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Aktiebolaget SKF

Aktiebolaget SKF

Hornsgatan 1
Göteborg, SE-415 50
Sweden
Telephone: (+46 31) 337 1000
Fax: (+46 31) 337 2832
Web site: http://www.skf.com

Public Company
Incorporated:
1907 as Svenska Kullagerfabriken
Employees: 41,090
Sales: SEK 53.1 billion ($7.77 billion) (2006)
Stock Exchanges: Stockholm
Ticker Symbol: SKF
NAIC: 332991 Ball and Roller Bearing Manufacturing;339991 Gasket, Packing, and Sealing Device Manufacturing; 331513 Steel Foundries (Except Investment)

EARLY DECADES

POSTWAR REBUILDING, EXPANSION, AND INCREASED COMPETITION

COMPANY RESTRUCTURES IN 1970S

SURVIVING PERIODS OF RECESSION

TURNAROUND UNDER NEW LEADERSHIP

EARLY TWENTY-FIRST CENTURY GROWTH

PRINCIPAL SUBSIDIARIES

PRINCIPAL DIVISIONS

PRINCIPAL COMPETITORS

FURTHER READING

Aktiebolaget SKF is the acknowledged leader of the worlds rolling bearing industry. The company also produces seals and lubrication systems for bearings and for other applications and offers its customers service and maintenance solutions. SKFs main customers are in the automotive, general machinery, aerospace, electrical, and customized engineering industries. Geographically, sales break down as follows: Sweden, 4 percent; rest of Europe, 50 percent; North America, 20 percent; Asia-Pacific region, 18 percent; and Latin America, the Middle East, and Africa, 8 percent. The company has operations in more than 130 countries, including more than 100 manufacturing facilities in around two dozen countries. The Knut and Alice Wallenberg Foundation, part of the Wallenberg family business empire, holds approximately 29 percent of the voting rights in SKF stock.

EARLY DECADES

SKF was established in 1907 in Göteborg, Sweden, by the textile company Gamlestadens Fabriker. Its founder was Sven Wingquist, a maintenance engineer at the Gamlestadens factory who had become increasingly disillusioned with the poor performance and high cost of the imported bearings used in the factorys overhead shafts. These latter also tended to misalignment, causing additional functional difficulties in the bearings.

Granted facilities for research by an unusually farsighted management, Wingquist developed a superior single-row deep-groove ball bearing. Gamlestadens decided to set up a new company named Svenska Kullagerfabriken (SKF) to sell the new product. Initially SKF production took place in Wingquists own workshop, but soon a separate factory was built in Göteborg.

Wingquist went on to develop a bearing capable of diminishing the effects of misalignment between shaft and housing. This double-row self-aligning ball bearing established SKFs fortunes and helped propel it to the forefront of the industry.

Wingquists talents, however, extended beyond pure engineering. From an early stage, he appears to have recognized that Swedens domestic market was far too small to underwrite the expansion in sales that alone could generate sufficient profits to keep SKF in business and capable of competing with its major European, particularly German, rivals. Wingquist therefore undertook a series of sales trips across Europe and subsequently set up sales offices and appointed agents. Subsidiary companies were established in France and the United Kingdom and factories were built.

From the start, SKFs fortunes were closely bound with those of the automotive industry, which in the first decades of the 20th century had a growing requirement for SKFs quality bearings. SKF therefore chose to locate its plants close to major established motor plantsfor example, in the United Kingdom at Luton, near the large Vauxhall/Bedford plants. In the years immediately preceding World War I, automotive manufacturers were enjoying a boom period, and by 1912 SKF found itself unable to meet demand for its bearings because of supply problems with the foreign balls used in its bearing products. SKF therefore decided to produce its own balls in Göteborg. In 1913 the company could literally afford to strengthen its position in the crucial German market by the acquisition of a half share in Norma Compagnie GmbH at Cannstatt. SKF, in common with most Swedish businesses, derived considerable advantage from Swedens declaration of neutrality in 1914, trading with both the Allied and Central powers and successfully increasing its market share, particularly outside Europe, at the expense of its German, British, and French competitors whose countries were at war. Also in 1914, SKFs stock was listed on the Stockholm Stock Exchange.

The year 1916 was a significant one for the company. A steelworks at Hofors Bruk in central southern Sweden was bought to provide SKFs bearings plants with a dedicated supply of high quality steel. The size of SKFs research laboratory at Göteborg was doubled, testifying to the companys recognition of the importance of innovative technology in maintaining market share. SKF also acquired one of the few remaining independent Swedish producers of ball bearings and converted its factory to the production of axle boxes and bearings housings. Finally, in order to avoid the hazards and high insurance costs of wartime transatlantic shipment, SKF established a plant at Hartford, Connecticut, for the supply of bearings to a U.S. motor and armaments industry rapidly expanding under the stimulus of the wartime requirements of the Allied powers in Europe. The next year a second French factory was opened on the outskirts of Paris.

Nevertheless, there were occasional setbacks. The Russian installation, set up in 1914 and expanded during the next three years, was nationalized without compensation in the wake of the 1917 revolution. The second decade of the century, however, was in general a period of continuous expansion for SKF. By 1919 it had 12 plants in full operation, a worldwide sales network, and a staff of almost 12,000.

Profits in the first years of the 1920s were blighted by the onset of economic depression. This onset was SKFs first experience of an economic pattern that to a large extent determined its fortunes ever since, the level of consumer spending influencing the level of purchase of consumer durables, in its turn determining the level of capital investment by manufacturers in new machinery.

Nonetheless, the early and middle years of the decade saw SKF enhance its reputation for innovation with the introduction of spherical and taper roller bearings. By 1925, steel production at the Hofors mill had reached 24,000 tons and in the next year it doubled in response to improving economic conditions in western Europe. In 1926 SKF decided that its AB Volvo subsidiary should enter the car and truck manufacturing industry. SKF used Volvo as a practical testing ground for its bearings until 1935 when Volvo became an independent company. SKF retained close links with its former subsidiary. In 1927 SKF again displayed its eminence in the field of technological innovation when an employee patented a series of bearing measuring devices and established a set of measuring standards for use in the industry at large.

COMPANY PERSPECTIVES

SKF delivers a wide range of products and services to a large number of customers in a variety of industries and to all the geographical regions of the world. SKFs service and product offerings are tailored to meet the specific requirements, conditions and needs of each customer.

Having worked for the past 100 years in the industrial and automotive industries throughout the world, SKF has not only built an extensive customer knowledge base, it has also established a broad technical knowledge base, largely as a result of the continuous development of its many products, solutions and services.

The Great Depression, which began in 1929, enabled SKF to buy a number of rival German bearings companies, giving the company a leading position in the important German market. These separate operations were concentrated at Schweinfurt and Cannstatt. In that year, SKF acquired the Swedish engineering firm Lidköpings Mekaniska Verkstad AB, thus incorporating machine tools in its product range. The late 1920s also saw the companys stock listed on several stock exchanges outside Sweden, including London (1928), Paris (1929), and Zurich (1930).

As in the early 1920s, during the opening years of the 1930s SKFs profits suffered during the worst years of the Depression. Special emphasis was placed on the development of new bearing types, leading in 1932 to the patenting of the narrow type spherical roller bearing and the self-aligning spherical roller bearing. The premium on efficiency in the production process caused SKF to introduce automation at about this time.

By 1935 the effects of the Depression had begun to recede in Europe and the United States. The ensuing rise in capital expenditure on new plant and machinery and the increasing pace of rearmament in Europe made the next five-year period up to the outbreak of World War II one of great prosperity for SKF.

Although Sweden once again chose neutrality in 1939, conditions for its export-dependent industries were not as generally favorable as they had been during World War I. During this time, SKF factories were taken over and headed by local governments. Swedish companies took advantage of their nations neutral position to trade actively with both Allied and Axis powers, but the Nazi occupation of Denmark and Norway, Germanys unrestricted submarine warfare, and British naval blockades deprived SKF and other companies of their traditional sea-routes out of Scandinavia. From 1942 large-scale British and American bombing raids over France and Germany sought to achieve the wholesale destruction of Nazi Germanys industrial base and thus Germanys capacity to continue the war. Realizing how crucial efficient and large-scale bearings production was to the Axis war effort, Allied bombers paid close attention to bearings plants, in particular those at Schweinfurt and Cannstatt. By the end of hostilities in 1945, the SKF plants lay in ruins. As in the previous conflict and the Depression of the early 1930s, SKF used the war years to good effect for the development of new products. In 1943 the company introduced its revolutionary OK oil-injection shaft coupling, enabling rolling bearings to function efficiently in marine propeller shafts.

KEY DATES

1907:
Svenska Kullagerfabriken (SKF) is founded in Göteborg, Sweden, to make ball bearings.
1914:
Companys stock is listed on the Stockholm Stock Exchange.
1916:
SKF acquires its first steel works.
1926:
Production of cars is begun by AB Volvo, a subsidiary of SKF.
1935:
Volvo becomes independent of SKF.
1957:
Hellefors Jernverk is acquired.
1975:
Company purchases a 66 percent stake in SARMA of France.
1986:
Steel division is merged into Ovako Oy to form Ovako Steel AB, 50 percent owned by SKF.
1988:
Austria-based Steyr Wälzlager and AMPEP plc of the United Kingdom are acquired.
1990:
Company acquires Chicago Rawhide, U.S. maker of oil seals.
1991:
The Ovako Steel venture is divided between the two partners, with SKF gaining full control of the Swedish operations, which take the name Ovako Steel AB.
1995:
The CARB, or compact aligning roller bearing, is unveiled.
2004:
SKF enters the lubricants field through the purchase of the German firm Willy Vogel AG.
2006:
SNFA S.A.S., a leading manufacturer of aerospace and machine tool bearings based in France, is acquired; SKF completes its exit from steelmaking.

POSTWAR REBUILDING, EXPANSION, AND INCREASED COMPETITION

Postwar reconstruction of the German and French plants was paralleled by new building of factories in countries formerly outside SKFs traditional manufacturing area, including Spain, Canada, and Holland. In Sweden itself, new facilities for the continuous annealing and tube-rolling of steel were added to the Hofors mill. In answer to the requirement for steel in a postwar Europe rebuilding its shattered industries, SKF increased its production capacity by acquiring Hellefors Jernverk, and in 1957 a new ball and roller factory was completed on the original Göteborg site. A notable feature of the immediate postwar decades was the rate of increase of automation in SKFs bearings production, facilitating the introduction in 1953 of SKFs first high-precision bearings.

