CLT.biz Insights 16.10.25
Featured In This Issue
Lighting Africa- Delivering Electricity to Transform Lives
Former Duke Energy CEO, Jim Rogers, author of Lighting the World!
Delivering Electricity to Transform Lives
View Conference Video: https://www.youtube.com/embed/e6TzX1600PA?rel=0&autoplay=1
Jim Rogers is and always has been more than just a big thinker. Of his 25 years as the chief executive of electric and natural gas utilities in the U.S., he spent the last seven as head of Duke Energy, helping it grow into the largest regulated utility in the United States. Since stepping down as CEO of Duke at the end of 2013, Rogers has been focused on another one of the biggest challenges on the globe—how to bring energy to the1.2 billion— roughly 1 in 5—people in the world without electricity.
The University Fellow, Duke University Rubenstein Fellows Academy, and former chairman and CEO was keynote speaker at the Charlotte regional conference Energizing Africa Through Partnerships, produced by E4 Carolinas.
The Carolinas, believed to be the largest energy economy in the eastern United States, is emerging as a leader in sourcing energy services, products and project development facilitation in sub-Saharan Africa. At the conference, African and U.S. energy policy officials and executives engaged in the Africa-Carolinas energy trade met to learn about opportunities and develop partnerships to pursue a wide range of projects.
Rogers also provides examples of three companies—Powerhive, M-Kopa and Off Grid Electric—that have been especially innovative and have great strategies for bringing electricity to all parts of Africa.
In the following excerpts (edited for brevity and clarity), Jim Rogers provides his insights into the business opportunities in Sub-Saharan Africa and offers examples on how to succeed in business in this substantial economic development challenge.
Thank you all very much for being here and focusing on the opportunities for doing business in Africa; there are so many opportunities there.
I see Africa through the lens of electricity and energy; I see it through the opportunities that are presented. You know, my experience in Africa is limited—at Duke we used to own a company in Zambia providing electricity to the copper industry. It’s a very cyclical business, and when the business would dip, we’d then build a transmission line to provide that electricity into South Africa or the southern cone of Africa, also generating in Kenya. So the experience there is limited, but most recently I’ve done two things that have allowed me to go deeper, and have a more profound understanding of what’s going on in Africa, what the opportunities really are.
One is I wrote the book about the challenge of bringing electricity to the 630 million people that have no access to electricity. To me that’s stunning. It’s two times the number of people in the United States, almost two times, who just don’t have access to electricity, so that’s remarkable. And then there are tens of millions of people that are connected to the grid, but have intermittent access to electricity, and all this is in the context of 1.2 billion in the whole world with no access, and a billion people connected to the grid around the world, but only with intermittent access.
It’s hard to life your life, hard to plan your life, difficult to run a business when you don’t know when the power will be on or off. So that’s a great challenge—to do business in that context. So I’ve learned a lot writing the book, learned a lot talking to really smart people and really trying to get a profound understanding of what actually is happening and what the opportunities are.
The second thing I did is, just in May of this year, I went to South Africa and Cape Town at the African utility week, and there I had a chance to facilitate conversations with about 20 of the CEOS, leaders of state-owned utilities in Africa, and that gave me a more profound understanding of the challenges—the challenges of building generation, the challenges of building transmission, and you know there’s a number of power pools that have evolved in subsets there in Africa.
As it turns out, I wrote my book, solely on the 630 million with no access in rural areas, and I’ll talk more about that in a moment, but that’s really the background that I bring to the conversation today.
Electricity is so ubiquitous, it’s really back of mind if you live in the U.S. or you live in Europe, or any high income country around the world. It is not something you really ever think about, and as the CEO of Duke, I was delighted that you took us for granted. There were only two times you ever reached out to talk to us: if we screwed up the bill, you’d call us, and if the power was out. Those aren’t exactly experiences that you can say are warm and fuzzy experiences with your local utility, but when I look at the challenge of no access, it’s really remarkable.
Actually I would dare say, people from high income countries around the world have a blind spot with respect to access to electricity, because you never live without it. I mean, maybe my grandfather lived without it, maybe someone in your family, but I’d say most people in this room have not been without electricity in their lifetime, and so when you have it you don’t really know what you’re missing, or the role that it plays in your life. That’s why this blind spot exists. Let me just describe the blind spot.
People talk a lot about economic development in Africa, they talk about health issues—the need to improve the health system. By the way, there are a billion people that go to medical clinics around the world that have no access to healthcare. They talk about education—that there are millions of people that go to primary schools with no electricity. They talk about lifting people from poverty. But what they don’t talk about is bringing electricity to the people that don’t have access.
I’d say that the U.N., which is charged with responsibility of understanding poverty around the world and the opportunities—the U.N. when they did the millennial goals in 2000, never mentioned energy access. Well they corrected that. In September of 2015, they made energy access a sustainable development goal for the period of 2015 and 2030. That’s really important to countries, such as here and Africa to have that as a goal.
But what they haven’t done yet, is make access to electricity a basic human right. Only in 2010 did they make clean water and sanitation a basic human right, but I personally believe and I argue in the book that basically access to electricity is a basic human right, and I believe that because it enables better medical care, it enables better and more efficient farming, it enables education. Just go into the list of all the things it enables, and then you realize that is foundational for every society to have, and very important for people throughout the world to have access to it.
I guess maybe I should kind of stop for a moment and share with you why I wrote this book. You know having spent 25 years providing power, in the U.S. primarily and other places in the world, and then becoming aware of this issue, I said, “You know, this needs to be fixed, and I’ve spent my whole life fixing problems. This needs to be fixed.”
I started writing a book and then I realized that, to my surprise, I came up with a conclusion that extended the grid to these rural areas in the most affordable option. Providing solar electricity was the most affordable option because across the world, not just here in Africa, but around the world, there are several billion people who live on less than two dollars a day, so capability to pay becomes a really important thing when you think of building out.
And then you look at the state of the utilities in these countries. They have limited resources, and they’re working really hard every day to build resilience in the system, to make them more reliable, to extend the grid, but they really don’t have the funds. Nor does the country have the funds to extend the grid to every home, to ever business throughout the country.
The question is, do you try to fund the state-owned enterprise to extend it or do you come up with another model? In the course of writing the book I came up with a notion of doing solar—and by the way I couldn’t have written this book five years ago because the price of solar was much higher. From 2008 to today the price of solar has fallen 80 percent—think about that—so now it is an affordable option. Although there is reluctance to embrace solar. Because people say, “That’s not first world power.” First world power is coal, it’s natural gas, it’s nuclear, it’s not solar. But I’m quick to say solar is 21st century power, because the power systems we built in the United states are retired and are going to be replaced by 2015 and solar will play an increasing role as the prices fall and as more technologies step up.
So this notion of solar in these remote areas makes sense, and it’s affordable, because the number one problem is the use of kerosene. Kerosene for light, but using kerosene even by extremely intelligent understanding can lead to fire, and inhalation of the fumes from burning kerosene, huge problem. If you can replace it with a solar lighter or you can replace it with a home solar system—I mean I think of the solar as a ladder. On the lowest rung is solar lanyards that charge cellphones, next rung is home solar systems, next rung bigger solar systems, and then micro grids. All of these are being deployed here in Africa.
And I think the opportunities are really great to make that happen because people are pricing electricity to match the cost of a liter of kerosene. Think about that—if you’re going to compete with kerosene, let’s get the price right. So that is going on in many places there.
I think the other challenge is even the World Bank, which has the duty and responsibility to loan money and to finance a lot of build out of power plants and infrastructure of the world, they only allocate one and a half percent of the dollars they have to provide renewable energy in the rural parts of Africa. That’s where the 630 million people are. So they need to rethink, because they had that same first world power notion, that I need to build a coal plant, I need to build a gas plant. By the way all of these need to be built to fill out the infrastructure of the utilities that are there, but even that won’t be fast enough to extend the grid as providing a more renewable system in these remote areas because the goal line is to get these done by 2030.
Let me just tell you a basic fact, if we maintain the current “business as usual approach” to energy access between now and 2030, we will still have 630 million people without access to electricity given the growth and the population in these countries. So we’ve got to accelerate our efforts to make this happen. That’s where the business opportunity falls. Let me for a moment talk about the challenges, and then I’m going to quickly talk about some business models entrepreneurs that are on the ground are doing today.
Let me give you a sense, because the notion of bringing electricity to the rural areas of Africa has captured the imagination of people around the world, and has captured a sense of “Yes, we can make money!”, but more importantly we can make a difference. Millennials today—I’m a baby boomer, I’d like to think I’d try to make a difference—but millennials today do not just want to make money, they want to make a difference—they want to have a life with purpose.
Let me quickly talk to you about the challenges. The first challenge is really government and government policies in these countries. One is, there’s often tariffs on solar lanyards or home solar systems, our micro grid equipment. So the important thing is how do you work with the government to reduce or eliminate tariffs, because they don’t manufacture these things in the country, so you’re not protecting an industry within the country.
The second thing is, a subsidy in a lot of countries like in Africa, is kerosene. So they’re subsidizing the cost of kerosene. In some countries like Tanzania, Kenya, have eliminated the subsidy of kerosene. More countries need to do that to allow solar (solar lanyards and home solar systems) to compete on more of a level playing field.
