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Saab-Scania Specializes in Transportation Technology

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Saab-Scania Specializes in Transportation Technology

LINKOPING, Sweden -- Unlike most conglomerates, which rely on diversification to shelter their earnings in a changing econ- omy, Saab-Scania AB is doing just the opposite. The Swedish industrial group has switched over to a policy of concentration and is specializing in what it calls "transport technology."

"This decision was not without inherent risks," said Georg Karnsund, Saab-Scania AB president. But, according to 1982 financial results, the gamble is paying off.

Sales grew 16 percent* to 18.7 billion Swedish Kironor ($3 billion) in 1982, and earnings rose 33 percent, despite a large increase in capital investments and development costs for future products.

Saab-Scania began its program of concentration in transpor- tation technology in 1979. Since then, profits before taxes and appropriations have risen from SKr. 465 million to SKr. 1.4 billion ($225 million), coupled with an improvement in pre- tax return on working capital from 10 percent to 14.5 percent.

At first glance, Saab-Scania does not look like a company with a policy of concentration. It produces passenger cars, trucks, buses, airplanes, satellites, missiles, and jet fighters. But closer analysis reveals that Saab-Scania has narrowly tar- geted its resources, aiming at clearly defined market segments within each of the group's areas of activity.

"The group is involved in a wide breadth of advanced trans- port technology," Karnsund said. "But within each division we concentrate only on products that make full use of our technical competence."

Saab-Scania has therefore chosen to concentrate on a sophis- ticated product range: The Saab Car Division specializes in high- performance cars; the Saab Aerospace Division in regional airliners and military production; the Scania Division in heavy-duty trucks and buses.

These choices have proven to be correct. Overall, the segments in which Saab-Scania competes have fared better than the economy as a whole. This is true not only of eYclusive cars and regional airliners, but of large, Class 8 trucks and of buses seating more than 30 passengers as well.

Karnsund shows that by concentrating, Saab-Scania has made virtue out of necessity. "Take for example the production of small cars," Karnsund said. "We decided to stop producing them because you have to produce about 250,000 units a year before you start making money. In order to sell that many cars, you need a big home market -- which we don't have in Sweden. Therefore we decided to concentrate on a more exclusive market segment, where we can compete and grow internationally."

Within its chosen market segments, Saab-Scania holds strong positions. The Saab Car Division, with a total 1983 production of about 100,000, is nonetheless Europe's largest maker of high- performance turbocharged automobiles and exports two thirds of - its production. The United States is the Saab Car Division's largest export market, with sales up over 50 percent through August of 1983.

The Scania Division builds Europe's most powerful long- haul trucks and exports 90 percent of production. Scania holds 15 percent of the world export market in its class.

In June 1983 Saab-Scania of America announced plans to manu- facture Scania transit buses in Orange, Connecticut. The first deliveries are expected for the second half of 1984.

International cooperation is another way that Saab-Scania AB makes most efficient use of its resources. "Development of a new aircraft usually takes years and billions of dollars," Karnsund said. "We pooled our resources and developed our regional airliner with a risk-sharing partner, Fairchild Industries of the United States. This allowed us to proceed at a stepped- up pace."

As a result, the Saab-Fairchild 340 made its maiden flight on January 25th, 1983, only three years to the day following the signing of the cooperative agreement with the American firm. "This put us at least six months ahead of our competition, and we now have a lead on the market," Karnsund said. Deliveries of the SF 340 begin in the spring of 1984.

"We are concentrating in products with a future," Karnsund said. "This means that our products have to be on the leading edge of technology and the sales organization responsive to the demands of the market."

In order to maintain the technical advantage of its products, Saab-Scania's investment level is high, in good times and in bad. "We view investments in production as long-term investments in marketing," Karnsund said. "By streamlining production, we are in effect making the product at a more competitive price."

Profitability improvements and new share issues have allowed Saab-Scania to implement extensive investments. Over the past five years, the company invested SKr. 4.3 billion in research and development and SKr. 3.7 billion in plant and equipment. These sums are equivalent to more than 10 percent of sales.

Saab-Scania AB is headquartered in Linkoping in southeastern Sweden. In the United States, Saab cars are imported by Saab- Scania of America, Inc., with headquarters in Orange, Connecticut.

*(All percentages relate to comparisons in Swedish Kronor.)

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