TBY talks to L. Saeedi, Managing Director and Member of the HEPCO Industrial Group Board.
TBY HEPCO has become one of Iran’s main producers of heavy road and mining machinery. What is the story behind its success?
L. SAEEDI HEPCO was established in 1972 in Central (Markazi) Province to produce mining machinery so as to help develop mining activities in the area. HEPCO’s first partner was International Harvester of the US for the assembly of mining dozers, and then we partnered with Japan’s Sakai, Sweden’s Dynapac for rollers, and Poclain of France for the assembly of excavators. To achieve this, the 40,000 square meter HEPCO plant in Arak was equipped with two large assembly halls and parts warehouses. The partners we worked with helped HEPCO improve the technical training of our staff to upgrade aspects of our business such as with the assembly lines, overall quality control, and after sales service.
After the Islamic Revolution, HEPCO increased its production area to 60,000 square meters in line with transfer technology agreements involving steel parts manufacturers. In 1991 HEPCO, assisted by Liebherr of Germany, for the first time established a plant to manufacture a variety of spare parts. It included different sections such as cutting, welding, milling, light and heavy die making, and running a computerized and comprehensive quality control system for the production line. Liebherr also participated in the technical training of our staff. At first, the plant produced steel parts for dozers, Liebherr excavators, and then, the light and heavy parts of Volvo loaders. Three years later, we underwent management quality system reviews and we received ISO standards for our attention to production, design, and the environment. These are still being updated and developed for staff to improve the processes and information systems of the company.
In 2003, 40% of HEPCO’s stock was sold off in an IPO on the stock exchange, while the rest of the company’s shares were transferred to the private sector in 2006. At present, HEPCO enjoys the largest share in the production, supply, and support of the heavy machinery sector in Iran. This in turn covers a great variety of products that are used in road construction, mining, and agriculture.
Does this mean that international brands grant HEPCO production licenses and then you go ahead with the production here?
This is our repeated practical experience with a number of brands. At HEPCO, one of our main principles is that we are active partners in technology transfer agreements. This principle has transformed HEPCO into a premium company in the Middle East that has some of the best technical staff, modern equipment, and technology that rival even the largest of our competitors regionally. Our company strategy has led HEPCO into the fields of design and production, while still maintaining high purchase levels of other products from the main international suppliers. We also have won, on the one side, the loyalty of our current partners and, on the other side, the willingness of other international brands to initiate cooperation agreements with HEPCO for the production and after sales service of heavy machinery throughout the region.
What are your main product lines and what is your production capacity?
We are now producing and supporting seven types of rollers, five types of hydraulic excavators, one type of motor grader, three types of loaders in road construction, two types of heavy loaders, one type of heavy dozer, two types of dump trucks, three types of heavy hydraulic excavators in mining handling and transport, one type of backhoe loader, one type of skid steer loader in municipality services, one type of heavy tractor, and finally one heavy combine in agriculture. This means that HEPCO has the capacity to plan 20 different machinery models and simultaneously produce 2,400 units per year.
The Agriculture Ministry wants to up the level of mechanization in agriculture in the coming five years. Will HEPCO be heavily involved in producing the machinery needed to achieve this goal?
The plan to increase the level of mechanization has become a must of late, especially following the widespread drought that affected the rural sector in recent years. HEPCO is planning to take a strong presence in this movement while accessing development assistance from the great international brands we work with and our own experienced production and after sales service staff. In addition, HEPCO is planning on providing extensive spare parts support and we will also help train our customers in the correct operation of the machines we produce and sell.
Has HEPCO maintained its roots in the mining and road construction industry?
Our client list includes many big companies that are actively engaged in road construction and mining. These customers are well enough financed to not have to rely on the banking sector for credits to purchase our machinery as they have strong fixed capital levels and are able to sign significant contracts. Here at HEPCO, we are looking to establish a leasing company to supply a part of the credits needed by some of the smaller players in the industry, as we see such customers as playing an important role in HEPCO’s future sales as well.
How is HEPCO dealing with its competitors as a private company?
Prior to the privatization of the company, the government’s strategy in the past was to protect local manufacturers so that they could increase their own capabilities. This forced competitors who produced the same products as HEPCO to leave the field as they were only allowed to manufacture or sell products that HEPCO did not produce. However, as HEPCO has now become a private company, the picture has changed considerably. International companies have begun importing many types of light and heavy machinery into Iran through their sales and representative offices here. This, in turn, has reduced our market share in some of the products we produce. Our main competitors are those companies that have cooperation agreements with HEPCO and also distribute machinery directly. It should be noted that these agreements only cover those products that are produced by HEPCO. However, there are some companies that share the production of some products with HEPCO and sell them on the local market. Of course, the cost of the locally made product is much less than the imported version.
Have Chinese companies also made their presence felt in the Iranian market?
Chinese companies are widespread in Iran only for light loaders. These are mostly sold to less well-capitalized customers that are engaged in small-sized road construction projects and municipality services. These are not necessarily our target customers at HEPCO. However, they have attracted some of our smaller customers. The fact is that importers are just looking for higher profits without studying the market, understanding the technical capabilities of Chinese products, or respecting their customers. This has caused many customers to turn away from our competitors and back to HEPCO.
How do you evaluate the market for light and heavy machinery in 2009, and how is HEPCO reflecting the overall trend?
The global recession has affected the major manufacturers around the world, though in Asia Iran was the least affected. The global crisis arrived at HEPCO’s door late in the picture. The operational income of HEPCO in 2008 and 2009 did not change significantly, though the crisis was felt in 2010 when we were running operations at only 45% of nominal capacity. Due to its capabilities in production and engineering, HEPCO is able to weather the storm, and is utilizing its unused capacity by producing industrial equipment and heavy machinery for power plants.
Have you exported machinery or services to other countries?
In recent years, HEPCO has been busy with the local market so there has been no drastic need to engage in exports. Only a small share of our production has been devoted to exports to regional countries like Afghanistan and some parts of the CIS. However, as local demand weakened, HEPCO has been active in looking to export to the region over the 2010/2011 period.
How much do you allocate to R&D and what have you gained so far?
HEPCO’s research and development activities fall in three scopes: studying the market, improving products, and upgrading quality management systems. These activities enjoy 3% of the company’s annual budget.
The research department collects customer views on the advantages and disadvantages of our products. This, in turn, has led to a steady improvement in the quality of HEPCO products. Based on this, to our customers, some of HEPCO’s products such as its motor graders and rollers can compete with those of other well-known global brands. It may be interesting for the readers to know that our staff in our research and engineering sections can handle quality and production improvement on 10 products simultaneously. This is rare in the region.
What is HEPCO’s strategy to expand its cooperation with its foreign partners?
The long-term business relationships between HEPCO and its partners as well as the mutual interests that have developed show how well our strategies have functioned in the past. HEPCO selects its partners based on win-win conditions. We are ready to hand over some parts of our market to a foreign partner, but they are expected to respect the Iranian customer’s right to select the parts, products, and services they require. As HEPCO’s ‘capabilities increase, new collaboration projects with foreign partners will be developed. Among them, one may refer to supply and distribution of services, spare parts supply, and comprehensive training in Iran and throughout the region. HEPCO can help provide many opportunities for those who are looking for business cooperation in Iran.
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