Somewhere in the world right now – from Fort Worth to Paris to Dubai – industrial equipment auctioneer Ritchie Bros. Auctioneers is gearing up for a massive auction sale – perhaps several in the same week or even day. The world's largest industrial auctioneer holds 340 or so such auctions in a year; last year, close to $4-billion worth of new and used equipment changed hands. Now Vancouver-based Ritchie is poised for a big breakthrough in building its global trading platform. Its first Chinese sale is slated for spring, 2013, in a free-trade zone beside Beijing airport. It has been building toward this event for almost nine years, says chief executive officer Peter Blake. Speaking from a recent auction in Montreal, he talks about what it means for China to learn the art of the auction.
Why has it taken nine years in China to get to your first auction?
We started off with a foot planted in the soil, educating the Chinese government in who we are and what we do. Part of our role was providing the Ministry of Commerce with a window into the world of auctions. They were writing their auction law, and they used us and others to consult on what that law should read like. And the bigger part was educating Chinese companies – construction companies, manufacturers and dealers – in who we are and what we do.
But why China?
It's a market you can't ignore, and the construction industry until recently has been quite domestic. But now, Chinese construction companies are doing projects in Africa and South America, and Chinese equipment manufacturers are starting to spread their wings. At the same time, North American manufacturers are starting to move into China to produce their products. It has become a more integrated global player and we have created relationships with lots of companies.
We have been selling on behalf of Chinese OEMs (original equipment manufacturers) in other markets. So they produce a new product, put it into containers and ship it out through our network, where we would sell on their behalf, creating a distribution channel.
So you can't ignore China?
We hold auctions in 12 countries and operate in 25 – and this is another way that connects China to the network we already have. We'll have people from outside China coming to buy equipment and taking it to areas where Chinese-made equipment is more of a common denominator than in North America. You see it being used in places like Ghana, Morocco or Ecuador. And the quality has come a long way – you could liken it to the evolution of the Japanese-built car.
Can you overcome the cultural differences?
This is not our first rodeo. I remember being in Rotterdam, and holding auctions 15 years ago. We saw people dressed in traditional Arab clothing with their white dishdashas. We talked to them, and they explained they were doing business in the United Arab Emirates. So we went to the Emirates – there was business for us there. We were sensitive to the ways, the Arab culture, and now we have been in the free zone in Dubai for over 10 years. It is a very accepted way for trading construction and transportation equipment.
What is the general reaction to your exclusive use of unreserved bids? Each item sells on auction day to the highest bidder, with no minimum bid or reserve prices.
It takes some faith for people to believe it is going to happen. But as soon as they understand what you do, you create an immense amount of transparency and a following. In China, they were looking for a more open, transparent sales platform. We met a bunch of people who are end-users – people who dig the post holes and build schools and bridges – and they said they were desperate for a system to allow them to trade in an open, fair and efficient manner.
And up to this point in China, they did not have a strong need for a resale market. They were continuing to grow, grow, grow. They are still growing now, but they now have equipment that is two, three or four years old and they want new stuff and they want to trade in. The replacement cycle is on, and so what do they do? They did not have a systematic way of trading used equipment.
So this kind of auction market did not exist?
No. And we're not trumpeting to the world that we're in China. It took us eight, nine years to get this this point and we are starting out with one auction site and one auction. We think we have done our homework and we have a unique licensing that has never been granted before. We're a wholly owned foreign enterprise, and the licensing enables us to sell domestic-built equipment to domestic buyers in a free-trade zone. It's considered a bonded zone and equipment can also be sold internationally and taken out.
But don't they like to bargain in China?
They love it and we bring the transaction platform so they can do their bargaining in an open environment.
Will you look at other sites?
We've already had discussions. The guys in the west of China are doing development and we've been invited there. But we're very patient and not trying to go off half-crazy. We've been growing our network in a very methodical way. We're Canadians and we are not excitable by nature. In China, it's taken nine years, which is a little extraordinary in preparation but this is an extraordinary opportunity. It warranted a heightened level of patience and persistence.
What is the hardest thing to learn?
The language. And everyone has their ideosyncracies, and China will be no different. But the joke goes that auctions are the second-oldest profession, and people get it pretty quickly. Many of the people we spoke to in China have been to our auctions elsewhere. It's not entirely a brand new mousetrap, but the breadth of what we bring … in international audience, marketing and size of operations is something they haven't seen.
Is that your edge?
It is very easy to open an auction company – just put out a flag that says 'Gord's Auction Co.' – but it is more challenging to be successful. To do that you have to have global breadth of operations. We might have 5,000 bidders in Montreal today, and some on the Internet, and sell to 25 countries. You're going to get maximum global market value just by having 5,000 to 6,000 people bidding on equipment. You can't build that overnight. You just have to earn it through reputation and delivering that quality of service every day.
Is this a good business to be in now?
Any time there is change in economies, that is typically good for our business. Change brings transactions and we feed on transactions. People need to sell or buy something and there are a thousand reasons. We are almost like a Toronto Stock Exchange [for equipment]. If you want to buy stock, you know where to go.
You were an accountant. What grabbed you about this business?
The customers are the salt of the earth. They will do a deal on a handshake and they are more sophisticated businessmen than you will see walking down Bay Street some days. They're spending millions on a flick of a hand, but then they will be back to work tomorrow. They run machines for a living, and when they jump on a backhoe and try the engine and hydraulics, they know whether to buy or not, just by inspecting it.