SKF expanded beyond Europe and the United States to two newly industrializing countries of the Third World, Brazil and India, both engaged in the rapid expansion of their automotive and textile industries and therefore requiring large quantities of bearings. SKF started activities in these countries at their behest. Brazil and India represented vast potential markets for SKF products and offered in addition the important advantage of labor costs which were low by European and U.S. standards.

Meanwhile in Europe the creation of the European Economic Community (EEC) and the growing penetration of the European bearings market by inexpensive Japanese imports presented SKF with new opportunities and difficulties. Sweden had successfully negotiated with the EEC in 1972 for the free entry of its industrial products into the community, but of more importance to SKF, with its particularly high level of plant investment in EEC member states, was managements growing awareness that the new trading conditions created by the establishment of the EEC trading block could be turned to the groups advantage in helping it fight its Japanese competitorsNTN Corporation, NSK Ltd., and Koyo Seiko Co., Ltd.

SKFs plan involved concentrating production of particular products in specific plants, treating Europe as if it were a single nation in economic terms rather than a collection of six, and later nine, separate states. This would prevent wasteful duplication of production, allowing economies of scale by permitting longer runs of fewer types of bearings or tools at each individual factory. Finished products could then be transported across EEC boundaries progressively being freed from import duties and quotas.

COMPANY RESTRUCTURES IN 1970S

SKF restructured itself in the early 1970s. SKFs bearings and related products were formed into three new divisions: a European bearings division, an overseas bearings division, and SKF Industries Inc. The overseas bearings section became responsible for the groups non-European production and sales companies outside North and Central America, while SKF Industries handled the U.S., Canadian, and Mexican operations. Also created were cutting tools, steel, and engineering products divisions. Lidköping, manufacturing grinding machines, was preserved as a separate profit center.

Pursuing its niche strategy of establishing a dominant position in particular segments of the bearings and precision tools industries, SKF in the late 1960s and early 1970s took steps to become the leading supplier of bearings to Europes, particularly Frances, newly revitalized aerospace industry. It acquired Les Applications du Roulement (ADR) for the manufacture of airframe bearings and in 1975 bought a 66 percent shareholding in Société Anonyme de Recherches de Mécanique Appliquée (SARMA), a French aerospace engineering research company. During this period it became increasingly apparent that the highest rates of growth were being recorded in some of the groups non-bearing activities (for example, cutting and machine tools), although these still accounted for only a small proportion of the value of total group sales. Consequently SKF chose to strengthen its position in these areas by acquiring some leading manufacturers, including the Swedish engineering firm Malcus Industri in 1969 and the large British cutting-tool manufacturer Sheffield Twist Drill & Steel Company in 1975. This strategy of buying into positions of dominance in particular sectors of the bearings and precision engineering industries was characteristic of SKF.

The mature nature of the European bearings market in the 1970s and its penetration by the Japanese, especially worrying in the large-volume markets such as the motor industry, placed a premium on retaining existing customer loyalty and on emphasizing the quality of SKF products over those of its rivals.

In order to make full use of the opportunities created by the new EEC trading conditions, SKF instituted a global forecasting and supply system (GFSS) in 1974 to improve coordination of the type and quantity of bearings produced at its five major European plants. GFSS became an integral part of SKFs strategy of refusing to cede any product to its Japanese competitors.

SKFs decision not to surrender any part of its home European market to the Japanese led to a period of further cost-cutting and rationalization in the late 1970s and early 1980s and served to reduce the groups overall profit levels during this time. SKF also redefined itself, its goals, and the best means to achieve them.

In essence SKF saw the need to transform itself from a primarily manufacturing-oriented business into a group of companies much more responsive to its customers changing requirements. In 1968 SKF had centralized control of its activities by setting up its group headquarters in Göteborg. Hand in hand with this change went renewed emphasis on closer collaboration between its research and development and its marketing staff. This arrangement, combined with continuing technical innovation and improvement, made possible by the establishment of the SKF Engineering & Research Center (ERC), enabled SKF to stay ahead of its Japanese competitors despite their lower production costs and greater production efficiency.

SURVIVING PERIODS OF RECESSION

Such restructurings and shifts of emphasis could not alleviate the effects of the recession that afflicted the bearings industry in the early 1980s, largely caused by overcapacity. By 1983, overall employment in the industry had fallen by about 15 percent and several manufacturers had gone out of business altogether. Demand was especially depressed in Europe, a factor that affected SKF severely because of its heavy dependence on European sales. SKF was compelled to reduce the size of its workforce at several plants with sometimes divisive results. The prospect of 600 redundancies at SKFs Luton plant in the United Kingdom caused the 1,700 workers to walk out on strike in early 1983, and lowered both morale and productivity. The closure of the Ivry plant near Paris in the same year triggered a lengthy protest occupation by Confédération Générale du Travail militants, resulting in a series of violent confrontations with the police.

Although the group had to resort to a policy of severe cost-cutting, redundancy, and plant closure, it is significant that SKF did not waver in its commitment to the research and development of new technology. One object of research at this time was the so-called plasma steelmaking process, a method of recovering the base metal from metal wastes by means of an ionized superheated gas stream. The economic rationale for plasma technology was its potential for reducing the cost of producing special steels. By the mid-1980s, SKF had invested SEK 200 million in the commissioning of plasma plants at Landskrona and Malmo, all this at a time of recession in the metals and metals recovery industries. During the early 1980s, SARMA had expanded production on the basis of a substantial involvement in the European Airbus program, but cuts in the program in 1983, combined with a state of general depression in the aerospace industry, forced the closure of SARMAs Champigny plant in 1984. It is worth noting, however, the use of SARMAs special carbon-fiber rods in the European Space Agencys satellite launcher Ariane 4.

In the middle of the decade, SKF benefited from a general economic upturn in Europe, but its overall profit level was dented by a sharp deterioration in the performance of its U.S. operation, SKF Industries Inc. Sales of bearings dropped almost 15 percent in volume, mainly because of the penetration of Japanese imports. Additionally losses at SKF Steel amounted to some SEK 65 million, caused by overcapacity in the worlds steel industry and the unexpectedly high cost of the two new plasma plants. Nonetheless, SKF made important acquisitions in 1985: SKF Española, which became a fully owned subsidiary after SKF bought 99 percent of its shares, and Waldes Truarc Inc., a U.S. maker of fasteners, evidence of SKFs desire to strengthen its presence both in this field and, as the 1986 acquisition of aerospace bearings manufacturer MRC showed, in the U.S. market generally. Also important was the formation of SKF Miniature Bearings, reflecting the groups desire to penetrate this high growth area of the bearings business.

In Europe, too, SKF had increased its strength in fastening systems and linear motion products. The German SKF subsidiary Seeger-Orbis had bought the British company Anderton in 1983 for £1.4 million, thereby placing SKF in a leading position in the European market and providing the group with another valuable bridgehead into the United States. Between 1983 and 1985, the groups components business registered a near 40 percent growth in sales. SKFs steel division was not so successful. SKF decided to pull out of this loss-making area of its business, and from October 1986 steel operations ceased to be part of its activities. Instead, SKF merged its steel subsidiary with the Finnish steel manufacturer Ovako Oy, forming a new steel company named Ovako Steel AB, in which SKF had a 50 percent shareholding, to concentrate on the production of special steel. Significantly, Ovako Steel did not take on SKFs plasma projects.

In that year SKF announced the formation of a 50-50 joint venture with the Japanese bearings producer Koyo Seiko, the first foreign bearings company to gain a foothold in the Japanese home market. SKF was attracted by the 20 percent stake held in Koyo by Toyota, and Koyo, by the prospect of access to SKFs advanced technology. Recognizing in Southeast Asia the fastest-growing market for bearings in the world, SKF began to increase productive capacity in the region, culminating in the decision four years later to build a new plant in Malaysia.

In 1987 the bearings operations were once again restructured, this time around product types and functions, forming SKF Bearing Industries, SKF Bearing Services, and SKF Specialty Bearings. The tools and component systems divisions, engineering products, remained unaltered. Each of the new bearings groupings assumed worldwide total responsibility for its own products and services.

Simultaneously SKF decided to withdraw from its involvement in plasma technology. A West German industrial waste company, Berzelius Umwelt-Service, was allowed to acquire a 25 percent holding in ScanDust, SKFs wholly owned subsidiary at Landskrona, while in January 1990 SKF and the other owners of SwedeChrome, based in Malmo, decided to close down the company after a slump in the price of ferrochrome proved the plant unable to operate at a profit. This step may have led SKF to regret its decision in the early 1980s not to build smaller and more efficient plants. With the acquisition in 1988 of the Austrian bearings manufacturer Steyr Wälzlager Ges.m.b.H. and the British aerospace engineering firm AMPEP plc, the group increased its presence in the European bearings market and in bearings for aerospace purposes. However, SKFs dependence on free trading conditions was illustrated in that year by an antidumping investigation in the United States in which SKF and other European and Asian manufacturers were accused of unfair price-cutting. In May 1989 the U.S. Commerce Department began imposing import duties as high as 50 percent and demanding a security deposit against every import shipment. This requirement, combined with a rise in U.S. demand, led SKF to strip out production lines in Europe and ship them to the United States. There was a certain irony in the accusation of an unfair pricing policy, because SKF and other European bearings manufacturers had themselves called for an EEC investigation of Japanese pricing in the European market. Meanwhile, in 1988 the company opened the SKF College of Engineering, a testament to its long tradition of technical innovation.

Fortunately the overcapacity that had dogged the worlds bearing industry for almost a decade had begun to recede in 1988, and by 1989 the better balance between supply and demand had begun to show in SKFs profits. SKF, so often the predator, found itself under threat from the Swedish industrial group Trelle-borg when the latter acquired a 10.1 percent equity holding in the group in 1988. Trelleborg claimed the stake was for investment purposes only, but some industry analysts believed the move could herald a full bid for SKF in the future. The stake was sold by Trelle-borg in 1989. SKF started its own tender of $107 million for the U.S. bearings manufacturer McGill Manufacturing Co., Inc. This move clearly demonstrated SKFs wish to build up its U.S. manufacturing base and thereby avoid burdensome import duties. McGill, however, was acquired by Emerson.

