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development (R&D) laboratory at its headquarters. The new R&D facility opened in May 1988. It houses the JOCO 6000, a 72-inch diameter x 345-inch face research dryer capable of speeds up to 6,000 feet per minute (fpm) and simulating operating conditions on any paper machine. A new 60-inch diameter x 250-inch face research dryer replaces the existing JOCO 4000, a similar unit built in the early 1960s. Expanded facilities have been provided for Johnson Paper Drying Seminars which have been offered since 1975.

Advertising

Advertising is an important competitive means of keeping potential buyers up-to-date about products and services offered by the paper machinery industry. Paper machinery suppliers are the major source of advertising revenue for the paper industry trade press. As paper machinery firms felt the pinch of recession after 1982, advertising dollars reduced, resulting in fewer trade journals and less frequent advertising. A leading trade publication, Paper Trade Journal, which had been published since 1872 was sold to its major competitor, Pulp & Paper late in 1986. Earlier, another industry publication had reduced its frequency of publication in the face of diminished revenues. However, the industry continues to be served by approximately a half dozen major publications. 6

The industry also Čncurs substantial advertising and promotional expenses in conjunction with its participation in industry trade shows. Furthermore, the frequency and duration of such shows has been increasing in recent years. The shows are also accompanied by technical seminars at which paper machinery industry firms, chemical suppliers, pulp and paper Mills, and other contributors provide

6 The major directory providing this information for the
United States and Canada is Lockwood-Post's Pulp and Paper
Directory (Miller-Freeman Publishing, San Francisco, CA). The
directory is published annually. Pulp and Paper Canada Annual
Directory (Southam Publishing) and the annual directory issue
(May) of Pulp and Paper Journal provide similar information for
Canadian Mills. Industry trade publications serving the U.S.
paper industries include Pulp and Paper (Miller-Freeman, San
Francisco, CA); Paper Age (Global Publications, Inc., Westwood,
NJ) ; PIMA (Paper Industry Management Association, Arlington
Heights, IL); Tappi Journal, (TAPPI, Norcross, GA.); American
Papermaker, formerly Southern Pulp & Paper (ASM
Communications, Inc., Atlanta, GA.); and Paper Industry
Equipment (Hatton-Brown, Montgomery, AL). Two publications,
Pulp and Paper Canada (Southam, Toronto) and Pulp and Paper
Journal (Maclean-Hunter, Toronto) are the primary Canadian
trade journals covering the paper industry. Other specialized
publications and newsletters serve the industry in both
countries.

background on new technological developments and operating experience. In addition, machinery producers participate in seminars and training sessions offered by technical associations and private firms.

The leading U.S. trade exhibit for paper machinery is the TAPPI Show and Exhibit, held biennially in Atlanta during early March of even numbered years, under sponsorship of the Technical Association of the Pulp and Paper Industry (TAPPI). Approximately 11, 000 persons attended the most recent show in 1988 at which over 480 firms exhibited. An annual show and exhibit is sponsored in Montreal in late January by the Canadian Pulp and Paper Association (CPPA). In addition, the globalized market requires participation in shows in continental Europe, the United Kingdom, Sweden, and Japan. The proliferation of shows has evoked concern from manufacturers at the escalating costs of participation and has discouraged some producers from mounting exhibits at some major shows.

Marketing and Distribution Arrangements

Most types of paper machinery are produced on order and then shipped to and installed in a mill. Some items are manufactured for off-the-shelf sale. These items, such as joints, machine knives, doctor blades, showers, bearings, etc. May be sold through a regional distributor or representative. The major paper machinery builders maintain their own regional offices, repair facilities, parts distribution networks, and field erection representatives. These personnel provide service to Mills; most equipment is serviced in place at the mill site.

As described in detail in Chapter V, most U.S. producers maintain both foreign plants and licensing/representative arrangements. Export sales will frequently be handled through a designated representative with field service personnel provided by the representative or the U.S. plant. U.S. suppliers also are reverse licensees for foreign equipment. Licensing arrangements exist between a multitude of suppliers and some of the more significant are described in Chapter V. As the industry has internationalized, these arrangements have come to involve nearly every exporting firm. The retrenchment forced on most major U.S. producers by the 1982-83 recession also encouraged these firms to seek licensing arrangements in lieu of maintaining overseas plants.

Nearly all major mill projects are preceded by a feasibility study. Such studies are usually performed by a consultant chosen by the mill or governmental entity sponsoring the project. Paper machinery suppliers May provide considerable input, sometimes uncompensated, to this stage of the selection process. The consultant has considerable scope in influencing the choice of ultimate equipment suppliers. This firm May recommend specific suppliers to its client or it May indicate preference for machinery and equipment produced in a particular country. There is little formal evidence for such

steering of contracts in the United States. Anecdotally, the practice is perceived to exist with respect to foreign consultants. Selection of a U.S.-based consultant May provide some marginal advantage to U.S. machinfry suppliers in seeking to place machinery in foreign mill projects.

Transportation

Paper machinery, despite its great size, is easily transported. This has contributed to a globalized market for this industry. U.S.-based suppliers have consistently sought to emphasize quick sourcing and availability of spare parts in selling to North American markets.

