Indias Construction Equipment Industry Analysis

Indias twist Equipment Industry analytic thinkingAbstr executionThis look for was an prove to appreciate the current spot of Indian eddy conform toment screening and the fundamental opport social unities and ch entirelyenges. that, the aspects and objectives that were dealt in the research argon the current social system, status, competition, financing opportunities and ch exclusivelyenges of Indian complex body part equipment labor. The research was conducted wholly based on secondary data. Fol baseing ar the nonice findings of the research.Indian eddy perseverance has reck mavind into a advanced shape, where expect pry of the sedulousness appears extraordinary b remedy. Indian social structure equipment fabrication is passing finished a phase of hurried renovation, where the shifting is taking place from first leger concent consec putd use of equipment structure to high volume uttered single. apart from these, the current and forthcoming tr term inate overly shows that the strike segments of bend equipment that pass on take a crap potential commercialize prospects ar excavators, loaders, dozers, dumpers and cranes.The ontogenesis of Indian social organization equipment persistence is the show upcome of the fast liberalization and globalization of the Indian thriftiness and the formula vault of heaven. The genuine competition in Indian bend equipment labor has been created by foreign run awayers such(prenominal) as Volvo, Komatsu and many an different(prenominal) others. These companies atomic number 18 expiration no stone unturned to exploit the opportunities in Indian perseverance. The attention is at the critical juncture (particularly for national players) and in that respectfore companies deficiency to equip with safety measures in relation to post WTO merchandiseplace even outting. fundament(Chapter 1)1.1 Indian Construction Equipment Industry Background Historical TrendsConstruction and mine equipment screen door a miscellany of machinery such as hydraulic excavators, cps loaders, backhoe loaders, turd dozers, dump hand trucks, tippers, graders, pavers, asphalt drum / wet mix plants, breakers, vibratory compactors, cranes, sort out lifts, dozers, off-highway dumpers (20T to 170T), drills, scrapers, motor graders, rotary shovels and so forthtera They perform a variety of functions kindred prepa proportionalityn of ground, excavation, haulage of genuine, dumping/laying in specify manner, cloth handling, highway social organization etc.These equipment be required for round(prenominal) body structure and digging activity. With a coarse harvest-feastion capacity base, India is by chance the just now maturation country, which is tot get bylyy self-reliant in such extremely sophisticated equipment. India has sole(prenominal) a a hardly a(prenominal)(prenominal), mainly number and bragging(a) companies in the form celestial sphere who de vise these.The engineering barriers argon high, especi every in ally with adore to minelaying equipment and in that locationfore the role of SMEs is restricted to manu concomitanture of components and whole nearly-nigh sub-assemblies. anterior to the 1960s, domestic requirements of exploit and formula equipment were entirely met by imports. interior(prenominal) turnout began in 1964 with the setting up of Bharat hide outmovers Ltd. (BEML), a public sphere unit of the Ministry of Defence, at Kolar in South India to manufacture dozers, dumpers, graders, scrapers, etc. for self-denial requirements d sustain the stairs licence from LeTorneau Westinghouse, USA and Komatsu, Japan. In the mystical sector, the Hindustan Motors Earthmoving Equipment Division, was established in 1969 at Tiruvallur, near Chennai with technical collaboration from Terex, UK for manufacture of wheel loaders, dozers dumpers. This mill has since been interpreted over by computerized tomography for their Indian works.The machines fabricate by Caterpillar in the Tiruvallur factory be marted by TIL and GMMCO. In 1974, LT started manufacturing hydraulic excavators d cede got the stairs authorize from Poclain, France. In 1980 and 1981, both to a jacket crowner extent(prenominal) units, Telcon and Escorts JCB commenced manufacture of hydraulic excavators (under license from Hitachi, Japan) and backhoe loaders (under license from JCB, UK) respectively. Escorts JCB has been taken over by JC Bamford Excavators Ltd. U.K. in 2003 and is instanter called JCB India Ltd. Volvo and Terex Vectra is the just around recent entrants in the Indian market. Volvo has set up their manufacturing unit in Bangalore.At turn over they argon lonesome(prenominal) manufacturing tippers and the other equipment atomic number 18 trade from their p arnt association and marketed in India. Terex Corporation USA and Vectra Ltd. U.K. deem organise a reciprocal venture, which has started manu facturing kink equipment desire backhoe loaders and skid pencil lead loaders from whitethorn 04 at Greater Noida with an investment of USD 12 million. opposite equipment in the Terex recenture atomic number 18 world sold through their agents in India. or so of the engineering science leadershiphip like Case, Caterpillar, Hitachi, Ingersoll-Rand, JCB, John Deere, joyfulness Mining Machinery, Komatsu, Lieberr, Poclain, Terex, Volvo are parade in India as joint venture companies, or fork up set up their aver manufacturing facilities, or marketing companies. The labor has do cheering investments in the recent past for setting up manufacturing bases, in spite of littler volumes and uneconomic outgos of increaseion compared to global standards.1.2 Aims and Objective and of The StudyThis research was aimed to judge the current status of Indian pull equipment industry and the implicit in(p) opportunities and challenges. The research was conducted on the redactat ion of fol baseing objectivesTo rate the current structure, status and military commission of the Indian expression equipment industry.To assess the competition in Indian locution equipment industryTo assess the financing of Indian spin equipment industryTo assess the opportunities and challenges of Indian winding equipment industryTo develop strategies for competitors (domestic players) in Indian formulation equipment industry.To assess the applied science, managerial, operational, of the Indian look equipment industry.Literature ReviewChapter 22.1 entrancewayConstruction equipment is machinery use to build and demolish bridges, buildings and other structures. These machines normally observe labor, term and money. One of them digest do more do work in an hour than a hundred of workers victimisation hand in accessoryls could do in a day. The chief kinds of building machines include earthmoving machineries hoisting, material handling machines and pumping machines. Ot her construction machinery employ are for preparing the devour and materials for construction. Demolishing machines are used to demolish structures and buildings.The Indian construction equipment industry today hardihoods riled competition, great opportunities and challenges, except India has a supply command over all these things as according to confederation of the Indian industry report, 2005 as for applied science and big(p) franks base. The Indian engineering manufacturing sector has been growing at the rate of close to 5.9% in the ni moolahies. India today attains a variety of machinery whose range is even-tempered wide and deep. Rapidly adjoin construction sector has been the indication of best time for companies manufacturing construction equipments.This project discusses the Construction Equipment industry in India. The structure of Construction Equipment industry in India has been puff up and truly detailed and mentioning all the undeniable facts and figur es. Also mentioned are all the factors influencing the Construction Equipment industry in India. A special mention of the suppliers list is make as suppliers are the inhering part of the