MoDo in the Industrial Context

Based on Layton (1979) we can summarize the dominating forest-related technologies in northern Sweden at the 19th and 20th centuries.

As Fig. 1 shows, the first wave of importance to MoDo was the steam- based sawmilling. In the period 1869—1893, the value of sawmilling production increased more than 50% in Sweden, mainly in the northern parts of the country. As a result substantial fortunes were created, often controlled by single entrepreneurs (Glete, 1987; Myhrman, 1984; Schon, 2008). As the access of quality timber decreased and the techniques for pulp

Technology Waves in Northern Sweden 1700—1960. Source

Fig. 1. Technology Waves in Northern Sweden 1700—1960. Source: Created by authors based on Layton (1979).

production based on wooden fiber developed, there was a shift in the industry. Sawmilling companies extended their operations to a production of wooden pulp. In the period 1875—1920, the number of employees in the pulp industry increased from less than a thousand to approximately 17,500 (Svenska Industri 1925, 1926). At this time, the paper industry was operating in the south of Sweden and did not follow the waves outlined in Fig. 1. The third wave of changes in the north started in the 1950s. Between 1960 and 1990, the pulp industry doubled its annual capacity to 11.2 million tons. During the same period, the number of pulp mills was reduced from 127 to 54 and almost the entire capacity increase was integrated with a production of paper. Paper production capacity increased with more than 300% to 9.3 million tons at the same time as the number of mills decreased from 76 to 54 (Svensk Industri, 1992). These production figures and especially the high export share made Sweden one of the five largest pulp and paper countries in the world.

The decrease in both the number of companies and production units indicates the emergence of substantially larger companies reaping the benefits of economies of scale. Linked to this development was the fact that the remaining companies more often went public and few remained with prominent individuals or families as distinctive owners (Glete, 1989). A major shake-out of individuals and family owners in the sawmill, pulp, and paper industry took place in 1932 when the Swedish industry suffered from the “Kreuger crash”;6 however, the decrease has gradually been evolving over the entire period of 1873—1990 (Fagerfjall, 2008).

MoDo followed these overall trends and developed from a sawmill company to a sawmill and pulp company, and finally to an integrated producer of sawn timber, pulp, and paper. Between 1875 and 1890 sales of sawn timber increased more than five times (in the same period that the Swedish production doubled). At the end of the 1880s, MoDo was number eight on a list of the 50 largest sawmill companies in Sweden. The expansion continued in the following decades and a systematic comparison by Gardlund (1951, p. 54ff.) shows that MoDo with an exception of two years was considerably more profitable than the average of the five most important competitors in the period 1880—1913.

Production of pulp began in 1902 and at first production growth followed the overall growth in Sweden, but in the period 1929—1938 MoDo’s market share increased from 5.6% to 6.9%, in a time in which national production of chemical pulp increased by 26% (Gardlund, 1951; Streyffert, 1950). This relative increase came at a time in which Sweden’s share of world export of pulp was about 40%.

In 1950, MoDo was one of the largest pulp and paper companies in Sweden. However, SCA was by far the largest, with a merger of 16 independent companies in 1929. SCAs turnover was 500 Million Swedish Kronor almost three times higher than MoDo’s. At this time SCA dominated in sawn timber, but MoDo was ahead in organic chemical products. In the beginning of the 1970s, MoDo’s position in the Swedish pulp and paper industry was still prominent. Table 1 illustrates MoDo’s dependence on pulp for sale and low engagement in paper production.

In 1990, the industry in total consisted of 13 mill companies and 12 companies running more than one mill. Out of the top ten in 1972, three companies, Billerud, Holmen, and Fikeby, were acquired by the dominating three and one was taken over by the government (Ncb). As a consequence, the three dominating companies (SCA, STORA, and MoDo) produced more than 75% of the total output in the industry in 1990.

If we compare MoDo with the market leader SCA in terms of growth of sales, MoDo and SCA kept the relative difference. However, as illustrated in Table 2, the differences in return of investments (RoI) became pronounced after 1970. SCA had a higher average and earned money in the entire 1960—1990 period, but MoDo suffered a loss in operating profit in 1978—1979 and 1981-1982.

Table 1. Capacity in the Swedish Pulp and Paper Industry in 1972.

Company

Capacity Pulp for Sale (’000 Tons)

% of Total Pulp for Sale Capacity

Capacity

Paper

(’000

Tons)

% of Total Paper Capacity

Total

Capacity

(’000

Tons)

% of Total Capacity

SCA

490 (3)

8.8

760 (2)

12.7

1,250 (1)

10.8

Sodra

840

15.1

120

2.0

960

8.3

Holmen

10

0.2

880

14.7

890

7.7

MoDo

710 (2)

12.7

140 (9)

2.3

850 (4)

7.3

Stora

355

6.4

475

7.9

830

7.2

Ncb

415

7.4

195

3.3

610

5.3

Billerud

230

4.1

365

6.1

595

5.1

ASSI

100

1.8

475

7.9

575

5.0

Korsnas-Marma

290

5.2

225

3.8

515

4.5

Fiskeby

40

0.7

440

7.3

480

4.1

Ten largest

3,480

62.4

4,075

68.0

7,555

65.3

Total

5,575

100

5,993

100

11,568

100

Source: Annual Reports 1972, from the companies named in the table.

Table 2. MoDo and SCA in Terms of Sales and Profitability.

MoDo Sales in MSEK

MoDo Operating Profit in MSEK

MoDo Profit Margin (%)

MoDo RoI (%)

SCA Sales in MSEK

SCA Operating Profit in MSEK

SCA Profit Margin (%)

SCA

RoI

(%)

1960 (RoI average 1960-1962)

435

55

12.5

12.6

623

80

12.8

10.8

1970 (RoI average 1969-1971)

1,059

91

8.6

9.2

1,468

132

9.0

8.9

1980 (RoI average 1979-1981)

3,808

281

7.4

3.9

6,708

736

11.0

10.5

1990 (RoI average 1989-1991)

18,435

1,045

5.7

0.6

31,122

1,711

5.5

9.4

Source: Modo and SCA Annual Reports: 1960-1962, 1969-1971, 1979-1981. Note: RoI is counted as an average over three years to equal out major changes.

Issue Analyses

 
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