May 4, 2012
Written By Gregory Spear
“A mechanic with an eighth-grade education founded Cummins, Inc. (CMI) in 1919. It has grown to become the largest independent maker of diesel engines in the world. Based in Columbus, Indiana, the company sells diesel engines around the world in 190 countries through a network of 600 distributor facilities. The company expects international sales to grow from the present level of 65% to 75% by 2020. Most of this growth is driven by escalating demand from emerging markets.
“Cummins produces high-performing low-emission engines that meet the Environmental Protection Agency’s rigorous diesel emission standards. The growth of emerging markets, particularly China and India, has a big impact on the success of Cummins. Countries involved in heavy infrastructure build outs, such as highways to support greater truck travel to meet the demands of an exploding middle class, are the primary buyers of Cummins products. The company’s competitive edge in truck and power generation gives it the advantage to develop lucrative opportunities in emerging markets.
“Cummins’ well-established presence in emerging markets dates back to India in the early 1960s, and Brazil and China in the 1970s. International sales are now 65%, where they were 40% ten years ago, and the company expects that to increase to 75% in the future because emerging markets have been growing at a rate of 40 to 70%—three times faster than developed markets. China, India, and Brazil, along with South East Asia, the Middle East, Russia, and Africa, will all continue to grow much faster than the United States, Europe, and Japan. The international growth is fundamental to Cummins’ success.
“Today, Cummins has 56 partnerships around the world, and they are a critical component of the company’s success and future strategy. The value of their partnership is more than just a contract to build engines. The company’s successful joint ventures have resulted in the creation of technical centers, letting design work be done close to the manufacturing source to accommodate local customers. Eventually the business relationship can lead to low-cost sourcing, the development of additional joint ventures for component products and the shared design of new products, as well as substantially greater participation in the local market. Cummins has had a nice run since the economic crisis, up about 500% from its 2008 and 2009 lows. The company pays a dividend of 1.3%.”
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Gregory Spear, The Spear Report, April 13, 2012