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1Construction_Study_final_mit_Ansprechpartnern.pptx
Munich, October 2011
Market survey
Growth strategies in the global construction equipment market Capturing growth markets in BRIC and beyond
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2 2011 Roland Berger Strategy Consultants
Contents Page
A. Global market survey on construction equipment 350 senior management and industry expert interviews conducted among manufacturers, dealers and suppliers
B. Key growth priorities in the global construction equipment industry 8Regional growth focus on BRIC and other emerging market regions (e.g. Africa and Middle East), evaluation of products/product properties, leasing/aftermarket services and key market challenges
C. In-depth review of survey findings 12Detailed results from interviews regarding prospective growth regions, attractive products, differentiating product properties/services and market challenges
D. Conclusive implications for construction equipment players 29Actionable recommendations and areas of focus regarding markets, products, competitiveness and growth strategies
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A. Global market survey on construction equipment
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This study identified key growth opportunities, important levers and market challenges in the global construction equipment industry
MARKETSGlobal markets, including TRIAD1) and top growth markets such as BRIC
Study scope
Source: Roland Berger
1 OPPORTUNITIES
KEY GROWTH
LEVERS2
MARKET
TRENDS3
MARKET
CHALLENGES4
1) North America, Europe and Japan
PRODUCTSCore construction vehicles and equipment, as well as associated financial, rental and after-sales services
COMPANIESLeading global construction and off-highway machinery OEMs and their component and service providers
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Our study comprises the results from 50 interviews with industry experts located in the six construction equipment lead markets
Study participants by geographical distribution
> 50 senior managers and industry experts from global and regional players in key markets were interviewed
> Markets covered include the US and Germany with a focus of 30 interviews
> Additionally all BRIC markets were covered with 20 interviews in total
SUM: 50 INTERVIEWS
Source: Roland Berger
# 15
n = Number of interviews conducted
# 5
# 15
# 5
# 5
# 5
RUSSIA
GERMANY
BRAZIL
USACHINA
INDIA
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Roland Berger study findings are based on senior management inter-views and insights from industry experts along the entire value chain
Study participants by company type and position held [no. of interviews conducted]
> Vice President> Deputy General Manager> Sales Manager> Marketing and Sales Executive> Director of Strategic Marketing> Product Manager> Business Development & Account Mgmt. Executive
Equipmentmanufacturers
> Global Manager> Head of Marketing> Senior Sales and Marketing Executive> Marketing and Business Development Director> Director of Operations & Industrialization> Director of Supply Chain
Componentssuppliers
> Regional Director> General Manager> Chief Commercial Manager> Sales and Marketing Director> Product Development Director
Dealers
REPRESENTED BYPARTICIPATING SEGMENTS1)
6
8
34
Source: Roland Berger
Vehicle manu-facturers
Suppliers
Dealers
Independent industry experts
Experts > Global industry analyst2
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We conducted a global and comprehensive survey covering most important company size segments along the entire value chain
7
34
14
13
Equipmentmanufacturers
ComponentsSuppliers
Large
Medium
Small
SUM 8
1
5
2
STUDY APPROACH:> Telephone interviews with than
50 global top executives and industry experts Vehicle manufacturers Suppliers Retailers and dealers
SCOPE/COVERAGE:> Study comprises leading global
companies, as well as large regional enterprises and regional players
> All relevant products from new/used equipment sales to after sales and leasing/financing
> Global key markets
REVENUESEGMENTS Dealers
> EUR 5 bn
EUR 1-5 bn
< EUR 1 bn
6
3
1
2
Source: Roland Berger
Study participants by company size and type [no. of interviews conduced]1)
1) Additionally two industry expert interviews conducted
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B. Key growth priorities in the global CE industry
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Growth opportunities for construction equipment industry are in BRIC and newly emerging markets Consolidation is expected
Key findings (1/3)
Source: Roland Berger
1.BRIC MARKETS continue to be the major growth focus due to large investments in roads, ports and other infrastructure> Brazil is very attractive due to its continuing economic growth and political stability> China and India are growing markets, dominated by local Joint Ventures, however room for
new market entrants still available
2.Also OTHER EMERGING REGIONS, such as Africa and Middle East are increasingly attractive for CE companies with large investments planned and various construction OEMs about to enter these markets> In particular South Africa and North African countries are very promising> Also Middle East, ASEAN and Latin America are considered very attractive markets
3.COMPETITION IS INCREASING in the whole industry, along the entire value chain, especially in TRIAD markets Market consolidation is key result> Recent mergers, e.g. Caterpillar (Bucyrus), Terex (Demag) show the extent of ongoing
industry consolidation
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Beyond core construction machinery offer based on distinctive product differentiation, financial and AM service key for growth
Key findings (2/3)
Source: Roland Berger
4.
