Global Niche



Global Niche
South Africa is in the
driver’s seat
thanks to top quality and proven small
and flexi-run production capabilities.
bservers were
pleased but a
when Nelson
Mandela’s ANC
received an overwhelming mandate to rule
post-apartheid South Africa
in 1994.
The world had witnessed a
political miracle, but an economic miracle of equal stature
would be needed to propel this
country at the southernmost
tip of Africa into the global
The new government would
have to pull out all the stops
for the world to commit to new
investments in South Africa as
it shifted away from its former
inward-looking existence.
August 2006
The automotive industry
would not normally find a geographically isolated market of
a few million consumers an
attractive location to expand
stakeholders banded together and set
the stage for the industry to
become South Africa’s leading manufacturing base and
the third largest sector in the
economy behind mining and
financial services.
Today, with economic
growth exceeding 5% in real
terms and 28 consecutive
quarters of positive growth,
automotive stands at South
Africa’s economic forefront
and is credited as the only
manufacturing industry not to
lose jobs as its contribution to
GDP has increased from 5.4%
to 7.4% in the last decade.
Unfortunately the “Mandela
Factor” which helped bring
a 0.7% share of the global
automotive economy and Top
20 position to South Africa
will not be enough to take the
country to the next level.
Within the global reality
of overcapacity, South Africa
must brand itself as an attractive production hub for niche
vehicle platforms, be it entrylevel, luxury, pickups, or crossover vehicles.
In doing so, all stakeholders will need to hit the road
to entice potential investors to
discover the real South Africa,
a place of Western culture with
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a European time zone and a
motivated and low-cost labor
force (all-inclusive cost of $1.50$2.00/operator man hour).
The country also can tout
cheap industrial land, even
cheaper electricity, stable
macroeconomic policies, proactive management, immense
natural resources, expertise
in process engineering and
niche innovation, unparalleled
production flexibility, and ISO
These positive factors outweigh the current challenges
of a strong commodity-fueled
Rand, poor local infrastructure characterized by a lack of
coordination between national, provincial and local governments and little input from the
automotive industry.
Brain drain, lack of tooling capabilities as the industry
recovers from the shift away
from the weight-based incentives of the 1980s, and geographic dispersion of the local
industry between four provinces in a country the size of
the whole of Western Europe
also are concerns.
Even so, the fact BMW South
Africa has been awarded Best
European Plant by J.D. Power
and Associates is proof the
country can host truly worldclass automotive activity.
Combined with proven small
and flexi-run production capabilities, South Africa is ready
to brand itself as a competent
global niche player.
The automotive sector has
grown at a breakneck pace,
reaching nearly $7 billion in
exports in 2005.
Executive Manager at the
Automobile Manufacturers of
South Africa (NAAMSA), and
guardian of the Automotive
Industry Export Council,
explains: “Exported autos
increased from 110,000 in 2004
to over 140,000 in 2005. Next
year, thanks to new models
coming into production –
Toyota’s Hilux, BMW’s 3-Series,
Mercedes’ C-Class and GM’s
Hummer H3 – we should export
more than 200,000 vehicles.”
South Africa’s clear and uniformly applied set of policies
is bearing fruit that insiders
believe will support sustainable double-digit growth in
both production and exports
for years to come. In fact, Dr.
Johan van Zyl, president of
NAAMSA and chief executive
officer of Toyota SA Motors,
expects “capital investment
in the vehicle manufacturing
industry to increase by a massive 135% in 2006 to a record
$1.4 billion, compared to about
Nelson Mandela.
$600 million in 2005.”
This is a massive increase
from the cumulative spend to
date of just over $3 billion since
the start of the Motor Industry
(MIDP), according to Mkhululi
Mlota, Director – Automotive
Customized Sector Program of
the Department of Trade and
Industry (DTI), and is absolutely critical if the industry is
to reach the volumes that will
make South Africa truly globally competitive.
The DTI’s crystallization of
the MIDP in September 1995
set the stage for this miracle.
“The industry was too small,
too fragmented and overtraded
to provide a viable future for
the 7 major vehicle manufacturers at the time,” says Nico
Vermeulen, executive director
Mlota elaborates: “The key
original objectives were to
improve international competitiveness and domestic
vehicle affordability, encourage domestic growth, reduce
complexity in supply through
rationalization, convince manufacturers to focus on longer
production runs and modernization, create sustainable
employment, create a better
balance in foreign exchange,
and particularly to achieve
growth in exports.”
In tackling such a multifaceted agenda, the MIDP has
continued the methodical process of bringing down custom
barriers which began in the
late 1980s with the reduction
of import tariffs as high as
115%, and created for the first
time, based on the previous
Australian model, powerful
new measures such as ImportExport Complementation and
Productive Asset Allowances
to spur a renaissance in the
local industry.
With import duties on cars
at 32% and falling by 2% each
year until they reach 25% in
2012, the environment certainly has contributed to improved
domestic sales volumes,
improved affordability, broad-
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er consumer choices, improved
quality, increased employment,
as well as enhanced competitiveness and prospects for the
On the back of all-time
record production of 530,000
vehicles and sales of 617,000
vehicles, increases of 16.5%
and 25.7% respectively, South
Africa was the world’s fastest
growing domestic vehicle market in 2005.
Clearly, this status has been
the driving force behind new
players like India’s Tata and the
Koreans taking on the South
African incumbents head on
with their value-proposition
imports. It is abundantly clear
that even though South Africa
is a Top 10 global market for
both Daimler Chrysler and
BMW, the country is quickly
growing beyond its traditional
prestige market and brands.
