European OEMs highlight that demand from markets outside Europe and the increasing importance of aftermarket services are two primary value-creating opportunities for the next five years.
European original equipment manufacturers are about to shift priority from being operations-focused to becoming customer-centric.
The European construction equipment manufacturers are on the brink of profound transformation, driven by external factors such as rising competition from emerging markets, tightening regulatory requirements, the gradual growth of rental as primary customer segment for several machine types, weak economic recovery and the advancements of telematics and data-driven solutions.
This is according to McKinsey & Company report, Towardsa customer-centric construction-equipment industry, which finds that these trends are converging and collectively hitting the industry at once, with the potential to change the competitive landscape.
As a result, original equipment manufacturers (OEMs) are about to shift priority from being operations focused to becoming customer centric, says the report. “Demand has been highly volatile and is currently weak, the customer landscape and expectations of OEMs are changing, new and potentially revolutionary technologies are coming (for instance, electrification and big data), and competitors from emerging markets are getting stronger. Change is not new in construction equipment. But what is unique about this moment in the industry’s development is that many of these changes are converging and hitting the industry all at once,” says McKinsey & Company.
Competitors from emerging markets are getting stronger and European OEMs see emerging-market competition as a key threat as they will not be able to compete with them on price in most cases.
European OEMs highlight two trends as the primary value-creating opportunities for the next five years: the demand from markets outside Europe and the increasing importance of aftermarket services.
Asian, Middle Eastern, and African markets are expected to have the greatest growth prospects, and aftermarket services may allow margin boosts in developed markets. But to make the most of the potential of these two trends, it is essential that European OEMs offer differentiated products, services, and solutions, says the report.
“These players see emerging-market competition as a key threat and will not be able to compete with them on price in most cases. Differentiation requires a deep understanding of their customers’ businesses and a leading technology position – when it comes to the actual machines, as well as the ecosystem surrounding the equipment.”
The most important criteria for success for European OEMs in the future are perceived to be developing a deep understanding of how customers create value and being on the technological forefront.
Drastic shift of priorities
The construction-equipment industry has traditionally been heavily focused on engineering, but, over the years, manufacturing factors of scale and cost have become a priority as international competition intensified. Looking into the future, OEMs point to a drastic shift in their priorities. The most important criteria for success in the future are perceived to be developing a deep understanding of how customers create value and being on the technological forefront.
This goes hand in hand with the foreign market and aftermarket opportunities. While these opportunities are by no means new, the report finds that there is a conspicuous change in the mind-set and focus of OEMs regarding how to go after them – they are shifting their emphasis from operations to a customer-centric perspective.
This shift is happening now as a result of several converging trends in the industry on both the OEM and customer sides. The two parties, as well as dealers in between, are drawn together, for example, as machine data reaches a pivotal point for OEMs to support customers on operations. “The rising complexity of machines, which requires deeper expertise, and customers’ growing focus on their core, including increased outsourcing of maintenance and repair, also bring OEMs, dealers and customers closer together,” says McKinsey & Company.
To gain deep customer insights and stay at the forefront of technology, OEMs need to take several steps:
- collaborate closely with dealers to gain access to and deliver on customer insights
- raise R&D investments and make other selective investments to keep pace with accelerating technological development
- develop refined performance-related offerings for customers
- modularise product portfolios to retain scale benefits while differentiating the offering
- build new capabilities and rebalance governance from operations to customers
- strengthen their agility and action orientation in corporate processes
Equipment Africa says: OEMs see opportunities both to grow and to increase margins, and they are clear on the shift in mind-set and focus required to succeed:customer is king. The move from an operations-focused perspective to a customer-centric one is a major step in the right direction. Customising equipment to meet the end user’s needs to help them grow businesses and increase margins means they will in turn have the financial muscle to further invest in their equipment needs.