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A sector study of manufacturing in the Boland District Municipality area

Report prepared for the Boland District Municipality

This document consists of 66 pages

Prof. Jonathan BloomMarch 2004

Study of manufacturing enterprises in the Boland District Municipality area

GLOSSARY

Cluster means a geographic concentration of related companies and institutions in a particular field, including suppliers, universities, trade associations, government institutions, and other organizations that provide specialized training, education, information, research, and technical support.

Dumping means selling items below cost to eliminate surplus, hurt competitors or gain market share.

Gross Domestic Product means the total market value of all goods and services produced within the political boundaries of an economy during a given period of time, usually one year. This is the government's official measure of how much output an economy produces.

Manufacturing means a process whereby raw material is transformed into a finished product, especially by means of a large-scale industrial operation.

Market-oriented economy means a mixed economy that relies heavily on markets to answer the three basic questions of allocation, but with a modest amount of government involvement. While it is commonly termed capitalism, market-oriented economy is much more descriptive of how the economy is structured.

Trade means the business of buying and selling commodities, the act or an instance of buying or selling and may also refer to the conclusion of an attraction.

Value chain means the integration, collaboration and synchronization of activities. Internally to a company we talk about integrating the supply chain functions across the enterprise. Externally we talk about collaborating with both vendors and customers. Comprehensively we talk about synchronizing the supply chain functions across all. This is the value chain. Trying to reach infinity of optimising all of the supply chain functions across trading partners and customers to maximize efficiency and value for the customer.

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Executive summary

Within the BDM area the manufacturing sector is diverse and covers a wide scope of manufacturing activity. Manufacturing businesses also vary in terms of size as measured by turnover and employee remuneration. In order to achieve meaningful information about the sector, the views from owners and mangers of a broad scope of manufacturing enterprises were required. A representative number of enterprises were selected to form part of the sample. The sample was selected on the basis of the following variables:

The type of business, classified according to industry; The annual turnover, classified according to the levy paid; and The region where the business is located.

The sample design was a stratified systematic random sample procedure drawn from the manufacturing businesses listed in the database of the BDM. An 8,15% sample size were drawn from the 515 manufacturing businesses who are actively doing business in the region. The researcher visited each selected manufacturing enterprise and conducted personal face-to-face interviews that lasted from one and a half to two hours.

A total of five of the selected businesses generated turnover of more than R100 million, six, R15 million to R80 million, 18 between R1 million and R9 million and a further six recorded a turnover of less than R1 million per annum. The manufacturing businesses included in the sample have been operating on average for forty years, with the oldest enterprise being Pioneer Printers in Worcester that will celebrate its centenary in 2004.

The number of workers employed by the enterprises forming part of the sample totals 5872. The number employed by individual enterprises differs in terms of the type and turnover. The ratio between coloured, black, white and other employees are 57:32:10:1 for the sample of enterprises. Various respondents indicated that they are still in process of changing this ratio in favour of coloured and black persons.

Forms of businesses ownership is spread evenly between sole proprietorships, partnerships, close corporations and private companies. There is no example of co-ownership in the form of Black empowerment among the respondents. Although the majority are aware of Black empowerment, only four of the respondents are assessing the requirements to restructure in order to make provision for empowerment groups in the business. Respondents require expert-advise in order to restructure and implement affirmative action, diversity and Black empowerment in their businesses that would be beneficial to all stakeholders.

The skills levels of managers/owners in the larger enterprises were of exceptional quality. In contrast, several of the managers/owners of the smaller businesses did not have any management qualifications. This implies that there is some scope for these managers/ owners to attain a business qualification or training to operate their businesses in a more efficacious manner. Specific management problems encountered by the sector include affirmative action, Black empowerment and the issue of managing these different economic

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transformation strategies. Several other management problems that were highlighted by respondents include the existence of double standards of hygiene in the same industry, factors related to transportation and the difficulties in managing the risks associated with fluctuating exchange rates. Addressing the abovementioned management problems and shortcoming represent an urgent need among almost all the respondents.

The management of labour and understanding the accompanying legislation is a primary concern among all the respondents. Apart from labour legislation other labour related aspects that were mentioned by respondents include the limited knowledge and skills of workers, lack of communication skills among workers, and work ethics leave a lot to be desired. Respondents also claim that employees do not understanding the economic environment and their contribution to the productivity and production output of the manufacturing enterprise.

Among the respondent enterprises, 27% are currently active in the export market. The output of the smaller businesses is primarily destined for the local market or other markets within the BDM area. Only several businesses expanded their operations during the past 3 to 5 years either through product differentiation or through direct investment in expansion of facilities. The fluctuating Rand and the confined size of the local South African market appeared to curtail investment among the other manufacturing businesses. There exists a need among owners and managers for information and some expert advice about markets, market expansion and developing trends in local and export markets.

Various barriers to entry exist for new businesses aiming to locate to the BDM area such as access to capital, size of the local market, and prohibitive material and labour costs. Several barriers to exit were also identified, i.e. the substantial investment and no buyers for the business to recoup the investment; other opportunities in South Africa as avenues for employment; and the business may be part of family business that has existed for decades.

A major factor among the larger manufacturing enterprises in the region is their association with agriculture, which provides substantial job opportunities, but primarily on a seasonal basis. These seasonal workers have a job for seven months of the year and thereafter no income for the remainder. Thus an urgent need exists for other businesses to locate to the district that can compliment businesses with a high number of seasonal workers and provide job opportunities to the seasonal workers for the remainder of the year.

Industry co-operation among manufacturing businesses in the BDM area is all most non-existent. Business owners and managers believe it is better to go it alone due to the intensity of competition, mistrust exists between businesses within an industry and across industries; continuity is lacking in product and service delivery, and the quality of manufactured products is often questioned. Industry co-operation could have a positive effect on productivity and assist with the expansion of businesses with less available capital. A need exists to facilitate co-operation among the businesses, which would be beneficial to all parties.

Institutional support and the role it plays in a country as a whole, and also in a specific region, could make a difference in the business sector as a whole in terms of creating employment, uplifting people and addressing socio-economic issues. Several negative aspects highlighted by respondents included the de-

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motivation caused by various taxes and tax rates, limited efforts from government to promote exports, and no protection for businesses against the dumping of poor quality products on the local markets is provided.

The thought of a brand name and logo for manufacturing in the BDM area is considered by owners/managers of manufacturing enterprises as a commendable initiative. All the respondents were very positive about developing a brand for manufacturing in the BDM area and the initiative would be fully supported. A brand name would assist with the promotion of the region and its manufactured output.

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Table of Contents

1. INTRODUCTION AND BACKGROUND..............................................................................6

1.1 OBJECTIVES OF THE ASSIGNMENT.............................................................................................6

2. METHODOLOGY.....................................................................................................................6

2.1 APPROACH TO PRIMARY RESEARCH..........................................................................................62.1.1 Universe............................................................................................................................72.1.2 Sample design...................................................................................................................72.1.3 Sample size.......................................................................................................................82.1.4 Selection and interviewing of respondents.......................................................................92.1.5 Limitations of the survey...................................................................................................9

3. OVERVIEW OF MANUFACTURING...................................................................................9

3.1 INTERNATIONAL PERSPECTIVE..................................................................................................93.2 SOUTH AFRICAN PERSPECTIVE................................................................................................13

3.2.1 Confidence in the manufacturing sector of South Africa...............................................173.3 BOLAND DISTRICT MUNICIPALITY AREA................................................................................18

3.3.1 Primary, secondary and tertiary economic activity.......................................................183.3.2 Manufacturing in the five B-municipal areas of the BDM.............................................193.3.3 Location characteristics within the municipalities.........................................................203.3.4. Nature and scope of manufacturing enterprises in the BDM.........................................213.3.5. Comments across various industries in BDM manufacturing........................................223.3.6. Opportunities in BDM manufacturing............................................................................23

4. CHARACTERISTICS OF MANUFACTURING.................................................................24

4.1 SCOPE OF ENTERPRISES IN THE BDM-AREA...........................................................................244.1.1 Turnover.........................................................................................................................254.1.2 Operating years in the BDM-area..................................................................................254.1.3 Products manufactured within the BDM-area...............................................................284.1.4 Number of employees......................................................................................................29

5. OWNERSHIP...........................................................................................................................29

5.1 OWNERSHIP TRENDS AND ISSUES............................................................................................295.2 OWNERSHIP ISSUES.................................................................................................................31

6. MANAGEMENT......................................................................................................................32

6.1 MANAGEMENT TRENDS AND ISSUES.......................................................................................326.2 MANAGEMENT PROBLEMS.......................................................................................................326.3 ADDRESSING INDUSTRY RELATED MANAGEMENT PROBLEMS.................................................33

7. LABOUR...................................................................................................................................34

7.1 LABOUR ISSUES AND TRENDS..................................................................................................347.2 SPECIFIC LABOUR PROBLEMS..................................................................................................357.3 ADDRESSING SECTOR RELATED LABOUR PROBLEMS...............................................................38

8. CONSUMER AND SUPPLIER MARKETS.........................................................................38

8.1 MARKET TRENDS AND ISSUES.................................................................................................388.2 MARKET AND MARKETING PROBLEMS....................................................................................408.3 ADDRESSING INDUSTRY RELATED MARKET AND MARKETING PROBLEMS..............................42

9. INDUSTRY CO-OPERATION...............................................................................................43

9.1 INDUSTRY CO-OPERATION TRENDS AND ISSUES......................................................................43

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9.2 SPECIFIC CO-OPERATION PROBLEMS ENCOUNTERED BY THE SECTOR.....................................449.3 ADDRESSING INDUSTRY RELATED CO-OPERATION..................................................................44

10. LEGISLATION........................................................................................................................44

10.1 LEGISLATIVE TRENDS AND ISSUES..........................................................................................4410.2 SPECIFIC LEGISLATION PROBLEMS ENCOUNTERED BY THE SECTOR........................................4510.3 ADDRESSING INDUSTRY RELATED LEGISLATION.....................................................................46

11. INSTITUTIONAL ORGANISATION AND SUPPORT......................................................46

11.1 INSTITUTIONAL ORGANISATION..............................................................................................4611.2 INSTITUTIONAL TRENDS AND ISSUES.......................................................................................4811.2 ADDRESSING PROBLEMS RELATED TO INSTITUTIONAL SUPPORT............................................49

12. ECONOMIES AND ECONOMIC TRENDS OF SELECTED TOWNS IN THE BDM AREA........................................................................................................................................50

12.1 ECONOMIC TRENDS AND ISSUES..............................................................................................5012.2 SPECIFIC ECONOMIC PROBLEMS..............................................................................................5112.3 ADDRESSING ECONOMIC PROBLEMS.......................................................................................52

13. BRANDING MANUFACTURING IN THE BDM AREA...................................................52

13.1 BRANDING BENEFITS AND ISSUES...........................................................................................5213.2 BRANDING OPTIONS................................................................................................................53

14. RECOMMENDATIONS.........................................................................................................54

15. CONCLUSION.........................................................................................................................56

CASE STUDY: PIONEER PRINTERS.............................................................................................57

CASE STUDY: KOOSE TRICYCLES.............................................................................................60

CASE STUDY: BRENN O’ KEM........................................................................................................63

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1. Introduction and backgroundThe Boland District Municipality (BDM) requires an assessment of the manufacturing sector in the area under its jurisdiction in order to determine appropriate interventions in support of economic growth, diversification and transformation of the sector. The study is undertaken in support of the BDM mandate to ensure redistribution and equitable access for businesses and residents to the benefits of the economy throughout the District.

The manufacturing sector assessment presented in this report forms part of several sector studies that would inform the identification and implementation of targeted LED strategies within the agriculture, manufacturing and service sectors of the BDM area. The other sector assessments, which form part of the business plan of the Development and Community Department, are agriculture and services and design.

Prof Jonathan Bloom of Stellenbosch University has been requested by the BDM to research and prepare an assessment of the manufacturing sector in the BDM district. The work presented in this report has the Terms of Reference issued by the BDM as the basis.

1.1 Objectives of the assignment

The objectives of the manufacturing sector study are as follows: To conduct a macro assessment of manufacturing in the global, South

African and BDM context; To conduct a micro assessment of manufacturing firms in the BDM area by

focusing on performance, business opportunities, labour, etc of established firms and existing new market entrants;

To assess the market (meso) level by considering aspects such as business-to-market linkages, businesses-to-business linkages, barriers to entry, etc;

To identify interventions for the BDM to consider in support of the sector; To position and consider a brand for the manufacturing sector in the BDM

area;

2. MethodologyThe methodology for the manufacturing study is a mix of secondary sources of information, which primarily forms a platform to ascertain trends in manufacturing, the contribution of manufacturing to the economy of the BDM, and understand various macro and micro aspects related to various firms operating in the manufacturing sector of the BDM area. The methodology of the study is presented in Figure 1.

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2.1 Approach to primary research

The primary research procedure was scientifically designed and implemented in order to ensure the credibility, consistency and relevance of all collected data, the interpretation of information and the dissemination of findings. More detail of the research methodology is presented below.

Figure 1: Methodology of the manufacturing study

2.1.1 Universe

The universe for the study is defined as all manufacturing businesses the pay levies to the BDM and are located in different municipal areas of the BDM area. A current list of businesses obtained from the BDM was used to determine the universe of manufacturing enterprises.

2.1.2 Sample design

The sample design for this study includes location, size of the business and type of industry as the three most important stratification variables for the selection of the manufacturing businesses.

Location focuses on the geographical area as a whole, which implies that all businesses in each town in the BDM area that appear on the database of the BDM could potentially be selected as part of the sample.

The size of the business is assessed on the basis of remuneration and annual turnover for the last two years. Businesses were categorised on the basis of the two measures for the purposes of the sample selection.

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The type of industry was assessed on the basis of categories of manufacturing activity as specified by the BDM. The number of businesses in each category of economic activity was used to ensure weighted representation of businesses in the final sample.

2.1.3 Sample size

Initially a sample of 42 manufacturing enterprises was selected according the abovementioned criteria. A total of 35 businesses were willing to participate in the research project. Several reasons for the unwillingness of the seven enterprises, initially included in the sample, to participate in the study included the following:

Research does not contribute to any useful knowledge for the enterprise; Owner/manager was not available for an appointment; and Not interested in providing any useful information.

The total turnover of the enterprises included in the survey is R2,4 billion, which represents 22,8% of the total turnover in Rand value from the universe of manufacturing businesses (R10,5 billion) from which the sample was drawn, and 3,9% of total turnover (R61,0 billion) generated by levy paying businesses operating in the BDM area during the 2001/2002 financial year.

Table 1 shows the total number of manufacturing businesses within each industry and in the different municipal areas. The sample size per industry and municipal area is also highlighted. Different industries with more or less the same type of product were merged in order to obtain 13 workable industries. For example, wood and wood products as well as paper and paper products were combined.

Table 1: Number of manufacturing businesses per industry in total and by sample size for the different municipal areas of the BDM

Breede River

Winelands

Breede Valley

Drakenstein Stellenbosch

Witzenberg Total in BDM-Area

Industry Total n Total n Total n Total n Total n Total NFood & Tobacco 35 4 22 - 44 1 50 1 14 - 165 6Textiles 3 1 14 - 17 1 6 1 1 - 41 3Tanning, dressing of leather- footwear

0 - 1 - 1 - 0 - 1 1 3 1Wood, paper-board & paper 9 2 17 1 34 1 8 - 6 2 74 6Publishing & Printing 2 1 4 1 15 1 7 - 3 - 31 3Petroleum & Chemicals 3 - 3 - 13 - 3 - 1 1 23 1Non-metal 1 - 7 1 16 - 11 1 3 1 38 3Metal 8 - 22 3 30 2 25 3 1 - 86 8Special purpose machinery/equipment

- - 1 - 10 - 5 1 - - 16 1

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Household/office equipment - - - - 1 - 1 - 1 1 3 1Electronic/orthopaedic appliances

- - - - 1 - 13 1 1 - 14 1Motor vehicles/ bicycles - - 3 1 2 - 0 - 1 - 5 1Other: Jewellery, Diamonds - - 4 - 3 - 7 - 2 - 16 -TOTAL 61 8 98 7 187 6 136 8 33 6 515 35

Table 1 also indicates that the food industry is the largest in the BDM in terms of number of enterprises. The link between agriculture and the manufacturers of food products (in the broadest sense) is also apparent from the number enterprises operating in the food industry. Metal and metal products and wood and paper products follow the food industry in terms of number of operating businesses.

