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, headquartered in Peoria, Illinois, has dominated the world in earth moving, construction, and materials machinery (EME Industry) for more than 50 years. Their global dominance; however, created a stagnant and risk averse environment. Komatsu, a leading Japanese competitor, had gained market share by offering low cost, high quality options in a variety of product lines while Caterpillar was raising prices in their existing product lines at an average of 10% per year. The key strengths of the company were its commitment to product innovation and its large loyal distribution base. The changing socio-economic conditions of the world could force CAT to change some of the ways they are doing business now and offer products that the customer requires rather that the manufacturer proposes. Developing countries are building highways, bridges, and waterways necessary to sustain economic growth. Caterpillar will need to ensure its product line can meet the growing demands of these countries. All the while, Caterpillar also needs to look at the United States market and identify pockets of opportunities. This report assesses CAT against competitors in its major operational business segments. The report compares the company’s financial performance, marketing strategies, HR strategies, products and services and business strategies with those of its competitors. The report also gives an insight into the competitiveness of the industry sector and identifies the gaps that could be exploited by the company. The assessment covers the information about the competitors, a thorough SWOT analysis, and the way forward for Caterpillar. Finally a set of recommendations to Mr. Lee Morgan is provided which focus chiefly on the way forward for CAT with respect to where it is today, the environmental and external conditions, and their effect on the industry. To sustain the momentum post 1981 will not be easy, and as the report highlights, it will necessitate significant change in various arms of the overall giant that is Caterpillar.


is highly capital-intensive. loaders. power cranes. Individual companies’ profitability depends on efficient manufacturing operations. pavers. Production dropped 30 percent during the last recession. where we find that 29 companies account for 94% of non-US construction and 54% of construction according to a survey . paving.particularly in Asia/Pacific and in the Middle East. or that is relatively simple to make. Construction Markets: The industry is under immediate pressure and tension. pumps. major products are bulldozers. Such equipment is used for three major activities: earthmoving. While price rises have been significant over the past few years the net industry position has dipped into negative figures. various types of off-road trucks and trailers. and lifting. The industry. graders and rollers. Products. This suggests that EME manufacturers who are able to ride out the current US/European recessions. excavators. crushers. Smaller companies can compete effectively by producing equipment that has specialized applications. as outlined in the case. because of multiple factors like the 12% downturn in the US construction industry in 1979 and poor forecasts for the next few years. take advantage of the Asian growth phenomenon. as would be obvious in a machinery industry. an important year for Caterpillar which is poised to post record revenues and profits. The case deals a lot with specific data regarding the market in the USA. will find the industry attractive and profitable in the longer term. and a wide variety of specialized machinery.INDUSTRY LEVEL ANALYSIS Earth Moving Equipment (EME) IN 1981 The case takes us back to the year of 1981. backhoes. The cyclical construction industry highly influences demand. enable customers to cope with increasing cost pressures and importantly. Prospects remain good . as customers are very sensitive to price. Operations & Technology: In the EME industry. mixers.in 1980. The industry is highly concentrated. with the 50 largest companies holding more than 80 percent of the market. Porter Analysis of the EME Industry A Porters analysis of the EME industry is done below – which reveals the following: 2 . The US market continues to fall as a proportion of the World construction industry (from 50% to 45%) while Asia/Pacific will increase significantly in the same time (26% to 31%).

