Interview with Dmitry Lyubimov, President, Buhler Industries, Winnipeg, Manitoba

Two years after Russian giant Combine Factory Rostselmash acquired an 80% stake in the publicly held Buhler Industries, its 35-year old president reveals the aggressive growth plans that will give North American dealers access to all the equipment their large-scale farm customers need.

An Openness to Change

“Before Rostselmash acquired Buhler, we realized it had a very good product and good production, but was poor in marketing and sales. We immediately started to make this company more open in sales and marketing. At our first dealer meeting in 2008, we announced a return to the Versatile name. Versatile is the brand name for all high-horsepower equipment and Farm King for all smaller equipment and implements.

“We put together new sales tools for dealers and started our retail finance and floor plan programs — which was new for the company — and a 24-hour spare parts plan so every dealer could get parts in one day. We made some very obvious and reasonable steps that were the first stones in the path to growing sales.

“Because we are not a big company, we can react quickly. When the financial crisis hit, we immediately came out with a very aggressive sales program to help dealers move their inventory and created some programs for farmers.

“On the shortlines, we also had good products, but hadn’t released them properly to our dealers. The company historically produced only what it wanted; it was very production oriented. Last year, we started to build according to demand. We have almost zero inventory in shortline stock so nearly everything sold.

“Buhler was famous for not having enough product and we changed that. Our ability for dealers was better than ever, for both tractors and shortlines.”

Rostselmash’s Ownership: 2 Years Later

“In the first 9 months of 2009, sales were $227 million compared to $145 million last year, so we’ve seen more than 50% growth. Despite the economy, we’ve done well because we chose to be aggressive with a very good short-term sales program to motivate dealers and farmers to buy tractors. While it reduced our margins from 18% to 16%, we felt 2% was a good price to pay for growing market share.

“When we took over in late 2007, we had two targets. First, we had to regain the market with Versatile in North America. Second, we had to be a leader in tractor sales in Eastern Europe — namely Russia, Ukraine and Kazakhstan.

“While we weren’t reporting to AEM last year, our North American market share is probably around 13% in articulated 4-wheel-drive tractors. Because of the Rostselmash dealer network — Rostselmash has a 50-60% market share in combines — we estimate that our market share in big 4-wheel-drive tractors has grown 10 points to 30% in Eastern Europe.”

Aspiring to a Full Line

“Our competitive strategy is to offer a full line in big equipment — the combine, big tractor, sprayer and seeding. We have tractors, and the combine is coming to North America for sure, so we needed sprayer and seeding line. We took care of the sprayer last year with Redball, and are still looking to buy a seeding company.

“Whether you’re in North America or Russia, the big farms, and dealers who supply them, need the full line of equipment. To compete with major players in this market, you need to have all these pieces because if you are missing something in your line, that farmer will go to another dealer — who can easily convince him to do all their business with him. It happens in Russia just as it does here.

“Having the full line gives you extra sales tools, discounting and programs that you can put under one umbrella with your retail finance and floor plan. “Redball was a company with a good sprayer. They were in financial trouble, so buying the rights to the equipment was a very good deal for us. The pull-type sprayer is already available under Farm King and the self-propelled sprayer, with a Cummins engine, is being introduced this month at our dealer convention.

“Having a full line will meet our targets for Russia and North America, and also help in new markets like China and Africa. In new markets, it’s easier and more cost effective to enter with a full-line solution than trying to start with individual lines.”

Next: A Seeding Acquisition

“It’s not a secret that we are looking for seeding companies, and if we see the right kind of deal, we will take that chance in 2010. In the beginning, we tried to find a strategic partner in seeding, but realized it’s easier to own your own company. “A North American company would be the best option because it’s harder to introduce a European company here, but if we cannot find it, it will be a European company.

“The best choice would be a company that can feed both North American and Russian markets and fit with our 200-600 horsepower tractors.”

Market Share Doesn’t Come Easy

“One of the biggest differences in this market vs. Russia is that people don’t change loyalty very quickly. So, to get a new customer, you must spend more money or spend more

time. In Russia, people might buy one brand one year and switch to another the next — it’s quite common. So, it’s possible to lose a lot of market share, or grow it from 20% to 50%. Here, it’s not possible for anyone to make those huge increases quickly.

“It’s easier to keep your business here, but also harder to increase your market share. In North America, you have people who like a particular color and it’s very difficult to convince them that there’s anything else.”

