Caterpillar Inc. is a Fortune 100 company and the world's leading manufacturer of construction and mining equipment, diesel and natural gas engines, and industrial gas turbines. It has manufacturing facilities in 49 US locations and 59 other locations in 22 countries. Caterpillar markets its wide range of products including engines, machinery, parts, power systems, and financial services through a global network of dealers. While North America is its largest market, Caterpillar has been expanding geographically in response to construction booms in other regions like Asia. The company focuses on customer satisfaction, competitive distribution, world-class supply chain management, and empowering its employee-driven organization to achieve consistent financial performance and sustain its leadership position in the industry.

1. Project Report: B2B Marketing

2. Table of Contents
Introduction ............................................................................................................................................ 4
History ................................................................................................................................................. 4
Vision, mission and business model ................................................................................................... 4
Products Portfolio ............................................................................................................................... 5
Product and Service Analysis .............................................................................................................. 8
Marketing Activities ............................................................................................................................ 8
Industry Scenario............................................................................................................................ 11
Competetive Scenario .................................................................................................................. 125
Market Performance ..................................................................................................................... 128
Key Success Factor ....................................................................................................................... 213
How to Sustain Leadership............................................................................................................ 23
Reference ......................................................................................................................................... 25
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3. Introduction
Caterpillar, Inc. manufactures and sells construction and mining equipment, diesel and
natural gas engines, and industrial gas turbines worldwide. Its machinery business includes
the design, manufacture, marketing, and sale of construction, mining, and forestry
machinery, such as track and wheel tractors, track and wheel loaders, pipelayers, motor
graders, wheel tractor-scrapers, track and wheel excavators, backhoe loaders, log skidders,
log loaders, off-highway trucks, articulated trucks, paving products, skid steer loaders, and
related parts.
The company also engages in the design, manufacture, remanufacture, maintenance, and
services of rail-related products, as well as offers logistics services. The company's engines
business comprises the design, manufacture, marketing, and sale of engines for its
machinery; electric power generation systems; on-highway vehicles and locomotives; and
marine, petroleum, construction, industrial, agricultural, and other applications, as well as
comprise related parts.
Caterpillar, Inc. also engages in the remanufacture of the company's engines, and various
machine and engine components, as well as provides remanufacturing services for other
companies. Its financial products business includes the provision of various financing
alternatives to customers and dealers for the company's machinery and engines, solar gas
turbines, and other equipment and marine vessels. In addition, the company offers various
forms of insurance products to customers and dealers to support the purchase and lease of
its equipment; and invests in independent power projects using the company's power
generation equipment and services.
Caterpillar, Inc. markets its products through distribution centers. The company was
founded in 1925 under the name Caterpillar Tractor Co. and changed its name to Caterpillar,
Inc. in 1986. Caterpillar, Inc. is headquartered in Peoria, Illinois
A Fortune 100 company, Caterpillar Inc., is the world’s leading manufacturer of construction
and mining equipment, diesel and natural gas engines, and industrial gas turbines. Its
headquarters are in Peoria. Caterpillar products and components are manufactured in 49
U.S. facilities and in 59 other locations in 22 countries around the world.
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4. History
Caterpillar was established in 1925 by Daniel Best and Benjamin Holt. The company began
its international expansion in 1950 with the establishment of Caterpillar Tractor in the UK. In
1953, Caterpillar created a separate division for engine customers.
1963 saw Caterpillar and Mitsubishi Heavy Industries enter the East Asia market by forming
a joint venture in Japan. Caterpillar Mitsubishi started production in 1965. The company
acquired Germany’s MaK Motoren in 1996 and UK-based Perkins Engines the year after.
In February 2003, Caterpillar acquired all outstanding shares in Hindustan Powerplus, a joint
venture in India that manufactured diesel generator sets. In August 2003 Caterpillar and
Eaton formed a joint venture known as Intelligent Switchgear Organization to produce Cat-
branded electrical distribution switching products.
The company announced the formation of Caterpillar Power Generation Systems (CPGS) in
January 2004 in alliance with Solar Turbines. The next month saw a new agreement
between Caterpillar Logistics Services and CNH Global, resulting in the closure of six
Caterpillar Logistics facilities. In February 2004, the company announced the acquisition of
Turbomach, a Swiss packager of industrial gas turbines and related systems.
In March 2004 Capstan acquired Caterpillar’s powdered metal component manufacturing
operation located in Rockwood, Tennessee. Caterpillar announced in April 2004 the
formation of a new Beijing-based leasing entity. The establishment of Caterpillar (China)
Financial Leasing occurred in April 2004. Caterpillar Logistics Services (UK), a wholly owned
subsidiary of Caterpillar, announced in July 2004 that it had acquirde the parts business of
MG Rover, a wholly owned subsidiary of PVH. In August 2004 the company announced the
acquisition of Wealdstone Engineering, a remanufacturer of gasoline and diesel engines. In
the same month the company acquired Williams Technologies, a remanufacturer of
automatic transmissions, torque converters, and engines for automotive and medium and
heavy duty truck applications. The company formed new electric power generation and
specialty products divisions in October 2004. During December 2004, the company
announced the signing of a definitive agreement to acquire a minority ownership in
Shandong SEM Machinery (SEM), one of China’s key wheel loader manufacturers. The
transaction was completed in March 2005
Vision, mission and business model
Mission: As per company’s official website the state mission is “TO BE RECOGNIZED AS
THE LEADER EVERYWHERE WE DO BUSINESS”.