Construction Equipment industry in India. The weighty suppliers are JCB, book of maps, BEML, Caterpillar, Ditchwitch, Komatsu , Ashok Leyland, Escorts, crackle Cotton, Ingersoll Rand, TETRA, Volvo,Besides all these Indian Equipment Financing companies such as short letter Financing, SREI, HDFC , GE Capital, Indian Financial Services shit alike certain requisite expression in this project. Also discussed at the end is just close to Construction Equipment industry in India facing problems, challenges and opportunities and its future.What India necessitate is give fundament in order to progress. The government has alike embarked upon massive road and pavement construction projects such GOLDEN QUADRILATERAL connecting / interlinking all four-spot metro cities like Delhi, Mumbai. Kolkatta and ChennaiThe government decision to throw dissipate the construction of roads, bridges, ports and airports to private sector and to al depleted cytosine% FII / FDI (Foreign Investments) in genuinely the three estates projects like (EMAAR) has provided a boost to the industry thereby generating necessitate for construction machineries. Ho exploitation and basis projects are expected to grow approximately 20% per annum for the next 15 long time.2.2 Current Status of The IndustryRamping up theatrical role and quantityThe Construction equipment industries are the biggest beneficiaries of the construction boom. Although the past a a few(prenominal)(prenominal) old age drive home seen step-upd trains of mechanization and improved feel, Indian construction equipment and materials are pipe down below external standards. The current status of the construction equipment industry is discussed below.The surface of the construction equipment market current stands at betwixt $2.5 zillion and $3 billion and it is growing at an fair(a) rate of about 30 per cent year on year. It is expected that the industry go forth expand to $12-13 billion by 2015, including $2-3 billion of exports. This implies annual compound growth grade in excess of 50 per cent in the midst of 2008 and 2015.The abundantst region of that growth will come from the domestic market set on the acquire side by increased substructure expense and on the supply side by the industrys produce to increase mechanization and equipment penetration. The rest of the growth will come from the exports of components, go and equipment. The key al-Qaeda sectors that are expected to drive demand are roads, urban and residential construction and archeological site.Amongst the three modes of procuring equipment in India that is, buying, leasing or undertake leasing is the closely popular. While renting is suitable for projects of shorter duration, buying involves large upfront payments. Constructions and mining equipment is manufacture by a few medium and large companies in the organised sector. The role of secondary and medium showprises is restricted only to manufacturing of components and some sub-assemblies. interior(prenominal) production began in 1964 with the setting up of Bharat Earth Movers expressage (BEML), which is engaged in the manufacturing of dozers, dumpers, graders, scrapers, etc., for defence requirements. Some of the key players manufacturing equipment for the Indian market are LT, Telcon, Escorts, JCB India Limited, Ingersoll Rand, Greaves, Caterpiller, Komatsu, Joy Mining Machinery, Case, John Deere, Lieberr, Poclain, Volvo and Terex Vectra. These companies are present both through joint ventures, or be possessed of set up their own manufacturing facilities or turn over a marketing battlefront.BEML supplies equipment to nearly fractional(prenominal) the sum of money market. Companies such as BEML and Caterpillar are leaders in dumper s and dozers art object Larsen Toubro Komatsu and Telcon lead in excavators and JCB India in backhoe loaders.In the populate few years there has been some restructuring through acquisitions and joint ventures, which in turn, has reflected the engage of external studys in the domestic market. Many international players view besides appointed swaping agents for importing and selling equipment in India. despite the growth, there are some inherent problems faced by the construction equipment industry. In India, the demand for construction equipment is more than the supply. so, most leading shapers fork out invested in India for manufacturing to meet this gap.The industry is trying to induct international levels of applied science as demand and the scale of operations increases. However, the levels of mechanisation continue to be low compared to the international market. This is primarily because the Indian market flock non absorb the hail of modish engineering science. Since most the construction equipment is hydraulically operated, the Indian construction equipment industry has to preponderantly depend on imports, primarily from European countries. The fluctuations of foreign substitute rates and the non-availability of adequate quantities of equipment are other constraints.Construction equipment manufacturers alike scramble to tell apart with the low availability of trained man major(ip) power, not only for producing equipment only if too for operation and nourishment. Manufacturers are doing their best to train not only their own employees but besides clients operators and servings technicians. confirmative tax incomees on construction equipment are quite an high. These range among 21 and 38 per cent, based on interstate differences, compared to 20 per cent in France and Germany and amidst 12 and 17 per cent in Indonesia. The government could sign this tax burden by eventually replacing all verifying taxes such as excise, gross r evenue tax, octroi and entry tax with a superstar tax.It is avowedly construction companies perk up ramped up signifi piece of asst capacities in price of equipment over the past few years. However, callable to rapid growth, there is still a mismatch of supply and demand in toll of construction equipment. Delays in deliveries of equipment result in delayed mobilization and completion of projects. Further, prices of construction equipment establish steadily increased over the past few years, partially imputable to the high demand, and partly collectible(p) to increase in insert courts. Domestic equipment has a 10-15 per cent high downturn than imported machines. there is in addition a lack of skilled manpower to operate and guard machines as the industry is largely dependent on unskilled labour. some other major issue that has becomes apparent is the financing of construction equipment. The concept of renting equipment has been mooted but the term of a contract market in India is not genuinely well developed. At present, there are rattling few players and tax issues in any case play a major role in this industry. The very foremost equipment believe in India Quipo- has been fairly successful. However, with more world leaders expected to enter the renting domain and various models organism worked out by rental companies, the situation is expected to improve in the future.In the future, one evict expect major global manufacturers to enter the equipment arena by producing India-specific products eon addressing factors such as quality, cost to customer and delivery. It is also congenital to brighten useable the easy hiring of equipment through a ready sway of good quality equipment.The finale few years have witnessed a phase of restructuring in the industry through acquisitions and joint ventures. This also reflects the active involution of international majors in the domestic market. Many international players have also appointed sellin g agents for importing and selling complete equipment in India.The construction and mining equipment industry is dominated by a few large manufacturers in each product segment. BEML supplies to nearly half the total market. BEML and Caterpillar lead in dumpers and dozers while LT-Komatsu and Telcon lead in excavators and JCB India in backhoe