If the wide-ranging views ag machinery manufacturers hold about business alliances is at all reflective of where the industry is coming from, it's no wonder that some consider the industry to be fragmented and even fractured.
Just as the companies making farm equipment approach product development and distribution from nearly every conceivable direction, so are their perspectives of the role of partnerships like the marketing alliance formed last year by Kubota Tractors and Land Pride.
On one side of the debate are those who say that these business pacts help reduce overall costs of manufacturing, marketing and distribution and help move product into the market much faster than if two parties went it alone.
Russ Green, executive vice president and GM, Claas of America, says it this way: "As in any unifying action, the sum of the companies working together needs to be of higher value than each company working independently."
That's all well and good from the supplier point of view, counter those on the other side of the discussion. They believe that the intent — and ultimate outcome — of most alliances are simply a cover for the big manufacturers to dominate the market and choke out competition and product innovation. Some even go so far as to call it a "backdoor run" at dealer purity.
A Positive Trend
Jay Wik, vice president of sales and marketing for Crary Industries, sees the emergence of business alliances as a positive for the ag equipment industry, but adds the reasons for their development aren't necessarily so.
He says that four significant trends make alliances appealing in today's market, especially for shortline manufacturers. These are:
- A diminishing number of farmers
- A diminishing number of equipment dealers
- Consolidation of dealers into large dealer groups
- Brand cleansing efforts of major line manufacturers
"Marketing alliances may help some manufacturers penetrate more dealers and gain market share," says Wik.
At the same time, he doesn't see alliance building as a significant trend. "There is not an abundance of likely partnerships that offer the synergies of the Kubota and Land Pride agreement," he says. "No doubt, there will be more on the horizon, but I don't look for it to significantly change the landscape of the industry."
Qualifying 'Ifs' and 'Shoulds'
Nearly all of the manufacturers that view business alliances positively also add qualifying "ifs" and "shoulds" to their belief that manufacturing and marketing partnerships present a win-win-win for the equipment makers, retailing dealers and farm end-users. Many also add that alliances like the one between Kubota and Land Pride, in all likelihood, will succeed, but that doesn't mean everyone wins.
"If the proper alliances are formed, everybody wins," says Dennis Whitehead, director of marketing, Kinze Manufacturing. "It's good for the alliance partners, the dealers and the farmers as the result of the synergies that bring the complementary strengths of the partners together. This provides new technologies and better products faster and at a lower cost than possible if the manufacturers attempt to do this alone. New technologies, better products, faster to market and at the best cost means everyone wins," he says.
Whitehead adds that the recently formed alliance between Kinze and Ag Leader Technologies to jointly provide precision control systems on planters is an example of a win-win combination.
"The combined expertise and strengths result in both partners becoming stronger, longer term players in the agricultural equipment industry, be it through R & D, new technologies, manufacturing or distribution," he says.
"This alliance 'should' be good for both Land Pride and Kubota," says Steve Faroese, sales manager, Buhler industries. He quickly adds, "I don't think it's necessarily good for competitors in the shortline business. When a customer can go into the tractor dealership and buy an accessory that matches his tractor, it's unlikely that he's going to look at a different competitor's product offering. It creates strength for those involved in the alliance but tends to crowd out the competitor that must rely on its own marketing channels."
Hi-Techs Firms are Ideally Suited to Alliances
If any segment of the industry is an ideal candidate for partnering, it's those specializing in high-tech systems and products. With their focus on specialized equipment guidance and control, as well as monitoring and analyzing operations and data, it's a safe bet that few, if any, of the advanced technology systems could stand on their own over the long term. For these firms, it's essential to establish working alliances with the OEMs and others allied to the industry.
"We have a number of OEM accounts who we work with on supplying private-label monitors and controllers," reports Rob Hoehn, sales manager of Micro-Trak Systems. "Having their name on the product gives the OEM ownership and creates the impression for the end-user that it's theirs. This way, all future support and service-related calls go through the OEM and not to Micro-Trak.
"They want the ability to promptly respond directly to any questions or concerns from their customers. Typically when working with an OEM, we can take one of our off-the-shelf products and modify it to fit a specific application." The company is currently supplying a variety of products and systems to ag equipment makers, ranging from private-label consoles, special software and custom cabling.
In some cases, it even makes sense for tech companies to partner with each other to keep up with the rapid pace of the tech industry, as well as being able to respond quickly to customer demands for advanced technology products.
That's what DICKEY-john and Trimble did last summer when they announced their partnership during the Farm Progress Show. "It's very difficult for a single manufacturer to offer everything needed for a precision ag solution in a very short time," says Chris Tarpley, vice president of marketing & sales for Dickey-john Corp.
