Porter’s Five Forces Analysis of Caterpillar
Key Facts
| Name | Caterpillar |
| Industry | Engineering, Manufacturing |
| Founded | 1904 |
| Headquarters | Deerfield, Illinois |
| CEOs | James Umpleby |
| Revenues | US$ 50.97 billion,2021
US$ 59.4billion,2022 |
| Profit |
US$ 6.48 billion,2021 US$ 6.70billion, 2022 |
| Competitors | Deere Construction & Forestry,Komatsu, Hitachi |
Company Overview
The leading producer of mining and construction machinery including mining equipment, diesel and natural gas engines, diesel-electric locomotives and industrial gas turbines. Caterpillar reported $59.4 billion in revenue and $6.70 billion in profit in 2022. Assets are valued $81.92 billion in 2022.The company was formally established by Benjamin Holt through first successful commercial tractor launch in 1904.The company ranked on number 73 by Fortune 500 and ranked 139th by The Global 2000 Year 2022 list.
Caterpillar has 107,700 employees, Caterpillar has 150 locations in 25 countries around the world.
Porter’s Five Forces Analysis
Porter’s Five Forces Analysis of Caterpillar is used to determine the company’s competitive position reference to it’s Industry for better strategizing the companies’ operations for higher profits and less competition.
Caterpillar Rivalry among Existing Competitor
- Caterpillar Business Segments: The Company is operating in 4 reportable segments which are Construction Industries which generated a revenue of US$ 22.1 billion, Resource Industries generated a revenues of US$ 9.9 billion, Energy and Transportation with US$ 20.28 billion and Financial Products & Other Segments US$ 0.51 billion revenues generated as of FY 2021 declared by Caterpillar in their annual report.
The manufacturing side of Caterpillar is expert in manufacturing of Construction and Mining Equipment, Diesel and Gas Engines, Gas Turbines andDE Locomotives.
- Caterpillar Global Operations& Geographical Presentation with Revenues: The Company is present in North America with a sales generated of US$ 22.0 billion, EAMEA with US$ 12.1 billion, Asia/Pacific US$11.7 billion and Latin America with US$5.1 billion respectively as of FY 2021.The Company generated revenues of US$ 53.8 in FY 2019, US$ 41.7 in FY 2020 and US$ 51.0 in FY 2021.
- Caterpillar Business Operations and Global Warming Initiatives:Caterpillar has 500 self-driving trucks running through Cat Command in 2021 at 18 locations across three different continents. There is no question about the effectiveness of this technology as more than 4 billion tons of material was transported without a single accident.In its 2021 annual reports, Caterpillar declared that, starting in 2023, company will improve its sustainability reporting by using the Task Force on Climate-Related Financial Disclosures (TCFD) approach.
- Investment in Research & Development-Marketing Cost and Brand Image: The contract of Caterpillar with Microsoft and Ballard was signed for research into hydrogen fuel cells as backup power for data centers. In order to examine the possibilities of employing hydrogen fuel cells to power line-haul locomotives, Caterpillar partnered with Chevron and BNSF. The Company spent US$ 1.68 billion in Research and Development Cost in FY 2021.
- Competitive Rivalry with Existing Competitors Komatsu: Construction and mining machinery, utility equipment, industrial machinery, and machineries for the forest are all products manufactured by Komatsu Ltd. In 2022, the company earned US$24.5 billion in revenue US$1.8 billion in profit with US$35 billion is the market value of company assets
- Competitive Rivalry with Existing Competitors Hitachi: Hitachi Ltd. headquartered in Tokyo, Japan produces and markets electrical equipment.In 2022, the company earned $5.9 billion in profit and revenue of $91.9 billion.The market value of the assets is $116.6B.
- Competitive Rivalry with Existing Competitors XCMG Construction Machinery:Construction equipment and its replacement parts are among the specialties of XCMG Construction Machinery Co., Ltd., which also conducts research, development, manufacturing, and sales of these products. In 2022, the company earned a revenue of $13 billion and profit of $870.6M with $17.3 billion is the market value of company assets.
Caterpillar Threat of New Entrants
- Global Heavy Machinery Industry:The construction equipment industry will rise at a compound annual growth rate of 5.9 percent between 2021 and 2030, according to projections. According to estimates, the market for construction equipment was being valued $136.9 billion in 2020. It is projected that this market would be worth around 234.6 billion US dollars by 2030.
- High Capital Investment- Trained Human Resources:The company’s leadership development initiatives encourage a variety of experiences to help staff in gaining a wider perspective and deeper knowledge. The professional competency of managing for inclusiveness is a key component of Caterpillar’s leadership programs for personal development.
- High Research & Development Cost: The estimated cost of R&D for Caterpillar in 2022 was $1.8 billion. The goal of the company’s research and development efforts is still to provide customers with the lowest overall ownership costs by utilizing the finest, most effective products and services available.
