Following an insightful first instalment, Part 2 of our Baltic gases business memoirs describes just how AGA managed to successfully enter the Baltic states.
Before World War 2, Swedish industrial gases company AGA had operations in three Baltic countries and Köningsberg (situated between Lithuania and Poland).
All companies were nationalised after the war and the supply of industrial gases became a part of the Soviet supply system.
Following the breakup of the Soviet Union in more recent times however, the prospect of re-entering the Baltic market became possible once again.
So how did AGA go about this process? The memoirs of a ‘gasman’ explain...
The AGA entry strategy
AGA Finland started operations in Estonia, with a depot that was run on similar lines to that of Finland, with standard AGA cylinder valve outlets. The depot was supplied from Finland and with the main purpose of supplying Finnish businesses, working in Estonia.
The next step was to set up an actual filling station and supply liquid products from Finland.
In Latvia, a JV with a local filling plant and supply of liquid gases from Cryon in Minsk was the basis for supply, while in Lithuania the recently employed MD bought truckloads of argon in cylinders and advertised in the local newspapers that argon was available! It was very successful!
The next step was to build up depots as sales outlets spread throughout the countries. The 200 bar cylinders were well established in AGA Sweden and Finland, but AGA had a large pool of good quality 150 bar working pressure cylinders which the company decided to shift to the Baltic countries.
The cylinders were equipped with AGA valves ’thereby introducing a new valve standard that was approved by the local authorities’. There were two purposes with the valve strategy:
* Avoid accidents by using different valve outlets for different gases.
* Demonstrate a better service level and motivate cylinder rental system.
These cylinders could then be introduced as AGA owned cylinders – available but at a daily/monthly rental rate. Russian cylinders with Russian valve outlet were gradually phased out or kept in the system following a change to the AGA valve system.
The depots were often opened in co-operation with companies working with the construction industry and sold safety & welding equipment too.
Supply of liquid products
When AGA started to investigate the market in 1990-91 it was obvious that a supply unit had to be secured.
The company in Kaliningrad was originally founded by AGA Germany in 1917, which was a good help when AGA managed to acquire the company in 1993.
AGA then had two ASUs that together could produce 4 tonnes of liquid products per hour, which were distributed in railroad wagons to customers in Lithuania and Latvia.
As the cost of electricity went up in Kaliningrad, liquid products were taken from Minsk in Belarus, as well as from Poland. Estonia was supplied from Finland or St Petersburg, but there were few problems apart from trying to get any product from Russia itself.
Supply of cylinder gas
Used gas filling equipment, from Sweden and Finland was transferred to the three countries, the small gas plants were scrapped and the filling plants were supplied as mentioned above.
The first priority was to set up cylinder test shops for each market to maintain, or in this case, improve safety standards across the region.
Management and support
When AGA entered new markets, the company always regarded it important to understand the local business culture.
Therefore, local management were employed and trained in Sweden and Finland – only in Estonia was there an experienced Finnish manager transferred to Tallinn.
For each ’project company’ there was a ’Father Company selected and given the task to support and develop the project company. This support system was introduced in all new markets AGA entered, with Estonia supported by AGA Finland and both Latvia and Lithuania supported by AGA Sweden.
One of the cornerstones and successes of the strategy was to understand and relate to the local culture.
Selecting very competent local management and providing them with training and support was key to success!
It was expected that there would be a volume growth in liquid gases due to the introduction of more applications, while cylinder gases were not expected to grow too much apart from argon mixtures.
However, the improved service offering, distribution network and rental systems has certainly led to a high growth since the early 1990s – after eight years, the market had grown from $8m to $26m, with the fastest market development seen in Estonia.
The Baltic States markets will perhaps never be large due to its lower industrial base, but these are important markets and in need of further development.
gasworld would like to thank the gasman, Lars Timner, for the contribution of his memoirs and his efforts in delivering these insights to our readers.
A former AGA employee, Lars was deeply involved with the expansion of AGA into new markets and will continue with his memoirs as the year unfolds. Watch out for more!