Entry and growth strategies in Brazilian construction ... - Roland Berger

2011-04-14_Market_Entry_Strategy Brazil.pptx 

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Entry and growth strategies in Brazilian 

construction equipment market 

Market study 

April 2011

Contents 

A. Brazilian construction equipment industry is growing strongly and offers attractive growth options 

– Brazil is among the World's fastest growing construction equipment markets growing at 15% p.a. 

– Strong market dynamics offering a window of opportunity to enter and expand while Chinese players 

are still in a niche position 

B. To meet the challenges of the Brazilian construction equipment industry, several key aspects need 

to be addressed 

– Public financial credit support FINAME offers attractive financing conditions that favor local production 

in Brazil 

– Production location heavily impacts taxes, labor costs/quality and logistics aspects 

– Even if different sourcing strategies are possible, FINAME support depends heavily on degree of 

national sourcing 

– Additional aspects to consider are distribution channel strategy, rental business and export strategy 

C. Brazilian market is unique and has to be approached with a tailored strategy and business model 

– Six key levers identified to successfully enter and expand in the Brazilian construction equipment 

market 

This document was created for our client. The client is entitled to use it for its own internal purposes. It must not be passed on to third parties except with the explicit prior consent of Roland Berger Strategy 

Consultants. This document is not complete unless supported by the underlying detailed analyses and oral presentation. 

© 2011 Roland Berger Strategy Consultants GmbH 


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A. Growth potentials in the Brazilian construction 

equipment market

Brazil is among the most attractive construction markets worldwide 

because of its strong and lasting growth perspectives 

Brazilian construction industry market positioning and development 

GROWTH RATES CONSTRUCTION INDUSTRIES 1) 

World 2.3% 

Asia (excl. Japan) 7.1% 

Brazil 5.1% 

Middle East + Africa 3.5% 

South America 3.2% 

EU - Eastern 2.5% 

North America 2.0% 

EU - Western -0.5% 

> Strong growth of the Brazilian construction 

industry compared to most other regions 

worldwide 

BRAZILIAN CONSTRUCTION INDUSTRY [USD bn] 

52.1 

0% 

52.1 

+7% 

55.5 58.1 

CAGR +5.1% 

61.4 

64.2 

67.8 

2008 2009 2010e 2011e 2012e 2013e 2014e 

> Continuing and stable growth in the 

construction industry driving demand for 

construction equipment 

1) CAGR 2008-2013 

Source: WMI; Roland Berger 


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The construction equipment market also experiences strong growth 

that is expected to continue to grow at 15% per year 

Development of the construction equipment sales 2008-2014 ['000 units] 1) 

+ 15% CAGR 

MAIN DRIVING FACTORS 

-16% +23% 

21.4 

22.1 

18.0 

25.5 

29.3 

33.8 

38.6 

> Government investment program 

PAC 2) ("Growth Acceleration Plan") 

> Regulations and governmental 

support schemes favor local 

investment 

> Strong long term demand driven 

especially by residential and 

infrastructural construction 

2008 

2009 

2010e 

2011e 

2012e 

2013e 

2014e 

> Megaevents FIFA World Cup 2014 

and Olympic Games 2016 drive 

further investments in infrastructure 

and civil construction 

1) Without cranes & tractors 2) PAC: " Programa de Aceleração do Crescimento" (Growth Acceleration Plan) 

Source: Yengst; Roland Berger 


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Backhoe loaders, excavators and wheel loaders have the strongest 

growth in sales prospected because they are all-purpose vehicles 

Product segments of the CE market in Brazil 2009/2014 1) [sales units/share] 

Boom lifts 

1.200 CAGR 

(7%) 22% 

3.200 

(8%) 

Compactor rollers 

1.115 CAGR 

(6%) 7% 

Skid steer loaders 

1.219 

CAGR 

78%) 

23% 

Motor graders 

1.320 

(7%) 

CAGR 

16% 

Dozers 

693 CAGR 1.275 

Asphalt pavers 

(4%) 13% (3%) 

135 CAGR 250 

(1%) 13% (1%) 

Scissor lifts 

1.035 CAGR 3.000 

(6%) 24% (8%) 

Haulers 

92 CAGR 

(1%) 29% 

3.500 

(4%) 

3.500 

(9%) 

2.800 

(7%) 

360 

(1%) 

Backhoe loaders 

18,027 5.190 CAGR 9.600 

(29%) 13% (25%) 

Wheel loaders 

2.621 

CAGR 

(15%) 

18% 

6.000 

(16%) 

Excavators 

3.407 CAGR 

(19%) 16% 

7.020 

(18%) 

1) Without cranes & tractors 



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Window of opportunity to enter the Brazilian market is now, while 

Chinese players are still in a niche in terms of volume 

Sales of construction equipment in Brazil by company 1) (2009) [units] 

