XCMG: Globalizing China’s Manufacturing Industry

By+staff+reporter+HOU+RUILI

SUCCESS in the manufactur- ing industry demands as much hard work as farmers need to grow rice – they sow the seeds one by one and reap the harvest one by one. Despite its cautionary tone， this well-known metaphor in industry circles has never shaken the resolve of the managers of Xuzhou Construction Machinery Group （XCMG）， a respected pioneer of Chinas manufacturing industry. Wang Min， chairman of XCMG， said that Chinas equipment manufacturing industry would not be as successful as it is today without the people at its helm who stick to their beliefs， endure loneliness， bear the pressure of competition and meet challenges from the global market.

XCMG， established 25 years ago， has become the fifth largest supplier in the worlds construction machinery sector. Its sales volume of truck cranes and heavy-duty road rollers ranks first in the world. Its sales of earth-moving machinery， road machinery， concrete machinery and piling machinery maintain a lead in the Chinese market. Currently， XCMGs products have been sold to 169 countries and regions around the world， with annual exports exceeding US $1.6 billion and the 2012 business income surpassing RMB 100 billion.

Study and Innovate

In the early 1990s， under the influence of the commodity economy， Chinese scientific research institutes changed their focus to practical technology applications， and largely abandoned unprofitable basic research. XCMG was hence established in an environment where the development of enterprises was impeded by insufficient basic scientific research capability. Todays experts believe that this lack， starting from the 1990s， affected Chinese enterprises and even entire industries for as long as a decade or more.

At that time， the production of key components and parts used in Chinas construction machinery industry was controlled by German and Japanese companies. Those foreign companies therefore also controlled the output and exports of made-in-China construction machinese. To make a breakthrough， XCMG initiated distinctive exploration， giving equal importance to independent innovation， integration and observation， as well as collaboration so as to innovate through combined efforts.

“In setting up a joint venture with foreign companies， because we had to meet their standards in terms of quality， we could improve our basic technology very quickly. However， the core technology required for parts manufacturing was controlled by foreign partners， so we could operate only according to their engineering drawings. When we needed technological improvement， we had to send our questions to the headquarters of foreign companies to seek solutions. It was very difficult for domestic companies to innovate because foreign companies got the best results through extensive testing over many years. European and American companies had an advantage through years of practice and experience. It was difficult for us to command the essence of such capability building，” said a manager of the International Development Department of XCMG.endprint

In order to improve its basic manufacturing technology as quickly as possible， XCMG obtains technology through mergers and acquisitions. In 2011， XCMG acquired AMCA and FT， two components manufacturers from the Netherlands and Germany， respectively. In July 2012， XCMG merged with German manufacturer Schwing Stetter， a known pioneer of concrete machinery with a history spanning 78 years. Through integrating with this timehonored manufacturer， XCMG could significantly speed up its overall process of internationalization.

Furthermore， XCMG invests five percent of its annual sales revenues in research and development， and has set up an academic research station， a postdoctoral research station， as well as an advanced technology development institute composed of experts under the Chinese governments “Recruitment Program of Global Experts.” Meanwhile， the company established a national level lab and a comprehensive construction machinery experimental center at the XCMG Research Institute. The companys R&D department focuses on basic research and practical application research， as well as research on energy conservation and emissions reduction for sustainable development. XCMG has recruited and nurtured more than 6，000 talents and over 100 top-notch experts in the construction machinery sector. The company also provides free housing for senior professionals to enable them to settle in Xuzhou with their families. Today， XCMG has 200-odd core technologies and 2，000-odd patents in the highend equipment manufacturing sector in terms of intellectualization， lightweight design and energy conservation， and environmental protection. Also XCMG is developing over 100 patented items of equipment that are of great significance to national economic and social develop- ment， and meet certain standards set by the Chinese government.

In October 2013， XCMG launched Europe Co.， Ltd.， a Europe R&D Center and a Europe Procurement Center. According to Wang Yansong， vice president of XCMG， the R&D center employs top-notch construction machinery talents who work with a prospective and pragmatic view to producing better products. Its research results are very helpful to guiding the establishment of R&D centers in developing countries， including China. Through its fusion with Europe， XCMG has greatly improved its manufacturing technology and capacity for making key components， upgrading itself to a transnational supplier of construction machinery products， boosting its exports of key components， and improving the functions of its complete machines. Its 22 representative products， such as truck-mounted cranes， loaders and excavators， have been granted the EUs CE mark， and meet U.S. SAE standards， so building its image of reliable and durable products with optimum price performance in the international market. XCMG construction machinery products have been widely utilized in various big projects around the world， chosen for their outstanding performance.endprint

International clients continue to place orders with XCMG， citing 100 percent satisfaction with the high quality and advanced functions of XCMG products. An Indonesian client recently sent a purchase order for a 1，250-ton crawler crane from XCMG， the heaviest-duty machine of this kind that China has ever exported. The client paid 95 percent of the cranes transport costs to the Port of Shanghai and the remaining five percent after its assembly in Indonesia. Before closing the deal with XCMG， the Indonesian company had been in negotiations with another Chinese supplier for four months. The supplier agreed to let the buyer pay the purchase price over a three-year period. However， the client eventually chose XCMG.

