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Marketing Strategy of Durkopp Adler AG

Marketing Strategy of Durkopp Adler AG

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Marketing Strategy of Durkopp Adler AG
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Netra Shetty
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Marketing Strategy of Durkopp Adler AG - December 28th, 2010

Statistics:
Public Company
Incorporated: 1867
Employees: 2,000
Sales: EUR 111.5 million (2003)
Stock Exchanges: Frankfurt Berlin
Ticker Symbol: DKAG
NAIC: 333292 Textile Machinery Manufacturing; 333921 Elevator and Moving Stairway Manufacturing; 333922 Conveyor and Conveying Equipment Manufacturing; 333923 Overhead Traveling Crane, Hoist and Monorail System Manufacturing


Company Perspectives:
Today, Dürkopp Adler AG offers solutions in the field of sewing and conveyor equipment. The group operates with a worldwide service and distribution network of 11 subsidiaries and more than 80 authorised dealers. The objective of the company is to perfect the automation of production procedures, guaranteeing at the same time a maximum degree of flexible applications.
Complete consultation and reliable service round off a product pallet that takes a top place in major segments of the world market. The pioneering spirit and creative drive of the founding fathers is an integral part of a company philosophy, and will be used by the creative potential of the staff to meet the challenges of the next millennium.


Key Dates:
1860: Koch & Co. sewing machine factory is founded in Bielefeld.
1867: Dürkopp & Schmidt sewing machine factory is formed.
1885: Dürkopp starts producing bicycles; Koch soon does the same.
1897: Dürkopp begins production of automobiles.
1920: The newly named Kochs Adler discontinues bicycle production.
1929: Dürkopp's automobile operations are sold.
1942: Bielefeld firms begin using forced labor from the east.
1944: A bombing raid leaves most of Bielefeld in rubble.
1961: Dürkopp discontinues production of bicycles to focus on industrial sewing machines.
1990: Dürkoppwerke and Kochs Adler merge to form Dürkopp Adler AG.
2001: Reduced demand leads to a period of net losses at the firm.


Company History:

Dürkopp Adler AG makes industrial sewing machines, including specialized automated machines for specific applications such as shoemaking, upholstery, and garment manufacturing. The company also produces overhead conveyor systems used to transport garments at distribution centers, dry cleaners, and commercial laundries. Dürkopp was founded in Bielefeld, Germany, in 1867 just as the Industrial Revolution was beginning to make its mark on the city's textile industry. The firm grew along with Bielefeld and was a major producer of automobiles, bicycles and ball bearings before limiting its activities to the textile field shortly after World War II. In 1990 Dürkopp merged with Kochs Adler, the other major sewing machine manufacturer in Bielefeld, to form Dürkopp Adler. The firm distributes its products worldwide through subsidiaries in Europe, the Far East and the Americas. Manufacturing is done in Bielefeld and, more recently, at facilities in the Czech Republic and Romania.

Sewing Machines and Bicycles: the 19th Century

The first 50 years of Dürkopp's operations were shaped by the mechanical passion of the company's founder, Nikolaus Dürkopp. Dürkopp was apprenticed to a metalworker in the village of Detmold, Germany, at the age of 14. In his free time, he strove to expand his mechanical knowledge through independent study and experimentation. After completing the apprenticeship, Dürkopp gathered further experience at larger shops in Berlin, Hamburg, and Bremen. He started working for a Bielefeld clockmaker named Böckelmann in 1860. Böckelmann had recently begun performing repairs on sewing machines, which were appearing for the first time in Bielefeld's linen industry. At the time, most sewing machines were being imported from the United States. Dürkopp studied these machines and learned enough to build one on his own in 1861. The next several years of his life, however, were taken up with military service.

In October 1867, at the age of 25, Dürkopp teamed up with a colleague, Carl Schmidt, to found the Dürkopp & Schmidt sewing machine factory. At first they operated out of the back room of the clockmaker Böckelmann on the Marktstrasse, making machines for both household and industrial use. After a year of operations they hired four workers and moved to new quarters at a varnisher's shop on the Marktstrasse. Their machines acquired a favorable reputation among local tradespeople, and soon the firm had hired about 20 workers and was once again cramped for space. In 1870 Dürkopp and Schmidt built their own factory a few blocks away on the Marktstrasse. Now they would have room to install steam-driven machinery and cut down on the work done by hand. But the firm's development was temporarily stalled when Dürkopp was called away to fight in the Franco-Prussian War.

