Valmet Corporation (Valmet Oy)

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Valmet Corporation (Valmet Oy)

Punanotkonkatu 2
Post Office Box 155
00131 Helsinki
Finland
(90) 13291

Fax: (90) 179677

Public Company
Incorporated: 1950
Employees: 19,203
Sales: Fmk10.03 billion (US$2.48 billion)
Stock Exchange: Helsinki

Valmet Oy, known as Valmet Corporation in English-speaking countries, is an industrial corporation, manufacturing heavy machinery and electronic control apparatus. The company is a multidivisional group, with many subsidiary companies. Its main products are paper-making machinery, in which it is a world leader; transport machinery, mainly equipment for handling containers in harbors; control systems for industrial processes with the emphasis on the paper industry; and agricultural and forest tractors and related equipment. The corporation is also active in airplane manufacturing, although on a modest scale.

After World War I, the Finnish government found it feasible to open industrial plants to make arms for the national defense forces. These factories—an airplane factory, a rifle factory, and a factory for manufacturing artillery guns—were run by separate boards of directors, each responsible to the Ministry of Defense. The factories’ output was dependent on the national budget, and all orders for production came from the Ministry of Defense within the framework of the budget, decided by the national diet.

When the war between Finland and the Soviet Union ended in September 1944, the Finnish army had to be demobilized and all orders for arms from the arms factories were canceled. The defense factories found themselves in difficulties, as they were ordered to maintain their levels of employment and find new products to manufacture. The first solution to this almost impossible situation came from the articles of armistice which demanded that Finland deliver goods to the Soviet Union as war reparations. Finnish industries were obliged to fulfil this obligation, as were the government-owned arms factories. These factories were consequently transferred from the Ministry of Defense to the Ministry of Trade and Industry. At the same time, two small navy repair yards were transferred. It was apparent that the organization of the factories had to change. A law was passed, giving special status to the corporation about to be formed, as a compromise between a limited company and a state office. The new organization was named the State Metal Works (in Finnish shortened to VMT). Its governing bodies consisted of a large supervisory board, composed mainly of politicians, and a board of directors, consisting of executives from within the corporation. Lieutenant General Leonard Grandell, formerly an experienced officer in the General Staff, was temporarily nominated chairman of the board and chief executive officer. The final choice of chief executive officer was Yrjo Vesa, then deputy managing director of one of Finland’s major enterprises in the shipbuilding and machinery industry, the Wartsila group. On February 15, 1947, he was appointed chairman and chief executive officer of VMT.

VMT was assigned a large part of the war reparation program, mainly machinery that could not be supplied by existing private industries. The airplane factory had a particularly large engineering staff, as it had been producing airplanes of its own design. This engineering talent was utilized for the design of many of the items demanded by the Soviets. However, very few of the items included in the reparations program were suited for the commercial market.

Experience soon showed that the form under which VMT operated was not flexible enough for commercial transactions. The Finnish government had to present to the parliament a bill requesting that the group be made a joint stock limited company. The articles of association were approved on November 15, 1950. The name Valmet Oy (Valmet Corporation) was given to the new company. The shares were held by the state, represented by the Ministry of Trade and Industry. The share capital was Fmk 1 billion.

Much of the structure of the old defense works was retained in the organization of the new corporation. The army and navy officers who had been in charge of the different factories remained and were nominated managing directors of divisions within the group.

The most important task was to find products suitable for the different divisions and with good sales potential. After experimenting with many different products, Rautpohja Works, the former artillery gun factory, developed skills in paper-making-machinery production and dropped most of its other activities. Those which were maintained included heavy plate work, such as sluice gates for hydroelectric power plants and overhead cranes. Tourula Factory, the former rifle factory, had problems in finding suitable items for its existing machinery. After trying out many kind of consumer goods, which were later abandoned, Tourula finally switched to agricultural-tractor production. Jyskä Factory, the former artillery ignition fuse factory, specialized in making tools, bolts, and nuts on its automatic lathes, previously used for ignition fuses. The manufacturing of kilowatt-hour meters was also introduced. The airplane factories continued on a decreased scale to manufacture training aircraft for the Finnish Air Force, but diversified into the production of diesel locomotives. The straddle carriers demanded by the Soviet Union as war reparation continued to be produced, initially for sale to the Soviet Union, which seemed to have a huge demand for this kind of carriers, used in sawmills. The company’s aeronautical expertise turned out to have other applications, and a department was created to supply equipment for industrial and office air conditioning. The instrument department of the airplane factory developed gradually into a versatile production unit for industrial control equipment.

The shipyards had more problems because they were equipped only for small ships, as included in the war reparation program. Gradually, standard ships for the maritime market were included in the program, but the size of the building beds was a limiting factor. The Soviet Union remained by far the biggest market for the yards.

