Going global in more ways than one

Chinese market

China is the fourth-largest market for Sandvik to date, accounting for 7 percent of the total external sales of the group. From 2002 to 2011, the average annual sales growth of Sandvik China was more than 25 percent, with total sales amounting to 7 billion yuan ($1.12 billion) last year. Now it has 65 offices and 15 manufacturing facilities in the nation.

Olof admitted that Europe is experiencing a crisis and developing economies, such as China and India, are the main driving force, contributing around 40 percent to international economic growth. Thus Sandvik is attaching great importance to them.

Chinese economic growth cooled to a three-year low of 7.4 percent in the third quarter of this year. As wages and operational costs rise and domestic consumption is not strong enough, some multinational companies chose to delay or slow down their investment plans in China or even moved manufacturing facilities to other nations where costs were lower.

Olof said he was "surprised" to hear that. "China's continuous growth in double-digits is impossible. China turning to normal growth is something we expect. China is the second-largest economy in the world. Even if China grows at 6 percent, it's still high growth," he said, adding that his company did not come to China for low labor costs - it's eyeing the market potential.

Sandvik is a company that develops not only through organic growth, but also through mergers and acquisitions. From 2000 to 2011, the group conducted around 40 M&As in 20 nations and regions. It adopted the same strategy in China to expand its portfolio and get new market access.

In October 2011, half a year after Olof became CEO, Sandvik's construction business completed the acquisition of 80 percent of the equity interest of Shanghai Jianshe Luqiao Machinery Co Ltd, one of the top crushing and screening equipment suppliers in China, with 1,000 employees and around 1 billion yuan in invoicing in 2010. The Swedish company used to be focused only on the high-end market. That acquisition has helped it enter the medium-end market, said Wan Ge, an analyst with ChinaVenture Investment Consulting Group.

Sandvik's latest deal was to set up a 50-50 joint venture with Shandong Energy Machinery Co for the production and sale of coal mining equipment. The joint venture became operational in June. Mining and machining solutions are the most profitable business for the industrial group, especially its self-developed automatic mining equipment. Cooperation with local partners helps foreigners get distribution access, said Wan.

China surpassed North America to become the world's largest mining machine market by sales in 2009. According to statistics from domestic industry information website hc360.com, mining machinery sales in China made up 41 percent of the world total last year. The figure was 36 percent a year earlier and is expected to exceed 50 percent from 2012 to 2015.

"What we can bring to China's manufacturers is high efficiency," said Olof, explaining that higher prices from high production, long usage duration and safety guarantees are the selling points of Sandvik.

Many mines are in remote areas and deep underground. The company's automatic mining solutions mean people can operate and supervise the machines from an isolated control room, which greatly increases production and offers safety and a sound working environment for miners.

Although it is an industrial group with a wide business portfolio, Sandvik does not have direct competitors but each unit has strong competitors both internationally and in China.

Large Chinese companies, such as Sany Heavy Industry Co and Zoomlion Heavy Industry Science & Technology Development Co Ltd, are expanding globally to acquire foreign counterparts. Changsha-based Sany and private-equity firm CITIC PE Advisors (Hong Kong) Ltd announced the acquisition of German pump maker Putzmeister Holding GmbH for $476 million in January. Zoomlion acquired Compagnia Italiana Forme Acciaio, a concrete equipment manufacturer, in 2008 for 376 million euros ($479 million).

"Chinese companies are very ambitious. They are stalking the high-end market. It's natural," said Olof, adding that people always pursue high-quality products, no matter whether they come from a Chinese company or a Swedish company. "Competition can promote the development of the industry as a whole."

Q+A | Olof Faxander