The Making of a

Global Brazilian
Final Paper
Edwin Alejandro De La Cruz Bonilla

Professor: Cesar Rogelio Bustos Mendoza

Contents
Back To School.................................................................................................... 2
A New Generation Takes Over............................................................................. 3
Lesson Learned................................................................................................... 3
Brazils Participation Globally.............................................................................. 4
New Management............................................................................................... 5
The Big Crisis...................................................................................................... 5
Diversification in Brazil.................................................................................... 6
From The Beginning............................................................................................ 6
Glossary.............................................................................................................. 8

In 1961, Werner Ricardo Voigt, an electrician, Eggon Joao da Silva, a business

administrator, and Geraldo Werninghaus, a mechanic, embarked on a venture

to produce electric motors. With a capital of $11,726 USDthe partners

decided on the brand name Weg, formed with the initials of their first names.
The official name of the new firm was Electromotores Jaragua Ltda and it was
registered on June 30, 1961.
Each one of the partners had previous experience in different sectors: Werner
was an electrician, Eggon a business administrator and Geraldo Werninghaus a
mechanic. Werner had worked in a small electrical repair shop and he returned
to Jaragua do Sul to set up his own shop. Eggon was managing partner of a
company making vehicle exhaust systems and Geraldo had worked in the
machine shop of his father, he had mastered the operation of lathes, milling
machines and other mechanical devices.
Santa Catarina was a region known for ceramics, textiles and meat packing and
even though it was located outside of Brazils industrial heartland, it was
experiencing strong industrial growth attracting many new companies. So there
was strong local demand for motors, but the existing suppliers gave priority to
large established customers. The partners saw an opportunity to fill the local
market demand with small and medium companies and then they would
expand to other areas of the country.
The Brazilian electric motor market was dominated y well known brands such
as Arno, Bufalo, Brazil and Paulista along with Americas General Electric.
During the two first years they encountered many obstacles and their initial
sales were only limited to Santa Catarina. The main market in Sao Paulo is hard
to serve because of difficulties of transport and communication and mistrust of
the new brand. This forced Weg to sell its first motors directly to customers and
recruit its own distributors, who sent the representatives door to door# to
demonstrate the quality of Wegs products.
In February 1964 when the sales of its motors increased, the company needed
more space, and the decision was made to build its own factory with the
purchase of a plot near the rented plant. In October of that same year
Electromotores Jaragua set up shop in its own premises. The improvement of
the companys technological capacity allowed it to construct its own production
equipment.
From 1960 to 1969 Brazils average GDP growth was 6.1% per year, the market
for motors began to boom. To accelerate growth and prepare for future
challenges, in 1968 the founders traveled to Germany in search of technology.
They brought back designs for a new generation of motors, the first in Brazil.
In 1968, Weg obtained subsidies and financing from the Brazilian National Bank
for Economic and Social Development (BNDES) to purchase high precision
equipment from Germany in order to conquer the advanced European electromechanical technology market. Over the next two years the production line

received the most modern machine tools, requiring the creation of new sectors
and the expansion of the factory. Wegs expansion was spectacular , its growth
spurt was based on a new motor. The product was well received in Brazil and
after two years of rigorous testing, the first motors were exported in 1970. The
company started participating at international trade fairs and expanded its
domestic activity, establishing branch operation in the cities of Sao Paulo, Rio
de Janeiro, Porto allege and Belo Horizonte.
In 1972 the forecast was to triple production in three years. The company
became self sufficient in casting motor bodies as well as in drawing and
lacquering copper wire. A second factory was opened in 1974 to make single
phase motors rated at to 1 horsepower. With this completed, the product line
covered nearly all the needs of the electric motor market.
During the 1970s the company also stepped up efforts to gain international
market share. It increased its participation at the main fairs for electrical and
electronic equipment abroad and in 1972 created its first foreign branch in
Germany, called Jara.
By 1975 Weg was the largest producer of electric motors in Latin America and
the leading Brazilian exporter of these products, present in 32 countries. To
keep up with expanding demand, a third factory was opened in 1976 focusing
on making motors with power ratings from 60 to 500 horsepower. The company
opened its own steel sheet processing centre. It also centralized its laboratories
for physical-chemical, metallographic, electrical and mechanical testing and
metrology in one facility, called the Technological Centre. The objective was to
extract, absorb, and establish technology.

