Caterpillar Inc (CAT): Porter's Five Forces Analysis

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Threat of New Entrants: Low Caterpillar’s main industry of machinery has many barriers to entry which makes it difficult for new organisations to enter the market. It is a mature and highly competitive industry with few dominant competitors who have cemented their position over the decades. Furthermore, these corporations have sustained a competitive advantage over any new entrant that tries to enter into the industry. The large initial capital investment needed for new entrants is another major barrier. The cost of machinery and manufacturing is expensive. It is hugely important and costly to have a global presence in manufacturing as it is extremely expensive to ship machinery to clients around the globe. Maintaining profits in this competitive industry is very difficult. The top competitors in the industry have an extensive portion of the entire market, nearly 80% of the market they control. This makes it extremely difficult for small entities entering the market to hold onto their position in the market and stay competitive. Bargaining Power of Suppliers: Low/Moderate Caterpillar faces a low to moderate risk of the bargaining power of suppliers. This is due to the large numbers of companies providing resources for Caterpillar and in turn, it can change its suppliers easily with no major setbacks. Additionally, Caterpillar make their own engines and assembles their own machinery, this helps the company save money in the long run. The suppliers of raw products such as steel, rubber, plastic and other raw materials are the only concern to Caterpillar. These raw material industries have many corporations and they control the individual resource prices. The corporations must keep the cost to the customers comparative to... ... middle of paper ... ...petition is a dynamic process that continually reformulates structural change in the industry and if structural transformation is rapid, the five forces model has limited predictive value. It is also perhaps not feasible to evaluate the attractiveness of an industry independent of the resources a firm brings to that industry. It is thus argued that this theory be coupled with the Resource-Based View (RBV) in order for the firm to develop a much more sound strategy. It provides a simple perspective for accessing and analysing the competitive strength and position of a corporation, business or organisation. Works Cited Matthew J. Anderson, "Caterpillar Inc. (CAT)" Fisher College of Business Equity Research, November 20, 2012 http://fisher.osu.edu/supplements/10/9160/11.20.12%20Matthew%20Anderson%20Final%20Analyst%20Report%20-%20Caterpillar%20Inc..pdf

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