Research has shown that consumers are not brand-loyal, but quality-loyal.'
-
Mark Preston-Whyte, process engineer, S A Oil MIlls

'It is no secret that the majority of South Africa's labour force is unproductive and functionally illiterate ...'
 - Andy Procter, sales director, PG Autoglass

AN invader invariably seeks the Achilles' heel in his enemy's defence system. And when he finds it, he concentrates the main thrust of his attack on it.

In South Africa, many believe that product quality and productivity  -  or the lack of them  -  are businesses' weakest links; links that are likely to part under concerted bombardment. And when they snap, they leave the way clear for invaders to establish a bridgehead from which they can fan out and consolidate their positions.


PERCEIVED QUALITY

You can expect the quality of imported cars to be better than those of similar models assembled locally. This perception is popular among members of the motoring public. Even some people employed in the motor industry ascribe to it.

In private, of course.  For public consumption, most local manufacturers either ignore the contention or deny it. Some maintain there's no difference between locally assembled and imported vehicles.

This is the way Samcor's Mike Ewing sees the quality situation: 'Samcor does not design vehicles at Silverton. Samcor assembles motor vehicles. For example, the [Ford] Telstar in South Africa is the same as the Telstar in Japan and Australia. The name may change and there may be some adjustments to adapt the vehicles to local conditions ...

'The assembly plant in Silverton is very sophisticated and follows the Japanese technology. It has Kawasaki robots, which are identical to those found in Pacific Rim manufacturing plants.'

But the perception of poor quality sticks like glue to cars that roll off local assembly lines.


More than a perception

For some in the motor industry poor local quality is more than a perception. It's a fact. It's the only reason that Jaguars are no longer assembled in this country.

Importing this prestige car in semi-knocked down form for re-assembly in South Africa would reduce import duty from 115% to between 35 and 40%.
As a result, the showroom price would dip from about R400 000 to R300 000.

So why doesn't Lindsay Saker assemble the cars here?  Because Jaguar is wary of re-assembly quality control in South Africa.

It's also more than a perception in the heavy vehicle sector of the motor industry. David van Graan, of Mercedes describes the quality of foreign technology as a sizeable threat to manufacturers.

Advanced diesel engine technology in the United States, Europe and Japan offers large savings in fuel consumption - a major cost area in fleet operation. Fleet owners, who need to trim running costs, find imported trucks fitted with more efficient, imported engines attractive propositions.

South African heavy vehicle manufacturers, obliged to fit less efficient, locally manufactured ADE engines in terms of local content legislation, can do little to stop erosion of their markets.

Meanwhile, in publishing...


THE SKIN PICS ARE GREAT, BUT ...

The quality of homegrown 'girlie' mag Scope  wasn't all it should have been, admits Carole Brille, the Johannesburg-based promotions manager.

Because Scope  enjoyed a near-monopoly in the market, it became lax in maintaining production quality standards. But the entry of three American show-it-all magazines, Playboy, Hustler  and Penthouse forced Scope  publisher Republican Press to really pull up its garters.

When the three American 'girlie' magazines entered the market, Scope  made strenuous efforts to upgrade the quality creativity of the magazine by switching to modern desktop publishing technology.

And while women of ample proportions vie for centrefold dominance, many offshore corporations plan to enter South Africa with ...


GLOBALLY SUPERIOR PRODUCTS

Price will play second fiddle to quality when foreign companies attack South African markets, contends Klaas Jonkheid, marketing planning director at Lindsay Smithers FCB.

'My research indicates that companies most likely to enter South Africa are those that have a globally superior product - a product recognised as superior by people throughout the world. Such products will incorporate leading edge technology and are commonly attractive even if priced at a slight premium.'

This doesn't faze members of the local 'rag trade' who claim that the quality of South African fashion is of international standard.

For example, Mervyn Sacks, of Roz Designs, plans to compete with imports on the basis of product quality, not price.

When foreign competition hots up, the company will target its products at the upmarket segment of the local fashion market and adjust its prices accordingly.

This move is specifically aimed to avoid direct competition with low-priced imports from Pacific Rim countries.

When American Skippy challenges South Africa's Black Cat...


QUALITY COULD BE THE CLINCHER

The manufacturer of Black Cat Peanut Butter fears it may lose market share on the basis of product quality to Skippy, manufactured and marketed by CPC International, of the United States.

CPC uses constant research and development as a marketing tool to give it the marketing edge, says Mark Preston-Whyte, of SA Oil Mills. And Skippy's consistently high quality could hit Black Cat hard.

Research in the peanut butter market shows that consumers look for the perfect product, but at a good price.

