Sandvik AB

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Sandvik AB

81 Sanviken
Sweden
(26) 26 00 00
Fax: (26) 26 10 43

Public Company
Incorporated: 1868 as Sandvikens Jernwerks Aktiebolag
Employees: 26,000
Sales: SKrl8.25 billion (US$3.24 billion)
Stock Exchanges: Stockholm London

Sandvik is a high technology materials company based in Sandviken, Sweden and trading through an international network of 160 companies in 50 countries. More than 90% of Sandvik’s sales are from outside Sweden. Originating from a steelworks using the Bessemer method in the 1860s, the company has developed a series of specialties culminating in cemented-carbide for machining and rock drilling, and sells these and specialty steel and alloy products worldwide.

The origins of Sandvik can be traced back to the formation of the Högbo Stäl & Jernwerks AB in 1862. The company was set up to build a new steelworks at Sanviken—150 miles north of Stockholm, the capital of Sweden—by Göran Fredrik Göransson. Sandvik claims that Göransson, who obtained a license to use the Bessemer process, was the first to get the new process to work on an industrial scale. The Bessemer method, unlike earlier methods, allowed the production of heavy castings and forgings in one piece from one melt. In the process, air is blown through molten pig-iron and a vigorous combustion results from the reaction of the blast and the hot iron in the converter. Sandviken is located in the southeastern corner of the region of Sweden where iron products had been produced for hundreds of years prior to the formation of the new company. The original iron industry was based on local deposits of iron and the ready availability of wood to make charcoal.

Johan Holm, the main financial backer of Göransson’s company, however, got into financial difficulties that resulted in his and the company’s downfall. The company was declared bankrupt in 1866; after financial restructuring, Sandvikens Jernwerks (Steelworks) Aktiebolag was founded in May 1868. Anders Henrik Göransson, the son of the founder, became the manager of the new company and set Sandvik on the course that would lead to its future success. By international standards, Sweden offered a small home market for the new company. From the start Sandvik exported products which, because of the company’s location far from the main industrial markets, had to be highly upgraded steel products. The high quality of Swedish iron ore and the Bessemer process urged the company in the same direction. Even during the first years of the new company, Anders Göransson traveled widely in Europe, taking orders for products and establishing agencies.

By the 1890s the company was making some manufactured products, such as saws, from the steel it produced. In the latter part of the 19th century, the company’s specialties included boiler tubes for installation in steamships and railway engines, rock drilling steels, and wire for umbrellas. By the outbreak of World War I, exports accounted for up to 80% of Sandvik’s output.

By 1914 employment at Sandviken exceeded 2,200. During World War I the export share shrank, but was offset by the booming domestic market for steel. During the interwar period the company was hit hard by recession, in the early 1920s and again in the early 1930s. The work force declined but by 1937 had risen again to 5,380. During this period, the production of steel by the open-hearth process and electro process replaced the Bessemer process that had been instrumental in the foundation of the company. Sweden’s cheap hydroelectric power provided an advantage for steelmakers using the electro process.

Between 1918 and 1939 exports as a proportion of sales varied between 60% and 70%. Throughout this period, steel was the dominant product group; manufactured products such as saws, conveyor belts, complete conveyors, and razor blades accounted for only 6% of sales. Within the area of steel products, tube products were increasingly important; these included seamless stainless tubes for the food, pulp and paper, and chemical industries.

From 1920 until 1958 the dominant figure in the company was Karl Fredrik Göransson, grandson of the company’s founder. When he returned to Sweden in 1901 after studying in the United States, he brought with him the company’s, and probably Sweden’s, first microscope for metallurgical studies. He was managing director from 1920 until 1948 and chairman from 1929 until 1959.

By the beginning of World War II, Sandvik’s production amounted to 90,000 tons of steel ingots a year and 65,000 tons of finished products. In terms of ingots, the company accounted for about 10% of Sweden’s output, but because the final products were highly upgraded this understates the company’s relative importance in terms of the value of output. During World War II, exports collapsed again and output was diverted to the home market. During this period, however, an event of immense importance for the development of the company occurred.

