Caterpillar Inc. [NYSE: CAT] is a global leader in the design, manufacture, and commercialization of construction and mining equipment, diesel and natural gas engines, industrial gas turbines, and diesel-electric locomotives.
The Company also offers financial services through The CAT Financial Brand. With an extensive product range that caters to a large customer base, it has a broad clientele served by about 99,100 employees spread across the world.
Caterpillar offers a wide range of equipment, with approximately 20 products in its portfolio that helped the firm achieve worldwide stature, including position #78 on the fortune 500 list in 2020.
The firm is publicly listed and has its headquarters in Peoria, Illinois. Its total revenue was $41.7 billion in 2020, with an operating profit margin of 10.9 percent.
Despite the downturns caused by the Covid-19 pandemic in 2020, the firm still maintained its leadership position in the global construction equipment manufacturers segment with a market share of 13 percent, followed closely by Komatsu (Japan) with 10.4 percent.
This reflects the quality of the products manufactured by Caterpillar and the all-inclusive services offered by the firm.
Caterpillar’s Business Strategy
Since its involvement in the First World War, Caterpillar has been at the forefront of developing new technology that improves productivity and efficiency in several areas. Its focus on solutions that enhance customers’ productivity and its unprecedented commitment to creating strong global brands result in exceptional growth and profitability.
Beyond its constant focus on improving products and services, Caterpillar invests in research and development (R&D) to ensure that it offers quality solutions. This is apparent in the firm’s foray into electric-drive systems and battery-powered mining trucks to support their customers’ goals towards green energy.
By investing in areas that create value through the Operating and Execution model, Caterpillar has remained committed to its enterprise value competency. This entails identifying segments that have the potential for growth and implement strategies that will enhance profitability.
Caterpillar boasts extensive partnerships with global leaders in all its major businesses, with strategic deals that offer growth opportunities.
To them, it’s a competitive advantage that aids in differentiating their products and services from the competition. This enhances its ability to deliver quality, reliable solutions that address various challenges facing the entire industry.
Strategic acquisitions and association deals are also significant catalysts in Caterpillar’s growth, especially those opening up new markets and offering distributed and diversified manufacturing opportunities and solutions.
An example is the acquisition of CarbonPoint Solutions, a carbon capture technology company that will help Caterpillar further its efforts in reducing carbon emissions.
Caterpillar SWOT Analysis
- Extensive product portfolio: Caterpillar is a company that provides solutions for various industries, from construction to mining. Its portfolio entails more than 20 products that cater to a vast market, including heavy equipment and engines. The Company also extends its services by providing financial solutions to customers, offering competitive warranties and flexible financing options to boost customer productivity.
- Strong brand image: Caterpillar is a brand name that resonates with most people, especially in the construction industry. The Company established this positive image through authenticity and continuous innovation. Companies all over the world use Caterpillar products, thus boosting the firm’s international recognition. This fosters a sense of trust and respect from consumers, making the brand a leader in its industry.
- Superior R&D capabilities: Caterpillar possesses the resources, knowledge, and technologies to create market-leading products. It commits to partnering with leading global companies, institutions, and governments to develop products that address the most pressing industry issues. The result is innovative solutions that meet customer needs and expectations, including improving environmental sustainability.
- Strong dealer network: Caterpillar has a vast dealer network that supports its business by engaging with customers, building solutions, and resolving issues. The Company boasts 178 dealers distributed worldwide, which increases its reach and enhances its brand visibility. Caterpillar’s global presence and its capabilities to provide reliable and high-quality products foster customer loyalty.
- Weakening Financials: Caterpillar is experiencing a decline in its revenue and profits per share despite being a leader in the industry. From its 2020 annual report, the Company recorded a sales revenue decline of 22 percent due to reduced sales volume primarily driven by low demand. However, this could be because of the Covid-19 pandemic that disrupted the entire world economy. Its profits per share over the same period decreased from $10.75 in 2019 to $5.46 in 2020.
- Dependence on the North American market: With worldwide brand recognition, Caterpillar still depends on the North American market for a significant amount of its sales revenue. If the 2020 annual reports are anything to go by, more than 40 percent of Caterpillar’s revenue comes from the US and Canada. The Company can benefit from expanding its market presence in emerging markets like Africa and India to mitigate the effects of any economic turbulence.
- Emerging markets: Caterpillar’s future lies in emerging markets, especially Africa and Asia. The vast majority of the population resides in these regions, which possess abundant natural resources, including oil and metals. As a result, demand for mining equipment is expected to increase significantly. Serving this market with products that cater to its needs can give Caterpillar a much larger share in this industry.