We also see backward integration of manufacturers. or suitable. we see very high barriers of entry. Government controls of most of the mining activities create problem of penetration into this market. High and Increasing Rivalry: There are already seven major contenders in the EME industry.S. Severe cost and time constraints for this type of business create obstacles for growth. Because of the large capital investment required to produce heavy construction machinery. Smaller firms approach the market indirectly via Flank Attack strategies. They are very price sensitive. 3 . Customers are mostly governments or large construction and mining companies. The industry focuses on constant improvement of existing products to make them more efficient. Steel purchases represent 15 % of the product cost but Japanese steel costs on an average about 30 % less than US made steel. Balanced Supplier Power: Purchased materials and components form around 49.6% of the total cost of the company. quality conscious and have experts to analyze and assess a product. and a host of local specialists. Forecasting their demand correctly and properly satisfying them is a very difficult task. Also. while others chose to offer one product of each type. Downtime is very expensive. Customer training of complex machines and after-sales service is a daunting task. as a culmination of these reasons. Thus. as they move into engines and parts.S companies from indulging in unethical activities such as bribery and kickbacks in overseas dealings.Balanced Supplier Power Balanced Buyer Power High Barriers to Entry: The Basis for profitable operation is volume production and ‘Economies of Scale’ exist up to a certain level of 90000 units (Costdisadvantages below this are hard to estimate. Non U. companies are better placed to bid for and perform contracts in developing countries since they do not face curbs similar to the US FOREIGN CORRUPT PRACTICES ACT (FCPA) of 1977. this segment of the market is mainly served by the large manufacturers. foreign companies receive financial and diplomatic support from their home governments when bidding and favorable tax treatment on earnings outside their own countries. comfortable. Some manufacturers choose to offer a full line of only one type of product. which forbade U. although some say that there is 11% drop in cost between 60000 and 90000 units).

diesel and natural gas engines and industrial gas turbines. transportation. Caterpillar products and product support services are sold worldwide into a variety of highly competitive markets. followed closely by price and parts availability. we find bids from buyers who are generally few such as large state owned enterprises. Headquartered in Peoria. energy. Illinois. meaning the threat is consequently less. Following the war. FIRM OVERVIEW . forestry. developed this technology independently around the turn of the 20th century. Equipment purchase decisions are mainly made by committees of high level management and technical persons. is the world's largest manufacturer of construction and mining equipment. financing and electric power generation. Caterpillar Inc. Manufacturer’s reputation. The company took its moniker from Holt's nickname for the treaded tractor and set up its HQ in Peoria. in this industry it is not likely to easily find substitutes. a development that improved their maneuverability over uneven terrain. Best Tractor. Holt and Best agreed to merge their two companies. mining. electronics. Background/History of the Company The early innovation that set Caterpillar apart from its competitors was the use of treads on its tractors. Allied forces adapted the treads for use on armored vehicles. Caterpillar is also a leading US exporter. such as combines. Benjamin Holt and Daniel Best. Countries set up normal tariff barriers like specification requirement analysis that pressured EME companies to build offshore plants. were phased out.Balanced Buyer Power: In the industry. The company is a technology leader in construction. 4 . During World War I. with more than half of its sales outside the United States. included prices for parts needed over the next two years. By 1940. Thus. Early on. Two men. Demand depended largely on the pace at which machines were substituted for labor.1981 Introduction As one of the Fortune 500. machine performance and dealer capability are the most important criteria for decision making of buying of equipments. logistics. Hence. Low Threat of Substitution: Industry operates under severe cost and time constraints. the company's product line included various types of graders and terracers. other agricultural machinery. and though it continued to manufacture tractors. the Caterpillar Tractor was formed in 1925 by the combination of Holt Manufacturing and C. creating an early version of the modern tank. Illinois. the company focused on the rapidly growing construction and road-building markets.L.