The benefits are overwhelming and easy to demonstrate. With respect to solar, first it’s kerosene and that needs to get done. And then there’s kind of a difficulty sometimes of state-owned utilities not so sure they want to see other people come into the country and provide electricity in the rural areas, and that’s a more complicated story, in terms of what happens.
It’s really important to get governments on the side of the people in terms of bringing electricity to remote areas of Africa—it’s critical. There’s a whole different conversation we can have about the political reasons that governments do not want to see electricity in those areas, I don’t need to go into that, but it’s there. There’s all sorts of issues around corruption in some of these countries. I’m not going to talk about that, but the governments have got to get the policy right to allow acceleration of electricity in these rural areas.
The second impediment is finance; we’ve got to get the World Bank right. We’ve got to get the African Development Bank thinking about this better. We need to develop the number of local banks. We need the World Bank to work with local banks to fill capacity in the local banks.
I remember getting in the wind business in the US. Banks had not funded wind projects, so all you had to do is go to the Netherlands to find banks who have had a lot of experience funding wind turbulence to get the money. I mean I’m talking a number of years ago. U.S. banks got it, and they’re all on board and loving it. But in the early days, they had no experience of lending money on a wind farm. We’ve learned a lot working other banks in other parts of the world to be able to fund our efforts in the early days. That needs to happen in Africa.
There are not many local banks, or even with local banks that have no risk, with an appetite for investing in energy infrastructure. Working with Africa developing a bank and the World Bank, I think improves and builds a capacity to deal with the risk and to loan money. Maybe in the early days a World Bank or African Development Bank provides 90 percent of the loan and the local bank does 10, and over time that percentage changes as they get more comfortable with the risk and have greater capital to deploy.
So, government policy is number one. Number two is finance, and by the way private equity is now being invested in companies in subsidies here in Africa, in the energy space. Hadn’t happened before, particularly with some of these companies I’m going to mention. So, the financial problem needs to get solved. Third thing, is really an issue of technology, and I mentioned the solar ladder, the build-out of micro grids is happening, there’s a learning there. So the technology is being deployed, storage technologies are coming forward. The math around deployment of those technologies is improving.
The other thing is capability to pay, and there is limited capability to pay, which makes it difficult, but a number of people have known business models that install, not perfectly, install the capability to pay. So those are the major challenges to deploy now. There are a lot of other people coming into the country. The Chinese are in these countries in a big way, but they don’t really work with the people in Africa. They bring their own workers into these countries to build roads, they build power plants, they build dams. That’s going on.
I think there are great opportunities for companies to do business in Africa—but they need to get this mantra down. First, listen. Second, engage. Third, recruit. Fourth, train people. Fifth, empower.
Every company that takes that approach and builds the capacity to lead, and builds those skill sets, those are the companies that will, in my judgement, differentiate from everybody else, whether it’s the Chinese or French or anyone. I think those companies are building capability and capacity within the communities. They have a higher chance of doing well over a long period of time, and being embraced, and not just in these communities and villages. But also they will be embraced by the government over a longer period of time, and I think that’s really important.
Now, let me quickly tell you about three companies, and I know all three companies. One’s called Powerhive. It’s run by a guy in San Francisco called Chris Hornor. Powerhive is in West Kenya, and they got the first government franchise to build a micro grid in that area. So it’s a really interesting model to take a look at, particularly on micro-grids, because most of the micro grids in the world are being deployed in India, not in subsets in Africa. We could have long conversations about why that’s happening that way, but Powerhive a good company to check up on.
Another company is M-Kopa Solar in Nairobi. I’ve been to their headquarters, a remarkable facility. I was actually there on family day, so everybody was there with their kids, but I think they call it Fun Day not family day. Everybody was there and it’s just an incredible campus. They have sold small home solar systems to over thousands of families/ homes. Pretty remarkable what they’ve been able to do, and they probably, of all the companies I’ve looked at, are doing the best job, are moving faster, are moving and scaling faster than anyone. Their co-founder and CEO is Jesse Moore, he’s a Canadian, graduated from Chapel Hill, actually tomorrow he will be in Chapel Hill getting a distinguished alumni award, and I think he’s going to stay around for the game in the afternoon. This guy is amazing; he’s raising his family in Nairobi. He has two children—one was just born about a month or two ago, there.
He is committed, but when you walk through his company the people there—they are Kenyans, working. People he’s developed, he’s trained, they’re working—their sales floor is powerful. They have a pay-as-you-go model, where they basically use the convergence between cell technology, the Internet, solar, and then a concept of local banking. You put all those pieces together, you can build a business model that works.
The great thing about their pay-as-you-go model is they’re doing something also very valuable for the people of Kenya. They are building credit histories, because they have a credit history payment, and you know we don’t value that in the United states…You don’t value that until you don’t have it.
I remember an early part of my career where I had kind of perfect credit, but the thought that you don’t have a credit history makes it difficult to buy homes—to buy anything. So I think the byproduct of providing electricity is building credit histories for people here. So M-Kopa to me is kind of setting an example.
They just received significant funding from a private equity group—one of the two companies and the first company to this space to have gotten private equity funding.
The third company is Off Grid Electric in Tanzania. It’s run by a guy named Xavier Helgesen. Xavier went to Notre Dame and then to Oxford, and basically when he was in school he conceived the idea of doing this, and then built a business, there. In Tanzania, basically only eight percent of the people have electricity, so the opportunity is great.
Interesting business models, interesting challenges, and it’s really all about recruiting. I mean all the things that I said in the mantra—you know, listen, engage, etc. Those are examples of people that are really working hard to add value and make a difference. I think it’s critical; it’s a great mission. It’s a great opportunity.
The ability to change peoples’ lives is great, and it’s a huge opportunity. So as you all think about the future, you think about opportunities, and know that there’s a number of companies here, part of E4 Carolinas. It is a huge, huge opportunity to invest in the future. With that I’ll stop and open it up to any questions that you all might have.
Yeah, I’m wondering if you were bold enough in your recommendation about what is the past and what is the future. I remember being in China and advising them on transportation infrastructure—“Please don’t do what we’re doing because we know we need a revolution. So if you build on our model, you’re going to build a problem.” So I’m wondering if you were even bolder in Africa—one of the most diverse environments on the planet—about to convert, building an energy network into that environment. Would you even be thinking that you should maybe be bolder about what the 21st century is about, as a way of thinking about energy?
Well, I thought I was being fairly bold. I guess the way I would respond to that—it’s truly a good question. It’s the right question, because you know, you have almost a blank sheet of paper and the ability to build distributed, renewable systems. I mean, in the ideal world that you discover new ideas and as people start up their economic development, they develop the capability. By the way, 50 percent of people in these rural areas—not different from the United States in the early 1900s—most of how they make money is either farming or in agriculture.
So if you could improve—for example the irrigation is huge, and there’s a lot of solar applications in all these areas—but this notion of going from solar panels to a home solar system, and actually you should design a home solar system so when the day comes it can turn into a micro grid. You can connect all the devices to have everything work as one system. And actually the way to think about this is that’s exactly the way the United States built the grid we have today. We went to cities, I mean I think about where we were in 1910 and 1920, we really built essentially micro grids in this city and that city and that city because of the density of the population, and then we started combining these city utilities, building transmission lines to connect them—and that’s how they got built.
The opportunity here is, with solar, to do it cheaper than extending the grid. Now I’m a pragmatist. I believe we are going to have to still build, whether it’s hydro facilities, utilities scale to solar, wind in some places—not in as many as you’d think, but you really need to do that for the existing grid, because the other practical point is some places the grid makes sense to extend it out to the rural areas, other places it doesn’t.
I’d say there’s a great debate about, “Well, if you’re not giving people enough electricity to build factories, to build other economic development, you’re not going to give them an opportunity to climb out of poverty.” I think that’s kind of wrong-headed, I think you have to think about… it’s not an overnight thing, and plus if you wanted to you couldn’t build it and extend the lines, because nobody can pay for it—not the people, not the government. So this goes a little slower, but the bottom line is it gives people a chance.
I think solar storage, micro-grids, the whole solar system, I think that’s the right way to go. The other thing I left out is so important—there is a huge desire to move beyond lighting. Lighting is great for a zillion reasons—it’s safety, it’s better lighting than the kerosene light, but the other thing is, people immediately want a new, and this is what’s happening—low energy, hyper efficient appliances—people love irons, they love fans, they want radios, they want TVs. I mean probably not in that order, probably in the reverse order.
The important point here is there is a huge opportunity as we build these very, super-efficient appliances, to come back into the United States and other parts of the world. Let’s build super-efficient appliances there.
I have a pretty specific question for you. You really caught my attention with I think it was off-grid in Tanzania—saying they have a pay-as-you-go model. I think if companies were able to go straight to retail, it would really change the game on a lot of things. You mentioned it’s not just energy, but it’s also TV and other stuff. So what I’m interested to know is that a model that they can replicate? Because say if you were selling a TV, direct retail, and you had an agreement with off-grid who has access to the power. That “Hey, if you don’t pay your bill, we’re shutting off the power, too, along with the TV—if they could replicate that model it might be able to allow a lot more companies to go in there if they could sell direct-to-retail as far as a government sale or working with some of the private businesses there.
