Caterpillar Tractor Co.
Spring 2008
The Padres
Table of Contents
I.
History of EME
II.
Industry
III.
Central Question
IV.
Recommendations
V.
The Future for
Caterpillar
History of EME
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World’s largest manufacture of earth
moving equipment (EME)
The EME industry began in the late
1800’s with the development of
steam powered equipment
The demand for EME depended on
the increase at which machines were
substituting manual labor.
Demand was higher in developed
countries (US)
Demand structure changed due to the
changing oil demands within the
Middle Eastern countries
This lead to an increase with
construction activity
EME Industry
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1981, the construction industry
along with EME usage
represented nearly 70% of total
dollar sales
Excavators, bulldozers, graders,
loaders off highway tractors and
haulers
EME demand was doubling
throughout 1973-1980’s
Mining / Construction industry 60% of the EME market
Low cost labor method created
competition
EME Industry focused on
improvements for existing
products
Central Question
How does Caterpillar
maintain such an
extreme competitive
advantage,
representing nearly 70
percent of the dollar
sales of the
construction equipment
industry?
Key Elements in Caterpillar’s Strategy / Sources of its
Outstanding Success in the EME Industry
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Differentiation strategy
Extending its markets globallyplants in over 8 foreign
countries
Providing high-quality,
extensive product line backed
by efficient service
100% ownership of its
subsidiaries (resists joint
ventures)
Recognizing opportunities in
external environment (postwar
opportunity)
Key Elements in Caterpillar’s Strategy / Sources of
its Outstanding Success in the EME Industry
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Self-sustaining dealers
Intangible assetstraining, excellent
human skills
Flexible and consistent
manufacturingavoided obsolescence
through constantly
updating technology
and equipment
Commitment to
constantly developing
new products
Changes in the Industry and Competitive
Environment/ Implications for Companies in the
Industry
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Worldwide demand has doubledexpanding markets globally
Intensity of competition increases
Understand these markets needs and
wants better. (Competitive analysis)
Less developed countries are
increasing their rates of construction
activity
New opportunities to target new
customers
Financing problems with LDC
Changes in the Industry and Competitive
Environment/ Implications for Companies in the
Industry
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Construction in the U.S is
decreasing-less U.S dominated
and less concentrated in the U.S
Advanced developing countries are
entering the industry and
increasing competitive competition
World contractors are becoming
better placed than U.S contractors
to perform contracts
Foreign companies are more
flexible and easier to form joint
ventures with
Free from constraints such as the
FCPA
How did Caterpillar manage to
stay on top after 1981?
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CAT responded effectively to
the 1981 hardship, but not
without criticism from their
former employees
They laid off a large
percentage of workers,
bringing about enormous labor
union strikes
CAT delegated the tasks of
warehouse and production to
outside firms, rather than
trying to battle the union
How did Caterpillar manage to
stay on top after 1981?
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Instead of using their office
workers for research and
development, CAT faced
them directly in the
factories
This allowed them to
suspend innovation and
save money on labor costs
Throughout this hardship,
20,000 high-wage union
jobs were lost
Recommendations (1981)
1.
2.
3.
4.
5.
6.
Expand their dealership facilities
into the Asia and Middle Eastern
market
Enhance product reliability
Support customer relations
through repair & maintenance
scheduling
Develop relations with outside
manufactures and designers
Launch rental and lease
arrangements
sIncrease their production
systems to reach the level of
their competitors
Where is Caterpillar Now?
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Despite hardships faced in late 1981,
CAT has maintained their competitive
advantage of the construction
equipment industry in most of the
world
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They still rely on the sales of countries
overseas
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In 2006, 44% of CAT’s sales were the
direct result of customers overseas
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CAT products are currently sold in
almost 200 countries through 220
dealers
Much of the warehousing and parts
production is now being outsourced,
however, there are still four major
plants in the Peoria, Illinois area
Where is Caterpillar Now?
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The Caterpillar Defense Products
Subsidiary has been developed,
which provides diesel engines and
automatic transmissions to many
other countries’ engineer tanks and
military vehicles
CAT is still the world’s largest
manufacturer of construction, but in
Japan, China, and the Middle East,
they have fallen in second place. In
those regions, Komatsu owns a
larger share than CAT
CAT has been listed on the Dow
Jones sustainability index every year
since 2001. They have become a
Fortune 100 Company, with more
than $40 billion in assets
The End…