Seminar in Strategic Management

Final Presentation
Caterpillar

Group Sunday 4S3

Presented by : Abdel Rahman Salah

ID # : 20122088

Presented to Dr. : Rehaaf Foula

Company profile

Caterpillar Inc. is an American company that is engaged in the design,

development, manufacture, marketing, and sales of machinery, engines, and
insurance to customers. It was founded by C.L.Best in April 1925 and is
currently headquartered in Deerfield, Illinois. It has become the world’s largest
manufacturer of construction equipment. It is also involved in the marketing and
licensing of a line of clothing and shoes under its name

The Company also offers financial services through The CAT Financial Brand.
With an extensive product range that caters to a large customer base, it has a
broad clientele served by about 99,100 employees spread across the world.

Caterpillar offers a wide range of equipment, with approximately 20 products in

its portfolio that helped the firm achieve worldwide stature, including
position #78 on the fortune 500 list in 2020
Competitors

Caterpillar has a lot of competitors as Volvo CE (Sweden), XCMG (China) and

Komatsu Limited (JAPAN)

Volvo CE, headquartered in Gothenburg, Sweden, is one of the world’s largest heavy
equipment and trucks manufacturers. Founded in 1832
It has about 14,000 employees distributed across over 200 offices and dealerships in
over globally

XCMG is a Chinese state-owned company. It operates as both a heavy machinery

manufacturer and service provider.
The Company is listed on the Shanghai Stock Exchange and has a market value
equity of 53.034 billion Chinese Yen ($8.204 billion) as of September 22, 2021.

While Competitors Komatsu appears of most concern and is steadily gaining ground.
As the No.2 EME manufacturer and holding a dominant 60% of their Japanese home
market the company is already providing strong competition.

Manufacturing: Japanese production systems are some 5 years ahead of Caterpillar. It

also enjoys labor cost advantage relative to U.S and European Competitors Pricing:
Komatsu is 10% to 15% cheaper. 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. Neither therefore reflects value. Relationship: Komatsu has cultivated
direct relationships with Communist and Developing Nation governments. In the
growth areas of Asia and the Middle East the major projects are controlled by
government agencies and they can be expected to heavily influence any buying
process.
Technology: Komatsu has arrangements with Cummins, International Harvester and
Bucyrus-Erie and therefore has access to leading product design apart from their own
considerable capabilities.
Komatsu is weaker in terms of market spread and depth and in dealerships and does
not have a similar hold on the vital US market as does Caterpillar.

Of the domestic based competitors Deere appears strong in low-cost production and
design innovation using electronics and CAD/CAM. Deere matches the loyal
dealership of Caterpillar and is expanding into non-US markets. Deere leads the world
in farm equipment manufacture. J.I CASE strength lies in using the same distribution
channels for agricultural and construction equipment, had a strong network of 1200

Business Model 5 Cascading Questions:

1) What is Caterpillar winning aspiration?

The firm aims at being a global leader in the industry through high quality products
that satisfy customers. The company also effectively develops its business value
through marketing and its distribution network around the world. Thus, the
corporation follows this vision statement and continues to improve customer value

2) Where will play?

- Customers: Oil & Gas industry, Agricultural production industry, Auto & truck
manufacturers industry

- Channels: Having 178 dealers distributed worldwide

- Product & Service: the design, manufacture, and commercialization of construction

and mining equipment, diesel and natural gas engines, industrial gas turbines, and
diesel-electric locomotives.

- Geography: World-Wide

3) How will Caterpillar win in chosen market?

- Caterpillar’s competitive advantages include its strong dealer distribution network;

its significant investment in research and development which resulted in its high
potential in digitization and automation; its massive scale and volume which is
denoted by its presence in many countries in the world; and its reputation for high
quality and safety

4) What Capabilities must Caterpillar have?

- They have Extensive product port-folio, Strong brand image,

Superior R&D capabilities & Strong dealer network

-  They need focusing on solutions that enhance customers’ productivity and its
unprecedented commitment to creating strong global brands result in exceptional
growth and profitability.
 - To invests in research and development (R&D) to ensure that it offers quality
solutions

- To invests in areas that create value through the Operating and Execution

model

5) What management system does Caterpillar need?