2.1.4 Selection and interviewing of respondents

A mix of systematic random sampling and judgemental sampling was used as the basis of the selection of the manufacturing enterprises. We are also cognizant of the possibility that a business, which contributes a large portion to the output of the district, may be excluded due to the randomness of the sampling procedure. Larger manufacturing businesses that fall into this category were considered and selected using a judgemental sampling approach.

In-depth face-to-face interviews were conducted with either the owner of manager of the selected enterprise. Most of the 76 questions were of a qualitative (open-ended) nature to ensure maximum input from the respondent. Interviews lasted between 90 and 120 minutes.

2.1.5 Limitations of the survey

The following problems were encountered during the fieldwork phase of the manufacturing businesses survey:

It was undertaken during two of the most difficult months of the year, namely November and January, when management would not necessarily susceptible or have any extra time to participate in any research projects.

Many of the businesses in and around Stellenbosch and Paarl were inundated before by research studies because of their convenient location near the University of Stellenbosch. This explains why these enterprises were not as forthcoming as we hoped.

People are tend to focus on and around their immediate environment and do not easily see the opportunities which may exist in other parts of the district or further afield.

Business people are very sceptical to part with what they regard as confidential information, since they fear the misuse of such information.

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3. Overview of manufacturing

3.1 International perspective

Worldwide manufacturing in 2002 recorded a value of US$ 4,708 billion, which represents 75,1% of all merchandise trade. The findings are presented in Table 2 together with annual percentage changes from 1980 to 2002.

Table 2: Worldwide manufacturing in 2002 with percentage changes from 1980 to 2002

Value (US$ billion) 4708

Year

Annual percentage

change1980-85 2% 1985-90 15% 1990-95 9% 1995-99 5%

2000 10% 2001 -4% 2002 4%

Share in world merchandise trade 75.1

Source: WTO

Table 2 also indicates that that from the early 1990s the value of manufacturing has shown signs of decline on an annual basis. From the turn of the millennium (2000), it is also apparent that the value of manufacturing declined with 2001 registering a value of 4% lower than the previous year. Source: WTO

Figure 2: Average annual percentage changes in global manufacturing trade and output for the period 1950 to 2002

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Figure 2 also suggests that a reduction in trade of manufactured goods and output has occurred from the mid 1970s. Although the average annual growth in the 1990’s was slightly higher than the period from 1973 to 1990 a declining trend is prevalent in manufacturing trade. A steady decline in average annual growth of output production from 7,44% to 2,2% also occurred from the mid 1970s to 2002 and is evident from the graphic representation above.

Global manufacturing trends are likely to impact not only on South Africa as part of the international community, but is also likely to impact on the manufacturing operations of enterprises in the BDM area which trade in a global environment with extensive competition. The following trends focus on changes which are likely to occur in manufacturing worldwide, which will also impact manufacturing businesses in the BDM area. Consequently, these seven key trends offer opportunities and/or pose challenges to the manufacturing sector and in particular businesses that already operate in or are in a position to enter the global manufacturing environment:

Global economic integration will continue and will trigger significant changes within the manufacturing sector

There are many positive growth aspects of global economic integration including increased trade-based revenues, additional technological innovation, improved access to a diversity of products and inputs, and an easier flow of production factors. Notwithstanding, several challenges and obstacles exist. In many economic sectors, especially manufacturing, economic globalization has also broadened the field of competitors. A shift in manufacturing centres is also occurring. There is some initial evidence to indicate that similar manufacturing centres may develop in the southern Indian Ocean area and in Africa, continuing a westward shift through and out of Asia. Africa is also becoming a more attractive business environment. A joint survey by the International Chamber of Commerce and the United Nations found that a third of companies polled wanted to increase their investment in Africa. This included investment in manufacturing industries in South Africa, Morocco, Cote d’Ivoire, Mozambique, and Uganda were among the markets of interest.

The knowledge economy is transforming manufacturing

The knowledge economy is organized around flexible production of goods and services instead of standardized mass production. In this environment, competitive advantage depends on the ability of the manufacturer to add value to a product through customization, design quality or customer service. Products can still be produced on a large-scale basis, but manufacturers are changing their operations in such a way as to tailor their products to individual customer needs and desires.

Pressure is increasing among manufacturing enterprises to develop e-Business capabilities in order to maintain their customer bases. However, according to a survey by the US National Association of Manufacturers (NAM) and Ernst and Young, e-Business has made only modest in-roads into small and medium sized manufacturing operations. Most of the manufacturers surveyed (42%) were in the “e-interaction” stage of e-Business initiatives, i.e. they have some electronic

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interactions between themselves and major customers and are beginning to use the Internet as their primary medium for information exchange. Some 27% have advanced to the transactional stage, which implies that they have integrated the Internet with their existing corporate processes and systems and can transact electronically with customers, suppliers, partners, and employees.

There are several reasons for the slower rate of adoption of e-Business strategies among manufacturing businesses. According to the NAM/Ernst and Young survey, 98% of the small and medium sized manufacturers invested in these applications out of their operational cash flow which is often under tight constraints. These companies themselves identified lack of human resources and lack of technical knowledge as the top two barriers to developing and executing e-Business initiatives.

Providing the best value to customers is increasingly important to manufacturers

Success as a supplier depends increasingly on the ability of a manufacturer to add value to the customer’s business processes, which ultimately add revenue to the organization. The focus on value is manifesting itself in a number of ways including online sales and procurement, product customization, just-in-time delivery and environmental accountability.

Manufacturers are examining their value chain to identify and maximize their companies’ advantages and core competencies

Manufacturing firms today view themselves in the context of a larger value creating system. Each firm seeks out its competitive niche within this system by focusing on its core competencies while outsourcing other work areas to outside firms which have unique ad-vantages and production efficiencies. Thus, through the value chain, manufacturers can leverage their own abilities with the expertise of their partners. Outsourcing appears to be limited among manufacturing enterprises in the BDM area as will be demonstrated in a following section.

Manufacturers have undertaken various productivity enhancements to dramatically streamline their operations in order to position themselves within value chains. For instance, many firms are increasingly integrating and automating traditional purchasing, inventory management, and order fulfillment functions, and managing those activities through enterprise resource planning (ERP) software.

Manufacturing processes are increasingly automated and the related machinery is more and more sophisticated

During the last few decades manufacturing automation efforts have increased substantially. Computer skills and technology training are quickly becoming a requirement for the shop floor. Manufacturers continue to invest in more computer-aided design, manufacturing, and engineering (CAD/CAM/CAE) technologies, computerized numerical controls (CNC), and statistical process controls (SPC). Although the manufacturing sector continues to generate jobs and make significant contributions to the economy, manufacturing jobs are shrinking as a percentage of the total labor force in the knowledge economy.

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This trend is also endorsed by the declining trend in both manufacturing trade and production output (see Figure 2).

Regional and local manufacturing industry clustering will intensify

Clusters are defined by systems of market and non-market links between geographically concentrated companies and institutions. The links enable cooperation among suppliers and competitors on business processes, purchases, investments, strategies, technical research and resource exchange.

The purpose of clusters is to develop vital flows and relationships at multiple levels within the economy to enhance a region’s growth potential and competitiveness. They link competing businesses and competing suppliers with collaborative research, public and private sources of financing, government regulatory and development agencies and new institutions built for the sole purpose of organizing and energizing these relationships. Firms within a cluster exhibit strong interrelationships among themselves. The flow of goods and services between geographically concentrated industries in a cluster is stronger than the flow linking them to the rest of the economy. An industry cluster is different from the classic definition of industry sectors (e.g., construction, manufacturing services, etc.) because it represents the entire value chain of a broadly defined industry from suppliers to end producers, including supporting services and specialized infrastructure.

An important cluster-related trend is the growing link between manufacturing and agriculture. Examples of new products derived from agriculture include bioproducts such as plastic from corn, lubricants and inks from soybeans, fiberboard from wheatstraw, and biofuels, including ethanol, biodiesel, and biomethane. Another growth area is production of pharmaceutical products from plants.

Cluster-based development provides a framework for helping various stakeholders define common goals, share knowledge and resources, and promote mutually beneficial commerce and trade.

Manufacturing is evolving from a single-focused mechanistic model into a systemic model characterized by self-improving networks and feedback loops.

The systems-based model applied to manufacturing includes four main aspects: machines and machine-based processes that mimic natural systems; the expanding use of living organisms for manufacturing; the seamless integration of biological and mechanical processes; and the creation of value for, and dependence upon, multiple stakeholder relationships.

The global manufacturing trends discussed above will impact on various manufacturing enterprises operating in the BDM area. How individual enterprises react to these trends and the manner in which the BDM attempts to influence the way manufacturing business is conducted in the BDM area will either enhance the sectors potential to partake in the global manufacturing market place or maintain the current status quo.

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3.2 South African perspective

South Africa's value chains have traditionally been poorly integrated, emphasizing resources and only limited manufacturing. However, value can be added at every stage of production and increasingly this value addition results from the incorporation of business services, information and communication technology, and efficient logistics into the various production stages.

Trends in manufacturing in South Africa over the past 20 years have indicated a decline in manufacturing as a percentage of Gross Domestic Product (GDP) from 1982 to 2002 of 26,1% or an average annual decrease of 1,3%. Figure 3 is a representation of the percentage contribution of manufacturing to GDP in South Africa for 1`982, 1992 and 2002.

Clearly the contribution of manufacturing to the GDP of South Africa has declined over the past 20 years in favour of services. The contribution to GDP of manufacturing was 18,8% in 2002, which represents a 16,48% decline from 1982.

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Decrease of


Source: Adapted from IMF, 2003

Figure 3: Manufacturing in South as a percentage of GDP for 1982, 1992 and 2002

Over the period 1982-1992 the value of exported manufactured goods increased by 85,5%, while a decline of 15,9% occurred over the period 1992-2002. Growth in the value of manufacturing exports also declined from 1992 to 2002 with an average annual decline in export growth by 1,6%. However, from 1982 to 1992 an average annual increase of 8,5% in the value of manufacturing exports occurred. Figure 4 indicates the export value of manufactured products from South Africa for 1982, 1992, and 2002.

Source: Adapted from IMF, 2003

Figure 4: Value of South African manufacturing exports for 1982, 1992 and 2002

An assessment of the production volumes and sales values over the period 1997 to 2001 indicates fluctuating changes in different industries of the manufacturing sector in South Africa. Figures 5 indicates the total volume of production for the

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Increase of 85,5%

Decline of 15,97%


manufacturing sector in South Africa, while Figure 6 and 7 indicate the relative changes in production volumes and sales values for selected manufacturing industries in the national context, but which also have a consequences for the BDM area due to the level of manufacturing among businesses operating in the BDM area.

Source: Statistics South Africa as adaptedNote: No comparable figures for agriculture sales values are availableProduction volumes: 1995=100; Sales values: 1996=100

Figure 5: A relative comparison of production volumes and sales values for the manufacturing sector in South Africa over the period 1997 to 2001

Figure 5 indicates that total volume of manufacturing production relative to volume of agricultural production has been slightly lower from 1997 to 2000. From 2000 to 2001 the trend in manufacturing production continued upward, while agriculture production declined over the period. Total value of manufacturing sales over the period has exhibited strong growth of 8,19% on average over the period 1997 to 2001. From 1999 to 2001 a 12,09% growth rate in the value of sales was recorded. The strong sales growth may be attributed to a faster increase in consumer prices than production prices over the period, a favourable Rand–US dollar exchange rate and an increase in the value of manufacturing exports.

An assessment of the food industry indicates that production volumes grew at relatively constant growth rates over the period, while the value of food sales grew consistently from 1997 to 2001 (Figure 6). Total value of food sales over the period exhibited strong growth of 6,28% on average over the period 1997 to 2001. From 1999 to 2001 an 8,35% growth rate in the value of sales was recorded. The strong sales growth may be attributed to a faster increase in consumer prices than production prices over the period, a favourable Rand–Dollar exchange rate and an increase in manufactured food exports.

It is apparent from an assessment of the textile industry that production volumes and sales values followed a similar trend pattern over the period 1997 to 2001 (Figure 6). In terms of sales values an average 3,65% growth rate was achieved over the four-year review period. The value of sales grew from 1999 to 2000 and 2000 to 2001 at a rate of 4,03% and 8,46% respectively. From 1997 to 1998 the

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value of sales decreased by 5,49%, while a more or less a similar value for textile sales was achieved from 1998 to 1999 (growth rate of 0,05%).

Source: Statistics South Africa as adaptedProduction volumes: 1995=100; Sales values: 1996=100

Figure 6: A relative comparison of production volumes and sales values for the food and textile industries in South Africa over the period 1997 to 2001

A clear contrasting trend is visible for the printing and publishing industry from 1997 to 1999 (Figure 7). Production volumes steadily decreased, while sales values increased consistently from 1997 to 2001. This situation may allude to the exit of enterprises as a consequence of competition in the industry and higher margins due to possible oligopoly formations or the industry may not be seen as being profitable for new entrants. An assessment of the growth rates in the value of sales indicates an average annual growth rate of 4,31% from 1997 to 2001. The average annual growth rate over the period 1998-2001 the average growth rate per annum decreased from 4,31% over the period 1997 to 2001 to 3,18%.

Source: Statistics South Africa as adaptedProduction volumes: 1995=100; Sales values: 1996=100

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Figure 7: A relative comparison of production volumes and sales values for the printing and publishing and machinery industries in South Africa over the period 1997 to 2001

It appears from an assessment of the machinery industry that production volumes were higher than the sales values on a relative basis up to 1998. An oversupply and possible the importation of machinery from outside South Africa at reduced prices may have been the cause of the lower sales value. However, it is apparent from 1998 that production volumes started to decrease and demand started to increase rising the value of sales. Average annual growth in sales value for the machinery industry was 3,89% over the period, well below the average annual inflation rate over the same period. The sales values also allude to relatively strong growth of 8,20% over the period 1999-2001.

The assessment provided above could be summed up by the Department of Trade and Industry (DTI) in a document "Accelerating Growth And Development: The Contribution Of An Integrated Manufacturing Strategy". DTI states that the manufacturing industry has grown slowly over the past five years, with an average increase in output of 1,8%. Three sectors in particular have shown slow growth: the wage-goods sector (e.g. clothing, footwear, food), the resource intensive sectors (e.g. metal products) and the capital good and equipment sector. In contrast, the automotive, chemical, radio, television and communications equipment sub-sectors have shown exemplary performance.

The document further states that much of the growth in the sectors resulted from increased exports, as manufacturing exports increase its share of South Africa's total exports. Manufacturing exports have been increasing more rapidly than overall sales, and this growing export orientation is valid in all manufacturing sectors. This trend is expected to continue, due to improved market access into the US, EU and SADC region, as well as substantial tariff reductions. The task of lowering and simplifying tariffs has been largely completed. However, Non-Tarriff Barriers (NTBs) still constrain many South African manufacturers and include efficiency, cost and the capacity for intermodal transfers in the infrastructure system. Imports have also increased, but at a lower rate than exports.

