International Harvester Case

When International Harvester divested its agricultural operations in the mid-1980s, some analysts considered it the end of a well-known and--at one time--highly successful American company. International Harvester was perhaps best-known for its agricultural products and its distinctive red tractors that worked the American heartland. Less well-known (at least by the general public) is that the company also competed in the medium- and heavy-truck industry where it enjoyed considerably more financial success than in the agricultural segment of its business. When the agricultural products division was sold to J. I. Case, the company had suffered several years of net loss, and was struggling to maintain its market share against such competitors as John Deere. Given this situation, the question arises as to why made the company's agricultural segment was considered an attractive acquisition target. This research examines that question, and considers whether the divestment was in the best long-term interest of the company.

The company that was International Harvester in 1984 traced its roots more than 150 years to when Cyrus McCormick patented a reaper in 1831. McCormick's marketing acumen and willingness to take risks (he pioneered a lenient credit program for his customers) helped establish his company as one of the earliest American producers of reapers on a relatively large scale. However, the reaper patent lapsed in 1848, opening the way for a

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that emphasized machinery and technology over labor. International Harvester's failure to capture leading market share in the large tractor segment hurt it during this time. Other companies were also recognizing that the business environment was changing and that consolidation offered one approach to continued survival. Profit margins grew thin as farmers themselves faced weaker crop prices, and a number of equipment suppliers went bankrupt. As the industry consolidated and as some suppliers went out of business, competition became even more intense among the surviving companies (Nesbitt, 1986). International Harvester's truck business at this time competed with Ford, among other manufacturers. Although International Harvester was a significant supplier of trucks at the time, its truck business did not enjoy the same level of brand recognition among the public. It was the truck segment, however, that was profitable during the early 1980s (Stavro, 1985). From an internal standpoint, there was competition between the truck and tractor segments, but both enjoyed excellent relationships with their dealers. Once again, International Harvester's failure to lead the heavy tractor segment hurt it in that dealers typically carried

Category: Business - I