An Evaluation of Changes in Capital Investment by Automotive Companies in Preparation for the Automotive Production and Development Programme (Apdp)

AN EVALUATION OF CHANGES IN CAPITAL INVESTMENT BY AUTOMOTIVE COMPANIES IN PREPARATION FOR THE AUTOMOTIVE PRODUCTION AND DEVELOPMENT PROGRAMME (APDP)

B.S. BACELA

2012

AN EVALUATION OF CHANGES IN CAPITAL INVESTMENT BY AUTOMOTIVE COMPANIES IN PREPARATION FOR THE AUTOMOTIVE PRODUCTION AND DEVELOPMENT PROGRAMME (APDP)

BANDILE SAKHEKILE BACELA

Treatise submitted in partial fulfilment of the requirements for the degree Magister in Business Administration at the Nelson Mandela Metropolitan Business School

December 2012

Promoter: DR S SIMAYI

TABLE OF CONTENTS

DECLARATION ...... V ABSTRACT ...... VI ACKNOWLEDGEMENTS ...... VII CHAPTER 1 ...... 1 INTRODUCTION TO THE RESEARCH STUDY ...... 1

1.1 INTRODUCTION ...... 1

1.2 PROBLEM STATEMENT ...... 2

1.3 IMPORTANCE OF STUDY ...... 3

1.4 CONCEPTUAL FRAMEWORK ...... 5

1.5 RESEARCH QUESTION ...... 6 1.5.1 Primary Research Question ...... 6

1.6 RESEARCH DESIGN AND METHODOLOGY ...... 6 1.6.1 Research Design Objectives ...... 6 1.6.2 Research Methodology...... 8 1.6.3 Chosen Qualitative Methodology Paradigm ...... 8

1.7 SAMPLE ...... 9

1.8 MEASURING INSTRUMENT ...... 9

1.9 DELIMITATIONS ...... 10

1.10 TERMINOLOGY ...... 10

1.11 OUTLINE OF THE STUDY ...... 12

1.12 SUMMARY ...... 12 CHAPTER 2 ...... 14 LITERATURE REVIEW ...... 14

2.1 INTRODUCTION ...... 14

2.2 CHANGES TO GOVERNMENT LEGISLATION ...... 15

2.3 THE IMPACT OF LEGISLATION ON CAPITAL INVESTMENT ...... 34

2.4 INVESTMENT IN TRAINING AND EDUCATION TO SUPPORT CAPITAL INVESTMENT ...... 41

2.5 SUMMARY ...... 41

CHAPTER 3 ...... 43 RESEARCH DESIGN AND METHODOLOGY ...... 43

3.1 INTRODUCTION ...... 43

3.2 RESEARCH QUESTION ...... 44 3.2.1 Primary Research Question ...... 44

3.3 RESEARCH DESIGN ...... 45

3.4 RESEARCH METHODOLOGY ...... 46 3.4.1 Research Paradigm ...... 47 3.4.2 Chosen Paradigm ...... 48

3.5 SAMPLE ...... 49

3.6 ETHICS...... 51

3.7 MEASURING INSTRUMENT ...... 52

3.8 SUMMARY ...... 54 CHAPTER 4 ...... 55 EMPIRICAL RESEARCH RESULTS AND DISCUSSIONS ...... 55

4.1 INTRODUCTION ...... 55

4.2 SAMPLE AND DEMOGRAPHIC SECTION ...... 55

4.3 INTERVIEW QUESTIONS ...... 58 4.3.1 Understanding Of Government Legislation By Industry ...... 58 4.3.2 Investment In Capital In Preparation For Apdp ...... 61 4.3.3 Development In People To Support Capital Investment In Preparation For Apdp 64 4.3.4 Supply Chain Management To Support Capital Investment In Preparation For Apdp ...... 67

4.4 SUMMARY ...... 69 CHAPTER 5 ...... 71 RESEARCH SUMMARY, CONCLUSION AND RECOMMENDATIONS ...... 71

5.1 INTRODUCTION ...... 71

5.2 RESEARCH SUMMARY ...... 71

5.3 CONCLUSION ...... 73

5.4 RECOMMENDATIONS AND AREAS FOR FUTURE RESEARCH ...... 78

REFERENCE LIST ...... 80 ANNEXURE 1 - COVER LETTER ...... 85 ANNEXURE 2 – INTERVIEW QUESTIONS ...... 86 ANNEXURE 3 – INTERVIEW 1 ...... 89 ANNEXURE 4 – INTERVIEW 2 ...... 94 ANNEXURE 5 – INTERVIEW 3 ...... 100 ANNEXURE 6 – INTERVIEW 4 ...... 106 ANNEXURE 7 – INTERVIEW 5 AND 6 COMBINED ...... 111 ANNEXURE 8 – INTERVIEW 7 ...... 116 ANNEXURE 9 – INTERVIEW 8 ...... 121 ANNEXURE 10 – INTERVIEW 9 ...... 126 ANNEXURE 11 – INTERVIEW 10 ...... 131 ANNEXURE 12 – INTERVIEW 11 ...... 136 ANNEXURE 13 – INTERVIEW 12 ...... 141 ANNEXURE 14 – INTERVIEW 13 ...... 146

LIST OF FIGURES Figure 1: Research conceptual framework ...... 5 Figure 2: The number of experts interviewed per organisation and position ...... 57 Figure 3: The spread and distribution of the experts regarding their experience ...... 57 Figure 4: Understanding of government legislation by industry responses ...... 59 Figure 5: Responses to the investment in capital in preparation for the APDP theme questions ...... 62 Figure 6: Responses to the development in people to support capital investment in preparation for APDP theme questions ...... 65 Figure 7: Responses to the supply chain management to support capital investment in preparation for the APDP theme questions ...... 68 Figure 8: Graphical representation of the comparison between Capital Expenditure, Domestic Production Output and employment levels represented real number and in percentages over periods 2000 - 2008 ...... 75

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Figure 9: Projected capital expenditure and growth of total units produced over period of year 2013 - 2020 ...... 77

LIST OF TABLES

Table 1: A summary of the changes to government legislation in SA (1910 – 1995) .... 15 Table 2: Import of vehicles between 1995 and 2008 ...... 24 Table 3: Vehicles produced in South Africa (units) between 1995 and 2008 ...... 25 Table 4: Capital Expenditure on an Annual Basis ...... 29 Table 5: South African automotive industry employment levels (number of employees), period year 1995 – 2008 ...... 31 Table 6: A quick comparison between the MIDP and APDP ...... 33 Table 7: Ownership changes at South African OEMs ...... 38 Table 8: Demographic details of respondents interviewed ...... 50 Table 9: Comparison between Capital Expenditure, Domestic Production Output and employment levels represented real number and in percentages over periods 2000 - 2008 ...... 74 Table 10 : Correlation between capital expenditure and vehicles produced over the years 2000 – 2008...... 76

DECLARATION

This dissertation is submitted in partial fulfilment of the requirements for the degree of Masters in Business Administration at the Nelson Mandela Metropolitan University. This work has not been previously submitted for any other degree. The research contained in this document is as a result of my own independent work and investigation and all sources consulted have been appropriately acknowledged and referenced.

Signed:

BS Bacela Student Number: 20001677

ABSTRACT

To thrive, developing countries depend on high levels of protection being given to key industries such as manufacturing; specifically the automotive and textile industries. South Africa, as a developing country and especially under the emergence of globalisation, has followed suit in terms of developing policies and structures to protect certain critical industries. During an era (1980 to 1989) of high political instability, South Africa experienced isolation from the rest of the world, which resulted in declines in industrial revenues as well as the country’s automotive industry undergoing a stage of perilous stagnation. It was through a protection regime that the automotive industry realised growth, a regime which started slowly in 1989 and accelerated in 1995 with the introduction of the Motor Industry Development Programme (MIDP) (Black, 2001).

Through this regime the South African government sought to integrate the South African automotive industry into the global market by improving the competitiveness of this industry (The DTI, 2010). This led to the automotive industry becoming one of the most successful export sectors in South African manufacturing and a large net consumer of foreign currency, totalling R20 billion and R10 billion in imports and exports respectively by 1998 (Damoense and Simon, 2004).

Reviews of the government legislation called the MIDP were held in year 1999 and 2002 and in 2008, a successor to the MIDP was named, the Automotive Production Development Programme (APDP) and is set to commence in year 2013 until 2020. Unlike its predecessor, the APDP policy promises to bring greater and more inclusive benefits to the automotive industry as a whole, provided organisations have prepared well to receive it. This study investigated whether organisations have prepared for the upcoming 2013 - 2020 APDP, with specific reference to capital investment in equipment. It determined whether automotive organisations have spent and are going to spend resources in securing equipment and technology in preparation for the introduction of the APDP.

ACKNOWLEDGEMENTS

I would like to acknowledge Dr Siyabonga Simayi for his significant supervision, guidance and support. His patience, prodding and words of encouragement were instrumental to my completion and very much appreciated. I am particularly grateful that he allowed me to take the research direction necessary to achieve my goals and meet my own expectation.

Thanks to the loving and almighty living God who has blessed me so abundantly with family, friends and colleagues.

Special thanks to my partner for understanding when I had to wake up in the early hours to study and also for some weekends for team meetings. My son and daughters, whose presence served as a great motivation to ensure that I finish the studies within three years, thanks to you too.

An additional vote of special thanks to all the MBA colleagues with whom I have had the honour of working and the experts of the automotive industry that agreed to being interviewed, for their support and input during the data collection phase. I would not have made it without you.

I would also like to thank my company, Volkswagen Group South Africa, for sponsoring my studies.

Lastly special thanks also to Mrs Lee Kemp who edited this document, your efforts and professionalism is greatly appreciated.

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CHAPTER 1 INTRODUCTION TO THE RESEARCH STUDY

1.1 INTRODUCTION

The South African government, having identified the automotive sector as a key driver of economic growth within the manufacturing sector with a contribution of at least 10 percent to manufacturing exports, strategically devised an industry specific policy namely the Motor Industry Development Programme (MIDP). This was done to provide stakeholders of the industry with a long term and encouraging planning horizon by means of pledging stability and certainty within the sector (The DTI, 2010; Naamsa, 2007).

Black (2002) argued that, due to a perception that exports offer great opportunities for employment, the MIDP was mainly geared towards exports, an objective it succeeded in boosting, but not necessarily growth in employment. In support of this notion Damoense and Simon (2004) agree, that even though export growth was realised as a result of this policy, the MIDP was deficient in sustaining domestic production and automotive industry employment. Even though significant gains have been observed through the MIDP, it has proven to have its short comings (Borgenheimer, 2010; Ellis, 2008).

A fundamental factor contributing to the deficiency of the MIDP has been the low levels of local content in the value chain as a result of cost pressures introduced by the liberalisation of the automotive industry. Cost pressures come as a result of foreign manufacturers offering components at prices which limit price increases to below inflation for the local component manufactures (Black, 2001). The Automotive Production Development Programme (APDP), through encouraging an increase in local value adding, seeks to ensure growth in all local levels of the automotive industry and a deepening of the supply chain (Ellis, 2008).

What has then become clear is the need for manufacturers (Original Equipment Manufacturers (OEMs) and component suppliers) to adjust and adopt relevant strategies in preparation of or aligning themselves to the APDP initiative. The question that this study aimed to answer was “Have the manufacturers responded in terms of their manufacturing process strategies with specific reference to capital investment in equipment?”

This ought to be done to gain maximum benefit from the introduction of the APDP, where government intends to incentivise the automotive industry to promote domestic production and job creation.

1.2 PROBLEM STATEMENT

According to Ellis (2008), all South African automotive organisations should, after the announcement of the successor to the MIDP, have begun considering and building into their adaptation strategies the implications of the APDP for their businesses. Even though it is claimed to be an improvement on the MIDP, there are fears that the APDP does not incentivise organisations to invest in labour- absorbing processes or technologies (Gaskin, 2010).

South Africa is currently in the process of phasing out the MIDP and introducing the APDP by 2013. Organisations within the automotive industry need to align with the new policy. Non-alignment could lead to non-compliance and a failure to benefit from the incentives as well as create reputational problems for the organisation. Therefore, this study investigated how an organisation can review its manufacturing process strategies with regard to its capital investment in equipment to align to the policy, so that significant benefits from the new policy are realised. The question of this study is:

“Have the players on the field of the automotive industry geared up their manufacturing processes with specific reference to capital investment in equipment, in preparation for the APDP?”

This study investigated whether or not introduction of legislation leads to organisations having to alter their manufacturing process strategies with specific reference to equipment. The intention of this is to ensure that manufacturers are geared up to make success a of the APDP policy and assist in sustaining domestic production and reducing unemployment as is intended by the government, through an evaluation of business strategy shifts within the automotive industry.

1.3 IMPORTANCE OF STUDY

The South African automotive industry accounts for about 10 percent of South Africa’s exports within the manufacturing sector, making it a vital player in the economy (Makapela, 2010). The automotive manufacturing industry has had to face the impact of globalisation as has the rest of the national economy, where globalisation in this context is defined as the free movement of products, technology, human resources and information across international borders. Globalisation resulted in a rapidly changing environment that has had far reaching effects on all role players, such as government, industry leaders and labour (Kingsley, 2002).

The South African government, having identified this sector as key to economic growth, in 1995 introduced the Motor Industry Development Plan (MIDP), a programme which sought to aid and support the restoration of this sector into the international value chains, export programmes and improve efficiencies (Gastrow, 2008).

The MIDP was structured in such a manner as to boost exports by enabling local vehicle manufacturers to include total export values as part of their local content total, then allowing them to import the same value of goods duty-free, while also granting a production-asset allowance to vehicle manufacturers which invest in new plants and equipment, giving them 20 percent of their capital expenditure back, in the form of import-duty credits, over a period of five years (Makapela, 2010).

The MIDP was legislated to be in effect until 2009, and to be gradually phased out by 2012. This initiative allowed for the number of base models of passenger and light 3

commercial vehicles produced by local manufacturers to be reduced from 42 prior to 1995 to 18 by 2008.This was done in order for the manufacturers to benefit from economies of scale. The average number of units per model produced went from 11 500 units in 1995 to 29 225 units in 2008 (Lamprecht, 2009).

In September 2008 the South African government announced that it is to be replaced by a programme called the Automotive Production and Development Programme (APDP). The APDP was introduced as a result of an industry review by government on the MIDP, that revealed, despite its successes, that South Africa and the sub-region remained a relatively small market in global terms, isolated from larger markets and shipping routes (Lamprecht, 2009). The government also highlighted challenges of major domestic infrastructure and logistical inefficiencies, together with severe skills shortage, among other things (Black, 2002).

The APDP serves as an affirmation of the commitment made by government through the New Growth Path (NGP) policy, to make employment creation the main criterion for economic policy. The automotive industry has been identified as one of the job drivers in the economy and therefore its policies are designed to ensure the economy becomes both competitive and more employment friendly. The APDP aims to stimulate growth in the automotive vehicle production industry from 600 000 to 1.2-million vehicles per annum by 2020 with associated deepening of the components industry. The new programme will focus on value addition while being consistent with South Africa's existing multilateral obligations (The DTI, 2010).

The Department of Trade and Industry (The DTI) claim that the new support programme will result in more jobs as well as the long-term sustainability of the industry (Makapela, 2010). But this will only be true provided the volumes require more labour and not automation, as when one considers the level of automation in global competition; for example, European OEMs being about 80 percent automated to South Africa’s 20-35 percent automation status (Jeske, 2007). This comes at a time where structural evolution is emerging in the global automotive industry, wherein collaborative engineering and production is taking place with suppliers rather than vehicle 4

manufacturers or OEMs undertaking most of the Research and Development (R&D) and production (Dannenberg & Kleinhans, 2007).

The research question asked was, will the local automotive industry players invest in capital equipment in response to the new legislation in order to become or remain competitive?

1.4 CONCEPTUAL FRAMEWORK

According to Sturgeon and Florida (2000), there are four areas that affect the manufacturing process in the production of vehicle and component assembly. These areas are indicated below in Figure 1, together with the area that has been considered for investigation in this study, which is denoted by means of amplification.

Figure 1: Research conceptual framework

Investment in processes

Investment in Capital Manufacturing Investment in (New Facililties, Equipment process people and Technologies) strategies

Supply chain management Focus of this study

1.5 RESEARCH QUESTION

The main research question follows.

1.5.1 Primary research question

This study focused on an analysis of manufacturing process strategies and the changes within the automotive industry in anticipating the APDP. The objective of this study was to show a link between government policy (APDP) and manufacturing process strategies. Manufacturing strategies that were given consideration were with specific reference to capital investment in facilities, equipment and technologies used in manufacturing.

1.6 RESEARCH DESIGN AND METHODOLOGY

It is important to be clear about how data is to be collected, thus research design objectives are discussed next.

1.6.1 Research design objectives

Research design is described as a plan according to which researchers use research participants and collect information from them in order to be able to answer questions objectively, accurately and practically. Research design that is properly planned and executed allows the researcher to rely on own observation and inferences (Clarke, 2005). The objective of this research study was to determine firm-level strategic changes in terms of manufacturing process strategies by means of investment in capital equipment as a result of the introduction of the APDP or in preparation thereof.

The first step of this study was to conduct an extensive literature review of manufacturing process strategies to compare and contrast developments, if any, after the announcement of the Motor Industry Development Plan (MIDP) successor, the APDP, towards the end of 2008. According to Ellis (2008) the South African automotive 6

industry manufacturing process strategies should, since the announcement, have indicated a certain level of organisational readiness of industry players towards the implications of APDP for their business. Thus an evaluation of how the industry players have altered their game plan in preparation for the successor (APDP) was conducted, specifically investment in capital.

To collect data, a questionnaire based on the literature review was developed and semi- structured interviews were conducted with various industry experts as respondents. The questions were used to gauge the level of understanding in automotive industry of the MIDP and APDP. Additional questions in line with organisational investment in capital in response to the aforementioned government incentive and policy were also posed.

The semi-structured interview infuses elements from both the structured and unstructured interview approaches (Cachia & Millward, 2011). Semi-structured interviews, as do the structured interviews, have a fixed set of sequential questions, but no prescribed answers. The questions serve as an interview guide allowing for additional questions to be introduced to facilitate further exploration of issues that might emerge during the interview process. This technique allows the researcher and respondent time and scope to explore issues in more depth for better understanding. Though this method may be time consuming it allows a researcher to collect data that is rich, that equips them with an in-depth understanding of interviewees’ opinions and responses which is conducive to analysis using qualitative techniques (Cachia and Millward, 2011; Blumberg, B., Cooper, D.R. and Schindler, P.S., 2008).

Semi-structured interviews were conducted with 13 respondents out of a possible fifteen experts/respondents that were sought from OEMs and first and second tier suppliers within the Eastern Cape and the Gauteng Province and Automotive Associations.

The analysis and testing for validity and reliability of data collected was done through descriptive inference and statistical descriptive correlation analysis.

Finally an interpretation of the outcome of the study, recommendations and conclusion were given.

1.6.2 Research methodology

The qualitative research method or approach, which was used for this study, is also known as phenomenological or subjectivist or humanistic or interpretivist or new mind- set. The nature of qualitative research is inductive and subjective whereby theories are developed as outcomes. This method of research is used to identify patterns, ideas, describe phenomena as they are and obtain information on the characteristics of an issue or problem. After this the analysis allows the researcher to understand, explain phenomena and be able to apply the findings to solve problems (Blumberg et al., 2008).

1.6.3 Chosen qualitative methodology paradigm

A research paradigm is a set of beliefs or worldview of the researcher that guides action and is informed by an understanding of what and why research is undertaken. The need for research arises when an idea is to be explored or an issue is to be probed or a problem is to be solved (Clarke, 2005).The question of this study was to investigate whether or not organisations invested in capital as a result of the introduction of the Automotive Production and Development Programme (APDP). It is aimed to establish whether or not the APDP will succeed as a strategy for sustaining domestic production and reducing unemployment by evaluating business strategy shifts within the automotive industry. The intention was to assess capital investment by companies in response and preparation for APDP.

This question requires an understanding of business strategies and their link to the economy. The purpose of this study is thus exploratory and the suitable paradigm of the research study is going to be qualitative.(Arnolds, 2011)

1.7 SAMPLE

The purpose of sampling is to be able to select a subgroup out of a large group or population as a basis for making inferences about a larger group (Huysamen, 1994). Even though the automotive industry is global in nature, this study was due to constraints of accessibility, directed only at South African respondents. Also the APDP is SA legislation. Interviews were held with thirteen experts from three OEMs, first and second tier suppliers in the Eastern Cape and Gauteng Province, as well as representatives of two Automotive Associations.

The confidentiality and anonymity of respondents were guaranteed in line with the policy of ethics of the Nelson Mandela Metropolitan University Business School and this commitment was declared to the respondents in the form of a covering letter which accompanied the interview questions. This letter also served to inform the respondent of the purpose of the interview, that is, the fact that it the interview was be a data collection tool for an academic research study.

