Three years into its establishment to distribute Komatsu machinery, Abdul Latif Jameel Machinery has launched a rapid expansion of its after-sales facilities within the Kingdom.
The pace of the company’s investment into the supply chain reflects its confidence in both the need within Saudi Arabia for facilities to maintain the Kingdom’s existing Komatsu population and the room for the brand’s growth among the customer base of the well-established Abdul Latif Jameel group.
Arif Chishti, managing director of Abdul Latif Jameel Machinery, explains: “Saudi Arabia emerged as a very important market for all the manufacturers after the 2008 crisis in the world. The equipment market has grown at a CAGR of about 15% — and this dynamic has pushed a lot of manufacturers to look at bringing their distribution more in line with international standards.
“Komatsu is not new in Saudi Arabia; it has been in the country for 45 years, so customers knew the brand, but in 2012 it began looking for a partner that would improve its position.
“Abdul Latif Jameel (ALJ) had equity from its automotive operation, and we could get ourselves quickly approved in all the governmental and quasi-governmental organisations without having to go through a lengthy process, because the capability of ALJ was established and the brand was known.”
Chishti explains that while Saudi Arabia has traditionally been viewed as a conservative market and a difficult country to operate in, there is rising dynamism, opportunism and competition in the sector.
Chishti, who himself more than knows the ropes, notes: “I have been around in the industry for 23 years or so; for seven years in the UAE and seven years in Saudi Arabia, but also for nine years with Caterpillar and Volvo operations in Pakistan — so I’ve worked with three big brands across the industry.”
The crux of Abdul Latif Jameel Machinery’s Saudi strategy is the development of one of the most comprehensive service networks for heavy machinery in the Kingdom.
“In the last 24 months, we have established five facilities, which by Saudi standards is extremely aggressive. These are 4S (sales, service, spare parts and survey) facilities in major cities: Riyadh, Jeddah, Dammam, Madinah and Abha,” explains Chishti.
“Because we inherited a large population — roughly 5,500 Komatsu units distributed over the last 45 years — we started by building our organisation around the product support for that equipment. We told ourselves that we needed to show our ability to support existing customers, and once the customer was comfortable with our capability, the new equipment sales would later come along naturally.
“Since ALJ is an automotive distributor, there were questions such as, ‘how will an automotive distributor support heavy equipment, which needs on-site as opposed to in-house support?’ — but by providing parts and workshop capability on site from the outset, we have gained the confidence of Komatsu’s customers, and 75% of the workforce, even today, is in product support.”
ONWARDS AND UPWARDS
Abdul Latif Jameel Machinery is now building three even larger facilities to further adapt and tune its before and after sales activities to the needs of its Komatsu customers.
A second Jeddah facility supporting sales service and rental activities under one roof is due to be inaugurated in March, and an even larger facility in Riyadh will open in Q3 2016, followed by a further facility in Dammam.
“The customers prefer you to be either at or near to their location to support them, and it is almost impossible to bring this heavy iron into the workshop, so we try to be close to them,” explains Chishti. “In Jeddah, we quickly realised that we would outgrow the facility, so we conducted a feasibility study, got the necessary approvals, bought the land and began building the facility immediately.”
To illustrate the scale of the expansion, the current facility in Jeddah comprises 6,500m2, while the new operationwill cover 17,000m2, and the subsequent development in Riyadh will stretch to 26,000m2.
In each case, the new facilities will deliver dedicated office and workshop space and take over all the functions of the previous facilities, except for the existing Jeddah facility, which will be kept on as a parts warehousing unit.
Chishti explains: “What we look at with our operationsis where the population is growing, and where there is growth in construction activities — like in the Western region in Saudi Arabia because of the extension projects on the Haramain grand mosques.”
Chishti also points to the Riyadh Metro, and the growth in various mining activities across Saudi Arabia, including a gold mining project near Riyadh for which ALJ recently supplied Komatsu 1250 excavators for, and a 109-excavator order from the Binjarallah Group for a housing project near Abha.
For the sake of reference, Chishti notes that the total size of the equipment market for heavy equipment in Saudi Arabia was worth $2bn a year in 2014, and involved some 7,000 units — a figure significantly higher than all of the other GCC states put together.
CENTRAL RENTAL
Abdul Latif Jameel Machinery also has plans to enter the rental market during the first half of 2016, and is stockpiling machinery for this purpose. Chishti highlights both the utility of rental as a route to market, and the demand for the service from customers.
He notes: “It is driven by the customers putting their demands to us, saying: ‘We want to buy X many machines and we want to rent X more — and we want to rent it from you.’”
He continues: “As a product offering, rental is also a growth opportunity, because there are so many projects and only a handful of contractors, and while they will be buying and have a sizeable fleet, they are also having to acquire a proportion of the equipment on rent.
“If we offer rental to our customers it is an extra proposal that they can opt from us if they have constraints on their acquisition.”
Chishti highlights power generation as a further opportunity within Saudi Arabia due to the standards that require the first thing on any site to be a diesel generator “so that is an opportunity that we have also identified, particularly with respect to rental”.
In turn, the equipment rental market is set to grow at a compound annual growth rate of 12% until 2020, according to TechSci Research.
Chishti comments: “The size of the rental market is worth up to $400m a year, with excavators, loaders and dozers constituting about 40% of the market, and generators a further 30% — but there is a huge opportunity for a company like ours to provide a rental product on a more professional basis.”
He sums: “Rental can be an optimal cost option: the acquisition cost is low; the operating costs are lower because the dealer does the maintenance; and, the equipment is not on their books — so they don’t have to worry about selling it, and they are able to compete better in tenders — so there is a natural movement from purchase towards rental.”
The sector that Chishti has primarily identified as an opportunity is not daily plant rental, but medium-sized equipment, such as: 20t excavators, which Chishti reckons to be half the market; 4.5m3 wheel loaders, like the Komatsu WA40; and medium-size bulldozers.
“Today the way the scope is, 60% to 70% of the market rests with small, unorganised operators, while only 30% to 35% is with companies who are skilled operators — so there is a big opportunity for companies like ours to handle projects more professionally,” he notes.
The plan to offer medium-sized equipment for rental dovetails with the needs of smaller contractors who lack the economies of scale necessary to justify equipment acquisition.
In this segment, a lack of skill among operators can also be more easily accommodated for by the machine. Chishti notes: “Komatsu is very good at keeping its machines operator-friendly, and that is one of the factors that customers say they like about the brand.”
A final market trend that could tip things in Chishti’s favour is regulation. Last September, the Ministry of Commerce and Industry implemented 27 different standards relating to the performance of dealers and resellers that could force out smaller outfits in favour of mature distributors like Abdul Latif Jameel.
Moving forward, Chishti optimistically projects that the rental side could grow incrementally to account for 30%-35% of his revenue.