In 1941 the company decided to enter the cemented-carbide trade. Cemented-carbide is a powder-metallurgical product of which tungsten carbide is the main constituent. It may also contain carbides of other metals such as titanium, tantalum, and niobium. Powders prepared from the various metal carbides are mixed with fine-grained powdered metal, most commonly cobalt. The mix is pressed to the desired shape and is treated at a high temperature; the cobalt melts and functions as a binding agent for the carbide grains which are sintered in. The sintered product has multiple advantages: hardness, ductility, and resistance to wear. A sintered blank can be ground to high edge sharpness, affixed to a holder, and used as a tool for metal cutting.

Krupp, the German steel and engineering company, had invented cemented-carbide tools in the 1920s and was the leading supplier before World War II. The war separated Krupp from many of its markets and provided opportunities for new entrants to the trade.

Sandvik used the name Coromant for its new venture, which was initiated by production manager Carl Sebart. Previously, cemented-carbide had been sold in the form of blanks to be fashioned and sharpened into tools by the users. Sandvik’s new approach, to supply ready-made tools, was first applied to rock-drills, which were developed and marketed in collaboration with Atlas Copco, another Swedish company, and were an immediate success. The cooperative arrangement with Atlas Copco continued until 1988. Michael Porter, author of The Competitive Sources of Power, has suggested that one reason for Sweden’s success in producing internationally competitive rock drilling equipment is that its rock is among the hardest in the world. Cemented-carbide metal working tools were slower to achieve popularity, but development after 1956 was rapid. Sandvik Coromant expanded by building new factories in Sweden and other countries and by acquiring existing producers. Wilhelm Haglund, who had managed the development of Sandvik’s cemented-carbide operation from the start in 1941, was appointed managing director of Sandvik in 1957 by K.F. Göransson, and held the position until 1967.

Sandvik Coromant has manufacturing subsidiaries in 19 countries and Sandvik is the world’s largest cemented-carbide tool maker with about a quarter of the world market, which in 1988 amounted to about US$3 billion a year. The company’s nearest rivals include a subsidiary of Krupp and a U.S. company, Kennametal, which each have 8% to 10% of the market. There are three Japanese competitors; Sumitomo, Toshiba, and Mitsubishi.

In 1971 sales of cemented-carbide products exceeded those of steel products for the first time. In 1972 this was acknowledged by a change in the company’s name from Sandvikens Jernwerks Aktiebolag to Sandvik AB.

Sandvik’s other divisions were also making progress in developing products and markets while the carbide-tool business took off; they certainly could not afford to be idle in the intensely competitive environment of the steel and engineering industries during the 1970s and 1980s. While other steel companies faced repeated if not terminal crises, Sandvik succeeded, as a result of its policies of investment in the latest technology and developing specialty products to be sold in world markets. In world terms, Sandvik is a small-scale producer of steel; it has survived in spite of the existence of large economies of scale for steel production by concentrating on the production of types of specialty steel and making high quality special products. In its carefully chosen fields of specialization, Sandvik is an international leader; it has a large or significant market share in each market it serves. The company’s size allows it to achieve economies of scale for production. Sandvik provided a long-standing model for this type of specialization that was adopted by many companies in the 1970s and 1980s. Examples of products in which Sandvik steel is used are surgical needles, scalpels, and probes that require special strength and resistance to corrosion, bone pins, artificial hip-joints, cladding in nuclear reactors, and springs.

Although it was better placed than many other Swedish steel producers, Sandvik took part in the successive rationalizations of the Swedish special steels industry during the early 1980s. The result of the rationalizations is that there are only two principal special steel manufacturers in Sweden; Sandvik and Avesta. Sandvik specializes in strip, wire, and tube products.

Sales of Sandvik saws and tools are concentrated in Europe, where it is one of the three largest manufacturers of hand tools. Similarly, Europe is the main market for steel belts and conveyors.

The Göransson family was the company’s major shareholder and controlled Sandvik until 1957, when additional capital was raised by an issue of shares, and the investment company Kinnevik acquired a stake in the company. In 1967 Hugo Stenbeck, chairman of Kinnevik, became chairman of Sandvik, and Arne Westerberg—a former manager of a subsidiary of Kinnevik—took over as managing director.

An important change of corporate strategy occurred in 1967 at about the time of the changeover in management from Wilhelm Haglund as managing director and Gustaf Soderlund as chairman to Hugo Stenbeck and Arne Westerberg, respectively. Hitherto, the company’s policy had been to market products made by the parent company or by its subsidiaries starting from products made by the parent company. Between 1962 and 1966, parent company sales represented 78% of group sales. From 1967 more products, particularly cemented-carbide products, were manufactured by the company’s overseas subsidiaries.