Back to School
At the start of the 1980s, Weg had to rethink its business strategy in response
to the crisis faced by the Brazilian economy. When the recession hit, the sales
plummeted. Unsold motors started to pile up. Weg decided not to lay off its
employees but rather establish training courses and negotiate a reduction in
the workweek and payroll of 25% occupying the spare time with classes.
The factories became schools and the employees students, taking classes in
mathematics, reading and writing and cultural matter. The company
maintained sophisticated laboratories where itw own research teams
conducted testing and assembly of prototypes, while preserving the technical
documentation on every product. In parallel, it increased technological
exchanges with Brazilian and international university research centres.
The 1980s also marked the diversification of the companys product line up.
The partners saw it was necessary to aggregate technology and solutions. In
1981 the company established a new division, Weg Acionamentos, to produce

electronic components and to develop applications for control and protection of

motors. This served as the embryo for a future division, for industrial
automation, developing programmable controllers and motor control centers.
In June of that same year, Weg acquired Ecemic, a firm making transformers in
Blumeanau, Santa Catarina giving rise to Weg Transformadores. The company
soon stood out in distribution and power transformers as well as motors, with a
strong presence in the electricity generation and transmission market. With
these developments the company had a diversified clientele and started to
serve heavy industries like those indicated above. In 1982 Weg launched its
first high-power motors, ranging from 100 to 2,000 kilowatts, and expanded its
DC motor options.

A New Generation Takes Over

In 1989, Decio da Silva, Eggons son, took over as chief executive. With
degrees in mechanical engineering and business administration, he was ready
to take charge. For the previous 10 years he had worked different positions in
the company. Coincidentally, this was the only year that Weg lost money. Just
after he took over he had to face the largest strike in the companys history,
with operations shut down for 15 days.
Weg started following a more aggressive internationalization strategy. One of
the objectives that prompted Weg to intensify its international operations was
the desire to dilute the impact of the unstable Brazilian economy on the
company. Weg was looking to systemize its internationalization process by
following a set script. Before establishing an office abroad, the company
studied the market, the local competitors, how they served customers, the
prices charged and the location of clusters of potential customers.

Lesson Learned
In 1991 the company created Weg Electric Motors in the United States, to
directly serve makers of machinery and equipment and also capture
technological trends in the worlds largest market for electric motors. The
company later became a distributor. In 1994 Weg expanded its distribution
system to Mexico and Canada, taking advantage of the formation of North
American Free Trade Agreement (NAFTA).
That same year, Weg established a joint-venture with an Argentine company o
increase its access to the international market. After two years, the new
venture ran into labour problems with the two partner companies disagreeing
over the interpretation of Argentine labour law regarding the labour liabilities
from its local partners past practices. Weg abandoned this partnership and
served as a lesson of the pitfalls of joint ventures, so later it purchased

Argentine firms rather than associating with them. In 2000, Weg acquired two
Argentine companies: Morbe and Intermatic, a producer of circuit breaker, a
product that Weg did not make in Brazil.
Weg found that it was necessary to open other branches in its main markets, to
reduce the cycle of development of motors suited for specific local needs and
provide better after sales services. It then opened branches in Germany,
England, France, Spain and Sweden. It also established Weg Australia in 1995
to serve the growing demand from the market in Oceania, forming a global
business network that included 60 countries.

