Entrepreneurship and innovation in modern business

Entrepreneurship and Innovation

Assessing the heavy equipment industry, the Upside-Down Pyramid Approach has been used for completing this analysis. First, a market analysis is completed, and second the most competitive products and market segments are discussed. Finally distribution channel recommendations are made.

Market Analysis of the Heavy Equipment Industry

As the heavy equipment industry is comprised of many manufacturing and service sectors, this analysis concentrates on construction, farm machinery and heavy truck manufacturing. One of the most critical global economic factors influencing this industry is interest rates and the cost of capital to firms globally. Ancillary to this are the factors of new business growth. As global economies expand or contract, this industry tends to auto-correlate to those trends. As a result through 2009, the industry has been flat or in slight decline due to global economic factors. Despite a global recession, the industry generated $144B globally in sales representing a 7.2% Compound Annual Growth Rate (CAGR) from 2004 to 2008 (DataMonitor, 2009). A total of $38.6B and $51.3B in revenues were accomplished in the European and American industries, with earthmoving equipment generating $26.3B worldwide or 18.3% of the global market sales in 2008 (DataMonitor, 2009). Industry analysts all agree that economic factors and the far more stringent guidelines on borrowing will force this industry into a slower level of growth, stabilizing at 5.7% through the five-year period in progress, from 2008 to 2013 (DataMonitor, 2009).

Completing an analysis of product segments shows that earthmoving equipment, a market segment dominated by Caterpillar, generates 18.3% of industry-wide sales. Harvesting equipment generates 12.5%, tractors, 9.5% industrial tractors and other industrial rolling machines, 9.3%, cranes, lifting and loading equipment, 1.7% and 48.7% of all other miscellaneous equipment (DataMonitor, 2009). Global market shares in 2008 are shown in the following graphic, with Caterpillar having the majority of sales globally at 34% market share.

The next phase of the analysis is to evaluate the segmentation by product area, which is in the graphic, Market Segmentation Analysis: 2008 Global Sales by Product Category. 42.5% of demand is in export markets, followed by 25% for non-residential construction contracts and 15% for residential construction contractors. The figure Market Segmentation Analysis: 2008 Global Sales by Product Category illustrates the distribution of market segments globally. As has been seen in the analysis, distribution channels are critically important in this industry. 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 projects. As a result the role of distribution channels has become especially significant given the need for shared risk in the financing of the equipment and shared ownership as well in the form of lease-back arrangements. To create a more differentiated distribution strategy it is crticvally important to give empowerment in the form of advanced credit terms of heavy equipment to distributors and dealers. This approach of the manufacturer in effect becoming the financing partner with the reseller to more quickly underwrite the loan has proven to be one of the more effective strategies in managing channels in heavy equipment industries (Brown, Lusch, Nicholson, 1995). In essence manufacturers must consider their role in the broader distribution strategies of the industry to also partially own the risk of a new purchase and extend credit terms that allow distribution channels to be more effective in finding opportunities. In the context of strategic planning on the part of heavy equipment manufacturers the need for creating shared channel programs that alleviate the risk of bad financing obtained entirely by the customer is worth partnering with resellers and distribution channel partners to assist in underwriting the purchase (Shah, 1989). This shared risk approach to managing purchases in distribution channels for heavy equipment products can overcome having customers get their own financing, often at much higher rates and in questionable financial institutions, but also lead to greater brand loyalty as manufacturers seek to be more of a complete solution provided to these companies.