Sailing high on the winds of growth
More opportunities are round the corner, says Volvo CE chief
Going gets tougher for machinery makers
Sailing in strong winds, rather than in favorable conditions and managing to bring the vessel safely to port, is what makes a true sailor, says Martin Weissburg, president of Volvo Construction Equipment.
The president of the leading construction machinery maker says that combating the high winds requires extraordinary grit, perseverance and skill.
And, these are precisely the qualities that a good CEO also needs, says Weissburg.
His words could not have come at a more opportune time, considering that Volvo has been one of the few bright spots in the machinery making industry, which is reeling from dwindling demand and low product prices.
China’s economic slowdown in 2014 has added to the woes for the industry, with growth slowing rapidly for several companies and product prices crashing.
Weissburg, however, wants the companies to take cues from the Volvo Ocean Race sponsored by Volvo Group. “The Ocean Race is a roundthe-world race that challen- ges human physical limits and wisdom, while the economic downturn is something that will showcase real business leaders,” he said.
Volvo CE, a subsidiary of Sweden’s Volvo Group, will continue investing in its largest single market — China, much like a sailor determined to complete the voyage irrespective of the odds, said Weissburg.
“All the markets experience various business cycles. China is experiencing the downside of the cycle right now, something that is prompting companies to rethink their business strategies,” he said.
“When the market recovers, it will be a much more stable business environment and we are confident that we will also be more stronger by then.”
Weissburg’s optimism comes in stark contrast to dismal performance reported by several global construction machinery makers during the fourth quarter of 2014, largely due to the slowdown in China.
The United States-based Caterpillar Inc, the market leader, reported a 25 percent drop in fourth-quarter profit to $757 million and lowered its expected earnings for the full year due to weak commodity prices.
China’s machinery industry expanded 9.4 percent and generated total revenue of 22.2 trillion yuan ($3.57 trillion) in 2014, according to data provided by the China Machinery Industry Federation.
The growth rate was 4.4 percentage points lower than the previous year.
The industry posted aggregate profits of 1.56 trillion yuan for the period, up 10.6 percent, but the gain was 5 percentage points lower than the previous year, mainly because of declining prices and shrinking demand.
Chen Bin, chairman of the federation, said that foreign companies still made more profit than domestic companies due to their technol-
trillion ogy advantage.
“Thus, their difficulties are lesser than the ones faced by Chinese firms.”
He said the construction equipment sector saw a sharp decline in product sales because of China’s weak real estate market last year.
Chen said that the rapid development phase of the machinery industry has gone and it will post relatively lower growth in the long term.
Weissburg, too, shares similar views but has a more optimistic outlook.
“This year will be even worse in terms of sales. But we will see an improvement from the second half of the year and this will continue on to 2016 also,” he said.
“There are already enough indications that more opportunities are round the corner. China’s financing system is evolving and developing. Property ownership policies are being revamped.
“In fact, China is seeing a major business transformation and most of it is what I would call as ‘necessary changes’. ”
For Volvo, it is not only a period of growth and learning, but also an opportunity to be prepared for the challenges ahead.
“We judge ourselves not just on how we perform in the best of our times, but also on how we fare during difficult times,” he said.
That said, the Volvo CE does not plan to make any changes to its existing strategy in the China market.
The company will continue to hire more people in China, especially for its technology center in Jinan, Shandong, said Weissburg.
“Going forward, the center will have fewer Western employees and more Chinese talent,” he said.
“We will be more localized in the technology center in order to produce goods that suit the market. We want to continue our leadership in the market and realize profits in a smart way.
“China is going through a very bad downturn of the construction sector. But people in other markets such as the United States and Europe have had multiple downturns. This is a business cycle that we need to get through together,” said Weissburg
According to Weissburg, challenges are crucial for sustained growth. “It might be easier for businesses if there were no big tasks or huge stress, but then they would also get bored fast.”