Weg S.A.

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Weg S.A.

Avenida Prefeito Waldemar Grubba, 3300
89256-900 Jaraguá do Sul, Santa Catarina
Brazil
Telephone: (55) 47 3372-4000
Fax: (55) 47 3372-4010
Web site: http://www.weg.com.br

Public Company
Founded: 1961 as Electromotores Weg
Employees: 13,503
Sales: BRL 2.2 billion ($750.85 million) (2004)
Stock Exchanges: São Paulo
Ticker Symbol: ELMJ3, ELMJ4
NAICs: 325510 Paint and Coating Manufacturing; 333999 All Other General Purpose Machinery Manufacturing; 335311 Power, Distribution, and Specialty Transformer Manufacturing; 335312 Motor and Generator Manufacturing; 551112 Offices of Other Holding Companies

Weg S.A. is the leading Latin American manufacturer of electric motors. A holding company, it is also engaged, through subsidiaries, in the manufacture, sale, and export of alternators, generators, ring motors, industrial electrical components, automation systems, programmable controls, electrical panels, and paints and varnishes. Of its 10 industrial plants, five are in Brazil, two in Argentina, and one each in Mexico, Portugal, and China. The company also has subsidiaries for marketing and distribution in 14 countries in Europe, the Americas, Australia, and Japan. Through subsidiaries, branch offices, and sales representatives, the company is present in over 100 countries on five continents.

ELECTRIC MOTORS AND MORE: 1961–89

The name Weg derives from the initials of the first names of its founders: Werner Ricardo Voigt, Eggon João da Silva, and Geraldo Werninghaus. They founded the enterprise in 1961, with da Silva, who was a bank administrator, its president and majority shareholder. Voight an electronic technician, became industrial director; Werninghaus a mechanical technician, was director-superintendent. They began production in Jaragué do Sul, Santa Catarina, turning out 146 electric motors that year. Output reached 4,085 pieces in 1962. Weg began selling abroad for the first time in 1970, when it began exporting to neighboring Uruguay.

By 1981, when Weg's production of electrical motors had reached almost 1 million single-phase and three-phase units a year, it was the leading manufacturer of these motors in Latin America. Nevertheless, the company had already decided on a program of diversification to avoid dependency on any one line of business. Its first measures in this regard did not stray far from the original purpose. Weg Máquinas was founded in 1980 to produce continuous-current motors, generators, alternators, and other electric components. Weg Acionamentos was established the same year to produce industrial systems and converters in what proved to be a short-lived and ill-fated joint venture with the Swedish company ASEA AB (later part of ABB Ltd.). Soon after, Weg Transformadores was created to administer the acquisition of a small transformer factory. In 1984 Weg traveled far afield, acquiring Penha Pescados, a shrimp-fishing operation with six ships. At about the same time the parent company purchased Michigan Tintas, a paint manufacturer that became Weg Química and expanded to also turn out varnishes, resins, tar, and turpentine. This entailed the creation of Weg Florestal for the exploitation of raw material from the pine species Pinnus elliott. Some five million trees had been planted by mid-1985. In this period Weg also engaged in grinding soybeans for oil and meal and in fish farming.

Motors for industrial use or in home appliances accounted for 80 percent of Weg's revenue of 164 billion cruzeiros (about $115 million) in 1984, when all but two of the seven company units—Acionamentos and Transformadores—were profitable. The following year Weg Acionamentos entered information technology, developing software for use in automating industrial processes.

By this time Weg was the principal business enterprise in Jaraguá do Sul, a city of perhaps 50,000 inhabitants. In order to avoid a flood of migrants to the city seeking work, the company hired people who were born there. Weg had, in its methodical way, implemented a German system for training workers that broke down each task, from the simplest to the most complex, establishing standards for quality and time spent to completion. Subjected to rigid discipline during a three-year regimen of 4,000 to 5,000 hours, the trainees emerged as either maintenance mechanics, wood model-makers, ironworkers, or electricians, if not designated for the electronics sector, in which case they received even more training. Only the most capable youths were chosen for this program. "One of the requirements is that these youths be sons of workers," Euclides Emmen-doerfer, director of industrial relations for the firm, explained to the Brazilian business magazine Exame in 1985, "because we want professionals dedicated to the company and not simply to use Weg as a trampoline leading to the university." The best of these graduates and higher-level hires were eligible for a further eight-month executive-track leadership course. During the late1980s Weg worked hard to raise its export level. In 1989, for example, it introduced an electric motor developed specifically for the market in Canada, where the government had adopted a program of reducing energy consumption. By this time the North American market was the largest individual one for the company's motors. Taiwan was another important export market for the firm, which in that year sold its products in 54 countries. Also that year, da Silva became chairman of Weg, yielding the presidency to Décio da Silva, his son. One of the junior da Silva's first tasks was dealing with a labor strike, the second in Weg's history.

SEEKING OPPORTUNITY ABROAD IN 1993

The severe recession of the early 1990s threw Weg into the red, and in 1991 it lost money—$25 million—for the first and only time. One result was a greater emphasis on the core business of producing and selling motors instead of engaging in diversification. By 1993, the business had regained its stride. Weg Electric Motors Corporation, in the United States, and Weg Europe S.A., in Belgium, had been established to drum up business, guarantee delivery, and provide technical support abroad. Cost control, beyond a 15 percent cut in employment, yielded savings such as a 14 percent drop in the company's own electricity consumption through means as simple as lowering the height of lamps. The following year Weg established subsidiaries in Argentina and Japan and purchased 15 percent of the common stock of Perdigão S.A. Comércio e Indústria, Brazil's second-largest meat and poultry processor. (Nildemar Secches, Perdigão's chief executive, became Weg's chairman of the board in 2004.)

