Sources of competitive advantage in firms are an area that strategic managers and researchers have struggled to understand for long. The firm’s environmental opportunities and threats and how they relate to its internal weaknesses and strengths were the traditional core strategy applied. This logic was based on the idea that the internal strengths of a firm can be used to exploit environmental opportunities, neutralize environmental threats and avoid internal weakness aiming to gain competitive advantage over other organizations. When formulating an effective competitive strategy the SWOT analysis and other such tools of analysis play a major role in ensuring the best possible strategy is formulated . This paper will assess the three heavy industry firms (Komatsu, Caterpillar and Sany) and the strategies they have applied in time to maintain a competitive edge between themselves and with other companies. Also the future plans of the three firms with regards to continued growth, expansion, and dominance will be observed.
Caterpillar Inc.’s has been a producer and supplier of the world’s infrastructure for more than 75 years. Its partnership with Caterpillar dealers has seen it realize its objective of creating positive and sustainable change on all continents. Caterpillar Inc., which is a Fortune 100 company, is the leading manufacturer of mining and construction equipment, industrial gas turbines, natural gas and diesel engines . Its technology is applied in transportation, construction, mining, energy, forestry, electronic power generation, financing, and logistics.
Komatsu Ltd is an equipment manufacturing company which is involved in the development, manufacture, marketing, and sale of products and services of industrial use and that are of a diverse range. The company’s range of product lines includes hauling, loading, excavating, construction and forestry equipments. The sectors benefited by these products are the mining, industrial, utility, and construction sectors. Although located in Japan, the company has expanded and presently has other plants in the United States, the United Kingdom, Germany, China, Thailand, Canada, Sweden, Brazil, Indonesia, and Brazil.
Sany heavy industry
Unlike Komatsu and Caterpillar which are established global firms, Sany is growing heavy industry firm, located in China. It aims to be included among the construction machinery heavyweights soon. Sany plans to rival Komatsu and Caterpillar as it expands to the international market. The company specializes in manufacture of construction and holistic equipment. One reason behind Sany’s plans of expansion into the international market is the declining domestic market . However, looking at the growth of Sany, it is appropriate for the organization to expand and apply its strategies to worthy competitors. Bloomberg data estimates that in the past five years Sany has managed to increase its concrete equipment sales 13-fold. 2010 alone saw the sales of concrete equipment jump above the $5 billion mark.
Caterpillar vs Komatsu vs Sany
Caterpillar in its mission aims to be an international business leader and leading United States exporter. Its products and components are manufactured in more than 48 U.S. facilities and in approximately 64 other locations in 23 nations worldwide. Caterpillar realizes the importance of the human resources. In addition the company placed great importance on research aimed at technological advancement and innovation. Caterpillar Inc. came in 1925 about after the C. L. Tractor Company and the Holt Manufacturing company merged purposing to better their machines, engines and support services for customers and eventually lead in building the world’s infrastructure. By 1940 the company had expanded its product line to include blade, motor and elevating graders, electric generator sets and tractors. Its move to start military equipment during the Second World War was a smart strategic move which improved their sales in a significant manner. The company continued to dominate the industry and in 1981 it introduced yet another strategy. In this instance it utilized the external opportunities and formed the Caterpillar Financial Services Corp . which offered financing options globally. The additional option offered by the financial Corp. of giving loans to customers and dealers worldwide has ensured growing target customers and nations are able to purchase thir equipment and also improved customer loyalty. The financing Corp. prices the products of the company at competitive rates and its financing options are customized to ensure the customer’s financial needs are met.
Caterpillar’s major rivals in the Japanese market were Komatsu and Mitsubishi. Being the second largest EME Company in the world Komatsu posed the biggest competition for Caterpillar. In order to gain a competitive advantage over Komatsu, Caterpillar created a joint venture with Mitsubishi. In 1965, Caterpillar Mitsubishi (the new company from the two) started operating in Japan. Later on it was renamed Shin Caterpillar Mitsubishi Ltd . Today the company is second largest maker of mining and construction equipment in Japan. Through forming a joint venture with Mitsubishi Caterpillar ensured that it did not enter the Japanese market as a New Entrant but rather seemed to be an expansion of the Mitsubishi Company therefore Komatsu could not have the advantage of being already established in the Japanese market. The strategy was calculated and appropriate. However, another approach that Caterpillar would have included in its strategy would have been application of Komatsu’s model of innovation. Through adopting innovation Caterpillar would have attacked Komatsu in the strength that most distinguished it in the market.