SKF completed the acquisition of a different U.S. company in 1990: Chicago Rawhide (CR), a leading U.S. maker of fluid sealing devices for automotive and machinery applications. Founded in 1879, CR soon became one of the top suppliers of seals to the burgeoning U.S. automobile industry. For SKF, the purchase of CR represented the addition of a new but bearing-related product line since one of CRs key product areas was that of bearing seals. Another important development in the early 1990s was the failure of the Ovako Steel joint venture. In 1991 SKF reluctantly reacquired the Swedish portion of the venture, which became a wholly owned SKF subsidiary under the name Ovako Steel AB.

Unfortunately for SKF, the economic turnaround at the end of the 1980s quickly evaporated in 1990 with the beginning of the crisis in the Persian Gulf and the resultant worldwide recession. From 1990 through 1993, worldwide bearing sales fell 20 percent, leading SKF to cut its workforce by 10,000 from 1990 to 1993 and to suspend payment of its dividend in 1992 and 1993, the first such suspensions in company history. The company posted three consecutive years of losses starting in 1991. SKF finally returned to the black in 1994, posting net profits of SEK 1.28 billion ($167.9 million) on sales of SEK 33.27 billion ($4.48 billion). In the midst of this latest turnaround, SKFs chief executive, Mauritz Sahlin, stepped down from his position in April 1995 and was replaced by Peter Augustsson, who had been a senior vice-president in charge of European operations. Also in 1995, SKF unveiled what it considered its most significant technical achievement in 25 years, a new rolling bearing dubbed the CARB, or compact aligning roller bearing. The CARB offered lower friction and a higher load capacity and tolerated misalignment.

Augustsson quickly set out to reduce SKFs continued dependence on Europe, where the company still derived about 60 percent of its sales. The company had only 12 percent of the bearing market in North America, with the United States alone accounting for one-third of world bearing demand. In addition to seeking to boost U.S. sales, Augustsson targeted fast-growing emerging economies in Asia as well, including India, Malaysia, South Korea, and Indonesia. In the mid-1990s, SKF established five joint ventures in China. Augustsson also moved to make the company more competitive by cutting costs and increasing productivity at the companys factories worldwide.

TURNAROUND UNDER NEW LEADERSHIP

As it entered the late 1990s, SKF was under increasing pressure from the Wallenberg empire, which through its Investor AB investment arm was the largest SKF shareholder, to improve its profitability. Percy Barnevik in particular demanded better results from a number of Wallenberg companies, including SKF, after becoming chairman of Investor in 1997. Augustsson attempted to turn around SKFs fortunes with two restructurings: an October 1997 plan to cut more than 2,000 jobs and a June 1998 program involving 4,000 job losses. However, with the economic crisis wreaking havoc in Asia and the SKFs core European market in a slump, Augustsson was not producing results fast enough and was replaced as chief executive in August 1998 by Sune Carlsson, who had been a top executive at another Wallenberg company, ABB, where he had worked closely with Barnevik in Barneviks other role as ABB chairman.

Carlsson stepped up the pace of restructuring, announcing an additional 1,000 job cuts and the beginning of a program to divest a number of noncore businesses. Restructuring charges during 1998 totaled SEK 3.1 billion ($383 million), leading to a net loss for the year of SEK 1.64 billion ($202.6 million). Among SKFs divestments was the 2000 sale of Lidköping Machine Tools AB to Karolin Machine Tool AB, marking SKFs exit from the manufacturing of machine tools. The company also placed its Ovako special steel division up for sale in April 1999, but negotiations with several interested parties failed to yield a deal. SKF therefore announced in early 2001 that it would retain the unit and focus on rebuilding its profitability. On the acquisition side, SKF was focusing in part on building up its service division, which offered mechanical services, maintenance services, and monitoring solutions. Among the companies acquired in 2000 was Sealpool AB, a leading supplier in Scandinavia of seals for hydraulic applications. Overall, Carlssons restructuring program appeared to be bearing fruit as operating margins improved from less than 4 percent in late 1998 to 9.2 percent by the end of 2000. SKF had set a goal of increasing margins to 10 percent by 2002. Pretax profits for 2000 totaled SEK3 billion ($318 million), the companys best result in five years.

In another key aspect of his turnaround efforts, Carlsson pushed SKF to de-commoditize its operations and move away from relying on standard catalog products, ones easily copied by lower-cost manufacturers, toward a greater production of customized bearing products developed in close cooperation with customers. As he told the Financial Times in October 2000, We need to go more into what you would call the solutions businesscoming up with bearings packages that attack a particular problem. At the time, only about one-quarter of SKFs revenues were derived from such value-added products, which were attractive because they offered higher margins. In concert with this shift, SKF began to change its management practices, shifting from mass production to the outputting of smaller batches with shorter lead times and lower inventory levels.

EARLY TWENTY-FIRST CENTURY GROWTH

The restructuring efforts, particularly the attention paid to controlling costs, paid off in the weak and uncertain economic times of the early 21st century, when SKF stayed solidly in the black. In fact, earnings per share rose each year through 2002, when the company reached its goal of an operating margin of 10 percent. During this period, SKF continued to pursue acquisitions to extend its product lines. In 2001, for example, the company purchased the Italian firm Gamfior S.p.A., a leading European manufacturer of high-precision motorized spindles and high-precision ball screws for machine tools. In a key purchase of 2002, SKF bought a 75 percent stake in the U.K.-based NSK Aerospace Europe Ltd., the leading producer of bearings for aircraft engines and gearboxes in Europe. Purchasing this company, subsequently renamed Aeroengine Bearings UK, made much strategic sense as SKF was the leader in this field in the United States. SKF took full control of Aeroengine Bearings in 2005.

In April 2003 Carlsson retired, ending a successful stint at the helm. He was replaced by Tom Johnstone, a Scotsman who had joined SKF in 1977 and had most recently headed the automotive division. Johnstones first year was a difficult one as sales fell slightly to SEK

41.37 billion because of a sluggish European economy, and in particular production cutbacks by European vehicle manufacturers, as well as negative currency effects. Profits also fell, primarily because of SEK 487 million in restructuring charges incurred in the fourth quarter. SKF launched a program to close a number of factories in both Europe and North America and reduce the workforce by about 1,200 employees. The firm also embarked on a restructuring of its loss-making Ovako steel operations to substantially reduce that units costs. On the positive side in 2003, SKF continued to enjoy solid growth in the Asia-Pacific region as revenues originating in China grew 35 percent. Sales in China reached nearly 4 percent of the companys total by this time.

Aided in large measure by a strong and sustained global economic upturn, SKF enjoyed stellar results from 2004 through 2006. Sales were up sharply, to SEK 53.1 billion ($7.77 billion) by 2006 as the company easily achieved a goal Johnstone had set in 2003 of increasing revenues by SEK 10 billion. Johnstone had also maintained his predecessors goal of sustaining operating margins of 10 percent, and SKF overachieved in this case with a 2006 operating margin of 12.6 percent. Under Johnstones leadership, SKF forged even closer relationships with its customers as part of the ongoing effort to shift from standard to customized products. An important change that helped support this effort was a splitting of the companys technology development activities into five so-called platforms: basic bearing products, lubricants, seals, electronics, and service-related technologies. Sales teams and engineers collaborated with customers to come up with solutions to meet the customers needs, solutions that often combined ideas from several of the technology platforms. By 2006 revenue from such customized solutions had grown to one-third of the total.

Acquisitions during this period were particularly noteworthy as the minor purchases that had become typical were joined by a number of much larger deals. In July 2004 SKF entered the aforementioned lubricants field by buying the German firm Willy Vogel AG, one of the world leaders in lubrication systems, a key element of bearing systems. Purchased for SEK 678 million ($91.5 million) in cash, Vogel generated annual revenue of SEK 1 billion and operated two manufacturing plants in Germany and one each in France, the United States, and Japan. In a June 2005, SEK 379 million ($50.7 million) deal, SKF augmented the electronics portion of its business by acquiring the Taiwanese company Jaeger Industrial Ltd., a leading manufacturer of electromechanical actuators, electronic control units, and complete actuation systems. The largest purchase of this era occurred in July 2006, when SKF paid SEK

1.76 billion ($245 million) for SNFA S.A.S., a leading manufacturer of bearings for the aerospace and machine tools industries. Headquartered in Paris, with annual revenues of EUR 82 million ($97 million), SNFA had manufacturing facilities in France, Italy, and the United Kingdom. Also acquired in 2006 were Economos Austria GmbH, an industrial seals company producing hydraulic and pneumatic seals for the oil and gas, food and beverage, pulp and paper, mining, and steel industries, and the Finland-based lubrication systems business of John Crane Safematic Oy.

As this string of acquisitions unfolded, SKF completed one major divestment. The company finally offloaded its noncore steelmaking unit in two stages. First, in 2005, it merged Ovako with the steel units of the Finnish industrial companies Rautaruukki Corporation and Wärtsilä Corporation. SKF held a 26.5 percent stake in the resulting Oy Ovako Ab. In November 2006 the three companies sold Oy Ovako to a German steel company and two Netherlands holding companies for approximately EUR 660 million ($845 million). As a result, SKF recorded a capital gain of around SEK 725 million ($102 million) in 2006.

After opening three new factories in Asia in 2006, two in China and one in Indonesia, SKF continued to pursue growth opportunities in these rapidly growing markets during the first half of 2007, its centennial year. The firm announced plans to invest SEK 250 million to build a new ball bearing plant in India and also took full control of a joint venture in China operating a ball bearing plant in Shanghai. On the innovation front, SKF unveiled a new family of energy-efficient bearings touted to reduce energy consumption by at least 30 percent compared to standard bearings. Increasing concern about skyrocketing energy costs enhanced the potential for this new line to succeed. At the same time, SKF, still led by Johnstone, set several new long-term financial targets: operating margins of 12 percent, growth in local currencies of 6 to 8 percent, and return on capital employed of 24 percent. Although another economic downturn always had the potential to disrupt SKFs business, the companys strong performance since 2004 boded well for these targets being met.

