Caterpillar is an American firm that sells construction machinery. It is also involved in developing and manufacturing of that machinery. The company also offers insurance as well as training services worldwide. The company is recognized worldwide and claims that the efficiency of their distribution system is their competitive advantage. They can be called as global leaders in the industry of construction machinery, but let us analyze the company by applying the Porter’s five forces model.
Michael E. Porter developed a model to observe any company’s competitive position in a certain industry as well as the overall appeal of that company in the market that it is operating in. The model is useful for the company to realize its strengths and weaknesses and also about how the company can work to improve its position accordingly. Five forces involved in the model are used to determine the position of a company in the market or a particular industry.
Applying the model on the current position of Caterpillar globally:
Threat of New Entrants
For a new entrant to enter into this industry, it needs a huge capital investment as the product manufactured or sold also requires a huge capital. Moreover, reaching the kind of position that Caterpillar is currently at requires a lot of time in addition to the investment, so Caterpillar faces a low threat of new entrants. The industry itself is to a greater extent prone to new entrants because of the requirements and even if smaller firms do enter the market to sell manufacturing equipment, it will not have a meaningful impact on the operations of Caterpillar because of the position that it has reached worldwide.
Threat of Substitutes
There are not a lot of substitutes available for manufacturing machinery as most of the industries have moved towards automation of their operations as well as mechanization. So the industries, mostly manufacturing, will keep on buying these heavy machinery in the future as well. Thus, because of the availability of such fewer substitutes in the market, Caterpillar faces a low threat of substitutes.
Bargaining Power of Suppliers
Over the years, Caterpillar has developed its manufacturing plants worldwide along with their selling units. All these manufacturing units use different suppliers in different parts of the world and the supplies are of different kind. However, these suppliers have low power over Caterpillar because of its established name. The situation may vary in some countries where suppliers are few and Caterpillar needs to keep manufacturing, but usually the situation remains the same and the suppliers have low bargaining power.
Bargaining Power of Buyers
Due to the kind of products and services that Caterpillar sells in different countries, their buyers are firms, organizations or government agencies. The buyers usually develop a long term relationship with Caterpillar because of the kind of quality products that they sell. The buyers have a low bargaining power in case of Caterpillar because they are the leaders in providing these products and no other company matches their quality and specially their distribution system which is also their competitive edge.
Rivalry Among Firms
Their competitors are not distributed worldwide, just like their distribution in different countries. Caterpillar faces high competition in some countries while face none in others. Countries like Japan and Netherlands, which are known for the manufacturing of the machinery. These companies from Japan and Netherlands are also expanding their operations in various countries which are a threat to the functions of Caterpillar. Other than that, there are also a lot of competitors when it comes to offering financial and training services, thus huge competition exists in that industry as well. Concluding, we can say that Caterpillar is facing high rivalry from its competitors both in manufacturing and services domains of their business.
Concluding the model through the diagram:
We observed that Caterpillar is the leader in selling manufacturing machinery globally, and its position is the industry according to the Porter’s five forces model is commendable and it still has the potential and space for growth. It can also be seen that in order to constantly grow in the industry, Caterpillar uses intensive strategies like Product development, by improving and introducing innovations in their products, as well as Market penetration in which they are continuously expanding their manufacturing as well as selling units around the world.
References
Strategy. (n.d.). Retrieved June 16, 2017, from http://www.caterpillar.com/en/company/strategy.html
Nov 26, 2013 Adrienne Selko. (n.d.). How Caterpillar Succeeds. Retrieved June 16, 2017, from http://www.industryweek.com/corporate-culture/how-caterpillar-succeeds
Thompson, A. (2017, March 23). Caterpillar Vision, Mission, Strategy, Five Forces, SWOT. Retrieved June 16, 2017, from http://panmore.com/caterpillar-inc-strategic-analysis-vision-mission-swot