Caterpillar’s applies the porter’s strategic model whereby the new Entrants that it faces include the ne heavy industry company Sany. The barriers that pose as a problem to the company include international relations policies and innovation. Caterpillar does not focus on innovation rather it places importance on expansion, it must not be overlooked that innovation is an appropriate strategy considering the biggest competitor of Caterpillar utilizes that approach. However, Caterpillar chooses to ignore this opportunity to offer Komatsu competition in its primary export product. The rivalry that Caterpillar exposes toward Komatsu is not against any business ethic but rather it continues to manifest the six porter’s rules. The threat of substitutes does not apply for the Caterpillar Company since it is already established and a company aiming to give it significant competition has to be level with it in the international market. Sany is the company likely to face the threat of substitution as it is yet to establish itself in the international market and were an organization to substitute it on the global front it would affect the firm in a big way. When the issue of buyers arises in the six porter model the Caterpillar industry rests safe in the comfort that it has already built confidence in its customer base of offering guaranteed customer services that accompany the purchase of products.
Komatsu’s reaction to the new rival was to revitalize its company. Prior to the entry of Caterpillar into the Japanese market, Komatsu exported whole machines. It then realized that it needed to expand into other markets as well and set up assembly plants in other nations. Although this strategy helped improve the sales of Komatsu and reduce the competition it faced from Caterpillar, it did not offer complete success due to Komatsu’s lack of an effective dealer network on the global level. Caterpillar continued getting the big contracts because it had already created a customer base globally and built customer trust. The Caterpillar Financial Services Corp. gave Caterpillar another competitive advantage as rental, lending, and other financial options were available to the customers on the global network.
There has been a very impressive trend in the participation of China in the heavy industry exports in the past decade . Presently its export volume is high ranging in an almost similar level with U.S., Japan and Germany but whereas their growth rate is low, China’s growth rate is significantly high. The fact that China has become competitive in the heavy industry market implies that its manufacturing companies have grown too. Six years ago, the highest ranked Chinese company in the Yellow Table (from the international construction magazine) was ranked 33rd. Sany, in the April 2011 findings release took 7th place while Zoomlion and XCMG take the 9th and 10th places respectively .
Sany is yet to reach the market level of Komatsu and Caterpillar. However its impressive growth makes it a rapidly rising and potential rival of the two global heavyweights. Realizing that Caterpillar and Komatsu are well established in the international market, Sany focused on the domestic market initially until its sales projected its readiness for expansion into the global market. Sany utilized the 31 patent approaches in its strategy in the domestic market. Another strategy was the continual increase of market share through purchase of stock. As Sany strategizes on entering the international market, it should consider that the global rivals it is projecting to meet have a low growth rate and that its potential to grow at an even higher rate is its biggest advantage.
One major success of Caterpillar Inc. is its penetration into multiple international markets therefore realizing its original objective of being a world leading manufacturer of infrastructure. The internalization process that it has utilized over time has allowed it to maintain the strategic global business it has enjoyed for long . The growth and expansion of the Caterpillar Financial Services is also another achievement that has made it possible for Caterpillar Company to reach an even wider customer base. The nations without a physical Caterpillar presence have not been overlooked by the firm. The company’s Global Accounts Division provides these nations with financing.
The move by the then President of Komatsu, Yashinari Kawai, to leverage MITI’ opening of the EME industry gave it a foundation to practice innovative quality control and also provided the company with an advantage when Caterpillar and Mitsubishi formed a joint venture. The two goals that President Yashinari set have been achieved. Yashinari aimed to acquire Total Quality Control Systems and the best advanced technology from abroad. In 1964, the company was awarded the Deming Prize for quality control. Komatsu’s strategy to upgrade the small medium sized bulldozer’s quality proved effective. The move (termed as Project A) led to a 65% market increase share of the company since this type of bulldozer was the primary product of the company then . Project B which was launched in 1972 was also successful. Through upgrading of quality and reliability of the large bulldozer and other export machines, the ratio of exports to sale increased.
Strategies for the future
The strategy that Caterpillar plans to execute in the future is focused on the customers. Quality, production, cost and capability will be among the areas addressed. The company’s original mission of providing the needed infrastructure to customers worldwide and to be the leading firm in the heavy industry still remains. Since it is focusing on the customers, their needs and how the products reach them, distribution is top on the formulation process. Caterpillar plans to apply an offensive approach defending its international business status as the global leader in the heavy industry . Since the company is already stable, established, and delivering, maintaining this impressive performance presents the biggest challenge. Increased financial service options, improved competitive prices and introducing innovation are some of the strategies that will obtain an offensive stance. Timely delivery of products, improved customer relations, and provision of high quality products to the customer is the other approach that targets customer satisfaction and loyalty. Company execution and accountability will also be included in the strategy for the future since it will build trust in the customers.
Komatsu has in the past utilized upgrades to fend off competition. The strategy set for the future similarly applies the concept of improvement of quality and reliability. Kunio Noji, the present president of the company, expressed the company’s plan to acquire companies dealing with the manufacture of electronic components and systems so that it can upgrade its hybrid and mining trucks. The firm also plans to continue with their innovative approach with Mr. Noji expressing the company’s research and dedication to produce a new excavator model.