1.8 MEASURING INSTRUMENT

To collect data a questionnaire was developed based on the literature review and semi- structured interviews were conducted, with a recorder to capture the data. The questions asked were to gauge the level of understanding of the MIDP and APDP by industry participants. Additional questions in line with organisational investment in capital in response to the aforementioned government incentive and policy were also posed.

The semi-structured interviews were conducted with thirteen respondents out of a possible fifteen experts/respondents that were sought from OEMs, first and second tier suppliers within the Eastern Cape and the Gauteng Province and Automotive Associations.

The analysis and testing for validity and reliability of data collected was done through inference and descriptive analysis.

Finally an interpretation of the outcome of the study, recommendations and conclusion were given.

1.9 DELIMITATIONS

Even though the automotive industry is global in nature, this study was due to constraints of accessibility, directed only at South African respondents. Also the APDP is SA legislation. Interviews were held with thirteen experts from three OEMs, first and second tier suppliers in the Eastern Cape and Gauteng Province, as well as representatives of two Automotive Associations.

1.10 TERMINOLOGY

The following terminology is frequently used in this study:

APDP: Automotive Production and Development Programme a successor to the MIDP (2013 – 2020), aiming to achieve local production of 1.2 million vehicles by 2020. Automotive Industry: In this document, industry means vehicle manufacturing companies and institutions LCP: Local Content Programme was the South African automotive policy between the years 1961 – 1995. Investment in processes: the adoption of world class manufacturing practices and methods by individual organisations. Investment in capital: investment in new facilities and technologies by individual organisations. 10

Investment in people: the training and skills development of individuals within an organisation. NGP: New Growth Path – a policy launched by government (the Ministry of Economic Development) in November 2010, with aims to establish a more labour-absorbing economic growth path. MIDP: Motor Industry Development Programme an initiative by government to enhance the global competitiveness of the automotive industry by supporting exports (1995 – 2012). Stakeholders: Government, Automobile Manufacturers Employer’s Organisation (AMEO) and the National Union of Metal Workers of South Africa (NUMSA) Supply chain management: planning, implementing and controlling of physical flow of materials and finished products from a point of origin to point of use. First tier supplier: a company that produces components or systems assembled from components and sub-components normally supplied by lower tier suppliers and supply them directly to OEMs even across international borders. Second tier supplier: lower tier supplier that is restricted to domestic manufacturing and supply of components. Automotive association: a stakeholder within the automotive industry. OEM – Original Equipment Manufacturers are vehicle assembling plants or factories. OES – Original Equipment Suppliers are component suppliers supplying vehicle manufacturers with components for manufacturing and assembling. CBU – Completely Built-up Unit – a vehicle NAAMSA – National Association of Automobile Manufacturers of South Africa NAACAM - National Association of Automotive Components and Allied Manufacturers VWSA – Volkswagen Group South Africa MBSA – Mercedes- Benz South Africa GMSA – General Motors South Africa Rehau – Rehau Polymer South Africa Benteler – Benteler Automotive South Africa

1.11 OUTLINE OF THE STUDY

Chapter one outlines the scope of the study through discussions of the reason for the research and its importance.

Chapter two covers the literature review on strategies within the automotive industry between the years 1995 up to the point in 2008 when the successor of the MIDP was announced and subsequent strategy changes thereafter.

Chapter three covers the research design and methodology which focuses on sampling, data collection, instruments of analysis and interpretations.

Chapter four discusses the research findings and present level at which individual SA companies are geared for APDP.

Chapter five covers a summary of key research findings and reflects on recommendations.

1.12 SUMMARY

An explanation of why the automotive industry is critical to the economy of South Africa and requires government support has been indicated in this chapter. This chapter also outlined the background and the importance of this study pertaining to the South African government and the automotive industry as a whole.

A problem statement which motivated the study, the primary research question to be answered, the design and research methodology, the sampling, data collection technique and measuring instrument to be used were discussed.

Since South Africa is currently in the process of phasing out the MIDP and introducing the APDP by 2013, organisations within the automotive industry need to align with the new policy. Non-alignment could lead to non-compliance and a failure to benefit from 12

the incentives as well as create reputational problems for the organisation. Therefore, this study investigated how an organisation can review its manufacturing process strategies with regard to its capital investment in equipment to align with the policy, so that significant benefits from the new policy are realised. The research question was:

“Have the companies within the automotive industry in South Africa geared up their manufacturing processes, with specific reference to capital investment, in preparation for the APDP?”

Lastly the terminology that has been used in the study was defined and the outline of the study was declared.

CHAPTER 2 LITERATURE REVIEW

2.1 INTRODUCTION

The research question of this study was: “Have the companies within the automotive industry in South Africa geared up their manufacturing processes, with specific reference to capital investment, in preparation for the APDP?”

If it were not for globalisation and more specifically foreign direct investment, South Africa (SA) would be lagging international manufacturers by significant margins. This is a view shared by Lorentzen and Barnes (2004) who argue that in order for developing countries such as SA to progress technologically and innovatively, foreign capital and local capability play an important role or at least the compatibility thereof, in that when local and foreign factors complement one another, technology transfer and diffusion, where diffusion refers to the adaptation and modifications done to acquired foreign technology, are easily facilitated and the fruits thereof seen through the level of development in that country.(Lorentzen and Barnes, 2004)

Because of extensive liberisation of trade and investment systems, as a result of policy reforms that took place in the 1980s and 1990sin developing countries, local firms encounter competition from foreign firms and products more readily (Damoense and Simon, 2004). Thus, aggressive growth in the interaction between local technology and imported knowledge became rife, often in the form of foreign direct investments (FDI), interactions in which the results depends heavily on the capabilities of the local firm and host country both at micro and macro level. Capabilities at micro level include the level of desire for new knowledge, skill level and diffusion of internal knowledge within relevant manufacturers. At macro level investment in education, information systems and infrastructure development within host country are key influential factors to successful interaction between local and foreign technology (Lorentzen and Barnes, 2004).

In developing countries, success of the automotive industry is taken as an indication of economic growth, a sign of modern and foreign technology mastery. Hence governments deem it as vital to establish strong government policies supporting and promoting the automotive sector. A classic case of where this has worked well is in South Africa (SA) a country that, as a result of state-led intervention, has recorded growth in exports of vehicles and components, as well as FDIs undertaken in the last decade. However this is not a situation peculiar to SA as the automotive sector has attracted much attention across the globe, especially as far as developing economies are concerned (Flatter, 2002).

2.2 CHANGES TO GOVERNMENT LEGISLATION

Government and regulatory agencies play a vital role in ensuring promoting the attractiveness of individual countries to foreign investors. Governments, having realised that FDI offers employment opportunities over and above what domestic investment and resources do, focused on developing investor friendly policies to encourage FDI, which in this context being an acquisition of controlling interest in foreign companies or construction of factories, structures and equipment on foreign soil by an organisation from one country to another (Shendge, 2012).

Table 1 below gives a summary of the changes to government legislation and policy in SA between 1910 and 1995:

Table 1: A summary of the changes to government legislation in SA (1910 – 1995) Period Key automotive policy Development and comments instruments 1910 The import duty on cars was (1913) Chevrolet started to set at 15 percent ad valorem, distribute cars in South Africa with a 3 percent rebate facility, (Botha as cited by Lamprecht, and on aftermarket 2006a:53). components was set at 20 percent ad valorem (ITAC, 1949:62).

1915 An increase of the import duty on cars to 20 percent ad valorem, with a 3 percent rebate facility (ibid, 1949:62).

1924 An increase in the import duty (1924) Establishment of Ford on passenger cars to 20 Motor Company of South percent, 22 percent and 25 Africa. The coastal location percent ad valorem. The allowed for the easy higher duties applied to the importation of components higher valued cars. The 3 (ITAC, 1949:5). Model T percent rebate facility was assembly comprised 13 000 withdrawn on British cars (ibid, units in 1924 (Swart, 1949:62). 1974:164). An increase in the import duty on assembled or unassembled trucks from 3 percent ad valorem to 20 percent ad valorem and on chassis for these vehicles, assembled or unassembled, to 5 percent ad valorem (ibid, 1949:69). 1926 A reduction of the import duty (1926) Establishment of on chassis for bodies from 20 General Motors South African to 10 percent ad valorem in Limited (ITAC, 1949:5). order to promote domestic body manufacturing (ibid, 1949:63). The first reference to used cars in the tariff. The import duties on used cars were set at similar rates to those for new cars (ibid, 1949:66). A reduction of the import duty on parts and materials for chassis and bodies for cars to 15 percent ad valorem, subject to certain conditions (ibid, 1949:64). 1929 A reduction of the import duty (1929) The South African on assembled or unassembled Bureau for Labour Statistics chassis on trucks from 5 to 3 indicated that the automotive percent ad valorem (ibid, industry showed the greatest 1949:67). instability of employment of all the industries. The changing of models annually, which caused certain plants to close down for a month, the perception of automotive assembly as low and semi- skilled, as well as low unemployment rates at the time were reasons mentioned for this phenomenon (ibid, 1949:35).

1931 Provision made for the first rebate facility for the importation of certain parts and materials for the assembly of cars as well as bodies for cars (ibid, 1949:73, 74). 1932 An increase in the import duty on cars by an additional 5 percent (ITAC, 1932a:3). The imposition of an exchange dumping duty on cars from the UK and Canada (ibid, 1932b:2). 1934 Various rates of protective (1933) Vehicle assembly by duties on identifiable Ford and General Motors automotive components increased to 33 000 units per recommended and annum (Swart, 1974:164). implemented based on (1934) Long-term automotive industry petitions (ITAC, policy was still to encourage 1949:71–73). domestic manufacturing of Provision was made for automotive components as unassembled chassis for cars, well as for the import duty set at 10 percent ad valorem, difference between assembled and for bodies, parts and and unassembled cars not to materials, set at 12,5 percent be too big (ITAC, 1960:29, ad valorem (ibid, 1949:65). 83). 1939 The ad valorem import duties (1939) Establishment of on cars, chassis and body National Motor Assemblers Ltd parts were switched to specific in Johannesburg. The duties at rates equal to the ad company assembled various valorem duty rates (ibid, vehicles on contract for 1949:62). several overseas OEMs. Components such as glass and tyres were being manufactured both as original equipment and for the replacement market (Swart, 1974:164). The average South African vehicle age was 5,5 years (ITAC, 1949:13). 1947 The specific import duties (1943 to 1945) Imports and were switched back to ad assembly of cars came to a valorem duties as well as standstill owing to World War increased to 25 percent and II (ITAC, 1960:15). 30 percent ad valorem on (1947) Five assembly plants cars. The higher duties applied were operational in South to the higher valued cars (ibid, Africa with a capacity design 1949:63). of 83 000 units. All plants focused on US brands, except for General Motors, which also

assembled the British Vauxhall (ITAC, 1949:6, 7). (1947) South Africa was ranked seventh out of 141 countries in terms of global vehicle use with a ratio of 26 persons per one car (ibid, 1949:5). (1948) The first installation of moving production lines took place at General Motors and Ford (ibid, 1949:38). (1948) A high rate of imports led to problems with the balance of payments. Import control was instituted through the granting of monetary quotas. This limited the number of imported vehicles and CKD kits (Swart, 1974:164) 1956 An excise duty was introduced (1950–1957) Passenger on cars based on vehicle vehicle sales averaged 36 000 mass (ITAC, 1960:59). units per annum. When the import quotas were eliminated sales increased to 100 000 units in 1957 (Swart, 1974:164). (1958) South Africa was ranked ninth in the world’s passenger car parc (number of registered vehicles), above other vehicle-producing countries such as Brazil, India, Japan and various European countries (ITAC, 1960:9). (1958) Eight OEMs operated in South Africa, of which five were foreign owned and assembled 75 percent of total vehicles assembled. Three OEMs assembled vehicles on contract on behalf of other companies. Seven of these firms were situated at the coast with the component manufacturers in close proximity. The increase in the local content of vehicles, from single digit levels to 18 percent, was regarded as a significant process of evolution (ibid, 1960:15, 22).

1959 Recommendations were made to develop the automotive industry in South Africa. These recommendations included an increase in the duty on passenger cars and light commercial vehicles; to levy an excise duty on domestically assembled vehicles and completely knocked down (CKD) kits; to provide additional protection to domestic component manufacturers; and to create rebate provisions subject to local content requirements (ibid, 1960:85). 1961–1963 Phase I of the local content (1960) South Africa produced programme was introduced 120 000 vehicles, more than with the objective to increase any other developing country local content in mass from 15 in the world. The local content to 40 percent (ITAC, 1988:4). level was only 20 percent The ad valorem duty on (Black, 2007:73). imported motor cars was set at (1963) The main competition 35 percent plus an additional for the domestic vehicles did percentage up to a maximum not stem from imported cars of 100 percent, depending on but from other domestically the value and the weight of the assembled vehicles with a car. The level of excise lower local content. The rebates on motor cars varied position vis-à-vis a competitor between 15 percent (for a was broadly determined by the local content of between 25 degree to which the cost percent and 30 percent by premium attached to the weight) and 75 percent (for a higher priced domestically local content of more than 70 sourced components were percent). Components offset by the additional excise generally attracted a duty of rebates for the higher local 20 percent ad valorem (ITAC, content (ITAC, 1965:2). 1965:2). 1964–1969 Phase II of the local content (1964) Record new vehicle programme was introduced to sales of 143 373 units was increase the nominal local achieved in the domestic content in mass from 45 market (ibid, 1965:7). percent in 1964 to 55 percent 1969. This was equivalent to a 50 percent net local content, as redefined. The determination of the net local content was complicated and required government approval for certain parts, sub- assemblies or materials, as local content (ITAC, 1988:4; ITAC, 1965:22).

1971–1976 Phase III of the local content (1975) The 13 OEMs programme was introduced, operating plants in South with a minimum net local Africa assembled 39 models content of 52 percent at the and were supplied by 300 beginning of 1971, to increase automotive component to 66 percent on 1 January manufacturers. The GDP 1977 (ITAC, 1988:4). contribution of the automotive sector was 3,3 percent (ITAC, 1977:8, 70). 1977–1978 Phase IV of the local content (1979) Disinvestments by programme comprised a two- General Motors and Ford year “standstill” phase. This occurred owing to the was to assist industry in sanctions against South Africa consolidating its position after (Gelb, 2004:41–45). the severe narrowing of profit (1976–1986). The number of margins during the previous OEMs decreased from 16 to three years (ibid, 1988:4). seven and the number of models produced from 53 to 20. This was owing to recessionary conditions, the significant devaluation of the rand in 1984 and 1985 and escalating domestic inflation. All seven OEMs recorded losses in 1985 (ITAC, 1988:26, 63, 64). 1980–1988 Phase V of the local content (1980–1984) Locally programme was introduced manufactured engines, with a minimum net local gearboxes and axles for content of 66 percent by mass, commercial vehicles were in respect of motorcars, and introduced. ADE and ASTAS 50 percent by mass, in respect were accorded the rights to be of light goods vehicles and the sole manufacturers for the minibuses (ibid, 1988:7). engines and gearboxes, respectively, for commercial vehicles. The ADE engine had a price disadvantage of 100 percent against the free on board value of an imported engine. A total of 19 commercial vehicle assemblers operated in the domestic market (ITAC, 1985:8, 10). 1989–1995 Phase VI of the local content (1989) A budgetary constraint programme was introduced was placed on Phase VI in and involved a radical change that the programme had to be in the calculation of local self-funded. Thus the ordinary content based on value as excise duty and excise duty opposed to mass. Phase VI rebate had to be equal (ITAC, encouraged local OEMs to 1992:2). increase local content from an (1991–1994) Samcor exported industry average estimated at vehicles from South Africa in 55 percent at the inception of 1991, Volkswagen in 1992 and the programme to 75 percent BMW in 1994 (Damoense and (including exports) by the year Alan, 2004:264).

1997. Phase VI sought to (1992) Price comparisons of reduce the foreign exchange passenger cars between used by the vehicle South Africa and Germany, manufacturing industry by Japan, the USA, the UK and about 50 percent over the Australia reflected a South period 1989 to 1997. Local African price disadvantage of content was defined as the ex- up to 72 percent. The lowest- works price less foreign priced car category prices currency used, including profit were competitive but in the and overheads. This meant higher-priced categories the that pricing could be used to price inelasticity enabled create local content. The OEMs to achieve higher import duty on aftermarket margins (IDC, 1993:15–17). parts and components for (1993) The seven OEMs motor vehicles was increased produced 39 different to 50 percent ad valorem and passenger car and light on passenger cars to 100 commercial vehicle models percent ad valorem, whether (MITG, 1994:35). or not assembled. Exports were allowed and accounted to be part of the local content value. An excise duty of 40 percent on the value of locally assembled vehicles applied, of which up to 37,5 percent was rebated based on the local content level (ITAC, 1989:26– 33). The effective rate of protection for the industry was calculated to be in excess of 400 percent (MITG, 1994:31). In 1994 there was a reduction of the import duty on passenger cars to 80 percent ad valorem from 1 January 1994 (ITAC, 1994:1). In 1995 there was a reduction of the import duty to 75 percent ad valorem on passenger cars from 1 January 1995. The payment of a 15 percent surcharge on passenger cars and 5 percent on commercial vehicles was exempted (ibid, 1994:1). Implementation of the MIDP. Source: Lamprecht (2009: 208-212)

Before 1960, as can be seen in Table 1above, the South African automotive industry was characterised by high levels of protectionism, where there were import substitution policies. The policies that were in place then called for high tariffs on imports and vehicles produced were mainly for the local market. These policies resulted in the

industry having many small-scale firms that carried high costs of production, due to the number of different models and makes some of the firms produced. Though the elimination of competition was somewhat profitable to the local manufacturers, the high degree of local competitors had its pressures. In response to rivalry, manufacturers introduced new models, an activity which, due to the relatively small size of the local market, proved costly and thus negated profits earned.

As was common among economies with import substitution policies, South Africa began to experience reduced circulation of foreign exchange and trade deficits. By 1960, prompted by a need to reduce trade deficits that came as a result of vehicles that were predominantly produced locally from imported components, a revision of trade policies was imminent. 1961 saw new policy regime emergence, a policy that introduced a range of local content programmes (LCP) that imposed a requirement for higher local content on the vehicles produced domestically, as opposed to the 20 percent of local content that the vehicles contained in years prior.

1971 saw the end of the second phase of the local content programme which gave rise to a third phase that demanded that products of manufacturers have at least 52 percent local content as measured by the weight of the local components. Even though this policy supported development of local component manufacturing, because of the low scale of production by the manufacturers of vehicles, the operating costs proved high. The demand for local content grew from 52 percent to 66 percent by 1977. The local programmes received reviews until the fifth phase, and then 1989 saw the end of the fifth phase of the programme and birth of the sixth phase (Phase VI).

Phase VI (1989 – 1995) was a policy which sought to abandon import substitution and steer the industry towards exports to be able to improve foreign exchange difficulties. The assumption that was made was that as much as limiting imports caused the problem of reduced foreign currency, exporting would reverse the effect. As per Phase VI the export of vehicles or components constituted local content and manufacturers could reduce the amount of locally produced components used on assembly of their vehicles as local components proved more expensive than imported components. 22

An additional step to incentivise the manufacturer of vehicles or completely built-up (CBU) units to produce more and the component manufacturer to export more, the demand for local content in the manufacturing of vehicles was reduced from 66 percent to 50 percent.

Even though the export of components grew as a result of the policy changes under the Phase VI regime, the export of CBUs remained minimal due to low scales of production and the higher costs associated with such conditions. With manufacturers opting to meet the 50 percent local content requirement rather than pay duties on imported components, this meant that the components industry did not suffer much, but instead had an opportunity to export more of their products and earn more credits. This meant that Phase VI had met its objective of rationalising production in the component sector, but not as far as the vehicle manufacturers were concerned.

So when one of the objectives of Phase VI, which was to rationalise production in the automotive industry, failed as a result of an emergence of an increase to new domestic models rather than the expected higher volumes. A consequence of this failure was a review of Phase VI and the introduction of the MIDP in 1995, a policy which sought to (Black and Shannon, 2002 and Barnes and Morris, 2000): a) Reduce tariffs on light vehicles and components, with tariffs being phased down even faster than prescribed by the World Trade Organisation (WTO), with a tariff phase down schedule that reduced rates of protection of over 100 percent under phase VI to 40 percent for CBU and 30 percent for CKD by 2002; b) Abolish local content requirements/ regulations; c) Introduce a duty- free allowance of up to 27 percent of the wholesale value of the vehicles manufacturers produce; d) Introduce duty rebate credits to be earned on exports of vehicles and components for redeeming when importing vehicles and/ or components, an import-export complementation (IEC) scheme; and e) Offer a small vehicle incentive (SVI) in the form of a subsidy for the manufacturer of affordable CBUs functioning via a drawback mechanism of duties to the value contingent upon the ex-factory value of the CBU. 23

The MIDP was seen as an appropriate response to the challenges and threats which were presented to the South African automotive industry by the regime of the inward oriented LCPs. An outward oriented policy, that would support global integration of the South African industry into international value streams, was deemed necessary by government. The introduction of the MIDP resulted in a dramatic surge of exported and imported vehicles as shown in Table 2 below. This surge was made possible by duty rebate credits earned from the increased exporting of vehicles and components which continued to grow further, even under the new policy, as a result of increased investment in capital. Table 3 below gives an indication of how domestic production grew since year 1995 to 2008 (Black and Shannon, 2002).

