Interview: Sandvik Construction’s Dinggui Gao

Appointed in May last year, Dinggui Gao is now a few months into his new role as president of Sandvik Construction. A little unusually for the construction equipment industry, he comes from another sector, having most recently worked as truck manufacturer Man Group’s representative at its Chinese joint venture, Sinotruck. He has also held various positions with Honeywell, Eagle Ottawa and Bosch.

And when iC met Mr Gao at Sandvik Construction’s head office in Stockholm, his enthusiasm for the new role was clear. “It has been very exciting for me. I have been able to visit quite a few customers and been to all of our sites,” he said.

Notwithstanding Mr Gao’s enthusiasm, there is no getting away from the fact that Sandvik Construction has had a tough time over the last few quarters, as have most construction equipment manufacturers. Its sales last year were down -11.2% on 2012 at SEK 8.6 billion (US$ 1.32 billion), it barely squeaked into the black with an operating profit of SEK 110 million (US$ 17 million) and the order intake was down -6.5% to SEK 8.51 billion (US$ 1.3 billion).

According to Mr Gao, the primary reason for this was the economic environment. “On one side, the performance was impacted by the market,” he said, “The global market was slow last year. China, India and the US were slower than before and the financial crisis has continued in this industry. Europe has suffered a lot and consequently we have taken more of an impact, and that is why we need to rationalise.”

But he also said that the company could have been more nimble in adapting to changing conditions. “We are also looking at areas where we could have done better in terms of our internal processes. We have been doing that for several years, but the speed at which we have done that and taken cost out has not been as severe as the market downturn, so there has been a bit of an imbalance. So we really need to be proactive as a business.

“We need to keep an eye on the trends and take actions in advance. We need to do a better job in terms of having a plan, forecasting what is coming and taking actions ahead of that,” said Mr Gao.

As Mr Gao alluded, one of the issues for Sandvik Construction is that it relies very heavily on European markets. Despite the depressed state of this region, it still accounted for some 40% of revenues and orders in the fourth quarter of last year. But Europe only accounts for about 20% of global construction activity.

The need for some geographic rebalancing at Sandvik Construction is one Mr Gao acknowledges. “We still very much rely on Europe. That is where the company started. But if you look at where the growth is coming from, it is not Europe any more. Europe has stabilised, but the growth is coming from the US, China and South America,” he said.

But the need to get more deeply into emerging markets will have far-reaching consequences, not only in terms of the company’s footprint, but also what it produces. “If we want to grow and stay competitive, we need to refocus on where the growth is, and that will mean that in five or ten years our portfolio will be completely different.

“You really need to be a step ahead. Think about what’s happening in the next five years or ten years and make the preparations for that, rather than just passively follow and losing that competitive edge,” said Mr Gao.