Kone Corporation Business Information, Profile, and History

Company Perspectives:

Over the years, KONE has proven its ability to adapt to a changing wo rld as well as to create new opportunities for the company to grow. S table ownership by four generations of the same family has created a strong and supportive environment for continuous development.

History of Kone Corporation

KONE Corporation is the world's fourth largest elevator company. It p rovides installation, modernization, and maintenance of elevators, es calators, and automatic doors. The company operates approximately 800 service centers in 40 countries across the globe and its customers i nclude builders and building owners, designers, and architects. Durin g 2004, KONE set plans in motion to split itself into two separately listed companies. KONE Corporation continued to oversee the elevator, escalator, and building door services business, and Cargotec Corpora tion remained in control of the company's container and load handling operations. The transition was complete in June 2005 when both compa nies were listed as separate entities on the Helsinki Stock Exchange. KONE Corporation is led by President Matti Alahuhta; the founding He rlin family is represented by Chairman 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 als o had developed an active business of refurbishing its used motors. R ather than develop sales of the rebuilt units under its own name, how ever, Strömberg sought a new brand name for its refurbished moto rs. In 1910 Strömberg incorporated its electric motor refurbishi ng arm as a separate company, dubbing the company simply "KONE" (Finn ish for "machine"). The KONE company began business as little more th an 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 ele vators itself, but instead acted as the Finnish licensee for Sweden's Graham Brothers, then the leading elevator manufacturer in Scandinav ia. In 1912, Lorenz Petrell, head of Strömberg's elevator activi ties, 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, installa tion, and other personnel, to KONE. For the time, KONE continued to r epresent the Graham elevator line.

For more than a century Finland had been dominated by its Russian nei ghbor, which had made the tiny country a Grand Duchy at the start of the 19th century. In the years leading to World War I, Finnish manufa cturers, including KONE, were called on to supply the Russian militar y effort. To meet production demands, KONE moved to larger Helsinki q uarters. The Russian Revolution that followed on the heels of World W ar I gave Finland the long sought opportunity to declare its independ ence.

KONE, too, had decided that the time was ripe for independence. In 19 18 the company ended its long-held licensing agreement with Graham Br others, and began producing its own elevators, installing its first f our elevators that same year. By then, the company had grown to 50 em ployees. The company's initial elevator experience was positive, prom pting the company to turn its focus to elevators in the early 1920s. By then, the company, still a subsidiary of Strömberg, was produ cing more than 100 elevators per year. The company's sales focus was wholly on the Finnish market, which only had begun to develop multist ory 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 Strömber g sell off its noncore businesses, including its KONE elevator divisi on. Herlin, who held an engineering background, himself offered to bu y KONE from Strömberg, an offer that was accepted. Herlin took t he position as KONE's chairman, while assuming the chairman and presi dent position of Strömberg as well. Lorenz Petrell, meanwhile, w as named as KONE's president. The pair set to work building the newly independent KONE into the country's leading elevator manufacturer, h iring 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 va riety of business interests, which extended into shipbuilding, utilit ies, and other construction, placed KONE in a strong position to furn ish the growing market for elevators. In 1927 KONE moved into new, fa r larger production facilities, after buying a former margarine facto ry. By the end of 1928 the company had produced more than 1,000 eleva tors. In that same year the next generation of Herlins joined the com pany. With an engineering degree from Helsinki University of Technolo gy, Heikki Herlin had spent four years working for Otis Elevator in t he United States and for Brown Boveri in Germany, before joining what would become the Herlin family company. As KONE faced the Great Depr ession, Lorenz Petrell retired and was replaced by Heikki Herlin.

The younger Herlin proved to be an impassioned leader, whose engineer ing background enabled him to become involved in all aspects of the c ompany. KONE, which had been struggling to compete against the higher technology of its foreign rivals, now began producing elevators agai n to meet international standards. The drop in elevator orders caused by the Depression economy paradoxically aided KONE in its technologi cal advancement effort. Forced to look elsewhere for sales in the ear ly 1930s, KONE saw an opportunity to move into the crane market, wher e it could easily adapt its elevator technology. At the same time KON E 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 bel t systems.

Elevator production once again picked up at the end of the decade, en abling the company to top more than 3,000 elevators sold. World War I I, and Finland's uncomfortable position, would interrupt KONE's eleva tor growth, as production was turned to supplying the country's effor t against the Soviet army. Heikki Herlin took over the chairmanship o f the company upon his father's death in 1941. Two years later KONE s tepped up its production of industrial cranes, opening a new producti on plant in Hyvinkaa, outside of Helsinki. Supplying the war effort r eplaced much of KONE's production, however, while the company would m aintain 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 repara tions bill. KONE's production was turned as well to this end, produci ng, 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. De spite receiving no profit from its production, which included 100 ele vators and close to 200 cranes, paid for by the Finnish government, K ONE found other benefits. For one, many of the elevators and cranes d emanded by the Soviets were of a larger design, featuring more advanc ed technology than KONE had been using. As the company adapted to the se requirements, it also was able to expand its production capacity, increasing not only the number of production units, but also their to nnage capacities. By the end of the 1940s, as reparations wound down, KONE had developed the technology to enter a new market, that of har bor cranes.