Morgan believes this reflects true values but 5% is due to access to cheaper Japanese steel and 10% is due to financial arrangements when selling. John Deere is looking to rapid expansion of its small base of overseas distributors. They have a manufacturing and assembly operation in a large number of countries. In terms of Pricing: Komatsu is 10% to 15% cheaper. Neither therefore reflects ‘real’ value. Clark Equipment focuses on one type of product. Then it can leverage on that to gain further profits. INTERNATIONAL HARVESTOR: It has a very strong distribution system and the second broadest product line. Since it already has the first mover advantage in these areas.S and European competitors. Its product strategy is focused on a few products and it offers a wide variety of machines in each category. Its sales in the EME industry were about 12%. They have undertaken implementation of CAD/ CAM programs to lower its manufacturing costs further. but has small equity base and finds it difficult to manage spare parts inventory. It thus is known to adopt a First Mover Policy. In the construction equipment segment. it can build up formidable barriers to entry for the other competitors. As the #2 EME manufacturer and holding a dominant 60% of their Japanese home market the company is already providing strong competition. Fiat Allis has a full line of products. Comparison between Komatsu and Caterpillar: Of the competitors Komatsu appears of most concern and is steadily gaining ground. In terms of Manufacturing: Japanese production systems are some 5 years ahead of Caterpillar. which Lee Morgan publicly ridiculed.I CASE: Produces components and finished products for both agricultural and construction equipment. They have heavy spending on R& D. tends to compete on price but has a poor reputation for quality and reliability. In the growth areas of Asia and the Middle East 5 .on with Caterpillar. it competes head. It is the low cost producer in the farm sector. But outside Japan it lacked an effective dealer network. Its major asset is its 2300 loyal dealer network. JOHN DEERE: It leads the world in farm equipment manufacture. Its machines were cheaper than Caterpillar’s. It can use its strong brand image and reputation in the market to build a very loyal customer base. so are the ‘firsts’ in various industry production standards. It had nonexclusive dealerships which generally catered to small contractors. IBH Holding Company integrates several sets of distributors. J. It used exporting as the strategy for global expansion. It has a strong network of 1200 independent dealers. Relationships: Komatsu has cultivated direct relationships with Communist and Developing Nation governments. It saves on cost by using the same distribution channels for both.COMPETITIVE LANDSCAPE KOMATSU: It enjoys labor cost advantage relative to U.

STRATEGIES MARKETING STRATEGY Caterpillar Dealer Network: Caterpillar's global dealer network provides a key competitive edge . It 6 . International Harvester and Bucyrus-Erie and therefore has access to leading product design apart from their own considerable capabilities. and even conducted a course for dealers’ children to encourage them to remain in business. Deere matches the loyal dealership of Caterpillar and is expanding into non-US markets. While Caterpillar is competitive internationally on the back of their dominant US position the movement of the market away from the US and the importance of large government controlled projects in Asia and the Middle East will assist Komatsu and its approach. accurately scheduling machine use.customers deal with people they know and trust. This builds their reputation and allows for reduced costs through lowered inventories of spares. Komatsu had substantial marketable securities as liquid assets which gave it a competitive edge. Further. Komatsu takes a different approach and relies not on availability but on reliability generated at the factory using advanced production techniques. These dealers were the core of CATERPILLAR’S marketing strategy. • Basically they used to approach dealers as partners in the enterprise. Technology: Komatsu has arrangements with Cummins. Almost all dealerships are independent and locally owned. • It tied the dealers close to it by enhancing their position as entrepreneurs. increased machine lives and accurate price setting with lower margins for error. scheduled maintenance of parts. This enabled Komatsu to earn interest at a rate much higher than its borrowings. Advertisements: CAT advertised its products heavily in specialist magazines. • It also offered to repurchase parts or equipments the dealers could not sell.the major projects are controlled by government agencies and they can be expected to heavily influence any buying process. The otherwise troubled International Harvester company has a strong network of dealers within high growth region of Asia. • It conducted regular training programs for the dealers. About half of the domestic sales of Komatsu were derived from direct sales to end-users who usually purchased machines under installment credit. Caterpillar relies on spread and inventory to ensure spares are available to minimize user downtime. Of the domestic based competitors Deere appears strong in low-cost production and design innovation using electronics and CAD/CAM. It underpins their reputation. Many have relationships with their customers that span at least two generations. • It helped the dealers maintain appropriate inventory levels.