Every country is not like Kenya, but in Kenya, where about 90 percent of the people have cellphones and mobile banking has sort of evolved, I think it’s a very creative idea. I mean very few people in the U.S. or Europe do mobile banking today, actually. And actually these companies—which is actually kind of back-to-the-future when the power sector of the United States got started, we had separate companies that sold refrigerators, washing machines, irons, dryers. I mean to build load.
These companies—and M-Kopa solar is one— it’s just moved to selling very efficient TVs and are selling them as fast as they can line them up. Plus, the people they’re selling them to own their system, so they know their credit history, so it’s a better bet, going forward. And actually building off to your point, I think other people have an opportunity to come behind, even with other products in that area or to build businesses. A lot of people might build a micro grid, but then if you are building a small manufacturing facility, you can use a generator along with some of the solar, et cetera, to make it 24/7 powered.
First of all, thank you Jim. That was very illuminating. My question, two of your examples were from Kenya, and those two examples have private equity projections, so is it also—I mean it sounds like fantastic management, involvement in those kind of things—but is there something in the policies based in Kenya that allows more of this type of innovation in the off-grid space?
No, actually it’s not just Kenya, it’s Tanzania, it’s Rwanda, Ghana, Tasmania, not just in the south, but in east Africa. It seems to be where the greatest creativity is going on for the moment. But I think it’s a little bit because Tanzania and Kenya are eliminating subsidies for kerosene and I think that helps. Some countries still had discussions over the price of electricity, but I really think that it’s just a unique set of acts came together in those countries for that to happen, and all three electrics are really funded by Elon Musk of Tesla and solar city—I mean part of the funding. M-Kopa has gotten the funding from a group called Generation.
Power is one of the most capital intensive industries in the world, and they’re dealing with infusions of $20 million and $30 million, which is trivial. Power Africa was slow to start, but they are making significant progress—they have $7 billion to help accelerate the build out.
They started out with a little bias towards central station clients, but I think they’re changing and focusing more on renewable and distributed energy in the area. Let me give you a context of what $7 billion is—that’s one year of the capital budget of Duke, okay? So it takes serious money, and while the government’s doing $7 billion, I applaud them, I love what they’re doing, I mean it’s going to go on beyond this administration, it’s important to do—but we shouldn’t forget that that’s a drop in the bucket in terms of capital that’s truly needed to provide electricity in Africa.
When Chris Hornor started Powerhive, he built it with an outstanding team. So in your opinion, whether it’s a small electric cooperative back in rural Kenya or Tanzania or Ghana or Nigeria, do you think that you should chase product first or take the risk of building something versus letting people come in, and you know?
I’m old fashioned, so you’re asking the wrong guy. I’m a risk taker, but not a river boat gambler. I want the big payoff. I mean it’s just the smart way to think about it, if you’re going to invest significant dollars. The approach that M-Kopa and the others are using—they’re making a fairly significant upfront capital investment. I mean, to just be in business, train people, recruit people, etc., it’s really important to think through your model, and it’s important to make sure you have enough capital, because working capital is the number one problem of all these start-up companies. The truth of the matter is, equity investment is working capital, so it’s really important to get patient capital, a lot of up front capital, or as much as you can get, because it reduces for some time your working capital needs in a period when the business is growing.
My question is talking about grid, and I’m wondering if that’s an underground grid or in the air grid with wires—if so, is there a more efficient alternative for extending power? I’m not talking about more wires in the air, but solar on the roof, I mean a home solar system is all within the home, no wires. Other than connecting a solar panel on the roof—you talked about extending the existing grid.
Extending the grid means more transmission, more distribution build-out, more generation. And by the way most people thought if a CEO of a private company in the U.S. took a look at this, my first answer would be extending the grid. People were surprised when I said, “No, not so quick.” I distributed solar, it’s a better approach because it’s the most affordable approach for people, and I think that’s critical.
The benefit of this—and there’s a whole concept that impacted us to talk about, in these companies—you lift these villages up when you bring light to them. The number one beneficiary of electricity in these rural areas is women. It allows equality for women, and anyone that’s ever studied how you change a village, how you build an economy, you’ve got to set the women free, and I mean set them free by basically, you know, the best example in the United States is to go back to read a book by Robert Caro about Lyndon Johnson. He talked about how to transform the lives of women in Texas who lived on ranches and how all of the sudden they now begin education, they now can contribute.
I mean, most women there at 35 looked like they were at 55 with the type of lifestyle they had with water. I mean just all the work of a village, a woman does. So my belief is if you were to transform a society, provide electricity, you will transform the future of women, and that will lift the whole society going forward. So thank you all very much.
Global Opportunity Mindset
Hyde Park Partners Innovates Productivity Solutions for Manufacturing
View Hyde Park Partners Video:
To see what could be versus what is.” That was the vision of Clifton Vann IV for his company Livingston & Haven, LLC five years ago.
“Going a step beyond…” That is his vision now for the various entities encompassed within his Charlotte-based holding company Hyde Park Partners, Inc., which owns and provides corporate services for Livingston & Haven, MROStop LLC and AEG International, LLC.
Vann has always been in the vanguard of American ingenuity in engineering and manufacturing. He, like his father Clifton B. Vann III, the consortium’s chairman, believes in doing “whatever it takes to ensure the long-term health of U.S. manufacturing.”
Livingston & Haven (L&H), Vann’s flagship company, was formed as an industrial distribution company in Charleston, S.C., in 1947, that later expanded into pneumatic components and hydraulics. Vann’s father had joined the firm in 1966, and in 1973 opened a branch in Charlotte that became the headquarters for the company when he purchased it in 1980.
Today, L&H is a $75 million leading industrial technology provider in the Southeast. The company specializes in providing solutions in the automation, hydraulic, pneumatic, lubrication and connector industries.
L&H utilizes a collaboration of engineers and industry-focused specialists to provide innovative productivity solutions for manufacturers. L&H also offers a variety of services including: engineering design and fabrication, research and development and resource efficiency and conservation.
Vann considers L&H a problem-solving company that helps manufacturers work smarter. With some of the highest fabrication capabilities in the country, its engineering solutions can look more like artwork than industrial tools. Vann likens it to “providing an off-balance-sheet engineering resource for clients without them having to bear that cost.”
“We’ve worked on solutions that range from improving the speed of machines that put sleeve labels on plastic bottles, to designing and reconstructing a rocket cradle used to facilitate the launch to the International Space Station,” touts Vann.
“We are a large distributor, so we took 68 years of playing with different kinds of products, 6,000 customers in 150 industries, and said ‘Given our experience, I bet we could write our own music.’”
Promising Markets in Developing Countries
L&H represents more than 850 vendors with one million products across a vast array of industries in the broad field of motion control, including fluid power, hydraulics and lubrication—“Anything that needs to be moved or packaged or distributed or built,” Vann says.
That includes aerospace, automotive, steel, medical, consumer, packing, printing, textiles, cigarettes, beer, tires, plastics, carbon fiber, extruded aluminum, fiber optics, wood products, nails, tools, and the plastic safety inserts for electrical outlets.
Employees are spread across the Southeast, numbering approximately 190, including 50 home-based salespeople.
The company’s products have evolved since its postwar beginnings when it offered gas pumps and air brakes for trains.
“We’ve changed as technology has changed,” says Vann. We’re branching out into more energy-related technologies. Solar was not part of our past.”
Vann sees promising markets in developing countries where millions of people are coming out of poverty. A decade ago, for example, Ethiopian farmers had to finance the $125 price of conventional irrigation pumps; today, they can afford to buy solar-powered pumps.
It has resulted in a broader application of skills to new products, processes and industries, all the while keeping the focus on high quality and unsurpassed knowledge the company is known for. “After all,” Vann says, “the process of vetting vendors for solar panels isn’t all that different from vetting vendors for hydraulic pumps.
“We had to think outside the box,” he continues. “We didn’t want to do something so far afield that we didn’t know what we were doing. We kept the same sort of paradigm thinking about ourselves, but we changed what we do.”
To free money for new ventures, Vann hired Strategic Pricing Associates, a consultant whose advice improved the company’s margins.
“We created a way to rob Peter to pay Paul without Peter feeling poor,” he says. “We were able to improve our corporate margins by almost 4 percent. It was a very conscious plan to develop strategy, but also to figure out a way to pay for the strategy.
“Going to Africa, making our own products, takes time. We need to be in position to be able to withstand the test of time.”
Unlocking Foreign Trade
In 2009, Vann had launched an online-sales initiative MROStop which revealed the potential of global marketing far beyond the company’s six-state Southeastern base. MROStop is an e-commerce resource for quality MRO products like hose, fittings and adapters; hydraulic products; pneumatic products; pumps and lube equipment; electrical supplies and fasteners.
MROStop demonstrated the promise of broader marketing. The website made $4,000 in 2009 after it was launched in August, $60,000 in 2010, $300,000 in 2011, $1 million in 2012, and $3 million in 2013.
