Fried. Krupp GmbH

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Fried. Krupp GmbH

Postfach 10 22 52
Altendorfer Strasse 103
4300 Essen 1
Federal Republic of Germany
(201) 188-1
Fax: (201) 188-4100

Private Company
Incorporated: 1861 as Friedrich Krupp in Essen
Employees: 59,044
Sales: DM15.60 billion (US$10.44 billion)

Krupp is active worldwide as a manufacturer and supplier of capital goods. The group’s business divisions are: mechanical engineering, plantmaking, electronics, steel, and trading.

The firm was established on November 20, 1811 by Fried-rich Krupp, member of a family of merchants whose roots in Essen can be traced back to 1587, and his two partners, brothers Georg Carl Gottfried von Kechel and Wilhelm Georg Ludwig von Kechel. They set up a factory for making English cast steel and products manufactured from it. There was a ready market for these products due to Napoleon’s Continental Blockade, which prevented imports of cast steel from England. The two partners contributed the metallurgical knowledge, while Friedrich Krupp handled the commercial side and provided the necessary capital. When the steelmaking experiments of the two partners—and later of a third, Friedrich Nicolai,—proved unsuccessful, Friedrich Krupp ran the factory on his own from 1816 onwards and developed a process for making high-quality cast steel on a factory scale. His products included cast steel bars, tanner’s tools, coining dies, and unfinished rolls. In the years that followed, however, Friedrich Krupp failed to operate the factory at a profit. Competition was severe—particularly from Britain—and while Krupp’s prices were too low, his production costs were too high. In addition, product quality varied because, owing to a lack of funds, Krupp occasionally had to use inferior raw materials. Only the family’s considerable assets, which in the end were totally consumed, prevented the firm from going bankrupt. When Friedrich Krupp died in 1826, production had almost come to a standstill.

Therese Krupp, his widow, kept the firm going, supported by her relatives and her 14-year-old eldest son, Alfred. With only a few workers at first, the manufacture of cast steel continued. When in 1830 Alfred Krupp started to manufacture finished products, he was able to endorse these with his personal guarantee of quality. Output, however, remained at a low level.

Only after 1834 did the firm experience vigorous expansion. The lifting of customs barriers by the German Customs Union—an agreement between the German states, before their unification, to remove trade barriers between them and create a single economic entity—in 1834 boosted sales, and the purchase of a steam engine, financed by a new partner, helped to make production more cost-efficient. Alfred Krupp endeavored above all to perfect the manufacture of high-precision rolls, which he later supplied additionally in rolling machines and rolling mills. Together with his two brothers he developed in the early 1840s a mill for stamping, rolling, and embossing spoons and forks in one operation. Krupp took numerous journeys to find customers abroad, particularly in France, Austria, and Russia. A long sojourn in England enabled him to widen his knowledge of steelmaking and factory organization.

The firm’s expansion did not follow a steady course, mainly because the market for rolls and rolling mills was limited. Further, there was no replacement market, since Krupp’s rolls were virtually indestructible. The attempt to establish cutlery factories succeeded only in Austria, where in 1843 Krupp—together with Alexander Schoeller—founded the works at Berndorf near Vienna, which from 1849 onwards was managed by his brother Hermann. The search for new applications for his high—quality but expensive cast steel was unsuccessful at first. The general economic malaise which set in around 1846-1847 hit the cast steel works badly. In April 1848 Alfred Krupp, now sole owner, could only save it from ruin by selling off personal assets and then by winning a major order from Russia for cutlery machinery.

Around 1850 business started to pick up again. The burgeoning of the railways opened up a virtually unlimited market for Krupp’s hard-wearing cast steel. Along with axles and springs, the firm’s most important product in this field was the forged and rolled seamless railway tire. Invented by Alfred Krupp in 1852-1853, this proved able to withstand the increasing track speeds without fracturing. In 1859 the breakthrough into cannon-making was achieved with an order from Prussia for 300 cast-steel cannon-barrel ingots.