In general, investment rates in manufacturing are low. Some sub-sectors (e.g. plastic; leather; television, radio and communications equipment; motor vehicles and parts; paper and paper products; and basic chemicals) have experienced healthy growth in investment. There is a significant correlation between industries with high and growing export orientations and industries with high rates of investment. There is evidence to suggest that companies are investing primarily in capital equipment and capital and skill intensive technologies as they prepare themselves for greater involvement in export markets.

The DTI further reports that labour productivity in the manufacturing sector has increased by 26% since 1994, however, the manufacturing sector has consistently reduced employment numbers, a trend that is expected to continue. There is a growing tendency to outsource and use subcontractors, as the demand shifts from unskilled to semi-skilled and skilled workers, who are often in short supply. SMMEs provide 44% of employment in the manufacturing sector, and the increase of this percentage over the last few years may be as a result of outsourcing trends. This trend reported by DTI is in line with global manufacturing trends (see section 3.1), but is not well developed in the BDM area (see section 9).

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http://www.dti.gov.za/

http://www.dti.gov.za/


3.2.1 Confidence in the manufacturing sector of South Africa

Confidence among owners/managers of manufacturing businesses in South Africa is an important measure of direction for the industry. The Bureau for Economic Research (BER) indicate in their quarterly manufacturing survey that manufacturing confidence showed an increasing trend from mid 1998 to the end of 2002. The BER manufacturing report alludes to several factors that indicate the reasoning behind the confidence expressed by owners/managers of manufacturing firms. These factors, which have been prevalent over the past two years, include the following:

Domestic demand conditions have the highest impact on manufacturing business confidence, while international demand conditions has become a more significant factor than one year previously;

Exchange rate fluctuations have also influenced the perceptions of confidence among manufacturing business owners/managers, but to a lesser extent than one year previously;

Crime and violence and the general political climate have receded over the past two years as a factor affecting business confidence in the manufacturing sector;

Labour relations and regulatory framework governance have increased and are stated as important factors of confidence among manufacturing businesses over the past two years; and

Short-term interest rates have also increased prior to 2003, which also affected confidence of manufacturing businesses over the past two years.

A brief assessment of confidence among manufacturing businesses in the Western Cape suggests that entrepreneurs are still upbeat about manufacturing particularly from the turn of the millennium (2000). This increase came off a dramatic decrease in confidence during the fourth quarter of 1999 and the first quarter of 2000. From 1997 to the second quarter of 1999 a steady decline in confidence among manufactures was evident in the Western Cape.

An assessment of domestic sales volumes indicate that during 2000 manufactures were neutral to slightly positive about prospects for growth in domestic sales volumes going forward. A steady increase in confidence about greater sales volumes arose from a low ebb in the first quarter of 2001 to the third quarter of 2002. A decline in confidence related to domestic sales volumes has occurred since the high in the third quarter of 2002.

3.3 Boland District Municipality area

The Boland District Municipality (BDM) area encompasses the five B-municipalities of Stellenbosch, Witzenberg, Breede Valley, Drakenstein and Breede River/Winelands. An area known as the District Management Area (DMA) falls directly under the auspices of the BDM.

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3.3.1 Primary, secondary and tertiary economic activity

The economy of the BDM area comprises other primary and tertiary activity besides secondary activity, which includes manufacturing. In order to assess the contribution of the manufacturing sector to the economy of the BDM area, it is required to contextualise manufacturing in terms of other categories of economic activity, i.e. primary and tertiary economic activity. However, limitations with the integration of the data from the areas prior to the formation of the BDM district makes a comparative trends analysis between sectors and areas in the BDM unachievable. Consequently, a top-level assessment for the 2001/2002 financial year is provided to place manufacturing activity in the BDM into perspective.

Data provided by the BDM indicates that the total levies received on turnover in 2001/2002 were R61,02 million which translates to a total turnover for business registered for levies in the BDM area of R30,5 billion. The potential number of enterprises from which the sample of businesses was selected for the manufacturing survey contributed approximately a third or R10,2 billion to the total turnover of enterprises operating in the BDM area.

3.3.2 Manufacturing in the five B-municipal areas of the BDM

The levies collected by the BDM are used to assess the distribution of manufacturing in the area under the jurisdiction of the BDM. The levies collected during the 2001/2002 financial year are used as a basis to indicate the magnitude of manufacturing activity as measured by turnover and remuneration levies collected by the BDM. Due to the changes in municipal boundaries the BDM has only a complete set of district-wide levy figures from the 2001/2002 financial year. We used the levy data in order to provide a snapshot of the distribution of manufacturing activity as measured by turnover and remuneration in the BDM area. Table 3 indicates the total remuneration and turnover figures of the five B-municipalities for the 2001/2002 financial year.

Table 3: Distribution of levies obtained from manufacturing enterprises per municipal area

B-Municipality Remuneration Turnover Total R%tot T%tot T:R(R) (R) (R)

Breede River/Winelands 148,187,565 590,646,837 738,834,402

20.06% 79.94% 25.09%

Breede River 116,933,039 1,381,847,988 1,498,781,027 7.80% 92.20% 8.46%

Drakenstein 561,189,557 4,058,373,583 4,619,563,14012.15

% 87.85% 13.83%

Stellenbosch 470,072,314 1,559,628,489 2,029,700,80323.16

% 76.84% 30.14%Witzenberg 59,913,931 957,768,355 1,017,682,286 5.89% 94.11% 6.26%Total 1,356,296,406 8,548,265,252 9,904,561,658R%T is the remuneration expressed as a percentage of total turnover and remuneration costsT%T is the turnover expressed as a percentage of total turnover and remuneration costsT:R is the ratio of turnover to labour costs

The latter three columns of Table 3 indicate that the Drakenstein municipal area followed by Stellenbosch and Breede River/Winelands generated the highest turnover in terms of sales from manufacturing. The lowest wage bill that is

21


commensurate with the turnover generated from manufacturing is in the areas of the Breede Valley and Witzenberg municipalities. However, it is interesting to note that although Drakenstein manufacturing businesses have the highest turnover and accompanying remuneration, the municipality has the third lowest labour cost as measured by remuneration as a percentage of realised turnover. Alternatively, R7,23 is generated as turnover for every R1 of remuneration paid as wages/salaries to workers in the Drakenstein municipal area.

The most expensive municipality in terms of labour costs is Stellenbosch followed by Breede River/Winelands. For instance, the ratio of turnover to labour cost in Stellenbosch is R3,31 to R1 and in the Witzenberg municipality the ratio is R15,98 to R1.

3.3.3 Location characteristics of manufacturing enterprises

The location decision of a trading enterprise is different to that of a manufacturing concern. Various factors such as the source of raw materials, the available labour and transport are factors impacting on the decision of a manufacturing enterprise to locate to an area. In contrast the market area of a trading business is more critical in terms of location.

Over and above the traditional base factors considered by manufacturing enterprises when making a location decision, various other factors, which offer a location advantage in the BDM area, are also considered by manufacturing enterprises.

Our research suggests that the availability of infrastructure in a town or region has a definite influence on the decision whether or not to locate or relocate. Many towns in the BDM area have over time “equipped” themselves to accommodate industrial activity. All the municipalities have zoned certain erven and buildings in towns for industrial purposes in order to accommodate industrial-related activity. All industrial areas within various towns have provided the required services of water, electricity and sewage.

During the 1970 and 1980’s municipalities offered manufacturing enterprises incentives to locate to a certain area or town. Location advantages offered to manufacturing enterprises in the BDM area (at that stage not known as the BDM area) included the following:

Lower rates on land; Reduction in the cost of land; Cheaper water and electricity rates; Transport subsidies provided by Transnet (Spoornet); and Communication networks were provided at reduced tariffs.

Over an above the provision of incentives to attract manufacturing businesses to an area or town, the attitude and willingness of local authorities to assist and accommodate industries also plays a substantial role in the choice of a location. Many local authorities are accommodating by not introducing additional red tape

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over and above the regulations and guidelines which manufacturing enterprises need to adhere too in terms of national and provincial legislation.

Various industries developed around the production of fruit and wine within the broader BDM district. Construction companies were established to erect canning factories and cellars and other enterprises provided equipment required by various related manufacturing industries. For instance, HG Molenaar was established in Paarl in response to a need for stainless steel, machinery and tanks. Brenn O’ Kem developed a process for the development of products which require wine sediment as an input. Consequently, location was influenced by a need to be close to the source of the raw material in the case of the latter, while HG Molenaar located in Paarl which may be considered central to their client base and users of their products.

It is apparent from the research that most manufacturing enterprises located close to their source of raw materials. The following are examples of manufacturing enterprises that located in certain towns in close proximity to the base of their raw materials:

Ashton Canning and Langeberg factories located in Ashton in order to be close to the producers of the fruit used in the canning process. Notwithstanding, Ashton is a small town with not nearly the scope of infrastructure of larger towns and industrial centres in the BDM area.

Other enterprises such as Brenn O’ Kem located in areas where families own land or erven and therefore considered the location from a cost perspective, i.e. in terms of the saving associated with the price of land and buildings.

The climate in the Worcester, Robertson and Ceres regions is suited for the location of chicken farms, wine cellars and fruit and vegetable canning factories. The climate is conducive to the production of agricultural products and farming with chickens due a reduced risk of infections and crop failure. The infrastructure provided by the N1 and the proximity to the Cape Town harbour for imports and exports also contributed to locating in a specific area of the BDM region.

The assessment of location factors provided above alludes to several natural reasons why certain manufacturing enterprises locate within certain areas or towns in the BDM area. Other reasons include the following:

Each municipality is required to have a Zoning Plan, Spatial Development Framework and an Integrated Development Plan which regulates the location of industries and related activities. Within each of these plans certain legislation has to be adhered too in terms of location for specific types of manufacturing enterprises within specified zones.

Once the appropriate area is identified for the location of the manufacturing enterprise, the local municipal council is required to give the necessary approval.

Manufacturing enterprises that do not “fit” within the preferred location due to applicable legislation and/or local bylaws and regulations cannot be accommodated.

The location of manufacturing enterprises generally occurs in an orderly manner within towns situated in the BDM area. Each type of manufacturing enterprise

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has specific reasons why they locate in certain areas. However, most of the reasons alluded to above could be considered as a broad scope of location factors applied by most enterprises that have and may want to locate to a certain geographical area in the BDM area.

3.3.4.Nature and scope of manufacturing enterprises in the BDM

The manufacturing sector of the BDM area comprises diverse industries. The number of business operating in the following manufacturing industries in the BDM area and pay remuneration and/or turnover levies to the BDM are highlighted in the Table 4. The value of sales per industry as defined for the purposes of this study is also highlighted.

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Table 4: Current scope of manufacturing industries in the BDM area with vale of sales

Industry No of enterpris

es

% Value of sales per industry

(R)

%

Food 163 31.65% 4,825,498,142 56.45%Tobacco 2 0.39% 285,942,904 3.35%Textiles and related industries 44 8.54% 557,842,866 6.53%Wood and related industries 29 5.63% 220,321,945 2.58%Stationery and related industries

50.97% 282,595,644 3.31%

Publishing 31 6.02% 430,621,797 5.04%Chemicals 23 4.47% 505,016,202 5.91%Non-metal 37 7.18% 363,508,615 4.25%Metal 86 16.70% 540,377,558 6.32%Machine and related industries 21 4.08% 255,958,247 2.99%Other 74 14.37% 280,581,332 3.28%Total 515 100.00

% 8,548,265,252 100.00

%Note: Enterprises forming part of the above table are considered by the BDM to be active levy payingbusinesses. Other non-levying paying businesses or those classified as an inactive are excluded.

Table 4 indicates that food manufacturing enterprises contribute almost a third to the total number of manufacturing enterprises in the BDM area. Metal related manufacturing activity represents 16,70% of the operating enterprises in the BDM area. Textile related businesses contribute 8,54% to the total number of manufacturing businesses in the BDM area. In terms of the value of sales the food businesses generated 56,45% of the total sales recorded by manufacturing businesses in the BDM. Also refer to Table 1 for an in depth classification of manufacturing businesses by municipal area.

3.3.5. Industry specific impacts

Differences occur within specific industry sectors in the BDM area in terms of growth potential, opportunities and general wellbeing of manufacturing enterprises.

A large number of manufacturing enterprises in the BDM area are dependant on the agricultural sector. Due to the climate and various other factors such as price movements, which are not constant from area to area causes changes in growth and profit potential of manufacturing enterprises reliant on agriculture production.

Many enterprises that operate in the export market have over the past year suffered financially due to the strengthening of the Rand against the US dollar. Manufacturing enterprises that operate in the food production and canning industries achieved negative growth over the past two years. Input costs have not declined in line with the decline in revenue as a consequence of the strong Rand.

The textile industry has over the past number of years suffered due to the reduction or abolition of government subsidies and the reduction or elimination of import tariffs on textile products. The former resulted in the “dumping” of textile

25


products onto the South African market at the expense of the local textile industry. The consequences of these decisions have also led to a reduction in the labour force, while a reduction in job opportunities within the textile sector has resulted in a net loss of jobs.

Our research suggests that the competition factor could be considered as an important reason for poor growth and limited opportunities for further expansion in the metal industry. A number of small metal producers and welding enterprises have entered the market and are also able to provide competitive products and services due to lower overheads and cost structures. Lower prices remain a strong barrier to expansion by larger metal producers and consequently the larger metal producers reduce jobs. However, the smaller metal producer does not absorb these jobs and a net loss of opportunities is the result within the metal industry.

3.3.6.Opportunities in the BDM manufacturing sector

Our research among manufacturing enterprises in the BDM area indicated that limited opportunities for the entry and/or establishment of new manufacturing enterprises within the different industry sectors exist in the BDM area. However, discussions with officials of the planning departments of the B-municipalities and the location queries they receive from manufacturing enterprises provides some indication of potential opportunities within specific municipal areas within the BDM region. The queries and interest differs between the municipalities as a consequence of different location factors which are of importance to specific manufacturing enterprises.

The following are manufacturing opportunities with specific reference to different municipal areas in the BDM region:

Stellenbosch / Franschhoek / Klapmuts – Limited opportunities exist for the location and establishment of manufacturing enterprises within the Stellenbosch / Franschhoek area. The un-availability of appropriate land within and on the fringes of the town is the primary reason. In addition, the two primary towns in the Stellenbosch municipal area are not located on main routes. Klapmuts however, is situated adjacent to the N1 and is more suited for the location of manufacturing enterprises. Currently, a project is planned to locate smaller industries to an area earmarked for an industrial park at Klapmuts. Various applications received from larger manufacturing enterprises were declined due to limited infrastructure. These included the manufacturing of:

large wine vats and tanks; and fibre cement.

Paarl / Wellington – The following manufacturing opportunities have been identified through queries received by the Drakenstein Municipality:

Package material for the fruit and vegetable industry; Establishment of a fruit and vegetable juice processing facility depending

on the market (e.g. carrot juice); Fertiliser and related products for the agricultural sector; and

26


Agriculture related products such as the manufacture of tractors, agricultural implements and other mechanically related agricultural products.

Worcester – The Breede Valley Municipality received queries with regard to the following manufacturing activities:

Sawmill; Packaging material; and Vehicle assembly facility.

Ceres – A query was received from a manufacturer interested in establishing a sawmill and producing wooden poles in the area of the Witzenberg Municipality.

Robertson – The Breede River/Winelands Municipality received queries from a metal manufacturer with specific reference to the production of tin cans for canning industry.