Brazils Participation Globally

The company was present in 50 countries and had nine foreign offices by 1998
but Decio was not satisfied. He wanted Weg to become a global company able
to gain market share from competitors like Germanys Siemens, Switzerlands
ABB, Americas Emerson and Japans Toshiba.
The next step was to open a factory abroad, possibly in the United Stated.
Revenues from the foreign market accounted for around 20% of the companys
total, but Decio wanted more. We have three paths we can follow: acquire a
foreign company, build a new factory or associate with a local group in the
chosen country. We need a way to increase our capacity to compete overseas,
were very well capitalized and, without undue haste, are looking for
investment opportunities Decio said.
In 2000, Weg also acquired the electric motor division of the Swiss
multinational ABB, located in Mexico City. The goal was to expand presence in
the Mexican market, with its own factory making appliance motors.
In 2001 Wegs plan was to build or purchase a factory I North America or in
Mexico, with an eye on the American market. But in 2002 they purchased
Efacec Universal Motors, a traditional maker of electric motors in Portugal, with
a factory in the metropolitan region of Porto. The firm specialized in motors of
over 50 horsepower, and now the aim was to serve the European market.
The North American plans were finally met in 2003, through a contact with
Mabe, a Mexican appliance maker. Besides establishing a platform to serve the
market in the United States, the aim was to avoid the 14% Mexican tax on
imported motors. Under the deal, Weg would supply motors for washing
machines and assume the Mexican companys customer portfolio for pump and
air conditioner motors. Weg produced 9 million motors. The contract called for
supply from Brazil.
In July of that year Weg closed a commercial partnership with Japans Mitsui.
The agreement called for sales and distribution in the Asian region. Besides this

joint venture with Mitsui, a team of technicians were sent to China to map the
territory in search of distributors or resellers to participate in a partnership
similar to that in Japan.
In 2004, Weg bought control of the Chinese company Nantong Electric Motor
Manufacturing, which produced electric motors for the steel and mining sectors
and had been restructured by the Chinese government in 2001 to prepare it for
privatization. Nantong was a state owned company, so the first decision was to
buy the company instead of setting up a joint venture due to previous
experience with Argentina. Next was to implement its philosophy gradually,
fearing resistance from the companys entrenched corporate culture. Weg
transferred only a few Brazilian executives to work in China, preferring to take
maximum advantage of Chinese managers.
At the start of 2005 Weg announced investments of 207 million USD, opening a
branch in India. The company intended to double its production capacity there
as part of its goal to become the worlds largest producer of electric motors by
2007. At the end of 2006 Weg purchased 30% of the Mexican firm Voltran and
created a company for the transformer segment in North America. Voltran, was
one of the three largest companies in Mexico in this segment.

New Management
By the end of 2007, Harry Schmelzer became responsible of direct
management due to Decio da Silva stepping down as executive president. HE
moved upstairs to become head of Weg Participacoes. In March 2008 he
opened a subsidiary in Russia, intended for sales, distribution and technical
assistance for product and systems in the Russian and East European markets.
Another step that same year was the construction of a factory in India. With an
investment of %0 million USD the unit started to produce motors at the end of
2009. The factory in Mexico was finished by the end of 200 and the work to
expand to capacity in China was nearing conclusion.
During 2008 the Brazilian marked also offered good opportunities; the
countrys output of capital goods in 2007 grew 19.5% over the previous year.
Weg sought to take advantage of this phase by placing several bets. One was
to expand its industrial capacity in the country by building a new factory in
Jaragua do Sul and expanding the unit in Sao Bernardo do Campo in the so
called ABC Paulista region, where much of the states industry was
concentrated.

Weg also invested in acquisitions to expand its line of products. In 2007, it

bought Hisa, a company that produced turbines or small hydroelectric plants,
and Trafo , with factories making transformers and substation equipment in
Gravatai in the state of Rio Grande do Sul. With these acquisitions, Weg started
to design and supply small power plants. Weg also wanted to become a major
supplier of products and solutions to sugar and alcohol mills.