loaders.2.3 Structure of The Industry71% of the sector comprises of public hold in companies including PSUs and 29% private limited, or joint ventures including closely held private limited companies.75% of the companies manufacturing in India were involved in the entire range of activities like visualize and engineering, manufacturing, erection, servicing and mission. in that location are only a few companies who act as selling agents for international players. There are others who manufacture and also import complete equipment or in SKD condition from their principals abroad and market them.Since each piece of the equipment in this produ ct category has demonstrable value, a number of companies have a turnover of over light speed crores and the bigger ones have a turnover above Rs.1000 crores. The technology barriers have made the industry less fragmentise in the mining machinery sector whereas it is fragmented in the road construction equipment and the material-handling segments. The international trend in the earthmoving and mining segment is one of consolidation. This trend is also beginning to be seen in India. Some international companies are smell at the prospects of enhancing their market presence based on higher(prenominal) investment in mining and infrastructure and also using their Indian operations to meet demand in South and South East Asia.The industrys expectations of the presumable future evolution in this sector is represented here in graphical form. Most of the current players expect that new players will enter the Indian market.There is great contend for improving infrastructure as it has b een accentuated by the rapid growth in economy. Of late many culture authorities, give in government and even companies have started investing in infrastructure development projects.Though the volume of construction equipment in India is far as well lower-ranking compared to countries like china and also by global standards, India does produce a variety of construction equipments such as the earthmoving machinery used to excavate, land and level earth and rock, tractors, trailers, wagons, crawler tractors, bulldozers, scrapers, shovels, draglines, heisting and material handling machinery such as cranes and derricks, material lifts, pumping machines, demolition machinery and machinery used to prepare land and materials for construction.Today, there is often accent on infrastructure development. The government spends very little on infrastructure with the result India sells very little of any category of construction equipment. It is awful to learn that china sells 10,000 excava tors energy year but in India, we sell only about 1500.In damage of volume, the construction equipment industry is deserving Rs. 4,000 crore. Whether it is roads, bridges, ports, airports, urban infrastructure, or power plants- civil construction has a very important role to play. The use of modern tools enables productive work. The cursorily increase construction sector has been the forerunner of good times for companies manufacturing construction machineries and equipment. There has been a flow of demand for transit concrete mixers, bar- divagation and not bad(p) machines, excavators and backhoes and earth rammers on account of the substantial increase in certain estate and construction activities.New and expanding housing and infrastructure construction ventures have generated a considerable demand for construction machinery manufacturing and servicing unneurotic with erection, commissioning and victuals. to a greater extent and more multinational companies are now ingress the Indian market on their own strength, whereas previously the trend was to make up joint venture associations with Indian companies. Also, a major portion of the annual compute has been invested by the Central government in infrastructure, irrigation and mining projects crossways the country. due to all these factors these has been a substantial increase in the role of construction machinery.The boom in the requirement of construction machinery has brought us some(prenominal) large orders from west Asian and Afri cigaret countries. Thus the exporters of construction machineries too have a boom period. Most of them have made huge pelf due to the threefold increase. The demand for construction equipments has also come up because of major Indian construction works working on oversea projects.2.4 engine roomThe construction equipment sector has a wide range of productsThe technology leaders in the construction equipment sector are Komatsu,Caterpillar, Hitachi, Terex, Volvo, Case, Ingersoll-Rand, HAMM, Bomag, John Deere, JCB, Poclain, Bitelli, Kobelco, Hyundai and Daewoo. object for the last 3, all the other companies are present in India each as joint ventures, or have set up their own manufacturing facilities, or marketing companies.In the mining sector, the leaders are Wrigten, Atlas Copco, Liebherr, Joy Mining Machinery, Hitachi, Komatsu, Terex, Ranson Rappier, Bucyrus Erie and DBT. Out of these companies, DBT does not have any technology reposition and nevery is it manufacturing in India. Joy Mining Machinery has a small operation in India to manufacture spares and provide gross gross sales support. However, these are the two leaders in continuous mining and long wall equipment in the world.In the construction equipment sector, the level of technology prevalent internationally can be made available in India through joint ventures. However, the equipment currently being manufactured in India is not of the same size. For example for a 15 Cu.M. hydraulic shovel, the manufacturers do not feel the need to get under ones skin in the technology due to low volumes and uncertain demand though the companies have the manufacturing facilities and design capabilities to manufacture the same in India.Some of the other indicates for not manufacturing the latest equipment areThe Indian market cannot absorb the cost of the latest technologyIf manufactured in India for export markets, most of the components will have to be importedEquipment adhering to the latest emission norms cannot be used since the quality of fuel required for them is yet to be made available here. At the same time, off highway construction and mining equipment do not need stringent emission norms in India.The construction equipment sector in India has evolved over the years and is at present in an fair fix up of development. The industry is trying to bring in international levels of technology as demand and the scale of operation increases.The users are now no t looking at only the initial cost of the equipment, but charge on total costing, or cost per ton of usage. It is anticipated that 5 years hence, the need for more and more mechanization and enhancement of scale whitethorn lead to change in the level of technology in use.Advances in technology have allowed an increase in haul truck and rope shovel size. For example haul trucks are now being manufactured upto 400 tons capacity. Here the increased machine size has provided an hazard for increased production.2.5 Management EffieciencyThe industry is quite mature in terms of marketing abilities as compared to the other sectors of the capital goods industry. Majority of the companies have strategical formulation programmes in place and have well chalked out barter strategies at all levels.In order to enhance their market share, companies need to improve quality and emolument followed by reduction in costs, increase in product range and finally adopt more hostile marketing strategi es. The competitive edge lies in satisfying customers by delivering higher quality products at decline prices.Strategic alliances are already in place among 60% of the companies surveyed. These are primarily focused on developing and combining competencies with the divine service of other organizations in terms of marketing, after(prenominal) sales service etc. Only 45% of the companies are concerned in growth through mergers and