LEASING IS GAINING IMPORTANCE compared to other financing options, especially loans However, strong regional differences can be observed
> Leasing is considered most important in the future in e.g. Brazil, Russia, China, Germany
> Importance of joint equipment ownerships is rising, however, it is still not as competitive compared to leasing/loan financing options
5.
Among core construction machinery, EXCAVATORS AND WHEEL LOADERS are the most important product segments with BACKHOE LOADERS catching up> Most important technological trends are connectivity, monitoring of vehicle functions and
emissions reduction
> Most relevant and differentiating key components are engines and transmissions
> Most important distinguishing factors on the market are QUALITY, PRICE AND AVAILABILITY OF REPLACEMENT PARTS
> Product range, customization and quality have the strongest rise in importance
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Continuously high importance of COMPREHENSIVE AFTERMARKET SERVICES Large investments are currently made to expand service locations1)
> Availability of replacement parts however is still the most important criterion, closely followed by the demand for a professional key account management and round-the-clock services
> Full service offerings including financing, insurance and service is the fourth most important aftermarket service
6.
GROWTH REQUIREMENTS and MARKET CHALLENGES are strongly diverse across different geographical markets> Growth enablers in BRIC countries tightly linked to governm. support and market regulation> TRIAD markets for CE are mostly saturated with entrenched competitive landscape
7.
Most important KEY MARKET CHALLENGES are emissions regulations, import duties/restrictions and pressure from emerging market competitors> Strong regional differences in market challenges> Regulations are most important in Europe and USA> Pressure from emerging market competitors in BRIC > Import restrictions in Brazil, China and Russia
8.
Regional specifics play a fundamental role and have to be implemented in comprehensive growth strategies
Key findings (3/3)
Source: Roland Berger
1) E.g. by Caterpillar, Komatsu, Terex
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C. In-depth review of survey findings
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BRIC countries are considered the most attractive growth regions, rating significantly better than TRIAD countries
MOST ATTRACTIVE REGIONS
Rating of attractiveness regarding growth potential by key regions
3.1
Russia 3.9
India 4.1
China 4.1
Brazil 4.4
Japan 2.6
NAFTA 3.0
Europe
CITATIONS FROM STUDY PARTICIPANTS
"Attractiveness of Brazilian market is due to the positive economic growth and political stability"
BRAZIL
RUSSIA "Attractive due to growth, however, antiquated manufacturing base, dependency on strong oil pricing, and political problems can inhibit growth."
"Russia weakens itself due to the frequent introduction of new policies, e.g. unfavorable customs regulations"
INDIA "Limiting factors of lack of growth in middle economic class, cultural issues, and weaknesses also in education system"
CHINA "We as component supplier are heavily pushed by our OEM clients to follow them to China"
Source: Roland Berger
1
Low(1)
High(5)
BRIC
TRIAD
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Beyond BRIC, Africa and Middle East have also become the upcoming growth priorities of the construction equipment industry
AFRICA
> South Africa is the single most attractive African country
> North Africa is also a promising growth region, e.g.