There are few success factors which helped the company to achieve its leadership position,
some of them are discussed below:
Focus on Customer satisfaction: Customer satisfaction has always been the highest priority
for the Caterpillar. They deliver innovative products and highly integrated solutions that
provide the best return on investment to customers.
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5. Competitive Distribution System: CAT’s relationships with each independent dealer works to
enhance the value of their products and services.
World Class Supply-Chain: CAT has the lowest total channel costs and the best asset
utilization in its industry.
Entrepreneurial Business
Model: CAT follows a matrix
business model that is
recognized as the benchmark
for large corporations
because it preserves business
unit autonomy and
entrepreneurial zeal while
leveraging select common
processes, technologies and
core competencies. CAT sees
growth as a necessity - not a
choice - for the future of the
global marketplace.
Employees Driven Organisation: CAT places great emphasis on its employees.
Empowerment is the key – the driver of organisational excellence. Work place safety is the
part of the organisational culture.
Consistent Financial Performance: CAT has been consistent in delivering growth, improved
productivity and innovation through technology and manufacturing. Solid financial
performance has been a key in investors’ trust in CAT management.
Products Portfolio
CAT operates in various industrial sectors and has a wide range of product portfolio and
services. Some of the prominent product and services has been discussed below:
Engines: 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, with ratings available
from 54 to 13,600 hp (40 to 10,000 kW).
Caterpillar engines provide power to trucks, ships and
boats, their own construction and mining machines.
Electrical power systems supply both primary and
standby power for a variety of uses -- like off-shore oil
rigs, huge mines in remote deserts or mountain ranges,
entire communities in areas not close to a utility power
grid, hospitals, schools, factories and airports.
Caterpillar offer over 500 engine specifications to suit
various industries.
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6. Machines: The Caterpillar equipment product line, consisting of more than 300 machines,
sets the standard for the industry - one that is increasingly customer--focused. They provide
the best distribution and product support system in any capital goods industry. Key strength
is the continual introduction and updating of products.
OEM Solutions: CAT is one of the largest suppliers to the Original Equipment Manufacturer
(OEM) looking for superior performance from components and systems in their products.
Caterpillar has the production facilities, technical capabilities, testing and quality processes
to produce components and systems exactly to the specifications of OEM, on-time, and
within budget. CAT engineers work closely with OEMs to reduce development time, tooling
and production costs, while increasing the performance of the end products. The OEM also
benefits from the outstanding parts and service support provided by CAT global dealer
network. The various services and products offered to OEMs are as follows:
• Undercarriage/Track Systems
• Powertrain
• Electronics and Electronic Control Systems
• Hydraulic Systems and Components
• Ground Engaging Tools
• Metal Face Seals
• Oil Coolers / Heat Exchanger
• Metal Plating Services
• Custom Piston Pins
Parts: The Caterpillar parts distribution network features 197
Dealers in more than 200 countries, along with 23 distribution
centres in 11 countries. From engine parts to undercarriage,
drive train to hydraulics…the local CAT Dealer stocks parts for
most Cat equipment in use today. They promise to deliver
most parts within 24 hours.
Power Generation: As a leading power systems supplier, Caterpillar and the worldwide CAT
Dealer Network are committed to supplying the customers with the electric power solutions
they need to operate their business at maximum efficiency. Caterpillar Electric Power
Systems — generator sets, automatic transfer switches (ATS), uninterruptible power supply
(UPS) and switchgears — are all engineered to work together to offer the convenience of a
single-source provider.
Caterpillar generator sets have a powerful reputation in a variety of electric power markets -
and they have it for a reason. Time and time again, CAT clean diesel generator sets, from 7
to 16,200 kW, and gas-powered generator sets, from 9 to 6,000 kW, deliver consistent
performance, durability, reliability and economy, day after day, in some of the world's most
gruelling conditions.
CAT clean diesel engines are designed for thousands of hours of life before overhaul.
Features like high-strength blocks, large bearing areas, steel backed aluminum alloy
bearings and hardened crankshafts are just a few examples of how Cat engines are
designed from the inside out to deliver long life cycles, low owning and operating costs,
outstanding serviceability and total reliability.
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7. Cat gas generator sets incorporate many of the same proven components as their diesel
counterparts. However, Cat gas generator sets are as efficient on fuel as they are on
emissions, with open and pre-chamber designs, fast-burn pistons, low-overlap cams, a
patented Electronic Ignition System and detonation-sensitive timing.
Cat generator sets can be customized with a wide range of
attachments, components and performance options —from
simple electromechanical to advanced digital
microprocessor-based controls, remote communication
capabilities, sound-attenuated and weather-protective
enclosures, fuel tank bases, silencers, batteries, alternators,
governors, air cleaners, starting aids, cooling options and
more.
Caterpillar generator sets, Uninterruptible Power Supplies
(UPS), Automatic Transfer Switches (ATS) and Switchgear
are all engineered to work together to offer the
convenience of a single-source provider.
UPS Protect the critical and sensitive electric loads with a highly efficient Uninterruptible
Power Supply (UPS) with Kinetic Power Cell Technology from Caterpillar. The Cat UPS
system uses Kinetic Power Cell Technology, stored flywheel energy, which is more reliable
and less costly to operate than a conventional battery UPS system. The Cat UPS not only
provides total power conditioning, but also supports critical loads during a transition period
from utility power to standby power generation systems. Available from 100 kVA to 3.6
MVA, trust the Caterpillar UPS system to protect your sensitive and critical loads.
