RISKS AND OPPORTIUNITIES OF
IN 2010
“It's a good time to be Caterpillar. After an extremely difficult 2009, we are seeing very
positive signs in many countries around the globe—economies are recovering, orders are
picking up and we are investing for our future. We've been highly focused on three things
this year—significantly increasing production in response to higher demand from our
customers, particularly in developing economies, aggressively managing costs and driving
better cash flow.”
Douglas R.Oberhelman, Vice Chairman, CAT Inc.
For more than 80 years, Caterpillar Inc. has been building the world’s infrastructure,
and in partnership with Caterpillar dealers, has allowed for positive and sustainable
change on every continent. A Fortune 100 company, Caterpillar is the world’s leading
manufacturer of construction and mining equipment, diesel and natural gas engines,
and industrial gas turbines.
Seeing this year as one of the beneficial year, Caterpillar recently made several
announcements related to increasing capacity and expanding their line-up of
products and service which include a new excavator facility to increase production
capacity in the United States, acquisition of Electro-Motive Diesel (EMD), which has the
largest installed base of diesel electric locomotives in the world, a multi-year
investment to support our mining customers, including a full line of mining shovels and
capacity expansion for mining trucks made in the United States and India, 400 percent
increase in excavator production capacity over the next several years in Xuzhou, China.
These investments will position the company for continued global leadership and
growth.
Caterpillar Financial has also managed to penetrate multiple international markets
throughout the world, creating an international dealer network. This process of
internationalization continues to grow at an ever increasing pace and has allowed for
Caterpillar to maintain the strategic international business status that it have today.
Caterpillar dealerships have continued successfully to work with Caterpillar Financial
services around the world, serving customers where they work and live. Caterpillars
Financial Services global locations include Korea, Malaysia, Philippines, Singapore,
Thailand, Japan, Australia, Belgium, Czech Republic, Denmark, France, Germany
(including Austria, Hungary, and Switzerland), Ireland, Italy, Netherlands, Norway,
Poland, Portugal, Spain, Sweden, United Kingdom, Brazil, Chile, Mexico, two offices in
Canada, and four regional offices within the United States. This well established dealer
network is continuously helping to tap untapped markets. In countries where
Caterpillar does not yet have a physical presence, they provide financing through their
Global Accounts Division.
However, like every company does not have external factors in control, similarly, CAT
which deals in international market, is largely affected by exchange rate. This is the one
of the element which is not in control of CAT and can affect positively as well as
adversely. As US currency is a free floating curreny, an increase in US currency in terms
of other currency to which CAT is selling its products can adversely affect the firms
profit, Products will become expensive for other countries to buy from CAT and will
search for alternatives such as Komatsu. This same rate can be beneficial when US
currency devalues in terms of other country currency. Equipments will become cheaper
for the other country.
The best examples can be now days when China purposely kept its currency devalued
which means that buyers will definitely go for Chinese products or u can say Komatsu
as CAT products is expensive to buy. China has become Komatsu’s largest market, with
sales surging almost fourfold to 19 percent of total revenue in the past fiscal year,
compared with 5.3 percent as of March 2006.
According to Komatsu's Chief Kunio Noji "Caterpillar is suffering because of being
centered in the U.S.” Cat's home market accounts for better than 40% of its sales, versus
only a fifth in long-dormant Japan for Komatsu. Komatsu Ltd also plans to double
production this financial year to meet demand from China and Indonesia. Komatsu is
making use of all these advantages and trying to do best according to their capabilities.
Caterpillar is also having direct price war with Komatsu. Previously the main
competitors that Caterpillar faced within the Japanese market were Komatsu and
Mitsubishi. The company of Komatsu was especially dangerous to Caterpillar due to the
fact that it was the second largest EME company worldwide. Due to this danger
Caterpillar decided to penetrate the Japanese market through a joint venture with
Mitsubishi. The result of this was that Caterpillar and Mitsubishi Heavy Industries Ltd.
formed one of the first joint ventures in Japan. Now Komatsu is giving intense
competition to Caterpillar Inc. This price war is resulting into unnecessary loss of
profits, since Komatsu is getting benefits of exchange rate and cheap labour.
CAT is also facing difficulties due to different government policies as in july 2010
Australian government proposed 40 percent tax on mining profits which can hurt the
company’s sales in the country. This significant tax increase will impact the viability of
future mining investment in Australia and threatens the company’s long-term
competitiveness
