Kone Corporation Business Information, Profile, and History

Company Perspectives:

Kone's innovative products and comprehensive services are designed to enhance the value and usefulness of our customers' property. Customer include planners, developers, builders and owners of public and private facilities. Kone's commitment to long-term customer support ensures reliability in its products and services and quality in its employees' performance. Commitment to R&D keeps Kone in the forefront of innovation in the elevator and escalator industry.

History of Kone Corporation

Kone Corporation is a world-leading designer and manufacturer of elevators, escalators, and "autowalks." Based in Helsinki, Finland, Kone has developed an international organization of 150 subsidiaries and nearly 22,500 employees, who produce and install 12,000 units per year. The late 1990s introduction of the company's Monospace elevator concept, which reduces space and energy requirements, has helped invigorate Kone's business in a difficult economic climate. Yet sales of new elevators, escalators, and autowalks represent only 41 percent of the company's sales. Since the late 1980s Kone has built a strong business in elevator maintenance and modernization. In 1997 the company held maintenance and modernization contracts on more than 400,000 elevators worldwide.

Whereas Europe traditionally has been the company's primary sales base, representing 55 percent of company revenues in 1997, the company has made strong inroads into the U.S. market, which provides 29 percent of company sales. In the 1990s Kone has stepped up its position in the Asia-Pacific region, including opening a new elevator and escalator factory in Kunshan, China in 1998. At 11 percent of annual sales, this region represents a still limited share of Kone's revenues, sparing the company the brunt of the late 1990s economic crisis there. Nonetheless, the company remains committed to developing this market. Kone also delivers elevators and escalators to the African and South American markets, which together represent only five percent of annual sales.

Kone had been a diversified materials handling equipment company until the 1990s, when the conjunction of a worldwide recession and a too-rapid expansion forced the company to streamline its operations, returning to its long-time core elevator and escalator components. The company retains the number three spot among leading elevator producers, behind Otis Elevator, of the United States, and Schindler, of Switzerland. Kone Corporation is led by President Anssi Soila; the founding Herlin family is represented by Chairman Pekka Herlin and his son, Deputy Chairman and CEO, Antti Herlin.

Rising in Prewar Finland

Kone Corporation originated almost as an afterthought of the Finnish electric motor manufacturer, Strömberg. Although Strömberg's primary business was the manufacture and sale of new motors, it also had developed an active business of refurbishing its used motors. Rather than develop sales of the rebuilt units under its own name, however, Strömberg sought a new brand name for its refurbished motors. In 1910 Strömberg incorporated its electric motor refurbishing arm as a separate company, dubbing the company simply "Kone" (Finnish for "machine"). The Kone company began business as little more than a machine shop in a converted stable on the lot of Strömberg's Helsinki factory.

Another offshoot of Strömberg's electric motor business had been elevator sales and installation. The company did not produce the elevators itself, but instead acted as the Finnish licensee for Sweden's Graham Brothers, then the leading elevator manufacturer in Scandinavia. In 1912, Lorenz Petrell, head of Strömberg's elevator activities, was named managing director of its Kone subsidiary. Petrell did not abandon the elevator line, however; instead, he transferred all of Strömberg's elevator business, with its engineering, installation, and other personnel, to Kone. For the time, Kone continued to represent the Graham elevator line.

For more than a century Finland had been dominated by its Russian neighbor, which had made the tiny country a Grand Duchy at the start of the 19th century. In the years leading to the First World War, Finnish manufacturers, including Kone, were called on to supply the Russian military effort. To meet production demands, Kone moved to larger Helsinki quarters. The Russian Revolution that followed on the heels of World War I gave Finland the long sought for opportunity to declare its independence.

Kone, too, had decided that the time was ripe for independence. In 1918 the company ended its long-held licensing agreement with Graham Brothers, and began producing its own elevators, installing its first four elevators that same year. By then, the company had grown to 50 employees. The company's initial elevator experience was positive, prompting the company to turn its focus to elevators in the early 1920s. By then, the company, still a subsidiary of Strömberg, was producing more than 100 elevators per year. The company's sales focus was wholly on the Finnish market, which only had begun to develop multistory building structures necessitating elevator technology.

By 1924 Kone's parent company began to struggle financially; a member of its advisory board, Harold Herlin, recommended that Strömberg sell off its noncore businesses, including its Kone elevator division. Herlin, who held an engineering background, himself offered to buy Kone from Strömberg, an offer which was accepted. Herlin took the position as Kone's chairman, while assuming the chairman and president position of Strömberg as well. Lorenz Petrell, meanwhile, was named as Kone's president. The pair set to work building the newly independent Kone into the country's leading elevator manufacturer, hiring many of the failing Strömberg's engineering and commercial staff to boost Kone's development.