To secure sales, Alfred Krupp sought new markets on other continents. He journeyed abroad, established agencies, and participated in international exhibitions. At the Crystal Palace Exhibition held in London in 1851, Krupp displayed a cast-steel cannon barrel which attracted great interest; for a cast-steel ingot weighing approximately 40 hundredweight he received the highest accolade, the Council Medal.

At an early stage Krupp introduced new, economic steel-making processes, for instance the Bessemer process in 1862 as well as the open-hearth process in 1869. For products that had to be particularly tough, crucible steel remained his most important starting material. It was around this time that Krupp adopted a policy of acquiring ore deposits, coal mines, and iron works to secure the company’s rapidly growing requirement of raw materials. With the rapid expansion of the company—in 1865 the work force totaled 8,248 and sales 15.7 million marks—it became necessary to delegate managerial tasks. In 1862 Alfred Krupp established a corporate body of management bearing joint responsibility for the affairs of the firm. His general directive of 1872 laid down the principles to be applied in running his enterprise as well as the social welfare policy to be pursued.

From the outset Alfred Krupp strove to create and maintain a loyal set of highly skilled employees. Only thus could he guarantee the high quality of his products. To alleviate the social problems caused by industrialization he introduced employee welfare schemes, at the same time enjoining his workers not to become involved in trade-union or social-democratic activity. As early as 1836 he set up a voluntary sickness and burial fund, which became a compulsory sickness and death benefit insurance scheme in 1853. In 1855 Alfred Krupp established a pension scheme and in 1858 a company-owned bakery that evolved into the employees’ retail store. In 1856 the first hostels were built offering board and lodging to bachelor workers. 1861 saw the construction of the first company dwellings for foremen. Worker’s housing estates, incorporating schools and branches of a retail store, followed in 1863, and from the early 1870s grew apace. In 1870 a company hospital was established.

In the years up to 1873 the firm continued to expand strongly. However, in the economic slump of 1874 it almost suffered financial collapse because Krupp had raised large bank loans without arranging adequate security. Thereafter the company entered a phase of steady development. The gunnery division was engaged in efforts to develop better field, siege, and naval guns. The divisions producing machinery components, shipbuilding material, and railway equipment were expanded. When Alfred Krupp died in 1887, the firm’s employees numbered 20,200 and sales for 1887-1888 amounted to 47.5 million marks.

Even during his lifetime Alfred Krupp was known as the Cannon King, mainly because during the Franco-Prussian War of 1870-1871 Krupp’s cast-steel guns had proved superior to the French bronze cannon. The way the firm presented itself to the public reflected the spirit of the times and for decades the manufacture of guns was given a prominence beyond its actual share of production. In fact, up to 1905 armaments generally accounted for less—and in some cases considerably less—than 50% of output; in the years leading up to World War I the proportion was between 50% and 60%.

Alfred’s only son and heir, Friedrich Alfred Krupp, continued the expansion of the enterprise into a horizontally and vertically integrated concern. Entry into the production of armor plate at the behest of the Imperial Navy led in 1892-1893 to the acquisition of the strongest competitor in this field, the Gruson works in Magdeburg. Production of armor plate was then concentrated in Essen while work in Magdeburg focused on the design and construction of plant and machinery.

At the urgings of his directors, as well as of Emperor Wilhelm II and the Imperial Navy, Krupp decided in 1896 to take over the Germania shipyard in Kiel. The plant was leased that year, and acquired in 1902. At this time Admiral Tirpitz, secretary of state for the Imperial Navy, introduced the program for the expansion of the German fleet under the Fleet Acts. The resultant boost to the German shipbuilding industry also benefited the Germania yard where, in addition to merchant vessels, warships clad in Krupp armor plating were now built. 1902 saw the building of the experimental submarine Forelle, forerunner of the U-boat. At the same time the company began producing diesel engines at the Germania yard, following the development of the first working diesel engine in 1897 by Rudolf Diesel in collaboration with Krupp and Maschinenfabrik Augsburg.