After the war, the German economy prospered and Dürkopp expanded. The firm began producing more specialized machines for tradespeople such as shoemakers, tailors, and saddle makers. Dürkopp also began selling its machines in the farther regions of Germany. The company outgrew its existing space before long, but it lacked the capital to fund an expansion. In 1876 the firm convinced a Bielefeld councilmember by the name of Kaselowsky that the sewing machine venture was worthy of support. Kaselowsky's son Richard joined Dürkopp as a partner and financial backer and stayed at the company for two decades. Schmidt, meanwhile, had departed the firm, so its name was changed in 1876 to Dürkopp & Co. Dürkopp now had about 250 employees. In 1877 the factory was destroyed by a fire that started in the paint shop. The company rescued a few machines and set them up in a shed until a new building was ready.

By the 1880s several other Bielefeld firms were competing with Dürkopp. In addition, an economic depression hit the city in the first years of the decade. Dürkopp cut back working hours in order to survive. The situation was better by 1884, but Dürkopp realized that diversification would help protect its bottom line. Bicycles seemed like a good match for Dürkopp's capabilities, and the company began producing them in 1885. Dürkopp was able to make top quality ball bearings, so its bicycles became known for their smooth ride. The bicycle division took off quickly. Soon Dürkopp was exporting its bearings to bicycle factories in England and selling its bicycles across Europe. The sewing machine branch was also developing new products such as specialized buttonhole and zigzag machines. In 1889 Dürkopp went public in order to raise more capital for expansion, including the construction of a foundry so that more metal parts could be fabricated in-house. In 1892 Dürkopp celebrated its 25th anniversary with a grand torchlight parade to Nikolaus Dürkopp's home, followed by celebratory speeches, a great banquet, congratulatory telegrams, and visits from town dignitaries. The firm now had about 1,650 employees.

Experiments in Automobile Production in the Early 20th Century

Near the end of the 19th century, Nikolaus Dürkopp turned his mechanical creativity to the field of automobiles. At first he was unable to persuade shareholders to invest in this area, so he built his first automobiles around 1894 with a few million marks of his personal funds. Dürkopp was able to apply the experience he had gathered over the past few years making gas motors for his factory to the manufacture of automobiles. In 1897, the firm was convinced to move into automobile production as a replacement for bicycle sales, which were falling drastically due to less expensive American imports. Dürkopp wanted to design the firm's car from scratch, but under the pressure of time the company became partners with a French manufacturer and used their blueprints instead. In 1899, however, Dürkopp presented its first original design, a small "sports car," at an automobile exposition in Berlin. The French partnership ended a few years later. Early automobile production at Dürkopp also focused on motorcycles, particularly three-wheeled models, since many people in the industry thought it would not work to put a motor on a two-wheeled vehicle. By the beginning of the new century, Dürkopp made two-wheeled motorcycles as well, then discontinued motorcycle production around 1905 in favor of standard automobiles. Meanwhile, Mercedes had come out with a groundbreaking automobile design that erased the lingering similarities between automobiles and horse-drawn carriages. Dürkopp, along with most other German manufacturers, scrapped current design experiments and began producing on the Mercedes model.

It took more than a decade before the automobile division became profitable, although Nikolaus Dürkopp was winning auto races with the special racing cars he built for fun. The company was reluctant to move into mass production, so it became known as a high-quality luxury producer. Many cars were built as special orders to meet the customer's specific requests for body design and luxury details. In the area of bicycle production, on the other hand, Dürkopp adopted more efficient standardized production, which helped the German bicycle industry rebound. Bicycle and sewing machine sales supported continued investments in automobile production. Dürkopp bought an automobile body factory, Wiemann & Co. of Magdeburg, in 1904. Cars were exported to England under the name Watsonia.

Technical details of bicycle mechanics influenced the design of automobiles. In particular, Dürkopp became known for a chainless drive train referred to as "Kardan." The first Kardan bicycles were produced around 1898. Although they never captured a large market share overall, they became a specialty of Dürkopp's. The company produced some improved Kardan models in the 1920s and was known for its Kardan bicycles through the 1940s. This same technology was applied to Dürkopp's automobiles in the early 1900s. In most subsequent models, chain-driven wheels were replaced with a series of gears that directly transferred the engine's power to the wheels.

Dürkopp's first real automobile success was a model known as the "Knipperdolling," first produced in 1906. This was a smaller car that moved away from the six-cylinder vehicles Dürkopp had been experimenting with in favor of a four-cylinder engine. Dürkopp began working with the Berlin manufacturer Oryx-Motorenwerken to further develop this model. Profits from the automobile division were now able to support experiments in other areas. Nikolaus Dürkopp even tried to build an airplane, but it never got off the ground. The company also made centrifuges, cash registers, motorboats, buses, and tractors over the years. Dürkopp was expanding, adding workshops in new areas in order to become more vertically integrated. In 1911 Dürkopp bought the Oryx company as well as some land in Bielefeld. A fire that year burnt down the older wood buildings, making room for larger facilities. In 1913 the company issued DEM 4.5 million in share capital to fund growth and changed its name to Dürkoppwerke AG.