Algeria
Egypt
Morocco
Libya
1) Excluding Brazil: Brazil is included in the BRIC specific analysis
MIDDLE EAST ASEAN LATIN AMERICA1) OTHERS
29% 25% 15% 15% 16%> Named countries
include:
U.A.E Saudi Arabia Qatar Afghanistan Iran
> Indonesia is by far the most attractive country in ASEAN regarding growth options
> Other countries include:
Thailand
Vietnam
> Following Brazil, Argentina is regarded the second most attractive market in Latin America
> Other countries include:
Uruguay
Chile
INCLUDING:
> Australia & New Zealand
> Far East
> Central Asia
Most attractive growth regions beyond BRIC and TRIAD markets [% of all mentions]
Source: Roland Berger
MOST ATTRACTIVE REGIONS1
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All companies interviewed consider organic growth in current and entry to new markets Two out of three consider inorganic growth
Growth options pursued by CE companies [%]
All companies interviewed consider organic growth in current markets with most of them having implemented all necessary measures82%
0%
18%
0%
44%56%
36%
43%
21%
38%
42%
21%
NEW MARKETS
Through market entry
CURRENT MARKETS
Through gain of market shares
INORGANIC (through M&A)ORGANIC
All companies interviewed consider organic growth to new markets Only slightly more than half of them have taken measures for implementation
Around 2/3 of companies consider inorganic growth in current markets. However only 21% have taken actual measures
Around 2/3 of companies consider inorganic growth to new markets. However only 21% have taken actual measures
TYPE OF EXPANSION
Not intendedPlannedCurrently in implementation
Source: Roland Berger
ORGANIC VS INORGANIC GROWTH BACKUP2
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Large and medium sized CE companies focus on inorganic growth to further penetrate existing and enter new markets
INORGANIC (through M&A)ORGANIC
Source: Roland Berger
NEW MARKETS
Through market entry
CURRENT MARKETS
Through gain of market shares
TYPE OF EXPANSION
9%
91%
0% 0%
15%
85%
30%
20%
50% 45%50%
5%
33%
44%
22%
30%
30%
40% 40%
50%
10%
41%
24%35%
SMALL MEDIUM LARGE SMALL MEDIUM LARGE
SMALL MEDIUM LARGE SMALL MEDIUM LARGE
Influence of company size1) on growth ambitions [%]
ORGANIC VS INORGANIC GROWTH BACKUP2
Not intended at allCurrently in implementation/realization Planned
0%
28%
72%
27%
73%
0%
0%
55%45%
0%
41%59%
1) Company size by revenues: Small: < EUR 1 bn, Medium: EUR 1-5 bn, Large: > EUR 5 bn
FOCUS AREA
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ADDITION OF NEW PRODUCTS
Product portfolio expansion is considered a key priority with room for M&A deals, whereas pure extension of value chain is less favored
Consideration and implementation of growth options [%]
4%
96%
31%
69%
EXTENSION OF VALUE CHAIN
OVERALL DEGREE OF CONSIDERATION
Consideredthrough organic and/or inorganic
Not consideredat all
4%
59%
37%
40%
38%
23%
7%
41%
52%
55% 38%
6%
INORGANICORGANIC
CO
MM
EN
TS > Most companies consider
adding further products to their product portfolio
> Degree of implementation is low, especially for the inorganic option, indicating further M&A potential
> Extension of value chain is not as attractive to the majority of companies, with 1/3 not considering it at all
> Around 1/4 of companies is currently extending its value chain through organic growth
Not intendedPlannedCurrently in implementation
Source: Roland Berger
TYPE OF EXPANSION
CO
MM
EN
TS
ORGANIC VS INORGANIC GROWTH3
Not consideredat all
Consideredthrough organic and/or inorganic
&
&
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Product portfolio extension especially for large and medium player is intended through M&A Small player focus on organic value chain ext.