Caterpillar offers a broad range of transfer switch products, with digital micro processor
controls, to suit any application, from the simple single-ATS installation to the highly
complex multi-ATS/generator set Switchgear system. Products include open and closed
transition designs with optional bypass/isolation and delayed features in sizes from 40 to
4,000 amps. Each ATS product is UL, IEC and CSA listed, incorporates a mechanically held
contactor and is available in 2-, 3- and 4-pole versions.
Switchgear: CAT Switchgear provides a seamless integration with Cat generator sets and is
available in standard UL 891 (optional UL 1558) with approved designs to meet any
application. From single-standby to multiple/utility paralleling configurations from 600-volt
class through 15 kV, Cat Switchgear provides a harmonized system solution by integrating
all elements relating to generator set production, control and
monitoring function in a single-source package.
Completing the solution: PointGuard™, a Caterpillar affiliate
company, provides unique 24/7 system monitoring and
management solutions to CAT dealers and their customers.
PointGuard connects customers and dealer to on-site equipment
through a secure network of hardware, communications
technology and software. Through CAT dealer, PointGuard takes
care of the entire electric power system for customer with a wide
range of wire and wireless communication technologies to fit all
situations.
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8. Maintenance & Support: The success of clients business demands solutions that minimize
downtime, reduce costs and keep their equipment running at peak performance.
Whether it's helping the clients select the right equipment for their job or utilizing the latest
technology to monitor their equipment - Cat Dealer helps them in all situations. By offering a
wide range of solutions, services and products, they help clients lower costs, increase
productivity and manage their business more effectively. In addition, the local Cat Dealer's
expert technicians have the experience, knowledge, training and tooling necessary to handle
all of the maintenance and repair needs.
Product and Service Analysis
For the fiscal year ended December 2003, Caterpillar generated revenues of $22,763 million,
an increase of 13% over 2002. The increase in
revenues was primarily due to substantial machinery
and engines sales, a favourable currency impact on
sales and higher financial products revenues. North
America is the company’s largest market, accounting
for 51.7% of revenues in 2003. The company is
divided into three divisions; machinery (60.1% of
revenues in 2003), engines (32.4%), and financial
products (7.5%). Revenues by division
Machinery division reported sales of $13,768 million in
2003, an increase of 14.2% over 2002. The increase
in revenues was primarily due to increase in sales
volumes, a favourable currency impact and improved
price realization. Engines division reported sales of
$7370 million in 2003, an increase of 10.4% over
2002. The increase in revenues was primarily due to increase in sales volumes, a favourable
currency impact and emissions-related price increases. Financial products division reported
sales of $1715 million in 2003, an increase of 14% over 2002. The increase in revenues was
primarily due to a favourable impact from continued growth of earning assets at Cat
Financial and an increase in earned premiums on extended service contracts at Cat
Insurance.
Revenues by geography: North America was the company’s largest market, with 51.7% of
total revenues being generated from there in 2003. During the fiscal year 2003, revenues
from North America reached $11,763, an increase of 11% over 2002. Europe, Africa, the
Middle East and the Commonwealth of Independent States (EAME) accounted for 27.5% of
overall sales in 2003. During the fiscal year 2003, sales in EAME reached $6255 million, an
increase of 15.1% over 2002. Asia/Pacific accounted for 12.9% of overall sales in 2003.
During the fiscal year 2003, sales in Asia/Pacific reached $2930 million, an increase of
18.7% over 2002. Latin America accounted for 8% of overall sales in 2003. During the fiscal
year 2003, sales in Latin America reached $1815 million, an increase of 9.8% over 2002.
Marketing Activities
CAT product falls in the category of industrial product and the marketing of industrial
products are different from the consumer products. CAT has been put emphasis on brand
building and improving corporate image. Most of the advertisement has been targeted to
corporate brand building. Various channel of marketing like participating the trade shows,
organising technical seminars has been widely explored by the company. The demand is
derived in the nature and depends on the macro-economical situation. Since the growth in
the US construction industry declined Caterpillar took a decision to expand geographically.
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9. Construction boom in the Asian countries gave them a good opportunity to expand. CAT has
been a pioneer in exploring the new age of marketing. The use of internet has been a
prominent component in their advertising budget.
CAT
Product Relatively technical in nature, exact form often variable,
accompanying services very important.
Price Competitive bidding for unique items, list prices for standard
items
Promotion Emphasis on personal selling through dealers’ network.
Distribution Relatively short, direct channels to market
Customer relations Relatively enduring and complex
Decision-making process Involvement of diverse group of organization members in
decision
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10. Industry Scenario
As per Industry analysts, world heavy construction equipment demand will grow 5.4 percent
annually through 2009 based on continued expansion of emerging markets such as Eastern
Europe, India and China. North America will remain the largest and fastest growing market
within the Triad (e.g., North America, Japan, and Western Europe).
As per one study the world heavy construction equipment industry is worth $81 billion.
There are 33 major players including Caterpillar, Komatsu, Volvo, Hitachi, CNH, Terex,
Deere, Liebherr-International, Kobe Steel, Ingersoll-Rand, and JCB. A more specific analysis
can be done in the following paragraphs.
General Environment: General environment includes Economic, Socio-cultural, Global,
Technological, Political and Demographic factors. Since, moved to global landscape, they are
encountering different economic forces in different geographic regions. As far as UAE is
concerned, interest rate is comparatively low as compared to other developing countries.