Surviving the World Wars

During World War I Dürkoppwerke restructured its production to make cars and bicycles for the military, as well as trucks, artillery transports, and other machinery. The company simplified its production method and discontinued all automobile models with the exception of the Knipperling. During the war, taxes and laws discouraged personal use of bicycles and automobiles. After the war, returning military vehicles overran the transportation market. Dürkoppwerke also lost its longtime leader: although Nikolaus Dürkopp was alive for the firm's 50th anniversary in 1917, he died a year later. He was said to have been familiar with all details of production and able to operate every machine in the factory. Dürkopp's personality had been a defining feature of the company. He was so committed to the firm's product development that he always drove prototypes rather than finished cars so that he could offer suggestions for design improvements. After his death, Dürkoppwerke became driven more by practical concerns than by mechanical experimentation, particularly during the crisis-ridden economy of the postwar Weimar Republic. Dürkopp's son Paul had made a career in the military, so an industrial businessman named Gustav Möllenberg was found to take over the firm.

Dürkoppwerke's debt grew as the German economy as a whole nearly collapsed. Banks gained control of most of the firm. The company was still stuck in a labor-intensive model of automobile production. Since this segment was performing more poorly than the bicycle and sewing machine operations, the banks sold Dürkoppwerke's automobile divisions to Mercedes-Benz around 1929. Many workers were laid off in the other segments and the factory halls were largely empty. Dürkopp tried making photo copiers for a few years, but they failed to catch on. The most successful developments of the Weimar Period were the founding of a subsidiary in Paris in 1927 and, around 1932, the development of the first overhead conveyor machines for the clothing industry.

In 1933 the National Socialist party came to power in Germany and implemented policies to promote industry and military development, such as providing free machinery to manufacturers for weapons production. Several members of Dürkoppwerke's leadership joined the Nazi party. When World War II started, Dürkoppwerke jumped into the war effort with patriotic enthusiasm, although not all workers supported the Nazis. The war brought ample work to the company. Dürkoppwerke implemented rotating shifts and bought a weapons factory in Künsebeck bei Halle. In 1941 the firm was proud to be recognized as a "Model Firm of National Socialism," the highest state honor for a German business. Georg Barthel was in charge of Dürkoppwerke now. His father Hermann, a successful manufacturer of bearings from Schweinfurt, had bought the company in 1940 but died a year later, leaving his son to take over. Dürkoppwerke was the leading manufacturer of cylindrical bearings for tanks during the war.

In 1942 Dürkoppwerke began using forced labor from the East. The firm built a camp known as "Bethlehem" to house 850 Ukrainian women; other workers were housed at camps around Bielefeld. Sanitary conditions at the camps were poor and the food was bad, but the official view was that the "guest workers" were getting a taste of life far superior to conditions under Communism. Some German employees of Dürkoppwerke brought food to the factory for the forced laborers and even invited them to dinner, although this was strictly forbidden. Dürkoppwerke marked its 75th anniversary in 1942 by issuing a solemn historical overview and newsletter noting employees who had fallen at the front and stating that it was no time for celebration. Meanwhile, the Allies intensified bombing towards the end of the war. A raid in September 1944 left Bielefeld in rubble.

Postwar Expansion and Merger

After the war Dürkoppwerke rebuilt and went back to producing sewing machines and bicycles. But by the early 1960s, the firm reduced its production to industrial sewing machines and overhead conveyer systems. The last bicycles and household sewing machines were made in 1961. In 1962 FAG Kugelfischer, a bearings manufacturer in Schweinfurt, acquired majority control of Dürkoppwerke. Dürkoppwerke's bearings operations were spun off to Kugelfischer in the 1970s. Dürkoppwerke celebrated its 100th anniversary in 1967 and converted from Dürkoppwerke AG to Dürkoppwerke GmbH. During this period, the company was making technical advances in sewing machine design and expanding its distribution worldwide. Subsidiaries were founded in Austria in 1965, Great Britain in 1983, Hong Kong in 1984, and the United States (Atlanta) in 1985. The first sewing machine steered by splints was introduced in 1964 and the first electronically steered machine in 1971.

