Movers Ltd (BEML)

BEML is the largest player in the earthmoving equipment sector. The company turnover was

around US$ 630 million in 2007–08. The mining and construction equipment segment is around

63.3 per cent; defence segment is about 31.8 per cent; and railways around 4.9 per cent. The

company is the largest public sector undertaking in this industry. Some of its customers are

Delhi Metro Rail Corporation, Coal India, Jessop Co. Ltd. It has facilities in Bangalore, Kolar Gold

Fields, and Mysore in Karnataka. The company has a 70 per cent market share in the domestic

earthmover industry and 12 per cent in the overall construction equipment industry. It has 33

marketing offices and has a strong foothold in the government sector.

L&T Case, L&T Komatsu Ltd.

The companies together had a turnover of US$ 156 million in 2007. Both the companies are

subsidiaries of L&T Ltd. They are joint ventures with CNH American LLC and Komatsu Asia

Pacific Pvt Ltd, Singapore, respectively. L&T Case manufactures loaders, backhoes and vibratory

compactors; while L&T Komatsu manufactures hydraulic excavators. L&T Case hold 21 per cent

market share in vibratory compactors. L&T Komatsu holds 20 per cent market share in

12 | P a g e

excavators. L&T Case has facilities at Pithampur, Madhya Pradesh. L&T Komatsu has its

operations in Bellary, Karnataka.

Ingersoll-Rand India Ltd

The public limited company (majority owned by Ingersoll-Rand) is a market leader in

compactors and had a turnover of Rs 388 crore in 2007. It is primarily into construction

technology and compact vehicles, air solutions and climate control. The company has a 39 per

cent market share in the compactor segment. Its major products are compaction equipment,

pavers, loaders, light towers, air compressors, etc. The company has operations in Bangalore

and Ahmadabad and has a good distribution network with 22 company offices and 80

distributors across India.

Bibliography

BooksCrafting & Executing Strategy By Arthur A. Jr. Thompson, John E Gamble, A. J. Strickland III 17th Edition

McGraw-Hill

13 | P a g e

Websiteshttp://timesofindia.indiatimes.com/hyderabad/FDI-in-construction-industry-/articleshow/

1049608.cms

http://business.mapsofindia.com/fdi-india/sectors/construction-activities.html

http://iecial.com/news_2010july.htm

http://www.inrnews.com/realestateproperty/india/construction/

indian_earthmoving_constructio.html

http://iecial.com/news.htm

www.ibef.org

http://iecial.com/conference/ECE%20Vision%202015%20-%20Executive%20Summary.pdf

http://iecial.com/news_2010july.htm

http://www.quickmba.com/strategy/porter.shtml

http://en.wikipedia.org/wiki/Porter_five_forces_analysis

http://www.indiavision.com/news/article/business/83440/

14 | P a g e