Helsinki was undergoing rapid expansion in the 1920s, and Herlin's variety of business interests, which extended into shipbuilding, utilities, and other construction, placed Kone in a strong position to furnish the growing market for elevators. In 1927 Kone moved into new, far larger production facilities, after buying a former margarine factory. By the end of 1928 the company had produced more than 1,000 elevators. In that same year the next generation of Herlins joined the company. With an engineering degree from Helsinki University of Technology, Heikki Herlin had spent four years working for Otis Elevator in the United States and for Brown Boveri in Germany, before joining what would become the Herlin family company. As Kone faced the Great Depression, Lorenz Petrell retired and was replaced by Heikki Herlin.

The younger Herlin proved to be an impassioned leader, whose engineering background enabled him to become involved in all aspects of the company. Kone, which had been struggling to compete against the higher technology of its foreign rivals, now began producing elevators again to meet international standards. The drop in elevator orders caused by the Depression economy paradoxically aided Kone in its technological advancement effort. Forced to look elsewhere for sales in the early 1930s, Kone saw an opportunity to move into the crane market, where it could easily adapt its elevator technology. At the same time Kone also began producing its own electric motors. This gave the company full control of its elevator manufacturing, enabling Kone to satisfy higher quality standards. During the 1930s the company's production continued to expand, into electric hoists, and then into conveyor belt systems.

Elevator production once again picked up at the end of the decade, enabling the company to top more than 3,000 elevators sold. The Second World War--and Finland's uncomfortable position--would interrupt Kone's elevator growth, as production was turned to supplying the country's effort against the Soviet army. Heikki Herlin took over the chairmanship of the company upon his father's death in 1941. Two years later Kone stepped up its production of industrial cranes, opening a new production plant in Hyvinkää, outside of Helsinki. Supplying the war effort replaced much of Kone's production, however, while the company would maintain its prewar production levels to a large extent. On the losing side at the end of the war, Finland was forced to pay a heavy reparations bill. Kone's production was turned as well to this end, producing--at government cost--its elevators and other industrial equipment for the Soviet victors.

Postwar Diversity and Internationalization

Kone would find a positive note in its production for the Soviets. Despite receiving no profit from its production--which included 100 elevators and close to 200 cranes, paid for by the Finnish government--Kone found other benefits. For one, many of the elevators and cranes demanded by the Soviets were of a larger design, featuring more advanced technology than Kone had been using. As the company adapted to these requirements, it also was able to expand its production capacity, increasing not only the number of production units, but also their tonnage capacities as well. By the end of the 1940s, as reparations wound down, Kone had developed the technology to enter a new market, that of harbor cranes.

During the 1950s Kone continued to introduce new technology into its elevators, including automatic doors, hydraulic lifts, and advanced control features. The company also was growing into an important producer of cranes and hoists, as well as conveyor belts and other materials handling equipment technologies. A prime source of sales was Finland's dominant forestry and paper industries; in the 1960s Kone would increase its position in these industries with various lumber handling machinery. Yet elevators remained the company's core product; by the 1960s, Kone, which had become the leading elevator supplier for Finland, was finding little room for further domestic growth.

The arrival of the next generation of Herlins to the company's leadership would introduce a new era to Kone's history. When Heikki Herlin retired in 1964, he was replaced by son Pekka, who had joined the company in 1958. Unlike his engineering-oriented father and grandfather, Pekka Herlin held a degree in economics. The younger Herlin would chart a new course for the company: that of international growth. As such, Kone would become one of the first Finnish companies to eye international expansion, leaving the company with no predecessors upon which to model its expansion.

In 1966 the company opened a new, state-of-the-art elevator production facility in Hyvinkää. Then the company began looking for new markets, in particular, across the borders of its Scandinavian neighbors. In 1968 Kone made its first acquisition, buying the elevator and escalator business of Sweden's Asea. The purchase of the larger, yet money-losing Asea-Graham unit (which, incidentally, gave the company control of its former supplier, Graham Brothers) catapulted Kone to the position of Scandinavian market leader. It would take six years for Kone to reverse its new subsidiary's losses. By then, however, the company had continued to fuel its overseas expansion, acquiring elevator subsidiaries throughout Europe. In 1974 the company bought out the entire European elevator and escalator production of Westinghouse, doubling Kone's revenues.

