___________________________________________

Expansive emergence of Caterpillar Inc. (CAT) in the African

market – For a projected forecast – 2025
[ Based on official Announcement of 2017 by Caterpillar]

REFLECTIVE PAPER FOR GLOBAL IMMERSION – GLOBAL

AWARENESS-1

Presented by:
Prashant Verma
Roll No. – MJ18GL062
SP Jain School Of Global Management

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 Table of Contents

Introduction ............................................................................................................................................................... 3

Why Africa – through district office in Cote D’Ivore?....................................................................... 4

“PESTEL” Analysis and Factor Ranking

a) PESTEL Analysis……………………………………………………………………………………………………………………………………………….5-6
b) Factor Ranking……………………………………………………………………………………………………………………………………………………6

Internationalization Processes
a) Brief Timeline……………………………………………………………………………………………………………………………………………………..7
b) Internationalization Models…………………………………………………………………………………………………………………………….7-8

Conclusion…………………………………………………………………………………………………………………………………………………………8

Bibliography……………………………………………………………………………………………………………………………………………………..8

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 Introduction
The main objective of this report is to provide an insight of one of the world's largest heavy equipment
manufacturer originating from an idea of agricultural tractors producer to one of the largest manufacturer of
wheel loaders in the construction equipment market and further expanded businesses in mining equipment,
engines, generators, turbines, diesel-electric locomotives and recently in the apparels business. Other than
construction equipment production, Caterpillar Inc (CAT) is also involved in financing and insuring services
to the customers through dealer networks and involves in the licencing of its trademarks and logos. As of
2017, CAT employees 98,400 full-time employees out of which 56,200 are employed outside the U.S.1.
The global divisions of CAT are categorized in 4 major zones, namely the Asia/Pacific,
Europe/Africa/Middle east (EAME), North America and Latin America through which totally CAT serves
about 180 companies with 500 worldwide locations. In connection of this given data, the trans-nationality
index (Table 24, April 2015 to March 2016) has marked Caterpillar Inc. in the top 100 multi-national
enterprise with a TNI of 81 and a TNI percentage of 51.22.

The conception of Caterpillar Tractors and Co (Caterpillar Inc.) dates back to 1925 with the idea of merging
two companies – Holt manufacturing and C.L. Best tractors Co. who understood the mutual need of
expansion looking at each other’s strengths in the international and local market respectively. CAT had
served during the World-war 2 which gave it an international exposure since then in the earth-moving
equipment market of the world and the conditions then helped build its supply chain networks to cope-up
with the faster movement of increasing demands. With moving time and the recession of 1981 in the US,
adverse effects on the financial condition and global strengthening of CAT were visible.
CAT had faced rival companies – such as Komatsu entering the domestic and global markets with cost as
a strength. In response to this scenario, CAT maintained to build itself on quality on a customer focussed
environment and had not acted a cost-cut in its production sector. CAT’s adaptiveness on its research
outcomes on the recession scenario made it to a JV with Mitsubishi motors enabling it to enter a new
product line of the automated forklift trucks which had a customer focus of warehouse equipment when the
emerging countries started expanding their storage through warehousing.
Caterpillar has ever-since been active in merging and acquiring – with significant companies such as the
FG Wilson, Bucyrus Intl, Electro-motive diesel, Progress-rail services, Hindustan Powerplus Ltd. (Hindustan
Motors), Perkins Engines etc. which has helped it to expand its market, knowledge, ideas, locations and
R&D from the point of conception thereby allowing an exposure to different product-line segmentation of
the market demands.

The expansion/internationalization theories and strategies that CAT has used in the past, present and can
foresee for the futuristic planning for the development of the organization, are discussed ahead in this
report. Strategic Planning for global expansion is about finding the best approach based on the SWOT
analysis concerning the PESTEL factors of the region in focus. Having a forecast of the possible future
issues that may be faced by the organization not only enhances the readiness but would also prove to be
beneficial to the organization on whole. Caterpillar’s mission statement expresses their willingness to
enable economic growth through infrastructure and energy development, and to provide solutions that
support communities and protect the planet. This mission to a future that we are to see, in my view,
continues to give an ethical approach in positioning itself as an embarkment of a brand in this ever-
changing economy and demography. In lieu of this mission statement with this report, I would make an
approach to the following question arising for CAT’s proposition of investing in Abidjan, Cote d’Ivoire,
Africa:
• Is Africa worth to invest for Caterpillar Inc. in expanding the organisation*?
(*Refer “Conclusion” Page 8)

1
https://www.caterpillar.com/en/investors/sec-filings.html - “Employment” FORM 10K (released 15th Feb 2018)
2
unctad.org/Sections/dite_dir/docs/WIR2017/WIR17_tab24.xlsx
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 Why Africa – through district office in Cote D’Ivore ?