The construction in 1897 of a large integrated iron and steel works at Rheinhausen strengthened the company’s solid footing in iron and steel. A few years later the Thomas process was adopted there for the mass production of steel. Further ore and coal mines were acquired to cover the increasing raw materials requirements. Friedrich Alfred Krupp was particularly interested in the technology of steelmaking. He introduced scientific research into steel at Krupp and thus created the springboard for the successful development of special-steel production.

Friedrich Alfred Krupp expanded the employee welfare and benefit schemes, not only at Essen but also at the outlying works. He widened the scope of the health funds, built new housing estates, and created the Altenhof estate for retired and disabled workmen. He established educational and leisure amenities for his employees, in particular a lending library with numerous branches and an educational society.

During his lifetime Friedrich Alfred Krupp was caught in the crossfire of public debate. While to many he was a successful industrialist with a sense of national responsibility, his critics saw him as a capitalist entrepreneur who, through his links with the Imperial House and his support of the German Navy League, a non-government association formed to promote the strengthening of the German fleet, exerted influence on the country’s naval policy in order to gain lucrative contracts for his company. The spectacular acquisitions of the Gruson works and the Germania yard readily lent themselves to such an interpretation.

In later literature too, Friedrich Alfred Krupp has been presented in controversial terms. New research has proved, however, that it was not he who initiated the program of naval expansion started in 1897-1898. The main impetus came from Admiral Tirpitz and the circle of people close to Emperor Wil-helm II. Friedrich Alfred Krupp only acted in response to this policy.

When Friedrich Alfred Krupp died suddenly at the age of 48 in 1902, Bertha Krupp, the elder of his two daughters, inherited the company, which—as recommended in the will of the later owner—was converted into a stock corporation in 1903, when it became known as Fried. Krupp AG. Almost all the shares remained in the ownership of Bertha Krupp. When in 1906 she married Gustav von Bohlen und Halbach, counsellor to the Royal Prussian Legation at the Vatican, Wilhelm II as king of Prussia accorded Gustav the right to bear the name Krupp von Bohlen und Halbach and to pass on this name to his successors as owners of the company. After the wedding Gustav Krupp von Bohlen und Halbach was appointed to the supervisory board of Fried. Krupp AG, which he chaired from 1909 until the end of 1943.

In the years leading up to World War I, order books were healthy and the company continued to expand. By 1903 the workforce had increased to 42,000 and by 1913 to 77,000, with sales rising from 91.4 million marks in 1902-1903 to 430.7 million marks in 1912-1913. The increase in productivity mainly reflected the expansion of the Rheinhausen iron and steel works and the resultent fundamental reorganization of production in Essen.

In 1908 electric steelmaking was introduced at the Essen works. After a few years the company was making electric steels of such quality that they were able to partly replace high-grade crucible steel. Intensive research into alloying came to fruition in 1912 with the development of stainless chromium-nickel steels which, besides being resistant to corrosion, were also able to withstand the effects of acid and heat and were thus suitable for a wide range of applications.

The continuation and expansion of employee benefits and welfare remained key elements of corporate policy. Margarethe Krupp, the widow of Friedrich Alfred Krupp, established a domestic nursing service and provided the financial base for the Margarethenhohe garden suburb. The company continued to build housing estates for its workers, these efforts being increasingly supplemented by independent housing associations closely linked to Krupp. Convalescent homes and a dental clinic were built, and the Arnoldhaus lying-in hospital was founded.

World War I brought an increase in armaments production and a further expansion of the company. In order to fulfill government contracts, munitions output was doubled in the first year of the war and by the third year it had reached more than five times its pre-1914 level. This output was achieved, particularly after 1916, by building huge new factories and increasing the work force substantially. In November 1918 Krupp’s employees totaled 168,000. Well known products in these years were the 16.5-inch Big Bertha gun, 27 of which went into action in 1914; the merchant submarines Deutsch-land and Bremen, built at the Germania yard in 1915-1916; and the long-barreled “Paris gun” with a range of 85 miles, of which seven were built.

