Higher Degree in Marketing Management

Year 4 - Semester 8
Business Policy & Marketing Strategy

Lects: Joyce Byrne-Walsh

Donal Rogan

John Cullen X00044293

Hugh McKeown X00043581

Robert Magee X00044353

 ABB Mission Statement:
“As one of the world’s leading engineering companies, we help our
customers to use electrical power effectively and to increase industrial
productivity in a sustainable way”

Power and productivity for a better world

Background

ABB (Asea Brown Boveri) was the product of a merger between two companies, Asea
and BBC Brown Boveri, in 1988. In its twenty years of existence ABB has become one
of the largest engineering companies in the world as well as one of the largest
conglomerates across the globe. ABB is an automation and power technology provider
which, by now, is well established across the globe. Its power technologies entails
electric, gas, and water while its automation technologies provide products and services
which aid wanting companies industrial processes. Also ABB produce products that are
not critical to their business such as petrochemicals, building systems, as well as non-
production based services such as equity & financial ventures. With company HQ in
Zürich, Switzerland, the company conducts its business in Europe and Asia and employs
approximately 108,000 people. (Datamonitor, 2007)

In between the years 1989 and 2001 the company diversified its business into nuclear
power, generation of power, rail distribution businesses, pharmaceuticals and oil and gas
activities after merging and acquiring a number of other companies1 although in the years
proceeding 2003 it began to sell off many of these companies. Presently ABB has won
many prestigious contracts for operations across the world. Here are a few examples:

• 2005 – Got contract from the Gulf Co-operation Council Interconnection

Authority (GCCIA), to link the electric networks of each of the Gulf States.

• 2006 (May) - Won 5 year contract (worth $100 million) for provision of
transformers and services to the Tennessee Valley Authority
(www.tva.gov/news/files/11-30-06_agenda.pdf).

• 2006 (Dec) - $450 million contract from Qatar General Electricity & Water Corp
to expand their power transmission systems (MEED, 2006).

• 2007 (May) – Received Contract worth $350 million to link the UK’s and the
Netherlands power grids (Professional Engineering, 2006).

• 2007 (Aug) – Won contract (off E-ON) to supply power equipment to connect the
1
ABB acquired the following companies: Westinghouse Electric Corp, Combustion Engineering, Elsag
Bailey Process Automation, Entrelec, MEGA Transformadores.
 worlds largest wind farm to the German grid. This was valued at $400 million.

(Datamonitor, 2007)

The core concentration of ABB is robotics and energy transmission markets. Robotics
range from process control systems such as Symphony DCI system which serves clients
such as ICI Paints and Heineken while in the Automation solutions a popular product for
water waste management for petrochemical and metal production is IT 800xA which is
used by renowned companies Statoil and Pharmaceutical Plant (www.abb.com).

Financial Performance
Profitability
According to the companies Annual report and results for Quarter 4 of 2007 ABB claim
to have sustained a net profit of $29,183,000 for 2007 a 25% increase on 2006. By the
end of 2007 the balance sheet for the company was a record €5.4 billion which the
company claim is due to the large generation of cash flow from various Lummus Global
engineering projects. ABB in recent years have enjoyed high sales growth across the
globe. Europe remains the strongest market for ABB accounting for 46.8% of total fiscal
revenue while Asia holds 25% a lucrative 19% rise from 2006 proofing the future market
attractiveness for the Asian market particularly China as later described. Both continents
of America account for 18.5% of overall corporate profit with a growth rate of 7% from
the previous year. However, it is important to note that considering the market scope of
North and South America, ABB’s performance in this geographic market is rather weak
compared to Europe. Statistically Africa and the Middle East market provided ABB with
the least amount of revenue with 9.6% in 2007 although the sales have increased by 20%
compared to 2006. This would possibly indicate future potential of the African and Arab
market as such percentage increase in one year is staggering and would not be possible in
a mature market such as Europe.
(www.abb.com/product/ap/seitp334/928aef676bf0e982c125704a0056c7c6.aspx).