CAT is opening new sales & distribution offices mostly in other GCC countries and Asian
countries; where there is high construction boom or potential boom they are establishing
production units. Technology plays a major role in almost all the product divisions, and
technology is changing rapidly so knowledge becomes quite pivotal. New product
development is quite a slow process and sometimes takes two to four years. However,
change in the production technology itself is challenging and up-gradation to newer
production technology usually provides a competitive advantage.
The kind of products CAT produce can be said very complex technically. However, since all
the products are different and some products really require very complex engineering and
production mechanism.
In short the environment can be classified as less complex, dynamic and rich.
Industry Environment: The customers are mainly contractors, equipment rental companies
and OEMs. Recently due to new entrants in the market,
customers have become more demanding in terms of quick
delivery and good after-sales services. They have more
options now as compared to few years back. Fortunately,
CAT is not facing much pressure from the supplier;
however, during the last year prices of raw material used
in manufacturing has shoot up by more than 25 %.
Each of these forces has been analyzed below using Porter
Model:
 Threat of new entrants: The threat of new entrants
can be said to relatively low, the main reason can be
said to be the high capital requirement. However, big
players can have an economy of scale and small-scale
entrants can have a disadvantage. Due to the nature
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11. of the product, the differentiation can be said to be a good strategy. Customer loyalty
mainly depends on competitive pricing, after-sales technical support and quick delivery.
For new entrant capital requirement is high due to requirement of manufacturing plant
and lot of inventory. Marketing activity is not costing much as compared to the
percentage of sales figure. Switching cost for customer can be said to very high.
 Power of suppliers: Bargaining power of supplier is less. There are a large number of big
and small suppliers in the market. Changing supplier doesn’t have any switching cost.
But recently increasing cost of the raw material is a big threat both for the suppliers and
the CAT.
 Power of buyers: Bargaining power of buyers is relatively high. As the main buyers are
contractor, equipment rental companies and OEMs. Construction industry itself is highly
concentrated. Buyers are large and they purchase a large number of industry output.
But they can’t easily switch to other competitors; CAT has a very good network of
dealers who provide an amazing after sales services and maintenance support.
 Threat of product substitutes: For some product category there can be a threat of
substitute product. But for most of the product there is no such threat of product
substitute.
 Intensity of rivalry among competitors: There is definitely high rivalry among the major
market players. There are few but equally balanced competitors. The opportunity for
differentiation is there and there is enough richness in the market for the survival of all.
SWOT Analysis
Caterpillar is the world’s largest manufacturer of earthmoving machinery and construction
and mining equipment and is a leading supplier of agricultural equipment. It also
manufactures diesel and natural gas engines, industrial gas turbines and logging and oil
industry equipment. It is a global leader in its sector and has a worldwide presence.
However, rising raw material costs can impact its profitability.
The various key issues related to SOWT analysis can be tabulated as follows:
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12. Strengths
⇒ Global market leader
⇒ Caterpillar is the world’s largest manufacturer of earthmoving machinery and
construction and mining equipment and is a leading supplier of agricultural
equipment.
⇒ It has the highest revenue generation ($22,763 million) and market capitalization
(about $26,000 million) in its sector. It is also amongst the top 200 companies
worldwide.
⇒ Improving financial condition
⇒ After falling slightly in 2002, the company’s revenues increased by 13% in 2003,
while its profit increased by 37.7%. Over the five-year period 1999-2003,
Caterpillar’s revenues have increased by $3,061 million at a CAGR of 2.9%, while its
profit has increased by $153 million at a CAGR of 3%.
⇒ Diversified geographical spread
⇒ The company generates revenues from most of the prominent markets in the world,
not relying heavily on a specific economy or geography. In 2003, over 50% of its
revenues were generated from markets outside the US. Diversified operations
provide resilience to the revenue stream and also protect the company against
slowdown in a particular economy. The company maintains a strong presence in
matured markets like Europe and the Middle East, and is rapidly increasing its
presence in emerging markets like China and India.
⇒ Mix of business reduces earnings volatility: As a result of its shift in mix from being
simply a US-based construction equipment supplier to being one of the most
diversified machinery companies, Caterpillar has become much less dependent on
the sale of equipment. Accordingly, its earnings volatility has been lowered.
⇒ Strong dealer network: Caterpillar has just over 200 full-line dealers worldwide
(comprised of fewer than 100 ownership groups), with an aggregate net worth of
$7,100 million; they employ over 90,500 compared with Caterpillar’s 69,169. The
dealer network is Caterpillar’s most significant asset. It is a key competitive
differentiator and allows it to capture over 60% of the market globally.
Weaknesses
⇒ Falling sales in Europe, Africa and the Middle East: The company’s sales volumes
have been decreasing in the EAME region since October 2003. However, due to
positive currency exchange rates the revenues have not been adversely impacted.
The drop in sales has been brought on by sluggish European economic conditions
which have led to a decrease in construction activity.
⇒ The company generates 27.5% of its revenues from this region, and a drop in sales
volumes is a cause of concern.
⇒ High debt structure: The Company’s long-term debts have been rising increasing
sharply in the recent past. From $13,802 million in 1999 it rose to $19,816 million in
2003 at a CAGR of 7.5%. The debt to equity ratio has deteriorated from 2.52 in 1999
to 3.26 in 2003. A further decline in the debt condition would place pressures on the
cash flows of the company.