Both at the time and in some of the subsequent literature the firm and the Krupp family were accused of having been the main beneficiaries of the war. More recent researches have demonstrated how inaccurate a picture this was: compared with other companies only a relatively small portion of the profits initially earned were distributed to the shareholders, whereas the main part was invested in the new factory buildings which later were of little use. High personnel and welfare costs during but most especially immediately after the war and the cost of converting to peacetime manufacture exhausted the company’s substantial reserves. With the ending of hostilities the demand for armaments ceased. Under the Treaty of Versailles the company was prohibited from making ammunition, and cannon manufacture was allowed only to a limited extent. Krupp changes its production and embarked on the manufacture of locomotives, motor trucks, agricultural machinery, and excavators. The cost of reorganization, the wages for workers actually no longer needed, and the losses incurred through dismantling, inflation, and the dispute over the Ruhr River, when the government implemented a strategy of passive resistance to the occupation of the region by French and Belgian troops, plunged the company into a crisis in 1924-1925 that threatened its very existence. Gustav Krupp von Bohlen und Halbach had no choice but to implement drastic cutbacks. Having initially refused for social reasons, he reduced the work force within two years from 71,000 to 46,000. Unviable operations were closed down, production was streamlined, and newly launched but unprofitable mechanical engineering activities were discontinued. Even then the company would not have overcome the crisis had it not been for the financial support it received from a combination of government agencies and banks.

Gustav Krupp von Bohlen und Halbach rejected the proposal of his directors that the Krupp works be closed down or incorporated in Vereinigte Stahlwerke, a combination of German steel companies, which was about to be established. He did, however, finally accept the suggestion made by Krupp director Otto Wiedfeld, who from 1922 until early 1925 was German ambassador to the United States, that the company be rehabilitated by selling a 50% shareholding to the British government. This plan had to be quickly abandoned, however, because the German government felt its policy of rapprochement with France might be jeopardized.

In the years that followed, the company gained a more stable footing, mainly by streamlining the fabricating operations and expanding the production of special steels. Between 1927 and 1929 a blast-furnace plant was added to the melting shops and rolling mills in the Borbeck district of Essen to form an integrated iron and steel works. One of the most modern in Europe, it enabled the production of special steel to be increased further. In 1926 Krupp introduced WIDIA sintered carbide, a product which, by virtue of exceptional hardness and wear resistance, brought a major breakthrough in tool engineering.

The Depression, which first hit the world economy in 1929, brought this revival to an abrupt halt. The work force, which by 1928 had risen to 92,300, fell back to 46,100 by 1932. Sales dropped from 577.5 million reichsmarks in 1928-1929 to 240 million in 1931-1932. After 1933 Germany experienced an economic upturn during which corporate policy at Krupp became closely entwined with the economic policy of the National Socialists. Governmental efforts to achieve self-sufficiency included the development of the country’s iron ore deposits. The Renn process introduced by Krupp in 1929 permitted these inferior ores to be reduced economically. A coal conversion plant was built for producing petrol from coal. Increasing demand for rolled-steel products, especially for building the new autobahns, spawned the expansion of Krupp’s structural engineering shops in Rheinhausen. Under the Four-Year Plan the state took increasing control of industry and at Krupp the production of locomotives, motor trucks, and ships was stepped up against the will of the company’s directors. They wanted to give priority to the successful production of special steels and their fabrication for use in chemical process plant and other applications. In 1938, following the death of proprietor Arthur Krupp, son of Hermann Krupp, the Bern-dorf works near Vienna was incorporated in the concern. Krupp also expanded its shipbuilding activities by acquiring a majority shareholding in Deutsche Schiff-und Maschinenbau Aktiengesellschaft “Deschimag” in 1940-1941. Sales rose from 809.6 million reichsmarks in 1937-1938 to 1.1 billion in 1942-1943; in the same period the number of employees rose from 123,400 to 235,000.

In the 1920s Krupp had, at the behest and later with the financial support of the German Reichswehr Office, undertaken design work of a military nature going beyond the tight restrictions imposed by the Treaty of Versailles. The resultant vehicles and equipment were manufactured in collaboration with other firms. In the 1930s work on the design and manufacture of armaments was stepped up, and during the war these activities were greatly intensified, controlled as they were by the state’s grip on the economy. Weapons made up a much smaller proportion of total output than during World War I, however, because the manufacture of motor trucks, locomotives, bridges, ships, and especially submarines, continued at a high level.

