Abstract:

Massive expansion in China’s infrastructure and cities has created a country-wide construcion boom. New roads, buildings, and public works projects have caused increased demand for construction equipment, especially for multi-purpose vehicles such as a wheel laoder. Quick, and capable of performing a large variety of tasks, the wheel loader is must-have on any industrial job-site. As such, the growth of the market has been tremendous, and there are many manufacturers (both old and new) jockeying for a piece of the action. Caterpillar and other wheel loader manufacturers (such as Komatsu and Volvo) are in country, and have equity positions with domestic wheel loader manufacturers. Working with their business partner, Cat has set aggressive sales goals, but has found the Chinese market resistant to the charms of their brand. In China, the wheel loader buyer bases purchasing decisions on price, and does not value durability, parts availability, used equipment, rental eqiupment nor program financing – all of which are the key elements of Cat’s global success to date. With this project, Caterpillar hopes to gain a better understanding of the China wheel loader marketplace, and the market potential for new, used, and rental equipment.

Background:

Caterpillar is a Fortune 100 company and the world’s largest manufacturer of construction and mining equipment, diesel and natural gas engines, and industrial gas turbines. Caterpillar is ranked first in its industry, with more than 26 billion dollars in assets. Caterpillar manufactures, sells, and distributes a wide assortment of heavy-industry equipment, including track-type tractors, track loaders, wheel loaders, integrated tool carriers, excavators, mining shovels, off-highway trucks, scrapers, motor graders, backhoe loaders, paving products, agricultural equipment, forest machines, wheel tractors and compactors, telescopic handlers, compacts, engines, and gas turbines. As the industry leader, Caterpillar is constantly innovating and growing. Over the last five years alone, it has introduced 296 new or improved products, and has received almost 2,300 patents. In 2004, Caterpillar signed a partnership agreement with Chinese wheel loader manufacturer SEM. A 40% owner in SEM today, Cat expects to leverage the option to buy the remaining 50% of SEM in 2007. SEM is currently the 7th largest WL producer in China, but growth after a new model release in June ’06 is expected to be strong. SEM currently sells new WL’s through brokers who also sell other WL brands. Caterpillar plans to gain significant market share in the next three years through improved product quality and an expanded product offering, but these improvements will not be enough to achieve their goal of #1 market share by 2010. To succeed, Caterpillar must both create brand awareness and loyalty with both the brokers (dealers), and customers, but must also move quickly to define the used and rental equipment markets.

Project Description:

Currently there is very little information available on competitive sales, the used equipment or parts markets; in order to move forward, research and benchmarking must be performed on the current state of the Chinese market. A first step will be to estimate the Chinese domestic WL used equipment market size through estimates of historic new machine sales, first-life estimates and attrition rates by manufacturer. Additionally, benchmarking other industries and markets will be helpful in defining the market opportunities, target customers, and distribution strategies. With a general market understanding in-place, we can define a market study to be executed which may include an in-depth investigation of used equipment markets, perceived value of used equipment, parts distribution, and exclusive dealerhsips vs existing brokers. As time allows, the results of these studies may recommend further avenues of investigation which may include: exploration of potential sales partnerships both global and local, review services and products offered, and propose strategic recommendations.

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Filed under: Emerging Markets

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