D. H. OLeary
Updated, David E. Salamie

PRINCIPAL SUBSIDIARIES

MANUFACTURING COMPANIES: SKF USA Inc.(99.9%); SKF Österreich AG (Austria); SKF GmbH (Germany); Willy Vogel AG (Germany); SKF Industrie S.p.A. (Italy); SKF France S.A.; SNFA SA (France); SKF (U.K.) Ltd.; SKF Española S.A. (Spain); SKF Poznań S.A. (Poland); SKF Bearings Bulgaria EAD; Lutsk Bearing Plant (Ukraine; 99.6%); SKF Actuators AB; SKF do Brasil Limitada (Brazil; 99.9%); SKF Argentina S.A. (89.9%); SKF India Ltd. (53.6%); SKF Sealing Solutions AB; Scandrive Control AB; SKF Japan Ltd.; SKF Automotive Components Corporation (Republic of Korea); SKF Sealing Solutions Korea Co., Ltd. (51%); PT. SKF Indonesia (84.2%). SALES COMPANIES: SKF Danmark A/S (Denmark); SKF Norge A/S (Norway); Oy SKF Ab (Finland); SKF NV/SA (Belgium); SKF Portugal-Rolamentos, Lda. (95%); SKF Loiska, a.s. (Czech Republic); SKF Svéd Golyóscsapágy Részvénytársaság (Hungary); SKF Canada Limited; SKF del Peru S.A.; SKF Chilena S.A.I.C. (Chile); SKF Venezolana S.A. (Venezuela); SKF South East Asia & Pacific Pte Ltd. (Singapore); SKF Pakistan Private Limited; SKF New Zealand Limited; SKF Lubrication Competence Center AB; SKF Eurotrade AB; SKF Multitec AB; Monitoring Control Center MCC AB (67.5%); SKF Condition Monitoring Center (Luleå) AB. OTHER COMPANIES: SKF Holding Maatschappij Holland B.V. (Netherlands); SKF Verwaltungs AG (Switzerland); SKF Holding Mexicana, S.A. de C.V. (Mexico; 98%); SKF (China) Investment Co. Ltd.; Barseco (Pty) Ltd. (South Africa); SKF Australia (Manufacturing) Pty. Ltd.; SKF International AB; Återförsäkringsaktiebolaget SKF; SKF Förvaltning AB; SKF Fondförvaltning AB.

PRINCIPAL DIVISIONS

Automotive Division; Industrial Division; Service Division.

PRINCIPAL COMPETITORS

Schaeffler Group; The Timken Company; NSK Ltd.; NTN Corporation; JTEKT Corporation; Minebea Co., Ltd.; Kaydon Corporation.

FURTHER READING

Arbose, Jules, SKFs U.S. Strategy to Counter the Japanese, International Management, June 1986, pp. 40+.

Banks, Howard, Good Bearings, Forbes, September 23, 1996, p. 52.

Brown-Humes, Christopher, SKF Aims for Smoother Global Performance: The Bearings Maker Is Stressing Marketing and R&D, Financial Times, July 20, 1995, p. 27.

Burt, Tim, A Tough Regime in Anyones Language: SKFs New Chief Is Imposing Brutal Measures to Achieve His Aims, Financial Times, December 4, 1998, p. 25.

George, Nicholas, SKF Follows Acquisition Strategy As Sales Climb, Financial Times, January 28, 2004, p. 30.

Madslien, Jorn, SKF Finds Its Bearings with a Plan of Action, Corporate Finance, October 1998, pp. 78.

Marsh, Peter, Back on a Roll in the Business of Bearings, Financial Times, February 7, 2007, p. 10.

________, Change of Culture at SKF: Ball-Bearings Maker Switches from Europe in Search of Growth, Financial Times, August 25, 1997, p. 17.

________, Pursuit of Perfect Balls Joins Competitors Together, Financial Times, January 7, 2003, p. 24.

________, Staying on the Ball: Turnaround at SKF, Financial Times, October 5, 2000.

Shipman, Alan, Swedens High Roller, International Management, March 1994, pp. 2224.

Steckzéén, Birger, SKF, Svenska Kullagerfabriken: En svensk exportindustris historia, 19071957, Göteborg: Svenska Kullagerfabriken, 1957, 884 p.

The Story of SKF, Göteborg: Aktiebolaget SKF, 1982.

Webster, Mark, Bearing Up After 10 Hard Years, Financial Times, May 14, 1982, p. 19.

The World of SKF, Göteborg: Aktiebolaget SKF, 1988.

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Aktiebolaget SKF

Aktiebolaget SKF

S-415 50 Goteborg
Sweden
Telephone: (31) 337 1000
Fax: (31) 337 2832
Web site: http://www.skf.com

Public Company
Incorporated:
1907
Employees: 40,637
Sales: SKr 36.69 billion (US$4.31 billion) (1999)
Stock Exchanges: Stockholm London Paris Zürich NASDAQ
Ticker Symbol: SKFR
NAIC: 332991 Ball and Roller Bearing Manufacturing; 325520 Adhesive Manufacturing; 331513 Steel Foundries (Except Investment)

Aktiebolaget SKF is the acknowledged leader of the worlds rolling bearing industry. The company also produces seals for bearings and for other applications and the steel from which rolling bearings are produced, as well as offering its customers service and maintenance solutions. SKFs main customers are in the automotive, general machinery, aerospace, electrical, and customized engineering industries. Geographically, sales break down as follows: Sweden, five percent; western Europe, 48 percent; North America, 26 percent; Asia, 11 percent; Latin America, five percent; central and eastern Europe, three percent; and the Middle East and Africa, two percent. The company has about 80 manufacturing facilities in 22 countries. Investor AB, the investment vehicle for the Wallenberg family business empire, holds nearly 29 percent of the voting rights in SKF stock.

Early Decades

SKF was established in 1907 in Goteborg, Sweden, by the textile company Gamlestadens Fabriker. Its founder was Sven Wingquist, a maintenance engineer at the Gamlestadens factory who had become increasingly disillusioned with the poor performance and high cost of the imported bearings used in the factorys overhead shafts. These latter also tended to misalignment, causing additional functional difficulties in the bearings.

Granted facilities for research by an unusually farsighted management, Wingquist developed a superior single-row deep-groove ball bearing. Gamlestadens decided to set up a new company named Svenska Kullagerfabriken (SKF) to sell the new product. Initially SKF production took place in Wingquists own workshop, but soon a separate factory was built in Goteborg.

Wingquist went on to develop a bearing capable of diminishing the effects of misalignment between shaft and housing. This, the double-row self-aligning ball bearing, established SKFs fortunes and helped propel it to the forefront of the industry.

Wingquists talents, however, extended beyond pure engineering. From an early stage, he appears to have recognized that Swedens domestic market was far too small to underwrite the expansion in sales which alone could generate sufficient profits to keep SKF in business and capable of competing with its major European, particularly German, rivals. Wingquist therefore undertook a series of sales trips across Europe and subsequently set up sales offices and appointed agents. Subsidiary companies were established in France and the United Kingdom and factories were built.

From the start, SKFs fortunes were closely bound up with those of the automotive industry, which in the first decades of the 20th century had a growing requirement for SKFs quality bearings. SKF therefore chose to locate its plants close to major established motor plantsfor example, in the United Kingdom at Luton, near the large Vauxhall/Bedford plants. In the years immediately preceding World War I, automotive manufacturers were enjoying a boom period, and by 1912 SKF found itself unable to meet demand for its bearings due to supply problems with the foreign balls used in its bearing products. SKF therefore decided to produce its own balls in Goteborg. In 1913 the company could literally afford to strengthen its position in the crucial German market by the acquisition of a half share in Norma Compagnie GmbH at Cannstatt. SKF, in common with most Swedish businesses, derived considerable advantage from Swedens declaration of neutrality in 1914, trading with both the Allied and Central powers and successfully increasing its market share, particularly outside Europe, at the expense of its German, British, and French competitors whose countries were at war.

The year 1916 was a significant one for the company. A steel works at Hofors Bruk in central southern Sweden was bought to provide SKFs bearings plants with a dedicated supply of high quality steel. The size of SKFs research laboratory at Goteborg was doubled, testifying to the companys recognition of the importance of innovative technology in maintaining market share. SKF also acquired one of the few remaining independent Swedish producers of ball bearings and converted its factory to the production of axle boxes and bearings housings. Finally, in order to avoid the hazards and high insurance costs of wartime transatlantic shipment, SKF established a plant at Hartford, Connecticut, for the supply of bearings to a U.S. motor and armaments industry rapidly expanding under the stimulus of the wartime requirements of the Allied powers in Europe. The next year a second French factory was opened on the outskirts of Paris.

Nevertheless, there were occasional setbacks. The Russian installation, set up in 1914 and expanded during the next three years, was nationalized without compensation in the wake of the 1917 revolution. The second decade of the century, however, was in general a period of continuous expansion for SKF. By 1919 it had 12 plants in full operation, a worldwide sales network, and a staff of almost 12,000.

Profits in the first years of the 1920s were blighted by the onset of economic depression. This onset was SKFs first experience of an economic pattern that to a large extent determined its fortunes ever sincethe level of consumer spending influencing the level of purchase of consumer durables, in its turn determining the level of capital investment by manufacturers in new machinery.

Nonetheless, the early and middle years of the decade saw SKF enhance its reputation for innovation with the introduction of spherical and taper roller bearings. By 1925, steel production at the Hofors mill had reached 24,000 tons and in the next year it doubled in response to improving economic conditions in Western Europe. In 1926 SKF decided that its AB Volvo subsidiary should enter the car and truck manufacturing industry. SKF used Volvo as a practical testing ground for its bearings until 1935 when Volvo became an independent company. SKF retained close links with its former subsidiary. In 1927, SKF again displayed its eminence in the field of technological innovation when an employee patented a series of bearing measuring devices and established a set of measuring standards for use in the industry at large.

The Great Depression, which began in 1929, enabled SKF to buy a number of rival German bearings companies, giving the company a leading position in the important German market. These separate operations were concentrated at Schweinfurt and Cannstatt. In that year, SKF was quoted for the first time on the international stock exchange, and acquired the Swedish engineering firm Lidkopings Mekaniska Verkstad AB, thus incorporating machine tools in its product range.