Table 2: Import of vehicles between 1995 and 2008 Year Passenger cars Light commercial vehicles Total 1995 22305 4034 26339 1996 41768 4559 46327 1997 51978 4550 56528 1998 59951 5122 65073 1999 54426 4343 58769 2000 61749 4114 65863 2001 79508 4535 84043 2002 78128 5291 83419 2003 81919 5377 87296 2004 127389 8938 136327 2005 208892 23199 232091 2006 266247 40208 306455 2007 265095 47760 312855 2008 203808 50825 254633 Source: Lamprecht (2009: 257)

Table 3: Vehicles produced in South Africa (units) between 1995 and 2008

Source: Lamprecht (2009: 251)

Part of the South African government’s success was to ensure at introduction in 1995, that the MIDP was compliant with the General Agreement on Tariffs and Trade (GATT) and the WTO regulations established in Uruguay in 1994. The MIDP itself, as did the LCPs, underwent reviews on numerous occasions to ensure that it remained relevant to the economic conditions of given times. The first phase of the MIDP ran from September 1995 to June 2000 and the second phase from July 2000 till 2007, with the third phase set to run from the end of the second phase till 2012. The reviews which took place served to propose amendments to policy in an attempt to meet challenges of globalisation and rapid technological changes.

The possibility of measuring progress of the MIDP is difficult, but feasible through an evaluation of macro-economic conditions or indicators based on the objectives of the MIDP which included (Damoense and Simon, 2004 and Barnes and Morris, 2000):

a) Developing a globally integrated and competitive SA automotive industry. For this competitiveness indicators depicted on competitiveness reports issued by various research bodies give clear indication that since the introduction of the MIDP the South African automotive industry has enjoyed competitiveness improvements.

b) Stability in long – term employment levels in the industry. Reports by the Department of Trade and Industry (the DTI) indicate that on introduction of the MIDP employment levels in the automotive industry increase, but have in later years declined.

c) Improving the affordability and quality of vehicles. Reports issued by the National Association of Automobile Manufacturers of South Africa indicated a fall of over 12 percent in prices of new vehicles since 1995.

d) Further promoting the expansion of automotive exports and improving the sector’s trade balance. Even though with the introduction of the MIDP the

exports grew the imports still exceed the exports by far, which make South Africa a net importer resulting in a negative trade balance.

e) Contributing to the country’s economic activity. The best way to measure this indicator would have been to consider value added, but because of such data being unavailable, the gross domestic growth figures suffice as an indication of growth, and since the introduction of the MIDP the DTI reported a positive trend to the domestic automotive industry. In 1996 R28.7 billion was reported, followed by R 31.2 billion in 1997, results indicative of successes of the MIDP.

Black (2001) states that, based on a survey conducted on component manufacturers or suppliers, it showed that companies were aware of the changes the introduction of the MIDP in 1995 would introduce and that they were clear on how to respond to the new programme. Companies expected an increase in exports, a moderate increase in investment and stable employment hence the successes of the MIDP (Black, 2001).

Although there were notable detractors of the MIDP, it certainly proved to be a successful state initiated incentive programme. The programme attracted massive local and foreign investments, as shown in Table 4 below, rationalising the number of locally produced vehicles, vastly improving production capacity utilisation and improving overall operational efficiencies. According to NAAMSA (2011), between the introduction of the MIDP in 1995 and 2005, aggregate production of vehicles rose by 34 percent and light commercial vehicles (LCV) by 29 percent. When compared to the start of 1995, the export of vehicles and LCVs at the end year 2005 improved 13 fold and 402 percent respectively.

The MIDP also achieved successes cutting the complexities in manufacturing plant areas where the LCPs had failed (Black, 2002). The number of base model cars or production lines and LCVs produced domestically had reduced from 42 produced in 1995 to 22 by 2006, such thatit proved an effective manner of improving efficiencies. The average annual volumes of produced vehicles per modelwent up from 8 515 to 22 609 over this period, with high volume production models going from 0 to 5 from 1995 to 27

2005. High volume production models are specific models that get produced in excess of 40 000 units a year (NAAMSA, 2011).

Local manufacturers have had to drastically change the way they conduct their business to capital investments concentrated on new high volume products, more local content, export orientated investment and improved production facilities. Highly automated modern automotive manufacturing factories emerged as a response to the rising and required high volumes of production. Pressures brought on the domestic automotive industry by globalisation led to a focus on reducing costs of producing, improving quality and the reliability of supply and being far from the export markets only meant added costs due to transport and logistics related activities (Damoense & Simon, 2004).

Even though employment levels would not have been expected to change under automation activity, the number of total employees in the automotive industry in South Africa increased from 280 870 in 1999 to 306 300 by the end on 2004. This significant growth is indicative of a healthy and developing automotive industry. The increased competition in the automotive industry as a result of globilisation hashad a positive spin- off on the consumer with prices of vehicles remaining virtually stable and below inflation. That occurence is a direct result of import duties on components and CBUs being drastically decrease, providing consumers with a wide choice of products at competetively affordable prices (Barnes and Morris, 2008).

The investment discussed above, in the automotive industry in SA over the last decade is shown in Table 4 below:

Table 4: Capital Expenditure on an Annual Basis

R Millions

Capital 2012 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 expenditure Estimate

Product/ Local Content/ Export Investment/ Production 1 311,2 1 800,1 2 311,4 1 989,4 1 816,3 2 805,3 5 058,1 2 458,7 2 807,7 2 215,9 3 351,1 3 522,7 4 690,4 Facilities

Land and 109,7 33,3 152,0 141,5 129,6 512,1 758,0 382,4 329,1 178,7 441,2 176,4 45,8 Buildings Support

Infrastructure (I.T., RandD, Technical, 140,6 244,9 262,4 193,9 273,7 258,7 398,8 254,4 153,1 74,1 202,4 203,6 271,4 etc.)

Total 1 562 2 078 2 726 2 325 2 220 3 576 6 215 3 096 3 290 2 469 3 995 3 903 5 008

Source: (NAAMSA, 2011)

Similar to the LCP policies, the MIDP did not perform without reviews for improvement and adaptation. In 2008 after the third review, of all the reviews that took place in1999 and 2002, a successor to MIDP, the Automotive Production and Development Programme (APDP) was named. The reform came as a result of an industry review that revealed, despite its successes, South Africa and the sub-region remained a relatively small market in global terms, contributing less than 1 percent of the global production and remained isolated from larger markets and shipping routes. The reviews also highlighted challenges of major domestic infrastructure and logistical inefficiencies, together with severe skills shortage, among other things.

In response to an announcement by the DTI of this successor to the MIDP, NAAMSA, through Dr Johan Van Zyl the then President of that body, commended this revelation, stating that a finalisation of a future automotive industry policy framework served to strengthen the country’s international trade commitments. The framework covered import duties, a local assembly allowance, a production incentive and an investment

allowance which provided the industry with a solid base to rise to the challenges presented by international competition and demands to produce new cars and light commercial vehicles in South Africa. The local assembly allowance supports continued production of vehicles in South Africa, the investment allowance an incentive to stimulate domestic vehicle production and additional localisation (NAAMSA, 2011).

As mentioned in section 1.3 above, the APDP serves as an affirmation of the commitment made by government through the New Growth Path (NGP) policy, to make employment creation the main criterion for economic policy. The automotive industry has been identified as one of the job drivers in the economy and therefore its policies are designed to ensure the economy becomes both competitive and more employment friendly. The APDP aims to stimulate growth in the automotive vehicle production industry from 600 000 to 1.2-million vehicles per annum by 2020 with associated deepening of the components industry. The new programme will focus on value addition while being consistent with South Africa's existing multilateral obligations (The DTI, 2010).

The NGP policy, launched in November 2010 by the Ministry of Economic Development, in its objectives aims to create 5 million new jobs by 2020, reducing unemployment from 25 percent to 15 percent. This it aims to achieve through ensuring that economic policies are designed to enhance economic competitiveness and a more employment friendly climate (The DTI, 2010). Lamprecht (2009) supports this notion, adding that the MIDP promoted sustainable employment opportunities within the automotive industry, and that this industry has a multiplier effect, in that for every job in the manufacture of a vehicle there are two or more jobs created in the rest of the value chain ( component manufacturing, vehicle sales, service, repairs, and so on). The changes in employment in the automotive industry over the period of the MIDP from 1995 to 2008 are shown in Table 5 below:

Table 5: South African automotive industry employment levels (number of employees), period year 1995 – 2008

Source: Lamprecht (2009)

The MIDP objectives of improving global competitiveness, enhancing growth through exports, vehicle affordability, improving industry’s skewed trade balance and stabilising employment, were achieved through a series of export-oriented incentives coupled with tariff reductions. The key elements of these export incentives being (Barnes, J., Kaplinsky, R. and Morris, M., 2003); a) The abolition of a minimum content provision and the introduction of an import export complementation (IEC) scheme, which allowed both OEMs and component manufacturers to earn duty credits from exports: b) A tariff phase down schedule designed to reduce the nominal rates of protection to 38 percent for completely built-up units (CBU) and 29 percent for completely knocked down (CKD) components by 2003:

c) A duty free allowance for assemblers of 27 percent of the wholesale value of the vehicle: d) A small vehicle incentive (SVI) providing for a subsidy for the manufacturer of more affordable vehicles, and e) A Productive Asset Allowance (PAA) providing duty equivalent to 20 percent of investments spread over a period of 5 years, but this was applied to investments designed for exports enhancing scales of a particular product line.

The new APDP is also structured into four key elements; namely, tariffs, local assembly allowance, production incentives and automotive investment allowance: a) The tariffs from the MIDP to the APDP will remain unchanged for the full intended term of this policy, which is up until 2020. b) The local assembly allowance (LAA) will allow vehicle manufacturers, with a plant volume of at least 50 000 units per annum, to import a percentage of their components duty-free. An allowance realised in the form of duty credits issued to vehicle assemblers based on 18 percent to 20 percent of the value of light motor vehicles produced domestically from 2013.

Manufacturers stand to also to receive value-add support to help encourage increased levels of local value addition along the automotive value chain, with positive spin-offs for employment creation (Makapela, 2010). Indicated below in Table 6 is a brief outline of the differences between the MIDP and APDP.

Table 6: A quick comparison between the MIDP and APDP

Source: Barnes (2011)

Amid optimism regarding the APDP, there are concerns and worries about the APDP regarding the lower export incentives it brings for components producers. According to Werbeloff(2011) NAACAM’s Steward Jennings expresses concern about the uncertainty of the APDP which has cost the components industry contracts stating that original equipment manufacturers (OEMs) or vehicle manufacturers use more multinational suppliers, whom in turn, predominantly use imported sub-components in their assembly processes. This is an undertaking which he claims destroys local sub- supplier capabilities and the cost competitiveness of the local component manufacturer as a whole. However, Jennings indicated some of the reasons why the local components industry was under threat under the APDP as follows: a) Global decision making pertaining to prices on vehicle and component production; b) Increases in electricity, wages, logistics and a strong and volatile rand;

c) Local ports being the most expensive on the globe; d) Shortage of artisans that result in premium pay demands, and e) Inefficiencies in ports and rails that result in congestions and costly safe stock requirements.

Additional to the above, Jennings also mentioned that import duties in South Africa are lower than almost all developing countries, being the same as to China’s, and they produce 25 times more vehicles than South Africa. On the other hand South Africa has import duties that are the same as the United States of America’s (USA) duty on light commercial vehicles (bakkies), of which 5 million get produced annually versus the 600 000 vehicles being produced in South Africa (Werbeloff, 2011).

As part of this literature review, a closer look was given to how other developing countries have managed to weather the storm of globalisation. This was done with special reference to the capital investment in facilities, equipment and technologies undertaken with policy changes to improve manufacturing processes. However, productivity does not only depend on manufacturing processes, but also in investment in training and education and effective supply chain management.

2.3 THE IMPACT OF LEGISLATION ON CAPITAL INVESTMENT

The automotive industry remains concentrated in developed economies, such as Japan, Europe and the United States, something that could soon change, as there is an a wave of Greenfield investments sweeping the industry in countries such as China India, Thailand, Vietnam, Brazil and Mexico. These developments can be attributed to markets being saturated and organisations seeking to improve competitiveness, by seizing opportunities where the host country has requirements for local content, as well as wanting to seize opportunities created by trade agreements such as NAFTA and the European Union and investor friendly policies perpetuated by governments (Sturgeon and Florida, 2000).

Organisations have over the years embarked on foreign Greenfield investments due to a number of different reasons varying from seeking close proximity to the customer, lower transport costs, avoiding tariffs, trade friction or local content restrictions to seeking lower operating costs. In the 1970s emergence of Japanese imports into the United States and Europe prompted aggressive response by host nation manufacturers to reduce operating costs. These responses included manufacturers building into the design of vehicles a common under-body platform for all vehicles, whilst maintaining the ability to adapt body shells, trim levels and drive characteristics to a wide range of local demands or conditions. Additional to that were strategies and measures to increase outsourcing and making vehicle assembly more modular, an exercise that allowed for simplification of the final assembly process (Black, 2001; Lamprecht, 2009; Sturgeon and Florida, 2000).

The modular vehicle designs increased reliance on suppliers by vehicle assemblers and reduced initial investment requirements for vehicle manufacturers. This was a scenario in which the interactions between the manufacturer and supplier adapted to a new form and role, with the first tier suppliers becoming responsible for the module design and the second tier suppliers for the sourcing of components and the provision of local content in the context of emerging markets. As a result of this, suppliers may instead of manufacturers generate the majority of foreign direct investments in the long run (Sturgeon and Florida, 2000).

The above view is one supported by Barnes and Morris (2008) when they state that despite the challenges presented by globalisation for developed economies the majority of the world’s vehicle production still resides in the developed economies and this also serves as testimony to the success of measures put in place in response to the emerging trend of investments in emerging economies, as Figure 1 below shows.

Figure 1: The geographical location of global light vehicle production in 2005

Geographical Location of Global Light Vehicle Production: 2005

20% Asia 25% Africa 1% South America Other 4% East & Central Europe 2% 3% European Union EU Accession States 16% Japan North America 3% 26%

Source: (Barnes and Morris, 2008)

Figure 1 above indicates that in 2005, 67 percent of vehicles produced worldwide were produced in North America, the European Union and Japan, while 20 percent was produced in Asia with the difference of 13 percent distributed amongst developing economies.

Amongst the developing economy manufacturers, only China and Brazil were ranked in the ‘top league’ of global production in 2006. The issues that hinder the developing economy manufacturers include overcapacity in developed economies which stands at over 25 percent with the majority of manufacturers struggling to fill their plants, thus resulting in parent companies taking back production allocated to developing economies (Barnes and Morris, 2008).

However, the trajectory which an industry within countries adopts is largely determined by what is termed the political economy, meaning the role of power, market changes, institutional relations, ownership, governance structures and the trade regime. A common determinant of the success of the automotive industry in most countries has been effective intervention of government or state in which the industry exists. An example of this is the South African automotive industry which had suffered stagnation under apartheid rule and showed signs of new life at the arousal a new era of democracy and liberisation (Barnes and Morris, 2004).

Until the introduction of the MIDP in 1995 there was very little investment evident in the automotive industry in South Africa and the industry was dominated by locally owned OEMs which were coerced into partnerships with component manufacturers (Barnes, 2000). The introduction of that policy saw significant changes take place between the manufacturer and component supplier, an occurrence which resulted in speedy reorientation of the South African automotive industry to global demands and standards.

The MIDP, as was intended, transformed the South African automotive industry from being inward to be outward orientated and with that change attracted outside investors. When one evaluates the ownership status of the local OEM one will discover that all of them are partly owned and controlled by multinational corporations (MNCs). In 1996 the Delta Motor Corporation was the first OEM to invest under the MIDP (Lamprecht, 2009: 317). It was not until then that major investment programmes in new model introductions took place once Ford Motor Company, Nissan, Toyota, Fiat and General Motors took equity stakes in local operations.The local OEM with the least foreign equity is Toyota SA who in 2000 only had 27.8 percent (Barnes, 2000). It is ownership changes that have been noted as the key ingredient in the rapid reorientation of the SA industry as a result of exposure to the international business environment, which is shown in Table 7 below. The introduction of policies and the MIDP in the case of the South African automotive industry managed to lift its performances in line with international standards (Barnes, 2000; Black, 2001).

Table 7: Ownership changes at South African OEMs

Source: Barnes, (2000)

To increase competitiveness and production capacity, to be able to seize opportunities offered by the MIDP, parent organisations have invested heavily in capital as can be seen in Table 4 above. Capital expenditure in the automotive industry over period of the MIDP since 2000 to 2012 (including industry projection) amounted to R43.7 billion (NAAMSA, 2011). Having complexities in manufacturing processes to rationalise production in line with MIDP requirement for high volume production models, SA OEMs are in a favourable position to encourage first-tier suppliers to embark on capital investments too (Lamprecht, 2009).

High volume export vehicles cannot be the only factor that determines international competitiveness of an organisation, but rather the global strategy of the parent

organisation. The global strategies include individual organisations deciding, based on the prevailing policy regime in a location, what markets and resources to allocate to that specific location to achieve optimised global production capacity. It is due to this reason that investment is said to follow trade (Creamer, 2006).

Automotive production and employment as a result of investment following trade typically form clusters in one or few industrial regions. Characteristic of these clusters are some organisations specialising in vehicle design, or final assembly, or the manufacture of components that share common traits, such as electronic content or labour intensity. Due to this, concerted effort is evident in investment in capital equipment and skills in the automotive industry, which gives regional automotive clusters sustainability (Sturgeon et al., 2008).

This regional integration creates an environment supportive of global integration where the level of buyer-supplier relationships, especially between OEMs and their largest suppliers has intensified tremendously. With regional integration production tends to be concentrated close to final assembly plants. As far as bulky, heavy, and model-specific parts production is concerned, the main advantage is in assuring timely delivery. The model of regional integration allows for lighter, more generic parts produced at distance to take advantage of scale economies and low labour costs and vehicle development to be concentrated in a few design centres. In this set up the value chains in the automotive industry are said to be nested with manufacturers performing functional and critical roles within the global organisational structures and business relationships of the largest supplier’s delivery, and lighter, more generic parts produced at distance to take advantage of scale.(Sturgeon et al., 2008)

In seeking a relief in operating costs and as a result of political and technical reasons a trend of regional integration developed in the automotive industry. This can be seen in North and South America, Europe, Southern Africa and Asia, where OEMs producing for regional markets prefer sourcing components from their regional suppliers due to ease of control and collaboration. Political influences saw manufacturers setting up factories in established and large emerging markets such as Brazil, India and China to 39

meet localisation demands. Additional to this, suppliers were required to extend their international presence as a prerequisite for consideration for new parts for the sake of ease of access to relevant skills and latest technology. (Sturgeon et al., 2008)

a) As previously stated, pressures of globalisation have resulted in changes in the interaction between the supplier and manufacturer, with three significant changes being 1) a shift in design activities from the manufacturer to the supplier; b) A shift from supply of single components to a supply of complete systems/ modules ready for fitment and; c) Extensive involvement of the OEM in the specification of supplier production and quality systems. If the supplier was in the instance of the first change already in a position of supplying readily designed components to manufacturers, further customisation of their product to meet specific needs of individual manufacturers ensued (Humphrey & Memedovic, 2003).

The second instance saw the first tier supplier undertaking the responsibility of designing modules or systems as opposed to the manufacturer receiving various components and assembling them in-house. What this meant was that rather than supplying single components to the manufacturer they started supplying complete systems such as dashboards, seats, cockpit assemblies, exhaust and suspension systems, etc. However the role of the first tier supplier did not only end at designing and supplying sub- components, but management of the second tier supplier and so on (Humphrey & Memedovic, 2003).

In the third instance, forging of long term relationships between the manufacturer and fewer suppliers became paramount in creating an environment supportive to the inception of just-in-time (JIT) production or delivery systems. The establishment of long term relationships facilitated co-operation between parties enabling the manufacturer to guide and support the supplier regarding quality and production systems to enhance effectiveness and efficiency. The combination of these changes has seen the evolution of the relationship between the supplier and manufacturers integrate developing

economies into the mainstreams of the developed economy automotive industry value chains (Humphrey & Memedovic, 2003).

2.4 INVESTMENT IN TRAINING AND EDUCATION TO SUPPORT CAPITAL INVESTMENT

As noted in section 2.1, sustainability of the automotive industry is partially dependent on a concerted effort in investment in skills (Sturgeon et al., 2008). In support of this notion human resource (HR) practitioners have argued that attention is now to be given to human capital and its effective alignment with the overall strategy of businesses. In the new economic era characterised by speed, innovation, quality and customer satisfaction, the essence of the competitive advantage has shifted from tangible assets to intangible ones. In so saying this means that HR has to be viewed as a strategic asset rather than a support or aiding element of the business (Haridas, 2003).