- Technological Advancement: The Cat S60 smartphone, which contains a unique thermal imaging technology that enables users to recognize heat patterns, was announced by Caterpillar in February 2016. Like other Caterpillar smartphone models, the Cat S60 was acclaimed for its durability. The Cat S60, which is advertised as “water-resistant,” can operate underwater for nearly an hour at a depth of up to 16 feet. This phone has now been succeeded by the S61, which has air quality monitoring, and the S62, which now has thermal capabilities.
Caterpillar Bargaining Power of Suppliers
- Supplies Industry Influencer: It produces goods like machinery, on-road vehicles defense items, and engines at more than 110 sites and factories across the world. Caterpillar’s more than 50 sites are based in the United States.Around 200 countries are served by the distribution of these goods.
- Suppliers Collaboration: To safeguard its intellectual property and business methods, Caterpillar enters into a number of agreements with its suppliers. It also serves in monitoring and decreasing the probability that an interruption in the supply chain may harm corporate operations. Some of them are Supplier Code of Conduct, Supplier Communication Guideline and Supplier Diversity. The company has more than 27000 suppliers around the world.
- Responsible Sourcing of Conflict Minerals:The Company is taking a lot of consideration for responsible sourcing specially for conflict minerals including Tin, tungsten and tantalum and gold (3TG) in Congo and countries around it. The Company Caterpillar is strictly following these guidelines in sourcing these minerals from it’s suppliers in the related areas.
Caterpillar Bargaining Power of Buyers
- Customer Financing: Caterpillar finance its end users to decrease their operational and financing cost by providing it’s machinery and equipment through lease. The company provided 1.2 million connected assets to it’s customers As of FY 2021.The Company provided US$ 1.08 billion advances to it’s customers in FY 2021.
- High Product Differentiation: A complete line of branded Caterpillar clothes and gifts are also produced and sold by the company. The company makes money from sales as well as equipment rentals and trademark licensing for its distinctive yellow color. Caterpillar also manufactures smartphones.
- Customer Satisfaction – After Sales Services: Advanced technology named Caterpillar Mine Performance Solutions (MPS), that utilizes data to achieve increase in efficiency, is used by the firms to accelerate the growth of operations. A significant milestone for Caterpillar in 2021 involves the introduction of the first completely autonomous water truck in the world.
- Government Rules & Regulations: As a part of the mining and construction industries, Caterpillar may be unfavorably impacted by changes in the government’s fiscal or monetary policies.
Caterpillar Threat of Substitute Products or Services
- Threat from Giants -Heavy Machinery Producers:The American business Caterpillar, the Swedish company Volvo, the Japanese companies Komatsu and Hitachi, as well as the Swiss company Liebherr, are among the leading manufacturers of construction equipment. XCMG and SANY are two of the main manufacturers of heavy equipment in China. These company’s diversion or offer any alternate solutions can change the market dynamics as they are established giant players in the market.
- Strong Global Presence & Brand Loyalty: The Company generates 62% of its revenue outside from USA. Heavy construction, mining, and aggregate production all have high demand for Caterpillar heavy machinery and services. Caterpillar has almost 20 brands. Among of its top subsidiaries include Solar Turbines, FG Wilson, Perkins Engines, and Caterpillar Financial Services. This decrease the diversion of customer’s trust and approach to thing for different alternatives.
- Post-COVID 19 Market- Technological Change: In the United States, Caterpillar sold machinery totaling around $24.8 billion. As Caterpillar acquired CarbonPoint Solutions, its electric power, oil and gas solutions gained access to the carbon capture technology. So Caterpillar adopted a way to mold itself in diversified technologies and decrease the threat of substitution.
References
- Forbes, Profile, Caterpillar
- Forbes, Profile, Hitachi
- Forbes, Profile, Komatsu
- Forbes, Profile, XCMG
- Fortune, Company Profile, Caterpillar
- Statista (April 2022) Global construction equipment market size between 2020 and 2025(in billion U.S. dollars) | Statista. Availableat.Statista
- Statista (April 2019) Global construction equipment unit sales between 2018 and 2022, by region(in 1,000s)| Statista. Availableat.Statista.
- Statista (May 2021) Largest construction machinery manufacturers globally in 2020, based on construction equipment sales(in billion U.S. dollars) | Statista. Availableat Statista
- Caterpillar Annual Report 2021.Available at Caterpillar
- Caterpillar: 6 Things You May Not Know.Available at Investopedia
- Caterpillar to Gain Big from Equipment Replacement Demand: Deutsche. Available at Investopedia
- Caterpillar Supply Chain. Available at Caterpillar
- Company Overview, Caterpillar
- Forbes Global 2000 Year 2022
- Caterpillar Annual Report Year 2022
- Caterpillar Material Procurement .Available at Caterpillar
