Like it or not, alliances in the farm equipment industry are here to stay, but will the manufacturing synergy carry over to the retail level?
There's nothing all that new about business alliances, where two concerns seize the opportunity to capitalize on each other's respective strengths to increase sales and capture market share. But the coalition of Kubota Tractor and Land Pride implements brings a new dimension to the partnership game in the farm equipment world and has many shortline manufacturers and their dealers wondering where this era of "pick your partner" will ultimately lead.
Land Pride, a division of Great Plains Manufacturing of Salina, Kan., manufactures landscape and turf-related tractor mounted implements. Kubota Tractor Corp., Torrance, Calif., is the U.S. marketer of Kubota-branded tractors up to 103 PTO horsepower.
Early last September, the two companies announced a "strategic alliance" in which participating Kubota dealerships in the U.S. would offer performance-matched Land Pride implements like rotary cutters, grooming mowers, rotary tillers, rear blades and pretty much any 3-point tool that Land Pride offers. The companies said they were looking to achieve market synergies that both needed to further penetrate the rapidly growing rural lifestyle and utility-class construction markets.
What got the industry's attention was that this partnership went beyond the typical manufacturing alliances and rebranding that have been prevalent in many industries for decades, where one manufacturer produces complementary equipment for another and is marketed by the buying partner as "its own."
For example, the Frontier brand of farm implements are manufactured by a variety of suppliers but sold exclusively through independent John Deere-franchised dealers. But it's no secret that Frontier Equipment is a Deere brand.
Concerns & Speculation
It didn't take long following the Kubota-Land Pride announcement for the rumor mill to begin turning with speculation and concern about the impact of the agreement on both dealers and other shortline manufacturers.
One rumor that made the rounds early on was that Case IH and New Holland were in discussions with rotary cutter manufacturers looking to set up a similar arrangement to what Land Pride and Kubota were doing.
One Farm Equipment source, who asked to remain anonymous, speculated that "If CNH inks a deal with a rotary cutter manufacturer, it won't be long before it spread to other products. This causes concerns that if you're not supplying one of the major-line manufacturers, you could be left in the cold."
The bigger concern for dealers was that Kubota, which has historically offered 0% financing to tractor buyers up to 125% of the base tractor's purchase price, would offer 0% financing on Land Pride products, leaving little room for other manufacturers' equipment.
A shortline manufacturer who asked not be quoted says that he doesn't believe the Kubota-Land Pride deal will go too far.
"Where is the money going to come from in order to pay the tractor company a margin and also pay for the retail financing?" he asks. "The attachment manufacturer has to raise the prices to pay for all of this. So, the question is whether the alliance with the tractor company is worth pricing yourself out of the market. How receptive is the dealer knowing the attachment manufacturer is paying a tractor company and the dealer is in essence pay for that activity?"
Furthermore, the Farm Equipment source says, "It's worse for the non-Kubota dealer whose price just shot up to paying for the financing deal."
Some dealers also expressed concern that the manufacturer, which has historically been hands-off with regard to line selection, was following the lead of its major-line peers when it comes to what brands receive resources at the dealer level. Some retailers feared that independence would disappear in the form of financing incentives.
Simplifying the Dealer's Business Model: How the John Deere-Frontier Concept was Born
John Deere conceived the idea for its Frontier Equipment line in 2000 during strategy meetings with its Dealer Advisory Council. According to Michael Horrell, marketing manger for Frontier Equipment, it wasn't about increasing profits. "There's not a whole lot of technology in selling box blades," he says.
The idea for Frontier came about from a desire to improve the business model across the board for its dealers.
"We realized that our dealers already had a very complex business model," says Horrell. "For the ag dealer who's on the edge of a city, customers range from the traditional farmer who needs a combine, to the customer who wants a walk-behind mower and everything in between. Now, throw in municipalities and government agencies, and it's very complex when you think about all of those customer segments.
"Now think about it from the supply side. John Deere and all of the majors have always been challenged to provide commodity-type products at the right price and do it in a profitable manner," Horrell explains.
In most cases, says Horrell, John Deere dealers had to deal with many different suppliers to get what they needed to service their rural lifestyle customers. "That meant not only did the dealer-principal have to deal with maybe 5 or 6 suppliers, but so did the salesmen, their parts and service people, and accounting departments. Now include 5 or 6 different ordering and warranty programs, and a complex business model became even more complicated."
