Caterpillar Inc. is a large and well known company who has become a global leader over the many years that the company has been around. This paper will evaluate all aspects of Caterpillar’s organization. The paper will explain the culture of Caterpillar’s organization (values and norms), their ethics in international dealings, foreign direct investment, entry into markets, accounting practices, how they convert currency, their international strategy, their strategic positioning, and their marketing tactics. After reviewing all areas of Caterpillar’s organization the reader will be able to understand why Caterpillar is the global leader in their industry.
History of Caterpillar Caterpillar has been established for over 85 years and continues to grow strong. Caterpillar is the world's leading manufacturer of construction and mining equipment, diesel and natural gas engines, industrial gas turbines, and diesel-electric locomotives. The company is also a leading services provider through Caterpillar Financial Services, Caterpillar Remanufacturing Services and Progress Rail Services. Caterpillar’s has made progress in creating change for the better all over the world. Caterpillar began under the name of Holt Manufacturing Company and started out in San Francisco California (Caterpillar Inc, 2013). In 1925 Holt Manufacturing merged to form Caterpillar Tractor Co. Over the years Caterpillar continued to develop tractors along with motor graders, blade graders, elevating graders, terracers, and electrical generating sets. In 1950 Caterpillar established its business overseas in Great Britain. This was the first of many overseas operations for Caterpillar and this helped to manage foreign exchange shortages, tariffs, import controls and better serve customers around the world (Caterpillar Inc, 2013). In 1986 Caterpillar Tractor Co. changed its name to Caterpillar Inc. to give more accurate reflection of the enterprise's growing diversity. In 1997 Caterpillar continued to expand by acquiring the U.K.-based Perkins Engines. The previous year Caterpillar acquired Germany’s MaK Motoren. With the gain of both products Caterpillar became the world leader in diesel engine manufacturing (Caterpillar Inc, 2013). In 2005 Caterpillar responded to a number of tragedies around the world, including the Asian Tsunami disaster, hurricanes along the U.S. Gulf Coast, and earthquakes in South Asia. Employees, dealers and corporate leaders joined together to help all those affected by donating machinery, money and resources for relief and recovery efforts. In 2006 Caterpillar opened a new parts distribution center in the Lingang Industrial Area in Shanghai and also launched a revised and updated Worldwide Code of Conduct and Enterprise Strategy (Caterpillar Inc, 2013).
Values and Norms of Caterpillar Inc. Caterpillar’s culture and the values and norms that they have established are worldwide meaning that they follow their Code of Ethics and Code of Conduct worldwide. Caterpillar’s worldwide Code of Conduct was last updated in 2010 along with their Vision 2020 strategy guide. The updates to the Code of Conduct added references to interactions with their distributors and listing certain laws that they comply too in their worldwide activities. Caterpillar prides themselves their honesty and ability to act with Integrity, they avoid and manage conflict and potential conflicts of interest, they compete fairly, they ensure accuracy and completeness of their financial reports and accounting records, they are fair and honest in open communication, they handle “inside information” appropriately and lawfully, and they refuse to make improper payments (Caterpillar Inc, 2013). Caterpillar locations total more than 500 facilities worldwide and they serve more than 180 countries around the world with over 300 products. Over half of Caterpillar’s sales are outside of the United States. Their manufacturing, marketing, logistics, service, R&D, and dealer locations are spread out in order to remain close to their global customer base (Caterpillar Inc, 2013). Caterpillar is present in Australia, China, India, Japan, New Zealand, South Korea and Southeast Asia. Almost 20 percent of Caterpillar's employees and about 30 percent of its global dealers are located in the Asia Pacific region. Caterpillar established its first major facility outside the United States more than 60 years ago in the UK. The company soon opened facilities in other countries of Belgium, France, Germany, Italy, The Netherlands, Switzerland, Russia, Poland, South Africa and the United Arab Emirates. The EAME Region is an important manufacturing base and the largest Caterpillar distribution division outside of the United States with approximately 25,000 employees. Most of the employees are in the European Union within the 36 manufacturing locations (Caterpillar Inc, 2013).
