Rebuilding Japan
Joint Development of Parts with Japanese Suppliers
China and North Asia Division, Friday, July 01, 2011
Sany Heavy Industry Co., Ltd., which became famous throughout Japan for providing free of charge the pump vehicle capable of pouring water on the Fukushima Daiichi Nuclear Power Plant from a height of 62 meters (approx. 100 million yen, including transportation costs), had established Sany Japan Co., Ltd., a Japanese subsidiary, for the purpose of assisting the procurement of parts from Japan, in August 2008. On June 10, 2011, JETRO interviewed Mr. Tomohiro Kawazoe, president of Sany Japan Co., Ltd., on the developments leading to the company's entry into the Japanese market and the challenges of doing business in Japan.
Sany Heavy Industry Co., Ltd. (head office: Changsa, Hunan Province), is one of the top-ranked construction machinery manufacturers in China. It was established in 1989 by four founders, including Liang Wengen, chairman of the board of directors, and three others who had left a state-owned company. The Sany Group in 2010 recorded sales of 50.2 billion RMB (approximately 627.5 billion yen), which represented a 60% increase from the previous year. The group has 60,000 employees with subsidiaries in 30 countries/regions throughout the world, including Japan, and exports its products to over 110 countries/regions across the world. The company name comes from the corporate philosophy of pursuing the "three first-classes," i.e., "establish a 'first-class' company, nurture 'first-class' human resources, and make 'first-class' contributions."
Procures more than 50.0 billion yen from Japan annually
Question: Tell us about the developments leading your company to enter the Japanese market along with a summary of your business.
Answer: Although Sany Heavy Industry had been procuring key parts, such as hydraulic parts and engines from Japan, the major Japanese suppliers could not keep up with the demands of Sany Heavy Industry, whose production had been increasing more than twofold every year, and parts procurement was becoming a bottleneck for the company's growth.
In light of these circumstances, Sany Heavy Industry established its Japanese subsidiary on August 5, 2008 for the main purpose of supporting the procurement of parts from Japan. Currently, we have approximately 10 employees. When we first commenced operations in Japan, we procured over 50.0 billion yen annually, but in 2011, procurement is expected to exceed 80.0 billion yen.
Although the largest supplier of our key parts is Japan, we also procure a considerable amount from Germany. We procure certain parts that cannot be supplied by Japanese suppliers from Germany and the U.S. Previously, our role was limited to supporting the direct sales of parts from the supplier to Sany Heavy Industry, but in recent projects there have been numerous cases where Sany Japan bought parts from the suppliers and sold them to Sany Heavy Industry.
The Japanese construction machinery market is a globally meaningful market
Question: How do you view the Japanese market?
Answer: When we initially started operations in Japan, we were not enthusiastic about conducting sales in Japan. The industry's top spots were all held by Japanese companies, and competition was fierce in the market. Moreover, because of Japanese road conditions and other factors, large construction machines, which were the strengths of Sany Heavy Industry, did not necessarily fit Japanese demand. In addition, as the market itself has not exhibited much growth, we knew from the start that sales in Japan would be difficult. Nevertheless, the sales division had been conducting research on the Japanese market, and our turning point came when we offered our pump vehicle to the Fukushima Nuclear Power Plant. We have been receiving many inquiries since then.
The Japanese construction machinery market is particularly meaningful globally. Despite not being able to record significant sales, just being able to sell in Japan gives us global recognition and will enhance our image.
Sany Heavy Industry has made it company-wide policy to be on site within three hours, whenever we are notified of a malfunction of our products, and to solve the problem within 24 hours. Each one of our products is equipped with a GPS system, allowing us to monitor the location of our products and to be able to be on site within three hours, should anything go wrong. In China, we are No.1 in the industry in terms of customer satisfaction with our after-sales service, and this is one of the reasons for our growing sales.
Currently, as the cost of establishing an after-sales service network in Japan would be too high, we are considering partnering with a Japanese company for an after-sales network.
Pump vehicle capable of pouring water from a height of 62 meters, which Sany Heavy Industry provided to the Fukushima Daiichi Nuclear Power Plant free of charge (Photo by Sany Japan)
Looking toward joint development with parts manufacturers
Question: What kind of problems or challenges have you run into business-wise in Japan?
Answer: When incorporating a company in Japan, unless you have a company, you cannot lease real estate; and if you cannot lease real estate you will not have the address necessary for registering your company. In the case of Sany Heavy Industry, we were able to lease real estate prior to the registration of the company because we happened to know someone who owned an office building. We believe that unless you have connections, it is difficult to establish a company in Japan.
Question: What will the direction of your business be in the future?
Answer: To improve our sales in Japan and deepen the cooperative relationship with our suppliers.
Japanese construction machinery manufacturers develop their own engines and hydraulic parts for their products. Meanwhile, Sany Heavy Industry procures parts, such as truck engines, which benefit from mass production in terms of costs, from Japanese companies. We believe that if we are capable of mutually utilizing our strengths with Japanese companies and complementing each other's weaknesses, there is no need to push ourselves and manufacture all of our parts internally.
There are already a number of cases regarding the joint development of parts with Japanese parts manufacturers, and a number of these manufacturers have formed alliances in order to enter the Chinese market. Sany Heavy Industry's concept is for Sany Heavy Industry to build the outer chassis, while the inner parts are jointly developed with suppliers. Previously, many of the parts jointly developed with suppliers were large parts, such as engines and hydraulic parts, but from now on we hope to jointly develop the smaller parts as well.
Factories are currently being constructed in the U.S. and Germany, and once these factories begin operations, Sany Japan will assume the role of globally purchasing Japanese parts and exporting them around the world. By partnering with Sany Heavy Industry, Japanese suppliers will be able to sell not only in China but globally as well.
The Great East Japan Earthquake proved the strength of Japanese monozukuri
Question: What has been the impact of the Great East Japan Earthquake?
Answer: At the world's second-largest trade show for construction machinery held in Las Vegas, the pump vehicle we offered to the Fukushima Nuclear Power Plant attracted a great deal of attention, and we received inquiries from all over the world, including Japan. In particular, our concrete pump vehicles attracted a large number of inquiries.
The Great East Japan Earthquake once again seemed to prove to the world the strengths of Japan's monozukuri. Business in Japan has not changed since the earthquake. We have been given orders by head office management to do everything in our powers to support Japan in its restoration efforts.
