2. Company Profile(1981)
• Headquarters- Peoria, Illinois
• Products-
1. Earthmoving construction and material handling
Machinery( Market leader)
2. Engines for earth-moving and construction machines, on-
highway trucks, and for marine, petroleum, agricultural,
industrial, and other applications, and electric power
generation systems.
• 57 % sales come from outside US
• Presence in every continent
• Has earned profits continuously for the last 50 years (1932
being the exception)
• High quality products and effective maintenance service is
its USPs
3. EME Market in 1981
• Worldwide demand for EME has doubled between
1973 and 1980(market size-$14-15 bill)
• Construction and Mining industry are the main
customers of the EME
• Construction sector outside USA is booming
• Middle-east, Asia and Australia are emerging as high
growth markets
• Main players in the market- I.H. , J.I. case, John
deere, Komatsu, IBH holding company
4. Competitors’ analysis
• International Harvester
1. Mainly in Farm equipment business
2. Main competitor of Cat in the US
3. Has a strong dealer network in US
• J.I. Case
1. 67% sales from Eme
2. Strong dealer network in US and Canaga
• John Deer
1. World leader in farm equipments
2. Very strong dealer network and heavy spending on
R&D(about 4% of sales)
3. Implementing CAD/CAM practices to lower costs
5. • Komatsu
1. Second largest EME company in the world
2. Dominant in Japan but far behind Cat in the
world
3. Tie-ups with various companies for technology
development
4. Enjoys the advantage of low labour costs
5. Machines cheaper than Cat by about 10% to
15%
6. Problems faced by the company
• Sustainable Development
1. Construction industry in its main market-USA is slowing down
2. Maturing domestic markets
3. The interstate highway projects in the US have come to an end
4. Competition from the third world construction companies on due
their cheap labour advantage.
5. US laws forbidding indulgence in un-ethical practices even outside
US
6. Forcasting demand in the coming years in the mining industry was
very difficult
7. Currency is appreciating wich was earkier low
8. Debt crises in emerging markets
9. Fall in crude oil prices have deprived liquidity to some the African
customers
7. The company has continously expanded for about half a
century and hence developed a lot of overcapacity and
many emoloyees on its payrolls
this is going to be a major drag on its balance sheet as it
stares at a looming recession
• Labour problems
1. The company has performed very well in the
market this year and so the labour unions
would be asking for a major hike in salaries
2. Obstacle to automation
3. Difficulty in sacking employees from plants
4. High wages
8. Strengths
• World-wide presence
• A strong dealer network and strong relations
with them
• Manufacturing excellence
• Strict quality control
• Low power distance and hence easier
communication
9. Weaknesses
• High labour costs
• High inventory costs
• 90 % components made in-house
• Manufacturing mainly in US incurring high costs
• Never tried to experiment and bring out new products in
the market first
• Products Priced 10% to 20% higher than nearest
competitors
• Decision making powers concentrated at the head office
• Strong labour union
• Overconfidence of the management
10. Solution
(Outside-in approach)
• Conditions prevalent at the time show that the are high interest rates and there is
a liquidity crunch in emerging markets of the world
• So Cat can assist the customers by making financing facilities available for its
products
• It must reduce its dependence on the domestic markets in US and try to expand
more in the emerging economies
• It can strive to form joint ventures with prospective partners in these markets or
even licence technology formanufacturing
• The manufacturing must be decentralized and assembly may be done locally in
order to take advantage of low labour costs
• Some of the components manufactured in the company may be outsourced
leading to lower costs
• It must concentrate only on core manufacturing processes
• This will also insulate the company against the possible losses due to labour
problems in its factories
• The company should also decentralize the decision making and the decision
making power may be delegated to country heads which will speed up the process
• The company must take the risk bringing out innovative products in the market
and gain the first movers advantage
11. • Caterpillar can also move into new promissing
businesses and diversify
• It must improve its inventory management and
may introduce JIT which will free up the capital
locked up in inventory
• The communication with the labours must be
improved and mechanisms must be in place to
avoid conflicts with the management
• The company may give a one time bonus instead
of permanently increasing wages in contracts
• The uniform pricing policy must be changed and
must be made flexible
• The company can also hire labours on contractual
basis in order to avoid conflicts
12. Till date……..
• The company continues to have labour problems
• 5Months strike in 1992
• Record 17 months of closure in 1994-95
• Caterpillar outsourced much of its parts’ production and warehouse
work to outside firms
• “Southern strategy“- involved opening new, small plants, termed
"focus facilities", in right-to-work states. This kept the production
insulated from strikes taking place at isolated locations
• The company diversified into defense equipment, more focus on
agriculture equipment, electronics
• Caterpillar provides financing and insurance to customers via its
worldwide dealer network
• Generates income through the licensing of the Caterpillar and CAT
trademarks and logos.
13. • Wolverine World Wide is one example, a licensee since
1994 and currently the sole manufacturer, worldwide
licensed to produce Cat branded footwear. Other licensees
sell items including clothing, hats, watches, scale models of
Cat machinery and other consumer products.
• Caterpillar products and components are manufactured in
110 facilities worldwide. 51 plants are located in the United
States and 59 overseas plants .(Manufacturing still
concentrated in the US)
• Post 1990- 34 acquisitions
• Pre 1990- 4 acquisitions
• Company is also into the business of renting machines
• Ranked 49th in fortune 500- 2014 list