Today, the South African
marketplace is already home
to over 1,100 models and variants, an amazing ratio of offerings per capita, and economic
forecasts of 6% real growth
going forward should ensure
a fantastic cascading effect as
the industry counts down to
the One Million Vehicle Sales
Furthermore, a clearly drawn
out agenda of Broad Based
Black Economic Empowerment
(BBBEE), should support a
rapid increase in the country’s
active consumer base of less
than 20% of South Africa’s
population of 45 million
strong. There is no doubt this
pent up potential coupled with
the kind of sound economic
policy that has produced low
and stable inflation levels and
record low interest rates over
the last few years will fuel
the kind of continued expansion that Mlota says will “grow
the South African market for
vehicles to double its current
size by 2012.”
August 2006
The emergence of a black
middle class is not just rhetoric.
According to a SA Advertising
and Research Foundation 2005
survey, the black middle class
has grown by 421,000 adults
– or 30% – over the previous
12 months.
This eye-opening statistic
has prompted OEMs to identify
Nissan Revival, our position
as the top exporter to Africa
with our locally-manufactured
Hardbody, and amazing brand
recognition as Synovate’s Top
Brand in Customer Satisfaction,
we are in a great place to
introduce new entry level,
B-Segment and C-Segment
Hatchback offerings that
black middle class. However,
according to Roel de Vries,
director – marketing and sales
at Nissan South Africa, “Even
though we plan to increase
our offerings to cover over
80% of the overall segmentation by 2010 with the emerging black market as Nissan’s
primary consideration, com-
“Even though we plan to increase our offerings to cover over
80% of the overall segmentation by 2010 with the emerging black
market as Nissan’s primary consideration, companies must not
go overboard in defining differences because South Africa has
11 different official languages, dozens of ethnicities and colours,
and multiple religions. While people try to tear through statistics
to identify key differences, emotions and perceptions of brand
awareness and prestige are universal.”
the group as a primary growth
area in South Africa that warrants a specific strategy. Julio
Panama, Nissan South Africa’s
managing director, adds: “The
combination of the new level of
corporate support and global
integration brought on by the
directly cater to South Africa’s
rising black middle class.”
Panama is confident his
organization will increase
overall market share from 8%
to 10% in 2006.
That is a powerful tribute
to South Africa’s emerging
panies must not go overboard
in defining differences because
South Africa has 11 different
official languages, dozens of
ethnicities and colours, and
multiple religions. While people try to tear through statistics to identify key differences,
emotions and perceptions of
brand awareness and prestige
are universal.”
Today, a current MIDP revision process is set to put in
motion a recalibrated plan by
the end of 2006.
Despite the rosy outlook for
vehicle volumes, local suppliers face some daunting challenges since, according to
Mlota, “The Productive Asset
Allowance may favour car
assemblers while not benefiting component suppliers. The
revised MIDP may introduce
certain benefits that offer the
level of benefits that OEMs
enjoy to our supplier base.”
It seems the voice of
NAACAM has been heard.
Roger Pitot, executive director at the National Association
of Automotive Component
and Allied Manufacturers
(NAACAM), makes the situation out to be cut and dried:
“South Africa must find niche
markets around the world and
forge a fixed position. The government should refocus the
MIDP in favour of a combination of investment assistance
in the range of 30-40%, regional production allowance, training schemes, and support for R
& D expenditure.”
In addition, Pitot anxiously
awaits the outcome of high-profile negotiations between raw
materials suppliers; the DTI
and South Africa’s Competition
Commission that he hopes will
yield more opportunities for
local benefits. Pitot emphatically concludes: “As an efficient
industry with many producers
that are globally competitive,
only these issues require medium to long-term governmental
support in order for us to achieve
necessary export volumes for
further global growth.”
Entering the Global
Having established itself in
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August 2006
less than a decade as a reliable automotive production
hub not only for Africa but
also the major global markets,
the South African automotive
industry is much closer to
charting a clear course.
When General Motors Corp.
was the last of the OEMs to
take the full post-apartheid
plunge by purchasing back
Delta’s 51% stake in 2004,
GM South Africa (GMSA) was
immediately asked to identify
the best suitable vehicle export
program for South Africa.
Considering that GM’s entire
global Hummer H3 requirement
was coming off the lines of its
Shreveport plant and the longstanding success of producing
truck applications in South
Africa, GMSA was a natural fit
to supply the global non-North
American requirement.
According to Robert Socia,
president and managing director at GMSA, “winning the
Hummer H3 contract is a testament to how General Motors
views us as a can-do organization with a lot of accomplishments to its name in just a
short period of time.”
He may be referring to his
organization’s gain in overall
market share of 1.5 points in
2005 alone to reach 13.6%
while posting a blistering
40% increase. This performance was enabled in part by
the rolling out of the Chevy
brand, including the Spark:
No.1 in the entry segment,
and the Aveo, No. 2 in the
small hatchback segment, for
quality per J.D. Power and
The Isuzu KB and Opel
Corsa Utility, which carries
the top ranking for quality by
both syndicated surveys, now
account for 24% of local LCV
sales. GM has clearly upped
the ante in South Africa by
investing about $330 million
including nearly $100 million
August 2006
in setting up the Hummer program which will swing into
production in September 2006
and eventually include lefthand drive and diesel variants
en route to volumes that may
reach 18,000 annually.
