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Daewoo Surges to Industry Forefront in Asia, America

Fri June 18, 2004 - Northeast Edition
Construction Equipment Guide

It’s often said one becomes stronger during bad times. The same could be said of Daewoo, which has been coming on strong in recent years. But the good days only arrived after some trying times for the long-time iron maker.

Today, Daewoo enjoys the status of being the No. 4 excavator manufacturer in the world and it resides alone at the top in sales in China. In addition to excavators, the company annually produces 37,000 diesel engines and was recently awarded the wheel loader contract with the New York City Department of Sanitation.

In all, Daewoo offers 18 excavator models ranging from 1 to 50 tons (.9 to 45 t); five models of wheeled excavators ranging from 5 to 21 tons (4.5 to 18.9 t); and six wheel loader models, ranging from 2.25 to 7 cu. yds. (1.7 to 5.4 cu m).

Worldwide, Daewoo employs 4,372 people; 2,000 of those work in the Construction Equipment Division, the Diesel Engine and Materials Division and the Industrial Vehicles Division. The company has overseas subsidiaries in the following countries: Belgium (Euro Daewoo S.A), United Kingdom (Euro Daewoo U.K.), France (Euro Daewoo France), Germany (Daewoo Maschinen Vertriebs), China (DHI Yantai Co. Ltd.), United States (DHI America Corp.) and South Africa (DHISA).

Daewoo’s dealer network has grown steadily. The company currently has 298 dealers in North America (Construction Equipment, Industrial Vehicles, Machine Tools and Diesel Engines) and 704 dealers (Construction Equipment, Industrial Vehicles, Machine Tools and Diesel Engines) worldwide — 65 of them in the Construction Equipment Division.

A Dramatic Turnaround

The success that Daewoo enjoys today didn’t happen overnight, but it did occur relatively quickly. In fact, as recent as three years ago, the company was experiencing severe economic difficulties. In the late 1990s in South Korea (where the company is based), the economy was mired in a deep recession and Daewoo, along with other iron manufacturers, was struggling. In 2001, Daewoo had a debt-to-equity ratio of 253 percent.

By 2003, however, Daewoo had snapped out of its funk in a big way by posting a 174 percent turnaround, and gross profits have increased by 150 percent since 2001. The company’s transformation has been so profound that Daewoo’s President, Jae-shin Yang, received the “2004 Top Manager Award” from the South Korean government.

China: An Economic Juggernaut

The company’s rapid ascent from economic doldrums can be largely attributed to its successful emergence into the Chinese marketplace — one that is so booming, particularly in construction, that the country has been “blamed” by many economists for single-handedly causing steel prices to soar because of its insatiable consumption of it.

In just eight years, Daewoo’s excavator sales in China have increased at an astounding rate. In 1996, it sold 600 units. Today, it sells in excess of 10,000 units, annually, with no signs of letting up.

Crossing the Great Divide

To become number one in China, Daewoo has invested more than $70 million on its Yantai production facility, where roughly 10,000 excavators and 2,000 forklifts are made each year. It’s also at this plant where all five of Daewoo’s mini-excavators are manufactured and distributed worldwide. The Yantai facility, which employs 1,300 — including 850 factory workers — is 3.8 million sq. ft. (350,000 sq m). Later this year, Daewoo also plans to manufacture machine tools at this facility.

By far, Daewoo’s DH220LC is the lion’s share of its sales in China, representing 60 percent of total sales. Models larger than the 220-size machine account for 11 percent of the company’s sales — and machines smaller than the 220, including mini-excavators — make up 29 percent of total sales.

Establishing a market for excavators in China has had its own unique set of challenges and to meet those, Daewoo sent Kenneth J. Chae to Yantai to run its operations there. Chae had experience in pioneering new markets, as he was one of the first representatives for Daewoo when its excavator was introduced to the United States.

According to Chae, one of the biggest challenges with entering the Chinese marketplace was not a lack of customers — it was a lack of qualified customers. Most people who were interested in buying a piece of equipment in China lacked one, but very important, thing … assets. As a result, nearly all of the early excavator sales were cash deals.

So one of the first things Chae did to develop market share was to establish credit for potential customers, which not only helped sell more excavators but also dramatically decreased the potential for default. Daewoo began offering terms to its customers, which generally involved 20-percent down with the balance due over a 12-month period. Almost immediately, Daewoo sales began taking off in excess of 20,000 excavators in very short time. But this presented another challenge to Chae: how to service all of those machines.