He says the alliance brought together what Trimble does best and with what DICKEY-john does best and together they're developing solutions, he says.
"This partnership goes beyond marketing," says Tarpley. "We are actually applying engineering know-how to make our systems work together. This eliminates the need for the farmer or the dealer to try to figure things out on his or her own. The benefits to our two companies are that we each can bring to market a complete precision ag solution in a much shorter period of time. This comprehensive solution makes our independent product offerings much more valuable than the sum of the parts."
Rob Lindores, director of marketing for Trimble Navigation's Agriculture Division, will vouch for the two-way street of working alliances. "Our strategic partnership with CNH — including Case IH and New Holland dealerships — allows us to leverage their worldwide distribution and long-term relationships with many thousands of farmers in dozens of countries. It allows us to offer those customers advanced precision farming technology solutions that suit their needs."
From a partners' point of view, Lindores says the CNH-Trimble relationship gives Case IH and New Holland access to the world's leading GPS technology and allows CNH to focus its resources on the manufacture, marketing and distribution of ag machinery rather than investing time, money and effort into GPS technology.
Lindores adds that, ultimately, it's the farm customer who benefits from the alliance. "It allows their dealers to offer their customers all the benefits of one-stop shopping for precision ag systems. Just as importantly, it includes the ability to arrange financing and ensure solid service and support."
Crowding Out Competition
If there is one belief shared by many ag machinery enterprises, it's that, regardless of the intent, most successful alliances reduce customer choice by crowding out competition. This, many add, has the deleterious effect of limiting customer choice.
The merit of business alliances lies primarily in the increased efficiency in manufacturing and marketing synergies, according to Kevin Dow, president of Schulte Industries. "The manufacturer should be able to take advantage of the additional volume from the alliance to provide better economies of scale and, in theory, some of the saving will be passed along to the dealer and end-user. For the dealers, they get the opportunity to carry a broader line of products from a single source, simplifying their business relationships — invoicing, statements, floor plan terms, parts and warranty, administration, etc."
But Dow also concedes that the underlying effect comes in the reduction of choice for the end-user. "More of the same product will take up even more of the retail space at dealerships, leaving less room for competitive lines that provide the end-user with different features and benefits.
"The reduction of competition in a given market region can result in less competitive prices — an inverse effect to the synergies identified by creating the alliance initially. In a broader sense, the reduced retail space can also reduce the availability of specialized options offered by competitors. It is possible that a farmer could lose reasonable access and dealer support for a particular machine option that would best suit his particular operation," says Dow.
In the long run, many manufacturers, including Dow, believe the marketplace will find a balance as long as the competitor finds a way to make the farmer aware of the features and benefits of its products, and the farmer finds a means to acquire the product in spite of the challenges alliances may bring.
Dealers Lose, Too
Those who challenge the benefits of business alliances are adamant that the industry must look beyond the immediate value to the manufacturer and consider their effect on the retailers, which, they say, ultimately affects the financial health of the farm customer.
Les Hulicsko, owner of Rite Way Mfg., says bluntly, "I have yet to see alliances work. Sooner or later, one will buy out the other and it becomes more of a merger than an alliance.
"My biggest concern is that not only is there less competition, but when two companies come together, each with their own dealers, it makes sense for them to drop some of their dealers. The dealerships then close and the result is that farmers have less choice," says Hulicsko.
As dealers are weeded out, the distribution channels become narrower, and dealers become less competitive and fall to the mercy of the large equipment manufacturers, according to Ben Howse, president of Howse Implement Co.
"If a higher level of dealer purity is achieved, the dealer will become noncompetitive as the more independent dealers work with shortliners to put lower priced tractor and equipment packages together," Howse contends.
"The 'pure' dealer will be forced to pay higher and higher prices since it has no other line of equipment to bargain with when the majors bring in higher prices."
And many of the shortline manufacturers believe the majors will be unrelenting in pushing their dealer purity crusade in order to exercise greater control over their retailers.
"The mainlines will continue their efforts to control their dealerships by offering the smaller products and penalize those that offer competing equipment," says Bruce Clark, manager, Antonio Carraro America. "Those considered too independent will be forced to consolidate into larger dealerships that are more easily controlled by the mainline."
As this trend progresses, Clark believes that without those outlets, the shortlines will find it very difficult to market and service their product. "Because of this, many quality, cost-saving, efficient products will not be available to growers," he adds.
From the perspective of a mainline equipment manufacturer, Jim Walker, vice president of Case IH North America, sees alliances like the Kubota-Land Pride partnership being helpful for a niche product range and shortline companies to fill out the product range and attract distribution. But he adds, "I see no real benefit of alliances for full, mainline manufacturers."