The main agenda on the strategy model of Sany is expansion into the global market. The company has in the recent past and is presently hiring foreign and flexible employees who will help improve the company’s quality and accelerate sales abroad. Given the weakness of the domestic market, Sany has applied an appropriate strategy to expand. Furthermore, its 2010 impressive profit illustrates the necessity of the company to join the international market as it has gained enough financial recognition to compete with global heavyweights. Additionally the company aims to expand its product line to include other equipment in line with the needs of the customers.
The future looks bright for Caterpillar and Komatsu while Sany is expected to take some time before it can completely penetrate the international market and consider itself established. Caterpillar has maintained being the leading firm in the heavy industry for a long time therefore sometimes creating an obvious assumption that it cannot be rivaled out of that position. However, the offensive strategy that it attempts to use does not focus on innovation and the advance in technology has made customers to appreciate innovation rather than customer focused services. Other companies especially in China show growth and may become new Entrants. However, they do not pose as a threat to Komatsu and Caterpillar since these companies enjoy the advantage of being already established and stable.
Caterpillar has opted for a strategy that will give positive feedback but there is uncertainty whether the income statement will reflect the success. The cost incurred in a customer service improvement strategy does not bring immediate and returns to cover for the expenses. A marketing and sales strategy would have been better. Komatsu has realized success from its quality and reliability improvement strategy in the past therefore the possibility of its strategy to succeed is high. Sany is an emerging company in the international market therefore expansion of its product line is an appropriate strategy. However, the company should consider utilizing the concept of reliability and longetivity. Since it is not yet globally recognized, the customers it will transact with will want absolute guarantee that the machine bought will perform as it is supposed to. Also the provision of a part without delay when needed will have to be guaranteed. An example is the purchase of a Caterpillar machine that will cost the customer more compared to purchasing it from another company. However, the after sales services that follow the purchase of the Caterpillar machine can be top notch enough to make one consider the expensive cost acceptable. Supply of a spare part within 24hours of request is an example of efficiency and impressive service offering that illustrates reliability and longevity. Another strategy for Sany would be a joint venture such as the one done by Caterpillar when it realized it would face strong competition from Komatsu.
The value aspect of the three firms can apply to Komatsu in its projected future competitive strategy whereby Komatsu plans to improve its quality and reliability. Once the quality of Komatsu is guaranteed to improve, the value of the products of the firm will improve consequentially and thereafter the profits realized will reflect the change in value. Value creation applies best in the factors that promote profit realization.
Strategic management requires assessment of the company’s strengths and weaknesses and the environment’s opportunities and threats. Three countries can be compared as they have competed in the same market for a considerable time. The competitive strategy applied by each company is different from the other. Sany, Caterpillar and Komatsu are firms in the heavy industry which have applied various strategies to keep ahead in the market. Komatsu has prioritized improvement in quality and reliability as its most utilized strategy. Caterpillar has merged, created a joint venture, expanded its product line and introduced a financial services Corp. to offer ranging financial services globally. Sany has applied a central system, 31 patent approaches and increasing its market share as its strategy. The future strategy projected for the three individual companies illustrates the potential of Sany and Komatsu to continue exhibiting growth. However, Caterpillar plans to focus on improving customer services which may be a long-term strategy that would reflect results later on rather than immediately. Caterpillar would rather have opted for improved marketing and sales activities which would have realized similar results but in a faster manner. The three companies have achieved a number of their original objectives with Caterpillar being recognized as the world leading firm in the heavy industry and Komatsu realizing success from its project A and project B.
“Sany Heavy Industry Co. plans to go global to compete with Komatsu and Caterpillar”. News Heavy Equipment. Retrieved December 14, 2011 from http://heavyequipment.com/news-heavy-equipment/sany-heavy-industry-co-plans-to-go-global-to-compete-with-komatsu-and-caterpillar
Barney J. B. “Looking Inside for Competitive Advantage”. The Academy of Management. 1995. Retrieved December 14, 2011 from http://www.jstor.org/pss/4165288
Barry N. “Heavy Industry: China’s New Level of Competitiveness”. The China Sourcing Blog. 2011. Retrieved December 14, 2011 from http://www.chinasourcingblog.org/2011/11/heavy-industry-chinas-new-leve.html
Globaldata. “Komatsu Ltd. (6301) – Financial and Strategic SWOT Analysis Review”. Market Research. 2011.
Haggerty, J. “Caterpillar Loses Ground In China’s Excavator Market”. Wall Street Journal. 2011. Retrieved December 14, 2011 from http://online.wsj.com/article/SB10001424052702304567604576454201635431380.html
Haycraft, W. “Yellow Steel: The Story of the Earthmoving Equipment Industry” University of Illinois Press, Urbana, Illinois, pages 183-184. 2000.
Jao, A. “Caterpillar vs. Komatsu: Four Decades of Global Competition”. 2010. Retrieved December 14, 2011 from http://angelinajao.wordpress.com/2002/10/29/caterpillar-vs-komatsu-four-decades-of-global-competition/