The mergers and acquisitions in Chinese construction machinery industry is speeding up

On 26th December 2008, Changsha Zoomlion Heavy Industry Science & Technology Development Co., Ltd officially merged Changde Xincheng Hydraulic Pieces Co., Ltd, which was engaged in operating various engineering hydraulic valves, electromagnetic valves, pneumatic valves and complete hydraulic systems, the major provider of the hydraulic valves for Changsha Zoomlion Heavy Industry Science & Technology Development Co., Ltd. The mergers with Changde Xincheng Hydraulic Pieces Co., Ltd enriched the hydraulic product chains of Changsha Zoomlion Heavy Industry Science & Technology Development Co., Ltd, providing reliable guarantee for obtaining high quality hydraulic valve components.

Many Chinese construction machinery products are surplus in yield capacity and low in profitability. In the fast output growth period, the inner competition leads to the profit growth less than the revenue growth. Once the demands in the downstream slow down, most enterprises will be in the passive situation, have to survive through price competition and do not have enough energy and capitals to take the long term development into account. With the exacerbation of the international financial crisis, the capital chains of many enterprises have been broken, making some strong enterprises enable to purchase the high quality assets at low price.

Although Chinese construction machinery market rises at fast speed, yet it is not the best strategy for the foreign enterprises to export the products to China directly except for some minority products. The construction machinery price in the global market is usually 50 to 150 percent higher than that in Chinese market. Due to the large price differences, many domestic users prefer to choose the domestic products slightly inferior in quality, but not the imported products.

Under such circumstances, the foreign manufacturers are positive to find out the production and sales opportunities in China. To merge the domestic construction machinery enterprises becomes their priority selection, which enables the foreign enterprises to obtain mature production lines and sales channels quickly.

For the European and American market, the financial crisis propels the consumption direction from upstream purchase to downstream purchase. The products in high performance cost ratio and low costs receive more and more favor. As far as Chinese construction machinery enterprises are concerned, high performance cost ratio and low costs are their product advantages. Besides, there is high condition for Chinese construction machinery products entry into the developed countries, especially European and American market. Under the influences of international financial crisis, the consumption direction of these high quality markets will be transferred, which provides favorable opportunities for Chinese construction machinery enterprises to open up these high quality markets.

Originally, Chinese construction machinery products occupied small market in the developed countries. Not only the decrease demands in the European and American countries but also the newly born market in the developing countries will affect the export of Chinese construction machinery products. To cope with the international financial crisis, the market in the developing countries will become the hotspot for Chinese construction machinery enterprises.

As far as the multinational construction machinery enterprises are concerned, to merge Chinese outstanding enterprises enables them to control more Chinese market, get rid of the competitors and gain more profits in Chinese market. Also, they can take the merged Chinese enterprises as their global production bases, making use of the low costs in China to cut down the production costs. For Chinese construction machinery enterprises, partial strong enterprises are not only satisfied with the development in the domestic market, and begin to adopt the going-out strategy and merge the overseas construction machinery enterprises so as to gain more market shares.

It is predicted that the mergers and acquisitions in Chinese construction machinery industry will be speed up in 2009 and 2010. One the one hand, the mergers and acquisitions will be speed up among the local enterprises. Some multinational enterprises, such as Caterpillar, will also intensify the mergers with Chinese construction machinery industry so as to cut down the costs and occupy more market; on the other hand, partial Chinese enterprises will strengthen their overseas mergers and acquisitions so as to obtain more global market, such as Changsha Zoomlion Heavy Industry Science & Technology Development Co., Ltd.

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