Caterpillar Inc is banking on strong revenue growth in Asia, particularly in China, to help offset weaker business in North America, a senior executive with the US heavy machinery maker said on July 04.
Caterpillar's sales in China are likely to hit $4 billion in 2010 compared with "around and above $2 billion" this year, said Thomas Bluth, a vice-president who heads the company's operations in the Asia-Pacific region.
"When you look at China...we continue to see for this year for our industries a very positive outlook," Bluth told Reuters. He said Caterpillar planned capital spending of $1 billion in emerging markets over the next three years. More than half of that was earmarked for China, whose economy has grown by 10 percent or more for the past five years.
Caterpillar has been a major beneficiary of the long boom in oil and commodities, and global demand from the mining and energy industries for its excavators, engines and drilling equipment was offsetting weakness in its home market, Bluth said.
"North America clearly has gone down tremendously over the last couple of years," he said. Revenues from Asia and Pacific, by contrast, rose 37 percent in the first quarter from a year earlier and were likely to be up 15-20 percent for the year as a whole.
"So we have been impacted, but the composition of our company is such that we've continued our growth rate and our improvement in profit even with having that type of a downturn in North America," Bluth said.
He said the rising cost in global markets of commodities such as iron ore and steel posed a big challenge for Caterpillar, which raised prices by 5 percent for all its products on July 1.
"We are in the process of working to mitigate the impact in terms of passing on the cost," Bluth said. "But with the amount of increases, you can only offset a portion."
He said Caterpillar would keep examining whether it needed to raise prices further. Caterpillar has doubled its sales in China in two years, and one of Bluth's toughest tasks is simply keeping up with the pace of business in the world's fastest-growing major economy.
"To me, the biggest challenge is there's so much going on," Bluth said. "We see the market continue to grow significantly in terms of even smaller-sized excavators."
Caterpillar, which employs nearly 7,000 people in China in 16 businesses, this week announced plans to build a plant in the eastern city of Nanjing to make small hydraulic excavators. Bluth said the US manufacturer would keep expanding through organic growth, joint ventures and acquisitions. "We're looking at all three avenues," he said.
More and more companies in China are struggling financially because of the central bank's tight credit policy, but Bluth said Caterpillar's business had been unscathed, partly because it offers vendor finance through its Caterpillar Financial arm.
"I don't think there's been any real significant impact different than what we've had pre-existing with our customers," he said.