The Swedish Engineering Industry

The engineering industry is Sweden's largest manufacturing sector. Its 1995 preliminary sales value amounted to SEK 450 bn, equivalent to about two-fifths of Swedish industrial output.

This sector of manufacturing has grown faster than any other in Sweden. In the past twenty years its production has increased nearly fourfold. In 1900 it accounted for 9% of industrial output, in 1945 for 23% and in 1994 for 43%.

The engineering industry has five main sub-sectors— manufacturers of metal products, mechanical engineering, electrical engineering, transport equipment and instruments.

While Swedish engineering products have gained a reputation for precision, efficiency and durability, the plants are seldom outstanding with regard to output. The engineering industry is concentrated in the metropolitan areas of Stockholm, Göteborg and Malmö.

Engineering in Sweden, as in other highly industrialized countries, is largely composed of small and medium-sized enterprises. Companies with 1,000 workers or more represent 1.5% of the total number of companies but 43% of employment.

Employment
Persons employed in the engineering industry now number about 350,000 or some 50% of total employment in manufacturing and mining.

For many years the number of salaried employees has increased much faster than that of blue-collar workers. This trend has been evident in all branches of Swedish industry but is especially marked in the engineering industry which needs a relatively large proportion of technicians for research, design and planning. Today salaried employees make up about 40% of the work-force employed by the metalworking industry, a ratio that reflects the major role played by research and development.

Foreign trade
The Swedish engineering industry is highly dependent on trade with other countries. Two-thirds of its output is exported, and half of Sweden's export of goods consists of engineering products. Many Swedish companies have established subsidiaries abroad.

Exports include ball bearings, telephones and telephone exchanges, steam turbines, electrical equipment, pneumatic rock drills, automatic lighthouses, locomotives and other rolling stock, engines, cream and oil separators, refrigerators, sewing machines, sporting rifles, machine tools; and equipment for the forest product, match, tobacco and other industries. Swedish car manufacturers, for instance, export about 75% of their production. The ten largest engineering companies export on average 85% of total sales. Exports are distributed all over the world but the highly industrialized Western countries are the leading customers, accounting for approximately 75% of the total.

Engineering products also hold a prominent place in Sweden's imports. In recent years they have constituted nearly half of the country's purchases abroad, imports being more diversified than exports.

A quality industry
Easy access to high-quality iron and steel contributed greatly to the development of Swedish engineering. In fact, the old traditions of ironmaking and the ready availability of high-grade steel were the main factors that enabled Sweden to build up an engineering industry that could successfully compete with manufacturers abroad. Since the beginning of this century many engineering products have become internationally known as “Swedish” specialities.

Many of the engineering firms are based in part on inventions or improvements made by Swedish engineers. Noted inventors included Gustaf de Laval (1845–1913), who designed a new kind of steam turbine and later revolutionized the dairy industry with his centrifugal cream separator; L.M. Ericsson (1846–1926), a name well-known in the field of telecommunications; Jonas Wenström (1855– 93), one of the inventors of the three-phase alternating current system, the basis of long-distance transmission of electricity; Carl Edvard Johansson (1864–1943), who created precision gauges which became indispensable in machine plants and gained extensive application in American motor production; Gustaf Dalén (1869–1937), who in 1912 was awarded the Nobel Prize in physics for his automatic beacons and lightbuoys; and Sven Wingquist (1876–1953), whose principal contribution was the self-aligning ball bearing.

Specialization and collaboration
The Swedish engineering industry is making constant efforts to achieve ever greater efficiency. Production methods must be improved and new products developed in order to ensure continued success both on the domestic and export markets. Large sums are spent every year on research, development and training. Such activities have in fact become the leading investment item. In 1990 the R&D investment was 9% of total added value. This means that the engineering industry accounts for 60% of the R&D costs in Sweden's manufacturing sector.

The time is past when diversification was regarded as a virtue, and today the industry is well aware of the advantages of advanced specialization. Many firms have sharply curtailed their product range and concentrate on more specialized production. Increasing competition both at home and in foreign markets has also caused companies to cooperate on a widening scale. Technical research may, for instance, be financed on a joint basis, and joint marketing programs may be launched. Many agreements in the engineering industry aim primarily at facilitating specialization.

An important factor in the development toward greater specialization is the system of subcontracting, that is, the sale of parts and components to factories making the finished products. About 25% of the engineering industry's present output consists of products intended for further processing.

Electrical engineering and electronics
Sweden's electrical engineering and electronics industry accounts for only 9.1% of the total output of the manufacturing industry. For 1994 the sales value of this whole sector's production was USD 10.8 bn, with exports accounting for approximately 70% of this total. The number of employees was 54,800.