He adds that John Deere, recognizing the need for its dealers to grow also meant allowing dealers to consolidate in multiple locations. "So, now you're adding another layer of complexity."
Being publicly traded companies where stockholders demand a return on their investment, it's difficult for the major farm machinery manufacturers to profitably invest in the assets required to produce all of the products its dealers require. This, says Horrell, is particularly true with the equipment for the large property owners and hobby farmers.
"If we couldn't provide it for them, our dealers had to go to someone else for these products."
The Frontier Equipment line is focused on two customer segments, according to the line's marketing manager. These include the large property owner who doesn't intend to generate revenue from his activities and the part-time producer who generates some income from farming but has other sources for their principal income. Between the two of these is the "sweet spot" for Frontier business, says Horrell.
"We do get into some of the government business with some of our mowers and touch some traditional customers with manure spreaders and hay tools. But it's the hobby farmer type of customer that we focus on through Frontier."
Horrell offers that Deere intends to continue growing its Frontier brand, both in terms of product and geography.
"We believe there's opportunity to do more business with the John Deere dealer network in the U.S. and Canada and we've also identified strategic prospects in Mexico and Europe, as well. There are still opportunities with the product and we intend to continue expanding our portfolio of equipment for our dealers," says Horrell.
A Different Strategy
In the case of the Kubota and Land Pride pact, the tractor maker will actively market the Land Pride line of implements under the Land Pride label while both maintain their corporate brands.
From the dealer's perspective, various questions arise, like what will the Kubota dealers that already carry competing lines of implements do? And does the agreement offer those dealers already carrying both brands a decided advantage over those in the same sales territory that only carry the implement line?
The two firms say the marketing partnership will allow the more than 1,000 U.S. Kubota dealers to offer "Kubota-matched" implements, providing customers with a "one-stop" location for both their compact and utility tractors and implements.
In an interview with Farm Equipment in early September, Linda Salem, president of Land Pride, said, "The strategy is to further penetrate the rural lifestyle market. Kubota offers primarily tractors, front-end loaders and backhoes along with a few other implements. Because of their limited range of implements, they were looking to round out their offerings in a more creative way than through purchasing another company or doing an OEM relationship. A lot of our dealers are already Kubota dealers," she added. Despite its network of some 1,500 dealerships, Land Pride's agreement with Kubota gives the implement manufacturer the opportunity to move into market territories where it has little or poor exposure currently.
Roy Applequist, president and owner of Great Plains, says that for most rural lifestyle customers, the tractor purchase takes precedence and most don't have a brand preference when it comes to implements.
"Often, they buy a tractor and whatever the dealer packages together with the tractor. This gives both Land Pride and Kubota the opportunity to match a high-quality tractor with high-quality implements."
In fact, he says, "We offer equipment in colors, so most likely the Kubota dealer will want orange implements to go with its orange tractors."
Applequist also points out that while Kubota is often associated with the rural lifestyle-type customer, the tractor maker also has a strong position in the construction market where higher-quality, dependable tools are required. So, the alliance with Land Pride will also benefit Kubota in this market segment, he says.
The Frontier Factor
Many dealers and shortline equipment manufacturers point to John Deere's establishment of the Frontier line of implements in 2001 and marketing the brand as the largest shortline company in the world as the real impetus for the Land Pride-Kubota coalition — and probably many more like it to come.
"I think Land Pride felt the effect of losing John Deere dealers' orders to Frontier-labeled equipment and needed to ensure their continued distribution. They took the Frontier model, but kept their own brand name," says James Taylor of Hillsboro Equipment, a John Deere and Land Pride dealer in Hillsboro, Wis.
Land Pride executives acknowledge that John Deere's strategy of promoting its Frontier brand of implements is forcing shortline implement manufacturers to adopt a more aggressive approach with their distribution channels.
"Certainly, the green guys are squeezing out a lot of shortliners and in order for us to succeed, we need to make sure that we're in a strong position with the remaining dealer networks," says Salem. "It'll certainly give us a stronghold that we believe will grow with the Kubota dealerships and in a much more customer-friendly way."
John Deere, on the other hand, says its approach in introducing and promoting its Frontier line of implements isn't aimed at "cornering the market," according to Michael Horrell, marketing manager for Frontier Equipment. "We were looking to improve the business model across the board for our dealers," he says.
Horrell says that in 2000, John Deere determined it needed to become a full-spectrum supplier of products and remove some of the complexity of the dealer's business model.
