Caterpillar Inc. SWOT & PESTLE Analysis

Strength

1. Strong dealer distribution network: Caterpillar, Inc. has a strong dealer network of 175 dealers spread across 2100 dealer branches, with over 160000 empoloyees in over 180 countries, providing strong technical expertise and quality service. The net worth of the dealership network is approximately $23.4 billion. Caterpillar’s dealer network is one of their greatest competitive advantages. A lot of its dealers have been working with the Company since 1925. For example, Yancey Brothers has been one of the oldest company-dealership network. Infact the Company's dealership network employee count is more than the company itself. This allows Caterpillar’s customers to have a low operating and owning costs through global coverage by sales and service network. The company implements a strategy named “Across the table” to improve accountability and governance of CAT dealers. The company has prioritized to generate higher value from its existing dealers over blindly bringing more dealers into its fold which has helped them to ensure that there is a tight control over costs while helping the Company to diversify geographically.

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Weakness

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Opportunity

1. High potential in Digitization and innovation: The Company has made significant investment in digital strategy. The company has more than 350000 CAT machines and close to 50000 engines, turbines and locomotives, and aims to reduce the operating costs through digital technology by predicting failures through analytics. There is also focus on increasing efficiency and reducing fuel consumption through data analytics. Recently with growing need for automated technologies, industrial automation is currently a race between many of the large players in the heavy machinery industry. New applications are being tested and applied every new iteration of products. As a R&D spending focussed company Caterpillar is in a favorable place to make the first moves in innovation.

2. Urbanisation of Emerging Markets: The global trend of urbanization is a key source of finding future growth in Caterpillar’s construction and energy industries. Countries like China and the Middle East have grown and Caterpllar’s major revenues are a result of this. In 2017, as a result of growth in construction in both regions the revenues grew more than $2 billion more in revenue as compared to 2016. On a future prospective these regions will continue to demand a high volume of Caterpillar products as development continues to grow in 2018. As a result of continued urbanization in China there will be the need for greater infrastructure investment, thus creating tremendous opportunities for Caterpillar. In the fourth quarter of 2017, The sales in Asia Pacific rose 22 percent year on year. Half of the sales improvement was in China, resulting from its increased focus and investment in the field of building construction and infrastructure.
According to a report by NY times, by 2020, China plans to build 60 NEW AIRPORTS. Economic Times – Railways’ target: Laying 9.5km of tracks every day, reports that India’s national railway is laying 9.5 KILOMETERS of track daily and approximately 300 construction projects totalling worth ≈US$324 BILLION are in the runway phase in Africa according to Africa Construction Trends Report. These are great opportunities for construction conglomerates like Caterpillar.

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Threat

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Political

1. Chinese Government investment in Infrastructure: Apart from countries like North America, Middle East, Africa and emerging markets like Latin America, Asia Pacific is a major contributor to revenues for Caterpillar. There has been an increasing demand in Asia, specifically China, through increased building construction and infrastructure investments. In fiscal year 2017 there was an impressive growth for construction heavy machinery sales in Asia and the Pacific, boasting a 46.5% return compared to previous year. Higher material costs have been one of the major concerns but higher sales volume and favorable price realization have offset this factor in this area. In future even the sales volume is predicted to remain high. Increasing material costs, primarily steel, will inhibit a lot of the growth later into 2019 as the focus of Chinese government to invest in transportation and infrastructure grows further.

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Economic

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Social

1. Population growth, increasing urbanization and emerging middle class: The trio factors are fueling continued investment in infrastructure, energy and mining across the globe. IEA World Energy Outlook predicts that by 2040, world energy consumption is expected to INCREASE 28%. McKinsey & Company – Bridging Global Infrastructure Gaps, Our Insights states that through 2030, $3.3 TRILLION in annual global infrastructure investment is needed to keep pace with expected growth. Also, by 2025, global construction market growth is expected to be $15 TRILLION says PwC Global Construction.

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Technological

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Legal

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Environmental

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