In its expansion, GMSA has
been emblematic of the opportunity to generate a profit while
uplifting local communities.
“We are at the forefront of
involvement and service to our
community,” says Socia. The
industry-wide HIV/AIDS infection rate of 1/6 is a major challenge that cannot be avoided
in South Africa, but there are
many more social challenges
that do not have a direct and
immediate correlation to worker productivity.
The GM South Africa
Foundation puts to work various innovative models designed
to help the local government
face its housing challenge with
better build and efficiency. The
Foundation has written textbooks, trained principals, and
educated 2,000 children of its
Eastern Cape employees.
While most companies
find it out of scope, GMSA
provides in-house comprehensive medical coverage for
retirees. According to Socia,
“We design, fund and manage
our own programs instead of
simply handing over money
blindly. This is a different and
more real approach to social
Such grassroots efforts to
help communities are not confined to car manufacturers who
have a brand image to uphold.
Stewart Lang, vice president and general manager at
Johnson Controls Automotive,
explains: “The future of South
Africa depends on educating
the masses.”
Since in-house training
courses at Johnson Controls
have repeatedly uncovered
lower levels of English than
expected, the company has
created a long-term game plan
to meet the challenge.
The company recently distributed 40 tons (36.3 t) of
books to six schools where
the children of their employees
are schooled and has dedicated a person to ensure teachers incorporate the material
into lesson plans. In another
program, each of Johnson
Control’s plants – Pretoria, Port
Elizabeth and East London - supports an orphanage with
daily deliveries of e’pap, a
highly nutritious food.
Such a commitment makes
MAN Truck & Bus
Germany’s MAN Truck & Bus, the only
European commercial vehicle company to
grow South African market share in 2005
– in a market of low 20% import duties on
commercial vehicles – has its own strategy
to protect growth from the plethora of rapidly
emerging Indian, Brazilian, and Chinese offerings that have captivated first-time buyers.
According to Geoff du Plessis, chief executive officer of the company, with a global
commodities run and the ramp up to meet the
transportation requirements of the World Cup
2010, “We anticipate quite a restructuring of
the market in which a distinct premium segment will develop for the first time.”
As market leader with more than 40%
share in the underdeveloped local bus market, MAN has planned in advance to ensure
a positioning both as a Top Three player in
the premium segment and as a meaningful
participant in the mass segment.
The plan is to leverage the capabilities
of MAN’s South African Global Centre of
Excellence for front-engine buses and the
company’s status as South Africa’s sole inhouse bus production facility to secure a premium positioning. In 2007, MAN will start
to import value-priced Indian-made product
to complement its premium offerings under
a single brand strategy. ■
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BMW Plant Rosslyn South Africa.
sense considering the conservatively estimated 12% future
market growth rate and “the
country’s stability and reliable
workforce compared to many
low labour cost countries,”
says Lang.
Stewart Lang.
Having taken full ownership of its South African operation in 2003, Johnson Controls
quickly realized as the market
leader in outsourced complete
seat assemblies that further
institutional growth might be
For this reason, according
to Lang, “We are focusing on
doing our part in expanding
the local car market as more
and more new vehicles are
being assembled here.”
When the first Hummer H3
rolls off the line, it will have
Johnson Controls seats. Also,
according to Lang, “another
exciting new prospect is the
entry of Tata into South Africa
as a manufacturer.”
Having been part of a joint
Market Fired on all Cylinders:
Increase in purchasing power of black
South Africans a key impetus
SA Advertising and Research Foundation : 2005 Survey
■ Black middle class has grown by 421,000 adults over last
12 months (+30%).
■ An additional 18,000 black adults have moved into
LSM10 high income category (>US$850-900/week) in
2005 (+18%)
Bureau for Market Research Unisa : 2005 Survey
■ Black middle class increased by 4 million between 1998
and 2003.
■ Black adults in LSM10 doubled between 1998 and 2003.
■ Total of 440,000 blacks now in upper middle income and
high income groups (growth of 368% over past 6 years).
Dramatic change in our socio economic
composition is taking place!
venture with Tata to set up
Johnson Controls first Indian
plant years back, it only makes
sense the collaboration will
spread to South Africa once
Tata finalizes a plant location
within the next few months for
a planned capacity of 60,000
Lang continues: “Since their
seating is based on European
designs, the best-case scenario
would be to commonize some
parts with other vehicles to
gain the benefits of scale since
the real difference here is that
the high degree of complexity
drives cost with lower volumes
for recovery, so the challenge is
to minimize the investment.”
Even though this approach
leads Johnson Controls to outsource more components to
South African licensees, the
company still keeps no assemblies in inventory and delivers
any of 500 seat sets or cockpits
to South African OEMs with as
little as 45 minutes notice.
Roger Pitot.
In this way, Johnson Controls
is emblematic of the local-multinational fusion that characterizes the local industry. Since
the lifting of trade barriers,
Roger Pitot, executive director at the National Association
of Automotive Component
and Allied Manufacturers
(NAACAM), explains: “About
10% of South African component suppliers have gone out of
business. Today, South Africa’s
base of 400+ automotive sup-
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pliers is comprised of a 50/50
mix of global to local suppliers,
many of which have acquired
technology from abroad.”
A handful of South African
companies have taken their
activities to the next level by
establishing a sustainable
global footprint by incorporating activity in competing automotive economies into their
fold and thus, making them an
asset rather than a threat.
