Caterpillar Inc.

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Company Overview

Caterpillar Inc. (“Caterpillar”) is the world’s leading manufacturer of a wide variety of equipment.  It is comprised of three main business units including Construction industries, Resource industries, and Energy & Transportation.  In 2012, its total worldwide sales reached $65.86 billion, 31% of which resulted from sales within the U.S. ^[1] With the total sales in the heavy construction equipment industry being around $138.5 billion in 2012, Caterpillar is estimated to hold approximately 47.56% of the worldwide market at that time^[2].  They compete globally and have locations/dealers in areas including Canada, Mexico, England and South Africa.  With sales only reaching $55.6 billion in 2014, the recent slowdown in developed markets of the heavy construction equipment industry has led companies, such as Caterpillar, to search for new and upcoming markets across the globe.^[3]  With the industry Caterpillar competes in being dominated by only a few large players (i.e. Caterpillar, Komatsu, Volvo, and Deere), it has become even more important for development and innovation of equipment to be at the forefront of the companies minds.^[4]  Caterpillar has effectively utilized their differentiation strategy by creating a well-known brand; as well as, a service and support department that well exceeds its competition.  

In order to stay at the forefront of the industry, Caterpillar must examine the industry threats and how over time, they can increase competitiveness.  One way to do this is to use a framework called the structure-conduct-performance (SCP) model.  The SCP model discusses how the structure of the industry can directly influence a firm’s conduct within the industry as well as the firm’s performance and the growth of the industry.  In the model, “structure” refers to the structure of the industry.  In the Heavy construction equipment industry, there are quite a few competitors, but only a few that can compete at the level of Caterpillar.  There also is a relatively high cost to get into the industry.  Because of these factors, the heavy construction equipment industry is an oligopoly.  The “conduct” in the framework refers to how the firm will act because of the industry.  In the case of an oligopolistic industry, firms will often turn to a strategy of tacit collusion.  In fact, Caterpillar, Komatsu, Volvo, and Associated Auction Services, were charged with collusion in U.S. District court in January of 2015.  Finally, the “performance” in the model describes how well the firm performs in the industry and how well the economy performs as a whole.  In the case of oligopolistic industry, the expectation is that Caterpillar can achieve a competitive advantage and that the economy will be improved but less than what could be achieved by a perfect competition.