Caterpillar Inc., more popularly known as CAT, has been manufacturing heavy machinery for more than eighty years now and is considered the world’s largest manufacturer of construction and mining equipment, diesel and natural gas engines as well as industrial gas turbines. Apart from machinery and engines, Caterpillar also services in the financial products. It is headquartered in Peoria, Illinois with a global presence through its manufacturing facilities in 23 countries and 480 locations worldwide. The company was founded in 1925 with the introduction of steam tractors and has now turned into a Fortune 500 company with global recognition as leader in heavy equipment manufacturing (Caterpillar, 2010). Caterpillar prides itself on bringing excellence to its work and claims to have played a large hand in building the world’s infrastructure. This research conducts an analysis on the company using various models including the Porter’s five forces model and the SWOT analyses to identify its strengths and weaknesses, and to propose a corporate strategy to look ahead in the next five years.
The major portion of literature reviewed has come from online sources, including the company’s official website for basic information about the company, in addition to websites which held facts pertaining to this subject. Secondary research was done on the evaluation of the mission, vision as well as the intensive strategies pursued by Caterpillar. A number of files like Datamonitor’s, have been reviewed which have assisted the analyses that have been done. An online article was also referred for information on quality tehciniques.
The methodology for this paper involved secondary research. It has been conducted using information resources from the internet, books, journals and news articles/reports.
Vision: "Be the global leader in customer value."
Mission: "Caterpillar will be the leader in providing the best value in machines, engines and support services for customers dedicated to building the world's infrastructure and developing and transporting its resources. We provide the best value to customers.” “Caterpillar people will increase shareholder value by aggressively pursuing growth and profit opportunities that leverage our engineering, manufacturing, distribution, information management and financial services expertise. We grow profitably.” “Caterpillar will provide its worldwide workforce with an environment that stimulates diversity, innovation, teamwork, continuous learning and improvement and rewards individual performance. We develop and reward people.” “Caterpillar is dedicated to improving the quality of life while sustaining the quality of our earth. We encourage social responsibility." (Man on a Mission, 2005)
The vision stated above drives the philosophy of the company to assert itself towards achieving the leadership position among its competitors and it has a forward-looking focus on acquiring customer satisfaction. The mission statement of the company shows its commitment towards satisfying its customers, concern for the shareholders’ value, focus on the company’s internal human resource and its dedication to corporate social responsibility as well as the environment. The company fulfills its mission through providing customers support in all of its operations; its goals are directly linked to achieving the profitability that looks over the interest of its stakeholders; it has many extensive training and development programs for its employees; and it is actively involved in environmental and social projects as mentioned above, all of which shows Caterpillar’s thorough commitment to the fulfillment of its core mission and the vision which it means to follow through in every way (Ondix).
Barriers to entry: Since it is the market leader, Caterpillar faces no threat from any new entrants into the market, considering heavy equipment manufacturing is a highly capital intensive industry and Caterpillar already has a large share of the market ahead of rivals.
Competitors: Major competitor is Komatsu Ltd., followed by CNH Global, Mitsubishi Heavy Industries Ltd., Kawasaki Heavy Industries Ltd. among other smaller players. The biggest global rival is Komatsu Ltd. which directly competes with Caterpillar and is the big threat.
Substitutes: With the present level of technology, there is no substitute for earth-moving heavy equipment that Caterpillar manufactures; hence presently there is no great threat.
Buyers: Caterpillar has a good brand name and image with its buyers which gives it an edge over its competitors but the buyers still retain the power to choose lesser priced rival products.
Suppliers: Caterpillar is a huge firm and thus the power of its suppliers is comparatively less.
Caterpillar is the market leader in the world with immense presence nearly everywhere. It rules the U.S, with strong penetration in Europe and Asia. The difficulties it has faced have been in China where customers want cheaper options and are indifferent to quality claims. Also, Komatsu is a big competitor in Japan where Cat’s penetration is limited.
Caterpillar aims to develop its market by diversifying into solar, financial and rental power generation segments. With the rapid growth in mainland China, Caterpillar is seeking a strong foothold in this country by merging and acquisitions of local manufacturers like Shandong to reduce its costs and to further increase its customer base in the Asian market.
Caterpillar has created its new product divisions within the mining, excavation and building construction departments etc.; the entire value chain of the company has been well integrated with the vast dealer networks it has acquired. Caterpillar uses its New Product Introduction (NPI) process to develop its new products and services to the customers with the 6Sigma quality checks to achieve the very high level of standards (Heather McBroom, 2009).
Strengths: It is a global market leader with varied products and diversification in different segments which lends it great financial security. It also has a very strong dealer network with a good, firm infrastructure and latest technology systems in place for very high efficiencies.
Weakness: its operations depend on finite mining demand, shrinking market share outside the U.S and Asia, rather high debt structure and weak forecasting system for dealers to work with.
Opportunities: increasing construction activity in Asia, joint ventures and acquisitions of its faltering rivals, leverage distribution channels, solar and hybrid fuel & cell technologies.
Threats: competitors getting better at copying technology, rising raw material prices, mining activity dependent on commodity prices like coal and recession fears (Datamonitor, 2005).
The research shows that the company has succeeded in gaining strength over the past 80 years and has managed to remain fairly true to its mission and vision. The Porter and SWOT analyses show that it has no direct threat as of now but other rivals are slowly gaining strength and so the company needs to push hard to retain its market share. Its approach towards the product and market development and penetration will help to maintain its leadership position.
Corporate Strategy recommendation:
In line with the set objectives of the firm and its past corporate strategy determined by the management, the recommended idea for the future, in the next five years at least, the company should try to focus on retaining its global market leadership position that it has attained at present. For this to happen, the quality and the 6 Sigma techniques need to be strictly enforced in all its operations. As it is already diversifying into very different market segments like hybrid fuel technology, power generation, financial products and heavy engines, Caterpillar can also enter the smaller machinery sector using the technological expertise it has and by hiring trained technical staff in this field. It could expand its present product lines further and branch out in different markets following the changing infrastructure demands all over the world. Caterpillar should also look towards penetrating the Asian market further. With facilities and locations in Europe, Russia and East Asian countries, it has presence in only the more developed countries but the developing and emerging economies present a great opportunity for growth and further market penetration. With further market research that it should do, Caterpillar can establish a stronghold in Asia too, specifically China.
Caterpillar should also try to further develop its human resource and use a global approach by looking to hire a more diversified workforce which will enable it to easily enter and gain strength in culturally different places that have still not been touched yet.
The main competitors have the edge of having cheaper products and more availability in smaller markets. Caterpillar products and services only appeal to the more affluent customers who believe in its high quality and for whom the cost does not present an issue. If Caterpillar can have competitive prices in these smaller markets it can easily expand its customer base.
The official Caterpillar website (2010). About Cat, Overview. Retrieved February 1, 2010, from http://www.cat.com/about-cat
Datamonitor (October 2005). Caterpillar, Inc. Company Profile.[pdf file]. reference code: 322
Ondix.com. (n.d.) Caterpillar vs. Komatsu [pdf file]. Retrieved February 3, 2010, from http://omdix.com/pdf/docs/college_high_research_sat_1071118600.pdf
Man on a Mission (2005, November). Caterpillar’s (CAT) Mission Statement. Retrieved February 5, 2010, from http://manonamission.blogspot.com/2005/11/caterpillars- cat-mission-statement.html
McBroom, Heather (2009, July). 6 Sigma: Foundation for Quality at Caterpillar. Retrieved February 5, 2010, from http://www.peoriamagazines.com/ibi/2009/jul/6-sigma