Randon: Size does matter

At 63 of age, Brazil’s transport equipment powerhouse has reached the prime of business life, drawing on solid financial underpinning and long-standing experience, but still hungry as ever to forge ahead in a bullish global transport market.

In 2010, Randon was ranked as the fourth largest trailer manufacturer in the world, boasting a total production volume of 25,000 units; and also accounted for 37 per cent of the Brazilian trailer production. Now the time has come to consolidate that strength and establish a solid global brand, says Randon’s Corporate and Investor Relations Director, Astor Milton Schmitt.

According to Schmitt, the current post-crisis climate is the perfect time to cement Randon’s leading position in South America. “Our rapid recovery from the most recent economic setback is a sign of our ability to adjust and reaffirm our market leadership in the commercial road transport industry through a wide range of transport solutions”, says Schmitt, revealing that it is Randon’s adaptable portfolio that has literally spread out the conglomerate’s investment risk.

Based in Caxias do Sul in Brazil’s southernmost state of Rio Grande do Sul, the company has grown into a giant one-stop-shop containing more than 10 companies, making it the largest trailer manufacturer in Brazil and number four in the world, capitalising on the ability to produce all equipment needed to build a trailer in-house.

In addition to the head office in Caxias do Sul, the company has plants in São Paulo and in Rosario, Argentina. In Brazil alone, some 70 distributors form a gapless nationwide service network, while Randon’s international footprint covers 45 key locations around the world to ensure that each product is designed and manufactured in compliance with local transport requirements.

As a result, Randon can manufacture a whole range of specialised equipment for the grain and sugar-cane transport industry – accounting for 39 per cent of Randon’s total production – as well as liquid and dry bulk tankers, dump products, dry cargo and refrigerated transport equipment and curtain-siders, including a customised version for the beverage transport sector. In addition, the Randon portfolio can boast classic box vans, forestry equipment, skeletal trailers and low loaders. Most models are available in both semi and B-double (Interlink) configuration.

Driven by the company maxim to provide every possible transport solution, the vast Randon assortment also includes trailer axles, drums, hubs, air brakes, brake chambers, slack adjusters, suspensions, landing gear, fifth wheels, kingpins, refrigeration units, curtains, and even rail gear for the company’s bimodal trailer range. “The ability to produce all we need in-house is a unique concept in the global commercial road transport scene,” says Schmitt.

To cover every aspect of the production process, Randon has also established alliances with a range of globally renowned component experts, including US brands Meritor and Carrier Transicold and Jost Werke AG of Germany – not only to support its own technology but, above all, to allow it to enter new markets in South America and around the globe, as Schmitt reveals.

“One pillar of our business is the growing export market, which accounted for US$ 220 million (€165 million) in 2010 – equating to more than 10 per cent of our overall revenue,” he says. “The domestic market still is the key to the high performance of the Randon brand, but the pace of our export business is going up as well.”

Considering that transport equipment is Brazil’s main export next to iron ore, soy, footwear and coffee, that development loomed since 2005, when Goldman Sachs introduced the concept of the Next Eleven (N-11)*. The listing’s purpose was to identify those countries that could potentially have a BRIC-like impact in rivalling the G7 – and Randon had a close look at where to invest next.

In April 2010, for instance, Randon started a joint venture in Egypt with Cairo-based company Egypt Power, establishing a local plant specialised in the assembly of platform trailers. By 2015, the Brazilian company expects Egypt to generate an export volume of US$ nine million (€6.8 million), primarily based on simple platform models and dump bodies.

In fact, Africa is a key market Randon is examining at the moment – and one reason why the brand is not affected by the Eurozone debt crisis and the slow US economy. “Brazil’s transport equipment industry is focusing on the domestic market and emerging economies in South America and Africa, therefore we are not directly affected by any first world crisis,” says Schmitt.

Nonetheless, even economic juggernaut Brazil experienced a setback in late 2008 and early 2009, when the GFC reached a peak that affected the entire world community. “But, we were able to recover in no time and reached a new production and sales record in 2010 and 2011,” says Schmitt – revealing that the African continent is the driving force behind Randon’s upturn. Both Egypt and Nigeria are already part of the N-11, and Niger and Angola are also set to clock in double-digit growth in 2012.

Back home, Brazil is still trying to reach the pre-GFC level, when the country’s economy saw an average growth of 7.5 per cent. Analysts are now pegging gross domestic product growth at 3 to 3.5 per cent. But, there is a surge of optimism that Brazil will bounce back soon, and the government is already taking action to stimulate and strengthen the economy – including a mix of tax cuts, interest rate reductions and more relaxed bank lending requirements.