Customers from such far-flung places as Russia, the United Kingdom and Thailand were paying high freight costs to get quality products from the distributor—mostly the same products L&H already sold stateside. The site now sells in 72 countries.
“That made us look internationally,” Vann says. “That made us look at other products, and that made us look at existing products in a new way. We started to wake up to this idea that there’s this whole world out there—to think about small business on global scale rather than regional or national. It’s like a gateway drug.”
MROStop also opened a solution to the distributor’s longtime, frustrating, limited ability to deal with multiple big suppliers, each wanting to block competition.
Others in the industry addressed the problem by buying other distributors, a consolidation phase that Vann, who had a longstanding territorial contract with Bosch, did not consider a solution.
“I decided not to do that because it was more of the same,” he says. “I decided to look for new territories outside the U.S. It turned out I could do things for our current suppliers in Africa that I could not do in the U.S. This was a new opportunity.”
They started in Tanzania, where Vann now has a store with 10 Tanzanian and two U.S. employees. At a trade show this year, they drew crowds with a Parker under-sink reverse-osmosis water filtration system.
“We’re getting tremendous interest in that in Tanzania. While this is not a product we would think about selling here,” Vann points out, “we’re not only developing new products—we’re finding new markets for our existing products, too.
“We can get business in other countries and people want to buy from us. We’re selling solutions, but we’re really brokering knowledge.”
In the process of exploring solar energy, Vann found that Bosch, the longtime partner for hydraulics, made solar panels with a distributor in Mooresville. So L&H started researching and developing locally generated and distributed direct current systems.
“Then we started building systems for Bosch,” Vann says, adding that the systems have markets in both the United States and Africa. “Our distribution was very nimble; we could do things for them in weeks that would otherwise have taken months. We became a contract R&D house for Bosch for renewable energy. Our facility continues to be a guinea pig for the next level of technology for Bosch.
“We’re not really in the solar business; we’re in the power management business. We look at power usage and identify waste—it makes no sense to create solar power to supply waste. We reduce the total energy footprint, then talk about where energy comes from, saving enough money to pay for the solar system. That’s really the way we approach everything,” Vann describes.
“Now we’re imparting our knowledge with solar, water, hose, fittings, and lubrication to our African friends,” says Vann. “Of course, that portfolio will grow as we determine what the needs of the community are and where those products are. When you think about it, we’re a concierge service basically for the continent of Africa.”
American Engineering Group (AEG) was the next step in Hyde Park Partners’ mission to provide innovative solutions to the global community. AEG offers the highest quality engineering products and expert engineering solutions; products that improve efficiency and quality of life with a focus in water purification, renewable energy solutions and industrial technologies.
The approach involves strong connections among L&H, AEG, and MROStop that accelerate the success of each. AEG’s Firefly technology, for example, is for sale on MROStop.
“It was all done purposely with synergy in mind,” Vann says. “We want to broker our U.S. customers from our core businesses to our customers in Africa. We’re about selling the knowledge. If we don’t have it, we’ll find somebody who does and sell it to you—from bridges and cranes to skyscrapers and aircraft carriers.”
These types of brainstorming sessions have fostered a mindset constantly open to opportunity. Vann is working on a plan to sell water drilling equipment hoses from Tanzania to Ethiopia.
“My challenge was to unlock the thinking of the team, to think about our business a little differently, to think about who our customers could be, rather than who our customers are,” he explains. “The mindset was really the biggest challenge. When you think about what’s next for your company, think about what you know, not what you do.
“We usually know a lot more than what we do. What do you do every day that other people will pay you for? The risk of doing nothing is guaranteed risk. Let’s play offense, not defense.”
Unlocking Trade with Africa
A number of Hyde Park Partners’ solar-powered products are already successful in Nigeria—namely the Firefly and the Oasis and the newer GoSol Power Box.
Made under the AEG aegis, Firefly is a solar-powered device that powers up to five bright LED lights, is lightweight, customizable, and has a built-in USB port to easily charge mobile devices—especially useful in a region where cell phones are as ubiquitous as sunlight but little electricity.
“We’re selling them in-country,” Vann says. “We’re working with NGOs, faith-based organizations, high net worth individuals—anybody who’s interested in changing the life of someone in Africa.”
Installation takes no training, the necessary screwdriver is included, the plastic box is fireproof, the lights are waterproof, and the software-run system prevents pirating by curious Chinese competitors.
Vann also works with local banks to help customers get microloans and with local cellular providers, a natural fit.
In addition to Firefly, the company created Oasis, a water filtration system that can use solar or other power to produce 75 gallons of drinking water a day by filtering any water except seawater, including chlorinated and brackish water. Smaller microgrids can run enough for a home, while larger microgrids can provide power to filter water for businesses, banks, hospitals, and other commercial operations.
“One of the things we have to overcome in Africa is the idea that solar doesn’t work,” Vann says, explaining that cheap Chinese products have made African customers wary of the technology. “We’re having to re-educate them on what solar is or can be.”
The former CEO of GE in Nigeria was powering his 12,000-square-foot house with diesel generators until he bought a AEG-designed microgrid system and saw how electric lights should shine. He flew to Charlotte and bought a second system to double his power this year.
When neighbors stopped hearing the noisy generators, they found out about this U.S.-designed microgrid and started ordering systems for themselves. Likewise, international firms that find a home in Charlotte often attract their business associates to join them.
Vann also has a Tanzanian partner in AEG Tanzania, part of American Engineering Group that hires local Tanzanians, a welcome contrast to most Asian and European firms doing business in the country.
“Part of our commitment in going to Africa was not only to bring American quality products and American technology and innovation, but to integrate ourselves into the culture and be good stewards,” he says. “It gives us a chance to present a first impression. They know American products; they love American products. It’s one of the places in the world where we are still cherished.”
The local stake qualifies Vann to export to Tanzania, opening a route for Hyde Park Partners customers to sell in that country. “I can go to our customers that make cranes, paving equipment, chicken processing equipment, steel mills, electrical plants—you name it—and say, ‘Do you want to sell something in Tanzania?’
“I can broker that now. I’ve established a bridge to make that possible,” he says.
Power Africa Charlotte 2015
“We have a keyhole view of Africa,” says Vann, the self-styled ‘ambassador between Charlotte and the African continent.’
“It’s not your National Geographic Africa anymore,” continues Vann. “These people have more buying power than the Chinese or the Brazilians. This place has come into modernity. Nigeria just had its first democratic election in history.
“The world changes and grows up. There are 50 to 100 million people coming out of poverty every year on the planet.”
Power Africa is an initiative of the U.S. Agency for International Development to bring power to sub-Saharan Africa where 600 million people—70 percent of the population—lack electricity.
Vann was so impressed with the opportunities Power Africa opens for improving people’s lives and the potential it represented for emerging markets that he hosted a Power Africa conference here in Charlotte in September 2014, bringing together about 130 business and political leaders from Africa and the United States.
Vann plans to collaborate with other regional leaders to host a larger Power Africa conference here next spring. A collateral benefit: Positioning Charlotte as a leading place of interracial partnership and mutual benefit at a time of heightened attention to black-white relations.
“How do you get middle market American and small business more involved in being the internal driver for the export economy?” he asks.
The answer, he maintains, is to combine education—both technical skills and cultural competence—with a regional perspective on economic growth and attracting international partners.
“I think what we’re seeing in industry, at least where I live in manufacturing, employers are less and less concerned whether you have a degree or not,” Vann says. “We don’t care what you know; we care what you can do. We’re going to have to educate you on what to do anyway.”
Global connections call for cultural training, including language education, beginning in K-12. Vann has learned that Nigerian culture is more gregarious and boisterous like American culture while Tanzanians are more reserved and humble, with different expectations in the partnership.
“How can we be global if we don’t understand where you are on the map and what it means to be you?” he says. “If you want to relate to these people, you can’t go with your American glasses on. You have to begin to learn what motivates them. It’s not the same as it is with us.”
By way of example, Vann recounts how a visiting CEO of Coca-Cola from Tanzania somewhat nervously got into a car at Lowe’s Motor Speedway for a 185-mile-an-hour spin around the track, but so enjoyed it he keeps a picture of the experience on his desk and tells everyone who visits about Charlotte.
“Charlotte’s a great place—Southern hospitality, great place to be,” Vann says. “As they come, they define their good time. They go home and tell everybody about it. Let’s start talking it up and not taking it for granted and thinking about what’s next. We need a vision. I think we’ve got a good one. It resonates.”
For Vann, that vision involves a re-invigoration of American innovation that he has seen dwindle in recent decades.
“Our free country allows us the freedom of innovation and individualism that we grossly underestimate,” he says. “We used to be explorers; we went to places like the moon. It feels like today, we’re just happy to sit on our own porch.
“Get off the porch, talk to people you think might not be related, look under rocks that look uninteresting, network. To me, that’s part of the concept in terms of what’s we’re trying to sell to local businesses—get off your island, keep innovating. Companies have to continue to re-invent themselves.
“Look at the foreign companies that have come here,” Vann says. “The first German one comes, their friends come later. There’s unbelievable things happening around the world, many of which we’re not participating in. I think there’s a great opportunity there if we can open this concept up to more American companies—not just Africa but in general.”
