TOKYO/BEIJING -- Longshore workers at an Indonesian port on the island of Sulawesi were busy unloading yellow excavators emblazoned with the logo of China's Sany Heavy Industry from a cargo ship.
"Be careful setting down that excavator!" one of them shouted to colleagues.
Roughly 600 Sany hydraulic excavators were shipped to Sulawesi in the first half of May alone, Chinese media report. The island hosts many nickel refineries, with an estimated 70% of them backed by Chinese capital. Nickel is a key component in electric vehicle batteries.
More than 5,000 Sany-made units are now believed to be operating across Indonesia at these refineries and other facilities.
With demand for construction machinery slowing at home in China, Sany is accelerating its push into Indonesia and other growing Southeast Asian markets traditionally a stronghold of Japanese company Komatsu.
Sany's overseas sales of excavators topped 1 billion yuan ($155 million) for the first time in March, contributing to a 90% jump in company revenue on the year in the January-March quarter.
The company's rise has been fueled by cheap prices -- roughly 20% below those of Japanese rivals -- and China's Belt and Road infrastructure initiative. China beat Japan for the bid in Indonesia to build a high-speed railway between Jakarta and the city of Bandung, and over 500 pieces of Sany-made equipment have been used on this project.
Komatsu anticipates growing demand in Southeast Asia. The Japanese company intends to debut new excavators and emphasize its service network to fend off Chinese rivals. © Reuters Sany is cultivating opportunities in Asia as well as Central and South America, President Xiang Wenbo said in May at an event to celebrate the company becoming the world's top seller of excavators in 2020. The manufacturer has turned its sights to North America and Europe as well.
The company aims to achieve 300 billion yuan in total sales by 2025, tripling the 2020 figure. Yet it targets $10 billion from overseas markets, quintupling foreign sales over the five-year period.
Sany's aggressive global push is driven partly by uncertainties in the home market. Unit sales of hydraulic excavators started falling on the year in April and dropped more than 20% in May. Some market watchers project a roughly 10% slide in unit excavator sales in 2021.
"Sales are slowing more than expected, and there is a big chance that the market will shrink," said Takeshi Horikoshi, Komatsu's chief financial officer.
But Komatsu expects demand for construction machinery to jump 10% to 15% by volume in Southeast Asia during fiscal 2021. Indonesia, the region's largest market for such equipment, looks to receive a surge in infrastructure investment this year, in part to accelerate the country's economic recovery from the coronavirus pandemic.
Sany controlled 21% of Indonesia's construction machinery market in January-March, just a hair below Komatsu's 22%.
"Sany holds almost the same market share as us," Komatsu President and CEO Hiroyuki Ogawa said.
Komatsu projects a 73% surge in Asian sales excluding China to 240.4 billion yen ($2.17 billion) for the year ending March 2022, accounting for about 10% of company revenue and making the region its biggest market after North America, Central and South America, and Japan.
"We need to enact many different measures to compete in Southeast Asia, which is a key market for us," Ogawa said.
With cheaper Chinese rivals gaining momentum in the region, Komatsu plans to debut excavators designed specifically for home and road construction in Indonesia and other markets, priced 10% to 15% lower than conventional models. The company earns a large portion of revenue from parts exchanges and other profitable services.
"Unless we sell a certain volume of new units, our revenue from maintenance services will suffer five to 10 years down the line," Ogawa said.
The Japanese company also plans to emphasize the durability of its products and the quality of its maintenance services. It has opened a training facility for maintenance staffers at its dealerships in Thailand and elsewhere, and held online seminars as well during the height of the pandemic.
Sany and others are also expanding their service network. But "Komatsu is still ahead in terms of the number of service locations," said Tomohiko Sano at JPMorgan Securities Japan.
Komatsu sees services as the key to tapping demand in nickel mines. It will open three new maintenance hubs in Sulawesi through local distributor United Tractors.
Competition between Chinese and Japanese players is growing in other Southeast Asian markets as well. Chinese companies are believed to have gained a roughly 30% share in Thailand, chasing Komatsu's roughly 50% share.
Indonesia and its neighbors will serve as a key test for two competing strategies in emerging markets: focusing on midrange-priced products and extensive client support like Komatsu, or balancing quality with cheap prices like Sany.