⇒ Dealers’ low confidence of Caterpillar’s forecasting system: The availability of the
company’s products is a major concern for dealers as there has been a significant
increase in the lead times. As a result dealers neither have confidence in Caterpillar’s
new forecasting system nor in the ability of the factory to quickly gear up. This is
negatively affecting the company’s reputation amongst its dealer network.
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13. Opportunities
⇒ Opportunities in China and India: Developing economies like China and India are
experiencing annual growth of 7-8% per annum. Infrastructure development and
construction activities are rising at a fast rate in these countries. Asia continues to be
a very large growth opportunity for Caterpillar, and it is an area in which it is focused
on increasing its presence.
⇒ Increasing construction activity due to growing population: Private construction
spending accounts for 78% of total construction industry spending. It is estimated
that in 2007 the worldwide construction industry market will be worth $257 billion.
Population rise will significantly impact the construction industry. The company has a
strong presence in the construction equipment market and is well positioned to take
advantage of the opportunity to grow in this segment.
⇒ Joint development and acquisition programs: Caterpillar has entered into joint
development and acquisition programs for components and purchased-finished
material with certain competitors. In August 2003, the company entered into a joint
venture with Eaton Corporation to provide fully integrated electric power distribution
system. In January 2004, the company formed Caterpillar Power Generation Systems
in association with Solar Turbines Incorporated, to market the products of both
brands. These initiatives are aimed primarily at reducing manufacturing costs without
sacrificing competitive differentiation. In July 2004 Cat Logistics acquired the parts
business of U.K. auto manufacturer, MG Rover, a wholly owned subsidiary of PVH. In
August 2004 the company acquired Wealdstone Engineering Ltd., one of Europe’s
leading remanufacturers of gasoline and diesel engines along with Williams
Technologies, a leading remanufacturer of automatic transmissions, torque
converters, and engines for automotive and medium and heavy duty truck
applications.
Threats
⇒ Rise in raw material prices: There has been a continuous rise in the prices for key
raw materials of the company, especially metals, and these prices are expected to
rise further as the global economy improves. The increase in raw material prices will
increase the company’s operating costs, and would limit the magnitude of potential
production increases and therefore incremental earnings power.
⇒ Mining dependent on coal prices and global GDP: Demand for new equipment is
highly cyclical and dependent on mineral prices. The four major minerals produced
using mining equipment are coal, copper, iron, and gold. These four minerals
account for 87% of all mines using heavy mining equipment and for 88% of the
population of large mining machines. Although, the demand for these minerals,
which is largely determined by population growth and growth of GDP, is expected to
be stable or increase in the future, there remains an element of uncertainty.
⇒ UAW contract expiration can lead to production interruption: The six-year deal
between Caterpillar and United Auto Workers (UAW) expired in April 2004. Since
early 2004 the company has been in negotiations regarding workers’ contracts,
healthcare, wages and job security. The last meeting between the two was
unsuccessful and had led to work disruptions, strikes and worker walkouts. If the
present meetings suffer the same fate as the previous then further work disruptions
can occur, which will have a negative effect on production and revenue generation.
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14. Competitive Scenario
The heavy construction equipment industry is worth $81 billion and there are 33 major
players including Caterpillar, Komatsu, Volvo, Hitachi, CNH, Terex, Deere, Liebherr-
International, Kobe Steel, Ingersoll-Rand, and JCB.
A competitive analysis has been done in the preceding section using Porter’s five forces
model. In this section we will be analyzing some of the key competitors by using an Un-
weighted Competitive Strength Assessment and various market parameters like market cap,
P/E ratio etc.
CNH GLOBAL NV: CNH Case New Holland is a leading competitor in the agricultural and
construction equipment businesses. Created in 1999 through the merger of New Holland
N.V. and Case Corporation, CNH is a global company, supported by 39 manufacturing
facilities in Europe, North America, Latin America, China, India and Uzbekistan; 28,100
employees and more than 11,000 dealers in 160 countries.
Their customers base are growing, and they are investing to help them grow, leveraging
international resources to provide constant quality and reliability improvements with dealer
and customer support that is always one step ahead. CNH is a majority-owned subsidiary of
Fiat S.p.A., the parent company of the Fiat Group, a public company whose capital stock is
listed on the Milan Stock Exchange (FIA.MI). The Fiat Group is a leading Italian corporation
focused on the automotive sector since its foundation over 100 years ago. In addition to the
CNH brands, it manufactures the renowned Fiat, Alfa Romeo, Ferrari, Lancia, and Maserati
cars, and Iveco trucks and commercial vehicles.
Volvo: Volvo provides transportation related products and services with focus on quality,
safety and environmental care. Founded more than 80 years ago, a solid position and
reputation worldwide has been built up over the decades. The brand is shared between
Volvo Group and Volvo Cars.
Komatsu Ltd: Manufactures and sales construction and mining equipment, utilities and
industrial machinery. Komatsu began exporting its products in the 1960s, looking to
counteract the post-war image of Japanese products as being cheap and poorly made, and
entered the U.S. market in July 1967, taking on Caterpillar, the world's largest bulldozer
maker, in its home market, under the leadership of President Yashinari Kawai. Komatsu did
so under the rallying cry "Maru-C", translating into English as "encircle Caterpillar" (in the
context of Go (board game) encircling an opponent results in capture of their territory).
Komatsu and Dresser Industries established Komatsu Dresser to make mining tractors and
related equipment. This 50–50 ownership lasted from September 1988 to August 1994,
when Komatsu bought out Dresser's share, and Komatsu's mining products were
consolidated under the name Komatsu Mining Systems in 1997. To prevent brand name
confusion during corporate changes, the name "Haulpak" is used for the product line
Komatsu began with Dresser.