- Need Innovation management & Artificial intelligence

- Caterpillar can see its management success reflected on the revenues by $41.7
billion in 2020, with an operating profit margin of 10.9 percent. Also Despite the
downturns caused by the Covid-19 pandemic in 2020, the firm still maintained its
leadership position in the global construction equipment manufacturers segment with
a market share of 13 percent

What Strategy does Caterpillar apply ?

The vision of the company is clear, becoming a leader in most heavy duty markets on
a worldwide scale. Their goals and objectives were clear as well. They want to
compete and become a cost leader in their field; they want to reach a large number of
markets, new customers, image of quality and service. Whatever the goals they might
have had, they did manage to attack them properly
 

Growth: They managed to enter most new markets quickly while keeping and
reinforcing their relationship with customers as they started to perceive better quality
of service. The lowering of their prices also allowed them to attract new customers
and markets. They also catered to customers’ needs by innovating new products;
entering more retail markets… their growth strategy is clear.

Competitive advantage:

Cost: They managed to cut their cost and implement a fully automated production line
and just in type inventory which strongly reduced the production cost and therefore
their sales price.
Quality: They focused on quality of service and products.

Value: All their products are customizable and therefore a strong focus on customer
need was built which brought more value to the customer
SWOT Matrix

Strength

Extensive product portfolio: Caterpillar is a company that provides solutions for

various industries, from construction to mining. Its portfolio entails more than 20
products that cater to a vast market, including heavy equipment and engines. The
Company also extends its services by providing financial solutions to customers,
offering competitive warranties and flexible financing options to boost customer
productivity.
Strong brand image: Caterpillar is a brand name that resonates with most people,
especially in the construction industry. The Company established this positive
image through authenticity and continuous innovation. Companies all over the
world use Caterpillar products, thus boosting the firm’s international recognition.
This fosters a sense of trust and respect from consumers, making the brand a
leader in its industry.
Superior R&D capabilities: Caterpillar possesses the resources, knowledge, and
technologies to create market-leading products. It commits to partnering with
leading global companies, institutions, and governments to develop products that
address the most pressing industry issues. The result is innovative solutions that
meet customer needs and expectations, including improving environmental
sustainability.

Strong dealer network: Caterpillar has a vast dealer network that supports its
business by engaging with customers, building solutions, and resolving issues.
The Company boasts 178 dealers distributed worldwide, which increases its
reach and enhances its brand visibility. Caterpillar’s global presence and its
capabilities to provide reliable and high-quality products foster customer loyalty
Weaknesses

Weakening Financials: Caterpillar is experiencing a decline in its revenue and

profits per share despite being a leader in the industry. From its 2020 annual
report, the Company recorded a sales revenue decline of 22 percent due to
reduced sales volume primarily driven by low demand. However, this could be
because of the Covid-19 pandemic that disrupted the entire world economy. Its
profits per share over the same period decreased from $10.75 in 2019 to $5.46 in
2020

Dependence on the North American market: With worldwide brand recognition,

Caterpillar still depends on the North American market for a significant amount
of its sales revenue. If the 2020 annual reports are anything to go by, more than
40 percent of Caterpillar’s revenue comes from the US and Canada. The
Company can benefit from expanding its market presence in emerging markets
like Africa and India to mitigate the effects of any economic turbulence

Opportunities

Emerging markets: Caterpillar’s future lies in emerging markets, especially

Africa and Asia. The vast majority of the population resides in these regions,
which possess abundant natural resources, including oil and metals. As a result,
demand for mining equipment is expected to increase significantly. Serving this
market with products that cater to its needs can give Caterpillar a much larger
share in this industry.
Rising environmental awareness: The Company’s service strategy is to improve
customer efficiency, competitiveness, and productivity. Caterpillar can tap into
its existing capabilities to address the threats posed by climate change which are
driving today’s consumers to take measures that reduce their carbon footprint.
For example, the demand for electric and hybrid vehicles has increased
significantly because of campaigns to reduce carbon emissions. Caterpillar can
use its strengths in technology to develop products that address this demand.

Threats

Competition: Caterpillar faces intense competition from companies capable of

providing customers with similar products. For example, it competes against
Komatsu, a well-known Japanese company, for its leading mining equipment.
Other competitors include Hitachi Zosen Corporation, XCMG, and SANY.