Targeting Small-Store Dealers

“Consolidation of dealerships is a concern, but we see our best chance with those small, family-owned dealers. If they do nothing, sooner or later they can lose everything. So, if they don’t want to or can’t be acquired, their choice is to find another brand now. When the big dealers and the small stores are all competing for the same customer, it’s obvious that the small dealer has no chance. Maybe it takes 2 years or 7, but small dealers will become less competitive. Because they are at risk of losing their major line someday, what they need is an important, alternative product line to survive. We’re trying to convince them to try with us.

“Down the road, when we are able to offer a full line and as the process of acquisition by big players continues, we will be the best option for small dealers. Similarly, we also don’t want to put all our eggs in the basket of those big multi-location dealers that could stop carrying us. It’s very easy to lose a dealer because of acquisition.

“Next year, we will be looking at dealers very aggressively. We have a goal of 40 additional dealers, and we’re looking primarily at one- and two-store operations. Next year, we are coming with tractors and sprayers and very attractive programs — in advertising, marketing, sales incentives and training. So it might be our best chance to tell dealers about our solution as dealer purity and consolidation changes the business.”

Core Beliefs for Running the Business

“My management style is that I like to listen to people and I want their opinion. I don’t like people who say ‘Yes, yes, I agree, it’s the best suggestion I’ve heard.’ Not that I want someone to take the opposite view every time, but I want them to have their own opinion and be ready to discuss and listen. I would say I’m very flexible before a decision is made and but once the decision is made it’s final. Nobody likes it when a decision is made and then it does not get done.

“And at the same time, I accept risk and I realize you cannot be successful without risk, and you cannot compete with big companies. But I don’t accept big risk or putting too many eggs in one basket. I would prefer small but very fast efforts and open steps with some risk, particularly if you can change if the situation changes. I don’t talk about 5-year business plans. I don’t believe you can anticipate all the changes, nor can you predict exchange rate. You need to have a concept and we have that strategy, such as ‘we will be a full-line manufacturer.’ And we try to do the best we can every day.

“So risk is good, but small risk, frequent risk is very good. Taking the one, big risk is bad. And mistakes are part of being successful, so you cannot be successful without mistakes. You just need to make good decisions a little more often than your mistakes.”

BONUS COVERAGE from Farm Equipment:

Coming with a Combine

“Two years ago, Rostselmash started to build the Torum combine,” says Dmitry Lyubimov, president of Buhler Industries in Winnipeg, Manitoba. “According to independent and number of different tests, it’s competitive with the major brands in productivity and performance.”

Rostselmash started limited production of these Class 7 and 8 combines, and around 200 units have been sold in Russia and Kazakhstan. Next year will be the third year of testing in Russia, and then they will come to North America in 2011.

Rostselmash also started production of the swather and forage harvester, which are also eventually destined for North America, Lyubimov says.

Precision Ag: Another Reason for Full-Line Solutions

When asked what is driving change throughout agr icul ture, Dmitry Lyubimov quickly answered precision farming, noting that it will become even more instrumental in the future. The opportunities in precision agriculture technologies, he says, also support the firm’s full-line direction. “This month at our dealer meeting, we’re announcing our strategic partnership with Raven,” he says.

“Precision farming will be one of the reasons why people choose full-line equipment. Think about trying to take a tractor, planter, a combine and sprayer all of different brands and getting them connected on yet another GPS system. It is going to be a mess. “Even if the farmer likes all these pieces separately, he will come to one brand just because he cannot manage it — it’s become so much more complicated.”

Getting Close to a ‘Major’ Manufacturer?

Industry observers remember that AGCO came out of nowhere 20 years ago to establish itself as a major supplier. So with plans for a full line that would encompass a tractor, combine, seeding and sprayer lines, Buhler would be closer to a “major” than a “shortline” manufacturer. The next natural question is whether the company could adopt a similar hard-line approach with its dealers to carry only its equipment in the years ahead.

President Dmitry Lyubimov contends that that notion is very unlikely, in part because dealer growth in 2010 and beyond will come from those family-owned dealerships who’ve borne the dealer purity burden. “For some dealers, our company offers one of the best, if not the only, chance to keep the business independent. We like independence with our dealers and that they run their own businesses, make their own decisions and can be straightforward and say ‘no.’ They are the ones who push us to do the best.

“Even where there’s an opportunity to discuss a dealer doing more with us, we don’t want to force them into anything. It never works if your attempt is only through force. We will do our best and show our dealers that Versatile is the best way for their business. If they accept it, that’s fine; if they want to carry other lines, we can still work with the store.”

Noting that the company could look vastly different in the coming years due to the ambition of the Rostselmash ownership, he says that the company will not follow “the path already taken.”

“We try to be different and don’t want to just copy or repeat others’ products, sales strategy, etc.,” he says, noting that the company will not get involved in construction and forestry equipment. “Everybody, including the majors, makes mistakes. We intend to be different.”