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I couldn’t have written this book without input from some truly remarkable people. F W de Klerk and Nelson Mandela were instrumental in creating an environment in which international competition has become a reality again. And South African business people are rising to the occasion. On my travels around the country, forward thinking delegates at my presentations have asked me: ‘What’s going to happen when overseas company’s move in?’ So, with the assistance of my final year B.Comm and Honours students from the University of the Witwatersrand, I set out to find the answers. This book does more than pose the questions that need to be asked. It provides the solutions. It’s simple, easy-to- understand, down-the-line logical stuff. But it will be interesting to see how many of you will put into practice the defence and attack strategies you will need to ward off your international competitors. Judging by the response from people that I’ve spoken to so far, I reckon that there’ll be fewer casualties than are expected. As with my previous books, my friend Esmond Frank is the backbone of this project. He puts the action into words, helping me sift through the material evaluate it and find the structure on which to hang the tale. To collect and examine more than 5 000 pages of primary and secondary research is one thing, but to collate it into less than 200 pages is an extraordinarily difficult task. That anyone can do it without Esmond is something that baffles me each time we put a book together. But we couldn’t have put together my book at all without you, the delegates who attend my presentations. Thank you for your questions, your enthusiasm and your incredible hunger for knowledge. I’ve been invited to speak to people like you. The people behind the success of companies large and not so large. The venues have ranged from Spartan warehouses to plush convention centres, from five-star hotels adjoining casinos to game lodges deep in the bush. Wherever we’ve met, it’s always been a pleasure to mix with talented individuals who are dedicated to doing things right. So, above all, I dedicate this book to you in the hope that you profit from the contents.
Peter Cheales |
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WAR clouds are gathering. This time you won’t face the swart gevaar or the rooi gevaar. The threat comes from international business. Your foes are offshore corporations that want to muscle in on your markets. And you’re vulnerable. South Africa’s return to the world stage brought with it wide-ranging social, political and economic repercussions. And the seismic waves that accompanied it shook the foundations of artificial barriers that isolated you from the harsh realities of competitive international trade. But, for the moment, the skies remain blue, lulling you into a sense of false security. Which reminds me of an old Chinese proverb that packs a lot of wisdom into only nine words: ‘A wise man never sees a wholly cloudless day,’ Whether you choose to see them or not, the clouds are gathering. And they’re the clouds of war. Business is war. And the conflict in which you’re about to become embroiled will leave many casualties. At stake: market share. This time you won’t be fighting your traditional rivals, the domestic companies that serve the same markets you do. This time you’ll be defending your territory against cross- border invaders. Sophisticated foreign companies with access to state-of-the-art production equipment. And they’re located in countries where high levels of productivity are taken for granted. You’ll be fighting for your company’s life against astute
business people who have imbued their employees with a culture
of customer service … business people who’ll waive short-
term profits in exchange for a healthy slice of your market. Although you’ll be on the defensive, you can stem the tide of invasion. And you can win. You have to win. As Sir Winston Churchill put it: ‘Without victory there is no survival.’ If you believe military strategists, winning requires the application of boldness, bravery and aggression at just the right time and just the right place. To win, you must take quick, decisive action. It was Napoleon Bonaparte who said: ‘Hesitation and half- measures lose all in war.’ But you can’t take decisive action to force your opponent’s hand unless you know who he is … where he is and what strategy he’ll use to force his way into your market. And you won’t win unless you have well-thought out, practical defensive strategy. Hence this book. In Look Out. A survival guide on how to cope with the international business onslaught, I’ve compiled a survival
guide for South African businesses in the line of fire. And
that means any type of commercial and industrial endeavour
with a profit potential. The information on which I base my observations and conclusions has, for most part, been provided by 170 local companies – large, small and in-between. Look Out. A survival guide on how to cope with the international business onslaught will show you how to determine the degree to which your business is threatened. I also explain what counter-measures other South African companies will take, if any, to ward off the raiders, and measures you should adopt to keep your market intact are suggested. There are three summary chapters, the last of which has been designed for use as a checklist when you prepare your defence strategy. The general election in April 1994 marked the end of an era during which government-imposed trade barriers ensured that South African business never had it so good. But those halcyon days are over. And Look Out. A survival guide on how to cope with the international business onslaught provides a timely reminder that no one is ever safe from competition. |
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THE 1960s. Hendrik Verwoerd, dubbed ‘the architect of apartheid’, leads
South Africa out of the Commonwealth. In the new Republic, a government
obsessed by race tightens the screws of apartheid. Most members of the world
community impose sanctions. The South African minority government increases
the severity of its inhumane, racially based laws. In a frenzy of rooi gevaar paranoia, the Republic’s rulers see
communists under every bed … in every closet. To whip up
white support, they propagate the myth of ‘total onslaught’. Meanwhile, somewhere in the backwoods of the Eastern Cape an amateur potter – let’s call her Daphne – decides to turn professional. She installs a couple of potter’s wheels in her garden tool shed, invests in some clay and begins to produce a limited number of cups and saucers. Their quality? Let’s be charitable and call it amateurish. Her prices? Way above those of better finished imports. Her business seems set to fail. Then she talks to her lawyer. He suggests that she speak to the Member of Parliament who represents her constituency. The “oom “ lends a sympathetic ear. He agrees that “uitlanders “, who make better products and sell them cheaper, are competing unfairly with Daphne. He speaks to someone with clout in the Cabinet. Later that year the government slaps a punitive duty on imported cups and saucers. Daphne laughs. All the way to the bank.
Her business, like many others in South Africa, prospers
behind a barrier of protective tariffs. They have a captive
consumer market – a market with severely limited choices. Although it’s dangerous to generalise, South African business people aren’t idiots. We know what’s potting. Many of us acknowledge the growing threat of foreign invasion. Yet our defensive positions remain ill-prepared. Why? One reason is … There are others. And their roots go deeper. Asked by The Economist (March 20, 1993) to describe the state of the South African economy, former Minister of Finance Derek Keys uttered one word: ‘Buggered‘. In the same issue, the magazine’s international editor, Peter David, elaborated – more eloquently, perhaps – on the sorry state of the Republic’s economy. ‘A taste for protectionism set South Africa on its long journey into the economic doldrums … ‘In the 1960s, a programme of import substitution was intended to make the country self-sufficient and less dependent on mineral exports. Instead it nurtured inefficient industries and entrenched them behind high tariff walls.’ From 1975, real GDP on a per-person basis slumped.
Productivity – never high – dived in sympathy. South Africa’s main export was capital. Billions in funk money sought refuge in foreign banks. During the 1980s, tight foreign exchange controls, designed to keep the money at home, aggravated the country’s economic woes. Companies barred from spending their profits overseas bought up domestic competitors. Ever-fewer hands controlled business power. Some economists believed that this over-concentration plus taxes structured to favour wealth over income stifled the spirit of entrepreneurship. ‘The post-apartheid administration,’ David concluded, ‘will inherit an economy prostrate after decades of incompetent management, over-government and the subordination of economic goals to political ones.’ But as a hit song of yesteryear proclaims: ‘Every cloud
has a silver lining.’ One of those who saw the light was Meyer Kahn, head of The South African Breweries. He told The Economist that the economy can grow by as much as 5% a year if conditions are right. What conditions? Kahn mentioned two.
Azar Jammine, of Econometrix in Johannesburg, saw the silver lining from another perspective. That of the ANC. He believed the organisation’s proposed social upliftment programme would generate economic opportunities through the large-scale construction of low-cost homes and schools as well as the provision of water reticulation, sewerage and electricity services But … Jammine was referring to the Government of National Unity’s Reconstruction and Development Programme (RDP). Some experts doubt its viability. George Ayittey, for example. He reckons the programme will cost at least $22- billion to implement. So what makes Ayittey an expert? His impressive credentials, perhaps. For a start, he’s Professor of Economics at the American University in Washington. He’s also a consultant to the World Bank and International Monetary Fund and an advisor to the United States Department of Commerce. Ayittey points out that $22-billion is a lot of cash, and that President Nelson Mandela’s chances of raising even half the amount are remote. Even with the $5-billion in promised grants and loans. With the much-vaunted but cash-strapped RDP generating promised reforms slower than a snail’s pace, those who voted the ANC into power in April 1994 have become more than merely restless. They’ve become downright angry. And they show it by embarking on a seemingly endless series of strikes and protest marches. Meanwhile, the economy staggers from one crisis to another through a minefield of political bickering, ad hoc work stoppages, a rising tide of crime and growing unemployment. A pretty sight South Africa isn’t. And yet it’s … Foreign-based manufacturers continue to see South Africa
as an attractive market. Ayittey points out in World Trade (July 1994): ‘The country changed its form of government and
leadership without the usual bloody civil war. Mandela has
shown remarkable magnanimity towards his former opponents,
which bodes well for the retention of all the non-black
technologists and professionals needed to advance South
Africa.’ The professor is apparently ignorant of the number of South African ‘non-black technologists and professionals’ currently boosting economic activity in Australia, Canada and New Zealand – or the number still vying to get in. Nevertheless, he sees opportunities for joint ventures by American business in the ‘First World segment’ of the South African economy and the ‘Third World element’. The latter consists of small entrepreneurs who belong to associations that can steer American business people to ‘capable partners’. Because of the enormous need for basic housing, Ayittey suggests potential American investors investigate the viability of climbing into bed with local building contractors and those who project-manage low-cost housing schemes. He also cites commercial agriculture as a viable sector for investment. ‘Up until 100 years ago,’ he claims, ‘black South Africans
operated large, successful commercial farms. They can do it
again with the requisite investment in agricultural
machinery.’ The Yanks aren’t the only ones who are likely to come poaching on your turf. Offensives will also be launched with growing strength from the United Kingdom and Continental Europe. But that’s not the worst of it. Expect the most serious assaults to come from the fast- growing economies of the Pacific Rim. As I noted earlier, South Africa is a country with a bagful of unresolved problems. Many won’t be resolved for years, if at all. So what makes the country so attractive to foreign business?
