International business
Case study ABB Headquartered in Zurich, Switzerland, Asea Brown Boveri (ABB) is one of Europe’s major industrial firms. Since the merger in 1987 that created it, ABB has been acquiring or taking minority positions in a large number of companies throughout the world. In recent years it has purchased Westinghouse’s transmission and distribution operations and Combustion Engineering, the manufacturer of power generation and process-automation equipment. In Mexico, ABB acquired FIP SA in 2001, an oil and gas production equipment company. The conglomerate, which currently employs 102,000 people worldwide, has annual revenues in excess of $20 billion. Fifty-five per cent of its revenues come from Europe, 25 per cent from the Americas, and 12 per cent from Asia. The remainder comes from Africa and the Middle East. ABB operates on both local and global terms. On the one hand it attempts to maintain deep local roots wherever it operates so that it can modify both products and operations to that market. For example, managers are trained to adapt to cultural differences and to learn how to communicate effectively with local customers. At the same time the company works to be global and to make products that can be sold anywhere in the world because their technology and quality give them a worldwide appeal. A good example of a business that demonstrates ABB’s advantages is transportation. The company generates $2 billion a year in revenues from such products as subway cars, locomotives, suburban trains, trolleys, and the electrical and signaling systems that support these products. This is possible for four reasons: (1) ABB’s research and development makes it a technology leader in locomotives and power electronics, enabling it to develop and build highspeed trains and rail networks throughout the world; (2) its operations are structured to take advantage of economies of scale and thus keep prices competitive; (3) it adapts to local environments and works closely with customers so that it is viewed as a national rather than a foreign company; and (4) it works closely with companies in other countries that are favored by their own government but need assistance in financing and producing locomotive equipment for that market. As a result, ABB is able to capitalize on its technological and manufacturing expertise and develop competitive advantages in both triad and non-triad markets. In some cases, ABB has gone so far as to take an ownership position in companies located in emerging economic markets. For example, the firm purchased 76 per cent of Zamech, Poland’s leading manufacturer of steam turbines, transmission gears, marine equipment, and metal castings. And it has bought into two other Polish firms that make a wide range of generating equipment and electric drives. ABB is now in the process of reorganizing these firms into profit centers, transferring its own expertise to local operations, and developing worldwide quality standards and controls forproduction. If all goes according to plan, ABB will soon have a thriving Polish operation that will be helping to rebuild Eastern Europe. ABB works hard to be a “good citizen” of every country in which it operates, while also maintaining its supranational status. As a result, the company is proving that it is possible to have worldwide operations and local strategies that work harmoniously.
Questions 1. Why did ABB buy Zamech? How can ABB link Zamech to its strategic plan? (5 Marks).
2. How does ABB address the issues of globalization and national responsiveness? In each case, cite an example. (5 Marks)
