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Case Study of Caterpillar Inc. (1) Caterpillar Inc. is the worlds leading manufacturer of construction and mining equipment, diesel and natural gas engines and industrial gas turbines. The production of mining equipment has always been considered by Caterpillars management as priority, because it provides Company with 40 %- 60 % of its annual income. In its turn, mining industry is highly dependent on global economical trends; therefore, Caterpillars operations have always been affected by the dynamics within mining market. The production of construction and mining equipment requires a well developed industrial base and modern technology, this is why this industry is concentrated in U. S. , Japan and EU, even though that the market share of European made equipment is less than 5 %.
Caterpillar employs 90. 000 people. It has 62 representative offices in U. S. alone.
Company also runs 1, 200 centers for leasing Caterpillar products. More than 700 offices are known to carry out leasing operations for Caterpillar products. (2) In 2004, Caterpillar generated revenues of $ 30. 3 billion, a 32. 9 % increase over the previous years revenues. The company reported a net income of $ 2 billion for 2004. Caterpillars main competitor Komatsu Ltd. was only able to generate $ 4 billion in revenues, in the same year, which indicates that Caterpillar once again enjoys an overwhelming competitive advantage on the market of mining and construction equipment.
Many economists suggest that this came as a result of Companys management being able to redesign its operating philosophy. This, of course, played important role in Caterpillar acquiring a new competitive edge. However, Companys present commercial successes were made possible by the fact that Chinas growing economy requires more and more raw material, which results in the fact that demand for mining equipment continues to increase throughout the world. In 2008, Caterpillars annual revenue is expected to reach $ 36 billion, if current economical trends are going to remain the same. (3) Caterpillar Inc. was founded in 1925 when Holt Manufacturing and Best Gas Traction Company had merged in one company. In the same year, Companys sales accounted for $ 13 million, which instantly allowed Caterpillar Inc.
to be referred to as the most profitable commercial enterprise in U. S. in 1925. Unlike other automotive companies, Caterpillar continued to grow throughout Depression, because it was offering a unique line of products at the time. After 1950, the share of Companys international sales began to increase drastically.
In 1960, it constituted 55 % of Caterpillars gross income for the same year. Thus, Caterpillar began its transformation into the transnational corporation, in the classical sense of this word. However, Companys officials underestimated the degree, to which global economical trends could affect Caterpillars operations. In sixties and seventies, Company was pursuing a policy of expansion, as only the mean of gaining competitive advantage. Such practice proved to be wrong. In his article Caterpillars Ordeal: Foreign Competition in Capital Goods - Caterpillar Inc Robert Eckley suggest that at the beginning of eighties, Caterpillar was facing the prospect of bankruptcy: In 1982, business observers thought that another American corporate star might have fallen.
Caterpillar, the giant equipment manufacturer, saw its earnings turn negative for the first time in 50 years. Those losses continued, with a single exception, for 11 quarters (see Figure 1). In three years, accumulated losses totaled $ 1 billion, equity was reduced by 28 percent, and employment was cut by almost 40 percent (more than 30, 000 jobs) (Eckley). Nevertheless, with the beginning of nineties, the boom in mining industry returned Caterpillar its former commercial vitality.
In eighties, Companys managers made a right decision to simply conserve Caterpillars branches, throughout the world, rather than to close them down. This allowed Caterpillar to become fully competitive, almost overnight, after positive dynamics in mining industry gained a momentum. Today, Caterpillar Inc. is back on the horse, with 65 % of its products being exported to China.
However, the growing demand for construction and mining equipment also enabled Caterpillars main rivals to begin making more profits, as well. Thus, it would be wrong to suggest that Caterpillar had established an undisputed dominance on the market, even though that it seems to be the case today. (4) Companys production line consists of hydraulic diggers, , tele handlers, bulldozers, pipe layers, spiders, scrapers, wheel dozers, , graders, rollers, asphalt scrapers, fixers, harvesters, loaders, dump trucks and compactors. In addition, Caterpillar manufactures diesel generators and marine engines. In recent years, Company also began manufacturing oil and gas turbines, which are being used in power plants. Caterpillar also provides financial services to its customers. For example, it offers different types of loans for purchasing its products.
A subsidiary of Caterpillar, Cat Logistics, allows customers to purchase customary designed parts for variety of equipment. This is a truly unique line of products, on the part of heavy equipment manufacturer. Cats managers rely on it as something that will provide Company with a competitive advantage in the future. In 2003, Caterpillar began merchandising its brand name in the line of new work wear.
Today, Caterpillar boots is one of the hottest items in any work wear store. Thus, today Caterpillar is being associated with high quality clothing as well. The article Caterpillar Boots, which can be found on the site of Working Persons Store, refers to Cats shoes as something that represents toughness and durability, just as Caterpillars main line of products: Caterpillar boots - affectionately known as Cats among the young and trendy - are the most popular all-American boot for the design-conscious. Not just super-cool in looks, Caterpillar boots are well bred and well-behaved.
These are go-anywhere boots, like mini-tractors. Caterpillar boots love mud and rough terrain (WPS). (5) Caterpillar Inc. currently has 343. 258 million shares in circulation. In 2006, the price of one share ranged from $ 50 to $ 53.