The pace of expansion through acquisitions in Sweden and abroad was stepped up after 1967. In 1968 a joint venture, the Saeger Carbide Corporation, was set up in the United States with the Greenleaf Corporation. Between 1970 and 1973, manufacturers of rock drilling equipment in France and Spain were acquired. In 1972 the U.S. rock drilling manufacturing operation of another Swedish steel company, Fagersta, was purchased. In 1973 the U.K.-based Wickman-Wimet group was acquired, and during 1978 and 1979 tool manufactures in Germany and France were bought. Between 1971 and 1974 the steel division made acquisitions in Spain, West Germany, and the United Kingdom; saw, hand-tool, and conveyor manufacturers were also taken into the group. Acquisitions continued to be made during the 1980s; an important one was the Carboloy Division of the General Electric Company, of the United States, in 1987. In 1989, Metinox Steel Ltd., a small U.K. company making medical products out of stainless steel, was acquired.

Sandvik’s development has paralleled other Swedish companies such as SKF—ball bearings; Alfa-Laval—separation equipment; Atlas Copco—compressed air equipment and mining machinery; and L.M. Ericsson—telephone exchanges; all of which have roots in the 19th century and are characterized by their development of advanced metal and engineering products and their reliance on sales in international markets. Such companies have enabled Sweden to finance and sustain an advanced welfare state. Unlike Alfa-Laval, Atlas Copco, and L.M. Ericsson, Sandvik was not within the legendary Wallenberg orbit of companies, companies within the sphere of influence of the Skandinaviska Enskilda Bank in which the Wallenberg family has played a major role.

Following the second oil crisis in 1980, Sandvik suffered from the effects of the recession in many of its major markets. In 1983 the company’s profits were reduced by SKr219 million (US$30 million) owing to an exchange rate loss brought about by unauthorized foreign-exchange speculation by an employee. In the aftermath of this disaster, Skanska AB, a construction company with diversified interests, acquired Kinnevik’s holding and built up a 37% stake in Sandvik. In October 1983, Percy Barnevik, the chief executive officer of the Swedish electrical giant ASEA, was appointed chairman of Sandvik in succession to Arne Westerberg. In 1984 Per-Olof Eriksson was appointed president. In 1989, Percy Barnevik became chairman while Per-Olof Eriksson became president and CEO of Sandvik, and Skanska AB controlled 26% of shareholders’ votes.

During the years 1987 to 1989, Sandvik’s operating profit-after charging depreciation—represented more than 15% of sales. Expenditure on research and development was more than 4% of sales while capital expenditure averaged more than 5% of sales.

Sandvik was aware of product life cycles long before the term was coined and used by economists and management experts. The company has a high reputation for innovation and for the commercial exploitation of the specialties it has developed, and it is still achieving new successes—for example, in 1988 output of titanium tubes doubled and golf clubs made of titanium achieved a commercial breakthrough.

Although the company’s headquarters in Sandviken are far from the centers of the main industrial concentrations, the company’s international network of manufacturing subsidiaries and distribution companies provide it with knowledge of the market and new developments. Nevertheless, the company’s success attracts new competitors, not least from the Pacific rim. In the future the company will face ever-intensifying competition and it will be more difficult to keep one step ahead of the pack as new-product introductions accelerate.

Principal Subsidiaries

Sandvik Coromant Company (U.S.A.); Sandvik Rock Tools Inc. (U.S.A.); Sandvik Mission Drilling (U.S.A.); Sandvik Steel Company (U.S.A.); Sandvik Special Metals Corp. (U.S.A.); Sandvik Saws and Tools (U.S.A.); Sandvik Canada Inc. (Canada); Sandvik do Brasil SA. (Brazil); Sandvik SA (France); Sandvik Coromant (France); Sandvik Rock Tools (France); Sandvik GmbH (Germany); Sandvik Coromant (Germany); Sandvik Rock Tools (Germany); Sandvik Steel (Germany); Sandvik Italia S.p.a. (Italy); Sandvik Española SA (Spain); Sandvik Ltd. (U.K.); Sandvik Coromant (U.K.); Sandvik Rock Tools Ltd. (U.K.); Sandvik Saws and Tools (U.K.); Sandvik Australia Pty Ltd.