In 1953, financial problems started to haunt the newly founded company. To find solutions, the advisory board nominated a committee to study the situation, later to be followed by a state committee, nominated by parliament. The recommendations of this committee included a total reconstruction of the company and a change of top management. It was found that the company was under pressure from heavy debts, coming from overvaluing on their books the material inherited from the former defense factories, from selling ships at a loss to the Soviet Union, and from the excessive overhead costs of the organization. As a result of the need to strengthen the financial base of the company, the Bank of Finland and the National Pension Fund joined the company as minority share-holders.

In the spring of 1954, the chief executive, Yrjö Vesa, was released from his position as were the divisional managing directors. All industrial divisions were to report directly to the new chief executive officer. In July of the same year an elderly industrialist, Baron G.W. Wrede, was nominated chief executive officer of Valmet. Even though his time with Valmet was short—he died on February 17, 1958—he and his staff managed to change the company into a commercially viable enterprise. During this time, the main operational divisions were established at the various factories.

After the death of Baron Wrede his deputy managing director, Aarne Härkönen, was nominated chief executive officer. The operation of Valmet continued along the lines already established. The paper-making-machinery division strengthened its position by extending its sales to China, Italy, Poland, and the Soviet Union in addition to the home market. Important features of the early days of the Valmet machines were the differential drives and pick-up presses, the first of their kind in Europe. The first agricultural tractors, developed in the early 1950s, were small machines of only 20 horsepower. In 1956 Valmet launched a standard size 33 horsepower diesel-powered tractor, which was well received in the domestic market. The airplane factory developed into a supplier of diesel locomotives for the Finnish railroads, and also maintained departments for industrial trucks, air conditioning, and instrumentation. The shipyards, mainly supplying the Soviet market, had problems. The crisis of the 1950s had made Valmet careful not to accept orders at loss prices, and although the Soviet orders were large, there were long discussions over pricing. The latter part of the 1950s left Valmet’s Helsinki yard without orders, simply because of disagreements on price. Fortunately for Valmet, the sudden boom in shipbuilding, caused by the Suez crisis in 1956, came to its rescue and the yards were kept open.

At the end of the 1950s, Valmet’s management decided that the company had to strengthen its main divisions in order to survive when free trade seemed to be the environment of the future. The Valmet paper machines had a good share of many markets, but U.S. manufacturers still seemed to have the upper hand. They sold their machines the world over, even to Finland, while Valmet had not yet managed to export to the United States. To penetrate the North American market, Valmet and Tampella, another Finnish company in the field of paper-making machines, combined their efforts. The contracts for joint deliveries to two big companies, Boise Cascade in Louisiana and Eurocan in British Colombia, were the starting points.

After years of intensive marketing, Valmet became a worldwide market leader in paper-making machines. Many companies in the industry in other countries were assimilated into the Valmet group during this process. Another reason for the success was Valmet’s research-and-development activity within this division. The company managed to invent new and superior products, such as new headbox and former designs. Its superior manufacturing techniques, which had already advanced in the artillery gun factory before Valmet was formed, also contributed to its success. Valmet developed a new material for suction rolls as well as a revolutionary machine for drilling the many holes required for these rolls.

Agricultural tractor production caused problems for Valmet as the market only consisted of the Finnish farming industry, and even there competition from major international competitors was fierce. Valmet had to find export markets or other means of increasing the weight of the division. As Valmet had experienced some success in exporting tractors to Brazil, the company found it advisable to enter that country as a locally based manufacturer to reinforce its position there. Thus Valmet do Brasil was established in 1960. Soon it developed into the second largest tractor factory in Latin America. Valmet was inspired by this success to try its luck in other markets. The most important step came in the 1970s when Valmet reached an agreement with the Swedish company Volvo to combine the efforts of the two companies in manufacturing agricultural tractors, leading eventually to Valmet’s becoming the sole manufacturer of tractors in Scandinavia.

The airplane factory in Tampere, which had gradually developed into a diesel locomotive factory, was continuing to change shape. After the electrification of the Finnish state railroads had begun, locomotive manufacturing decreased. The making of equipment for increasing international container traffic became more important. By skilful development of harbor transport and loading equipment, based on the old straddle carriers for sawn timber developed for the Soviet war reparations, Valmet became world leader in the modern business of large-container moving machinery. Only Japanese companies in the Far East have been able to challenge Valmet in this field.