These figures show a high-quality and highly specialized branch of manufacturing where the heavy electrical industry dominates, yet where sophisticated electronics in various forms are becoming more and more evident.

The most important product groups are telecommunications products and telephone systems, electric generators, transmission equipment and electric appliances for industry, including automation products, computer hardware and software, military and space electronics, domestic appliances, electrical consumer goods such as TV and stereo sets, and electric and electronic components.

Power engineering
The development toward a high-technology society is particularly noticeable in electrical engineering and electronics; as such it is probably unique for a country with only 8.8 million inhabitants. The explanation is to be sought in Sweden's geography and special natural resources and in the social and political circumstances.

In the past Sweden was fortunate in having access to cheap electric power. The abundant waterfalls in the north have been gradually harnessed by hydroelectric power plants which furnish the country with electricity throughout the 1,600 km of its length. This led at an early stage to domestic manufacture of items such as turbines and generators; the Swedish firm ABB Stal is known the world over for its products in these fields.

However, the long distances over which electric power must be transported to reach the majority of private and industrial consumers in central and southern Sweden necessitated the birth of a new technology. No one had ever transmitted high-voltage current from such remote sources. It was here that the Swedish company ASEA AB came to render a pioneering achievement, which later also led to successes abroad; in 1952, ASEA unveiled the world's first power transmission system for 400,000 volts. Since then this same company has developed systems for transmitting twice this voltage as well as sophisticated equipment for power generation based on water, uranium, wind, gas, coal, etc.

Teletechnology and electronics
Gradually, power engineering has become more and more sophisticated, at the same time as voltages and energy requirements have increased.

This sophistication has been carried to even greater lengths in electronics and teletechnology. Swedish telephone usage per capita ranks among the highest in the world. In terms of technological advance, Sweden is holding its own extremely well internationally, primarily because of more than a hundred years of experience as a manufacturer of products for telecommunications.

In 1876, the same year that the American Alexander Graham Bell invented his first telephone, Sweden's Lars Magnus Ericsson set up a workshop for repairing telegraph equipment. A few years later, he embarked on the production of an improved telephone, and in 1892, he presented the world's first table model with a handset. Since then Swedish telephone engineering has spread globally through Telefonaktiebolaget LM Ericsson and its subsidiaries, now known as the Ericsson Group.

In the 1950s, this company unveiled the world's first crossbar telephone exchange system outside the U.S. Twenty-five years later, the Ericsson Group introduced onto the world market the first advanced computer-controlled telephone switching system—the AXE electronic telephone exchange system, developed in cooperation with the National Telecommunications Administration. Today it is used for wire and mobile telephony, telex and data switching in about sixty countries.

The Ericsson Group has also formed a subsidiary, Ericsson Information Systems, in the field of office automation, and in the future, laser technique, may be used for commercial transmission purposes. During the past five years the Group's telecommunications performance has been exceptional. Ericsson's success in the mobile telecommunication area is remarkable. Total production volume for Swedish telecommunication increased by 258% between 1900 and 1995. In the OECD area this expansion rate can only be matched by the Finnish telecommunications industry.

Other developments worth noting in the partnership with the other Nordic countries are the installation of a public computer network for data communications and a network for mobile telephones, both of which are the first of their kind in Europe. Swedish use of computers is believed to be the highest in Western Europe per capita, with 36 network terminating points per 1,000 people at work.

Sweden also has its own computer industry, which has made an international impact in special-purpose hardware.

The medical manufacturing firm Gambro (part of Cardo) presents an interesting example of how electronics can be used in products for medical care. Since 1965 this company has grown into a USD 1.1 bn company selling such products as dialysis units, heart-lung machines, respirators, etc., all over the world.

Structure
The Swedish electrical engineering and electronics industry is dominated by a few large, internationally-known firms that operate globally. They are still fairly small compared with, say, American enterprises. Even so, it should be pointed out that of the six largest manufacturing firms in Sweden, three are active in the fields of electrical engineering and electronics.

In 1988 ASEA merged with the Swiss company Brown Boveri to form Asea Brown Boveri, ABB. ABB is an electrical engineering group with global operations, active within a large number of fields primarily associated with the generation, transmission, distribution and the efficient use of electrical power. ABB is also a world leader in such product areas as process automation, robotics, industrial drives, environmental control and, through its 50% ownership of ABB Daimler-Benz Transportation Ltd, Adtranz, total rail systems. The ABB Group comprises 1,000 companies in 140 countries. In 1995 the Group had some 210,000 employees and revenues of over USD 34 bn.

Asea Brown Boveri AB, with headquarters in Västerås, is the Parent Company of the Swedish part of the ABB Group. With 27,500 employees, revenues of over SEK 40 bn in 1995, 100 companies and operations in over 200 locations, ABB is one of Sweden´s largest engineering enterprises and the country´s leading electrical engineering group.