Eddie Keizan, former racer
and national hero come founder and executive chairman at
ATS, indulged his passion and
established his TSW brand
of alloy wheels as the global
trend setter in both premium
OEM vehicles and aftermarket
Younger companies like
Venture draw on his example.
The specialist in moulded and
painted plastic parts entered
the market with great force
through Detroit-based financial
muscle to acquire 21 under performing manufacturing sites
that have been rationalized
into four solid South African
sites as well as operations in
India, China, Australia.
The growth strategy has
been simple, according to Mark
Walker, chief executive officer
at Venture: “Venture is special
because not only do we have
access to the best short-run
technologies, but we attract the
best people and train them on
our technological platform.”
His company is the only
South African company with
August 2006
water-borne paint lines at almost $16 million each, and is
also one of the very few with large-volume robotic molding
Walker also is “proud to be one of the first South African
entities to receive a TS 16949 rating.”
The company can justify just about any tooling expense
for minimum volumes of 10,000 units annually for at least
five years. Perhaps this is why all eight local OEMs work
with Venture. But this would not be possible, according to
Walker, were it not for his company’s ability to “leverage our
global footprint to maximize the specialized contribution of
each Venture operation.
“While making the whole company competitive internationally; our Chinese tool shop produces all tooling;
650 engineers in India redesign customer components to
produce cost savings; Australian operations share expertise
in automotive interiors; South African operations serve as
the ‘nerve centre’ and share IT and lean manufacturing
With such a strong global footprint that maximizes the
potential of the low-cost developing world, the company now
has its sights on setting up next to OEMs in the developed
world to supply larger, higher value modules in sequence.
Such a strategy is indicative of the unique First WorldThird World market dynamic which has confirmed South
Africa as a truly seasoned training ground for the most
upwardly mobile leaders within the automotive industry.
Vermeulen explains: “Working here is a tough experience
which affords senior executives the opportunity to take a
comparatively broad focus in confronting challenges, virtually all of which can be found elsewhere in the world.”
Or maybe leaders draw strength from frequent bosberaads or lekgotlas, week-long business retreats to game
reserves. Whatever the case, Jurgen Schrempp, former CEO
and President of DaimlerChrysler, started his career here
as Technical Manager at what was then Mercedes-Benz
South Africa.
Bernd Pischetsrieder spent numerous years as Technical
Director at BMW South Africa before becoming CEO of
Volkswagen; Ian Robertson, former MD of BMW South
Africa and NAAMSA President from 2001-2005, became
Chairman and CEO of Rolls-Royce Motor Cars in 2005.
The proof is in the pudding – or in the South African pap
– traditional Bantu smooth-boiled corn meal.
New policies pave the way
According to Mkhululi Mlota, Director – Automotive
Customized Sector Program, of the Department of Trade and
Industry (DTI), “Today, at least 110,000 people are directly
employed on the automotive manufacturing side and an
additional 200,000 plus work on the retail side. Clearly the
industry is very important to South Africa – for this very
reason the DTI is currently creating a whole bouquet of relevant and WTO-compliant policies and initiatives to ensure
the future prosperity of the car industry once import duties
reach 25% on CBUs and 20% on components.”
The industry might be mindful of the implications of
August 2006
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Robots at GM Plant, Port Elizabeth.
losing value-added activities by choosing
to enter a catfight with the likes of China
in purely volume-driven activities. South
Africa might do well do continue to draw
inspiration from the niche competency
driven Australian blueprint.
With a broad base of engineering
skills that is available at only one-third
the cost of developed economies and a
“world in one country” climate, perhaps
more companies should follow the lead
of DaimlerChrysler, which tests its trucks
and buses here.
Beyond product testing, South Africa
could take a leading role in the development of hydrogen powered fuel cell powertrains that require rare earth elements
found only in South Africa and China.
As the local industry waits with baited
breath for the unveiling of the revised
MIDP, if everybody delivers on their promises and continues to display extraordinary
foresight, the right timing for an enhanced
commitment may soon be at hand.
But the MIDP is not the only external
factor of import. The strong Rand is a
source of great frustration for companies
in South Africa as they defend their local
contracts and look for business abroad.
But according to the man commonly referred to in automotive circles as
“Expert on the Rand” Tony Twine, director
– economic consulting at Econometrics,
“when taking into consideration the Trade
Weighted Index of South Africa’s Top
15 Trade Partners, the Rand is currently
indexed at a value of 103.”
It has been indexed as high as 150 and
hasn’t changed much in value over the last
11 years despite all the positive change.
But the industry should draw some consolation in Twine’s prediction that “the Rand
should be at 1 USD = 7 Rand by the end
of 2006 and 1 USD = 7.25-7.30 Rand by the
end of 2007.”
Regardless of temporary shifts in
exchange rates, DTI’s Mlota is crystal clear
on the intent of the MIDP: “It does not
intend to target any specific components
or support a sector that does not make
business sense. Today, we see great benefit
to diversifying our basket of automotive
South African OEM Production & Exports
General Motors
Exports 2005 Production 2005
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Exports 2004 Production 2004
August 2006
exports which are dominated by just two
product categories, catalytic converters
and stitched automotive leather, which
account for over 50% of exports.”
Another imbalance lies in the 70% of
exports destined for the European Union.
But Mlota explains: “Of particular interest
is MERCOSUR where we have pending
preferential trade agreements to increase
bilateral trade and open doors especially
to our component manufacturers. While
Brazil’s automotive industry is three times
that of South Africa, the trade balance is
10 or 20 to 1 in Brazil’s favour.”