Plus, the domestic market of trailers/ semi-trailers will undergo a period of deep changes in the next four years as a result of new traffic regulations that will require the introduction of innovative technologies. Reflective markings, side impact protection systems and ABS/ EBS are now compulsory or will soon reach that status, and the market is asking for costly technology such as air suspension, disc brakes and LED lighting. And, the growing demand of tippers and specialised equipment will further boost diversification within the industry, according to a report by the National Association of Manufacturers of Highway Equipment, ANFIR.

According to Randon, that paradigm shift will impact the final cost of products and should trigger advance purchases in fleet renewals, which will likely increase the business volume in the year. Concerned about passing on minimum costs to customers, Randon has therefore devised a strategy that contemplates the development of components for its exclusive use, investments in automation and adjustment of assembly lines to the new requirements in order to keep the current levels of productivity. “It will not be an easy task, as the addition of the new components will require increased manual labour, components shift and change in marketed configurations”, states Schmitt.

As a result, he does not believe in a rapid return to the pre-GFC boom, which was fuelled by a thriving commodities market, a growing middle class and important mineral wealth. “The Brazilian market, still an emerging region, will face challenges in 2012, as we have to overcome a variety of hurdles that may decrease our competitiveness, including high taxation, capital cost, and interest rates. In addition, exchange rates depreciate due to the Eurozone crisis,” he says.

According to Schmitt, that forecast is just one more reason to invest outside Brazil. 60 per cent of all exported vehicles remain in Latin America as Chile, Uruguay, Paraguay, and Argentina keep growing at a constant rate. Other regions where the Randon brand has been gaining ground are Panama, Guatemala and, more recently, Costa Rica and El Salvador.

But, as seven of the N-11 are located in Asia, Randon’s Corporate and Investor Relations Director has already set the course to increase the company’s presence in the far east. At the moment however, only China and India arouse Randon’s immediate attention, as both market size and future outlook promise a rapid return of investment.

“We are currently beginning to do business in that region,” says Schmitt, pointing out that Randon’s preferred entry strategy is starting Greenfield projects like the company’s new friction material unit in Pinghu, China. From China and India, emerging economies like Bangladesh, Indonesia, Iran, Pakistan, Philippines, South Korea and Vietnam are easily accessible to generate future growth. “We keep monitoring the region through our strategic intelligence centre, that also helps us keep in touch with the global transport industry to guide our strategic development at an early stage.”

In the component segment, subsidiary Fras-le is the driving force of the Randon Group, generating half of its gross sales in foreign trade, especially in the NAFTA region. Randon’s braking brand Master reached an export volume of US$ 20 million (€15 million) in 2010, exporting to Argentina, the US and England. In Jost, Randon also has a strong affiliate in the fifth wheel, landing gear, axle lift, king-pin, turntable, and tow coupling segment, supplying Argentina, Germany, Uruguay, Chile, Colombia and Peru. Randon’s axle brand, Suspensys, achieved foreign revenues of US$ 14 million ((€10 million) in 2010, supplying beams to the US and England, as well as suspension systems, axles and spare parts to the Latin American market.

Regardless of the region, the 12,400-employee conglomerate has formulated a distinct selling proposition, as Schmitt explains. “We bank on the established brand name, our global reputation, product differentiation, and, of course, the competitiveness resulting from economies of scale and an integrated production process. We also think that good after-sales service and resale value influence the purchase decision, so we invest in these areas as well.”

According to the 2011 annual report, Randon’s strategy of global expansion and on-going diversification – banking on a strong, internal supply chain – already is a success. Special vehicles, trailers, semi-trailers and rail cars accounted for 49,72 per cent of Randon’s gross revenue of R$ 6,4 billion (€2.65 billion).

Nonetheless, it is not just entrepreneurship and opportunity sense that underpins Randon’s claim to global leadership. According to Schmitt, the key to success is a healthy balance between global aspiration and maintaining a certain degree of humbleness. “Of course we believe in innovation, technology and quality, but we also know that we need to value and respect our global staff, because we believe that people make an important difference in bottom line results. Plus, they are our link to the client base, and it is paramount to stay close to each and every customer. That’s the only way we can sense what they really need and build the right product for the job.”

* The Next Eleven (or N-11) are eleven countries – Bangladesh, Egypt, Indonesia, Iran, Mexico, Nigeria, Pakistan, Philippines, Turkey, South Korea, and Vietnam – Identified by investment bank Goldman Sachs as having a high potential of becoming the world’s largest economies in the 21st century.

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