The industrial cranes market in India is highly fragmented. In our estimate, we peg the industrial cranes market in India to be in the region of Rs. 2,200-2,500 crores per annum. Approximately 30% of the demand comes from the government sector and PSUs while the remaining 70% comes from the private sector. The private sector is the most vibrant part of the Indian economy and growing at a sustained pace and willing to adopt newer technologies much earlier.
If we divide this sector regionwise in terms of quantities, Western India contributes 50-55% of the total requirement, while Southern India follows with 20-25%, Northern India with 15-20%, and Eastern India with 5-10%. The total volume for industrial cranes is estimated to be approximately 10,000 cranes per year.
Global scale
To put in perspective where the Indian crane market stands on the global scale, the demand for industrial cranes in Japan is 20,000 per annum, in Germany 40,000 and the demand in China stands at 200,000 cranes per year. These large quantities give global manufacturers the advantage of economies of scale; allowing them to consolidate their global quantities and manufacture in bulk, thus reducing costs and making their products very competitive.
Moreover, most developed countries have very stringent regulations that govern industrial crane manufacturers. Japanese regulations, for example, require all manufacturers who wish to supply cranes and hoists higher than 3t capacity, to have a licence to manufacture such equipment.
In China, a specific licence and approval is required from the government to begin manufacturing of cranes. This reduces the number of manufacturers in the market and thus allows for economies of scale. This in turn opens up possibilities for standardisation of products.
Because regulations and standards are clear and succinct, buyers are sure to get a product that is fairly reliable and of good quality from almost any manufacturer they buy a crane from. This leaves little room for unnecessary padding of specifications of cranes, keeping the volume of ‘non standard’ cranes limited to only where they are actually necessary. However, the situation in India is drastically different. Over 350 crane manufacturers compete for a slice of a pie that is 5% the size of the demand for cranes in China. These companies can be divided into three distinct categories. At the bottom end of the market are manufacturers who sell cranes and hoists as one among many products they offer, while specialising in none.
They are usually fabricators who cater to a limited geographical area through a limited product range; their USP is proximity to their clients. The buyers of cranes from these companies are typically proprietors of small companies themselves and are more comfortable dealing with an owner, rather than a sales person.
Quality and reliability
There is also a tendency of the buyers to feel that a ‘large’ company would not give them the kind of support that a next door neighbour would. While these products are available at dirt cheap prices, on digging just a bit deeper, one realises that these prices are a direct result of compromises on quality, reliability and safety aspects.
After sales support in this segment is unorganised, if present at all. Post sales service is usually offered based on goodwill or personal relationships on a case to case basis, rather than through a documented and structured offering.
The middle of the market is comprised of players that are more focused on industrial cranes and hoists, but are still limited in terms of their geographical reach, product range and ability to innovate. These companies are typically proprietor run, and operate mostly on existing clients and enquiries that come their way directly, with little or no strategic marketing activity.
The products sold at this level of the market are generally better than the first category, but are limited by the lack of an advanced manufacturing and R&D setup. Moreover, the lack of volumes at this level doesn’t warrant investment in modern manufacturing techniques or product enhancement.
Revenue generation
The upper end of the spectrum consists of a handful of companies that truly operate on a pan-India scale. This segment accounts for over 40% of the revenue generated by the industrial cranes sector in India but will account for only around 15% of the market in terms of the volumes. The lack of depth in terms of market size in terms of volumes coupled with the sheer number of crane manufacturers in India is the primary hindrance that the industry faces in achieving global economies of scale, thus keeping it behind its counterparts in the western world.
Since no single manufacturer has the volumes that warrant large scale investments in research and development or dedicated assembly lines, the product that eventually comes out of the factory does not benefit from standardisation and mass manufacturing economies.
Indian Standards do stipulate the design norms and clearly state the minimum acceptable parameters for a hoist or a crane. However the bar is set too low and numerous technological advances that have been introduced over the years since the standards were established have become merely optional for the manufacturer to offer.
Price differential
When a comparison is made between a manufacturer willing to offer a top-notch product that not only complies with the requirements of the standards but exceeds them, to another manufacturer who churns out a product that barely confirms to the standards, naturally the price differential becomes wide.
In a cost-focused country like India where, in majority of the cases, decisions are taken more on the price rather than on technical aspects, naturally the incentive does not exist for a crane manufacturer to offer a high quality product.
In addition to this, the high market fragmentation has ensured that there is no real consensus regarding what technologies and features to adopt as standard. Hence when a buyer enquires in the market for buying a crane or a hoist, he receives quotations for the same product in a price band of 50% either way.
As a result of this, the buyer gets confused and the decision making process gets muddled. In order to overcome this scenario, consultants typically tend to unnecessarily pad up the technical specifications of cranes to be procured. While standardised products should cater to approximately 95% of all industrial crane requirements (in our estimate), in the current scenario, only 20% of requirements fit into the standard product portfolio.
Thus time and resources that could have been spent on crafting customer centric solutions is deployed on re inventing the wheel; slowing down the pace of technological advancement in the industry and driving costs up for manufacturers and customers alike.
Slow consolidation
An analogy from the automotive industry illustrates the problems that these hurdles could eventually pose to the crane industry. The lack of volumes for a single manufacturer means one of two things — either there will be minimal development on the technology front, as is sadly the case with the overall crane industry today, barring a few leading manufacturers, or manufacturers will slowly consolidate to share technology (or platforms and components as is rampant in the auto industry today) to harness the economies of scale as well as create a paradigm shift in the market as sellers, rather than waiting for buyers to ask for that themselves.
Similarly, the need of the hour in the crane industry today is consolidation of volumes. This can theoretically occur through the expensive route of acquisitions. However, this isn’t always favourable to the smaller companies and their clients may lose the comfort factor they had with their ‘local’ crane manufacturer.
A win-win situation in the Indian context would be a consortium of manufacturers pooling in their volumes to take advantage of the economies of scale to deploy resources towards product development and establishing an industry standard.
This would allow smaller local crane suppliers to concentrate on developing customer centric solutions, while product development could be taken care of by the larger umbrella companies having the required resources like R&D, marketing, world-wide logistics and support network at their disposal.
Clients would be able to rest assured that manufacturers are in a position to supply them with the right solution for their needs and ultimately refrain from over specifying their requirements. This standardisation and large scale production will eventually raise the standards of the products offered to customers and hence the overall standards and competitiveness of the Indian crane industry on a global platform. Naturally, the solutions offered to customers will be more cost effective as well.
