Buckets of determination
The VR in VR Group stands for John Van Reenen, and in many ways the company reflects the manÔÇöresilient, single-minded and, in a word, entrepreneurial. John OÔÇÖHanlon talks to him about building a global business.
Being fired from oneÔÇÖs first three jobs doesnÔÇÖt look good on any r├®sum├®, but after the third time, John Van Reenen had already decided the only person who could employ him successfully was himself. He was a qualified chartered accountant who couldnÔÇÖt settle for sitting in the back office and being told not to meddle with marketing or production.
That was 34 years ago. His first venture into supplying high-strength abrasion-resistant steel to South AfricaÔÇÖs mining industry imploded, not because the market was wrong but because of partnership issues, so in 1992 he picked himself up and went straight back into the business of servicing the demand for the best grades of steel.
Since then the story has been one of steady growth based on South AfricaÔÇÖs long engineering tradition. ÔÇ£We were the only company importing high-quality steel from Swedish Steel AB, and we had an agreement with BHP Billiton to develop fabricated steel dragline buckets to supersede the cumbersome cast iron equipment that had been the surface mining industry standard.ÔÇØ So in 1995 VR Steel started a dragline division, entering into a manufacturing partnership with Barloworld, the local Caterpillar dealer. This company was sold to Caterpillar in 1998, with VR Steel continuing to distribute the product until 2003, when Van Reenen decided to launch his own brand.
A 12,500-square-metre facility in Alberton near Johannesburg manufactures new equipment, and a smaller site 200 kilometres to the east at Middelburg repairs the dragline buckets as well as the truck bodies, rope shovel buckets and hydraulic shovel buckets and other steel equipment that VR Steel started to manufacture under its own brand in 2008.
The VR GroupÔÇÖs steel division is still the largest part of the business. VR Laser Services, based at Boksburg, imports steel from Sweden and Finland and is the biggest supplier of armour plate in South Africa. Vehicles for cash in transit and civil security form one niche market, but the divisionÔÇÖs biggest customer is Land Systems South Africa, a BAE subsidiary that supplies armoured vehicles to defence forces all over the world.
If the steel business is larger and more mature, the dragline division is the fastest growing, or it was until the recession started to bite, says Van Reenen ruefully. ÔÇ£The mining equipment business has dropped off to less than half what it was, but we are picking up a lot of repair business as opposed to new business.ÔÇØ The mines may not be buying much new equipment in the credit squeeze, but that means that they have to spend more on getting the most out of the equipment they already have, and thatÔÇÖs keeping the cash coming in.
For mining companies, equipment is a massive capital burden. A dragline bucket weighs 45 tons, its life is spent scouring across rock, and it wears down quickly. Every four to six months they have to be either repaired on site or sent in for service, and that costs between 600,000 and 1.2 million Rand (Ôé¼54,000 to Ôé¼108,000) every time. ÔÇ£Our customers like to keep their costs fixed, so ten years ago we came up with a solution they really like,ÔÇØ says Van Reenen. ÔÇ£We went to the mining companies and offered to maintain these buckets on a cents-per-cubic-meter basis.ÔÇØ The company pays a charge based on the amount of material the bucket has shifted since its last service.
Customers loved it because for the first time they could plan a significant element of their overhead. ÔÇ£It helped us to gain a lot of market share,ÔÇØ Van Reenen claims. ÔÇ£When you buy a large piece of capital equipment, you take on a lot of responsibility with the ownership of that equipment. Now we take over that responsibility. We make sure it is properly maintained, and we also make sure that all the new upgrades that our research and development team come up with are installed in the older buckets as they come in for repair.ÔÇØ It makes them last longer and produce more, he says. ÔÇ£The mine wins and we win.ÔÇØ
VR SteelÔÇÖs Middelburg workshops have had the interesting effect of turning the company into its own customer. By monitoring the problems that recur, it can use its engineering team to create a solution. The solution is trialled, and if it works it becomes an upgrade. ÔÇ£It guarantees continual improvement on the product, and it means that all buckets that are digging today are 2009 models.ÔÇØ Now the service is being extended overseas. A remote mine in Australia, for example, can opt to pay the fee, deduct the cost of its own labour, and VR will supply the steel and expert engineers to ensure that it is repaired to specification, with all upgrades.
VR Steel put itself on the international map when it took a stand at MINExpo 2008 in Las Vegas last September. It had already opened subsidiaries in Australia and China and since the show has appointed agents in Chile, Brazil and India. ÔÇ£Although the domestic market has dropped off significantly, at least there have been some very interesting developments overseas,ÔÇØ Van Reenen says. ÔÇ£For example, weÔÇÖre about to send our first drag chains to China, which was a market we had never previously considered. China is looking like a very good market for us, but itÔÇÖs a long-term project; to break into the China market youÔÇÖre looking at five to seven years.ÔÇØ HeÔÇÖs already supplying dragline buckets on trial to India and truck bodies to Brazil and Chile, countries where thereÔÇÖs little if any dragline mining.
Van Reenen is an enthusiast for social responsibility, less so for BEE (Black Economic Empowerment), which he thinks has done little for the working man. Accordingly, he has put his companyÔÇÖs weight behind sponsorship and training initiatives that make business sense as well as political sense. ÔÇ£ThereÔÇÖs a huge skills shortage in South Africa and not enough access to education,ÔÇØ he observes. VR sponsors students at the University of the Witwatersrand in Johannesburg, giving them work during the vacations and two yearsÔÇÖ employment after graduation.
Of course, he hopes they will become long-term employees and help spread the companyÔÇÖs footprint overseas. And he strongly believes that CSR (corporate social responsibility) helps the companyÔÇÖs image with its customers better than any amount of PR schmoozing. Now he returns a proportion of the group profits to customers, allowing them to decide how this should be applied in their own social responsibility programme. Again BHP Billiton was the first to join this scheme.
ÔÇ£They said they would like us to fund three full sets of playground equipment in three nursery schools and give them each a donation, which we did,ÔÇØ says Van Reenen. ÔÇ£Now everyone in Billiton, all around the world, knows that we are not only doing what we think is correct but supporting training and social responsibility programmes.ÔÇØ Anglo American and Xstrata are both expected to follow suit, he says.
John Van Reenen is very keen to see South Africa develop into a meritocracy and is convinced that this will happen quickly if its young people are given education and fair opportunities for employment. ÔÇ£The country is 85 percent black, so there are six bright black youngsters to every one bright white kid.ÔÇØ The other bee in his bonnet is research and innovation. ÔÇ£I say to my customers, ÔÇÿIf I canÔÇÖt save you money then donÔÇÖt buy from me.ÔÇÖ If youÔÇÖre doing the same thing as you did last year, then you havenÔÇÖt got much of a future in business.ÔÇØ