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This is the third of a three-case series (393-068-5 and 393-069-1). This case describes the competitive positioning and performance of Caterpillar and Komatsu during 1988-92, a period during which the world-wide construction machinery industry returns to recessionary conditions. The case details several major changes at Komatsu, including a strategy of related diversification based on technological core competencies, formulation of a western hemisphere joint venture with Dresser Industries, and acquisition of Hanomag AG. For Caterpillar major issues include cost overruns in its PWAF programme, decentralization of its management organisation, and a 5-month work stoppage in the US. Data permits students to evaluate impacts of industry conditions and various company initiatives on the recent performance of each rival. A background note ''393-071-5'' is available to accompany this case series.