While SA Oil Mills will be able to offer the consumer a product priced below that offered by CPC, it won't be able to defend its market share on quality.

'Although we have explored various techniques to improve the quality of our product, we lack CPC's production skills,' admits Preston-Whyte.

But on the pharmaceutical front ...


SOUTH AFRICAN QUALITY IS TOPS

The man who heads BE-TABS Pharmaceuticals, R A H Bhikha, shrugs off suggestions that foreign invaders can beat his company's products on the basis of quality.

The company allocates a large percentage of its budget to ongoing research and development.

'As a local company,' Bhikha says, 'our research and development department is better placed than multinationals to assess local market needs and market niches -  especially in a Third World environment like South Africa.'

And in the engineering sector ...


LOCAL QUALITY RATES WELL

The quality of competitive imports poses no threat to Robor Industrial Holdings, which claims that the quality of its tubular steel products is among the best in the world.

Robor, which has exported 40% of its capacity for the last 10 years, isn't intimidated by overseas boasts of advanced technology and user-friendly operations.

Managing director Michael Coward alleges that imports entering the country now don't measure up to South African quality standards.

'They have been low-priced, but stockists have been stuck with them because of their poor quality.'


Overrated technology

W Riedel, managing director of La FORGE, also believes foreign quality is overrated.

'Technologically advanced products are only as good as the services that go with them.'

This doesn't mean that Riedel is satisfied with research and development (R&D) at La FORGE, which produces high quality forged and machine components in various alloys.

He attributes the low standard of local R&D to two factors:

  • the impossibility of recovering costs in a small market, and

  • a longer-than-average product life cycle in South Africa.

Riedel explains that the long product life cycle leads to 'jumps' in model ranges to retain economies of scale and retards the process of 'innovation diffusion'.

The petro-chemical and paper industries should also jack up their ...


RESEARCH AND DEVELOPMENT

While South African petro-chemical technology is up to First World standards, the quality of product research and development leaves at lot to be desired, according to Sentrachem financial director Norman Kennelly.

'Far too little time and money is spent on R&D. This could place Sentrachem at a disadvantage. We appear to be reactive, not proactive. Someone else seems to be re- inventing the wheel, and we are simply buying it.'

Playing follow the leader isn't the sort of policy that breeds product innovations, as SASOL 3 has discovered.

'Sasol's research and development programme needs to be accelerated,' says J H Little, divisional inspection and planning manager. 'If new products or new techniques are not developed or adapted quickly enough, the competition will eliminate Sasol from the industry.'


A major weakness

And how does Mondi fare in terms of product quality vis-a- vis the invaders?

Not very well, according to Mike Stewart.

'Local manufacturers, including Mondi, tend to spend less on the research and development of new products than their overseas competitors.'

This means that when a new competitor enters the market, its product will be better and provide the customer with increased value.

'Mondi tends to be second-stream regarding technological improvements in that most of our local technology is simply imported from overseas subsidiaries.'

This leads to savings on R&D costs. But it also puts Mondi at a serious disadvantage in terms of comparative product quality.


Inefficiency crept in

Less than the best quality also spells problems for Sappi Fine Papers, reports Wayne Scrooby.

Magno Print and Lumi Art, two German grades, and Comdat, a French grade, first imported by paper merchants in the mid- 1980s, produced a better print result. They where whiter and smoother in terms of surface characteristics.

The underlying problem: prior to the imports Sappi monopolised the market.

'We were the only producer and supplier of coated grades,' says Scrooby. 'As such, we were inefficient. With heavy sanctions, we distanced ourselves from international markets and could not learn from overseas.

'As inefficiency crept in, costs of production increased and our prices increased, sometimes four to five times a year.'

 When imports began to pour in, Sappi found itself trailing well behind in terms of technology, coating, formulation, formation of products and aesthetics. As a result, the company lost volume and saw the European invaders grab 30% of its market.

The 'Made in South Africa' label doesn't necessarily mean poor quality. On the contrary, most products manufactured in South Africa are of at least adequate quality. They do the jobs they were designed to do. 

But 'just doing the job' is no longer good enough.

So, if you want to compete with the invaders ...


THINK FURTHER THAN PRODUCT QUALITY

If local products have a failing, it's because they're 'me too'. They look and perform the same as every similar competitive product.

So make them different. 

You don't have to reinvent the wheel. Take what you've got and add value through research and development.

Starting now, research and develop your product to make it:

  • better;

  • faster;

  • smoother;

  • more reliable;

  • longer lasting;

  • more user-friendly.

Do what ever you must to differentiate it from the imports. And make sure that your customers are aware of the differences.

Although, in most cases, the quality of 'made in South Africa' goods may be up to par ...