Most industrialised states produce more than they can
consume. South Africa looks like a good place to dump excess
production, particularly in view of a statement made by
Jeffrey Barten, United States Under Secretary of Commerce in
International Trade. Barten places South Africa in the world’s top 10 ’emerging markets’. That’s a label officials in Washington give to nations that offer the best new opportunities for American suppliers. Note the phrase the best new opportunities for American suppliers. If you’re supplying someone with something right now, you could be replaced by a Yank. The other nine countries on Barten’s hit parade are China, Indonesia, India, South Korea, Mexico, Argentina, Brazil, Poland and Turkey. ‘Taken together,’ he predicts, ‘they could account for more than half the world’s trade over the next 20 years. ‘Nearly 75% of the growth in world trade during the next two decades will take place in developing countries,’ he says in World Trade. ‘The emerging markets are likely to double their share of world GDP in that time to 20% from today’s 10%. By the year 2010, their share of world imports is likely to exceed that of Japan and the European Union combined.’ So we’re one of the world’s top 10 emerging markets. At first glance it sounds great. At least we’re in the world’s top 10 of something. But when you read between the lines to get the real drift, alarm bells begin to sound. What it means is that we must expect to face a level of
competition we’ve never before encountered. Although South African businessmen have long opposed protectionism as unwarranted governmental meddling in free market forces, their protests have been muted. And when a benevolent government imposed high import tariffs on foreign goods that competed with theirs, the protests grew so muted they became inaudible. I’ll be blunt about this: South African businesses on the receiving end of ‘import relief’ have grown inefficient, lazy and greedy. Fortune (September 19, 1994) reports: ‘A careful recent survey of some 500 academic and business economists found nearly three-quarters agree with the statement: “Tariffs and import quotas reduce general economic welfare”.’ By implementing the RDP, South Africa has begun to shift from the failed import substitution policies of the past to embrace the rigours of global competition. The partial removal (at the time of writing) of protective tariff barriers on automotive and textile imports is a clear signpost to future policy decisions. Protectionism is out as we … South Africa endorsed a world trade accord ratified in Geneva on December 13, 1993. To promote world economic growth, the General Agreement on Tariffs and Trade (GATT) will slash duties on 8 000 categories of manufactured goods. Many of the products in these categories may well be yours. If they are, are you in a position to resist when foreigners ignite the fires of competition … when offshore marauders prise open every niche formerly dominated by protected South African industries? According to international competitiveness ratings the
answer is no. South Africa is ranked 35th out of 41 countries in the latest 600-page World Competitiveness Report. Published in September 1994 by IMD, a Swiss business school, and the Swiss Economic Forum, a business research institute, the report measures 381 criteria to assess competitiveness. Key factors include:
According to the report, the world’s five most competitive countries are the United States, Singapore, Japan, Hong Kong and Germany. Significantly, the winning nations boast strong economies, are big in international trade and have little direct government meddling in free market forces. With South Africa bring up the near-rear in
competitiveness, transition to a new, free global market order
promises to be brutal, forcing wrenching changes in stone-age
corporate structures that, until now, had little motivation to
change. Government protection coupled to restrictive labour
legislation and repressive social laws held back innovation
and stunted growth. But are South African companies prepared for it? The response from 170 local businesses – large, medium and small – was far from reassuring. Indeed, it was downright scary. |
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‘The threat of competition is both real and
broad in spectrum.’ YOU can’t do anything to ward off an attack until you identify a threat. You also need to know the source of the perceived danger and the direction from which it will strike. In other words, you need reliable intelligence and the ability to analyse it accurately. But the information by itself isn’t enough. To survive, let alone prosper, you need:
THE FALL OF SINGAPORE The fall of Britain’s allegedly impregnable Far East bastion, Singapore, during the Second World War illustrates my point. As 1941 drew to a close, Singapore’s main defence consisted of a battery of 15-inch guns built into emplacements facing the sea, 88 000 ill-prepared British, Australian and Indian troops – 15 000 of whom were non-combatants – and 158 operational aircraft, most of them obsolete. In the early hours of December 8, the Japanese began landing in force at Kota Bharu, a Malaysian town about 900 kilometres east and to the rear of Singapore. Their plan: to strike at the city from the rear through dense jungle. British General Headquarters in Singapore shrugged off
intelligence reports from the field and, at first, falsely
claimed that the Japanese attack had been repulsed Then an Order of the Day, released later on December 8, announced: ‘We have had plenty of warning and our preparations are made. We are confident. Our forces are strong and our weapons efficient.’ The message served to reinforce the atmosphere of smug complacency that engulfed the island. Meanwhile, well-trained and equipped Japanese troops poured across the Malay Peninsula and overland through rubber plantations and jungle to overrun one British position after another. The vaunted, seaward-facing 15-inch guns were useless. They couldn’t be turned to fire on the enemy coming from the rear. But still those in authority at British General Headquarters refused to believe what was happening or take any action to thwart the Japanese advance. Britain’s wartime leader, Sir Winston Churchill, described
the fall of Singapore on February 16, 1942, as ‘the worst
disaster and largest capitulation in British history’. Experts attributed Britain’s loss of Singapore to a lethal combination of complacency, poor training, wrong or inferior equipment, failure by top echelons to react to accurate intelligence and an unwieldy, autocratic management structure. These are the factors that could force you to retreat in the face of foreign advances in your formerly sheltered market. So, first and foremost … If you’re in business and you’re successful, someone somewhere is going to cast covetous eyes over your market. Victor Fish, managing director of Anglo Dutch Office Furniture, issues this warning: ‘All segments of the South African marketplace are threatened by the expertise, intense brand awareness and financial support of large, successful international companies.’ But some organisations, long accustomed to serving a captive market, complacently shrug off the possibility of a foreign landing as something that isn’t going to happen. The Beer Division of The South African Breweries (SAB), for instance, appears to be unfazed by the possibility of foreigners poaching on its territory. According to public affairs manager Adrian Botha, it hasn’t faced serious competition from international breweries since 1979. That doesn’t mean it’s not going to face it in the future. The year 1979 is dead and buried. South Africa is no longer the leper state. Siphoning off some of SAB’s market share to help slake the national thirst may well appeal to major international brewers. And, although Botha claims SAB ‘has always maintained itself on a 100% competitive footing …’, the Beer Division can expect to face some deadly foes on its home ground in the not too distant future. Particularly if some ominous rumours in the American clear beer sector prove to be correct. So … Don’t be fooled by the phony war. That period between the declaration of hostilities and the outbreak of fighting when nothing happens has lulled many South African businesses into a sense of false security. For example, Joe Paul, product manager at Cullinan Electrical, doesn’t appear to be perturbed, although foreign competitors have already sliced between 2% and 3% off his share of the market. And as he grudgingly admits, the trend is likely to grow. Rather take a leaf out of Nedbank’s book. It takes invasion threats seriously. It alleges that foreign banks have set their sights on the largest corporations listed on The Johannesburg Stock Exchange. And although Standard Bank doesn’t expect a foreign assault on the retail banking in the short term, it doesn’t discount an attack in the longer term. Standard, knowing full-well the danger attached to complacency, continually monitors and analyses the situation. Even if you import all of your products, you’re not immune from cross-border raids in your sales territory. A case in point is Siltek, which imports 90% of the high-profile computer and electronic systems it markets. Brian Streak, marketing director of the listed company, which turns over R1,4-billion a year, describes the nature of the threat. He says the local information technology (IT) industry represents about 1% of the international market for components and less than 10% of the European market. Before the April 1994 election, internationally imposed sanctions barred the supply of strategic components to South Africa. Now that barriers have been relegated to history, there’s an enormous and largely untapped South African market for state-of-the-art IT components. And in view of the expected demand, foreign suppliers may elect to bypass local dealers and set up shop for their own accounts. Remember … Larry Bain, managing director of Power Generation Components, sums up the situation. ‘Prior to the elections in April 1994, we didn’t take the threat of foreign competition very seriously. But since April, foreign investors began to look at South Africa to expand their businesses. It has now become imperative to look at overseas competition in a different light.’ Even Sasol, which enjoyed enormous government support to perfect and exploit its coal-to-oil conversion programme, is on the defensive. Massive deregulation has forced the organisation to restructure and re-engineer its processes to operate competitively in the new ‘free South African market’. That’s the gist of the message from J H Little, divisional manager of Inspection & Planning Services. ‘For the past few years, Sasol has become increasingly aware of foreign attack. We realise that there is no possibility that our coal-to-oil technology at a cost of $14 a barrel can directly compete against conventional crude oil technology at a cost of $2 a barrel.’ You must … Particularly if you’re a manufacturer. While most retail stores don’t expect to face any serious challenges from foreign chains, they paint a bleak picture for the South African manufacturing industry. Martin Rosen, marketing and advertising director of Pick ‘n Pay, sets the scene. ‘When you look at the local market and you look at all the industries in that market, there is not one industry that has any need to concern itself with protecting its market because there is very little to protect.’ To drive home his point, he adds that South African industry is ‘so hopelessly uncompetitive’ that it is extremely vulnerable to offshore competition. Not even the SABC is exempt. If deregulation of the airwaves allows foreign broadcasters to penetrate the South African market via either land-based or satellite transmissions, the State-owned broadcaster could face plummeting viewership and concomitant loss of advertising revenue. But deregulation is no longer a matter of ‘if‘. In 1993, Parliament passed legislation designed to ‘free’ broadcasting from the SABC stranglehold. It transferred the authority to allocate radio and TV airwave frequencies to the Independent Broadcasting Authority (IBA). And the International Telecommunications Union made 702 frequencies available for TV in South Africa. What does this mean? The combination of deregulation and channel availability
makes foreign competition for viewers almost a certainty. These words by Alan Beadle, of Consol Glass, are brave. But we’ve heard them before. Ad nauseam. However, not all sectors of the market will face the same intensity of foreign marketing activity. Some overseas companies will engage in only sporadic long-range sniping. Although they may make occasional ‘kills’, you can usually shrug off their feeble attempts to poach on your territory. The dangerous offshore companies are those with long-term
intent. And there are many of them. Read what Engineering News had to say in its leader on September 30, 1994: ‘South Africa’s manufacturing endeavour has for so long been directed at supplying holistic needs in a protected, siege-type economy that we have tended constantly to produce complete products or systems without any fear that competitive world forces will keep us out of our home markets. ‘But as protective tariff walls begin being lowered, there will no longer be such a thing as a home market. The world will be able to enter what was your “home” market without restriction: that is the probable scenario in the years ahead.’ Still unconvinced? Remember what President Nelson Mandela told members of America’s National Trade Council in New York on October 3, 1994? ‘The policy of subsidising business and industry is counterproductive. We want our goods to be internationally competitive without subsidies. ‘Protective tariffs, exchange controls and the financial rand all have to go to break down the barriers between us and the rest of the world.’ No barriers means more competition. So … Gather and analyse as much information about potential offshore competitors as possible. I suggest that you take four simple steps to collect intelligence.
Now that you realise foreign businesses may be targeting your domestic market, what next? You establish the source of the threat. Unlike the British in Singapore, ensure that your guns face the right direction. |
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BEFORE you can plan and implement a defensive strategy to effectively counter the offshore threat, you must determine the source of the attack and the type of strategy your adversaries will adopt to carve themselves a slice of your market. The developed states of Europe, North America and Japan won’t fire every salvo. On the contrary, many economists and business people expect developing countries in the Pacific Rim to deliver the heaviest and most sustained bombardments. So … Most of the South African companies approached for comment agreed that offshore companies would probably choose one or more of ten strategies to infiltrate the local market:
And of the 10 ‘get in’ methods … The answer depends on the type of business you run and the
source of the threat. Some local businesses believe that foreign competitors will favour the direct investment route to ‘get in’. Lovemore Mbigi, of Nampak, explains why:
Direct investment is also risky.
However, while high import tariffs decrease the incentive
for foreign firms to export their products to South Africa,
they increase the incentive for direct investment. In
addition, the favourable rand exchange rate makes foreign
direct investment a viable option for overseas competitors. A lot of companies that want to bludgeon their way into the South African market will take the acquisition trail. Buy-outs, say some business people, are quicker, easier and often cheaper than setting up an entire operation from scratch on foreign soil. Service-based businesses, like consultancies, are particularly ripe for this type of ‘get in’ strategy. Dr Trevor Woodburn, managing director of Woodburn Mann, an executive search and management consultancy, fears attack from the United States. While low levels of growth in South Africa have made the market sluggish, several leading global players have been ‘sniffing around’ with the idea of buying out an existing firm in order to gain easy access in southern Africa. Woodburn identifies the main ‘sniffers’ in his area of specialisation as Korn Ferry, Heindrich & Struggles, Spencer Stuart, Egon Zehnder and Russel Reynolds. To avoid heavy investment in compiling research bases, offshore consultancies will attempt to gain a foothold in South Africa through buy-outs or joint ventures with small to medium companies that have established client portfolios. Acquisitions aren’t confined to consultancies. They also offer cash-flush offshore manufacturing companies the easiest and fastest route into the South African market. When they take over a local operation, the purchase price usually includes:
The alternative – entering the market with a zero base – involves heavy capital investment in plant and equipment, setting up sales, administration and financial components. It also means sacrificing profits to subsidise the advertising needed to create awareness and grab market share. In fact, whether they set up a plant from scratch or acquire one, advertising will be a major cost factor. B Schrieber, managing director of ballpoint manufacturer
BIC, says that whatever the chosen route: ‘Encouraging
suppliers to stock your products is the only entry strategy,
and this requires a substantial investment in advertising.’ Many invaders who need sophisticated operating environments, get into the market by setting up alliances or entering into partnerships with established South African companies. This strategy is particularly applicable to the pharmaceutical industry. ‘Any company that attempts to enter the field on its own is courting disaster,’ says Stravos Nicolaou, marketing director of Garec, which styles itself as ‘The House of Pharmaceuticals’. Foreign companies which don’t already have a local presence will find the industry structure ‘complicated’. The South African pharmaceutical market is divided into three sectors:
While the pharmaceutical market in South Africa turns over more than R3-billion a year, it’s small compared to some overseas countries. One product alone, Zantac, earns close to R7-billion a year in the United States, says Nicolauo. Statutory controls make operating in the South African pharmaceutical market even more complex. The production, supply and advertising of medicines must have the blessing of the local Medicines Control Council. In addition, all pharmaceutical companies and their managing directors must register with the South African Pharmacy Council. A prerequisite for registration is that managing directors must be a registered at the council as pharmacists. Foreign pharmaceutical companies that don’t acquire local operations or buy themselves in with either money or product may elect to enter into licensing agreements with established local suppliers. In these cases, says Nicolaou, the local company acquires use of the trademark although the overseas company continues to own the product. Probably the best-known joint pharmaceutical venture in South Africa is that between Astra Pharmaceuticals – currently the fastest growing pharmaceutical company internationally – and Adcock Ingram Pharmaceuticals. Astra has a 60% shareholding in the joint venture.
