South African motors, energy and electrical engineering firm Zest WEG has embraced the true meaning of operating as a fully local business – working with local suppliers, using local content and developing local skills.
And the benefits this offers the company, and the South African economy, extend far beyond the obvious, CEO JULIANO VARGAS tells LAURA CORNISH.
It was exactly 10 years ago when Brazilian electrical equipment and component manufacturer WEG bought into the Zest Electric Group (as it was known then).
That acquisition, which gave WEG immediate and direct access into the South African and African markets has since then delivered a multitude of benefits to the now Zest WEG, which today incorporates five manufacturing entities across the country.
Understanding the true meaning of being local
WEG was established back in 1961, thousands of kilometres from the capital city in the southern region of Brazil, which at the time was a remote territory with no operating industries.
“This required a strategy that saw the business inject the necessary skills sets into functioning as an independent, fully local business – because we had no alternative,” starts Vargas, who started his career in Brazil with WEG 22 years ago.
“This has ultimately been a very successful strategy for the business and has become the foundation upon which we build and develop all the companies we own.”
And it is local process, local efficiency and local innovation – the principles Vargas describes as WEG’s core DNA, that has since been applied to and injected into the Zest WEG group of companies, whose product and solutions offering today includes energy generation, substations and electrical infrastructure, automation, panels and E-houses, distribution and power transformers, mini-subs and generator sets.
“Having successfully done so in other territories, including the United States and China, WEG was confident it could bring its local mindset to the African market,” Vargas highlights.
“With a +50 year locally driven business track record in Brazil and other countries, I could see our newly acquired South African businesses needed to be brought up to speed however. This entailed training and investment into not only what needed to be done, but helping our employees understand why,” he continues.
From 2015 – 2019 WEG injected more than 25 000 hours of time and invested heavily in training, skills development and technology transfer, bringing people from its global factories to South Africa and sending Zest personnel overseas as well, over and above the installation of state-of-the-art equipment and software.
In essence, with the necessary skills and training completed, Zest WEG now operates as a truly local business, applying WEG’s global manufacturing productivity logic – with optimised and increased production volumes and flow thanks to consistency and standardisation of parts and processes.
“These benefits extend to our clients, often beyond their own knowledge, which of course includes significant cost savings,” Vargas highlights.
The process and principles are not without challenges though the CEO notes. Scale and quantity remain the biggest difficulty when achieving sustainable local manufacturing capabilities.
Overcoming communication and education levels is another hurdle that requires constant attention. Understanding cultural differences should also not be underestimated. Yet in spite of this, Vargas believes Zest WEG has overcome these challenges and today its manufacturing productivity is equivalent to and in some cases higher than WEG’s.
“And thanks to improved working relationships with our unions and recognition through incentives, our employees understand the value they offer our business and this too is part of achieving the superior productivity levels we now realise.”
A black economically empowered business
Fulfilling a transformation/compliancy quota is naturally another aspect to WEG and Zest WEG’s local business strategy. “Both in Brazil and South Africa, the business has embraced the South African government’s black economic empowerment and transformation logic which we started many years ago and fully committed to in 2017,” Vargas shares.
Because WEG is a member of the BRICS Business Council (representing Brazil), discussions with the Department of Trade and Industry (dti) were easily facilitated and consequently, the company has been able to engage with and understand the requirements associated with the local content in South Africa.
“The conversations we’ve had has helped us to understand the dti’s objectives, how its calculated and enforced, and we’ve embraced it fully.”
And while achieving this has been a multiple year process, today Zest WEG has almost a 90% local content capability for its transformers and more than 70% local content capability for other products such as E-houses and panels.
“With minimal exposure to long lead times for parts from Europe, China or the US, and no exposure to exchange rates and consumption bubbles, the cost saving benefits are significant, while giving us full predictability and control of our own supply chain,” Vargas points out
This could only be achieved through the skills training and development of local suppliers – again reinforced and supported by parent company WEG. Enterprise development is not just a box ticking exercise, but one the company believes can add true value to the business to make it more competitive and more independent.
Accepting this ideology was a turning point for Zest WEG’s BEE strategy and simply demonstrates further the company’s commitment to positioning itself as a local business.
In support of this statement, Vargas confirms Zest WEG invests much more than the 6% of its payroll demanded by B-BBEE in local training. As a result, the company will soon employ its third electrical engineer coming from a fully sponsored bursary programme implemented a few years ago
And not only is the company a South African viable business – it is gaining momentum across international territories beyond Africa, including the Europe, Middle East and Australia – “with our 100% South African technology and 100% South African labour and component,” Vargas concludes.