In line with the notion discussed above, organisations such as Volkswagen Group South Africa (VWSA) have been reported in Finweek as having invested billions of rands in a bid to improve facilities with regard to the plant, equipment and training, as well as on product development. An investment programme that included, amongst others, a further automation in the body shop and final assembly manufacturing processes (from 35 – 65 percent), construction of training facilities and an investment in the engine manufacturing plant in preparation for a new engine model (Southern African-German chamber of commerce and industry, 2010).

2.5 SUMMARY

The literature review conducted in this chapter reveals intensified levels of competition that domestic firms experience as a result of trade and investment systems liberisation brought upon by policy reforms that took place in the 1980s and 1990sin developing countries. Further, an indication of aggressive growth in interaction between local technology and imported knowledge became rife, often in the form of foreign direct

investments (FDI), interactions to which the result depends heavily on the capabilities of the local firm and host country both at micro and macro level. Capabilities at micro level include the level of desire for new knowledge, skill level and diffusion of internal knowledge within relevant manufacturers is discussed. At macro level investment in education, information systems and infrastructure development within host country are key influential factors to successful interaction between local and foreign technology.

A point made clear further in the review is how in developing countries, due to success of the automotive industry being taken as a measure of economic growth, a sign of modern and foreign technology mastery is evident. Governments deem it as vital to establish strong government policies supporting and promoting the automotive sector. Testimony of this is South Africa, who as a result of state-led intervention has recorded growth in exports of vehicles and components, as well as FDIs undertaken in the last decade. The literature also alludes to this as not being a situation peculiar to SA, since the automotive sector has attracted a lot of attention across the globe especially as far as developing economies are concerned.

Finally it became clear through the literature review that via the levels of evident capital expenditure in SA with the introduction of the MIDP that introduction of investor friendly policies, this results in organisations embarking on capital investments. During the MIDP period over years 2000 – 2012, as per Table 4, a total sum of R 43, 7 billion has been spent on capital investment that led to the increased production volumes indicated on Table 3 from 1995 of 389392 units to 562965 units by 2008. It is thus expected that with the introduction of the APDP there will be further investment in capital in order to enable the automotive industry companies to reach the target of 1.2 million vehicles by 2020. This study was meant to investigate this phenomenon.

Chapter 3 will outline the research design and methodology of this research project

CHAPTER 3 RESEARCH DESIGN AND METHODOLOGY

3.1 INTRODUCTION

This chapter deliberates on the research design and methodology of this research project, where design is defined as the approach and framework which guides execution, execution which is also known as methodology. Research design serves to outline the procedure followed in this study, from the problem statement, hypothesis and methodology up to the analysis of the data. Methodology, on the other hand deals with methods used to generate data in an attempt to answer a research question and meet research objectives (Arnolds, 2011).

Research design answers questions such as what technique will be used to gather data and which tools will be used to analyse the data collected. Literature argues that there are five ways in which knowledge is gained; namely, scientifically, philosophically, mathematically, theologically and humanistic (Blumberg et al., 2008). On the other hand, Remenyi (1996) argues that when undertaking research there are three fundamental and philosophical questions that should be addressed. Due to this research being conducted within the realm of scientific knowledge development, it was thus informed by those three major philosophical questions which are as follows:  Why must research be conducted?  What must be researched? and  How must the research be conducted?

The earlier chapters have addressed the why and what questions, this chapter dealt with the how element. This chapter clearly states how the research was conducted. The issues of paradigm, epistemology and methodology are explained and the justification of combining both qualitative and quantitative research methods given. The South African government identified the automotive sector as a key driver of economic growth within the manufacturing sector as a result of the contribution of at

least 10 percent made to manufacturing exports, and therefore strategically devised an industry specific policy namely the Motor Industry Development Programme (MIDP). This was done to provide stakeholders of the industry with a long term or an encouraging planning horizon by means of pledging stability and certainty within the sector (The DTI, 2010; Naamsa, 2007).

After various reviews of the MIDP, South Africa is currently in the process of phasing out the MIDP and introducing the APDP by 2013. Organisations within the automotive industry might need to align to the new policy, because non-alignment could lead to non-compliance and a failure to reap the incentive benefit as well as create reputational problems for the organisation. Therefore, this study investigated how an organisation can review its manufacturing process strategies to align to the policy, so that significant benefits from the new policy can be realised.

3.2 RESEARCH QUESTION

The research question for this study was:

“Have companies within the automotive industry in South Africa geared up their manufacturing processes, with specific reference to capital investment, in preparation for the Automotive Production and Development Programme (APDP)?”

3.2.1 Primary research question

Even though there are many elements to be considered when one considers manufacturing processes, the primary purpose of this study was to conduct an analysis on capital investment and the changes thereto within the automotive industry in anticipation of the introduction of the APDP. An analysis of how organisations within the automotive industry have evolved their strategies following the announcement of the MIDP successor at the end of 2008 was done. Once the primary objective of this study

was established, a link between business strategy and government policy will be highlighted as far as capital investment is concerned, whether it exists or not.

3.3 RESEARCH DESIGN

As discussed in section 3.2 above, the objective of this research study was to determine firm-level strategic changes in terms of manufacturing process strategies by means of investment in capital equipment as a result of the introduction of the APDP or in preparation thereof.The first step of this study was to conduct an extensive literature review of business strategies within the automotive industry up until the announcement of the MIDP successor towards the end of 2008 and thereafter. According to Ellis (2008) the South African automotive industry business strategies should already indicate a certain level of organisational readiness of industry players towards the implications of APDP for their business. Thus an evaluation of how the industry players have altered their strategies in preparation for the successor (APDP), to reap maximum benefit from it and support the fore mentioned government initiative (MIDP) was conducted.

The nature of the research problem of this study required the research design to be based on a qualitative approach. The data sought from interviews was descriptive and exploratory, in that it gives a description of participants’ views and experiences as well as exploring academic territory not adequately documented. This research study was interpretive with the researcher wanting to understand and interpret reality rather than to capture it using positivist research methods (Blumberg et al., 2008). Views, opinions, perceptions drawn from experiences of various experts within the automotive industry were sought.

Positivist research allows the researcher to study a phenomenon by using methodology based on quantification of observations that ultimately either confirm or nullify the assumed research question(s). Remenyi (1996) argues that within the positivist paradigm, one is able to objectively analyse and interpret a social reality tangibly. The

assumption is that within physical and natural sciences, the researcher is able to develop law- like generalisations that allow the researchers to detach themselves and objectively assess phenomenon under evaluation or study.

To collect data a questionnaire based on the literature review was developed and semi- structured interviews conducted. The questions were used to gauge the level of understanding by industry of the MIDP and APDP. Additional questions in line with organisational investment in capital in response to the fore mentioned government incentive policies were also posed.

Semi-structured interviews were conducted with thirteen (13) respondents out of a possible fifteen (15) experts/respondents that were sought from OEMs, first and second tier suppliers within the Eastern Cape and the Gauteng Province and Automotive Associations.

The data collected for this study were in the form of words of the experts interviewed and not numbers. The validity of the data was based on the experience of the experts consulted. The data collected were analysed using the conventional content analysis approach, to identify trends and common themes. Questions asked were kept open ended and further clarifications were sought from interviewees. The decision to pursue this data collection method was based on the nature of the phenomenon studied being futuristic and having limited literature.

Finally an interpretation of the outcome of the study, recommendations and conclusion are given.

3.4 RESEARCH METHODOLOGY

Research methodology is about the definition of an operational framework which governs strategies applied for collecting and analysing information. Operational framework refers to the content, structure and process of a research project. Research

methodology is thus concerned with steps, procedure, techniques and specific tasks to be followed by a researcher to implement the research design. In essence research methodologies are determined by the problem that requires solving and more so the nature of data to be collected in doing so (Arnolds, 2011).

Research methodology can either be a qualitative or qualitative paradigm, where the term paradigm describes basic beliefs and assumptions that form an individual’s view of the world and their actions (Mouton, 2001). The distinction between the qualitative and quantitative approach is entrenched in a number of social science disciplines that have different philosophical premises and epistemological roots that require one to understand, respect and maintain for credible and sound research outcomes (Morse & Seung, 2008). The research question determines which approach is suitable and sometimes the researcher may even combine the two (Arnolds, 2011).

3.4.1 Research paradigm

A research paradigm is a set of beliefs or worldview of the researcher that guide action and are informed by an understanding of what and why research is undertaken. The need for research arises when an idea is to be explored or an issue is to be probed or a problem is to be solved (Clarke, 2005). Elements which at management level are dubbed a management dilemma and the nature of such a dilemma is one where a decision is to be taken based on information to be gathered, captured and interpreted (Blumberg, Cooper and Schindler, 2008), are researched. Blumberg et al. (2008, 4) define business research as a systematic inquiry whose objective is to provide information that will allow managerial problems to be solved.

The nature of qualitative research is inductive and subjective whereby theories are developed as outcomes. This method of research is used to identify patterns, ideas, describe phenomena as they are and obtain information on the characteristics of an issue or problem, after which the analysis allows the researcher to understand,

explain phenomena and be able to apply the findings to solve problems (Arnolds, 2011).

The nature of quantitative research though is deductive, objective and uses existing theories as bases of research. The focus of this method is on measuring phenomena, collecting and analysing numerical data by applying statistical tests; that is testing the influence independent variables have on dependent variables, analysing and explaining why and how these occur, as well as predicting occurrences on the basis of hypothesised relationships. Due to the objective nature of this method it is the most reliable and valid of the two paradigms (Arnolds, 2011).

Once a dilemma has been identified, a research question to address the dilemma gets formulated. The research question then informs the research design; that is the question indicates what type of evidence is required; therefore the work plan has to be scheduled accordingly. The function of the design is to ensure that evidence obtained enables the user thereof to unambiguously resolve the research question. The design indicates the work plan or method to be used to collect the relevant data; that is issues of sampling, data collection (questionnaires, interviews, and so on) and design of questions. In most research methods literature, research design tends to be confused with research methods, where design is equated to either qualitative or quantitative research methods (De Vaus, 2001).

3.4.2 Chosen paradigm

The question of this study was to investigate whether or not there is going to be change in capital investment of automotive industry organisations due to new legislation called the Automotive Production and Development Programme (APDP). This is a policy that government hopes will succeed as a strategy for sustaining domestic production and reducing unemployment in SA. This question requires an understanding of business strategies and their link to the economy. The purpose of

this study proved to be exploratory and futuristic, thus the most suitable paradigm for this research study was the qualitative approach.

3.5 SAMPLE

A sample is defined as a subgroup in a population to be included in a study as a basis for making inferences about the population, where a population is defined as a group, class of subjects, variables, concepts or phenomena under investigation. Sampling allows the researchers to focus their time, money and effort to generate quality research and outcomes. In selecting a sample the researcher has to consider three aspects: 1) the degree of accuracy required; 2) the degree of diversity in the population; and the number of different variables examined simultaneously in data analysis (Neuman, 1997).

Huysamen (1994) states that sample size is determined by relative population homogeneity or heterogeneity as well as validity and degree of desired reliability for the purpose of research, meaning that sampling is determined by what needs to be observed, as well as the number of required occurrences to be observed to ensure that the findings will contribute useful information to the end-user.

However, deciding on sample size for a qualitative inquiry is not simple and straight forward to determine, as it would be for a quantitative enquiry, due to not having definite rules governing qualitative enquiries. The validity, meaningfulness and insight generated from a qualitative inquiry have more to do with information richness of the participants selected and the analytical capability of the researcher than with the sample size.

For the purpose of this study purposive sampling was used, whereby respondents were selected based on specific characteristics, being experts in the field they operate, their experience and the organisations they work for. The knowledge and experience of the experts sought after supplemented meaning to the results and thus the validity and

reliability of the data. Table 8 below indicates the demographic details of the respondents.

However, even though the automotive industry is global in nature, this study was due to the APDP being a South African policy only directed at South African respondents. A sample of fifteen experts was sought after for interviews, but only thirteen agreed to be interviewed. Due to the nature of the research being qualitative, respondents had to be in a position of leadership or specialisation whereby they would have been exposed to strategy formulation or know the reasons for strategic decisions made in their organisations and thus their views and opinions would be deemed as valid and useful.

The challenge presented by the geographic position of the researcher resulted in only one respondent being acquired from outside the Eastern Cape, in the form of the executive director of NAACAM. The twelve other respondents came from organisations around the Eastern Cape; namely, Volkswagen Group South Africa (VWSA), General Motors of South Africa (GMSA), Mercedes Benz South Africa (MBSA), Rehau Polymer Solutions (Rehau) and Benteler South Africa (Benteler). This is a sample representative of the automotive industry in SA.

Respondents’ positions varied between directors, managers, supervisors, a planner and a management accountant. Collectively, the respondents that were sought had 241 years of experience of the automotive industry between them. The below table (Table 8) indicates the demographics of the experts that were sought regarding their organisation, positions and experience:

Table 8: Demographic details of respondents interviewed

Respondent Organisation Position Experience Type of Volumes (years) organisation produced 1 VWSA Director 20 OEM 130 000 units 2 VWSA Manager 24 OEM 130 000 units

3 VWSA/ Manager/ 30 OEM 130 000 units NAAMSA Vice chairman of APDP working group 4 VWSA Supervisor 10 OEM 130 000 units 5 VWSA Supervisor 13 OEM 130 000 units 6 MBSA Manager 12 OEM 80 000 units 7 MBSA Management 3 OEM 80 000 units Accountant 8 MBSA Specialist 13 OEM 80 000 units Planner 9 GMSA Manager 22 OEM / OES 5 million units 10 REHAU Manager 12 Supplier 167 000 units 11 REHAU Manager 16 Supplier 167 000 units 12 BENTELER Manager 20 Supplier 120 000 units 13 NAACAM Executive 42 R 60 billion Director

3.6 ETHICS

The confidentiality and anonymity of respondents was guaranteed in line with the ethics code of conduct of the Nelson Mandela Metropolitan University and that commitment was declared to the respondents in the form of a covering letter (Annexure 1) which accompanied the interview questionnaire(s) (Annexure 2) that was electronically sent to the respondents in advance, prior to interviews. This letter also served to inform the respondent of the purpose of questionnaire; that is the fact that the interview was solely a data collection tool for an academic research study and project.

3.7 MEASURING INSTRUMENT

To collect data a questionnaire based on the literature review was developed and semi- structured interviews conducted. The questions were used to gauge the level of understanding by the industry of the MIDP and APDP. Additional questions in line with organisational investment in capital in response to the aforementioned government incentive policies were also posed.

Interviews are a well established tool in qualitative research as they can be used in conjunction with other techniques and adapted to fulfil different research objectives. An interview can assume three forms, namely structured, unstructured and semi-structured. A choice with regard to which is suitable depends on the research question and analytical strategy. Structured interviews are characterised by predetermined questions and a number of prescribed answers that guide responses of interviewees strictly in line with the topic being studied. Unstructured interviews, on the other hand, are the opposite of the structured interview with the interviewer using broad open ended questions that are closely related to the research question. The semi-structured interview infuses elements from both the structured and unstructured interview approaches (Cachia and Millward, 2011).

Semi structured interviews similar to the structured interview, have a fixed set of sequential questions, but no prescribed answers. The questions serve as an interview guide allowing for additional questions to be introduced to facilitate further exploration of issues that might emerge during the interview process. This technique allows the researcher and respondent time and scope to explore issues in more depth for better understanding. Though this method may be time consuming it allows a researcher to collect data that is rich that equips them with an in-depth understanding of interviewee’s opinions and responses, which enables ease of analysis using qualitative techniques (Cachia and Millward, 2011; Blumberg et al., 2008).

A semi-structured questionnaire, together with an interview schedule, was developed and used as an aid to collect data for this study. Interviews were sought with fifteen experts from OEMs and first tier suppliers within the Eastern Cape Province as well as one expert from the two major associations in the automotive industry, namely NAAMSA and NAACAM, but only thirteen were available for interviews.

The collected data were captured on a common information repository and analysed by establishing commonality amongst the views and opinions in responses given by respondents in line with questions gauging the various themes.Descriptive inferential and statistical correlation methods were endorsed as the preferred data analysis tools for analysis. An analysis was done in order to validate findings from the semi-structured interviews and literature review with regard to the introduction of the APDP and its effect on organisational investment in capital investment was done.

Qualitative research, unlike quantitative research, does not rely on numerical measurements from particular instances that can easily be analysed to draw general descriptions and to test causal hypotheses. Qualitative research involves the use of intensive interviews or in depth analysis of historical data or materials in order for the researcher to gain understanding of a phenomenon from empirical information presented rather than a simple comparison of numerical values by means of statistical methods. In other words analysis of qualitative data requires the researcher to infer beyond the immediate data to establish something broader and deeper than obvious and direct observations. This process is known as descriptive inference, where a researcher uses observations from the world to learn about unobserved facts (King, G., Keohane, R.O. and Verba, S., 1994).

The analysis is also done using descriptive statistical correlation, and when dealing with descriptive statistical correlation analysis, the correlation between two random variable that are being compared is indicated by means of a coefficient, it indicates the nature of a relationship between two random variables. The correlation coefficient can vary from -1 to +1 and it provides a measure of the strength and direction of the correlation.

Positive values indicate that the two variables are positively correlated and in the same direction where the negative values mean the exact opposite. When the value of the correlation coefficient is closest to +1 or -1, this serves as a revelation of how highly related the two variables are to each other (Clarke, 2005).

3.8 SUMMARY

In this chapter more detail on research design and methodology was given. The nature and extent of the study with regard to the chosen paradigm and the reasons thereof were confirmed.

The research design outlined the structure and logic to be followed to uncover possible answers to the enquiry at hand, while the methodology gave a breakdown of specific actions that had to occur in an attempt to uncover the possible answers to the said enquiry. The sampling and measuring instruments that were used to uncover the possible responses to the enquiry and the data collection and analysis methods, were also discussed.

Semi-structured interviews were used to answer the research question.

The next chapter, Chapter 4, will outline the results from the semi-structured interviews.

CHAPTER 4 EMPIRICAL RESEARCH RESULTS AND DISCUSSIONS

4.1 INTRODUCTION

This chapter will deliberate on the empirical research outcomes and findings. Semi- structured interviews were used as a primary data collection method in an attempt to establish changes in capital investment in automotive organisations and in so doing gauging the readiness of automotive organisations to the new legislation called the Automotive Production and Development Programme (APDP). In order to meet the objective of this study and comprehensive interpretations, recommendations and conclusions, questions guiding Capital Investment for Technology preparedness were constructed. The said questions were only used as a guide and, for the sake of clearly understanding the respondent’s opinion. An example of the said questions has been included in Annexure 2, as well as all responses from the respondents sought, in Annexures 3 to 14.

The research questions were divided into five different themes. The first section focused on the experts’ and their organisations’ demographic information. The second section was to gauge the expert’s level of understanding of the automotive industry specific government legislation, while the third, fourth and fifth sections were designed to assess and answer the question that lead to this study, which was: “Have the companies within the automotive industry in South Africa geared up their manufacturing processes, with specific reference to capital investment, in preparation for the APDP?”

4.2 SAMPLE AND DEMOGRAPHIC SECTION

In an attempt to assess the readiness of the automotive industry through an evaluation of changes in capital investment amongst different organisation in the automotive industry, semi-structured interviews were used as a data collection method. To ensure

validity and reliability of data collected from sources, consideration of the various respondents’ positions, work experience and the overall contribution of their specific organisation to the automotive industry in terms of volumes was given and these were used as indicators to qualify their responses.

A sample of fifteen (15) experts was sought for interviews, but only thirteen (13) agreed to be interviewed. Due to the nature of the research being qualitative, respondents had to be in a position of leadership or specialisation whereby they would have been exposed to strategy formulation or know the reasons for strategic decisions made in their organisations. Thus their views and opinions would be deemed as valid and useful for this study. The challenge presented by the geographic position of the researcher resulted in only one respondent being acquired from outside the Eastern Cape, in the form of the executive director of NAACAM. The twelve other respondents came from organisations around the Eastern Cape; namely, Volkswagen Group South Africa (VWSA), General Motors of South Africa (GMSA), Mercedes- Benz South Africa (MBSA), Rehau Polymer Solutions (Rehau) and Benteler South Africa (Benteler). This is a sample representative of the automotive industry in SA.

Respondents’ positions varied between directors, managers, supervisors, a planner and a management accountant. Collectively the respondents that were interviewed had 241 years of experience in the automotive industry, between them. Figures 2 and 3 below indicate the spread and distribution of the experts that were sought regarding their organisation, positions and experience:

Figure 2: The number of experts interviewed per organisation and position

2.5 2 1.5 1 0.5 0 NAACAM NAAMSA VWSA GMSA MBSA REHAU BENTELER

Director Vice- chairperson of APDP Working Group Manager Supervisor Planner Management Accountant

Figure 3: The spread and distribution of the experts regarding their experience

45 40 35 30 25 20 15 10 5 0

Director Vice-chairperson of APDP Working Group Manager Supervisor Planner Management Accountant

Figures 2 and 3 above indicate that the respondents were well experienced and positioned in such a manner as to be able to provide valid, reliable and meaningful responses to the interview questions. The respondents came from three OEMs, two first tier suppliers and the two biggest automotive associations. Five respondents came from VWSA, one from GMSA, three from MBSA, two from Rehau, two from Benteler, one

from NAACAM and one from NAAMSA, who is also one of the managers from one of the OEMs mentioned herein. The volume produced by the individual organisations ranged from 50 000 to an excess of 100 000 units per annum. The lowest volume producer being MBSA, who were reported to only produce between 56 000 – 59 000 per annum.