The smaller towns of the BDM area do generally not receive queries about the establishment of plants for manufacturing or the introduction of manufacturing activities. The larger towns mentioned above provide more appropriate location opportunities. However, the larger towns are located and are accessible from smaller surrounding towns within the different municipal areas.

Opportunities are not only confined to the manufacturing sector, but the existence of the sector offers down and upstream opportunities for the services sector. The following are several services required by manufacturing enterprises included in the survey:

A service from an enterprise that is able to use an X-ray machine to evaluate stainless steel welding and identify weakened spots;

A service which could assist manufacturing enterprises to asses the economic impact of their location in a specific area and ensure that the appropriate location is selected; and

Rail transport to and from the Cape Town harbour is required for manufacturing businesses operating in the BDM area.

An assessment of the services sector is beyond the scope of this study, but will form part of a separate study for service delivery and design.

4. Characteristics of manufacturing

4.1 Scope of enterprises in the BDM-area

Our assessment suggests that large and small businesses differ in several respects with specific reference to the following:

Approach towards exports;

27


Effect of the exchange rate; Approach to management; Management of labour; and Issues of marketing.

Over and above the differences in the manner in which large and small businesses address the above issues, there is some commonality in terms of the location in which they operate, etc. In addition, several macro-related aspects, which also impact on both large and small businesses, include the following:

The general deterioration of the South African economy over the last three to five years;

The general labour situation in South Africa; The strengthening of the Rand; The general condition of agriculture in South Africa and especially in the

BDM area; The deterioration in the provision of services, and The approach of enterprises towards the provision of services.

The above factors will be discussed and contextualised in more detail in the appropriate sections that follow.

4.1.1 Turnover

As already mentioned in section 2.1.2, turnover was selected as one of the stratification variables for the selection of businesses that formed part of the sample. From the data it is clear that the turnovers are spread fairly normally between large, medium and small enterprises. Any divergence, deviating from a normal distribution, would typically occur when an enterprise has registered a major increase or decrease in turnover during the previous year, which differs from the existing information supplied by the BDM. The highest turnover of a business included in the sample was R500 million, while the turnover of the smallest business in the sample was approximately R120 000 per annum.

The five largest businesses in terms of turnover (i.e. more than R100 million per annum) were SAD, Ashton Canning, Paarl Media, Mr Farmer and Cape Wrappers. A total of six businesses have a turnover of between R15 million and R80 million, while eighteen are in the range of R1 million to R9 million. A further six businesses in the sample have a turnover of less than R1 million per annum.

4.1.2 Operating years in the BDM-area

Enterprises included in the sample have been actively operating in the BDM-area on average for more than forty years. It is clear from the interviews conducted that the majority of respondents are able to discuss their respective enterprises from a position of authority and experience because they have been operating in the BDM area for so many years. For instance, when they discuss the deterioration of services in the area, credence has to be given to their view since

28


they have become accustomed to and observed levels of standards over many years while operating in their current location.

Table 5 provides a summary of key characteristics of enterprises that formed part of the sample.

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Table 5: Characteristics of enterprises that formed part of the research sample

Business No. Name of Business Type of Business Industry

Turnoverper

annum

Operating years in BDM

Municipal Area

Operating within BDM

Operating

outside BDM

Quantity Area Quantit

y1 Ashton Canning

CompanyFruit Canning Food 400 000

000 54 1 1 02 Ashton Abattoir Abattoir /meat

processingFood 3 700 000 7 1 1 0

3 Ashton Slaghuis Meat Processing Food 2 000 000 38 1 1 04 JP During Furniture Wood & Wood

products 600 000 17 1 1 05 Robertson

skrynwerkersWood and wood products

Wood & Wood products 2 500 000 25 1 1 0

6 Be Nice Clothing Textiles 500 000 12 1 1 07 AL De Jong Drukpers Press/printing Publishing &

printing 4 000 000 85 1 1 08 Henpig Silage Food 2 800 000 30 1 1 09 Worcester

VervaardigersPaper rolls Wood & Wood

products 450 000 8 1 2 010 Boland Ingenieurs en

TrekkerdiensteImplements and repairs Metal 5 000 000 50 1 2 0

11 Pionier Drukkery Press/printing Publishing & printing 1 500 000 100 1 2 0

12 Rotix Africa Industries Off Road trailers + Irrigation equipment

Metal 4 000 000 10 1 2 013 Koose Tricycles 3-wheel bicycles Special

purpose machines

120 000 12 1 2 0

14 Goudini staal Steelworks Metal 2 500 000 22 1 2 015 Boland Kartonne Manufactures of

cardboardWood & Wood products 7 500 000 8 1 2 0

16 Paarl Media Printing business Publishing & 350 000 99 2 3 0

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printing 000

31


Business No. Name of Business Type of Business Industry

Turnoverper

annum

Operating years in BDM

Municipal Area

Operating within BDM

Operating

outside BDM

Quantity Area Quantity

17 H.G. Molenaar Stainless steel and other machinery

Metal 50 000 000 55 3 3 0

18 Cape Wrappers Light weight wrapping paper

Wood & Wood products

100 000 000 54 1 3 0

19 SAD (Pioneer Food Group)

Dried fruit and nuts Food 500 000 000 96 4 3 10

20 Prestige Auto Radiators

Manufacturing of radiators

Metal 1 500 000 20 1 3 021 Nappy Weave Reusable nappies Textile 5 500 000 3 1 3 022 Mr Farmer Clothing Textile 130 000

000 53 1 4 023 Stellenbosch

OrthopaedicOrthopaedic equipment Special

purpose machinery/equipment

600 000 5 1 4 0

24 Proto Africa 4 x 4 equipment Metal 1 000 000 6 1 4 025 Comar International Stainless steel products Metal 6 000 000 20 2 4 026 Glasschem Scientific glass

equipmentElectronic appliances

36 000 000 31 1 4 0

27 Absolute Absolutions Mobile toilets Non-metal 5 000 000 9 1 4 028 Koelenhof Wynkelder Wine manufacturing Food 20 000

000 58 1 4 029 Stainless Tech Stainless steel products

for food and wine industry

Metal7 500 000 9 1 4 0

30 Brenn-O-Kem Chemicals for wineries Chemicals 60 000 000 40 3 5 0

31 Ceres Fertigation Fertiliser Chemicals 80 000 000 16 1 5 0

32 Du Toit Houtnywerheid

Furniture and pallets Wood & Wood products 9 000 000 55 1 5 0

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33 Tarzan Skoenfabriek Shoes Leather & food wear

15 000 000 65 1 5 0

34 Tulbach Bricks Building bricks Household 4 500 000 34 1 5 035 Chrisann Meubels Built-in cupboards,

wooden toysWood & Wood products 800 000 10 1 5 0

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The oldest enterprise in the area is Pioneer Printers in Worcester that will be celebrating its centenary in 2004. Although the Pioneer School is still the main owner, a number of factors led to changes in the ownership of several divisions (see case study on Pioneer Printers at the end of the report). In contrast, Nappy Weave is a business that has been actively operating in the BDM area for only three years, which make it the business with the shortest period of exposure to doing business in the region.

Many of the businesses have been in business for several decades, but have adapted their business structures during the past 10 to 15 years. Several examples include SAD, Brenn-o-Kem, Ashton Abattoir, Paarl Media and Koelenhof Wines. Some of the more important reasons for adapting the business structure emanate from changes in tax legislation and management due to takeovers or mergers.

Only five of the businesses forming part of the research sample have other similar facilities within the BDM area, while only SAD has facilities outside the BDM area. Notwithstanding, several businesses, such as Pioneer Printers, located in the BDM area have facilities that are unique in South Africa.

4.1.3 Products manufactured within the BDM-area

As mentioned previously, the manufacturing industry is diverse as can be seen from the range of products listed in Table 6. The product list represents the main products that are manufactured by the businesses included in the sample. A variety of products are produced in the BDM area, which range from well-known food products such as dried fruit and nuts to lesser-known products such as Oxiprovin, an antioxidant preparation intended to enhance youthfulness and appearance. The latter is a new product on the market that is produced from 100% pure grape seed extract.

Metal and metal products are very well known in the area and range from materials related to construction to more sophisticated stainless steel machines for the food, fruit and wine industry. Several food products are manufactured of which wine, meat and meat-related products record significant demand.

Table 6: Scope of primary products currently manufactured in BDM areaAgricultural and other clothing for the work environment

Orthopaedic products like artificial arms, legs, etc.

Built-in cupboards OxiprovinCalcium tartrate PasteurizersChemical glass instruments Printing, offset printing, brail printing and

magazinesClothing like sweaters, school wear, etc. Products for the food industry like bottling

equipmentCream of tartar Reusable nappiesDifferent types of wood furniture Roof racks and other 4 x 4 accessoriesDried fruit and nuts Rotary cookers and coolersFace cloths Scientific glass instrumentsFood packing material Self propelled irrigation systemsGeneral engineering parts ShakersHeat exchangers/radiators Shoes and shoe related productsLabelling machines SilageMeat and meat products Special camping equipment on vehiclesMobile toilets Stainless steel products for food and wine

34


industryOff road camping trailers and equipment Steel constructionsOrganic fertiliser Wine

4.1.4 Number of employees

It is apparent that a clear trend exists between the turnover of an enterprise and the number of employees. SAD employs the highest number of permanent labourers. Other organisations active in agriculture, such as Ashton Canning, has around 200 permanent workers, but may employ up to 3 000 seasonal workers during harvest time. This type of temporary employment is a serious socio-economic problem for the labourers and the communities in which they live (please see more detail regarding this in section 6).

The ratio between coloured, black, white and other employees is 57:32:10:1 for the sample of enterprises included in the survey. Various respondents indicated that they are addressing this ratio in favour of coloured and black employees. Several respondents commented that these changes should and cannot be addressed hastily since it needs to be done judiciously in order to minimise the impact on the business. Approximately 70% of the businesses surveyed in the BDM area expressed concern that legislators should be exposed more intensively to the situation on ground level to become aware of and foresee the impact of overhasty legislative changes and decisions (see section 6 for further discussion on wages and related legislation).

5. Ownership5.1 Ownership trends and issues

The type of enterprise ownership plays an important role within the present business environment, bearing in mind future expansion, the existing tax system, as well as the continued existence of the enterprise over many generations. Table 7 provides an indication of the type of business ownership, co-ownership in the form of black empowerment, representation of blacks in business, and opportunities for black economic empowerment for businesses in the survey sample.

Table 7 indicates that ownership is spread evenly between a sole proprietorship, partnerships, close corporations and private companies. None of the businesses included in the survey were registered as a public company, while only one business was operated as a Trust.

None of the surveyed businesses indicate co-ownership in the form of black empowerment. However, most of the respondents (84,8%) are aware of the existence of, and need for black empowerment and of the potential opportunities for the further development of the enterprise. However, smaller enterprises indicated that black empowerment was currently not regarded as a priority for the following reasons:

Poor economic conditions are forcing smaller enterprises to operate on a day-to-day basis;

35


A perception exists that various black empowerment groups do not have sufficient training to serve at management or board level;

Black empowerment groups first need to acquire certain industry expertise in order to become successful within the business; and

Smaller enterprises do not have the potential to accommodate black empowerment groups due to limited market potential.

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Table 7: Ownership, co-ownership, representation and appointment of empowerment groups in the manufacturing sectorBusines

s number

Type of OwnershipCo-ownership in the

form of Black Empowerment

Representation of Blacks in the business

Opportunities for Black Economic Empowerment

1 Private Company No but looking Nearly in line* Yes2 Sole proprietorship No Not inline No3 Sole proprietorship No Not inline No4 Partnership No Not inline No5 Partnership No Not inline No6 Sole Proprietorship No Not inline No7 Private Company No Not inline Yes8 Sole Proprietorship No Nearly inline No9 Close Corporation No Not inline No10 Private Company No Nearly inline No11 Private Company No Not inline Yes12 Close Corporation No Nearly inline No13 Close Corporation No Not inline No14 Sole Proprietorship No Nearly inline No15 Close Corporation No Nearly inline No16 Private Company No Nearly inline Yes17 Close Corporation No Not inline No18 Public Company No but looking Nearly inline Yes19 Private Company Working on a structure Nearly inline Yes20 Sole Proprietorship No Not inline No21 Close Corporation No Nearly inline Yes22 Trust No Nearly inline Yes23 Private Company No but looking Nearly inline Yes24 Partnership No Not inline No25 Close Corporation No Nearly inline No26 Private Company No Nearly inline Yes27 Close Corporation No Nearly inline Yes28 Close Corporation No Nearly inline No29 Close Corporation No Not inline No30 Private Company Busy with strategy Nearly inline Yes31 Close Corporation No Not inline No32 Sole Proprietorship No Not inline No33 Private Company No Nearly inline No34 Close Corporation No Not inline No35 Sole Proprietorship No Not inline No

37


* Inline implies representation of employees based on the distribution of the population of the Western Cape province.

38


5.2 Ownership issues

Affirmative action, diversity and black empowerment are words often heard during discussions between business people. However, an apparent apathy exists among the respondents in this survey due to an apparent lack of understanding the before mentioned concepts, or the effort that would be required to accommodate changes associated with implementation of affirmative action policies or black economic empowerment ventures. Businesses operating in the BDM regard affirmative action and black empowerment processes as problematic due to the following:

Hiring of new affirmative action employees; Promoting existing employees; Communication on different levels with employees; and Delegation of responsibility to affirmative employees in organisations.

Business owners/managers suggest that these issues are not easily comprehendible neither is implementation thereof a trivial task. Among the larger enterprises, four indicated that they were planning and restructuring with a view to accommodating black empowerment groups that would bolster the businesses (see Table 7). In general (with the exception of 25% of the smaller enterprises), black empowerment was not deemed as a threat, but rather as a process that should not be initiated in a haphazard manner. Business managers believe that black empowerment would be beneficial for their business in the following ways:

A business could enter new markets and open new outlets; Additional capital for expansions could be acquired; and New and appropriate suppliers of raw materials and other inputs could be

sourced.

From the above it is clear that there is a definite need among enterprises for assistance in terms of the most appropriate approach to achieve the best possible fit between black empowerment and the specific structure and culture of an enterprises. Experts in this field could assist to accelerate the process where both the advantages and disadvantages of co-ownership would be clear to all parties. In this manner the most appropriate options to engage black empowerment could be selected by an enterprises that is tailored to their unique circumstances. Business managers in the BDM area emphasised the following needs in order to address problems with ownership and the introduction of black empowerment, i.e.:

Expert advice about the most appropriate business structure that would ensure an adequate fit between the existing business and the introduction of black empowerment venturing;

Updated advice about legislation and the subsequent impact on the business; and

Information about empowerment trends and diversity issues.

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The BDM should assess these issues and consider alternatives to enhance black empowerment and co-ownership that would contribute to the development of the local economy and create jobs in each region of the District.

6. Management

6.1 Management trends and issues

The term manager, for the purposes of this study, is used to include anyone who performs the four fundamental functions of management, namely planning, organising, leading and controlling. The four managerial functions are performed by the owner/manager in the smaller enterprises, while managers are responsible for different departments in the larger enterprises. They work at different levels and have to meet different requirements.

The levels of training and skills for managers in the larger enterprises that formed part of the sample were of exemplary quality. Several of these managers not only have a business management degree, but also an engineering degree and are therefore able to contribute and impart technical knowledge as part of their management task.

Several of the small enterprise owners did not have any management qualifications, but had some technical qualification. Most of these owners took a retirement package at an early age to work for him/herself, or was retrenched with a retirement package. Various owners of smaller manufacturing businesses in the region were forced to start his/her own business in order to survive and support their families, but without the expertise to operate and manage their businesses effectively.

