A new path
What Atlas Copco’s split means for its Japan operations
Text by David McNeill / Photos by Benjamin Parks
Text by David McNeill / Photos by Benjamin Parks
The image of old and new ground may be apt. In January, the venerable 144-year-old company announced it would be splitting: Atlas Copco will continue manufacturing industrial powertools, compressors and the vacuum pumps used to make semiconductors and smart devices; and a new independent company, called Epiroc — derived from the Greek words for ‘on’ and ‘rock’ — will focus on mining and excavation. Thomas Östergren, general manager of Atlas Copco Holding Japan, admits the move was unexpected.
“It was a surprise,” he said, speaking with Eurobiz Japan at the company’s factory in the suburbs of Yokohama. The plan, according to Östergren, is to legally split the firm’s business in Japan on 1 November and float Epiroc on the stock market next year, giving the new company its own business life and dedicated management.
“However, it makes good strategic sense,” he added. “The plans have also been well received by the stock market.”
Atlas Copco is now among the top five highest-valued companies on the Swedish stock exchange, higher than well-known Swedish companies such as H&M, Ericsson and Volvo Group.
“The rationalisation for creating Epiroc is that it represents around 30% of the business group,” he added. As the group expanded, parts of the empire may not have received the attention they deserved. But, by dividing the company in two, Östergren said, “both will be more appreciated”.
Atlas Copco is an industrial behemoth, with 45,000 employees worldwide, roughly the same market value as Nissan Motor, and annual sales of 100 billion Swedish krona (€10.5 billion). Between 2009 and 2017 the company’s capitalisation grew by a factor of four.
“Even in 2009 after the global financial crisis, we had operating profits of 14%, which is a level where our competitors hope to be in the good times,” said Östergren.
Since setting up in the Japanese market in 1979, Atlas Copco has grown into a formidable presence here, with almost 900 workers and several acquisitions that have given it leverage in a country with a reputation for being tough on outsiders.
“Our business model is that once we reach a critical mass with volume, we set up our own sales company,” explained Östergren. “We operated as a sales company from 1986 and then took over this factory in 2004, integrating it into Atlas Copco.”
The Yokohama plant makes hydraulic drilling rigs used to bore holes into granite. It is one of the company’s four main plants — the others being in Sweden, China and India — that are manufacturing these rigs for customers worldwide.
“But productivity levels and quality here are the best in the group,” noted Östergren.
General Manager Matsumi Higashida added: “Japanese standards of quality are what keep the manufacturing operation in Yokohama going, and ensure an excellent reputation for our products around the world. If it was just about cost, we should move to China or India.”
Mining is a tough business at the best of times and has been hit by a recent fall in global commodity prices — and Japan has few mines, Östergren pointed out. But what it has, he said, is the need for tunnels, and lots of construction — including an $8 billion project to build seawalls along the ruined northeast coast. In any case, 70% of Atlas Copco Japan’s rigs are destined for Yokohama Port and, from there, markets abroad.
The business split will give both companies the chance to focus on their strengths.
“We hope to double the size of Epiroc in three to five years,” said General Manager Tahei Kitaoka. “And we are confident that this new structure will help us to make decisions more quickly, and respond even more effectively to the diverse needs of our clients. We will be investing heavily in innovation so we are ready to respond to the future needs of the market.”
Higashida added: “We are a manufacturer with deep roots in Japan, which means Epiroc will have the same high level of familiarity with the domestic market from day one.”
So, what does the split mean for Japan? For now, very little, it seems. Atlas Copco Holding Japan will continue to handle the group’s other areas of business while the new company is given wings.
“The expression we use is that the company will be ‘dividended’ out to the shareholders, which means that shareholders of Atlas Group will get a share in Epiroc,” said Östergren. So, from flotation, it will be the same investors.
“It’s the same product, the same customers, the same business — nothing changes,” concluded Kitaoka. “Our mission is to pass on the legacy of this company to the next generation.”
Östergren agreed, but added a caveat. “Operationally, things stay the same, but Higashida-san and Kitaoka-san will take over legal responsibility.”
The message from headquarters in Sweden, Östergren added, is that by splitting Atlas Copco, “both parts will have a better environment for growth.” As the sprawling group has expanded, “the thinking was that this particular area does not get the right attention from a governance point of view, so perhaps it would be better for it to get its own life. And Mining and Excavation has fewer synergies or overlap with the rest of the Group.”
The new direction will take hard work, focus and patience, but then, Atlas Copco’s long history is proof that the company is determined to see its name endure. After all, not every firm has a dinosaur species named after it. Atlascopcosaurus loadsi was dug out of layers of sand, mud and clay, compacted into rock over millions of years, on the southeast coast of Australia in 1984. Bill Loads, Atlas Copco’s manager in Victoria, lent the company’s drilling tools to the excavation project and assisted during the dig. Now that’s immortality. •