Construction & Heavy Industry | Challenges, Opportunities

Construction & Heavy Industry | Challenges, Opportunities

INTRODUCTION

Infrastructure development is one of the top priorities for nations, and often a key indicator of its economic growth. The same theory holds true for India as well. Likewise, the construction & heavy equipment (C&HE) industry is a key component in India’s infrastructure growth plans. The 12th Five Year Plan by the Indian Government estimated infrastructure developments to attract investments of about $ 1 tn – a 100 % increase from the 11th Five Year Plan estimates.

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The C&HE sector in India is presently overlooking an ocean of opportunities as the country goes through rapid infrastructure development. In the past few years, many global players in this domain have entered the Indian market to take advantage of the upcoming opportunity. Domestic companies too have inked joint ventures and technical collaborations with global players to maintain their competitiveness in the wake of increasing competition.

All these moves indicate a significant upswing in the sector in the coming years. These opportunities, however, have a parallel force of challenges from the market, government and other areas.

PRESENT SCENARIO

A report published by Accenture in 2012, forecasted that the global construction market will grow at 5.1 % and 4.7 % during 2010-15 and 2015-20, respectively. India in contrast was estimated to grow at 9.9 % and 7.6 %, respectively. The last year, however, acted as a dampener for many industries including the C&HE sector. As a result, some of these estimates might have been pushed back by some time. That said, there are still many reasons to believe its prediction of India emerging as the world’s third-largest construction market by 2020.

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AM Muralidharan, President, Volvo Construction Equipment, India

The obstacles, however, aren’t small and need introspection by all stakeholders in the industry to get over them. We talked to some key executives from the C&HE sector to get an idea of the key challenges, opportunities and the roadmap for the sector.

CHALLENGES

Based on our interactions, we found out that the slow progress by the government on infrastructure related projects is a hurdle for the industry, if not a barrier. Based on the announcements from government and the expected increase in business, many companies increased their capacities, which aren’t being utilised right now and are hurting their financial positions. Amit Gossain, Executive Vice President – Marketing, Business Development & Corporate Affairs, JCB India, shared this sentiment. He added that the government also needs to look into the used machinery that are being imported into the country without any proper monitoring and control procedure.

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Amit Gossain, Executive VP - Marketing, Business Development & Corporate Affairs, JCB India

Moving away from the policy related problems there are problems within the sector too which need to be addressed urgently. There is still a considerable gap between the Indian market and the developed markets in terms of technology maturity. Samir Yajnik, President, Sales & Chief Operating Officer, Asia-Pacific, Tata Technologies, said, “We need to become end-to-end solution providers. So, we not only need to improve in powertrains and system engineering, but also need to apply mechanical and embedded electronics in a consulted way.”

The availability of a large talent pool for this industry too is a major challenge, as also lack of awareness and respect. Even though a large numbers of engineers graduate every year there is a huge gap between their skills and the readiness of their usability in the industry. For the talent pool accelerated programmes, places like innovation hubs, R&D labs and test and validation centres are required. This can happen by government impetus, and R&D institutions taking initiatives. Yajnik added that in an attempt to bridge the technical gap, the industry must make selective steps up the technology ladder, bearing in mind its relevance for India.

Then, there are problems associated with finance. AM Muralidharan, President, Volvo Construction Equipment, India noted that the interest rates for financing construction equipment are pretty high presently and need to be lowered. He also hopes to see a political roadmap for the GST in the next couple of years along with strong constitutional amendments. This will be a huge boost for equipment manufacturers as it will reduce taxes on sales of equipment between states.

SOLUTIONS & ROADMAP

The right application of technology will be a key aspect for developing solutions and growth plans for the long-term. An area that is being looked into with great focus presently is efficiency, as equipment and vehicle owners expect more return on cost than ever. Gossain said that present machines are increasingly becoming versatile as customers want multiple applications from it. JCB machines, for example, allow multiple attachments on the same machine. In addition, engines are becoming more fuel efficient. JCB’s Ecomax engines, through its class-leading fuel efficiency, is claimed to offer about ` 2.5 lakh worth of savings on fuel in a year.

Muralidharan too asserted on the increasing importance of fuel efficiency in the sector along with a focus on reduction of emissions. Volvo’s OptiShift technology, for example, has reduced fuel consumption by about 15 %, while enhancing performance and productivity. The demand for higher efficiency is more than ever as customers are looking at technology driven value.

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Another key trend we noticed during our industry analysis was the upcoming importance of software related solutions. Gradually, the C&HE sector is recognising software-derived solutions as hardware limitations and costs pose a challenge at times. Speaking about the same, Yajnik said that the role of engineering companies in India is presently limited to doing some outsourced engineering such as CAE, CAD or similar things. A move up the value chain is the call of the hour for the C&HE industry as engineering firms can help OEMs in a much larger way then present. Even for captives, there need to be flexible models to help them.

“We’ll need to partner with them and co-develop products. The role is huge, and we need to be flexible on how to engage with them,” said Yajnik. He added that Indian companies should cross-pollinate using ideas and innovations that are being used in the automotive industry towards the C&HE industry. The high experience of Indian engineers should be tapped into and directed towards the C&HE sector.

Muralidharan pointed out one such move by Volvo on the connectivity front through GPS technology. The company has introduced a telematics system called CareTrack, which allows remote monitoring and machine diagnostics by using the Machine Tracking Information System (MATRIS). Using this, the customer can get the right information at the right time in order to increase the profitability and efficiency of the machine.

OUTLOOK

The C&HE industry is expected to exceed $ 22.7 bn in size by 2020, said Muralidharan. Even the equipment sales volume is expected to increase from over 60,000 units in 2010 to 330,000 in 2020. This translates into a great growth opportunity for the industry. The key to the achievement of these figures, however, will depend on a few factors. First, the government will need to improve and speed up the implementation of the announced infrastructure projects. As a result of increased volumes, companies will find it easier to develop market-specific technologies. Second, players within the sector will need to increasingly focus on versatile and efficient solutions along with an increased focus on electronics and software. Third, the application of technology will play a key role in development of the sector.

Yajnik said that the technology being used in the automotive and aviation sector will continue to be used in the C&HE sector too. However, it should be used in a specific way and systems and processes need to be established in order to suit the application and accelerate product development.

Text : Naveen Arul / Arpit Mahendra