Family manufacturing business gets empowerment boost to benefit the unemployable
RNEWS / 23 JULY 2018 - 14.33 / STAFF REPORTER
The empowerment transaction recently concluded by family business LESCO Manufacturing with a consortium constituted of former CEO of Exxaro Resources, Sipho Nkosi, and the Akhona Group, headed by C is a partnership with a strong social conscience – creating jobs for the unskilled and unemployable.
LESCO (light electrical switch company) formulated an innovative production model over the past 20 years that has not only grown the business but has also prioritised the hiring and training of unskilled workers. Upon this fertile ground, the members of the consortium saw a stirring opportunity to sow their seasoned and diverse business skills, to create a synergy that will lead the manufacturing company to a Johannesburg Stock Exchange (JSE) listing. The partnership’s three-fold purpose of building a billion rand business, diversifying ownership to be in line with South Africa’s demographics, and empowering the unskilled, is a fitting example of a functional empowerment cascade.
LESCO’s assembly-by-hand production model
The manufacturing company produces widely used SABS-approved accessories including switches, wall sockets, extensions and multi-plugs. But LESCO’s real innovation is in how these products are assembled. In an economic climate where manufacturing production is becoming increasingly automated in the pursuit of profits, the average unskilled worker often finds themselves unemployable. In this regard, LESCO’s unique model goes against the tide with its assembly-by-hand process. Products are deliberately designed in a way that requires manual assembly, which then imparts accelerated skills development. This model is replicable and the partnership is set to create jobs nationwide through this winning formula – which is deeply ingrained in the fabric of LESCO’s manufacturing process.
When taking someone who is unskilled and putting them through the LESCO skills development process, just 30-minutes later, they have been taught how to assemble electrical parts by hand. The assembly process operates without machinery or electricity. The current scale of production is a formidable ten million units per annum. The main assembly facility in Muldersdrift draws the bulk of its workforce from the informal settlement of Diepsloot, north of Johannesburg. In addition, a percentage of the workers are from the further marginalised disabled community – thus the company is a source of both hope and income for them.
Given the backdrop of a 26.7% (Statistics SA 2018) unemployment rate, with most of the unskilled economically inactive, it is no wonder that seasoned business leaders from the consortium saw a solution to addressing this crisis, through LESCO.
This partnership is a platform to give back
Nkosi’s first impression of LESCO enticed him from retirement, as he saw an opportunity that transcends charitable generosity by sustainably empowering the disadvantaged. Through his extensive experience with Black Economic Empowerment (BEE) transactions, he has found that, “The weakness of empowerment is that it tends to look at redressing the ills of the past while overlooking the predicament of the youth, who are the future. Efforts should be made to create opportunities to take them out of their current state. The unskilled should be developed and the disabled should be afforded life-changing medical interventions where possible. As a section of the population that is not considered work material which can contribute to society, they deserve dignity that gives them hope, employment and the chance to improve their lives. What we can do is unlock ideas which create jobs along the lines of which LESCO has already embarked. This partnership is a platform to give back to these communities”.
Diversifying LESCO’s ownership
The new partners of LESCO own 33% of the business with a view to increase this shareholding progressively. 23% of the stake is owned by Black women industrialists and the additional 10% by Nkosi. This diversification of ownership brings with it myriad backgrounds, skills, and business experience set to create a synergy that makes a profound impact on nation building.
When looking at the calibre of the consortium members, it becomes evident that the strategic partnership is projected to make a patent and tangible difference to South Africa’s socio-economic landscape. The partners mean business. Nkosi, who has been elected as the LESCO Chairman of the board, brings to the fold his impeccable track record as a director, board member and chairman in numerous blue-corporations, including Exxaro Resources Ltd, Sanlam Ltd, Eyesizwe Holdings, Gold Fields Coal Ltd and as the former President of the Chamber of Mines. He is one of the cream of South Africa’s business crop and he is ploughing that experience into LESCO’s growth.
Deputy Chairman Gosa heads up the Akhona Group and her vast experience as an investment Risk Analyst with Investec Bank; a board member of Investec Asset Management, AON South Africa and ArcelorMittal SA; through directorships in Verimark Holdings Pty Ltd, Hulisani Pty Ltd; as well as her role as a commissioner in the National Planning Commission of the Presidency of South Africa, is an immense contribution to the partnership. She and her team are fresh from concluding a landmark investment in another manufacturing concern, ArcelorMittal SA, and now Akhona has seized a golden opportunity to expand its industrial portfolio by investing in LESCO.
Building a billion rand business
This empowerment transaction sees the injection of expert entrepreneurial business leaders who intend to catapult the business into the next phase of growth. LESCO is already on an exponential growth trajectory catalysed by Chief Operations Officer, Jonathan Shapiro’s bold move of cutting out the middleman and selling direct to retailers. The result is improved brand awareness, as some of their products are now sold under the LESCO Manufacturing brand, rather than the former white-label. Together, the partners envisage taking this proudly South African brand to the world, with the long term vision of shareholders being to ultimately list the company on the JSE.
The aim of the partnership is to guide the transition from a family business to a corporation, while maintaining the core values that have distinguished the business from its competitors. A higher level of corporate governance will be introduced. Exciting forays into new markets, consolidating the existing client base, and bringing in new skills at strategic level are the order of business. Innovation and new product development is a perpetual priority which will serve to entrench the LESCO brand in the electrical industry. This transaction is forward-looking towards achieving scale, expansion into the continent and then ultimate listing.
Benefiting the man on the street
What motivates the collaboration of all these parties is the benefit for the man on the street. LESCO’s main goal is to be a leading low-cost manufacturer of high quality and safe goods that supersede the prevalent imports from China. Through strengthening its brand awareness, it will be able to cater for both the South African and international markets. However, the fundamental inspiration for the partnership is to empower the unemployable by providing employment that earns them a consistent living. The scale on which this is currently done will be grown by replicating LESCO’s job creation model and expanding it beyond the capacity of its current facilities.
Philosophy of empowering previously disadvantaged local communities
Shapiro explains the company’s ideology as follows, “The success of LESCO is all down to relationship building and faith in the company’s philosophy of empowering previously disadvantaged local communities, with skills development and jobs. We are strategic about growing the family business and partnering with the like-minded Sipho and the Akhona Group, to take LESCO to the next level. We are challenging business as usual by factoring community benefit into every step of technical innovation and product design. We uphold the integrity of a proudly South African company by doing all we can towards nation building. We are where we are as a direct result of the struggles and determination from the generations that precede us. This partnership will be our vehicle for generations to follow”.
LESCO is a light electrical manufacturer that was established in 1999 and now has several assembly facilities in Johannesburg. Its mission is to produce low-cost, high quality and safe electrical goods, while improving the lives of marginalised communities. The entity has recently become BEE compliant, with 33% black ownership. All its facilities are SABS quality approved and it has passed the Sedex Members Ethical Trade Audit (SMETA) to comply with the country’s highest ethical trading standards.
Awards and commendations include the Absa Business Award for Unlisted Companies 2015 (Finalist); the Absa Creative Council Young Jewish Achievers Entrepreneur Award 2015; and the FNB Business Innovation Awards 2016 (Finalist). LESCO is working towards being part of the Endeavor Global Network and has passed the first step of the Local Selection Panel, with the next step being the final acceptance into the Network, through the International Selection Panel.
Jonathan Shapiro is a member of Be Your Legacy – the premier leadership organisation of young chief executives in the world, which focuses on Africa’s most prominent entrepreneurs diversified among industries.
Disclaimer - The views expressed here are not necessarily those of the BEE CHAMBER