The abovementioned implies that there is scope for small business managers to attain a business management qualification to enable them to manage their businesses and employees more effectively and ensure their business becomes more profitable and competitive. All the smaller enterprise owners in the region expressed a need for management and human resource training and development. The larger enterprises also expressed a need for this type of training and development, as well as other training requirements (see further detail on training needs in section 7).

6.2 Management problems

In South Africa, both a need for and an interest in managing diversity and a multicultural labour force exists. This country has been described as a radical pluralist society where race and ethnicity are the most visible dimensions of its diversity. There are numerous cultural differences between ethnic groups, such as whites, coloureds, blacks and Asians. Although these groups share a common history, each group maintains certain uniqueness. However, the imbalances between the different ethnic groups in South Africa result in managerial and economic imbalances that needs to be managed. In this research study, three categories of management problems were identified in the workplace that confirms an urgent need for research and education in this regard:

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The first issue relates to the debate on managerial and economic transformation, entailing a quest for a new management philosophy. Since the environment of organisations in both developed and developing countries is different from the South African perspective, management theories and practices from the developed world may have only limited applicability in the context of a specific type of developing country such as South Africa.

The second issue refers to the imbalances of employment within South African enterprises. The question of affirmative action forms an integral part of any policy or strategy on diversity management. In the BDM this employment policy is being developed and to a large extent implemented by the larger enterprises to ensure that they reflect the demographic diversity of the country. The owners of the smaller enterprises find it difficult to reflect diversity in their businesses due to a need for specialist assistance and the small number of employees.

The third issue covers the question of black empowerment. External pressure for the transfer of economic power is evident, but it is not a trivial task. This is also a management problem confronting all managers/owners and the question of how they are dealing with this and the progress made thus far are further discussed in section 7.

Other types of management problems that exist among three quarters of the businesses include the following:

Double standards are applied in the business industry in terms of hygiene factors and drainage systems. Within the same food industry or environment, the standard for food processing differs in terms of hygienic equipment and building specifications of the manufacturing businesses.

Transport is also an issue that must be well managed due to the cost involved. All the larger enterprises have a need for railway transport to and from the BDM area to urban centres such as Cape Town and specifically the harbour. The following reasons indicate the preference among businesses for railway transport over road transport:

The larger capacity makes loading easier; Shipments are taken directly into the harbour; Charges per ton are less; and Delivery speed is not that important for a large number of

manufactured goods.

Businesses that export their goods have difficulties in managing the exchange rate. The management of risk appears to be a problem due to the necessity for entering into term contracts and having to use forward cover. Although this assists with the management of risk, it does effectively address the issue of fluctuating exchange rates.

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6.3 Addressing industry related management problems

Addressing the abovementioned management problems and shortcomings represent an urgent need among virtually all the respondents in this study. Specific needs that should be addressed include the following:

Develop theories and policies as a guide to the implementation of tailor-made management practices among manufacturing enterprises in the BDM area;

How to manage diversity within the unique circumstances of the BDM-area;

How to deal with economic empowerment in the most appropriate manner that also serves the interest of the employer, employee and other stakeholders such as businesses, the region and country;

Look at the standardisation of different standards related to hygiene, drainage and other regulations for different types of industries. Different standard should not be set by a local health inspector, but minimum standards should be implemented to which all businesses must adhere.

The management problems referred to above are on a macro scale. Institutions need to obtain a thorough understanding of the problems and exhibit practical experience in order to guide such enterprises and their managers towards practical and implementable solutions.

7. Labour7.1 Labour issues and trends

The concern for economic and managerial empowerment reflects the prevailing commitment to equal opportunity for all in South Africa. It also reflects the challenges and opportunities created by South Africa’s cultural diversity. Such diversity in the workplace is a significant factor since 60% of the people who enter the labour market represent diverse cultures in respect of gender, language and background. The abovementioned signifies that the way to manage this cultural diversity is to follow a new management approach. Although the BDM-area is not representative of South Africa, the management of labour and diversity in the region will be similar to principles that apply to the country as a whole. There is consensus among respondents regarding some key features, such as a lean, flat, flexible team-based orientation for managing the operations of an enterprise.

Table 8 indicates both the labour situation of the respondents included in the study, and the correlation between labour and turnover. Most of the respondents did not exchange labour for modern machines, but see equipment and machines as an aid to assist employees to work more effectively.

The workforce employed by the 35 respondents totals 5872, with 97% of the total labour force originating from local areas. Almost all the employers know their employees, their living conditions and traditional values, and regard their employees as important and not a mere number on a payroll. The respondents made the following positive remarks:

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Labour legislation has not impacted on industries in the BDM area to the same extent when compared to similar industries in urban areas, due to the employer-employee relationship that exists among manufacturing businesses in the BDM area.

Only 20% of employees in the businesses surveyed are members of a union. There appears to be a perception that the unions cannot compete with their employers in terms of care, uplifting their living standards and understanding their personal circumstances.

No annual wage negotiations are required due to above average (in terms of inflation rate) wage increases over the past 10 years.

Businesses would prefer that government should be less prescriptive and belief that employer-employee problems could adequately be addressed within the context of the existing labour legislation. The role of government, which includes local governments, should focus on the creation of jobs for the unemployed and maintain the infrastructure in order to enhance productivity, which in turn will contribute to growth in the local economies of the BDM area.

7.2 Specific labour problems

Businesses encounter various labour related problems, which include the following:

The knowledge and skills levels of the unskilled labour force remain very low;

Training facilities are lacking, or those that do exist are not of an acceptable standard to provide skills development training for businesses operating, for instance in the chemical industry;

The people from the former homelands have difficulty when having to converse in either English or Afrikaans. Consequently, effective communication represents a sizeable problem to businesses;

Productivity of employees in terms of actual outputs and the commensurate wages earned for the work is below acceptable standards;

A work ethic whereby people have pride in their jobs is lacking. A culture of adhering to the minimum work requirement and doing nothing more is also apparent among employees;

Many unskilled persons do not seem to understand the operations of a business’s internal and external environment, and hence do not know where they fit into the wider economic system.

A limited number of skilled workers live in rural areas; The practice of borrowing money from cash loans is prevalent among low-

income employees. However, repercussions invariably occur due to apathy with regard to repayment of the loan.

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Table 8: Labour assessment of businesses forming part of the sample

Business No.

Number of employees Permanency of employees Percentage of active union

members

Percentage of skilled to unskilled workers

Blacks Coloured White Other Total Seasonality Permanent Part time Skilled % Unskilled %

1 1 327 1 808 45 90 3 270 3 000 220 50 40,5 11.9 88.12 2 25 7 - 34 - 34 - 6 20.6 79.43 1 7 3 - 11 - 11 - 9 63.6 36.44 - 5 2 - 7 - 7 - - 100.0 0.05 - 9 5 - 14 1 14 - - 85.7 14.36 - 3 1 - 4 - 4 - - 100.0 0.07 1 7 10 - 18 - 18 - 11.5 66.7 33.38 14 6 2 - 22 10 10 2 18 36.4 63.69 2 2 1 - 5 - 5 - - 80.0 20.010 5 11 5 - 21 - 18 3 24 81.0 19.011 - 17 10 - 27 - 27 - 26 85.2 14.812 1 5 4 - 10 - 10 - - 90.0 10.013 - 1 1 - 2 1 - 2 - - 100.014 8 12 4 - 24 4 12 8 33 58.3 41.1715 10 22 5 - 37 10 27 - 32 70.3 29.716 28 151 82 2 263 - 243 20 19 66.5 33.517 15 100 115 - 230 - 230 - 24.0 84.5 15.518 32 35 42 1 110 - 110 - 29 68.2 31.819 282 837 280 1 1 400 - 1 400 - 27 87.0 13.020 1 8 3 - 12 1 12 - 8 92.0 8.021 3 21 1 - 25 - 25 - 12 80.0 20.022 - 15 1 - 16 - 16 - 20 96.0 10.023 - - 3 - 3 - 3 - - 100 -24 1 3 2 - 6 - 6 - 17 100.0 0.025 3 3 2 - 8 - 8 - 17 75.0 25.026 1 14 5 - 20 - 20 - 5 85.0 15.027 1 4 5 - 10 - 10 - - 90.0 10.028 1 6 5 - 12 - 12 - - 83.0 17.029 - 12 6 - 18 - 18 - - 89.0 11.030 25 71 14 - 110 10 30 70 23 73.0 27.031 6 8 6 - 20 4 16 - 30 65.0 35.032 2 7 4 - 13 - 10 3 30 84.5 15.533 10 55 5 - 70 - 60 10 14 78.5 21.534 3 9 3 - 15 - 15 - 40 80.0 20.035 3 - 2 - 5 - 5 - - 80.0 20.0

Total 1 788 3 299 691 94 5 872 3 038 2 668 166 Average = 21.54%

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7.3 Addressing sector related labour problems

Respondents stated that the more important labour problems in the BDM area stated above, should be addressed effectively by considering among others the following:

Conduct a research study that covers the expectations of and the skill levels required by manufacturing businesses in the BDM area;

Use existing unutilised buildings or do subsidised outsourcing to train employees in order to address the identified needs in section 7.2;

Specific training needs required by more than two thirds of the respondents include:

Appropriate language training to enhance communication levels; Work ethics and instilling pride among workers; Life skills; Budgeting and spending of money (personal finance); and Specific skills related to communication, relationships with other

people and etiquette. Migration patterns should be studied and a workable plan should be

compiled to assist all the parties in the process of dealing with informal settlements. For example, the servicing of informal settlements is a substantial capital outlay for local government and ultimately, the taxpayer pays for these services. Respondents postulate whether or not settlements should be developed at strategic places within the different municipal areas to provide labour to a larger area;

Cultural differences appear to be a problem for businesses in the BDM area due to the changing historical mixes of employees. For example, traditionally only a few black people were employed in the Western Cape, but more black people have migrated to the BDM area and their culture differs significantly from that of coloured or white employees.

8. Consumer and supplier markets 8.1 Market trends and issues

The market for the products or services of any business comprises both consumers and other businesses. If the relevant business is to achieve any success with the implementation of its marketing strategy, management should be informed about all aspects of consumer needs, purchasing power and purchasing behaviour. This requirement is also endorsed by the developing trend in the international environment of enhanced consumer awareness (see section 3.1). Management should also realise that these aspects are influenced directly by the variables in the macro-environment. For example, the demographic trends and also the purchasing power of the black inhabitants of the BDM area, have changed considerably over the past few years.

Among the enterprises forming part of the research, 27% are active in the export market (see Table 9). The three largest exporters are Ashton Canning (90% of all production), SAD (60%) and Brenn-o-Kem (52%). The other businesses export

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between 1% and 20% of their manufactured production. The strong value of the Rand against the currencies of South Africa's main trading partners exerts additional pressure on the larger enterprises in terms of revenues and earnings, as more than 50% of their total manufactured products is exported.

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Table 9: Market characteristics of businesses forming part of the sample

Business No.

Primary market destinations as %Level of

satisfaction with location

Price issues Barriers for

businesses to enter

BDM

Barriers to exit

Joint ventures

and alliancesLocal In BDM Western

CapeSouth Africa

Interna-tional (%) Advantage

s in BDMAdvantages outside

BDM1 0 1 2 7 90 90 Yes No Yes Yes No2 55 45 0 0 0 100 Yes No Yes No No3 75 25 0 0 0 100 Yes No Yes No No4 70 20 10 - - 60 Yes No Yes No No5 50 40 10 - - 70 Yes No Yes No No6 60 25 15 - - 100 Yes No Yes Yes No7 30 50 20 - - 100 Yes No Yes Yes No8 50 50 - - - 100 Yes No Yes Yes No9 5 50 45 - - 100 Yes No No Yes No10 10 50 40 - - 100 Yes No No Yes Yes11 20 30 30 20 - 90 Yes Yes Yes Yes No12 10 15 40 35 - 100 Yes No Yes Yes No13 5 15 30 50 - 100 Yes No Yes Yes No14 100 - - - - 100 Yes No Yes Yes No15 80 10 10 - - 100 Yes No Yes Yes Yes16 0 10 80 10 - 100 Yes No Yes Yes No17 5 20 50 15 10 80 Yes Yes Yes Yes No18 5 10 20 55 10 90 Yes Yes Yes Yes Yes19 1 9 10 20 60 90 Yes Yes Yes Yes No20 80 20 - - - 90 Yes No Yes Yes No21 1 9 20 70 - 80 Yes Yes Yes Yes No22 2 6 10 80 2 70 Yes Yes Yes Yes No23 50 10 40 - - 80 Yes Yes Yes Yes No24 70 35 5 - - 100 Yes No Yes Yes No25 30 60 10 - - 100 Yes No Yes Yes No26 1 30 55 13 1 100 Yes No Yes Yes No27 5 15 30 30 20 100 Yes No Yes Yes Yes28 5 45 5 45 0 100 Yes No Yes Yes Yes29 1 9 5 75 10 100 Yes No Yes Yes No30 3 15 25 5 52 100 Yes No Yes Yes No31 70 20 10 - - 80 Yes No Yes Yes No32 80 10 10 - - 85 Yes No Yes Yes No33 1 25 45 21 8 100 Yes No Yes Yes No34 90 10 - - - 100 Yes No No Yes No35 80 20 - - - 100 Yes No No Yes No

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Study of the manufacturing sector in the Boland District Municipality

Destination markets within South Africa in particular and the SADC to a limited extent, are too small to influence the export policy of the larger enterprises. Reduction in revenues from exports has detrimental effects on the employment situation due to the link between revenues and rates of employment. Ashton Canning for instance, only employed 10% of its normal complement of seasonal workers during the fruit-canning season in 2003/2004. This impact will reflect on the local economy of a small town such as Ashton during 2004, with increasing socio-economic problems.

The total output of the smaller enterprises is destined solely for the local market or other areas in the BDM district. Export markets remain part of the vision for many smaller manufacturing enterprises operating in the BDM area. Lack of capital for expansion and the required capacity to achieve critical mass for the export market are limiting factors. However, several of the enterprises achieve an acceptable production output that serves the needs of the business. As a consequence, these businesses did not expand during the past three to five years, and made no provision to do so in the medium to long term.

Only 20% of the respondents have expanded their business over the past three to five years. Expansion implies either a further differentiation of the existing range of manufactured products, or the development of a new facility for manufacturing new products. Decisions to expand depend on the development of new markets or the need for a total new product in the existing markets. Due to the limited local market potential for most of the products manufactured in the BDM area, businesses believe that expansion could only occur by adopting the following strategies:

Gain market share from competitors in South Africa; and Expand into new international markets.

Expansion is the vision for most of the manufacturers. However, a lack of capital and/or know-how to expand into the envisaged markets appears to be lacking. Competition in industries such as the metal industry is strong. Retrenched persons start businesses to survive and compete with existing businesses. Some of the other businesses, such as Brenn-o-Kem, indicated that they did not have direct competition from other manufacturers in South Africa, but the relaxation of import duties on certain products introduced competition from international manufacturers (see also sections 10 and 11).

8.2 Market and marketing problems

Many of the managers of the smaller businesses experience the following problems:

They do not have the time to gather necessary information on current trends;

They do not have the knowledge of how and where to obtain statistical information and how to interpret it;

They lack the know-how regarding the interpretation of trends and the impact on their specific industry and enterprises;

The long period of isolation gave businesses a “false sense of security” by the previous government;

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The rate of change in industries such as technology is so rapid that it is extremely difficult to decide whether or not to remain up to date and competitive;

A lack of know-how to expand or explore new markets especially at the international level;

They do not have the capital to expand into new markets and to explore the implementation of marketing strategies; and

A lack of knowledge to establish a database of suppliers and markets.

