Agricultural machinery component enterprises are ushering in a shining moment

Supply chain management expert Martin Christopher asserted in the 1990s that competition in the 21st century will no longer be between companies, but between supply chains.

Against the backdrop of the transformation and upgrading of the manufacturing industry, China is becoming the world's largest manufacturing capacity, strongest supporting facilities, and largest consumer market. From a holistic perspective, the creation and rise of high-quality productive service industries determine the trend and quality of industrial development. With the fragmentation of media and channels, as well as the diversification of consumer demand, the demand for high-quality supply chains continues to increase, and the "supply" in the supply chain is elevated to unprecedented heights.

As is well known, since entering the stage of transformation and upgrading in 2015, the domestic agricultural machinery industry has transitioned from comprehensive scale growth to high-quality development, with slowing down, increasing efficiency, and filling gaps becoming clear labels for industry development. Especially in recent years, against the backdrop of complex and changing international political situations, sluggish global economic growth, and severe industrial competition, the development pattern of the agricultural machinery industry is showing disruptive changes, with increasingly close collaboration and support between whole machine enterprises and component enterprises.

In the cycle of transformation and upgrading in the agricultural machinery industry, agricultural machinery component enterprises are also undergoing a magnificent transformation. For excellent component enterprises, they are about to usher in a shining moment.

01 Current situation

In combination with China's industrial system, the agricultural machinery industry chain mainly includes upstream raw material and component suppliers, midstream complete machine manufacturers, and downstream distribution and promotion distributors.

The upstream raw materials mainly include steel, non-ferrous metals, rubber, etc. The component suppliers provide components such as internal combustion engines, transmissions, bearings, tires, etc. Midstream machine manufacturers develop and manufacture agricultural machinery products with various functions based on market demand and technological development trends. Downstream agricultural machinery distributors implement distribution and promotion, selling agricultural machinery to operators and widely using it in fields such as agriculture, forestry, animal husbandry, and fisheries.

Agricultural machinery manufacturing enterprises have played a leading and chain leading role in the entire industry chain, driving upstream and downstream component enterprises and distribution enterprises.

Overall, agricultural machinery component enterprises have several characteristics.

Firstly, the concentration of industries is relatively low.

Every year, millions of agricultural machinery products of all sizes are produced and sold in China, with over 2000 large-scale machine manufacturing enterprises. Behind these host factories, there are over 7000 large-scale component production and processing enterprises, as well as small and micro supporting processing enterprises that cannot be accurately counted. Many component supporting enterprises are scattered, with relatively low brand concentration and average economies of scale.

Secondly, the overall strength is relatively weak.

Compared to agricultural machinery manufacturing enterprises, agricultural machinery component enterprises are mostly small enterprises with weak overall strength, small and scattered, and the problem of homogenization is also common in traditional whole machine enterprises. Due to the large number of small and micro enterprises, the phenomenon of uneven quality is not uncommon, and there is a significant shortage of talent, technology, and processes.

Thirdly, the discourse power is lower than that of complete machine manufacturing enterprises.

From the marketing path of agricultural machinery component enterprises, an absolute number of enterprises provide supporting services for complete machine enterprises, while some component enterprises directly sell products to the market and users. Due to the fact that the complete machine enterprise determines the technology and product status of the whole machine, the majority of component enterprises are in a passive position and must strictly follow the requirements of the complete machine enterprise for component production. Of course, there are also cases where the monopoly of components or technology in the industry determines the assembly status of some parts of the whole machine.

Strength and discourse power determine one's status in the martial arts world! Any complete machine enterprise with some scale and strength will first adopt a contract based periodic payment mechanism when choosing a supplier, that is, determine the payment base (or quality, timely supply, technical confidentiality and other guarantees), use the components first, and pay the supplier when a certain period or payment limit is reached. In this situation, if the overall performance of the whole machine enterprise is good and honest, there is no problem with the payment from the supporting suppliers. However, they are afraid that the performance of the host factory may not be good, cash outflow problems may occur, and their own operations may face difficulties. This will inevitably affect the operation of the supporting enterprises, resulting in delayed and untimely collection of component payments.