Caterpillar's historical home is in Peoria. It set the standard for the industry. reliable products and providing good support. Analysis Of The 4P’s of the Company : Product: The product mix of Caterpillar consists of (i) Machines: The Caterpillar equipment product line. Price: Caterpillar products are priced at a premium of 10% to 20% over the nearest competitor’s model. CAT successfully leveraged on this brand image and differentiated itself from all competitors. Compact Wheel Loaders. The company has a worldwide network of 220 dealers: (63. but it did not follow the acquisition route of competitors to do that. natural gas. (ii) Engines: With more than 500 types on the road or at sea. FINANCIAL ANALYSIS Table A: We can see from table A of the case that 50% of the expenditure of the industry is being incurred in USA whereas it is expected to grow only at a meager 1% between 1982 and 1986 whereas with only 26. By constant adaptation. CAT follows a uniform pricing policy globally. Diversification: Domestic construction business was maturing. It preferred other companies to go through the trial and error stage.US.5% of the expenditure business in Australia is expected to grow at 6% and with 7. All Caterpillar products are available through exclusive CAT dealers. The product development strategy was to concentrate on a highly capital intensive products that can be marketed through their distribution system. and then follow quickly with the most trouble free product in the market.5% of spending at middle east it is expected to grow at 5%. Product Development: Substantial R & D directed towards product development. luck was also a key success factor of Caterpillar along with its quality products are generous dealership norms. 7 .depicts a more personal image and better emotional appeal as most of ads are testimonies of loyal customers. where its world headquarters and core R&D activities are located. serving many market segments. product improvement. Promotions: As detailed in the given case. thus differentiating it form others and also mitigating the risks associated with single product and single market. Thus we can infer that the market in USA has reached the stage of maturity but that of Middle East has only started the growth phase and Australia’s market is also growing. Due to its vast presence in the defense sector CAT gained an unsurpassed brand image of being a trustable rugged heavy machine. Place: Caterpillar products are sold nearly in 200 countries. moving ground or deep beneath it (iii) Equipment: This product line consists of Skid Steer Loaders. CAT’s engineers had created hundreds of different machines. 157. consisted of more than 300 machines. Instead it started to get being involved in many sectors of the economy like.Others) Caterpillar products and components are manufactured in 51 plants in the US. durable. and applied research. compressors. generators and power drives. so the company decided to go for diversification. Thus the main focus of the company should be on these emerging markets and more of the expenses should be incurred here and not in USA. Illinois. It never followed the concept of first mover because it was rarely the first with a new offering. solar made turbine engines. Their motto was to build sophisticated.

0 but still it is quite respectable.02 It is very high. It also shows that the company is not that leveraged at all in fact the amount of debt in the company is extremely low as far as its financial strength is concerned and it may actually look to leverage its assets more in the future so as lower its risk in the case of adversaries.86% to 6.98 This shows that the debt serving ability of the firm is quite high and that the creditors can lend money to the firm without any sense of insecurity. In comparison the business of Middle East has grown by 11 percentage points flat! Also the business of most of the developed countries like Japan.50 It is quite high. Thus it shows that the firm can easily meet its interest burden even if in the future the firm’s earnings took a considerable hit.88% (in between 1979 and 1980). take some more debts from the market so as to bring down its cost of capital and then it can have a proper mix of debt and equity (Capital Structure). Thus the leverage ratios show that the level of debt in the company is extremely low. This is also due to the safety stock maintained to guard against the quality problems in the inventory. This clearly shows the significance of the two theories of PRODUCT LIFE CYCLE and LOCATION ECONOMIES. Quick Ratio = 0. i.13 8 . It needs to consider leveraging some more.14 This again shows that the debts of the company are backed by more than adequate amount of assets and the creditors are enjoying a lot of security. So. Although it is below the international standard of 2. Debt-to-Asset Ratio = 0. Financial Ratios Analysis Liquidity Ratios: Current Ratio = 1. This is because the company holds a lot of its assets in the form of inventories as mentioned in the case.e.56 It shows that the liquidity position of the company is not as great. Germany has fallen. Turnover Ratios: Inventory Turnover = 3. Caterpillar does not like to delay the service to the customers as far as parts and MRO is concerned. Fixed Charges Coverage Ratio = 1. Thus it has to hold a lot of inventory in order to be able to immediately fulfill the request for the parts by the customers. Thus the company will not have much difficulty in raising funds from the market due to its strong financial position. which is a sign of the financial strength of the company.275 This is quite low which means that the creditors are enjoying a lot of security as their loans are backed by more than enough equity of the company and even in case the company fails their money will be paid back. due to this the cost of capital for the firm may be high and it may actually stop the firm from reaching an adequate capital structure.. Interest Coverage Ratio = 4. Leverage Ratios: Debt-to-Equity Ratio = 0.Table B: Comparing between the 2 years business we can clearly see a pattern as to how the number of contracts from Middle East given to companies from USA has drastically reduced from 16.