Research has shown that in spite of claims to the contrary, Gustav Krupp von Bohlen und Halbach, president of the federation of Germany industry from 1931 to 1934, did not support Hitler or the Nazi party before they came to power. In keeping with his sense of national loyalty, however, he expressed his support for the state after Hitler’s appointment as Reich-skanzler.

At the end of 1943 the firm was reconverted into a sole proprietorship and transferred to Gustav’s eldest son Alfried. The armaments authorities and semi-official control committees were intervening more and more in industrial activity. Out of loyalty to his war-torn country Alfried endeavored to meet the demands imposed, although the lack of skilled workers, air raids, and the relocation of operations made this increasingly difficult. Like most of the armament factories in Germany during the war, Krupp used forced labor, as most of its workers had been called up for military service.

At the end of the war large areas of the works lay in ruins and much of what remained, like the iron and steel works in Essen-Borbeck, was compulsorily dismantled. The Gruson works and Berndorfer Metallwarenfabrik were expropriated by order of the Allies, and the Germania shipyard, also severely damaged by bombing, was dismantled and liquidated.

Gustav Krupp von Bohlen und Halbach was indicted for war crimes by the International Military Tribunal in Nuremberg but was found to be physically and mentally unable to stand trial. The suggestion made by the American, Russian, and French prosecuting counsels that his son Alfried be indicted in his place was rejected by the British prosecutor on the grounds that they were not conducting a game in which one player could be replaced by another. Nevertheless, Alfried Krupp von Bohlen und Halbach was put under arrest by the American occupying troops in Essen on April 11, 1945. His property was confiscated, and he was kept in prison until he was accused before an American military court in 1947 together with members of the firm’s senior staff. This was one of three trials against industrialists. Alfried Krupp von Bohlen und Halbach and his leading staff were accused of having planned a war of aggression and participated in it, but were declared not guilty of these charges. Of the other charges of the indictment, criminal spoliation in occupied countries and promotion of slave labor, they were found guilty on July 31, 1948. In 1951 their prison terms were cut short and they were released. Two years later Alfried Krupp von Bohlen und Halbach resumed the management of his firm, which since 1945 had been under the control of the British military government.

The company’s situation was parlous. On top of the losses already mentioned came the Allied divestment order under which Krupp was compelled to sever and sell its mining and steelmaking operations. The firm thus faced the loss of its raw materials base, in particular its vital steel interests. In 1951 Alfried Krupp von Bohlen und Halbach had declared that he would never again produce weapons. The object, therefore, was to shape a newly structured concern from the remaining manufacturing and engineering activities, comprising the locomotive and motor truck works, the Widia hard-metal plant, the forging and foundry shops, and the structural engineering operation in Rheinhausen. This restructuring was achieved in the years that followed. New markets were opened up in the developing countries for the engineering and construction of industrial plant. Together with Berthold Beitz, whom he had appointed as his chief executive at the end of 1953, Krupp contributed personally to this effort by making numerous order-winning trips abroad. The range of manufacturing and engineering activities was made as varied as possible in order to assure continuity of employment in the face of changing markets. In 1958 sales, including the coal and steel operations still subject to the divestment order, amounted to DM3.3 billion, generated by a work force of 105,200. Krupp had become the highest-revenue German company.

The Allied divestment order could only be complied with to a minor extent for lack of purchase offers. In 1960 Krupp therefore combined its remaining coal and steel operations and strengthened this base in 1965 through a merger with Bochumer Verein fur Gusstahlfabrikation, a steel company in Bo-chum in which a majority shareholding had been acquired at the end of the 1950s. Krupp thus regained a position in the production of special steels, which it had lost with the dismantling of the Borbeck steel plant. In 1961 the company opened a plant in Brazil to make drop forgings for internal combustion engines and vehicles. In 1964 Krupp acquired a majority shareholding in Atlas-Werke AG, Bremen, including MaK Maschinenbau GmbH, Kiel.