Market and marketing problems experienced by the larger businesses are as follows:

International marketing is difficult due to the fluctuating value of the Rand; Local markets are too small with no expansion potential; Smaller businesses with lower overheads pose a significant threat in terms

of competition for the larger businesses; Imported sub-standard substitute products enter the market; many local

businesses buy these cheaper products due to the high input costs of local raw materials;

The quality of products from local suppliers have deteriorated during the last seven to ten years, resulting in an ongoing search for new or better suppliers;

Businesses in the export arena have the know-how to export products, but suggest that no adequate export incentives are forthcoming from any institution at local or central government (see also section 10 for further information).

Despite the negative experiences from respondents and the problems they experienced with markets and marketing, many of these businesses remained in existence in the BDM area for ten years and longer.

Barriers to entry exist for most of the industries in the BDM area. Only four respondents involved in the manufacture of paper rolls, farming implements, bricks for building or carpentry, indicated that they do not believe that the industries in which they operate have significant barriers to entry. All the other respondents suggested various barriers that would curtail the entry and location of new businesses into the district.

The following barriers to entry were mentioned: New entrants need substantial amounts of fixed and working capital to

enter a specific industry in the manufacturing sector in the BDM area; The local markets are too small to justify the capital outlay; Raw materials and other inputs like labour costs are prohibitive for

businesses entering the manufacturing sector; The seasonality of the agricultural market, which is relatively large in the

BDM area, has a significant effect and is a recognisable barrier; A shortage of skilled workers in the different industries makes it

impossible to start and effectively produce a quality product; and50


The length of existence among many businesses in the BDM area is tantamount to the quality and standard of manufactured products.

Smaller players in the printing industry could face increased competition from new entrants due to the technology that makes a start up printing operation cheaper. Computer technology replaces many of the old and expensive machines currently being used by smaller printers in the printing process. The larger printers in the BDM area are leaders and remain competitive with established markets, which curtail entry by new entrants.

The following barriers to exit were mentioned by respondents: High investment and no buyers for the business to recoup the investment; No other opportunities in South Africa as avenues for employment; Specialisation in one type of trade, specifically among owners of smaller

enterprises, generally prevents them from acquiring the skills to do anything else; and

An enterprise may be part of family business that has existed for decades.

The abovementioned barriers to entry and exit suggest many manufacturing businesses that have been operating in the BDM area for more than 40 years on average have survived the competition or have managed to absorb new entrants. The positive effect of the barriers to entry is that expertise is retained, a variety and quality of products and services is maintained and a stable manufacturing sector is prevalent in the BDM area. A negative effect of the barriers to entry is that no new expertise or new types of businesses enter the sector, which could lead to stagnation in the manufacturing industry.

8.3 Addressing industry related market and marketing problems

Information regarding markets and market trends and the availability of such information represents an important need among respondents. The BDM could deliver the following services online for the businesses in this area:

Information about market trends of the different industries updated on a monthly basis;

Statistical results and their interpretation with specific reference to trends, market changes, exchange rate changes, etc;

A database that can assist suppliers of products to business in the manufacturing sector of the BDM area and linking businesses in the BDM to potential new markets for the different products produced in the area, could be considered.

Support market research that assesses the need for products and services produced and delivered within the BDM area and then lobby people/businesses from outside to locate to the area. Respondents believe new businesses can be lured to the BDM area by introducing incentives such as the following:

- Lower rates and taxes for the first three years;- A subsidy for job creation; and- A soft loan to buy land and plant to commence production.

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Create a business broking agency for strategic important businesses in the area in order to assist people to sell their businesses to the right person/business. In this way an attempt is made to secure continued production of strategically important products and services in the BDM area.

9. Industry co-operation9.1 Industry co-operation trends and issues

Larger manufacturing enterprises in BDM area are have become accustomed to the complexities global environment. However most of the businesses are familiar with the local and national market and need to understand the basis of trade and co-operation prior to entering the export market. Managers of enterprises operating in the international marketplace have to deal with a much broader set of environmental forces. A number of respondents in the study displayed a lack of knowledge regarding the export market, while others also acknowledged that the network strategies within their businesses were not in place before they embarked on the international circuit.

By using strategic alliances and outsourcing, organisations form networks that are sustained by contracts and performance agreements. Each member of the network would perform some portion of the activities necessary to deliver products and services to the network as a whole. At the core of each network is the organisation that performs certain key functions for the network and coordinates the activities of the network members. In general, there are no formal networks that the respondents in the study had entered into. Specifically smaller enterprises operate on their own and try to deliver their own products and services by themselves. There are a number of reasons for this, which are described in more detail in section 9.2.

The degree to which businesses outsource their primary function varies. There is invariably an internal network within organisations not wishing to outsource, instead they develop internal entrepreneurial ventures driven by market forces. These internal business units – functioning as profit centres inside the organisation and specialising in a particular aspect of the organisation’s product delivery system – compete with alternative sources of supply by operating independently and negotiating with the central unit in the same manner as any other supplier. Most of the larger enterprises operating in the BDM area employ this strategy. Each of the respondents in the category for bigger businesses − SAD, Ashton Canning, Paarl Media, etc. − expand their enterprises by establishing these internal entrepreneurial organisations to deliver the products and services. Reasons for doing so are the following:

The units are operated as a separate business unit, but within the same company;

More internal control within the same business culture; Product and service quality remains unchanged within certain established

boundaries; and The newly established entrepreneurial venture can deliver products and

services to other outside businesses within its capacity constraints.

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A stable network is a network structure that utilises external alliances selectively as a mechanism for gaining strategic flexibility. S table network organisations rely to some degree on outsourcing to add flexibility to their product delivery system. The central organisation concludes contracts with outside organisations to provide specific products and services that are essential to its product delivery system. A dynamic network structure makes extensive use of outsourcing through alliances with outside organisations.

9.2 Specific co-operation problems encountered by the sector

Manufacturing sector businesses in the BDM have to deal with a large number of issues and problems related to co-operation. Aspects related to the lack of co-operation, specifically among smaller businesses, that should be mentioned and receive parallel attention include the following:

Competition in certain industries is counterproductive and negatively impacts on the market;

Mistrust exists between businesses within an industry and across industries;

Continuity is lacking in product and service delivery; and Quality of manufactured products is often questioned.

The larger businesses experience problems with smaller business that are able to compete on price. Apparently, smaller businesses take advantage of gaps in the market when requested by larger enterprises to manufacture a similar product. These circumstances also lead to an unwillingness of small and large businesses to co-operate on a longer-term basis.

9.3 Addressing industry related co-operation

Although industry co-operation does not fall under the ambit of local or district government, the latter may contribute to fostering co-operation between enterprises by assuming the role of a facilitator. The following aspects could provide some guidance for facilitation:

Identify situations of unproductive competition, for instance in the metal and textile industry;

Examine the type of competition that exists; Devise a plan that identifies contact points and try to facilitate these

sessions by explaining to businesses the economic and other advantages of partaking in business-to-business linkages.

10.LEGISLATION10.1 Legislative trends and issues

In the business sector it is difficult to separate the legal environment effectively from the political environment. Manufacturing enterprises in the BDM generally experience the district as a stable environment within which to operate their

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business. In addition, the ability of the government to encourage direct investment and provide guidance with respect to legislative policies, could further encourage the development of manufacturing enterprises in the BDM area.

The respondents’ reaction to current labour legislation was as follows: The specified number of labour hours did not provide any major problem; The required minimum wage presented a problem to the smaller

enterprises and they had to lay off some employees; Labour contracts are perceived as beneficial to employer and employee;

and Businesses that already care for their employees have no problems with

the trade unions, as workers do not perceive unions as a positive influence. Consequently, only about 22% of workers of manufacturing enterprises forming part of the sample belong to unions.

Notwithstanding, many of the respondents’ are experiencing problems with the following:

A lack of knowledge about legislation is prevalent among 80% of all the businesses that partake in the survey. They are uncertain about the impact of the “fine print” in labour legislation and are unsure whether or not their contracts include the latest information contained in legislation. Suggestions are that the plethora of labour legislation is prohibitive and assistance is required by management to interpret and understand the practical impact.

Small businesses that are entering the import and export market for the first time require assistance with the practical execution of import and export legislation and policies.

Different industries are subjected to different legislation. However, businesses often operate across industries and therefore are uncertain of how the different legislation should be interpreted and applied.

10.2 Specific legislation problems encountered by the sector

The first aspect causing a predicament is the levy payable to the BDM on the turnover of enterprises. The problem is not the percentage of the levy per se, but rather the way those funds are allocated and applied. There is a general perception among respondents that the equivalent value of what is being paid, is not returned in the form of services and physical infrastructure.

An example, which causes a considerable concern among entrepreneurs, is the expected toll road from the BDM area to Cape Town. The question arises as to whether or not the full levies currently paid are not sufficient to maintain the road system. The main consequence of the toll road would be more expensive production prices and the competitiveness of manufactured output by BDM enterprises visa vie international enterprises exporting their products to South Africa. Businesses believe that the high costs of labour, raw materials and fuel prices make it extremely difficult to remain competitive.

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The second aspect viewed as a problem refers to the readiness with which the current government permits the importation and dumping of inferior quality products. This practice has already caused the demise of a number of local enterprises in the BDM area over the past few years. This needs to be addresses urgently and settled in favour of certain local strategic enterprises.

The following example confirms some of the problems regarding legislation that the government and/or the local government should address to assist certain strategic businesses. Brenn-o-Kem has been manufacturing and exporting cream of tartar and antimony potassium tartar for a number of years. Previously cream of tartar had a 30% import duty, which has been reduced to 4%, whereas antimony potassium tartar currently has a 15% import duty. The local market is limited and the company is competitive in the export market. However, in the development of the local tartaric acid market, it has been found that a protection of at least 20% import duty on similar international products is necessary to ensure that refined local raw materials receive preference in the local market. The waste products of the wine industry, such the grape seeds, skins and the sediment in the wine tanks are used to manufacture these products. Brenn-o-Kem removes the waste of 90% of all the wine cellars in the Western Cape, given the business a strong strategic position. If the waste is not removed and processed by Brenn-o-Kem, local government will have to perform the task as part of refuse removal.

Other examples relate specifically to the poor quality of imported products that are to the detriment of local enterprises and may have implications for job losses. Nails imported from China, paper and certain spares for factory machinery are examples of products that contribute to local enterprises not being able to compete and serve demand at the local level.

The above examples highlight the impact of current legislation and the possible impact on local enterprises at the ground level. A need exists among enterprises to receive assistance in order to understand the impact of new legislation before Parliament finally promulgates this legislation. As already indicated, labour legislation as such is not the problem, but the plethora of applicable legislation clouds an already complex operating environment. Businesses would prefer to see a simplification of existing labour legislation that could be interpreted and understood by the ordinary business manager.

10.3 Addressing industry related legislation

The problems with the legislation highlighted previously represent a shortcoming that the local authorities could address. An expert in labour legislation could be appointed to assist enterprises on a regular basis to understand and comprehend the relevant amendments to the legislation with a view to bringing existing employment contracts up to date. The respondents regard this as a service to be rendered by the BDM that has the following benefits:

- Businesses that do not pay any levies would be excluded and run the risk of concluding faulty contracts; and

- Both employers and employees would have a clear understanding of applicable legislation.

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Equally, a similar information service could be rendered in order to convey types of legislation applicable to managers of manufacturing enterprises. The BDM-area can appoint a specialist (for example a retired advocate) to render a service to levy paying businesses in the District.

11.Institutional organisation and support11.1 Institutional organisation

The following associations, organisations or institutions represent the interests of various manufacturing enterprises in the BDM area. Most of the manufacturing businesses are affiliated to one or more of these bodies. Several of the associations are national with regional representation through branches or chapters.

Chambers of Commerce – Only several manufacturing enterprises are members of the chambers in their respective regions. Apparently, no value for manufacturing enterprises is obtained from membership. In addition, no chambers operate in small towns such as Ashton, Bonnievale, Wolseley, Tulbagh and Robertson, which could serve the interests of local manufacturing enterprises.

SA Fruit and Vegetable Canners Association – The association is located in Paarl and canning factories such as Ashton Canning, Langeberg etc. are members. The association provides services and offers support to members in the form of human resources, safety standards, and food safety issues.

Chamber of Milling, Chamber of Baking and the National Association of Maize Millers - are different associations to which millers and bakers are affiliated. These organisations provide assistance in the form of product pricing, quality control and new product development.

SA Association of Food Science and Technology. Most manufacturing enterprises in the production of food are members of SAAFST. The Association is national with a branch in Cape Town. They organize provision of services by listing consultants on their website for access by members. The types of services provided include technology, marketing, hygiene audits, quality control, etc.

Printing Industry Federation of South Africa. A national organisation that has the Cape Chamber of Printing as a regional branch. Assistance is provided to members with specific reference to labour issues, training, procurement of paper and ink and quality control.

Small Builders Association. The Association has branches in Paarl, Wellington and Stellenbosch. Smaller construction enterprises are members of the SBA and receive assistance in terms of working and liaising with trade unions and solving issues related to labour legislation. In addition, guidelines are also provided in terms of building and construction regulations.

South African Textile and Clothing Association. – Textile firms are members of the association, which provides assistance with export issues in particular and survival strategies in the current unfavourable manufacturing environment. The association has a Cape Town branch.

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Cape Wine and Spirit Institute. The institute is located in Stellenbosch and provides assistance to members in the form of opportunities in wine export and requirements for new technology in the wine-producing industry.

HACCP – Hazardous and Critical Control Point - provides services related to international food safety. The organisation works in a similar manner to the ISO 9000 accreditation provided to businesses. The organisation audits a business in terms of the maintenance of certain food production standards. Suppliers of packaging material are also audited to ensure that packaging material adheres to certain minimum requirements.

SAFLIA - SA Footwear and Leather Industries Association. The association operates nationally with head office in Johannesburg and a branch in Cape Town. The association provides among others, a mediation service between the unions representing the workers and the employer.

Irrigation Institute of South Africa is located in Worcester. Manufacturers of irrigation equipment are members of the Institute. The Institute ensures that members are aware of the latest irrigation technology and ensure that certain industry standards are maintained.

Several other associations that are not directly related to the manufacturing industry, but focus on primary production are also highlighted as associations or organisations that liaise with primary producers of perishable products and producers of value added food products:

Wynland Organiese Kragbemesting. The organisation is based in Tulbagh and offers assistance with organic food production with a specific emphasis on fruit, vegetables and grapes.

Perishable Products Export Control Board – The board is responsible for the control and assessing of perishable export products.

11.2 Institutional trends and issues

Management decision-making is continually affected by the course of politics in a country and accompanying government policies. The broader business environment, with which the manufacturing sector continuously interacts, is also affected by the decisions of government. As a component of the macro-environment, the State primarily influences the business environment and organisations as a regulating force. The overall policy of the South African Government is aimed at maintaining a market economy and private ownership, but it would intervene where monopolistic or other conditions impede the free and smooth functioning of the market. Institutional support and the role it plays in a country as a whole, and also in a specific region, could make a difference in the business sector as a whole in terms of creating employment, uplifting people and addressing socio-economic issues.

Respondents alluded to the following positive effects of local government: Local government is able to manage the region on a more hands-on basis.

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Local taxes could be disbursed in support of infrastructure that has a positive effect on local economy.

Various negative effects of government mentioned by the respondents included the following:

Taxes and tax rates: The current taxation structure does not contain any significant encouragement for start-up enterprises. The same argument is valid for the local levy system of the BDM area. There are no incentives for the establishment of an enterprise in the BDM area. As mentioned in section 3, many of the businesses taking part in the research study are old established enterprises and only a few have been in existence for less than 10 years;

The assessment of property values is too high in relation to the economic value of the properties as measured in terms of production outputs;

The Public Sector does not control the import of products to secure and safeguard local business activities. Some of the examples quoted are:

- Any cheap product like rope, nails and certain chemicals are being dumped on the South African market without any interference from the government.