In 1986 the decision was made to merge with Kochs Adler AG, the other major sewing machine manufacturer in Bielefeld. A mechanic named Koch had founded the first sewing machine factory in Bielefeld around 1860, and Nikolaus Dürkopp worked for him briefly before striking out on his own. The firm was known as Koch & Co. Koch went into bicycle production shortly after Dürkopp did, but the firm became focused mainly on industrial sewing systems under the brand name Adler. It discontinued bicycle production after 1920 and changed its name to Kochs Adler Nähmaschinenwerke ("sewing machine factory") AG. After World War II, Kochs Adler moved into production of typewriters, packing machinery and other new fields, but these ventures, as well as production of household sewing machines, were soon abandoned. FAG Kugelfischer, already Dürkoppwerke's parent company, acquired a 76 percent share in Kochs Adler in the early 1980s. A merger of the two companies was the logical next step. In 1986, Kochs Adler had annual sales of DEM 127.5 million and Dürkoppwerke of DEM 200.5 million.

However, the merger was held up for three years due to a legal dispute. Although a substantial majority of Kochs Adler shareholders approved the merger, three small shareholders opposed it. They criticized the proposed share exchange ratio and claimed that the official merger announcement did not sufficiently explain the reasons for the terms of the merger. However, they implied they would be willing to accept a financial settlement of the disagreement. Kochs Adler claimed that this was blackmail. After a lower court rejected the shareholders' complaint, a higher court accepted it, which meant that the merger papers could not be filed and the two companies lost money over the next three years due to the need to keep their administrations and annual reports separate. The parties finally came to a settlement in 1990 when the shareholders were offered an improved share ratio. After the merger the firm became known as Dürkopp Adler AG. The merged company had about 3,000 employees and annual sales of DEM 500 million.

Mixed Results After 1990

The 1990s were a mixed decade for Dürkopp Adler. The late 1980s had been a profitable period for the industry, but the firm hit rough times in the few years after the merger. After three consecutive years of losses, Dürkopp Adler posted a profit of DEM 16.1 million on sales of DEM 301.1 million in 1994. The firm had reduced bank debt and cut its workforce by several hundred employees the previous year. Also, Dürkopp Adler's overhead conveyer division was converted into a separate subsidiary, Dürkopp Fördertechnik GmbH, in order to improve material flow and distribution. Increased clothing production in Eastern Europe and Central and South America kept Dürkopp Adler on a profitable course into 1998, and the firm rehired some workers. That year the firm also began producing sewing machine parts in Romania; sewing machine production was being transferred to Boskovice in the Czech Republic as well. In late 1998 Dürkopp Adler bought Beisler GmbH of Hösbach bei Aschaffenburg, a manufacturer of automated sewing machines for producers of menswear.

Operations took a turn for the worse again in 1999, when Dürkopp Adler posted a net loss of EUR 6.2 million. In response, the company cut a few hundred more jobs and transferred more production to the Czech Republic. Mainly the more complex automated sewing machines were still being produced in Bielefeld. This restructuring pushed the company into the black for 2000, when net profit was EUR 5.4 million on sales of EUR 198.3 million. But the economic downturn that started in late 2001 hurt the company badly and led to three years of net losses, culminating in a EUR 10.1 million loss in 2003. Clothing manufacturers were reluctant to invest in new machinery during a time of low consumer demand. The strong euro also hurt Dürkopp Adler, since over three quarters of the company's business came from exports. In 2003 Dürkopp Adler founded a subsidiary in Shanghai, since more and more sewing was being done in east Asia. In 2004, with demand still low, the Chinese sewing machine producer Shanggong Co. Ltd. was considering purchasing Dürkopp Adler from FAG Kugelfischer. In the larger view, however, the company's current troubles looked like just another transient period in a nearly 140-year history of ups and downs.

Principal Subsidiaries: Dürkopp Fördertechnik GmbH; Beisler GmbH; Dürkopp Adler America, Inc. (U.S.A.); Dürkopp Adler Mexico S.A. de C.V.; Dürkopp Adler Far East Ltd. (Hong Kong); Dürkopp Adler International Trading (Shanghai) Co., Ltd. (China); Dürkopp Adler Italia S.r.l. (Italy); Dürkopp Adler France S.A.S.; Dürkopp Adler Austria Gesellschaft mbH; Dürkopp Adler Polska Sp. z o.o. (Poland); Dürkopp Adler Ukraine Ltd.; S.C. Dürkopp Adler masini de cusut S.R.L. (Romania); Minerva Boskovice, a.s. (Czech Republic; 84%).

Principal Divisions: Sewing Technology; Conveyor Technology.

Principal Competitors: Juki Corp.; Shanghai Industrial Sewing Machine Company Ltd.; Brother Industries, Ltd.; Singer N.V.
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