India is one of top five markets for us'

Gurman Reen,
Director,
Sales and Marketing,
Global Construction and Infrastructure Division,
Caterpillar India.

Caterpillar India is making a world of difference by providing solutions that help customers to develop infrastructure, energy and natural resource assets. Gurman Reen, Director, Sales and Marketing, Global Construction and Infrastructure Division, Caterpillar India, shares insight on their plan to become a significant player in all the construction categories

Can you brief about the business growth of Caterpillar in 2018,,,

We have been leaders in all the major markets of the world. If you look at the biggest construction markets in the world today, then the first country is China. Caterpillar is close to number one while competing with local Chinese brands. The largest market is the US and there also Caterpillar is number one. The third largest block is Europe where Caterpillar is number one as well. Asia, India is one of top five markets of the world. In the last 2-3 years, the Indian market has almost doubled. If we are to retain our global leadership in the long run, Caterpillar eventually has to reach the top position in India because it is not just about selling machines. It is also about retaining leadership position. For Caterpillar now when you ask how it is moving along, from the goals perspective, it is going well as you can see that revenues are consistently growing in all the major markets of the world.

Would you say the rate at which you are growing in India is justified?

It is beginning to get justified. There is a critical mass of the industry. If you look at excavators, for example, the demand is now reaching 25,000 units per year in India, which is as I said, it is entering into the world's top five industries as a block. It is reaching that critical mass where any manufacturer can come in, make a product for that market and eventually in 3-5 years' time reach a minimum volume for them to get returns. For that to happen there is a critical mass. That is number one. Similarly, the volatility which we used to see, we hope that it will not be there and will be stable now. The industry has reached a record level this year. Also, 2019 is the year of general elections. But expectation of the construction equipment from Caterpillar side is no matter what the election results, the critical mass has been achieved in the Indian economy as such where it may be plus or minus 10% but it won't be a crash of 40-50%. These are the factors which give confidence to Caterpillar. That is why I see a renewed focus and renewed energy and a very long-term view about India.

As you are seeing growth potential in India is of course on the higher side. Last year we recorded the maximum in terms of sales and the next year we have general elections. So do you see the sustainability for the next three years?

Definitely, in the next three years I see there is sustainability and growth, whichever is the government of the day; infrastructure has to be the major focus area. Next year, there could be a slight dip if not flat. That is the expectation we go with. As I said, in 2018 the industry reached a record level. So at a record level to remain flat or minus 5-10% is not a bad thing at all. It is still going to be one of the world's largest markets. In the next three to five years horizon, there is only a positive trend. There is no negative trend as such.

Coming to the product line, which are the major products you consider as star performers in India?

My group is called Global Construction and Infrastructure; we are looking after heavy construction business which is in between backhoe loader and mining all the product portfolios in between. So our star performer is motor grader, which has been the market leader for the last 8-10 years almost.

How much have you grown over the years? Can you put numbers in percentage?

The industry of motor grader has grown by 15% to 20%, while our growth has been double than that. As a growth of volume in India, we are doing quite well and we would continue to do so in the future. Not only are we the leaders, but we continue to accelerate our leadership and that is why I said star performer, motor grader where customers trust the product as such and then obviously the support services that we provide.

As you know, the government has announced that no BS4 vehicles should be sold after June 2020. So how is your company geared up to cater to it and simultaneously whether the pricing factor is going to affect the market?

Already the projects have been started in our company for various product lines which are erodible machines and going to be impacted. We already have locked in what is going to be our engine strategy and the overall portfolio. We are very confident because the same products we sell in all the other markets of the world. We sell in tier-4 final, tier-4 and tier 3 and tier-2 markets. Globally, there are a lot of emission norms, so India will fall under tier-4 final. We already have the product and we already know how to fit it into the machine. We have our own engine unlike any other manufacturer who take engine from some vendor and transmission from another and put it together. For us we have our own engine or our license engine and our own components.  We are already geared up for that. We are ready, By October 2020 all our erodible machines will be BS4. Also, for the question on pricing, generally, it is a cost because you have to have a lot of after treatment. For instanace, you need to take exhaust gas and retreat it so the emission is lower, this system will cost money. However, what I say is that it will cost everybody the same because whichever is the global player they all have to put in that technology. Almost all global players have seen technology of after treatment. This is going to cost almost similar amount. There is going to be a general increase in the prices for everybody. The customer will feel it because everybody will have to raise the price.

Do you think the buying capacity will go down a bit from the initial phase maybe?

They have to increase, in fact. What we have seen is two things: one, we have witnessed some transitions in front of our eyes. For example, I have seen China go from tier-2 to tier-3. Similarly, I have seen Japan go from tier-4 interim to tier-4 final recently. What we see is that there is a pre-buy of machines. Just a year before the emission kicks in, there is a huge industry boom usually as there will be a lot of customers wanting to pre-buy the machines. Typically, the regulation is that whatever has been shipped or manufactured just before that date can be sold, which is one factor. Generally, customers feel that since the older machines will be more expensive, they want to buy it beforehand. But in the long run it will have to be built into the project costs and because if it is October 2020, maybe it will be a big year. In the first 10 months there will be a lot of sales of older machines. However, maybe the first six months of 2021 could be slightly down because of this as people would have already bought a lot of machines. Other than that it has to become stable and it has to be built into cost eventually.

If you put more money into R&D, so in 2020 the pricing factor is not affected…

Our endeavour will be that. Generally, any manufacturer's endeavour is to make it available at the lowest cost as per the market requirements. So similar to our products today, tier-3 or tier-2, which are made available at a much lower price than anywhere else in the world. This way the endeavour will be to minimise the impact but there is a component and there is a technology upgradation, it will cost some money.