- Import duties are being lowered without any acknowledgement from manufacturers.

Neither local nor central Government promotes exports of product in a manner that encourages business activities and creates jobs.

Provincial and local government awareness of strategic businesses in specific regions is questioned;

An incentive strategy for strategic businesses should be considered when they are part of an export program;

No protection exists against excessive foreign intervention which is aimed at protecting certain strategic industries;

Government should investigate and determine shortcomings of municipal areas together with the assistance and inputs of local businesses. Measures should then be introduced to guide and direct economic and businesses development;

The spending of funds by local government should be examined due to the apparent imbalance between income and outputs. The following arguments in support of the latter include:

- The number of jobs in terms of the services rendered are excessive;- Remuneration packages and fringe benefits of officials are above

average;- A poor link exists between blue and white colour workers of

manufacturing enterprises within the BDM area.

11.2 Addressing problems related to institutional support

Institutional support seems to be a major issue among respondents partaking in the survey. The following are some important issues that could be considered:

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The overwhelming majority of respondents (85,7%) believe Government should leave their enterprises alone – they should be allowed to operate their businesses in their own way and without any interference;

Local content – there should be a certain minimum local content in certain products manufactured and sold in South Africa;

Government should heed the call of local enterprises when they submit requests or complain about problems such as those mentioned above. A forum should be established to listen to and investigate complaints of manufacturing enterprises;

Toll roads – private consultants are apparently investigating and submitting recommendations without any proper involvement of the local communities and businesses;

Support should be given to enterprises that generate large electricity bills; Business Partners does not provide any benefits, as in the past, in terms of

favourable interest rates or other advantages such as the development of free business plans, etc.

The health sector and health clinics are in need of attention and there are scores of issues that need to be addressed, which include:

- Medical funds and the payment of accounts; and- Possible subsidised medical costs for certain types of illnesses.

Create a revolving loan fund to provide loans to smaller new businesses under certain conditions, which may include:

- A loan period of up to three year with strict financial control and periodic auditing;

- Management assistance by specialists in the same industry;- Marketing assistance to explore new local and international

markets;- Assistance with the management of employees and the

development of employee contracts; Instituting some form of labour encouragement system to create more

jobs in certain areas. Assist new enterprises to negotiate access to additional capital and new

markets; Labour disputes should be considered locally and not in Cape Town; Encourage the purchase of local products so that rural areas could

maintain an acceptable level of economic activity; and BDM should develop a web page to inform both local and other businesses

of changes in the business environment and activities in the district.

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12.Economies and economic trends of selected towns in the BDM area

12.1 Economic trends and issues

A high GDP growth rate of about seven to eight percent per annum in real terms represents an economy which is expanding rapidly enough to create jobs for its workforce; one that exports more products than it imports to sustain a positive trade balance, and one that is able to provide improved living standards for its people. On the other hand, a lower growth rate − especially one that is inferior to the population growth rate − usually decreases the general standard of living.

South Africa, and especially the different regions within each province, requires a growth rate of over seven percent per annum in real terms to provide jobs for the millions in the unemployment queue and the hundreds of thousands who join it annually.

An economic growth rate for the BDM district or any of the primary towns is currently unavailable. However, the vision of the local authorities is to maximise businesses activity, which directly contributes to potential job creation opportunities in the rural areas. The dependency factors in rural areas are high. Many of the manufacturing enterprises participating in the research study and especially in the rural areas, are related to agriculture and consequently employ seasonal workers for a part of the year.

12.2 Specific economic problems

Several rural towns experience severe economic decline when the South African and global economies are in decline. A factor that also contributes to these overall economic circumstances is the restricted markets for some of the smaller businesses, as mentioned in section 8.

Ashton is a perfect example of a rural town that was affected in early 2004 by seasonal factors related to the two manufacturing firms, Ashton Canning and Langeberg Cooperative, which provide most of the seasonal employment. Normally these two enterprises employ between 6 000 and 7 000 workers in peak season. Under these circumstances, seasonal workers are employed for 7 months of the year and become unemployed and earn no income, or very little during the remainder of the year. Some may be fortunate enough to be employed as casual labourers on an irregular basis. The two enterprises mentioned above have devised a plan whereby a portion of the seasonal income of the workers is withheld so that they are able to pay their levies, water and electricity accounts for the other five months of the year when they are unemployed. The likelihood exists that the local municipality would not receive any income for services rendered during the remainder of the year if a portion of the wages is not withheld. The above plan is implemented as follows:

For each working month, the employer would deduct 20% to 30% of the worker’s payment and retain this for the five months when they are generally unemployed.

For every month the worker is unemployed, the company would deposit the deductions in equal units into workers' bank accounts which would

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enable them to pay the necessary levies, buy some staple food and other necessities.

Other towns that experience more or less the same level of economic decline are Tulbagh, Wolseley and Ceres in the Witzenberg region for very similar reasons. A town like Tulbagh has a problem with the sanitation system that curtails any further expansion of new economic activity that required direct investment. The sanitation system has reached full capacity and limits on the sale of land for development applies due to the capacity constrains of the sanitation system.

Businesses from most of the smaller towns around Worcester mentioned the deterioration of services rendered by businesses in Worcester. Many businesses in the smaller town are also dependant on businesses in Worcester. The deterioration was noticeable over the past ten years and the following comments, which related to the integration of economic activity and systems, could be noted:

Stock levels of businesses are declining, which implies that demand for manufactured products is declining. This situation also implies that more and more products must be procured from outside the town or region and less demand can be met from internal supply. The economy declines as more and more funds are disbursed to businesses operating in larger centres. This problem is compounded by rising prices and people and businesses would be inclined to shop outside the district or town.

Services rendered by businesses are generally of a poor quality. It appears that business has become a run of the mill process whereby pride and commitment is limited or no longer exists.

12.3 Addressing economic problems

The Ashton example represents a working plan for a community and this example could also be emulated by other seasonal enterprises to help the local economy to remain more stable throughout the year. There is also another solution that the BDM could consider implementing, i.e.:

Each town in the area should be included in a research study in order to investigate the possibility of establishing other job creating firms to enhance employment in the off-season;

The aim should be to identify firms that could complement existing firms and encourage these enterprises to relocate to the area in order to create synergies with existing firms;

Skills development and training would assist to address problems of poor quality and service and in that manner encourage businesses and consumers to spend their money in businesses located in the BDM area; and

A “buy local” programme could be introduced to also encourage people to spend their money in businesses located in the area.

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13.Branding manufacturing in the BDM area13.1 Branding benefits and issues

The success of manufactured consumer products depends in part on the target market’s ability to distinguish one product from another. Branding is the main tool for any business, region or country to distinguish their products from those of their competitors.

A brand is a name, term, symbol, design or combination thereof that identify a seller’s products and differentiates them from a competitor’s products. A brand name is that part of the brand that could be verbalised, including letters (CNA), words (Nando’s), and numbers (4X4). The elements of a brand that cannot be verbalised are called the brand mark, for example the “Proudly South African” mark. A brand is a product that has earned a place in a consumer’s life through perceptual experience, beliefs and feelings. A brand also relates to trust, loyalty, friendship and belonging.

The BDM would be the first in South Africa to develop a brand name and logo for manufacturing in the region. The branding of a region will engender a great deal of advantages for the region and individual businesses operating in that region. Branding will have three main purposes for the region, namely:

Region/product identification; Repeat sales/visits; Price premium; and Enhancing new product sales.

Region/product identification: Yields advantages to both the marketers of products from the region and for the purchaser of the product. Branding allows marketers to distinguish their products from their competitors’ products and over time could become a critical competitive advantage.

Repeated sales: Proper identification of the region or product makes shopping easier for buyers and thus reduces selling time and effort, thus implying more or repeat sales. Buyers would rely less on sales people, and from the businesses viewpoint, money could be saved on the employment of sales people.

Price premium: Effective branding also allows firms to charge a premium price for their products if they are properly differentiated. BDM could execute the overall marketing of the district in order to assist enterprises in their marketing strategy and to keep their marketing cost down.

Enhancing new product sales: It is easier to sell a product with a label. It is also much easier to sell a new product if it is related to an existing product from an existing well-known region. In the BDM area there are many unique businesses with unique products. A brand name for manufacturing in the region would enhance new product development because of the enhanced selling and marketing of the region’s products.

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13.2 Branding options

All the respondents were very positive about the notion of a brand name for manufacturing in the region. Manufacturing enterprises would gladly assist with the launch of a branding process due to derived benefits for the whole of the region. However, the question beckons as to what brand name should be used and what the logo should represent. These aspects have not yet formed part of the current thinking among manufacturers in the district. The following were nevertheless some associations that the respondents thought may be useful in creating a brand name and logo for manufacturing in the district:

Associated with agriculture; Winelands; Breede River Valley; Boland; and Mountains.

Several other remarks included: An English, Dutch or French name should be chosen for international

markets; A name that is easily pronounceable; A name that could be associated with the Boland region; Not Black names that are unpronounceable; Not an Afrikaans name; and The logo should be modern and clearly visible.

14.RecommendationsWe analysed and interpreted the relevant research data together with the opinion, views and suggestions of a sample of manufacturing enterprises operating in the BDM area. The following recommendations are based on our assessment and the input received from the respondents that partook in the survey:

The BDM needs to devise a communication strategy aimed at manufacturing businesses in particular and the broader business fraternity in general. The manufacture sector needs to understand the role and the function of the BDM, what level of assistance the different departments within the municipality could provide, and how could the BDM represent their interests at the local, provincial and national public sector levels.

Establish a forum for the different industries within the manufacture sector and hold regular sessions to discuss industry related issues, problems and opportunities. Such forums could be administered by the BDM and in this manner demonstrate commitment from the BDM to businesses at a micro and macro level.

Assistance with understanding the impact of legislation on businesses operating in the BDM area is required. Aspects related to the complexity

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and implementation of labour legislation, migration from other areas into the BDM area, introduction of black empowerment, understanding issues of diversity, and legislation related to import and export regulations could assist manufacturing enterprises.

The dumping of low quality products on the South African market, which also affects the manufacturing enterprises in the BDM area, is of grave concern. The BDM should lobby the provincial and national government in order to address the impact and economic consequences of dumping cheaper imported products in South Africa. Suggestions to address the issue of dumping may include higher import duties, quality and quantity control of products, and a total ban on products exclusively produced by strategic manufacturers in certain regions of South Africa, which would include the BDM.

Manufacturers that export products and particularly those that are creators of job opportunities in the BDM region should receive incentives. Incentives that may be implemented with the approval of the Department of Trade and Industry may include transport, labour, electricity and taxes.

Skills development programs in the BDM area are an urgent requirement among the enterprises. The spectrum of skills development programs may include the following:

- Managerial theories and practices applicable to the South African situation;

- Basic marketing principles;- Financial aspects like budgeting, cash flow and taxation;- Language training in Afrikaans and English;- Some basic principles like work ethics, work pride, honesty,

budgeting and personal financial management, communication skills, interaction with other people and etiquette.

Skills and development training can be done in various places depending on the level of presentation. The lower level type of training (for example the teaching of basic skills) can be done within the communities or towns near places of employment. A higher education and training institution can provide training for managers and top-level staff in an organisation.

The lack of, or limited market information and market trends with specific reference to businesses in the BDM area, is a major concern for managers and business owners in the area. Advice about the local and international market for certain products is a requirement that could be facilitated by the BDM. Market as well as other information can be made available on an intranet network operating and administered by the BDM for businesses that pay levies and operate in the BDM area.

Limited industry co-operation and business linkages among businesses in the BDM area provide an opportunity for the BDM to explore and facilitate business-to-business co-operation and the establishment of alliances and joint ventures. Several suggestions may include the appointment of a specialist in this field to help identify gaps for different linkages that exist in the different industries within the BDM area. The success of linkages should be communicated to businesses in order to demonstrate the value that could be unlocked through business-to-business venturing.

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The nature and benefits obtained from institutional support is important to businesses and should be clearly demonstrated. Institutional support can be provided on a direct and indirect basis. The following direct institutional support could be provided:

- Identify shortcomings and opportunities in each area of the district. Develop strategies to support shortcomings by utilising the strengths of each area. Facilitate the implementation of strategies and co-operate with other NGOs working on complementary business and economic development projects in specific towns. For example, where seasonality of employment is a major issue for a town, assist strategic businesses in the region to expand job opportunities over the entire calendar year.

Indirect institutional support may include the following:- Address the issue and impact of toll roads on transportation bills by

lobbying national government about greater and more effective use of railway transport in the BDM area to key urban centres in the Cape Town Metropolitan area.

- Work with Business Partners to develop financing strategies to assist businesses in a manner that is less conventional. The possibility of providing revolving soft loans with the extension of a guarantee provided by the BDM up to a certain amount is a possible option.

- Introduce a similar principle to the successful “Tips for Trevor” forum to involve businesses and individuals alike in the activities of the BDM. In this manner, people feel empowered by being granted an opportunity to express and opinion regarding the needs that have to be addressed in the coming financial year.

The facilitation of a branding exercise for manufacturing in a district municipality like the BDM area will further enhance and strengthen the link between businesses and the BDM.

15.ConclusionOur assessment of manufacturing on a global, South African and District level indicates a decline in the growth rate of manufacturing trade and output. We considered the input from a sample of manufacturing business owners and managers operating in the BDM area. The requirement of these businesses could be categorised as direct and indirect support. A belief exists that the BDM could do more to lobby provincial and central government regarding those issues which are of a national and provincial interest, but which are specific to manufacturing businesses. More specifically, the BDM can provide a more facilitative role in providing support to manufacturing businesses.

We also developed two case studies of businesses included in the sample. The first case study (Pioneer Printers) is intended to offer an exemplary portrayal of a manufacturing business that has or is attempting to address many of the aspects related to ownership, management, markets, linkages, and labour elaborated upon in previous sections. A second case study is intended to provide a portrayal of an enterprise (Koose Tricycles) that could be described as an “established and

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settled” business. It provides a contrasting perspective to the case of the Pioneer Printers.

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CASE STUDY: PIONEER PRINTERS

(Testing the boundaries)

1. Background

Pioneer Printers originated a century ago as an extension of the Pioneer School for the Blind. Pioneer School is a school for visually impaired people from grade 1 to grade 12 and was established in 1888 at Worcester in the Western Cape. The original purpose of establishing the school was to accommodate visually impaired people from Worcester and the surrounding areas. The need for training and educating of visually impaired people was underestimated and the school quickly grew into a centre that accommodates blind people from all over South Africa.

As funds and government subsidies at that time were insufficient to cover the financial expenses of the students, other options had to be considered to generate funds. As Braille was not available in South Africa at that stage, the school had to acquire Braille reading material at huge cost from countries overseas. The School Board at the time (now the Governing Body) took the initiative to borrow the money in order to buy the necessary equipment that would enable them to do their own Braille printing. They envisaged to print their own Braille reading material and also utilises the Braille printer to generate additional income for the school by selling the Braille material to other institutions such as universities, colleges and schools.

2. Products

Currently Pioneer Printers consists of four divisions that were developed over time as the need arose, namely:

- Braille printing for academic and technical manuscripts, exam papers and various other reading material;

- Surface printing as done by any normal print works. It includes products such as books, reports, textbooks, promotional material, business cards and flyers;

- Audiovisual reproduction or the conversion of daily magazines and newspapers into audio format for visually impaired persons; and

- Products such as enlarged printing for people with very poor eyesight. This is mainly for use by academic and other institutions where such material is required.