Not only that, there is also a phenomenon called "annual decline" in the matching between agricultural machinery component enterprises and complete machine enterprises. After entering the supporting system of complete machine enterprises, almost every year, the supply price is required to decrease. On the one hand, agricultural machinery component enterprises raise the product supply settlement price when quoting, in order to passively accept the "annual decrease". On the other hand, they try their best to reduce manufacturing costs and squeeze out more profit margins.

From the current composition of domestic agricultural machinery component enterprises, they can basically meet the demand for mass agricultural machinery products, and there is gradually an oversupply of middle and low-end supply. However, in the field of high-end products, especially those with special materials, there is a certain gap with world-class brands.

02 Prospects

According to industry data statistics, in 2023, China will have 200 million sets of agricultural machinery, a total power of 1.1 billion kilowatts, and a comprehensive mechanization rate of 74%; There are over 2200 enterprises above designated size, with a main business revenue of 242.8 billion yuan; Capable of producing over 4000 types of agricultural machinery products in 14 categories and 50 subcategories. China is a true major producer and user of agricultural machinery, accounting for 27% of the global market share, and the market prospects are promising. According to the China Academy of Commerce Industry Research, the size of China's agricultural machinery market is expected to exceed 700 billion yuan by 2027.

The achievements of the agricultural machinery industry are the result of the joint efforts of all agricultural machinery enterprises. With a long-term perspective, the agricultural machinery market has broad prospects, and every link in the agricultural machinery industry chain is facing good development opportunities. For agricultural machinery component enterprises, they face huge scale space in areas such as collaboration with complete machine enterprises and post market expansion.

Firstly, with the continuous advancement of agricultural mechanization in China, the demand for complete machines is increasing, and the demand for agricultural machinery parts will continue to increase.

There is no doubt about this. With a current comprehensive mechanization rate of 74% in agriculture in China, there is still considerable room for mechanization improvement, such as mechanization in hilly and mountainous areas, animal husbandry, and economic crops, all of which have good prospects. When there is demand for complete machines, there is demand for components.

Secondly, the rise of emerging agricultural machinery categories, the upgrading and iteration of traditional agricultural machinery categories, the localization and substitution of imported products, and the innovation and expansion of agricultural machinery component enterprises have entered a new stage.

In recent years, China's agricultural machinery market has alternated between traditional and emerging markets, constructing a new industrial pattern. Currently, new types of mechanized categories are constantly emerging. At the same time, the innovation of modern agricultural models, industrial innovation, technological innovation and other whole system innovations are speeding up, and the localization of imported products has become a strong business growth point in the industry. Both whole machine enterprises and component enterprises are facing good opportunities for technological breakthroughs and scale growth.

Once again, the number of agricultural machinery holdings has been increasing year by year, and the demand for maintenance and repair parts has increased, making the development prospects of the agricultural machinery aftermarket even broader.

After years of development, China has formed a huge social ownership of agricultural machinery, and the demand for parts for agricultural machinery maintenance and repair has been increasing year by year. In addition, the upgrading, improvement, and modification of some agricultural machinery products have also expanded the demand space for parts. The demand for parts in the aftermarket has become a key point for the growth of agricultural machinery component enterprises.

The development prospects of agricultural machinery component enterprises are broad, which is also reflected in the diversity of supporting selection space. For example, those who make tractor rear axles can supply to A enterprise, and can also provide technical parameters and other requirements to B enterprise, C enterprise, and even more enterprises with consistent demand status.

There is no doubt that the prospects are vast. Therefore, agricultural machinery component enterprises need to make great efforts in risk prevention and self competitiveness building. Firstly, they must do everything possible to ensure cash flow and self generating ability, in order to prevent capital chain problems caused by delayed payment collection by complete machine enterprises; Secondly, we need to increase the cultivation of technology, processes, and manufacturing capabilities, attract talents, ensure excellent product quality, and form a core competitive advantage within the industry; Thirdly, we should do a good job in order based management, cost control, and other management to avoid high costs and inventory backlog caused by seasonal demand for agricultural machinery.

03 Opportunity

Talk about the opportunities for agricultural machinery component companies.

Let's take a look at a case first. In the field of supermarkets, there is a Henan based enterprise that has attracted much attention. Its supermarket located in the fourth tier city of Xuchang has even become a tourist attraction, and this enterprise is called "Fat Donglai".