Rail lines extend directly to the plants of paper machinery producers. Trucking is also extensively used with firms often maintaining a trucking fleet. Some smaller off-the-shelf items such as showers or rotary joints are commonly airshipped.

Foreign Facilities in the United States

Foreign-owned producers have rapidly expanded their participation in the U.S. domestic paper machinery market over the past 10 years. The resulting foreign direct investment (FDI) forms a part of the U.S. production base. Though the industry has had a multinational presence in the United States for many years, the marked shift in the balance of trade has been accompanied by a increased interest on the part of foreign producers in purchasing U.S. facilities. Examples include the following: Sulzer-Escher Wyss (Switzerland-West Germany), which bought Ohio-based Manchester Machine Company and more recently entered into a joint venture with Bird Machine Co. (Bird-Escher Wyss); Valmet, Oy (Finland), which transformed Appleton Machine Company into Valmet-Appleton; and SHW, Inc., (West Germany), which purchased the Emhart Farrell roll-making business. Other entries include J. M. Voith GmbH (West Germany), and Sunds Defribrator (Sweden).

Rather than taking over an existing facility, Jagenberg (West Germany) obtained financial assistance from the State of Connecticut to construct a new facility in Enfield, through which it provides sales, service, repair, and assembly on its product line. The Connecticut Department of Economic Development provided a construction grant to Jagenberg under a state program designed to encourage new product development in the state.

Table 2 shows selected foreign-based producers and the location of . their U.S. operations. The list is not all inclusive. It does not include companies or divisions supplying auxiliary equipment such as pumps or papermakers' felts. It also does not include firms which have opened U.S. sales offices but are known to largely rely on direct exporting to serve the U.S. market.

TABLE 2

FOREIGN PAPER MACHINERY PRODUCERS
IN THE UNITED STATES

Location (s)

Foreign- Former U. S. - of Major U.S. Nationality
Based Firm Owned Producer Plants or HQ of Parent Dates
A. Ahlstrom Corp. Warren Pumps, Inc. Glens Falls, NY Finland 1987
Peace Dale, RI
Neles, Oy Neles-Jamesbury Glens Falls, NY Finland 1987
Worcester, MA 1988
Valmet Paper Valmet-KMW Charlotte, NC Finland 1985
Machinery, Inc. Appleton Mach. Co. Appleton, WI Finland 1983
(now Valmet-
Appleton)
Flakt, Inc. Carborundum Knoxville, TN Sweden 1983
Kamyr Group, Inc. Glens Falls, NY Sweden 1952

Sunds Defibrator, American Defribrator Minneapolis, MN Sweden
A. B.

Sulzer Escher Manchester Mach. Co. Middletown, OH Switzerland 1978 Wyss, Ltd. Austell, GA

CVS, Inc. Portland, OR 1987 British Tire Stowe-Woodward, Inc. Newton, MA United Kingdom & Rubber, Ltd. Mount Hope Machinery (BTR) Company BTR Paper Group E. C. H. Will, Pemco, Inc. Sheboygan, WI West Germany

GmbH

Jagenberg, GmbH Enfield, CT West Germany
J. M. Voith, GmbH Valley Iron Works Appleton, WI West Germany

Note: Several of the buyouts-joint ventures shown above, including Ahlstrom-Warren Pumps and Valmet-KMW, involve only paper—and pulp-related businesses.

SOURCES: Various U. S. Government and private contacts.

CHAPTER II
U. S. INDUSTRY PERFORMANCE

Shipments of Paper Machinery

Shipments from the paper machinery industry declined after 1982 under the impact of recession, but recovered to a new high in 1985. As indicated in Table 3, industry shipments! rose to nearly $1.4 billion and product shipments to nearly $1.2 billion during 1982, before declining to $1.15 billion and $1 billion respectively the following year. By the end of 1986, industry shipments advanced to nearly $1.5 billion and product shipments reached $1.3 billion.

Demand for payer machinery is normally responsive to changes in demand for kraft paper, writing papers, newsprint, other paper grades, or for market pulp. Much of the equipment produced by this industry requires long lead times for production--lead times in excess of 1 year are not uncommon on large pieces of equipment.

Thus, cyclical changes in the economic health of the paper industries normally produce a lagging impact on paper machinery manufact rers. For example, when shipments by paperboard Mills declined from 1974 to 1975 and again from 1981 to 1982, shipments from paper machinery manufacturers declined from 1976 to 1977 and, again, from 1982 to 1983. Similar lagging tendencies were also true with respect to shipments from pulp Mills and paper Mills, as illustrated in Figure 2.

In recent downturns, the paper machinery industry has generally experienced its most difficult economic period 6-18 months after broad economic indicators have signalled the onset of recession. Consequently, the steepest declines in shipments of paper machinery have occurred in years such as 1975 and 1983 when overall economic performance improved. The highly cyclical nature of the paper industry has also infused the executives of that industry with caution in approaching new capital expenditures. Recession will bring cancellation of existing orders for machine rebuilds and

1 The Bureau of the Census calculates value of shipments in two ways--by industry and by product. The total U.S. value of industry shipments includes all production from plants whose primary product is paper industries machinery and also includes shipments of non-paper industries machinery products, if any, from these plants. Product shipments include all paper industries machinery products regardless of whether they are primary or secondary products of manufacturing plants.

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