Dissertation Title: Optimizing Local Content in the Automotive Components Industry in Kwa-Zulu Natal. The purpose of this study was to determine the impact that local content optimization in locally assembled vehicles will have on the future growth potential of the automotive components sector.
CHAPTER ONE Introduction
- Introduction
- Problem Statement
- Motivation for the Study
- Focus of the Study
- Research Questions
- Objectives
- Proposed Methodology
- Chapter outline
- Summary
What impact will local content optimization have on the future growth and sustainability of the automotive component sector. Analyze the economic impact of localization on the growth potential of the automotive component industry in KZN.
CHAPTER TWO
Introduction
A comparative analysis of the automotive industry in SA and Thailand will confirm SA's global competitiveness. The future growth potential of the KwaZulu-Natal automotive components industry will be analyzed with a focus on financial growth, technological capabilities and capacity building of the supplier network. .
Defining local content in terms of the automotive component industry
Overview of the Automotive Component Industry in South Africa
The South African auto parts industry is a mature and multi-tiered supplier base for the OEMs. Tier 1 suppliers are generally assumed to supply the parts directly to the OEM manufacturing facility.
KZN Automotive Component Manufacturing Principle Sector
Introduction of local content to the automotive industry in South Africa
An analysis of the impact of the first phase of South Africa's Motor Industry Development Program (MIDP. In September 1995, the government introduced the MIDP, which was a policy framework designed to support the growth of the automotive industry under a liberalized trade environment and to overcome the shortcomings of the range of local content programs (Kaggwa, Steyn & Pouris 2007).
A Comparative analysis of the automotive component industry in South Africa and Thailand
Busser, (2008) stated that Thailand has secured itself a more favorable position in the global automotive industry relative to South Africa. The fundamental difference between the development trend of the Thai and South African automobile industry is the growth stage of the industry when the liberalization process began.
Imports of Automotive Components into South Africa
The dependence of the automobile industry on imported tools and designs, technologically sophisticated factories and machinery, and high-value automobile components contribute to a constant flow of foreign exchange (NAACAM, 2011). The South African automotive industry's trade deficit widened to R30.7 billion in 2010 compared to R18.9 billion in 2009.
Extent of Localisation in the Automotive Industry in South Africa
Black and Bhanisi (2006) argued that the foreign direct investment by first-tier suppliers is there to engage in the assembly of imported breakdown units, or to draw on the domestic supplier base. It is therefore clear that there is a decrease in local content in locally assembled vehicles due to the high percentage of imported components used. Leverick (1998) stated that the foreign direct investment and joint ventures in first-tier component manufacturing companies focus on high-tech investments.
The risk of capital availability increased due to the unexpected surge in demand from car manufacturers.
Optimising local content in the automotive component industry in South Africa
Robbins (2007) stated that TSA realized the costs and supply chain benefits of sourcing their components in South Africa, and therefore they initiated a program to seek opportunities to increase local content by pooling their volumes of certain components , achieving better economies of scale. . This resulted in the creation of the OEM Purchasing Council in 2009, where the council explores opportunities to identify new local content and replace imported components. According to Pitot (2011), the average local content in vehicles produced in South Africa could be increased to 50 percent without major technological challenges, as the average local content was estimated between 35 and 40 percent but has not changed over the years.
He further emphasized that increasing local content in South African-made vehicles is important, as it improves South Africa's trade balance and provides additional volumes for local component manufacturers, which enables component manufacturers to become more competitive. to the advantage of the consumer and will bring new technology to SA, which will promote other sectors (Engineering News, 2011).
Growth Potential of KwaZulu-Natal Automotive Component Industry
- Technology
- Upgrading the Capacity of the Supply Network
Black (2011) stated that TSA, as a result of the OEM Purchasing Council, is transferring the design and development responsibilities of certain vehicle parts to part manufacturers. Given the low level of local content in South African assembled vehicles, growth in vehicle production volumes is likely to significantly increase import levels of automotive components. According to Cokayne (2011a), the OEM Purchasing Council has initiated a joint localization feasibility study aimed at broadening and deepening local content.
Furlonger (2007) highlighted that OEMs provide the technological resource base of the South African automotive industry.