4.3 INTERVIEW QUESTIONS

The interview questions were broken up into four themes. The first theme was intended to gauge the level of awareness and understanding of the individual respondents of government legislation in place to promote the automotive industry. The second theme was to establish whether individual organisations had embarked on capital investment in equipment and technology in preparation for the APDP, while the third theme was to identify whether or not there had been special focus and attention given to development of people to support investment in capital in preparation for the APDP. Lastly, the fourth theme was to ascertain whether there were going to be drastic changes in the value and supply chain of the automotive industry supported by capital investment in preparation for the APDP.

4.3.1 Understanding of government legislation by industry

The questions that were posed to establish the level of understanding of government legislation were the following: 1. Has the Motor Industry Development Programme (MIDP) improved the profitability of your organisation? 2. Has the international competitiveness of South Africa as an automotive production location improved as a direct result of the MIDP? 3. Did your organisation invest in capital equipment as a result of MIDP? 4. Will the introduction of the Automotive Production and Development Programme (APDP) in 2013 lead to further growth of the local automotive industry?

5. Has the APDP assisted with long-term strategic planning as it claims to offer the local automotive industry certainty? 6. Does your organisation plan to invest in equipment or technology as result of the APDP?

The responses to the above mentioned questions varied between those that agreed, those that disagreed and those that were neutral. Figure 4 below is a graphical representation of the responses given by the respondents per question.

Figure 4: Understanding of government legislation by industry responses

100%

90%

80% 46% 54% 70% 62% 62% 69% 60%

50% 100%

40% 23%

30% 15% 8% 23% 46% 20% 31% 10% 23% 23% 15% 0% Q1 Q2 Q3 Q4 Q5 Q6

Neutral Disagree Agree

Figure 4 above indicates that most, 69 percent, of the respondents agreed that their organisation’s profitability had improved as a result of the MIDP. This was supported by the earlier reference in the literature review as indicated by the surge in exports or domestic production of vehicles in Table 3. All respondents agreed that South Africa’s international competitiveness as an automotive production location had improved as a direct result of the MIDP. More than half, 54 percent of the respondents indicated that

their organisations had invested in capital equipment as a result of the MIDP, while 46 percent maintained that they could not directly link it to the policy setting. Majority of the respondents (62 percent) agreed that, because the APDP was a continuation of the MIDP, its introduction will lead to further growth of the local automotive industry.

Furthermore, most respondents, 62 percent, agreed that the APDP offered their organisation a long term planning horizon as it offered the industry certainty. Lastly 46 percent of the respondents indicated that their organisations planned to invest in equipment and technology as a direct result of the APDP, while 31 percent remained uncertain whether their organisations would, as a direct result of the APDP invest further in capital equipment and technology.

All the respondents that were interviewed echoed that the MIDP had a significant contribution in reintegrating the SA automotive industry into the international stream. However none could with certainty attribute their organisation’s success and progress to legislation. Even though the respondents from OEMs more than those from suppliers indicated that as a result of the MIDP being an export pro programme their organisations were able to offer the local market a variety of products and multiple brands manufactured within other international group plants..Hence 69 percent of the respondents agreed that their profit margins had improved as a result thereof.

In addition to the above, a view shared by more than 60 percent of the respondents was that taking part in import and export programmes improved the image of the domestic manufacturer and thus attractiveness of their products to the domestic market. These developments created expectations of higher quality and price competitiveness, elements that added pressures on organisations to seek investments in technology and facilities capable and complementary of such goals. A sentiment that was voiced by all respondents was that such a step became an imperative for local manufacturers and suppliers to survive.

To be competitive, organisations invested heavily towards meeting the requirements of the MIDP; hence some of the respondents remained uncertain as to whether the introduction of the APDP might lead to organisations investing their capital in technology and equipment or not. What also emerged was a notion that due to the fact that the APDP is an extension of the MIDP, further investment in organisations will not necessarily be directly related to the APDP; rather it will be linked to product development and cost optimisation. Therefore investments that organisations embarked on were related to improving efficiency, cost of producing and quality of products to be able to be competitive within the context of a global arena, this practise is said to be done on a continuous basis by organisations that want to remain in business.

In summary, most of the respondents interviewed were aware of the government legislation and agreed that the incentives offered by government to industry aided international competitiveness of the SA automotive industry. As a result of the MIDP organisations within the automotive industry invested heavily in capital expenditure and shall continue to do the same under the APDP as it also offers certainty.

4.3.2 Investment in capital in preparation for APDP

The questions that were posed to establish whether organisations had invested in capital in preparation for the APDP were the following:

1. Does competitiveness in this industry depend on technological advancement? 2. Has there recently been any investment or purchases of new equipment to improve efficiency in your production operation as a result of APDP? 3. Has there recently been an infrastructural construction and development activity in your organisation to prepare for the APDP? 4. Would you say the budget for infrastructural and facilities has increased because of the anticipated APDP legislation?

5. Is continuous process improvement going to be used as a key performance indicator for management and supervision in your organisation as a result of APDP?

The responses to the above mentioned questions varied between those that agreed, those that disagreed and those that were neutral. Figure 5 below is a graphical representation of the responses given by the respondents per question.

Figure 5: Responses to the investment in capital in preparation for the APDP theme questions

100%

90% 15% 31% 31% 80% 38% 23% 70%

60% 15% 23% 50% 100%

40%

30% 62% 62% 54% 46% 20%

10%

0% Q1 Q2 Q3 Q4 Q5

Neutral Disagree Agree

On the question of competitiveness of the automotive industry depending on technological advancement, as can be seen above in figure 5, all the respondents agreed that it was an imperative. However, respondents indicated in their responses under the initial theme discussed above, that it would be difficult to say with certainty whether or not there was going to be further investment in technology, equipment and facilities as a direct result of the introduction of the APDP in 2013. A third, 31 percent of the respondents agreed that there had been recent investment in their organisations as

a direct result of the APDP, while 46 percent maintained that they could not with certainty say that the investment that had taken place was as a direct result of the forthcoming government policy reform.

None disagreed that there had been investment in infrastructure in preparation for the APDP, while 38 percent agreed and 62 percent were uncertain. All respondents agreed that to be competitive an organisation needs to stay up to date with technology and improve their infrastructure. It is only through advancement and embracing of technology that organisations are able to produce a better product to offer customers. Regarding capital investment in technology, equipment and facilities, the sentiment shared by most respondents was that the preparation that was done to satisfy the requirements of the MIDP would in most cases satisfy requirements of the APDP. Hence 54 percent of the respondents remained uncertain whether or not there would be major changes to their organisation’s infrastructural and facilities budgets.

When asked the question of whether there were any recent investments or purchases of new equipment as a result of APDP, two of the OEMs mentioned that investments currently occurring in their organisations were related to product development, general upgrades and plant efficiency improvements to meet demand and to improve competitiveness and not necessarily as a direct result of APDP. For example, MBSA are said to be in the process of preparing for a product that will replace their current C- class model, an investment that is reported to have been in the range of about twenty (20) million rands. Their preparation included improvement of cycle times in their body shop, paint shop and assembly lines through a focus on robotic cell efficiencies and better use of their buffer areas.

At VWSA investments dating back as far as 2008 up to 2012 are said to be in the range of two billion rands. These investments include the construction of a new eco-friendly paint shop, additional robots in the body shop and as recently as 2012, a new automated press shop. All investments done were said to be in the interest of productivity improvement. However such investments are expected to reduce in the

coming years to allow the organisations an opportunity to recoup the capital expenditure through revenue generation. The facilities and process planning office at VWSA for the next couple of years said it is expected what it called a season of quietness, whereby an organisation goes without or with very minimal investment in capital, a statement that gives testimony to the claim that the APDP does not necessarily act as a catalyst to capital investment.

Under MIDP industry conditions, continuous process improvement became an imperative; hence 62 percent of the respondents remained neutral when it came to the question of the principle of continuous improvement being made a key performance indicator (KPI) of management and supervision within organisations as a direct result of the APDP. Only 15 percent of the respondents indicated that they did not have the practise of measuring continuous improvement as a KPI in place, but believed they would benefit from it and therefore agreed that their organisation would do so with the introduction of the APDP.

4.3.3 Development in people to support capital investment in preparation for APDP

The questions that were posed to establish whether organisations had developed the people to support their investment, in capital in preparation for the APDP were the following:

1. Has there been any recent investment or extra-ordinary focus on training and development of people in your organisation in relation to the APDP? 2. Will APDP requirements result in altering of performance objectives by demanding special knowledge and skill sets? 3. To avoid performance ambiguities, will individuals be given clear performance contracts against which regular constructive reviews will be conducted?

4. With additional responsibilities that will be introduced to the organisation as a result of the APDP, will there be compensation package reviews, adjustments and alignment within your organisation to that effect? 5. Does APDP introduce additional requirements for training and development on Quality, Health and Safety of employees around the workplace?

The responses to the above mentioned questions varied between those that agreed, those that disagreed and those that were neutral. Figure 6 below is a graphical representation of the responses given by the respondents per question.

Figure 6: Responses to the development in people to support capital investment in preparation for APDP theme questions

100%

90% 31% 31% 80% 38% 38%

70% 62% 60% 8% 23% 8% 50%

40% 69% 30% 54% 54% 46% 20% 38% 10%

0% Q1 Q2 Q3 Q4 Q5

Neutral Disagree Agree

From Figure 6 above, it is evident that investment in latest technology and equipment is an imperative for organisations that hope to be competitive and successful businesses. However, the exercise of investing in technology alone as discussed in the literature review in Chapter 2 would prove ineffective. Indicated

above in Figure 6 is that 38 percent of the respondents agreed that there had been a recent strong focus on training related to the APDP, whether it had been training on new equipment acquired or the workings of the APDP policy itself. In order for an organisation to reap full benefit of investments made, an understanding of the workings of the technology, equipment and facilities is an imperative. Most of the respondents indicated that, because most of their technology is inherited from the parent organisation, expatriates are sought from their mother or parent organisation to ensure a transfer of knowledge takes place, or in other instances locals would be sent to overseas plants for training.

MBSA respondents have for example indicated that some of their employees and colleagues have recently been sent to their mother plant in Germany for training. Also, Rehau respondents indicated that with their high technology driven processes inherited or imported from their mother plant, lots of training takes place on a continuous basis. An organisation such as VWSA takes the notion of training as a critical element to a point whereby one of the respondents claimed that one of VWSA’s objectives is to establish themselves as a learning organisation.

Evidence to the claim made by the respondent of VWSA are learning academies that were constructed in recent years to service the various shops serving to create a pool of employees that would complement production principles and practices of the organisation. Through this exercise the organisation hoped to eliminate waste and improve in efficiency that could be caused by people who do not understand the intentions behind principles and practises followed.

To ensure sustainability of performance and application of acquired knowledge and skill by individuals, common practice as indicated by all respondents, was that clear performance objectives get constructed. Once the performance objectives have been agreed to, then constructive evaluations based on performance are objectively done. However not much was said to have changed as a result of the introduction of the APDP, except in departments that dealt directly with the workings of the APDP.

An example of a department that works directly with APDP would be purchasing or the finance department.

Even though no additional or special capital investments can be directly linked to the APDP, the support structure offered by the legislation to the automotive industry as was claimed by most respondents, gave long term certainty to the owners of production. This boosted confidence and made it possible for parent plants to make commitments to invest further in the South African automotive industry. MBSA’s new generation C– class export contract awarding and VWSA’s new Polo export contracts are two examples where that confidence has resulted in further capital investment that required training of employees.

4.3.4 Supply chain management to support capital investment in preparation for APDP

The questions that were posed to establish whether there would be changes in how organisations managed the supply chains to support their investment in capital, in preparation for the APDP were the following:

1. Will the value and supply chain alter as a result of APDP? 2. Will introduction of APDP lead to clustering of suppliers around OEMs? 3. Will the introduction of APDP foster collaborations of OEMs with suppliers? 4. Will suppliers become the engine of job and value growth in the automotive industry as a result of the APDP? 5. Will the APDP result in more production volumes for your organisation and industry?

The responses to the above mentioned questions varied between those that agreed, those that disagreed and those that were neutral. Figure 7 below is a graphical representation of the responses given by the respondents per question.

Figure 7: Responses to the supply chain management to support capital investment in preparation for the APDP theme questions

100%

90% 23% 23% 23% 31% 80% 8% 70% 15% 8% 60%

50% 100%

40% 77% 69% 30% 62% 62%

20%

10%

0% Q1 Q2 Q3 Q4 Q5

Neutral Disagree Agree

The confidence foreign investors have in the South African Automotive industry was indicated by the awarding of contracts mentioned above that have resulted in more demand of components being ordered by OEMs from their suppliers. Rehau respondents mentioned how the volumes they produce currently have grown since the securing of a deal with MBSA for some of their products. There has been an increase in volume, which they claim has put strain on their raw materials supply chain, resulting in them having to import some of their localised materials to support their operations, actions indicative of how the value and supply chain might alter under the new conditions of the APDP.

In order for the automotive industry to be competitive, NAAMSA has established a joint council with suppliers in an attempt to identify components manufactured by local component manufacturers that could be common for OEMs such as engine blocks or brakes to be able to create high volumes or demand for supplier products.

Additional to this initiative by NAAMSA of forming of a council with suppliers, various OEMs have managed to build enough confidence in suppliers that they have relocated or moved their operations closer to those OEMs. Examples of such occurrences are seen in Uitenhage with VWSA and the Nelson Mandela Metropolitan Logistics Park that hosts various suppliers and in East London’s Industrial Development Zone in which various suppliers that supply MBSA with components are located.

One respondent mentioned that every job occurring in the OEMs results in exponential growth in jobs being experienced by suppliers, with a ratio of at least 1:4. Evidence of this is the level of recruitment currently claimed by the respondents to be happening at Rehau in preparation for the ramp up, to be able to meet MBSA’s new demands.

4.4 SUMMARY

The collected data indicated that even though respondents claim that the APDP will not necessarily result in special capital investment, but because of the certainty it offered the industry, continuous improvement was still regarded as an imperative and requirement, so the capital investment taking place within the automotive industry was related to the introduction of the APDP. In order for organisations to realise high benefit from technological advancement there has to be congruence between the skills of labour and equipment. Additional to that another supplementary factor which is critical is the level of understanding of the legislation for which the relevant parties need to be trained.

Without proper understanding of the working of the legislation, organisations have no way of knowing how to respond to support the objective of the local industry to produce 1.2 million vehicles by the year 2020. However what was encouraging for the researcher was to ascertain that most of the respondents, with the exception of GMSA, seemed to be encouraged by the legislation and were gearing themselves to be able to

reap maximum benefits when the legislation comes into effect in 2013 and, also to be able to support the goal of producing 1.2 million vehicles by the year 2020.

Lastly the research supports the notion that to be competitive the South African automotive industry requires robust relationships between OEMs and suppliers. It is true, though, that a NAAMSA driven initiative of establishing a vehicle manufacturing and supplier council the South African automotive industry reflects an indication of this realisation.

Chapter 5 will outline the research summary, conclusion and recommendations.

CHAPTER 5 RESEARCH SUMMARY, CONCLUSION AND RECOMMENDATIONS

5.1 INTRODUCTION

In this chapter a summary of the research objective is given, as well as conclusions drawn from findings and recommendations for further research.

5.2 RESEARCH SUMMARY

The objective of this research study was to determine firm-level strategic changes in terms of manufacturing process strategies by means of investment in capital equipment as a result of the introduction of the APDP or in preparation thereof. The first step of this study will be an extensive literature review of manufacturing process strategies to compare and contrast after the announcement of the Motor Industry Development Plan (MIDP) successor the APDP towards the end of 2008. According to Ellis (2008), the South African automotive industry manufacturing process strategies should, since the announcement, have indicated a certain level of organisational readiness of industry players towards the implications of APDP for their business. Thus an evaluation of how the industry players have altered their game plan in preparation for the APDP was conducted, specifically with regard to investment in capital equipment.

To collect data a questionnaire based on the literature review was developed and semi- structured interviews were conducted with various industry experts as respondents. The questions were used to gauge the level of understanding by industry of the MIDP and APDP. Additional questions in line with organisational investment in capital in response to the aforementioned government incentive policies were also posed.

The literature review conducted revealed that there are intensified levels of competition experienced by domestic firms as a result of trade and investment systems liberisation brought upon by policy reforms that took place in the 1980s and 1990sin developing

countries. Furthermore as indicated by the literature review there was aggressive growth in interaction between local technology and imported knowledge that became rife, often in the form of foreign direct investments (FDI), interactions where the result depended heavily on the capabilities of the local firm and host country both at micro and macro level. Capabilities at firm level include the level of desire for new knowledge, skill level and diffusion of internal knowledge within respective manufacturers, whereas at macro level, investment in education, information systems and infrastructure development within the host country are key influential factors to successful interaction between local and foreign technology.

A point further discovered was how in developing countries success of the automotive industry is taken as a measure of economic triumph, a sign towards modern and foreign technology mastery. Hence governments deemed it as vital to establish strong government policies supporting and promoting the automotive sector. Testimony of this is South Africa who as a result of state-led intervention has recorded growth in exports of vehicles and components, as well as FDIs undertaken in the last decade. However, the literature alludes to this not being a situation peculiar to SA, since the automotive sector has attracted a lot of attention across the globe especially as far as developing economies are concerned.

Data were collected by means of a questionnaire based on the literature review and semi-structured interviews that were conducted. The questions were used to assess the level of understanding of the industry of the MIDP and APDP. Additional questions in line with organisational investment in capital in response to the aforementioned government incentives and policies were also posed.

Semi-structured interviews were conducted with thirteen respondents out of a possible fifteen experts/respondents that were sought from OEMs, first and second tier suppliers within the Eastern Cape and the Gauteng Province and Automotive Associations.

The empirical data collected for this study were in the form of words of the experts interviewed and not numerical. The validity of the data was based on the experience of the experts consulted. The data collected were analysed using the conventional content analysis approach, to identify trends and common themes. Questions asked were kept open ended and further clarifications were sought from interviewees. The decision to pursue this data collection method was based on the nature of the phenomenon studied being futuristic and having limited literature.

Interviews were held with thirteen experts or respondents from three OEMs namely VWSA, GMSA and MBSA, two first tier suppliers namely Rehau and Benteler which are located in the Eastern Cape and two Automotive Associations: namely NAAMSA and NAACAM.

The collected data were captured on a common information repository and analysed by establishing commonality amongst the views and opinions in responses given by respondents in line with questions gauging the various themes. Descriptive statistics and inferential analysis methods were endorsed as the preferred data analysis tools for analysis. An analysis was done in order to validate findings from the semi-structured interviews and literature review with regard to the introduction of the APDP and its effect on organisational investment in capital investment.

Finally an interpretation of the outcome of the study, recommendations and conclusion were given.

5.3 CONCLUSION

The collected data indicated that introduction of the APDP with its objective of 1.2 million cars by 2020 will result in capital investment decisions and employment. To illustrate the point of capital investment resulting in higher production output and employment levels a comparison between capital investment, vehicle production output

and industry employment levels from 2000 - 2008 was drawn, which Table 9 and Figure 8 below, show.

Table 9: Comparison between Capital Expenditure, Domestic Production Output and employment levels represented real number and in percentages over periods 2000 - 2008

2000 2001 2002 2003 2004 2005 2006 2007 2008 Capital Expenditure (CE) in R Million 1,562 2,078 2,726 2,325 2,220 3,576 6,215 3,096 3,290 Vehicles produced in units 356 800 406 779 405 071 421 965 455 702 525 227 587 719 534 490 562 965 Total number of employees 288 375 293 100 297 470 304 900 307 500 317 100 320 400 326 200 306 900 Change in Capital Expenditure (CE) versus previous period 3 % 33 % 31 % -15 % -5 % 61 % 74 % -50 % 6 % Change in Vehicles produced versus previous period 9 % 14 % 0 % 4 % 8 % 15 % 12 % -9 % 5 %

Change in Total number of employees versus previous period 3% 2% 1% 2% 1% 3% 1% 2% -6%

Figure 8: Graphical representation of the comparison between Capital Expenditure, Domestic Production Output and employment levels represented real number and in percentages over periods 2000 - 2008

80% 74%

60% 61%

40% 33% 31%

20% 15% 14% 12% 9% 8% 4% 5% 6% 3% 0% 3% 2% 1% 2% 1% 1% 2% 3% 0% 2000 2001 2002 2003 2004-5% 2005 2006 2007 2008-6% -9% -20% -15%

-40%

-50% -60%

Capital Expenditure (CE) Vehicles produced Total number of employees

Interesting to note in Figure 8 above is the positive trend and correlation evident in the variables being compared. In most instances, where there has been an increase in capital expenditure there has also been an increase in vehicles produced. Also to note is the lagging response regarding the employment levels to the changes in capital expenditure.