Another under-explored opportunity
is the U.S.’s unilateral African Growth
Opportunity Act (AGOA) which offers
complete duty exemptions on almost every
automotive Complete Build-up Unit (CBU)
and component. While BMW seems to
have caught on in sending the bulk of its
3-Series exports to the US, very few other
OEMs and even fewer local suppliers have
availed themselves of the potential.
Baisch Engineering is an exception to
that rule. The company developed proprietary “V” pulley technology in 1985,
and has since built up development,
design, testing, tooling and launching
With a 1-2% share of the world pulley
market, the company currently exports
95% of its pulleys to Europe, where they
go into plants that produce items like
engines, crankshafts, power steering, and
water pumps. But according to Hennie
Venter, managing director at Baisch,
“There is so much untapped potential
beyond Europe and Baisch now has its
sites clearly set on the USA. We are confident in our expansion plan because, quite
simply, Baisch pulleys are better than any
other pulley in the world.”
But quality does not have to come at
a higher price. Venter explains that “We
place very high importance on making
our equipment ‘sweat.’ Over the last year
we’ve been able to increase overall efficiency by 15-20% with exactly the same
equipment and people in place.”
As for the USA, Venter beams: “We
have quoted competitively on a few different products into several OEMs and expect
to see our product accepted within 12 to
18 months.”
Through such efforts, blistering growth
rates of 22% per annum over the last three
August 2006
years should increase to 25%, while current production of 2 million units should
conservatively reach 3 million in 2006
and then double quickly to 6 million with
exports to the USA. Once the company
reaches 10 million pulleys, Mr. Venter will
command 5% of the world market. No
wonder Baisch was awarded as Finalist in
the President’s Award for Export.
While Baisch’s pulleys may be an example of successful export diversification,
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there are other product categories that are
poised to pop. Johan Cloete, MIDP Review
Project Leader for Blueprint International,
the lead consultant on the DTI’s current
review process which will culminate in
a revised program that carries through
2012, forecasts changes to the MIDP that
will result in more FDI.
“Since we have such cheap labor and
energy costs – No.2 cheapest globally – any
foundry-based product should be a win-
Vehicle ownership in
South Africa : Some
key statistics
World average
South Africa
Vehicles per 1000 of population.
ner. More engine and engine
component manufacturing
capacity should spring up and
result in technology transfer
and higher value exports.”
This should be music to the
ears of Edwin Hewitt, executive
director at Murray & Roberts
Foundries, “The biggest supplier in terms of value to both
Ford’s RoCam and Volkswagen’s
LT2 and LT3 engine export program, for which we supply the
engine block, head and inlet
manifold. For Volkswagen to
award a single contract to cast,
machine and assemble cylinder
heads for export to Europe is
not a small feat.”
Edwin Hewitt.
When Hewitt entered the
company in 2002, he had
already turned around two
companies and was expected
to bring discipline, focus and
profitability back to Murray
& Roberts Foundries. He
immediately commissioned
an in-depth AT Kearney global benchmarking study that
revealed Murray & Roberts’
scrap rate was running as high
as 28% compared to the global
benchmark on iron blocks of
less than 10%.
By creating what Hewitt
calls “A performance culture
defined by a deep succession
within each position and a
culture of brutal honesty in
which no politics is tolerated,”
the company positioned itself
confidently to execute a 100%
That included a near $60
million investment to upgrade
the company’s existing foundries and build its “Greenfield
Alucast aluminium facility
which boasts one of the few
local ISO 14001 environmental
accreditations and “where you
can eat off the floors.”
With the backing of VAW
(Hydro Aluminium) Tridem
gravity casting aluminum
cylinder head technology,
an ongoing partnership with
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Holland’s Gemco on the heavy
technical issues associated
with upgrades, and a co-investment with their raw material supplier in a world-class
aluminium alloy producing
facility which converts scrap
into billet which is then consumed all within the confines
of Alucast, Hewitt claims: “We
run to equivalent European
levels in scrap, efficiency, and
throughput, and we do so with
South African people.”
With increased production
levels of 1,800 blocks per day
over all four company foundries, and a confidence the
company can be globally competitive, Hewitt now looks to
sustain his truly world-class
business through a massive
drive toward direct exports.
It doesn’t hurt that his entire
marketing and technical staffs
are fluent in both English and
August 2006
Despite its successes, some
say South Africa suffers from
Dutch Elm Disease, meaning that while a commodities
boom has lifted the Rand, the
country is pushed back to its
origins as a Third World supplying nation which derives
no benefits from value-added
The country has lost nearly 60% of its manufacturing
employment over the last
decade, including 65,000 manufacturing jobs lost in 2005.
Today, the automotive sector
may be the only substantial
manufacturing base left in an
economy where unemployment
easily exceeds 30%. Because
of this, any fears that the MIDP
or a similar investment scheme
beyond 2012 might not be present are unfounded.
New export platforms
and the suppliers
behind them
While prior to 1995 many
OEMs had majority local
ownership, today, all OEMs
in South Africa are majority
foreign owned. This structural
shift has enabled manufacturing changes in favor of fewer
models with much higher volumes through exports.
According to Dr. Johan van
Zyl, president of NAAMSA and
chief executive officer of Toyota
SA Motors, “The number of
base model cars and Light
Commercial Vehicles (LCVs)
made locally has dropped from
42 to 22 models, while average volumes per model have
gone up from 8,515 to 22,609,
thereby increasing efficiencies.
