When it comes to the state of health in the electronics industry, the people with thier finger on the pulse are the component suppliers and those companies that provide production equipment. Allan McKinnon & Associates falls into the latter grouping and is a leading supplier of production and testing equipment as well as consumables, to the industry nationwide. Inorder to get insight into thier perspective an in-depth discussion was held with the comanies MD, Evangeli Glyptis.
While a few years ago contract manufacturing was in vogue, Glyptis now sees a reversal of this trend, with small innovative companies setting up their own production facilities, often using equipment discarded by the larger companies and refurbished by Allan McKinnon. While there is no simple answer to this change in strategy, one factor is undoubtedly the need today to make use of flexible equipment which can be changed over rapidly from one product to another. While high-volume throughput still works for a few exceptional companies, contract manufacturers using this historical type of production process cannot carry out cost-effective manufacture of low volume products.
Security systems
The security electronics industry is one that Glyptis believes has all the ingredients of success. Here innovative ideas are turned into cost-effective products and solutions, which are just as successful in the export market as they are locally. Success stories already abound in areas such as fire detection, automotive immobilisers and intrusion devices. The investment made here in imported production equipment is more than compensated through the added value of selling export product in pounds or dollars. Perhaps the message here is that while other countries can compete in the manufacture of 'me-too' products, our strength lies in our innate creativity and engineering skills to develop new products.
Telecommunications
The local telecommunications industry remains largely dependent on Telkom and the latter's lack of commitment to placing promised orders is hurting badly. Many companies invested significantly in plant and other resources to meet the projected needs of the sole fixed-line service provider, and in several cases these production lines are standing idle. Glyptis believes that government must make an early decision on Telkom's competitor and then move rapidly on the privatisation of both operators (assuming the new operator will as expected be based on the existing Transtel/Eskom infrastructure). The new entrant will stimulate the industry while Telkom will be forced to react in a more business-like way in order for it to retain its existing client base. In the mobile phone market the new entrant is yet to be announced, but the unexpected huge demand for cellular phones should have seen more investment and commitment by the existing infrastructure providers. Considering the potential size of the whole African market it must be asked why Ericsson, Siemens and others have not established a facility to manufacture handsets locally. One wonders what conditions will be placed on the new 084 operator, but the early promises made by the current duopoly seem to have been empty ones.
The automotive sector
Here again some companies which have focussed on OEM supply and export have been highly successful. Being tied into a local OEM guarantees some sort of continuity, but the number of vehicles assembled annually for the local market has been somewhat static. New opportunities for growth now lie with the initiatives of BMW, VW and Daimler Chrysler to export fully-built-up left-hand drive units of selected models in substantial quantities. Here success will mean being able to meet the tight specifications of the parent companies, a reality demonstrated by a well-known Pietermaritzburg company, which has successfully been supplying BMW in Germany with electronic modules for several years.
The defence industry
The deals finalised by government in terms of acquisition of new defence hardware will certainly stimulate the local defence industry in terms of the offset requirements and possible long-term alliances. Production equipment companies are yet to see the effect of this, as currently most offset type work is in the negotiation or early prototype stage.
The work ethic and incentives
A major concern of Glyptis (and every business person) is our labour force. While the devaluation of the rand should have made South Africa a low-cost producer of labour intensive products, this niche has been allowed to fall into the hands of the Far East and the 'old' Eastern Bloc countries. Whether we like to admit it or not, workers in these countries have the correct work ethics, and are prepared to accept lower wages in return for guaranteed employment. In South Africa we see unrealistic wage and working condition demands. When combined with unofficial industrial action, which wrecks havoc with production schedules, this leads companies to implement higher levels of automation and lowers job opportunities. This same unstable worker environment also discourages the large multinationals from investing. Glyptis believes that if the electronics industry is to really thrive again we need the injection of foreign capital. Apart from dealing with the labour problem the government urgently needs to address the issue of incentives, which have seen high-tech industry boom in countries such as Ireland. We need to introduce these incentives (tax holidays, low-interest loans etc) without regard to WTO regulations, which were after all designed to make first-world industry (our competition) more competitive.
The overall prognosis according to Glyptis is that the opportunity is there, and through the wise considerations of government and its new high-level advisory panel, South Africa can become a major player in a wider area of electronics-based devices. His warning is that for the time being we can forget the rest of southern Africa as being a major influence. The region is plagued with internal strife and collapsing economies. The South African industry must seek its growth through exports to Europe, Australasia and other markets where entry barriers for innovative products are not that high. A warning from Allan McKinnon is that industry must act timeously in terms of new legislation. Despite several years prior knowledge our industry had a frantic last-minute rush to ensure CE compliance. Glyptis believes that we should now already be preparing for the 'green-wave' which will sweep across industry and will see amongst other things the banning of lead-based products and certain solvents.
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