Caterpillar Tractor Co.Caterpillar Tractor Co.Spring 2008Spring 2008The PadresThe Padres

Table of ContentsTable of ContentsI.I. History of EMEHistory of EME

II.II. IndustryIndustry

III.III. Central QuestionCentral Question

IV.IV. RecommendationsRecommendations

V.V. The Future for The Future for

CaterpillarCaterpillar

History of EMEHistory of EME World’s largest manufacture of earth World’s largest manufacture of earth

moving equipment (EME) moving equipment (EME) The EME industry began in the late The EME industry began in the late

1800’s with the development of 1800’s with the development of

steam powered equipmentsteam powered equipment The demand for EME depended on The demand for EME depended on

the increase at which machines were the increase at which machines were substituting manual labor. substituting manual labor.

Demand was higher in developed Demand was higher in developed countries (US)countries (US)

Demand structure changed due to Demand structure changed due to the changing oil demands within the the changing oil demands within the Middle Eastern countries Middle Eastern countries

This lead to an increase with This lead to an increase with construction activity construction activity

EME IndustryEME Industry 1981, the construction industry 1981, the construction industry

along with EME usage along with EME usage represented nearly 70% of total represented nearly 70% of total dollar sales dollar sales

Excavators, bulldozers, graders, Excavators, bulldozers, graders, loaders off highway tractors and loaders off highway tractors and haulershaulers

EME demand was doubling EME demand was doubling throughout 1973-1980’s throughout 1973-1980’s

Mining / Construction industry - Mining / Construction industry - 60% of the EME market 60% of the EME market

Low cost labor method created Low cost labor method created competitioncompetition

EME Industry focused on EME Industry focused on improvements for existing improvements for existing products products

Central QuestionCentral Question

How does Caterpillar How does Caterpillar maintain such an maintain such an

extreme competitive extreme competitive advantage, advantage,

representing nearly 70 representing nearly 70 percent of the dollar percent of the dollar

sales of the sales of the construction equipment construction equipment

industry?industry?

       Differentiation strategyDifferentiation strategy Extending its markets globally-Extending its markets globally-

plants in over 8 foreign plants in over 8 foreign countriescountries

Providing high-quality, Providing high-quality, extensive product line backed extensive product line backed by efficient serviceby efficient service

100% ownership of its 100% ownership of its subsidiaries (resists joint subsidiaries (resists joint ventures)ventures)

Recognizing opportunities in Recognizing opportunities in external environment (postwar external environment (postwar opportunity)opportunity)

Key Elements in Caterpillar’s Strategy / Sources of its Key Elements in Caterpillar’s Strategy / Sources of its Outstanding Success in the EME IndustryOutstanding Success in the EME Industry

Key Elements in Caterpillar’s Strategy / Sources of Key Elements in Caterpillar’s Strategy / Sources of its Outstanding Success in the EME Industryits Outstanding Success in the EME Industry

Self-sustaining dealersSelf-sustaining dealers Intangible assets- Intangible assets-

training, excellent training, excellent human skillshuman skills

Flexible and consistent Flexible and consistent manufacturing- avoided manufacturing- avoided obsolescence through obsolescence through constantly updating constantly updating technology and technology and equipmentequipment

Commitment to Commitment to constantly developing constantly developing new productsnew products

      

Worldwide demand has doubled- Worldwide demand has doubled- expanding markets globallyexpanding markets globally

Intensity of competition increasesIntensity of competition increases Understand these markets needs and Understand these markets needs and

wants better. (Competitive analysis)wants better. (Competitive analysis) Less developed countries are Less developed countries are

increasing their rates of construction increasing their rates of construction activityactivity

New opportunities to target new New opportunities to target new customerscustomers

Financing problems with LDCFinancing problems with LDC

Changes in the Industry and Competitive Changes in the Industry and Competitive Environment/ Implications for Companies in the Environment/ Implications for Companies in the

IndustryIndustry

Changes in the Industry and Competitive Changes in the Industry and Competitive Environment/ Implications for Companies in the Environment/ Implications for Companies in the

