Caterpillar Inc. is an American company that is engaged in the design, development, manufacture, marketing, and sales of machinery, engines, and insurance to customers. It was founded by C.L.Best in April 1925 and is currently headquartered in Deerfield, Illinois. It has become the world’s largest manufacturer of construction equipment. It is also involved in the marketing and licensing of a line of clothing and shoes under its name. Let us discuss Caterpillar’s competitive advantages and disadvantages
Caterpillar’s competitive advantages include its strong dealer distribution network; its significant investment in research and development which resulted in its high potential in digitization and automation; its massive scale and volume which is denoted by its presence in many countries in the world; and its reputation for high quality and safety. Its disadvantages include its debt obligations, its high dependence on heavy equipment and low diversification, and its decreasing revenue and eventually, decreasing profits. Read on to find a detailed analysis of the same.
Competitive Advantages of Caterpillar Inc.
- Reputation for high quality and safety standards: Caterpillar is well known for its high-quality products all over the world. The safety standards it follows in its work sites as well as the inclusion of various safety features in its products have helped Caterpillar build a strong brand image in this direction.
- Massive scale and volume: Caterpillar is a huge company, employing a huge number of people in various countries across the world. It also holds large-scale assets of high value which can be used to improve business growth in the future.
- Investment in research and development: Caterpillar invests in research and development quite as much as many others in this category and this would help the company further its potential in the fields of industrial automation and digitization which are very likely to make a significant impact on the growth of businesses in almost every field, due to the recent developments as part of Industry 4.0.
- Strong dealer distribution network: Owing to its years of presence in the construction and mining equipment business, it has managed to build a strong distribution network of dealers in over 180 countries across the world. This would help the company increase its revenue due to rising urbanization (especially in Asia), which requires the use of heavy machinery that Caterpillar designs and manufactures.
Competitive disadvantages of Caterpillar Inc.
- High dependence on heavy machinery: Most of Caterpillar’s revenue comes from its construction and mining machinery sales, which are mostly business-to-business (B2B) deals and not business-to-consumer (B2C) ones. This makes it difficult for the company to get new prospects in the form of customers and it largely depends on its old clients who have been placing orders with Caterpillar for decades. And, the loss of a few such customers greatly impacts the total revenue collected by the company.
- Low diversification of its products: In addition to the points covered in the previous paragraph, the verticals in which Caterpillar sells products are very few, which include bulldozers, excavators, engines, and other agriculture and forestry-related equipment. There are many other players in the market, such as Komatsu, John Deere, etc., that supply these products along with many others.
- Debt obligations: In general, for any organization or corporation, decreasing revenue, which causes a decrease in profits, leads to mounting debts. Many a time, this works against the company and sometimes may lead to drastic consequences if the strategy is not changed accordingly. This is one of the limitations that Caterpillar also faces due to ambiguity arising from trade war escalations, economic crises, etc.
- Inventory turnover issues: The reduction in the number of takers of Caterpillar’s equipment leads to the stocking up of inventory, which results in the escalation of storage costs. Not only does the revenue decrease, but also the expenditure increases in such cases. This is another problem that affects most manufacturers of heavy equipment and Caterpillar is no exception.
Caterpillar is one of the world’s major suppliers of construction and mining equipment, and agriculture and forestry-related heavy machinery, but the competition has grown much in these sectors by this century. Although Caterpillar has been one of the oldest such companies and commands much respect and trust among its customers, it is high time that it starts looking for other product domains and tries to develop novel products.
Frequently Asked Questions
- In what sectors of the heavy machinery industry does Caterpillar operate?
Caterpillar is involved in the manufacture of construction and mining machinery, agriculture and forestry-related heavy equipment, diesel and natural gas engines, defense equipment, industrial turbines, etc.
- Who are Caterpillar’s competitors?
Caterpillar’s competitors include Komatsu, Xuzhou Construction Machinery Group (XCNG), Volvo Construction Equipment, and SANY in the construction and industrial equipment sector, and John Deere, mostly in the agriculture and forestry-related machinery sector. There are other competitors like JCB, Hitachi Construction Machinery, Terex Corporation, Liebherr Group, etc.