"We created a different business model thanwhat Kubota and Land Pride later developed. What we chose to do was develop our own brand and business model to provide the products our dealers were getting from other suppliers," he says.
To simplify the dealer model, he explains, John Deere took a lot of the dealer-side complexity on itself. "We negotiate for product and pricing and now offer over 448 different types of implements that are available exclusively through John Deere to its dealers, and we're continuously growing the Frontier line," says Horrell.
"Most of these products are not specifically designed for Frontier. They were products available to dealers under another brand. We work diligently to make sure our pricing is comparable so there's no advantage for our dealers to buy it under the other brand. There are always going to be exceptions, but as a rule we strive to keep Frontier implements competitively priced."
What this does, according to Horrell, is allow its dealers to work with a single supplier. "With the combination of John Deere and Frontier, they get all the products their customers need. It has a consistent look and feel to it. Although we don't design the equipment, we have a staff of Deere engineers that work with the suppliers to make sure it's safe, functional, compatible and reliable."
Manufacturer Alliances are Nothing New
By Art White, White's Farm Supply, Waterville, N.Y.
The Kubota-Land Pride concept is far from new as most other major manufacturers are involved with at least alliance if not more. We've seen these alliances in many industries, for trucks; look at the various engines and transmissions combinations.
Will it succeed? I think that it's a good combination as Kubota has been using other manufacturers' attachments for years for its 3-point hitch attachments and its offering was limited, to say the least. Now they can ensure a good quality attachment to complement the equipment they build and assure the customer that these attachments are right for their tractors and the jobs they have to do.
There is no one machine that is right for every job. The flexibility of allowing someone who builds a good product to work with someone else to expand the product depth is the proper way to succeed economically. The ability to have two lines that complement each other so well is a win-win for both companies. When they fit so well, I'd be disappointed if the companies couldn't get together.
There is some crossover as far as dealers are concerned and it will be interesting to see how this will be handled to equalize things between Kubota and Land Pride lines, but it has been done before and hopefully it will be smooth.
This will be far from the last of the alliances we will see in this industry.
The John Deere strategy is to market the purchase of a classic green John Deere tractor along with matched Frontier implements as "green on green." But Horrell says it's not quite as simple as painting the equipment green to match the tractor.
"This is just one aspect of it. Anyone can paint anything John Deere green. Land Pride was doing this long before it partnered with Kubota," says Horrell. "You can order Land Pride products in John Deere green or any other color.
"You're right, Frontier green is the exact same color as John Deere green. The message to dealers is we're trying to make it simpler to deal with us as a supplier."
He adds, "What we've also done is changed the way a lot of shortline manufacturers are looking at the business. We think this is a positive thing for the industry and for the dealers.
"We're not trying to corner the market. This industry has been very fractured for a long time and we needed a more consistent business model. By taking some complexity out of the dealer model and putting it on the supply side, we think that customers will also benefit as the dealers will have more time to focus on a better retail experience for the customer."
A Subtle Difference
In most cases, the advantage of two manufacturers teaming up is apparent. But because the Land Pride and Kubota alliance is a marketing agreement vs. a manufacturing deal, the benefits of such partnerships aren't necessarily as evident, and inevitably lead to speculation.
The way Greg Beaver of Houston County Equipment, Crockett, Texas, sees it, the success of this alliance "is hard to predict."
Like many other dealers and industry watchers, Beaver wonders what Kubota has to gain in their marketing partnership with Land Pride.
"I'm curious about Kubota's arrangement with Land Pride," he says. "It's obvious how Land Pride will benefit from the exposure, but what's less clear is Kubota's advantage, unless they're planning a buyout."
Another question is how Land Pride is compensating Kubota. Land Pride has not commented on the arrangement.
Beaver speculates that, based on the John Deere-Woods' relationship through the Frontier brand, "it's possible that Kubota would look to acquire Land Pride at some point and establish a similar model. It appears Deere has had some success with the Frontier strategy, so maybe long-term, this will be a good move for Kubota. In the shorter term, though, I see it as creating unnecessary stress on dealers who have other shortlines that they do well with."
Beaver is one who carries a competing shortline brand. Though it remains unclear how his supplier will counter the Land Pride-Kubota arrangement, he says he knows what he'd like to see.
"As a dedicated Rhino dealer, it will be interesting to see how they respond. What I'd like to see is for Rhino come in with a buy-down program in which they would credit the dealer for whatever amount it costs to buy a deal down. In this way, I could continue to sell Rhino and do it on a level playing field with dealers who sell Land Pride."
