Economic development in 2012 was in many ways a mirror image of development in 2011; cautious optimism at the beginning of the year which turned into growing pessimism in the second half.
The difference was that the slowdown in 2012 was much stronger, resulting inincreasing numbers of employees in the industry being put on notice and growing unemployment.
There are three main reasons for this trend. One is the continuing crisis in the euro area and the political tension caused mainly by tough budget austerity measures in southern Europe. Aslowing growth rate in China, particularly in the second half of the year, was also a factor in the growing uncertainty. Finally, major uncertainty about the US budget had a subduing effect on economic activity.
All of these factors eventually hit Sweden hard as a small and export-dependent nation, and affected subcontractors in the automotive and manufacturing industries in particular.
Tough situation for subcontractors
In 2012 we commissioned Roland Berger Strategy Consultants to conduct a study of the automotive industry in which the 350 Swedish subcontractors were compared with 900 subcontractors in 35 countries. The analysis shows that the Swedish subcontractors have not recovered from the 2008 global crisis in the same way as their foreign competitors. The Swedish companies experienced a more dramatic decline during the crisis and have not managed to get back to the operating margins they had before it broke out. A serious aspect is that the situation got worse at the end of 2012 and this caused great uncertainty going into 2013.
One important cause of this is the hourglass-shaped structure of Swedish industry. It is difficult for the small and medium-sized enterprises to grow and become strong enough to be able and willing to take advantage of the growth opportunities that exist outside their traditional markets. All too many Swedish subcontractors are dependent on the domestic and European markets and on a high focus on a limited number of customers.
Companies that are exporters, on the other hand, are doing better, especially the ones that are less dependent on the Swedish market and are in a forward-looking sector.
Fouriertransform’s strong network supports internationalization
In order to strengthen the subcontractor sector it is necessary to change the hourglass structure by increasing the subcontractors’ size and level of internationalization. This is crucial for the industry’s long-term survival.
As far as Fouriertransform is concerned, we have experienced a strong interest in cooperation in clusters that may be able to help these businesses grow and have the strength to venture outside of Sweden. Our contribution is to further develop our already strong network which can bring international expertise and competence to the boards of the portfolio companies and thereby drive the internationalization process. These experienced and well-qualified individuals provide portfolio companies with new interfaces, open previously closed doors and bring international influences that are very valuable for the companies. After working for about 2.5 years, our experience tells us that there is a great need for access to this type of expertise.
New investments in forward-looking companies
In 2012 we continued to secure our position as part of the Swedish automotive cluster in a quiet, wait-and-see market. During the year we decided to invest in three new companies: LeanNova Engineering AB in Trollhättan, ArcCore AB in Gothenburg and CeDe Group AB in Malmö. Our total investments including follow-on investments for the year totaled SEK 141 million. We now have forward-looking companies in our strategic investment areas: Intelligent Vehicles, More Efficient Production and Sustainable Vehicles.
In Intelligent Vehicles our portfolio companies in software, ArcCore and Pelagicore, have established a presence in the German market in order to develop with their customers in the automotive industry there. We are also happy with our engineering companies, Vicura and LeanNova, where our contribution has been to ensure that this type of venture can remain and develop in Trollhättan after Saab. In 2012 Vicura decided to open a branch in India to capture the demand in the Indian automotive industry.
In our More Efficient Production area we made an assessment in 2012 of which mechanical processing companies could be brought together in a cluster to help with the internationalization process. Sheet metal and plastics processing are traditional and mature sectors that need to branch out into the international market in order to grow. We have created a strategic map where companies are evaluated in clusters as a basis for proactive investment.
We sold our holding in FlexProp to the former owner in 2012.
In the year ahead our agenda as a shareholder remains in place for our companies, i.e. we will help them develop their full potential. We will also continue to work towards having a more balanced portfolio that includes companies in the later phases of development.
The Swedish automotive industry is still facing major challenges and in order to revitalize and strengthen the automotive cluster’s international competitiveness, we need to think in new ways, work unconventionally and take advantage of the expertise and experience that exists in the industry.
Since the start Fouriertransform has participated in co-investments in excess of SEK 2 billion at a time when corporate transactions have declined by 40 percent. This is a vital contribution to improving the competitiveness of Swedish industry.