Weg was one of three companies that won an award for quality control in 1997. It was striving to raise its productivity by at least 10 percent a year. By 1998 Weg was fifth in the world in motor production, trailing only the German firm Siemens AG, the Swiss-based company ABB Ltd., Emerson of the United States, and Toshiba Corporation of Japan. The company had almost doubled its annual revenue in the five previous years. About one-fifth of the 1997 total of $532 million came from exports. Some 600 employees were studying foreign languages with the encouragement (and stipends) offered by Weg, and 150 of the firm's employees were working abroad. Weg's profit-sharing plan provided for the distribution of up to one-eighth of its net profits to the employees.

COMPANY PERSPECTIVES

Equip our team members to be successful. Provide outstanding service for our customers. Build a profitable business.

The devaluation of Brazil's currency in early 1999 made exports cheaper and favored a strategy of globalization for Weg. The goal for 1999 was $139 million in export revenue. Another result was higher prices internally, and to combat the risk of prices spiraling out of control, the company immediately began negotiating with its suppliers and searching for ways to keep prices stable. Some higher costs were inevitable; for example aluminum or copper, necessary raw materials, were quoted in dollars, which now became more expensive. On the other hand, Weg also became more competitive domestically since imported motors, pumps, and other machines became more expensive. Weg was planning to open, late in 1999, a new plant in the Jaraguá complex that would augment its production of motors for home appliances such as vacuum cleaners and washing machines. Weg was also about to open a new factory for transformers and to increase its production of generators and high-tension motors.

A TRUE INTERNATIONAL ENTERPRISE: 2000–05

Weg initiated a new international expansion in 2000, when it bought an Argentine factory. Next, it began to produce engines in Mexico, and in 2002 it acquired a factory in Portugal. The following year it established subsidiaries in Colombia and Chile. In 2004 Weg opened the largest industrial electric-motor manufacturing plant in the world. This new 9.5-million-square-foot facility was located next to the company's existing Jaraguá plant. Here, as in the other Brazilian manufacturing facilities, Weg controlled all production steps, from the foundry works and stamping to enameling and packaging. Weg also claimed the world's largest cast-iron-frame motors, eight units of which were being used in a Chilean copper mine.

In 2004 Weg was a company with annual net sales of BRL 2.2 billion ($750.85 million, in terms of the average currency rate during that year). Exports accounted for about 40 percent of the total. The company produced 10.42 million electric motors. Weg held 70 percent of the domestic market in electric motors and was exporting them to 80 countries. Electric motors accounted for 56 percent of sales, with three-phase motors, which were principally capital goods, representing 35 percent, and single-phase motors, chiefly used in durable consumer goods, 21 percent. High-tension motors and generators accounted for 12 percent of sales; automated equipment, 12 percent; transformers, 7 percent; paints and varnishes, 7 percent; and motor controls systems, 6 percent. The company continued to focus on industrial solutions within Brazil, with systems of industrial automation, construction of substations, and furnishing of equipment and services in order to install hydroelectric, thermoelectric, and wind-generation systems. It was in the process of establishing a plant in São Bernardo do Campo, São Paulo, for the production of high-voltage motors and generators.

The company bought a factory in China in 2005, becoming only the fifth Brazilian enterprise to do so. With Chinese wages about 30 percent lower than those in Brazil, this new factory was seen as a low-cost means of supplying the Brazilian market as well as a base for selling Weg's products in the Far East. However, negotiations were lengthy and required immersion in the local culture, understanding of its nuances in communications, and general confidence-building. "The Orientals never say anything in a direct form," Weg's Asian-division director told Flévio Costa for Exame. He continued, "Much time passes before accepting or rejecting a proposal."

KEY DATES

1961:: The company is founded by three residents of Santa Catarina state.
1970:: The company first exports its products, to Uruguay.
1980:: Weg begins producing electrical components other than motors.
1981:: Weg is South America's leading producer of electrical motors.
1984:: The company begins making paints, varnishes, resins, tars, and turpentine.
1985:: Weg Acionamentos S.A. begins developing software for automating industrial processes.
1989:: Weg's products are sold in 54 countries.
1991:: In the midst of a recession, Weg loses money for the first and only time.
1998:: Weg has almost doubled its annual revenue in five years.
2002:: The company has acquired factories in Argentina, Mexico, and Portugal since 2000.
2005:: Weg purchases a manufacturing plant in China to make electric motors.

Although a public corporation, Weg remained, in 2005, closely held, with family members of the founders holding almost all the common shares. Two of the founders had retired, and the third, Werninghaus, had died, but Décio da Silva, Eggon's only son, remained executive president, and three children of the founders were on the six-member board. The corporate culture, as described once again in an Exame article, this time in 1998, was one of "Prussian" order, efficiency, and precision that perhaps belied popular conceptions of Brazil. The 12 children of the founders were enrolled in the 1970s in a program that included courses, foreign languages, general culture, and travel, supervised by Gerd Edgar Baumer, vice-chairman of the board. Family members who wanted to work for Weg were required to follow the same steps as other employees in order to prove their competence. Da Silva himself had passed through a rigorous apprenticeship in every operation of the business and had tained experience working for other enterprises in Germany and Italy.

PRINCIPAL SUBSIDIARIES

Weg Australia Pty, Ltd. (Australia); Weg Electric Motors Corporation (United States); Weg Equipamientos Eléctricos S.A. (Argentina); Weg Euro Indústria Eléctrica S.A. (Portugal); Weg Europe S.A. (Belgium); Weg Exportadora S.A.; Weg Indústrias S.A.; Weg México, S.A. de C.V. (Mexico); Weg Nantong Electric Motors Manufacturing (China).