Economic downturns: The recent Pandemic crisis caused severe damage to the

world economy, which could indicate another economic downturn. Catalysts for
this are oil prices, unreliable currencies, and political instability in many parts of
the world. If another financial crisis strikes, Caterpillar has to ensure that it has a
continuation plan in place to save itself from any dire consequences

Porter Analysis of the Industry

High Barriers to Entry: Customers are mostly governments or large construction

and mining companies. They are very price sensitive, quality conscious and have
experts to analyze and assess a product. Forecasting their demand correctly and
properly satisfying them is indeed a difficult task. Customer training of complex
machines and after-sales service is a daunting task. Because of the large capital
investment required to produce heavy construction machinery, this segment of
the market is mainly served by the large manufacturers.
Balanced Supplier Power: Purchased materials and components from around
49.6% of the total cost of the company. Industry focuses on constant
improvement of existing products to make them more efficient, comfortable, or
suitable; steel purchases formed 15 % of the product cost but Japanese steel costs
on an average about 30 % less than US made steel. Back-ward integration of
manufacturers

Balanced Buyer Power: Bids from buyers who are generally few large state
owned enterprises, included prices for parts needed over the next two years.
Normal tariff barriers like specification requirement analysis that pressured EME
companies to build offshore plants. Demand depended largely on the pace at
which machines were substituted for labor.
Low Threat of Substitution: Industry operates under severe cost and time
constraints. Equipment purchase decisions mainly made by committees of high
level management and technical persons. Manufacturer’s reputation, machine
performance and dealer capability are the most important criteria for decision
making of buying of equipments, followed closely by price and parts availability.

High and Increasing Rivalry:7 major contenders in the EME industry, myriad of
local specialists Smaller firms approaching the market indirectly, some
manufacturers chose to offer a full line of only one of the product, while others
chose to offer one product of each type. Non -U.S. 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, which
forbade U.S companies from indulging in unethical activities such as bribery and
kickbacks in overseas dealings
Corporate Governance

Size of Board 10

Number of Independent Directors 9

Average Age of Directors 64

Average Director Tenure (in years) 8

Annual Election of Directors Yes

Mandatory Retirement Age 74

Women 30%

Diversity 20%

Majority Voting in Director Elections Yes

Independent Presiding Director Yes

Code of Conduct for Directors, Officers and Employees Yes

Supermajority Voting Threshold for Mergers No

Proxy Access Yes

Shareholder Action by Written Consent No

Shareholder Ability to Call Special Meetings Yes

Poison Pill No

Stock Ownership Guidelines for Directors and Executive Officers Yes

Anti-Hedging and Pledging Policies Yes

Clawback Policy
Yes

The information in this table reflects only the director nominees standing for re-
election at the annual meeting of shareholders on June 8, 2022
Financial Analysis

Factors that impact financial strength

1. The Growing Profits

2. The Stability or Decreasing Expenses
3. The Inventory turnover
4. The Operating Expense Ratio Is Strong
5. Managing Debt Wisely
6. Loyal Customers and a Steady Stream of New Ones
7. Liquidity
8. Working capital
9. Cash flow
10. Leverages
11. ROI
12. Earning per share
13. Price earning ratio

Factors that impact competitive advantages

1. Cost structure
2. Branding
3. The quality of product offerings
4. The distribution network
5. Intellectual property
6. Customer service
7. Market share
8. Capacity utilization
9. Technological know how
10. Control over suppliers and distributors

Factors that impact industrial strength is:-

1- Market size
2- Market growth rate
3- Cyclicality
4- Competitive structure
5- Barriers to entry
6- Industry profitability
7- Technology
8- Inflation
9- Regulation
10- Manpower availability
11-Resource utilization
12: Social issues
13: Environmental issues

Factors that impact environmental stability is :-

1- The global warming potential (GWP)

2- The eutrophication potential (EP) (measured in kgPO43− -equivalent)
3- The acidification potential (AP) (measured in kg SO2-equivalent)
4- Optimize current use of fossil fuels
5- Eliminate waste
6- Recover energy
7- Save time
8- Reduce or eliminate pollution