Adcock, with 40%, manages the encapsulating, packaging,
labelling and distribution of Astra products. In the processed food sector, an American manufacturer has ganged up with two South African companies to attack S.A. Oil Mills, which produces Black Cat Peanut Butter, the market leader. The American company, CPC International, which manufactures Skippy Peanut Butter, has:
The dissolution of the Oils Seed Board, a government- subsidised body which controlled the quality of peanuts, will ease CPC’s entry into the market. It will also raise another major problem. S.A. Oil Mills’ process engineer Mark Preston-Whyte points out that anybody with access to cheap, low-grade peanuts and a cheap mill can now manufacture peanut butter. ‘The end result will be a mass of cheap and low quality products on consumers’ tables.’ To overcome the problem of inferior quality peanut butter
contaminating its image in a market that buys entirely on
price and without brand consciousness, CPC has positioned its
product as a high quality, competitively priced peanut butter
that competes head-on with S.A. Oil Mills’ Black Cat Peanut Butter. Even local property developers will find themselves in the firing line. They expect competition to come from the most unlikely areas such as the Middle, Near and Far East. ‘A Malaysian firm,’ reports Grahame Lindop, of Anglo American Property Services, ‘recently contacted us to discuss possible investment opportunities in South Africa.’ Lindop reckons many offshore companies based in non- English speaking
countries with markedly different business cultures will favour liaisons
with local companies to work on joint developments. And neither is the retail sector immune from let’s-get- together propositions. Roger Bennet, of the JD Group, which claims a 25% share of South Africa’s retail furniture trade through 600 stores nationwide, gives the reasons. Since existing chains already occupy the best urban trading sites, a newcomer setting up an operation from scratch faces the problem of finding a suitable location. Furthermore, the cost of controlling a wholly owned subsidiary on foreign terrain is high. It requires considerable commitment of resources to management and heavy capital investment plus cash to cover start-up and operating costs. The benefits to foreign entrepreneurs of joint ventures include:
Food liaisons There are also moves afoot to usurp the positions of well- entrenched local food groups through partnerships and alliances. The Fedics Group, which turns over about R521- million a year by providing industrial and commercial catering services, has already experienced joint-venture competition. French caterer Sodexho came to an understanding with
Premier Group’s Hospitality, which is active in the local food
and catering industry and understands how the South African
market works. Slashing prices is another common ‘get in’ strategy. Characteristically, price-cutters maintain low prices until they corner a predetermined share of their target market. To keep prices low while they gun for market share, these invaders often eliminate the provision of customer service and forgo profits. Joy Manufacturing learnt about price-cutting ‘get in’ strategies the hard way. A competitor from ‘Down Under’ filched 15% of Joys’ mining industry market by slashing its prices. ‘I suspect that more companies will seek to enter through this door,’ says Joys’ Andrew Croxton. ‘This strategy has and will put pressure on us since we are in business to make a profit, not a loss.’ Countries in the Far East, particularly India and Pakistan, are notorious for producing goods at astoundingly low prices. One Indian company was prepared to accept a mark- up of only 6%. According to Unisurge, which claims a 30% share of the domestic market for surgical instruments and hospital furniture, companies in India receive massive tax benefits to make up for the losses they sustain by exporting at cut-throat prices. The company alleges that some Pakistani and Indian
manufacturers have set up ‘front’ operations in Germany. They
then re-route their inferior quality products to these
operations where just enough local content is added to justify
a ‘Made in Germany’ stamp. These quasi-German instruments are
then sold in South Africa at rock-bottom prices. Many business people see dumping by offshore companies as the scourge of local industry. Let’s examine it as a ‘get in’ strategy through the eyes of Fatti’s & Moni’s. Although they’re in the pasta business, the general principles apply across-the-board. Italian and, to a lesser extent, Greek pasta manufacturers resort to dumping to break into the South African market, alleges group managing director Trevor Rogers. ‘Once their domestic market requirements are met, foreign companies are left with excess capacity for which they have to find markets. This involves no real additional costs other than freight from Italy or Greece to South Africa.’ Dumping doesn’t have anything to do with investment. It’s about getting rid of over-production any way the manufacturer can for whatever he can wheedle out of the targeted country. Although consumers get the benefit of low prices – and often matching quality – manufacturers, who have heavily invested in the host country, find the bottom falling out of their markets. Which upsets Rogers. He wants ‘fair and reasonable’ tariff protection to cover constant investment in modern plant. But he’s not going to get it. The government has announced that the current duty of 30%
on pasta will drop to 24% over the next four years, which will
increase the severity of competition. When you’re under attack from a multinational corporation, prepare to ward off hammer blows that may include price, better service and even political pressure. Defending its commanding position in the fizzy beverage market is Amalgamated Beverage Industries (ABI), which bottles a range of popular carbonated drinks, including Coca-Cola. Coke has already felt the sting of offshore competition – albeit indirectly – from Canada. A Canadian company, Cott Beverages, supplies a cola concentrate to local retail chains. This allows them to produce their own colas. Examples include Makro’s American Cola, Pick ‘n Pay Cola, World Class Cola and Woolworths Cola. These products automatically enjoy better shelf space and in-store exposure than Coca-Cola. And they’re sold at cheaper prices since the chains that produce them incur little or no distribution costs. But more worrying for ABI is the re-entry of Pepsi-Cola into the South African market. ABI believes that Pepsi, Coke’s greatest international rival, will use a get-in strategy that emphasises its political correctness in pulling out of South African when it did as a protest against the repressive policy of apartheid. Pepsi, Coke alleges, will attempt to create the impression that its return is motivated not so much by profits as by its desire to improve living conditions of South Africa’s underprivileged black community. Rumours suggest that Pepsi plans to make large investments in community projects such as massive clean-ups in townships like Alexandra and Soweto. These will probably be widely advertised to generate awareness among potential consumers and create demand. Pepsi intended to enter the market through a licensing agreement with National Sorghum Breweries, a black-owned company with established distribution channels. But this scheme fell through when National Sorghum launched its own Pride Cola. So Pepsi entered the South African market in November 1994 through New Age Beverages, a R100-million joint venture between Egoli Beverages and Pepsi. Egoli, which has a 75% stake in the New Age soft drink bottling facility, was established by former Coca-Cola employee Ian Wilson, a South African. Other major investors include such prominent African-Americans as Earl Graves, publisher of Black Enterprises magazine and chairman of the Pepsi-Cola Bottling Company in Washington, singer Whitney Houston and American basketball star Shaquille O’Neal. Heading the New Age board are Khehla Mthembu, former
managing director of Afgen, and Monwabisi Fandeso, a former
South African Breweries and National Sorghum executive. Another major battle is likely to be fought for control of the health-care, beauty and detergent markets. The main contenders: Proctor & Gamble (P&G) and Unilever. P&G operates in 51 countries and markets its brands in more than 140 countries. An analysis of the international soap and detergent market reveals that the world’s biggest players, P&G and Unilever, hold a 15% and 14% share of the market respectively. ‘We know that P&G is back in the country,’ says Unilever’s Patrick van Hoegaerden. ‘When they left as a result of the apartheid policy, they sold out to Permark, a local company, under an agreement to buy back should the circumstances in South Africa change. ‘We believe they will be in the Unilever market as of 1996.’ Also waiting for the P&G onslaught: the Consumer Products Division of Adcock Ingram. Managing director Andrew McGibbon reports: ‘Procter and Gamble has more resources with which to promote, advertise and exert greater influence on the trade than almost any other worldwide corporation.’ Adcock Ingram’s major concern: P&G products that are directly positioned against their own such as P&G’s Vidal Sasoon and Adcock Ingram’s Salon Selectives – both positioned as professional hair-care products. How will P&G get in? Not by price-cutting. P&G traditionally uses tested international campaigns to
market well-respected trademarks, the international
credibility of its corporate and brand names, world-class
service and high quality products. In the telecommunications sector, Alcatel Altech Telecoms (AAT), a joint venture between France’s Alcatel Cit SA and South African-owned Allied Technologies, which supplies public switching, transmission and telematics systems to Telkom, Vodacom, Transtel and Eskom, perceives a serious offshore threat from many parts of the world. The government had used the Bulk Supply Agreement to protect Telkom since 1979. This barred vendors of transmission equipment from the market. Telkom adopted a technology-based policy of using a single supplier. However, its approach is changing as a result of rapid advances in technology, shortening product life cycles and, increasingly, service-based decision-making. As Dr Rodney Harper, of AAT, puts it: ‘Telkom is looking for a supplier who can offer the best total service solution’. The end of the Bulk Supply Agreement in 1994 makes the threat of international competition more acute. According to Harper, the major threats stem from:
Ericcsons supported the ANC when it was banned. Now it expects something in return. The company favours establishing partnerships with its customers. AAT expects it to ‘get in’ and build market share through:
Siemens, the world’s second largest supplier to the international telecommunications industry, already has a strong presence in South Africa with a 60% share of the switching market. What worries AAT is the likelihood that Siemens will attempt to increase its market share. NEC, a major player in the world telecommunications market, is already strongly positioned in the bordering states of Lesotho, Swaziland, Malawi and Namibia. ‘During the 1994 elections,’ Harper recalls, ‘rural radio stations were needed to connect remote communities. We were unable to manufacture the required number quickly enough. This allowed NEC to enter the market.’ He believes that NEC will cut prices to gain further
market share. A lot of the companies emphasise price-cutting as an important ‘get in’ strategy for foreign firms anxious to tap the South African market. In fact, Richard McGhee, Budget Rent A Car’s sales and marketing director, says it’s the only get- in strategy for competitors in the car hire industry. Is pricing really that important? To find out, I probed further. But before we get into the nitty-gritty, a short pause to reflect … |
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I’VE kept this chapter and a few others short. Deliberately. It gives you the chance to relax and digest what you’ve read. It gives me the opportunity to summarise what I’ve already told you.
If you’re attacked by multinationals with virtually unlimited financial resources, be prepared to defend yourself against a combination of ‘get in’ strategies. They may even exert political pressure to get what they want. Now, let’s get back to business. |
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‘Historically, 90% of foreign companies entering a new market have
competed on price.’ PRICE isn’t all-important. According to conventional business wisdom, it’s quality that counts. That and service. But don’t bet on it – not when you’re preparing to defend your market territory against foreign incursions. Obviously, not all sectors of the economy will face the same degree of price-cutting by invaders. Some may not face it at all. One sector that will is the … Taking a short-term view, the Delta Motor Corporation, which assembles Opel cars, Isuzu commercial vehicles and distributes the Suzuki range of leisure vehicles, believes invaders can only compete on the base of price in an over- saturated market. Rodney Rudman, strategy manager for passenger vehicles, cites the Hyundai as an example. Assembled in Botswana, it retails for 15% to 20% below the price for other comparable, locally assembled vehicles. He contends that the price differential compensates for the lack of service and product support. As the import duty begins to drop, the market will open up to any vehicle manufacturer who doesn’t already have a presence in South Africa. Most will opt to import completely built-up units to avoid massive investment in plant for local assembly. Volvo, of Sweden, has already chosen this route. Rumours indicate Peugeot and Citroen, of France, may follow suit. A plethora of new foreign competitors will play havoc with motor industry pricing structures. They’ll force local manufacturers to import completely built up units themselves to remain competitive. Dropping prices will exert a downward pressure on vehicle retail prices lower down the product line. And as retail prices slide, manufacturers will have to address the issue of reduced profitability. While this won’t have a dramatic impact on top-of-the-range cars, where substantial profit margins are built in, it will affect base-line vehicles. So price wars are inevitable as local manufacturers prepare to defend their markets against price-cutting invaders. Or are they? The Delta Motor Corporation won’t engage in a price war even if invaders slash prices in an attempt to gain market share. It will instead concentrate on increasing the value added component of its product line. Nissan takes a short to medium-term view, during which punitive import duties will make the importation of low priced, high-quality completely built-up units impossible. But if it does come to a battle, Nissan isn’t scared of becoming embroiled in a price war. ‘We’ll fight fire with fire,’ says national sales director Lester Miller. David Pfaff, who wears the Fiat Uno hat at Nissan, disagrees. Fiat Uno will not get involved in a price war, he states. He argues that short-term gains in sales are no substitute for greater profitability. Although foreign competitors may gain market share by cutting prices, it’s a strategy they won’t be able to sustain. Low prices may initially attract purchasers, but Pfaff maintains that long-term customer loyalty depends on an efficient dealer network with well-trained personnel. ‘This is the area where cut-price upstarts, such as Hyundai, will ultimately fail in the long run.’ Samcor, which assembles Ford, Mazda and Mitsubishi vehicles at plants in Pretoria and Port Elizabeth, views price-cutting – dumping in particular – as a major threat to the South African motor industry. State-imposed protection, in terms of the new GATT arrangement, will no longer shield local assembly plants from offshore competitors. Pointing to Hyundai as an example, managing director Arthur Mutlow says these vehicles don’t attract import duty because they come into the country as allegedly ‘manufactured in South Africa’. In fact, they come in as almost fully built cars. The only missing components are bumpers and wheels.
But Samcor’s marketing research manager, vehicle marketing, Mike Ewing, expects the price of Hyundais to double in the near future when the government closes the loophole that the Korean manufacturers found in the web of protective import legislation. He doesn’t expect an influx of low-priced imports to play havoc with the South African motor industry’s price structure in the short term. His reason: still-in-place punitive import duties make imports more expensive than locally manufactured products. But how will the local motor industry fare if the government accelerates import tariff reductions? Dereck Smith, also of Samcor, doesn’t mince words. ‘The
price of overseas products along with their quality will blow
domestic companies away.’ BMW’s Nicholas Hall puts it another way. ‘The most obvious and expected route that foreign competitors will use when entering and penetrating the South African market will be via cost advantages.’ They’ll achieve these by importing vehicles instead of setting up local plants. Deregulation makes this more viable because the biggest investment is in the product itself. Hall warns that local vehicle manufacturers are not really equipped to defend themselves effectively against offshore competitors who use this ‘cost advantage strategy’. The upshot could be that manufacturers close local
assembly plants and import fully built vehicles to exploit the
strategy. Pricing is also a major concern in the commercial vehicle sector of the South African motor industry. At the heart of the problem: the local content programme and small production runs, which make local manufacture less efficient than it is in Europe, the United States and Pacific Rim countries. Local manufacturers have been at a cost disadvantage, which has created a pathway into the local market for the more cost-efficient producers. The ‘get in’ strategies of these new players has been based on price. Economies of scale overseas lead to the production of vehicles there at a lower per unit cost. If foreign manufacturers export fully built vehicles to South Africa, they won’t have to bear the cost of establishing, staffing and maintaining local plants. In their rush to get their vehicles on South African roads, international competitors aren’t averse to heavily discounting prices. They often sell vehicles close to their cost price and try to recoup profits through the sale of replacement parts.