Hyde Park Partners, Inc.
11529 Wilmar Blvd.
Charlotte, NC 28273
Phone: 704-588-3670; 800-825-4969
Principals: Clifton B. Vann III, Chairman; Clifton B. Vann IV, CEO; Tim Gillig, President, Livingston & Haven, LLC; James McGinn, President, MROStop LLC; James T. “Tod” Skinner, President, AEG International, LLC
Members: Livingston & Haven, LLC (1947), MROStop LLC (2009); and AEG International, LLC (2013)
Employees: 190 over the Southeast: Georgia, North and South Carolina, Tennessee, West Virginia, and Virginia
In Business: 68 years
Revenue: Over $75 million
Business: Holding company that owns and provides corporate services for Livingston & Haven, an engineering company providing solutions in the automation, hydraulic, pneumatic, lubrication and connector industries; MRO Stop, an e-commerce resource for hoses, fittings and other related technologies; and AEG International, focusing on solar and other renewable energy technologies, water filtration systems, and industrial hose fittings for the global market.
Nucor Steel: Looking for a Fair Fight
Nucor Knows that Competition Just Makes Them Better!
As vice chairman of the World Steel Association, and recipient of the Steelman of the Year Award for the second time, John Ferriola’s work in the industry has been globally recognized. Despite market turmoil and imports capturing record market share in the U.S., Nucor—the nation’s largest steel producer and North America’s largest recycler—has continued to generate profits.
Ferriola is chairman, CEO and president of Nucor Corporation. He joined Nucor Corporation in 1991 as manager of maintenance and engineering at a Texas bar mill, rising through the ranks to head up the company in 2013. Prior to joining Nucor, the SUNY Maritime Academy electrical engineering graduate had begun his career with Bethlehem Steel Corporation in 1974, and worked for 17 years in various operating and management roles.
Ferriola recently spoke at the World Affairs Council of Charlotte. Here are excerpts transcribed from his presentation (with some auditory limitations and edited for brevity and clarity), describing his company and the areas in which steel is adapting and evolving in terms of products, raw materials and teammates, and how steel is evolving as a globally traded product.
How many of you know the history of Pittsburgh, Pennsylvania—the city and its vast steel mills in the ’50s? I grew up during that time. I spent much time in Pittsburgh. They’d always talk about the billowing black smoke coming out of the smoke stacks. They said that if you’d hang your laundry out to dry, you’d take it down and it was dirtier than when you first put it up. Making steel in the past was quite an environmentally unfriendly process.
Fortunately, I can say a whole lot of progress has been made since those days, and frankly Nucor’s commercialization of the electric arc furnace changed the whole nature of the steelmaking process. We have been able to reduce the environmental impact of steel fabrication and the footprint of our steel mills today.
If you would drive by one of our Nucor facilities now, you won’t see smokestacks with smoke billowing out of them. As a matter of fact, we are in some strange places—a lot of plants are refineries in the middle of cornfields in Indiana or in the middle of cow pastures in Texas.
It’s quite a different impact on the environment and on the communities. It’s really a result of the electric arc furnace or EAF. We’re really proud as steelmaking people to have been part of that revolution.
Nucor Corporation was in the steel industry in 1962 with the acquisition of a very small steel joist company called Vulcraft, which is located in Florence, South Carolina.
At that time, we only had about 250 teammates in the company. A young engineer with an MBA by the name of Ken Iverson was put in charge of Vulcraft and by 1965, he had become president of Nucor. He decided that along with the steel joist business, we needed to buy steel product. We had such a problem buying from large integrated steel mills in terms of the quality that they would sell for us and the on-time delivery was so horrific, that he realized that the lack of a good supply of steel was adversely impacting business.
If he couldn’t buy steel or get it from a good supplier, what do you do? You go out and build a steel mill. That sounds like a pretty bold move, but Ken was that kind of a visionary. He went out. He built the first—Nucor’s first mini mill.
It was scrap-based and his thought process was, if we build something based on scrap as opposed to the traditional iron ore—using a blast furnace, which is a traditional integrated steel process—we would have a tremendous cost advantage because at that point, scrap frankly was considered a waste product. It was very, very inexpensive.
You know what? He was right.
But the Nucor culture that he created is not about technology. It’s all about our people, our teammates and our culture. He created the culture and used the ability to use technology to allow Nucor to become the largest, most diversified producer of steel and steel products in North America in just about 15 weeks.
Remember what I said when we started—250 teammates, small operation responsible for South Carolina. Last year we shipped over 17 million tons of steel with over $16 billion of sales. Today, we have over 200 locations and nearly 24,000 teammates and are global.
In addition to having our headquarters here in Charlotte, across the Carolinas we have 16 facilities that recycle scrap, make steel and use that steel to make steel products. In the Carolinas alone, we employ about 2,600 teammates who earn about $75,000 a year on average.
We recycle nearly 5.5 million tons of steel in the Carolinas alone. Just to put that in perspective, the average car weighs about 1 ton. You can think of it in terms of costs. That’s recycling 5.5 million cars in the Carolinas every year. Think about the impact that has on landfills, how environmentally friendly that is. We like to say your old Toyota can be a new GE washing machine.
In the Carolinas alone, we turn about 7 million tons of steel. In the last decade, we have invested over $300 million in new production capacity here in the Carolinas alone. As I’m standing here today, I can tell you, we’re not going anywhere. We’re here to stay.
There’s a lot of talk today about whether the steel industry can meet the needs of tomorrow’s industry. I’ve got to tell you, if you’ve been watching Charlotte’s skyline and seeing building after building going up over the past year, most of them are made out of steel. Steel continues to play a significant role in the economic growth of Charlotte, the Carolinas and of the United States.
I’m here to tell that, in spite of all the talk that you hear and the reports you read about aluminum or fiber carbons and everything else, I am absolutely convinced that steel will continue to be the backbone of the global economy through the 21st century and probably long after that.
At Nucor, we’ve been a leader in innovation and moving in new directions since our founding. As we’re introducing the electric arc furnace—the EAF—in the United States, we challenged ourselves to push the limits of what mini mills can make, constantly finding new ways to make the types of steel that our competitors were telling the industry we could never make. I’m proud to say to you that our 24,000 teammates proved them wrong.
A little side story here…I worked for Bethlehem Steel before I joined Nucor. I was with Bethlehem Steel when Nucor was building mini mills, the continuous casting process at Indiana. The team at Bethlehem decided we better do a report on this site and whether or not this is actually good technology. They got their vast engineering team together, which was probably about 1,000 people, and they wrote a report that had to be about 2,000 pages thick, saying why the continuous casting process in Indiana would not work.
I got that report. I immediately said, “It’s time to leave Bethlehem.” I joined Nucor. If you’ve got a written report saying why something won’t work instead of focusing on how can we take the technology like that and make it work, that’s the difference between saying “We can do” and saying “We can’t,” and Nucor is a “can do” company. Bethlehem was a “cannot do” company. I’m with Nucor now. I’m very happy that Nucor employed me; it convinced me it was time to make a move.
One of the things we are constantly telling our teammates is this: We’re never as good today as we’re going to be tomorrow. As a global steel company in the global industry, steel is constantly innovating and making sure it fits the global infrastructure, that we can meet the needs of the global infrastructure. To do that, we’ve got to constantly innovate with steel. The industry as a whole globally is changing. It’s changing very, very rapidly.
I’ll be in Dubai for the 50th anniversary of the World Steel Association whose members account for about 85 percent of the world’s steel production. It’s an amazing opportunity to share ideas on safety and on technology with some of the most dynamic steelmakers in the world, as one of the 24,000 Nucor teammates working hard every day to make sure that steel continues to be the backbone of the global economy.
I’d like to share with you four key areas in which steel is adapting and evolving in our products, our raw materials and our teammates, and how steel is evolving as a globally traded product.
First, let’s talk about the products. The consumer markets are constantly demanding new steel products. One market that continues to drive a lot of innovation is the automotive market. For example, in the U.S., government-mandated increase in gas mileage—what is called the CAFE standards for vehicles—is driving the need for steel that is lighter and more formable, but still provides strength that people expect and people need from steel.
I’m sure you’ve heard reports from the bloggers, some of the industry experts, that say there’s light weighting of vehicles. Will all of the automotive companies move to an alternative product? You hear a lot about aluminum, and you might think that aluminum has replaced steel as the automotives’ preferred metal. I’m here to tell you today that is not accurate. Some people believe that the steel industry can’t meet the needs of tomorrow’s automotive industry. They’d be right about that if we were using yesterday’s steel. We’re not.
Advanced high-strength steels are already in cars and the trucks that are on the road today—I’m proud to say that some of that is Nucor’s advanced high-strength steels. Our industry’s research and development is ongoing as we work with the top universities, national laboratories and our customers to further improve and expand the advantages of steel.
Steel has several advantages across all compared to some of the alternatives. First and foremost, advanced high-strength steel not only costs less than replacement materials, but usually it doesn’t require any major costly changes to the manufacturing process for the automobile.
