SWOT Table for Caterpillar Inc.
Strengths
Caterpillar Inc. is the leading manufacturer of heavy equipment for construction, energy, and mining industries. Caterpillar (2019) reports that the company has operational excellence that consists of “the core competencies of safety, quality … and a competitive and flexible cost structure” (p. 6). Caterpillar Inc. has a large distribution network including 168 dealers that employ 157,000 workers at 2,163 branches (Pope, 2019). The company maintains strong relationships with its dealers by providing them with training and offering them favorable terms of collaboration (Caterpillar, 2019). The firm highly invests in R&D; for example, in 2018-2019, it invested $3.5 billion in this field, which resulted in the development of new products (Caterpillar, 2019). The company also has a wide product range, and the majority of the product line is heavy equipment.
Weaknesses and Threats
Caterpillar Inc. has several weaknesses and is faced with certain threats. One of the weaknesses is legal proceedings concerning environmental issues or intellectual property rights, which may have negative effects on the company’s operations and financial situation (Caterpillar, 2019). The company has a high debt to equity ratio, which was 278.38% in 2016 (Magnini et al., 2017). Apart from that, the company is involved in debt agreements, and the breach of their covenants may limit the company’s financial flexibility (Caterpillar, 2019). In addition to internal weaknesses, Caterpillar Inc. is faced with external risks, such as changing geopolitical environments or strict environmental regulations (Pope, 2019). Exchange rate fluctuations may also negatively affect the company’s performance by causing an increase in its product prices in foreign markets.
Weaknesses versus Opportunities
While the company has certain weaknesses, it also has opportunities to strengthen its position in the market. For example, stable free cash flow provides an opportunity for investing in new products, which can address the weakness of the need for more investment in R&D. New trends in the consumer behavior can encourage the company to explore new markets and diversify its product line. Global growth in the construction market and growing demand for energy is also beneficial for the company since these changes provide it with the opportunity to develop new products to meet market demands (Magnini et al., 2017). Caterpillar Inc. also has an opportunity to increase its reduced revenues by growing its market share in the existing markets or entering new ones.
Problem-Solving Strategies
The company could mitigate its weaknesses and risks by using existing opportunities. For example, Caterpillar Inc. could analyze new customer needs and invest in the development of innovative products that would meet these emerging needs, thus providing the company with a competitive advantage. Perhaps, the company could turn its attention to products other than heavy equipment to further diversify its product line. Caterpillar Inc. could also monitor emerging startups to be able to notice new promising technologies. The company has already had the experience of successful acquisitions that helped it gain a competitive advantage, and it could use this experience in the future.
References
Caterpillar. (2019). 2019 annual report: Executing our strategy. Web.
Magnini, N., Goldsberry, S., & Brennan, R. (2017). Caterpillar Inc. (NYSE: CAT). Krause Fund Research. Web.
Pope, S. (2019). Caterpillar innovates as competition escalates. Morningstar. Web.