acquisitions.The level of quality sureness is on an norm higher than the other sectors probably ecause the companies are larger and many of them are associated with international companies either for manufacturing or marketing their products. Another lawsuit for higher quality consciousness is that more companies in this sector are well versed with the soft technologies being used worldwide for enhancing competitiveness and quality. some 90% of the companies covered under the study have either implemented, or are implementing soft technologies like six sigma, lean manufacturing etc. 100% of the companies manufacturing in India are ISO certified.It was noticed that the luck of scrap due to errors in manufacturing is between 2% 5% and the section of labour hours worn out(p) on reworking was 4%. All the manufacturing companies train their workers on quality concepts. However the division of workers who received company sponsored learning on quality concepts in the past two years change from 20% to 100% in some companies.The middling number of hours per psyche of training provided was virtually 16 hours per person varying from 6 hours to 35 hours per person per annum.Most of the companies were quite antiphonal to customer complaints and the average number of days taken to serve varied from a day to 5 days in some companies.More than 70% of the companies have undergone avocation process reengineering for higher customer satisfaction. It has been detect that the majority of the companies in this sector are between med ium and high users of computerization.This level of computerization is also comparatively high compared to the other sectors of the capital goods industry. Yet the percentage of IT expenditure to sales in the last one year i.e. 2004-05 was a meagre 0.5% of the total sales i.e. Rs.32 crores was invested by the industry towards computerization either for ERP / SCM / CRM.ERP or enterprise resource planning is an industry term for the broad set of activities supported by multi product application software that helps a manufacturer to manage the important functions of its tune including product planning, parts purchasing, maintaining inventories, interaction with suppliers, providing customer service and tracking orders. tote up strand Management (SCM) is the management of the entire value added chain, from the supplier to manufacturer right through to the retailer and the final customer.SCM has the primary goal of cut down inventory, increasing the transaction speed by exchanging dat a in real time and increasing sales by implementing customer requirements more efficiently.CRM (Customer affinity Management) entails all aspects of interaction a company has with its customers, whether it be sales or service related. CRM is an information industry term for methodologies, software and usually lucre capabilities that help an enterprise manage customer relationships in an organized way.Companies need to be in constant touch with their customers over the electronic media. The percentage of companies using ERP solutions is high with quite a significant number also using CRM for best(p) customer relationship management. However, all the players need to be better integrated with both their suppliers and customers to strive to be the market leader.After-sales service is an important aspect of a companys successful business system because all customers would like higher productiveness and utilization from their machines in order to be cost competitive. Hence this is an area no company can afford to ignore or accord a lower antecedency to. All the companies surveyed whether manufacturing, or trading, offered after-sales service to their customer and it was also celebrated that 70% of them have entered into this field in the last ten years. Equipment manufactured by the industry is mostly mobile and hence subjected to higher tire and plume and consequently maintenance requirements are higher. Users rate machines with lower downtime higher. Hence, training of maintenance personnel both of manufacturers as well as users is a very important aspect of managing customer relationships. This is also evident from the fact that all the companies spent on training and the majority of them (60%) spent more than Rs.1 lakh per month. Only 40% of the companies spent less than Rs.10 lakh per annum on employee training.The average response time for responding to customer calls is 24 to 48 hours and in pension service contracts it varied between 12 to 36 hours . 91% of the maintenance calls were completed within the specified time frame.From the user feedback, it emerged that the deliveries of most of the companies were delayed. Hence many customers preferred to import second hand machines. plan is thereof required to be strictly followed by all the companies for manufacturing, and approximately 90% of them use one, or the other software to enhance talent in manufacturing. Yet the percentage of companies where the shipments are before/within the due hear is very low at only 50%.A choke distinction was noticed in terms of reasons for late delivery.Companies preponderantly manufacturing construction equipment have associated more than 70% of their late deliveries to delay in customer clearance.The reason for late deliveries is attributed mainly to the growth in domestic demand, which was not foreseen earlier by the companies. Delays were therefore mainly attributed to capacity constraints. A illumine out of delayed delivery has been higher imports both for new machines, as well as second hand machines. This issue can be tackled by enhancing capacity of both the manufacturers and their sub-suppliers, tighter monitoring and scheduling and by greater usage of ERP / SCM.Benchmarking With International CompaniesSome broad indications in terms of bench marking of the industry on the basis of financial parameters have been done against a few global players.The companies against which Indian companies have been benchmarked are Caterpillar, Komatsu and Volvo. They are the leaders in their respective fields.2.6 Operational EfficiencyFinancial ParametersThe CII survey results showed that there has been a good growth rate in terms of sales due to the higher investments by the user sectors. Though exports have also move, the percentage of exports to sales is low due to lack of competitive proceeds of machines build with indigenous technology. Wherever machines are built under technology transfer, companies face restricti ons on the export market territory from the technology provider. The power consumed to sales has shown a decline because all companies are now conscious about energy conservation and use various methods like instinctive sack of systems and higher efficiency / low consumption electrical appliances etc. shelter added for an industry is the difference between the value of the output and the value of the input signal namely raw materials bought outs. In other words we can attribute this difference to the value added to the product by the company. The value addition has risen over the years because more manufacturing has taken place in 2003-04 in place of trading as compared to the earlier years. It has again shown a fall upon due to the rising raw material prices in 2004-05. caudex on an average was found to be 26 percent of net sales. mediocre Turnover of Inventory for 2004-05 was found to be 4. The international benchmark is between 5 7.The number of days sales outstanding is on an average within 90 days, which is at par with the engineering industry. This is also in keeping with international trends.Cost of wages to sales was found to be 11.8 percent in 2004-05. The range varied from a low of 3 percent to a high of 28 percent.For Caterpillar Inc. the ratio was 19.8 percent.The employee productiveness is fairly low as compared to international companies. Sales per employee on an average for the industry was found to be Rs.35 lakhs butfor the manufacturing companies it was found to be Rs.32.5 