As the motor industry braces itself to try and withstand a
ruthless round of price-cutting by foreign competitors, what are expectations in the … Not all that rosy, according to Derrick Theck, group financial director of Blue Circle Limited. Blue Circle, wholly owned by Murray & Roberts, manufactures and markets a range of basic building and construction materials and products. In the company’s sphere are Blue Circle Cement, Ready Mix Materials and D&H Materials. Price-cutting is always a threat as Blue Circle can neither prevent foreign competition nor meet competitors’ price levels without pricing itself out of the market. The company is particularly wary of the threat posed by the weak rand, which will enable foreign competitors to overcome the industry’s high barriers to entry and huge start- up and overhead costs. Blue Circle identifies dumping as another major threat. The marginal cost of producing cement is very low in Europe. So in a world trade recession, when transport costs are relatively low, dumping, which forces domestic prices down, is a major threat. Neither are prices set in concrete in … While most banks discount the possibility of a price war, Nedbank doesn’t. As divisional director of the Commercial Banking Division Jack de Blanche views the situation in a different light. ‘When one looks at the banking world, the price charged is the interest rate charged. Overseas competitors will and are trying to lend money at cheaper rates, playing havoc with pricing structures.’ ABSA puts forward a view held by most of the other banks. It doubts that foreign competitors will attempt to build market share at the expense of sacrificing immediate profits. ‘Gone are the days whereby somebody wants to lose money for the glory of having a presence,’ says J Runewitsch, the group’s executive of corporate and merchant banking. Does this also apply to the market for … Overseas chains entering the market will attempt to grab market share on the basis of price. ‘We know this,’ asserts Joseph Jaffe, of Nando’s Chickenland. ‘MacDonald’s will come in ultra-cheap. Say R1,99 a burger. We can’t compete with that.’ But it doesn’t worry him. When MacDonald’s enter, they’ll service a different segment of the market. ‘MacDonald’s is very, very fast and our main focus is not on speed. We at Nando’s do not regard ourselves as good fast food, but rather as good food fast.’ So MacDonald’s, if and when it arrives, will probably hurt businesses such as Steers and Kentucky, which appeal more to the lower and middle income groups. Achilles Zoulas, marketing manager for the Steers Group of Companies, adds the name Burger King, which falls under Coca-Cola’s umbrella. He reckons that Burger King will probably arrive in South Africa first. ‘It has huge financial muscle and may be prepared to run
its outlets at a loss for up to 12 months to establish itself
in the local market.’ Does this mean that a bitter price war will tear the fast food sector asunder? Zoulas doesn’t think so. ‘A price war is not attractive to any party because there are no winners at the end of it. Price wars create a false demand. ‘If a customer is only attracted by price, there is a possibility of losing him when the price goes up again.’ A 1993 survey in the United States found brand switching occurs randomly, depending on which fast food outlet offered the best special at any given time. And what does the ubiquitous range of Wimpy Restaurants feel about the impending price-cutting invasion, particularly by MacDonald’s? Mafeno Phora, one of the chain’s junior brand managers, believes that the American fast food chain will initially set up only one store – probably in Soweto. This will generate positive publicity for the invader and become a useful testing ground for further expansion. MacDonald’s will use a price war strategy to attract customers initially and ‘pump its presence’ in South Africa. But the initial rush will taper off when the novelty dies down. The threat of a price blitz doesn’t only apply to restaurants and fast food merchants. It also applies to industrial catering giants like the Fedics Group. Since the primary objective of overseas competitors will be to build market share, says Don Pigott, they won’t be too concerned about short and medium-term profits. And how will Fedics react? By fighting back on the basis of price. ‘However, a price war will lower the base from which profits must grow … it will lower the invader’s ability to become profitable.’ Also set for a shake-up is … Price-cutting to gain market share is inevitable, says Adrian Botha, public affairs manager of the Beer Division at the South African Breweries. But he doesn’t believe this is the best way of doing it. ‘Consumer perceptions are built on the quality of a brand and often, if you under-price a brand, the immediate reaction is that the product is cheap and of inferior quality. ‘This does not mean that there will not be price-cutting. But it will be minimal as it will damage the product.’ Any offshore brewery contemplating a presence in South Africa will need a lot of money to establish itself. The cost of building a brewery, for example, can top R1-billion. Then there are the millions needed to build brand awareness and loyalty plus the cost of establishing distribution channels. ‘If price-cutting does occur,’ Botha observes, ‘companies will need huge amounts of capital to absorb losses and take on SAB in a price war.’ There’s also trepidation in … But Borden Foods isn’t quaking in its corporate shoes. Henk Kleizen, general manager of the Consumer Division, sees little prospect or scope for price-cutting in the short term. Since Borden, which markets Cremora, Pasta Romana, Make-a-Litre and Tubs Noodles, doesn’t work to excessive margins, there’s little room to lower profits. This is an industry-wide situation. So, if prices drop significantly, many companies will be driven to the wall. Some companies may be able to finance short-term losses,
according to Kleizen. But when they’re forced to raise prices
in the longer term, they stand to lose newly acquired market
share. The local food industry also faces the threat of dumping, which could shred marketing strategies and seriously dent bottom line results. It’s a ‘get in’ method that’s of great concern to African Products. The company processes maize into starch, glucose syrup and other maize-derived products for the pharmaceutical, confectionery, brewing and food industries. National sales manager Stewart Krook points out that deregulation will allow African Products to buy maize directly from farmers to drive prices down. But it still won’t be able to compete with the price of maize-derived products that are dumped on the local market. Kellogg’s, which holds an estimated 40% of the ready-to- eat breakfast cereal market in South Africa, faces almost certain price-cutting threats if other major international players decide to make a bid for market share. ‘Pricing could be one of the most important short-term strategies of a potential entrant,’ observes brand manager Grant Leech. But Kellogg’s won’t cut prices. The underlying rationale is that price-cutting may lead to changes in consumer perceptions of Kellogg’s brands. The customers may start believing that Kellogg’s is cutting quality, not just prices, or that Kellogg’s has been ‘ripping them off’ for the past number of years. Also likely to attract foreign price-cutting competitors are sectors of … Let’s consider Cape-based Nettex. It specialises in warp knitting, printing and finishing of 100% polyester fibre curtaining and allied fabrics. And managing director M C van Wyk claims it’s the largest operation of its type south of the Equator. ‘Foreign competitors are likely to use a variety of tactics in an attempt to increase their proportion of local market share. It’s probable that they’ll enter the curtaining market with products that are priced significantly lower than those of local producers.’ And he fears that advanced technology will allow competitors from the Far East to operate at a fraction of Nettex’s costs. ‘Lower costs and higher product quality will definitely erode market share to the detriment of Nettex’s profitability and reputation.’ Also in line for foreign competition is … Anthony Ward, a director of The Exclusive Books Group, says big retailers entering the South African market will probably discount heavily in the beginning and then slowly raise prices to increase profits. How will they minimise start-up costs and cover overheads? By purchasing large warehouses on metropolitan peripheries and fitting them out as a basic stores without elegant shop fittings. They’ll then stock these ‘barns’ with a large range and depth of reading matter and develop them as self-service stores to minimise staffing levels. Another market heading for a rough ride is … Major players in international car rentals will break into the South African market by cutting prices. So says Richard McGhee, of Budget Rent A Car. Possible offshore competitors include Alimo, an aggressively marketed American car rental service, Eurodollar and Euro Car Inter Rent. Their first task on landing: to capture attention. They’ll do it by dragging prices down and simultaneously enhancing levels of service. Invaders will initially target the leisure market, of which local car rental companies have only a small share. By lowering normal rates available to this segment, Alimo, Eurodollar and Eurocar will try to dominate the market by offering attractive and tempting packages – ideal for weekend getaways with family and friends. After establishing a strong foothold by raiding the leisure market, invaders will begin competing head-on with Budget in the corporate market. They’ll offer business people rates comparable to those they’ve established in the leisure market and promote their services on the basis of low rates equal low costs. Major price upheavals are also expected in the … A sudden flood of international competition will probably lead to a vicious price war in the pharmaceutical sector, warns R A H Bhikha, managing director of BE-TABS Pharmaceuticals. He says invaders will be motivated by only two factors:
But incoming companies won’t be able to depress prices indefinitely. They’ll be limited by the amount of financial muscle they possess and the length of time shareholders will allow them to operate without making profits. Also concerned about pricing are companies involved in manufacturing and marketing … SmithKline Beecham, Unilever SA, Johnson & Johnson, Colgate-Palmolive and Adcock Ingram Consumer Products perceive their main threat to be Proctor & Gamble (P&G). An analysis by SmithKline Beecham of P&G’s entry into Australia shows that the United States-based company moves quickly, bringing in products manufactured overseas at very competitive prices. And it generally launches with tremendous marketing and advertising support. Patrick van Hoegaerden, of Lever Brothers, has a different perspective. While he acknowledges P&G as a major threat, he doesn’t believe they’ll cut prices to get into the South African market. ‘From what we know of Proctor & Gamble, they are best at
selling products at a premium. So they’re most likely to come
in from the top end and may even sell their products at a
higher price than we sell ours.’ However, all local players expect P&G to implement a brand development plan which evolved from an “Everyday Low Pricing” strategy that attempts to save on retailer trade promotions. This plan – an extension of value-pricing – allows retailers to receive upfront promotional funds based on past performances. What worries them is P&G’s international reputation for deep market penetration and its resolve to stop at nothing to achieve market dominance. Another sector that expects competition on the basis of price is … The CHT Group of Companies expects invaders from the Far East to strike with lower prices, the result of access to cheaper and more productive labour markets, economies of scale production and export subsidies. Like the Japanese, the attackers will apply ‘a profit- neglecting selling strategy’. This is the low-cost, high volume production of limited production lines that allow the use of price as a major competitive tool for achieving sales growth. Competitive pricing has always been a problem for … Wayne Scrooby, product manager in charge of coated grades and tissue at Sappi Fine Papers, doesn’t try to hide the fact. ‘Pricing has always been a problem for us to due to inefficiencies and high costs. Our prices were originally 20% more expensive than imports.’ Main culprit: methods of distribution. A customer may choose one of two methods of purchasing. He can:
The latter system lowers the cost to the customer because the merchant’s involvement is only administrative. To counteract this procedure, Sappi introduced its own indent procedure, which leads to significant savings by customers. Scrooby identifies his main foreign competitors as Magno Print and Lumi Art in Germany, and Comdat in France. ‘If these or any other competitors attempt to build market share through price-cutting, Sappi will not hesitate to lower prices in response.’ Not that Sappi wants to engage in a price war. Although the company claims it has the financial clout to
wipe any single importer or local producer out of the market, Sappi will lose money. In addition, eliminating competition
will reduce the customer’s choice of paper ranges. While the South African market, which consumes about 550 000 tons of paper products a year, is small by international standards, it has attracted the interest of Finnish paper producers. Fins, Mondi Paper alleges, used price-cutting to wrest a large portion of the South African market from local producers. The Fins devalued their currency by 50% over two years while their unions agreed to lower wages. The South African import tariff on paper products and raw materials is currently low by world standards at 10%, so Mondi was afforded little protection from the price-cutting. Also preparing their defences to counter the offshore threat are companies in … Cullinan Industrial Porcelain (CIP), which manufactures electrical porcelain insulators, has already begun to feel the adverse effects of price-cutting by foreign competitors. Although sales manager Jan Beukes reports a minimal 2% to 3% loss of market share, he expects this to increase. ‘The use of a price penetration strategy by invaders has made it impossible for CIP to compete on price. Our costs are already significantly higher than the international selling price.’ CIP recently lost a R1-million Eskom contract to an Indian manufacturer on the basis of price. Another problem: the world market for insulators has been saturated. Consequently many foreign manufactures are dumping their excess stock in South Africa at ridiculously low prices. So now’s the time to … You have five options:
Select either of the first two options and you could find yourself in the bankruptcy court. Select options three and four and you need the financial clout to outlast the competition. Your best bet is option five. It involves using your
resources – human and material – more efficiently. It may
involve restructuring your organisation from top to bottom.
It will certainly involve developing a customer service
culture. I go into more detail later. While low prices may initially attract consumer attention, they don’t always lead to ongoing customer loyalty. There are other factors that count. Like the quality of the product and its availability. Both depend on research and development and labour’s skills and productivity. Taking these into account, how does South Africa measure up in global terms? In many respects, not very well. |
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Research has shown that consumers are not brand-loyal,
but quality-loyal.’ ‘It is no secret that the majority of South Africa’s labour force is unproductive and functionally illiterate …’ 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. 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. 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%. 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 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 … 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… 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 … 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 … 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.’ 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:
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 … 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.’ 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. 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 … 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:
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 … 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:
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. 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.
Low levels of productivity are … 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. 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 … 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’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 … 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 … 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 … 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 … 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. 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 … 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. 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 … 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 … 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 … 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 … 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 … 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.’ 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.
So… Industrial relations experts say you can take multi- faceted action to enhance levels of workforce productivity. You can:
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. |
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‘South African industry in general has a poor understanding of the concept of customer service.’ CUSTOMER service in South Africa is awful. In my book I Was Your Customer, I reported that South Africa was rated 23rd in a worldwide survey of customer service in 24 countries. I also quoted international management guru Peter Drucker who noted in Management (Harper’s): ‘There is only one valid definition of business purpose: to create a customer. It is a customer who determines what a business is. It is the customer alone whose willingness to pay for goods or services converts economic resources into wealth, things into goods. ‘What business thinks it produces is not of first importance – especially not to the future of the business or its success. ‘Customers are the foundations of business and keep it in existence. They alone give employment.’ So, faced by a wave of foreign competition in the wake of crumbling trade barriers, how do South African captains of commerce and industry go about providing excellent customer service? They don’t. Instead … Some even introduce customer-care programmes. But quickly lose enthusiasm. Brian Streak, distribution marketing manager at Siltek, sums up the situation. ‘South Africa is two or three generations away from developing a customer service culture.’ I intended making this the longest chapter in the book. After all, South African commerce and industry will depend for survival in a free market on the quality of its customer service. But in most cases, when I broached the subject, I was met by a bland wall of complacency. For example, in a sector of industry notorious for its
atrocious service, all manufacturers – without exception – claim an overriding commitment to service excellence. I refer, of course, to the motor industry. In 1992, Samcor launched an internal programme. Its aim: to develop world-class products, people and operations. It stressed leadership in customer care as a critical factor. However, sales and marketing controller, Derrick Smith, admits that customer care has fallen below the desired level. Neglect of dealerships over the last 10 years led to a noticeable decline in the quality of customer service. Now – some would say belatedly – management is tightening
controls. How, Smith doesn’t specify. But how good or bad is quality of that service now? National sales director Lester Miller adopts a stand typical of the smug-bound industry as a whole. ‘Nissan is a leader in customer service, so this isn’t a
new business ethic for us. We undertake a customer
satisfaction index (CSI) survey on a quarterly basis to ensure
that dealers are meeting customer expectations.’ But customers may get a better service deal by buying imported cars. They offer superior warranties. Hyundai, for example, offers a warranty of three years unlimited mileage compared to Delta’s passenger vehicle warranty of 12 months unlimited mileage.’ And is Delta doing anything to close the gap? The management team, according to Rudman, aware that a superior customer service approach is critical to the company’s long-term success, has taken several fundamental steps towards becoming more customer-orientated. Could any other sector of industry be more vague? Yes. Most of those interviewed – particularly in the property development sector – viewed customer service as an alien concept. Those who admitted to hearing of it, had relegated it to the backburner. They just couldn’t foresee any competition from faraway places with strange sounding names. But there’s an exception. Blue Circle. Derrick Theck believes that foreign entrants will buy market share by cutting prices. His company’s only defence: to segment the market in accordance with customer requirements. ‘Blue Circle has come to realise that it can serve both
the large contractor and the small developer. In order to
serve the small developer we must become more customer-
friendly.’ Only one company in this sector really acknowledged the importance of customers. Nashua, probably best known for its photocopiers and, more recently, computers and cellular phones, has always been strongly customer-orientated – at least from its management’s perspective. Whether its service always lives up to its ‘Saving you time, saving you money, putting you first’ ad slogan is open for debate. But I have to give the company credit for trying. Chief executive officer Jac Moolman, spends most of his time visiting the 57 Nashua franchised operations around the country. His mission: to instil the commitment of Nashua to customer service. He believes that it is just as important for the person on the switchboard as it is for the technician who fixes the machines to be repeatedly exposed to the service message. There are no substantial physical or performance
differences between Nashua products and those of its
competitors. All Nashua really sells is service. You can say the same about banks. Apart from the packaging, the products are much of a muchness. The only differentiator is customer service. And as things stand at the moment, service quality varies from mediocre to bad to worse. All the banking groups, including First National, Standard, Nedbank and ABS (Allied, United, Volkskas, Trustbank), insist that they provide good customer service and are striving for excellence. Not that you’d notice it by queuing in any of their
banking halls. ABSA chief executive Dr D C Cronj zoomed to the crux of the problem in the banking group’s 1994 annual report when he admitted: ‘Over the past two years much of the focus was internal.’ And M Sydney trots out an industry-standard public relations response to a query about customer service. ‘Substantial resources have been allocated to staff training and development with the particular aim of upgrading service quality in terms of the Customer Focus Programme’. Spokespersons for Standard and Nedbank use different but equally empty phrases to say very much the same thing. David Kuming, of Investec, is more voluble. Investec is a group of companies that includes a merchant bank, securities trading, asset management and property development institutions. Foreign companies, particularly those based in the United States, will use superior quality customer service as one of their get-in strategies, according to Kuming. ‘In the USA everything is geared towards customer service. It’s one of the most important aspects of business in the United States.’ But he isn’t unduly concerned about facing the challenge of US-style customer service. ‘Investec, has a very well-developed culture of customer service. Customer service is one of our major policies.’ Which is something we’ve all heard before. Then comes a refreshing breath of candour from Grant Wilson, of Pizza Hut. ‘In the past, Pizza Hut’s service was not very good and we knew it. Customers always considered our service to be average.’ Which he concedes isn’t good enough to ward off possible
attacks from the likes of American-based and service-focused
Dominoes, Pizza Haven, MacDonald’s and Burger King. Penny Lloyd reveals that stores in the Sales House chain could be in trouble when competing with American companies that are more customer-orientated. ‘Sales staff throughout South Africa are notoriously slack when it comes to customer service. And if they don’t “jack up” fast, we could lose out to foreign marauders.’ And from Edgars, a recent in-house survey found that
customers weren’t impressed with levels of service, which were
perceived as ‘minimal’. Nettex is also concerned with falling standards of service to customers. ‘Foreign competitors from countries such as those in the Far East,’ says M C van Wyk, ‘are likely to have corporate philosophies that concentrate on providing high levels of customer service. This may have a negative effect on the Nettex’s current share of the South African market for curtaining.’ Foreign competitors have already captured about one-third of the this market. And they’re likely to increase their share if they continue to penetrate the market with lower priced, higher quality products that come with better warranties and higher levels of customer support. So … The are 10 key elements in good customer service. If you implement them all enthusiastically and as a matter of policy, you will achieve World Class Customer Service. These elements are:
Nick Louw, of Commercial Airways (Comair), sums up the customer service situation. ‘Overseas competitors have developed excellent customer
service policies. They could use this as a differentiation
tool since South African businesses have poor customer service
policies that are badly implemented.’ Whether the provision of excellent customer service in all its forms will be the deciding factor in the coming war for control of market share remains to be seen. What is certain is that it will play a major role, along with price and product quality, in determining the victors. |
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TIME to catch our breath again and recap. We’ve already established that offshore competitors may attempt to muscle in on your territory and that they’ll use one or a combination of strategies to grab market share. We’ve also learnt that while some of the still in-place barriers to entry may be effective in the short term, they are bound to crumble in the medium to long term. We found:
We now move on to preventative strategies … |
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‘An interesting development has occurred in South Africa in that customers now want
brand equity as well as affordability.’ ‘Central to the success of any organisation are that the staff who make it up interact with its customers, execute plans
and give the company life.’ ‘Contracts are won on price, but they are retained on quality.’ ‘When in doubt, go with the customer.’ Understanding your customers is not important. It’s vital! WHEN foreign traders attempt to blast their way into the domestic market by slashing prices and providing world-class customer service, what do South African companies do?
