Interview with Glenville da Silva, President, ICEMA & Vice President of Business Development, Asia, Volvo Construction Equipment (Volvo CE)

Company Description: Constituted in 1949 as Tractor and Allied Equipment manufacturers and Importers Association Ltd., the association started with 10 Indian member companies, primarily importers of tractors, earthmoving and allied equipment. In 1986 the association took on a new name as the Indian Earthmoving & Construction Industry Association Ltd. (IECIAL) which was affiliated to the Confederation of Indian Industry (CII). In 2012 it was named the Indian Construction Equipment Manufacturers Association (ICEMA). Today, ICEMA has 44 members representing construction equipment manufacturers, component manufacturers and finance companies involved in financing of construction equipment. Construction equipment comprises of a variety of products such as hydraulic excavators, wheel loaders, backhoe loaders, motor graders,vibratory compactors, cranes, dumpers, tippers, forklifts trucks, dozers, pavers, batching plants, diesel engines, etc.

Could you please help us in classifying the various kinds of construction equipment sold in India?

The CE space offers a big variety of products catering to different segments. The biggest segment is the general purpose machines which are basically used for earthmoving. As the name implies, earthmoving is all about moving earth (or dirt), which can be done with various types of machines, radically different from each other whose usage is dependent on the job to be done and the amount of earth to be moved. Typical earthmoving machines are front end or back hoe Loaders, wheeled or track Excavators, haulers, dozers, graders, etc. Another big segment is concrete which includes machines for transportation of concrete – the big revolving drum transit mixers that you frequently see on the road, concrete pumps, boom pumps, etc. that place the ready mix in the construction of the high rise structure. Then there are a whole host of different machines used for crushing big rocks into various sized aggregates used in the manufacture of concrete and asphalt mix and for road building requires specialised equipment for compaction of soil, pavers for laying the asphalt and asphalt compactors, rubber tire rollers for finishing the road. These are only some segment examples. We are perhaps the only industry to offer such a variety of equipment whose classification is not based on the size of the product, but on segment application and on what it actually does. Ofcourse within this framework, there are different sizes of equipment, the selection of which is governed on the size / quantity of the job to be done and the time period in which it is to be completed.

What was the size of the Indian construction equipment industry a decade back, now and what are your projections for 2020?

In the year 2000, the entire industry was probably around 6,000-7,000 units per annum which contributed to an industry size of perhaps under US$ 0.5 billion. A decade later, in 2010, the market was roughly 60,000-65,000 units per year, about US$ 3.3 billion in size. It is estimated that by 2020, the market will be over 300,000 units per year to reach US$ 20-22billion in size. The growth of this industry is directly related to the infrastructure investments made in country. From history we observe that the industry growth trajectory steepened when the Government decided to invest in developing the country’s infrastructure. For example the Highway Development Program announced in 2000 saw big investments in road building which boosted the industry’s growth. All through the last decade, especially in the 11th Plan the Government earmarked big investments in infrastructure creation. In the new 12th year plan, the investment in the infrastructure sector is projected to be cross over US$ 1 trillion, doubling infrastructure investment from the previous plan period. Such projections augur very well for this industry, hence I’m very optimistic of the future of this industry.

Is the CE industry going through a radical change in terms of new vehicles? If yes, what are the new kinds of vehicles that are expected?

Yes, over time changes have happened, most of which are primarily driven by fuel emission norms. For example, from April 2012 all wheeled machines were required to be powered by BS III engines. Now this was a big change for the industry as the earlier emission norm was the BSII which in reality closely resembled the US Tier 1 norm. The BSIII norm however is almost equivalent to the US Tier 3 norm. Thus we went from US Tier 1 to almost US Tier 3 missing the intermediate Tier 2 step.This brought about a lot of change in the machines. Additionally, as fuel costs increase and with the increasing concerns about the environment, fuel efficiency is now a big driver of change. Going forward, in the not too distant future, we could expect machine and operator safety, the use of green fuels, hybrid machines, to drive changes in the machine configurations and specification.

As a number of overseas players are making big-ticket investments in India, will there be a major shake-up in the marketshare of exiting players?

To participate in this industry, one has to be prepared to deal with some conflicting elements, the large variety we talked about earlier, the relatively low volume which is reflective of the current size of the Indian market, the relatively high investment needed to setup manufacturing and distribution and changing technology to be efficient and productive. The first movers in India were global companies who invested early in setting up manufacturing facilities. Thus the big players in India are global entities like JCB, Hitachi (JV with the Tata), Komatsu (JV with L&T), Volvo, CAT, Schwing, etc. Indian players are basically Indian entrepreneurs who have entered this industry with in-house technology. In the case of Indian players, as latest technology access and investments are limited, they are relatively smaller in size. Today, all the global top 10 companies are present in India. The Indian market is growing; our growth curves are predicted to continue at attractive pace. While most markets in the rest of the world are flat or declining, our growth story generates a lot of global attention. Thus, we hear about increasing investments in India. Depending on individual player aggressiveness and product, distribution strategies employed, over time market positions could change which is quite normal for a growing market.

