Chinese Rivalry

A Battle for Space on Desert Roads

resized Truck in Iran source National Geographic Getty Images 66738364
If German truck manufacturers have anything to do with it, Iran's roads will become a lot more crowded.
  • Why it matters

    Why it matters

    An expected boom in the Middle Eastern truck market will serve as a litmus test for Chinese companies and whether they can compete against Mercedes-Benz, MAN and others on the global stage.

  • Facts

    Facts

    • Iran and the whole of the Middle East are considered to be the next growth region for truck manufacturers.
    • China’s Dongfeng has taken the lead in building up strong positions in Iran, Egypt, and in the United Arab Emirates, followed by Sinotruck.
    • The demand for trucks in Iran is expected to increase in the next ten years by 63 percent, in Turkey by 48 percent, and in Saudi Arabia by 40 percent.
    •  
  • Audio

    Audio

  • Pdf

Wolfgang Bernhard was in a great rush. The sanctions on Iran had hardly been lifted in mid-January, when the man in charge of trucks at Mercedes Benz maker Daimler was already on his way to Tehran.

“Everything is still there to make trucks,” reported Mr. Bernhard. The production of trucks with the Iranian partner, Khodro, was supposed to resume quickly.

But re-entering the market after an absence of six years won’t be an automatic success. “The Chinese have taken our place,” said Mr. Bernhard. Asian rivals took advantage of the absence of Western truck companies to expand their presence and build a strong position for themselves.

Iran and the whole of the Middle East is considered to be the next growth region for truck manufacturers, who are gathering these days to hold their industry trade show at the 66th IAA Commercial Vehicles in Hanover.

While South America continues to wander from crisis to crisis, the market in the Middle East, according to a study done by the corporate consultant Arthur D. Little, is expected to increase by 50 percent in the coming ten years.

“In a nutshell, what is about to happen in the Middle East in the next decade has global implications for all manufacturers, suppliers and industry stakeholders.”

Arthur D. Little consultant

The political opening of Iran could be a major driver of a truck boom in the Middle East in the coming years, the study says, but the economic modernization of Saudi Arabia could also be a significant factor. There will be a particularly strong increase in the sales of medium and heavy trucks, according to the consultants.

Iran and its neighboring countries need an efficient transport fleet to replace their old trucks, some of which are over 40 years old. And the potential in the region could be even greater when the rebuilding of civil war-torn countries of Syria, Iraq and Yemen are factored into the prognosis.

Prior to the West imposing economic sanctions on Iran in response to its nuclear weapons development, the region was divided up by Western truck makers such as Volvo, Daimler, and VW’s subsidiaries, MAN and Scania. In their absence, the Chinese moved in. Dongfeng has taken the lead in building up strong positions in Iran, Egypt, and in the United Arab Emirates, followed by Sinotruck.

The Chinese may have been cut-price suppliers of little consequence in the niche ten years ago, but now their share in the region across all segments is a good 40 percent.

“The Chinese trucks are increasingly better managing to serve the needs of the customers in the region,” the experts at Arthur D. Little said.

The new companies from the Far East are offering reliable technology at fair prices and they are beginning to build up service structures, a crucial requirement for permanent success in the truck business.

This development is a particular challenge for European manufacturers, which are encountering the Chinese on the world market as equals for the first time. In Europe, the safety and exhaust emission levels are still an insurmountable obstacle. In China, the government has sentenced both sides to work together in joint ventures.

 

Iran-01

 

The mandatory cooperations in China, however, have given Chinese manufacturers access to Western technology and they have adopted it. The Chinese can make use of their newly acquired skills in the Middle East. Arthur D. Little sees this as precedent-setting.

If the Chinese are able to successfully compete against the still higher-quality technology of their Western competitors, then they also have excellent chances in other emerging markets, for example in Africa. In both regions, the Chinese are tendering their services as political partners and investors in infrastructure projects.

But the demands are changing. The market is shifting from simple trucks to high-quality vehicles, say the experts at Arthur D. Little. Whereas until now the primary demand was for budget trucks and construction vehicles, now there is an increasing demand in these countries for high-quality trucks, such as refrigerated transport for the growing middle class in Iran, whose population is almost as large as that of Germany.

The demand for trucks in Iran is expected to increase in the next ten years by 63 percent, in Turkey by 48 percent, and in Saudi Arabia the expectation of growth is 40 percent, according to the study.

It is a huge opportunity for manufacturers such as Daimler, MAN and their suppliers, but also a risk if Chinese rivals grab a large market share in those countries.

Arthur D. Little concludes: “In a nutshell, what is about to happen in the Middle East in the next decade has global implications for all manufacturers, suppliers and industry stakeholders.”

 

Markus Fasse covers the automobile industry from Munich. To contact the author: fasse@handelsblatt.com

We hope you enjoyed this article

Make sure to sign up for our free newsletters too!