* Chinese firms ride on emerging markets' construction boom
* Overseas expansion cushions tough domestic market
* Made inroads in Southeast Asia, North Asia, South America
* Still face uphill battle to become global players
By Fang Yan and Matthew Miller
BEIJING, Oct 30 (Reuters) - When Guangxi Liugong Machinery was bidding to sell wheel loaders to a Thai ricemerchant a few years ago, company president Zeng Guangan knew heneeded to customize his equipment to beat off Komatsu Ltd and other Japanese rivals.
"Thailand has been using Japanese wheel loaders for years,"explained Zeng. "The seating was getting higher and higher, butthe vehicle's arm wasn't long enough." That works for loadingdirt or concrete blocks, but was unwieldy for hauling rice.
Liugong's modifications won over buyers, and theGuangxi-based firm says it now makes one of every three wheelloaders sold in Thailand. It has also increased its marketing inBrazil, Russia, India and Turkey, helping increase overseasrevenue to 30 percent of its total sales - up from below 9percent in 2010.
Other Chinese machinery makers, including Sany HeavyIndustry, Zoomlion Heavy Industry Science &Technology and XCMG Construction Machinery, are also turning to emerging markets for growth asthey wrestle with cut-throat competition at home, exacerbated bya supply glut - partly a legacy of heavy stimulus spending inthe wake of the global financial crisis.
Caterpillar Inc and Komatsu, however, still seeChina as a bright spot in a global market suffering from adownturn in orders for mining equipment. While the global marketis forecast to grow to $189 billion by 2017, the world's twoleading equipment makers have this month cut their full-yearprofit outlooks.
"Market demand (in China) may not be falling as much asbefore, but the industry has yet to feel the breezes of spring,"said Shi Yang at UK-based industry consultancy Off-HighwayResearch Ltd. "Foreign companies' clients in China are mostlybig state enterprises and their business tends to be morestable."
Zoomlion said on Wednesday its June-September earnings fellby a third from last year, while Sany's net income dropped by54.3 percent. Smaller rivalLiugong on Tuesday reported a 2.6 percent increase in itsthird-quarter profit. Quarterly net income at XCMG fell 45.5percent.
Shares in Sany and XCMG have fallen by around a third so farthis year, while Zoomlion is down 40 percent. The sector medianstock price decline is just 6 percent.
Chinese equipment makers are gaining traction overseas,pulled by the construction boom underway in Southeast Asia andSouth America, where new home and infrastructure building haslifted demand for affordable earth-moving gear.
In January-June, Sany's sales outside China rose bytwo-thirds from a year earlier, with growth in Asia Pacific upmore than 90 percent. Same-town rival Zoomlion - whose annualsales of close to $8 billion make it the world's No.6construction machinery maker - also made breakthroughs inThailand, Chile, Costa Rica and Ecuador with its truck-mountedconcrete pumps and concrete mixing plants.
"Emerging markets represent a good opportunity when domesticdemand is weak," said Xu Mingle, an analyst with BOCInternational. "Even though export volumes remain small andcannot offset the slump at home, it at least cushions the blow."
While Caterpillar, Komatsu and Volvo AB remaindominant in most emerging economies, Chinese gear is makinginroads. In 2011, XCMG group won a $745 million bid to supplycranes, concrete pumps, excavators and other equipment for ahousing project in Venezuela that Caterpillar also bid for.
A year earlier, Liugong beat Caterpillar, Komatsu and SouthKorea's Hyundai Heavy Industries Co Ltd and DoosanHeavy Industries & Construction Co Ltd to providewheel loaders and excavators for an afforestation campaign inTurkey, according to Liugong vice president Luo Guobing.
"Chinese companies are certainly not yet the largest inthese markets, but they're getting really aggressive," saidRaymond Tsang, a Shanghai-based partner at consultant Bain & Co.
ALMOST AS GOOD ... AND CHEAPER
Encouraged by the rising popularity of Chinese equipment,Samcorp, a Hong Kong based dealer, started selling Zoomlion andLonking Holdings Ltd's products in Peru three yearsago. It recently opened another showroom in Columbia.
"People like these products," said company director LaurenceLam. "They are almost as good as those made by Westerncompanies, but 30 percent cheaper."
Chinese equipment manufacturers are also gaining access andrecognition in emerging markets as they have improved theircomponent sourcing, according to Hermann Beck, an executive vicepresident at ZF Friedrichshafen AG. Besides the German partsmaker, Chinese firms are turning to Eaton Corp andCummins Inc for parts, he said.
There have also been offshore acquisitions. Over the lastfive years, Chinese firms have bought a variety of strugglingEuropean equipment makers, including Italy's CIFA Spa, Germany'sPutzmeister Holding GmbH, and Poland's Huta Stalowa Wola, whichhas boosted access to Eastern Europe.
Industry executives caution that it will take time forChinese companies to compete against global giants such asCaterpillar, which operates at the higher end of the value chainand books about 65 percent of its sales outside North America.
"They're going to have to learn how to be domestic playersaround the world, the way we did," said Ron DeFeo, Chairman andCEO of Terex Corp, which now increasingly faces Chinesecompanies in emerging markets.
"You can't just make it in China and ship it abroad."