Alfa Laval AB - Overcoming Competition: 1890s–Early 1900s

Overcoming Competition: 1890s–Early 1900s

More Swedish companies began to establish themselves in the home market when de Laval's patent ran out shortly after 1890. A new wave of patent registrations took place in the international market in the following decade, but these new entrants to the market produced manual cream separators.

In the mid-1890s, ABS diversified further by constructing industrial separators. The principle of centrifugal force was thus applied to a higher level of technology. At the same time, ABS diversified into technically simpler manual cream separators. Lower prices for these products ensured them a far wider market than that for power-driven separators.

By 1898, there were 35 plants worldwide manufacturing separators. Newcomers gained entry to the market by producing manual cream separators, which were not only less resource-intensive but also had a far larger market than the power-driven variety. Of the companies established after Burmeister & Wain, Lefeldt, and Fesca, the most prominent were Sharples in the United States, Mélotte in Belgium, Josef Meys in Germany, Edmond Garin in France, and Svenska Centrifug in Sweden.

The most threatening rival to the Alfa system was the Belgian Mélotte patent. ABS acquired U.S. exploitation rights for this patent but never made use of those rights; this greatly benefited the sales of its own system in the United States. In Europe, however, the Mélotte system was a major competitor.

Company Perspectives:

Alfa Laval's daily work is inspired by constant effort to increase added value for customers. Satisfied customers create a company with competitive, continuous value growth for shareholders. Alfa Laval's four business principles include: optimizing the use of natural resources is our business; respect for human rights is fundamental; high ethical standards guide our conduct; and our commitment to open dialogue builds trust.

After 1903, there came a wave of new companies worldwide that exploited the expired Alfa patent. With only a few exceptions, entry to the market for the new companies was secured via manual cream separators. By 1906, ABS was competing with 50 companies in the German market. By 1912, there were 135 firms operating in the international market, 70 of them in Germany and 16 in Sweden. The most important of these were AB Pumpseparator and AB Baltic in Sweden, ABS's former agents Bergedorfer Eisenwerk—which became a major competitor in 1904—Miele & Cie. and Westfalia in Germany, and A/S Titan in Denmark. These were mostly companies that had moved into separators after establishing themselves in other branches of engineering production.

In Stockholm, news had been received of impending bankruptcy at ABS's competitor Svenska Centrifug AB. ABS's management persuaded several major Centrifug stockholders to exchange their shares at above-par rate for Alfa shares. In 1905, a majority stake was taken in Centrifug, including its subsidiary, Gloria Separator GmbH Berlin. The next competitor to be bought by ABS was one of the most important dairy machine plants in Germany and one of the largest in Europe in the early 1900s, the Bergedorfer Eisenwerk. As in the case of Svenska Centrifug, the financial position of the enterprise was too weak for the owner Carl Bergner to demand better sales terms let alone fight a takeover bid.

The last big competitor to be bought before World War I was Burmeister & Wain, in 1910. This firm, at the time equal in reputation to ABS, and financed with capital from its U.S. subsidiary, had been bought for SEK 1.8 million so that it could be closed down; it would not have contributed anything new to ABS's existing business.

During the period 1905 to 1910, when ABS began to take over competitors, it had at its disposal sufficient capital to act without endangering its own liquidity. During the 25 years between the foundation of its first overseas subsidiary in the United States in 1883 and the takeover of Bergedorfer Eisenwerk in 1907, more than SEK 100 million had flowed into the coffers of the parent company in Stockholm.

The profits of the U.S. subsidiary company, transferred between 1895 and 1914, amounted to about SEK 46 million. This sum provided the stockholders' dividend, so that ABS could use the net consolidated profit of the whole company for reinvestment.

Production and organization techniques were also transferred from the U.S. subsidiary to the parent company and its European subsidiaries. In this way, ABS secured advantages of scale in the international separator market. Already in 1892, the U.S. subsidiary, the De Laval Cream Separator Company (Lavalco), was buying out all the U.S. shareholders and had built a new factory at Poughkeepsie, New York. This factory was highly profitable. In 1895, Francis Arend became managing director of Lavalco. The company had branches in Philadelphia and Chicago, as well as a subsidiary in San Francisco. A branch office opened in Canada in 1899 and became a subsidiary in 1912 under the name of the De Laval Dairy Supply Company. In 1899, the Swedish ABS participated in the formation of the De Laval Steam Turbine Company in the United States by contributing $240,000. In 1908, Gustaf de Laval left the ABS board of directors. He died five years later at the age of 67. In 1911, new subsidiaries were formed in Milan and Riga.