Share Price Activity

As of March 2008, ordinary shares in ABB are trading at $0.44c per share (Yahoo
Finance). The company’s yearly financial report for 2007 state that earnings per share is
at $1.40 while stockholder equity has increased from $6,038 million US dollars in 2006
to $10,957 in 2007 which would give reason to say that the share price 0.44c is quite
competitive. One of the main financial outcomes for ABB as a result of the 2007 financial
report is the proposal by the executive board to double the value of dividends paid out
with a dividend or debenture holder now having the option of being paid $0.44c on a
dividend. The boards desire to pay out high on dividends would certainly indicate how
high the performance of the company is in recent years as they wish to reduce ordinary
shares in circulation (Yahoo Finance, 2008).
Investments
The company wishes to invest over the next 2 years from 2008 to 2010 $1.1 billion us
dollars on all five product-line divisions to improve strategic positions (Datamonitor,
2007).

ABB’s Corporate Strategy

One of the key factors in ABB becoming such a successful engineering multinational
firm was the decentralized networks in which it operated under upon merging. The first
CEO of the company Percy Barnevik dealt with what were considered the two biggest
problems in the robotics industry of the time fragmentation and misuse of resources
leading to over-capacity. To tackle this problem Barnevik set a core strategy of intentional
de-centralisation of the entire organization which made networks of production facilities
and electric power generators relevant to sectors geographic size and market
attractiveness. This strategy helped to have better market focus and help the company
become a low cost leader. ABB built on the renound multinational concept of “Think
Global, Act Local” by emphasizing core competencies such as process and automation
control systems to build footholds in each sector of the world. Another element of the de-
centralization strategy which influenced ABB’s business activities in the nineties was the
company’s behaviour in local markets. As the company expanded into the global
company and opened production and market channels outside of Europe e.g. United
States, the company successfully entered new markets without eroding local market
presence and affecting employment. Since 1996 Barnevik is no longer the CEO or
involved with ABB but his decentralisation strategy has been developed under Jòrgen
Centerman (Kets de Vries, 1998).

ABB has undergone a change in company strategy recently. The firm began, in 2001, to
focus on streamlining like so many other engineering firms have done in order to
maintain its low cost strategy. The company’s whole focus has shifted, from a “heavy
engineering focus to IT and automation solutions” (International Power Generation,
2003). This began when the company sold its shares in ABB Alstom Power2. This shift in
overall strategy was driven by then CEO Jòrgen Centerman who resigned soon after due
to weak financial performance and negative product perception in general. Centerman
was replaced by Jòrgen Dormann who strived to continue what Barnevik began. He
continued to cut costs and tackle ABB’s debt problems by means of mass lay offs and is
believed to have saved the business about $800 million within his first year and a half at
the helm (International Power Generation, 2003). His cause was not at all aided by CE
filing for bankruptcy. However, the company now, as a strategic move, split its interests
into five divisions which are as follows:

• Power Products
• Power Systems
2
ABB Alstom Power is a large engineering power plant.
 • Automation Products
• Process Automation
• Robotics
(Datamonitor, 2007)

We will discuss ABB’s major products and services later in the paper. Other changes have
also been rung in such as the removal of one management layer, power products, power
systems and automation product divisions would be headquartered in Zurich, Switzerland
while robotics divisions were delegated to Shanghai, China. Connecticut, in the United
States would be the headquarters of ABB’s process automation division (Process
Engineering, 2005). With those changes came another significant event, the departure of
Dormann. He was replaced by Fred Kindle as CEO and president in February 2004 who
went on to comment on the changes at ABB, “This is an evolution of our strategy, not a
revolution” (Process Engineering, 2005). ABB have also strived to improve its research
and development resources which have resulted in the development of new technologies
for wind power generation. ABB have also researched branching out into solar and biogas
power (Profitable Sustainability, 2001).

ABB Market Activities

To keep in accordance with the overall corporate strategy of low-cost decentralization,

ABB do not have one set marketing strategy for the entire company. Instead ABB and
CEO Fred Kindle allow for each division to design its own relevant market strategy to
cope with the market necessity, size and competitive environment.

Power Products Division

In this category for example ABB offers transformers, circuit breakers and cables.
These are key components to transmit and distribute electricity. As a part of these
products, the service element is apparent as the performance and life span of the products
is monitored.

The most profitable division in ABB it grossed $6.5 billion in 2007 and is market leader
in both voltage products and transformers. The main competitors are Siemens and
Schneider who as of 2005 are involved in a $550 development of its wind turbine
products to challenge ABB (B2Brenergy.com).

As the most profitable division in the organisation, it will be crucial for the company to
maintain its market dominance in the market and must build on core competencies.
The will continue to streamline to maintain lower costs for both the company and the
customer while investment in the China will help cost migration as production rates are
lower in that region than Europe. The growing economies of scale in countries like China
and India are significant opportunities for the company to maintain sales growth.