Caterpillar Inc., in 2017 had announced to expand investments in Africa acknowledging it to be the fastest
growing middle class in the world3 and expected to rise further in a couple of decades. With this said, CAT
foresees a tremendous potential for growth in construction, agriculture, mining and power 4.

FIG. 1 :
North African economies
move up in FDI rankings

Source : fDi Markets

Referring to Fig. 1, Africa has demonstrated its potential through the FDI rankings ladder as an emerging market
for Caterpillar. Also, a factor to be considered for this decision is the human capital which is yet underexposed to
a global working environment thus a lack in training and education in general as compared to other emerging
markets is inevitable. The CLMS (Caterpillar learning management systems) provides various free-of-charge
courses which aims at promoting awareness, work ethics and industrial insights which leverages Caterpillar’s
importance in Africa. Now, African working youth who have a connection to the internet can begin to develop a
career as technician for CAT with Caterpillar certification through learning systems. Pilot programs in English-
speaking Nigeria, Portuguese-speaking Mozambique and the French-speaking Democratic Republic of Congo
are in place, and Caterpillar has now expanded Technicians for Africa to a total of 15 African countries5.
Last year, Caterpillar announced that it will establish a new district office in Abidjan, Cote d’Ivoire to enable itself
to deepen its roots to the customers in Ivory Coast and neighbouring countries which are in focus of the
emerging market based on the FDI rankings. The office is projected to gradually increase the number of
employees in Ivory Coast over the decade.
Looking at the factual data, out of the total sales revenue, channels outside the US account for 59% of the
sales6. This can be summarized to understand that even though CAT is the largest construction
manufacturer in terms of sales revenue, it is empowered drastically by its global footprints. The need to
expand in an emerging market, Africa satisfies the commitment of CAT to increase investments further by
2020 to support social causes like creating employment and women literacy.
Fig. 2 :
Projection of “TOP
DESTINATION” for real
estate and construction
– Caterpillar’s district
office announcement
Source : FDI Markets

3
http://www.uhy.com/the-worlds-fastest-growing-middle-class/ - George Soros’s Statement
4
https://www.caterpillar.com/en/company/sustainability/sustainability-report/stories/caterpillarinvestsinafrica.html
5
https://www.caterpillar.com/en/company/sustainability/sustainability-report/stories/caterpillarinvestsinafrica.html
6
https://www.caterpillar.com/en/investors/sec-filings.html - “sales and revenues” – sec10k form
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 “PESTEL” ANALYSIS & FACTOR RANKING
The PESTEL analysis focusses on the uncontrollable external factors for Caterpillar Inc. which may affect
the local structure of the organisation, employment and trade issues. The analysis takes into consideration
the whole African region connecting the dots to the Ivory coast (Cote D’Ivore) and the conclusion shall mark
highest importance among all the below mentioned factors. The analysis is limited to a recent 5-year mark
and is limited to assume its impact based on future forecasts by 2025.

Political:
Although the African countries have gone through two major forms of governance, they yet remain stuck in
the middle of a new one. Initially, it was the fight for independence from the colonial ruling and then later
gaining freedom from dictated-governance. Now, many African countries are facing a struggle of getting
proper democratic governance which is why the African region is politically unstable. The relations between
Ivory coast and other neighbours is relatively good in the context but the Ivory coast has its own unresolved
issues – one of the major concerning ICC’s involvement in trial of ex-president Laurent Gbagbo against the
killings during the 2010-11 crisis and extending with the new President Ouattara to continue the trials within
the country which may result in revolts and riots in near future.

Economical:
Poverty is at the heart of Africa’s problems. The downfall would primarily harm the poor of the continent.
For example, Ghana and Kenya have postponed the sovereign bond issue worth $800million7. In this
outline to grow and overcome other issues in the region, governments are not willing to reduce taxes to
boost per capita income which has also seen a plunge in the commodity prices. These economic events
from a micro-economic issue rise to the macro-level, for instance, South Africa escaping its credit rating
which has an impact at the industrial level getting affected by investor’s loss of trust. For the Ivory coast,
current economic conditions are stable but due to political or social issues, economic factors may come
under light if the government spending face diversion.