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15. Deere & Co.: Deere & Company engages in the manufacture and distribution of products
and services for agriculture and forestry worldwide. It operates in four segments:
Agricultural Equipment, Commercial and Consumer Equipment, Construction and Forestry,
and Credit. The Commercial and Consumer Equipment segment provides equipment,
products, and service parts for commercial and residential uses, such as tractors for lawn,
garden, commercial, and utility purposes; mowing equipment, including walk-behind
mowers; golf course equipment; utility vehicles; landscape and nursery products; irrigation
equipment; and other outdoor power products. The Construction and Forestry segment
offers a range of machines and service parts used in construction, earthmoving, material
handling, and timber harvesting, including backhoe loaders; crawler dozers and loaders;
four-wheel-drive loaders; excavators; motor graders; articulated dump trucks; landscape
loaders; skid-steer loaders; and log skidders, feller bunchers, log loaders, log forwarders, log
harvesters, and related attachments. Its products and services are marketed primarily
through independent retail dealer networks and retail outlets. The Credit segment primarily
finances sales and leases by dealers of new and used agricultural, commercial and
consumer, and construction and forestry equipment. It also provides wholesale financing to
dealers of the foregoing equipment, provides operating loans, finances retail revolving
charge accounts, offers certain crop risk mitigation products, and invests in wind energy
generation. The company was founded in 1837 and is based in Moline, Illinois.
Hitachi Ltd.: Hitachi, Ltd. together with its subsidiaries provides various systems, products,
and services for information and telecommunication systems, electronic devices, power and
industrial systems, digital media and consumer products, materials and components,
logistics, and financial services sectors worldwide. Its Power and Industrial Systems segment
provides nuclear, thermal, and hydroelectric power plants; industrial machinery and plants;
automotive products; construction machinery; and elevators, escalators, and railway
vehicles. Hitachi offers its products to industrial companies, financial institutions, utilities,
governments, and individual customers in Japan, Asia, North America, and Europe. The
company was founded in 1910 and is headquartered in Tokyo, Japan
Terex Corp: Terex Corporation manufactures capital equipment for construction,
infrastructure, quarrying, mining, shipping, transportation, refining, and utility industries
worldwide. Its Terex Aerial Work Platforms segment offers aerial work platform equipment,
telehandlers, light construction equipment, and construction trailers. The company's Terex
Construction segment designs and manufactures off-highway trucks, scrapers, hydraulic
excavators, wheel loaders, material handlers, and truck-mounted articulated hydraulic
cranes; and loader backhoes, compaction equipment, mini and midi excavators, site
dumpers, skid steer loaders, and wheel loaders. Its Terex Cranes segment provides mobile
telescopic cranes, tower cranes, lattice boom crawler cranes, truck mounted cranes, and
telescopic container stackers. Terex Corporation sells its products through dealers and
distributors, as well as leases and rents equipment to third parties. It has joint venture with
Terex Financial Services Holding B.V. that provides financing for the products. The company,
formerly known as Terex U.S.A., Inc., was founded n 1925 and is based in Westport,
Connecticut.
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16. An un-weighted competitive strength assessment can be done as follows, the key strength
factors has been chosen from a industry survey conducted by www.datamonitor.com
An Un-weighted Competitive Strength Assessment
CNH
Komatsu Hitachi Terex
KSF/Strength Measure CAT GLOBAL Volvo Deere & Co.
Ltd. Ltd. Corp.
NV
Quality/product performance 8 8 7 7 9 6 8
Reputation/image 8 8 7 8 8 7 7
Manufacturing capability 9 9 8 8 8 7 8
Technological skills 8 9 7 8 8 7 7
Dealer network/distribution 6 7 6 7 8 5 4
New product innovation 7 8 6 7 9 7 6
Financial resources 8 9 8 8 9 6 7
Relative cost position 9 8 7 7 8 7 6
Customer service capability 9 8 7 7 8 6 6
Overall strength rating 72 74 63 67 75 58 59
Rating Scale: 1 = Very weak; 10 = Very strong
If we see the market performance of various competitors on stock price, market cap and p/e
ratio, Caterpillar has the highest market cap.
TOP CONSTRUCTION MACHINERY COMPANIES BY MARKET CAP
Company Symbol Price Market Cap P/E
Caterpillar Inc. CAT 79.08 48.62B 14.15
Deere & Co. DE 76.37 32.91B 16.30
Hitachi Ltd. HIT 71.12 23.64B N/A
CNH Global NV CNH 40.40 9.59B 16.65
Joy Global, Inc. JOYG 81.09 8.78B 31.08
Terex Corp. TEX 61.48 6.20B 9.68
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17. Market Performance
Financial
The key financials has been tabulated below for the quarter ended March 31, 2008:
Fiscal Year
Fiscal Year Ends: 31-Dec
Most Recent Quarter (mrq): 31-Mar-08
Profitability
Profit Margin (ttm): 7.80%
Operating Margin (ttm): 10.86%
Management Effectiveness
Return on Assets (ttm): 5.74%
Return on Equity (ttm): 43.65%
Income Statement
Revenue (ttm): 46.74B
Revenue Per Share (ttm): 73.999
Qtrly Revenue Growth (yoy): 17.80%
Gross Profit (ttm): 12.33B
EBITDA (ttm): 6.93B
Net Income Avl to Common (ttm): 3.65B
Diluted EPS (ttm): 5.59
Qtrly Earnings Growth (yoy): 13.00%
Balance Sheet
Total Cash (mrq): 464.00M
Total Cash Per Share (mrq): 0.755
Total Debt (mrq): 29.81B
Total Debt/Equity (mrq): 3.233
Current Ratio (mrq): 1.107
Book Value Per Share (mrq): 14.994
Cash Flow Statement
Operating Cash Flow (ttm): 7.29B
Levered Free Cash Flow (ttm): 3.80B
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18. If we compare CAT with leading competitor CNH along with industry average CAT definetly
emerges as the market leader.