lakhs. This is the reason why though the cost of wages per employee is very low at Rs.4 lakhs, the lower productivity of the employee offsets the advantage. The value added per employee was only Rs.11 lakhs. The global standards for employee productivity i.e. sales per employee is in the range of Rs.160-175 lakhs.ProfitabilityThe industry in India witnessed a grand jump in profitability in 2004-05 over2003-04. The upshot on capital employed is 24 percent and has in creased by 85 percent over 2003-04. The PBIT has increasedIndias Construction Equipment Industry AnalysisIndias Construction Equipment Industry AnalysisAbstractThis research was an attempt to assess the current status of Indian construction equipment industry and the underlying opportunities and challenges. However, the aspects and objectives that were dealt in the research are the current structure, status, competition, financing opportunities and challenges of Indian construction equipment industry. The research was conducted wholly based on secondary data. Following are the key findings of the research.Indian construction industry has entered into a new phase, where prospect of the industry appears extraordinary bright. Indian construction equipment industry is passing through a phase of hurried renovation, where the shifting is taking place from low volume concentrated use of equipment structure to high volume explicit one. Apart from these, the current and future trend also sho ws that the key segments of construction equipment that will have potential market prospects are excavators, loaders, dozers, dumpers and cranes.The growth of Indian construction equipment industry is the outcome of the fast liberalization and globalization of the Indian economy and the construction sector. The real competition in Indian construction equipment industry has been created by foreign players such as Volvo, Komatsu and many others. These companies are leaving no stone unturned to exploit the opportunities in Indian industry. The industry is at the critical juncture (particularly for domestic players) and therefore companies need to equip with safety measures in relation to post WTO market setting.Introduction(Chapter 1)1.1 Indian Construction Equipment Industry Background Historical TrendsConstruction and mining equipment cover a variety of machinery such as hydraulic excavators, wheel loaders, backhoe loaders, bull dozers, dump trucks, tippers, graders, pavers, asphal t drum / wet mix plants, breakers, vibratory compactors, cranes, fork lifts, dozers, off-highway dumpers (20T to 170T), drills, scrapers, motor graders, rope shovels etc. They perform a variety of functions like preparation of ground, excavation, haulage of material, dumping/laying in specified manner, material handling, road construction etc.These equipment are required for both construction and mining activity. With a wide production capacity base, India is perhaps the only developing country, which is totally self-reliant in such highly sophisticated equipment. India has only a few, mainly medium and large companies in the organized sector who manufacture these.The technology barriers are high, especially with respect to mining equipment and therefore the role of SMEs is restricted to manufacture of components and some sub-assemblies. Prior to the 1960s, domestic requirements of mining and construction equipment were entirely met by imports. Domestic production began in 1964 with the setting up of Bharat Earthmovers Ltd. (BEML), a public sector unit of the Ministry of Defence, at Kolar in South India to manufacture dozers, dumpers, graders, scrapers, etc. for defense requirements under licence from LeTorneau Westinghouse, USA and Komatsu, Japan. In the private sector, the Hindustan Motors Earthmoving Equipment Division, was established in 1969 at Tiruvallur, near Chennai with technical collaboration from Terex, UK for manufacture of wheel loaders, dozers dumpers. This factory has since been taken over by Caterpillar for their Indian operations.The machines manufactured by Caterpillar in the Tiruvallur factory are marketed by TIL and GMMCO. In 1974, LT started manufacturing hydraulic excavators under license from Poclain, France. In 1980 and 1981, two more units, Telcon and Escorts JCB commenced manufacture of hydraulic excavators (under license from Hitachi, Japan) and backhoe loaders (under license from JCB, UK) respectively. Escorts JCB has been taken ov er by JC Bamford Excavators Ltd. U.K. in 2003 and is now called JCB India Ltd. Volvo and Terex Vectra is the most recent entrants in the Indian market. Volvo has set up their manufacturing unit in Bangalore.At present they are only manufacturing tippers and the other equipment are imported from their parent company and marketed in India. Terex Corporation USA and Vectra Ltd. U.K. have formed a joint venture, which has started manufacturing construction equipment like backhoe loaders and skid steer loaders from May 04 at Greater Noida with an investment of USD 12 million. Other equipment in the Terex range are being sold through their agents in India. Most of the technology leaders like Case, Caterpillar, Hitachi, Ingersoll-Rand, JCB, John Deere, Joy Mining Machinery, Komatsu, Lieberr, Poclain, Terex, Volvo are present in India as joint venture companies, or have set up their own manufacturing facilities, or marketing companies. The industry has made substantial investments in the re cent past for setting up manufacturing bases, despite small volumes and uneconomic scales of production compared to global standards.1.2 Aims and Objective and of The StudyThis research was aimed to assess the current status of Indian construction equipment industry and the underlying opportunities and challenges. The research was conducted on the foundation of following objectivesTo assess the current structure, status and direction of the Indian construction equipment industry.To assess the competition in Indian construction equipment industryTo assess the financing of Indian construction equipment industryTo assess the opportunities and challenges of Indian construction equipment industryTo develop strategies for competitors (domestic players) in Indian construction equipment industry.To assess the technology, managerial, operational, of the Indian construction equipment industry.Literature ReviewChapter 22.1 IntroductionConstruction equipment is machinery used to build and demol ish bridges, buildings and other structures. These machines usually save labor, time and money. One of them can do more work in an hour than a hundred of workers using hand tools could do in a day. The chief kinds of building machines include earthmoving machineries hoisting, material handling machines and pumping machines. Other construction machinery used are for preparing the land and materials for construction. Demolishing machines are used to demolish structures and buildings.The Indian construction equipment industry today faces stiff competition, great opportunities and challenges, but India has a total command over all these things as according to confederation of the Indian industry report, 2005 as for engineering and capital goods base. The Indian engineering manufacturing sector has been growing at the rate of about 5.9% in the nineties. India today produces a variety of machinery whose range is quiet wide and deep. Rapidly increasing construction sector has been the indi cation of good times for companies manufacturing construction equipments.This project discusses the Construction Equipment industry in India. The structure of Construction Equipment industry in India has been well and truly detailed and mentioning all the requisite facts and figures. Also mentioned are all the factors influencing the Construction Equipment industry in India. A special mention of the suppliers list is made as suppliers are the inseparable part of the Construction Equipment industry in India. The important suppliers are