In the recent years, innovation and “green” practices have become two of the key phrases for companies wanting to capture the attention of consumers and imply their products and services are helping to improve the world we live in. A key factor in determining the future of our environment is analyzing the companies that use resources to provide power and automation. One of the world leaders in production and services of power and automation is ABB (Asea Brown Boveri) Incorporated. Not only do ABB’s marketing strategies illustrate success, but their financial statements, industry comparisons, and market growth.
For a company that has been around for over 100 years, ABB has many accomplishments that set them apart from competitors. They have made it to the global list of Fortune 500 companies, operate in over 100 countries, and employ over 145,000 people. ABB was the first company to transmit high-voltage power, build the first three-phase transmission system, the first steam turbine, the world’s largest self-cooling transformer, combustion gas turbine, high-speed circuit breaker, and the list goes on. In other words, ABB has provided many of the technologies and core concepts that are underlying factors of society as we know it.
Since ABB is such a large and encompassing company, their products and services are divided into five divisions; power products, power systems, discrete automation and motion, low voltage products, and process automation. Each division seeks to entice different markets and consumers with the most cost effective, innovative, and reliable products. A main reason of ABB’s success is the interaction between divisions that support their entity as a whole.
Power and automation is a broad term that although describes ABB well, does not provide a clear understanding of what ABB has to offer. In very basic terms, the power aspect of ABB includes using resources to generate electricity for residential to commercial consumers. After harnessing resources such as fossil fuels, natural gas, and energy, products are needed to convert these raw resources into usable energy, which ABB also provides. The automation side of the industry deals more with motors and generators and equipment that needs these things. An example of a product from the automation industry is the charging stations for electric vehicles which have made an increasing presence in today’s economy.
ABB makes the robots that paint luxury cars (such as Aston Martins), the transformers that supplied the 2012 Olympics with power, the generators that supply residential neighborhoods across the world, and much more. Since the headquarters are in Zurich, Switzerland, they are not as well-known across America yet pose large competition to companies more known in the states such as General Electric (GE) and provide many Americans jobs.
For the purposes of investors and customers, companies usually do not publicize their failure to success or poor financial situation unless the media exploits it first. Therefore, most businesses like to convey the image of growth and financial well-being whether it is completely true or not. A good way to analyze a company is to do a financial analysis and look at their annual report history and compare data against competitors.
Innovation means creating products newer, better, and faster than competitors, but to do this, each company must know and understand who they are up against. Compared to industries such as retail or car manufacturing, power and automation is relatively new and consequently does not have as many businesses competing. In America, two of ABB’s biggest competitors are Siemens and General Electric. All three companies have overlapping products in power and automation.
A comparison of the net incomes of ABB, Siemens, and General Electric over the past 5 years can be seen in Figure 1. To understand why net income is used as a comparison, see equation (1).
Figure 1-Net Income Comparison
According to the 2009 annual report published by General Electric, 2008 was a horrendous year for the company. The rebound they experienced in 2009 was remarkable considering their prior year losses, but still shows extreme volatility. ABB showed little effect from the economic crisis in 2008-2009 maintaining a very firm net income position. Lastly, Siemens showed a slight offset in 2009 but was able to recover and continue increasing profits.
Another indicator of how a company is doing is to look at the finances from an investing point of view and the stock prices. Figure 2 shows the comparative stock prices of ABB (blue), Siemens (yellow), and GE (red) since 2008. Through research of news articles and company history, it can be inferred that the American companies are largely affected by economic activity and government involvement whereas for ABB, stock prices are largely influenced by product introductions, current events, and market share.
Figure 2- Comparative Stock Prices
The competition that Siemens imposes on ABB creates the perfect environment for innovation subjecting both sides to continuous improvement.
Success in an industry is determined by many factors that come together to produce the overall best outcome for suppliers, consumers, investors, and employees. The continuous improvement and innovation occurring in the power and automation industry make competition fierce. ABB’s ability to keep steady financial numbers prove that key players are not willing to take risk that would cause decreased profits. As much as this can be a good thing in economic downturn, it also shows the lack of risk invested in increasing income as well. The financial future of ABB looks to be positive in the short term. Long term, financial hedging or complex options should be introduced with a larger presence to gain even better monetary outcomes.
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