Among the most talkative are car manufacturers. After treating customers as necessary evils for decades, they’re running scared. South Africa’s re-entry into world orbit and the withdrawal of protective barriers have brought the threat of international competition to their doorstep. So how do they propose righting the wrongs that they’ve foisted on the long-suffering South African public for so long? Let’s start with … The company produces cars in seven different body shapes. Mike Ewing thinks that’s six too many. By specialising in one body shape, the car would cost less to manufacture or assemble. Another plus: Samcor would become market leader in that category of vehicle and be in a far better position to fight off competition. Now, let’s move from the general to the specific and home in on the Mazda range. Samcor management has been gearing for international competition for the last three to four years. Because it won’t be viable to compete with Hyundai, the major threat, on basis of price, it has decided to defend its position by concentrating on distribution channels, costs, productivity and the introduction of new products. The basis of the strategy is a new mission developed in
1992. It reads: “By 1997 we will be world competitive in
everything we do”. By placing the main emphasis on dealer networks, cost reductions, new technology and ‘complete customer satisfaction’, Samcor will strive for ‘the lifetime customer concept’, which calls for added value and ‘complete customer peace of mind’. Samcor hopes to achieve these lofty ideals by:
The company believes that radically improving after-sales service is the only viable short-term option in combating foreign low-price strategies. Samcor is known for providing less than superb customer service. So, to rectify problems, the company is closely examining performance in towns and cities where there are two or more dealers. Those that don’t meet new service performance criteria will be given a limited time to do so. Or else. Brand equity is the answer, asserts … Nissan doesn’t want to cut prices because it links pricing strategies to the concept of brand equity. As a result, Nissan differentiates itself through brand building. It also creates brand equity through public relations, media relations and, most importantly, through advertising. In theory, the more added value a customer associates with a vehicle, the higher the premium he is prepared to pay for that particular brand. In practice, customers now want brand equity and affordability. ‘Affordability,’ says John Jessup ‘has become critical to the success of a brand. Neither Nissan nor Toyota ever use big discount plans in
their promotional campaigns. Instead, they insist on good
financing plans and, in this way, try to create added value
for the consumer. Consequently, Nissan management has decided to adopt marketing strategies that embrace the customer. This led to the implementation of relationship marketing – a concept that has as its premise the uniqueness of each customer, even in a mass marketing strategy. ‘People want to relate to a brand,’ says Jessup, ‘particularly for such products as motor vehicles.’ At Nissan, efforts to implement the philosophy include a Uno club magazine and a Nissan credit card for the purchase of petrol and groceries. Every time Nissan customers use their card to make purchases, they’ll be credited with bonus points they can redeem for cash when they next buy a Nissan. ‘Superior customer satisfaction,’ says Jessup, ‘is the only way Nissan believes it can gain the number one position.’ Nissan already has a large, established customer base, which gives the company an estimated 18 to 19% share of the market. The main focus is on fleet or corporate customers who account for 80 to 85% of Nissan’s total business. So what does Nissan plan to do to protect this base from offshore marauders?
Speaking for Uno, David Pfaff, says that although competitors may gain market share by cutting prices, it will not be ‘a sustainable competitive advantage’. Because of its inherent nature, a car suffers from considerable wear and tear with usage. Car maintenance is, therefore, a key aspect of car ownership. ‘Price cutting will only have detrimental effects,
especially in a climate where employees demand exorbitant
salaries.’ Instead, Uno will sell the intangible, value-added aspects of cars – image, user-friendliness and after-sales service. Promotions will sharply focus on ‘unique services offered to all Uno owners’. These include:
And enhanced after-sales service from … In Delta’s case, the company’s Motorpart enhanced after- sales service includes the guaranteed delivery of any part within 24 hours nationwide. The company also offers its customers Delta Plus. Its major components embrace:
At the same time, Delta continues to develop its customer satisfaction index (CSI) programme. Every year it rates dealers in terms of customer satisfaction with product, sales and service. The significance of the programme is to shift emphasis from the number of sales to the satisfaction of the customer. The CSI index has now become the most important rating whereas, in the past, dealers were evaluated solely on market penetration. The programme supposedly ensures that customers are well looked after to enhance customer loyalty, which increases the number of repeat sales while reducing the number of one-time sales. Not only the motor industry faces threats. They also pose problems for sectors of the building and construction industry. So here’s an answer to price-cutting by … Differentiate markets, services and other facilities according to customer requirements. That’s the only way Blue Circle believes it can counteract price-cutting. The company now realises that it can serve both large contractors and small developers. But to meet the needs of small developers it must become more customer-friendly. To this end, Blue Circle has already become more customer-orientated at quarry sites, where waiting times for small developers have been slashed by 50%. The company achieved this by waiving the need for small customers to go through the same time-consuming material weighing time as large contractors. Blue Circle will also go out of its way to meet customer requirements in other areas. For example, it plans to make a large investment to increase the capacity of its shrink-wrap facilities to meet the growing demand for shrink-wrapped cement. ‘It is this type of commitment to serving customers in an industry where customer service is perceived to be less critical than in other industries that will enable Blue Circle to neutralise the threat of price-cutting,’ avers Derrick Theck. Even financial institutions aren’t exempt. Many of them find themselves in the direct line of foreign competitive fire. Brighter smiles, firmer handshakes and vague promises won’t be enough to deflect foreign competition. So make products price-competitive says … To keep and enlarge its existing customer base in the face of foreign competition ABSA will have to provide superior products and service, says J J Runewitsch. The bank will have to make clients feel that its products are price-competitive. And more, the products must meet their needs. But therein lies a danger. The bank will have to be careful not to compete to the extent that it loses money, warns Runewitsch. To find out what clients want, the bank has been interviewing the clients. This led to the introduction of an innovative, computer-based system that assists clients in opening important letters of credit. External and strategic focus is the answer according to … This basically entails employing a more customer- orientated approach and focusing on cost-reduction imperatives. Standard recognises the pressing need for greater emphasis on customer service because it will have to defend its market territory from both local and foreign banks, which have developed cultures of good customer service. The bank expects foreign competitors to ignore retail banking in favour of asset and liability gains – corporate business and relationship building as well as integrated stockbroking, underwriting, trading, corporate and fund management services. Although Standard reckons that it has sufficiently robust pricing structures to meet the challenge, it acknowledges the need to leverage other marketing mix variables such as service and distribution to defend its position in these markets. Rob Miller, the bank’s national manager of foreign trade services, doesn’t agree. He says that domestic banks have little or no defence against the threat posed by price-cutting in corporate areas because South African banks rely on overseas banks to provide many financing instruments. But Miller does see a glimmer of hope. Local banks may be in a position to discourage forages by re-routing other traditional foreign exchange products, such as documentary credits, to foreign banks that are not represented in South Africa. Usually this type of product is a very lucrative source of income for overseas banks. He also suggests that Standard Bank may be able to entice the corporate and upper commercial markets by providing an all-embracing package of the products at a reduced price. Go for the ‘middle market’ advises … Foreign raiders will gun for the least profitable sector of the market – the price and rate-driven corporate market, asserts Nedbank’s Jack de Blanche. Nedbank appears to be willing to lose market share in this sector and concentrate on maintaining and developing its position in the ‘middle market’, in essence the commercial sector. Although profitable, foreign banking interests will probably find managing the plethora of clients in this sector too complicated. An added incentive for developing this sector of the market is the encouragement given by the Reconstruction and Development Programme to small and medium-size business development. On the customer service front, Nedbank is developing a closer relationship with its clients by ‘taking banking to the people’. A concrete manifestation of the concept was the recent installation of an in-store bank in the Buxton Spar in Westville, Johannesburg. Nedbank swiped the idea from American banks which opened in-store branches during normal shopping hours to make banking facilities more accessible for clients at points of purchase. Another acclaimed Nedbank client service first is on-line TV links between clients in remote regions and a central banking area. The system allows clients access to a comprehensive range of banking facilities. Although it eliminates the need for staff in remote areas, the TV concept allows clients and bank officials to maintain personal, visual and audio contact. A price-related response from … ABI launched the Buddy Bottle in a price-related response by Coke to the growing numbers of competitors, including store-brand colas. Buddy is a 250 ml non-returnable bottle sold exclusively to schools. The price: only 99 cents each. The rationale behind the introduction of the Buddy Bottle is simple.