JCB, Atlas, BEML, Caterpillar, Ditchwitch, Komatsu , Ashok Leyland, Escorts, Greaves Cotton, Ingersoll Rand, TETRA, Volvo,Besides all these Indian Equipment Financing companies such as Business Financing, SREI, HDFC , GE Capital, Indian Financial Services have also received requisite expression in this project. Also discussed at the end is about Construction Equipment industry in India facing problems, challenges and opportunities and its future.What I ndia need is better infrastructure in order to progress. The government has also embarked upon massive road and pavement construction projects such GOLDEN QUADRILATERAL connecting / interlinking all four metro cities like Delhi, Mumbai. Kolkatta and ChennaiThe government decision to throw open the construction of roads, bridges, ports and airports to private sector and to allow 100% FII / FDI (Foreign Investments) in real estate projects like (EMAAR) has provided a boost to the industry thereby generating demand for construction machineries. Housing and infrastructure projects are expected to grow about 20% per annum for the next 15 years.2.2 Current Status of The IndustryRamping up quality and quantityThe Construction equipment industries are the biggest beneficiaries of the construction boom. Although the past few years have seen increased levels of mechanization and improved quality, Indian construction equipment and materials are still below international standards. The current status of the construction equipment industry is discussed below.The size of the construction equipment market current stands at between $2.5 billion and $3 billion and it is growing at an average rate of about 30 per cent year on year. It is expected that the industry will expand to $12-13 billion by 2015, including $2-3 billion of exports. This implies annual compounded growth rates in excess of 50 per cent between 2008 and 2015.The largest share of that growth will come from the domestic market driven on the demand side by increased infrastructure spending and on the supply side by the industrys drive to increase mechanization and equipment penetration. The rest of the growth will come from the exports of components, services and equipment. The key infrastructure sectors that are expected to drive demand are roads, urban and residential construction and mining.Amongst the three modes of procuring equipment in India that is, buying, leasing or renting leasing is the most popular. While renting is suitable for projects of shorter duration, buying involves huge upfront payments. Constructions and mining equipment is manufactured by a few medium and large companies in the organised sector. The role of small and medium enterprises is restricted only to manufacturing of components and some sub-assemblies. Domestic production began in 1964 with the setting up of Bharat Earth Movers Limited (BEML), which is engaged in the manufacturing of dozers, dumpers, graders, scrapers, etc., for defence requirements. Some of the key players manufacturing equipment for the Indian market are LT, Telcon, Escorts, JCB India Limited, Ingersoll Rand, Greaves, Caterpiller, Komatsu, Joy Mining Machinery, Case, John Deere, Lieberr, Poclain, Volvo and Terex Vectra. These companies are present either through joint ventures, or have set up their own manufacturing facilities or have a marketing presence.BEML supplies equipment to nearly half the total market. Companies such as BEML and Ca terpillar are leaders in dumpers and dozers while Larsen Toubro Komatsu and Telcon lead in excavators and JCB India in backhoe loaders.In the last few years there has been some restructuring through acquisitions and joint ventures, which in turn, has reflected the interest of international majors in the domestic market. Many international players have also appointed selling agents for importing and selling equipment in India.Despite the growth, there are some inherent problems faced by the construction equipment industry. In India, the demand for construction equipment is more than the supply. Hence, most leading manufacturers have invested in India for manufacturing to meet this gap.The industry is trying to induct international levels of technology as demand and the scale of operations increases. However, the levels of mechanisation continue to be low compared to the international market. This is primarily because the Indian market cannot absorb the cost of latest technology. Si nce most the construction equipment is hydraulically operated, the Indian construction equipment industry has to predominantly depend on imports, primarily from European countries. The fluctuations of foreign exchange rates and the non-availability of adequate quantities of equipment are other constraints.Construction equipment manufacturers also struggle to cope with the low availability of trained manpower, not only for producing equipment but also for operation and maintenance. Manufacturers are doing their best to train not only their own employees but also customers operators and services technicians.Indirect taxes on construction equipment are quite high. These range between 21 and 38 per cent, based on interstate differences, compared to 20 per cent in France and Germany and between 12 and 17 per cent in Indonesia. The government could reduce this tax burden by eventually replacing all indirect taxes such as excise, sales tax, octroi and entry tax with a single tax.It is true construction companies have ramped up significant capacities in terms of equipment over the past few years. However, due to rapid growth, there is still a mismatch of supply and demand in terms of construction equipment. Delays in deliveries of equipment result in delayed mobilization and completion of projects. Further, prices of construction equipment have steadily increased over the past few years, partly due to the high demand, and partly due to increase in input costs. Domestic equipment has a 10-15 per cent higher downturn than imported machines. There is also a lack of skilled manpower to operate and maintain machines as the industry is largely dependent on unskilled labour.Another major issue that has becomes apparent is the financing of construction equipment. The concept of renting equipment has been mooted but the rental market in India is not very well developed. At present, there are very few players and tax issues also play a major role in this industry. The very firs t equipment bank in India Quipo- has been fairly successful. However, with more world leaders expected to enter the renting domain and various models being worked out by rental companies, the situation is expected to improve in the future.In the future, one can expect major global manufacturers to enter the equipment arena by producing India-specific products while addressing factors such as quality, cost to customer and delivery. It is also essential to make available the easy hiring of equipment through a ready stock of good quality equipment.The last few years have witnessed a phase of restructuring in the industry through acquisitions and joint ventures. This also reflects the active interest of international majors in the domestic market. Many international players have also appointed selling agents for importing and selling complete equipment in India.The construction and mining equipment industry is dominated by a few large manufacturers in each product segment. BEML supplies to nearly half the total market. BEML and Caterpillar lead in dumpers and dozers while LT-Komatsu and Telcon lead in excavators and JCB India in backhoe loaders.2.3 Structure of The Industry71% of the sector comprises of public limited companies including PSUs and 29% private limited, or joint ventures including closely held private limited companies.75% of the companies manufacturing in India were involved in the entire range of activities like design and engineering, manufacturing, erection, servicing and commissioning. There are only a few companies who act as selling agents for