Caterpillar Case Analysis
EXTERNAL ENVIRONMENT ANALYSIS
. In 1915, the British military invented the armor tank and modeled it after Benjamin Holt’s steam tractor, Caterpillar. Also during World War I, the United States and its allies used Holt’s track-type tractors to haul artillery and supply wagons. Shortly after it formation, during World War II, Caterpillar served as the primary supplier of bulldozers to the US Army. Although it was a successful company for many years, for three consecutive years, 1982-1984 it had lost $1 million a day. This was partially caused by tough global competitive challenge and the collapse of the international markets. Sociocultural / Demographic. Instead of focusing on large clients like multinational engineering and construction firms, Cat began marketing to a new category of customers like small scale owner operators and contractors. Developing nations in Latin America, Asia and Eastern Europe were a big part of Cat’s sales, accounting for 23% of total company sales. These countries have a strong demand for Cat’s equipment since they are undergoing development. Also, Caterpillar entered the market for rental equipment. Another sociocultural phenomenon that affected Caterpillar and other companies was the rise of unionization across America and their ability to make changes in a company’s structure. Legal / Political. Caterpillar faces the policies and laws of many governments because of its heavy involvement in the international markets. High tariffs and taxes have a negative impact of foreign transaction. The company also faced legal challenges as the United Auto Workers Union (UAW) filed numerous charges with the National Labor Relations Board (NLRB) in claiming that Caterpillar had unfair labor practices. Economic. Unfavorable currency exchange rates were one of the leading causes of Caterpillar’s loses during 1982-1984. The steep rise in the value of the dollar (relative to Yen and other currencies) made US exports more expensive abroad and US imports cheaper at home. The strong dollar was a major part of reduced sales and earnings for Cat. On the other hand, the steady growth for construction machinery since 1945 came to an end in 1980. As highway construction slowed down, oil prices depressed the global market of mining, logging, and pipe laying equipment as the global recession began. Technological. The heavy construction equipment industry supplied engineering firms, construction companies, and mine operators. The industry typical lines included earthmovers (bulldozers, loaders, and excavators), road building machines (pavers, motor graders, and mixers), mining related equipment (off-highway trucks, mining shovels), and large cranes. On a global basis, earthmoving equipment counted for about half of industry’s total sales in the 1990’s. INDUSTRY ANALYSIS
Barriers to Entry. The barriers include diversification, economies of scale, marketing and distribution, and alliances. New companies in the industry must diversify their product lines to compete with the multinational companies. A barrier to entry is the need to achieve economies of scale. According to the case, the optimal scale of operation was approximately 90,000 units annually. The typical amount of global sales per year in 1997 was 200,000 to 300,000. This low number of annual sales further intensified competition over market share. Lastly, manufacturers built alliances because of intense competition over market share. This included full scale joint ventures to share production, technology sharing agreements between equipment manufacturers and engine makers, and technology sharing alliances between major global firms and local manufacturers. Power of Buyers. The power of buyers in this industry is fairly strong. The buyers have the options available to pick what type of machinery they need whether it is a new machine or replacement parts. The buyers have the advantage of stiff competition between retailers...
Please join StudyMode to read the full document