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Caterpillar Tractor Co.

Spring 2008 The Padres. Caterpillar Tractor Co. Table of Contents. History of EME Industry Central Question Recommendations The Future for Caterpillar. History of EME. World’s largest manufacture of earth moving equipment (EME)

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Caterpillar Tractor Co.

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  1. Spring 2008 The Padres Caterpillar Tractor Co.

  2. Table of Contents • History of EME • Industry • Central Question • Recommendations • The Future for Caterpillar

  3. History of EME • 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

  4. EME Industry • 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

  5. Central Question How does Caterpillar maintain such an extreme competitive advantage, representing nearly 70 percent of the dollar sales of the construction equipment industry?

  6. Key Elements in Caterpillar’s Strategy / Sources of its Outstanding Success in the EME Industry • Differentiation strategy • Extending its markets globally-plants 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)

  7. Key Elements in Caterpillar’s Strategy / Sources of its Outstanding Success in the EME Industry • Self-sustaining dealers • Intangible assets- training, excellent human skills • Flexible and consistent manufacturing- avoided obsolescence through constantly updating technology and equipment • Commitment to constantly developing new products

  8. Changes in the Industry and Competitive Environment/ Implications for Companies in the Industry • Worldwide demand has doubled- expanding 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

  9. Changes in the Industry and Competitive Environment/ Implications for Companies in the Industry • 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

  10. How did Caterpillar manage to stay on top after 1981? • 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

  11. How did Caterpillar manage to stay on top after 1981? • 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

  12. Recommendations (1981) • 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

  13. Where is Caterpillar Now? • Despite hardships faced in late 1981, CAT has maintained their competitive advantage of the construction equipment industry in most of the world • They still rely on the sales of countries overseas • In 2006, 44% of CAT’s sales were the direct result of customers overseas  • 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

  14. Where is Caterpillar Now? • 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

  15. The End…

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