Influence of company size1) on growth ambitions [%]
Source: Roland Berger
ADDITION OF NEW PRODUCTS
EXTENSION OF VALUE CHAIN
TYPE OF EXPANSION INORGANIC (through M&A)ORGANIC
0%
73%
27%5%
60%
35%
44%
44%
11%
55%45%
0%
61%28%
11%
33%
44%
22%45%
50%
5%
41%50%
0%
SMALL MEDIUM LARGE SMALL MEDIUM LARGE
SMALL MEDIUM LARGE SMALL MEDIUM LARGE
6%
50%44%
18%
64%
18% 15%
35%50%
41%
24%
35%
Not intended at allPlannedCurrently in implementation/realization
ORGANIC VS INORGANIC GROWTH BACKUP3
1) Company size by revenues: Small: < EUR 1 bn, Medium: EUR 1-5 bn, Large: > EUR 5 bn
FOCUS AREA
FOCUS AREA
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Rating of most attractive core construction equipment vehicles ranks excavators and wheel loaders as most attractive products
Rating of top-5 core construction equipment products Current and future trends
TOP-5 TODAY AND PROSPECTED CHANGE IN ATTRACTIVENESS
> Excavators will remain number 1 construction equipment, as they continue to develop into multi-functional applications
> Among top-5 construction equipment, only backhoe loaders expand in attractiveness
> Skid steer loaders and motor graders have declining attractiveness
1.
2.
3.
4.
5.
Excavators
Wheel loaders
Backhoe loaders
Skid steer loaders
Motor graders
> Electrical control devices/GPS applications (e.g. Caterpillar accugrade technology)
IMPACTING TECHNOLOGICAL TRENDS
CONNECTIVITY
> Realtime monitoring of activity and performance, e.g. vehicle parts operation detection module
> Equipment failure monitoring computer
> Viable hybridization applications are still to be developed
MONITORING
EMISSIONS REDUCTION
Source: Roland Berger
MOST ATTRACTIVE PRODUCTS4
COMMENTS
IncreasingFuture attractiveness: Stable Decreasing
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Within CE products, transmission and engine are and remain the most attractive components, but body trading up
Rating of attractiveness of selected products1)
Engine
ATTRACTIVENESS OF KEY COMPONENTS
1) Grades from highest (5) to lowest (1)
KE
Y C
OM
PO
NE
NT
S
Transmission
Auxiliary modules
Body/Undercarriage
POSSIBLE STRATEGIES
1st
2nd
Source: Roland Berger
MOST ATTRACTIVE PRODUCTS4
COMMENTS
> For the best use of captive resources, focus on the most attractive components
> Engine and transmission are in general most attractive for growth ambitions due to role in fuel efficiency and emission reduction
> Body/undercarriage are gaining importance due to product differentiation
> Auxiliary modules are least attractive for OEMs as supplied by common/ regional suppliers
OUTSOURCING WHERE REQUIRED
POTENTIAL FOR DIFFERENTIATION
3.6
3.7
4.0
4.1
IncreasingFuture attractiveness: Stable Decreasing
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Quality, price and replacement services are the most important characteristics on the market Quality in top-3 in most markets
3.2
Breadth of product
range offered3.4
Costomized vehicle
configurations3.7
Maintenance and
service costs4.0
Local/on-site
service capabilities4.0
Supply of replace-
ment parts4.2
Purchasing price
Coverage of used
equipment2.9
In-house capabilities
for core vehicle compon.
4.2
Product quality 4.5
Ranking of product characteristics regarding potential to be distinguished on the marketGLOBAL RANKING (current)1)
1) Grades from highest (5) to lowest (1)
The three properties PRODUCT RANGE,CUSTOMIZATION and QUALITY have seen the strongest rise in importance
Source: Roland Berger
PRODUCT PROPERTIES FOR DISTINCTNESS 4
1.
2.
3.
4.
5.
6.
7.
8.
9.
IncreasingFuture attractiveness: Stable Decreasing
TREND
Low(1)
High(5)
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Quality, price and replacement services are the most important characteristics on the market Rankings strongly depend on country
Regional ranking of product characteristics regarding potential to be disting. on the market
REGIONAL RANKING
Quality1.
Quality Price Replacement parts
Price Quality
Price2.
