Discussion
KriengkraiTechakanont
Faculty of Economics, Thammasat University
Industrial policy, multinational strategy, and domestic capability: South Africa’s automotive industry development in comparative perspective – by Justin Barnes and Anthony Black
This paper consists of six parts, introduction, global context, the South Africa industry, micro level competitiveness factors, government incentives and conclusion.Main issues from this paper are as follows;
-The development of South Africa’s automobile industry. As a developing country, the SA automotive industry has been promoted and intervened by the government. Similar to other developing countries, the automotive industry has been relying on multinational investment. Government support was necessary and technological development, especially local part makers, is crucial for sustainable development.
-Industrial policy is necessary for developing countries. In general, two major attributes are required. Firstly, the country needs to define its ‘automotive space’, i.e., to be national or regional level. In the short term, trade protection is inevitable to nurture the industry. Secondly, effective policies must be able to ensure the competitiveness of local firms, both assemblers and part makers, in factor costs of production and manufacturing capabilities.
-There are three trends of the global context in automotive industry. Firstly, rapid expansion of automotive production and export by emerging markets. Secondly, global division of labor and cluster agglomeration in important to the competitiveness of the region. Thirdly, some appropriate location may be selected to be a center of MNEs’ product network. However, it requires consistent and coherent industrial policies to achieve this goal.
-The authors describe the development of the SA industry, dated back to 1920s. Similar to other developing countries, the sector started with government support, trade protection, and rationalized policy (such as local content programmes).
-Production and international trade of automobiles is explained. It is believed that it is “important for local firms to have links to global networks as a way of facilitating access to international markets”.
-The authors discuss on the experience of Thailand’s automotive development.
-In the Developing a viable ‘automotive space’ section, the authors briefly explain historical development and achievement of the SA and Thailand automotive industry. Both countries share similar experience. They started with a small market and limited capabilities of local firms. Hence, they need foreign investment. A similar set of policy between the two countries includes investment promotion, high import tariff to protect small and fragmented domestic market. However, Thailand seems to be more successful in terms of production volume, number of domestic part suppliers, and export value. The authors argue that Thailand’s success was derived from the industrial policies aiming to promote the ‘supply-side’ and other tax schemes that favour some specific type of vehicles, such as one-ton pickup trucks. Large domestic demand is crucial for carmakers to invest more in a new project or introduce new model in Thailand. This made Thailand becomes a production hub of several carmakers.
-Micro level competitiveness factors. The authors compare firm-level competitiveness between SA and Thailand. Four matching component manufacturers were selected to compare operational capabilities. The authors could access to the database of the South African Automotive Benchmarking Club and field survey in Thailand on 4 companies. They compare factor costs, management, labour, rental, water and electricity cost differentials. Overall cost breakdown is shown in Table 7. Cost of production in Thailand seems to be cheaper than the SA. In particular, labour cost in Thailand is cheaper and if the SA firms could operate in Thailand, they can save labour cost by 63.8 percent and will make a total saving in cost of sales by 11.7 percent.
-Conclusion. The SA automotive industry has been less successful, comparing to Thailand, because of limited market size, limited market access and distance from major markets. On the contrary, Thailand tends to be a genuine export platform. Thailand runs a large trade surplus in automotive industry, while the SA export has been driven by the desire to earn import rebate credits. We can see a different pattern of industrial policy from this paper and can see a different outcome from a series of government policies, multinational firms’ strategies, and local firm adaption to the changing environment.
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