SALES VOLUME 

3,870 

2,880 

1,540 

1,320 

1,130 

1,100 

830 

800 

790 

600 

3,180 

Randon 

Dynapac 

Bobcat 

AGCO 

Proton 

Haulotte 

Liebherr 

Ciber (Wirtgen) 

Terex Roadbuilding 

(Cifali) 

Ingersoll-Rand 

Others 2) 

> Large global players 

dominate the market with 

market leaders Caterpillar 

and Case 

> Recent market entries, 

especially of Chinese players 

(XCMG, Sany, Liugong) have 

increased competition in the 

market, however they are not 

yet strong enough to 

compete with the big players 

Fiat Allis 

(CNH-Group) (CNH-Group) (CNH-Group) 

1) Without cranes & tractors 

2) Contains only players with less than 1% market share 


Window of opportunity to enter/ 

expand in the Brazilian market 


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B. Strategic aspects of the Brazilian market for 

construction equipment

Eight major strategic aspects need to be addressed in order to 

develop a successfully growth strategy for Brazil 

The Brazilian construction 

equipment market is unique 

> Complex tax legislation and 

strong impact of tax negotiations 

> Protectionist market through 

customs/import restrictions 

> Public financing programs 

> Strong regional differences in 

labor skills and competition on 

the labor market 

> Significant distances to bridge 

> … 

1 

2 

3 

Incentives 

and barriers 

Taxes 

Labor costs 

and quality 

4 Logistics 

5 

6 

7 

8 

Sourcing 

strategy 

Distribution 

channels 

Rental 

business 

Export 

strategy 

FINAME and uncertainty about import tariffs 

are the main drivers for local production 

Production location must be evaluated with 

special attention to taxes, labor costs and 

logistics 

Sourcing strategy needs to optimize cost, 

while fulfilling FINAME criteria 

Four different distribution models possible 

and used in the industry 

Rental business is growing and needs to be 

specifically addressed 

Brazil can be a hub for Latin America, but 

also other strategies are successful 

Source: Roland Berger 


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1 INCENTIVES AND BARRIERS 

FINAME offers attractive financing conditions that favor local 

production in Brazil 

Public financial credit support by FINAME scheme 

FINAME – MAIN CHARACTERISTICS 

IMPLICATIONS 

> Financing product from BNDES 

(Brazilian Development Bank) for 

production and acquisition of new 

machinery and equipment, 

domestically manufactured, 

accredited by BNDES 

> The financing is granted for products 

with nationalization index, in value 

and weight, superior to 60% 

> Every 2 years company has to update 

data with BNDES 

> Possibility to apply to more than 1 

credit line 

> No maximum value to be financed 

> FINAME: acquisition of new 

equipments 

– Annual Interest rate: 7.9% 1) 

– Maximum financing: 80% - 100% 

of the financeable items 

> FINAME Leasing: acquisition of new 

machineries and equipments 

destined to renting/leasing 

– Annual Interest rate: 9.8% 1) 

– Maximum financing: 100% of the 

financeable items 

> All major players use FINAME 

as financing solution 

> High share of leasing in the 

market leads to high financing 

costs – FINAME offers low 

financing rates and creates an 

advantage against players that 

don't participate in the program 

(e.g. competitors that import) 