China is a massive country with expansive rural areas separating its large cities. Servicing and distributing parts to remote (and largely unreachable) locations required Chae to devise a Lewis-and-Clark type approach to cross the great divides. Consequently, over an eight-year span, he and Daewoo established 65 dealerships, three joint ventures and 12 branch locations across China to service its machine population. No other company has come close to accomplishing this feat. What’s more, Daewoo has set out to achieve “same day service and parts delivery” across China.

Chae also soon realized another challenge — training all of the company’s fledgling dealers in China.

“We had to personally develop and train all of our dealers in China from the bottom up,” he said. “Because of this personalized training and being in on the ground floor with our dealers, we believe and have proven over and over again that our dealers are the best trained and most service-oriented dealers in all of China. We stay focused on resolving every problem that develops within 24 hours and the vast majority of time we are able to accomplish that goal.

“Believe it or not, here in China our dealers average 35 technicians and 12 service trucks. That’s quite a commitment on their part. As a result of this, many of our dealers are selling in excess of 200 excavators a year. I remember when I worked for Daewoo in the United States from 1987 to 1991. We came into the U.S. market with basically one model to offer. Over the last couple of decades Daewoo has demonstrated vast improvements in quality control and in customer service.”

All these efforts have paid off. In China, Daewoo enjoys 60 to 70 percent annual growth in sales.

Daewoo’s success has become China’s windfall, too, in that the company has given back to the community. One of Daewoo’s mottos is, “Benefiting From the Market Rebounding Upon the Society,” and by following it the company has made several substantial contributions to help improve schools and education for children in China and has built eight Hope Elementary schools in China.

Daewoo also is noted as being one of the best places to work in China, with a reputation for paying its employees well in excess of the established local pay scale. Wang Yan Shur, a welder at the Yantai plant, told CEG that his family and friends consider him fortunate to be employed by Daewoo. Wang also stressed how “great” the working conditions are and raved about the abundance of on-the-job training, such as a full day of welding training every month.

An Inside View of Daewoo’s Success

Recently, Daewoo provided a tour of its production facilities in Incheon, South Korea, and Yantai, China, for a select group of North American dealers (See “North American Dealers Tour Daewoo Facilities in Asia,” in the May 19, 2004 Northeast edition.)

In Incheon, the group saw up-close the facility that manufactures crawler and rubber-tired excavators and rubber tired loaders. ISO certified, this facility, which employs more than 800 people, has the capacity to produce up to 17 machines a day totaling approximately 8,000 machines per year. During the tour, Daewoo announced that it was finalizing plans for a new facility that would replace the Incheon one, which is more than 67 years old.

The group also visited Daewoo’s Center for Product Reliability, which is staffed by 100 people who do extensive testing of all aspects of Daewoo equipment. Within the facility, various components of excavators, such as the booms and roll over protection units (ROPS) and hydraulics, are put through extreme tests — far beyond normal working demands to ensure that the product can structurally tolerate any situation. Piping also is tested at more than double the normal pressure to ensure its durability.

The Product Reliability Center features a noise reduction laboratory where noise levels are studied to determine where they can most effectively be reduced. The Center for Product Reliability also features a climate simulation chamber where equipment is tested in temperature extremes ranging from 400F below zero and up to 200F.

The visitors also toured the Ansan Parts and Training Centers, which operate 24-hours a day to meet the demands of the company’s worldwide dealer distribution network. The facility features an automated storage and retrieval system, which allows Daewoo to monitor its inventory of hundreds of thousands of parts. Currently, Daewoo is introducing to its dealers an Internet ordering system, which is designed to improve parts turnaround time to dealers and end-users. The motto of Daewoo’s parts depot is to, “Deliver the Right Parts at the Right Time at the Right Price.”

Next on the tour was the technical training center in Ansan, South Korea. Here in this 35,521-sq.-ft. (3,300 sq m) facility, technicians are brought in from around the world to be educated in the highest qualified service training available, including specialized training in hydraulics, engines, electronics and computer controls.

The group then toured Daewoo’s ISO-certified engine facility in Incheon. Staffed by 500 employees, this facility produces engines in the range of 60 to 1,000 hp (44.7 to 745.4 kW), manufacturing approximately 37,000 engines per year. Workers here are highly motivated — production targets are set each month and electronic signs throughout the facility track progress toward the goals. Quality assurance also is an important goal; every engine is tested for one hour for fluid leaks. At the conclusion of the tour of the engine facility, Daewoo provided the group with a sneak peek of its next generation of diesel engines, which feature reduced noise and emissions levels and higher fuel efficiency, with all meeting Tier 2 emissions standards.

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