President and CEO Tom Wachtmeister, responsible for a series of strategic acquisitions in the 1970s, pictured visiting the Great Wall of China.
Building locally
When Liselotte became Vice President of Atlas Copco’s holding company in Shanghai in 2012, with responsibility for legal and administrative decisions for Group operations in China, the Group had about 30 companies in the country. The majority had non-Chinese general managers. Ten years later, almost all companies had Chinese general managers, and out of 6,700 employees, less than 30 were foreigners, mostly in specialist positions.
“Seasoned Atlas Copco managers of course come with Group experience. But local general managers have better contacts with local authorities,” says Liselotte. “Also, employees prefer native managers, because they know they stay longer than expats.”
The globalization journey has been a constant in the company’s history – but it gained extra speed when the giant China market opened. Liselotte joined the company at about the same time. Back then, Atlas Copco had 63% of its sales in Europe and the Middle East, 24% in the United States and 13% in Asia. Today, the distribution is closer to 30/30/40 percent and with almost only local employees in each market.
That’s a development that in turn builds on a heritage of looking internationally, in both production and sales.
In the 1930s, Atlas Copco’s design manager Erik Ryd worked with (legendary Group engineer) John Munck, an expert on the strength of materials, to develop the world’s first rock drilling machine that was lightweight enough for just one person to operate it. It was advertised as “one man, one machine.” Key components in the solution were Atlas Copco’s “pusher leg” innovation and fellow Swedish company Sandvik’s hard-metal drill bits.
“The Swedish Method”
It was a tool with clear sales appeal, across industries and countries. In 1940, Atlas Copco’s chair Marcus Wallenberg Jr. hired his former classmate Walter Wehtje as President and CEO. Wehtje had previously managed the department store PUB in Stockholm and knew marketing. He also knew talent, and tasked young coworker Erik Johnsson (later the company’s President and CEO) to build up a sales organization for compressed air products. It was Johnsson who, during a visit to France shortly after World War II, got the idea to launch the combination of the one-man-operated drill and its specific drill head as a special method. He called it “The Swedish Method.”
For the mining companies among the company’s clients, the new method meant that they could do more with less. The Group in turn increased its exports and, over a ten-year-period, more than 20 new sales offices were opened – which also often offered service. Management believed that without local expertise and service, customers would not dare to bet on the procedure. Salespeople were therefore trained to explain and teach their customers in “The Swedish Method,” which was rather complex. In the process, they developed close relationships as well.
A decade later, in 1956, Belgian compressor manufacturer Arpic Engineering, with 300 employees, was acquired. This transformed Atlas Copco from being an export company to becoming truly multinational. Today, Airpower in Belgium is the world’s largest manufacturing plant for compressors.
In 1975, Tom Wachtmeister became President and CEO of Atlas Copco. The world economy was in recession and production costs were rising everywhere. Wachtmeister made a series of strategic company acquisitions to broaden the product portfolio and specifically to increase the company’s footprint in Asia. In 1984, he tasked Michael Treschow with expanding the market position in tools, which led to another series of company purchases. When Treschow in turn became President and CEO in 1991, he pushed internationalization even further. One important goal was to get China up to 30% of sales. A challenging number for any market, and even more so considering that China was the Group’s biggest challenge among its many markets.
Growing in China
The first licensing agreement in China was signed in 1983, with a compressor factory in Wuxi, 21 kilometers west of Shanghai. Ten years later, it was time for a first joint venture: a factory with Nanjing Construction Machinery Plant. More agreements and factories followed. The market was – and is – huge, and Atlas Copco believed, again, that it needed a local presence in order to be competitive. This is a strategy that the company continues to follow.
“Bengt Kvarnbäck, who was Business Area President for Compressor Technique, stubbornly pursued the investment in China,” says Liselotte. “It was farsighted, because it is among the best things that the company has done.”
Today, Asia accounts for over one third of Atlas Copco Group’s operations, with China as the most important market. Another reason to be there is to keep an eye on the fast-growing Chinese competitors. Atlas Copco Group believes it must meet them locally, head-on, in order to keep the company’s leadership position and secure continued growth.
All in all, Atlas Copco Group today has production in around 20 countries, 97% of its employees outside Sweden, and more than 5,000 significant subcontractors.
In 2007, Liselotte Duthu was asked by Ronnie Leten, then head of Compressor Technique business area and later President and CEO, to projectlead the creation of the Compressor Technique Service Division. This led to better focus and higher profitability in both production and service – and also to even more globalization within the company. Because with increased service came, once again, closer contacts with the customers and thus an even better understanding of the local conditions.
Product demands also differ. In Asian countries, the requirements for compressors could be different than in, for example, European countries. To understand what customers need, local production is required.
In recent years, the Atlas Copco Group has built up more regional supply chains, as opposed to global chains. This has been done as a response to increased protectionism between countries, but even more so in order to stay close to customers. In the history of globalization, it is clearly a new phase.
It is a phase, though, that Liselotte Duthu will not be a part of since she recently retired. She intends to still follow the company’s development closely and is convinced that it will be a favorable one.
“The world is always changing rapidly and companies that can follow along and contribute to the change will be successful,” she says. “Atlas Copco is such a company, and it always has been.”