PRODUCTIVITY IS ABYSMAL

No matter how good the quality of your product is, it's not going to do you or your customers much good unless you actually produce it:

  • to specification;

  • on time;

  • at the right price.

In South Africa, all but a few high-tech companies use labour-intensive rather than capital-intensive production methods. This provides jobs. But, unfortunately, most members of the workforce are either semi-skilled or unskilled.  This means inefficient production. While the per hour rate for labour may be low, the rate per unit produced is unduly high.


EXECUTIVE THOUGHTS ON PRODUCTIVITY

Here's a snap roundup of what a few executives in various sectors of commerce and industry had to say about the quality of labour and levels of productivity in South Africa.

The country's 'notoriously unproductive' workforce can impair the quality of customer service and damage competitive advantage.
-
M Sydney, First National Bank.

Productivity in South Africa is a glaring weakness that will be exploited by foreign competitors.
- Klaas Jonkheid, Lindsay Smithers FCB.

Frequent strikes and labour disruptions lead to a drop in production, which has a detrimental impact on profits.
- R A H Bhikha, BE-TABS Pharmaceuticals.

In terms of technology, South Africa is definitely a First World country. But in terms of labour legislation and general labour attitudes, we could be considered Third World. Within this context, overseas companies hoping to set up plants here will face the same problems as we do.
- Norman Kennelly, Sentrachem.

Low levels of productivity are ...


A TWO-EDGED SWORD

While Samcor's Mike Ewing staunchly defends the quality of locally assembled cars vis-á-vis  the quality of those assembled overseas, he's a lot less bullish about productivity.

'South African industries are unproductive. And productivity levels are unlikely to increase.'

But he adds: 'It will be impossible for foreign competitors to increase productivity, and foreign competitors will have to Africanise their operations.'

Unless, of course, they assemble their cars overseas and bring them into South Africa as fully built units.

Reinforcing the merits of this option, Ewing points out that it takes at least 16 - man hours to build a VW Citi Golf and 29 - man hours to build a Ford Telstar in South Africa. These lead times are significantly shorter in the United States and Korea.


Nissan disagrees

John Jessup, of Nissan, doesn't agree.

Not entirely.

'Despite what many people say, South African labour in the motor industry is not unproductive. It is unfair to compare South Africa to a country such as Japan, which is far more mechanised.

'By its nature, capital-intensive industry is more productive and, therefore, justifies a higher investment in plant and machinery.'

In the service industry, unproductive employees ...


RAISE COSTS

When it comes to service businesses, like banks, says FNB's M Sydney, unproductive workers raise costs, paving an entrance into the market for cost-efficient foreign competitors who employ highly qualified and motivated people.

Steve Greiff, Standard Bank's strategic products and pricing manager, echoes Sydney's views.

'The local workforce is functionally illiterate and notoriously unproductive. But fortunately for Standard Bank, the labour problems inherent in the South African economy are not really applicable to the highly sophisticated banking industry in which we operate.'


Nedbank crosses swords

Nedbank's Jack de Blanche crosses swords with his colleagues at FNB and Standard on the question of labour literacy and productivity.

'South African labour in the banking world is not illiterate. It is productive.'

But he maintains that there's a shortage of educated people, especially black managers, which leads to a great deal of job- hopping.

'In the short term, this is a problem - one which Nedbank does not know how to solve.'

And the long-term solution?

The continuing education of black people.

But De Blanche reckons that the pace of economic growth may exacerbate the problem.

'If the economy grows at a reasonable pace, there will be enough educated people to meet the demand. But if the economy grows too fast, the country is going to suffer great shortages.'

He also raises the sensitive issue of affirmative action, which in his opinion 'has not worked anywhere in the world'. De Blanche worries about but draws solace from the fact that foreign competitors, even with their more advanced technology, will also have to live with it.

Automation makes soft drink production ...


LESS LABOUR-INTENSIVE

Because producing soft drinks is more capital than labour- intensive, Retail Brands InterAfrica isn't too concerned about productivity.

The company owns most of the machinery in a small plant. A resident manufacturer provides the labour force and some of the machinery required to fulfil clients' orders.

Retail Brands, therefore, has only a capital interest in the factory, which helps eliminate labour problems.

For example, if a contractor's labour force is strikebound, the company is free to approach another producer to fulfil the order to protect production from disturbances.

Like Retail Brands, major competitor ABI, which uses Coke to spearhead its range of carbonated soft drinks, doesn't see productivity as a major problem.

Although statistics point to rising salaries without concomitant increases in productivity, Coca-Cola has few labour problems on the production floor.

