From Austria to the world3 August 2012
Over the last ten years Palfinger has worked to diversify its product range and internationalise its sales. Will North spoke to CEO Herbert Ortner, and managers of the group's new worldwidebusinesses, during the company's 80th birthday celebrations near Salzburg
Last month, in St Wolfgang, near Salzburg, Palfinger celebrated its 80th birthday. The celebrations came at the same time as a significant step in CEO Herbert Ortner's strategy to build the business, the signing of two joint venture agreements with giant Chinese equipment manufacturer Sany.
Ortner says, "Ten years ago, more or less 100% of our turnover was knucklebooms. Our product was heavily influenced by the construction industry, so whenever the construction industry had a problem, we had a problem.
"Up until two or three years ago, our main strategic drive was product diversification, with investment in new products like truck mounted platforms, forklifts, and tail-lifts, to be better positioned when it comes to different industries.
"We did that, more or less, through mergers and acquisitions (M&A). The companies we acquired had been built up over years; we were lacking sales and dealer networks, customer relations, brand names. So we followed an M&A roadmap.
"The target was to achieve 50% of turnover from cranes, and 50% from other products. That has been done now: for two years that has been our turnover split.
"So our second most important strategic target, internationalisation, has come more on the roadmap. For decades, Palfinger has been exporting to several markets, but Europe was until a few years ago 80-90% of the turnover, sometimes as much as 90-95%. A few years ago we defined a long term target to achieve approximately one third of turnover in the Americas; one third in Asia-Pacific; and one third in EMEA."
While the global financial crisis decimated many knuckleboom businesses, it provided an opportunity for Palfinger. Ortner says, "It was the perfect opportunity for us to carry out M&A projects in North America: Omaha Standard, ETI, Paro and InterLift. It was perfect timing for us: financially, we were a healthy company, and we able to do something."
The development of Omaha Standard as part of Palfinger was led by service truck industry veteran Mark Whaley, President of Palfinger Omaha Standard. Whaley's team looked to develop products that merged Palfinger's expertise in fabricating highly optimised cranes with Omaha Standard's experience as a manufacturer of uniquely North American service trucks. He says, "In a relatively short period of time we introduced four new models of these telescopic cranes, and are in the process of launching five new models to complete the product offering.
"As part of this development we designed a complete line of mechanics' truck service bodies to accommodate these new cranes. Developing these bodies required that we incorporated several of the advantages that we employ as a large-scale service body manufacturer, while recognizing the unique requirements needed to support the torsional stresses of these new cranes. During the development process of our new service cranes, the market dropped around 80%; however Palfinger remained committed to their development. Since we introduced these products we have begun to see a rebound of the service crane market. We import those components that can't be produced in North America, such as boom assemblies and Palfinger's proprietary winches, from Palfinger's other manufacturing facilities. For example, we use the same hexagonal boom profiles for our new larger service truck cranes as Palfinger uses on their knucklebooms.
"In the US, the tensile strengths of steel and the forming equipment required for these booms are not available. Using Palfinger hexagonal booms provides us with superior lift-to-weight ratios.
"Our primary focus for Omaha Standard has been to establish and fully support North American distribution. But at Palfinger's international sales conference in Austria this year, we had a great chance to meet and discuss the service truck business with Palfinger dealers throughout the world. That opens the door to the internationalization of Omaha Standard's product."
Another key plank of Palfinger's expansion has been its recent pair of joint ventures with Sany. Ortner says, "The JV with Sany is key for us. It will become by far the biggest market for our products. It is already the biggest market in the world for trucks, for construction equipment, and for mobile cranes. So it is logical that it will be the biggest market for our products.
"It was clear from the beginning that it must be a joint venture. From the legal point of view, you can only get a mounting license if you are a Chinese company or if you are a JV with a Chinese company owning at least 50%. Even if it had not been necessary for that reason, we would always have gone for a JV in China. There are four or five strong players there -- Sany, XCMG, Zoomlion, LiuGong -- and they have the sales and service networks.
"We had negotiations with all of them, but Sany was our preferred partner form the beginning. After the first meeting, we were sure they were the best partner. We signed the JV in February.
"In 2011, the Chinese loader crane market was about 10,000 units: 7,000 stiffbooms, and about 3,000 knucklebooms. Knucklebooms are already a major part of the market, but we will have to develop stiffboom products. Sany has a stiffboom they have already started to develop. This will be bought into the JV, and we'll bring in our knucklebooms."
The agreement to distribute Palfinger cranes in China, known internally as JV A is, however, only half of the agreement. The other side, JV B, will see Palfinger become a distributor for some Sany cranes around the world. Ortner says, "In negotiations with Sany, we found out that they were in the same situation as us. Just as we're a European player focused on internationalisation, so Sany is a Chinese player that has to go for internationalisation. They have a $7bn turnover, but 95% is in China.
"In the discussion with Sany Heavy, we found it could make sense to have a JV between Palfinger and Sany Mobile, the unit that fits best with our product. They were looking for partners for overseas distribution. That's the reason why we said, 'OK, let's make a second JV'.
"It's a sales and distribution JV where we have the exclusive sales and distribution rights for Sany mobile cranes in Europe, CIS, and (only for a limited product range, the TCC) for the Americas."
The project is being managed from Salzburg by Nan Jiang, vice general manager of marketing and sales, Sany Mobile Cranes, and Michael Gruböck, manager, corporate development, Palfinger.
Gruböck says, "Palfinger has proven that it knows how to sell lifting products in these territories. We've got good relationships with rental companies. There are synergies between our industries and customer segments, in both service and sales activities. And we know the legal requirements for these markets, like Europe's CE marking and Russia's GOST programme."
Nan explains that, from Sany's side, "We had a factory available in Russia, but it was hard to build service and sales by ourselves. We couldn't partner with companies like Liebherr, Terex or Manitowoc, as they are competitors."
The two JV B managers say that the companies haven't yet made a decision on whether to produce Sany cranes in Europe. As part of the agreement, Sany has committed to work with Palfinger to produce cranes in line with CE requirements. But, they point out, there are big differences between a 200t all terrain sold in Germany and a similar crane sold in China. In order to get Sany's product competitive and compliant in the EU, the Chinese company will be prototyping cranes in Europe and the Austrian company will be providing engineering support. The decision then will be to decide where the companies can find supply chain benefits to manufacturing or assembling cranes locally in Europe. The JV focusses as much on supporting Sany with building a service network as it does on developing new cranes. Sany will be building new parts centres in Germany and Moscow, with help from Palfinger. Small parts supply will be handled by Palfinger; heavier components, too big to be handled by Palfinger's normal parts supply warehouses, will be held by Sany in Germany.
Key to the deal's viability, Gruböck says, is that the two companies have similar ownership structures, "We have the same understanding of business, of service, quality and innovation. Sany has proven its superiority to its competitors."
Deals like this will be vital to Palfinger's future, Ortner says: "We're not any longer dependent only on cranes and construction, and not any longer that dependent on Europe. Especially at times like this, when Europe is weak, that's not only nice to have, but a must have."