Aktiebolaget SKF

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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 world’s 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 world’s 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 factory’s 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 Wingquist’s 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 SKF’s fortunes and helped propel it to the forefront of the industry.

Wingquist’s talents, however, extended beyond pure engineering. From an early stage, he appears to have recognized that Sweden’s 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, SKF’s 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 SKF’s quality bearings. SKF therefore chose to locate its plants close to major established motor plants—for 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 Sweden’s 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 SKF’s bearings plants with a dedicated supply of high quality steel. The size of SKF’s research laboratory at Göteborg was doubled, testifying to the company’s 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 SKF’s first experience of an economic pattern which 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 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, SKF’s 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 nation’s neutral position to trade actively with both Allied and Axis powers, but the Nazi occupation of Denmark and Norway, Germany’s 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 Germany’s industrial base and thus Germany’s 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 SKF’s traditional manufacturing area—for 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 SKF’s bearings production, facilitating the introduction in 1953 of SKF’s 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 management’s growing awareness that the new trading conditions created by the establishment of the EEC trading block could be turned to the group’s advantage in helping it fight its Japanese competitors—NTN, NSK, and Koyo Seiko.

SKF’s 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 Community boundaries progressively being freed from import duties and quotas.

SKF restructured itself in the early 1970s. SKF’s 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 group’s 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. Lidkóping—manufacturing grinding machines—was preserved as a separate profit center.

Pursuing its niche strategy—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 Europe’s, particularly France’s, 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 group’s 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, 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 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 SKF’s strategy of refusing to cede any product to its Japanese competitors.

SKF’s 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’s 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 SKF’s 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 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 SARMA’s Champigny plant in 1984. It is, however, worth noting the use of SARMA’s special carbon-fiber rods in the European Space Agency’s 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 world’s 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 SKF’s 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 group’s 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 group’s components business registered a near 40% growth in sales. SKF’s 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—in which SKF has a 50% shareholding—to concentrate on the production of special steel. Significantly, Ovako Steel did not take on SKF’s 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 SKF’s 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% holding in ScanDust, SKF’s 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’s 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, SKF’s 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 world’s 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 SKF’s 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 SKF’s wish to build up its U.S. manufacturing base and thereby avoid burdensome import duties. McGill, however, was acquired by Emerson.

SKF’s principal tasks for the 1990s will be to coax more profitability out of its mainstream bearings operations and to lessen the group’s dependence on its West European sales by significantly increasing its market share in Eastern Europe, North America, and the Far East, particularly Japan. SKF’s long tradition of technical innovation—instanced in the recent opening of an SKF College of Engineering—and 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 group’s 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%).