Chennai: A 1925 vintage 2-t crawler tractor gasoline engine in the reception area attracts visitors to the Caterpillar India's earthmoving equipment plant at Thiruvallur in Tamil Nadu. The company acquired the cute-looking machine from its Indian owner soon after it took over the plant. Perhaps that also signals the company's new strategy - a focus on smaller machines.

Some bit of history. The global earthmoving equipment major, $20.15-billion turnover Caterpillar Inc bought the erstwhile Hindustan Motors' earthmoving equipment division consisting of two plants (Thiruvallur and Pondicherry) for Rs 337 crore in 2001, and renamed it.

Small is actually big
Segment	Industry Players
Backhoe loaders	JCB India, Bharath Earth Movers (BEML), Telco Construction Equipment Company (Telcon), L&T Case Equipment, Caterpillar
Excavators	BEML, Telcon, JCB India, L&T Komatsu. Volvo and Samsung through imports.
Front end loaders	BEML, Caterpillar India, Telcon, L&T Komatsu and Volvo (imports)
Dumpers-25 t to 120 t	BEML, Caterpillar, Telcon and Volvo
Dozers	BEML and L&T Komatsu
Compactors	L&T Case, Greaves and Bitelli a Caterpillar company
Motor graders	L&T Komatsu, BEML and Volvo
Pavers	Ingersoll Rand and Bitelli a Caterpillar company

Much has happened at Caterpillar India after that, albeit silently. The company managed the usual takeover pangs - downsizing and worker unrest (See: Caterpillar India downsizes management cadre). Aggravating the pain was the sudden fall in the demand for its giant yellow machines (dumpers and loaders) squeezing the company's bottomline.

It took some time for the workers and the executives at the 51,000-sq ft QS 9000-certified Thiruvallur plant to get into the American groove - informality and professionalism. "Earlier, junior officials had to stand while talking to seniors. But, today, they are offered a seat before any discussion takes place," says an official. It is also equally true that there is no room for laid-back attitude.

At the shop floor the layout was slightly changed to unlock additional space for new products. Early this year Caterpillar India shut down its plant in Pondicherry where it rolled out backhoe loaders - with Fermac technology - now been phased out.

"An exclusive plant for one product is not viable. Further, the tax concessions offered by Pondicherry will expire this year," explains R Ram Mohan, director.

And like all other Caterpillar plants in the world, the Indian facility got bitten by the Six Sigma bug. "It enables all the Caterpillar employees in the world to talk in the same language while building the customer focus into the business strategy," says R Muralidhara Reddy, Six Sigma deployment champion.

As the restructuring activities are nearing completion, the focus now is to popularise the CAT brand while expanding the product basket gladdening the two dealers.

The first CAT meows
August 2003 saw the first CAT brand earthmoving equipment to be manufactured in India - 424 series I backhoe loader - formally launched in the domestic market. The earlier CAT brand machines - motor graders, hydraulic excavators and even wheel loaders - came via the import route. (The other products - dumpers and loaders - are sold under the brand Hindustan.)

The CAT backhoe loader was also the first positive announcement by the company after a long time. Says Mel Ritchie, manager, product and market group: "India is the fourth location in the world where a CAT backhoe loader is rolled out."

According to officials, a dumper (with a Caterpillar engine) and a crawler tractor variant will soon follow the backhoe loader. "We have a capacity to roll out 30 backhoe loaders per month and by 2004 it will be increased to 35 units," says S R Subramanian, vice-president (manufacturing and materials).

But it is going to be a tough fight at the market place for Caterpillar India with its premium pricing strategy as the existing players all with global names are well entrenched. The new backhoe loader is priced at Rs 18 lakh.

According to an industry official, the total market for all earthmoving and construction equipment put together is around 6, 000 units. Out of that, the backhoe loader's share is 3,500 units. Nearly 80 per cent of that is monopolised by JCB India (See Small is actually big).

The previous owner's (Hindustan Motors) continued focus on big machines - dumpers and loaders - enabled other players like JCB India, Telcon, L&T and others to get to lord over the small equipment segment: the excavators and backhoe loaders. Though HM did roll out smaller machines, quality issues plagued the company.

The American subsidiary decided to be doubly sure of its product quality as it can't risk the CAT brand equity. It developed 22 exclusive vendors for the backhoe loader and invested around Rs 4 crore in tooling.

The product was put through Caterpillar's unique new product introduction (NPI) process that gives guidance, direction and accountability for all the stakeholders while ensuring its overall success. Prototypes were tested on various applications for more than 9,000 hours and validated.

"The cornerstone to this product development was the customer validation exercise where machines were placed in a non-clinical environment and evaluated for more than 3,500 hours," says Sam Vedhakumar M, product specialist.

According to him tools like Prediction of Estimated Reliability Growth Plan (PERG) and statistical tools such as Weibull Analysis were used for checking the machine performance before the backhoe loader was formally launched.

With quality taken for granted, price is the deciding factor at the market place. Ever since it came into the scene, Caterpillar India consciously adopted a premium pricing strategy. Even in 2001 when the market was down, the company administered a stiff price increase on grounds of brand image and better quality.

Such a strategy will pay off in the dumper market as the buyers are large coal-mining companies. But will it click in the small equipment segment dominated by individual operators?

"Caterpillar India's product distribution strategy and the focus on quality are really commendable. People are aware that the CAT brand means better quality and performance. It will be a matter of time before their strategy starts paying off," says an official working with a dealer.

But the dealers are happy as their product portfolio is expanding because the American company also participates in the road-building equipment segment through its Italian subsidiary Bitelli.

If premium pricing goes against Caterpillar's product in the earthmoving and construction equipment segment, a lower price does not bring in volumes in the paver market. "The Bitelli brand is yet to become popular amongst the road builders. But, again, it will take some time," says a dealer.

To merge or not?
In the meantime, the American parent, through its subsidiary Caterpillar Commercial SA, Belgium, is in the process of acquiring the 8-per cent public holding in its diesel engines and gensets venture: the Hindustan Powerplus. The Rs 31.7-crore equity-based Hindustan Powerplus is considering delisting its scrip from the bourses.

This naturally leads to the question whether Caterpillar Inc would ultimately merge its two Indian subsidiaries, given their operational synergies - the engines and transmissions of Hindustan Powerplus - are fitted in the earthmoving equipment.

And like other auto multinational companies, will Caterpillar Inc look at India as a sourcing base for its global markets?

Terming the merger question as speculative, Chris Curfman, managing director, Asia-Pacific marketing, answers the second part: "India is an important part of the company's overall strategy to grow our presence in Asia - including China and elsewhere (See: Caterpillar hungry for growth)."

In addition, Caterpillar India is expanding its engineering services division to increase the design exports to various Caterpillar units in the world (See: Caterpillar India to ramp up ESD).

According to Mohan, the turnover target for this year is Rs 500 crore, double that of what Caterpillar India posted the previous year. "There will be an all-round growth in volumes. We plan to sell 750 machines - 300 loaders, 150 backhoe loaders - and the balance will be dumpers."