An International Strategy Powers ABB’s Future
ABB, headquartered in Zurich, Switzerland, is a major competitor in the power and automation technologies industries across the major markets globally. It has 140,000 employees operating in almost 100 countries. In fact, it has five major businesses—power products, power systems, discrete automation, low voltage products, and process automation. It operates in eight major regions: (1) Northern Europe, (2) Central Europe, (3) the Mediterranean, (4) North America, (5) South America, (6) India, the Middle East, and Africa, (7) North Asia, and (8) South Asia. Over time, ABB has been a successful company using its geographic diversification across the globe to its advantage. It also exemplifies the difficulty of managing an international strategy and operations. For example, its power systems business has experienced performance problems in recent years due to poor performance in some countries due primarily to the economy downturn. Notwithstanding the difficulty of managing in emerging economies, much of its growth is focused on improving country infrastructure such as power systems and grids. In 2014, the firm announced that the Asia, Middle East, and Africa (AMEA) region currently contributes about 37 percent of ABB’s total revenue, or about $15.3 billion, and “emerging markets were planned to contribute to two-thirds of the forecast growth between 2015 and 2020.” In recent years, most of ABB’s entries to new markets and expansions in existing markets have come from acquisitions of existing businesses in those markets. Recently, it acquired Siemens’ solar energy business, Power-One, and U.S.-based Los Gatos Research, a manufacturer of gas analyzers used in environmental monitoring and research. The purchase of Power-One represents a major risk as the solar power industry is in a downturn. Yet some analysts predict a brighter future for the industry over the long term. ABB also uses other modes of entry and expansion, exemplified by the 2013 joint venture with China’s Jiangsu Jinke Smart Electric Company to design, manufacture, and provide follow-up service on high voltage instrument transformers. It also recently procured major contracts for business in Brazil and South Africa. Partly due to the global economic recession that began in 2008, recent weak economic performance, and some poor expansion decisions, ABB’s performance has been weaker than expected. As a result, the CEO and chief technology officer announced their resignations in 2013. Despite these changes, ABB is a highly respected global brand, and, after its recent changes (e.g., closing some country operations), its revenues and earnings have started to rise. These positive changes have been largely attributed to the success of its North American businesses. Its acquisitions of Baldor (maker of industrial motors) in 2010 and Thomas & Betts in 2012 greatly enhanced its North American operations and revenues. It has also had success in manufacturing equipment and robots with its robotics business headquartered in the United States. It is even moving to help small companies, such as ones in the beer industry, to automate their production processes. Therefore, even in turbulent times, ABB’s future looks bright.
1. What are the main political and economic risks that ABB must deal with given that it has a strong focus on entering emerging economies?
2. What are the significant organizational complexities that ABB encounters as it tries to manage its international strategy?
1. What are the dominant reasons’s for ABB to enter into international markets?
2. Which corporate international strategy would you classify ABB as using? Explain your answer.
3. Why has ABB used acquisitions and joint ventures as dominant entry modes in international markets?