Chairman Wang Min said， “This year XCMG is mainly relying on building its brand， service and technology to expand its exports to developed countries. Our service refers to a systematic solution plan to help our clients achieve success. In other words， our clients success is our success.”

Recently， a large U.S. rental company told Wang， “The excavators produced by XCMG are comparable to those produced by the Japanese company， Komatsu Ltd. But XCMG provides better customer service compared to other enterprises.” That rental company initially bought 100 excavators from XCMG， but bought another 100 soon after its first order. Its former supplier， a famous U.S. construction machinery company， was surprised at the news.

Breaking the European Market

XCMG Europe R&D Center， which was established with an investment of €36 million， is an enterprise featuring state-ofthe-art technology. It takes advantage of the R&D resources in Europe through cooperation with wellknown universities and recruitment of senior engineers. According to Wang， XCMG Europe Co.， Ltd. aims to realize complete integration of technology， products and talents between China and Germany and to make breakthroughs in key technology development and the supply of key components. The XCMG Europe branch is expected to boost local economic development and social harmony in Europe and become a responsible enterprise.

“The three words， investment， integration and innovation， both sum up and forecast XCMGs experience in Europe. Were promoting investment with a long-term view. We hope to establish a stable enterprise in Europe and contribute to local social harmony and development. We want to integrate into Europe and endeavor to promote integration between XCMG and its European counterparts， between Chinese and European engineers and between the global market and European technology. We want to innovate and cooperate with our European counterparts to realize advances in strategy， management， products， technology and sourcing the value chain， so that we can continue to provide quality products at reasonable prices to the global market，” Li Suoyun， vice general manager of XCMG and general manager of XCMG Europe Co.， Ltd.， said at the opening of XCMG Europe.endprint

Based on such objectives， XCMG was accredited and won high praise from the local government for its outstanding performance last year. In 2013， it received the NRW.INVEST Award， presented by the economic development agency of Germanys North Rhine-Westphalia State， becoming the first Chinese enterprise to win this honor.

Recently， XCMG Europe Co.， Ltd.， on behalf of all of its European subsidiaries， officially registered as a member of the Germany-China Business Council， which was established during Premier Li Keqiangs visit to Germany from May 25 to 27， 2013. The business council serves as a bond to strengthen the strategic partnership between China and Germany. XCMGs membership of the business council is conducive to the companys internationalization drive and the enhancement of its international competitiveness.

Next Stop Brazil

On June 6， 2014， XCMGs Brazilian manufacturing plant， with an investment of US $200 million， was officially put into operation in Pouso Alegre， Minas Gerais State， Brazil. This is XCMGs largest overseas investment project.

The person in charge of XCMGs Brazil factory project received a lot of support from the mayor of Pouso Alegre. He even provided one of his office rooms to XCMG staff as working space and arranged for them to be picked up and taken home every day. The mayors secretary-general， who assisted XCMG staff in solving any teething problems， went on to become a franchiser of XCMG and achieved very good results. He said that he values the XCMG brand and expertise and sees a bright future for his cooperation with XCMG.

XCMGs Brazil factory raised the companys profile through core elements such as marketing， after-sales service， parts supply and credit financing， bringing substantial economic benefits to the local society. To elevate the percentage of local procurement and manufacture to 60 percent and so be eligible for the low-interest financing policy of the FINAME program （which provides capital financing to companies located in Brazil for the acquisition or leasing of new machinery and equipment）， XCMG has brought new business opportunities to local suppliers in terms of processing， outsourcing and purchasing. Furthermore， it has enhanced local potential for manufacturing， quality， management and efficiency of goods supply.

On March 7， 2014 Antonio Anastasia， governor of the State of Minas Gerais， paid a visit to XCMG. He said that the companys construction and investment in Minas Gerais had boosted the development of Pouso Alegre and other regions， and served as a paradigm for other Chinese enterprises that seek development in Brazil. He also said XCMGs construction and expansion in the Brazilian market substantially promoted Brazils infrastructure construction. He pledged that the state government would treat XCMG as a local enterprise and unremittingly support XCMG to achieve further development in Brazil.

Chairman Wang Min confirmed that XCMGs strategic goal is to be listed among the top three heavyweights in the global construction machinery industry and become a world first-rate enterprise. In the process of its internationalization， XCMGs Brazil factory will play a very important role. As an enterprise with a great sense of responsibility and mission， XCMG will endeavor to build its Brazilian plant into a successful international model and a platform to boost economic development in the local region， so promoting the China-Brazil friendship as well as Brazils economic and social development.endprint