China¡¯s appetite for excavators seems insatiable as the world¡¯s fastest-growing economy continues to fan the demand for infrastructure construction. The Chinese economy is growing at about 8% annually, creating a powerful magnet for foreign direct investment, estimated at $55 billion in 2003. Also, state-initiated projects to develop the country¡¯s backward western provinces and preparations for the 2008 Olympic Games promise to fuel a construction boom in China. With the economy in fine fettle, China¡¯s excavator market has grown 60~80% per year, replacing North America and Europe as the largest buyer of the construction equipment, and is expected to expand 30~50% each year until the Olympiad.

Before HHI¡¯s Construction Equipment Division made inroads into China, customers there relied mostly on domestically produced construction equipment because they were cheap. But as industrialization picked up, Chinese clients became more sophisticated, looking for quality equipment. ¡°We were probably quicker than others to sense this change,¡± explains the executive. ¡°We thought we could provide what Chinese customers want.¡± Hyundai began to diversify excavator models to meet consumer requirements as varied as China¡¯s vast territory. ¡°We developed an economic model (20-ton crawler excavator), a high-altitude machine (21-ton crawler excavator) and a tropical version of all excavator models in order to cater to the wide spectrum of Chinese clients, while our foreign rivals relied on their international models.¡± HHI also introduced a financing scheme in collaboration with Chinese banks and insurance firms to facilitate purchases of its products. Currently, about 95% of Chinese customers buy construction equipment through such financing arrangements. Other attractions include competitive after-sales service and a cost-effective parts supply network.

Eight years ago, HHI¡¯s Construction Equipment Division entered the Chinese market first by forming Changzhou-Hyundai Construction & Machinery Co., a 60-40 joint venture with local firm Changlin Company, Ltd. In 1995, the first year of production, only 10 excavators were sold. But the number rose to 130 units in 1996 and continued to grow to 300 units in 1998 and 1,970 units in 2001.

Alongside the booming Chinese market, HHI set up its second joint venture construction equipment entity in June 2002 with a local company named Beijing Jingcheng Machinery Electric Holding Co., Ltd. This 60- 40 joint venture, Beijing Hyundai Jingcheng Construction Machinery Co., Ltd., produced 300 excavators and 900 forklifts in 2002, and by 2006 the company plans to produce 2,500 excavators and 5,000 forklift trucks. Unlike the Changzhou-Hyundai venture, about 90% of whose production portfolio consists of excavators in the 20- and the 29-ton classes, the Beijing- Hyundai venture will make lighter or heavier models. The completion of the second plant in Changzhou in February 2003 doubled the production capacity of the Hyundai's first joint venture to nearly 8,000 units a year, allowing a wider range of products. In its latest foray into the Chinese market, HHI will set up another 60-40 joint venture with Changlin this year, which will ultimately have a 20,000-unit-a-year production capacity.

To achieve its targets, HHI plans to add other construction equipment to its lineup currently offered to Chinese clients. ¡°So far, most of our sales in the Chinese market are excavators, but we will offer other products, such as wheel loaders, skid steer loaders and fork-lifts. Then, we will begin to sell backhoe loaders, graders, rollers and other equipment,¡± says the executive.

In recognition of HHI¡¯s contribution to China¡¯s construction industry, the Ministry of Science & Technology of Jiangsu Province chose the Changzhou-Hyundai venture as the winner of the ¡°Certificate of Know-how & Technology Intensive Enterprise¡± award in 2002. It was the first time an excavator manufacturer-Chinese or foreign-had ever won the honor. Along with the prize, the Changzhou venture¡¯s corporate income tax was reduced from 30% to 15%. This Chinese-Korean success story led Chinese provincial authorities to allow HHI to establish its third joint venture.

HHI¡¯s focus on the primary functions of excavators while eliminating some of the less essential ones proved to be a smart move in the Chinese market, where construction equipment tends to be assigned to a more limited range of works. The company will continue to cut costs through greater localization of parts and components. At the moment, HHI¡¯s construction equipment affiliates in China assemble excavators and other equipment largely from knock-down kits imported from Korea. In order to educate local employees, HHI invited local exemplary workers from the Changzhou-Hyundai venture to its headquarters in Ulsan. A group of chief officials from supplier companies of the Changzhou office also had a tour of HHI¡¯s facilities.

HHI started out in the construction equipment business in February 1985, setting up a dedicated department for the purpose. The unit was expanded and upgraded to the Construction Equipment Division, which over the years has steadily built up a strong technological foundation in cooperation with major foreign manufacturers. Hyundai Heavy signed a five-year contract with Nissan Kizai, under which the Japanese firm helped Hyundai export small-sized excavators on an OEM basis. It has diversified its product line and become a leading player in Korea¡¯s construction equipment market, with the helps of Komatsu-Dresser, Trak International, and Yale Material Handling Corp. Initially, HHI was barred from selling its construction equipment domestically under a government scheme aimed at preventing excessive competition among local producers. But by 1988, Hyundai Heavy was allowed to offer its products to Korean customers.

Hyundai Heavy opened a sales outlet in Chicago in 1990 to make inroads into North America and launched its foray into Europe in 1993 with the opening of a sales office in Belgium.

The writer is a journalist based in Seoul.