- Rising environmental awareness: The Company’s service strategy is to improve customer efficiency, competitiveness, and productivity. Caterpillar can tap into its existing capabilities to address the threats posed by climate change which are driving today’s consumers to take measures that reduce their carbon footprint. For example, the demand for electric and hybrid vehicles has increased significantly because of campaigns to reduce carbon emissions. Caterpillar can use its strengths in technology to develop products that address this demand.
- Competition: Caterpillar faces intense competition from companies capable of providing customers with similar products. For example, it competes against Komatsu, a well-known Japanese company, for its leading mining equipment. Other competitors include Hitachi Zosen Corporation, XCMG, and SANY.
- Economic downturns: The recent Pandemic crisis caused severe damage to the world economy, which could indicate another economic downturn. Catalysts for this are oil prices, unreliable currencies, and political instability in many parts of the world. If another financial crisis strikes, Caterpillar has to ensure that it has a continuation plan in place to save itself from any dire consequences.
Caterpillar Competitor Analysis
Caterpillar competes in Construction industries where the Company provides earthmoving and material-handling equipment, the Resource Industries where it offers track-type tractors and utility vehicles, and Energy and Transportation where the Company manufactures diesel and natural gas engines.
This section looks at Caterpillar’s competitors in terms of their market share in respective segments, their financials, market value equity, and the competitive landscape between them.
Komatsu Limited (JAPAN)
Komatsu Ltd (TYO: 6301) is a Japanese company that manufactures construction, mining, and on-highway engines. It also manufactures military and diesel engines alongside industrial machinery. The Company is listed on the Tokyo Stock Exchange, where it has a market value equity of $23.744 billion as of September 22, 2021, and boasts 62,823 employees.
Komatsu competes with Caterpillar in the construction equipment industry, controlling 10.4 percent of the global market share. This includes excavators, motor graders, backhoe loaders, and compactors.
It also holds a significant stake in the mining industry, where it manufactures dump trucks, hydraulic shovels, and scrapers. The Company’s revenues for the 2020 fiscal year were valued at $22.493 billion, representing an 8.29 percent decline from the previous year.
Komatsu’s business plan is to form strong connections with clients by matching them with the best construction equipment. This is a win-win strategy that promises growth and financial success for both customers and Komatsu. While Caterpillar reigns supreme worldwide, Komatsu leads in several Asian nations such as China and Japan.
Caterpillar’s competitive advantage over Komatsu is its more significant global market share, higher revenue, and broader portfolio of products. However, Komatsu is keen on providing tailor-made financial solutions to its customers and linking its workplaces through IoT to improve its efficiency.
XCMG is a Chinese state-owned company. It operates as both a heavy machinery manufacturer and service provider. The Company is listed on the Shanghai Stock Exchange and has a market value equity of 53.034 billion Chinese Yen ($8.204 billion) as of September 22, 2021.
Since its founding in 1943, the Company continued to grow and expand, operating as a multinational corporation with offices and dealerships in more than 180 countries, including America, Africa, and Europe. XCMG’s business is focused on construction machineries such as excavators, heavy trucks, Concrete machinery, and hydraulic cranes.
Its extensive product line and world-class products ensure that the Company stays at the forefront of its industry. XCMG is also China’s largest construction machinery exporter, with over $1.4 billion in annual exports for its earthmoving machinery sectors.
In 2020 it ranked as the third-largest Company globally in the construction equipment machinery industry with a market share of 7.9 percent.
The Chinese government is investing trillions in the construction sector, increasing the demand for construction machinery. Since XCMG has the government’s backing, it has a competitive advantage over its rivals in terms of funding and resources. Caterpillar’s strengths include a more substantial market share in America, Europe, and Africa than XCMG.
John Deere (USA)
John Deere (NYSE: DE), headquartered in Moline, Illinois, is an American Company that designs, manufactures, and distributes agricultural equipment, construction machinery, and forestry equipment. The Company holds a top rank in the agricultural machinery sector with a 17 percent market share in the global agricultural tractor market.
The Company rebranded to Deere and Company but still maintains its original name, John Deere. Through its three divisions, John Deere serves customers in over 200 countries. In 2020 it recorded a net income of $2.751 billion and total revenue of $35.54 billion with employment figures of 69,634 people.
John Deere and Caterpillar are direct competitors in the heavy equipment sector. John Deere’s product line includes various tractors and other agricultural equipment and forestry and landscape products.
It also provides multiple construction machinery such as excavators, skid loaders, trucks, and motor graders. However, it primarily focuses on the agricultural market, unlike Caterpillar.
