On the path of silent progress, capital mergers and acquisitions have always been Caterpillar's primary means. In 1859, 33-year-old Daniel Best invented a machine that could thresh and process grain right in the field, naming it the grain thresher, which was welcomed by farmers. Best then established a processing plant in Oregon to mass-produce this machine; in 1882, Best developed another combine harvester, and orders poured in. Since then, Daniel Best Agricultural Tool Works became an important agricultural machinery enterprise. Almost simultaneously, Benjamin Holt, who operated a lumber processing plant, also entered the agricultural machinery manufacturing industry and designed and built an epoch-making combine harvester that replaced gear transmission with crawler wheel drive; this product quickly became the industry benchmark.

Afterwards, Best and Holt remained in competition and gradually developed into the two most powerful companies in the industry worldwide, a situation that lasted until 1908. In 1908, before deciding to retire, Best made an industry-changing decision: to sell his company to Holt. Since then, the two companies were united through merger and acquisition and gradually acquired a new name——Caterpillar. Perhaps precisely because of this innate merger gene, Caterpillar is adept at this method of capital merger and acquisition and has formed its own capital operation system on this basis. Below, let us analyze the advantages and disadvantages brought by this system.

Caterpillar's Operating Core

As mentioned above, Caterpillar was formed by the merger of two major companies, Best and Holt, and thus it also inherited the strengths of these two companies——Holt's scientific research and Best's dealer system. In fact, the dealer system is one of the most important cores of Caterpillar's successful progress.

Having participated in the development of Army machinery, Caterpillar grew rapidly after World War I. Due to the dissemination and demonstration effects of the war, orders from countless countries began to pour into this enterprise that was showing vigorous vitality. This was also the first time the enterprise faced global operations. What Caterpillar needed to consider was: how to establish the foundation of its own sales channels? The difficulty lay in the fact that this was not a fast-moving consumer goods company; in a field where experts deal with experts, a stable and solid cooperative foundation is more important than anything else.

Ultimately, Caterpillar decided that, apart from some newly opened markets, original equipment manufacturers, and the U.S. government, it would continue to base its core on the dealer system. Over a century, Caterpillar has established a vast dealer sales network in nearly 200 countries and regions worldwide, and through these dealers it has built a solid bridge between the enterprise and its customers. Generally speaking, the dealer system has three major advantages: first, the dealer system can rapidly expand the market and helps reduce payment collection risks; second, the manufacturer can maintain the initiative, as dealers only sell products on behalf of the principal and do not own the products; third, the dealer system can bring two-way communication and long-term stable cooperative relationships.

Caterpillar's dealer system is even more refined on this basis and has become a classic case in Harvard University textbooks. In the view of Caterpillar's leaders, the most important core of the dealer system is its distribution system, after-sales service, and close relationships with customers. In the words of Caterpillar people: “Although we believe we have better engineers and manufacturing plants than our competitors, we are convinced that an efficient distribution system and high-quality after-sales service are our greatest advantages over our competitors.”

This understanding directly binds Caterpillar's dealers and consumers firmly to its ship. On the issue of dealing with consumers, Caterpillar has the following philosophy: consumers who purchase Caterpillar equipment also pay for service fees and brand value, so even 30 years after purchasing Caterpillar equipment, consumers can still buy Caterpillar parts. To ensure this promise is fulfilled, Caterpillar coordinates with dealers in product, parts, inventory management and control, logistics, equipment maintenance procedures, and other aspects. For example, dealers can obtain 400,000 different parts in the shortest time simply through computer network inquiry and ordering systems. Caterpillar further promises that Caterpillar products anywhere in the world can receive needed parts replacement and repair services within 48 hours. Caterpillar President Edward Rapp has repeatedly emphasized his company's product positioning: We are not a company that simply sells products and that's the end of it; purchasing our products means Caterpillar will continue to serve you.

In dealing with dealers, Caterpillar's approach is even more remarkable. Lin Tao, a partner at Wipro Consulting, once drew a surprising conclusion based on years of working at Caterpillar's U.S. headquarters: to some extent, the relationship between the two parties has gone beyond the scope of a business relationship, forming a “family-like” long-term and close relationship. Lin Tao said that, on average, a dealer is often controlled by the same family or the same company for more than 50 years, including many overseas dealers that cooperated with Caterpillar as early as its merger in 1925. In fact, Caterpillar has a special internal mechanism to proactively help dealers continue their family businesses. For example, when the head of a private dealership reaches about 50 years of age, Caterpillar holds seminars on tax issues and financial and management succession plans for his family members. During the head's working life, these seminars are held 2-3 times to ensure his successor is ready. For another example, Caterpillar encourages dealers to have their children participate in dealership work from an early age. When these dealers' children graduate from college, Caterpillar helps arrange full-time jobs; generally, Caterpillar arranges for these people to first work as parts salespeople for 2 to 3 years, then run the engine business, and then do after-sales service work. Through such training, when the dealer's head is ready to retire, Caterpillar can already identify who is more capable of taking over.