The company also plans to reduce production costs by blowing its own two-litre and 1,5-litre plastic bottles. The savings realised by cutting out the current bottle suppliers, Metal Box and Crown Cork, may be passed on to consumers in the form of price reductions. ABI is also vigorously upgrading its image, which projected a picture of a monopolistic and uncaring business. To this end, the company has embarked on an intensive training course aimed at improving customer relations and service. ABI isn’t new to social responsibility projects. For example, it financed the Africa Cultural Trust Multi-Media Centre, a project designed to help underprivileged school children develop their skills. The company never publicised its involvement in community upliftment projects because management believed that the support it gave to such projects was for ethical and not marketing reasons. But time has changed ethical standards. Arch rival Pepsi will seek to create the impression that it isn’t returning solely to make profits but to help improve living standards among the country’s underprivileged, alleges ABI. To counteract Pepsi propaganda and reverse its non-caring image, ABI now intends to publicise its involvement in community support and upliftment projects. How do you combat a reputation for poor service in the eat out and ‘ready-to-go’ sector of the food market? You standardise, asserts … To reverse its ‘not very good service’ image, Pizza Hut now insists that all affiliated outlets display product specification charts in back-of-the-house areas. These show the required weights of toppings on the different types of pizzas offered, to ensure standardisation throughout the group. The group takes the concept of a uniform corporate look and feeling a step further by insisting that all employees wear standard T-shirts, sweaters, jackets, shirts, ties and caps. While this may project an effective corporate image that may instil confidence in consumers, what does Pizza Hut do that actually enhances the quality of its customer service? It employs an independent agent, Super Service, to test and report back on standards of quality and service. Super Service sends a mystery shopper to various Pizza Hut restaurants without the knowledge of the management or staff. The mystery shopper critiques and evaluates the stores on the standard of waiter service and the quality of food served.’ Top marks go to waiters who:
High scores go to restaurants that serve well-cooked pizzas abundantly filled with tasty cheese and served with the required toppings. Mystery callers also evaluate delivery efficiency and how cashiers answer the phone. The minimum pass mark: 80%. Offer premium products, advocates… Nando’s offers a premium product and people don’t mind paying a little more for it. ‘As long as customers get the quality they expect from us,’ says Joseph Joffe, ‘they won’t bitch about price. When we put up our prices by 10%, we didn’t receive a single complaint.’ As a matter of policy, Nando’s won’t discount its products. Instead, it will rather offer customers added value, such as free Cokes with specific meals. The ‘taste of Portugal’ chain of outlets believes that drastic price-cutting lowers the consumer’s perception of the product’s quality. Customer satisfaction is the name of the game, according to … Faced with the threat of increasing competition from sophisticated offshore operations eager to enter the South African market, industrial catering group Fedics has developed a strategic plan that centres on customer satisfaction. Group management, in fact, identifies customer satisfaction as the main source of long-term competitive advantage and profitability. Managing director David Wigley explains how Fedics plans to achieve its long-term objective. ‘To be first-choice caterer demands an ability to provide, consistently, tasty and appealing food, the best value for money and the highest service standards; in other words, to make quality the common thread of all activities.’ Link pricing to inflation, proposes … Foreign firms will have a hard time competing with Simba in the local snack market on the basis of price. The company has developed a defensive pricing structure whereby management takes pricing decisions either ahead of or with inflation. And management holds these prices constant for two years. Simba last increased prices in September 1993. The next price increase is scheduled for September 1995, but won’t necessarily be implemented. No offshore company will be able to enter the South African market at 1993 prices and hold them constant for two years, asserts marketing director Johan de Jager. High start-up costs will deflect foreign interests, says … Snack manufacturer Willards, recently taken over by National Brands, agrees that foreign raiders will run into heavy weather if they attempt to enter the South African market by price-cutting. Product manager Hilton Loring reckons most will be rebuffed by the need to make heavy investments in high-tech packaging plants, which account for up to 70% of the cost of finished products. He raises another point: price-cutting won’t survive through the short to medium-term because shareholders will want paybacks within two to three years. Correct marketing techniques are essential, according to … Nestlé has launched a vigorous defence strategy to protect its popular Bar-One and Smarties confectionery lines against Mars and M&Ms, manufactured by the American Mars Company. Mars Bars and M&Ms, marketed in South Africa by Royal- Beechnut, used a niche marketing technique to enter the local market. Since they were premium-priced and could be found only in upmarket areas, their threat to Nestlé‘s popular Bar- One and Smarties product lines was negligible. After they secured a toe-hold in the market, Royal- Beechnut began distributing them on a mass-marketing basis to broaden its share. But consumers continued to perceive them as expensive. Nestlé reinforced this perception by giving huge discounts to retailers and through temporary price promotions.’ In some stores, Bar-One undercuts Mars Bars by 60 cents a unit. Flatten the structure to improve customer services, advocates … A leading player in South Africa’s fashion retail market, Sales House admits to worrying about competing with offshore companies, particularly American-based chains known for their excellent customer service. To overcome the problems posed by ‘notoriously bad’ customer service, the company has launched a massive education campaign that cuts across departmental lines, according to marketing chief Penny Lloyd. The customer service education programme involves personnel from sales and merchandise management who are responsible for ensuring availability of the right product in the right place in the right quantities at the right time. It also involves those who deal with customer queries and complaints. Although the retail chain acknowledges that foreign price- cutting may be ‘a real problem’, management is unfazed by the possibility. Invaders won’t be able to sustain price-cutting policies for ever, it argues. The company is also confident that its intimate knowledge of local conditions with regard to distribution, labour, manufacturing, availability of materials and working conditions will reduce the effects of price- cutting ‘get in’ strategies. Adopt American techniques, suggests … To overcome problems related to customer service, Edgars has adopted and adapted many proven American techniques. For example Edgars used Nordstrom, the American retail chain known for superb customer service, as a role model for its footwear and ‘intimate wear’ departments, in which personal service is imperative. Nordstrom employs only university students and graduates as sales assistants because they’re more competent to handle customer queries and complaints. By following the same strategy in certain departments, Edgars plans to give greater customer satisfaction, which should lead to a higher perceived level of service. How will Edgars deal with a price-led foreign attack? Graham Garden says the fashion chain would have two options:
If Edgars chooses the second option, it has the financial muscle of The South African Breweries to sustain it during a price war. If it doesn’t want to bruise its bottom line and see profits plummet, the chain will somehow have to ‘maintain its return on inventory investment’. In other words, it will have to increase sales to counteract the effects of sliding margins. According to Garden, the chain can increase the turnover rate of merchandise by deploying higher levels of technology. A first move in this direction was the installation at the end of 1994 of a sophisticated electronic system that links sales agents, factories and warehouses. The so-called Electronic Data Interchange (EDI) system significantly reduces lead times to have merchandise on the floor quicker. Move upmarket, says … Roz Designs intends avoiding confrontation with Pacific Rim price-cutters by targeting more upmarket segments and adjusting prices and products accordingly. Since profit margins on casual wear for the mass market are ‘very small’, Roz Designs hopes to see margins increase by going upmarket. Don’t take any chances, advises … The company believes that price will play a minor role in foreign ‘get in’ strategies. A worldwide survey of potential competitors shows that invaders will seek out perceived product quality and service differences. Instead of cutting prices, invaders will rather look towards a perceived difference in quality and service to achieve market share. But Chubb isn’t taking any chances. It has developed a contingency strategy to cope with unexpected price-cutting by competitors. It uses the following three-pronged matrix:
Use enhanced customer service, asserts … Although American Express Travel Service (AMEX) has little direct control of pricing, which is determined by hotels, airlines and car rental companies, it uses ‘enhanced customer service’ as a potent weapon to fight off competitors. Currently under consideration: implementation of the internationally recognised ISO 9001 level of customer service.
Be ready for the invasion, says … Foreign car rental companies offer their clients far better service than do local operators, says Richard McGhee, of Budget Rent-A-Car. The service they’ll give South African customers could very well out-perform that provided by local car rental companies. ‘They always treat customers like kings. And customer convenience is a built-in service standard. ‘Imagine renting a car for a day, having it delivered to your residential address in the morning and picked up at night at no extra charge.’ Service of this calibre is sure to appeal to customers. But it doesn’t give McGhee sleepless nights. ‘We’ll be ready for them,’ he asserts, citing Budget’s improved service that includes:
Don’t compete with price-cutters; jack up cabin passenger service,
advises … South African Airways (SAA) faces a unique set of pricing and customer service problems. Let’s start with pricing. Most major competitors charge the same for flights on the same routes. For example, you pay R12 070 [at the time of writing] to fly business class return from Johannesburg to New York via Brussels regardless of the airline you select. And you pay R4 070 to fly to New York via London whether you travel with SAA or British Airways. So the airline competes on the basis of customer service. But the tilt of the playing field is biased against SAA when competing against Air Portugal, Air France and Greek and Italian airlines. Air Portugal received a $1 000-million cash injection in the form of a government subsidy. Every time SAA tried to compete, Air Portugal dropped its prices. So SAA stopped competing with Air Portugal. Greek and Italian airlines also get government handouts. So does Air France, which received a $4-billion subsidy and still flies in and out of South Africa at a loss. So SAA stopped competing with Air France. On the customer service front, SAA employs the philosophy of ‘continual constructive dissatisfaction’. It calls for small, continuous improvements like those advocated in Japanese management programmes. Its principles are embodied in SAA’s Passport To Success programme, based on the indigenous concept of Ubuntu Ngumuntu Ngabantu. Loosely translated, this means passing good service down the line from one employee to the next until it finally reaches the customer. SAA has also revised its cabin crew recruitment programme to combat passenger perceptions of excellent service offered by foreign airlines. The airline now employs only people with natural aptitudes for customer service in customer contact positions. As a result, SAA’s First Class service is rated among the world’s top 10 although SAA is only the world’s 40th largest airline. In addition, South Africa’s national airline runs regular passenger satisfaction surveys to monitor the quality of service delivered in relation to service expectations. However, the main focus is on the manner in which staff interact with customers. In this regard, SAA’s service strategy is very similar to the ‘moment of truth’ strategy employed by Jan Carlzon, of Scandinavian Airlines. He believes that success depends on the average 15-second contact between frontline staff and customers. Understand your customers, says … This philosophy, adopted by the Southern Sun Group, has led to several innovations:
Although Southern Sun is prepared to take on price-cutting competitors, management doesn’t believe foreign hotel chains can hold low prices for an extended period. Why not? Because site owners and developers wouldn’t countenance poor returns for very long. For example, the ISCOR Pension Fund owns the new Hyatt Hotel under construction in Rosebank, Johannesburg. And ISCOR would soon start to raise a fuss if the Hyatt tried to undercut prices for too long. Avoid head-on price clashes is the advice from … The manufacturer of health-care, beauty and cleaning products has no immediate plans to change its price structures and would prefer to avoid a head-on price war with Proctor & Gamble (P&G). While P&G, with its huge financial resources, may be prepared to operate in South Africa at a loss for up to five years to get market share, it’s known to dislike wild price swings because they eventually erode customer loyalty. Because P&G prefers maintaining prices for long periods, SmithKline Beecham will have time to adjust the prices of its directly competitive products on an individual basis, ‘reaping money from cash cows to support the process’. Fight fire with fire, says … Will price-cutting by overseas competitors play havoc with local pricing structures in the chemical industry? Sentrachem’s Norman Kennelly, answers with an indefinite ‘maybe’. But even if they enter by slashing, they won’t be able to maintain low prices indefinitely, he says. Because Sentrachem’s infrastructure has been in place for years, competitors starting from scratch in the local market will find price under-cutting an exceptionally costly exercise. If it has to, Kennelly says Sentrachem ‘will fight fire with fire’. He raises another point. In the chemical industry, competitors don’t appear overnight. It takes months, sometimes years, to set up plants. This gives the South African public and entrenched chemical operations time to react to fluctuations in pricing. Taking these factors into account, it seems highly unlikely that price under-cutting is a viable option. Use multi-layer marketing, suggests … SASOL Phenolics gives customer service high priority. The organisation has established a special relationship with its customers through ‘multi-layer marketing’. To ensure loyalty, it entices customers into long-term (normally 10 to 15-year) contracts by offering them financial assistance with their capital equipment needs. And if competitors offer customers specific products at lower prices, they’re invited to contact SASOL about the price differential. In most cases, customers don’t find it worth switching to a new supplier because service levels, to which they have become accustomed, are different. The organisation usually shies away from price-cutting. It contends that although such tactics are common with sales people, customers tend to play one off against another to create a deepening downward spiral. But while SASOL frowns on price-cutting as a long-term strategy, it will use price as a short-term tactic to squeeze new competitors out of the market. Most of the participating companies harped on price. The majority also referred to customer service – almost as an afterthought. Just what they planned to do to raise levels of service quality was usually cloaked in woolly verbiage. So what should you do to … Here’s a 25-point action plan you can implement immediately:
If you want to find out quickly how you rate … For example, a progressive, customer-focused bank in the United States gives $5 to every customer who waits for longer than five minutes in the queue. And a restaurant in Austria doesn’t charge you for your meal if you wait longer than five minutes to be served. If these self-imposed penalties were implemented in South Africa, many of
the banks and restaurants I visit would quickly be running at a loss at
present levels of customer service. If you get your price right and jack up the quality of your service to give customers fewer grounds for complaint, you’re on your way. But you’re by no means home and dry. You still have the unenviable task of casting a jaundiced eye over your management, marketing and distribution structures … |
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‘Even the world’s fastest factory can’t provide much of a competitive advantage
if distribution is slow.’ YOU take the greatest care to manufacture goods of superb quality. You’ve re-engineered your company’s management structure to cut all unnecessary costs. You’ve motivated and empowered your employees to deliver World Class Customer Service. You’ve honed your organisation until it has become a lean, mean business machine. Together they don’t amount to a damn. Why not? Because you aren’t shifting merchandise. You experience one distribution channel bottleneck after another. One delivery delay after another. ‘Out of stock’ situations are the rule, not the exception. You’ve got a knot in your supply chain management system. Something is wrong with your logistics. So … ‘It is the sinuous, gritty and cumbersome process by which companies move materials, parts and products to customers,’ writes Ronald Henkoff in Fortune (November 28, 1994). ‘In industry after industry, from cars and clothing to computers and chemicals, executives have plucked this dismal discipline off the loading dock and placed it near the top of the corporate agenda. ‘Hard-pressed to knock out competitors on quality or price, companies are trying to gain the edge through their ability to deliver the right stuff in the right amount at the right time.’ In South Africa, manufacturers see well-established and comprehensive distribution systems as their first line of defence. They agree that the high costs of dealer, servicing and parts networks will inhibit foreign invaders from grabbing market share. If your market is threatened … A company that implicitly believes in the defensive capability of a well-developed distribution system is Nissan. The motor manufacturer already has a strong, committed distribution channel. But it plans to strengthen it over the next five years to improve customer service and make entry into the market more difficult for foreign competitors. Nissan’s channels of distribution currently serve a
customer base that accounts for an estimated 18% to 19% of the
market, of which fleet and corporate customers constitute 80%
to 85%. Rival manufacturer Samcor reckons the company’s well- established and highly organised network of dealers, service centres and back-up services will be enough to make even the most determined foreign competitor flinch. And it will be more than a match for Hyundai. They hope. Samcor services customers nationwide through about 300 dealers with workshops. And it has a spares inventory of about 18-million parts at the plant in Pretoria alone. Hyundai, in contrast, has to air-freight parts in from Asia at great expense. And it has no established dealer/service network.’ Although Samcor admits that dealer service hasn’t been all it should have been for the last 10 years, management is taking steps to rectify flaws. Denuded of esoteric jargon, the ‘steps’ involve weeding
out the weakest performers in towns that have two or more
