Caterpillar

Founded in California, USA (April 15, 1925) American corporation which designs, manufactures, markets & sells machinery & engines World's leading manufacturer of construction & mining equipment, diesel & natural gas engines, industrial gas turbines & diesel electric locomotives Listed 42th in Fortune 500 in 2013

Market
Demand for EME double Between 1973 and 1980
US production plant export 1/3 rd production Worldwide market for Parts and Attachments was substantial . (1/3rd of sales volume)

Users

10

Construction

Mining
Forestry

30

60

World Wide Construction Expenditure

United States

26.5 50 7.5

Canada Latin America Europe Middle East Asia and Australia

5
7.5 3.5

Construction Contracts awarded to companies of different nations

1979
Middle East United States 16.52 16.86 17.32 14.84 12.69 9.45 6.87 4.52 0.93 100%

1980
27.38 6.88 9.89 19.67 8.94 12.82 7.16 5.07 2.19 100%

Japan
France West Germany South Korea

UK
Eastern Europe Philippines

Distribution
Sold through dealers provided Direct and after-sale service.

Over six year economic life, service and parts = Initial cost.

Supplier
2/3rd of total cost was in heavy components. Rather than high-technology, they focused on constant improvement. Developing Countries demand partial manufacture of EME

Competition

CAT Background
Headquarter Peoria, Illinois

Two categories 1) earth moving m/c, construction machines and their parts 2)Engines for all other machineries

Marketing
World War II
In 1981, company had 129 full-line independent dealer overseas operating 605 branches worldwide capable of providing service. Training program to dealer and their children

Manufacturing
Manufacturing plant
USA UK BRAZIL CANADA FRANCE AUSTRALIA BELGIUM 22 3 2 2 2 1 1

50 % owned ventures in Japan, Mexico, India, Indonesia Highly Backward integrated mfg. 90% of parts.

Overseas Expansion

Cat encouraged dealers to devote primary attention to Cat products.

It built manufacturing facilities in the United Kingdom, France and Canada in the mid 1950s, and in Brazil, Belgium, Japan ( Cat-Mitsubishi joint venture ) and Australia in the 1960s.

Prefer complete managerial control over all subsidiaries through 100% ownership

The sales managers tried to maintain consistent worldwide pricing and dealer policies.

Product Development

Company's approach to product development : highly capital-intensive ,high technology oriented and marketable. Not first in market.

Diversification

The company purchased the Solar Turbines Division from financially troubled IH for $505 million.
The essence of diversification is being involved in many sectors of the economy not with many products

Pricing
Premium of 10%-20% compared to nearest competitors prices Some costs not factored in the prices, leading to lower operating margins

Common billing platform of all dealers in dollars

Large share of profit earned from spare parts

Financial Policies
Conservative approach

LIFO method of inventory evaluation

R & D costs as expenses in the years incurred

Piled up work-in-progress inventory as a safety stock for quality

problems

Personnel & External Relations

Hiring candidates willing to dedicate entire careers

Two-third top executives from Illinois or neighboring states

In-house Management Development Programs

Clubbiness reinforce by close-mouthed conduct of business

Domination in economy of Illinois and Peoria

Management Systems & Style

Promotion of a cooperative, team-building approach Cooperative and friendly relations with host governments Simple management structure Integrated product development team Strong central and financial control

Situation in October 1981

Late 1981, faced an unsettled economic environment The Federal Reserve - anti inflationary tight money policy, which had raised interest rates In 1979 oil shock In 1981, oil price forced a recession on non oil developing countries Much talk about Global debt crisis Hope in East Asia & Australia like Singapore, Malaysia, Indonesia, Thailand In 1981 EME industry operating at about 60% of capacity

Situation in October 1981

South-Asian countries like Singapore, Malaysia, Indonesia, the Philippines, and Thailand Australia, South Korea, Taiwan, and Japan were also prospering. CAT can also think of going into developing countries as these countries would be requiring more construction and development of infrastructure.

SWOT Analysis
Strengths: Personal and external relation policies Strong dealer network Manufacturing excellence

Weakness: Rather than high-technology, they focused on constant improvement

Opportunities :

Increasing construction activity Opportunities in developing countries Diversification in related products

Threats to Overcome: Increase in raw material costs Economic crises may affect future construction Mining operations dependent upon material prices and political stability

Industrial Analysis
Potential Entrance Low Bargaining power of Buyer Moderate Substitute of product or parts Low Bargaining power of Supplier Low

Industry Competitors Moderate

Other Stakeholders - High

Future Strategy
Cat has outstanding financial results. So strategies to maintain market leader position Developing country should be targeted immediately

Overcoming loses of 1979 strikes

Improvement in Dealer Customer relationship

Agricultural equipment
Financial support to developing countries

Thank You