Replacement parts
Quality Coverage used equipment
Quality Maintenance costs
3.Maintenance costs
Local/on-site service
Customization Price Maintenance costs Local/on-site service
4.Replacementparts
Customization Local/on-site service
Quality Local/on-site service
Price
5.Local/on-site service
Maintenancecosts
Replacement parts
Maintenance costs
Replacement parts
Customization
6.Customization Price Product
rangeLocal/on-site service
Product range Product range
7.Productrange
Product range
Maintenance costs
Customization Customization Replacement parts
8.Coverage used equipment
In-house components
In-house components
Product range
In-house components
In-house components
9.In-house components
Coverage used equipment
Coverage used equipment
In-house components
Coverage used equipment
Coverage used equipment
Source: Roland Berger
PRODUCT PROPERTIES FOR DISTINCTNESS4
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COMMENTS
The study reveals rising importance of leasing with loans still the no. 1 financial service However regional differentiation can be observed
Importance of financial services to realize growth potentials1)
1) Grades from highest (5) to lowest (1)
> Overall loans are the number 1 financial service
> Leasing has significant importance in Germany and Russia and is on the rise
> In Brazil and China, leasing will gain importance to be the number 1 financial service in the future
+0.1
Joint
equipment
ownerships 2.8
2.5
Insurance3.2
3.0
Leasing4.1
3.8
Loans4.1
4.0
+0.3
+0.2
+0.3
GLOBAL VIEW REGIONAL VIEW (current)
3.9Loans 4.3
Joint ownershipsInsurance 3.5Leasing
2.8
Joint ownerships 2.5Insurance 2.1Leasing 4.1Loans 3.5
Joint ownerships 2.0Insurance 2.8Leasing
4.0Loans4.0
Joint ownerships 2.2Insurance 2.4Leasing 4.4Loans 2.8
Joint ownerships 2.4Insurance 3.0Leasing 3.6Loans 4.2
Joint ownerships 3.2Insurance 3.2Leasing 4.6Loans 4.4
= Countries with leasing as number 1 financial service in the future
Today
Future
Most important for future
Source: Roland Berger
GROWTH POTENTIAL IN FINANCIAL SERVICES 5
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Supply of replacement parts will remain most important AM service with further increasing importance of 24/7 and long term service
All-in-one
solutions2)3.5
4.1
24/7 service
availability4.2
Professional key
account customer
management4.4
Supply of
replacement parts4.5
Mobile service
units3.9
(Longterm) service
agreements
Importance ranking1) of aftermarket services to realize growth potentials
RANKING and CHANGE of interviewed aftermarket services
GROWTH POTENTIAL IN AFTERMARKET SERVICES6
Little differences across the countries included in the interviews were found
KEY FINDINGS
Source: Roland Berger
ALL PRODUCT RELATED SERVICES rank very high on the rating scale
ALL IN ONE SOLUTIONS (financing/ insurance/ services) are ranked at lower priority but with increasing importance
1) Grades from highest (5) to lowest (1) 2) Financing/insurance/services
1.
2.
3.
4.
IncreasingFuture importance: Stable Decreasing
TREND
Low(1)
High(5)
6.
5.
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Growth enablers and market specifics for CE in BRIC are closely linked to national government support and market regulation
> Promising market limited mostly by market inefficiencies and political issues> Unforeseeable changes in customer regulation can occur
> Tariffs and financing restrictions make market very difficult to penetrate without localized manufacturing base
> However even strong differences between Brazilian regions lead to different markets trends
> Market already dominated by large global players aligned with local Indian JV partners
> Growing market with room for JVs to participate
Source: Roland Berger
REGIONAL SPECIFICS7
Regional growth requirements and challenges BRIC
Brazil
REGIONALITY OF MARKET CHALLENGES
Are market trends rather diverse depending on the region?
