Caterpillar and its GCC dealers talk tactics

Caterpillar, Al-Bahar, and Zahid Tractor explain the measures they are taking to maintain their market position in the Gulf

SPECIAL REPORTS, Projects

The Middle East has long since been a favourite stomping ground of the international equipment community. Even so, when it comes to longevity within the Gulf’s PMV establishment, one brand stands head and shoulders above the rest.

The relationships enjoyed between Caterpillar and its Gulf dealers, Al-Bahar and Zahid Tractor, stretch all the way back to the 1950s; a time that predates the formation of the United Arab Emirates by some two decades.

Whilst local markets have altered dramatically during this period, the US manufacturer and its partners have succeeded in maintaining their presence at the forefront of the region’s equipment sector. That’s not to say that this territory has been easily held. Caterpillar has had to compete with countless challengers over the past 60 years, and this trend shows no signs of abating.

In the wake of the 2008 economic crash, Middle Eastern fleet owners adopted an altogether more cautious approach to machinery acquisition. For better or for worse, the days of Saudi Arabian contractors striking cash deals for swathes of earthmovers are fast becoming the stuff of legend. In turn, the Gulf’s equipment sector has continued to evolve.

The appeal of today’s GCC megaprojects appears just as strong as the allure exuded by the blank canvas that presented itself to Caterpillar more than half a century ago. The last decade has seen a steady stream of fresh-faced, Far Eastern manufacturers eager to grab a slice of the Middle East’s construction market, and often at knock-down prices.

“From a cost-of-acquisition perspective, there will always be cheaper options out there,” admitted Corné Timmermans, Caterpillar’s managing director for the Middle East.

“However, if you look at this cost over the life-cycle of a machine, we strongly believe that end users are better off with Caterpillar, especially when you add in the level of aftersales support provided by our dealers. At some point, all machines and engines will break down, and when they do, they need to be up and running again as soon as possible,” he said.

For Timmermans, the premium quality of his products is a given, and it’s hard to argue with this attitude. After all, a brand doesn’t build a market-wide reputation as formidable as Caterpillar’s if its products aren’t built to a high standard. If you’re looking for tangible evidence, simply check out the prices commanded by the manufacturer’s second-hand machines.

In addition to product quality, aftersales support represents an important consideration for end users. In this arena, Caterpillar relies on its regional partners to deliver a level of service befitting of the machines themselves. In the Kingdom of Saudi Arabia, this is the responsibility of Zahid Tractor. Al-Bahar, meanwhile, is Caterpillar’s authorised sales and service partner for the UAE, Kuwait, Qatar, Oman, and Bahrain.

In addition to the long-standing relationships that they enjoy with their principal, both firms boast extensive aftersales facilities and expertise. As Ashfaque Azad, Al-Bahar’s area manager for the UAE, explained, the manufacturer has never been interested in second best.

“Caterpillar is very demanding when it comes to its dealers,” he told PMV.

“My friends often tell me that I’m sitting on a gold mine, and I have to explain that it doesn’t necessarily work like that. Our colleagues at Caterpillar have numerous requirements in terms of how we operate.

“Firstly, they only partner with strong companies. Secondly, they ensure that when a customer walks into a dealership – whether it’s in Sharjah, Houston, or Brussels – he or she has the same basic experience. Dealer facilities must have the same look and feel, the same computer systems, and the same standard of service.

“This is especially important for international contractors. When they buy an engine or a piece of machinery, it means they can rest assured that if – instead of Dubai, their project moves to Cairo – they will receive the same levels of service. Standards must be consistently high for Cat dealers across the world,” added Azad.

Moreover, this consistently high level of service must be backed up with top-class facilities, according to Khalid El Shurafa, marketing manager at Zahid Tractor. He told PMV that Caterpillar’s KSA dealer is constantly reassessing and strengthening its parts and service network.

“Zahid Tractor has created a three-tier facility coverage model,” he explained.

“The first tier consists of our normal branches. These possess service, sales, and parts provision capabilities. A couple of years ago, we introduced the second tier of facilities, which we call mini-depots. These provide both sales and parts. Earlier in 2015, we introduced our third tier: the convenience store concept. This is a much smaller type of branch that only offers spare parts.

“We implemented this system because the Kingdom’s cities are growing so rapidly. We wanted to provide more convenient access for our customers. If we hadn’t have adopted this strategy, depending on traffic and the size of the city in question, it might have taken customers an hour or two to travel to our [main] branch, just to collect some spare parts. This is why the convenience store concept is proving such a huge success,” noted El Shurafa.

It is through such methods that Al-Bahar and Zahid Tractor have built such an extensive aftersales support network for Caterpillar customers in the Middle East. However, there’s no room for complacency. The manufacturer is always on the hunt for ways to improve, according to Azad.

“The great thing about Caterpillar is that it takes successes from different parts of the world, and attempts to extrapolate them to other territories,” he explained.

