Ecological balance of Construction machinery industry in China

The ecology of the industry is at risk


The same is true of China's construction machinery industry. Take excavators as an example. From 2001 to 2011, the development of excavators in The Chinese market experienced a golden decade, with a compound growth rate of more than 30%. However, due to the industry's eagerness for quick success and instant profits, frantically expanding capacity, resulting in a serious imbalance between supply and demand. China's excavator production capacity is 538,000 units, far exceeding global demand, according to UK-based Off-HighwayResearch. Manufacturers had to lower the bar by cutting prices, lowering down payments and aggressive credit sales in order to sell more devices.


Markets, however, the real demand does not depend on the manufacturer's production capacity, short-term prosperity is only brought by the four trillion economic stimulus cash advance the future demand, through a variety of promotions in a wide range of designs made in "artificial bull market" and not for a long time, break the balance of supply and demand will only to manufacturers, agents, Banks, and users have serious financial risk. When the market holding far exceeds the market demand, the rate of return on investment of equipment also decreases, which directly affects the repayment ability of customers, resulting in the increase of agents' creditor's rights and the sharp increase of credit sales risks.


The pursuit of high profits destroys the ecosystem of the industry and ultimately hurts everyone in it: manufacturers, agents and users. In the past 10 years, excavator manufacturers have continuously offered "zero down payment, old for new, three years half-price recovery, lifetime free warranty" and other "innovative" marketing strategies, but few people seriously evaluate the risks and harm these radical practices bring to agents.


Rule reconstruction: Is it too late to mend?


China's construction machinery market has been in rapid decline for four consecutive years, and it may take a few more years for the crisis to pass. In the face of severe market situation, have we ever considered: what causes the great depression of the construction machinery market? It is never too late to mend, if we do not learn lessons, even if we get through this crisis, we will still make the same mistakes in the next crisis, the same fate!


China's economic growth rate just dropped to 7%, the construction machinery industry felt the cold winter, but this growth rate is already a luxury for western developed countries, in fact, in 2014, China's sales still surpassed North America to occupy the world's largest construction machinery market. Why can foreign construction machinery enterprises still survive and develop under the economic growth environment of less than 2%, while we can hardly survive under the economic growth environment of 7%? The current crisis is not caused by a slowdown, but by the fact that we have upset the ecological balance of the construction machinery market, just as we have destroyed fisheries and forests. We not only rationally invested a lot of excess capacity, chose the radical credit sales model, and even sold a large number of components to the parts market at a low price to cash out when the market declined, but also foolishly shouted the slogan of "free warranty for life", killing the post-market of construction machinery!


Foreign engineering machinery mature market also will use credit sales model, but the country has a perfect credit control system, and the loan is purely commercial behavior between Banks and their customers, Banks have an aptitude for professional personnel to the customer and asset assessment and audit, appear overdue payments will be made by bank for collection or by the legal process. China's business environment is different from that of foreign mature markets. In a country lacking perfect credit system, the radical credit sales model and excessive use of financial leverage will inevitably pay a painful price. If we do not sum up the experience and lessons, analyze the root causes of this crisis and abandon the wrong practices, we may repeat the mistakes of history.


When the fishermen of Zhoushan fishing ground "knock gu fishing", if someone does not do so, the yellow croaker will be caught all by others! When some people in the construction machinery industry propose crazy marketing measures like zero down payment, there are always other companies following suit, not because they don't know the risks involved, but because they are afraid of losing their business to others! If this irrational, bandwagon marketing culture does not change, the future of the industry will be bleak. Therefore, it is urgent to rebuild the ecological environment and development rules of construction machinery industry.


In the Story of Purpose, Joe Lehmann points out that the best companies in the world are those that have a high purpose to make the world a better place for what they do. One of the biggest problems in the enterprises of the industry is the only pursuit of profits for enterprises, the development of the industry become a quick buck, by hook or by crook, and profit expansion of competition, the lack of social responsibility, no one give full consideration to the ecological balance and health development of industry, and this is the crux of the development of Chinese construction machinery industry.