As the construction equipment market in Saudi Arabia continues to grow, PMV Middle East editor Stian Overdahl speaks with Volvo Construction Equipment CEO Pat Olney as he visits Saudi Arabia to survey the market and support the expansion of local distributor FAMCO
While Volvo Construction Equipment has a long history in Saudi Arabia, the last few years have seen big changes for the machinery brand. In late 2011, the long-time distributor Al Rehab was acquired by Al-Futtaim, and is now part of the FAMCO (Al-Futtaim Auto and Machinery Company) brand that stretches across four countries.
With Saudi seeing strong growth in all segments of the construction equipment market, FAMCO has laid out plans to increase the number of its branches there to 12, improving coverage across the Kingdom. It is the sort of expansion that requires manufacturer support, if only to build training resources and improve specific product support.
Last month Volvo Construction Equipment CEO Pat Olney visited FAMCO’s operations in the UAE and in Saudi Arabia, visiting project sites and meeting key customers, who included the major road contractor Al-Rosan Contracting, responsible for building the 250km Oman border port road project through the Rub’ al Khali desert in the south-east of the country.
While a trip to Saudi Arabia may be good for business forecasting and planning, Olney says it is important to get out of the boardroom, and on to the ground to see how machines and users are working.
“It’s always important to get out and actually see the job sites, and talk to the customers using the machines,” says Olney.
“There are many customers in the Middle East, and other developing markets, that still have very demanding applications. They’re very sensitive to uptime, they’re very sensitive to residual value, they’re very sensitive to the performance of the machine – things that actually give them business value,” he says.
For executives in the construction machinery manufacturing business like Olney, Saudi Arabia looms large as a market which cannot be ignored. After all, the Kingdom has recorded several years of construction growth at a time when many of the traditional markets are looking less certain.
Last year the market in China, accounting for half of equipment sales worldwide, dropped 40%. By comparison, Saudi Arabia’s National Commercial Bank is forecasting growth of 10.5% for the Kingdom’s construction sector in 2013.
Across the Middle East, Olney says that mid- to long-term there are very good growth expectations.
“There is tremendous infrastructure development, especially as a number of countries here look to diversify their GDP portfolios, and that creates growth within our industry. I see it as an area where we expect solid middle single-digit growth year on year, consistently.
“Last year we saw in most parts of the in the Middle East a reasonable growth year-on-year. It’s not back to the levels of pre-crisis yet, but slowly, steadily, most markets are growing.
“Of course, those countries which are affected by turbulent political situations are excepted from this. Political stability is needed for growth.”
Olney says that as a global business, Volvo CE needs to evaluate the strength of its presence in diverse markets.
“It’s important not to look to just one or two markets. Of course China and the US are major markets and will continue to be so, but there are many more interesting ones in the world – like Saudi – that you can’t just forget about.
You need to make sure you’re present and building your strength there, and Saudi is a very important market.” Volvo CE is part of the larger AB Volvo Group, a brand has a long history in the region.
“Volvo is a brand that has been here with many products –trucks, busses, construction equipment –for many years, and we look forward to having a leading position in this market for many years to come. It’s a very important place for us to do business,” says Olney.
He was accompanied on the Saudi trip by a number of Volvo CE’s management, including Tomas Kuta, president of sales region EMEA. With Volvo CE organising Saudi Arabia and the other GCC nations within its ‘Hub East’ sales region, an area that includes Turkey, Kuta says that Saudi will be the real engine for growth in the construction equipment industry in the region.
“What we saw on our trip is that clearly the Government is taking a very proactive, long-term approach to address the infrastructure needs.
“Turkey is important, but it is already a mature market. Saudi is really where we expect the biggest growth.”
The total market for equipment in Saudi is moving towards the figure of 10-12,000 units per year, says Kuta.
“That’s amazing, that’s just one country.”
Looked at from a wider angle, Saudi Arabia, Norway – another oil-based economy – and Russia are the strongest growers in the EMEA region, says Kuta, disregarding some African markets with high growth figures, but where the total market remains small.
“I would say that Saudi is probably the most promising market out of the whole region.”
But while Saudi presents good prospects, it is also notoriously difficult to work in for contractors, rental companies and equipment distributors, due to the geographic remoteness of many projects, and the harsh environmental conditions, particularly sand and dust.
FAMCO’s expansion will help reduce the problems of geography, but at the same time will require extra training resources and specific product support in areas of complex machines such as asphalt pavers. Volvo CE will provide support for the expansion process.
After all, product support is essential in the machinery business, and Volvo CE’s mission is to offer customers a total solution offer across a wide range of product segments, says Olney.
“For us it’s not just about the sale of the machine, which is of course important, it’s about the support service that our dealers and we offer, and value-added services such as CareTrack, which is standard on the majority of our fleet today,” he explains.
“It’s about really trying to understand the customer’s business and help them make more money.”
According to Kuta, while the trip to Saudi involved meeting with more than 15 key customers, and visits to major projects such as construction of the Haramain High Speed Railway, the most memorable event was the visit to the camel farm of Al-Rosan’s Chairman of the Board of Directors, Hazza Ayesh Aba Alroos.
“It was amazing to see these camels,” says Kuta. “A camel to me before was always just an animal for transportation, but these were the beauty queens of the Middle East.
He has a collection of 250 winners of awards, and beautiful white camels. Our executive vice president was actually milking a camel. Al-Rosan’s hospitality was absolutely fantastic, for us it was a really cultural experience.”
Engineering Advantage
Volvo Group is one of the largest producers of capital goods in the world, including its construction equipment division (with revenue of $10 billion in 2012), and Volvo trucks (with sales of $30.3bn).
While there are a large number of machinery manufacturers world-wide, Volvo CE is among only a handful of these which design and manufacture their own engines in-house, with the majority of manufacturers instead sourcing engines from OEM suppliers.
“This is absolutely a core advantage. It’s not the only thing that’s critical for a piece of construction equipment, but it’s an important advantage we think we have,” says Olney.
In the market for producing diesel engines sized between nine and 18 litres, Volvo Group is “a very large player” he say, Its diesel engines are also sold to generator manufacturers and other users through its Volvo Pentax business unit.
“This has allowed the Volvo Group over the last 15 years to consistently invest – even through the crisis – in R&D for engine technology, to be on the forefront of meeting emission requirements as they’ve come.
“The importance of the engine in our equipment shouldn’t be underestimated, because fuel economy is becoming such an important factor, as well as optimising the efficiency of the total powertrain performance.”