“Let’s say that something worked in the United States. Why not try it in Europe, Africa, or the Middle East? To give an example, I remember the owner of Al-Bahar calling me in 1995, and telling me that Caterpillar wanted Al-Bahar to start an engine rental business. At that time, we didn’t rent engines; we only sold them. However, the owner wanted to support Caterpillar, so he asked me to take action. I started Al-Bahar’s engine rental business here in Sharjah 20 years ago with 13 Caterpillar engines. Today, we have more than 2,700 rental engines across the group.

“It was a similar story for our machine rental division, which I began in 2002. Back then, we had 30 units. Across the group today, we have over 600, and it’s a very profitable segment of our business,” Azad added.

It seems that a large part of Caterpillar’s success has been won through this tactic of exerting sustained pressure on its dealers to perform and to innovate. On the other hand, any effective partnership is based on mutual effort and respect – a fact that Timmermans fully acknowledges.

“When Caterpillar first partnered with Al-Bahar and Zahid Tractor, it didn’t have its own presence in the Middle East,” he told PMV.

“That was established in the early 1980s when we set up an office here in the region to support our dealers and to be closer to our customers. From then, we grew to a point whereby in 2013, we had to move into a bigger facility in Jebel Ali, Dubai. This office is collocated with a completely new Middle East Distribution Centre (MEDC). The move represented a major investment on our behalf, and recognised the rate at which Caterpillar’s business in the Middle East was growing,” said Timmermans.

He went on to explain that 10 years ago, Caterpillar’s Dubai contingent amounted to 10 people. Today, the manufacturer’s Jebel Ali office houses 60 members of staff, not counting the parts logistics personnel who work in the warehouse next door. As a dealer, Al-Bahar’s Azad is particularly pleased with his principal’s decision to set up shop down the road.

“The Caterpillar MEDC in Jebel Ali has made a significant difference to our parts provision operations,” he explained.

“Previously, our parts were delivered from Belgium, and the lead times were up to 60 days. Now, my lead time is two days. This has allowed us to reduce our inventory and depend more heavily on Caterpillar’s warehouse. If a part was not available previously, we used to emergency backorder from Belgium and get it within three days. We can now receive parts from our partners down the road on the same day,” said Azad.

With continued investment from both the manufacturer and its dealers, Timmermans is confident that his brand’s aftersales network is unparalleled in the Middle East. Whether talking about newcomers from China or established brands from North America, Europe, and Japan, he refuses to concede that anybody could match the services and facilities offered by Caterpillar and its local partners.

At the same time, Timmermans is equally reluctant to consider the possibility of Caterpillar’s becoming complacent. On the contrary, he points out that the manufacturer has continued to bring innovative products to the Middle East market, most recently within the arena of machine-control technology.

“There are two core types of technology: one is there to physically increase the machine’s productivity and the other is used to monitor the health of the equipment,” he told PMV.

“Today, with the permission of our customers, we are able to monitor every piece of equipment that we sell. Depending on the type of software that you put onto the machine, you can keep track of everything from location, to fuel consumption, to electronic warnings, to the hours that the unit has worked and the manner in which it has been operated.

“Combine this with oil samples taken by the customer on a daily basis, and instead of receiving a call merely stating that a machine is out of action, our dealers often know the likely cause of the problem before they arrive at the site,”
Timmermans pointed out.

El Shurafa went even further, stating that the advent of Caterpillar’s machine-control technologies had brought about a completely different approach to customer support.

“Aftersales service has undergone a revolutionary development over the last couple of years,” he told PMV.

“The introduction of Product Link™ – with its Vision Link interface – has enabled customers to more effectively manage their fleets. In turn, Zahid Tractor can provide even better levels of service and support,” El Shurafa added.
But are customers in the Middle East genuinely embracing these tools? Historically, many of the region’s fleet owners have taken a conservative approach to machine computerisation, preferring to stick with what they know. You might, therefore, be surprised to hear Al-Bahar’s UAE boss say that the majority of his customers now choose to use these technologies.

“We have so many customers who have registered for Product Link™,” he said.

“It took a while; we cannot make use of this technology unless a customer signs a disclosure agreement stating that he has no objection to our monitoring his machine. However, the majority of our clients have now come on board,” Azad revealed.

With an extensive aftersales support network and innovations galore, anybody would think that Caterpillar and its channel partners had the Middle East market sewn up. Of course, things are seldom as straightforward as they seem.
Just as Caterpillar and other established manufacturers from North America, Europe, and Asia Pacific have been busy jostling for the top seat at the region’s table, a host of young pretenders from the Far East have been doing everything within their power to unseat them.

Chief amongst the weapons being used by such companies is that of price; specifically the initial cost of acquisition. They might not be able to compete with firms like Caterpillar in terms of technical innovation or aftersales support, but they can undercut them. So, aside from extolling the benefits associated with its products’ total-cost-of-ownership (TCO), what else has Caterpillar been doing to fight back?

“We’re certainly not resting on our laurels, looking retrospectively on past glories,” Timmermans emphasised.

