For my individual assignment I choose to review and the case study about the Caterpillar Company. Nothing is more familiar on a construction site than the bright yellow heavy equipment manufactured by Caterpillar, Inc. Caterpillar Inc., headquartered in Peoria, Illinois, has dominated the world in earth moving, construction, and materials machinery for more than 50 years. Their global dominance; however, created a stagnant and risk averse environment. Komatsu, a leading Japanese competitor, had gained market share by offering low cost, high quality options in a variety of product lines while Caterpillar was busy raising prices in their existing product lines at an average of 10% per year. Caterpillar executives ignored the threat and continued to support its historical management values. Poor economic conditions and overly aggressive expansion and modernization plans hit Caterpillar hard in the 80's. Profits were down and Caterpillar lost $1 billion in a period of three years.
This necessitated the closing of several plants, and a complete revitalization of the expansion plan. To jumpstart Caterpillar's sluggish reactions to these factors, George Schafer took the reigns as the new CEO in 1985.
To what extent is the competitive position of Caterpillar against Komatsu dependent on the dollar/yen exchange rate? Between mid-1996 and early 1998, the dollar appreciated by over 40 percent against the yen. How do you think this affected the relatively competitive position of Caterpillar and Komatsu?
Caterpillar's competitive position over Komatsu was very dependent on the dollar/yen exchange rate, although they didn't think so. Within a seven-year span between 1980 and 1987 the dollar rose and average of 87% against ten other counties currency. The dollar was doing so well in the US that foreign investors wanted to get in our market and invest to convert their currency into ours and make money.