Caterpillar's Chinese Lessons

Caterpillar has a well-earned reputation as a global technology leader, having done a masterful job diversifying from its main construction equipment business into mining equipment, heavy-duty engines, electric power generation, and locomotives. Yet when it comes to performance in China, the world’s largest market for its products and services, Caterpillar seems to be floundering. Although it opened a Beijing office in 1978, the company’s current market share in China is only about 7 percent, behind such local competitors as Sany and global players such as Komatsu.

Caterpillar’s missteps in China have been not only strategic but also operational. Last June it paid $886 million to acquire ERA, a Chinese company that makes roof supports for coal mines, but last month Caterpillar said an internal investigation found “deliberate, multi-year, coordinated accounting misconduct,” resulting in the need to take an impairment charge of approximately $580 million.