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The industrial equipment manufacturer Caterpillar silently finished its strategic deployment in China without being noticed by the others.
Presently, most people in China focus on the auto giants, like GM, Toyota, Volkswagen, Hyundai, Ford etc., and their actions in China. Numerous reports about how these companies develop in China could be seen. However, the largest industrial equipment manufacturer Caterpillar from the USA – quite a few people care about this company’s development – got impressive achievements silently in 15 years in China. It is a steel giant who sees real success in China. What it manufactures are not the cars people used to see but the industrial equipment and dynamic system. Before long, people will see the US0-style heavy trucks made by Caterpillar.
Caterpillar set up its branch in Beijing, China in 1996. From then on, its operation in China is always branded with high efficiency and impressed many of its partners and competitors. When it entered into China, it put all the leading industrial equipment manufacturers into the list of acquisition targets – it didn’t plan to nibble on them but to swallow them. However, still quite a few people care about Caterpillar’s ambitious plan until it realized another goal of producing heavy trucks in China.
In 2003, Caterpillar once said it would invest 10 billion US dollars to build a global manufacturing base in China. Caterpillar now has its production and marketing arms in China touch the fields of construction equipment, mining devices, diesel and natural gas engines, industrial gas turbine and heavy trucks. Apart from the manufacturing bases for core machines, engines and components, Caterpillar also gets engaged in logistics, re-production, financing and renting, training, marketing, research and development. It has multi-thousand employees in China.
On the list of Caterpillar’s acquisition targets, there are a lot of Chinese engineering companies in Xiamen, Guangxi, Xuzhou, Xuanhua – they are the most famous and largest industrial equipment manufacturers in China. If Caterpillar successfully acquires them, they will be included in its global planning and be run under its global strategy. Meanwhile, Caterpillar requires all the brands to synchronize with global brands and restricts the use of Chinese brands. All in all, Caterpillar aims at turning all its acquired Chinese enterprises into its affiliated companies. Caterpillar’s measures in China tell that the US company has a long and sustainable goal in China. Simultaneously, Caterpillar also reveals its ambitious plan in China.
In these 15 years, Caterpillar is widely and deeply engaged in China’s industrial equipment manufacturing. Its goal is different from the others’ as Caterpillar not only wants to seize the Chinese market, but also intends to bring China industrial equipment into its global industrial chain based on which it can build stronger power. In some experts’ eyes, Caterpillar’s existence poses a great threat to China’s local companies as well as this country’s industrial equipment manufacturing.
Assuming Caterpillar had controlled the major equipment manufacturing companies in China, their business, products, research, development, brands and prices will be determined by Caterpillar. Then it will set up a monopolized price in China and damage the interest of relevant companies in China. “We can not let Caterpillar control our manufacturing industry or our competitive power will be greatly damaged,” said one of the experts.
These experts also said: “Right now we only have several local industrial equipment manufacturers, like Sany, to defend our honor. Previously, we opened our door widely to the foreign companies and gave them favorable policies. Now our country has entered into the new era featuring win-win strategy. Therefore, we should treat the foreign investment more seriously and cautiously. In addition, the local companies’ competitive power should be strengthened to keep China’s manufacturing from being controlled by foreigners.”
After China joined in the WTO, mergers and acquisitions became one of the most important ways for foreign companies to get into China. According to the statistical data of the Ministry of Commerce, 30% of the foreign companies having finished mergers and acquisitions are based in the USA; 27% of them come from Europe and the rest come from Japan and Southeastern Asia. The foreign companies got into China for three factors – the favorable tax policies, cheap labor force and low environment protection cost. Most of these companies consider China as the manufacturing bases of their global industrial chain.
The super-national treatment for the foreign companies greatly reduced their operation cost and made their profit-making ability higher than the local companies. This enabled foreign companies to expand in China at a low cost and depress local companies with acquisitions and lowering prices. They were seeking every opportunity to monopolize China’s market. They gradually gave the previous pattern of getting into China through joint venture and cooperation. At present, two thirds of the foreign companies prefer to set up exclusively-owned institutions in China.
At the beginning, China gave foreign companies the super-national treatment in order to attract the capital and technologies from the foreign countries. This is a policy full of characteristics of an age, in which China has nothing but shortage in capital, foreign exchange, technology and management experience. However, this era has been gone and China no longer needs to attract foreign companies with super-national treatment.
But during the dozens of years, many foreign companies have already made use of this opportunity to earn great profit for them. Caterpillar is one of them. Now let’s date back to the year of 1996 and see how this US company expands in China.
In 1996, Caterpillar (China) Investment Co., Ltd. was founded in Beijing. From then on, Caterpillar built more than ten manufacturing bases in China, producing hydraulic crawler excavator, compactor, diesel engine, crawler unit, casting, power-driven grader, crawler dozer, wheel loader, heavy trucks and relevant components.
