Swedish machinery maker atlas copco is banking on its expansion in China

Robert Fassl, the senior executive vice-president of Atlas Copco, the Sweden-based construction and mining equipment maker, is thinking of having a permanent office in Nanjing, considering that this is the city that he spends most of his time in after Stockholm.

Robert Fassl, senior executive vice-president of Atlas Copco, says emerging Chinese companies are major competitors for the machinery company. Provided to China Daily

Fassl, a regular visitor to China, spends a week in Nanjing every month so that he is "in close contact with Chinese customers".

Apart from Fassl's regular trips, the Swedish company is taking several other steps to further its reach in China. Atlas Copco opened its largest research and development (R&D) center in China last month to better understand the Chinese market and customers.

"To win in China, one needs to come up with products that are developed indigenously using local talent and more tailored to local market preferences," Fassl says. What Atlas Copco is now doing through its consistent efforts in China is to make this a reality, he says.

The Swedish industrial group with global revenue of around 7 billion euros in 2010 has a world-leading position in construction and mining equipment and is keen to maintain its edge in China. So is every other company in the construction machinery industry.

There is no doubt that China is the largest construction site in the world, with skyscraper, railroad, highway and airport projects more than any other country. Statistics from the China Construction Machinery Association show that the industry is expected to grow to 500 billion yuan ($78.86 billion, 57.31 billion euros) by the end of this year.

With robust economic growth in the world's second largest economy, companies which succeed in taking a larger share of the market here are more likely to be the global leaders of tomorrow.

But for Atlas Copco, a company that has been fighting with international competitors all over the world for more than 130 years and has secured leading positions in most of them, the situation in China is a little bit different.

The group, which has been selling its equipment in China since the early 20th century, has established 21 companies in China as well as production bases and customer centers since its Chinese operation was founded in Nanjing, East China's Jiangsu province, in 1993.

According to Fassl, the main challenge that the Swedish industrial giant is facing in China is from emerging local companies.

"We have very tough local competitors. We call them five-year companies, as they come out of nothing and dominate the market in a very short span of time," Fassl says. He refuses to name the Chinese competitors but says major players like the Sany Group, are typical examples.

The Changsha-based Sany Group was founded in 1989 and is now among the world's 500 most valuable companies, according to this year's rankings released by Financial Times, with revenue of around 50 billion yuan in 2010.

Liang Wengen, founder of the heavy construction machinery giant, has been ranked the richest man in China this year with a fortune of 70 billion yuan, according to the Hurun Rich List 2011 released by the Hurun Research Institute in September.

But for Atlas Copco, the competition is not just Sany Group. Eleven out of the world's top 50 construction machinery producers are from China, a new record, according to a report released during the 2011 Summit of World Construction Machinery Industry & T50 Forum held in Beijing last month.

Three Chinese companies, including Sany Group, have climbed into the top 10, which was ranked by sales numbers. Atlas Copco ranked 11.

"These Chinese companies are like the American companies of the 1960s. We have been worldwide leaders in what we do for many years now, and we want to be market leader in China, whereas somebody from China wants to be the global market leader," Fassl says.

He says the reason Chinese companies can make such an impressive performance in a short time is because they understand the Chinese market and Chinese clients better.

"It is very important for us to understand the market in China. We are from the West, and we think we know (Chinese customers' needs), but it is not always right," Fassl says, adding Chinese people have a different mindset on what the products should look like.

To demonstrate his point, he pointed to a small bottle of water in the Atlas Copco conference room in Nanjing. "It is a bottle that contains 375 ml of water. We don't have these small-sized bottles in Europe, but in China it is common.

"Doing business is also similar. So we need to have local people who can help us better understand the local need. That is the purpose of the new R&D center," he says.

The center in Nanjing is Atlas Copco's first all-product R&D center geared toward mining and rock excavation in China.

According to Fassl, the 60 million yuan initial investment in the center will help create a knowledge hub for the construction and mining sector in China.

"The center has 120 engineers for now and will probably have 250 in one or one and a half years," Fassl says. The plan is much faster than the group's original plan that was released on its website in February.

The company said to safeguard the group's competitiveness in the Chinese market, the center will employ approximately 250 people within three years after its completion in October.

China is regarded as "one of the home markets" for Atlas Copco, and is also the group's largest market in the world that contributed to nearly 12 percent of its revenue in 2010. It is a market that the group cannot afford to lose, Fassl says.