Mazda dealers. Nestlé is another company that relies on its distribution network to blunt the ardour of market poachers. It has used these ramparts to hold off an invasion of its market by the American Mars Company. Confectionery is an industry in which freshness of stock and retailer goodwill are of paramount importance. Nestlé has committed a lot of money to ensure that it delivers fresh products on time. And to ensure freshness, it discourages retailers from overstocking. This of course means that distribution channels must be superb for quick re-supply. This is where Royal Beech-Nut, which markets Mars products in South Africa, runs into trouble. It imports Mars products and must do so in sufficiently large quantities to meet demand. This means Royal Beech-Nut has to hold large stocks that face the risk of losing freshness. So, if you accept that getting your product to point-of-sale timeously is a ‘must’ … Re-engineer them, says Hayden Franklin, chairman of Tiger Mills. A reappraisal of ‘extremely inefficient’ distribution in South Africa can cut costs without sacrificing the quality of customer service. On the contrary, efficient distribution can enhance the quality of customer service. To accelerate the speed of product along the plant-to- consumer chain, Tiger Mills is investigating the viability of the British system. In the UK, trunking on common carriers is the norm, and distribution is extremely effective. In South Africa, each company has its own carrier. This leads to congestion of the distribution system. ‘Distribution,’ Franklin says, ‘has yet to reach world
standards.’ Meanwhile, on the cola market front, ABI, bottlers and marketers of Coca-Cola, beset by competition from Pepsi-Cola and store-brand colas, faced a distribution problem that threatened to fizz over. How did the company solve it? A volume-driven business, it set out to improve its routing and delivery systems to ensure maximum product availability. This led to the introduction of an owner/driver system whereby the company assisted drivers to purchase their own vehicles and contracted them as independents to provide delivery services for certain branches. Coke also faced another major problem: the ongoing battle with store-brand colas for in-store shelf space. It counter- attacked by modifying its distribution system through the development of a channel marketing concept. The company now assigns a marketing specialist to each market segment. His or her appointment hinges on an in-depth understanding of that segment and its specific needs. For example, certain stores may close during certain periods of the day. This means amending delivery times. Or different segments may require different point-of-sale pieces. A bar, for example, may want clocks, trays and glasses instead of posters. Over time, implementation of the concept led to the development of ‘precious relationships’ as marketing specialists got to know and understand the customers in specific segments. ABI also fields Marketing Impact Teams, on the surface a new upmarket name for merchandisers, to nurture these ‘precious relationships’. These ‘MITs’, as they are called, visit retail customers and refurbish their stores. Their tasks include cleaning and repacking coolers and putting up new point-of-sale displays. The MIT project isn’t cheap. But it’s likely to pay long- term dividends by improving customer relations and adding value to service. By paying attention to the needs of all retail outlets from corner cafés to chain stores, Coke hopes to boost its customer loyalty and retain its hard-to-replace in-store shelf space. On the opposite side of the cola fence, Retail Brands InterAfrica (RBI), which supplies the base syrup for store- brand colas, accuses ABI of monopolising carbonised soft drink distribution channels. Almost every store in the country has a Coca-Cola fridge or cooler, and store owners are almost bound to stock Coke. It therefore seems logical that the best way to compete against Coke and defeat the distribution problem is by inducing retailers to stock RBI products. According to the rationale, if the company allowed its products to assume the retailer’s identity, the retailer ended up with his own store-brand cola. The best way of achieving this is to let the product
assume the retailer’s identity, which he tends to push more
than the branded product. Examples such as Woolworths Cola and
Pick ‘n Pay Cola immediately spring to mind. The spectre of Proctor & Gamble (P&G) running rampant in the market has forced Unilever to rethink its distribution policy. Unilever’s Patrick van Hoegaerden isn’t convinced that P&G will use price-cutting to carve its way into the South African market. So, while price-cutting isn’t a major threat, customer service is. Because Unilever dominated the market during the protected apartheid era, it became ‘slothful, arrogant, slow-moving and generally tough with the trade’. The dawn of a new environment that promises fiercer competition has forced the company to become more responsive to its customers’ needs. So it has adopted a concept known as ‘integration logistics’ to improve the quality of customer service. This involves the used of sophisticated information technology to integrate the in-bound part of the supply chain to the customer end. Unilever’s goal: to build and maintain closer relationships with its customers. And the company’s new business strategy priority: to subdue profit-making in favour of service on which ‘our long-term survival rests’. And if you have the logistics in place… Don’t follow Kellogg’s example. If you do, you stand to lose precious in-store shelf space to an on-the-ball competitor. Grant Leech admits that retailers don’t exactly fall over themselves to congratulate the company for the exceptional quality of its service. Indeed, retailers may cut Kellogg’s shelf space and give it to foreign competitors in retaliation for service that – to put it mildly – has never reached the dizzy heights. But retailers won’t take such action lightly. Or so Kellogg’s believes. Shelf space in South Africa is limited. Retailers will have to decide whether new brands will sell before they stock them in place of proven performers like Kellogg’s. Kellogg’s cock-of-the-hoop attitude in this regard may well pave the way for a more accommodating competitor with the financial power to muscle its way into the South African market. How to … Advertising is a method you use to create product awareness and seduce consumers to buy. Right? Not always. B Schrieber, of BIC, reckons you should use it initially to ‘buy’ distribution rather than build product awareness. Because if you don’t, the invaders will. ‘If you break a solely consumer-focused advertising campaign before organising distribution,’ he argues, ‘people will go into the store to get the product. If it isn’t there, they’ll buy a rival product and strengthen the opposition.’ And if you’re already established when the threat comes, how do you protect your position in the market? Do what BIC intends doing – step up your advertising by 50% or even 100% to persuade retailers to buy your product. Then, when the competition arrives, so the theory goes, dealers will already be overstocked with your products.’ The result: no space for the invaders’ merchandise. BIC will also splurge on acquiring and tying up key point- of-sale locations like till points. This will force competitive products that get in on to the slow off-take back shelves. Royal Beech-Nut buys distribution by investing large sums of money in in-store ‘hot spots’. It strikes special deals with high traffic retail outlets like Shoprite-Checkers and Pick ‘n Pay to get as much stock into the stores as possible, working on the stock pressure theory – the more you stock, the more you’re likely to sell. If your sales graph dips because the shelves are bare … Carlton Paper claims it never runs into ‘out of stock’ situations. Why? Because distribution, traditionally the ‘poor sister of production and financing’, is run by a sales director. He’s the man or woman who is responsible for customer service. Almost by definition, a sales director will pull out all the stops to keep his customers happy. To do this, he will ensure a smooth, uninterrupted flow of product from the factory to tempt consumers at point-of-sale. So …. Centralisation. That’s right, centralisation. While the world’s most progressive companies are restructuring, re-engineering, rightsizing and flattening their management structures, they’re centralising their distribution operations. Many multinationals, like computer giant Compaq, now ship stock to a central warehouse facility from where it’s distributed to wholesalers, agents and dealers throughout the world. The company also insists that its suppliers use a central depot from which it can draw components as and when required. Distribution fundis claim that while the centralisation concept leads to an increase in freight costs, it reduces the cost of warehousing and saves time. In addition, it reduces ‘inventory overload’ – the amount of capital unnecessarily tied up in inventory at manufacturing and point-of-sale sites. But … Strictly speaking, distribution is an integral part of the marketing process – the strategy you employ to get goods from your plant into the hands of consumers. It’s a link in a chain of events that has to be carefully managed to ensure the survival of your business in an era in which relentless competition will be the name of the game. |
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‘Management believes that it can only create the right customer-service environment with the right people and the right systems
in the right structures.’ ‘CHANGE’. It’s a word that scares the hell out of executives cast in the traditional mould. It rocks the boat of mediocrity. It often spells death to management structures that have survived far beyond their useful lives. When confronted by change, a lot of executives – especially those in middle management, who suddenly find their services dispensable – look the other way and pray for it to go away. But change in management style is overdue for those in South Africa who found themselves in business during the country’s long period of protectionism … when the way we did business under the yoke of apartheid seemed cast in stone. When it seemed that nothing could silence the clang of busy cash registers. And now that sanctions have gone, the demand for change has intensified in step with the rising threat of foreign competition. So … It means drastically redesigning your management structure to be more cost-effective, more efficient and more responsive to market fluctuations. This, in turn, could mean:
Or a combination of all four. No matter how hard you try, you can’t sweep change under the carpet. So, in most companies, you may as well resign yourself to the fact that you’re going to have to face it. Sooner rather than later. Some companies, of course, will ignore the challenge of change. Although they make reassuring noises about their ability to fend off, if not smother foreign usurpers, the die- hards will probably make the softest targets. The traditional organisation structure is centralised and
vertical, sometimes referred to as ‘top-down’ or ‘vertically
integrated’. Slavepak Holdings, which manufactures the Bantex range of filing systems and general office stationery, claims the system works well for it. All decisions come from the top and are relayed downwards. The company is organised along divisional lines. Each
division has a specific function. This effectively isolates
employees in particular jobs and offers no opportunities for
multi-skilling. National Sorghum Breweries adopts an almost identical management philosophy. It’s a private sector bureaucracy in which power is concentrated at boardroom level. A glance at the company’s annual report can be misleading. There appear to be 18 strategic business units. It looks impressive. But unit managers have very little power. This often
leads to problems because of the time it takes to get a
request through to the chairman and receive his response. Jet sees its present vertical management structure as its strength. ‘Our structure fits our strategy,’ says Sandy Barnes, ‘and we see no need to change it. Let me put it this way: why would we in difficult times remove or change the very blocks that built the company and made it what it is today – a prosperous, profitable retail chain in a highly competitive market?’ Jet operates with a traditional, top-down, centralised management structure. Each branch has a store manager. Branches in the same area are grouped together under an area manager. Several areas are grouped into a region under the control of a regional manager. A number of regions are grouped in an operating division overseen by a divisional manager. These managers have very little autonomy. Most decisions are made at headquarters. New management wisdom, particularly in the United States, condemns the traditional structures as anti-conducive to quick decisions in the field. So, if you want to stay in the race … Like Nissan which, until recently, relied on a traditional hierarchical management structure. But things changed when those at boardroom level saw the need to make those working downstream more accountable. The company adopted an ‘amoeba structure’ – a structure that eliminated middle management. All employees received strong signals that individuals would be held responsible for specifically designated tasks. Restructuring also led to head office granting more power and autonomy to regional offices, each of which now has its own marketing manager. In terms of the new dispensation, regional managers no longer merely take orders. They have the responsibility of actively developing dealers’ businesses. Job titles have also been changed to reflect the objectives of people in particular positions. Brand managers, for instance, assume the responsibility for specific vehicle models and strive to enhance the brand equity of that vehicle. The primary reason for changes in the management structure was to create an environment conducive to the production of ‘superior customer service’. In the past, the Service Division was technically focused. This division has been renamed. It is now called the Customer Satisfaction Division to reflect Nissan’s new consumer-focused philosophy. So … You decentralise control, cut out middle management and delegate authority. Like Lindsay Saker. In the past, the company’s management hierarchy had four levels:
Now branch managers, empowered to make on-the-spot decisions, report directly to the managing director. Cutting out the go-betweens speeds up communication and decision- making. Restructuring also gave birth to separate, decentralised business units. For example, each branch has its own financial manager and debtors clerk. Although this move achieved very little measurable saving compared to savings achieved by reducing the complement of middle managers, it led to quicker responses to market fluctuations and higher levels of customer service. So … Not necessarily. If your management organisation is already flat and streamlined, you may not have to do anything. A case in point: Standard Bank. The bank doesn’t contemplate any changes to its management structure, although its strategists proclaim: ‘The threat of offshore competition isn’t a threat. It’s a fact.’ Standard’s existing structure has already been designed to operate in an environment filled with foreign banks. At last count, 37 of them had established themselves in
South Africa, among them Société Generale Paris, Bank of
Taiwan, The Union Banque Suisse, Crédit Suisse and the
Deutsche Bank. To get into fighting trim, other corporate management structures require to be only gently honed. For example, ABSA has reacted to possible competition from foreign banks by ‘manipulating’ rather than restructuring its organisation. Motivation for the changes stemmed from a management desire to understand clients’ needs and to establish whether the banking group had the resources to give clients what they wanted. Management also had to determine whether it was profitable to give clients the services they wanted. The changes, currently in the implementation stage, streamline ABSA’s decision-making structure by establishing six senior committee groups. Each group, which reports to the chief executive, focuses on a specific operational area. The areas are:
A special task force, Project Dynamo, generated the structural re-engineering operations. Its brief: to investigate ways of increasing productivity and efficiency by the cost-efficient use of resources, including information technology. The overall aim of the project: to move people from the
back office to the front office and create more revenue-
generating sales staff by slimming the group’s administrative
complement. Another company that doesn’t feel any need for drastic change is the Beer Division of The South African Breweries. Although it hasn’t faced any serious competition from international brewers since 1979, the company continually assesses its management performance and addresses problem areas as they come to light. While SAB keeps in constant touch with developments abroad, it has its own ideas of how the Beer Division should be structured. For example, it recently introduced a new integrated management process. This gives each employee a greater responsibility for his own job. And this, in turn, leads to better customer service. But if your management style is autocratic … Coca-Cola bottler and marketer ABI, faced by the re-entry into the South African market of international arch rival Pepsi-Cola and increasing competition by store brand colas, has taken a long, hard look at its traditional style of management. The autocratic, top-down style of management is giving way to participative management. This is human-centred and strongly based on the participation of employees in management and the understanding and co-operation of labour unions. ABI has also adopted the concept of Ubuntu, which deals with the issue of addressing employees in an appropriate manner – in a manner that demonstrates management’s appreciation of employee input and ‘makes them feel part of the ABI family’. And if you want to cut costs … Re-engineering at Simba has focused on cost reduction. The company’s ‘restructuring and development phase’ reduced the number of directors on the board. And ‘quite a few retrenchments’ followed slimming exercises further down the hierarchical line. Specifically, the company’s Transvaal and Orange Free State divisions have merged to form a single inland division as part of a comprehensive cost-saving programme. In addition, the introduction of a ‘strategic task- orientation’ concept has shortened the span of control by shedding a layer of sales management. The objective: to speed up effective decision-making. So … Maybe. But maybe not. ‘Restructure’, ‘re-engineer’, ‘downsizing’ and ‘outsourcing’ are buzzwords for new management philosophies that are sweeping through American and European boardrooms. Enthusiastic implementation has sometimes worked wonders. But often the results have been disastrous. Ostensibly designed to improve flexibility and communications, accelerate decision-making processes and enhance customer service, many organisational restructuring programmes serve only to increase the number of companies filing for bankruptcy and the length of unemployment queues. Therefore … What corporations – particularly multinational conglomerates – do in New York, London or Paris may not be right for you. Mondi Paper, for instance, modified management procedures rather than relegate its efficient, smooth-functioning structure to the scrap heap. ‘Corporate restructuring is very popular at the moment, especially among big groups like Barlows,’ says Mike Stewart. ‘But restructuring is by itself not a magic wand.’ He argues that re-engineering structures is not always as successful as its proponents claim. It’s a drastic measure that treats the symptoms of corporate failure, not the causes. By gradually altering the corporate culture towards a more market-orientated way of doing business, Mondi avoided the displacements and pain associated with structural change and, instead, focused on the real problems facing the company in the market. The development of strategic business unit-type teams, which could focus on specific aspects of marketing strategy and react quickly to problems, paralleled the introduction of Mondi Paper’s new corporate outlook. So … When market rivals blunt your competitive edge by providing customers with better quality service through faster decision-making, greater flexibility and more empowerment of staff at point of customer contact. For example, Blue Circle recognised the need to change its organisational structure if it wanted to compete with both current and future challengers. The company has traditionally been driven by a hierarchical management structure with financial specialists at head office and each regional level. Blue Circle’s conventional pyramid structure evolved from thee geographic distribution of the company’s many plants, sites and depots. In the pre-sanctions era, foreign competitors all laboured under the burden of similar heavy management structures. In the company’s planned new structure, individuals will
become generalists, not specialists, to generate flexibility
through participative empowerment, multi-skilling and cross-
function interaction. Edgars began implementing wide-ranging structural changes to it management organisation in 1984. Recognising the inevitability of a post-apartheid South Africa vulnerable to foreign competition, the board of Edgars formulated strategic plans to brace themselves for a more competitive market.