Age of Alliances
What many farm equipment dealers see is that the John Deere-Frontier and Land Pride-Kubota arrangements are setting the stage for an "age of alliances," as one shortline manufacturer calls it. Views on where it will all ultimately lead are mixed, but most dealers see the trend toward manufacturer partnerships as being significant and could have a profound effect on their businesses and the distribution of farm equipment in general.
At least on paper, such partnerships would appear to be a win-win situation for the manufacturers involved. But the unknown, and much debated element in this marketing alliance equation, is what benefit such relationships bring to the frontline retailer and buying customer?
Already offering both equipment brands, Joe Hines of Hines Equipment, Altoona, Pa., says he can see how arrangements like this might work well for some dealers and not so well for others.
"Being a dealer for both brands makes me believe this will succeed," he says. "This alliance makes it easier for a customer to purchase attachments and finance them along with the tractor at promotional rates.
"As we've seen in the past with other mergers and buy-outs, there will be winners and losers. It will be hard for a Land Pride dealer not handling Kubota, especially if he is surrounded by Kubota dealers, which I'm sure he is. This would be my concern for other alliances. The next one that comes along may hurt us if we're only carrying one of the two brands involved."
Looking down the road, Hines says he expects to see more alliances between manufacturers. "If it works with this one, they all will try it."
James Fiser, Fiser Truck & Tractor, Alexander, Ark., also handles both lines and finds himself on the winning side of this equation. "The only real change for us is we can now offer Land Pride with a Kubota for the Kubota finance rates," says Fiser.
Jerry Owens, Owens Implement & Supply Co. of McCook, Neb., believes this concept is win-win for everyone involved. "For Kubota dealers, it gives them a quality line to sell, and it looks like a good fit for the small tractor buyer or weekend ranchette operator. It should also give Land Pride good exposure to sell its line with a well-known tractor line. Maybe Kubota will export Land Pride products to Japan," Owens says.
"Generally, I think it will help the retail businesses that cater to the small operator who is shunned by the 'bigs' in ag equipment."
Caught in the Crossfire
Taylor, the Wisconsin John Deere and Land Pride dealer, is feeling both the good and bad side effects of this "age of alliances." He says his dealerships are caught in the crossfire as battle lines are drawn.
On the positive side, Taylor says, "Frontier has been good for us. They offer quality products that are ordered through an 'e' system at very competitive prices. Likewise, I believe Land Pride will probably be good for Kubota dealers."
On the other hand, he adds, "We were a Land Pride dealer prior to taking on Frontier and have sold many, many Land Pride products over the years. Now our customers will go to the Kubota dealers for support."
In all likelihood, he explains, this will lead to an inability to maintain the order quantities that each manufacturer demands in order to keep his stocking dealer status.
"We won't have access to some brands so it limits our revenue potential," says Taylor. "It will make some competitive dealers stronger as they now have a more complete line to offer. Freight charges for all shortline equipment are an issue."
Like most other dealers caught up in the developing alliance battles, Taylor also sees more of these partnerships evolving, especially on a manufacturer's lower-margin products. "This type of marketing comes with less overhead," he says. "Normally a manufacturer's low-margin items are very good margin items for dealers like us."
On the other hand, Jim Bishop, Flint New Holland Inc., Burton, Mich., doesn't see any long-term advantages. In fact, he expects to see increased competition and a shrinking sales territory.
"This alliance," says Bishop, "should increase our Land Pride sales, but it's not likely to increase our overall sales since another shortline will probably be pushed out.
"My concern is that local area Kubota dealers that were not Land Pride dealers will start carrying the line. Originally, Land Pride attempted to give dealers some reasonable trade area. This is not the case with the new agreement. If other brands join in, it will also change the relationship of trade areas."
Bishop believes that if the recent venture works out, other manufacturers will also jump on the alliance bandwagon. "I think they will be watching Land Pride's sales very closely," he says.
Some dealers, like Leo Johnson of Johnson Tractor, say he'll let the market sort things out. With two store locations in Janesville, Wis., and Rochelle, Ill., Johnson is taking a "wait-and-see" approach.
"We sell Kubota at both locations, he says. "At one store, we have been selling Land Pride for 20 years. The other store has a loyal Woods customer base and is located about 15 miles from a major Woods factory in Oregon, Ill. Our position is to continue business as we have done in the past and see how our customers react."