The second advantage is steel’s superior safety performance which cannot be matched by substitutes. I visit with my customers and I talk about my grandchildren, and I say they will never ride in an aluminum car. If you’ve ever bought a can of peas in a steel can and bought a soda in an aluminum can, I challenge you to stand on it.
A third reason is that we can recycle nearly 100 percent of the steel we put into cars, so the environmental impact of steel over the lifecycle of that vehicle is substantially less than a substitute like aluminum.
Whether it be fuel-saving cars or record high skyscrapers, luxury sports stadiums or award-winning new rollercoasters at Carowinds, steel engineers are applying decades of experience and today’s newest tools and technologies to build the world around them.
Now, on to raw materials. To make the steel of tomorrow, we need reliable and competitively priced supplies or materials. Remember how we got into the business in the first place. We didn’t have a reliable cost-protected supply of materials. Now we’re faced with the same problem because the mini mill technology caught on so well worldwide that everybody is using scrap now. What used to be readily available and relatively inexpensive is now rarer and much more expensive.
We’re always looking for new ways to respond to rapidly shifting economics of our raw material supplies, especially as the markets for these resources are becoming more global and changing. It used to be that the domestic steel industry survives primarily on domestic imports. Scrap metal, for example, was something that Nucor saw very real global demand for in the first few decades that we began recycling steel.
I can tell you it’s a very different business today. In a market where information and money travel around the globe almost instantaneously, we find ourselves competing with companies worldwide for the raw materials that we need to make steel. From iron to natural gas, securing a reliable source for these key inputs poses a tremendous challenge for any company not prepared for these dramatic price and supply fluctuations. Supply chain for all iron mixes is increasingly vulnerable to geopolitical risks including the Ukraine, today Russia, Turkey, across the Middle East. The shale gas revolution has created a volatile situation in the world energy markets.
How does Nucor respond to this? We’ve adapted, as we always do. We’ve adapted to these risks by developing a raw material strategy aimed at lowering our costs and gaining greater control over the iron units that we use to make steel.
When we recognized this problem, we turned to our engineers. We challenged them. We asked them to find a way to use more of these scrap substitutes that we call direct reduced iron or DRI. Basically, that’s iron ore that we cook at extremely high temperatures to eliminate the impurities, for a very pure iron ore that you can then put into your electric arc furnace.
They found a way to do that. They found a way to use all the DRI furnaces and we found we needed more DRI. We didn’t want to depend upon the volatile geopolitically risk areas. What did we do? We built our own DRI plant. First in Trinidad, and then we built a second one in Louisiana.
Today we produce about 4.5 million tons of DRI that we can use on our furnaces which gives us a great cost advantage and tremendous flexibility behind all of our iron-based raw materials.
The second thing that we use an awful lot of in our mill is natural gas. Basically, we have the same issues of volatility and scarcity of supply. We entered into a drilling arrangement in western Colorado that gives Nucor access to a long-term supply of reliable low cost natural gas to cover our current worldwide steelmaking needs.
You might have read just earlier this week about a deal that we had done about a year and a half ago, two years ago, three. We were able to redo and restructure in a way that actually gave Nucor much more flexibility while maintaining the same hedging that we were looking to obtain when we first did the deal.
When you pair those two moves with our 2008 acquisition of scrap recycler David J. Joseph, I’m here to tell you, we have added a lot of flexibility when it comes to managing the cost of iron bits which represents about 65 percent of our total cost of production.
Then we go back to our mills to be able to change these iron units so that we have more negotiating leverage as we buy scrap, DRI, the slow form of iron. This kind of flexibility and security strengthens our competitive position in a rapidly changing market that has upended previous ways of doing business. As challenging as it can be to secure a source of diverse and reliable raw materials for our industry, successful steel companies are broadening their approach to find solutions.
Our teammates. Having a secure and affordable raw material supply chain is important, but what’s more important when we make steel than needing iron units is our people. Our teammates. Making sure that you have a secure, long-term supply of well-trained teammates is as challenging as making sure you have a source of supply of raw materials. Across the United States right now, manufacturers are having a hard time recruiting enough talent to fill the jobs that they have available.
In a 2015 study, they found that this shortage of trained talent and manpower that is happening today is only going to get worse. Today, manufacturing executives across the U.S. report that 6 out of every 10 jobs they have go unfilled due to lack of the properly trained talent to fill them. It often takes manufacturers 2 to 3 months to fill an open position.
Over the next decade, it is estimated that the U.S. economy will require about 3.5 million new manufacturing workers. What really concerns me is that based on current trends, nearly 2 million of those jobs will go unfilled. The manufacturing industry is facing a real threat of not having enough qualified workers to keep their businesses running.
This is not just an American problem. McKinsey Global Institute reported recently that the worldwide manufacturing industry is likely to see a shortage of over 40 million high-skilled workers and over 45 million medium-skilled workers by the year 2020.
Now time flies. 2020—that’s only three and a half years. We’re talking about a shortage of 85 million skilled workers worldwide. That’s a real challenge. McKinsey expects that the most pressing issue facing manufacturers in the coming years will be the struggle to find well-trained talent, it doesn’t matter where you manufacture. The rapid growth of knowledge-intensive manufacturing is going to increase the shortage of both high-skilled and medium-skilled workers in the coming decade.
McKinsey also expects this problem to be worsened by the aging of labor forces in all the developed nations and also in China. Globally, we’re all in the same boat.
What do you do about that? Just one of the things that we’ve done at Nucor is to partner with Shelton State Community College in Tuscaloosa, Alabama, to create what we call Nucor Technical Academy. Students receive classroom education at the college and also get hands-on work experience at a nearby Nucor mill. Nucor pays for the tuition and the books and students get paid for the hours that they work in the mill.
After they graduate with their associate’s degree in three years, they get started with a Nucor job right away. This has worked out very well for us. We’ve also worked with universities and colleges around the nation to fund scholarships and teaching positions in STEM and to build relationships with career advisors to get Nucor’s message out to the up and coming generation of potential recruits. Securing the next generation of high potential talent is crucial to manufacturing success and the nation going forward.
We have a real opportunity to recruit the best and the brightest of tomorrow, tomorrow’s talent, and bring them in as workers into our industry. I’m sure that this is going to be a challenge that everyone in this room and every company is going to face. It’s one challenge that I’m convinced that Nucor will rise to the occasion and find a way to supplement.
The future. Steel’s innovative future is going to be built on three things that I’ve talked about so far. The lighter more formidable, stronger steel products for tomorrow; the innovative acquisition, development and use of raw materials; and the creative improvement of people we need to make steel for the 21st century marketplace.
There’s one more area where steel is facing a tremendous challenge, and solving it is going to require the efforts of the entire global steel industry. Let me start by explaining one of the greatest challenges that we’ve seen in steel in the last 30 years. That is the rapid growth of domestic steel production in nations around the world. This globalization of steel is a good thing. It expands our markets, creates new trading relationships, and it allows goods and raw materials to flow around the planet.
Every one of our 24,000 teammates relishes competition from steelmakers all over the globe. Nothing makes the company stronger than having to innovate to stay ahead of good competitors. I truly believe that the best way to achieve global prosperity is to have the most efficient economic system, a system of free trade.
What I mean by free trade is trade free of government interference. Having the most efficient economic system will provide high paying jobs, which increases the demand for goods around the world. Increased demand for goods means that there’s an increase in the supply and the need for goods, which creates even more jobs, and thus completing what we call a circle of economic growth.
What some people forget is that free trade does not mean ‘free for all’ trade. There are rules, rules that have been agreed to and adopted by the nations, by all nations of the international trading community. And it’s critical that these agreements and these trade laws be rigorously enforced.
When governments ignore or intentionally break the rules by which we free trade, then our businesses are forced to compete against entire nations instead of competing against other companies. The only way to have a strong, global industry is through the robust competition that the free markets create with companies competing against other companies; not companies competing against the power of entire governments.
You might ask, “John, what do you mean by that? How do you compete against the government? How can the government compete against a company? Governments aren’t businesses,” you might say. Well in free markets, free market economies, that’s generally true. Let me give you an example of a government that is the business for itself. Anyone want to guess what I’m going to talk about next? A clue, it’s not Canada, but it starts with a “C.”
The steel industry in China is primarily owned by the Chinese government. Over 80 percent of the steel industry in China is owned by the Chinese government. China has illegally subsidized their steel industry and built a great wall around their markets. China manipulates its currency to keep exports cheap and imports expensive.
Put it simply, the Chinese government is acting like the parent company of a bunch of subsidiaries in China. It’s using the nation’s own resources to engage in economic warfare on behalf of its manufacturing industries. I’m here to tell you, they are winning that war. Businesses in free market economies are not competing against Chinese companies. We’re competing against the entire nation.
As a result, to put this in perspective for you, last year China exported more steel, they exported more steel than was produced in the United States, Canada and Mexico combined. Chinese exports are flooding every market around the world, and when Chinese steel displaces steel in a country’s own market, what happens? You get the domino effect. Steelmakers in that country are forced to export their product into other markets.
We all know that in the long run, everyone is better served when businesses compete on a level playing range. Products that result in honest competition are the best designed, the best quality and the best value. That kind of competition cannot happen when governments act as businesses in the marketplace.
