The Comeback of Caterpillar - What are the dynamics of competition in the heavy construction equipment industry?
Mehmet ICAGASIOGLU
The Comeback of Caterpillar
1. What are the dynamics of competition in the heavy construction equipment industry?
- Economic Downturn
- Hydraulic Excavators
- Developing Nations
- Replacement Parts
- Economics of Scale
- Global Sales
- Widespread distribution and Service Network
- Alliances
- Global recession
- Oil Prices
- Currency Fluctuations
- Cyclical Nature of the Construction Equipment
- Upturn in the International Markets
When the US construction industry grinded into an economic downturn, demand for Caterpillar products decreased. The major decrease in the US industry is the result of the completion of the interstates, giant dams, and other construction buildings. Hydraulic excavators are very big market. They accounted for 45 percent of the sales. They are the fast selling equipment that can create competition between the companies. Developing Nations played an important role in the competition, because the need for construction equipments increased to shape the new dams and especially to make roads. The growth rates of developing nations were faster than the global demand so developing nations becomes the new market areas for competition. One of the biggest competitions takes place in the replacement parts sector. It is an essential part of the industry. Replacement parts made up together over a quarter of the total revenues of the total construction equipment industry. Also the sales of replacement parts are more profitable than the whole machines. Construction Companies competed to provide the best parts for the best needs. It is vital for companies to achieve an economies of scale to survive in the competition. To achieve economics of scale, companies try to capture a large market share in order to eliminate the low volume of global sales. Distribution and service network is the essential part of the industry because the inability to operate the equipment is very expensive. To gain competitive advantage by selling parts, companies used a worldwide network of dealerships to sell their machines and provide support. Intense competition among the companies drove them to form alliances to share risks, to access new markets, use technology and share production. Oil prices are very important because decline in oil prices can depressed the market and could affect the competition directly. Currency Fluctuations affects the industry as a whole. Rise in the value of dollar makes other countries buying power decrease, which results as an import to the country The imports will be much cheaper than the domestic products, therefore industry will shift to import from other countries. Strong currency is the prime factor for companies such as Caterpillar to have trouble while competing for developing countries. Cyclical Nature of the construction equipment could make an industry wide downturn for both domestic and international markets.