Caterpillar’s extensive product line allows it to compete in more market segments. Moreover, Caterpillar is currently the world leader in construction equipment manufacturing, while Deere’s primary revenue sources are forestry and agricultural machinery.
Volvo CE (Sweden)
Volvo CE, headquartered in Gothenburg, Sweden, is one of the world’s largest heavy equipment and trucks manufacturers. Founded in 1832, Volvo CE has grown to become one of the world’s leading companies in modern technology, environmental care, and backward integration.
Volvo CE is a subsidiary of the larger Volvo Group, which trades on the Stockholm stock exchange in Sweden under the Ticker code [VOLV].
Today the Company operates as a world-class manufacturer and supplier of complete lifecycle solutions for customers in the construction equipment sector.
It has about 14,000 employees distributed across over 200 offices and dealerships in over globally. Despite the global pandemic, its sales increased by 6 percent in the fourth quarter of 2020 compared to the same quarter in 2019.
Volvo CE has a strong competitive advantage because of its wide range of products, high reinvestment rates, and a solid customer base in Europe, America, and Africa. Caterpillar’s strength lies in its larger sales revenue and strong brand recognition.
SANY, headquartered in Shanghai, China, is one of the world’s largest heavy machinery manufacturers. Founded in 1989, it has a long history of quality and innovative designs. The Company boasts a workforce of over 70,000 people and annual revenue of $15.1 billion in 2020.
Through its extensive focus on R&D, SANY has developed into a global player in the construction equipment sector. Its products are popular among private and public customers, especially in Asia, where most machines are manufactured.
Caterpillar and SANY compete in the construction machinery sector, where they fight for market share. SANY holds a market-leading position in Asia, but Caterpillar’s large customer base worldwide gives it an advantage. SANY controls 7.5 percent of the global construction machinery market, while Caterpillar controls 13 percent.
In a world where countries desire greater independence from foreign capital, SANY addresses this by using its lower cost of production to provide the same quality as Caterpillar for a much lower price. Its continued penetration into emerging markets such as Africa represents a company focused on future growth.
How Caterpillar Stands Out Against Its Competitors
Caterpillar’s core strategy is to provide customer value through a complete equipment portfolio and a global support system. Its goal is to offer each customer the best choice, always striving to exceed customers’ expectations by meeting their needs.
The Company sells worldwide. However, a considerable chunk of its revenue stems from North America. This shows it has a strong foothold in its home market and can expand globally.
CAT provides equipment financing in addition to equipment sales. This allows customers with limited capital resources to purchase higher-tier products. Caterpillar understands that developing countries need financing options for their construction needs.
For the construction industry, safety is of utmost importance. Caterpillar has put many safety features into its design. Because of this, CAT is one of the most trusted companies related to construction safety equipment. The Company also manufactures high-quality protective gear such as footwear, helmets, gloves, and facemasks.
Caterpillar’s augmentation in the renewable energy sector reflects its commitment to future markets with growing demand for clean power. By positioning itself as a leader in green machinery, Caterpillar can expect a more significant market share in this emerging market. This commitment will help to grow the Company’s revenues in the long term.
Caterpillar Competitor Analysis (FAQs)
Question: Who are Caterpillar’s Main Competitors?
Answer: Caterpillar’s main competitors are Komatsu, Volvo CE, SANY, XCNG, and John Deere. Other competitors include JCB, Manitou Group, Terex Corporation, Hitachi Construction Machinery Co., Ltd., Liebherr-International AG, and SDLG.
Question: What is Caterpillar Known For?
Answer: Caterpillar is known for producing construction machinery, mining equipment, power generation equipment, and engine technologies. It is a world leader in construction and mining equipment, diesel and natural gas engines, industrial gas turbines, and diesel-electric locomotives (diesel-elec.).
Question: Is Komatsu Better Than Caterpillar?
Answer: Komatsu is not better than Caterpillar. Caterpillar has a strong foothold in the industry, and it is one of the biggest companies in its line of business. It has established itself as an industry leader and makes some of the best products available on the market. While Komatsu also produces good equipment, Caterpillar holds the edge against its competitor.
Caterpillar is a global leader in the manufacturing of construction, mining, and other heavy equipment. The Company has deep pockets, which allow it to invest heavily in research and development.
Caterpillar’s customer-centric solid approach, combined with its constant reinvestment, has allowed it to remain one of the world leaders in heavy machinery sales. To stay competitive and further grow its market share, Caterpillar will have to expand in emerging markets and further differentiate its products.
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