As in the early 1920s, so in the opening years of the 1930s, SKFs profits suffered during the worst years of the Depression. Special emphasis was placed on the development of new bearing types, leading in 1932 to the patenting of the narrow type spherical roller bearing and the self-aligning spherical roller bearing. The premium on efficiency in the production process caused SKF to introduce automation at about this time.

By 1935 the effects of the Depression had begun to recede in Europe and the United States. The ensuing rise in capital expenditure on new plant and machinery and the increasing pace of rearmament in Europe made the next five-year period up to the outbreak of World War II one of great prosperity for SKF.

Although Sweden once again chose neutrality in 1939, conditions for its export-dependent industries were not as generally favorable as they had been during World War I. During this time, SKF factories were taken over and headed by local governments. Swedish companies took advantage of their nations neutral position to trade actively with both Allied and Axis powers, but the Nazi occupation of Denmark and Norway, Germanys unrestricted submarine warfare, and British naval blockades deprived SKF and other companies of their traditional sea-routes out of Scandinavia. From 1942 large-scale British and American bombing raids over France and Germany sought to achieve the wholesale destruction of Nazi Germanys industrial base and thus Germanys capacity to continue the war. Realizing how crucial efficient and large-scale bearings production was to the Axis war effort, Allied bombers paid close attention to bearings plants, in particular those at Schweinfurt and Cannstatt. By the end of hostilities in 1945, the SKF plants lay in ruins. As in the previous conflict and the Depression of the early 1930s, SKF used the war years to good effect for the development of new products. In 1943 the company introduced its revolutionary OK oil-injection shaft coupling, enabling rolling bearings to function efficiently in marine propeller shafts.

Company Perspectives:

SKFs overall financial objective is to create value for its shareholders. Over time, the return on the shareholders investment in SKF should exceed the risk-free interest rate by some 5-6 percentage points. This is the basis for SKFs financial objectives in its operations.

Postwar Rebuilding, Expansion, and Increased Competition

Postwar reconstruction of the German and French plants was paralleled by new building of factories in countries formerly outside SKFs traditional manufacturing areafor example in Spain, Canada, and Holland. In Sweden itself, new facilities for the continuous annealing and tube-rolling of steel were added to the Hofors mill. In answer to the requirement for steel in a postwar Europe rebuilding its shattered industries, SKF increased its production capacity by acquiring Hellefors Jernverk, and in 1957 a new ball and roller factory was completed on the original Goteborg site. A notable feature of the immediate postwar decades was the rate of increase of automation in SKFs bearings production, facilitating the introduction in 1953 of SKFs first high-precision bearings.

SKF expanded beyond Europe and the United States to two newly industrializing countries of the Third World, Brazil and India, both engaged in the rapid expansion of their automotive and textile industries and therefore requiring large quantities of bearings. SKF started activities in these countries at their behest. Brazil and India represented vast potential markets for SKF products and offered in addition the important advantage of labor costs cheap by European and U.S. standards.

Meanwhile in Europe the creation of the European Economic Community (EEC) and the growing penetration of the European bearings market by cheap Japanese imports presented SKF with new opportunities and difficulties. Sweden had successfully negotiated with the EEC in 1972 for the free entry of its industrial products into the community, but of more importance to SKF, with its particularly high level of plant investment in EEC member states, was managements growing awareness that the new trading conditions created by the establishment of the EEC trading block could be turned to the groups advantage in helping it fight its Japanese competitorsNTN, NSK, and Koyo Seiko.

SKFs plan involved concentrating production of particular products in specific plants, treating Europe as if it were a single nation in economic terms rather than a collection of sixand later nineseparate states. This would prevent wasteful duplication of production, allowing economies of scale by permitting longer runs of fewer types of bearings or tools at each individual factory. Finished products could then be transported across EEC boundaries progressively being freed from import duties and quotas.

SKF restructured itself in the early 1970s. SKFs bearings and related products were formed into three new divisionsa European bearings division, an overseas bearings division, and SKF Industries Inc. The overseas bearings section became responsible for the groups non-European production and sales companies outside North and Central America while SKF Industries handled the United States, Canadian, and Mexican operations. Also created were cutting tools, steel, and engineering products divisions. Lidkopingmanufacturing grinding machineswas preserved as a separate profit center.

Pursuing its niche strategyestablishing a dominant position in particular segments of the bearings and precision tools industriesSKF in the late 1960s and early 1970s took steps to become the leading supplier of bearings to Europes, particularly Frances, newly revitalized aerospace industry. It acquired Les Applications du Roulement (ADR) for the manufacture of airframe bearings and in 1975 bought a 66 percent shareholding in Societe Anonyme de Recherches de Mecanique Appliquee (SARMA), a French aerospace engineering research company. During this period it became increasingly apparent that the highest rates of growth were being recorded in some of the groups non-bearing activitiesfor example, cutting and machine toolsalthough these still accounted for only a small proportion of the value of total group sales. Consequently SKF chose to strengthen its position in these areas by acquiring some leading manufacturers, including the Swedish engineering firm Malcus Industri in 1969 and the large British cutting-tool manufacturer Sheffield Twist Drill & Steel Company in 1975. This strategy of buying into positions of dominance in particular sectors of the bearings and precision engineering industries was characteristic of SKF.

The mature nature of the European bearings market in the 1970s and its penetration by the Japaneseespecially worrying in the large volume markets such as the motor industryplaced a premium on retaining existing customer loyalty and on emphasizing the quality of SKF products over those of its rivals.

In order to make full use of the opportunities created by the new EEC trading conditions, SKF instituted a global forecasting and supply system (GFSS) in 1974 to improve coordination of the type and quantity of bearings produced at its five major European plants. GFSS became an integral part of SKFs strategy of refusing to cede any product to its Japanese competitors.

SKFs decision not to surrender any part of its home European market to the Japanese led to a period of further cost-cutting and rationalization in the late 1970s and early 1980s and served to reduce the groups overall profit levels during this time. SKF also redefined itself, its goals, and the best means to achieve them.

In essence SKF saw the need to transform itself from a primarily manufacturing-oriented business into a group of companies much more responsive to its customers changing requirements. In 1968 SKF had centralized control of its activities by setting up its group headquarters in Goteborg. Hand in hand with this change went renewed emphasis on closer collaboration between its research and development and its marketing staff. This arrangement, combined with continuing technical innovation and improvement, made possible by the establishment of the SKF Engineering & Research Center (ERC), enabled SKF to stay ahead of its Japanese competitors despite their lower production costs and greater production efficiency.

Key Dates:

1907:
Svenska Kullagerfabriken (SKF) is founded to make ball bearings.
1916:
SKF acquires its first steel works.
1926:
Production of cars is begun by AB Volvo, a subsidiary of SKF.
1935:
Volvo becomes independent of SKF.
1957:
Hellefors Jernverk is acquired.
1975:
Company purchases a 66 percent stake in SARMA of France.
1986:
Steel division is merged into Ovako Oy to form Ovako Steel AB, 50 percent owned by SKF.
1988:
Austria-based Steyr Walzlager and AMPEP plc of the United Kingdom are acquired.
1990:
Company acquires Chicago Rawhide, U.S. maker of oil seals.
1991:
The Ovako Steel venture is divided between the two partners, with SKF gaining full control of the Swedish operations, which take the name Ovako Steel AB.
1995:
The CARB, or compact aligning roller bearing, is unveiled.

Surviving the Recessionary 1980s

Such restructurings and shifts of emphasis could not alleviate the effects of the recession that afflicted the bearings industry in the early 1980s, largely caused by overcapacity. By 1983, overall employment in the industry had fallen by about 15 percent and several manufacturers had gone out of business altogether. Demand was especially depressed in Europe, a factor that affected SKF severely because of its heavy dependence on European sales. SKF was compelled to reduce the size of its workforce at several plants with sometimes divisive results. The prospect of 600 redundancies at SKFs Luton plant in the United Kingdom caused the 1,700-strong workforce to walk out on strike in early 1983, and lowered both morale and productivity. The closure of the Ivry plant near Paris in the same year triggered a lengthy protest occupation by Confederation Generate du Travail militants, resulting in a series of violent confrontations with the police.

Although the group had to resort to a policy of severe cost-cutting, redundancy, and plant closure, it is significant that SKF did not waver in its commitment to the research and development of new technology. One object of research at this time was the so-called plasma steel-making process, a method of recovering the base metal from metal wastes by means of an ionized superheated gas stream. The economic rationale for plasma technology was its potential for reducing the cost of producing special steels. By the mid-1980s, SKF had invested SKr 200 million in the commissioning of plasma plants at Landskrona and Malmoall this at a time of recession in the metals and metals recovery industries. During the early 1980s, SARMA had expanded production on the basis of a substantial involvement in the European Airbus program, but cuts in the program in 1983, combined with a state of general depression in the aerospace industry, forced the closure of SARMAs Champigny plant in 1984. It is worth noting, however, the use of SARMAs special carbon-fiber rods in the European Space Agencys satellite launcher Ariane 4.

In the middle of the decade, SKF benefited from a general economic upturn in Europe, but its overall profit level was dented by a sharp deterioration in the performance of its U.S. operation, SKF Industries Inc. Sales of bearings dropped almost 15 percent in volume, mainly due to the penetration of Japanese imports. Additionally losses at SKF Steel amounted to some SKr 65 million, caused by overcapacity in the worlds steel industry and the unexpectedly high cost of the two new plasma plants. Nonetheless SKF made important acquisitions in 1985: SKF Espafiola, which became a fully owned subsidiary after SKF bought 99 percent of its shares, and Waldes Truarc Inc., a U.S. maker of fasteners, evidence of SKFs desire to strengthen its presence both in this field and, as the 1986 acquisition of aerospace bearings manufacturer MRC showed, in the U.S. market generally. Also important was the formation of SKF Miniature Bearings, reflecting the groups keenness to penetrate this high growth area of the bearings business.