The Big Crisis

The global financial crisis of 2008 caused Weg to pause in its foreign
acquisitions and concentrate instead on consolidating its conquest from
previous years. The crisis was felt in the decline of net income and EBTIDA in
2008 and 2009. But as soon as the storm had passed, the company wasted no
time. In May 2010 Weg acquired shareholding control of two companies. 51% of
the ZEST Group, headquarted in South Africa, Weg marked its entry into the
African continent. In turn, the purchase of a further 30% stake in the
transformer Voltran in Mexico strengthened the groups presence in the North
American electricity generation market.
With the ZEST deal, Weg strengthened its presence in Africa, the only continent
where it did not have its own unit. Weg had maintained a working arrangement
for the previous 30 years with ZEST, which imported and distributed products
from Brazil into South Africa. With the acquisition of the 51% controlling stake,
Weg incorporated the services for assembly of industrial electrical panels and
generator groups and the provision of electrical equipment commissioning
services in its portfolio.
In Mexico the partnership with Voltran, had started in 2006 when Weg acquired
a 30% interest. Voltran made distribution and power transformers and had
revenues of US70 million in 2009. The intention was to serve the internal
Mexican market with the Voltran and Weg brands, and to export Weg
transformers exclusively to the United Stated.

Diversification in Brazil
In June 2010, Weg announced the purchase of Instrutech, a Brazilian maker of
industrial and commercial automation and work safety products and systems.
The firm made electronic sensors for industrial and commercial automation and
worker protection in extreme conditions. In December 2010, Weg acquired
Equisul, specialized in uninterrupted energy supply systems. The aim was to
expand the portfolio of services in this segment.
In March 2011, Weg announced its intention to invest US20 million to start
making wind power generators at its factory in Jaragua do Sul. It also

announced an agreement for transfer of technology with the Spanish company

M. Torres Olvega Industrial. This called for the creation of a 50-50 joint venture
in Brazil. Weg would invest capital and the Spanish company contributed its
wind generation technology.

From The Beginning

Weg began as a maker of small electric motors, and now made an extensive
line of products. The company now also produced large single phase motors
used mainly in industries making durable consumer goods, and three phase
motors used mainly by producers of capital goods. Other business units
included high-voltage motors and generators, servos, automation equipment,
transformers, and paints and varnishes. Its product range extended to
transformers and electrical control panels.
One of the companys market entry modes were by obtaining foreign
companies by buying 51% or more stakes to have full control or buying the
whole company. By gradually implementing the companys philosophy it would
take advantage of local management and therefore acquire experience and
learn how the local market was addressed.
Weg had a previous joint venture with Argentina which resulted in failure and
learned a big lesson. Implementing joint ventures was also another form of
entering foreign markets but the company would rather prefer to have full
ownership due to disagreements that could occur between the two partner
companies.
Branches all over the world played a very important role in raising revenue for
the company. Among these were offices in India, England, France, Spain and
Sweden only to mention a few but, had built a global business network that
included 60 countries.
Throughout its history Weg had pursued a policy of acquiring new
competencies relying on the innovation and development of new technologies.
Weg was already the 5th largest company in Brazil in its sector but wanted to be
one of the top companies in the world. How can the competencies developed
by Weg be sufficient to maintain the double digit growth of its main indicators?
Weg has always focused on innovation and having top of the line technology.
Even when the 2008 recession hit the company it did not lose focus and
concentrated on its home market clienteles in order to not lose them. Right
after the company was back on its feet it quickly started gaining acquisitions,
evaluating any given opportunity for growth. When acquiring these two
companies it introduced itself into Mexico and the African continent.

Systemizing its international process by following a set script is a key factor to

continue to grow. Market research is more than necessary to take place for
correct placement of any office abroad, a market study, local competitors, and
local prices are factors to take into consideration.

Glossary
Appliance: a piece of equipment, usually operated electrically, especially for
use in the home or for performance of domestic chores, as a refrigerator,
washing machine, or toaster.
Auctions: A public sale in which property or items of merchandise are sold to
the highest bidder.
Automation: the technique, method, or system of operating or controlling a
process by highly automatic means, as by electronic devices, reducing human
intervention to a minimum.
Cluster: A number of things of the same kind, growing or held together; a
bunch
Conglomerates: To form or gather into a mass or whole. To form into or merge
with a corporate conglomerate.
Dilute: To reduce the strength, force, or efficiency of by admixture.
Disclosed: To expose to view, as by removing a cover; uncover.
Dizzying: Having a whirling sensation and a tendency to fall.
Exemptions: the circumstances of a taxpayer, as age or number of
dependents, that allow him or her to make certain deductions from taxable
income.
Entrenched: to place in a position of strength; establish firmly or solidly.
Fearful: Feeling fear, dread, apprehension, or solicitude.
Foothold: a secure position, especially a firm basis for further progress or
development.
Forecast: To estimate or predict in advance, especially to predict (weather
conditions) by analysis of meteorological data.
Foreign Branch: A branch of a foreign company that operates in the United
States, or a branch of an American company operating outside the U.S. In both
cases, the branch is legally part of the company and is not its own entity. Each
type of foreign branch is subject to special tax considerations.
Foresaw: to have prescience of; to know in advance; foreknow.