1) Compared to > 20% market rate 

Source: BNDES; Roland Berger 


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1 INCENTIVES AND BARRIERS 

Incentives for imports of equipment become uncertain after major 

players localize production to Brazil 

Import barriers and tariffs 

Equipment WITHOUT national production 

Equipment WITH national production 

Import tariff 

policy 

> Import duty exemption (Ex-tarifárias) exist 

for the for specific equipments defined by the 

government 

TARIFFS CAN 

(AND OFTEN 

DO) CHANGE 

UPON THE 

START OF 

LOCAL 

PRODUCTION 

> Import tariffs exist for equipment that is locally 

produced 

Government 

interest 

Product 

examples 

> Facilitating the availability of equipment to 

the national market that is not produced 

nationally 

> Most aerial work platforms 

> Protecting the national supply chain, 

including equipment manufacturers and 

suppliers 

> Excavators, backhoe loaders 



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2 TAXES 

Any set-up in Brazil (especially local production) needs to consider 

the complex tax system 

Taxation in Brazil 

More than 90 DIFFERENT KINDS OF TAXES in 

the country on three federal levels 

More than 200,000 TAX LAWS issued since 1990, 

making it more than one per hour 

Ranking 150 th OF 183 COUNTRIES in the World 

Bank's ease of paying taxes ranking 

TAX BENEFITS through NEGOTIATION with 

states is very promising 

> Great annual savings in the range of millions USD 

> Tax benefits highly depend on the state 

Source: Interviews, tax laws, Roland Berger analysis 


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2 TAXES 

Taxes are the primary criterion for site location decisions in Brazil – 

Exemplary sites provide tax incentives of up to 6% of sales volume 

CASE EXAMPLE: Tax benefits – EBIT impact as percentage of total sales 

> Upon first localization short-listing, 

the primary decision criteria 

includes tax incentives 

> Tax incentives can be negotiated 

with state governments 

EBIT impact of tax incentives 1) 6.1% 

5.1% 

> The negotiation process is 

conducted individually for each 

company 

> Legal frameworks exist but are 

not exhaustive 

1 

2 

1 

2 

3 

Exemplary 

areas 

0.0% 

Area Area Area 

1 2 3 

1) Rough estimate based on volume of 2,000 units, average gross sales price of USD 200,000 and other assumptions 

Source: Interviews, tax laws, Roland Berger analysis 


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3 LABOR 

Within Brazil labor costs and skill level of workers differ strongly – 

Location selection is key in Brazil 

CASE EXAMPLE: Annual labor cost variance for selected sites in Brazil 1) 

Labor costs 1) 

Labor quality and availability 

1 

2 

1) Variance from average compared labor costs incl. benefits 

1 

2 

3 

Exemplary 

areas 

White-collar 

+7% 

-5% -2% 

Blue-collar 

+39% 

-25% -14% 

1 2 3 

White-collar 

1 > Leadership 

positions are, 

relatively easy to 

recruit 


positions need to 

be recruited from 

outside the region 


positions need to 

be recruited from 

outside the region 

Blue-collar 

> High competition among many 

companies causes lack of skilled bluecollar 

workers (e.g. welders) and 

engineers 

> Experienced workforce with previous 

jobs in the construction equipment or 

automotive industry 

> Unskilled workforce, mostly without any 

previous jobs in the industry – Skilled 

labor barely available 

> Workforce without any training in the 

manufacturing industry 

> Some people recruited from farther 

away 

> Local recruitment of civil engineer is 

easy 

Source: Interviews, Roland Berger analysis 


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4 LOGISTICS 

Most established players have selected a manufacturing location 

close to the main customer base 

Site locations of the strongest players in the construction equipment market in Brazil 

Key criteria for decision on site location 

Paraná 

Minas Gerais 

São Paulo 

> Tax benefits and total taxes 

> Local supplier market 

> Market access 

> Labor costs and availability 

> Land and construction costs 

> Local infrastructure, transportation and logistics costs 

> Utility prices 

Sao Paulo area advantages/disadvantages 

Rio Grande 

do Sul 

> Suppliers are closeby 

> Main customers are closeby 

> Big construction works are 

closeby 

> Good labor quality is 

available 

> Area is saturated with 

competitors 

> No/Low tax incentives 

given 

Source: Interviews, Roland Berger analysis 


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NATIONAL SOURCING SHARE 

5 SOURCING STRATEGY 

Different sourcing strategies are possible along the dimensions of 

outsourcing and national sourcing 

Sourcing strategy portfolio of main players in the Brazilian CE market 

> Different strategies 

– Just matching FINAME requirements 

(~60% national sourcing) 

– Sourcing most available parts locally in Brazil 

(~80% national sourcing) 

> Typical locally sourced products include engine, 

transmission, steel, track system/axle, etc. 

> Steel purchase can be used to optimize the 

national sourcing share to 60% at the time of high 

steel prices in Brazil 

Competitor 1 

Bubble size correlates 

with sales (2009) 

Competitor 2 

Competitor 3 

Competitor 4 

Competitor 5 

DEGREE OF OUTSOURCING 

> Players' strategies vary from having a mere 

assembly to in-house production of parts 

Source: Interviews, Roland Berger 


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6 DISTRIBUTION STRATEGY 

4 different distribution models are present along the top players with 

distinct split of responsibilities along the distribution channel 

Distribution models present in the Brazilian construction equipment market 

Decentralized 

Centralized 

Importer's 

A 

dealer mgmt 

B 

dealer mgmt 

C 

model 

D 

Centralized 

distribution 

Dealer 

Dealer 

Dealer 

Manufacturer 

Distributor 

Manufacturer 

Distributor 

Manufacturer 

Distributor 

Manufacturer 

Distributor 

Dealer 

Marketing/Brand mgmt. 

Dealer mgmt. 

Key account mgmt. 