Ethics in International Dealings Because Caterpillar has such a large global presence they have a high ethical standard in their international dealings. As a global company Caterpillar understands that there are many differences in the economic and political philosophies and forms of government throughout the world. Caterpillar realizes that there is a wide diversity that exists among the social customs and cultural traditions in the countries that they operate in. Caterpillar’s Code of Ethics respect these differences, and while keeping with the principles of their Code of Conduct, Caterpillar maintains that they will remain flexible and will adapt their business practices to them (Lorenzo, Esqueda, & Larson, 2010). As a global corporation, Caterpillar wants to operate in a manner consistent with local culture and forms of government, but always in line with their values. The actions of governments around the world can have a positive and negative impact on Caterpillar, their employees, customers, and shareholders. Caterpillar sees the importance for government leaders to understand the impact of such policies. Therefore, when it is constructive under the applicable political system Caterpillar advocates in a manner consistent with all governing laws (Lorenzo, Esqueda, & Larson, 2010). The form of advocacy Caterpillar uses is different and depends on the political system and local law. Caterpillar will often communicate with their employees and other stakeholders about the importance of public policy issues, and depending on the country they will sometimes encourage them to express their views to lawmakers, in a way that is consistent with the local customs and rights of the citizens (Lorenzo, Esqueda, & Larson, 2010).
Foreign Direct Investment Foreign direct investment is extremely and important to global economic growth. Caterpillar is already a global corporation who has many advantages from investing in the many foreign countries that they are in and also from their investors who have helped Caterpillar to continue to grow. One advantage to this is that this allows money to go to the businesses that are seen as having the best prospects for growth in the world. Because Caterpillar runs their business well this gives them a competitive advantage and allows Caterpillar the opportunity to bring their new products to the market at a faster rate (Caterpillar Inc, 2013). Because of Caterpillar’s foreign investments and the plants that they have set up worldwide, the standard of living in most of the recipient countries have improved by higher tax revenue from the company that received the foreign direct investment, more jobs, and an increase in economic growth (Hill, 2011).
Entry into the Markets Since the beginning when the company first became Caterpillar they have been focused on a growth strategy that would allow them to become a leading producer of construction machinery worldwide. Caterpillar’s goal was and still is to seek out new markets and increase revenues. High capital, homogenous customer needs, and high R&D made Caterpillar favor an aggregation strategy (Caterpillar Inc, 2013). At the beginning Caterpillar used an export strategy to supply the foreign markets, but with the shortage of foreign exchange at the time and high tariffs, it was very difficult for Caterpillar to completely enter into many of the international markets. Because of this problem Caterpillar changed their entry into markets and began building plants in its international target markets. Caterpillar maintained direct ownership of wholesale marketing and the warehousing activities in these markets (Caterpillar Inc, 2013). Building plants globally has allowed Caterpillar to become the worldwide leader in their market and has also allowed them to better stay focused on customer wants and needs, better customer service, and the ability to protect their reputation of their brand (Caterpillar Inc, 2013).
Accounting practices and Conversion of Currency Caterpillar currently follows the guidelines of the Generally Accepted Accounting Practices (GAAP). The GAAP guidelines are used to prepare financial statements, and also to report currency exchange rates (Jones, 1988). The accounting practices that Caterpillar adheres to enforce the firm’s accounting policies and guidelines and evaluates and monitors Caterpillar’s economic activities. Caterpillar’s day to day financial activities are gathered and recorded by Caterpillar’s team of accountants along with yearly audits that are conducted by third party auditors (Jones, 1988).
