‘Mature product markets drove Caterpillar’s restructuring during the 1990s’. Critically examine this statement.
With 2004 sales revenue in excess of $30 billion and profits of $2.03 billion Caterpillar is the worlds leading manufacturer of construction, mining and earth moving equipment. Caterpillar operates in three key areas; machinery, engines and more recently financial products. Mature product markets are an aspect of all product lifecycles once the initial rapid growth stage is complete sales will continue to rise but however at a much slower rate. Problems associated with mature markets include; slower cost recovery, increased risk of competitors capturing market share and the threat of products moving into the decline stages of the product lifecycle. When entire product markets go into maturity there is little room for growth through innovation as the market is already saturated and therefore even new product lines may struggle. However as in all technology based industries it is important to maintain research and development expenditure in order keep up with competitors and maintain a competitive advantage. Possibilities for growth become considerably limited, options include moving into new markets and strategies to attempt capture competitors market share. This puts an increasing importance on brand names; in the case of Caterpillar they have the advantage of an extremely well established and worldwide known brand name.
In times of recession such as those of the 1980s it is often the construction industry and therefore those connected industries such as the construction equipment manufacture industries that are the first and often worst affected industries. This coupled with the mature product market led to declining sales in the early 1980s. They therefore were required to find new markets for their products or to diversify into new business areas. Another major problem faced by Caterpillar was their high labour costs; this was due to the majority of their manufacturing being carried out in the US where labour costs are high. Clearly due to the nature of the products being manufactured it would not be practical for them to carry out the entire manufacture process overseas then to have to import large construction vehicles at a high cost back to the US however the possibilities were present for the smaller parts and components to be manufactured at a lower labour cost overseas. Caterpillar’s restructuring along side their “Plant with a future (PWAF) programme” (Froud, et al., 1998) has worked to transform the group into a cellular based manufacturer with a strong customer focus. The restructuring also assisted them in making significant cost reductions in labour and many other areas, it is now important to consider the forces behind this restructuring, firstly looking at the mature product markets that the organisation faced in the 1980s and 1990s then some of the other possible causes for the restructuring.
The 1980s recession and construction equipment market maturity caused considerable problems for Caterpillar, with domestic sales becoming stagnant and rising labour costs there was a need for change if the organisation was to maintain their market share. A key area of this restructuring was their diversification into finance, by moving into this new area they were able to offer more to their customers so whilst benefiting from the income of this additional business area they were also directly supplying customers of their core business area with a finance option to purchase equipment. This diversification into new market which has occurred extensively in the motoring industry in recent years and is continuing to spread through other industries can be well described by the sector matrix, this describes how companies are starting to diversify into industries supporting their core industries and therefore the different areas act in unison and in theory act in unison to support each other...
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