The ABB – Baldor Deal
The power of North American Distribution. An analysis of the role that distribution played in the proposed acquisition of Baldor Electric Company by ABB.
by Frank Hurtte
As November drew to a close, global power and automation giant ABB announced plans to purchase North American-based Baldor Electric Company. If ever there was a case study on the power of the North American channel in industrial supplies, this is it. In Europe, distribution (as we know it) is pretty scarce. It's not non-existent, but the landscape is different. In North America, the major players have found they cannot be successful without a top-notch channel.
Apparently, the top brass at ABB agree with me.
Interviews and postings by Ulrich Spiesshofer, head of ABB's Discrete Automation and Motion division, and CEO Joe Hogan specifically mention Baldor's extensive channel to market in North America as a major factor in the purchase decision.
There were many other good reasons for the purchase – product mix, manufacturing facilities, opportunities with energy efficiency and expanding the Baldor name internationally have all been mentioned – and if you're interested we can line you up with some facts and figures. But for the next couple of minutes let's pull out our magnifying glass and look at distribution.
Baldor has a unique channel setup. First, the company has 35 reps operating central warehouses throughout the country, each capable of servicing their own territory. These reps operate "stand-alone" businesses with customer support, technical backup and 400-plus sales people. Besides supporting distributor/distributor business, these reps also conduct significant direct sales activities.
Layered over that rep infrastructure is a network of 4,000 distributor locations with a cast of salespeople that would make film director Cecil B. DeMille wince. Based on the sheer quantity alone, one could surmise that every industrial plant and OEM in North America has some kind of relationship with a Baldor distributor. Factor in Baldor's relative size in relation to its electric motor building competitors, and you would imagine that many of these distributor/customer relationships are vibrant and healthy.
If we dissect this massive distribution channel, we find some interesting complexities. First, there are variations in size. Baldor maintains relationships with distributors ranging from the very small mom-and-pop rural locations to industry giants like Motion Industries. Plus, Baldor distributors approach the market from a number of directions.
Some Baldor distributors are EASA shops, members of the Electrical Apparatus Service Association. These folks troubleshoot, service, rewind and remanufacture electric motors. Many of them consider new motor sales as a value-add to their primary business, selling something new when repair is impractical or expensive. Other distributors approach Baldor sales from the commodity electrical wholesale side of the business, providing Baldor products as a tag along component of their crib services. The same could be said about various agricultural equipment and specialty distributors.
Over the past few years, Baldor has developed relationships with high-tech motion control and automation houses. In addition to the products Baldor is most noted for, these distributors, which prefer the moniker of "solution provider," promote a limited catalog of electronically based drive and motion products. But in spite of the advanced technology, Baldor has not been wildly successful in capturing large market shares in this sector.
The majority of Baldor's business comes through Power Transmission Distributors Assocation type distributors (www.PTDA.org). This group of distributors is historically noted for selling mechanical products. Things like gears, bearings, belts, pulleys and actuators are on their line card. This group matched well with Baldor's 2007 purchase of Dodge and Reliance from Rockwell Automation. There have been many changes in this market, including a post-recession expansion into motion control and related electronic automation. So, in my mind, this is a point to watch.
Now let's add a bit about ABB's North American efforts. Even though ABB enjoys massive success globally, its current position in the U.S. market comes nowhere close to mirroring its success elsewhere. In the U.S., ABB is best known for its position with AC drives. Here, ABB competes head-to-head with companies such as Rockwell Automation, Group Schneider, Eaton, Lenze, Yaskawa and others.
ABB has enjoyed marked growth in recent years. However, in many instances, it finds itself struggling for distributor mindshare. Often, this is complicated because ABB shares the distributor's line card with other manufacturers. This creates a great deal of noise in the channel.
Clearly, the new combined channel will be a mix of the two existing channels. Merging and mixing channels is always fraught with danger. So, what will the future bring?
We have a number of thoughts about the distribution situation as these companies combine their place in the market. We have prepared a full report which goes into some detail (available directly from River Heights Consulting), but here are a few of the points that must be addressed:
- Develop a multi-tier channel strategy – Clearly not every Baldor distributor is capable of adding value to ABB's technical products. ABB will need to sort out which distributors have the ability to expand into these offerings.
- Determine who sells and who takes orders – In order to achieve maximum channel benefit, ABB will need to know which companies have the technical resources to find new applications, solve customer issues and grow the market. Based on the comments coming from a recent PTDA Motion Control panel discussion, market makers are more important than shopping centers.
- Leverage their new position to increase distributor mindshare – It's not uncommon for distributors in the electric motor and power transmission (Baldor's Dodge) business to represent multiple manufacturers. When that happens, distributor mindshare is hard to control. ABB has an opportunity to leverage its new position.
It's going to be interesting to watch how all of this unfolds. I believe the next year has the potential to reshape a great deal of the way industrial motion and automation products are sold. That includes our world as distributors.
Frank Hurtte speaks, writes and consults on distribution issues in the industrial supply market. He is a regular contributor to Industrial Supply Magazine and is considered by many to be the expert on automation and motion control channel issues. He can be reached via e-mail at: firstname.lastname@example.org.