On May 9, 2007, Caterpillar saw the establishment of its new manufacturing base in Wuxi, Jiangsu. The new plant is a part of Caterpillar’s long-term development strategy in China. The plant in Wuxi has become a major base for the components tailor-made for Caterpillar’s machines.
In 2009, Caterpillar set up an new research and development center in Wuxi and founded a wheel loader factory in Suzhou, Jiangsu. In addition, it has completely controlled a Xuzhou-based industrial equipment company and expanded its production capacity. It also holds some shares of Shandong SEM Machinery Co., Ltd., which is a major manufacturer of wheel loader in China. According to its plan, it will build an excavator plant in Nanjing to further expand its production capacity in China.
On September 29, 2010, Caterpillar declared the plan of further expanding its production line in China to meet the increasing demand. The new plant in Wujiang, Jiangsu specializes in manufacturing small-sized hydraulic excavator weighing less than eight tons. The new plant, which will be finished in 2012, is under the the construction product department of Caterpillar. This department has plants in the USA, Japan, Brazil and Great Britain. According to an insider from Caterpillar, the plant in Wujiang is a part of their long-term investment plan in China. When it is put into production, Caterpillar’s leading place in China’s construction equipment industry will be enhanced.
On October 18, 2010, Caterpillar signed an agreement with Liyuan Hydraulic Co., Ltd. about founding a joint venture.
Three months prior to that, Caterpillar and Navistar, another heavy truck producer, signed an agreement with JAC Motors, an automaker in China. The agreement valuing 4 billion yuan (USD 586 million) includes the clauses of building two joint ventures specializing in producing trucks and engines. Among them, JAC Motors and Navistar respectively contribute 50% of the capital to the project of diesel engine. The truck plant will be established in the JAC Motor’s manufacturing base in Hefei, Anhui and the planned production capacity reached 40 thousand units. The cooperation gives Caterpillar and Navistar the ticket to China’s heavy truck market with the value of 150 billion yuan (USD 21.9 billion). Their main competitors are Daimler and Volvo.
According to the agreement, the main products of the joint venture in Hefei include medium and heavy trucks, such as JAS Sword, Gallop, and TranStar. The engines matching these trucks are also on the list of products.
In November 2010, Caterpillar CEO Doug Oberhelman announced the plan of bulding plants in China and Brazil. “These two countries have faster economic growth rate than the US,” said Oberhelman. A fortnight later, Caterpillar unveiled the plan spending 300 million US dollars building the most advanced factory in Tianjin. Another title for this project is the largest engine manufacturing base of Caterpillar in China. With the implementation of the plan, Caterpillar has established its two pillar products in China – heavy trucks and engines.
Presently, most people in China focus on the auto giants, like GM, Toyota, Volkswagen, Hyundai, Ford etc., and their actions in China. Numerous reports about how these companies develop in China could be seen. However, the largest industrial equipment manufacturer Caterpillar from the USA – quite a few people care about this company’s development – got impressive achievements silently in 15 years in China. It is a steel giant who sees real success in China. What it manufactures are not the cars people used to see but the industrial equipment and dynamic system. Before long, people will see the US0-style heavy trucks made by Caterpillar.
Caterpillar set up its branch in Beijing, China in 1996. From then on, its operation in China is always branded with high efficiency and impressed many of its partners and competitors. When it entered into China, it put all the leading industrial equipment manufacturers into the list of acquisition targets – it didn’t plan to nibble on them but to swallow them. However, still quite a few people care about Caterpillar’s ambitious plan until it realized another goal of producing heavy trucks in China.
In 2003, Caterpillar once said it would invest 10 billion US dollars to build a global manufacturing base in China. Caterpillar now has its production and marketing arms in China touch the fields of construction equipment, mining devices, diesel and natural gas engines, industrial gas turbine and heavy trucks. Apart from the manufacturing bases for core machines, engines and components, Caterpillar also gets engaged in logistics, re-production, financing and renting, training, marketing, research and development. It has multi-thousand employees in China.
On the list of Caterpillar’s acquisition targets, there are a lot of Chinese engineering companies in Xiamen, Guangxi, Xuzhou, Xuanhua – they are the most famous and largest industrial equipment manufacturers in China. If Caterpillar successfully acquires them, they will be included in its global planning and be run under its global strategy. Meanwhile, Caterpillar requires all the brands to synchronize with global brands and restricts the use of Chinese brands. All in all, Caterpillar aims at turning all its acquired Chinese enterprises into its affiliated companies. Caterpillar’s measures in China tell that the US company has a long and sustainable goal in China. Simultaneously, Caterpillar also reveals its ambitious plan in China.
In these 15 years, Caterpillar is widely and deeply engaged in China’s industrial equipment manufacturing. Its goal is different from the others’ as Caterpillar not only wants to seize the Chinese market, but also intends to bring China industrial equipment into its global industrial chain based on which it can build stronger power. In some experts’ eyes, Caterpillar’s existence poses a great threat to China’s local companies as well as this country’s industrial equipment manufacturing.