Only the Beginning
For most dealers, the manufacturing and marketing alliances of John Deere-Frontier and Land Pride-Kubota are only the initial manifestations of what's ahead in the farm equipment business. Most retailers say they understand why it may be necessary for shortline manufacturers to hook up with other equipment producers — even the majors — in order to increase sales volumes and maintain their distribution channels. That's not to say they all like it, and different dealers see different consequences as a result of this trend.
If everything fell into place with such alliances, Greg Simpson, Simpson Farm Enterprises, Ransom, Kan., says everyone would be better off, including the fewer dealers that are left. "A tractor maker combining with an accessory manufacturer seems to be a natural fit. With this trend there will be fewer retailer-dealers, but perhaps less cut-throat pricing. The existing and more widely spread dealer network may make better margins."
Craig Schomaker, Colorado Equipment of Lamar, Colo., sees these partnerships as a natural progression of where the business is going. "Each of these companies have their strengths and are recognized as a strong player in their individual market. Joining forces allows each to focus all their assets on what they do best and still expand their businesses," he says.
At the same time, such ventures may limit dealer options and industry innovation, he adds, as some of the smaller manufacturers go by the wayside. "Who knows what one of those companies that will probably disappear would have come up with?"
Ian Burnbury of Avenue Machinery, Sumas, Wash., likes the partnership. It allies quality tractors with quality implements, but without all the challenges of ownership. But he adds, "We dealers still need the latitude in selecting product lines based on local markets and competition."
He, too, believes the stage is being set for future manufacturer hook-ups. "There will be more alliances so that companies can focus on what they do well, instead of trying to be all things to all people, and doing some of them poorly."
Increased Inline Competition
What concerns dealers most about the trend is the increased inline competition that often results when two supplier networks overlap in the same sales territory. According to Jeff Suchomski, Suchomski Equipment, Pinckneyville, Ill., this jeopardizes the dealers that sell only one of the lines. "One will probably be forced to give up the contract or it creates an unfair advantage one way or another."
This is the biggest downside when an implement supplier ties up with a tractor maker, says Eric Schnelle, S&H Farm Supply, Lockwood, Mo. "Everyone knows that inline competition is your worst competition."
Schnelle also sees a downside for the manufacturers. "From what I've seen from other alliances like this is that in the long run, the manufacturer is the ultimate loser because its existing dealer network for the product gets frustrated with the inline competition and sells less or switches to another line. Ultimately, this leaves the supplier with a weaker dealer network," Schelle says.
While Ron Waldschmidt, A.C. McCartney, Wataga, Ill., sees the upside for manufacturers, he also sees the dealer coming up on the short end. But an even broader issue in these alliances is both dealer and customer confusion.
"This agreement looks like it might benefit the suppliers on both sides but I am not sure how much the dealers will get out of it. It will give them a finance option to marry lines on a common contract but we are still dealing with two suppliers.
"We have been a Woods dealer for years and plan to continue that relationship as we have a large customer base. We also have a strong Kubota business.
"It appears that this model gives both sides some consideration in that neither loses identity nor do they have to come up with cash to acquire the other," says Waldschmidt.
"These alliances will certainly cause some confusion among dealers since overlap among dealers in a close area usually results in compromised margins and some confusion by customers.
"I can see some manufacturers using this model to address the fact that the industry is saturated in some product lines. It looks like the poor man's way to grow business without spending much. But, again, I see few benefits to the dealer's bottom line and growing confusion among customers as they struggle to understand the changes," adds Waldschmidt.
Certain Markets Will Benefit
Some dealers feel the alliances between manufacturers will be more predominant in certain markets and on a limited basis.
These partnerships will work best with shortline tractor suppliers, according to Schnelle of S&H Farm Supply. But, he adds, "With the market being soft and the vicious competition between the small tractor manufacturers we're seeing these days, I would say that there won't be very many tractor companies left that need this type of alliance."
Mike Meth of Colorado Equipment, Greeley, Colo., doesn't see the majors getting deeply involved in alliances with other suppliers, especially in equipment for their professional farm customers. He does see the rural lifestyle market as ripe for the picking for such deals. In these types of markets, he says, it makes sense as it offers the specialty manufacturers additional exposure.
"These alliances can be good for the retailer as well as the end-user," says Meth. "To go into a dealership and get all your needs filled in one spot is a convenience for the customer and should bring more of their business back into your dealership.