IndustryIndustry

Construction in the U.S is Construction in the U.S is decreasing-less U.S dominated decreasing-less U.S dominated and less concentrated in the U.Sand less concentrated in the U.S

Advanced developing countries Advanced developing countries are entering the industry and are entering the industry and increasing competitive increasing competitive competitioncompetition

World contractors are becoming World contractors are becoming better placed than U.S contractors better placed than U.S contractors to perform contractsto perform contracts

Foreign companies are more Foreign companies are more flexible and easier to form joint flexible and easier to form joint ventures withventures with

Free from constraints such as the Free from constraints such as the FCPAFCPA

       CAT responded effectively to CAT responded effectively to

the 1981 hardship, but not the 1981 hardship, but not without criticism from their without criticism from their former employeesformer employees

They laid off a large They laid off a large percentage of workers, percentage of workers, bringing about enormous labor bringing about enormous labor union strikesunion strikes

CAT delegated the tasks of CAT delegated the tasks of warehouse and production to warehouse and production to outside firms, rather than outside firms, rather than trying to battle the uniontrying to battle the union

How did Caterpillar manage to How did Caterpillar manage to stay on top after 1981?stay on top after 1981?

How did Caterpillar manage to How did Caterpillar manage to stay on top after 1981?stay on top after 1981?

Instead of using their office Instead of using their office workers for research and workers for research and development, CAT faced development, CAT faced them directly in the them directly in the factoriesfactories

This allowed them to This allowed them to suspend innovation and suspend innovation and save money on labor costssave money on labor costs

Throughout this hardship, Throughout this hardship, 20,000 high-wage union 20,000 high-wage union jobs were lostjobs were lost

Recommendations (1981) Recommendations (1981) 1.1. Expand their dealership facilities Expand their dealership facilities

into the Asia and Middle Eastern into the Asia and Middle Eastern marketmarket

2.2. Enhance product reliability Enhance product reliability

3.3. Support customer relations Support customer relations through repair & maintenance through repair & maintenance scheduling scheduling

4.4. Develop relations with outside Develop relations with outside manufactures and designersmanufactures and designers

5.5. Launch rental and lease Launch rental and lease arrangements arrangements

6.6. sIncrease their production sIncrease their production systems to reach the level of systems to reach the level of their competitors their competitors

Where is Caterpillar Now?Where is Caterpillar Now? Despite hardships faced in late 1981, Despite hardships faced in late 1981,

CAT has maintained their competitive CAT has maintained their competitive advantage of the construction advantage of the construction equipment industry in most of the worldequipment industry in most of the world

They still rely on the sales of countries They still rely on the sales of countries overseas overseas

In 2006, 44% of CAT’s sales were the In 2006, 44% of CAT’s sales were the direct result of customers overseas  direct result of customers overseas       

CAT products are currently sold in CAT products are currently sold in almost 200 countries through 220 almost 200 countries through 220 dealersdealers       

Much of the warehousing and parts Much of the warehousing and parts production is now being outsourced, production is now being outsourced, however, there are still four major however, there are still four major plants in the Peoria, Illinois areaplants in the Peoria, Illinois area   

Where is Caterpillar Now?Where is Caterpillar Now?     The Caterpillar Defense Products The Caterpillar Defense Products

Subsidiary has been developed, which Subsidiary has been developed, which provides diesel engines and automatic provides diesel engines and automatic transmissions to many other transmissions to many other countries’ engineer tanks and military countries’ engineer tanks and military vehiclesvehicles

        CAT is still the world’s largest CAT is still the world’s largest

manufacturer of construction, but in manufacturer of construction, but in Japan, China, and the Middle East, Japan, China, and the Middle East, they have fallen in second place.  In they have fallen in second place.  In those regions, Komatsu owns a larger those regions, Komatsu owns a larger share than CATshare than CAT

        CAT has been listed on the Dow Jones CAT has been listed on the Dow Jones

sustainability index every year since sustainability index every year since 2001.  They have become a Fortune 2001.  They have become a Fortune 100 Company, with more than $40 100 Company, with more than $40 billion in assetsbillion in assets

The End…The End…