The airplane factory in Tampere never ceased completely its original business of building airplanes, but it changed its mode of operation. In 1958 the decision to equip the Finnish air forces with French jet trainers of the Fouga Magister type led to a long period of employment for Valmet’s skilled workmen, building the planes under French license. Most of the airplane production was transferred to the Kuorevesi Factory. The little factory, established during World War II and hidden among dense Finnish forests, far from any city, thrived again. When the Fouga planes were built, the activity continued as Swedish Draken fighters and later English Hawk fighter trainers were assembled. The name of the Kuorevesi Factory was consequently changed to the Valmet Airplane Factory, and the old airplane factory in Tampere was renamed Valmet Tampere Works.

The instrument department of the Tampere Airplane Factory had been developed gradually into a versatile unit manufacturing control equipment for process industries. In 1973, the division received a new factory building in the vicinity of the Tampere Works and was renamed Valmet Instrument Factory, having an independent status equal to other divisions within the Valmet group. The factory had a prominent position as designer and supplier of pneumatic process control equipment. Its main customers were paper and pulp mills and power plants but other types of industry were also served. When electronics replaced the pneumatic control systems, Valmet gradually adapted its systems accordingly.

The shipyards had already been a major cause of financial problems for Valmet. In the early 1960s, Valmet’s top management found that new problems were looming around the corner. The orders for the Soviet Union were unprofitable, and Hárkónen, then president and chief executive officer, presented to the supervisory board a plan to cut down on Valmet’s shipbuilding activities. It was based on the fact that Helsinki was a harbor, providing considerable ship repair work for a yard. However, maintaining a yard for repair without new building was not feasible. Repair work was not a steady flow, and new work evened out the flow of work. Therefore it was decided to concentrate all Valmet’s shipbuilding activities in Helsinki and devote the Pansio Yard in Turku to other activities. Meanwhile, the Tampere Works had a problem in not having sufficient space available for its air conditioning activities. These were now transferred to Pansio. The former yard was thus divided into two units: a factory, fully specialized in industrial as well as office-building air conditioning, and a heavy steel manufacturing unit, making steel building frames and bridges as well as assisting the shipbuilding division. The structural change was intended to stop losses in Valmet’s shipbuilding division and allow possibilities for growth in other, more promising lines of activity.

Aarne Härkönen, president and chief executive officer of Valmet, died on October 19, 1964. Olavi J. Mattila, then secretary of state for trade policy in the Ministry of Foreign Affairs, was nominated chief executive officer. His term was to start at the beginning of 1965. Under his leadership, the structural changes at Valmet continued. The group was to consist of the following independently led divisions, which eventually became separate subsidiary companies: Valmet Paper Machinery; Valmet Tractors; Valmet do Brasil; Valmet Transportation Equipment; Valmet Instruments; Valmet Defence Equipment, later renamed Valmet Aviation Industries after other defense articles, such as assault rifles, were transferred to another company, in which Valmet did not have a majority holding; and Valmet Shipbuilding.

Valmet Shipbuilding was re-established with the construction of a large modern shipyard unit in Vuosaari, east of Helsinki. The new management did not accept the decision of its predecessors to cut down on shipbuilding and thus reversed the strategy. However, the large new Vuosaari shipyard, completed in 1974, was only temporary. In 1986, under new management, Valmet and the Finnish engineering company Wartsila, the largest shipbuilder in Finland, agreed to form two new companies: Valmet Paper Machinery Inc., in which Wartsila became a minority share-holder by transferring its paper manufacturing units to the new company, and Wartsila Marine Industries Inc., a shipbuilding company into which Valmet came as a minority share-holder, transferring its yards to the new company. Soon after the takeover, Wartsila Marine closed the Vuosaari yard, ending Valmet’s direct involvement in shipbuilding.

Valmet experienced another financial crisis in 1981. Mattila retired as chief executive officer and was replaced by Matti Kankaanpää, formerly managing director of Valmet Paper Machinery and, since 1980, of Valmet, under the leadership of Mattila as chairman. The crisis was solved by changes in structure and dropping of unprofitable divisions. The company concentrated on its main lines of activity, with emphasis on becoming leaders or at least prominent players in each of these fields of activity. This policy led to many acquisitions and in some cases to divestments.

To improve the public image of the company and erase the image of state-owned enterprise, Kankaanpää decided to make Valmet a public company by floating it on the Helsinki Stock Exchange. In late 1988 Valmet acquired nearly 10,000 new share-holders, many of them employees of Valmet.

Valmet’s history is an example of how a group of government utilities can be changed into a commercially viable public company. It also shows that such a transformation can bring many problems, and that these can be solved only by employing the best expertise available, both technical and administrative. During its transformation, the group underwent a complete change of market; from having been a supplier to the Finnish government, it became a producer of machinery for the Soviet Union and domestic Finnish industries, from which position it has now become truly international.