In Europe too SKF had increased its strength in fastening systems and linear motion products. The German SKF subsidiary Seeger-Orbis had bought the British company Anderton in 1983 for £1.4 million, thereby placing SKF in a leading position in the European market and providing the group with another valuable bridgehead into the United States. Between 1983 and 1985, the groups components business registered a near 40 percent growth in sales. SKFs steel division was not so successful. SKF decided to pull out of this loss-making area of its business, and from October 1986 steel operations ceased to be part of its activities. Instead, SKF merged its steel subsidiary with the Finnish steel manufacturer Ovako Oy, forming a new steel company named Ovako Steel ABin which SKF had a 50 percent shareholdingto concentrate on the production of special steel. Significantly, Ovako Steel did not take on SKFs plasma projects.

In that year SKF announced the formation of a 50-50 joint venture with the Japanese bearings producer Koyo Seiko, the first foreign bearings company to gain a foothold in the Japanese home market. SKF was attracted by the 20 percent stake held in Koyo by Toyota, and Koyo, by the prospect of access to SKFs advanced technology. Recognizing in Southeast Asia the fastest growing market for bearings in the world, SKF began to increase productive capacity in the region, culminating in the decision four years later to build a new plant in Malaysia.

In 1987 the bearings operations were once again restructured, this time around product types and functions, forming SKF Bearing Industries, SKF Bearing Services, and SKF Specialty Bearings. The tools and component systems divisionsengineering productsremained unaltered. Each of the new bearings groupings assumed worldwide total responsibility for its own products and services.

Simultaneously SKF decided to withdraw from its involvement in plasma technology. A West German industrial waste company, Berzelius Umwelt-Service, was allowed to acquire a 25 percent holding in ScanDust, SKFs wholly owned subsidiary at Landskrona, while in January 1990 SKF and the other owners of SwedeChrome, based in Malmo, decided to close down the company after a slump in the price of ferrochrome proved the plants inability to operate at a profit. This step may have led SKF to regret its decision in the early 1980s not to build smaller and more efficient plants. With the acquisition in 1988 of the Austrian bearings manufacturer Steyr Walzlager Ges.m.b.H. and the British aerospace engineering firm AMPEP plc, the group increased its presence in the European bearings market and in bearings for aerospace purposes. However, SKFs dependence on free trading conditions was illustrated in that year by an anti-dumping investigation in the United States in which SKF and other European and Asian manufacturers were accused of unfair price-cutting. In May 1989 the U.S. Commerce Department began imposing import duties as high as 50 percent and demanding a security deposit against every import shipment. This requirement, combined with a rise in U.S. demand, led SKF to strip out production lines in Europe and ship them to the United States. There was a certain irony in the accusation of an unfair pricing policy, since SKF and other European bearings manufacturers had themselves called for an EEC investigation of Japanese pricing in the European market. Meanwhile, in 1988 the company opened the SKF College of Engineering, a testament to its long tradition of technical innovation.

Fortunately the overcapacity that had dogged the worlds bearing industry for almost a decade had begun to recede in 1988, and by 1989 the better balance between supply and demand had begun to show in SKFs profits. SKF, so often the predator, found itself under threat from the Swedish industrial group Trelleborg when the latter acquired a 10.1 percent equity holding in the group in 1988. Trelleborg claimed the stake was for investment purposes only, but some industry analysts believed the move could herald a full bid for SKF in the future. The stake was sold by Trelleborg in 1989. SKF started its own tender of $107 million for the U.S. bearings manufacturer McGill Manufacturing. This move clearly demonstrated SKFs wish to build up its U.S. manufacturing base and thereby avoid burdensome import duties. McGill, however, was acquired by Emerson.

Restructuring in the 1990s

SKF completed the acquisition of a different U.S. company in 1990: Chicago Rawhide (CR), a leading U.S. maker of fluid sealing devices for automotive and machinery applications. Founded in 1879, CR soon became one of the top suppliers of seals to the burgeoning U.S. automobile industry. For SKF, the purchase of CR represented the addition of a new but bearing-related product line since one of CRs key product areas was that of bearing seals. Another important development in the early 1990s was the failure of the Ovako Steel joint venture. In 1991 SKF reluctantly reacquired the Swedish portion of the venture, which became a wholly owned SKF subsidiary under the name Ovako Steel AB.

Unfortunately for SKF, the economic turnaround at the end of the 1980s quickly evaporated in 1990 with the beginning of the crisis in the Persian Gulf and the resultant worldwide recession. From 1990 through 1993, worldwide bearing sales fell 20 percent, leading SKF to cut its workforce by 10,000 from 1990 to 1993 and to suspend payment of its dividend in 1992 and 1993, the first such suspensions in company history. The company posted three consecutive years of losses starting in 1991. SKF finally returned to the black in 1994, posting net profits of SKr 1.28 billion (US$167.9 million) on sales of SKr 33.27 billion (US$4.48 billion). In the midst of this latest turnaround, SKFs chief executive, Mauritz Sahlin, stepped down from his position in April 1995 and was replaced by Peter Augustsson, who had been a senior vice-president in charge of European operations. Also in 1995, SKF unveiled what it considered its most significant technical achievement in 25 years, a new rolling bearing dubbed the CARB, or compact aligning roller bearing. The CARB offered lower friction and a higher load capacity and tolerated misalignment.

Augustsson quickly set out to reduce SKFs continued dependence on Europe, where the company still derived about 60 percent of its sales. The company had only 12 percent of the bearing market in North America, with the United States alone accounting for one-third of world bearing demand. In addition to seeking to boost U.S. sales, Augustsson targeted fast-growing emerging economies in Asia as well, including India, Malaysia, South Korea, and Indonesia. In the mid-1990s, SKF established five joint ventures in China. Augustsson also moved to make the company more competitive by cutting costs and increasing productivity at the companys factories worldwide.

As it entered the late 1990s, SKF was under increasing pressure from the Wallenberg empire, which through its Investor AB investment arm was the largest SKF shareholder, to improve its profitability. Percy Barnevik in particular demanded better results from a number of Wallenberg companies, including SKF, after becoming chairman of Investor in 1997. Augustsson attempted to turn around SKFs fortunes with two restructuringsan October 1997 plan to cut more than 2,000 jobs and a June 1998 program involving 4,000 job losses. But with the economic crisis wreaking havoc in Asia and the SKFs core European market in a slump, Augustsson was evidently not producing results fast enough and was replaced as chief executive in August 1998 by Sune Carlsson, who had been a top executive at another Wallenberg company, ABB, where he had worked closely with Barnevik in Barneviks other role as ABB chairman.

Carlsson stepped up the pace of restructuring, announcing an additional 1,000 job cuts and the beginning of a program to divest a number of noncore businesses. Restructuring charges during 1998 totaled SKr 3.1 billion (US$383 million), leading to a net loss for the year of SKr 1.64 billion (US$202.6 million). Among SKFs divestments was the 2000 sale of Lidkoping Machine Tools AB to Karolin Machine Tool AB, marking SKFs exit from the manufacturing of machine tools. SKF also planned to unload its steel division. On the acquisition side, SKF was focusing in part on building up its service division, which offered mechanical services, maintenance services, and monitoring solutions. Overall, Carlssons restructuring program appeared to be bearing fruit as operating margins improved from less than four percent in late 1998 to nine percent by mid-2000. SKF was aiming to increase margins to ten percent by 2002 and was well on its way to meeting this target.

Principal Subsidiaries

MANUFACTURING COMPANIES: SKF Sverige AB; SKF USA Inc. (99.8%); SKF Österreich AG (Austria); SKF Pozna_ S.A. (Poland; 99.8%); Lutsk Bearing Plant (Ukraine; 93.7%); SKF Actuators AB; SKF AutoBalance Systems AB (91%); SKF de Mexico S.A. de C.V.; SKF do Brasil Limitada (Brazil; 99.9%); SKF Argentina S.A. (99.9%); SKF Bearings India Ltd. (42.4%); SKF Mekan AB; Anhui Zhongding CR Seals Ltd. (China; 60%); Beijing Nankou SKF Railway Bearings Company Limited (China; 51%); SKF Automotive Components Corporation (Korea); CR Korea Co., Ltd. (50%); PT. SKF Indonesia (60%). SALES COMPANIES: SKF Danmark A/S (Denmark); SKF Norge A/S (Norway); Oy SKF Ab (Finland); SKF Portugal Rolamentos, Limitada (95%); SKF Loziska, a.s. (Czech Republic); SKF Sved Golyoscsapagy Reszvenytarsasag (Hungary); SKF Hellas S.A. (Greece); SKF Canada Limited (62.5%); SKF del Peru S.A.; SKF Chilena S.A.I.C. (Chile); SKF Venezolana S.A. (Venezuela); SKF South East Asia (Pte) Ltd. (Singapore); SKF Australia Pty Ltd.; SKF New Zealand Limited; SKF South Africa (Proprietary) Ltd.; SKF Eurotrade AB; SKF Multitec AB. OTHER COMPANIES: SKF Bearings Ltd. (U.K.); SKF Holding Maatschappij Holland B.V. (Netherlands); SKF Verwaltungs AG (Switzerland); SKF Holding Mexicana, S.A. de C.V. (Mexico; 98%); Immobiliaria Nicolas Arriola S.A.C. (Peru); SKF (China) Investment Co. Ltd. (China); Barseco (Pty) Ltd. (South Africa); SKF Australia (Manufacturing) Pty. Ltd.; Compania SKF Nicaragua S.A.; Lat-inoamericana de Administracion S.A. (Panama); SKF Lager AB; SKF Vehicle Parts AB; Nordiska Kullager Aktiebolaget; AB SKF-Agenturer; SKF Logistic Services AB; AB Compania Sudamericana SKF; AB S.A. des Roulements a Billes Suedois SKF; SKF International AB; SKF Reinsurance Co. Ltd.; SKF Fondforvaltning AB; AB Svenska Kullagerfabriken; SKF Dataservice AB; SKF Nova AB; Bagaregarden 16:7 KB (99.9%); KB Nya Kulan (99%); SKF Fastighetsforvaltning AB; SKF Support AB; Ovako Couplings Holding AB; Ovako Tube AB; Ovako Steel Holding AB.

Principal Divisions

SKF Automotive Division; SKF Electrical Division; SKF Industrial Division; SKF Service Division; SKF Seals Division; SKF Steel Division.

Principal Competitors

Applied Industrial Technologies, Inc.; FAG Kugelfischer Georg Schafer AG; Kaydon Corporation; Koyo Seiko Co., Ltd.; NSK Ltd.; NTN Corporation; The Timken Company.