'Mixing the ingredients and bottling are almost fully automated,' Sharon Miller says.

And in the pizza industry ...


AN ANTI-PRODUCTIVITY RUN-AROUND

Pizza Hut recently decided to improve productivity by cutting staff complements.

Spokesperson Grant Wilson explains the company's vicious anti-productivity circle conundrum.

 Because workers were often illiterate, they didn't always understand what they were supposed to do. Outlets consequently ended up with more staff than they really needed.

'The crux of the problem was that the more staff we employed, the less productive each worker became. So we employed more workers to increase productivity, which only led an even greater fall in per worker productivity.'

Even if productivity levels are good ...


TAKE THE AUTOMATED ROUTE

Neither Willards nor Simba, South Africa's leading manufacturers of snacks, are perturbed about losing ground to offshore invaders on the basis of product quality.

And productivity doesn't appear to present a problem either.

They claim that most of the processes are automated and describe the industry as capital rather than labour-intensive. In fact, Simba is seriously considering further streamlining its operation by becoming more capital intensive.

Says Johan de Jager, the company's marketing director: 'This move will reduce costs and increase productivity as the equipment and machinery can run for 24 hours a day.'

The role of productivity at ...


RETAIL LEVEL

Although most retail chains and stores claim that they stock the best merchandise relative to price, they admit - not always openly - that they have productivity problems.

For example, Pick 'n Pay acknowledges that the current over-staffing level runs at 3 000 people. According to marketing and advertising director Martin Rosen, this costs the company R18-million a year. In effect, the retail chain provides 'almost sheltered employment' to keep labour relations sweet.

Pick 'n Pay could pass on this R18-million to customers by immediately retrenching the 3 000 redundant staff members but management believes this would be socially irresponsible 'as these 3 000 people may be responsible for feeding 3 000 other people'.

Rosen acknowledges that many of the chain's staff are 'purposely unpleasant to customers'. He attributes this attitude to South Africa's socio-political and economic heritage. But he points out that new arrivals on the local retail scene will have to employ local labour of the same quality.


A barrier to entry

Sandy Barnes, marketing director at Jet, a member of the Edgars Group, sees South African labour's low levels of productivity as a barrier to entry.

The cost of labour in this country is amongst the highest in the world.

'We're looking at $4 per hour in South Africa against $1,5 in Mexico. And making South Africa even less attractive is the low literacy rate of our population.'

Barnes agrees with Pick 'n Pay's Rosen that foreign competitors entering the South African market would face exactly the same labour productivity problems as established local businesses.

'They may bring in three or four senior people from overseas, but they certainly cannot bring over their whole labour force.'

For the fashion industry ...


A MOST FRUSTRATING PROBLEM

Labour poses the most frustrating problem for local clothing manufacturers, according to Roger Cartwright of SA Clothing Industries and Durban Clothing Manufacturers.

Heavy labour unionisation has led to wages spiralling out of all proportion to labour productivity. This lack of 'competitive productivity' stems from a period of flux within South African labour market.

'Unions could be said to be flexing their muscles, so causing widespread strikes, boycotts and go-slows.'

He cites as an example a wildcat strike by cutting room workers at the Durban Clothing Manufacturers' factory in 1994. The build-up of large amounts of unmanufactured cloth followed when management axed workers who illegally downed tools contrary to the provisions of a court order.

'It will be difficult to pick up slack time,' says Cartwright, 'because we may need to train new employees or negotiate new contractual arrangements with old employees.'

Ben Cartoon, managing director of Paris Belts, is confident that his company's 'best quality at the best prices' products can hold foreign competitors at bay. However, like Cartwright, he sees South Africa's unproductive labour force as a major stumbling block to progress.


'Fire the lot'

His first reaction: 'Fire the lot and buy a few more machines.'

But then the realist takes over.

Cartoon predicts that South African clothing manufacturers will turn increasingly to advanced technology, 'unfortunately to the detriment of employment opportunities'.

Paris Belts, he claims, has the most technically sophisticated plant of its kind in the country. So why doesn't Cartoon overcome his labour problems by introducing full automation immediately?

'Because,' he explains, 'it's far cheaper to use local labour resources while they're still a viable option.'

In the hotel industry ...


PRODUCTIVITY NOT UP TO INTERNATIONAL STANDARDS

The quality of the product a hotel offers its guests in any given grade depends on the level of service the guests receive. And this depends on the quality of 'the hired help'.  Which in South Africa is nothing to write home about.

Les Smith, group commercial director at Southern Sun, admits that the group's labour force is 'very unproductive'.