Social:
One of the major concern in social factors is the insecurity amongst civilians – the primary reasons being
terrorism groups like Boko-Haram and Al-Shaabab responsible for civil wars across Somalia, Ghana and
South Sudan. Other than terrorism, under-exposure of the population to education is a concern in terms of
global values and conditions of growth which the government finds as a pillar to succeed and the inability of
the civilians may not turn in as expected. Unemployment around neighbouring regions may lead to a
downfall in growth which could limit the expansion of FDI’s around Ivory Coast.

Technological:
With west-African countries still at a developing stage (eg. Ethiopia, Congo, Rwanda, Mozambique, Ivory
coast etc.) technical know-hows are at the very basic level of this emerging market. Surviving essentially on
exports of raw materials and mass imports of goods, African economies can be categorized concluding that
the labour workforce dominates this sector for employment. So far, the need to develop in the technical
sector and education on the technical exposure is still a requirement which is to be aided by overcoming
the economic and social drawbacks.

Environmental:
Threats to Africa’s environment, its ecosystems, and biodiversity can be ruled out from the loss or
destruction of ecosystems, factors such as deforestation, poaching and pollution. Sometimes these threats
also emerge from the political and social issues of over exploiting the natural resources, to counteract on
which, USAID’s Regional Environmental Compliance Team is working together as treaties. A lot has been on
going to counter these challenges by having national agreements on topics ranging from climate change,
hazardous wastes, marine dumping etc. The Ivory Coast is rich in natural resources having reserves of

7
http://carnegieendowment.org/2009/04/15/impact-of-financial-crisis-on-africa-pub-22995
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petroleum, natural gas, diamonds, iron ore, and gold among others8 which make illegal mining a
considerable factor (eg : overmining has caused landslides). Some natural phenomenon’s such as drought
and famine put up a challenge in the manufacturing/distribution business.

Legal:
It cannot be assumed that in less commercially mature markets, the law may be volatile. For example, In
Swaziland, there is generally a time limit of over 33 years to make a claim against another party,
unless it is against the government, in which case the time limit is only 90 days. Due to the still
underlying range of education and awareness, the quality of courts highly affects how it may stand in
the African legal jurisdictions. For the countries fighting social issues such as terrorism may not pay
importance to Industrial conflicts and may also not have a separate court for ruling out Industrial
issues. Judges may apply the strict letter of the law, without regard to the commercial result. For the Ivory
coast, one of the main issues is the uncertainty of legal protection due to an inefficient court system9.

FACTOR RANKING:
Based on the above-mentioned factors and a brief understanding of the scenario’s impacting the
ease of doing business, the factor ranking the highest on priority to be kept in concern prior to
entering the African market is:
Social Factor -
To justify my point, I would like to recall that the emerging market of Africa is projected to have a
high GDP turnout in the coming years (ref : Fig.1) with the rising trade and environmental
challenges which can eventually absolve with the pressure mounting on economic growth using
the FDI’s. This would expectedly do well for the economic challenges as well and after gaining a
market speculation, the government will try to focus on resolving status quo. But, despite all the

possible positive outcomes, there is a claim that by 2020, 60 million people are expected to
migrate out of their home countries10 mainly due to desertification. Also, other social factors such
as terrorism encourages emigration. To this, I would conclude that the Social challenge remains
on top of the priority list of the PESTLE analysis.

8
http://www.usaidgems.org/Documents/FAA&Regs/FAA118119/WestAfrica2013.pdf
9
https://www.gov.uk/government/publications/exporting-to-cote-divoire/exporting-to-cote-divoire - Challenges
10
https://www.theguardian.com/global-development-professionals-network/2017/jul/19/will-africas-great-green-wall-
discourage-migration-to-europe
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 INTERNATIONALIZATION PROCESSES OF CATERPILLAR INC.
In this section, we will discuss two major models of business internationalization that CAT may relate to in
expanding its organization further in the African region based on a brief timeline that CAT has followed in
the past:
• 1914 - Holt "Caterpillar®" track-type tractors are used by the Allies in World War I.
• 1940: The Caterpillar product line now included motor graders, blade graders, elevating graders,
and electrical generating sets through acquisitions.
• 1950: Caterpillar Tractor Co. Ltd. in Great Britain is established, the first of many overseas
operations created to help manage foreign exchange shortages, tariffs, import controls and better
serve customers around the world.
• 1983: Caterpillar and Mitsubishi Heavy Industries Ltd. form one of the first joint ventures in Japan to
include partial U.S. ownership. Caterpillar Mitsubishi Ltd. started manufacturing of automated forklift
trucks.
• 1986: The Caterpillar Tractor Co. changes its name to Caterpillar Inc. - a more accurate reflection of
the enterprise's growing diversity.
• 1997: The company continued to expand, acquiring the U.K.-based Perkins Engines with the
addition of Germany's MaK Motoren recently.
• 2005: Caterpillar responded to several tragedies around the world, including the Asian Tsunami
disaster, hurricanes along the U.S. Gulf Coast and earthquakes in South Asia marking itself as an
organisation concerned with global social cause.
• 2011: Caterpillar acquires Bucyrus International Inc. extending ahead to formation of a new division,
the expanded mining products.
• 2014: Caterpillar expands its “Values in action” to expand sustainability.
Two internationalization models in accordance to my understanding of the research may be the following:

1. The OLI model of Dunning:

Fig. 4 : Dunning eclectic model (OLI)

Source: International Business –

Challenges in a changing world by Janet
Morrison

Using the OLI/ Dunning’s eclectic paradigm, approach of Caterpillar Inc. to the market may be strategized
over the factors as follows:
a) Ownership-specific advantages:
CAT has an established name in the African region of its business scope and the expansion with
growing economy would enable Caterpillar’s pre-presence in the market to deepen its roots further into
the emerging countries – such as the Ivory coast. With a focus on a sustainable environment and
marking the importance of its presence in the development of Africa through media and an approach to
Africa for mutual benefits, the ownership advantage with the brand name of CAT is an advantage.
b) Location advantages:
The location of Africa as an advantage can be described in two main aspects: growth as an emerging
market and cost-effectiveness considering resources and workforce. Since Africa, in specific the Ivory
coast, is expected to see a growth in the FDI’s, CAT’s investment in the country will yield an expansion
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 in the other industrial expansions and inceptions. Having mentioned the country-specific advantage,
The New Mining Code provides tax incentives during the exploration phase based on the exploration
permits announced by the government11. With caterpillar’s acquisition of Bucyrus Inc, the expanded
mining products can yield a major market expansion in the region. Also, the location advantages can
benefit in supply chain networking across the African region through road transport networking.
c) Internalization advantages:
The internalizing advantages of business expansion in Africa demonstrate CAT’s reach to a cheaper
resource market and closer proximity to an approach using the internalized production, trading and
sourcing that would give a competitive edge to the organization over its competitor. This factor is
majorly cost-effective and greater control for the internal operations of the organization and can
emphasise its motive of a vital survival in Africa.

2. Prahlad and Doz model:

Fig. 5 : Prahlad and Doz model

Source: Wordpress.com

With the recent traits of global expansion and whole nature of the heavy equipment manufacturing industry,
Caterpillar focusses on maintaining a global strategy and with reference to looking at the Prahlad & Doz
model from Fig. 5, it is clearly understood that the cost pressure is high with the technological innovation
and advancement worldwide and not region-specific due to high price involvement in altering production.
With the rise in market capital and FDI’s along Africa, the long-run establishment can benefit from the
geographic location of the Ivory coast and create and export base to other African, sub-Saharan regions
and can heavily benefit from the growing relation of west Africa and South Africa thereby having an indirect
channel to the bigger markets as BRICS treaties.
Conclusion
To conclude the expansion strategies and approach of CAT through analysis of the above-mentioned
factors whether controllable or uncontrollable, it is suggestable for the organisation to invest in the African
region and the decision to open a regional office in the west African republic of Ivory coast enhances the
brand perception with the projected evolvement of the countries in the region-specific. Although the social
uncontrollable factors may affect the employee quality, the psychology of an individual may change with the
rise and rapid expansion of the sub-Saharan region and market evolution with bring brand name may also
increase the habitation when large organisations transfer mature knowledge workforce to this region.
Bibliography
• International/ Global Business: An Emerging Markets Perspective by Prof Suresh Vishwanath
• https://www.gurufocus.com/news/291342/caterpillars-acquisitions-and-international-expansion
• World Investment reports – UNCTAD 2017
• www.gouv.ci – Official website of Cote D’Ivore (Ivory coast)
• www.caterpillar.com – For history, sec10K filings.
• Doing Business Report-2018

11
http://www.nortonrosefulbright.com/knowledge/publications/119189/ivory-coast-amendments-to-the-mining-code
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