Further Reading

Arbose, Jules, SKFs U.S. Strategy to Counter the Japanese, International Management, June 1986, pp. 40 + .

Banks, Howard, Good Bearings, Forbes, September 23, 1996, p. 52.

Brown-Humes, Christopher, SKF Aims for Smoother Global Performance: The Bearings Maker Is Stressing Marketing and R&D, Financial Times, July 20, 1995, p. 27.

Burt, Tim, A Tough Regime in Anyones Language: SKFs New Chief Is Imposing Brutal Measures to Achieve His Aims, Financial Times, December 4, 1998, p. 25.

Madslien, Jorn, SKF Finds Its Bearings with a Plan of Action, Corporate Finance, October 1998, pp. 7-8.

Marsh, Peter, Change of Culture at SKF: Ball-Bearings Maker Switches from Europe in Search of Growth, Financial Times, August 25, 1997, p. 17.

Shipman, Alan, Swedens High Roller, International Management, March 1994, pp. 22-24.

Steckzéén, Birger, SKF, Svenska Kullagerfabriken: En svensk ex-portindustris historia, 1907-1957, Göteborg: Svenska Kullagerfabriken, 1957, 884 p.

The Story of SKF, Göteborg: Aktiebolaget SKF, 1982.

Webster, Mark, Bearing Up After 10 Hard Years, Financial Times, May 14, 1982, p. 19.

The World of SKF, Göteborg: Aktiebolaget SKF, 1988.

D.H. OLeary

updated by David E. Salamie

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Aktiebolaget SKF

Aktiebolaget SKF

S-415 50 Göteborg
Sweden
(31) 371000
Fax: (31) 372832

Public Company
Incorporated:
1907
Employees: 46,667
Sales: SKr25.06 billion (US$4.04 billion)
Stock Exchanges: Stockholm London Paris Geneva Basel Zürich New York

Aktiebolaget SKF is the acknowledged leader of the worlds rolling bearing industry and in a number of other precision engineering products. SKF controls about 20% of the world market in bearings, more than double the market share of its nearest competitors. Despite a period of low profitability in the early and mid 1980s caused by overcapacity in the worlds bearing industry and the impact of Japanese imports on its principal European market, SKF seems unlikely to relinquish this leading position in the near future.

SKF was established in 1907 in Göteborg, Sweden, by the textile company Gamlestadens Fabriker. Its founder was Sven Wingquist, a maintenance engineer at the Gamlestadens factory who had become increasingly disillusioned with the poor performance and high cost of the imported bearings used in the factorys overhead shafts. These latter also tended to misalignment, causing additional functional difficulties in the bearings.

Granted facilities for research by an unusually far-sighted management, Winquist developed a superior single row deep groove ball bearing. Gamlestadens decided to set up a new company named Svenska Kullagerfabriken (SKF) to sell the new product. Initially SKF production took place in Wingquists own workshop, but soon a separate factory was built in Góteborg.

Wingquist went on to develop a bearing capable of diminishing the effects of misalignment between shaft and housing. This, the double row self-aligning ball bearing, established SKFs fortunes and helped propel it to the forefront of the industry.

Wingquists talents, however, extended beyond pure engineering. From an early stage, he appears to have recognized that Swedens domestic market was far too small to underwrite the expansion in sales which alone could generate sufficient profits to keep SKF in business and capable of competing with its major European, particularly German, rivals. Wingquist therefore undertook a series of sales trips across Europe and subsequently set up sales offices and appointed agents. Subsidiary companies were established in France and the U.K. and factories were built.

From the start, SKFs fortunes were closely bound up with those of the automotive industry, which in the first decades of the 20th century had a growing requirement for SKFs quality bearings. SKF therefore chose to locate its plants close to major established motor plantsfor example, in the United Kingdom at Luton, near the large Vauxhall/Bedford plants. In the years immediately preceding World War I, automotive manufacturers were enjoying a boom period, and by 1912 SKF found itself unable to meet demand for its bearings due to supply problems with the foreign balls used in its bearing products. SKF therefore decided to produce its own balls in Göteborg. In 1913 the company could literally afford to strengthen its position in the crucial German market by the acquisition of a half share in the Norma Compagnie at Canstatt. SKF, in common with most Swedish businesses, derived considerable advantage from Swedens declaration of neutrality in 1914, trading with both the Allied and Central powers and successfully increasing its market share, particularly outside Europe, at the expense of its German, British, and French competitors whose countries were at war.

1916 was a significant year for the company. A steel works at Hofors Bruk in central southern Sweden was bought to provide SKFs bearings plants with a dedicated supply of high quality steel. The size of SKFs research laboratory at Göteborg was doubled, testifying to the companys recognition of the importance of innovative technology in maintaining market share. SKF also acquired one of the few remaining independent Swedish producers of ball bearings and converted its factory to the production of axle boxes and bearings housings. Finally, in order to avoid the hazards and high insurance costs of wartime transatlantic shipment, SKF established a plant at Hartford, Connecticut, for the supply of bearings to a U.S. motor and armaments industry rapidly expanding under the stimulus of the wartime requirements of the Allied powers in Europe. Next year a second French factory was opened on the outskirts of Paris.

Nevertheless, there were occasional setbacks. The Russian installation, set up in 1914 and expanded during the next three years, was nationalized without compensation in the wake of the 1917 Revolution. However, the second decade of the century was in general a period of continuous expansion for SKF. By 1919 it had twelve plants in full operation, a world-wide sales network, and a staff of almost 12,000.

Profits in the first years of the 1920s were blighted by the onset of economic depression. This onset was SKFs first experience of an economic pattern which to a large extent determined its fortunes ever sincethe level of consumer spending influencing the level of purchase of consumer durables, in its turn determining the level of capital investment by manufacturers in new machinery.

Nonetheless, the early and mid years of the decade saw SKF enhance its reputation for innovation with the introduction of spherical and taper roller bearings. By 1925, steel production at the Hofors mill had reached 24,000 tons and in the next year it doubled in response to improving economic conditions in Western Europe. In 1926 SKF decided that its Volvo subsidiary should enter the car and truck manufacturing industry. SKF used Volvo as a practical testing ground for its bearings until 1935 when Volvo became an independent company. SKF has retained close links with its former subsidiary. In 1927, SKF again displayed its eminence in the field of technological innovation when an employee patented a series of bearing measuring devices and established a set of measuring standards for use in the industry at large.

The Depression which began in 1929 enabled SKF to buy a number of rival German bearings companies, giving the company a leading position in the important German market. These separate operations were concentrated at Schweinfurt and Canstatt. In that year, SKF was quoted for the first time on the international stock exchange, and acquired the Swedish engineering firm Lidköpings Mekaniska Verkstad AB, thus incorporating machine tools in its product range.

As in the early 1920s, so in the opening years of the 1930s, SKFs profits suffered during the worst years of the Depression. Special emphasis was placed on the development of new types of bearing, leading in 1932 to the patenting of the narrow type spherical roller bearing and the self-aligning spherical roller bearing. The premium on efficiency in the production process caused SKF to introduce automation at about this time.

By 1935 the effects of the Depression had begun to recede in Europe and the United States. The ensuing rise in capital expenditure on new plant and machinery and the increasing pace of rearmament in Europe made the next five-year period up to the outbreak of World War II one of great prosperity for SKF.

Although Sweden once again chose neutrality in 1939, conditions for its export-dependent industries were not as generally favorable as they had been during World War I. During this time, SKF factories were taken over and headed by local governments. Swedish companies took advantage of their nations neutral position to trade actively with both Allied and Axis powers, but the Nazi occupation of Denmark and Norway, Germanys unrestricted submarine warfare, and British naval blockades deprived SKF and other companies of their traditional sea-routes out of Scandinavia. From 1942 large-scale British and American bombing raids over France and Germany sought to achieve the wholesale destruction of Nazi Germanys industrial base and thus Germanys capacity to continue the war. Realizing how crucial efficient and large-scale bearings production was to the Axis war effort, Allied bombers paid particular attention to bearings plants, in particular those at Schweinfurt and Canstatt. By the end of hostilities in 1945, the SKF plants lay in ruins. As in the previous conflict and the Depression of the early 1930s, SKF used the war years to good effect for the development of new products. In 1943 the company introduced its revolutionary OK oil-injection shaft coupling, enabling rolling bearings to function efficiently in marine propeller shafts.

Postwar reconstruction of the German and French plants was paralleled by new building of factories in countries formerly outside SKFs traditional manufacturing areafor example in Spain, Canada, and Holland. In Sweden itself, new facilities for the continuous annealing and tube-rolling of steel were added to the Hofors mill. In answer to the requirement for steel in a postwar Europe rebuilding its shattered industries, SKF increased its production capacity by acquiring Hellefors Jernverk, and in 1957 a new ball and roller factory was completed on the original Göteborg site. A notable feature of the immediate postwar decades was the rate of increase of automation in SKFs bearings production, facilitating the introduction in 1953 of SKFs first high precision bearings.

SKF expanded beyond Europe and the United States to two newly industrializing countries of the Third World, Brazil and India, both engaged in the rapid expansion of their automotive and textile industries and therefore requiring large quantities of bearings. SKF started activities in these countries at the latters request. These two countries represented vast potential markets for SKF products and offered in addition the important advantage of labor costs cheap by European and U.S. standards.

Meanwhile in Europe the creation of the European Economic Community (EEC) and the growing penetration of the European bearings market by cheap Japanese imports presented SKF with new opportunities and difficulties. Sweden had successfully negotiated with the EEC in 1972 for the free entry of its industrial products into the community, but of more importance to SKF, with its particularly high level of plant investment in EEC member states, was its managements growing awareness that the new trading conditions created by the establishment of the EEC trading block could be turned to the groups advantage in helping it fight its Japanese competitorsNTN, NSK, and Koyo Seiko.

SKFs plan involved concentrating production of particular products in specific plants, treating Europe as if it were a single nation in economic terms rather than a collection of sixand later nineseparate states. This would prevent wasteful duplication of production, allowing economies of scale by permitting longer runs of fewer types of bearings or tools at each individual factory. Finished products could then be transported across Community boundaries progressively being freed from import duties and quotas.