This trust built over generations is a “treasure” that other companies find hard to imitate. Typically, Caterpillar's contract with its dealers is only a few pages long and has no expiration date. Either party can terminate the contract by notifying the other within 90 days without giving a reason. From the 1980s to the early 1990s, Caterpillar began to face severe impact from Japanese companies, and global sales fell by nearly 40%. Compared with competitors, Caterpillar's disadvantage was mainly high cost, but Caterpillar believed this was not the dealers' fault but was caused by the company's own lack of competitiveness. Therefore, during the three years from 1982 to 1984, Caterpillar's daily losses reached an astonishing $1 million, with a total of $953 million, yet at that time no dealer worldwide terminated its contract. In the end, after several years of losses, Caterpillar regained most of the market and re-established its worldwide industry leadership.

The Secret of R&D

Those familiar with Caterpillar know this fact: when the industry enters low growth or even negative growth, Caterpillar's investment in R&D and new products does not decrease but increases. Judging from past situations, Caterpillar's R&D is usually achieved through two aspects: first, acquisitions; second, establishing R&D centers in important sales regions.

In terms of acquisitions, Caterpillar does not make temporary decisions or acquisitions arranged by the government like many Chinese companies today. Instead, before an acquisition, it considers whether the acquisition conforms to its strategic goals, and these strategic goals usually have three considerations: first, the product chain; second, brand enhancement; third, market response. Undoubtedly, Caterpillar is a successful global enterprise that can sell its products with ease throughout the world. In fact, in the eyes of some, continuously improving its industrial chain through acquisitions is the best way to achieve leapfrog R&D. In 1981, Caterpillar acquired an American company called Solar Turbines, a small giant headquartered in the United States that produces industrial gas turbines and turbocharged engines. Its operating model is completely different from Caterpillar's: it does not go through dealers but contacts major customers directly. Caterpillar's approach was to maintain Solar Turbines' independence. Now, Solar Turbines has branches in more than 40 countries and regions, with products distributed in 96 countries and regions, and is one of the top 50 exporters in the United States. Isn't it interesting? Caterpillar not only bought turbocharged engine technology that could弥补 its industrial chain shortcomings, but also allowed this “golden hen” to continue laying eggs.

Such acquisitions are not isolated cases. In 1997, Caterpillar acquired Germany's MaK Motoren GmbH, completing its marine engine offerings; in 1998, Caterpillar acquired the UK's Perkins Engines, filling its technical gap below 250 horsepower, and since then Caterpillar has had a full range of engines from small to large; in 1999, Caterpillar acquired the UK's FG Wilson, completing the expansion of its generator set business; in 2000, Caterpillar acquired Hindustan Motors in India, completing the product layout for mining trucks in India; in 2006, Caterpillar brought Progress Rail Services under its wing, giving it railway product and equipment service capabilities at once; in 2008, Caterpillar acquired Canadian company Lovat, a manufacturer of large excavators, giving it a say in subway, reservoir, and other construction projects.

Caterpillar has perfected the method of establishing R&D centers in important sales regions. According to insiders, Caterpillar currently has multiple R&D centers worldwide. In addition to its U.S. headquarters, it has R&D centers in Japan, China, India, Germany, and France. Among them, China is the second-largest research center outside the United States, with five major bases in Wuxi, Qingdao, Xuzhou, Tianjin, and Beijing; the Wuxi R&D center is the core of China R&D. In addition, Caterpillar has established strategic cooperative relationships with 12 Chinese universities, including Peking University, Shanghai Jiao Tong University, and universities in Northeast China, Shandong, Shaanxi, Hubei, Jiangsu, and other regions, conducting “seed” cultivation and screening through cooperative projects, scholarships, and lectures. In fact, the Chinese government and many companies are also imitating Caterpillar's approach, enriching and varying it under the name —— industry-university-research collaboration, but the actual results are not as obvious as Caterpillar's.

According to Sun Xiaobo, Chairman of Caterpillar Technology R&D (China) Co., Ltd., it took only three years for the Caterpillar Wuxi R&D Center from facility preparation and establishment to development projects and then to project results implementation. At the beginning of its establishment, Caterpillar determined its product development strategy for China and global emerging markets: the Wuxi R&D center leads, with North American and European R&D centers providing support; global high-end product development is led by overseas R&D centers, with the Wuxi R&D center cooperating. Therefore, at the beginning of its establishment, the Caterpillar Wuxi R&D Center focused on solving the three new problems of new products, new facilities, and new employees. In this regard, Sun Xiaobo said: “It is precisely because of this precise, localized positioning adapted to the Chinese market that the Wuxi R&D Center has established a good R&D ecosystem.”