This has resulted in high-volume production models (more
than 40,000 units) increasing
from zero to five, while models
produced at a rate of at least
20,000 per year have jumped
from five to twelve.”
When Toyota, the only
Japanese OEM manufacturing
August 2006
in South Africa, took its majority stake in 2002, the company had already established
itself as the clear overall market leader with a steady target
market share over 25% for 26
consecutive years.
Dr. Johan van Zyl.
A new priority was placed
on the integration into the
global supply chain that created, according to van Zyl, “A
fairly ambitious program to
produce over 200,000 vehicles
in our Durban plant, half for
International Multi-purpose
Vehicle (IMV) was meant to
transform Toyota SA Motors into
a global company with economies of scale. Henry Pretorius,
senior vice president – product development & purchasing,
elaborates: “We first earned
the right to export the Corolla
to Australia; when we met
Japanese quality levels, Toyota
Motor Company included us in
the Hilux project. We changed
the supplier base by importing from all over the world
rather than just Japan, began to
import on a part-by-part basis,
gave a new level of sophistication to our logistics systems,
invested heavily to update our
facilities and processes to meet
higher quality standards, and
we began exporting to the
European Union.”
Even though the Hilux projA Sponsored Supplement Produced by Focus Reports
New Vehicle Sales Evolution and Forecast to 2010
ect was extremely challenging,
and the benefit of being located near the Port of Durban,
Africa’s busiest port, may have
turned into a disadvantage due
to frequent delays, Toyota SA
Motors is quickly ramping up
to production of 120,000 units
annually. This could not have
been accomplished had the
company not committed massive investment to local supplier development.
According to Dr. van Zyl,
“One element of our supplier
development program is to work
with local suppliers to find viable options for joint ventures or
technical agreements with our
leading global suppliers. In the
future, local suppliers without
global links will find it very
difficult to do business with
vehicle manufacturers.”
Pretorius adds, “More than
50% of local companies couldn’t
cope with Toyota standards, so
we had to globalize the supplier base from 2003 to 2005.
Today, 82% of our suppliers
have global content through
relationships with Japanese or
European global suppliers, up
from 30% a few years ago.”
A local partnership makes
perfect sense from the perspective of a global supplier as
well since the risk component
associated with doing business
in Africa and the smaller volumes do not always make a
full-fledged commitment the
best option. Toyota SA Motors
has played a leading role in
promoting very strongly the
establishment of at least ten
global suppliers like Boshoku
and Yazaki in South Africa
and when Toyota finalizes its
planned supplier park next to
the Durban Airport – following the success of clusters near
Pretoria (to serve BMW, Ford
and Nissan) and Port Elizabeth
(to serve VW and GM) – many
more global suppliers may take
the plunge.
Smiths Manufacturing SA, a
leading local air-conditioning
supplier, found a logical match
in Denso in order to accommodate expected growth – but
the process was no “walk in
the park.”
Leon Coetzee, managing
director, approached Denso in
1998 and returned to Japan
every year until Denso bought
a 25% equity stake in Smiths
in 2005.
From the perspective of South
Africa’s quick-acting business
culture, Coetzee had to exercise
extraordinary patience, but in
the end, “Although considerable
time elapsed before Denso, in
typical Japanese manner, agreed
to go ahead, the implementation
was extremely quick because
everybody already knew exactly
what had to be done and how to
react to any potential problems
that might arise.”
Another supplier that has
taken on major international
partnerships to meet OE needs
is Feltex Automotive, one of
South Africa’s most diversified suppliers. Today, as the
company tries to morph its
DNA from that of a traditional manufacturing entity to
plan more strategically, Ugo
Frigerio, managing director
of Feltex Automotive, says it
draws on “Toyota’s fearlessness and willingness to teach
suppliers how to use the tools
of lean manufacturing.”
Although Frigerio is the
Chairman of the Toyota SA
Supplier Association, Feltex
leverages its position under the
realm of the German entrepreneur Class Daun, the top
single foreign investor in South
Africa, and also juggles multiple joint ventures and technology agreements with American,
European and Japanese partners, to have operations on
the doorstep of all eight South
African OEMs.
Frigerio explains, “Fehrer
and Johnson Controls compete
head to head in the European
molded seat market, and on
the automotive trim side, we
have seven technology partners, all of which compete
against each other in Europe
but are able to coexist within a
South African context by providing Feltex Automotive their
Frigerio credits his company’s integrity as the enabling
force behind this integration
of a diverse and competing
set of technologies. In light of
market trends toward matching Mexican, Thai, Indian and
Chinese pricing, Frigerio credits
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“our ability to be successful at
lower volumes as a key Feltex
advantage. Because we cannot
count on a local investment in
petrochemicals to give us an
advantage in raw materials, and
since we face additional challenges in transport and inventory costs, Feltex remains focused
on outperforming in process efficiencies, VAVEs, and continuous
improvements, the central focus
in our growth strategy.”
