Case study: Sany goes for European market

The story
China’s Sany Heavy Industry makes machinery such as cranes, cement mixers and earth movers. Sometimes dubbed “China’s Caterpillar”, it is based in Hunan province.

Like many start-ups, it has endured setbacks, from lack of finance to an established brand name, but by the middle of this decade it was established in China and had expanded into south Asia, the Middle East and north Africa.

In 2005, Wenbo Xiang, president, and Wengen Liang, chairman, decided it should export to Europe.

The challenge
The benefits of its experiences in developing countries could not be applied in Europe because the economic, political, social and technological issues were so different.

In addition, compared with incumbent competitors such as Putzmeister, Komatsu and Caterpillar, Sany had many disadvantages: less capital, few experienced international managers, less sophisticated technologies and R&D and no knowledge of the European business environment.

How should Sany integrate itself into the European construction industry and do it quickly before competitors could launch counterattacks?

The strategy
Multinational companies often take a step-by-step approach: they may start with exports before approaching agents, setting up local branches or joint ventures and eventually managing their overseas businesses directly. Examples in China include Ericsson, Motorola and Toyota.

Sany ignored this approach. Mr Xiang and Mr Liang had lived through the struggle of the early years and Sany organised itself for European expansion based on that experience.

For instance, most of Sany’s managers in Europe were its own Chinese employees. This made management easier but they were unfamiliar with local markets.

Its Chinese catalogues were simply translated directly into English without redesign. The products it distributed were standardised for China rather than made to cater for European demand, with such as higher safety standards.

Sany forged ahead to sign up partners such as agents and joint ventures in as little as five months.

What happened
To some degree, the moves and the speed could be seen as mistakes. However, Sany had a mechanism to learn quickly from any errors and take corrective action.

For example, its staff incentives system allows employees to escape serious punishment for mistakes if they show they can learn how to solve and correct problems quickly.

One of its fast responses to a recognised mistake was to adopt a “multi-domestic” approach once it realised how countries within Europe vary. One HQ was set up to deal with Germany and Poland and another was to cover France, Italy, Spain and Portugal. All regional offices report to Sany Europe near Cologne. Sany established a research centre in Germany because of German pre-eminence in manufacturing and engineering. Everyone, including the German engineers, was encouraged to co-operate with the R&D centre in China to design products that European customers wanted.

A new catalogue presented information in a way that was more familiar to Europeans. Two logistics centres were set up to ensure more efficient delivery of products.

The results
Sany has just agreed to buy Putzmeister, a stalwart German Mittelstand company, in its first overseas acquisition, which will roughly quadruple its foreign sales.

Half of Sany Heavy Industry’s sales are now estimated to be from Europe – estimated to be €1.8bn in 2011.

Key lessons
Sany provides an alternative model for the management of ambitious companies pondering how to achieve competitive advantages quickly in a target country.

Its approach of being prepared to make mistakes, whether in organisation, marketing, strategy formulation and people management, and then acting fast to correct them, has helped it adapt to local conditions quickly.
- Financial Times, 27 Feb 2012