Emerging Markets, Emerging Needs

Caterpillar's 85-year leadership position has been largely built on the ability to listen and respond to customers. In recent years, emerging markets have produced a new type of customer with new needs.

"Over the past two decades, new customers in developing economies have increasingly comprised a larger portion of the global industry, especially in countries like China where a lot of newer contractors are entering the business," explained retired Construction Industries Group President Rich Lavin. "These newer contractors value an entry-level product as they come into the industry. They're looking for a machine that performs well, but with different features and service support."

Emerging economies are not only producing a new type of customer, but also developing a new type of competitor.

"These new competitors are entering the market aggressively, and clearly targeting these new customers by providing products and services aimed at their unique requirements," said Lavin. "If we're going to compete effectively against the growing number of emerging competitors — especially our Chinese competitors — we must have a utility product line that meets the needs of our customers."

Caterpillar's utility brand, Shandong SEM Machinery Co., Ltd. (SEM), targets this fast-growing customer base in China, as well as other parts of the world. Although the value proposition of SEM is fundamentally different than that of the Cat brand, SEM offers sturdy machines with greater parts availability and support than other utility competitors.

Since purchasing SEM in 2005, Caterpillar has invested significant resources to develop new utility models with improved product quality and reliability. SEM has expanded its historical product line of wheel loaders to cover a range of utility requirements from two to six tons. It has also added three motor graders and three soil compactors to its product line. In 2013, SEM is introducing SEM-branded track-type tractors to further expand its product portfolio.

In addition to expanding the product line, SEM has also added capacity. When complete in 2014, SEM^™ wheel loader capacity will have nearly tripled since becoming part of Caterpillar. SEM has expanded manufacturing to begin production of SEM-branded track-type tractors for China and other growth countries, ramping up through 2013 and 2014. Beyond product and manufacturing expansions, SEM also has expanded its sales and service support. SEM^™ dealers are now in 33 countries to provide sales, parts and basic service support capabilities. In 2013, SEM is adding dedicated parts distribution centers outside China.

"Our SEM^™ product line serves us very well," explained Caterpillar Vice President Tom Bluth, who had responsibility for earthmoving in 2012. "It gives us the opportunity to position ourselves in China and other growth markets, but more importantly, it enables us to serve customers early in their industry experience and move them over time toward the Cat brand value proposition, establishing a relationship that will keep them with Caterpillar for the long term."