international players. There are others who manufacture and also import complete equipment or in SKD condition from their principals abroad and market them.Since each piece of the equipment in this product category has substantial value, a number of companies have a turnover of over 100 crores and the larger ones have a turnover above Rs.1000 crores. The technology barriers have made the industry less fr agmented in the mining machinery sector whereas it is fragmented in the road construction equipment and the material-handling segments. The international trend in the earthmoving and mining segment is one of consolidation. This trend is also beginning to be seen in India. Some international companies are looking at the prospects of enhancing their market presence based on higher investment in mining and infrastructure and also using their Indian operations to meet demand in South and South East Asia.The industrys expectations of the likely future evolution in this sector is represented here in graphical form. Most of the current players expect that new players will enter the Indian market.There is great need for improving infrastructure as it has been accentuated by the rapid growth in economy. Of late many development authorities, State government and even companies have started investing in infrastructure development projects.Though the volume of construction equipment in India is far too small compared to countries like china and also by global standards, India does produce a variety of construction equipments such as the earthmoving machinery used to excavate, land and level earth and rock, tractors, trailers, wagons, crawler tractors, bulldozers, scrapers, shovels, draglines, heisting and material handling machinery such as cranes and derricks, material lifts, pumping machines, demolition machinery and machinery used to prepare land and materials for construction.Today, there is much emphasis on infrastructure development. The government spends very little on infrastructure with the result India sells very little of any category of construction equipment. It is shocking to learn that china sells 10,000 excavators energy year but in India, we sell only about 1500.In terms of volume, the construction equipment industry is worth Rs. 4,000 crore. Whether it is roads, bridges, ports, airports, urban infrastructure, or power plants- civil construction has a ver y important role to play. The use of modern tools enables productive work. The rapidly increasing construction sector has been the forerunner of good times for companies manufacturing construction machineries and equipment. There has been a flow of demand for transit concrete mixers, bar- bending and cutting machines, excavators and backhoes and earth rammers on account of the substantial increase in real estate and construction activities.New and expanding housing and infrastructure construction ventures have generated a considerable demand for construction machinery manufacturing and servicing together with erection, commissioning and maintenance. More and more multinational companies are now entering the Indian market on their own strength, whereas previously the trend was to forge joint venture associations with Indian companies. Also, a major portion of the annual budget has been invested by the Central government in infrastructure, irrigation and mining projects across the cou ntry. Due to all these factors these has been a substantial increase in the utilization of construction machinery.The boom in the requirement of construction machinery has brought us several large orders from west Asian and African countries. Thus the exporters of construction machineries too have a boom period. Most of them have made huge profits due to the threefold increase. The demand for construction equipments has also risen because of major Indian construction works working on overseas projects.2.4 TechnologyThe construction equipment sector has a wide range of productsThe technology leaders in the construction equipment sector are Komatsu,Caterpillar, Hitachi, Terex, Volvo, Case, Ingersoll-Rand, HAMM, Bomag, John Deere, JCB, Poclain, Bitelli, Kobelco, Hyundai and Daewoo. Except for the last 3, all the other companies are present in India either as joint ventures, or have set up their own manufacturing facilities, or marketing companies.In the mining sector, the leaders are W rigten, Atlas Copco, Liebherr, Joy Mining Machinery, Hitachi, Komatsu, Terex, Ranson Rappier, Bucyrus Erie and DBT. Out of these companies, DBT does not have any technology transfer and neither is it manufacturing in India. Joy Mining Machinery has a small operation in India to manufacture spares and provide sales support. However, these are the two leaders in continuous mining and long wall equipment in the world.In the construction equipment sector, the level of technology prevalent internationally can be made available in India through joint ventures. However, the equipment currently being manufactured in India is not of the same size. For example for a 15 Cu.M. hydraulic shovel, the manufacturers do not feel the need to bring in the technology due to low volumes and uncertain demand though the companies have the manufacturing facilities and design capabilities to manufacture the same in India.Some of the other reasons for not manufacturing the latest equipment areThe Indian mar ket cannot absorb the cost of the latest technologyIf manufactured in India for export markets, most of the components will have to be importedEquipment adhering to the latest emission norms cannot be used since the quality of fuel required for them is yet to be made available here. At the same time, off highway construction and mining equipment do not need stringent emission norms in India.The construction equipment sector in India has evolved over the years and is at present in an intermediate stage of development. The industry is trying to bring in international levels of technology as demand and the scale of operation increases.The users are now not looking at only the initial cost of the equipment, but focusing on total costing, or cost per ton of usage. It is anticipated that 5 years hence, the need for more and more mechanization and enhancement of scale may lead to change in the level of technology in use.Advances in technology have allowed an increase in haul truck and rope shovel size. For example haul trucks are now being manufactured upto 400 tons capacity. Here the increased machine size has provided an opportunity for increased production.2.5 Management EffieciencyThe industry is quite mature in terms of marketing abilities as compared to the other sectors of the capital goods industry. Majority of the companies have strategic planning programmes in place and have well chalked out business strategies at all levels.In order to enhance their market share, companies need to improve quality and service followed by reduction in costs, increase in product range and finally adopt more aggressive marketing strategies. The competitive edge lies in satisfying customers by delivering higher quality products at lower prices.Strategic alliances are already in place among 60% of the companies surveyed. These are primarily focused on developing and combining competencies with the help of other organizations in terms of marketing, after sales service etc. Only 4 5% of the companies are interested in growth through mergers and acquisitions.The level of quality consciousness is on an average higher than the other sectors probably ecause the companies are larger and many of them are associated with international companies either for manufacturing or marketing their products. Another reason for higher quality consciousness is that more companies in this sector are well versed with the soft technologies being used worldwide for enhancing competitiveness and quality. Approximately 90% of the companies covered under the study have either implemented, or are implementing soft technologies