Do you have any plans to take Excon shows to cities beyond Bangalore?  What about hosting similar shows abroad?

Just to clarify, Excon is a biennial event organized by CII to showcase Indian Construction Equipment and Construction Technology. ICEMA is the sector partner for the event and our members are closely associated in shaping the event as part of the Steering Committee. This event has been held in Bangalore for various reasons. I’m not in a position the answer whether CII deems to take it beyond Bangalore or even outside India. Nonetheless, I can mention that there is discussion on whether the Industry needs to have more regionally based events. As Excon’s primary role is to showcase Indian capabilities both in machines and components expanding its coverage would help in the development of the industry.

So can we expect India to be a global manufacturing hub for multinational players?

The move has already started, Indian manufacturers, both local and multinational have commenced machine export for a selective range of products. The only constraint that I see of India being a true global supplier is the engine emission norms. This is because the developed economies have now moved into Tier-IV norms which neither the engine nor the fuel is available in India. I thus see India becoming a hub for supply of equipment to regions where similar emission norms viz. Tier-III is prevalent. Exports today are happening in a small way to South East Asia, Africa, Latin America, etc. I believe we have a big opportunity to build on this. In the component space, I see tremendous opportunity which requires a lot of work to capitalise on this opportunity.

So does ICEMA support Free Trade Agreement (FTA) with other nations?

ICEMA’s role is to help build the Indian industry, we would be happy to support any trade agreement that fosters an equitable growth opportunity. Naturally, ICEMA would not support any FTA that puts the Construction Equipment industry at a disadvantage, just to gain advantage for some other industry. Thus we would like to get a much better understanding on the FTA drivers and ofcourse study its long term impact.

Coming back to the domestic market, are non-metro cities the major thrust areas for CE players?

Typically large construction business houses are located in metro cities; hence these automatically become the market thrust areas. Having said this, I would like to qualify that the market thrust areas are really dependent on the location of the large contractors who bid and secure large infrastructure contracts. So the CE business is not governed by Tier-I or Tier-II cities but where the large contractors are located and who is awarded the contract. So you could have a contractor from Andhra Pradesh executing a job in the north-eastern part of the country, or a Delhi based contractor Delhi executing a project in South India. Having said this, as the industry develops we will see more and more sub-contracting done locally, as well as mechanization increases, machine sizes will become smaller and the geographic spread will become larger.

How has the CE industry been impacted by the running cost of diesel fuel? If yes, are you working on products run on alternate fuel propulsions?

All our machines run on diesel fuel hence there is a major impact. As I mentioned earlier, fuel efficiency is big driver of change. This has multiple benefits, providing better operational costs and helping to conserve the environment. The industry is constantly looking for better productivity and enhanced fuel efficiency. At recent global Trade fairs, multiple manufacturers showcased hybrid machines like hybrid wheel loaders and excavators. We could expect these products to be commercially produced in the next few years.

Also, there is ongoing work to explore use of alternate fuels, biodiesel, etc. Electric powered equipment could be difficult as our machines operate in remote areas. Having said this, I would also like to clarify that that very large mining haulers do run on electrified power, wherever electrical power is available at the mining site.

Is your industry also working on Nano-like entry-level low-cost products?

We must remember that Construction Equipment is designed to perform a particular task and thus should be reliable and rugged to do the task and comply with safety and emission norms. Construction Equipment sold in India, which incidentally is perhaps the lowest price market in the world, is already at a very basic configuration with little or no frills, thus I would say is already at the entry level low price product position. I don’t think we could go any lower without compromising performance or safety or reliability of the machine, However what I do see happening over time, as mechanization increases, product sizes will become smaller which means product prices will correspondingly come down. 

Lastly, what is your vision for this industry?

Given the planned opportunities for growth, on the long term horizon, it is a very exciting industry. However in the short term, we continue to see a lot of dark clouds in the form of stalled projects due to land acquisition issues, shut down of major mining centers, delays in project execution due to uncertainty in pollution control norms, hindrances to free movement of machines due to local tax structures, etc. These are all governance issues, which I hope will be removed and resolved through the reform process. I’m an optimist; I continue to be optimistic of the Indian construction equipment market as I believe that we have the potential and the opportunity to be among the top three markets in the world.