International Strategy, Strategic Positioning, & Marketing Tactics The area of international business theory consists of a large amount of perspectives. International business has been established as being either global or organizational (Hill, 2011). Caterpillar uses both global and organizational and has continued to be a successful company due to the strong brand they represent, their reliable and consistent service capabilities, and their product innovation. Their continual innovation has contributed to the recognition of the brand name and their reputation, and is what has made them successful in the international markets. Global factors are constantly present and can affect the way Caterpillar is able to do business. These factors are political, economic, social, and technological (Hill, 2011). Since Caterpillar is active all around the world, its operations need to be mindful of the local government. For example, in countries such as China Caterpillar would benefit by addressing the local issues rather than trying to force an American culture on them. Political situations are important because they offer first mover advantage in newly opened markets (Hill, 2011). The global economic environment must consider the currency markets and the value of the US dollar in comparison to the large foreign investments of Caterpillar. Caterpillar’s largest foreign direct investment is in Japan, so when the economy was declining Caterpillar made the strategic decision to operate in the Japanese market in order to avoid exchange rate risk (Caterpillar Inc, 2013). This strategic decision is also known as “Currency Diversification” (Hill, 2011). When the economy was down Caterpillar did have a positive impact from the sales in other currencies such as trading with Euros. The global social issues that are relevant to Caterpillar have been the eastern countries resisting the ways of the western countries. This type of problem is what makes international business very difficult because firms must learn the ability to manage through the various social contexts (Morgello, 1993). Another social issue is the rate of investments in developing nations. Manufacturing has moved over the last decade to developing countries, which has stimulated the construction business and economies in those countries. Caterpillar has been able to adapt in the emerging markets and has maintained control over the older markets by using triad adapted strategies and making alterations in response to changing market conditions (Caterpillar Inc, 2013). The technological environment is a very important factor to consider in their international strategy. Caterpillar has to continually improve and update their current products and invent new products. Caterpillar must be more advanced than the competition, and must ensure that when they enter a market they are offering products that are compatible with the target market’s needs. Caterpillar needs to consider a broad range of technological developments and identify the issues among the developments. Caterpillar must also remain aware of their opportunities to diversify (Morgello, 1993). The environment is affected by global factors that are uncontrollable. Because of these factors, Caterpillar’s international strategy seeks to negotiate rather than influence and control. The strategic decisions that are used to address the global factors are from the organizational side of international business (Morgello, 1993). When Caterpillar considers the structure of their international strategy they must look at competition, structure and logistics, culture, and marketing (Caterpillar Inc, 2012). The nature of the industry that Caterpillar is in has matured over the years, so customers will typically be more of a repeat customer rather than a new customer. This means that it is very important that Caterpillar has and maintains a strong brand. Caterpillar’s reputation of product quality and support servicing has made them a valuable asset in the customer’s mind (Caterpillar Inc, 2012). Caterpillar’s strategy in competition is to create extra value by offering a large range of products with supporting service. International culture is another factor that Caterpillar must consider. The important issues of culture are language, religion, values and attitudes, manners, customs, material elements, aesthetics, education, and social institutions (Steenkamp, 2001). In order to develop an international strategy that works cultural differences must be understood as well as the factors that influence the culture (Steenkamp, 2001). Caterpillar has recognized that learning how different cultures are provides the necessary resources to effectively negotiate business activities. HR policies and corporate culture are also used as marketing devices. Caterpillar utilizes internal and external marketing in order to communicate messages that are consistent with various cultures (Caterpillar Inc, 2008). The majority of corporate marketing is that of a directive nature. Caterpillar’s goal is to combine the culturally diverse network into a large and efficient means of sharing information (Caterpillar Inc, 2008). Products that are offered abroad are consistent or similar with the products offered in the home country. The important issue with marketing internationally is the content of the supporting service and the ability to communicate this in a way that is consistent with the local perceptions (Caterpillar Inc, 2008). Caterpillar has been able to establish links across the world which has allowed them to build on institutional relationships. Rather than marketing differentiated products Caterpillar promotes their message of reliability, expertise, and valuable products that are worth the money.
Conclusion
Caterpillar’s international strategy has evolved along with the market environment that demands reliable products and an excellence in customer service. Caterpillar is unique in their strategy because they have been able to go above and beyond what is expected of a global company. Caterpillar continues to innovate its’ products and logistics. They are effective in communicating their values in American and foreign markets, and they are proficient and detailed in their accounting practices. All of the above strengths is what has made Caterpillar Inc. the global leader in their industry.