Beware of Opportunistic Foreign Manufacturers from Emerging Markets

Sound like a perfect storm? Paylor says it will only take one or two major U.S. rental companies to decide their only path to survival involves buying the cheaper Asian products and these international companies will be on their way. "Just look at the automotive business if you doubt it can happen," Paylor says.

In order to head off this potential threat, Paylor says U.S. manufacturers must first be tough competitors in these Asian markets. "They have to play hard ball with prices and form strong relationships with distribution," he says. "Most of the rental concepts of our market are new to the emerging markets so the distribution and all the parts of their company have to be trained on how to handle customers in these settings. Second, we have to understand that financing of our products to our customers is not an option if we want to have a solid shot at orders coming from a distribution base that has suffered significant hits in profits and margins. Third, we have to make sure our products can be productive for many years. A piece of rental equipment that only lasts five years is a product that has to make a completely different financial return for a rental company than one that will be productive and make a solid return for 10 or 12 years."

Keeping a product in fleet, well maintained, for longer periods of time can be the key to keeping new competition out, Paylor states. "The giant opportunity is the installed base of equipment. How much value any product has is judged by the total life-cycle return and almost every brand made in the U.S. has a good story to tell. My advice is to think about what you have built with your customers at every level as far as confidence in product is concerned. We all represent a brand -- manufacturers, distributors and even end users, to some degree. Support that brand from cradle to grave and give your customer a reason to NOT want to change. In the end, faith in a product, loyalty to a business partner, confidence in your ability to adapt to a changing marketplace by adjusting your services to match the new customer needs, and the belief that all things run in cycles, should convince you not to hastily jump into a product or business venture that is unproven just for a short-term gain."

In addition to brand value, the ability to leverage technology is going to be another important factor in the survival of U.S. manufacturers and rental companies. "The electronic 'communication' between manufacturer, distributor, and even end users will be a key component of a healthy rebound in the rental business. Machine ordering, parts ordering, electronic service diagnostic and paperless account settlement are still on the cutting edge and likely to help North American manufacturers keep a solid relationship with the rental companies."

He concludes, "Companies like SmartEquip are going to be part of the future. While not completely merged into the back office of all the rental companies at this time, they are well down the road. This type of technology can not only take cost out of order processing and management, but is the basic foundation of a system that will help owners of equipment manage the profitability of the rental fleets for the entire life cycle of the product, and do so in conjunction with customers and manufacturers as partners in the process. It will be some time before international manufacturers can fully engage this type of system."