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RUNNING HEAD: CASE STUDY: CATERPILLAR INC.

Case Study: Caterpillar INC. 2

CASE Study:

Caterpillar INC.

Prabin Raj Panday

Case Study: Caterpillar INC.

Introduction:

Caterpillar, Inc was founded in 1925 and is one of the major manufacturers of construction and mining equipment, diesel and natural gas engines and industrial gas turbines. This firm has been focusing on three main business lines namely machinery, engines and financial products. According to Caterpillar Inc (2013), machinery line includes manufacturing of various constructions, mining and forestry equipments like articulated trucks, asphalt pavers, loaders, off-highway trucks etc. This is one of the major contributors of the revenue for the company. This is the branch of the company that had been successful worldwide and renowned for customer satisfaction. The second line of this business for this organization is engines. They design, manufacture, market and sell engines for the heavy equipments as well as for electric system like power generation systems. According to Caterpillar Inc (2013), Caterpillar is the world’s largest manufacturer of medium speed engines, as well as one of the world’s largest manufacturers of high speed diesel engines. The third line of business of this corporation includes providing financial services to the consumers like financial alternatives to customers and dealers for the company’s machinery and engines. This also provides the company with better recognition among non-traditional customers like general public. This part of the corporation also handles rental as well as the used equipment.

Situation:

The company had been successful in various projects inside United States as well as in the foreign countries from India to Sudan since its establishment. The use of machinery produced by this company had been used in some of the world known projects like 2,250-mile Trans-Canada Pipeline in Canada and Managil Irrigation project in Sudan. According to CNNMoney (2013), Caterpillar Inc had been constantly having positive net revenue since 2007. The cost of goods sold for 2011 only was around 41.70 billion dollars which was higher than cost of goods sold for 2010 which was around 28.80 billion dollars. The revenue had been better for the company with crucial development in mining industries, construction industries and service to the equipment. The Company had been successfully operating worldwide and doing better in all three line of business. This company has gone through some successful years like 31 percent revenue growth in 2010, 41 percent in 2011 and approximately 13 percent in 2012. During 2009, there was decline in manufacturing as well as the construction of infrastructure due to general global economic slowdown. During this period, the sales of company’s machinery line, their major product line, went down sharply, whereas the sales in the engine line went up. Globally the construction industry was going through a recession and development of new infrastructure was slow. As the economy recovered worldwide, the company had involved itself with various projects and improved the revenue since then. With recovery economy throughout the world, the construction industry is suppose to boost and this company is sure to rise to it excellence in due time. They always stick to their three lines of business with some change in order regain its success. Currently, some of the successful projects that are utilizing this company’s machinery are expansion of Panama Canal and Arabian Canal through Arabian Desert. Between 2001 till 2013, only time the price of this company stock went down was in fiscal year 2009 which can be seen in the figure below.

Source: CNNMoney (2013)

Strategies:

According to the Caterpillar Inc. (2013), the mission of this organization is to enable economic growth through infrastructure and energy development, and to provide solutions that protect people and preserve the planet. The mission statement of this organization is the basic foundation of their strategies. As the world develops structurally and technologically, the main strategies o f these organizations are as follows (Caterpillar Inc, 2013):

1. Promote and protect individual safety and well-being.

2. Provide employment, education and training.

3. Minimize the use of energy, materials, water and land

4. Maximize recycling

5. Minimize emissions

6. Optimize the use of renewable resources.

Based on these strategies, the organization had built up a set of goals they would be looking up for. Some of the these goals are to use alternative/renewable source to be used for their energy needs, increase energy efficiency in their products, reduce greenhouse gas emission and provide leadership in the safety of people in, on and around their products. The product development process of the organization is based on this and the newer models of equipments as well as engines are more energy efficient as well as better for the environment. The increase in stock prices also indicates that financial the new strategies are well accepted. According to Tarter (2013), Caterpillar’s mining equipment business comprises nearly 50 percent of operating profits. With many countries looking forward for alternative fuel, coal mining is reducing. This had caused the reduction in contracts for mining equipments. In order to balance the loss in mining section, the company had focused on new technology like hybrid and fuel efficient engines.

According to the SEC filing, there had been an accounting misconduct at Siwei which is one of the recently acquired, foreign companies. This incident had cost the company about 580 million dollars. There was lost of trust among investors in the stock market. The company is recovering from this incident and took some action like removal of several Siwei senior managers. According to their SEC filing, they have advised the Hong Kong Securities and Futures Commission of the issues regarding Siwei and filed a Form 8-K with United States Securities and Exchange Commission disclosing the impairment charge while the internal investigation is going on. Despite this misconduct in the company, the organization’s strategies for the China had not changed. They currently have 23 existing manufacturing facilities in China. They have also an expanded their coal mining business in China. They have taken care of Siwei incident and maintain good standard with the Chinese government. There had been some obstacle in their strategies due the involved companies but they have been able to maintain their primary strategy and provide technology and machinery to the world to make it a better place. Another problem the company is facing right now is the lawsuit filed against the directors and certain executive officers by an investor over alleged breaches of fiduciary duties in connection with its executive-incentive plans. The directors and executive officers are blamed of misusing the corporate funds by awarding and accepting incentive payments. When this lawsuit was filed in the court, the share price of Caterpillar Inc dropped significantly to the lowest of the year in the market. Although the lawsuit is still going on, the stock prices had been in better shape.