Coming back to the strength of Indian teams, how strong is your team, especially in aftermarket sales and service?

We do it through our dealers. Basically, we have two dealers between them, I do not know the numbers but it is well over 200 branches outlets.

Do you have touch points?

No. Subsequently, we have two big dealers who have further divided themselves internally. While one half of the country is with one dealer, the other half  is with the other, they are big conglomerates. For instance, Gmmco is a CK Birla company having a lot of financial profile. They are profit-making companies so they are able to invest in what many other dealers are not able to do. They have big workshops and they have overhauls and are able to stock a lot of parts. They are able to have a lot of services, service delivery truck tools. In a way, all the money which they make from the mining to construction business flows back into this support.

Who is the second dealer?

Gainwell is also in the journey of new dealership. In the last two-three years, they have transitioned a dealership, which is relatively young, focused, and committed on actually growing this product support portfolio. So we see a lot of initiatives and investments being made in this regard. The dealerships are for decades. They make investments into the dealership which they are all making.

Which are the products you launched at bauma CONEXPO India, especially the advanced ones?

When we say advanced, it is a product which helps the customer make more money. I can fit 3D laser system on every machine out here.

But will that be affordable as per the project costing that you said? Number two, will they have enough engineers and technicians to work that system? Number three, will they be able to clear regulatory hurdles? When you say advanced, we usually get carried away with the technology. We have all of that. We have a dealership with both the dealers who have signed up on technology dealership.

Caterpillar partners with Trimble on a worldwide basis in terms of technology collabortion. We have the ability to fit in 2D and 3D systems on each machine which is out there. We do that based on a customer's requirement. We do it for some of our bigger customers and those who have the set up. It is not expensive anymore. Now, a lot of it is very reasonable. The new products have got latest technologies within it, which make them deliver more profit to the customer. This is, in fact, our tagline as well for the new line of excavators. In our new range of machines, we have launched two next generation of excavators for India: 323 and 320, which are part of D3 series.

These products will help a customer
make more profit depending on the application. If they are engaged in the heavy-duty productive environment where moving more material per hour is important, not only that they are working in the toughest of conditions and big blast environment which usually is the case in quarries, this machine is the best machine in the market. It will be the most productive 23-tonne class machine, the biggest bucket, most heavy-duty and carriage while being fuel efficient. The 323 has been developed based on the last few years of study in India. In the case of 320, it has been developed for 0% of other applications, which is irrigation, earthwork like road cutting and agriculture and fish ponds. There are so many ports, applications and crushers where you do not need to work 18-20 hours a day, but you need to work only 8 hours a day. The project cost  is thus optimised productivity for that machine, which is going to be the lower owning and operating costs, while being lower on fuel consumption.

These are two distinct products catering to the two distinct market segments. Earlier, we used to have one product and now we have launched two products. We launched it in September 2018. This will help us turn the game for excavators in India. We, in fact, start our journey with this.

Apart from the technology challenge, there is an issue about shortage of skilled labourer in the Indian market. So how are you addressing the
latter issue?

We are having lot of initiatives in terms of operator training schools run by Caterpillar as well as the dealerships. Our dealers, Gmmco and Gainwell both conduct training programs not only for operators but also undertake technician-level trainings.

Where is the training centre?

We have an education centre in NCIPL where all the educational efforts are going on at the base and foundational levels. We have our certified operator-instructors present at both the dealerships where every machine that we sell from the dealership goes there and trains people on the site.

Do you offer any certification?

Certification requires them to attend some courses. I am talking about some general know-how because our motor grader has 12 levers, making it a complex machine to operate. Every machine that we deliver our certified operator-trainer will go there and he will train all the people at the job site on whether he is working on Cat grader or any other, they will all be trained on the machine. That is the initiative we take as a base line.

Is there any other third party tie up too?

Caterpillar, Gainwell and Gmmco are the three parties. Right now we do not have a tie up with a third party as such. I think further like some governmental technical institute, we do not have a separate operator training school where we are enrolling and doing all those things.

We impart educational training through our dealers and factory. We enroll people in batches and then we train them on product lines, which we support. However, this is at operational level training, there is no set target for us.

What are the future investments in India?

It is going to be a continuous investment process. For instance, this project of bringing these two excavators was an investment plan spread over the past two years.

Considering that these machines are localised in India so there is an investment at many levels, including R&D, support and dealership. We will continue to introduce new product lines. We will see a new product next year as well. I cannot tell you which one but definitely every year we will introduce a big and new product.

Is there any additional information that you would like to share with contractors?

Involve work with the manufacturer at the earlier in your cycle because we see a lot of relationship- based selling happening in India because they know somebody and they will continue to purchase. So what I have at the fortune of within caterpillar working in other places like Singapore and the other countries, some of the matured markets the decision making is purely on the technical grounds. The decision making by the contractors is purely on what suits their project and what fits within the best return in the long term. We continue to work with customers.

Obviously, we also need to develop relation. But we want to work with our customers to make sure that we are involved earlier at the project bidding phase itself so that they can build in whatever is the costing element into it but also the returns. We have system and product application specialists.

We are one of the few companies who actually do job assessments, fleet mapping and recommendations. We can go and
look at job site, we can do job site optimisation. These specialists are not people who fly down from the US but these are individuals trained at Caterpillar and dealerships in India. For the bigger contractors who work with us from the beginning we actually do all these things and we want to extend this facility for all our customer base.

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