Power Systems Division

This area offers the transmission of power and includes distribution grids and power
plants. The key areas in this department would include electrical substations and
automation systems.

Economic growth & emerging markets make the Power Systems market very competitive
with Siemens challenging ABB rigorously in this market sector. ABB are improving their
position in existing markets by improving processes and applications such as its PsGuard
deigned to improve the quality of service in the power system market. The company is
also using its strong brand name to leverage existing products into developing markets
that have an increased demand for power generation systems.

Automation Products Division

This division offers a number of products to improve consumers overall productivity.
Typical examples would include electric motors and generators. The main consumers
would fall into areas like utility operations, commercial and residential buildings.

The company is keeping the Automation division operating on a standardized form of

channel management unlike the rest of the divisions within ABB as global industrial
trends is focusing on automated production and the reduction of human employment. The
sector holds $40 billion a year and ABB’s current growth rate is 4% which they wish to
increase to 7% by 2009 (ABB Strategy 2005-2009). Similar to the power products
division cost migration is occurring to maintain margins as the increase in production
rates in Europe is affecting the automation market.

Automation Process Division

The main focus of this offer is providing consumers with integrated solutions for control,
plant optimization and specific knowledge on industry patterns and trends. Industries
include oil, gas, power, chemicals and pharmaceuticals.

One key driver in this market is the future potential of alternative fuels. ABB do not
dominate this market and rank second to Siemens and this could possibly be due to the
success of Siemens gas turbine generators in North Africa which serve a huge sector of
the continents growing market and is substantially helping Siemens develop a long term
foothold in the relatively young market (www.industry.siemens.com). In the mature
markets of Europe and North America ABB are going to begin offering service contracts
for low volume production companies. Also division are hoping to challenge Siemens
current lead with the market development of 800xA systems which the company
considers to be a state of the art breakthrough in the market (www.abb.com/products).

Robotics
This would be ABB’s main focus for strategy as of late the companies performance in
this sector has declined, with revenues dropping by 24.2% over 2005. ABB has one of the
largest installed bases of industrial robotics in the world. It provides robot software,
peripheral equipment and modular manufacturing cells for a range of tasks such as
painting, wielding and finishing. This division operates in a number of key markets like
automotive plastics and metal fabrication (www.abb.com).
Critically ABB have a significant market share of 36% in the metallic and paint
automation industry over nearest competitor Yaskawa. With a large shift over the next ten
years into robotic production, it is very much possible that ABB will increase on its $4.7
billion obtained from the market. The company are very strongly placed in the market
due to the knowledge of automation existing in the company and the technological
capacity to improve its products (ABB Strategy 2005 – 2009).

Marketing Environment
In today’s modern environment it is of critical importance to gain a competitive edge over
your competitor, while also differentiating the product offering. The organization as a
whole must consider the environment it operates. The overall monitoring of a marketing
strategy should be continuous, as this ensures that if a possible alteration is up for
consideration that the managers can deal with it adequately and develop a solution. ABB
is a global company operating across numerous industries, offering a wide variety of
products & services throughout Europe, Asia, the Middle East, Africa & the America’s.
Therefore the need for analyzing the environment and understanding differences in
certain areas is crucial to the overall success of the company.

The micro elements of the company have to be considered for e.g. the immediate external
consumers, agents & distributors, not forgetting also our competitors. To maximise and
maintain the growth of ABB is an integral part of their mission and, macro elements are
of major importance.

ABB has well established itself as multi national company diversifying across many
countries accepting major considerations in regards to political factors. An Undeniable
factor to its success has been the stability of the regions it has located in. The freedom
and open nature of the European Union has allowed for trading barriers to be lifted
ensuring open competition. The political stability that has ascended in Europe in recent
years has had positive implications for the company. Government trading agreements
allow for numerous positive aspects. In more recent times there has been political unrest
e.g. the Far East and China. This could have negative connotations for future orientation
and expansion for ABB, however diligent planning should help overcome this.

A key determinant of success in any industry would be the economic state of the
environment in which it operates. The continued growth of Asian countries is staggering,
e.g. China. The expanding economies of Asia, the Middle East and other regions are
obvious contributors to ABB’s rapid organic growth. (Datamonitor, 2007).
There has been an increase in demand from North America and Europe as the older
infrastructures can no longer meet modern requirements.

