Incorporated: 1910
NAIC: 333921 Elevator and Moving Stairway Manufacturing
KONE Corporation is the world's fourth largest elevator company. It provides installation, modernization, and maintenance of elevators, escalators, and automatic doors. The company operates approximately 800 service centers in 40 countries across the globe and its customers include builders and building owners, designers, and architects. During 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 Corporation remained in control of the company's container and load handling operations. The transition was complete in June 2005 when both companies were listed as separate entities on the Helsinki Stock Exchange. KONE Corporation is led by President Matti Alahuhta; the founding Herlin family is represented by Chairman Antti Herlin.
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 World War I, 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 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 that 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. World War II, 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 Hyvinkaa, 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.
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. 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 Hyvinkaa. 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 brand names such 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--adding 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.
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 Exchange 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.
The company also entered into a partnership with Toshiba Elevators and 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 rights to manufacture and market elevators using KONE's state-of-the-art MonoSpace technology in Japan. During 2002, KONE invested EUR 158 million in Toshiba Elevators, securing a 19.9 percent stake in the company.
KONE also remained active on the acquisition front. It purchased Gustav Ad. Koch Maschinenfabrik KG and L. Hopmann Maschinenfabrik, two German elevator companies; London-based Cable Lift Installations; the United Kingdom's Chiltern Industrial Doors; and Neuwerth & Cie, an elevator concern based in Switzerland.
As demand in the elevator industry leveled off in the early years of the new millennium, KONE looked for ways to increase sales and profits. It began to focus on bolstering its automatic building door business as well as its materials handling operations. As part of this strategy, KONE bought Finnish engineering firm Partek. Partek's container handling, load handling, forest machinery, and tractor operations were added to KONE's Materials Handling division. KONE opted to focus on its container and load handling business in 2003, selling off the tractor and forest machinery businesses that year. The Materials Handling 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 handling 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 initiative that would significantly change the company's operating structure. In 2004, plans were set in motion to split KONE into two separately listed companies. KONE Corporation would continue to oversee the elevator, escalator, and building door services business while Cargotec Corporation remained in control of container and load handling operations. An April 2005 Hugin Press Release explained the strategy, claiming, "The objective of these developments is to increase customer focus, to become faster and better in responding to the differing needs of various market areas and to improve the productivity derived from common global functions and processes." The split was complete 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 Soolim Elevator Co. of Korea and China's Zhejiang Giant Elevator. On the product development front, the company launched a new systems platform, the KONE Maxispace, which eliminated the need for counterweights. In 2001, KONE teamed up with Nokia to develop wireless voice and data 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 largest elevator company in the world during 2005. The global elevator and escalator market--worth nearly EUR 30 billion a year--included the sale and installation of new equipment, maintenance, and the repair and modernization of old systems. The automatic door maintenance market was estimated to be worth EUR 5 billion. KONE continued to develop strategies to capture additional market share and appeared to be on track for success in the future.
Principal Competitors
Otis Elevator Company, Inc.; Schindler Holding Ltd.; ThyssenKrupp AG.
Further Reading
Burt, Tim, "Kone, Toshiba Expect Significant Lift from Alliance," Financial Post, May 28, 1998.
Frank, Jerry, "The Marriage of Kone Corp and MacGregor," Lloyd's List, December 3, 2004.
"KONE Announces Organizational Changes," Hugin Press Release, June 1, 2005.
"KONE Corporation Completes Demerger into Two Separate Companies," Nordic Business Report, June 1, 2005.
"Matti Alahuhta Named President of KONE," Hugin Press Release, November 22, 2004.
"Nokia and KONE Team to Extend Wireless Technology to Elevators and Escalators," Telecomworldwire, May 16, 2001, p. 1.
O'Mahony, Hugh, "Kone Buy-Out of MacGregor Aims to Raise the Stakes in the Elevator Market," Lloyd's List, May 10, 2005.
Simon, John B. (ed.), "Special History Issue," New and Views In-house Magazine, Helsinki: KONE Corporation, 1998.
— M.L. Cohen; Updated by Christina M. Stansell