Days Sales Outstanding = 39. EBIDTA Margin = 0. We discussed earlier that the firm holds a lot of inventory so that it can adequately meet the requirements of the customers. Return on Equity = 15% This shows that the shareholders are earning a very respectable return on their equity holdings of the firm.064 6 1980 0. It is eating up a considerable portion of the profit margin so it can be improved further. Net Profit Margin = 0. Total Assets Turnover Ratio = 1. administration. financing. Thus overall we can see that the operational effectiveness of the company is very good as all these ratios indicate. Thus the firm is doing a good job with its credit sales.3% Thus the efficiency of the production is quite good as it is leaving quite a respectable margin after COGS.076 on sales(ROS) 1977 0.45 This is quite high showing that the assets are being handled quite efficiently by the company and it is being turned into sales quite effectively.26 This also shows that the assets are being employed quite well by the company.07 61 1978 0. Thus the business is doing good in this respect.078 4 1979 0. Fixed Assets Turnover = 2. Return on Assets = 8% It shows the amount of revenue and profits the assets are generating for the firm are quite high and thus it again stresses the point that they are being adequately employed. ROCE = 9% The profit that the invested capital is generating is high. Thus overall from the financial ratio we can see that Caterpillar is performing well in all the fronts excepting for its Capital Structure which is not leveraged at all. selling.64 It shows that the number of days required to collect the money from the debtors is quite low as compared to the industry standard of 45 to 60 days. Earning Power = 12% The earning power of the assets compared to that of the rest of the industry is quite high and it is advantageous for the firm.065 7 1981 0.3% The overall efficiency of the firm as far as production.243 or 24. Also the pricing of the firm seems to be adequate for its products. pricing.099 or almost 10% The operating efficiency of the firm is okay. tax management seems to be quite good. Thus inventory is passing from firm to firms at a fast pace.It is quite high showing that the inventory is being managed very efficiently by the firm.063 or 6. The Ratios over the time horizon of 1976 to 1981: YEAR 1976 Profitability Ratio or return 0. Profitability Ratios: Gross Profit Margin = 0.06 32 9 .

• Amongst foreign countries.553 5 1.5 8 1.124 6 1. The company shows a high current ratio which means the working capital position of the company is very good. although a bit fluctuating.10 1.822 2 $1. Return on equity of the company is good as is evident from the activity and leverage ratios. It is to be noted that the profitability of the company is too low and has declined gradually over the years.378 6 20.04 % 0.46 1.04 80 0. This is due to large scale operation.72 54 2.278 2 16. which have always remained on the higher side.17 04 0.Activity ratio Current ratio Leverage Ratio ROE D/E ratio Operating ratio Dividend per share 1. It shows that the company has good debt repayment capacity.895 2 1.82 09 $1.827 7 $1.27 45 15% 0.35 65 1.860 3 $1. as is evident from the operating ratio.713 6 1.043 9 0.88 1.24 59 0.880 7 1.614 2. 10 .960 0 1. CATERPILLAR SALES FROM THE THIRD WORLD REGIONS: From exhibit 6 and 7 • In Latin America the total sales has steadily grown by 51% in the period between 1977 to 1981 • In Africa and Mid-east by 113% • In Asia Pacific by 126% • In the total third world countries the exports had gone up by 108% • Also the third world formed 40% by sales of Caterpillar and 28% of its exports.44 69 19% 0.902 8 2.90 % 0.310 5 16. Africa & Middle East hold maximum % of sales (36%) Thus the company should focus more on the third world countries which are rapidly coming up as the demand centers and especially on Middle East and Africa.33 1.860 4 $2.134 9 0.45 % 0.57 % 0.065 8 0. Low debt equity ratio of the company indicates that the company is mostly self financing for its operations and overseas expansion.49 58 1.515 7 18. which in turn causes a pressure on the profits which influences the profitability ratio.85 23 NA Interpretation of the Ratios calculated above: A large portion of the sales revenue is consumed in operations.86 26 1.


