Our strategy builds on our competitive strengths and is centered on two main objectives: achieving sustainable long-term growth above market and achieving the highest profitability and efficiency by production and cost optimization. To reach these targets we will focus in particular on the following key strategic objectives:
Strengthen our Leadership Position in Core Markets in Europe
We aim to maintain the strong market leadership position that we have achieved in the Western and Eastern European markets in 2011 (Source: McKinsey, Industrial Trucks Market, 2012) by leveraging our strong brands and remaining at the forefront of technological innovation, while increasing the benefits from the growing and attractive service business, which is highly valued by our customers. Our Linde and STILL brands are full-line premium brands with a distinct profile and a complete product range and independent distribution channels, both providing us with a unique market leadership position and high penetration of the premium segment, while at the same time realizing synergies in operations.
Leverage Technological Innovation and Customization to Expand Premium Pricing
We offer a high level of innovation and customization for our trucks, addressing the premium segment of the market to accommodate the wide range of applications for which our customers use their trucks. Customization allows premium pricing because we can differentiate our products from those of others on the basis that they are tailored to specific customer demands. Approximately 30-40% of our new IC-trucks and E-trucks have customer specific solutions, such as compressed natural gas engines (“CNG-versions”), special attachments (e.g. multiple fork positioners and clamps) and foundry versions. The customization of our product offering is important to our premium customers, particularly in Europe, who seek a combined product and service offering to address their specific needs in material handling and automated production solutions. We believe that the technological leadership of our products, the high degree of customization and our comprehensive service offering translate into superior customer benefits, including a reduction in total ownership and operating costs. We intend to increase customer benefits and to reduce cost of ownership and operations by introducing innovative drive systems which enable high productivity, advanced cabin ergonomics and suspension which reduce operator fatigue, intelligent intralogistics solutions and improved safety concepts.
Expand Service Offerings
In 2011, the total market for after sales had a volume of €11 billion (Source: McKinsey, Industrial Trucks Market, 2012). Approximately half of the after sales market is held by non-OEM service providers such as independent dealers. We aim to increase our share of the services market by expanding our service locations network in attractive growth areas and to expand the offer of short term rental fleets in specific markets with high demand for short term availability of additional trucks. To further grow our service business, we can leverage our large installed truck base of over one million trucks (approximately 685,000 trucks in our LMH segment and approximately 425,000 trucks in our STILL segment) which will further grow if our new annual truck sales increase. According to our estimates, the market leading scale of our installed truck base in Europe together with a dense network of service locations allows us to supply spare parts and to offer maintenance services to our customers in a highly effective and efficient way. We intend to broaden the scope of our service offering to address the entire product lifecycle and different usage patterns. Such additional services include fleet management, IT solution for efficient goods flow management and all types of financial services relating to truck usage. We believe that our full product and service offering increases our value proposition and helps to strengthen customer loyalty. By growing the more resilient and higher margin services business, we intend to reduce earnings volatility, increase predictability of our revenue and drive profitability by increasing our market share and carrying out our pricing based on customer value.
Tap Full Market Potential in Growth Regions
We intend to make use of our excellent position in important growth markets (China, India, Brazil and Eastern Europe) in order to benefit from the expected increase in demand in those markets as those economies develop with increasing industrial output and more sophisticated logistic networks. Based on our existing products and platforms, we plan to introduce more products designed specifically for these markets under local brands which are geared towards the demand in those markets. We aim to achieve this through targeted local investments in manufacturing capacity, product research and development of our sales and services presence. This strategy also includes the targeted acquisition of dealers in markets important to us, as well as the development of local ventures such as VMH in India as well as potential acquisitions of small, local or regional manufacturers that we can successfully integrate into the KION Group as we have done with Baoli in China in 2009. Our strategic industrial cooperation with Weichai Group will also provide additional opportunities to build upon our strong presence in Asia, providing further growth in the region. In particular, we aim to build a presence in the fast growing industrial truck markets of Thailand and Malaysia by expanding our distribution network. With respect to our growth strategy in these markets we intend to use our multi-brand strategy, with our Linde, Fenwick, STILL, OM STILL, Baoli and Voltas brands, to reach a wide range of regions and customers, as well as the economy, value and premium market segments. At the same time we can leverage our existing global technology and shared product platform. For example our warehouse truck OM CLX, which was developed for the European market, was adapted to local market requirements using local sourcing, production and R&D and then offered in China under the Baoli brand and in India under the Voltas brand. An IC-truck designed by Baoli for the economy segment was manufactured and marketed in India under the Voltas brand and in Brazil under the STILL brand with key components supplied by Baoli. For our expansion in South Asia we can use the product portfolio specifically developed for the Chinese market under the Baoli brand. This platform sharing strategy together with local manufacturing reduces time-to-market and gives us cost advantages which facilitate penetration in growth markets.
Reduce Costs by Optimizing Production and Exploiting Group-Wide Synergies
We have a presence in over 100 countries and operate 15 separate production sites worldwide. In the last few years, we have streamlined our production footprint in developed markets and closed six plants to lower fixed costs and better utilize existing facilities. At the same time, we have built up our local production facilities in key growth markets, such as Brazil, India and China. We intend to continue this shift of production to markets with high growth rates. We plan to increase sourcing of components from low-cost countries (countries other than countries from the EU-15 area, EFTA, USA and Japan). In 2012, the share of components sourced from low-cost countries was approximately 26% of total procurement, which we intend to significantly increase. In particular, in markets where we have local production facilities we will increase the share of locally sourced components. We plan to further reduce costs by increasing the number of modules that are used across various brands and products without jeopardizing brand identity. We currently use 55 modules which are shared across brands and platforms, for example the IC engine which is used by all brands for trucks addressing the premium segment, the steering power module for warehouse trucks and the lithium-ion batteries for E-trucks. Standard heating and air conditioning units are used for all models across brands which are equipped with such systems. The sharing of modules reduces time-to-market, enhances quality and leverages R&D resources. We have set up interdisciplinary workshops which will coordinate R&D projects across brands and explore further possibilities in component sharing across brands and standardizing design. In addition, we plan to implement design-to-cost and design-to-manufacturing initiatives. This will include, in particular, better use of industry standards for components and simplification of construction of products, use of shapes that are easier to manufacture and a reduction of pre-assembly time through simpler processes, for example bolting instead of welding initiatives will also reduce time-to-market and increase quality. To improve the reliability of our products and to reduce customer complaints and costs for repair work under product guarantees we have implemented processes to identify the roots of problems reported by customers and to implement the solutions found, either design adjustments or production process change, throughout the production network. Through these measures we have reduced the complaints of customers made within the first 50 hours of use of a new truck by half over the last three years. We intend to further improve our operational performance. Our operations and production strategy aims to continuously improve our cost structure and reduce fixed costs in order to drive margins and improve flexibility to adjust even more efficiently to the demand cycles of our new truck sales.