Komatsu vs Catterpilar – Comparative Essay
These key success factors can be categorized in three different roofs namely, manufacturing or production, distribution and brand image. First, manufacturing higher quality products was crucial since machine dependability and reliability was important for contractors. Many construction companies all over the globe operated under severe cost and time constraints and companies’ main target was to schedule machine use efficiently and minimize downtime.
High capital and energy costs made some construction companies to use their machines longer. Consequently, providing the replacement and spare parts on short notice and continuous Improvement of the parts were essential. Also, profit margins for parts ND attachments were significantly higher than for whole machines which encouraged most suppliers to pay more focus on providing these parts to their customers on a timely manner. Moreover, the ability to manufacture product capacity ahead of demand was Important.
For Instance, Caterpillar’s excess capacity policy served not only as deterrence to competitors but also as a mechanism enabling company to respond to the industry’ wide swings in demand. This also helped companies to successfully maintain their low cost manufacturing position through higher scale of volume. In addition, a full and diversified product line was necessary or companies to gain completive advantage over others. Also, the ability to be a shock absorber provided some companies flexibility and ability to adapt to cyclical downturns more easily than others.
Spare parts were much less prone to cyclical downturns and the vast variety of machines In the field provided a baseline of business. Next, heavy Investment In product quality and upgrading programs Like Total Quality Control (ETC) led to higher quality and efficient equipments where research and development programs provided the ability to produce great quality products with the use of new technology to meet customer needs and new trends. Second, distribution of high quality products and worldwide service through dealers was another vital factor.
Internationally, the MME manufacturers sold through dealers, who provided direct and after-sales service. Although the sales were made direct, it was often the dealers who provided marvelous service to customers. The worldwide network of dealers was very crucial because these dealers were capable of providing service and spare parts backups to customers in no time. Being able to service and repair equipment and supply spare parts anywhere around the globe on a timely manner was a powerful strategy for the construction companies to be nominative.
For Instance, 100 Independent dealers handled Comates products and were backed by the company’s computerized parts supply system, which guaranteed a replacement part within 48 hours anywhere in the world. Also, the typical overseas 1 OFF were a major marketing asset and a valuable entry barrier in this industry. Third, brand image was another essential factor to attract loyal customers and respected dealers. Reputable name for high quality products and services in the construction industry provided the companies a competitive advantage over others. For instance,
Caterpillar had built an unmatched reputation for its quality and services in the construction equipments where its loyal network of dealers in North America, Europe and Latin America were the important source of its strength. A survey conducted in the late asses showed that the reputation of a manufacturer and capability of its loyal dealers were the most critical factors that customers would take into consideration when selecting a supplier. With a great reputation and highly loyal network of dealers a manufacturer had a better opportunity to dominate the MME construction industry successfully.
As for Caterpillar & Kumquat’s nominative position in 1985, Caterpillar was the largest player in the MME industry with a market share of 43% worldwide, while Comates was the second largest player with a market share of 25% worldwide and 60% in their home country Japan. They both face competition from other established players like Clark Equipment, J. J. Case, International Harvester, Fiat-Allis, and John Deere, as well as specialized local players in North America and Europe. Generally, profit margins were substantially higher for parts and attachments than for whole machines.
With the benefit of a labor cost advantage relative to U. S. ND European competitors, and of the postwar Japanese construction boom, Comates has managed to focus on extensive advertising, lower price and higher quality of their products to maintain their competitive position. Their products were priced 30% to 40% below the equivalent Cat products, allowing them to increase their market share very promptly; their cost reduction plans consisted in reducing the cost by 10% while still maintaining and improving product quality. Simplification was about reducing the number of parts. Value Engineering” re-designed the products to save cost and to increase added value, maintain low-cost ND high productivity. Moreover, Comates noticed that the Japanese domestic construction industry was leveling off in the sass’s, and elected to aggressively expand abroad, developing several exclusive dealer networks where it saw potential future growth like in markets like USSR, China, Western Europe, North American, Asia, and Latin America. In Europe, as part of their geocentric strategy, their marketing subsidiary handled distribution and provision of field service.
Comates used internal yen/dollar exchange rate to make them more profitable at the worst-scenario rate. In order to better compete against Cat’s product line made of more than 120 products, Comates increased their product line as well, always applying total quality control to ensure the highest quality in every aspect of operations, and always making sure to incorporate the latest technology thanks to its own R&D laboratory – since these are some of the key successes factors in the industry – and launched customized lines with focus on markets with needs that were different from the Japanese market.
Consumers’ confidence was increased by the product’s longer durability and double Engel of warranty period compared to Cat’s, and by their efficient assistance service networks, another key industry key success. Caterpillar’s competitive position in 1985 relied on their huge reputation due to high quality products backed by effective operating 605 branches worldwide, low dependence on debt and excellence at servicing/repairing equipment and supply parts anywhere around the globe and especially locations where these dealers were a major marketing asset and important entry barrier to its competitors.