Consumer’s satisfaction is one of the main strategies of this organization. According to Brown (2000), attracting new customers is critical, but companies are recognizing the equally important need to build loyalty. One of the many methods of maintaining customers is providing systems that promote easy access and effective responses. The company likes to keep record of all the potential customers and they continuously contact them to provide more services to product sold to them. Technology has certainly helped Caterpillar Inc in this method. They can monitor customers’ equipment by remote, sending an electronic warning signal to its service technicians, and indicating the parts and tools needed to make the repair. This helps the company to detect the upcoming problems, inform the customer and solve it before anything serious occurs. Another consumer satisfaction method is based on their organizational strategy that is to provide consumers with machinery with better fuel economy and clean to the environment. In this way they show commitment to their mission and their strategies. Their new engines have low emission. The new innovation in their technology will help them to compete with their competition. The researches of this organization are focused on the customers’ need like next generation power trains, hybrid, autonomy, alternative fuels and engine emissions and efficiency. They also use the size and strength of their organization to ensure optimal product performance and quality in every customer application. The company is capable of producing small components used in their engines, transmissions, hydraulics, electronics and machines. This provides a unique upper hand over competition.

Competition:

Caterpillar INC is a global organization. This also means that there are several competitions throughout the world. Some of the major international competitors are Komatsu Ltd of Japan and AB Volvo of Sweden. They are the competitors who provide machinery and industrial equipment. The technological advancement achieved by these company are much more energy efficient and environment friendly while fulfilling the needs of the customers. The products and services provided by these competitors are of equal or higher standard and are cheaper in many ways. Some of the reasons for success of these competitors are the services they provide with purchase of products like maintenance and parts service for longer period of time. Its chief competitor in China is Komatsu and lately Joy Global. These companies especially Komatsu had been real competition in the Asian market. The main reason for this competition is that Komatsu is an Asian company and also a company with good reputation. One the factors that might Asian customer to Komatsu may be faster customer service especially where more technical support is required with larger product support. Similar competition is available in Europe with AB Volvo of Sweden and their technological advancement. They also have to compete with large contract companies for mining and construction in the local area of those countries who provide similar services in much lower cost and local workforce. In the United States, Deere and Kubota are some of the major competitors in the field of construction industries. They provide similar machineries and equipment to local construction companies in much cheaper cost. There are also much smaller equipment rental companies who offer these equipments for rent which have significant impact on the sale of their products in the market. Smaller contractors and construction companies are more attracted by savings that is achieved by renting the equipment than buying it.

SWOT Analysis:

One of a major strength of this company is its name. This company had been working in all parts of the world. The machineries worked during rebuilding process of World War II. This company had been involved in project throughout the world, from Asia to Africa even in Antarctica. Another factor is the products of this company. This company produces variety of products like construction and mining equipment, parts for the equipment and rental service. In recent years, they have pushed for technological innovation which has given them potential advantage over other companies. In future, they are looking forward to development of better power generation equipment and marine engines.

This company also has some weaknesses that are to be answered. One of the weaknesses of this company is neglecting a major market like Europe. Recent documents indicate that due to minimum sale of products in 2012, they have declared to minimize the improvement in European products (TheMotleyFool, 2013). This decision may also be due to economic recession of many European countries. Caterpillar Inc might cut down further in European market if the conditions do not improve. Second weakness of this organization is the lack of inventories in dealership. Due to economic recession and downside of housing industries, local market demands for heavy equipment have decreased significantly. They also lack to provide higher level of technical support in international markets. They have to send their engineers from United to

As the United States Construction industries improve, the opportunities for this company grow. The demands for new homes are increasing and can benefits the organization. The interest rates for the bank loans are lower. The economy is boosting as the employment rate increases every month. This would create a boost in housing industries. Other opportunities are developing globally as many countries like China, India and Brazil are developing their infrastructure and driving demand for construction and mining equipment. With their financial products, they are in demand to provide services to companies throughout the world.

Along with opportunities, there are lots of threats for this organization. Market conditions are still fragile. Many countries are still facing unemployment, lower consumer spending and government investment issues. These issues can have a significant impact. The price of metal and coal are going down. This reduces the profits earned by the mining company. Since mining company is a significant customer of Caterpillar Inc, the company may see decrease in order for mining equipment in future. Similarly as these mine closes, the needs for mining equipment will also stop. The company should also look for other alternative industries to provide equipments. Another threat to this company is the regulatory agencies round the world. The government organizations may impose significant in the working of the company. Many products could be prohibited in case they do not pass the emission standards.

Conclusion:

Caterpillar Inc is a large, global organization which has been leader in construction and mining equipment, engines and technology. This organization had been the reason for many successful projects throughout the world and helped to build infrastructures throughout the world. As the policies and standards changes throughout the world, this company had changed its strategies and vision. Even with lots of competition from companies inside and outside United States and other obstacles like the scandal of Sewei, this company has sustained originality and success. That is the reason this company is still the leader of manufacturing and mining industry for a long time.

Reference:

Brown, S. W. (2000). Practicing best-in-class service recovery. Marketing Management, 9(2), 8-9.

Caterpillar Inc(2013) from .http://money.cnn.com/quote/financials/financials.html?symb=CAT

Caterpillar Inc. (2013). Caterpillar Retrieved from http:// www.caterpillar.com/home

Tarter, S. (2013, January 05). Global challenges continue for caterpillar inc. Retrieved from http://www.pjstar.com/news/x1671799202/Global-challenges-continue-for-Caterpillar-Inc

The Motley Fool. (2013, January 21). Caterpillar Inc (cat) analysis: Short-term pain, long-term gain?. Retrieved from http://www.insidermonkey.com/blog/caterpillar-inc-cat-analysis-short-term-pain-long-term-gain-38376/