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Critical Success Factors

Article provided by:"Diplomat" magazine"Diplomat" magazine

1 June 2003
Critical Success Factors

Critical Success Factors
Caterpillar Inc. Expands in the USSR
Felix Goryunov

International companies’ application of global strategies and business cultures to a country’s market may well be considered a clear sign that the country belongs in the world market economy. These strategies and cultures have been developed by the American company Caterpillar Inc. into “Critical Success Factors.” They have been implemented throughout the territory of the former USSR as an integral part of the company’s global growth vision to be “First in Customer Value.”


To be a leader in a highly competitive market environment means, first of all, to look for new ways of business growth and raising profit margins. Such a constant search for cultural change has been institutionalized at Caterpillar since 2001, when its management started to embed the 6 Sigma continuous innovation strategy throughout the company. The strategy enables Caterpillar to engage teams of employees in brain storming to solve multiple problems such as long-term planning of production and sales, enhancing product quality and competitiveness, improvements in after-sales services and spare parts supplies, and savings in distribution and logistics related costs. By setting the global standard of the 6 Sigma business culture for large companies Caterpillar has confirmed its leadership position as a company that is developing effectively even in the currently recessionary world economy.


Another of Caterpillar’s critical success factors is its marketing strategy. In offering best value in the market, the company doesn’t mean top-of-the-line products for every customer. Instead it provides for each customer the right product. Glen Barton, chairman and chief executive officer of Caterpillar, expressed this commitment in short, “When you buy the iron, you get the company.” Practically, this means that in every industry market served by Caterpillar, the customer gets not only a high quality product, but also a comprehensive solution of his specific problem as well. This customer-oriented approach embraces the company’s expertise of the problem, choice of relevant new or used machinery and equipment, a customized offer of a deal (sale, rental or subcontracting options) and appropriate financial options. This approach also covers training of a customer’s employees, after-sale repair and maintenance service, and supplies of spare parts.


No less vital critical success factor is that the company’s customer satisfaction strategy is realized through a global network of independent dealers. Thanks to the dealers, Caterpillar can ensure fast product deliveries and high quality of service even in the most remote parts of the globe. It was mostly the development of this dealer network that enabled the corporation to expand business operations in the CIS area.


Not mentioning the exports of heavy-duty track type tractors to the USSR in the 1920s, Caterpillar started to develop business in this market in 1973, when it opened its representative office in Moscow. But the current scope of business operations---with vast geographic coverage and product variety---was realized, primarily, due to the efforts of independent dealers. In terms of market coverage, the Cat’s dealer network in the former USSR now surpasses the distribution chain of any other foreign industrial company operating in the region. This network stretches from Kaliningrad to Chukotka and from the Kola Peninsula to Tajikistan (see the map). But still more important is that independent dealers are spreading the Caterpillar business culture on a local level across the territory.


The eleven Caterpillar dealers in the CIS area are large companies specializing in sales and servicing of all product lines of its equipment and machinery. They have stores for equipment inventory in high local demand, as well as stocks of components and spare parts for currently operating machinery and staffs of well-qualified technicians. Through continuous research of market opportunities the dealers develop business contacts with potential customers and show them new CAT products in action; they process orders, see to their fulfillment and to the timely delivery of ordered products to customers from a Caterpillar factory. Dealers invest their own money to develop their businesses and people, train customers’ employees and attract Caterpillar funds for the financing of local deals. (To facilitate the financing of sales in the CIS area a new company, OOO Caterpillar Financial, was recently established in Moscow.) Dealers also initiate various financial schemes for the sales of Caterpillar products with funding provided by local investors---banks, insurance and leasing companies.


To see how some Caterpillar dealers are doing their job, here is a short record of their business operations.


OOO Zeppelin Rusland is the exclusive Caterpillar dealer in North Western, Central and South Western regions of Russia. The company has a staff of 115 employees, five centers for the sales of equipment and spare parts, as well as service centers in Moscow, St. Petersburg, Lipetsk, Samara, and Krasnodar. In 2002, Zeppelin Rusland sold over 100 units of Caterpillar equipment and machinery. Among the machines sold were the state-of-the-art CAT 330 UHD excavators, which are being used for pulling down obsolete five-story dwellings in the capital of Russia. First bought by Satori Construction Company, this CAT model made its debut in the demolition of the Intourist hotel in downtown Moscow. In 2003, Zeppelin Rusland is aiming to raise its sales volume by 50 percent.


OOO Mantrac Vostok’s business operations include the Volga and Urals federal districts, Western Siberia and the Republic of Komi. The company has six representative offices and two spare parts stores---in Nizhny Novgorod and Noviy Urengoy. These are the territories where Russia extracts over half of its crude oil and natural gas, along with many other mineral resources, and where large infrastructure development projects are underway. Hence, there is an especially high demand for Caterpillar track-type tractors, pipe-layers, hydraulic excavators and gas generator sets.


Russia’s large gold-mining region, the Chitinskaya Province, is the operational territory of OOO Wagner Siberia Equipment. In 2002, the company sold six Model D6R Cat bulldozers ordered by the local gold-mining firm Gazimur. The deal became effective through a new financing scheme offered for the first time by a Cat dealer, Caterpillar Financial, and Rosno, a Russian insurance company. Thanks to such a customer-convenient funding scheme, the dealer has concluded sales contracts for three more bulldozers.


OOO Amur Machinery and Services has been working in the Russian Far East for over six years. The company has about 100 employees, its main office and service center are located in the city of Khabarovsk and two representative offices and spare parts stores are in Vladivostok and Yuzhno-Sakhalinsk. Annually, the dealer sells over 50 units of various CAT equipment, including road-building and forest machines, generator sets and marine engines.


The close partner of Amur Machinery and Services is another Cat dealer company in the region, OOO Sakhalin Machinery, which was established in 2001 and now has over 60 employees on staff. Besides an office in Yuzhno-Sakhalinsk, the company runs a service center and a large store of customs cleared inventory of equipment and spare parts. The dealer’s main business is to provide supplies of Caterpillar machinery and its comprehensive servicing for Russian and international companies, engaged in the Sakhalin 1 and Sakhalin 2 oil and gas projects.


The farthest eastern region of Russia---the Magadan Province, the Chukot and Koryak Autonomous Districts and the Kamchatka Peninsula---has been serviced for more than ten years by NC International Co. Its main office is located in Seattle and regional offices are in Magadan, Petropavlovsk-Kamchatsky and Bilibino. Despite a staff of only 25 employees, the company is successfully servicing over 200 units of various CAT equipment and machinery, which are operating at far-away locations under the severe climatic conditions of the Far North. Major customers of NC International Co. are local mining and ore-concentrating enterprises. Among these is ZAO Koryakgeoldobycha, the second largest Russian platinum producer, which has some 40 units of Caterpillar machinery in operation and continuously improves the fleet’s efficiency by buying new CAT models.


Key issues of collaboration between the corporation and its independent dealers as well as coordination of their business efforts are discussed at annual meetings for senior dealer management. At the last meeting held in September 2002 in Ulaanbaatar (Mongolia), dealers drew the attention of Caterpillar senior executives to the necessity of accelerating the supply of spare parts and to an extension of the employee training programs to their territories. More vigorous and targeted support of dealers’ business initiatives by the corporation and improvement in dealer business systems were also prioritized as key issues to be dealt with in order to expand the Caterpillar dealer network in Eurasia. The next meeting of the independent dealers will be held this year in Spain.


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