During the 1950s KONE continued to introduce new technology into its elevators, including automatic doors, hydraulic lifts, and advanced c ontrol features. The company also was growing into an important produ cer of cranes and hoists, as well as conveyor belts and other materia ls handling equipment technologies. A prime source of sales was Finla nd's dominant forestry and paper industries; in the 1960s KONE would increase its position in these industries with various lumber handlin g machinery. Yet elevators remained the company's core product; by th e 1960s, KONE, which had become the leading elevator supplier for Fin land, was finding little room for further domestic growth.

The arrival of the next generation of Herlins to the company's leader ship 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 com pany in 1958. Unlike his engineering-oriented father and grandfather, Pekka Herlin held a degree in economics. The younger Herlin would ch art a new course for the company: that of international growth. As su ch, KONE would become one of the first Finnish companies to eye inter national expansion, leaving the company with no predecessors upon whi ch to model its expansion.

In 1966 the company opened a new, state-of-the-art elevator productio n facility in Hyvinkaa. Then the company began looking for new market s, in particular, across the borders of its Scandinavian neighbors. I n 1968 KONE made its first acquisition, buying the elevator and escal ator business of Sweden's ASEA. The purchase of the larger, yet money -losing ASEA-Graham unit (which, incidentally, gave the company contr ol of its former supplier, Graham Brothers) catapulted KONE to the po sition of Scandinavian market leader. It would take six years for KON E to reverse its new subsidiary's losses. By then, however, the compa ny had continued to fuel its overseas expansion, acquiring elevator s ubsidiaries throughout Europe. In 1974 the company bought out the ent ire European elevator and escalator production of Westinghouse, doubl ing KONE's revenues.

By the mid-1970s KONE was producing elevators, escalators, and the ne w "autowalks" under brand names such as Graham, Hävemeier & Sander, Marryat & Scott, Armor, Sabiem, and Westinghouse, and the company featured production facilities in France, Germany, the Unite d Kingdom, Austria, Sweden, Norway, Denmark, Spain, and elsewhere in Europe. Pekka Herlin also would continue the company's product divers ification, adding electronic hospital and laboratory equipment, and e xpanding KONE's crane, harbor crane, and other materials handling bus inesses. Developing these activities led KONE into a new area, with t he 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 ot her materials for loading, unloading, and RoRo (rollin rollout) proce ssing--adding Navire and MacGregor established KONE as the world lead er in this category.

By the mid-1980s KONE had joined the ranks of the world's leading mat erials handling companies. Despite its diversification, KONE still re lied on its elevator and escalator businesses for more than 63 percen t of its sales, which continued to be heavily centered on Europe. The collapse of the worldwide building market, and the extensive economi c recession that would grip Europe through much of the 1990s, would f orce 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 bul k handling businesses, which were sold off in 1986. KONE would jettis on its wood handling arm in 1994, selling its KONE Wood division to A ustria's Andritz AG in 1994. Next, the company's cargo access wing, M acGregor-Navire, was sold to Incentive Group, based in Sweden, in 199 3. The company's crane production subsidiaries were incorporated as a separate company, sold to Sweden's Industri Kapital, and then introd uced as a public company on the Helsinki Stock Exchange as KCI KONEcr anes International. Finally, the division grouping the company's high -tech analyzers, monitors, and other hospital and laboratory equipmen t businesses was spun off through a management buyout and reformed as KONE Instruments in 1995. In turn, KONE moved to reinforce its escal ator arm, acquiring Montgomery Elevator Company, then the United Stat es' fourth largest elevator and escalator company, which also gave KO NE a major boost into the North American market. With the addition of 100 percent control of Germany's O&K Rolltreppen in 1996, KONE e merged firmly as the world's leading escalator and autowalk supplier.

The newly streamlined KONE had not finished its restructuring. Throug hout its 20-year acquisition and development drive, KONE had maintain ed a hands-off policy on its new subsidiaries. The result was a colle ction of independently operating subsidiaries, each with its own cult ure, products, brand names, and production methods. In the 1990s KONE at last took steps to create a single corporate culture, enforcing t he KONE brand name on a new generation of modular products. The compa ny's push to restructure and homogenize its operations would be cappe d by the 1996 introduction of its Monospace elevator design. Hailed a s revolutionary by the industry, the Monospace eliminated the need fo r a dedicated wheelhouse for the elevator's machinery, cutting its co st and reducing its energy requirements.

While building its new corporate culture, KONE also had been developi ng a new market area designed to complement its elevator and escalato r core operations, as well as bridge that business's inherently seaso nal, cyclical nature. In a program started during the 1980s KONE buil t a new maintenance services group, which during the 1990s would grow to become the company's strongest revenues provider. More than simpl y offering maintenance and repair services, KONE proposed a moderniza tion program, enabling customers to upgrade, rather than entirely rep lace, their elevator parks.

