Case 3

Topics: United States dollar, Foreign exchange market, Currency Pages: 2 (615 words) Published: December 3, 2014
Case #3-Caterpillar: Competing in a World of Fluctuating Currencies Caterpillar had long been one of America’s major exporters and sellers of construction equipment, mining equipment, and engines to some 200 countries worldwide. Since they were a leading exporter, Caterpillar’s fate has often been tied to the value of the U.S. dollar. In the 1980’s, with the U.S. dollar being strong against the Japanese Yen, Komatsu, Japan’s premier manufacturer of heavy construction equipment, was given a huge pricing advantage in the U.S. against Caterpillar. Komatsu was undercutting Caterpillars prices by as much as 30%, enabling Komatsu to gain market share in the U.S. and other markets. This became a difficult time for Caterpillar with the company at one point losing a million dollars a day and battling a hostile labor union. Caterpillar seemed to be another example of a declining business in America’s “Rust Belt”. In the mid 2000’s though, Caterpillar started thriving in part due to deals with its unions, new state-of-the-art manufacturing facilities, and the weakening of the U.S dollar. Its productivity, which was once abysmal, was now among the best in its entire industry. In the 2000’s it also helped that there was a worldwide boom in spending on infrastructure, and Caterpillar was reaping those gains by producing record amounts of equipment. With the weakening of the U.S. dollar it reduced the price of Caterpillar’s exports, when translated into many foreign currencies. Then in 2008, the U.S. dollar started to strength again, even though the American economy was heading towards a recession. Foreigners though, were still strongly invested in the U.S. assets, mainly Treasury bills. With this foreign demand for the U.S. dollar in order to purchase U.S. assets the U.S. dollar raised on the foreign exchange market. Analysts worried that with the stronger dollar it would hurt Caterpillar’s financial performance because its exports were rising when converted into most...
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