Massive in­fra­struc­ture in­vest­ments

As the only major economy to expand last year, China’s GDP grew 2.3 percent despite Covid-19 shutdowns causing output to slump in early 2020. Strict virus containment measures and emergency relief for businesses helped the economy recover.

Growth in the final quarter of 2020 picked up to 6.5 percent and recent GDP data shows the economy has almost normalised, with the country firmly on track to overtake the US as the world’s largest economy in 2028.

As the fourth largest country in the world in terms of size, infrastructure is instrumental to sustain growth and China spends more on economic infrastructure annually than North America and Western Europe combined. As a result, demand for construction equipment such as excavators, haulers and loaders has been persistently strong even during the pandemic. This is good news for world-leading supplier Volvo CE, Volvo Construction Equipment of Sweden, where business with China accounts for 10-15 percent of total turnover:

Positioned as a local player

“For a long time now, China has been a fantastic market for us,” says Greger Svanström, Head of Trade & Customer Finance at Volvo CE, and explains the reasons behind the success. “Chinese government support measures to keep up infrastructure development is one reason, obviously, but it is also the result of a dedicated effort on our part, to position ourselves as the local player we in fact are, and to offer attractive financing to selected dealers with the help of EKN.”

Like in many parts of the world, buying from domestic suppliers is a favoured option for many reasons and to call it nationalistic is an oversimplification. Rather, it is a matter of trust and national pride. And, with local assembly of excavators at plants in Shanghai and Linyi, Volvo CE has earned the position of Chinese-made, even if many components are shipped from across the globe.

Also underpinning Volvo CE’s status as a Chinese brand is the joint venture SDLG, Shandong Lingong Construction Machinery (SDLG), which produces and markets loaders that complement Volvo CE’s range.

Supplier credit programme

Volvo CE sells exclusively to a network of 40 dealerships across China and the ability to offer supplier credit is crucial to win their hearts, says Svanström: “OEM’s like Volvo are expected to arrange financing and it is important for us to increase our sales to dealerships. Being able to offer credit is very important to us when building our brand in China.”

To this end, Volvo CE has teamed up with EKN on a programme of supplier credits and inventory financing of varying duration, from 12 months and up to the three years. To participate in the scheme, dealers had to submit to a formal credit check by EKN – a process which, at least initially, proved more complicated than it sounds, reveals Lotta Danielsson, Head of Automotive, mining and construction at EKN:

“The cooperation with Volvo CE became our first major undertaking in China in 2016 and one that, at least initially, required substantial research and collection of financial data on the Chinese dealers targeted for the supplier credit program.”

The difficulty of assessing the credit risk of Chinese equipment dealerships resulted in EKN offering to cover 75 percent of the risk involved, but positive experiences has pushed the level up to 95 percent, the normal cover of EKN supplier credits.

At Volvo CE, Svanström looks ahead with confidence:
“Our cooperation with EKN is instrumental to a continued expansion in China, since it allows us to go for bigger volumes without increasing our risk.”