Caterpillar Case Summary

Caterpillar was created after the merger of C.L. Best & Holt Caterpillar Worlds largest
manufacturer of heavy equipment Markets include construction, mining, agriculture, forestry,
and many others. CAT was worlds largest manufacture of earth moving equipment (EME)
which developed in the late 1800s with the development of steam powered equipment. Demand
was higher in developed countries. The demand structure changed due to the changing oil
demands within the Middle Eastern countries This lead to an increase with construction activity

Competitors: The major competitor was Komatsu, a leading Japanese competitor, had gained market
share by offering low cost, high quality options in a variety of product lines while Caterpillar was busy
raising prices in their existing product lines. Other competitors include Deere & Co, Joy Mining, CNH
Global, and International Harvester.

Problems
Focus shifted from being market-driven to operations and technology-driven
Not looking at external factors
Arrogance and complacency

Symptoms
Incurred losses of 345 million due to deep recession in most of the world economies.
Was hit by president high tech export control measures against Soviet Union when caterpillar was
on verge of multi million dollar contract.
Due to high labor cost, R&D budget was reduced from $836 million in 1981 to 324 million in 1983.
This led to layoffs and plant closing.


Strengths
Leading positions in all product segments ( Good Product Mix)
High Quality products backed by effective service
Close Knit management group (Inbred)
Low dependence on debt and strong financial position
Strong Dealership Network
Diversified geographical reach
Premium pricing based on good product quality and strong brand image

Weakness
Low presence in farm equipment business
Undertook Applied research and went in for basic research when it could not get desired materials
from suppliers
Higher Direct Costs
Inefficient production systems
Uniform pricing policy throughout the world based on U.S. manufacturing cost in dollars
Falling European Sales

Opportunities
Opportunities in Middle East and Asia pacific
Joint development and acquisition programs
Adaptation to the Japanese system of efficient production systems and reduction of inventory levels

Threats
Economic slowdown in US
Increase in raw material prices like steel.
Currency fluctuations which can hamper profitability from exports