Caterpillar

CATERPILLAR
How did caterpillar founded in 1925 when two California based tractor companies merged –
grow to become one of the biggest companies in the world? The company grew steadily at first,
hitting a few milestone, but things changed when the recession of the early 1980s hit Caterpillar
hard and international competitors gained a market share, including Japanese Komatsu.
Caterpillar Inc., or CAT, has grown into the largest manufacturer of earth-moving equipment and
engines in the world. With over 300 different machines for sale, residential, nonresidential,
industrial, infrastructure, mining and quarrying, energy, waste, and forestry. Its distinctive
yellow machines are found all over the globe and have helped make the brand of U.S. icon. In
the 1990s, Caterpillar recognized that it desperately needed to change, and under new leadership
it successfully pulled off one of the biggest turnarounds in corporate history. Today, caterpillar
ranks number one or two in every industry it serves. Its products are unmatched in quality and
reliability and the company has maintained its strong focus on innovation. With a $2 billion
annual research and development budget, new products are launched every year.
Another reason for Caterpillar’s dominance in the market is its business model. Caterpillar sells
it all – machines, services, and support – for a wide range of industries. Caterpillar’s sales hit $51
billion in 2008 and dropped to $32 billion in 2009 due to the recession. Japan’s Komatsu remains
a distant number two, with less than half the sales of Caterpillar. Caterpillar maintains 50
products in over 200 countries.
The situation is very different in China. The massive potential market is very complex, but offers
huge profits for Caterpillar and other overseas brands if they get the balance right. Caterpillar
and their main rival, Komatsu, offer higher-quality machinery than Chinese manufactures, but at
a higher price.
Caterpillar controls around 7 percent of the heavy machinery market in China. They clearly see
the importance of winning in China, as evidenced by the transfer of their group president,
Richard Lavin, to Hong Kong towards the end of 2021.
As each year passes, Chinese manufacturers are catching up with Caterpillar and Komatsu. The
technology has improved, the financing deals available are more attractive and they are very
aggressive in their marketing and sales. This is illustrated by the fact that Caterpillar’s market
share has dropped from 10 percent over the past five years.
Chinese manufacturers have adopted new strategies to combat overseas competitors. Top-of-the-
range luxury cars are raffled via the dealerships for buyers and attractive financing deals are
better than those that Caterpillar can offer. The key Chinese competitors include Sany Heavy,
Shantui, Xugong, and Zoonlion.
However, demand for heavy machinery in China has stalled with a slowdown in the construction
market. Industry analysts believe that this will be a testing time for the Chinese manufacturers as
they chase fewer buyers. Faced with dwindling sales in their own home market, Chinese
manufacturers have begun to look elsewhere for buyers. They are already active in the Middle
East, Europe, South America, and in the United States. Several of them are acquiring
manufacturing plants overseas so that they can supply those markets more easily. Sany Heavy
has set up a new headquarters and factory in Georgia. Shantui has opened in Dubai.
Despite these obvious threats to Caterpillar, not only in China but across the giant is still upbeat
about the prospects. They feel that they have the expertise and managerial skills in place already,
which they imply the Chinese manufacturers lack. Equally, they point to the fact that they have a
comprehensive servicing system and more reliable and robust machinery to sell.
Caterpillar has big plans for China. The expectation is that the engineering industry in China will
increase in value from US$73 billion to US$145 billion by 2018. Caterpillar wants a share of that
staggering growth. To be able to serve the potential buyers, the company intends to double its
workforce in China to 22,000 by 2025.
Infrastructure projects in China are expected to fuel the demand for heavy machinery. The
Chinese government is expected to be spending some 1 trillion yuan on housing and another 4
trillion on water conservation over the next five years. Urbanization is seen as one of the key
drivers and this will present huge opportunities for business such as Caterpillar.
Caterpillar and their competitors know that China is the market in which the global leader will
emerge. It has been estimated that half a million pieces of heavy machinery will be sold each
year in China. Caterpillar is not content with having a 7 per cent share of those sales. Their
dealers network is well developed; they offer logistics, brand, they hope that this will give them
the competitive edge they need in China.
What’s next for Caterpillar? As the company moves forward, it remains focused on reducing
greenhouse gas emissions in its machinery, innovating more green technologies, maintaining its
strong brand, and investing in the future of emerging countries as consumers become more
environment conscious. The company believes that in order to grow, it must be successful in
emerging markets.
Questions
1. Discuss Caterpillar’s future prospect in an emerging economy such as Ghana by assessing the
macro and competitive environment and its implications for the company.
2. Develop growth and competitive strategies for Caterpillar.

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CATERPILLAR

2. Develop growth and competitive strategies for Caterpillar.

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