What do they rely on to beat up all the merchants who are also running supermarkets and lose face? If you carefully study the business model of the boss, you will find that its success story is very simple and unadorned. In fact, there are only two points, which are "genuine goods at a reasonable price+ultimate service". The success of Boss Yu is not actually a fantasy. The biggest secret is to adhere to quality and service, and achieve equal value. ‌

The success of Pangdonglai is of great reference significance for all enterprises.

Returning to the topic. As mentioned earlier, the domestic agricultural machinery industry's internal component enterprises are weaker than the whole machine enterprises, and the pattern of whole machine driving the development of components has existed for a long time, but the prerequisite has failed. At the same time, often after component enterprises expand, they quickly enter the whole machine field, forming a cycle of repetition. Another point is that many advantageous component companies, while following the rapid development of the entire enterprise, blindly pursue expanding production capacity, while neglecting technological innovation and consolidating their own product quality. All of the above are not enough.

From a broader perspective, countries with leading levels in the global agricultural equipment industry are driven by component companies to promote the development of whole machine manufacturing, with component upgrades preceding whole machine upgrades. This development logic is more conducive to industrial upgrading, and component companies have less dependence on whole machine companies. We can see that internationally renowned component companies (such as Germany's Rasspe Rasber knotter, the United States' CPT Kale belt, GATES Gates triangle belt, etc.), regardless of how the whole machine market slows down and falls, still perform against the wind.

In terms of the competitive landscape of the agricultural machinery and equipment industry, top foreign agricultural machinery component brands are at the top of the supply chain, occupying the high-end and high value-added markets. Chinese agricultural machinery component enterprises are concentrated in the middle and low-end of the supply chain and the aftermarket. According to reports, the phenomenon of China's high-end agricultural machinery equipment relying on imported high-performance components has existed for a long time, such as high-performance hydraulic systems, precision seeders, baler knotters, high-end specialized sensor intelligent control components, etc. These components mainly rely on imports, and the current external dependence is still as high as 90%.

From this, it can be seen that agricultural machinery component enterprises still need to seize the opportunity of product technology innovation and service level upgrading in order to break through.

First, let's talk about the product, which is the foundation and key to winning the competition.

Continuously building products with core competitiveness is the biggest opportunity, and agricultural machinery component companies should make breakthroughs in four dimensions. The first dimension is technological leadership (at least advanced), establishing exclusive technical barriers, and breaking away from homogenization. In other words, if your product is severely homogenized, if you don't do it and someone else does it, the whole machine factory will have more choices and can naturally lower prices at will. But what about your product's uniqueness? Like a knotter, that's another matter; The second dimension is reliability, which requires strengthening manufacturing process control and improvement to ensure excellent product quality, especially reliability indicators that can withstand market tests, commonly known as "genuine goods"; The third dimension is a reasonable price range, which we often refer to as "price reality". We cannot exchange low prices for sales volume, nor can we scare off others with excessively high prices; The fourth dimension is intelligence, which is the trend of industry development.

Let's talk about the service again.

Service transformation is an essential opportunity point. For agricultural machinery component enterprises, the service referred to here has two meanings. One is to provide complete product and technical service solutions for the whole machine enterprise, integrate relationships and resources, form a joint force, and jointly create excellent performance whole machines; Secondly, everything should be guided and aimed at meeting user needs, extending the ultimate goal of services to the market. When problems arise, they cannot be blamed, especially not on the whole machine enterprise. We should fully participate in problem solving and take practical actions to build our own good brand image.

Actually, it's easier said than done. Like many commenters, I'm just pointing fingers and giving opinions on one side and evaluations on the other. If we really put it into practice, we probably won't be able to escape the fate of having high expectations but low skills.

In the new stage and new competitive landscape, the brand concentration of the agricultural machinery market is becoming increasingly apparent. Like complete machine enterprises, agricultural machinery component enterprises are facing the test of technology and products that determine success or failure.

I firmly believe that those who can truly achieve success belong to entrepreneurs who focus on their professional fields, adhere to their original aspirations, keep up with the times, work diligently, constantly innovate, and have the courage to break through!

Author: Speaking of agricultural machinery in a straightforward manner

Source: Agricultural Machinery News Network