ABB/Baldor and the Power of Distribution

Dec. 9, 2010
How many times in the past year have you heard the rumor — ABB plans to purchase Rockwell Automation? This rumor has been floating around since pundit Jim Pinto first linked their names in 1999

How many times in the past year have you heard the rumor — ABB plans to purchase Rockwell Automation? This rumor has been floating around since pundit Jim Pinto first linked their names in 1999. A quick “Google Search” indicates the names have been linked hundreds of times since 2007 — so this one caught the experts by complete surprise. What are we speaking of? Well read on.

Last week, global power and automation giant ABB announced plans to purchase North American-based Baldor. If ever there was a case study on the power of the North American channel in the electrical market, this is it.

Think about it. In Europe electrical wholesaling as we know it is a scarce commodity. I didn’t say non-existent, but suffice to say, the major players have found that in North America they must have a top notch channel to be successful. 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 CED 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 have a report 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 set-up. First, they have 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 salespeople. 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 every industrial customer in North America has some kind of relationship with a Baldor distributor. Factor in Baldor’s relative size in relation to their 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, variations in size — Baldor maintains relationships with distributors ranging from the very small ma-pa rural locations to industry giants like Graybar and Motion Industries. Plus Baldor distributors approach the market from a number of directions.

A good many electrical wholesalers have added Baldor to their line cards as a natural extension of the industrial controls business. Some have approached motors because they somehow managed to find their way onto integrated supply and crib contract lists. Electrical distributors with a foot in the power transmission industry have found Baldor’s products to be staples of the industry — more on that later.

Over the past few years, Baldor has developed relationships with specialty motion control and automation houses. Aside from the products Baldor is most noted for, these solution providers promote a limited catalog of electronically-based drive and motion control products. While these high-tech products are technologically advanced, Baldor has not been wildly successful in capturing large market shares.

Some Baldor distributors are “EASA shops” (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.

The majority of Baldor’s business comes through power transmission distributors. 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.

Now let’s add a bit about ABB’s North American efforts. Even though ABB enjoys massive success globally, their current position in the U.S. market comes nowhere close to mirroring their success elsewhere. In the United States they are best known for their position with AC drives. Here they compete head-to-head with companies like Rockwell Automation, Schneider Electric, Eaton, Toshiba, Yaskawa and others.

ABB has enjoyed marked growth in recent years. However, in many instances they find themselves struggling for distributor mind-share. Often this is complicated because they share the distributor’s line card with other manufacturers. In our mind this creates a great deal of noise in the channel.

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, 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 in ABB’s technical products. They will need to sort out which distributors have the ability to expand into in offerings.

Determine who sells and who takes orders. In order to achieve maximum channel benefit they 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 mind-share. It’s not uncommon for distributors in the electric motor and power transmission business to represent multiple manufacturers. When that happens, distributor mindshare is hard to control.

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. This will spill over into electrical distribution as well. In the September edition of Electrical Wholesaling we highlighted the merging worlds of power-transmission and electrical distribution. We believe this proposed acquisition will serve to escalate the situation and bring further change to our world as distributors.

River Heights Consulting has prepared a full report on the proposed ABB/Baldor deal. Contact us via email at [email protected].