It’s Nucor’s view and the view of many of our friends the free market economies around the world that there must be cooperation from all major manufacturing countries to solve this problem—a commitment from all governments to get out of the manufacturing business. No government ownership, no government control, no illegal subsidies.
But, until these actions are taken, we must be proactive and innovative in dealing with the cheaters who are threatening the health of our industry. That’s why Nucor continues to work with our industry allies to bring trade cases against nations that break the rules, break the law on trade.
Last year we saw Congress enact a law that gave the steel industry a new toolbox to help level the playing field on which we compete against illegal steel imports.
Now let me be clear. Utilizing trade learnings is not protectionism. These actions are legitimate and necessary responses to subsidized exports and dumping practices of nations with excess capacity. Breaking the rules, breaking all laws must have consequences.
Preaching that everyone should have free markets is just not enough. We must hold companies and governments accountable when they violate our trade rules. Trade wars, trade enforcement is one of the many ways to drive change toward a true market-based system.
Regardless of the challenges that face us, new products, raw material markets, the labor markets, the global trade markets, steel will continue to find ways to accomplish what others say we cannot do. We start from a position of strength and we will develop the innovative steel our customers need for a sustainable tomorrow.
What role should government play in protecting free trade?
The role of government, particularly the U.S. government, is relatively simple. There are laws on the books. There are international trade agreements that we’ve made with countries. Our government must rigorously enforce those laws and those agreements. When they are violated, they need to have the courage to take to task the countries or the companies that are liable to those laws and not worry so much about geopolitical issues that might result from that.
I knew Ken Iverson and I have tremendous respect for him and for the organization. Probably the only company that I ever got to know in any depth that I thought, “This is the kind of company that people really love working for.” You were involved in some major incentive programs for all your staff, for the guys on the production line and the women on the production line. Can you talk a little bit about how that works for you all and why it works? I was fascinated in those conversations I had with him a long time ago.
Well I’m always very, very careful at pointing out that Nucor’s success is not based on frankly Ken Iverson, Dan DiMicco or with John Ferriola. I like to tell people and I remind my team all the time, I’m a call center. They are profit center. What we like to do is make sure that everyone understands Nucor’s success is based on 24,000 teammates working hard, working safe, working together and incentivized the right way.
I mentioned that, on the average, most of our teammates make about $75,000 a year. About 60 percent of that comes from bonuses and it’s always based on incentive systems. You have be careful to make sure that they are based on the things that people can control, or they become meaningless. When 60 percent of your total compensation is dependent upon some measure, you want to make sure that you have absolute control or as much as you can absolute control over that metric.
Our teammates on the front lines that produce the steel, they get compensated for high quality tons of steel produced safely. If it’s not high quality, they don’t get the bonus. If they don’t do it safely, they don’t get the bonus.
Our steel goes through several processes. It goes through melting, we cast it, we roll it, sometimes we do additional work with galvanizing it. It goes through several stages.
The way that we have our bonus system set up is the stage in which the problem is caught gets a bonus. If the melt shop makes a mistake, they don’t catch it, it goes on to the rolling mill. The rolling mill sees that the steel was not made correctly back at the melt shop, they say, “Stop the process.” They get their bonus. Melt shop loses their bonus. If no one catches it, it goes all the way down the line and it’s caught by our quality control department at the end of the process, many of our mills, everyone on the entire line loses two times the bonus.
In some of our mills, if that product gets past the quality control and gets shipped to a customer, the entire line loses three times the bonus. Clearly, we incent to make sure that everyone produces high quality products and that they produce them safely.
Now our staff in the offices, engineers and so forth—management—they have more control over the assets of that division as opposed to the production of a ton of steel. They earn on a return on asset basis. We make sure if the executive team was working well at the end of the day, it’s all about return on equity, ROE, the stock price performance. We’re paid based on ROE.
Just so you don’t think that it gets less dangerous as you go up in the organization, I mentioned that the teammates on the floor, 60 percent of their compensation comes from bonus. As you move up, there’s the executive team, it’s probably closer to 80-85 percent of our compensation.
It’s really a great system because when anyone in the group does well, the entire group does well. Everything aligns through the line, all the way up to the organization. When everyone does well and makes money, Nucor does well and makes money. That’s a key element of our culture, and that’s what has led to Nucor’s success.
We talked about technology, but it’s really not about technology. It’s about the culture and the confidence. I always tell people that Nucor’s management system is extremely easy. When I retire, I’m going to write a book, The Key to Nucor’s Management Success. It’s going to be a great book. It’s going to make a lot of money, and it’s going to be the shortest book ever written. Because here’s the key to Nucor’s management success.
We hire the right people and we go through a rigorous interview process. Testing. Psychological profiling. You name it, we do it. We hire the right person.
Then we make sure and absolutely certain that they understand exactly what we want them to do. Then we make sure that they have all the tools that they need to do it. Whether they have the physical tools or whether it be training and development.
Then the fourth step, the last step, which is the most important step: It’s to get the hell out of their way. Because if you have the right person, they know what you want them to do and they have everything they need to do it, all you’re going to do is slow them down. That’s the key to Nucor’s management success and it’s a core element of our culture. It’s called trusting your team, trusting your team. It means that the person closest to the process is trusted to make the decisions that he knows the most about.
You touched on some of the challenges you faced on competing against China flooding different world markets with what sounds like cheaper steel. What are some of the ways that you’re mitigating the impact from that? How do you compete?
Well, several ways. We work hard with the government to enforce the trade laws. That’s number one. The second, we will go out and we’ll actually buy Chinese product and run it through the testing cycles to try to catch inferiorities. Many times, that we find the steel is not made to the metallurgical specifications that is signed off on, that the chemistry sheets are signed off on, which means that the steel is inferior for the applications in which it’s being used. And people could be killed.
It’s a lot of things that we do, but at the end of the day, it’s really up to our government to enforce the trade rules and we help them understand who is violating them, how easy it is to identify those people and go after them when we catch them doing that.
Several years ago, 2007, maybe something like that, we brought a Canadian company called Harris Steel. Great company. It’s been a great addition to the Nucor family. We love them. As part of that was a very small company that came along called Fisher & Ludlow. They make grating. It looks like steel and it’s used on walkways.
Because they had such a good reputation under the name of Fisher & Ludlow, the brand was very strong. We decided not to change the name. When you see the big sign that still says Fisher & Ludlow and now in little letters underneath it that says a Nucor company.
So not everyone immediately recognized that Fisher & Ludlow as a Nucor company, unless you really researched a little bit. The Chinese were caught dumping grating into the United States. A clear violation. They were assessed a trade tariff. They had to pay a penalty for every ton of steel grating that they brought into the United States.
What did they do? They got smart and said, “You know what? The Canadian companies that make grating, they have no tariff going to the United States. So, we’re going to contact one of them.” All right, so they wrote a letter to Fisher & Ludlow.
They send this letter on a Chinese company letterhead signed by the CEO of the company that says basically this: “Look, you guys have no tariff going into the United States. We have somewhere around 40 or 50 percent tariff going into the United States. Let’s make a deal. We will send you our gratings. We will send you the tags that go on our gratings, the Chinese tags. We’ll send you Fisher & Ludlow tags to put on to that product. Cut off our tags, put these tags on, send them into the United States and we’ll split the 40 or 50 percent tariff.”
Now if this wasn’t ironic enough, the gentleman who runs that business used to run our government affairs on trade rules. I was back in my office one day and I get a phone call—I could tell it was Pat just from his voice. I couldn’t understand what he was saying, he was so excited. He’s going on, he’s ranting about China and gratings and tags, and he explains this to me. He was just so irate.
That’s the things that we come up against. That is how blatant China and some other countries have gotten in finding ways to break our trade laws. It’s just not right. There are tens of thousands of steel workers out of work today because of this type of violation.
It goes across industries. There’s probably hundreds of thousands of textile workers out of work. Look at what a great textile state North Carolina used to be. Or who wants to talk about furniture manufacturing? Drive through some of those towns that were once just alive with people making beautiful furniture. They’re all gone today because of people who violated our trade rules. The steel industry and every industry, its customers, its suppliers suffer.
Running a technology-driven company, it’s very exciting to hear all the things that you’ve talked about. I would like to get some insight from you when it comes to additive manufacturing, which is the next frontier now with all the interest in 3D printing. Do you have some insight to share about that?
We believe that’s a very exciting technology, and just as we have gone on the steel side, always knowing what the next big step in technology is all about. We have teams that are looking at that. I can’t say too much more about Nucor’s participation in that. We’ll be deciding the proper time on public information. Clearly, we’re aware of that. We are looking at it and we’re excited about that technology.
Let me just branch off for just one minute by saying that at Nucor, we always like to say that we’re climbing the mountain without a tunnel. The steel industry’s proven track record of innovation has allowed a city like Charlotte to see its skyline built with taller and taller buildings every generation. Our commitment to you as a city is that we will continue to find ways to make steel better, stronger, more economical so that we can continue to build some of the great buildings in Charlotte together. Thank you for your attention today.