Russia
India
China
No
Yes
14%
86%
KEY MARKET SPECIFICS IDENTIFIED
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While TRIAD markets are very competitive, Africa, Middle East and Southeast Asia have lower barriers to entry
AFRICA
MIDDLE EAST
SOUTHEAST ASIA
> Major projects being serviced by multinationals
> Local distribution highly dependent on stability of in country sales and service organizations
> Political instability will continue to hinder growth
> Recovery in global markets and petroleum demand will spur continued growth
> Growing manufacturing base and market sophistication will make these attractive opportunities
> Saturated markets: Little room for growth for new competitors due to high overall operating costs
> Users demand the utmost in quality, uptime, comfort and safety Developing regions have lesser expectations
NAFTA AND WESTERN EUROPE
Source: Roland Berger
REGIONAL SPECIFICS7
REGIONALITY OF MARKET CHALLENGES
No
Yes
14%
86%
Are market trends rather diverse depending on the region?
KEY MARKET SPECIFICS IDENTIFIED
Regional growth requirements and challenges Outside BRIC
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Top-3 market challenges are import restrictions, emissions regulations and pressure from emerging market competitors
Overall market challenges for construction equipment1) across all regions
Emissions regulations
3.3
Import duties/
restrictions
2.7
4.0
4.1
Recycling and
environmental regulations
3.6
Phase-out of governmental
stimulus package
Safety regulations
3.1
Pressure from horizontally
more integrated players
Pressure from vertically
more integrated players
3.1
4.0
3.6
Pressure from emer-
ging market competitors
Pressure from East-Asian
competitors (excl. China)
3.4Shift of value creation to
low cost locations e.g. China3.1
Consolidation on
demand side
Bottlenecks in financing /
funding
3.0
3.2
Declining market
demand
Technological developments
e.g. alternative powertrains3.5
REGULATIONS COMPETITION OTHERS
DEVELOPMENT OF TOP-3 MARKET CHALLENGES
1) Grades from highest (5) to lowest (1)
Top -3 market challenge
Source: Roland Berger
KEY MARKET CHALLENGES8
1. Import duties/restrictions
Emissions regulations
Pressure from emerging market competitors
2.
3.
Regulation and competition based key market challenges are most important today
RANKING
IncreasingFuture development: Stable Decreasing
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In each country, certain challenges are most relevant Some of these however are dominant only in certain regions
RANK
Import duties/ restrictions
Emissions regulations
Value creation shift to low cost
Emissions regulations
East Asian competition
Emerging market competition
Import duties/ restrictions
Government support
Emerging market competition
Import duties/ restrictions
Horizontally integrated players
Emerging market competition
Import duties/ restrictions
Emerging market competition
Financing/ funding
Emissions regulations
Import duties/ restrictions
Emerging market competition
Participants indicated different top-3 challenges in their respective markets
Some of the challenges are present in certain countries and regions
Source: Roland Berger
KEY MARKET CHALLENGES8
1.
2.
> Emissions regulation
> Safety regulation
> Recycling and environmental issues
> Import duties/ restrictions2)
TRIAD1) BRIC
REGIONAL SPECIFICS
3.
1) North America, Europe and Japan 2) Focus on Brazil, Russia, China
TRIAD1) BRIC
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D. Conclusive implications for CE players
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To capture growth opportunities in BRIC and beyond, key levers to ensures competitive positioning need to be addressed globally
FINDINGS DETAILS
Source: Roland Berger
MARKETS1
2 PRODUCTS
3COMPETITIVE-NESS
4GROWTH STRATEGIES
Target most attractive CE growth markets> BRIC markets are today the most attractive growth regions and need to be
targeted in a country-specific way> Windows of opportunity to tackle further growth markets beyond BRIC, e.g. Africa,
South America, ASEAN to ensure competitive advantage
Optimize product and service portfolio> Focus on most attractive product segments (excavators, backhoe loaders) by
leveraging differentiators engine and transmissions> Global expansion of financing and aftermarket services needed, but regional
specifics need to be considered
Enhance competitiveness on global scale> Optimize product offering based on harmonized vehicle platforms, but compliant
with regional market specifics (emissions, price levels)> Actively participate in market consolidation through M&A and JVs
Formulate suitable growth strategies encompassing key CE growth priorities> Key value proposition and product/service portfolio> Countries targeted and footprint design> Core competencies and differentiating technologies
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It's character that createsimpact!
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