Ericsson and the Russian Revolution
Today, as Russia once again finds itself in a development phase and Swedish companies are showing renewed interest in a federation that despite having contracted somewhat still represents a colossal market, it is perhaps worth looking back to see what can be learned from events in the past. At the turn of the previous century, numerous Swedish entrepreneurs were active in this neighbor to the east, which coincidentally is also the largest country in Europe. The Swedish presence then, as now, was greatest in the city that first started to be built when the land upon which it is located still belonged to Sweden, namely St. Petersburg.
Among those who saw the potential offered by Mother Russia was Lars Magnus Ericsson. During the 1890s, the Russian Post and Telegraph Administration, which ordered its equipment mainly from Ericsson, also placed pressure on the company to start production in St. Petersburg, at that time Russia's capital. The Russian offer, which was more of a demand, in combination with Lars Magnus Ericsson's realization that he was about to lose the Swedish market through the establishment by Televerket, the Swedish PTT, and SAT of their own production plants in Stockholm, drove Ericsson to set up operations in rented premises in St. Petersburg in 1897.
Just three years later, production was moved to the company's own plant in Samsonievskij Prospekt. The plant was constructed at a cost of SEK 1 million, a considerable sum in those days. Expansion opportunities in Russia were so favorable, and domestic problems in Sweden so considerable, that during a period of several years Lars Magnus Ericsson seriously entertained the idea of moving his headquarters from Stockholm to St. Petersburg. But when competition between Ericsson and SAT was transformed into cooperation in 1901, he abandoned his relocation plans. However, the Russian market still seemed to offer greater potential than its Swedish counterpart, so despite the head office remaining in Stockholm, the Russian plant remained a very important part of Ericsson's operations - and an important component in the Russian economy.
Even so, the plant remained singularly unprofitable during the initial years. In 1901, the workforce numbered 165 employees, but sales amounted to just half a million Swedish kronor. In 1903 the decision was taken to drastically reduce the labor force to just 25 employees and a year later the plant recorded a net operating profit for the first time. In 1905, sales totaled SEK 2.3 million. That same year, Ericsson in Russia was converted into a Russian limited liability company, with all shares owned by the Swedish parent company.
The first of the Russian revolutions in the 20th century also took place in 1905. The defeat in the war with Japan in combination with the unfavorable economic climate and general dissatisfaction with an antiquated system of government led to serious civil unrest. Ericsson's profit quickly dropped again, just when the company seemed to be picking up speed and the labor force was cut again. Sales in 1906 declined to SEK 2.0 million and a year later to SEK 1.7 million, while the number of employees, which had already risen to 650 in 1905, was reduced by 25 percent to 470 in 1906.
Investments in Russia have never been especially confidence-inspiring, but for anyone prepared to weather the storms, they can be worthwhile, at least for a while? When the situation stabilized in 1907, Ericsson's sales in Russia increased rapidly and the St. Petersburg plant quadrupled its profit in just a few years. By 1910, the plant had some 900 employees and there seemed to be no limit to its success. Not even the outbreak of the First World War could halt the expanding business, despite essential deliveries of materials from Stockholm having to take the very difficult land-based route of the times, through Haparanda in northern Sweden and Russian-owned Finland, because of the maritime blockade.
In the final stages of the war, plans for expansion were still being made. The St. Petersburg plant was extended and modernized as late as 1916 - but the October revolution by the Bolsheviks in 1917 finally put a stop to all such activities. Ericsson was thrown out of Russia without receiving so much as a kopeck in compensation for all of its assets in St. Petersburg.
Ericsson's claims on the Russian state were estimated to amount to SEK 20 million in 1920. The Swedish company negotiated with the authorities about compensation for its nationalized assets on numerous occasions over the years, but without success.
Ericsson thus lost its plant in St. Petersburg, but the facility continued to produce telephones during the 1900s under the name "Red Dawn". Ericsson did not return to Russia until 1994 - almost 100 years after the establishment of its first operations there, but this time the company elected to base itself in today's capital, Moscow. A second office was soon opened in St. Petersburg, however.
Author: Torbjörn Elensky
The staff at the Ericsson factory. In the middle you can see the factory owner LM Ericsson himself on a temporary visit.
The main plant of the Russian subsidiary.
Mr. Th. Grass, fired from the plant in St. Petersburg, for embezzling funds, tried blackmail. He wanted 5000 rubels and a testimonial or he would use documents that could damage the plant. The board threatened legal action in return.
The cover of a brochure for the Russian market. Alludes to the old history of LM Ericsson and SAT in Russia.