Question

1. Should Komatsu continue to produce high quality excavation equipment for the premium customer segment?
2. What changes in the Chinese market have led to the rise of companies like SANY (LOOK AT THE CHARTS IN THE BACK OF THE CASE – KOMATSU LOSING IN CHINA EXHIBIT 7; GAINING ELSEWHERE. LOOK AT RISE OF SANY – EXHIBITS 11 AND 12
3. What moves is Caterpillar making in response to market change and rise of SANY?
4. Should Komatsu make any change to its strategy (MAKE SURE YOU COMPLETELY UNDERSTAND WHAT THAT STRATEGY IS)
5. Should Komatsu remain focused on premium customer segment?

Answer 1

Please mentioned below the answer

1) Komatsu sells construction equipment at high prices on the premium market where customers appreciate machine performance and service quality. ⇒ Business which leads competitors by using ICT ⇒ Maintenance contract ⇒ Timely delivery of parts, etc. Number One share of the premium market by emphasizing operations designed to enhance customers’ productivity. Penetrating the market through machine demonstrations designed to appeal quality of machines developed and produced by Komatsu technologies. Enclosing customers by offering high-quality product support. Helping customers operate their machines stably and improve their productivity by offering periodic machine inspection, maintenance and repairs, as well as timely delivery of parts. While successful bidders are chosen by the government only for their nominal prices, Komatsu promotes improvements of jobsite operations designed to reduce operating costs and improve productivity of top three private-sector customers by segment. As a result, Komatsu has achieved about 60% share of machines in their fleets, and steadily expanding sales of parts through service contracts, such as the Full Maintenance Contract.

2) Within China, rapidly changing demographics, rising incomes, increased consumer spending and an increasingly open business environment have all helped to make the Chinese market increasingly attractive to Western businesses across a variety of industries. Similarly, declining sales in their home markets has forced many US and European companies to relocate China firmly to the centre of their long-term global growth strategies.

Breaking into the China market successfully can seem like an almost impossible task to foreign companies with limited or no experience of doing business there. The aim of this white paper is to highlight some of the key challenges that foreign companies face when entering the China market for the first time, and to offer some practical recommendations that can be integrated into a company’s China market entry strategy and expansion plans. The nature and make-up of markets in different parts of China also varies considerably, which means that foreign companies should think carefully about which geographical location offers the best vantage point to target the broader China market. In the past, foreign businesses have often been drawn to coastal provinces such as Zhejiang, Guangdong, Jiangsu and Shanghai, due to higher populations and incomes in those areas. In particular, foreign companies involved in consumer markets have tended to focus their attentions on these higher income coastal regions

3) In Caterpillar’s 3Q 2019 earnings call, the company announced a 6% year-over-year drop in sales and revenues for the third quarter, the first quarterly decline in nearly three years. CEO Jim Umpleby attributed the decline to a sharp reduction in dealer inventories in anticipation of lower end-user demand. The company also cut its forecasts for 2019 annual results based on an assumption of continued reductions in dealer inventories and flat customer demand through the fourth quarter.

Umpleby cited “uncertainty in the global economic environment” as the primary reason for the increased caution exhibited by both dealers and end-users. Caterpillar breaks down its revenue into four regions: North America, Latin America, EAME, and Asia Pacific. In the third quarter, only Latin America saw an increase in sales and revenues; however, this region accounts for less than 10% of CAT’s total revenues. Sales in the Asia Pacific region shrank by 14% during the quarter, which includes a 29% plummet in sales to construction industries. Umpleby noted that the weakness in the Asia Pacific is outside of their main markets in China and Japan.

4) Komatsu adheres to a basic strategy of manufacturing its products in the areas to which they will be supplied and has therefore established a global network of production and sales bases. The Company employs a mother plant system in which plants with development manufacturing in Japan are positioned as “mother plants” and assigned responsibility for safety, quality, costs, and delivery schedules at overseas plants manufacturing the same products (“child plants”). Leveraging the strengths of a flexible manufacturing system, we develop a business that is at the same time global as well as matched to our customers and to the communities that we serve