SKF restructured itself in the early 1970s. SKFs bearings and related products were formed into three new divisionsa European bearings division, an overseas bearings division and SKF Industries Inc. The overseas bearings section became responsible for the groups non-European production and sales companies outside North and Central America while SKF Industries handled the U.S., Canadian, and Mexican operations. Also created were cutting tools, steel, and engineering products divisions. Lidkópingmanufacturing grinding machineswas preserved as a separate profit center.

Pursuing its niche strategyestablishing a dominant position in particular segments of the bearings and precision tools industriesSKF in the late 1960s and early 1970s took steps to become the leading supplier of bearings to Europes, particularly Frances, newly revitalized aerospace industry. It acquired Les Applications du Roulement (ADR) for the manufacture of airframe bearings and in 1975 bought a 60% shareholding in SARMA, a French aerospace engineering research company. During this period it became increasingly apparent that the highest rates of growth were being recorded in some of the groups non-bearing activitiesfor example, cutting and machine toolsalthough these still accounted for only a small proportion of the value of total group sales. Consequently SKF chose to strengthen its position in these areas by acquiring some leading manufacturers, including the Swedish engineering firm Malcus Industri in 1969 and the large British cutting-tool manufacturer, the Sheffield Twist Drill & Steel Company, in 1975. This strategy of buying into positions of dominance in particular sectors of the bearings and precision engineering industries is characteristic of SKF.

The mature nature of the European bearings market in the 1970s and its penetration by the Japaneseespecially worrying in the large volume markets such as the motor industry placed a premium on retaining existing customer loyalty and on emphasizing the quality of SKF products over those of its rivals.

In order to make full use of the opportunities created by the new EEC trading conditions, SKF instituted a global forecasting and supply system (GFSS) in 1974 to improve coordination of the type and quantity of bearings produced at its five major European plants. GFSS became an integral part of SKFs strategy of refusing to cede any product to its Japanese competitors.

SKFs decision not to surrender any part of its home European market to the Japanese led to a period of further cost-cutting and rationalization in the late 1970s and early 1980s and served to reduce the groupss overall profit levels during this time. SKF also redefined itself, its goals, and the best means to achieve them.

In essence SKF saw the need to transform itself from a primarily manufacturing-oriented business into a group of companies much more responsive to its customers changing requirements. In 1968 SKF had centralized control of its activities by setting up its group headquarters in Göteborg. Hand in hand with this change went renewed emphasis on closer collaboration between its research and development and its marketing staff. This arrangement, combined with continuing technical innovation and improvement, made possible by the establishment of the SKF Engineering & Research Center (ERC), enabled SKF to stay ahead of its Japanese competitors despite their lower production costs and greater production efficiency.

Such restructurings and shifts of emphasis could not alleviate the effects of the recession which afflicted the bearings industry in the early 1980s, largely caused by overcapacity. By 1983, overall employment in the industry had fallen by about 15% and several manufacturers had gone out of business altogether. Demand was especially depressed in Europe, a factor which affected SKF severely because of its heavy dependence on European sales. SKF was compelled to reduce the size of its work force at several plants with sometimes divisive results. The prospect of 600 redundancies at SKFs Luton plant in the United Kingdom caused the 1,700-strong work force to walk out on strike in early 1983, and lowered both morale and productivity. The closure of the Ivry plant near Paris in the same year triggered a lengthy protest occupation by Confédération Générale du Travail militants, resulting in a series of violent confrontations with the police.

Although the group had to resort to a policy of severe cost-cutting, redundancy, and plant closure, it is significant that SKF did not waver in its commitment to the research and development of new technology. One object of research at this time was the so-called plasma steel-making process, a method of recovering the base metal from metal wastes by means of an ionized superheated gas stream. The economic rationale for plasma technology was its potential for reducing the cost of producing special steels. By the mid 1980s, SKF had invested SKr200 million in the commissioning of plasma plants at Landskrona and Malmoall this at a time of recession in the metals and metals recovery industries. During the early 1980s, SARMA had expanded production on the basis of a substantial involvement in the European Airbus program, but cuts in the program in 1983, combined with a state of general depression in the aerospace industry, forced the closure of SARMAs Champigny plant in 1984. It is, however, worth noting the use of SARMAs special carbon-fiber rods in the European Space Agencys satellite launcher Ariane 4.

In the middle of the decade, SKF benefited from a general economic upturn in Europe, but its overall profit level was dented by a sharp deterioration in the performance of its U.S. operation, SKF Industries Inc. Sales of bearings dropped almost 15% in volume, mainly due to the penetration of Japanese imports. Additionally losses at SKF Steel amounted to some SKr65 million, caused by overcapacity in the worlds steel industry and the unexpectedly high cost of the two new plasma plants. Nonetheless SKF made important acquisitions in 1985: SKF Española, which became a fully owned subsidiary after SKF bought 99% of its shares, and Waldes Truarc Inc., a U.S. maker of fasteners, evidence of SKFs desire to strengthen its presence both in this field and, as the 1986 acquisition of aerospace bearings manufacturer MRC showed, in the U.S. market generally. Also important was the formation of SKF Miniature Bearings, reflecting the groups keenness to penetrate this high growth area of the bearings business.

In Europe too SKF had increased its strength in fastening systems and linear motion products. The German SKF subsidiary Seeger-Orbis had bought the British company Anderton in 1983 for £1.4 million, thereby placing SKF in a leading position in the European market and providing the group with another valuable bridgehead into the United States. Between 1983 and 1985, the groups components business registered a near 40% growth in sales. SKFs steel division was not so successful. SKF decided to pull out of this loss-making area of its business, and from October 1986 steel operations ceased to be part of its activities. Instead, SKF merged its steel subsidiary with the Finnish steel manufacturer Ovako Oy, forming a new steel company named Ovako Steelin which SKF has a 50% shareholdingto concentrate on the production of special steel. Significantly, Ovako Steel did not take on SKFs plasma projects.

In that year SKF announced the formation of a 50-50 joint venture with the Japanese bearings producer Koyo Seiko, the first foreign bearings company to gain a foothold in the Japanese home market. SKF was attracted by the 20% stake held in Koyo by Toyota, and Koyo by the prospect of access to SKFs advanced technology. Recognizing in Southeast Asia the fastest growing market for bearings in the world, SKF began to increase productive capacity in the region, culminating in the decision four years later to build a new plant in Malaysia.

In 1987 the bearings operations were once again restructured, this time around product types and functions, forming SKF Bearing Industries, SKF Bearing Services, and SKF Specialty Bearings. The tools and component systems divisionsengineering productsremained unaltered. Each of the new bearings groupings assumed worldwide total responsibility for its own products and services.

Simultaneously SKF decided to withdraw from its involvement in plasma technology. A West German industrial waste company, Berzelius Umwelt-Service, was allowed to acquire a 25% holding in ScanDust, SKFs wholly owned subsidiary at Landskrona, while in January 1990 SKF and the other owners of SwedeChrome, based in Malmo, decided to close down the company after a slump in the price of ferrochrome proved the plants inability to operate at a profit. This step may have led SKF to regret its decision in the early 1980s not to build smaller and more efficient plants. With the acquisition in 1988 of the Austrian bearings manufacturer Steyr Walzlager and the British aerospace engineering firm AMPEP, the group increased its presence in the European bearings market and in bearings for aerospace purposes. However, SKFs dependence on free trading conditions was illustrated in that year by an anti-dumping investigation in the United States in which SKF and other European and Asian manufacturers were accused of unfair price-cutting. In May 1989 the U.S. Commerce Department began imposing import duties as high as 50% and demanding a security deposit against every import shipment. This requirement, combined with a rise in U.S. demand, led SKF to strip out production lines in Europe and ship them to the United States. There was a certain irony in the accusation of an unfair pricing policy, since SKF and other European bearings manufacturers had themselves called for an EEC investigation of Japanese pricing in the European market.

Fortunately the overcapacity which had dogged the worlds bearing industry for almost a decade had begun to recede in 1988, and by 1989 the better balance between supply and demand had begun to show in SKFs profits. SKF, so often the predator, found itself under threat from the Swedish industrial group Trelleborg when the latter acquired a 10.1% equity holding in the group in 1988. Trelleborg claimed the stake was for investment purposes only, but some industry analysts believed the move could herald a full bid for SKF in the future. The stake was sold by Trelleborg in 1989. SKF started its own tender of $107 million for the U.S. bearings manufacturer McGill Manufacturing. This move clearly demonstrated SKFs wish to build up its U.S. manufacturing base and thereby avoid burdensome import duties. McGill, however, was acquired by Emerson.

SKFs principal tasks for the 1990s will be to coax more profitability out of its mainstream bearings operations and to lessen the groups dependence on its West European sales by significantly increasing its market share in Eastern Europe, North America, and the Far East, particularly Japan. SKFs long tradition of technical innovationinstanced in the recent opening of an SKF College of Engineeringand its recognition of the importance of high-quality customer service should go far in helping it attain these goals. In Europe, still the most important area for SKF, the groups new structure should enable it to take the fullest possible advantage of the EEC trade deregulation scheduled for 1992.

Principal Subsidiaries

SKF Bearing Industries Argentina (99.9%); SKF Steyr Ges.m.b.H. (Austria, 75%); SKF do Brasil Limitada (Brazil); SKF France (99.9%); SKF Bearings India Limited (51%); SKF Industrie S.p.A. (Italy); SKF South Africa (Pty) Ltd.; SKF Sverige AB; SKF Mekan-produkter AB; SKF (U.K.) Limited; SKF Bearing Industries Co. (U.S.A.); SKF GmbH (Germany, 99.9%); SKF Roulements Specialisés s.n.c. (ADR) (France); SKF Avio (Italy); MRC Bearings (U.S.A.); SKF Tools AB; SKF & Dormer Tools (Sheffield) Limited (U.K.); Prototyp-Werke GmbH (Germany); SARMA (France); RFT S.p.A. (Italy); Anderton International Limited (U.K.); Seeger-Orbis GmbH (Germany); SKF Textilmaschinen-Komponenten GmbH (Germany); Lidköping Machine Tools AB; Ovako Steel AB (50%).

Further Reading

SKF, The Story of SKF, Göteborg, SKF, 1982; SKF, The World of SKF, Göteborg, SKF, 1988.

D.H. OLeary

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