In line with the general economic situation, the company followed a positive course into the mid-1060s, apart from a brief downturn in 1962-1963. However, until withdrawn in 1968, the divestment order prevented the company from developing a comprehensive long-term policy of corporate restructuring and investment. The financial crisis into which the company plunged in 1967 was largely triggered by the high level of supplier credits that had to be granted in the strongly expanding export business. As security for the banks, the federal and state governments provided guarantees, which, however, did not need to be taken up. The guarantees were subject to the condition that the sole proprietorship Fried. Krupp be converted into a stock corporation. This requirement dovetailed with the decision already taken by the owner to adapt the enterprise to the requirements of modern business and secure its future by changing its legal structure. In the terms of his will, Alfried Krupp von Bohlen und Halbach provided for the establishment of a nonprofit foundation. Since his son Arndt had renounced his inheritance before his father’s death, leaving the way clear for the firm to be converted into a corporation, ownership of the late owner’s private assets and the corporate property combined in the firm of Fried. Krupp was vested in the foundation. Alfried Krupp thus continued in modern form the idea formulated by his great-grandfather that ownership incurs social responsibility: the company would be run as a private-sector enterprise but its earnings used to serve the community at large.

Alfried Krupp von Bohlen und Halbach died in July 1967. In 1968 the firm was entered in the Commercial Register as a limited-liability company, Fried. Krupp GmbH, with a capital stock of DM500 million. Managerial responsibility was assigned to an executive board having the same powers as the management board of a stock corporation under German law. It funds projects in Germany and abroad in the fields of science and research, education and training, public health, sport, literature, and fine art. Between 1968 and 1990 the foundation awarded grants totaling around DM360 million. All shares in Fried. Krupp GmbH were placed in the ownership of the Alfried Krupp von Bohlen und Halbach Foundation, whose object was—and remains—to preserve the company’s coherence and to serve the public benefit. Berthold Beitz is chairman of the foundation’s board of trustees. From 1970 to 1989 he was chairman of the supervisory board of Fried. Krupp GmbH is now its honorary chairman.

In 1969 the coal mining assets were served from the group and transferred to Ruhrkohle AG. Over the subsequent years activities in the engineering and construction of industrial plant were expanded, especially with the acquisition of Polysius AG and Heinrich Koppers GmbH. The steelmaking arm further strengthened its special-steel operations by acquiring Stahlwerke Südwestfalen AG.

In 1974 the state of Iran acquired a 25.04% interest in the stock capital of the steel subsidiary, Fried. Krupp Hüttenwerke AG, strengthening the equity base. In 1976 Iran also acquired a 25.01 % stake in Fried. Krupp GmbH, whose capital stock was increased to DM700 million by the summer of 1978. Today these ownership interests are held by the Islamic Republic of Iran.

The 1980s saw the implementation of various restructuring schemes. Krupp sold off its interests in shipbuilding, an area of heavy losses. The steelmaking sector reduced its output of tonnage steel and in 1987-1988 the plan to close the iron and steel works in Rheinhausen was met by a campaign of protest from the work force. The works have been kept in operation to a limited extent. At the same time Krupp has further strengthened its activities in special steel—for example, by acquiring VDM Nickel-Technologic AG in 1989—as well as in mechanical engineering and electronics. In 1991, the parent company Fried. Krupp GmbH largely provided strategic guidance for the free-standing member companies in the business divisions of mechanical engineering, plant-making, electronics, steel, and trading.

Principal Subsidiaries

Krupp Maschinentechnik GmbH; Krupp MaK Maschinenbau GmbH; Werner & Pfleiderer GmbH (50.1%); Krupp Widia GmbH; Krupp Industrietechnik GmbH; Krupp Koppers GmbH; Krupp Polysius AG (82.5%); Krupp Atlas Elektronik GmbH; Krupp Stahl AG (70.4%); Krupp Lonrho GmbH (50.0%); Krupp Metalúrgica Campo Limpo Ltda. (Brazil, 59.8%).