Abb Group Marketing Paper

New York University

Tandon School of Engineering

ABB Group

Tushaar Garg

N15360613

tg1473@nyu.edu

Marketing

ABSTRACT

ABB is a leader in power, energy, robotics and automation technology industry extensively focusing on the environmental impacts of the 21st century modern era. Starting from first quarter of 2014 till the very end of the same financial year, ABB’s stock price was declining because of regressive competition from multinational companies like General Electric, Siemens, Schneider Electric etc. in the global market. Then in the following year, on January 1st, 2015, the company implemented its Next Level Strategy and planned its financial targets for the period 2015-2020.

The stock price fluctuated the whole financial year of 2015 but at the end of the fourth quarter eventually settled at a record low in last three years– even more less than the stock price in 2014 when the strategy wasn’t even implemented. However, in the initial stages of planning, ABB framed up the Next Level Strategy in accordance with the global market demands of smart power and grid systems which surged after the Climate Change Pacts were signed amongst the major economies of the world in December 2015. Bringing ABB’s Power Systems division in a solid position from January 2016 was part of the Next Level Strategy, because of which the company won several contracts in first quarter of 2016. This led the stock price to increase again significantly.

Also, to some extent, it implies that in addition to the technological innovation and advancement, the strategy was developed keeping in consideration the additional regulation and environmental impact ideologies of major economies of the world where ABB has a target market. This will create opportunities for growth in the coming future for the company.

BACKGROUND

Between January 17th,2014 and January 25th,2015 the stock price of ABB went down from $27.09 to $19.14 which means a decline of 29.35%. A key reason for this decline was a negative trend in the earning estimates (Yahoo Finance, 2016). The company reported a 21% drop in the third quarter-earnings of the financial year 2015 because of slowing demand from China and other emerging markets where the company has regressive competition from other multinationals like GE, Siemens, Schneider Electric etc.

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Stock value source: Yahoo Finance

        In September 2014, ABB presented its Next Level Strategy and financial targets for the 2015-2020 period aimed at accelerating sustainable value creation. The strategy was built on the company’s three focus areas: profitable growth, relentless execution and business-led collaboration (ABB press releases, 2014). The strategy was also aimed at driving profitable growth by shifting its center of gravity towards high-growth end markets, enhancing competitiveness and lowering risk in business models. The company expected to grow operational earnings per share (EPS) 10-15% compound annual growth rate (CAGR: growth of an investment over a specified period of time longer than one year) and deliver attractive cash returns on investment (CROI) in the mid-teens over the period 2015-2020. It also targeted to grow revenues on an average of 4-7% per year, faster than forecasted GDP and market growth.