A directive issued by the board to store managers reads: ‘This is the value of your budget: determine its allocation.’ The Sandton City branch, for instance, recently held a ‘Great Shoe Sale’ to improve cash flow and boost stock turnover. It was generated by the initiative, and for the benefit, of only one store. As a result of their new-found flexibility, stores have become more
proactive and attentive to the needs of their customers. Adcock Ingram Critical Care plans to exorcise executive layers by shunting middle management duties to supervisors. The object: to make company operations more cost-effective. But the organisational re-engineering also has political undertones. The company is implementing affirmative action and employee empowerment policies to ensure favourable treatment by future tender boards. Tender board activity on behalf of state hospitals and clinics currently accounts for about 50% of Adcock Ingram’s ethical business. But be warned. If you restructure for the sake of restructuring, you may
restructure yourself out of business. Now that you’ve got your well-oiled management structure in place and functioning smoothly, you need to take your goods to market. |
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IN business academia, marketing is a multi-faceted discipline that embraces everything your company does, from product planning and development to the time the consumer takes the product home in his warm, eager hands. In the context of this book, marketing is what you do:
HOW DO YOU ACHIEVE THESE IDEALS? Through carefully targeted, objective-driven:
So… Get to know your market. Intimately. Which the American Wrigley Company didn’t do. So it lost the first skirmish in the battle to usurp locally produced Beechies chewing gum from its dominant position in the South African market. Royal Beech-Nut expected Wrigley to spearhead its invasion with its famous strip chewing gum. Since Royal didn’t have a product to match it, it quickly developed look-and-taste-alike Edge to block Wrigley’s entry. Royal launched Edge before Wrigley’s arrival and positioned it price-wise somewhat below what Wrigley was expected to charge. But Wrigley didn’t move into South Africa with its strip gum. It entered with its P.K. brand, a bean chewing gum product similar to Royal’s Beechies. Royal had to change its strategy. Fast. Quick thinking led to The Beechies Plan to counter the Wrigley Threat. The plan, in turn, led to:
The Beechies’ chewing gum bean was increased in size to match Wrigley’s P.K. beans. The pack was redesigned to emphasise more strongly the brand name. And the plan didn’t end there. Royal introduced The Hit Squad concept to block Wrigley’s distribution efforts. In essence, it called for a fleet of vans to go from shop to shop to lay claim to the best shelf space for Beechies. Since black consumers make up an estimated 60% of the chewing gum market, Royal ensured that the vans called at township cafés and spazas as well as downtown and suburban shops. And Royal also paid a great deal of attention to in-store displays, particularly at point-of-sale. Surveys conducted every two months measured progress. Or lack of it. Weak areas uncovered by the surveys were quickly strengthened. In addition, Royal offered incentives to sales force personnel for each new Beechies in-store stand erected. Wrigley had made two near-fatal errors.
And to compound these faults, the Wrigley launch in South Africa did nothing to promote brand awareness among consumers. It spent most of its effort on print ads in trade magazines, devoting only two radio spots a week on Radio 702 to consumer advertising. Even Wrigley’s choice of medium, Radio 702, essentially a ‘talk’ station, failed to home in on the mass of its potential market – young, music-loving blacks. And … Design or adapt your product to meet the demands of local conditions. Because you know – or should know – what’s wanted and needed locally, you start with a built-in competitive advantage. At Nissan, for instance, the updating, design and introduction of new products is a continuous process. Indeed, within the next three years the company plans to update all passenger vehicles it introduced over the past three years. Nissan South Africa enjoys close affiliations with Nissan Japan – an affiliation that recent media speculation suggests will become even closer. This link gives the local company access to a w health of research and development data. It helps, of course. But, ultimately, adaptations must be made in South Africa to tailor the product to the needs of the local market. If you feel threatened by foreign competitor … That’s what BIC, with around 35% of the South African ballpoint pen market, plans to do. Ballpoint pen manufacturers usually spend between 5% and 7% of their annual turnover on advertising. To keep offshore competitors out of its market, BIC is prepared to increase its ad budget by as much as 100% This will force foreign would-be usurpers to pour money into advertising for about three years before they make a meaningful impression. So foreign companies that want to cash in on the domestic market will be forced to out-advertise the local brand leaders. With no guarantee of success, it could prove to be an expensive exercise in futility. And if advertising alone doesn’t work … The ABSA group has developed a three-pronged strategy to discourage foreign poachers and enlarge its client base. It will:
And then… Whether ABI denies it or not, Coca-Cola has been hurt by the proliferation of store-brand colas. And Pepsi’s re-entry into the market could pour salt the wound. But ABI is determined to remain the recognised fizz market leader by aggressively marketing the unique trademarks of Coca-Cola, Schweppes and SparLetta to ‘grow its sales ahead of competitive beverages’. When Coca-Cola’s entrenched marketing strategy was splintered by Coke look-alike store-brand cola packaging, ABI went to court. Makro, which markets American Cola, won the law suit, opening the door for a flood of other colas in livery that closely resembles Coke’s. ABI responded with a massive advertising campaign designed
to make consumers brand aware. The Fatti’s & Moni’s brand name has been around for 75 years. So what? So consumers put their trust in any product that’s branded Fatti’s & Moni’s. Or so Trevor Rogers claims. As an example, he cites how his company’s Pasta and Sauce, competing against Royco, grabbed 25% of the market by volume and ‘probably much more by value’ without advertising support. If your branding is stale … The Southern Sun Hotel Group did. Very successfully. The group continually ‘rubs shoulders with international standards’. So it’s sure of what it wants to achieve and how to go about achieving it. That’s why it recently splurged R500-million on a hotel revamping and rebranding programme.
These conversions weren’t made on the strength of a whim. They were made after in-depth research by Mac Group a firm of consultants. They prepared documents in collaboration with Southern Sun to show where and how the group slotted into the hotel industry, the size of the industry and the strengths and weaknesses of the group in relation to those of competitors. What motivated the rebranding and conversion process? The expected influx in the number of foreign, budget- conscious tourists and the severe drop in local disposable income. The Southern Sun Group now markets five distinct brands:
Adaptations to hotel service structures were based on a decision to become more brand focused and customer-driven. By carefully delineating the various niche markets with the five new brands, Southern Sun will be able to address the specific needs of customers. The group may also consider an alliance with an international five-star hotel if such a hotel were to be constructed in South Africa. In such a case, Southern Sun will manage the hotel for the international chain and share Southern Sun’s and the chain’s brand names. For example, the Sandton Sun-Hyatt. To maximise on brand awareness, you must … A classic recent case: the battle between Nestlé‘s Bar-One and the American Mars Company’s Mars Bar. Both products are so similar you’d be forgiven for thinking they’re identical. In fact, Nestlé admits that it based its Bar-One on Mars Bar. There’s another similarity. Product positioning. Nestlé deliberately positioned Bar-One as ‘the brand for the super-active’ – the identical position of Mars Bar in the American market. The rationale behind Nestlé‘s thinking is simple. If Mars tries to position itself as the brand for the super-active in South Africa, consumers will perceive it as a copy of Bar-One. To reposition it as something else would mean starting from scratch – akin to launching a new brand, a costly process that is not justified in South Africa’s relatively small and cluttered market. If conventional ads don’t do the job … To cement relationships with its customers, Adcock Ingram
employs a mix of below-the-line marketing techniques. These
include sponsoring doctors’ attendance at conferences,
inviting doctors to watch major sporting events as company
guests in the company box and free use of Adcock Ingram’s
conference and training facilities. And Sappi, which has increased its promotion budget by R1-million, has earmarked more for below-the-line activity. In addition to more intensive advertising, the new promotion strategy involves incentive schemes for merchants, which include gift vouchers and free holidays. The company also runs a Million Mania competition targeted at ad agencies and paper specifiers. Contestants submit jobs printed on Sappi papers. The winners get R3 000 to spend on the Million Mania slot machines at Sun City. Other competitions include ‘Printer and Designer of the Year’. International judges present awards to winners at a banquet. For the best results … At Carlton Paper, marketing, manufacturing and logistics now work together as a team to enhance customer service. Of particular interest are changes in the manufacturing processes. These have become more focused in terms of both technology and customers. Manufacturing now falls under marketing. Marketing leads the organisation. It orchestrates the co-ordination of Carlton Paper’s functions. Marketers keep in touch with consumers. They find out what consumers want and, with technical people, translate it into product design. Marketers also liaise with people at factory floor level. Marketers at Carlton Paper have changed from being individual specialists to people who understand the business … people who appreciate and understand trade-offs between manufacturing and selling. And if all else fails … South African Airways had a problem: rising costs coupled to empty seats. So it designed a new marketing strategy to decrease costs while increasing revenue without increasing fares. How? By discounting fares to sell empty seats and revising operating schedules to improve aircraft utilisation. As part of the strategy, the airline laid on more late night and early morning flights. Communicating the strategy to potential passengers involves the use of direct response advertising. In addition to selling seats to improve the per-seat- yield, SAA designed its communications module to create a more desirable perception of the airline among potential passengers. SAA also:
In addition SAA has developed a 10-point ‘Project Success’ plan which, when implemented, will:
So …
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USE this review as a checklist when you plot your company’s
strategy to fight off foreign corporations that want to
intrude on your turf. Determine whether you’ll be subject to attack by
keeping a wary eye on developments in your sector of
commerce or industry. You can glean much valuable
information by scanning the business sections of
newspapers and trade magazines. If necessary,
subscribe to a press clipping bureau that monitors
relevant overseas publications. Establish from which direction you’re likely to be
attacked by attending all locally held foreign trade
shows that cover your areas of operation. And keep a
wary eye on visiting trade delegations. They’re
usually more interested in selling than buying.
Make sure the ramparts of your defensive system face
the right direction. It’s pointless pointing your big
guns in the direction of the United States and Europe
if the main assault will be launched from Pakistan or
Japan. Define the invader’s ‘get in’ strategy. You can’t take any effective counter-action if you don’t know what weapons he’ll use to attack you. Most usurpers will try to infiltrate your territory by:
Many invaders – probably the majority,
particularly those based in Pacific Rim countries – will elect to ‘get in’ by slashing prices, forsaking profits until they’ve sliced deeply into
your market. Although imported products don’t always match the quality of those manufactured locally, higher levels of productivity overseas often make foreign products more price competitive. Methods of increasing productivity include:
ENHANCE CUSTOMER SERVICE QUALITY The general standard of customer service in South Africa rarely arises
above the level of mediocre. Many of those seeking to invade South African
markets provide customer service of exceptional quality. If you can’t match
or better the quality of their service, you’re bound to lose market
share. To combat price-cutting strategies, you have several options. You can:
The option you select will depend on five variables: (a) The type of product you market. (b) The size of your market. (c) The character of your market. (d) The intensity of the competition. (e) Your ability and the competition’s ability to withstand a prolonged
price war. The organisation of your channels of distribution has a major
impact on the quality of customer service you provide. Constant out-of-stock
situations indicate you need to radically overhaul the logistics. Poor
distribution can lead to cancelled orders and drive frustrated customers
into other more efficient arms. Lean, flat corporate structures that eliminate unnecessary layers of
management to shorten the communications chain and empower frontline staff
respond quicker to market fluctuations and customer requests. In the context of this book, you use marketing to:
Commit you defence plan to paper. Discuss it with key members of your staff. Ask for their input and incorporate practical suggestions. Rewrite your plan, if necessary. Keep it flexible to exploit changing circumstances and ‘get in’ strategies. Expect attack from any direction. You could find yourself under fire from the most unlikely sources. |
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FOLLOWING management trends in the United States and Europe, South African companies have been so busy unbundling, downsizing, re-engineering and restructuring that they’ve forgotten the real reason they’re in business. This is to find out what customers want and to give it to them where, when and how they want it at a price they can afford. Nobody knows this better than foreign business people sitting with the bitter fruits of over-production in saturated domestic markets. To them, the elimination of sanctions, the fall of punitive import tariffs and a receptive and growing market, make South Africa appear to be the answer to a prayer. So, as you trim your overheads to cut operating costs and pare your staff complement by eliminating levels in your corporate hierarchy, don’t go overboard. Slimming without respite can lead to anorexia, a potentially fatal condition. Anorexic companies will be too weak to defend themselves. It takes energy and resources always to give customers the right product at the right time in the right place at the right price. It takes even more energy and resources to top up the package with World Class Customer Service. Product, time, place, price and World Class Customer Service form a combination that’s difficult to beat. Many foreign-based raiders will quickly retreat when they come up against this sort of defence strategy. There is, of course, another effective defence strategy. Attack. Carry the fight into your enemy’s territory. Threaten his market share. But that’s another book. |