'South Africa has marketed itself as a First World country in many regards and, unfortunately, many visitors might expect a level of service on a par with international standards. However, Southern Sun's hotels are sadly behind American and Pacific Rim hotel service levels.'

But foreign chains that set up in this country will also have to use South African labour.

'Travellers will have to accept that service levels will be slack in all hotels in South Africa in the short to medium- term.'

An in the mechanical engineering sector ...


THINGS ARE JUST AS BAD

Hausler Scientific Instruments is also concerned about labour productivity.

The company employs 150 workers, most of them directly involved in the manufacturing process, where the rate of production and the capacity at which the factory operates is directly dependent on the productivity of the labour force.

Local companies will, therefore, not be able to compete effectively against foreign companies which enter the South African market with skilled, productive technicians to operate their factories.

K H Feddes, of Hausler, also points out that mechanical engineering companies, particularly in Europe, deploy employees' skills across the entire production process. In South Africa, in contrast, skills are employed only in selected areas ... almost in self-contained pockets.

'Many mechanical engineers in South Africa explains are great at designing the perfect product made from the ideal type of metal. But when it comes to fabricating the product, they find their designs are not conducive to the actual production process.'

The pharmaceutical industry ...


DOES IT HAVE THE ANSWER?

The response from Ian Strachan, chief executive at Adcock Ingram Critical Care, is terse: 'Technical parity between Adcock Ingram and any foreign competition exists at present. However, local production is relatively labour-intensive and moves towards increased mechanisation are occurring.

'Natural attrition will not be supplemented by new employees, thus the workforce will be reduced.'

When it comes to making paper products ...


PRODUCTIVITY IS DISMAL

Carlton Paper can draw on the vast technological expertise of Kimberly Clark in the United States to ensure that its products meet the highest international quality standards.

But labour productivity is a horse of a different name.

As Geoff Gibson, director of the Personal Care Division, puts it: 'Workers in South Africa are highly paid relative to what they deliver. Productivity is dismal and South African companies must increase their productivity by getting more out of existing resources.'

What do you expect from what trade unions describe as a grossly underpaid labour force?

'The truth of the matter,' asserts Mike Stewart, of Mondi Paper, 'is that by world standards local labour is actually not cheap. Measures of worker productivity, based on output per unit input indicate that levels of productivity in South Africa lag behind those of many other developing countries in most sectors and way behind those of the world's developed nations in all sectors.'

And from the manufacturing sector ...


A PHILOSOPHICAL ATTITUDE

On the question of productivity, Selwyn Leas, of African Hoe, believes improvements will only come with socio-economic and political stability.

'Until then, one has to accept that problems with productivity will occur and deal with them as they occur.'

Identifying China and Thailand as posing the major offshore threat to his market, he says that the manufacturers in these countries enjoy the benefits of low labour costs coupled to high levels of productivity.

'A worker who receives R1 200 a month in South Africa would be paid about R60 a month in China and still be expected to produce more.'


Strategic disadvantage

Marco de Nobrega, sales and marketing director at Tiger Wheels Manufacturing, says South African industrialists suffer from a strategic disadvantage  -  when it comes to productivity.

  • He attributes low productivity yields to:

  • the unionisation of labour which forced basic hourly rates of pay to soar from R2,50 to R5,20;

  • the lack of a work ethic, and

  • low basic worker education and skill levels.

So... 


WHAT CAN YOU DO ABOUT IT?

Industrial relations experts say you can take multi- faceted action to enhance levels of workforce productivity.  You can:

  • launch basic education campaigns to overcome  literacy problems;

  • implement on-the-job skills acquisition programmes;

  • encourage enrolment in selected adult education  courses;

  • offer incentives that encourage achievement of pre-determined productivity goals.

     

PRODUCT QUALITY ISN'T ENOUGH

 According to popular marketing wisdom, a lot of customers don't find price - within limits, of course - a turn-off. And they believe that, within a given category, a product is a product is a product. Almost everything you buy does the job it was designed to do. What makes the difference is service. Before. During. And after.

Prev   Next

  Authors Note
    Introduction
     
1. Protection Gets the Bullet
     
2. Perceive the Threat
     
3. Define the 'Get In' Strategy
     
4. A Quick Backward Glance-1
     
5. The Importance of Pricing
     
6. Vital Ingredients: Products and Productivity
     
7. Customer Service: On the Backburner
     
8. A Quick Backward Glance-2
     
9. Preventative Strategies: Price and Service Quality
     
10. Preventative Strategies: The Ramparts of Distribution
     
11. Preventative Strategies: Management - to restructure?
     
12. Preventative Strategies: Market Aggressively to Win
     
13. A Quick Backward Glance-3
     
14. In Conclusion
     
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