South African Automotive Week
South Africa’s automotive components industry in international comparative
perspective: Lessons from a global benchmarking study – Prof Justin Barnes
P
rofessor Barnes, who is
chairman of Benchmarking and
Manufacturing Analysts SA (Pty)
Ltd, began his presentation by referring
to a study conducted a decade ago by
Timothy Sturgeon and Richard Florida
which showed that there are five sets of
features and trends that distinguish the
automotive industry, and which indicate
the viability of the industry in each
geographical set.
The first set is developed economies
which have increasingly higher costs but
because of the size and establishment
of the industry, remain viable – obviously
America and Europe. The second set is
developing economies that are located
next to large developed markets – such
as the Visegrád Group, comprising
Poland, Hungary, Czech Republic and
Slovakia.
Third, are the sets of developing
economies located in a regional bloc,
forming a significant market and strong
export dynamics - Mercosur is a good
example, as it is a sub-regional bloc
comprising Argentina, Brazil, Paraguay,
Uruguay and Venezuela, plus associate
countries Chile, Bolivia, Colombia,
Ecuador and Peru, and observer
countries New Zealand and Mexico.
The fourth set are large developing
economies that are growing at a fast
pace, based purely on their large
populations – clearly China and India.
And then there is the fifth set, and the two
anomalies – South Africa and Australia.
Neither of these countries’ automotive
industries is viable without high levels of
protectionism, and Sturgeon and Florida
predicted that these anomalies would
become casualties of globalisation.
And as per Prof Roos’ presentation, the
prediction has become true in the case of
Australia.
So this leaves us with South Africa. Will
the industry survive, and what can we
learn from both the Australian experience
and the global benchmarking study?
Because of our location, and the
disadvantages accruing from this
geographical disadvantage, South Africa
needs to be as cost competitive as
possible, and the global benchmarking
study does not make for encouraging
reading.
Using Thailand as a benchmark, South
Africa is 9% less cost competitive, with
the major culprits being labour and
inventory costs, ameliorated somewhat
by government incentives.
Productivity is another negative, with
South Africa losing ground every year
to our competitors. Capital expenditure,
training initiatives and operating profit are
also areas of concern.
Barnes points out that the root cause of
non-competitiveness is the fragile supply
chain, with component manufacturers
more reliant than the OEMs on labour,
and with our relatively expensive
and unproductive labour force, this
creates the situation where component
manufacturers are performing according
to OEM demands in most things except
cost. A by-product of this problem is
tha t South Africa is assembling, but not
innovating.
Barnes says that there are four areas that
need to be addressed when it comes to
the competitiveness of South Africa’s
automotive industry. Firstly productivity,
which can be addressed via improved
work organisation and a laser type
focus on becoming leaner; secondly
localisation – we need more lower tier
component suppliers, as currently
only 20% is value added; thirdly skills
development, which is a perennial
issue; and finally technology upgrades,
which is addressed through increased
capital investment.
Other issues that need to be addressed
revolve around economies of scale
– our domestic market is too small,
and we need to grow it to at least
1 million vehicles per annum; we need
250 000 unit plants to get to a 50%
improvement in scale economics; and
we need to up our local content from
40% to 60%.
Ending with an upbeat note, Professor
Barnes says that South Africa is in a
much better space than Australia, but
we cannot afford to be complacent.
Sub-Saharan Africa is also a massive
opportunity, with an ever increasing
middle class aspiring to buy new cars.
This will require African countries
refining and aligning their regulations
and homologation frameworks, and
restricting the importation of second
hand and “grey” imports.
And it would help to bring down the
South African cost of living index across
the board.
We may think that our living costs are
reasonable, but the fact is that South
Africans have an expatriate lifestyle,
paying for private schools, private
medical aid, private security, private
transport, and other unnecessary costs
conferred to us by a dysfunctional
government.
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52
november 2014