CAT CNH Industry
Market Cap: 48.86B 9.85B 1.24B
Employees: 102,623 28,100 6.05K
Qtrly Rev Growth (yoy): 17.80% 25.70% 16.50%
Revenue (ttm): 46.74B 16.86B 1.94B
Gross Margin (ttm): 24.59% 23.39% 24.18%
EBITDA (ttm): 6.93B 2.32B 163.80M
Oper Margins (ttm): 10.86% 12.02% 10.43%
Net Income (ttm): 3.65B 576.00M 60.15M
EPS (ttm): 5.588 2.427 2.43
P/E (ttm): 14.22 17.10 16.66
PEG (5 yr expected): 1.16 1.47 1.25
P/S (ttm): 1.05 0.58 0.82
Some of the key ratios of the company (CAT) has been tabulated below, the debt/equity
ratio of the 3.23 is very high. Such a high d/e is putting undue pressure on the company’s
financials.
Debt/Equity Ratio 3.23
Gross Margin 24.59%
Net Profit Margin 7.66%
Total Shares Outstanding 615.1 Mil
Market Capitalization 48.89 Bil
Earnings/Share 5.59
Financial Condition CAT Industry S&P 500
Debt/Equity Ratio 3.23 1.84 2.04
Current Ratio 1.1 1.1 1.2
Quick Ratio 0.8 0.7 0.9
Interest Coverage 17.9 19.6 41.9
Leverage Ratio 6.3 4.5 5.8
Book Value/Share 14.99 25.39 20.66
If compare CAT with the industry average and S&P 500 averages on various growth
parameter, CAT lags industry on the sales growth rate but the net income growth rate is far
ahead the industry average.
Growth Rates % CAT Industry S&P 500
Sales (Qtr vs year ago qtr) 17.80 23.10 13.80
Net Income (YTD vs YTD) 13.00 30.50 17.30
Net Income (Qtr vs year ago qtr) 13.00 -5.80 6.80
Sales (5-Year Annual Avg.) 17.41 15.30 13.72
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19. Investment Returns % CAT Industry S&P 500
Return On Equity 43.7 26.5 24.6
Return On Assets 6.5 6.7 8.2
Return On Capital 10.8 10.7 11.0
Return On Equity (5-Year Avg.) 36.3 21.3 20.4
Return On Assets (5-Year Avg.) 5.7 5.1 7.4
Return On Capital (5-Year Avg.) 9.2 8.3 9.7
if we look at some of the key management efficiency CAT emerges as industry out-
performer.
Management Efficiency CAT Industry S&P 500
Income/Employee 35,349 23,387 114,579
Revenue/Employee 461,232 325,165 1 Mil
Receivable Turnover 3.0 4.0 13.5
Inventory Turnover 4.6 4.6 10.0
Asset Turnover 0.8 1.0 0.9
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20. Key success factor - Strategy
For more than 80 years, Caterpillar Inc. has been building the world's infrastructure and, in
partnership with its worldwide dealer network, is driving positive and sustainable change on
every continent. Caterpillar is a technology leader and the world's leading manufacturer of
construction and mining equipment, diesel and natural gas engines and industrial gas
turbines.
Some of key success factors has been already discussed in the preceding sections, more
light has been thrown on KSF as below:
6 Sigma: The long-term payoff of 6 Sigma has seen as CAT develops future leaders who are
prepared to address the increasingly complex issues that face they as an industry leader.
More than 30,000 employees are involved in 6 Sigma and are helping to shape the
Caterpillar of tomorrow.
Caterpillar Dealer Network: Caterpillar's global dealer network provides a key competitive
edge - customers deal with people they know and trust. Almost all dealerships are
independent and locally owned. Many have relationships with their customers that span at
least two generations. Cat dealers serve equipment, service and financing needs for
customers in more than 200 countries. Rental services are offered through more than 1,500
outlets worldwide.
Corporate Governance: Caterpillar's reputation for integrity is a fundamental part of its
heritage and one of its most valuable assets.
Financial Strength: Caterpillar is financially strong - able to fund product programs for future
customer needs, provide financing for dealers and customers, and reward its shareholders.
They continue to generate significant net free cash flow enabling investments in strategic
growth opportunities.
Social Responsibility: Caterpillar's reputation for making a difference in the world is
something they are proud of as a company. In response to the Asian Tsunami disaster,
Caterpillar and its dealers provided machines, money and resources for relief and recovery
efforts. And Cat has once again been named to the Dow Jones Sustainability World Index.
Stockholder Value: Caterpillar is committed to generating attractive returns for its
stockholders. Strategic growth initiatives involving its machine, engine and service
businesses are expected to drive attractive stockholder returns for years to come. The
following values are held high in CAT organisational culture.
