Manufacturing / Production Technology, Hardware & Services


Ad Valorem excise duties - a blessing or a potential curse?

11 May 2011 Manufacturing / Production Technology, Hardware & Services News

Job creation has become the key focus for our current administration and, if our astute journalists have it right, the life blood to the success or failure of such administration.

So other than giving the IDC nine billion Rand to distribute to existing organisations to grow or create sustainable employment, we can apply duties to products that can be made locally. A case in point: TV panels and potentially now monitors, attached to their enticing global brands and promise of ludicrous volumes. The industry is now abuzz and the loophole seems to have been closed by including certain monitors when applying the duty. So how will tariff code 8471 or 8528 without rebate 460.16/85.28 affect PCBA and ultimately job creation?

I think, first and foremost, we need to understand that margins will be dictated to the industry and not the other way around, and yes, the volumes should justify the subservient position we will have to adopt – as many of us have already experienced. As for our ‘dear federation,’ what strategic direction have they adopted to protect and consolidate our minor industry against the bullying might of the global power houses?

At the risk of sounding like promoting price fixing, surely we should have some open debate on what is sustainable and how we can ensure growth and not decline. To protect our local industry and historical client base, we must view this opportunity as new investment; to this end, how are we to ensure continuity without long-term forecasts or future orders to warrant the investments in both machinery and skills? It cannot be tackled to the detriment of local customers and their supply must be seen as additional as opposed to core, to meet this end. So I ask again what the industry is doing to position itself for battle against this ever increasing juxtaposition of immediate opportunity and potential future threat.

The answer, unfortunately, is nothing but fragmenting even further into weaker positions through panicked pricing that will prove to be parasitic to the core of the business, affecting not only the manufacturer but its client base. There are some manufacturers that have unfortunately already travelled this road without many options to return. Please understand that I am by no means looking at this as a negative move by government and I do believe that we as an industry have been handed a key to the global door, I just believe that we need to use it to open that door and not turn it the wrong way, thereby breaking it in the lock and leaving it permanently inaccessible.

What is the answer then? How then do we maximise this opportunity, to firstly create sanity in the form of agreeable margin, but secondly and more importantly to create societal wealth in the form of sustainable jobs and industry growth? It goes without saying that we manufacturers should be standing together – the volume requirements could swamp every machine available and still be short. Secondly, we should have some strategy on how to invest wisely as we are creating livelihoods, but primarily I must protect the 300 families who already rely on us and the existing customers that ensure such reliance. The only way forward, in my humble opinion, is a marriage between manufacturer and brand. Our vows would be to quality and investment in resources, skills and the standards they require, and their vows should be ones of time and commitment, nicely tied up in a prenuptial agreement that will ultimately protect the 300 families referred to above.

Our labour is organised, they have their bargaining council and main agreement dictating industry negotiated terms and ultimately protecting them. Maybe (and yes, this is said tongue in cheek) we should have our own main agreement with the global brands that ultimately will protect us.

Perhaps we can learn from one of the biggest global players, if not the biggest, Foxconn, a unit of Taiwan’s Hon Hai Precision Industry Co., the world’s largest contract electronics maker by revenue, who said in a statement recently that its net loss for the 12 months ended 31 December 2010 totalled $218,3 million, compared with a net profit of $38,6 million in the previous year. Revenue fell 8,2% to $6,63 billion from $7,21 billion a year earlier (source: The Wall Street Journal – digital network, business earnings.)

“We need to take decisive actions to conclude our capacity relocation, optimise our cost structure and return to profitability. We need to serve our existing customers better and approach more new customers,” Foxconn Chairman Samuel Chin said in one statement. The company earlier announced plans to move its main production base to Langfang, in northern China’s Hebei province, to mitigate rising labour costs.

If the giants of our industry in one of the most efficient and cost friendly operating environments in the world is struggling to supply the major brands profitably, we must make sure we are prepared when entering the ring to fight in what we all have to agree is way above our current weight division. As a final word of support to my fellow manufacturers, be strong in negotiation, be resolute on fairness but more importantly protect your resources, because the global heavyweights will utilise every last placement today with no promise of tomorrow.

For more information contact Jason Wilford, Microtronix, +27 (0)11 792 5322, jason@microtronix.co.za, www.microtronix.co.za



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