Caterpillar is an American Fortune 100 corporation which designs, develops, engineers, manufactures, markets and sells machinery, engines, financial products and insurance to customers via a worldwide dealer network.
In one such network, Caterpillar has been investing heavily in China, having set up 25 facilities across the nation as it seeks to gain a significant share of what is undoubtedly the largest construction and mining equipment market in the world. Typically at any one of these facilities stretched across China, Caterpillar will display their machinery and a local network of dealers look to gain technological insights so as to then find prospective buyers in China. What is interesting is that already, a fair percentage of the equipment is being bought for projects across Eurasia and also Africa.
Crucially, what Caterpillar have established is that the huge growth driver that has come about is precisely because of the One Belt One Road (OBOR) initiative. What is also clear is that demand for Caterpillar’s array of equipment in the Asia-Pacific region comes about because a sizeable majority is bought in China because of the tax rebates granted to those projects under the umbrella of the OBOR. Sales have increased over 20% in the last quarter of 2017, compared to the previous year. Many of these sales then end up being utilised in projects as far afield as Belarus in Europe and across the African continent.
Whilst Caterpillar faces competition from cheaper alternatives made by Chinese companies, they are faring better in the markets where Chinese equipment suppliers are not competitive and in addition on occasions, Chinese products are viewed as inferior in terms of quality and technology. The other advantage that Caterpillar has is its vast array of dealerships and branches across the world which can easily supply spare parts and assist with repairs for equipment which was originally sold in China.
In further developments Caterpillar has initiated a financial arm which has been lending to Chinese companies. What this demonstrates is that US companies can potentially be well placed to take advantage of the OBOR initiative and calve a niche for themselves in a very lucrative marketplace. Caterpillar are also fully aware that as the myriad of OBOR projects, in the pipeline, come online there is going to be a corresponding sharp increase in demand for their product lines.
What this also shows is that US companies who have a competitive edge in terms of their technology can compete inside the Chinese marketplace and rather than trying to hit China with tariffs on steel and aluminium, the Trump administration would be better placed to encourage Chinese companies to look to enter the US marketplace in a reciprocal manner as well as encourage other US companies to seek opportunities in China, something which Caterpillar is currently able to do with a high degree of success.
In leiu of this article about Caterpillar in China doing so well, due in large part to the OBOR, would it be a smart move to invest in Caterpillar? 🙂