Localisation challenges in the automotive component industry in South Africa
Lorentzen, & Barnes (2004), stated that South African labor legislation is considered by automotive component manufacturers to be too restrictive. Lorentzen et al (2004), pointed out that the automotive components industry is characterized by strong union influences. They argued that the automotive industry operates on a just-in-time supply system, so work stoppages at component manufacturers have resulted in lost production at the OEM's assembly plant.
Comrie (2002) stated that scale of production has been one of the central problems facing the South African automotive component industry.
Summary
Black and Bhanisi (2006) point out that component manufacturers were subject to the same industrial policies as OEMs. As such, component manufacturers were not motivated to develop their technology base, production techniques or products beyond what was required by the local OEMs. Component manufacturers have developed a natural advantage in the ability to produce products in smaller production runs that would be less cost-effective for international component manufacturers to manufacture.
CHAPTER THREE
- Introduction
- Aim of the Study
- Participants and location of the study
- Research Methodology and Design
- Research Approach
- Qualitative Research
- Quantitative Research
- Sampling
- Non-Probability Sampling
- Probability Sampling
- The Research Population and Sample
- Data Collection
- Development of the Instrument
- Pretesting and Validation
- Analysis of Data
- Summary
Therefore, the aim of this study is to determine what impact the optimization of local content in locally assembled vehicles will have on the future growth potential of the automotive component sector. A sample is used to make inferences about parameters of the entire population (Sekaran & Bougie, 2009). The selection of the sample for this study therefore plays a critical role in qualifying the results of the study.
The main objective of the study was to ensure that the research objectives were achieved.
CHAPTER FOUR
Introduction
Biographical Variables of sample
The biographical results show that 46.8% of respondents fell into the 'other' category. someone outside the intended management framework), working in the organization for between 0 and 5 years. The data shows that 59.6% of component suppliers are locally owned, with 2.1% of them using international patents or licenses, of which 59.6% are classified as modular assemblers in the supply chain, with more than 500 employees. Data also shows that 19.1% of component suppliers are joint ventures between local and international suppliers, and 19.1% are international suppliers.
The data shows that 57.4% of South African automotive suppliers operate at the first level, with 36.2% at the second level and 6.4% at the third level.
Objective one: to investigate the extent of localization in the automotive component industry
- Volume of locally manufactured components used in the Assembly Process
- The percentage of imported components used in the production process
- The percentage of product made from local content
- Rand value of Local Content used per month
- Percentage of Local Suppliers that form part of the Supplier data base
The findings presented in Figure 4.3 show that 31.9% of respondents use more than 50% of imported components from Tier 1 and Tier 2 activities, of which 19% are classified as module assemblers and 8.5% as component suppliers. The results from Figure 4.4 show that a total of 34% of respondents indicated that 51-70% of their products are made with local content, of which 14.9% are locally owned suppliers and 12.8% are internationally owned suppliers. Of the 38.3% respondents, 27.7% of suppliers are locally owned, while only 6.4% of suppliers are joint ventures and 4.3% of suppliers are internationally owned, split evenly between Tier 1 and Tier 2 operations.
The results also indicate that 27.7% of the responses indicated that local suppliers are included in the supplier database, of which 12.8% are internationally owned suppliers and 10.6% are locally owned suppliers.
Objective two: to establish the challenges of optimizing local content in domestically assembled vehicles
- The Impact of Import Tariffs on increasing localization within the manufacturing process
- Rating of Skills Capabilities of Component Manufacturers
- Comparison of domestic component manufacturers pricing to Global manufacturers
- Component Manufacturer’s Dependence on Foreign Licences to increase supplier capacity and regulate exports
- SA’s comparative advantages with regard to raw material availability, emerging markets and cost advantages
The results of the results presented in Figure 4.6 indicate that the impact of import tariffs on increasing localization is between low impact of 11-30% and medium impact of 31-50%. Locally owned suppliers use large amounts of more than 60% of locally produced components in the manufacturing process as indicated in Figure 4.2; therefore, the results in Figure 4.7 show that 27.7%. According to Figure 4.9, the results reveal that 46.8% of respondents from tier 1, tier 2 and tier 3 operations stated that their pricing relative to global markets averages between 0-15%, while 25.5% respondents from tier 1 and tier 2 indicated. that their pricing is non-competitive, which is below 0%.
