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Can SA Manufacturers be World Class ?
The South Africa trucking industry has seen an influx of imported product over the past few years. While many of these products have been welcomed by what was formerly an isolated country, the truth remains that we also need to provide for our own economy and employment needs via exports. The question which needs to be asked in this regard is: Can South African companies be world class manufacturers? Seeking an answer to this question, we spoke to TFM managing director Johan van der Merwe and compared his company's situation to others who have also succeeded. The bottom line is that they can succeed but they need to shed the skins of the past.
It is widely believed that South African products, particularly those of the automotive industry, do not penetrate markets on a truly global scale because we have not mastered state-of-the-art technology. But this is not entirely true. This country has sometimes led the world in the introduction of sophisticated technologies and has mastered "imported" state of the art technologies, albeit in limited fields.
The truth is far more prosaic. High technology products and components usually require massive investment in sophisticated manufacturing plant and in research and development programmes. That investment can only be justified by big volumes. But there are ways around this, involving collaboration with overseas component suppliers and principals, not only to provide volume on export markets but also technology and components - and even offer some international market share.
It is a clear understanding of the value of this approach that has led TFM to adopt a flexible policy and has resulted in export success for the company. Says MD Johan van der Merwe: "With our locally designed and manufactured machines, the local content some three years ago was 99%. Today it is 85% and as we become more and more part of the global village, I expect it to level out at around 50%. Economics is the determining factor."
Scientists and engineers have left
Van der Merwe notes that South Africa spent large amounts on the development of superior technologies (particularly in the military field) in the past but, since then, many scientists and engineers have left the country or become involved in other lines of business so local development of these world-class technologies has dwindled.
TFM manufactures and markets specialist machines such as refuse compactors, truck-mounted cement mixers, tipper bodies, refrigerated bodies, articulated personnel carriers, road sweeping vehicles, sewer cleaning vehicles, recovery vehicles and even explosives carriers. It has technology agreements with overseas principals, imports fully built up units and designs and builds its own products.
A capacity for local design and manufacture can be advantageous in the export context. If a South African company manufactures under licence, it may be prohibited from export because the principal covets those markets and has a first right to exploit them. However, if design is local, even if some components are imported, no such prohibition applies.
Nevertheless, van der Merwe points out that a good option for local manufacturers is to build under licence from overseas principals that agree to share export markets, particularly if the product concerned calls for leading technology and sophisticated components. All the better if a local company can forge an agreement to be sole manufacturer of an entire line of product on behalf of a large international enterprise and thus gain access to an international marketing chain - not to speak of vast research and development resources.
An example of this is provided by the agreement whereby Volkswagen South Africa builds all the right hand drive Golfs on behalf of Volkswagen AG. Now that the die has been cast, the position of VWSA is secured at least for a number of years by meeting demanding standards and by the sheer cost of dismantling the project and re-locating it elsewhere. Approaching the challenge from a different angle, ADE has become a major component supplier to leading vehicle manufacturers worldwide and has benefited from volume production.
We will have to change our ways
It is plain that we will have to change our ways of doing things now that we are exposed to world markets. Flexibility is reflected in TFM's own policies. For instance, the company has an agreement with Heil, a leading US manufacturer of waste compactors. In terms of this agreement, TFM markets Heil products and also incorporates Heil components in its locally manufactured machines.
The component most exposed to stress in a compactor, the tailgate, is often imported from Heil because, in certain categories, their product is more rugged. There are reasons for this.
The Heil product is manufactured using sophisticated processes such as robotic welding techniques which impart consistent quality and strength. High strength steels are available in the US at prices comparable with the cost of regular mild steel from Iscor. And, lastly, in these categories the imported product is designed for the stresses and strains of specific applications, whereas the local alternative could be used above its design environment.
There is no technical reason why TFM should not employ robotic welding - just the high cost of the welding equipment, set against low volume production.
Van der Merwe points out that South Africa is not a very manufacturing-friendly environment in the engineering sector due to low volumes and available technical skills. But low volume production can be undertaken successfully through project management skills, keeping costs within acceptable bounds.
He adds: "If we cannot export using the technology and designs of our overseas principals, the other option would be to use our own designs. But our first choice must be to develop our capabilities to manufacture under licence to the extent that we could compliment our principal's manufacturing plants, using their international marketing machine to export to specific niche markets.
"We are often better suited for smaller lot manufacturing. Thus we can serve markets that have their own special requirements, and markets that are not attractive to mass manufacturers because of the low volume."
Product type exceptions
There are also exceptions in terms of product type. Van der Merwe offers an example. "Our humble skip loader does not require extensive capital equipment for manufacture and is less sophisticated and easier to maintain and operate in Third World environments than European equivalents. This provides a typical example of a less complex design which can lead to a price advantage. Flexibility, a willingness to modify designs, undertake local assembly and provide good delivery times can work to our advantage, as can proximity to the target markets."
Van der Merwe says we can also be successful if we are innovative. For instance, his own company has co-developed a cement mixer mounted on a Bell on/off road chassis - a versatile machine, and a first.
Addressing boldly the opportunities and limitations of South African manufacturing in the engineering sector, and in a global context, TFM has been successful in local and export markets. It has exported to nine African countries as well as to Bangladesh and continues to export to the African region. Seeking to extend its exports, TFM is actively exploring markets in four more African states, plus Jordan, China and Sri Lanka.
It can be done, but not the way it was done in the past.