• Customer Satisfaction
• Employee Satisfaction
• Growth
• Leadership
• Reliable Returns
• World Class Core Processes
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21. The world’s leading manufacturer of heavy
equipment for construction and mining,
Caterpillar’s continued global growth is guided
by a long-term strategic vision called Enterprise
Strategy—Vision 2020. Executing this vision
and its associated strategic priorities requires
Caterpillar to have effective leaders.
Recognizing this, Caterpillar, through its
Caterpillar University, seeks to address the
development needs of its various leader levels.
Caterpillar had long provided training to its
supervisors, but now wanted to place a greater
emphasis on developing the leadership skills its
supervisors must have in order to succeed.
Caterpillar’s senior management recognized the
need to bridge the gap between the current
leadership capability of Caterpillar’s leaders and
the leadership capability the organization
required to execute against its strategic vision.
An internal needs analysis study by Caterpillar
University confirmed that addressing this gap
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22. How to sustain leadership
To sustain it leadership position in a very dynamic environment, CAT has to continuously
focus on innovation and growth. In the coming years it is expected to see more
consolidation happing across the world. Organic growth itself will not suffice CAT to retain
the leadership position. Top management has also realised this fact and always looking
opportunities for growth through M&A.
On June 16, 2008 Caterpillar Inc. and Gremada announced that Caterpillar will acquire
certain assets of Gremada Industries. Further Caterpillar Inc. Announced a $1 Billion Multi-
Year Capacity Expansion Plan For Illinois Operations.
In June itself Caterpillar Inc. and Navistar International Corporation decided to Pursue
Strategic Alliance and signed memorandum of understanding (MOU) to pursue global on-
highway truck business opportunities and cooperate on a variety of engine platforms
In April same year Caterpillar Inc. Announced Acquisition Of Loved Inc. Caterpillar Inc. and
Lovat Inc. announced that the Company has acquired Lovat, a global manufacturer of tunnel
boring machines used in the construction of metro, railway, road, sewer, water main,
penstock, mine access, high voltage cable and telecommunications tunnels.
Focus: The traditional Caterpillar yellow, captions like "The World: In Progress" and text
shaped in the image of Caterpillar projects and products tie the company's heritage,
progressive goals and past constructions together. The new campaign joins ongoing product
and service ads with a common look and feel: a can-do attitude, real-life narratives and a
serious tone. The reputation campaign focuses on "the need to define for the world what
Caterpillar does," says Tim Elder, director of corporate affairs.
To lead and sustain its market position CAT also has to explore new channels of marketing
and sales. CAT launched i2 Intelligent Selling Solution (www.i2.com)
As per changing industry scenario, CAT want to be a leader in e-business in its industry, and
they want to provide the ultimate value to the customers, to its dealers, and to its
shareholders. The i2 solutions are an element of Caterpillar’s strategy that is going to help it
provide that value.
Caterpillar Inc., sought to better determine customer demand by
leveraging the Internet. Using the i2 Intelligent Selling Solution™ (ISS),
Caterpillar created an online dealer storefront that is accessible to both
dealers and end customers, and the company has expanded its sales
coverage, reduced the cost of sale, and increased productivity.
Caterpillar’s Building Constructions Product Division needed to predict and
rapidly respond to customer demand. The company wanted to empower its dealer network
to provide the highest levels of service to the end customer. Company executives knew that
the Internet was critical to their strategy. Caterpillar wanted to leverage the Internet to
provide more visibility into customer buying habits. In doing so, it could save millions of
dollars in inventory by building and configuring those products that customers demand,
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23. rather than stocking excess inventory. The company wanted to promote specific product
lines and associated work tools using a combination of traditional (dealer) and non-
traditional (Internet) channels through Caterpillar’s Dealer Storefront (DSF). The site is
accessible to dealers as well as end customers.
Caterpillar also wanted to transform from a build-to-stock manufacturer to an order-to-
delivery manufacturer.
Caterpillar’s dealers can now log on to their personalized DSF, configure and price a skid
steer loader with matching work tools, and send a request for quotes, all with the click of a
button. A detailed buying adviser and quick selector guide customers through the
configuration and pricing process.
i2 ISS represents a monumental step toward the online order-to-delivery vision. In the near
future, Caterpillar will offer real-time order promising for true integration to factory
operations, enabling the company to reduce inventory by only building products ordered by
customers.
CAT management point outs some KSF to retain its leadership position:
• Establish strength with products and services.
• Technology leadership in its industry.
• Well-established global footprint
• Unique set of market strengths
• Governance and financial integrity
• More passion for people and process
More Opportunities and Challenges Ahead
With these building blocks for success in place, and with its $48 billion sales and revenues
goal accomplished, later this year they have roll out new vision and mission statements for
the next decade, along with a set of critical success factors to drive their realization. CAT
focus will be on profit per share growth, which enables them to invest in research and
development for leading-edge products, make capital improvements for modern and
productive operations, offer competitive compensation and grow dividends for its
stockholders - everything that makes Caterpillar a great employer, business partner and
investment.
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24. References
1. Caterpillar’s website, http://www.cat.com/cda/layout?m=8703&x=7
2. http://finance.yahoo.com/q/ks?s=CAT
3. http://moneycentral.msn.com/investor/invsub/results/hilite.asp?Symbol=CAT
4. http://www.allbusiness.com/marketing-advertising/4290447-1.html
5. www.i2.com
6. Engineering Productivity Tools on the Web,” Supplement to Design News, April 2001.
7. Internet Usage for Design Prevalent Among Hardware Engineers,” Gartner
Dataquest, May 2002.
8. www.datamonitor.com
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