The findings in Figure 4.10 show that 42.2% of respondents rate the component manufacturer's dependence on foreign licenses with an average dependence between 26-60%, while the same percentage of respondents (42.2%) of respondents rate their dependence on foreign license as high dependency between 61-100%.
Objective three: to analyse the economic impact of localization on the growth potential of the automotive component industry in KZN
- Level of influence localization will have on economic growth of the component industry
- Impact of localization on growth potential in the export market
- Influence of localization on the future trends of employment in the component industry
- Level of influence localization will have on the component industry turnover
- Level of influence localization will have on the growth of research and development
Of the 19% internationally owned supplier responses, 10.6% see localization as having little or no impact on the growth of the components sector. The results of the findings in Figure 4.13 indicate that 59.6% of respondents believe that localization in the automotive component industry has a large impact on the growth potential of the export market. The overall opinion of the 47 respondents from the different types of ownership of component suppliers, the 28, which corresponds to 59.6%, indicates that localization will have a major impact on future employment in the component industry.
The findings in Figure 4.16 show that 31.9% of respondents indicated that localization will have a major impact of more than 51% on research and development growth, while 31.9% of respondents also indicated that localization will have an above-average will have an influence between 26 and 50%. about the growth of research and development.
Objective four: to establish the role of government in optimizing local content in the automotive sector
- Component Manufacturer’s Dependence on Government Incentives to Optimize Local Content
- The Impact of Government Incentives on Sustaining Growth of Local Content
- The influence of Tariffs on the growth of Local Content
- The Impact of Government Support and Intervention in enhancing Optimisation of Local content
- The Influence of Government Policy in determining Level of Local Content
Therefore, the results of this finding suggest that government incentives will have a strong impact on sustaining the growth of local content, thus enabling local producers to compete globally. The results show that locally owned suppliers and joint ventures agree that the introduction of tariffs will affect the growth of local content in the automotive component industry. Of the 57.4% responses from Tier 1 module builders, 36.2% indicated that tariffs have a medium impact, while 10.6% indicated that tariffs have a high impact on local content growth.
According to Figure 4.20, the majority of respondents agree that government support and intervention will have a great impact in improving the optimization of local content in the auto parts industry.
Summary
Joint ventures, domestically and internationally owned companies share the same sentiment that government policy will have a medium to high influence on determining the level of local content in the auto component industry. The results of this finding support Ellis (2008), who stated that the key focus of government policies such as the APDP is to encourage local assembly that has economies of scale to increase the depth of local component manufacturing to international output levels. The findings indicated that localization will have a major impact on the economic growth of the component industry, with government support and intervention to improve the level of local content in the manufacturing process.
The research findings from the data collected through the questionnaire support the conclusion that optimizing local content in the auto component industry will have positive economic impact and ultimately grow the industry to be competitive with international manufacturers.
CHAPTER FIVE
- Introduction
- Has the data answered the research question?
- Recommendations and Way Forward
- Adoption of Low-cost Provider Strategies to Improve Competitiveness
- Improve Internal Competitiveness
- Rationalization to Gain Economies of Scale
- Product Development Capabilities
- Maximizing Government Incentives
- Conclusions and implications of the study
- Limitations to this study
- Recommendations for Future Research
- Summary
Objective three findings indicate that 61.7% of South Africa-based automotive components manufacturers strongly believe that localization will have a significant impact on the economic growth of the components industry. The developments at the OEMs determine the developments of the car parts manufacturers; Therefore, the growth of local content in the auto parts sector depends on the OEM's purchasing decisions. A further recommendation for future research would be to investigate the impact that the APDP's production incentive strategy will have on the growth of South Africa's auto parts manufacturers.
The purpose of this study was to determine the impact localization will have on the potential growth and sustainability of the automotive component industry in KZN.
Questionnaire
How local content optimization would affect future employment trends in the components industry. How would you rate the impact of the incentives provided by the government to support the growth of local content in the components industry. What level of impact did tariffs have on increasing local content in the components industry?
What impact will government support and cooperation have on improving local content optimization in the components industry.