Assuming Caterpillar had controlled the major equipment manufacturing companies in China, their business, products, research, development, brands and prices will be determined by Caterpillar. Then it will set up a monopolized price in China and damage the interest of relevant companies in China. “We can not let Caterpillar control our manufacturing industry or our competitive power will be greatly damaged,” said one of the experts.
These experts also said: “Right now we only have several local industrial equipment manufacturers, like Sany, to defend our honor. Previously, we opened our door widely to the foreign companies and gave them favorable policies. Now our country has entered into the new era featuring win-win strategy. Therefore, we should treat the foreign investment more seriously and cautiously. In addition, the local companies’ competitive power should be strengthened to keep China’s manufacturing from being controlled by foreigners.”
After China joined in the WTO, mergers and acquisitions became one of the most important ways for foreign companies to get into China. According to the statistical data of the Ministry of Commerce, 30% of the foreign companies having finished mergers and acquisitions are based in the USA; 27% of them come from Europe and the rest come from Japan and Southeastern Asia. The foreign companies got into China for three factors – the favorable tax policies, cheap labor force and low environment protection cost. Most of these companies consider China as the manufacturing bases of their global industrial chain.
The super-national treatment for the foreign companies greatly reduced their operation cost and made their profit-making ability higher than the local companies. This enabled foreign companies to expand in China at a low cost and depress local companies with acquisitions and lowering prices. They were seeking every opportunity to monopolize China’s market. They gradually gave the previous pattern of getting into China through joint venture and cooperation. At present, two thirds of the foreign companies prefer to set up exclusively-owned institutions in China.
At the beginning, China gave foreign companies the super-national treatment in order to attract the capital and technologies from the foreign countries. This is a policy full of characteristics of an age, in which China has nothing but shortage in capital, foreign exchange, technology and management experience. However, this era has been gone and China no longer needs to attract foreign companies with super-national treatment.
But during the dozens of years, many foreign companies have already made use of this opportunity to earn great profit for them. Caterpillar is one of them. Now let’s date back to the year of 1996 and see how this US company expands in China.
In 1996, Caterpillar (China) Investment Co., Ltd. was founded in Beijing. From then on, Caterpillar built more than ten manufacturing bases in China, producing hydraulic crawler excavator, compactor, diesel engine, crawler unit, casting, power-driven grader, crawler dozer, wheel loader, heavy trucks and relevant components.
On May 9, 2007, Caterpillar saw the establishment of its new manufacturing base in Wuxi, Jiangsu. The new plant is a part of Caterpillar’s long-term development strategy in China. The plant in Wuxi has become a major base for the components tailor-made for Caterpillar’s machines.
In 2009, Caterpillar set up an new research and development center in Wuxi and founded a wheel loader factory in Suzhou, Jiangsu. In addition, it has completely controlled a Xuzhou-based industrial equipment company and expanded its production capacity. It also holds some shares of Shandong SEM Machinery Co., Ltd., which is a major manufacturer of wheel loader in China. According to its plan, it will build an excavator plant in Nanjing to further expand its production capacity in China.
On September 29, 2010, Caterpillar declared the plan of further expanding its production line in China to meet the increasing demand. The new plant in Wujiang, Jiangsu specializes in manufacturing small-sized hydraulic excavator weighing less than eight tons. The new plant, which will be finished in 2012, is under the the construction product department of Caterpillar. This department has plants in the USA, Japan, Brazil and Great Britain. According to an insider from Caterpillar, the plant in Wujiang is a part of their long-term investment plan in China. When it is put into production, Caterpillar’s leading place in China’s construction equipment industry will be enhanced.
On October 18, 2010, Caterpillar signed an agreement with Liyuan Hydraulic Co., Ltd. about founding a joint venture.
Three months prior to that, Caterpillar and Navistar, another heavy truck producer, signed an agreement with JAC Motors, an automaker in China. The agreement valuing 4 billion yuan (USD 586 million) includes the clauses of building two joint ventures specializing in producing trucks and engines. Among them, JAC Motors and Navistar respectively contribute 50% of the capital to the project of diesel engine. The truck plant will be established in the JAC Motor’s manufacturing base in Hefei, Anhui and the planned production capacity reached 40 thousand units. The cooperation gives Caterpillar and Navistar the ticket to China’s heavy truck market with the value of 150 billion yuan (USD 21.9 billion). Their main competitors are Daimler and Volvo.
According to the agreement, the main products of the joint venture in Hefei include medium and heavy trucks, such as JAS Sword, Gallop, and TranStar. The engines matching these trucks are also on the list of products.
In November 2010, Caterpillar CEO Doug Oberhelman announced the plan of bulding plants in China and Brazil. “These two countries have faster economic growth rate than the US,” said Oberhelman. A fortnight later, Caterpillar unveiled the plan spending 300 million US dollars building the most advanced factory in Tianjin. Another title for this project is the largest engine manufacturing base of Caterpillar in China. With the implementation of the plan, Caterpillar has established its two pillar products in China – heavy trucks and engines.