Therefore as a result of required continuous improvement that is regarded as an imperative for success, manufacturing strategies will alter with further capital investment taking place within the automotive industry. In order for organisations to realise tangible and intended benefit from technological advancement by means of capital investment

there has to be congruence between the levels of employment, skills of labour and equipment acquired. Progressive organisations such VWSA, MBSA, Benteler and Rehau, to name a few in the automotive industry, show a link between training and investment in capital as key.

Additional to that, another supplementary factor which is critical is the level of understanding of the legislation, for which the relevant parties need to be trained. Without proper understand of the working of the legislation, organisations have no way of knowing how to respond. However what was encouraging for the researcher was to ascertain that most of the respondents, with the exception of GMSA, seemed to be encouraged by the legislation and were gearing themselves to be able to reap maximum benefits when the legislation comes into effect in 2013 and, also to be able to support the goal of producing 1.2 million vehicles by the year 2020.

Table 10 : Correlation between capital expenditure and vehicles produced over the years 2000 – 2008

Capital Expenditure (CE) in Vehicles produced in Correlation R Million units Capital Expenditure (CE) in R Million 1 Vehicles produced in units 0.817495327 1

Further correlation between capital expenditure and vehicles produced is shown in Table 10 above and indicates a strong positive correlation (0.82) between capital expenditure and vehicles produced. This means that as companies increase expenditure on capital equipment it results in higher production volumes.

The literature review also showed that during the MIDP regime, the automotive industry has between years 2000 – 2008 on average invested R216 million annually and gained an average of 25 800 units in growth. The total investment in the automotive industry over the period of years 2000 to 2012 amounted up to R44 billion and the resultant of this capital expenditure has been the cumulative growth seen in the industry of up to

563 000 units produced by year 2008. However, simply continuing on this investment trajectory would require up to the year 2031 for the industry to meet the target of 1.2 million vehicles. A projection based on the principle of doubling the effort, indicates that the automotive industry needs to double annual capital expenditure to be able to achieve the set target of 1.2 million vehicles over the intended period (year 2013 – 2020), refer figure 9 below.

For the same capital expenditure mentioned above, the average yearly total number of employees employed in the automotive industry over the period from 2000 – 2008, was 306 883 people. So doubling the capital expenditure to be able to support and meet the objective of the APDP will result in double the growth in employment levels too.

Figure 9: Projected capital expenditure and growth of total units produced over period of year 2013 - 2020

9 000 000 1 400 000

8 000 000 1 200 000 7 000 000 1 000 000 6 000 000 5 000 000 800 000 4 000 000 600 000 3 000 000 400 000 2 000 000 1 000 000 200 000

0 0

2001 2000 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Capital Expenditure (CE) in R Million Vehicles produced in units

Figure 9 above illustrates and makes clear that, the South African automotive industry requires doubling the effort in terms of further investment in capital to further rationalise production to be able to reach the target set by government of 1.2 million vehicles by the year 2020. The vertical axis on the left side (primary axis) of the graph indicates capital expenditure and the opposite side (secondary vertical axis) indicates resultant

units produced. The South African automotive industry needs to from year 2013 – 2020 spend an average of R432 million annually to gain an annual average of 55 000 units to be able to meet the APDP legislated target of 1.2 million vehicles by year 2020.

5.4 RECOMMENDATIONS AND AREAS FOR FUTURE RESEARCH

Developing countries around the world rely on their manufacturing sector as an indicator of growth where for example, success of the automotive industry is taken as a measure of economic triumph, a sign of modern and foreign technology mastery. Thus governments deem it as vital to establish strong government policies supporting and promoting the automotive sector.

The APDP, which is set to be launched in South Africa in the year 2013, is one of such policies. This policy is defined by the DTI and seeks to promote and incentivise the industry to produce, by the year 2020, vehicles in the range or excess of 1.2 million with a goal of creating employment in the process. However there is no clear path set or created to ensure that these goals are met. So a few areas that would benefit from further research according to the author are as follows:

1. What informed or were the building stones or thought processes that led to the government’s declaration or objective of 1.2 million vehicles by 2020?

2. In keeping with world class manufacturing processes and global competition will the APDP result in more labour intensive or automated investments being made by automotive companies in South Africa?

3. Will growth in the automotive industry in South Africa result in deepening of the supply chain as a result of the AIS offered by the APDP?

4. To what extent does alignment of labour to invested technology improve competitiveness of an organisation?

5. Is there or will there be a market to consume the 1.2 million vehicles espoused by the South African government through the APDP?

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ANNEXURE 1 - COVER LETTER

Dear Respondent

I am studying towards my MBA (Masters in Business Administration) degree at the Nelson Mandela Metropolitan University Business School. I am conducting research in an attempt to establish changes in capital investment in automotive organisations in preparation for the APDP. I believe that my study will make a contribution to improving the strategic management of organisations in response to changes in legislation and giving service delivery to the South African population.

You are part of a selected sample of respondents whose views are sought on the above-mentioned matter. We would therefore appreciate it if you could agree to an interview to answer a few questions. It should not take more than thirty minutes of your time and we want to thank you in advance for your co-operation.

There are no correct or incorrect answers. Please answer the questions as accurately as possible. The interviewer will give any clarifications required on any of the questions

Thank you very much.

Yours sincerely, Bandile Bacela Student number: 20001677 Cell: 072 243 5878 Email: [email protected]

To verify the authenticity of the study, please contact Dr Siyabonga Simayi at 041-403 0486 or via email at [email protected]

ANNEXURE 2 – INTERVIEW QUESTIONS

AN EVALUATION OF CHANGES IN CAPITAL INVESTMENT BY AUTOMOTIVE COMPANIES IN PREPARATION FOR THE APDP: INTERVIEW QUESTIONS

These interview questions are part of a study that investigates the readiness of automotive organisations to the new legislation called the APDP. In order to meet the objective of this study and comprehensive interpretations, recommendations and conclusions, questions guiding Capital Investment for Technology preparedness have been constructed below. Please be advised that the following questions will only be used as a guide and for the sake of clearly understanding the respondent’s opinion, clarification with each response might be requested.

Demographic Section:

Position of the interviewee: Work Experience: Gender: Name of Organisation: Type of Organisation (OEM, OES, Auto Association): Geographic location (Province): Volumes produced per annum (range):

Gauging the organization’s level of understanding of the industry specific incentives by government:

7. Has the Motor Industry Development Programme (MIDP) improved the profitability of your organisation? Please elaborate. 8. Has the international competitiveness of South Africa as an automotive production location improved as a direct result of the MIDP? Please elaborate. 9. Did your organisation invest in capital equipment as a result of MIDP? 10. Will the introduction of the Automotive Production and Development Programme (APDP) in 2013 lead to further growth of the local automotive industry? 11. Has the APDP assisted with long-term strategic planning as it claims to offer the local automotive industry certainty? 12. Does your organisation plan to invest in equipment or technology as result of the APDP.

In assessing alterations to business strategies taking into consideration the several factors which ensure success, namely investment in people, investment in processes, investment in capital, and effective supply chain management (Ellis, 2008).

Investment in capital:

6. Does competitiveness in this industry depend on technological advancement? 7. Has there recently been any investment or purchases of new equipment to improve efficiency in your production operation as a result of APDP? 8. Has there recently been an infrastructural construction and development activity in your organisation to prepare for the APDP? 9. Would you say the budget for infrastructural and facilities has increased because of the anticipated APDP legislation? 10. Is continuous process improvement going to be used as a key performance indicator for management and supervision in your organisation as a result of APDP?

Development in people to support capital investment:

6. Has there been any recent investment or extra-ordinary focus on training and development of people in your organisation in relation to the APDP? 7. Will APDP requirements result in altering of performance objectives by demanding special knowledge and skill sets? 8. To avoid performance ambiguities, will individuals be given clear performance contracts against which regular constructive reviews will be conducted? 9. With additional responsibilities that will be introduced to the organisation as a result of the APDP, will there be compensation package reviews, adjustments and alignment within your organisation to that effect? 10. Does APDP introduce additional requirements for training and development on Quality, Health and Safety of employees around the workplace?

Supply chain management to support capital investment:

6. Will the value and supply chain alter as a result of APDP? 7. Will introduction of APDP lead to clustering of suppliers around OEMs? 8. Will the introduction of APDP foster collaborations of OEMs with suppliers? 9. Will suppliers become the engine of job and value growth in the automotive industry as a result of the APDP? 10. Will the APDP result in more production volumes for your organisation and industry?

ANNEXURE 3 – INTERVIEW 1

Demographic Section:

Position of the interviewee: HR Manager Work Experience: 24 years Gender: Male Name of Organisation: VWSA Type of Organisation (OEM, OES, Auto Association): OEM Geographic location (Province): EC Volumes produced per annum (range): 130 000

Gauging the organization’s level of understanding of the industry specific incentives by government:

1. Has the Motor Industry Development Programme (MIDP) improved the profitability of your organisation?  Don’t know the profit margins of the company, but I can say it definitely helped with the volumes being produced. Our ability to import different brands depends on the volumes we produce and export since rebates and credits earned under this policy allow for it. This has boosted our company’s image and thus attractions to the products produced locally also increases.

2. Has the international competitiveness of South Africa as an automotive production location improved as a direct result of the MIDP?  The extent to which organisations, which are predominantly foreign owned have developed export programmes indicates that, yes, South Africa is internationally competitive.

3. Did your organisation invest in capital equipment as a result of MIDP?  One of the things that were required was to improve quality and this required investment in facilities, an example of which is the new paint shop and installation of additional and new generation robots in the body shop.

4. Will the introduction of the Automotive Production and Development Programme (APDP) in 2013 lead to further growth of the local automotive industry?  I do not believe that the APDP alone will achieve that, but it will contribute significantly as it is a continuation and improvement of the MIDP.

5. Has the APDP assisted with long-term strategic planning as it claims to offer the local automotive industry certainty?  The decision to reduce from multi platforms to a single platform that would enable high volume planning and production was influenced by the certainty offered by the MIDP and subsequent to that now the APDP.

6. Does your organisation plan to invest in equipment or technology as result of the APDP?  Not necessarily as a result of the APDP, but the certainty that the support by government through the MIDP or APDP offers the industry, on a continuous basis there has to be and will be investment to improve productivity and competitiveness.

Investment in capital:

1. Does competitiveness in this industry depend on technological advancement?

 Technology is important and plays a big role, because competing with the rest of the world requires that one’s production processes be at a level competitive with first world country products to which one exports or the products imported from such into the country. An example being the vehicles being exported to Japan or imported from Germany.

2. Has there recently been any investment or purchases of new equipment to improve efficiency in your production operation as a result of APDP?  I am unfortunately not in a position to know about the reasons for all recent investments in the company, but due to the APDP being a consideration to our plans then perhaps it is possible that some of the recent investments were as a result thereof.

3. Has there recently been an infrastructural construction and development activity in your organisation to prepare for the APDP?  No, the infrastructure in-place should be enough to respond to the requirements of the APDP.

4. Would you say the budget for infrastructural and facilities has increased because of the anticipated APDP legislation?  Due to forward planning regarding the MIDP, there will not necessarily be dramatic changes to that aspect of the business.

5. Is continuous process improvement going to be used as a key performance indicator for management and supervision in your organisation as a result of APDP?  It is difficult to say that all that has been done is as a result of the APDP; continuous process improvement is the cornerstone of our production processes and systems and has therefore always been part of our company’s key performance areas and indicator for our managers and supervisors.

Development in people to support capital investment:

1. Has there been any recent investment or extra-ordinary focus on training and development of people in your organisation in relation to the APDP?  One of our company’s strategy is to become a learning organisation, so the focus on training and development within our organisations has not necessarily been as a result of the APDP

2. Will APDP requirements result in altering of performance objectives by demanding special knowledge and skill sets?  Performance objectives depend on company strategies and even though the APDP does get given fair consideration it is difficult to say whether or not performance objectives have altered as a result of the APDP

3. To avoid performance ambiguities, will individuals be given clear performance contracts against which regular constructive reviews will be conducted?  That is what our performance management system does, all individuals have their own KPAs and KPIs against which they need to perform, so everybody is clear about their performance objectives.

4. With additional responsibilities that will be introduced to the organisation as a result of the APDP, will there be compensation package reviews, adjustments and alignment within your organisation to that effect?  Not as a result of APDP, but any salary reviews would be as a result of company strategy and policies.

5. Does APDP introduce additional requirements for training and development on Quality, Health and Safety of employees around the workplace?  Not necessarily, but if there are particular standards brought about by the APDP then training in line with that will take place.

Supply chain management to support capital investment:

1. Will the value and supply chain alter as a result of APDP?  Not necessarily, because what we have currently is something responsive to the requirement of the APDP, but what we cannot discount is that we will always look for ways to improve supply chain processes.

2. Will introduction of APDP lead to clustering of suppliers around OEMs? I think the MIDP has already done that, if you look at the fact that around VWSA there is already a supplier park precisely because we needed to localise parts and for easy access makes us more competitive. So in my view it will just be a continuation of what has already started.

3. Will the introduction of APDP foster collaborations of OEMs with suppliers?  I think those collaboration might be there, because a decision made by suppliers to relocate facilities depends on viability of business. A supplier would be influenced or influence a collaboration between OEMs and suppliers, an example being VWSA being closer to GMSA and even MBSA which would have influenced decisions made by organisation in the supplier park.

4. Will suppliers become the engine of job and value growth in the automotive industry as a result of the APDP?  Suppliers exist as a result of OEMs, so it will depend on the growth of OEMs whether or not suppliers will grow, so to suggest that they will be the engines of job and value growth I am not sure.

5. Will the APDP result in more production volumes for your organisation and industry?  In my view yes, conditional to existence of a market or the creation thereof.

ANNEXURE 4 – INTERVIEW 2

Demographic Section:

Position of the interviewee: Executive Director Work Experience: 42 years Gender: Male Name of Organisation: NAACAM Type of Organisation (OEM, OES, Auto Association): Auto Association Geographic location (Province): GP Volumes produced per annum (range): R 60 billion

Gauging the organization’s level of understanding of the industry specific incentives by government:

1. Has the Motor Industry Development Programme (MIDP) improved the profitability of your organisation?  No, the MIDP has not improved the profitability, because prior to the MIDP there was mandatory local content where manufacturers had to have a significant amount of local content in their vehicles. Once the MIDP was introduced there were no longer mandatory requirements for local content. Additional to that suddenly components manufacturers had to face competition they had never faced before from imported components and as a result some had to drop prices and others lost business, so the MIDP had a negative impact on profitability.

2. Has the international competitiveness of South Africa as an automotive production location improved as a direct result of the MIDP?  Yes, definitely, because under MIDP the import duties on vehicles reduced dramatically and as mentioned earlier a lot of competition on component manufacturers, so both vehicle and component manufacturers had to improve the productivity and reduce costs.

3. Did your organisation invest in capital equipment as a result of MIDP?  Yes, even though there was always investment in capital equipment every time there was introduction of a new model, but as a result of the MIDP new export business resulted in 20-30 percent more capital investment than before.

4. Will the introduction of the Automotive Production and Development Programme (APDP) in 2013 lead to further growth of the local automotive industry?  Even though the intention is to lead to further growth, but due to many uncontrolled variables such as global economies or competitiveness of OEMs we simply do not know whether or not the APDP will lead to further growth. If everything remained the same though the APDP would lead to further growth, but the problem is it will result in reduction in component exports due to the components export incentive that is significantly lower. The APDP might see OEMs such as BMW focusing on higher volume models or platform, as the automotive industry is more competitive under high volumes. Or else for a big organisation such as Toyota the focus might be on more than one high volume model. The high volumes produced by OEMs will have a positive spin off for local component manufacturers, even though a third of the component manufacturers might lose export business.

5. Has the APDP assisted with long-term strategic planning as it claims to offer the local automotive industry certainty?  As the MIDP provided long term certainty, the APDP does the same, but the difference between the two programmes was that the MIDP was focused on only export business, whereas the APDP supports all production, local and exports.

6. Does your organisation plan to invest in equipment or technology as result of the APDP?  Not necessarily as a result of the APDP, but due to OEMs introducing new models, component manufacturers might invest further in their processes too as an impact of that.

Investment in capital:

1. Does competitiveness in this industry depend on technological advancement?  Yes, whether it is the technology used in a product or process involved with the manufacturing of one. An element that gives companies a competitive edge as technology is directly related to convenience and in some instances comfort which act as differentiators from one business to the next.

2. Has there recently been any investment or purchases of new equipment to improve efficiency in your production operation as a result of APDP?  Not necessarily as indicated earlier, it is very not possible to relate or link all investment decisions to APDP.

3. Has there recently been an infrastructural construction and development activity in your organisation to prepare for the APDP?  Yes, there are organisations that have done so as a result of the announcement of the APDP, but it is a pity I do not have the exact details to share with you.

4. Would you say the budget for infrastructural and facilities has increased because of the anticipated APDP legislation?  In some cases, yes it has, as in the instance just mentioned.

5. Is continuous process improvement going to be used as a key performance indicator for management and supervision in your organisation as a result of APDP?  That practise is not so much prevalent in the component manufacturing sector, if there will be such it is or will be amongst the larger organisations.

Development in people to support capital investment:

1. Has there been any recent investment or extra-ordinary focus on training and development of people in your organisation in relation to the APDP?  In some cases, yes, one of the organisations has a program of doing on- going training related to new developments

2. Will APDP requirements result in altering of performance objectives by demanding special knowledge and skill sets?  All suppliers have mechanisms to communicate to employees what their targets and objectives are.

3. To avoid performance ambiguities, will individuals be given clear performance contracts against which regular constructive reviews will be conducted?  I believe that is or should be standard practice in all organisations.

4. With additional responsibilities that will be introduced to the organisation as a result of the APDP, will there be compensation package reviews, adjustments and alignment within your organisation to that effect?  Not necessarily related to APDP, but when there is a need for additional resources as a result of acquired new business there might be.

5. Does APDP introduce additional requirements for training and development on Quality, Health and Safety of employees around the workplace?  Nothing related to APDP, no.

Supply chain management to support capital investment:

1. Will the value and supply chain alter as a result of APDP?  The value and supply chain of component manufacturers mainly set up for exports will as a result of what I have mentioned earlier change, due to them seeking means and ways of reducing or cutting costs.

2. Will introduction of APDP lead to clustering of suppliers around OEMs?  As much as every OEM would like to have suppliers in close proximity, that does not prove practical.

3. Will the introduction of APDP foster collaborations of OEMs with suppliers?  What we are currently seeing are some OEMs talking about using the same suppliers to give that supplier more volume to assist them with recovering of their overhead cost. As well as tooling the OEMs support suppliers with, but once again I cannot say that this is happening as result of APDP.

4. Will suppliers become the engine of job and value growth in the automotive industry as a result of the APDP?  They should, but a lot depends on OEMs increasing their levels of localisation or local sourcing of components. Most of the employment in this instance will not happen at OEM level, but with suppliers.

5. Will the APDP result in more production volumes for your organisation and industry?  As we move from MIDP to APDP the shift will cost companies, but dependent on new model introduction some suppliers will experience growth, as we have seen with the introduction of the new Ford Ranger. Though we might not see immediate growth, but with time there will be notable growth. With the aim of the APDP being to deepen the supply chain, the challenge and threat to this goal is technology required to meet standards set by OEMs that third and forth tier suppliers might struggle with. Additional intervention required to support component manufacturers would be to get the government to insist that OEM have a certain degree of local content to qualify for the AIS component of the APDP.

ANNEXURE 5 – INTERVIEW 3

Demographic Section:

Position of the interviewee: Manager Technical Controlling + Vice Chairperson of APDP Working Group Work Experience: +30 years Gender: Male Name of Organisation: VWSA + NAAMSA Type of Organisation (OEM, OES, Auto Association): OEM + Auto Association Geographic location (Province): EC Volumes produced per annum (range): 130 000 units + 600 000 units

Gauging the organization’s level of understanding of the industry specific incentives by government:

1. Has the Motor Industry Development Programme (MIDP) improved the profitability of your organisation?  Definitely yes, the volume has grown from inception of programme, if one were to go back to the early to mid nineties where export volumes were very low and compare to 2011 where VWSA exported up to 80 000 vehicles it would be clear . Without MIDP VWSA and the industry would not have been competitive or profitable.

2. Has the international competitiveness of South Africa as an automotive production location improved as a direct result of the MIDP?  Already discussed in question one above.

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3. Did your organisation invest in capital equipment as a result of MIDP?  Definitely, if one looks at the new Polo the company invested to be able to produce higher volumes specifically so we could export the cars. Where we made investment we allowed for the fact that we were going to make exports, so if it were not for the MIDP we would have had the opportunity for exports.