“There are certain compromises that we are not willing to make when it comes to quality and reliability. These are core foundations that we stand by. There are, however, other ways to improve value. This might be done via the efficiency-driving technologies I mentioned earlier, or it could be achieved through the acquisition options that we offer to customers.

“We understand that some buyers do not have the financial means to pay for a Caterpillar machine outright, so we’ve been working closely with our dealers and Cat Financial to create other avenues. Moreover, we do not focus solely on the sale of new machinery. If a customer knows that a project is only going to last 12 or 18 months, for example, he or she can always come to the dealer for a rental unit or one of our certified used machines,” he explained.

It’s within this context that Zahid Tractor has enjoyed significant success with the 2014 introduction of its Future Contractors Programme, an initiative developed to provide flexible finance to entry-level contractors across Saudi Arabia.

“This programme is helping us to rebuff the ‘premium’ myth,” explained El Shurafa.

“Small- to medium-sized enterprises have welcomed this initiative with open arms. Regardless of the initial cost, Zahid Tractor is helping them out with maintenance, training, and so on. This channel has become a large contributor to our overall sales; its growth has been phenomenal.

“In fact, it’s been successful to the point whereby we’re now ready to take it to the next level. Firstly, we’re looking at introducing more Cat products to the Future Contractors Programme. There has been a limit to the types of product that could be included due to the transaction cap. We’re therefore considering raising this cap. We’re also thinking of offering extra packages to customers in terms of training and maintenance,” he revealed.

It seems that – just as Zahid Tractor has adopted a three-tier system for sales, servicing, and spare parts – Caterpillar and its GCC partners are carrying out a three-pronged business strategy in the Middle East. They are simultaneously focusing on aftersales support, product innovation, and the provision of additional acquisition options for customers who lack the ready capital to buy Caterpillar machines outright.

The US manufacturer’s Far Eastern competition may be here to stay, and its premium-segment rivals will no doubt continue to push for the top spot. But what’s new? With the help of Al-Bahar and Zahid Tractor, the brand has been defending its regional market share for more than half a century. Nobody would deny that it’s tough at the top, but Caterpillar has proved time and time again that it has a head for heights.

Building a region

With such long-standing channel partner relationships in the Middle East, it should come as no surprise to learn that Caterpillar-made machinery and engines have been instrumental in many of the region’s landmark projects.
Asfaque Azad joined Al-Bahar back in 1972, and has fond memories of the UAE’s early days.

“I remember that one day, back in Sheikh Rashid bin Saeed Al Maktoum’s time, we were sitting in his Majlis,” Azad recounted.

“In those days, we used to just hang around. Sheikh Rashid got in his car, and the convoy led us to where the Burj Al Arab now stands – what was then Chicago Beach Village. Sheikh Rashid stopped his car, rolled a drum over, and said: “I want a road up to here”.

“There was somebody present from Halcrow, the consultant that designed the road. Then there was a man from Dubai Transport Company, the contractor that built the road. Al-Bahar sold the machines that were used in the construction of the road,” he added.

When asked which KSA projects he considered most noteworthy, Zahid Tractor’s Khalid El Shurafa replied: “Most of the holy sites have been renovated and expanded with Caterpillar machinery. Many of the major contractors that conduct work at the holy sites are loyal customers of Zahid Tractor. We’ve had the privilege of supplying equipment at both Makkah and Medina.

“Of course, there have also been a series of major infrastructure projects over the years – the North South Railway, for example. In addition, we’ve been very active within the mining, quarrying, and cement sectors; those projects sometimes require hundreds of units,” he concluded.

Network development

Al-Bahar has revealed its intention to open a new Caterpillar workshop in the UAE before the end of 2016. The equipment dealer says that the facility will help to ease congestion at its UAE headquarters in Sharjah.

The Caterpillar service site will be situated in Dubai Industrial City, and construction is already underway.

“We are actively pursuing expansions,” explained Al-Bahar’s Ashfaque Azad.

“We have acquired some land in Dubai Industrial City, and we are in the process of installing additional facilities. We want to take some of the pressure off our Sharjah workshop. Al-Bahar’s Sharjah facility is large, but it is still crowded; there are too many things going on.

“Certain activities will be transferred to Dubai Industrial City. We already have the land, and construction is taking place as we speak,” he told PMV.

The move represents the latest in a string of expansion efforts from Al-Bahar. Throughout the course of the last decade, the dealer has gone to great lengths to strengthen its aftersales support network for Caterpillar customers.

etween 2006 and 2011, for example, the group increased its built-up workshop space from 14,000m2 to 35,000m2.

In addition to taking pressure off its Sharjah head office, Al-Bahar’s Dubai Industrial City workshop will supplement the firm’s other UAE facilities in Umm al-Quwain (UAQ), Abu Dhabi, and Jebel Ali.

“By the end of next year, the Dubai Industrial City facility will be ready,” concluded Azad.

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