While companies like Feltex
have created strategies to mitigate the inherent conflict of
interest posed by managing
joint ventures with competing partners, there are other
challenges to be taken seriously. While almost all industry stakeholders recognize
the mutual benefit of localmultinational partnerships,
Bill Cooper, chief executive
of Dorbyl, another diversified
South African player, walked
into a situation when joining
the company in 1994 in which
“the company was actively
engaged in a large number of
technical agreements and joint
ventures which grew quite dramatically in the early years,
but once our partners became
familiar with the market, some
chose to go it alone in South
August 2006
This realization as well as the rapid
appreciation of the South African Rand
from 13.86 to today’s 6.25 to the USD
within the last several years forced the
company to shed a significant part of its
export business – 0% of turnover at the
time – and cut 800 jobs. But today, the
rationalized company hasn’t turned its
back entirely on alliances. Dorbyl has
sunk massive investments into its 50/50
joint venture to become one of only three
factories in the GKN world with access
to state-of-the art constant velocity joint
Cooper credits this relationship with
opening doors at Toyota SA Motors, which
in turn matched Dorbyl with a technology
partner in a $9 million steel wheel plant
which supplies the Hilux and Corolla. Says
Cooper: “This relationship is going exceptionally well due to a high level of communication between us, Henry Pretorius, and
our Japanese partners which may even
chose to invest in Dorbyl.”
But by no means is Dorbyl solely reliant
on foreign technologies. As the owner of
one of the bigger automotive foundries in
the Southern Hemisphere, Dorbyl handles
all aspects of metrology, design and patents and is competitive in both local and
export markets. In supplying Bosch 1.5
million of a single component annually
Cooper beams with pride as he shares that
“Over the last three years our quality
reject rate has been exactly zero. When
we picked up 34 components from Toyota,
their world-best class reject level was at 23%, and we are supplying them at .5%.
When SKF in the USA faced a cracking
issue on a hub with a bearing system and
ABS assembly rolled into it, we stepped
in to bring rejects down to nearly zero.
On forging we are as world-class as anybody in our specific areas of expertise.”
According to Dr Paulo Fernandes, managing director of the AIDC (Automotive
Industry Development Centre), an influential PPP which links the automotive
industry, government departments, and
provincial governments “If local suppliers
A Sponsored Supplement Produced by Focus Reports
can establish themselves as being globally
competitive, the current local content in
CBUs that ranges from 40% to over 60%
could be boosted by a further 10-15%.”
A continued OEM commitment to highvolume global platforms will surely help
the cause.
Volkswagen of South Africa’s
MIDP mastery
Import-Export complementation has
been the cornerstone of the MIDP in
achieving the integration of South African
operations into procurement chains of
global automotive companies. Provided
a company exports components or motor
vehicles, it can use the credits generated to
import requirements free of duties.
In effect, this allows companies to bring
in a greater range of products and offset
the negative cost factor of geographic
dislocation. Volkswagen of South Africa
(VWSA) experienced growth even greater
than the overall market in 2005 by utilizing this provision perhaps better than any
other OEM.
According to Andreas Tostmann, managing director of VWSA, “since 2004, our
growth has exceeded even that of the general market growth as we have introduced
a wide array of new products such as the
Polo facelift, the Golf 5, the all new 5th
generation Jetta, the Touran, the Touareg,
the Caddy Life and the T5 Caravelle/
Kombi, into both the passenger and commercial segments. In the Audi product
range, we added the newly designed A3,
A4 and A6. In such a very competitive
environment, the key is to grow ahead of
the market, and as VW of South Africa,
representing the VW, VW Commercial
and Audi brands, we managed to grow all
three at an epic rate.”
Such good fortune has been coupled by
VWSA’s investment of around $1 billion in
new models, a new paint shop and a new
truck and bus assembly plant between
2000 and 2008.
Although it’s very unlikely that a
revised MIDP will require a certain minimum level of local content, VWSA is
finding that maximizing local content
makes quite a bit of sense. According to
Tostmann, “every OEM has an objective to
maximize local content partly in order to
overcome the disadvantage of our distance
to overseas markets; however, considerAugust 2006
ation must be given to the relatively small volumes produced
here. To overcome this, we first
combine export and domestic
volumes to increase the units
being produced. Then we look
for synergies between our different models. Common parts
in our Polo and Golf make
it easier for our suppliers to
invest in the required technology, having afterwards to cope
with the investment related to
the specific design or to the
needs of the product itself.
This division of the supplier’s investment into technology and design is a unique
approach that we are taking in
South Africa.”
Andreas Tostmann.
Today, as a growing operation within a growing market
that has been fully integrated
into the VW global network, the
company is anything but stagnant. According to Tostmann,
“we have a clear commitment
to South Africa with a longterm strategy for producing
modern vehicles like the Golf
GTI. While we will continue to
produce the ever so popular 30
+ year-old Citi Golf, our ‘South
African Beetle’, our primary
growth will be in producing the
latest models for both local and
export markets. Now we are
prepared to take this further,
by adding the Bus and Truck
August 2006
Strong growth in South
Africa’s truck and bus segment has prompted an equally
strong influx of product offerings making for intensified
competition, but VWSA has
a very specific strategy to
become a relevant player in
this segment. VW has chosen to import its experience as
market leaders in several key
Brazilian bus & heavy trucks
categories to South Africa.
According to Tostmann, “we
have learned through launching our Brazilian products in
Mexico, the first export market
for that line, that the product
can be a hit overseas.”
This commercial decision
is not just an issue of moving from strength to strength
but also of taking a pioneering role by taking on a ‘real’
Black Empowerment partner,
Mzantsi Truck & Bus, to operate the local operations. As
from early 2007 Mzantsi will
assemble city buses, luxury
coaches and 5-50 ton trucks
from Brazilian components.
Tostmann explains: “The
company’s 27 shareholders,
all VWSA employees, won
the tender based on merit and
no financial assistance from
VWSA. Rather than turning to
black-owned investment funds,
we chose this very grassroots
approach which is what the
government really intended in
promoting black ownership.”