4. Will the introduction of the Automotive Production and Development Programme (APDP) in 2013 lead to further growth of the local automotive industry?  I think that for couple of reasons that will happen, number one the motor industry is really important to the government, they want to grow the market to 1.2 million vehicles per annum. Under they are doing everything to try and assist, at the moment they are trying to reduce the costs at the ports to make importing and exporting more competitive. In the new APDP the focus is on entire production not only exports, so one earns more incentives for producing locally irrespective of destination of product. The incentive that one earns under the APDP is higher that the MIDP offered, hence it is my view that there will be growth in the local automotive industry.

5. Has the APDP assisted with long-term strategic planning as it claims to offer the local automotive industry certainty?  When the MIDP came there was long term certainty and at the end of it when the minister of DTI announced the APDP basic guidelines some of the manufacturers went and asked him for certain commitments before investing further.

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6. Does your organisation plan to invest in equipment or technology as result of the APDP?  Yes, if there was no programme there would be no export and production volumes would have remained low, to maximise our volumes to be able to benefit from the APDP incentives I would say we definitely are going to invest

Investment in capital:

1. Does competitiveness in this industry depend on technological advancement?  I would say definitely yes, because if you want to be competitive everyone has to keep up to date with technology, the technology required by VWSA vehicles requires suppliers to have a certain degree of high technology equipment; hence companies such as Benteler, Rehau were imported by VW Group to be able to supply components to the required specification(s).

2. Has there recently been any investment or purchases of new equipment to improve efficiency in your production operation as a result of APDP?  Investment in our products such as the Polo and Vivo were made with the APDP taken into account. As well as the additional investment in the new press shop where a decision on whether it would be viable to source outside or import parts rather than press them ourselves was based on the APDP.

3. Has there recently been an infrastructural construction and development activity in your organisation to prepare for the APDP?  The press shop which we have just discussed is an example of one.

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4. Would you say the budget for infrastructural and facilities has increased because of the anticipated APDP legislation?  Investments that we make in the industry are mostly based on models and at the moment there are no major investments taking place, the industry is going through a down business cycle, thus this budget is not expected to change significantly.

5. Is continuous process improvement going to be used as a key performance indicator for management and supervision in your organisation as a result of APDP?  N/A

Development in people to support capital investment:

1. Has there been any recent investment or extra-ordinary focus on training and development of people in your organisation in relation to the APDP?  Not only in our organisation, but also with the suppliers there has been a program set up to training with all of the purchasing and finance personnel

2. Will APDP requirements result in altering of performance objectives by demanding special knowledge and skill sets?  The APDP is definitely more complex than the MIDP and requires more understanding.

3. To avoid performance ambiguities, will individuals be given clear performance contracts against which regular constructive reviews will be conducted?  Yes all personnel affected by the APDP will get given their individual KPI and will be measure accordingly.

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4. With additional responsibilities that will be introduced to the organisation as a result of the APDP, will there be compensation package reviews, adjustments and alignment within your organisation to that effect?  Not necessarily, but with the additional responsibilities there might be extra jobs created or re-allocation of resources.

5. Does APDP introduce additional requirements for training and development on Quality, Health and Safety of employees around the workplace?  Not as far as I know.

Supply chain management to support capital investment:

1. Will the value and supply chain alter as a result of APDP?  The benefit of the APDP will be experienced as a result of local production it should promote the deepening of the supply chain, as well as an initiative between NAAMSA and suppliers that is underway to try and find a degree of commonality to allow one supplier to supply the same component to more than one OEM.

2. Will introduction of APDP lead to clustering of suppliers around OEMs?  As a result of OEMs wanting to be competitive, they will automatically look for suppliers in close proximity to them and that phenomenon will encourage clustering.

3. Will the introduction of APDP foster collaborations of OEMs with suppliers?  The OEM Supplier council that seeks to identify suppliers that can supply to more OEMs is one example that I can think of at this stage as collaboration between suppliers and OEMs.

4. Will suppliers become the engine of job and value growth in the automotive industry as a result of the APDP?

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 They have to be, because every job at OEM level results in exponential growth within the supplier value chain.

5. Will the APDP result in more production volumes for your organisation and industry?  We can only wish, even though it is the goal of the APDP, there is no way of knowing what will happen. To grow the industry I think that reducing the number of suppliers would help in terms of creating bigger suppliers that would be able to enjoy the economies of scale.

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ANNEXURE 6 – INTERVIEW 4

Demographic Section:

Position of the interviewee: Manufacturing Engineering and Quality Manager Work Experience: + 12 years Gender: Male Name of Organisation: MBSA Type of Organisation (OEM, OES, Auto Association): OEM Geographic location (Province): EC Volumes produced per annum (range): 80 000 – 90 000 units

Gauging the organization’s level of understanding of the industry specific incentives by government:

1. Has the Motor Industry Development Programme (MIDP) improved the profitability of your organisation?  One cannot really say specifically yes or no, but is has made producing and selling cars viable, price wise. However one cannot say all the success of the organisation was as a result of MIDP, because in organisations such as ours there are other activities that ensure sustainability of the business. Such as focus on quality that has earned us awards such as JD Powers.

2. Has the international competitiveness of South Africa as an automotive production location improved as a direct result of the MIDP?  In general the MIDP has played an important role on improving international competitiveness of South Africa as an automotive production location, but it is

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difficult to consider the MIDP as having improved everything in the automotive industry.

3. Did your organisation invest in capital equipment as a result of MIDP?  Yes, for instance we knew that if we invested on certain equipment and technology there would be a certain percentage of that investment that we were guaranteed back as a result of incentives offered by the MIDP.

4. Will the introduction of the Automotive Production and Development Programme (APDP) in 2013 lead to further growth of the local automotive industry?  Difficult to say that, because it will not only depend on how companies respond to APDP, but also how the market responds, whether or not there will be demand for the high volumes encouraged by the APDP.

5. Has the APDP assisted with long-term strategic planning as it claims to offer the local automotive industry certainty?  With us yes it has, similar to the MIDP, the APDP offers incentives that the organisation can benefit from.

6. Does your organisation plan to invest in equipment or technology as result of the APDP.  We have started an initiative where we aim to maximise on incentives offered by the APDP. These incentives assist us in being competitive, because when excluded from our unit cost calculation we become uncompetitive. If we to become uncompetitive we would lose the project of the new C-Class (W205) or even the current C-Class (W204).

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Investment in capital:

1. Does competitiveness in this industry depend on technological advancement?  Yes, it definitely does, for the sake of competing with overseas or international manufacturers it is an imperative to invest in technology.

2. Has there recently been any investment or purchases of new equipment to improve efficiency in your production operation as a result of APDP?  As indicated earlier yes, investment for us is most about taking advantage of the incentives offered by the APDP, which makes us competitive.

3. Has there recently been an infrastructural construction and development activity in your organisation to prepare for the APDP?  Yes and no, for us investment is almost always related to new model introduction, but with this change perhaps the APDP or MIDP has help us in terms of being competitive within the Daimler group.

4. Would you say the budget for infrastructural and facilities has increased because of the anticipated APDP legislation?  Not necessarily.

5. Is continuous process improvement going to be used as a key performance indicator for management and supervision in your organisation as a result of APDP?  Once again that would not necessarily be related to APDP, it is already part of the KPIs and KPA of the organisation. Up to the point where we even have a whole department focusing just on continuous improvement.

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Development in people to support capital investment:

1. Has there been any recent investment or extra-ordinary focus on training and development of people in your organisation in relation to the APDP?  Not necessarily related to APDP, but with new technology introduction as a result of new product development experts from international group get invited to come and give training or our own people get sent abroad for training on the technology and equipment to be imported.

2. Will APDP requirements result in altering of performance objectives by demanding special knowledge and skill sets?  No, unfortunately not to my knowledge.

3. To avoid performance ambiguities, will individuals be given clear performance contracts against which regular constructive reviews will be conducted?  Well it is part of company procedure and policy that individuals are always given clear objectives.

4. With additional responsibilities that will be introduced to the organisation as a result of the APDP, will there be compensation package reviews, adjustments and alignment within your organisation to that effect?  No, unfortunately not to my knowledge. However I would not imagine that there would be any compensation package reviews as a result of APDP.

5. Does APDP introduce additional requirements for training and development on Quality, Health and Safety of employees around the workplace?  No, not at the moment, but if when it is introduced it will come with its own requirements, then perhaps then additional training will be given. The training being done at the moment is only related to the introduction of the W205.

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Supply chain management to support capital investment:

1. Will the value and supply chain alter as a result of APDP?  If the component manufacturers were to up their game in terms of the quality of their products to be in line with the requirements of MBSA which depends on the technology used in their processes it would help us so that we can source locally to avoid logistics costs and so forth.

2. Will introduction of APDP lead to clustering of suppliers around OEMs?  I do not want to say yes, because if you look at the concept of the IDZ it was before the APDP, but perhaps now this will be a growing trend. As the clustering of suppliers around OEMs helps that OEM to be competitive as it will reduce the transportation and other logistics costs and thus improving the competitiveness of the suppliers and OEMs.

3. Will the introduction of APDP foster collaborations of OEMs with suppliers?  We cannot say that for sure, but it will depend on the willingness of both OEMs and suppliers to work in conjunction with one another.

4. Will suppliers become the engine of job and value growth in the automotive industry as a result of the APDP?  Should suppliers take advantage of the benefits and incentives offered by the APDP as well as a responsive market then yes the suppliers may become the engine of job and value growth.

5. Will the APDP result in more production volumes for your organisation and industry?  That a difficult question to answer, because I do not look at the APDP as a stand-alone factor, but as a combination of all the variables that can contribute towards more volumes, including the demand for the various products.

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ANNEXURE 7 – INTERVIEW 5 AND 6 COMBINED

Demographic Section:

Position of the interviewee: Logistics and Fabrication Process Managers Work Experience: 12 years and 10 years Gender: Males Name of Organisation: Rehau Polymer Ltd Type of Organisation (OEM, OES, Auto Association): Supplier Geographic location (Province): EC Volumes produced per annum (range): 167 000 units

Gauging the organization’s level of understanding of the industry specific incentives by government:

1. Has the Motor Industry Development Programme (MIDP) improved the profitability of your organisation?  Profitability wise it is difficult to say, but in terms of recouping investment yes MIDP has helped.

3. Did your organisation invest in capital equipment as a result of MIDP?  Investment decisions get taken at group level as a result of tenders awarded by the VW group and Daimler Group to their South African group companies.

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4. Will the introduction of the Automotive Production and Development Programme (APDP) in 2013 lead to further growth of the local automotive industry?  Yes, over R450 million will be invested in South Africa between 2009 and 2014 to be able to supplier VWSA with bumpers for the new Polo and some components for the W204 at MBSA and the new W205 under development for introduction next year.

5. Has the APDP assisted with long-term strategic planning as it claims to offer the local automotive industry certainty?  Yes, there was a lot of uncertainty with the MIDP running out, but with the announcement of the APDP people have got a base on which to plan from. It is also my belief that the APDP will achieve more than the MIDP as a result of the orientation on production rather than on exports.

6. Does your organisation plan to invest in equipment or technology as result of the APDP.  See response no. 4 above.

Investment in capital:

1. Does competitiveness in this industry depend on technological advancement?  Level of upgrading required to meet specification given by OEMs with new product developments is testimony to that.

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2. Has there recently been any investment or purchases of new equipment to improve efficiency in your production operation as a result of APDP?  As indicated on the above response and the response to question number 4 under the initial theme yes.

3. Has there recently been an infrastructural construction and development activity in your organisation to prepare for the APDP?  Yes, as indicated in the response to question number 4 under the initial theme about R450 million will be invested in the organisation between 2009 and 2014. With R250 million already being spent and another R200 million to be used in the next two to three years.

4. Would you say the budget for infrastructural and facilities has increased because of the anticipated APDP legislation?  As indicated earlier investment in our organisation is not necessarily due to APDP, but a decision taken at group level as a result of tenders awarded by VWSA and MBSA.

5. Is continuous process improvement going to be used as a key performance indicator for management and supervision in your organisation as a result of APDP?  Not as a result of APDP, but as part of the ISO certification requirements, as a result of which continuous improvement is part of every individual’s performance objective.

Development in people to support capital investment:

1. Has there been any recent investment or extra-ordinary focus on training and development of people in your organisation in relation to the APDP?  There is always training taking place within Rehau, though not necessarily related to APDP, but due to development in technology as a result of

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decisions taken by the group prompted by the awarding of tenders by our customers (VWSA and MBSA).

2. Will APDP requirements result in altering of performance objectives by demanding special knowledge and skill sets?  As mentioned earlier most investment decisions are taken by the group to support our customers, so performance objectives are not based on APDP or MIDP, but on specifications given by customers.

3. To avoid performance ambiguities, will individuals be given clear performance contracts against which regular constructive reviews will be conducted?  As part of company procedure and policy that individuals are always given clear objectives.

4. With additional responsibilities that will be introduced to the organisation as a result of the APDP, will there be compensation package reviews, adjustments and alignment within your organisation to that effect?  Maybe not the correct answer, but decisions around the issue of responsibilities or compensation packages are driven by customer requirements as indicated earlier not as a result of APDP.

5. Does APDP introduce additional requirements for training and development on Quality, Health and Safety of employees around the workplace?  No, not as far as we are concerned.

Supply chain management to support capital investment:

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maintenance or support that is in close proximity, yes the value and supply chain will alter.

2. Will introduction of APDP lead to clustering of suppliers around OEMs?  It should, as it can be seen with the development of the Nelson Mandela Bay Logistics Park around VWSA. Even MBSA wanted us to relocate our facilities to e close to them, but it proved not to be viable as a business case for us.

3. Will the introduction of APDP foster collaborations of OEMs with suppliers?  Yes, there is already collaboration with OEMs with regards to localisations. As well as the conversion from batch building to just in time supplying as a means of waste reduction which was driven by collaborations.

4. Will suppliers become the engine of job and value growth in the automotive industry as a result of the APDP?  Because of the higher volumes required by MBSA already there are lots of vacancies within our organisation and we can only imagine that the same will happen with other suppliers.

5. Will the APDP result in more production volumes for your organisation and industry?  Indicators are reflective of that with volumes planned and forecasted by MBSA being higher than they have ever been.

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ANNEXURE 8 – INTERVIEW 7

Demographic Section:

Position of the interviewee: Facilities Planning Specialist Engineer Work Experience: 13 years Gender: Male Name of Organisation: MBSA Type of Organisation (OEM, OES, Auto Association): OEM Geographic location (Province): EC Volumes produced per annum (range): 80 000 – 90 000 units

Gauging the organization’s level of understanding of the industry specific incentives by government:

1. Has the Motor Industry Development Programme (MIDP) improved the profitability of your organisation?  Profitability wise it is difficult to say, because from a facilities’ planning perspective it difficult to indicate level of profitability.

2. Has the international competitiveness of South Africa as an automotive production location improved as a direct result of the MIDP?  Definitely, the continued support shown to MBSA by our mother plant is an indication that South Africa is competitive as an automotive production location.

3. Did your organisation invest in capital equipment as a result of MIDP?

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 Yes, to support our export programme the organisation had to invest in capital equipment.

4. Will the introduction of the Automotive Production and Development Programme (APDP) in 2013 lead to further growth of the local automotive industry?  Further growth of the industry will depend on responsiveness of the market. However, due to the fact the APDP is a continuation of the MIDP there is high likelihood that it will.

5. Has the APDP assisted with long-term strategic planning as it claims to offer the local automotive industry certainty?  Yes, there was a lot of uncertainty with the MIDP running out, but with the announcement of the APDP people have got a base on which to plan from. An example of this being the W205 project that is scheduled to commence production in 2014.

6. Does your organisation plan to invest in equipment or technology as result of the APDP.  To support the introduction of the W205, yes, the organisation has had to invest in equipment, though it would not necessarily have been directly as a result of the APDP, rather than product development.

Investment in capital:

1. Does competitiveness in this industry depend on technological advancement?

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 To an extent yes, but not entirely, the up-skilling of employees is equally as critical and important. This being due to the fact that, the human element is required for decision making and to verify and confirm conformity of the product to the required standards.

3. Has there recently been an infrastructural construction and development activity in your organisation to prepare for the APDP?  As indicated in the response to question number 6 it is difficult to directly attribute all the investment in the plant to the APDP.

4. Would you say the budget for infrastructural and facilities has increased because of the anticipated APDP legislation?  As indicated earlier, investment in our organisation is not necessarily due to APDP, but a decision taken at group level as a result of how competitive South Africa is, as an automotive production location.

5. Is continuous process improvement going to be used as a key performance indicator for management and supervision in your organisation as a result of APDP?  Not necessarily as a direct result of APDP, but as part of the Quality Management Systems in place and as certification or re-certification requirements, as a result of which continuous improvement is made part of every individual’s performance objective.

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Development in people to support capital investment:

1. Has there been any recent investment or extra-ordinary focus on training and development of people in your organisation in relation to the APDP?  There is always training taking place within MBSA, though not necessarily related to APDP, but due to development in technology as a result of decisions taken by the group to support product development.

4. With additional responsibilities that will be introduced to the organisation as a result of the APDP, will there be compensation package reviews, adjustments and alignment within your organisation to that effect?  I am unfortunately not in a position to answer this question, since decisions around the issue of responsibilities or compensation packages are taken at management level.

5. Does APDP introduce additional requirements for training and development on Quality, Health and Safety of employees around the workplace?  No, not as far as we are concerned.

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Supply chain management to support capital investment:

1. Will the value and supply chain alter as a result of APDP?  If it is competitive and profitable to do so local sourcing of raw materials will grow and on the point of sourcing machinery locally for the sake of maintenance or support that is in close proximity, yes the value and supply chain will alter.

2. Will introduction of APDP lead to clustering of suppliers around OEMs?  It should, as it can be seen with the development of the ELIDZ and the investment that is taking place there, at supplier level.

4. Will suppliers become the engine of job and value growth in the automotive industry as a result of the APDP?  Because of the higher volumes required by MBSA already there are lots of vacancies within organisations such as Johnson Control and Rehau, and we can only imagine that the same will happen with other suppliers.

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ANNEXURE 9 – INTERVIEW 8

Demographic Section:

Position of the interviewee: Trainee Accountant – Cost Controlling (Investments) Work Experience: 2 years Gender: Male Name of Organisation: MBSA Type of Organisation (OEM, OES, Auto Association): OEM Geographic location (Province): EC Volumes produced per annum (range): 80 000 – 90 000 units

Gauging the organization’s level of understanding of the industry specific incentives by government:

1. Has the Motor Industry Development Programme (MIDP) improved the profitability of your organisation?  In a way yes, thanks to the incentives given by this programme that reduce unit costs, we are able to offer competitive prices.

2. Has the international competitiveness of South Africa as an automotive production location improved as a direct result of the MIDP?  Yes, because if it was not competitive for Daimler AG to produce in South Africa they would offer the volumes to other plants. The competitiveness of South Africa is greatly supported by the MIDP incentives that help to reduce costs incurred by companies when producing.

3. Did your organisation invest in capital equipment as a result of MIDP?

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 As mentioned above, the investment decisions taken at group level (Daimler AG) mostly supported by how the MIDP makes or made it favourable to produce in South Africa, required some capital equipment investment.

4. Will the introduction of the Automotive Production and Development Programme (APDP) in 2013 lead to further growth of the local automotive industry?  Definitely, from the side of MBSA most of the investment that we are currently undertaking is to enable us to benefit from the incentives of the APDP. So, I can only imagine that there are lots of other companies within the industry that have adopted a similar approach.

5. Has the APDP assisted with long-term strategic planning as it claims to offer the local automotive industry certainty?  As mentioned earlier, Daimler AG, base their investment decisions on cost calculations. So awarding the latest W205 model to MBSA was encouraged by the announcement and introduction of the APDP, testimony to the long term horizon it offers investors.

6. Does your organisation plan to invest in equipment or technology as result of the APDP.  As mentioned above, investment is driven by an object to maximise on the benefits offered by the incentives under the APDP.

Investment in capital:

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1. Does competitiveness in this industry depend on technological advancement?  To be competitive with the rest of the world and to produce the required quality standards, which the group cannot compromise, technology upgrading required to meet specification new product developments is an imperative.

2. Has there recently been any investment or purchases of new equipment to improve efficiency in your production operation as a result of APDP?  Yes, as indicated on the above responses.

3. Has there recently been an infrastructural construction and development activity in your organisation to prepare for the APDP?  Yes, as indicated on the above responses, to support the W205 project.

4. Would you say the budget for infrastructural and facilities has increased because of the anticipated APDP legislation?  Definitely, as indicated earlier investment in our organisation is at the moment is driven by the incentives of the APDP.

Development in people to support capital investment:

1. Has there been any recent investment or extra-ordinary focus on training and development of people in your organisation in relation to the APDP?  There is always training taking place within the company, though not necessarily related to APDP, but due to development in technology as a

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result of decisions taken by the group prompted by further product development.

5. Does APDP introduce additional requirements for training and development on Quality, Health and Safety of employees around the workplace?  One incentive of the APDP, called a job fund requires that training be given to employees. So MBSA are going to invest in infrastructure to further employee training and development to benefit from this incentive.

Supply chain management to support capital investment:

1. Will the value and supply chain alter as a result of APDP?

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 If it is competitive and profitable to do so local sourcing of raw materials will grow and on the point of sourcing machinery locally for the sake of maintenance or support that is in close proximity, yes the value and supply chain will alter.