ABB have engaged with a several number of Sociocultural aspects. Developing a

marketing structure to suit a certain culture can be extremely demanding on resources and
it takes quite a considerable amount of time to do so. Society today have become more
aware of surrounding issues with big businesses’ therefore sustainable growth can be
measured by being responsive to cultural norms in a country. ABB must consider
considerations like, language, religion, roles & green issues. The fact is ABB has a very
strong reputation in this area. An example of action would be the Estlink power
connection between Estonia and Finland, using power friendly technology to conduct the
project (Datamonitor, 2007).

Technological advancements have been paramount to the success of ABB. Therefore

developing strategies in foreign regions have to be carefully planned as all the other
element of a business model may work, however if the technology is not in place the
business will fail. In today’s business environment technology acts as a gauge for
competitive advantage, and drives globalisation. ABB design a mass range of products
using the most up to date technology, but not only this as there process are all effected by
technological programs which deliver the final product.

Ethics & Social Responsibility

Over the past number of years there has been a more critical evaluation of companies in
the area of ethics and social responsibility. ABB has a clearly defined mission in the area
of ethics.’ The way we behave as individuals and a company-acting with integrity-builds
that reputation. Our study has led us to believe that ABB has an extremely positive
reputation in this area. Since 1993 ABB has introduced (EMS’s) Environmental
management systems which are present at over 350 sites. These systems are ISO assured
and there main functions are to monitor the company’s reduction of using hazardous
materials, cutting energy consumption and lowering harmful emissions.

The re-strategising of the company has led to resources being pumped into ensuring these
systems are managed adequately by individuals who on a daily basis monitor the systems
and solve problems by using acceptable solutions. As a result:

• Solvents have been cut by 35%.

• Output of hazardous waste has decreased by 35%.
• Use of ‘restricted’ materials & substances has reduced substantially.

ABB by there own admission have reaped the benefits as implementation of such
measures has cut costs dramatically. The Governments on a macro level have introduced
regulatory measures on re-cycling in regards to electrical & electronic equipment. There
have been numerous examples of employess finding new ways of doing business from
altering the uses of wooden crates in Egypt to purification plants being introduced in
Columbia.

In relation to there automation products ABB have found new ways in shipping turbo
systems for large diesel engines. The old method of pasting oil onto the engines had
detrimental effects on the environment in terms of pollution, however this process has
been altered as the turbo systems today are wrapped in paper thus decreasing use of oil in
the process completely.
ABB has a very definite focus on maintaining an already sterling reputation in this area
and will continue to do so by becoming more involved in local community issues, local
initiatives and become more responsive to the public in these areas as a whole.

(Source: www.abb.com)

ABB’s Strategic Marketing Issues

When determining ABB’s future direction and orientation, possible opportunities for
growth are found “by combining existing and new products/services, and existing and
new markets” (Richardson & Evans, 2007). Then there are four alternatives which are
Market Penetration, Product Development, Market Development and Diversification.

• Market Penetration - Power and automation products that have been so

successful need to be marketed so ABB can capture market share off its nearest
competitors such as Siemens and Schneider. ABB must also defend their existing
products by means of consolidation. They need to defend what market share they
hold while trying to steal some from their competitors. This consolidation could
eventually lead to downsizing or divestment of the firm in the future.

• Product Development - As mentioned above, ABB have been researching the

feasibility of branching into development of products for and harnessing of solar
and biogas power. These new developments will change in accordance with
consumer behaviour and changing tastes. As societies as a whole are carefully
watching their carbon footprints the future will provide opportunities for use of
solar powered products.

• Market Development – China provides many opportunities to companies such as

ABB. Power infrastructure in this country is still ailing and inadequate for such an
important production nation. ABB have already began to supply products to the
engineering company Xi'an XD who are building China’s first 1,000-kVAC power
line which “will deliver electricity generated in the north and southwest of China
to power-hungry regions in the east”( Utility Automation & Engineering T&D,
2007).

• Diversification – ABB have diversified in the past when adapting to power

systems but not entirely diversified beyond what the company had been doing
since its establishment. We can only speculate that ABB can or will partake in
related or unrelated diversification but it is not beyond them. For example, Tata, a
company renowned for its tea products has recently purchased prestigious car
brands Land Rover and Jaguar in a deal worth $2.3 billion (The Irish Times,
Friday, March 28, 2008).

(Source: Johnson et al, 2008, p258-262)