Atlas Copco CEO Pushes U.S. Manufacturing

By: Katarina Gustafsson and John D. Stoll, The Wall Street Journal

STOCKHOLM—Ronnie Leten gets a kick out of the competition taking place these days between his staffers in China and the U.S.

Since 2009, the Belgian-born chief executive of Swedish industrial giant Atlas Copco has watched the two groups send a statue back and forth as they battle to be the company’s top market. The losing side gets stuck with the trophy and, in 2013, the dubious prize is sitting in China.

If Mr. Leten’s plan holds, the trophy may have to get comfortable sitting in Asia.

Incentivized by cheaper energy costs and a more favorable labor and regulatory environment, Atlas Copco is finding its groove in the U.S. and sees American manufacturing as a growing alternative to sending work to Asia. The world’s largest maker of air compressors is the biggest holding of Swedish investment company Investor AB, but strong currencies, inflexible labor terms and a sluggish economy has it looking outside of its home continent.

“We used to be a strong European player with a leg in the U.S.,” Mr. Leten said during an interview conducted before flying to the U.S. to ring the opening bell on the Nasdaq. “You need to define U.S. as your home market.”

Mr. Leten said that by having strong “legs” in three continents—Europe, Asia, and the U.S.—it helps the company have natural currency hedges. It also helps the company have a manufacturing presence in the countries where it sells products. In addition to air compressors, Atlas Copco makes mining products and tools used for making everything from Samsung smartphones to Boeing airplanes.

Atlas Copco isn’t alone among European industrial heavyweights eyeing growth in the U.S. Skanska AB, a Swedish construction company, is looking to offset the malaise in Europe and sidestep the unpredictability in emerging markets by pumping loads of investment due to a positive view on infrastructure development and corporate activity.

Atlas Copco has grown its U.S. presence in recent years through a series of acquisitions and organic growth initiatives. Last year, the company purchased a Utah-based manufacturer of drill bits and a Houston-based maker of blowers and pumps. In 2009, it bought the 90-year-old Quincy Compressors.

Even before the most recent acquisition spree, Atlas Copco started in the middle of the last decade to start designing products with American tastes in mind. Whereas Europeans favor design, for instance, Atlas Copco found that American buyers were looking for robustness.

The company has $5.7 billion on hand and will use some of its war chest to grow further in the U.S., Mr. Leten said. While not giving details, he said Atlas Copco is mostly focused on small- and medium-size companies—while not ruling out bigger ones. Listed companies are currently trading on high premiums given the recent equity market rally, so private firms may be higher on the shopping list, he said.

When Mr. Leten took the helm in 2009, the future of American manufacturing was hotly debated as companies like General Motors were in deep financial trouble and capital for firms looking to expand in the U.S. was tough to obtain. At the time, China was Atlas Copco’s top market and appeared to be set to increasingly dominate the competition for global industrial investments.

He said trying to build a plant in the U.S. early in the last decade was a non-starter. Now, the company can build a plant for tens of millions of dollars and build up a competent supply chain in a relatively tight radius.

“We used to have the opinion that China is the manufacturing [center] of the world. I’m not sure I’ll say that again.”

Mr. Leten cites rising labor costs and a strengthening of China’s currency as a reason that the country has fallen a bit from its perch. At the same time, “the U.S. is getting more competitive…manufacturing is back on the U.S. agenda.”

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