SANY: Will It Be Sunny in Europe? (A)

SANY, a Chinese company established in 1989, originally focused on the production of welding wires. Observing the growth potential of the real estate industry in China, the unacceptably high prices of dominant foreign products, and the shortage of domestic equipment, SANY decided to invest in the construction equipment manufacturing market. In 1994, it set up a subsidiary called SANY Heavy Industry. Substantial investment in R&D, aggressive sales, marketing and services schemes, and low-cost operations helped the company cover the market in a short period. It became one of the key players in China. At the end of 2004, the Chinese government issued a series of policies to cool off the “overheated” real estate industry. Demand for construction equipment eased. In addition, foreign construction equipment manufacturers, facing aggressive competition from domestic companies (Xugong, Liugong, Zoomline, SANY, etc.) in the Chinese market, decided to localize their businesses to pursue cost advantages to compete not only with Chinese producers, but also with other low-cost players in the world. Expected lower demand in the domestic market and foreign producers’ challenges from local enterprises put SANY at a strategic crossroads. In 2005, the company was weighing the pros and cons of entering the European construction equipment market. It already had established operations in India, Saudi Arabia, Egypt, and Morocco. Although the company had direct investment experience in developing countries, SANY had no knowledge of the European market and the transferability of its established competitive advantages in emerging countries to the developed region. But SANY had little time to react, given the impending demand weakness in the local market amid intensifying competition from global as well as Chinese players. SANY was concerned about formulating an effective strategy to rapidly enter and develop its targeted European market.