Logistics 

Distribution center 

Shops / Sales 

After sales / Repair 

> For sales to key clients, 

manufacturers enter 

negotiations 

> Brand control via branding 

policy and alignment with 

distributor 

> For sales to key clients, 

manufacturers enter 

negotiations 

> Dealer's with few shops that 

exclusively trade the 

manufacturers brand 

> Distributors do the national 

brand management for the 

manufacturer 

> Key accounts negotiate with 

national distributor 

> No distributors or dealers in the 

country 

> Distribution process entirely 

centralized 

Source: Company websites, interviews, Roland Berger 


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7 RENTAL BUSINESS 

Trend towards rental urges the need for a specific rental strategy – 

An approach synchronized with the distributor needs to be taken 

Reasons and implications of the strong rental business in the Brazilian CE market 

The rental business suits the needs 

of the Brazilian market very good 

> Easier financing 

> Good and regular service 

> Rental offers flexibility, because the 

operator is not responsible for the 

transport along the long distances 

between construction sites 

> Some of the biggest construction 

projects are operated by syndicates 

for which rental is less complicated 

than buying (valuation issues, 

attribution of wear on handover etc.) 

Rental business within 

construction 

equipment market is 

increasing in 

attractiveness 

Fleet to rent is currently 

est. at 14.5k units, 

growing at 15% p.a. 

High level of fragmentation 

exists 

A strategy on how to 

approach the rental market 

has to be incorporated in 

the business model 

1 

INTEGRATED 

2 

RENTAL 

DISTRIBUTION 

(The distributor is also 

active in rental) 

ONLY 

(Specialized rental 

companies carry 

product) 

Source: Ministry of Development, interviews, Roland Berger 


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8 EXPORT STRATEGY 

Most CE manufacturers use Brazil as hub for exports to other Latin 

American countries – Global/National strategies possible 

Main export countries of Brazilian construction equipment industry 1) 

Construction 

equipment exports [units] 

Global 

manufacturing 

Regional 

production hub 

1 2 3 

National 

manufacturing 

150 

30 to USA 

590 

to Others 

> Manufacturing certain 

models in Brazil for 

the global market 

> Using Brazil as the 

manufacturing base for 

Latin or South America 

> Producing in Brazil for the 

national market only 

Exports are expected 

to grow strongly from 

1,425 in 2009 to 2,905 

in 2010 (+104%) 

80 

90 

Peru 

1) Without cranes and tractors 

120 

Chile 

Total production: 

18,030 

Local usage: 

16,650 

360 

Argentina 

Most companies use Brazilian plants as manufacturing hubs for 

Latin America only 

> Exporting to Argentina makes sense due to exemption of import tariffs 

(Mercosul) and relatively low logistics cost 

> Depending on market drivers such as exchange rate and logistics cost, 

exportation to Colombia, Mexico or even the US may make sense 

> In the case of Chile and Peru, we recommend to compare logistics cost and 

import tariffs for import from Brazil or other production countries – Komatsu 

is catering for these markets from its Brazilian plant 

Source: Ministry of Development, interviews, Roland Berger 


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C. Six steps to successfully enter and succeed in the Brazilian 

market for construction equipment

Roland Berger offers wide support to construction equipment 

makers to successfully enter and grow in Brazil (1/2) 

Potential areas of Roland Berger support 

1 

Understanding 

of local market landscape 

> Local market size and developments (e.g., by product, segment, region, etc.) 

> Local competition and new market entrants 

> Market characteristics, regulations and customer requirements 

2 

Development 

of a business plan 

> Development of business model (production set-up, sourcing strategy, etc) 

> Expected cost of production in Brazil 

> Necessary investments and required start-up cost 

3 

Selection of production location 

> Short-listing and pre-selection of attractive site locations 

> Detailed review of selected short-list locations (taxes, labor cost and availability, logistics cost, etc.) 

> Negotiation support 



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Roland Berger offers wide support to construction equipment 

makers to successfully enter and grow in Brazil (2/2) 

Potential areas of Roland Berger support 

4 

Localization 

of supply chain 

> Identification of local suppliers per critical component (available and capable) 

> Cost structure of locally produced parts 

> Negotiation support with suppliers 

5 

Development 

6 

Support 

of a clear sales and distribution strategy 

> Define/optimize dealer network (incl. rental) 

> Develop product and service portfolio for dealers 

> Define internal sales & distribution structure 

of operational ramp-up 

> Necessary steps to take (must-haves, checklist) 

> Key milestones and quality gateways 

> Implementation organization and timeline 



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Your contacts for further questions 

Our experts 

Norbert 

Dressler 

Partner 

Stuttgart Office 

+49 (711) 3275-7420 

norbert_dressler@de.rolandberger.com 

Paul 

Sloman 

Partner 

London Office 

+44 (20) 3075-1116 

paul_sloman@uk.rolandberger.com 

Stephan 

Keese 

Partner 

Sao Paulo Office 

+55 (11) 3046-7111 

stephan_keese@br.rolandberger.com 

András 

Tóth 

Project 

Manager 

Munich Office 

+49 (89) 9230-8634 

andras_toth@de.rolandberger.com


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It's character that creates 

impact!

Entry and growth strategies in Brazilian construction ... - Roland Berger

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