2. Will introduction of APDP lead to clustering of suppliers around OEMs?  The purpose of the East London Industrial Development Zone is purely to encourage clustering of suppliers.

3. Will the introduction of APDP foster collaborations of OEMs with suppliers?  Yes, there is already collaboration with OEMs with regards to localisations. One example being MBSA giving investment assistance the some of its strategic suppliers, by giving financial support to secure tooling required for their processes.

4. Will suppliers become the engine of job and value growth in the automotive industry as a result of the APDP?  Organisations such as Rehau and Johnson Control have recently embarked on further investment to support demands generated by OEMs such as MBSA and VWSA and already there have been lots of vacancies within those organisation and I can only imagine that the same will happen with other suppliers.

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ANNEXURE 10 – INTERVIEW 9

Demographic Section:

Position of the interviewee: Purchasing and Logistics Manager Work Experience: 20 years Gender: Male Name of Organisation: Benteler Type of Organisation (OEM, OES, Auto Association): OES Geographic location (Province): EC Volumes produced per annum (range): 100 000 - 120 000 units

Gauging the organization’s level of understanding of the industry specific incentives by government:

1. Has the Motor Industry Development Programme (MIDP) improved the profitability of your organisation?  Not this organisation directly, with us not being involved much with exporting. The MIDP benefits mostly organisations that export.

2. Has the international competitiveness of South Africa as an automotive production location improved as a direct result of the MIDP?  Yes, because the effect of the MIDP the automotive industry’s export operations have grown significantly, indicative of the competitiveness of South Africa as an automotive production location.

3. Did your organisation invest in capital equipment as a result of MIDP?

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 Definitely, based on the incentives there were to gain, as well as to improve the quality of the products being produced at higher volumes.

4. Will the introduction of the Automotive Production and Development Programme (APDP) in 2013 lead to further growth of the local automotive industry?  From what I have gathered, I would say no, there could instead be a downward trend, we already taking a knock on our pricing index as OESs

5. Has the APDP assisted with long-term strategic planning as it claims to offer the local automotive industry certainty?  I would not be able to comment on that, with most of our strategic decision being made by our mother company.

6. Does your organisation plan to invest in equipment or technology as result of the APDP.  It is difficult to say at this moment, but once there is perceived benefit that could be realised through further investment, the organisation will embark on it.

Investment in capital:

1. Does competitiveness in this industry depend on technological advancement?  Definitely, over the years companies that have survived are organisations that have kept up to date with the latest technology.

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2. Has there recently been any investment or purchases of new equipment to improve efficiency in your production operation as a result of APDP?  Not in our plant, being a new plant, investment that we are experiencing is a result of the initial investment.

3. Has there recently been an infrastructural construction and development activity in your organisation to prepare for the APDP?  As indicated in the response above, investment is as a result of us being a new plant, not as a result of APDP.

4. Would you say the budget for infrastructural and facilities has increased because of the anticipated APDP legislation?  As indicated above.

Development in people to support capital investment:

1. Has there been any recent investment or extra-ordinary focus on training and development of people in your organisation in relation to the APDP?  I would not say there has been specific training given to the general work, except for the APDP specialist who deals with these issues.

2. Will APDP requirements result in altering of performance objectives by demanding special knowledge and skill sets?

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 Not really, but should there be any changes, the people involved will be advised and trained if necessary.

4. With additional responsibilities that will be introduced to the organisation as a result of the APDP, will there be compensation package reviews, adjustments and alignment within your organisation to that effect?  Not really, but should there be any changes, the people involved will be advised. The people who were initially involved and affected by MIDP will now be affected by the APDP.

5. Does APDP introduce additional requirements for training and development on Quality, Health and Safety of employees around the workplace?  No, not as far as we are concerned.

Supply chain management to support capital investment:

1. Will the value and supply chain alter as a result of APDP?  Yes, if one moves towards the export market as a result of the APDP, the will be an alteration to the value and supply chain.

2. Will introduction of APDP lead to clustering of suppliers around OEMs?  I am not too sure, whether you are close to the OEM or far should not affect the incentives one stands to gain.

3. Will the introduction of APDP foster collaborations of OEMs with suppliers?

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 Yes, there is already collaboration with OEMs with regards to localisations

4. Will suppliers become the engine of job and value growth in the automotive industry as a result of the APDP?  With the open market system we operate in, the higher volumes OEMs will aspire to produce under the APDP might be serviced by international suppliers. So I cannot say for certain that the growth in OEMs will result in job growth amongst suppliers. Job growth might still lie with the OEMs.

5. Will the APDP result in more production volumes for your organisation and industry?  One cannot say for sure, but if the OEMs will benefit as a result of higher volumes, that should result in the OEMs giving higher releases to suppliers.

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ANNEXURE 11 – INTERVIEW 10

Demographic Section:

Position of the interviewee: Production Director Work Experience: 20 years Gender: Male Name of Organisation: VWSA Type of Organisation (OEM, OES, Auto Association): OEM Geographic location (Province): EC Volumes produced per annum (range): 110 000 units

Gauging the organization’s level of understanding of the industry specific incentives by government:

1. Has the Motor Industry Development Programme (MIDP) improved the profitability of your organisation?  It is difficult to say, but if one was to measure profitability purely from an export or production volume bases, then I would agree that the MIDP improved the profitability of the organisation.

2. Has the international competitiveness of South Africa as an automotive production location improved as a direct result of the MIDP?  Yes, because if South Africa was not competitive none of the foreign companies would have invested in any Greenfield ventures in the country.

3. Did your organisation invest in capital equipment as a result of MIDP?  To realise the volumes that the organisations had to meet in terms of its export demands, additional investment in capital equipment had to be done.

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4. Will the introduction of the Automotive Production and Development Programme (APDP) in 2013 lead to further growth of the local automotive industry?  That is difficult to say, growth of the industry depends on a lot of other variables too, either than the government programme. Items such as the market, exchange rather or currency stability, labour, etcetera.

5. Has the APDP assisted with long-term strategic planning as it claims to offer the local automotive industry certainty?  Yes, there was a lot of uncertainty created by phasing out of the MIDP, but announcement of the APDP has given people some form of assurance of continued government support for this industry.

6. Does your organisation plan to invest in equipment or technology as result of the APDP.  I would not say it is as a result of the APDP, but as a result of further product development, the organisation has plans to invest in additional equipment and new technology.

Investment in capital:

1. Does competitiveness in this industry depend on technological advancement?  As indicated above, a certain level of upgrading of equipment and technology becomes the order of the day when it comes to new product developments.

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2. Has there recently been any investment or purchases of new equipment to improve efficiency in your production operation as a result of APDP?  As indicated on the above responses, perhaps not as a result of the APDP, rather than natural progression of the organisation.

3. Has there recently been an infrastructural construction and development activity in your organisation to prepare for the APDP?  As indicated on the above responses, perhaps not as a result of the APDP, rather than natural progression of the organisation.

5. Is continuous process improvement going to be used as a key performance indicator for management and supervision in your organisation as a result of APDP?  Not as a result of APDP, as a result of Kaizen (Continuous improvement) principles to which the company subscribes, it is already part of every individual’s performance objective. As an example, each employee is required to submit at least one idea per year.

Development in people to support capital investment:

1. Has there been any recent investment or extra-ordinary focus on training and development of people in your organisation in relation to the APDP?  Since VWSA wants to create a name for itself as a learning organisation, there is always training taking place, though not necessarily related to APDP, but due to new developments around the organisation.

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2. Will APDP requirements result in altering of performance objectives by demanding special knowledge and skill sets?  Not as far as I know.

4. With additional responsibilities that will be introduced to the organisation as a result of the APDP, will there be compensation package reviews, adjustments and alignment within your organisation to that effect?  No, company procedure and policies govern decisions around the issue of responsibilities or compensation packages and it would not be as a result of APDP.

5. Does APDP introduce additional requirements for training and development on Quality, Health and Safety of employees around the workplace?  No, not that I am aware of.

Supply chain management to support capital investment:

1. Will the value and supply chain alter as a result of APDP?  Developments or changes in the industry will not necessarily be driven by the APDP alone, there are other variables that ought to be considered, so I cannot say that the value and supply chain will change.

2. Will introduction of APDP lead to clustering of suppliers around OEMs?  The development of the Nelson Mandela Bay Logistics Park around VWSA, COEGA in the Nelson Mandela Bay Municipality and ELIDZ around MBSA

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are examples of developments that encourage clustering, that are already in existence. Therefore I would not say that the introduction of the APDP will lead to clustering, maybe the least it will do, is support it to develop further.

3. Will the introduction of APDP foster collaborations of OEMs with suppliers?  Once again there is already collaboration with OEMs with regards to localisations, as well as, the conversion from batch building to just in time supplying as a means of waste reduction which was driven by collaborations.

4. Will suppliers become the engine of job and value growth in the automotive industry as a result of the APDP?  That will depend on developments that prevail in the industry and will not necessarily be as a result of the APDP.

5. Will the APDP result in more production volumes for your organisation and industry?  As mentioned earlier, the APDP alone will not determine the fate of the industry, besides at its infancy it would probably be too immature to attach too many outcomes to it.

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ANNEXURE 12 – INTERVIEW 11

Demographic Section:

Position of the interviewee: Supervisor - Manufacturing Planning Work Experience: 10 years Gender: Male Name of Organisation: VWSA Type of Organisation (OEM, OES, Auto Association): OEM Geographic location (Province): EC Volumes produced per annum (range): 110 000 units

Gauging the organization’s level of understanding of the industry specific incentives by government:

1. Has the Motor Industry Development Programme (MIDP) improved the profitability of your organisation?  Yes, definitely, the company has been able to realise more returns as a result of the rebates and incentives it receives from the MIDP.

2. Has the international competitiveness of South Africa as an automotive production location improved as a direct result of the MIDP?  Yes, but slightly, because in comparison to other developing countries such as India and China, South Africa still lags behind.

3. Did your organisation invest in capital equipment as a result of MIDP?

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 The organisation invested a total amount of about R2 billion over the period of the MIDP, including an investment of R800 million in the Body shop, through the purchase of new robots and laser welding stations.

4. Will the introduction of the Automotive Production and Development Programme (APDP) in 2013 lead to further growth of the local automotive industry?  I think, for the low volume producers, there will be further investment. However, not so much for organisations such as VWSA and Toyota who already produce volumes that are in-line with one of the qualifying criteria of one of the incentives of the APDP.

5. Has the APDP assisted with long-term strategic planning as it claims to offer the local automotive industry certainty?  Yes, it has given organisation longevity that it needs, allowing the low volume producers to consider investing more to be able to realise benefit from the programme.

6. Does your organisation plan to invest in equipment or technology as result of the APDP?  No, we will not necessarily be doing it as a result of the APDP, rather than product development.

Investment in capital:

1. Does competitiveness in this industry depend on technological advancement?

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 Yes, better technology allows one to offer the customer a better product, as well as better output that is realised from it.

2. Has there recently been any investment or purchases of new equipment to improve efficiency in your production operation as a result of APDP?  As indicated on the above response, not necessarily as a result of the APDP, rather as a result of general upgrades.

3. Has there recently been an infrastructural construction and development activity in your organisation to prepare for the APDP?  Not to my knowledge, except for the new Press shop that we have invested R600 million in upgrading.

4. Would you say the budget for infrastructural and facilities has increased because of the anticipated APDP legislation?  In order to stay competitive cost reduction has become the order of business, so no, not particularly.

5. Is continuous process improvement going to be used as a key performance indicator for management and supervision in your organisation as a result of APDP?  Kaizen Activities that we do require that each manager comes up with improvement activities.

Development in people to support capital investment:

1. Has there been any recent investment or extra-ordinary focus on training and development of people in your organisation in relation to the APDP?  There has been a lot of capital investment in the training of people at VWSA in preparing people for the VW250 or New Polo.

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4. With additional responsibilities that will be introduced to the organisation as a result of the APDP, will there be compensation package reviews, adjustments and alignment within your organisation to that effect?  Decisions around the issue of responsibilities or compensation packages are taken at Board of Management level as with the objectives as mentioned earlier and not as a result of APDP.

5. Does APDP introduce additional requirements for training and development on Quality, Health and Safety of employees around the workplace?  No, not to my knowledge.

Supply chain management to support capital investment:

1. Will the value and supply chain alter as a result of APDP?  Definitely, if the local 1st and 2nd tier suppliers increase their volumes then we won’t be able to localise a lot of parts, so we’ll have to seek out 3rd and 4th tier suppliers to do some of the assemblies or sub-assemblies.

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2. Will introduction of APDP lead to clustering of suppliers around OEMs?  It should, as it can be seen with the development of the Nelson Mandela Bay Logistics Park around VWSA and the ELIDZ around MBSA, establishments which have proven to be viable business cases.

4. Will suppliers become the engine of job and value growth in the automotive industry as a result of the APDP?  Because of the higher volumes required by OEMs already there are lots of vacancies within suppliers such as Rehau and we can only imagine that the same will happen with other suppliers.

5. Will the APDP result in more production volumes for your organisation and industry?  I would like to believe so, with market indicators overseas showing improvement and with a lot more people get jobs with the country should mean that even the local market will be positive.

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ANNEXURE 13 – INTERVIEW 12

Demographic Section:

Position of the interviewee: Supervisor – Finance ( Export Pricing) Work Experience: 14 years Gender: Male Name of Organisation: VWSA Type of Organisation (OEM, OES, Auto Association): OEM Geographic location (Province): EC Volumes produced per annum (range): 110 000 units

Gauging the organization’s level of understanding of the industry specific incentives by government:

1. Has the Motor Industry Development Programme (MIDP) improved the profitability of your organisation?  Definitely, it has made us more competitive in terms of vehicle sales, due to the rebates that we have received from the MIDP.

2. Has the international competitiveness of South Africa as an automotive production location improved as a direct result of the MIDP?  In my view yes it has, supported by the rebates that we enjoy as a result of the MIDP.

3. Did your organisation invest in capital equipment as a result of MIDP?  Investment decisions taken at group level were as a result of the MIDP rebates that we stood to gain.

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4. Will the introduction of the Automotive Production and Development Programme (APDP) in 2013 lead to further growth of the local automotive industry?  I do think so, with the increased rebate scheme or incentives that include production volumes, rather than just for exports.

5. Has the APDP assisted with long-term strategic planning as it claims to offer the local automotive industry certainty?  Yes, certainly as far as components are concerned, especially focus on business such as the catalytic converters.

6. Does your organisation plan to invest in equipment or technology as result of the APDP.  Can’t say for certain, but it should, even if it will be at supplier level.

Investment in capital:

1. Does competitiveness in this industry depend on technological advancement?  To a certain extent, to be competitive an organisation has to continuously upgrade equipment and technology.

2. Has there recently been any investment or purchases of new equipment to improve efficiency in your production operation as a result of APDP?  As indicated on the above responses, nothing specific for APDP, for an organisation such as VWSA that already meets the requirement of the APDP

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of producing 50 000 units, further investment will perhaps be seen at supplier level.

3. Has there recently been an infrastructural construction and development activity in your organisation to prepare for the APDP?  As indicated in the responses above, not applicable to us, or at least not as a result of the APDP.

5. Is continuous process improvement going to be used as a key performance indicator for management and supervision in your organisation as a result of APDP?  Yes, we have clear deadlines and target, where each person in the organisation has to submit an improvement idea per year..

Development in people to support capital investment:

1. Has there been any recent investment or extra-ordinary focus on training and development of people in your organisation in relation to the APDP?  Yes, the people that will be involved with the APDP have gone on APDP training in GP and in KZN.

2. Will APDP requirements result in altering of performance objectives by demanding special knowledge and skill sets?  Not necessarily, the people that are currently dealing with the MIDP will deal with issues pertaining to the APDP and are currently undergoing the necessary training as mentioned above.

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4. With additional responsibilities that will be introduced to the organisation as a result of the APDP, will there be compensation package reviews, adjustments and alignment within your organisation to that effect?  No there should not be, the people that are dealing with MIDP currently will be the ones that deal with the APDP after the MIDP gets phased out.

5. Does APDP introduce additional requirements for training and development on Quality, Health and Safety of employees around the workplace?  No, not at the moment.

Supply chain management to support capital investment:

1. Will the value and supply chain alter as a result of APDP?  Yes, more focus will be now on suppliers who have to ramp up their volumes.

2. Will introduction of APDP lead to clustering of suppliers around OEMs?  There is already a supplier logistics park in existence and I do not believe it was as a result of the APDP, so no.

3. Will the introduction of APDP foster collaborations of OEMs with suppliers?  Yes, there is already collaboration between OEMs and suppliers, where forums at NACAAM and NAAMSA level, in which we have representation, have been created.

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4. Will suppliers become the engine of job and value growth in the automotive industry as a result of the APDP?  As discussed earlier, the higher volumes required by the APDP might develop more opportunities for jobs amongst suppliers.

5. Will the APDP result in more production volumes for your organisation and industry?  It could, because of a focus on bringing our cost down that could mean increasing our volumes to reduce the cost per unit.

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ANNEXURE 14 – INTERVIEW 13

Demographic Section:

Position of the interviewee: General Manager - Plats Work Experience: 22 years Gender: Male Name of Organisation: GMSA Type of Organisation (OEM, OES, Auto Association): OEM Geographic location (Province): EC Volumes produced per annum (range): In excess of 500 000 units

Gauging the organization’s level of understanding of the industry specific incentives by government:

1. Has the Motor Industry Development Programme (MIDP) improved the profitability of your organisation?  In all the countries the automotive industry employs a lot of people, the MIDP has allowed South Africa to do the same thing, thus allowing for more disposable income. Due to the tariff breaks the MIDP offered, organisations, including GM, were able to be competitive.

2. Has the international competitiveness of South Africa as an automotive production location improved as a direct result of the MIDP?  I do not want to say, yes, because other developing countries, such as India and China are realising immense growth and have become a big threat to our industry.

3. Did your organisation invest in capital equipment as a result of MIDP?

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 I do not want to and cannot say that all our investment was as a result of MIDP, however, the MIDP did open up the export market to our automotive industry.

4. Will the introduction of the Automotive Production and Development Programme (APDP) in 2013 lead to further growth of the local automotive industry?  I believe it would be premature to make that call, the APDP is still unknown.

5. Has the APDP assisted with long-term strategic planning as it claims to offer the local automotive industry certainty?  Yes, there was a lot of uncertainty with the MIDP running out, but with the announcement of the APDP, organisations such as MBSA have made announcement of higher volumes.

6. Does your organisation plan to invest in equipment or technology as result of the APDP.  No, we still planning our way forward.

Investment in capital:

1. Does competitiveness in this industry depend on technological advancement?  Definitely, in terms of the product that an organisation offers, the technology it offers is vital in terms of its competitiveness. Especially facing the threat of imported cheap products from the likes of Korea and India.

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2. Has there recently been any investment or purchases of new equipment to improve efficiency in your production operation as a result of APDP?  As indicated on the above responses, no.

3. Has there recently been an infrastructural construction and development activity in your organisation to prepare for the APDP?  Please see above response.

4. Would you say the budget for infrastructural and facilities has increased because of the anticipated APDP legislation?  Please see above response

5. Is continuous process improvement going to be used as a key performance indicator for management and supervision in your organisation as a result of APDP?  Not as a result of APDP, but as part of the prevailing business practise and requirements, continuous improvement has always been part of every individual’s performance objective.

Development in people to support capital investment:

1. Has there been any recent investment or extra-ordinary focus on training and development of people in your organisation in relation to the APDP?  For the sake of understanding of the APDP and its mechanisms, yes, personnel that will be directly involved in dealing with it are being sent for training, but I would not say the focus is extra ordinary.

2. Will APDP requirements result in altering of performance objectives by demanding special knowledge and skill sets?  I cannot see how the APDP will impact the industry for now, so I cannot answer that question.

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4. With additional responsibilities that will be introduced to the organisation as a result of the APDP, will there be compensation package reviews, adjustments and alignment within your organisation to that effect?  The organisation at the moment must still decide on how to respond to the APDP, but even once that is done, I do not foresee it influencing compensation.

5. Does APDP introduce additional requirements for training and development on Quality, Health and Safety of employees around the workplace?  No, not as far as we are concerned.

Supply chain management to support capital investment:

1. Will the value and supply chain alter as a result of APDP?  For organisations that are mainly geared for exports, the value and supply chain might alter, because sourcing raw materials from overseas might be more competitive for manufacturers that have overseas partners.

2. Will introduction of APDP lead to clustering of suppliers around OEMs?  Personally, I would not say, based on the response I have just given.

3. Will the introduction of APDP foster collaborations of OEMs with suppliers?  Well, there is always collaboration with OEMs with regards to localisations under the umbrella of NAAMSA.

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4. Will suppliers become the engine of job and value growth in the automotive industry as a result of the APDP?  Not, if the value chain changes as indicated above.

5. Will the APDP result in more production volumes for your organisation and industry?  If the market is available to consume the espoused product volumes under the APDP, then there might be an opportunity for us to also grow our volumes.

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