Thus, Companys market capitalization accounts for $ 18192. 674 million. In 2007, Caterpillar announced that it is going repurchase $ 7 billion of its own shares, in order to solidify Companys financial standing. This represents 17 % of Cats total market capitalization. Stephen Taub in his article Caterpillar Leads Buyback Parade says: The buyback program is its fourth since 1995; during that 12 -year period, the manufacturer of construction and mining equipment repurchased a total of $ 8. 5 billion in shares. Caterpillar expects to complete its current stock-repurchase program, valued at $ 6. 4 billion, within the next few months (Taub). In year 2008, Caterpillars profit / loss ratio is expected to be lowered to a considerable degree.
This is because there are indications of economical stabilization in Companys market. It means that Cats commercial activity is going to be subjected to the unpredictable socio-political factors to a much lesser extent. It appears that demand for Caterpillars products is going to be rising steadily. There is only one factor that can undermine Companys commercial performance in near future competition with other firms. (6) Since the time Company was being founded, Caterpillars owners had chosen in favor of authoritarian management style. In other words, managers were not encouraged to come up with executive decisions, which made every Companys branch to be heavily dependable on Caterpillars main office. This used to undermine Cats commercial flexibility, throughout its history.
In eighties this lead to a situation when Company continued to expand internationally, even though middle managers were strongly opposed to such practice, because they were able to see that it was only the matter of time, before expansion would turn into retraction, unless Company adjusts its operating strategy. Even today, Caterpillar clearly prefers authoritarian management style, when instructions are just being passed down for the implementation of decisions that were made in the main office. Nevertheless, in recent years, Companys top officials recognized the fact that, in order for Caterpillar to remain competitive, it will need to reconsider some of its principles, in regards to hiring policy. The importance of establishing a public appeal, as the mean of attracting potential customers to its products, has been realized by the Company in 1998. It was the year when Caterpillar began investing in advertising 40 % more that it used to in the past. The public image of Company has also being redesigned.
Companys managers began promoting a shortened version of Caterpillars logo Cat. At the same time, employees in charge of running Companys regional branches were given additional executive powers, although it happened as the result of unions pressure on Caterpillars owners, rather than being initiated by Companys top officials. (7) Caterpillars reputation has always depended on the fact that its products were at least one-step ahead of the products of Cats main competitors, in technological sense of this word. This was a result of America being the most industrialized country in the world. Before the advent of informational era, the progress of heavy industry and every particular country could also be thought of in terms of technological progress.
With the beginning of nineties, this situation changed rapidly. The development of computer technology defines countries economical potential more than anything else. Even though that Caterpillar tries to implement the latest technologies, in the line of its products, Komatsu and Mitsubishi are going to maintain a competitive advantage, in this respect, which will be widening, as time goes by... Caterpillars pricing policy has not been affected by competitive factors up until 1960, when Japanese manufactures of heavy equipment began to export its products to U. S. Nowadays; Company strives to adjust its pricing policy to the demands of open market.
However, Prices for Cats line of products are usually 20 % higher than the prices that Japanese companies ask for the same line of products. Caterpillars officials explain this by the fact that the quality of Cats equipment is much higher. Such statements, of course, cannot be thought of outside of context of Cats advertising. Thus, we can say that the competitive pricing policy has never been Companys strong point.
Nevertheless, it appears that overall effectiveness of Caterpillars commercial activity does not suffer a lot, because of this. (8) Caterpillars competitive strategy is best described as multi-directional. On one hand, Companys engineers do their best to provide customers with quality products, on the other; Cat strives for global domination on the market of heavy equipment, while often resorting to not entirely business approaches to accomplish it. For example, in 2004, Companys officials had signed a deal with Chinese government, which grants Caterpillar exclusive rights to supply equipment to the builders of new sporting facilities, which are going to be used during Beijing Olympics of 2008. Caterpillars managers are currently focused on wining competition with Japanese rivals in China. We can say that there are many indications that point out to the fact that Caterpillar is going to prevail on Chinese market in the future. Zhang Jin in his article Caterpillar Set to Tread on New Turf says: At present, Caterpillar has five joint ventures and three wholly owned facilities in China, with reported sales and revenues of US$ 5. 93 billion for the second quarter of 2003 (Jin).
Caterpillar Inc. is prepared to do what is necessary to win competition with its rivals and so far, the competitive advantage is clearly on the side of American company. Bibliography: Caterpillar Boots. 2005. Working Persons Store. 23 May. 2007. web Eckley, Robert Caterpillars Ordeal: Foreign Competition in Capital Goods - Caterpillar Inc. 1989.
Find Articles Com. 23 May. 2007. web Jin, Zhang Caterpillar Set to Tread on New Turf. 25 Sep. 2003. World Tibet Network News. 23 May. 2007. web Taub, Stephen Caterpillar Leads Buyback Parade. 16 Feb. 2007. CFO. Com. 23 May. 2007.
web Abstract: This paper analyses Caterpillar Inc. from economical, historical and competitive perspectives. Outline: Industry's overview Revenue History Production line Market capitalization Management style Technology Competitive strategy
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