to fill global demand and realize scale economies. The company achieved cost competitiveness through high volume production facilities. Caterpillar followed an International Strategy. can a company effectively pursue a transnational strategy? The need to compete with low-cost competitors such as Komatsu of Japan has forced Caterpillar to look for greater cost economies. Pressures for local responsiveness and cost reductions place conflicting demands on a company. quality control through quality circles Automation to achieve productivity. Caterpillar invested heavily in a few large production facilities which supply nonUS plants set-up to meet local content requirements or customize has provided cost competitiveness through economies of scale. To deal with cost pressures. sited at favorable locations. OVERSEAS EXPANSION STRATEGIES Caterpillar mainly used joint ventures for global expansion and also FDI by the means of building manufacturing facilities in different countries. Caterpillar also had a ambitious capital spending program because it saw an enormous growth potential in the earth moving industry and also the company invested heavily in flexible manufacturing system. At these plants. How then. The overall strategy is one of very much doing it alone . The strategy is not an easy one to pursue. The company delivered high quality service through a managed group of loyal independent distribution agents and it also had a localized ability to customize. This in turn helps the company to reduce the transportation costs and also makes it more flexible in responding to the local governments demands of manufacturing investment. which obviously makes cost reductions difficult to achieve. variations in construction practices and government regulations across countries mean that Caterpillar has to be responsive to local demands. tailoring the finished product to local needs. the company augments the centralized manufacturing of components with assembly plants in each of its major global markets. Caterpillar redesigned its products to use many identical components and invested in a few large-scale component manufacturing facilities.OPERATIONS/ MANUFACTURING STRATEGIES CATERPILLAR’s mainstay of strategy was to provide high quality products along with highly effective service. Caterpillar then used these centralized facilities to supply overseas assembly plants that also added local features. The strategy of high in-house 12 . Being locally responsive raises costs. The company had standardized products and also a few large scale state of the art component manufacturing facilities to meet world-wide demand. At the same time. One of the major reasons for the company to pursue such a strategy was because it wanted to maintain complete control over all of it’s subsidiaries. Many large machines and key components were sourced from the U. up to date technology.not being reliant on outsiders or a single market.S. At the same time. Thus Caterpillar is able to realize many of the benefits of global manufacturing while showing local responsiveness by differentiating its product among national markets. Caterpillar adds local product features.

Likewise the approach to marketing of using independent dealers has given Caterpillar access to local entrepreneurs who know their markets and their users.production of parts (90%) has given Caterpillar control of their manufacturing although whether such a high degree of backward integration cost effective cannot be determined from the case. 13 .

SWOT ANALYSIS Strengths and Weaknesses 14 .

SWOT ANALYSIS External – Opportunities and Threats 15 .