The Ericsson Group, which manufactures telecommunications systems, had revenues of USD 9.6 bn in 1995 and has about 85,000 employees, of whom 39,000 work abroad.

In addition, there are some foreign-owned companies which form part of worldwide enterprises. Many parent companies abroad, having opted for Sweden's high technology, have sited the manufacture of certain specialized products at their Swedish subsidiary plants. For example, the Swedish subsidiary of Whirlpool makes microwave ovens and Siemens-Elema manufactures medical equipment.

However, our picture of the Swedish electrical engineering and electronics industry would be far from complete if we failed to mention the great many medium-sized and small firms that usually go in for selective product lines and as such command specialized know-how. Because of their organizational flexibility and often unconventional working methods, these firms constitute an important complement to the business giants, both as subcontractors and as manufacturers of special products in short runs. Not least where electronics is concerned, quite a few firms have sprung up around new ideas that have paid handsome technical dividends.

Electronics industry
To safeguard its neutrality Sweden invests large sums in maintaining a national defense establishment. Since most of the necessary defense equipment is made domestically, the spin-off effect is at a very high level of know-how in such fields as military electronics. A typical example is the multi-role combat aircraft JAS 39 that is being built in Sweden. A large part of the costs incurred in building this plane is due to its exceedingly sophisticated and robust electronic components.

The step from exacting military electronics to even more exacting space electronics is a natural one for a high-technology society.

One big step into the space age was taken in 1986 when the first Swedish satellite, Viking, was launched. It was a magnetospheric research satellite designed to measure electric and magnetic fields, waves, particles and ultraviolet emission from auroral forms.

Sweden is a member of the European Space Agency (ESA). Thanks to ESA, Swedish industry has been able to develop special antennas and generators, microwave transmitters, dataprocessing systems including onboard computers and telemetry, tracking and command systems.

Swedish specialization in electronics is also noticeable in the component sphere. Two companies, ASEA-Hafo AB and Ericsson Components AB, have for years been developing and manufacturing custom-designed integrated circuits which are used both in Sweden and abroad.

Sweden is a participant in a score of EUREKA projects, chiefly within the fields of information and communications technology and materials science. Volvo, Saab-Scania, Ericsson and Electrolux are some of the larger concerns represented in Swedish project leadership. Sweden is also represented by a greater proportion of small, high-technology companies than are other EUREKA countries.

In 1987 the Swedish Government decided to launch a national information technology program for the development of modern computers, communications, and control technology. Participants include ABB, Ericsson, Nobel Industries and Saab-Scania from the private industrial sector and from the public sector the Swedish Telecommunications Administration (now Telia), the Defense Materiel Administration, and the National Board for Technical Development.

Transport equipment
The geographic distribution of exports from the Swedish transport equipment industry is different from that of manufacturing as a whole. Its exports to the U.S. and Canada are large and its exports to Western Europe are smaller. The transport equipment industry is located primarily in southern and central Sweden.

Automotive industry
The Swedish automotive industry, a sub-sector of transportation equipment, mainly produces cars, trucks and buses. However, there is also production of automotive parts and accessories.

The Swedish automotive industry accounts for a relatively large proportion of value added in manufacturing as a whole: 10.1% in 1994. Among other major vehicle- producing countries, only Germany (the former West Germany) had an equally large proportion. In reality, however, the importance of the automotive industry is far greater than this percentage indicates. A large number of direct and indirect suppliers to the automotive industry belong to other economic sectors, both inside and outside of manufacturing.

Actual automotive production is dominated entirely by Volvo, Scania and Saab Automobile, which are among Sweden's largest companies. Volvo is Sweden's largest maker of cars, trucks and buses. However, the three companies are small in an international perspective and far down on the list of the world's automotive companies. Both Volvo and Scania have production plants in Sweden and abroad.

Until the late 1980s the Swedish automotive industry was entirely under domestic control. By the early 1990s some important changes had occurred. The carmaking operations of Saab-Scania—an automotive, aerospace and electronics group created by a 1969 merger—suffered acute problems in the late 1980s. In 1990 the company sold its car division to the newly established Saab Automobile, owned then in equal shares by Saab-Scania and American-based General Motors. In 1990 Volvo and the French state-owned company Renault signed a cooperation agreement concerning technical and industrial collaboration between the car and heavy vehicle divisions of the two companies, an agreement which was dissolved in 1994 when Swedish shareholders rejected a proposed Volvo-Renault merger.