like six sigma, lean manufacturing etc. 100% of the companies manufacturing in India are ISO certified.It was noticed that the percentage of scrap due to errors in manufacturing is between 2% 5% and the percentage of labour hours spent on reworking was 4%. All the manufacturing companies train their workers on quality concepts. However the percentage of workers w ho received company sponsored training on quality concepts in the past two years varied from 20% to 100% in some companies.The average number of hours per person of training provided was approximately 16 hours per person varying from 6 hours to 35 hours per person per annum.Most of the companies were quite responsive to customer complaints and the average number of days taken to respond varied from a day to 5 days in some companies.More than 70% of the companies have undergone business process reengineering for higher customer satisfaction. It has been observed that the majority of the companies in this sector are between medium and high users of computerization.This level of computerization is also comparatively high compared to the other sectors of the capital goods industry. Yet the percentage of IT expenditure to sales in the last one year i.e. 2004-05 was a meagre 0.5% of the total sales i.e. Rs.32 crores was invested by the industry towards computerization either for ERP / SC M / CRM.ERP or enterprise resource planning is an industry term for the broad set of activities supported by multi product application software that helps a manufacturer to manage the important functions of its business including product planning, parts purchasing, maintaining inventories, interaction with suppliers, providing customer service and tracking orders.Supply Chain Management (SCM) is the management of the entire value added chain, from the supplier to manufacturer right through to the retailer and the final customer.SCM has the primary goal of reducing inventory, increasing the transaction speed by exchanging data in real time and increasing sales by implementing customer requirements more efficiently.CRM (Customer Relationship Management) entails all aspects of interaction a company has with its customers, whether it be sales or service related. CRM is an information industry term for methodologies, software and usually internet capabilities that help an enterprise mana ge customer relationships in an organized way.Companies need to be in constant touch with their customers over the electronic media. The percentage of companies using ERP solutions is high with quite a significant number also using CRM for better customer relationship management. However, all the players need to be better integrated with both their suppliers and customers to strive to be the market leader.After-sales service is an important aspect of a companys successful business strategy because all customers would like higher productivity and utilization from their machines in order to be cost competitive. Hence this is an area no company can afford to ignore or accord a lower priority to. All the companies surveyed whether manufacturing, or trading, offered after-sales service to their customer and it was also noted that 70% of them have entered into this field in the last ten years. Equipment manufactured by the industry is mostly mobile and hence subjected to higher wear and t ear and consequently maintenance requirements are higher. Users rate machines with lower downtime higher. Hence, training of maintenance personnel both of manufacturers as well as users is a very important aspect of managing customer relationships. This is also evident from the fact that all the companies spent on training and the majority of them (60%) spent more than Rs.1 lakh per month. Only 40% of the companies spent less than Rs.10 lakh per annum on employee training.The average response time for responding to customer calls is 24 to 48 hours and in premium service contracts it varied between 12 to 36 hours. 91% of the maintenance calls were completed within the specified time frame.From the user feedback, it emerged that the deliveries of most of the companies were delayed. Hence many customers preferred to import second hand machines. Scheduling is therefore required to be strictly followed by all the companies for manufacturing, and approximately 90% of them use one, or the other software to enhance efficiency in manufacturing. Yet the percentage of companies where the shipments are before/within the due date is very low at only 50%.A clear distinction was noticed in terms of reasons for late delivery.Companies predominantly manufacturing construction equipment have attributed more than 70% of their late deliveries to delay in customer clearance.The reason for late deliveries is attributed mainly to the growth in domestic demand, which was not foreseen earlier by the companies. Delays were therefore mainly attributed to capacity constraints. A fall out of delayed delivery has been higher imports both for new machines, as well as second hand machines. This issue can be tackled by enhancing capacity of both the manufacturers and their sub-suppliers, tighter monitoring and scheduling and by greater usage of ERP / SCM.Benchmarking With International CompaniesSome broad indications in terms of benchmarking of the industry on the basis of financial parameter s have been done against a few global players.The companies against which Indian companies have been benchmarked are Caterpillar, Komatsu and Volvo. They are the leaders in their respective fields.2.6 Operational EfficiencyFinancial ParametersThe CII survey results showed that there has been a good growth rate in terms of sales due to the higher investments by the user sectors. Though exports have also risen, the percentage of exports to sales is low due to lack of competitive advantage of machines built with indigenous technology. Wherever machines are built under technology transfer, companies face restrictions on the export market territory from the technology provider. The power consumed to sales has shown a decline because all companies are now conscious about energy conservation and use various methods like automatic switching of systems and higher efficiency / low consumption electrical appliances etc.Value added for an industry is the difference between the value of the outp ut and the value of the input namely raw materials bought outs. In other words we can attribute this difference to the value added to the product by the company. The value addition has risen over the years because more manufacturing has taken place in 2003-04 in place of trading as compared to the earlier years. It has again shown a fall due to the rising raw material prices in 2004-05. Inventory on an average was found to be 26 percent of net sales. Average Turnover of Inventory for 2004-05 was found to be 4. The international benchmark is between 5 7.The number of days sales outstanding is on an average within 90 days, which is at par with the engineering industry. This is also in keeping with international trends.Cost of wages to sales was found to be 11.8 percent in 2004-05. The range varied from a low of 3 percent to a high of 28 percent.For Caterpillar Inc. the ratio was 19.8 percent.The employee productivity is fairly low as compared to international companies. Sales per em ployee on an average for the industry was found to be Rs.35 lakhs butfor the manufacturing companies it was found to be Rs.32.5 lakhs. This is the reason why though the cost of wages per employee is very low at Rs.4 lakhs, the lower productivity of the employee offsets the advantage. The value added per employee was only Rs.11 lakhs. The global standards for employee productivity i.e. sales per employee is in the range of Rs.160-175 lakhs.ProfitabilityThe industry in India witnessed a tremendous jump in profitability in 2004-05 over2003-04. The return on capital employed is 24 percent and has increased by 85 percent over 2003-04. The PBIT has increased