As the company developed its maintenance and modernization arm, reach ing more than 400,000 elevators under contract by 1998, the company's newly introduced Monospace design would help boost KONE's sales afte r years of a withering economic climate. KONE's strong push into the North American market promised to give the company greater balance du ring such economic cycles. Similarly, in the late 1990s KONE stepped up its efforts to expand into the developing Asian markets. Despite t he faltering economy of much of the region, beginning in 1997 KONE co ntinued to invest in production capacity, opening a new state-of-the- art production facility in Kunshan, China in October 1998.

The company also entered into a partnership with Toshiba Elevators an d Building System Corp. in 1998. KONE and Toshiba expected to capture nearly 14 percent of the world market as a result of the deal. This strategic alliance was strengthened in 2001 when Toshiba gained the r ights to manufacture and market elevators using KONE's state-of-the-a rt MonoSpace technology in Japan. During 2002, KONE invested EUR 158 million in Toshiba Elevators, securing a 19.9 percent stake in the co mpany.

KONE also remained active on the acquisition front. It purchased Gust av Ad. Koch Maschinenfabrik KG and L. Hopmann Maschinenfabrik, two Ge rman elevator companies; London-based Cable Lift Installations; the U nited Kingdom's Chiltern Industrial Doors; and Neuwerth & Cie, an elevator concern based in Switzerland.

Changes in the New Millennium

As demand in the elevator industry leveled off in the early years of the new millennium, KONE looked for ways to increase sales and profit s. It began to focus on bolstering its automatic building door busine ss as well as its materials handling operations. As part of this stra tegy, KONE bought Finnish engineering firm Partek. Partek's container handling, load handling, forest machinery, and tractor operations we re added to KONE's Materials Handling division. KONE opted to focus o n its container and load handling business in 2003, selling off the t ractor and forest machinery businesses that year. The Materials Handl ing division was renamed KONE Cargotec in January 2004. The division operated two main business segments: Kalmar and Hiab. Later that year KONE Cargotec spent EUR 186 million to acquire MacGregor, a cargo ha ndling specialist it previously owned.

Pekka Herlin died in 2003 and Antti Herlin assumed the chairmanship. Matti Alahuhta was slated to become KONE's president in January 2005. Under this management team's leadership, KONE launched a strategic i nitiative that would significantly change the company's operating str ucture. In 2004, plans were set in motion to split KONE into two sepa rately listed companies. KONE Corporation would continue to oversee t he elevator, escalator, and building door services business while Car gotec Corporation remained in control of container and load handling operations. An April 2005 Hugin Press Release explained the st rategy, claiming, "The objective of these developments is to increase customer focus, to become faster and better in responding to the dif fering needs of various market areas and to improve the productivity derived from common global functions and processes." The split was co mplete in June 2005 when Cargotec began trading on the Helsinki Stock Exchange.

During this transition, KONE was left to focus solely on its elevator -related operations. As such, the firm acquired Bharat Bijlee Ltd. of India and Thai Lift of Thailand. It also forged partnerships with So olim Elevator Co. of Korea and China's Zhejiang Giant Elevator. On th e product development front, the company launched a new systems platf orm, the KONE Maxispace, which eliminated the need for counterweights . In 2001, KONE teamed up with Nokia to develop wireless voice and da ta systems to be used to make its elevators and escalators safer and more reliable.

With 9 percent of the global market, KONE operated as the fourth larg est elevator company in the world during 2005. The global elevator an d escalator market--worth nearly EUR 30 billion a year--included the sale and installation of new equipment, maintenance, and the repair a nd modernization of old systems. The automatic door maintenance marke t was estimated to be worth EUR 5 billion. KONE continued to develop strategies to capture additional market share and appeared to be on t rack for success in the future.

Principal Competitors: Otis Elevator Company, Inc.; Schindler Holding Ltd.; ThyssenKrupp AG.

Chronology

• Key Dates:
• 1910: Strömberg incorporates its electric motor refurbish ing arm as a separate company, dubbing the company simply "KONE" (Fin nish for "machine").
• 1918: The company begins producing its own elevators.
• 1924: Harold Herlin buys KONE.
• 1966: The company opens a new, state-of-the-art elevator produ ction facility in Hyvinkaa.
• 1968: KONE acquires the elevator and escalator business of Swe den's ASEA.
• 1974: KONE buys the entire European elevator and escalator pro duction of Westinghouse.
• 1986: The conveyor and bulk handling businesses are sold.
• 1994: KONE's Wood division is sold to Austria's Andritz AG; th e company buys Montgomery Elevator Company.
• 1996: Germany's O&K Rolltreppen is purchased.
• 1998: The company begins its partnership with Toshiba.
• 2005: KONE is separated into two separate publicly listed comp anies: KONE Corporation and Cargotec Corporation.