Hence, Caterpillar was able to charge a price premium of up to 20% over competitive products, while maintaining the low cost manufacturing position. Heavy investments were constantly made in R&D to assure product leadership, as well as widespread advertising in specialized magazines like the prominent Engineering News Record, since these are industry key success factors. Manufacturing wise, Cat was highly integrated backward – nearly 90% of its products were substantially the same and parts were made in-house, which facilitated flexibility and quality control.
Therefore, their products were sophisticated, durable, reliable, and constantly adapted – they boasted 120 different machines serving almost as many market segments. Enabling all this depended on hiring high quality human capital, who was receiving higher wages than Comates, and who were trained continuously such as having to read newsletters emphasizing the importance of increasing productivity to meet foreign competition. Dealers were regularly taken care of as well: Cat helped them maintain inventory, and conducted regular training programs for them and product demonstrations for their customers.
Based on the current state of Caterpillar, specific actions are needed to be taken immediately to help regain some of the sales and profits lost in the last three years. After extensive research, our group’s initial recommendation is to not overreact. It is important to realize that this company has had an outstanding amount of success based on its classic strategic position instilled throughout the company of high- quality products and effective service. The company still has a 43% share in the industry and although this figure has dropped in recent years, it is still very respectable.
Throughout Caterpillar’s entire history, it now has four years where it incurred losses, which would be considered very successful by many companies worldwide. With that said, three of those four years of losses have happened these past three years so some changes are necessary to bring the company back to acceptable amounts of sales and profitability. The first order of business it to eliminate the recent communication issues with our customers. For years our differentiation strategy has led to our products being known for their exceptionally high-quality and reliability.
Over the last half of the decade, the disconnection between Caterpillar and their consumers has become alarming. When our major competitor is sending out personnel to specific countries, specifically Australia, in an attempt to better understand their individual needs and create a product to cater to those needs. We have been charging a premium on all of our products and without any real value-added features. A bulldozer in America is the same bulldozer in India and in Australia. To maintain our differentiation strategy, we need to create individual products that cater more to the needs of specific customers.
A Comates dealer is quoted as saying “When you are selling against number one, you need some price advantage. But we tell contractors we can give them 10% more machine for 10% less money. That’s not selling price in my book”. That is a clear indication that we to send our employees to the construction sites to find out specifically what they need to succeed. The biggest task for construction companies are managing time. They are forced to meet deadlines and use their resources correctly.
We have to take the same mentality, and create products that not only allow them to meet their deadlines in a more efficient way, but for us to utilize our resources in the most appropriate way. One final point to this topic comes from the current global economy we are in. Distressed economies and weak currencies are not likely to buy products eased on reputation alone. Our price premium can be a hindrance to these developing economies and unless we differentiate ourselves with product lines that appeal to their countries needs, it is unlikely they will choose us.
Local differentiated products are the key to the future success of our company. The second order of business is to take a good hard look at our company financial. The most alarming statistic we found was that Caterpillar has to sell $6. 8 Billion dollars a year in products Just to break-even. In 1983, we would have had to command 63% of the market Just to break-even ($6. /$10. 95 – Ex. 1 Comates). Our recommendation would be to reduce the production levels in the U. S. And spread it out across the globe. Although we have reduced the number of facilities in the U.
S. In recent years, our current production levels are still too high resulting in high labor costs and foreign exchange issues and ultimately lower profits. The consistency of the company has been great, “All CAT products were the same, no matter where they were made”. This leads us to believe that the company can see the same type of success it has seen in the past while saving on costs. We have been hurt badly over the last couple of years because 68% of our non-U. S. Sales were manufactured in the U. S. And the U. S. Dollar has appreciated around 40%.
This has resulted in our company receiving fewer profit margins in overseas sales, which is a major concern because our margins were much higher in the U. S. Before the recession (20% to 7%). Based on our recommendation, we would utilize the assembly plants we created in years past in countries around the globe and enhance their capabilities. This would allow for Caterpillar to maximize their production levels in certain areas of the world, as well s utilize the first recommendation and customize machinery as it pertains to a certain area of the world.
This would not only lower export costs and mitigate foreign exchange risk, but it would also lower our exceptionally high labor rates to a more respectable level. When our labor costs are two-thirds of overall costs of the product, something needs to change. By increasing production in countries such as China, Japan, Indonesia, or India our company could lower the overall cost and gain a much higher margin based on our current differentiation strategy. Lastly, this would help eliminate some of the excess capacity issue the industry is currently experiencing.
When the industry was experiencing great times, our capacity levels were less than 75% which could mean two things: either we have the capability to produce more if demand increases or we have too much capacity for the current industry environment. Clearly, we have seen that we had too much extra capacity which has resulted in our closing of ten U. S. Plants. By implementing this recommendation, we can gain more respectable levels of around 95% capacity as we enter the maturity stage of the industry. A third recommendation we would make involves the use of