"We will see more and more of this happening in the lifestyler market. The trend has been embraced and is here to stay. It will help sustain some dealers through the tough market cycles," says Meth.
A Longer-Term Trend?
Some equipment retailers say that amid the shuffling that's going on with manufacturers these days, they're spotting a longer-term trend in how traditional shortline equipment will be produced and distributed in the future.
Some foresee an overall reduction in shortline suppliers, thus diminished competition among the implement makers as they increasingly become the suppliers to major, full-line equipment makers.
Jim Bishop of Flint New Holland believes this is the main reason for the Kubota-Land Pride alliance concept. "Most of the major manufacturers, Kubota and New Holland for example, have never figured out how to build and supply a complete line of competitively priced attachments to complement their tractors. This [tying up with Land Pride] was a simple way for Kubota to accomplish this," says Bishop.
"Customers view Kubota tractors as high-quality equipment and most likely, this view will be carried over to the attachments."
Ross Morgan of H&R Agripower, Hopkinsville, Ky., also sees his major suppliers — Kubota, New Holland and Case IH — following the path blazed by John Deere-Frontier and widened by Kubota-Land Pride.
"Manufacturing technology for producing implements is usually low-skill, low-tech and labor intensive vs. the technology used to manufacture engines, drivetrains and hydraulic systems," says Morgan. "There is a strong move by the tractor manufacturers to outsource most of their low-tech products because, as it's been demonstrated in the automotive industry, outsourcing appears to have a positive impact on profitability."
Morgan believes the movement in this direction by the other majors could have dire implications for the shortline industry. "If this proves to be a superior marketing model," he says, "others will be forced to adapt. It could reduce the number of retail outlets available to the shortline implement manufacturers."
Pointing to the number of retagged products Hesston makes for other equipment suppliers, Jerry Owens of Owens Implement & Supply also believes the move toward more manufacturing alliances will continue and will ultimately force counter moves by the shortlines. "Yes, I think there will be additional alliances because it's obvious that the few major suppliers left want only mega-dealers that will display and sell the majors lines only.
"It looks to me like the 'small's' will need to band together and create a 'heavy hardware store' where smaller customers can buy small tractors, maybe a horse tank and 'weekend' equipment to attach to their small tractor."
The Question: What If They Don't Follow?
Should dealers be concerned if the "alliance models" demonstrated by John Deere-Frontier and Kubota-Land Pride are embraced by other manufacturers?
"The better question might be, what would happen if they don't?" says David Meissner of Southwest Implement, Oberlin, Kan. "Chances are, their market share will suffer because of the limited product line they offer. Cooperation between companies will only serve to make each stronger as one complements the other.
"If the smaller manufacturers can't afford to expand product lines or keep up with market trends, then an alliance with other companies is the next best avenue."
Meissner's view of manufacturer alliance seems to be the general consensus of the dealers that Farm Equipment surveyed. Ag equipment retailers see such partnerships as inevitable — if not a move in the right direction.
"These types of alliances will create more structure and consolidation with the shortline manufacturers, which is similar to what we've seen with our major manufacturers," says Brion Torgerson, Torgerson's LLC of Great Falls, Mont.
This being the case, he suggests that dealers "immediately hook up with a shortline that you deem important to your long-term success."
Likewise, Scott Benko, Indy Tractor, Mooresville, Ind., sees manufacturing partnerships becoming increasingly important to the shortlines as a means of survival.
"I see this in the future of many companies," he says. "It allows them to enter other areas of need without the investment of doing it themselves. As things become more specialized and some traditional equipment needs disappear, it will be the only way for some companies, especially the smaller ones, to survive."
Pragmatically, Jeff Suchomski, a third-generation equipment dealer, says he can see more manufacturers seeking additional alliances in the years ahead.
"Why develop or purchase a line to fill a need when an alliance would work? Typically, the smaller companies are trying to gear up to be more like the majors anyway; pushing for more and more volume and larger preseason orders," he says.
And if it works as it should, Suchomski says, it should be good for everyone involved. But there is an "if" involved.
"If an alliance helps dealers avoid overstocking product to meet the supplier's sales goals, this would be a great thing for the dealer and manufacturer. We could increase overall volume and decrease the pressure on dealers to order more and more."
The Manufacturing Perspective: The Pro's & Con's of Alliances
While accepting that business alliances are viable strategies for some equipment makers, manufacturers are sharply divided about their real value.
By Dave Kanicki, Managing Editor
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."