VWSA sees its unique commercial structure of ‘real’
black empowerment as a critical element that will combine
with VW’s Brazilian product
range and experience, local
product, dominant position
and strong brand image to
achieve 8-10% market share
within just a few years.
But it would not have been
possible to import such a
breadth of VW’s passenger and
commercial product range had it
not been for contracts to export
the Polo and Golf 5 globally.
Tostmann explains VWSA’s
concentrations on industrial
strategy: “We have a global
demand for these two models despite the fact that both
are also being produced in
European and Mexican plants.
This internal VW competition
to service foreign markets has
helped us to improve our efficiencies and achieve VW international standards.”
When benchmarking the
Uitenhage plant against product
from other Volkswagen plants
internationally, Tostmann is
clear that “there is only one
producing standard for us, and
it’s VW’s.”
Tostmann gleams with pride
as he explains the monumental
accomplishment: “there is no
technology gap that prevents
us from establishing a successful engine operation in South
Africa. It is more of an issue of
justifying the investment. We
already had an engine plant
for our local Citi Golf production, so the question was how
to use a relatively small sum
of money to upgrade and produce the modern 5 cylinder TDI
engine for export to Germany.
Our heavy investment in skills
development has been a particular success within our engine
export program”
South Africa’s supply
base broadens its
While the MIDP may be
more geared toward OEMs as
drivers of the industry, a handful of suppliers have stepped
up to take advantage of its
provisions. According to Ted
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We have a global footprint in the developing
world with plants in South Africa, India, China
and Australia. We serve our clients through
“Just-In-Time” delivery of integrated interior
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“Having fun being the best.”
Components from
Engineering from
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Waldburger, managing director of Behr
South Africa, “Behr can be considered
an MIDP case study in that significant
investments have been made resulting
in the transfer of world-class technology,
employment creation, high local added
value and beneficiation of local raw materials, and a contribution toward more
affordable vehicles.”
With its roots in a small local company,
T & N Holdings, that revolutionized radiator
manufacturing by replacing the conventional “sandwich” with a single layer of aluminium foil, Waldburger credits Germany’s
Behr with taking the right approach in integrating the operation into its fold by leaving
the company alone for the first several years
to allow for a natural process.
Since integration began four years go,
South African operations have doubled
turnover to surpass the $180 million mark
while adding 300 new employees in 2005
alone to bring headcount to 1,500. Active
participation in the Behr global strategy
of twinning high technology, high-cost
European and North American plants with
lower cost manufacturing units in emerging
countries was absolutely critical in seeding South African operations with global
responsibilities and global volumes.
But Waldburger firmly believes that
“without the support of the MIDP to offset
the logistics disadvantage (that average
10%) for global projects with fixed annual
prices, we probably wouldn’t be here.”
South Africa now supplies the entire Behr
global requirement for charger cooler tubes,
manufactures Exhaust Gas Recirculation
(EGR) coolers for a new device to limit gas
emissions, and plays a support role in niche
OEM and spare parts business for high-cost
Behr plants that were formerly gummed up
with extremely low volumes.
According to Waldburger, “Since our
local market has always been that way,
we offer them a very competitive solution.
We are very comfortable using our semiautomatic innovative flair to supply such
volumes. This company is a testament to
the ability of a South African company to
achieve global success.”
Such success might not have been possible had it not been for the presence
of vital inputs from Hulett Aluminium,
Africa’s leader in the supply of aluminium
rolled products. While Southern Africa
is one of the world’s largest producers of
primary aluminium and boasts significant
recycling capacity, less than one-quarter
of local aluminium is beneficiated.
Although Hulett is more than 50 years
old, the company only entered the automotive segment seven years ago and since has
grown the business to account for 10% of its
volume en route to the 23% global average.
Alan Fourie, managing director of the
company, emphatically states: “Automotive
FDI which is linked directly to our capability to supply material exceeds $130 million.
It is unlikely that companies like Behr,
Carcoustics, Rieter Feltex, Alltube and
OttoFuchs would have entered this market
had they not been able to secure a sustainable supply of semi-fabricated aluminium
material at the right quality and price.”
With almost $1 billion invested in
robust hardware and a quadrupling of
rolled product capacity to 173,000 t.p.a.,
capital employed has skyrocketed from
less than $100 million to almost $1 billion.
This campaign, says Fourie, has “enabled
Hulett to move away from easily produced
and readily available products in favor
of a focus on custom-made products that
fit stringent, specific requirements for a
variety of pressing, forming or stamping
activities at the upper end of product profitability and complexity curves.”
Today, while Hulett sends 70% of its
production to all corners of the world, the
local automotive industry has become a
top priority. The company might use its
stellar relationship with its largest automotive customer, Behr, as a model. Fourie
sites a “demonstrated ability stay ahead
of trends in alloys and in working closely
with Behr on new product development”
as a core reason that Behr has initiated
dialogue on the idea of Hulett supplying
other plants abroad.
The case for partnering with Hulett may
be bolstered when they unveil niche innovations in new alloy development and truck
and tanker design at Auto Africa 2006 this
October, which for this first time will be
included in the International Organization
of Motor Vehicle Manufacturers (OICA)
calendar. ■
Texts and Research: Nicholaos Kostas Voutsinas
Project coordination and advertising: Agostina Da Cunha Project assistant: Ines Nandin
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August 2006