State the problem that Caterpillar faces in Peru (2 marks)

1. The problems caterpillars are facing in Peru are that the company in Peru had difficulty in
foreign exchange which in turn had a hard time with ‘hard’ currency. As a result, the
company in Peru suggested that they would pay them in iron ores from its mines. This is
a problem because Caterpillar is not a mining company and they questioned if they
should deviate or stay the same. Additionally, payment would be needed before the ore
could be extracted, therefore leading to a time limit seeing whether or not in that amount
of time needed to extract the ore it, the prices would decrease.

Identify the options available to Juan. Be sure to identify more than one (3 marks).

2. A few solutions Juan could use are first, continue with their normal business activities
since Caterpillar is not a mining company. This would allow the company to slowly adapt
to the market in Peru and make their profit. Another solution could be venturing out to
the mining business and take the proposal Peru sent. Although there is a risk in deviating
into mining for the hope that after the iron ores have been found that the value has not
decreased. However, this option would allow Caterpillar to enter into the developing
countries as they wanted to. The last option for Juan could be weighing out other South
American countries to see what their proposals are and to see if it matches with the
Caterpillar’s business activities more than Peru.

Based on the options identified above recommend a course of action for the company. Be sure to
provide a rationale and make a decision (5 marks).

3. Based on the options above, I think the company should take option three which is to
explore different South American countries and see what they have to provide. The
reason the option was picked is that Caterpillar saw potential in developing countries and
wanted to enter markets in South America, in hopes of decreasing the net loss. Although
working in Peru with their proposal could benefit Caterpillar only if the iron ores could
keep their value over a month’s time. I feel that this option is too risky and could further
increase the net loss. However, with option three, having more countries propose ideas
with less risk and similar business activities could be more fitting for Caterpillar because
entering a new market is already a big risk with new laws and regulations and cultures.
As a result, having similar business practices could be less risky as the company
understands the logic of a construction company compared to changing into a mining
company.