Foundry: The skill or operation of founding.

Fruition: The act of making something real or complete; finished and
accomplished. "Our months of work finally came to fruition yesterday when the
project was completed."
Higher aggregate value: The enhancement a company gives its product or
service before offering the product to customers.
Incentives: something that incites or tends to incite to action or greater effort,
as a reward offered for increased productivity.
International Electrical Commission (IEC): International Standards and
Conformity Assessment for all electrical, electronic and related technologies.
Joint Venture: New firm formed to achieve specific objectives of a partnership
like temporary arrangement between two or more firms. JVs are advantageous
as a risk reducing mechanism in new-market penetration, and in pooling of
resource for large projects. They, however, present unique problems in equity
ownership, operational control, and distribution of profits (or losses). Research
indicates that two out of five JV arrangements last less than four years, and are
dissolved in acrimony. See also strategic alliance.
Leeway: a degree of freedom of action or thought.
Market void: Is a shortage that is reflected in the market.
Metallographic: The study of the structure of metals and alloys, especially by
optical and electron microscopy and x-ray diffraction.
Metrology: A system of measurement.
Milling: an act or instance of subjecting something to the operation of a mill.
(2) An act or instance of subjecting something to the operation of a mill.
Offshore: Located at a distance from the shore.
Operation of lathes: General operations on the lathe include straight and
shoulder turning, facing, grooving, parting, turning tapers, and cutting various
screw threads. Before these operations can be done, a thorough knowledge of
the variable factors of lathe speeds, feeds, and depth of cut must be
understood. These factors differ for each lathe operation, and failure to use
these factors properly will result in machine failure or work damage. The kind
of material being worked, the type of tool bit, the diameter and length of the
work piece, the type of cut desired (roughing or finishing), and the working
condition of the lathe will determine which speed, feed, or depth of cut is best
for any particular operation. The guidelines which follow for selecting speed,

feed, and depth of cut are general in nature and may need to be changed as
conditions.
Overhoul: To examine or go over carefully for needed repairs.
Pitfall: A lightly covered and unnoticeable pit prepared as a trap for people or
animals.
Power Rating: In engineering, the power rating of a device is a guideline set
by the manufacturer as a maximum power to be used with that device. This
limit is usually set somewhat lower than the level where the device will be
damaged, to allow a margin of safety.
Pump: an apparatus or machine for raising, driving, exhausting, or
compressing fluids or gases by means of a piston, plunger, or set of rotating
vanes.

Rampant: Occurring without restraint and frequently, widely, or menacingly;

rife: a rampant epidemic; rampant corruption in city government.
Recruit: When the guerrillas recruit, these young people feel they have found
the solution to their troubles: they are fed, clothed and housed for life.
Spurt: A sudden short burst, as of energy, activity, or growth.
Stake: A share or an interest in an enterprise, especially a financial share.
Standardization: To evaluate by comparing with a standard.
Steel: any of various modified forms of iron, artificially produced, having a
carbon content less than that of pig iron and more than that of wrought iron,
and having qualities of hardness, elasticity, and strength varying according to
composition and heat treatment: generally categorized as having a high,
medium, or low-carbon content.
Subsidiaries: A company whose voting stock is more than 50% controlled by
another company, usually referred to as the parent company or holding
company.
Varnishes: A liquid that contains a solvent and an oxidizing or evaporating
binder and is applied to a surface to produce a hard, transparent finish after
evaporation and curing.