Each of these four departments concentrates on the manufacturing of quality products for specific target markets. Prior to August 2003, teachers at the school accepted responsibility for the printing works and the printed material. Due to several factors, including the fact that no printing was done during school holidays, Pioneer Printers was not profitable enough to generate sufficient funds as well as reserves for upgrading their equipment. The printing works generated sufficient funds to provide for the basic necessities, but no efforts were made to explore new markets with modern equipment and new products.

Legislation promulgated in 2002/2003 stipulated that no school (except private schools) could operate a separate profitable organisation like Pioneer Printers.

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This controversial legislation creates negative implications for various schools, especially Pioneer School. Three of the four divisions, namely surface printing, audiovisual and the enlarged printing division had problems because they were not necessary for the school only. These three divisions were thus sold to a private person on 1 August 2003, and since operated as a private company.

The fourth division, Braille printing, is still part of the school but is now under the supervision of the Institute for the Blind. This Braille division is considered so important that the National Lottery gave R2,5 million for new equipment.

The abovementioned revolution in Pioneer Printer’s manufacturing processes can be very successful given sound managing procedures as well as the marketing of the total product range.

3. Markets and market potential

The products of Pioneer Printers are unique in South Africa as well as the whole of Africa (except for a small printing works in Kenya). The reason for this uniqueness is that the only competition for Pioneer Printers is a small business in Gauteng that deliver Braille services to various institutions, but they are not rivals; they are complementing each other. This causes a healthy market and further develops the growth potential for Braille services.

Since the takeover in August 2003, remarkable progress has been made with the expansion and marketing of products in order to generate new markets, especially for the surface printing division. The new owners of the three divisions are experts in the printing industry and they have the skills as a result of being in the business for an extended period of time. The average turnover of the three divisions was R1,5 million over a period of three years before the takeover. After the takeover the surface printing division alone obtained an international order for R600 000. They printed numerous other materials that have never been printed before, including calendars for churches, brochures for food retailers and some other promotional material.

Several potential markets exist and must be explored by the new owners in order to obtain a larger market share within the BDM region for printing that is more competitive. The following are new markets with potential:

- Wine labels for the different wine cellars in the Western Cape;- Church year planners and calendars for all the different churches

in South Africa;- Promotional material like flyers and banners for franchise

businesses; and- Course frameworks and academic study material for tertiary

institutions in the Western Cape.

Unlocking further market potential and expanding the audiovisual reproduction department could entail the following:

- Reproductions of all the popular newspapers on a daily basis;- Reproductions of all the popular Afrikaans and English magazines;

and

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- Reproductions on request of any other books available.

The third department, namely the printing of enlarged products, has less potential for growth in comparison to the other two departments.

4. Linkages with other enterprises

On account of the expertise of the new owners, their commitment to service, the provision of quality products and the policy of not declining any new work, linkages with other similar enterprises are of the utmost importance to them. Their motto is that no potential business is turned away. The work that they cannot reproduce in one or more of the existing departments, they outsource to other printers. Outsourced work contributes to the overall turnover and profit of the business although they take less commission.

The potential that exist in the different departments makes it viable for black empowerment. Groups that did not form part of mainstream business in the past could operate a department with growth potential. They would be responsible for the management, marketing and expansion of the products manufactured in that department, but under the supervision of and would be accountable to top management. Black empowerment in the business is of utmost importance because attention to impaired people is high on the priority list of the government. Empowerment can result in government contracts for printing of different products for state use. They are busy with a strategy on how to accommodate black people and whether or not it is appropriate for one or more of the divisions.

5. Management

The management and market expansion of the three divisions are of utmost importance and a challenge for all the management staff in the business. Five months after the takeover it was like the opening of a new business. Everything had to be revamped and rearranged to make the different processes more adaptable and productive for larger outputs. In the mean time some large orders were outsourced to other printers.

Affirmative action is necessary until the workforce is totally representative of the current population of the Western Cape. Fifty per cent of the current workforce is already affirmative action placements. People were sent for training before they were employed. Some people with the necessary skills and previous work experience were already employed. The business benefits from this in terms of cost saving because these people need no initial training.

All the other management programmes and actions are in place for the current operation of the business. They are working on new and other management programmes and the expansion of the business to deliver products to potential markets.

6. Conclusion

This specific organization is the one with the largest growth potential in the BDM area. The existing market must be explored and new products must be

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developed. The different divisions make black empowerment a possibility that can contribute to the image of the business for doing business in Africa. The business was established in a rural area with all the advantages of lower rates and taxes. The Pioneer school are the main customer for Braille printing and the school also serves as a marketing tool for all the other products.

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CASE STUDY: KOOSE TRICYCLES

(Established and Settled)

1. Background

Over the past several years, Koos Engelbrecht was involved with children who are hearing impaired. As a result of his involvement with disabled people, he developed a certain attentiveness for the needs of disabled people. Koos is a keen cyclist with an intense love of the sport. He discovered the following types of problems that prevents some people from cycling on a normal bicycle:

- A person does not have the full use of all his/her limbs as a result of an accident or a permanent illness; and

- A person has problems with his/her balance either from birth or as a result of illness.

The abovementioned paved the way for the development of the first tricycle for disabled persons in 1992, which satisfied the needs of people with certain disabilities.

2. Products

Post 1992 various types of tricycles were developed. More people became aware of the product and a greater variety of tricycles were added to the rage. The following are types of tricycles form part of the current range:

- Racing tricycles;- Children’s tricycles;- Mountain tricycles; and- Normal tricycles for everyday recreational purposes.

All of the abovementioned models are developed for specific needs, thus tailor-made for a specific person. The customer also specifies the colour and different types of accessories such as lights, tires and weight of materials.

The manufacturing of the tricycles is quite basic. The owner plans and develops the tricycle according to specific needs and specifications. A normal bicycle can be adapted or a new tricycle can be developed from the start. The basic manufacturing processes such as welding, are done by the owner of the business, while the other components are added and fitted at a local bicycle shop.

3. Markets and market potential

Koose Tricycles are well known in the Western Cape, but not so familiar to people in other parts of South Africa. The average quantity of tricycles being sold during the previous three years remained more or less fixed at 55 tricycles per annum.

The tricycle market for impaired people is limited because of the fact that only a few people need an adapted tricycle and a lot of them can’t afford to buy one.

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The market has only a certain number of buyers per annum. This is also the reason why the owner tries to keep the business’ overhead as low as possible by using people outside the business to finish the product. Although the tricycle is a very good product, it has a limited market with limited growth potential. The owner is well aware of this fact and he has no aspirations to put effort into:

- Marketing in terms of advertising and sales promotions;- Developing export opportunities, and- Developing and adding new models to the current range of

tricycles.

The owner is quite satisfied with the current size of the market. Rivals and any other competitive products are not seen as a threat because the business is able to sustain one individual. The low overhead costs contribute to an affordable sales price for the tricycles. However, the know-how may be the only differentiating factor that could curtail attempts from competitors to enter the market in the Western Cape.

4. Business linkages

The manufacturing process ends when the local cycle shop adds the final parts and accessories to the tricycle. This linkage is necessary and of the utmost importance for manufacturing of tricycles and the survival of the business. This may be attributed to the fact that there exists no other infrastructure for manufacturing the tricycles in the area.

No linkages with any other business exist because no expansion is envisaged. No linkages are formed with distributors because the product is manufactured by order only.

5. Management

Management of the business is fairly basic. No permanent workers are employed. This eliminates a problems associated with wage legislation, wage negotiations, strikes and unemployment insurance.

The fact that there isn’t any envisaged growth potential ensures that negotiations for black empowerment in the near future are of no importance. There is no potential for any other person or group to be part of a limited potential product. Furthermore there isn’t diversification and affirmative action because no other people are involved.

The core of the management of this business is the taking of orders, the correct execution thereof, as well as ensuring the production of high quality products. The management of finances in accordance with accepted practices and registration with the Receiver of Revenue is also of utmost importance to ensure acceptable governance and ultimately the survival of the business.

This type of business isn’t a challenging one in terms of managing, marketing, human resources, and other important issues found in other manufacturing businesses. Expansion is also of no priority as the business is more of a hobby than an actual business for the owner.

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6. Conclusion

Koose Tricycles is a business that is registered as a close corporation. The business is registered for, and pays levies to the BDM, PAYE to SARS and is also registered for VAT.

The business’ contribution to growth and employment in the area is of limited significance in terms of other businesses that partook in the study. The contribution of each business to economic growth and the creation of jobs in any area are important. Koose Tricycles delivers an important service and product to a certain market segment in the Western Cape, but because of its’ nature and scope could not be considered as a model small manufacturing businesses in the BDM area, specifically due to the future outlook of the business. Notwithstanding, Koose Tricycles has the potential to expand in term of the manufacturing of some related products like electric cars for disabled people. This expansion can help the business to grows in term of turnover and contribute to the creation of jobs and ultimately the overall economic growth of the BDM area.

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CASE STUDY: BRENN O’ KEM

(A model approach to co-ownership)

1. Background

Brenn O’ Kem is situated outside Wolseley on the road to Ceres. A Mr. du Toit started the business in 1968 on a piece of land that still belongs to the Du Toit family. He was employed by the KWV in Paarl and realised the market potential for the current business. After a small beginning, the business grew in the 1980’s to such an extent that he could no longer run the business on a part-time basis. He involved other enterprises such as transport companies and the production expertise of another company to run the business more effectively. The business was transformed into a company managed by executive directors from other companies. However, the business didn’t grow as expected since the managers didn’t take ownership of Du Toit’s company. After Du Toit’s death, his children worked hard to change the company back to a family business in the early 1990’s and it is still managed as a family trust today.

The company consists of a variety of departments that specialise in the production of different types of products. The main production streams of the various products are managed as different companies within the family trust. From a management and strategic viewpoint, this form of enterprise allows for better management (see more detail in the section on management).

2. Products

Brenn O’Kem manufactures four different product ranges and provides a service to approximately 90% of the wineries in South Africa. The wineries provide the ingredients for a number of their mainstream products. The service entails the removal of wine lees or sediment from wine tanks, grape pips and skins from the premises of wineries. This important service saves the wineries the effort and cost of removing these waste byproducts themselves. Ironically, Brenn O’Kem pays the wineries for the opportunity to remove the waste, whereas the international trend is to pay a removal company for the service.

These waste products are processed to extract the essential ingredients for the manufacturing of potassium tartrate (tartaric acid) and cream of tarter. These are completely natural products that are sold to local and international wineries as products required during vinification (see section on markets and market potential for more detail).

The second product range is used as raw material for a number of products, including insecticide for thrips in citrus orchards, and various medicinal products such as citrosoda for the treatment of bladder infection in humans.

The third product range is organic fertilizer for the cultivation of fruit and vegetables. Organic production of these products is not as well developed as in European countries due to a smaller demand. A greater demand by consumers for organic products will also increase the demand for organic fertilizers. At

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present, the production of fertilizer at the Wolseley plant is sufficient to meet the demands of farmers in the area that employ organic agricultural practices.The fourth product range entails health products that are new in the market. The ingredients of these products are extracted from grape pips and are referred to as grape seed extract. Oxiprovin is marketed as a product that protects the human skin from ageing. There are also other products being manufactured that can be used as slimming aids.

Due to the scope and divergent nature of the products manufactured by Brenn O’Kem, two other plants in Worcester focus on the chemical processes for the manufacturing of several product ranges thereby integrating on a vertical basis.

3. Market and market potential

The diversity of Brenn O’Kem’s product portfolio provides the company with stability in terms of its markets and growth. Although this may sound positive from a theoretical perspective, there are a number of underlying problems that need to be addressed continuously.

The export opportunities for potassium tartrate and cream of tarter are infinite. The challenge is to obtain enough raw materials to manufacture sufficient amounts. As mentioned before, Brenn O’Kem removes the wine lees, grape pips and skins from approximately 90% of the wineries in South Africa. However, this is not sufficient to meet the demand in the market, while the provision of raw materials outside the usual grape season is a problem.

Another problem that threatens the local market for these two products is the large scale dumping of similar imported products that are not naturally produced. Synthetic L(+) tartaric acid has recently become available on the South Africa market. Until recently, synthetic tartaric acid was only available in the form of the racemic mixture of both L(+) and D(-) isomers. This material could easily be differentiated from grape derived L(+) tartaric acid by virtue of its optical rotation and solubility. The molecular structure and configuration of the synthetic L(+) tartaric acid now available is identical to that of the L(+) tartaric acid produced by grapes, giving identical optical rotation and solubility properties. During December 2002, the EU introduced regulations that effectively state that tartaric acid used in winemaking in the EU must be of agricultural origin and extracted specifically from wine products. This regulation has a definite impact, not only on Brenn O’Kem, but also on the wine industry in South Africa. Wineries that do not use the correct products, can expect problems with wine exports to especially European countries. This can seriously harm the total image of South African export wines. As a consequence, Brenn O’Kem will refuse to remove waste material from wineries that do not use the natural products, and therefore do not produce wine that are completely natural. These wineries will therefore be responsible for the removal of their own waste.

These are a few examples that indicate the scope and effect of regulatory measures and the problems encountered when the government authorities do not recognize the strategic importance of certain industries. These problems, together with the instability of the Rand versus the currencies of South Africa’s main trading partners, result in uncertainty in the market. Since the local market is too small for the respective products, the company is dependent on international markets.

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Although the new health products only recently entered the market, there seems to be substantial potential in terms of local and international market opportunities. The modern trend to be more health conscious further enhances the marketing of these products.

As mentioned before, the market for organic fertilizers is growing slowly. However, the same regulations that are applied to organic agriculture in the EU countries are also applicable to imported fruit and vegetables. Exporters of these products will therefore be forced to use more natural input materials to ensure that their export potential is optimised.

4. Linkages with other businesses

There is no formal linkage between Brenn O’Kem and any other enterprise in the same manufacturing industry. One of the main reasons for this is that Brenn O’Kem is almost exclusively responsible for the removal of winery waste material, leaving little opportunity for a similar company to enter the market. There is, however, a linkage with all the wineries and wine companies in terms of a contract or agreement to remove the waste material. Other linkages are with transport companies that are responsible for the transport of the waste material from the wineries to the manufacturing sites.

Distell and KWV has a joint project in Worcester that may increase the amount of waste material that needs to be removed. Another possibility that has been investigated and that will commence in 2004 is the potential expansion of the service to the Northern Cape wineries in the Upington area. This expansion in the provision of raw materials will also create new opportunities for expanding existing markets and evaluating the potential to enter untapped markets.

5. Management

The company currently provides job opportunities for approximately 100 people. Given the potential market opportunities for the company stated above, the number of job opportunities may increase to 120 during the 2004/05 financial year.

Each manufacturing department is managed and controlled separately and is thus responsible for their own profit/loss. A system that proved to be successful is the opportunity afforded employees to work for shares in the company. This serves as a motivation for employees since shares can only be obtained with a performance bonus. It also increases continuity in the working environment since employee turnaround has been relatively low in comparison to the average for the industry in which Brenn O’ Kem operates. This principle will also be applied when a model for Black economic empowerment is introduced. The view of the senior management is that employees have to work to obtain a share and thereby co-ownership in the company. Ownership obtained in this manner ensures responsibility since it didn’t come easy.

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6. Summary

The enterprise is unique in terms of the service it provides to wineries, as well as the different types of products it manufactures from winery waste material. As an enterprise that developed from a small family business into its current size over its fourty year life span, it speaks of good management, decision-making and strategies. With the necessary assistance from local and national government in terms of import and export assistance regarding chemical products, the company can be even more successful and create more job opportunities. The company can also be considered as a strategic asset for the BDM area since there are no similar manufacturing companies operating in South Africa.

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