This appears deeper than that of the oil-rich nations as it is not reliant on a single commodity. Earth Moving Equipment (EME) manufacturers are concentrating on higher energy efficiency. Technical: Product technical changes are limited to incremental improvements rather than wholesale alterations. Project work in these regions and the success of regionally based contractors will require EME manufacturers to provide adequate sales support locally. With volume core to Caterpillar's cost control this could lead to low profitability over the next few years. improving operator comfort and modification for specialist tasks. EME manufacturers will need to focus less on the US market and more on both Asia/Pacific and the Middle East.User relationships will alter from simple supply of equipment to one emphasizing total services . A second area of growth is within Asia-Pacific. OCTOBER 20th. 1981 The following recommendations build on the enviable position of Caterpillar in what is still an attractive market. are undergoing radical change driven by manufacturing techniques pioneered within Japanese industry.ANALYSIS OF THE COMPETITIVE ENVIRONMENT Economic : The most immediate economic impact is because of the boom in oil rich nations and the recession in developed economies following the 1979 oil shock. This will test the loyalty of Caterpillar dealers. Latin America continues to see economic growth although this has slowed. Compounding this.Coinciding as it does with the US downturn and the strengthening US dollar. Caterpillar will come under pressure to maintain volume sales. Production methods. Manufacturer. The Far East is experiencing a period of overall expansion while Australia is appears set to experience a boom in coal and mineral exports. however. labour problems that disrupt the ongoing supply of spare parts will damage the reputation of Caterpillar and cause great difficulties for users of their equipment. 1982 economic activity is forecast lower and the US dollar is forecast to strengthen. EME users are increasingly turning to rental arrangements to counter capital constraints and are increasingly asking for sales details that include several years’ replacement parts. RECOMMENDATIONS FOR LEE MORGAN. Implications of the environmental changes: Overall. Hence CAT should ‘restructure‘its International Corporate Strategy where needed so and incorporate elements of 16 . Several marketing and service developments are also underway. They maintain a strategy of cost competitiveness and place Caterpillar to grow with the Asia-Pacific region without jeopardizing US dominance or requiring radical change in corporate culture. As mentioned in the case “the EME demand depends largely on the pace at which machines were substituting for labor“. Reliability is critical. A strengthening US dollar will place pressure on manufacturers with production facilities in the US.

Thus Caterpillar is able to realize many of the benefits of global manufacturing while showing local responsiveness by differentiating its product among national markets. To deal with cost pressures. At the same time. developing and third world economies. and do all this while paying attention to pressures for local responsiveness. Caterpillar redesigned its products to use many identical components and invested in a few large-scale component manufacturing facilities. local currency based price strategies. sited at favorable locations. the company augments the centralized manufacturing of components with assembly plants in each of its major global markets. CONCLUSION In today’s environment competitive conditions are so intense that in order to survive in the global marketplace companies must exploit experience-based cost economies and location economies. They need to establish financing systems that allow for rental or financial lease arrangements without extending Caterpillar's risk into unfamiliar areas. Caterpillar adds local product features. There needs to be a better focus on newly industrialized. At these plants. price reduction or value addition should be considered as viable options for CAT’s future wellbeing. The US dollar exchange arrangements with affiliates needs be monitored. a new relationship with users and a more outward looking Caterpillar. The change bought by these recommendations are a move to modern manufacturing techniques. They can develop in any of the company’s worldwide operations. They also need to concentrate on closing the production systems gap with Japanese competitors. bridges. CAT needs to review the dollar-based pricing strategies. Direct selling.multi-domestic and global strategies. CAT should strategically shift from its OECD biased outlook and gain a better global image. The JV with Mitsubishi is a key resource and they need to capitalize on that. Ensure that company laborers and unions are aware of the market environment Caterpillar needs face over the next few years. transfer distinctive competencies within the company. to fill global demand and realize scale economies. and waterways necessary to sustain economic growth. Developing countries are building highways. tailoring the finished product to local needs. CAT will need to ensure its product line 17 . In the modern multinational enterprise distinctive competencies do not reside just in the home country. CAT should adopt a local currency based pricing. Labor costs are almost 65% of the revenues of the company. Especially in developing economies where the local currency is deliberately priced low to dollar purely for export promotion purposes. so taking the huge labor force into confidence will be of great help to the company in the long run.

Small residential contractors or individuals may need heavy equipment for a shorter period of time to accomplish landscaping. moving earth. Caterpillar also needs to look to the United States market and identify pockets of opportunities.can meet the growing demands of these countries. Their dollar based pricing strategies also should be reviewed and elements of multi-domestic and global strategies should be incorporated into the current international corporate strategy where needed so. 18 . All the while.

cat.REFERENCES 1.com – The official website of Caterpillar Inc. UIBE . Christopher A. 3. Wikipedia – for resource and historical information. Harvard Business School case 9-385-276 . www.Fan Libo 19 . 4.Copyright © 1985 President and Fellows of Harvard College – Prof. Student Research Portal – School of International Business Administration. Bartlett and Research Associate U Srinivasa Rangan 2.

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