As the retail shakeout continues, Walker sees distribution opportunities for specialty equipment makers becoming increasingly limited. "As the number of full-line farm equipment dealers continue to decline due to mergers and acquisitions of dealers themselves, distribution opportunities for niche and shortline manufacturers become less and less," he says. "Through alliances of these manufacturers, alternative distribution will emerge to handle these products."
The In's & Out's of Farm Equipment Alliances
Alliances between manufacturers of farm equipment may not be new, but they've taken a different twist with the Kubota-Land Pride deal, where both partners maintain their brand identity, according to David Daugherty, Daugherty Companies, Warren, Ind.
In the past, he explains, manufacturers usually sourced some portion of their products from smaller, independent equipment makers and often changed suppliers without the end-user knowing who produced the product in the first place.
"The advantage to the farmer is usually a better overall value," he says, because, in some cases, outsourcing through a manufacturing alliance can cut costs by circumventing union labor and other high overhead costs associated with major-line manufacturing.
He points out that shortline manufacturers can benefit from such arrangements as well, by filling up production schedules and having off-season work. But, he adds, the downside is that once dependent on such business, the small manufacturer is often squeezed by a major demanding smaller and smaller margins through the threat of pulling the work completely.
"Alliances such Land Pride-Kubota may be the answer to fewer and fewer major line dealerships available for shortline marketing," says Daugherty.
He maintains that more alliances of this type will evolve "as it doesn't make economic sense for four or five companies to make nearly the identical product with very minor variations.
"As the majors strive for dealer purity, they must offer a complete product line," he says. "This can have the effect of freezing out the smaller manufacturers so that some of them may turn to the major and become a supplier rather than a competitor. Some shortliners may opt to form partnerships with other shortline manufacturers to provide a broader product line that will be marketed by specialty dealerships. This will allow them to stay in the game and continue to compete with the majors."
The Downside for Manufacturers
The unintended result that Matt Land, national sales manager for Dixie Chopper, sees from many alliances is a devalued product, particularly when a dealer carries similar products that compete for the same customer.
"When the dealer becomes devoted more to one product line vs. another because it offers a better profit margin, he can tie up an entire market area for a manufacturer, particularly when he does not represent it well or uses one brand to sell a customer into the other.
"When this happens, the manufacturers to lose profit margin and price becomes the issue instead of features and benefits. This leads to a devaluing of the product line and a downward spiral of price-shopping by the consumer," says Land.
According to Land, when price becomes the primary criterion for the manufacturer, it works itself down the distribution channel to the customer and profitability becomes increasingly difficult to achieve.
"Once the market is no longer profitable for those who pioneered a unique machine, they get out of the industry. That leaves the customer with equipment that is only manufactured with the goal of reducing costs and this involves making the product cheap. Buying cheap ensures that only cheap will be left to buy," he says.
For Better or Worse
Despite dire warnings and predictions of failure, most farm machinery manufacturers believe the advantages of a well-planned business partnership remain a solid strategy, especially for those producing specialty products. In light of the difficulty in securing widespread distribution and the increasing costs of product development, most see the industry trending — for better or worse — in this direction.
"I think you will see even more of these alliances," says Jim Allison, sales manager, Kongskilde Grain Equipment. "For shortline companies to grow without having to go through a merger or acquisition, this is an excellent way to broaden their market base."
John Bulin, sales manager for Agri-Products, is another who sees business alliances gaining momentum. "New alliances are happening all of the time," he says. A visit to almost any equipment show demonstrates a preponderance of manufacturers who are teaming up, Bulin adds.
"More manufacturers working together are becoming more commonplace, sharing manufacturing, marketing and selling tasks. Think of it as the 'Wal-Mart' concept," he suggests. "One-stop shopping. Save time. Have one service center. Today's farmer wants his products yesterday. As manufacturers, we must do whatever is necessary to see that this happens."
Jim Gladstone, sales and marketing manager of Valmar Airflo admits he's on the alliance bandwagon and predicts the industry will see more in the future. He says simply, "The positives outweigh the negatives in the agriculture manufacturing industry today."
While Russ Green of Claas of America believes partnerships are a viable means for equipment makers to combine strengths for a competitive advantage, he doesn't necessarily see the trend escalating.
"There has been and will continue to be consistent benefit from work alliances between companies, but I don't think there will be more or less in the future," he says. In fact, he expects there to be "possibly less simply because there will be a fewer number of manufacturers in the agricultural sector."
Even those who are most adamantly against manufacturing alliances concede that there is little to be done about the trend. Despite saying he's never seen one work out well for anyone, Hulicsko concedes, "Unfortunately, yes, it seems to be a trend that will continue."