In 1995 Saab-Scania was dissolved by its owner, the listed Swedish investment company Investor. Scania is now an independent heavy vehicle group, and Investor intends to introduce Scania on the Swedish stock market. Saab is now an independent aviation and electronics group owned by Investor. Investor has held new discussions with General Motors on the future of Saab Automobile, which has increasingly been integrated into GM's European carmaking operations, although Investor retains a 50% stake.

Car production
Sweden's share of global car production in 1994 was exactly 1.0%. However, output has grown very rapidly in recent decades. Only Japan showed faster growth in car production during the period 1950–1990. Since the mid- 1960s Sweden has been a net exporter of cars, and today 75% of output is exported.

Trucks and buses
Since World War II, Volvo Truck and Scania have specialized in heavy trucks. The relatively early construction of a Swedish domestic highway network and (in some respects) liberal road regulations have facilitated such specialization.

Today Scania's truck production consists entirely of the heavy category, while Volvo also makes medium-duty trucks. Both companies are among the world's leading manufacturers of heavy trucks. In 1994 they accounted for 20% of global production. Volvo alone (including White- GMC—see below) is the world's second-largest heavy truck builder. Between them, Volvo and Scania completely dominate the domestic heavy truck market and have very large exports, mainly to other parts of Western Europe and to developing countries. In Latin America, Scania and Volvo Truck have their own large-scale production of heavy trucks.

Sweden has been a net exporter of trucks during practically the entire postwar period. More than 90% of the vehicles produced are exported. In 1994 Swedish truck output was about 20,000 units, and production of buses about 4,500 units. Volvo and Scania production abroad is not included in these figures.

As in the car sub-sector, compared to major production countries, Sweden has experienced a relatively rapid increase in truck production since the early 1950s. Bus manufacturing operations have shown a similar trend. Here, too, Swedish manufacturers have concentrated on heavy diesel-powered vehicles with relatively large passenger capacities. Volvo and Scania are among the world's leading manufacturers in this field as well.

The aviation industry
The aviation industry consists of military and civilian sectors. In the former case, the customers are government agencies, while in the latter case they are airlines, whose operations are regulated by political decisions. This means that political factors play a major role for competition in this industry.

In aviation manufacturing, it is customary to distinguish among companies that

• build the actual aircraft fuselage and are responsible for development and final assembly (e.g. Saab AB)
• manufacture aircraft engines (e.g. Volvo Aero, aerospace unit of the Volvo Group)
• produce equipment for aircraft (e.g. the large telecommunications and electronics group)
• provide maintenance of finished aircraft (e.g. FFV Aerotech, a subsidiary of the state-dominated Celsius Group).

Other than the Netherlands and Israel, Sweden is the only “small” country that has built up its own aviation industry. One important reason for this is the prevailing economies of scale.

During the 1960s, Sweden's aviation industry introduced the JA 37 Viggen military aircraft, the outcome of the largest industrial R&D project to date in Sweden. The Viggen, a technologically advanced fighter jet, was test- flown for the first time in 1967 and went into series production not long afterwards.

The JAS 39 Gripen is a smaller aircraft than the Viggen. With half the weight, it can carry the same quantity of weapons and performs well in an international comparison. Its design, with fixed Delta wings behind movable canards, provides good take-off and landing characteristics. The aircraft has highly advanced electronic flight control systems and makes extensive use of composite materials.

In 1980 military operations accounted for more than 90% of sales of what was then known as the Aerospace Division of Saab-Scania. Today civilian aircraft represent more than half of Saab's aircraft operations. For the Swedish aviation industry as a whole, exports rose from just over 5% of sales value 1980 to nearly 48% in 1994.

Swedish industrial output by industry, 1994
Engineering 42.9%
Pulp and paper, wood 18.7%
Food 12.5%
Iron and steel industry 7.4%
Chemicals, rubber, plastics 9.8%
Textile industry 1.1 %
Mining 1.1%
Other 6.5%

Total engineering output by product group, 1994
Transport equipment 37.1%
Machinery 26.4%
Metalworking 10.7%
Electronics 19.7%
Instruments 6.1%

Swedish exports of engineering products by areas, 1994
(Total exports: SEK 244,6 bn)
EC 45.2%
EFTA 14.3%
Other industrial countries 19.9%
Others 20.6%

Swedish exports by product group, 1994
Engineering products 52.8%
Pulp and paper 12.3%
Chemical products 14.5%
Mining, steel, metals 8.4%
Timber products 6.5%
Other products 5.5%

Sweden's ten largest engineering companies, 1994

Manufacture of electrical engineering and electronic products in companies with more than 10 employees, 1994

Exports of electrical and electronics products, 1994

SEK1 (Swedish krona) = USD 0.15 or GBP 0.10 (average 1996)
bn = billion = 1,000 million Current Exchange

Published by the Swedish Institute, December 1996