TWIZZA SOFT DRINKS: A CASE FOR REGULATED FLEXIBILITY?
3.3 THE IMPACT OF LABOUR LEGISLATION AND GOVERNMENT REGULATION
3.3.6 Cost/Benefit Overview of Legislation and Government Regulation
As outlined in Chapter 2, the perceived impact and strictness of EPL is co-determined by the market in which the firm operates, firm characteristics (size and capital intensity) and the extent to which firms are innovative (Pierre and Scarpetta, 2006; Edwards et al., 2003: 7). Apart from
EPL that seeks to regulate the labour market, other forms of government regulation also have an impact on the operation of firms, such as the SBL and ETI.
As argued in the section above, government regulation in the form of SBL has increased the cost of using sugar above the 4 grams per 100ml threshold that in turn has led to the company implementing sugar alternatives to decrease the use of sugar in the product. It may be argued that the SBL has broadly the same effect on Twizza direct competitors, in terms of raising the direct cost of using sugar as an input in production. This in turn has made the market for CSD even more competitive, whereby extent to which this effect is minimised by innovative sugar alternatives, will in turn affect the cost and quality of the product.
In terms of the impact of labour legislation on the company, some provisions affect the company more than others. Anna-Marie Hiscock argues that the EEA is too onerous from the company’s perspective due to the administrative workload in achieving compliance. Therefore it may be argued that efficiency has been constrained by the emphasis placed on achieving equity in the firm.
In terms of the other key forms of labour legislation (LRA, SDA and the BCEA) are not perceived to be a significant hindrance to the operations of the company and are more or less fair.
The negative impact of labour legislation centres on the indirect cost of assessing the company compliance to certain provision and measured contained in legislation.
BEE and employment equity, skills development . . . can have a huge impact on organisations, and especially with the legislation changes . . . failure to comply will result in a fine by the Department of Labour inspector (Anna-Marie Hiscock, 12/09/2018).
However, in response to the rising costs of labour legislation, external training initiatives are likely to be reduced in the future. As Anna-Marie Hiscock explains:
Some of the first departments that we will look at is HR and say ‘okay go back to the drawing broad’ . . . [We have] just had an exercise now to say ‘listen here, if the training that is scheduled for external is okay, is it a want or a need?’ (12/09/2018).
From a Twizza HR perspective, the incentive placed on employers to comply with labour legislation in that failure to comply will result in an adverse finding from the inspector for the Department of Labour, followed by an administrative fine. As seen below, the quote clearly illustrates the complexity and administrative burden associated with complying with certain forms
of legislation. However, firms are incentivised to comply fully with legislation order to get money spent back from the industry SETA. This largely confirms that, although other functions of SETAs have been criticised, the incentive placed upon employers to comply has been realised in practice (Allais, 2012: 633).
The whole thing of any legislation is to make sure you comply. If you don’t comply, the labour inspectors will come and haunt you, and that is the truth . . . ya, we go through employment equity and skills development audits . . . Mainly DG reviews and substantive audits. We do go through all of that and, yes, it is a pain in the arse when they do come here because sometimes, we do feel that they don’t know . . . So, we do get the ad-hoc visits regarding compliance (Anna-Marie Hiscock, 12/09/2018).
Another significant cost incurred to the company is filling vacancies of employees on leave and retaining suitably qualified staff. This in turn increases the administrative burden of searching for replacements with the appropriate qualifications.
We lost one of our [injection mould] operators . . . The guy offered him nearly 50% more than what we could pay. He does not have to comply with the same regulations as we, a medium to large firm (Anna-Marie Hiscock, 12/09/2018).
In assessing the above statement, although an isolated incidence, in which a smaller firm exempt from certain forms of legislation, had outcompeted a larger firm for skilled talent. However, it is important to note that this is by no means a universal trend. The retention of skilled labour and adhering to the company EEP as guided by the provincial EAP for the Eastern Cape is identified as a significant challenge to Twizza’s operations at present. The challenge of complying with the EEA is compounded further by the lack of skills within the broader Queenstown area, which led Twizza to incur significant (indirect) administrative and (direct) search costs in search of the required talent for either vacancies or employees on leave. This largely confirms the findings of Pierre and Scarpetta (2006: 6), who argue that stricter EPL (in this case EEA) will present a major challenge to firms’ operations. More specifically, this legislation imparts a higher indirect cost through stringent compliance measures for example, which in turn limits the numerical flexibility of the firm.
Other direct cost incurred by Twizza is the regulation of working and the implementation of the NMW. However, the regulation of working time and overtime has brought explicit benefits
through greater work-process and working time flexibility, which allows the firm to respond to changes in market demand within a short time period. The impact of the NWM on the company is seen as marginal since it was acknowledged that the current minimum wage rate of R20.00 could be improved upon. Finally, as explored below, the company undertakes significant skills and talent development (which carries additional direct and indirect costs for the firm) with the objective of addressing skills deficit of employees.