By the mid-1970s Kone was producing elevators, escalators, and the new "autowalks" under such brand names as Graham, Hävemeier & Sander, Marryat & Scott, Armor, Sabiem, and Westinghouse, and the company featured production facilities in France, Germany, the United Kingdom, Austria, Sweden, Norway, Denmark, Spain, and elsewhere in Europe. Pekka Herlin also would continue the company's product diversification, adding electronic hospital and laboratory equipment, and expanding Kone's crane, harbor crane, and other materials handling businesses. Developing these activities led Kone into a new area, with the 1982 acquisition of Navire Cargo Gear and the 1983 acquisition of International MacGregor. These acquisitions did more than bring Kone into the cargo access market, including ship hatches and ramps and other materials for loading, unloading, and RoRo (rollin rollout) processing&mdashding Navire and MacGregor established Kone as the world leader in this category.

By the mid-1980s Kone had joined the ranks of the world's leading materials handling companies. Despite its diversification, Kone still relied on its elevator and escalator businesses for more than 63 percent of its sales, which continued to be heavily centered on Europe. The collapse of the worldwide building market, and the extensive economic recession that would grip Europe through much of the 1990s, would force Kone to rethink its global strategy.

Streamlining in the 1990s

By 1995 Kone had either sold off or spun off its non-elevator and non-escalator operations. First to go was the company's conveyor and bulk handling businesses, which were sold off in 1986. Kone would jettison its wood handling arm in 1994, selling its Kone Wood division to Austria's Andritz AG in 1994. Next, the company's cargo access wing, MacGregor-Navire, was sold to Incentive Group, based in Sweden, in 1993. The company's crane production subsidiaries were incorporated as a separate company, sold to Sweden's Industri Kapital, and then introduced as a public company on the Helsinki stock market as KCI Konecranes International. Finally, the division grouping the company's high-tech analyzers, monitors, and other hospital and laboratory equipment businesses was spun off through a management buyout and reformed as Kone Instruments in 1995. In turn, Kone moved to reinforce its escalator arm, acquiring Montgomery Elevator Company, then the United States' fourth largest elevator and escalator company, which also gave Kone a major boost into the North American market. With the addition of 100 percent control of Germany's O&K Rolltreppen in 1996, Kone emerged firmly as the world's leading escalator and autowalk supplier.

The newly streamlined Kone had not finished its restructuring. Throughout its 20-year acquisition and development drive, Kone had maintained a hands-off policy on its new subsidiaries. The result was a collection of independently operating subsidiaries, each with its own culture, products, brand names, and production methods. In the 1990s Kone at last took steps to create a single corporate culture, enforcing the Kone brand name on a new generation of modular products. The company's push to restructure and homogenize its operations would be capped by the 1996 introduction of its Monospace elevator design. Hailed as revolutionary by the industry, the Monospace eliminated the need for a dedicated wheelhouse for the elevator's machinery, cutting its cost and reducing its energy requirements.

While building its new corporate culture, Kone also had been developing a new market area designed to complement its elevator and escalator core operations, as well as bridge that business's inherently seasonal, cyclical nature. In a program started during the 1980s Kone built a new maintenance services group, which during the 1990s would grow to become the company's strongest revenues provider. More than simply offering maintenance and repair services, Kone proposed a modernization program, enabling customers to upgrade, rather than entirely replace, their elevator parks.

As the company developed its maintenance and modernization arm, reaching more than 400,000 elevators under contract by 1998, the company's newly introduced Monospace design would help boost Kone's sales after years of a withering economic climate. Kone's strong push into the North American market promised to give the company greater balance during such economic cycles. Similarly, in the late 1990s Kone stepped up its efforts to expand into the developing Asian markets. Despite the faltering economy of much of the region, beginning in 1997 Kone continued to invest in production capacity, opening a new state-of-the-art production facility in Kunshan, China in October 1998.

Principal Subsidiaries: Kone Asensores S.A. (Argentina); Kone Elevators Pty. Ltd. (Australia); Kone Sowitsch AG (Austria); Kone Belgium S.A.; Kone International S.A. (Belgium); Kone Elevatores Ltda. (Brazil); Montgomery Kone Elevator Co. Ltd. (Canada); Kone Elevator Ltd. (Hong Kong); Kone Elevators International Ltd. (China); Kone Aufzug Gmbh & Co KG (Germany); O&K Escalators S.A. (France); O&K Rolltreppen Gmbh & CO KG (Germany); Kone Elevator India Ltd.; Kone Italia S.p.A; Sabiem S.p.A.(Italy); Kone Japan Co., Ltd.; Kone Starlift B.V. (Netherlands); Kone Aksjeselskap (Norway); Arabian Elevator & Escalator Co. Ltd. (Saudi Arabia); Thai Lift Industries Public Co. Ltd. (Thailand); Montgomery Kone Inc. (USA); Kone Lifts Ltd. (UK); Ellis & McDougall Lifts Ltd. (UK); ZAO Kone Lifts St. Petersburg (Russia).