The company has grown substantially over the past several years in terms of revenues, profits and share price. In 2008, however, the company's share price has declined 45.3% from the beginning of the year. As the economic crisis spread overseas, Caterpillar's policy of geographic diversification is at risk of being insufficient to insulate the firm from global economic catastrophe. Maintaining the current path, however, recognizes the long-term strength of their strategy. Moreover, it allows the company to continue to strengthen some its existing new initiatives, such as its logistics business, railroad subsidiary and its solar turbine business. Caterpillar typically takes a cautious approach to building and integrating new businesses so drastic moves right now may not fit with the company's overall strategy. The company has the financial capacity to finance acquisitions with cash, and the current depressed stock prices make some of their competitors unusually affordable. The drawbacks are that the competitors may not have much value beyond market share, for which Caterpillar would likely pay fair market value. Acquisitions at this stage of Caterpillar's life cycle are best conducted for strategic purposes rather than mere market share gains.
Another alternative is to continue to expand into different product lines. Caterpillar has a strong, recognizable brand name. They have successful moved into financial services and apparel using that brand and its associations. Caterpillar could potentially expand into other areas, such as ATVs or light trucks, that utilize many of the same technologies that their current products contain. Cat could use a joint venture or a licensing agreement in order to penetrate these new markets, just as they did with apparel. There would be challenges, however, as Caterpillar would be moving away from their core competencies. Moreover, their other endeavors have not yet contributed significant revenue or profit to the company. The three main lines still account for almost all of Caterpillar's business.
A third alternative would be to expand into new technologies. The company has already increased its investment in technology in recent years in recognition of the fact that technology is a major driver in their existing industries. There are considerable opportunities available to develop cleaner engine technologies, more efficient heavy equipment, or new power technologies. The company already operates in the solar turbine services industry, and has the potential to leverage some of their capabilities in heavy equipment to manufacture the technologies necessary to produce green energy, or to make significant improvements in existing green technologies.
A fourth option for Caterpillar is to pursue growth through acquisitions. Caterpillar is one of the largest players in each of their main industries. Some of these industries are headed towards maturity and consolidation. Therefore, Caterpillar should begin that trend by purchasing some smaller competitors. This will strengthen Cat, and increase their ...
The recommendation for Caterpillar is to continue to pursue their current course of action. Caterpillar's financial performance in recent years has been very strong, indicating strong congruence between their strategies and their objectives. Even with the economic downturn, Cat has been profitable in every quarter this year. Moreover, key industry sectors such as mining and oil & gas are still booming, despite slowdowns elsewhere in the economy.
Thus, there is little to indicate that Caterpillar is deficient in any area. Every year, a story emerges about Caterpillar suffering in one area or another, but overall the company has consistently grown revenues and profits. There is no indication that a strategic shift at this point would be of any benefit to Caterpillar. Given that the company has a conservative culture and is accustomed to a relatively slow pace of change, a major strategic shift should only be undertaken in response to a major opportunity or threat. There appears to be neither for Caterpillar at present. They are managing the economic, cyclical and competitive threats well. They have been able to exploit strategic opportunities, such as the move into transportation with their recent investments in logistics and railways, or their move into finance and insurance. Despite all of the challenges that Caterpillar faces, they are still profitable, still the market leader, and show no significant signs of vulnerability.
Corporate and financial information from Reuters. Retrieved December 3, 2008 at http://www.reuters.com/finance/stocks/companyProfile?symbol=CAT.N
Corporate information from Caterpillar Inc. Retrieved December 3, 2008 at http://www.cat.com/cda/layout?m=37400&x=7
2007 Caterpillar Inc. Annual Report. Caterpillar Inc. Retrieved December 3, 2008 at http://www.cat.com/cda/files/887773/7/AR_2007_final.pdf
The company has the financial capacity to finance acquisitions with cash, and the current depressed stock prices make some of their competitors unusually affordable. The drawbacks are that the competitors may not have much value beyond market share, for which Caterpillar would likely pay fair market value. Acquisitions at this stage of Caterpillar's life cycle are best conducted for strategic purposes rather than mere market share gains.
The other is corruption. While Transparency International has France listed as one of the more corrupt Western European nations (at #23 worldwide), Bolivia is ranked #102. The lack of effective rule of law in Bolivia is a significant impediment to business development. In terms of business operating resources, France is superior. As one of the largest markets for construction equipment, not only is there an ample customer base, but the
Caterpillar Inc. Global Financial Prospectus, 2010 A financial and qualitative leader in product and services in the heavy equipment industry, Caterpillar has been an expert in construction and mining equipment, diesel and natural gas engines and industrial gas turbines for over 80 years. Outperformance of stated goals is consistent to Caterpillar's brand identity and expert financial outcomes in its manufacturer industry class. Subsidiaries Cat Financial, Caterpillar Logistics Services Inc., and Caterpillar Remanufacturing
Caterpillar Corporation Caterpillar, Inc. is the world's largest manufacturer of heavy equipment machinery, earthmoving machinery, and construction, mining, and agricultural equipment. It also manufactures diesel and natural gas engines, industrial gas turbines, and logging and oil industry equipment. It has over $7 billion in assets, and ranked number one in its industry and number 44 overall in the 2009 Fortune 500 companies. The company itself originated in 1925 with the merger
While Caterpillar has its own financing arm, firms are not only dependent on Caterpillar to provide financing. Moreover, with interest rates at historic lows and capital investment low, the financing arm cannot be counted on to deliver strong top or bottom line growth. The present economic situation is a perfect storm for Caterpillar. Commodities prices have dropped dramatically over the past nine months. Credit is unavailable and when Caterpillar offers
What can also be seen from this analysis is that the value chain of the heavy equipment industry in general and construction, farm machinery and heavy truck manufacturing specifically rely on distribution channels to sell to contractors (Byrne, Lubowe, Blitz, 2007). Distribution Channel Recommendations The sales cycles in our region are particularly long and often require several different sources of financing for any contractor or agency to acquire heavy equipment for
Financial Research Report This is a review of Caterpillar, Inc.. The report is broken down into three sections -- company overview, ratio analysis (which includes a trend analysis), stock price analysis -- that are designed to give a thorough overview of the complete company. Company Overview Caterpillar is one of the best known name brands, around the world for its manufacture of heavy machinery made, primarily, for the construction industry. The company began