Features
2 Sep 20

ASIA: From CAPEX to OPEX?

Whilst Asia is a few months ahead of the West in its efforts to return to normal, Asian customers as well as industries have learned from the pandemic. Asian fleet clients have been predominantly asset buyers, negotiating upfront pricing rather than full lifecycle cost. The supply chain was, consequently, focused on generating profit margins from acquisition transactions.

Customers – consumers and corporates alike – have become much more careful over the last few months and either postpone purchases or buy cheaper. Both scenarios impact the profitability of the supply chain and generated the need for new growth models.

Lessons learnt from heavy-equipment businesses

A Chinese heavy-equipment manufacturer makes about 8% of profit on unit sales; outside of China, similar OEMs generate in addition up to 40% of their revenues through service such as aftersales, maintenance, service contracts (source: McKinsey); Chinese OEMs only 15%.

The maturity of the Chinese supply chain and client preferences (see above) contribute to this situation, as does the fact that a seemingly unstoppable economic growth did not require companies to focus on services.

The Chinese heavy-equipment industry has been quick to transition revenue streams from CAPEX income to OPEX income, catering for clients in need of new equipment, but not keen to sign off on capital investment in 2020. New business models, such as equipment lease, service contracts and upgrades of existing equipment have now become solid income generators.

Connectivity as a growth factor

Scale has always been one of the obstacles for the Asian service industry. The region is vast and, in order to offer services locally, a complex infrastructure was required to deliver the service to the customer.

IoT has dramatically improved the scalability of service offering; again, learning from the heavy-equipment industry, connected assets have the potential to simplify the transition from asset sales to service sales and generate high value/low cost revenue streams for OEMs willing to explore new business models

Importance for the Fleet Industry

Akin to equipment manufacturers, car makers are also exploring new sources of revenues, some of which were considered marginal in the past. The leasing and the car-as-a-service industries were dominated by a supply chain that was not active in manufacturing, but that might be about to change.

Car sales are slowly picking up, but it’s becoming clear that most consumers and corporate clients are no longer defaulting car purchase as their preferred way to access mobility. As such, the market is presenting the supply chain with an additional incentive to develop mobility services.

In addition, the growing awareness of total lifecycle value (and TCO) is creating opportunities for the leasing industry. The benefits of low-cost OPEX services versus high CAPEX investments is the correct rationale in these times.

The leasing and mobility supply chain have the potential to grow new revenue streams, especially during this transition period between the pandemic and the new normal. For the Fleet customer, it’s key to understand these new models and integrate them into APAC policies.

Picture Credit: Shutterstock

Authored by: Yves Helven