Nucor’s John Ferriola
Ferriola at Trade Hearings
1915 Rexford Rd., Ste. 400
Charlotte, NC 28211
NYSE: NUE (S&P 500 Component)
Principal: John James Ferriola, Executive Chairman, CEO and President
Headquarters: Charlotte, N.C.
Plants: Operates 23 scrap-based steel production mills
Products: Steel, rebar; in 2015, the company produced and sold over 25 million tons of steel
Net income: $357.6 million (2015)
Employees: 23,700 (2015)
Business: Publicly traded domestic steel fabricator currently ranking as the largest steel producer in the United States of America and the largest “mini-mill” steelmaker (i.e. it uses electric arc furnaces to melt scrap steel as opposed to blast furnaces to melt iron); America’s largest recycler of any material and recycled 16.9 million tons of scrap in 2015.
Immigration: A Foundation That Helps the U.S. Prosper
Immigration Helps Build and Strengthen our Economy
America is a nation built by immigrants and continues to support the largest flow of immigration around the world. One in five international migrants lives in the U.S. In 2015, 46,630,000 people living in the U.S. were born in other countries, almost 15 percent. Immigrant population growth alone has accounted for 29% of U.S. population growth since 2000. The chart below shows the number and share of immigration growth relative to the whole population.
Immigrants as a Share of U.S. Population Source: http://www.migrationpolicy.org/programs/data-hub/charts/immigrant-population-over-time
Here are some important contributions by the generations of immigrants who have helped us build our economy, and made America the economic engine of the world.
❶ Immigrants start businesses. According to the Small Business Administration, immigrants are 30 percent more likely to start a business in the United States than non-immigrants, and 18 percent of all small business owners in the United States are immigrants.
❷ Immigrant-owned businesses create jobs for American workers. According to the Fiscal Policy Institute, small businesses owned by immigrants employed an estimated 4.7 million people in 2007, and according to the latest estimates, these small businesses generated more than $776 billion annually.
❸ Immigrants are also more likely to create their own jobs. According the U.S. Department of Labor, 7.5 percent of the foreign born are self-employed compared to 6.6 percent among the native-born.
❹ Immigrants develop cutting-edge technologies and companies. According to the National Venture Capital Association, immigrants have started 25 percent of public U.S. companies that were backed by venture capital investors. This list includes Google, eBay, Yahoo!, Sun Microsystems, and Intel.
❺ Immigrants are our engineers, scientists, and innovators. According to the Census Bureau, despite making up only 16 percent of the resident population holding a bachelor’s degree or higher, immigrants represent 33 percent of engineers, 27 percent of mathematicians, statisticians, and computer scientists, and 24 percent of physical scientists. Additionally, according to the Partnership for a New American Economy, in 2011, foreign-born inventors were credited with contributing to more than 75 percent of patents issued to the top 10 patent-producing universities.
There is no doubt that immigration makes America stronger and more prosperous. And immigration positions America to lead in the 21st century. No other nation in the world welcomes so many new arrivals. Here are some illustrations that provide perspective to the global flows of people.
This map shows net migration (inflows minus outflows) by country of origin and country of residence between 2010 and 2015.
Mapping Immigration Flows: Country-to-Country Net Migration (2010-2015)
In an earlier newsletter, we showed immigration movement over the last two centuries. You might be curious to visualize the country-to-country net migration over just a five-year period from 2010 to 2015. Here is a Metrocosm visualization.
Top 10 Immigrant Countries
The 10 countries with greatest number of foreign-born residents:
- Spain 6.5 million immigrants (13.8% of pop)
- Australia 6.5 million immigrants (27.7%)
- Canada 7.3 million immigrants (20.7%)
- France 7.4 million immigrants (11.6%)
- United Kingdom 7.8 million immigrants (12.4%)
- United Arab Emirates 7.8 million immigrants (83.7%)
- Saudi Arabia 9.1 million immigrants (31.4%)
- Germany 9.8 million immigrants (11.9%)
- Russia 11 million immigrants (7.7%)
- USA 45.7 million immigrants (14.3%)
The Global Employer
Strategies and Best Practices for an International Workforce
Developing and retaining an international workforce is essential to be competitive in the global marketplace. With this in mind, employers are too often unpleasantly surprised by visa and compliance issues. The global employer should ensure its workforce is mobile and comprised of the best and the brightest by strategizing to proactively address its immigration needs.
Hire smart. Implement a company-wide policy which asks key questions regarding immigration status of each and every candidate. Employers should confirm that each candidate is legally authorized to work and confirm whether the candidate will ever require sponsorship for an immigration-related benefit. The inquiry doesn’t end there. If a candidate indicates that he or she requires visa sponsorship, the global employer should probe further and ask additional questions about current status, length of time in current status, and whether a green card process has ever been initiated.
When recruiting talented candidates who are outside the U.S. and do not possess a work visa, the H-1B visa for professionals should be considered as a last resort due to the limited number available each fiscal year and the extremely high demand. With limited visa options, the global employer should focus its international recruitment efforts on employees who have served the organization internally for at least one year and may qualify for an intracompany transferee work visa. Further inquiry may be on outstanding individuals who may qualify pursuant to the O-1 exceptional/extraordinary visa. The global employer also should be aware that certain nationalities have additional visa options available to them, including but not limited to Australia, Canada, Mexico, Chile, and Singapore. Finally, if the global employer is a foreign-owned company or engages in substantial trade with another country, there may be additional visa options for employees who are citizens of that country (E visas).
Understand the possibilities and limitations of “Visitor” status. An individual who enters on a B-1 visitor visa or pursuant to the Visa Waiver Program (also commonly referred to as “ESTA”) is not authorized to work in the United States. The business visitor may attend meetings, conferences, and seminars, negotiate contracts and disputes, observe activities at a related company, or conduct business on behalf of an overseas employer. The business visitor may not receive wages from an U.S. entity. If a business visitor is traveling to the U.S. frequently or for extended periods of time, a work visa is recommended since this travel pattern typically raises a red flag for immigration officers at the port of entry. This could result in additional scrutiny, denial at the port of entry, or, in the worst case scenario, an expedited removal. If a key employee will be needed in the U.S. for any purpose other than a brief visit to attend meetings or other permissible activities, then it is advisable to contact your immigration law advisor before the trip to determine appropriate visa options.
Note that the law does allow for limited circumstances where someone in visitor status may work in the U.S. The most commonly utilized provision is for skilled technicians who enter the U.S. for the purpose of installing or repairing machinery sold by their employer within the last year, where the contract for sale provides for such service.
Plan for the future. Employers should aim to identify key employees who require H-1B sponsorship by November to ensure timely filing of cap-subject petitions. For employees who have already secured the H-1B visa or another type of work visa, the employer should bear in mind that work visas are temporary in nature and some cannot be extended beyond a certain time period. Global employers should ensure they are aware of these deadlines and identify employees they wish to sponsor for permanent resident status as soon as possible.
Be creative—global employers have the opportunity to create visa options. Global employers may send key employees to work for an affiliate, subsidiary, or parent company outside the U.S. for one (1) year in a specialized knowledge, managerial, or executive role. This strategy may qualify the employee for an L-1 visa and facilitate the green card process for those who qualify as Multinational Managers.
Be prepared—act as if Big Brother is watching. Any number of government agencies may appear for a site visit. This includes U.S. Citizenship and Immigration Services (“USCIS”) and its Fraud Detection and National Security (“FDNS”) division, Immigration and Customs Enforcement (“ICE”) and the Department of Labor (“DOL”). The smart employer conducts regular internal “audits” of all H-1B and L-1 workers to ensure that their job duties, work sites, and salary are consistent with the petition filed with USCIS. The audit should include a review of the Public Access File for each H-1B worker.
Furthermore, the global employer should schedule regular internal audits of its I-9 records to ensure they have been filled out properly and are up to date. Prepare for site visits by USCIS, ICE, and the DOL by designating someone from Human Resources (and at least one other individual at the company) who could be prepared to meet with an investigator should an unannounced visit occur. In addition to Human Resources, it is also advisable to notify corporate counsel and obtain the name a specific contact in the event of a visit from a government agency.
Fire smart. The global employer should know it bears additional obligations to the employee upon termination if the employee holds H-1B, O, or P status. The employer must reimburse the employee for the cost of return transportation to the home country and should notify USCIS of the termination. Finally, after an employee’s departure, the employer should ensure it complies with document retention requirements for I-9 records, Public Access Files, and PERM Audit files and implement a system to purge these records after the requisite time period has lapsed.
Stay Tuned. Government agencies have been working hard to implement regulations pursuant to President Obama’s 2014 executive actions. These regulations potentially offer several benefits to businesses including more flexibility for high-skilled workers, the modernization of the PERM process, and parole for entrepreneurs. Furthermore, the results of the November presidential election may result in significant immigration law changes.
Content contributed by Hannah F. Little, J.D., a N.C. Board Certified Immigration Law Specialist and partner in the Garfinkel Immigration Law Firm, representing employers and employees in a variety of industries and overseeing the firm’s family-based immigration matters. For more information, contact her at 704-926-9631 or email@example.com or visit www.garfinkelimmigration.com.