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Competitiveness in the manufacturing sector

The dti document entitled "Accelerating Growth and Development: The contribution of an Integrated Manufacturing Strategy" looks at current competitiveness factors in the manufacturing sector and the adjustments that are required to ensure competitiveness in a rapidly changing global environment.

The manufacturing sector can no longer rely on the traditional bases of competitiveness, such as abundant natural resources and cheap unskilled labour. Doing so will create an increasingly low value economy. New methods must be employed to ensure competitiveness in South Africa’s manufacturing sector. It is vital to remain alert to the global shifts in the sources of competitiveness. The traditional ways in which manufacturing firms created competitive advantages are becoming increasingly less significant in the global arena.

Raw materials are no longer a secure source of competitiveness. As duties, trade barriers and transport costs decrease, raw material trade increases internationally. Regardless of where manufacturers are located, the prices and delivery conditions for most raw material inputs will be similar, with material commodity prices being at historically low levels. In addition, the idea of "the weightless economy" becomes more widespread as the share by weight of materials decline in many manufactured articles. Indeed, materials are becoming

almost insignificant in most rapidly growing service activities.

For many years, South Africa’s cheap labour gave the country an advantage. However, it is not a sustainable advantage. The demand for skilled, adaptive labour and effective management is growing rapidly. This is brought about by the emphasis on technology and by consumers who are ever more selective and demanding. There has also been a sharp increase in the supply of unskilled and semi-skilled labour as countries with large populations, such as India and China, increasingly integrate into the global economy.

Companies can no longer rely on having a clear, long-term advantage in the form of exclusive and more advanced production technology. Technology continues to progress rapidly and production knowledge spreads quickly. Acquiring technology in foreign markets means high costs and reduced competitiveness. As such, it is essential to develop capacity for science, technology and advanced skill development locally.

Privileged access to markets is no longer a certainty. As trade and investment are liberalised, markets are opening up and tougher legal prohibitions on monopoly powers and market restrictive practices are implemented in many countries.

As the sustainability and relevance of these traditional modes of competitiveness diminish, new sources of competitive advantage must be found. The manufacturing sector should focus on innovative strategies to create and maintain a competitive edge in the changing market.

The ability of firms to adapt and to take advantage of the new manufacturing environment will determine their capacity to compete. Manufacturing and its related processes have been revolutionised with the development of Information and Communication Technologies (ICTs), which is changing the way information is transmitted and manipulated. Rapid adjustment is vital to competitiveness.

Consumers, the structure of the labour market and the structure of work and organization have been affected by this revolution, as a consequence of the speed, precision and diffusion of information. Networks are fast becoming an important way of organising.

In addition, it has also facilitated the increasing disaggregation of production processes, although a good physical infrastructure remains important to link the stages of production. Technology is becoming ever more integral to competitiveness, partly because ICTs are expanding technology diffusion into products, across institutions and between countries.

Not being in on the technology transfer loop means being left behind and becoming marginalised. New technologies have resulted in innovative products and have made other products redundant, as advanced technological products are added to or combined with traditional products. The biotechnology revolution is a prime example of a group of technologies that will fundamentally affect manufacturing.

Time and efficiency, as cost factors in production, are becoming increasingly important. Business needs to consider both time and efficiency as potential sources of competitiveness.

Global trends demand continuous change in the way value is added and where labour is required in production processes. Learning, adapting and responsiveness is of utmost importance.

Coherent supply or value chains, which are often transnational and influenced by multinational corporations, are increasingly used to integrate processes ranging from the extraction of raw materials and product design to production, distribution, sales and marketing. South Africa has a resource-oriented legacy and therefore faces the challenge of developing and integrating opportunities within the domestic economy into domestic and transnational value chains.

There is an important link between development and equity in the domestic economy and our competitiveness in the global economy. In order to sustain growth and competitiveness, the human and economic resources must be developed. In line with this conclusion, the Integrated Manufacturing Strategy must include programmes for black economic empowerment, gender participation and spatial development.

As South Africa engages the global economy, risks and opportunities will be encountered. A major challenge presents itself as the basis of competitiveness changes from South Africa’s traditional competitive advantages to new spheres, especially ICT.

However, effectively integrating into global systems will bring opportunities that are essential to achieving growth. The opportunities and benefits are not automatic. South Africa must strategically engage with these processes, limiting any negative effects and maximising advantages for our economy.

To achieve this, an understanding of the operation of global economic systems is required. South Africa must be placed strategically within these systems and strategic alliances with developing countries must be established to achieve fair outcomes in the system of global governance. The economy as a whole, the sectors and business must be equipped must become sustainably competitive in this environment.

Since 1994, significant progress has been made in terms of expanded market access. In particular, there are increased opportunities within the SADC region and New Partnership for Africa's Development (Nepad). There has been a shift towards manufacturing and services rather than primary production. As manufacturing exports increase, productivity levels rise, and domestic enterprises are exposed to global competition, the economy has become more competitive. In addition, viable investment opportunities have increased in number and the economy has become more attractive for direct investment.

Progress has also been made in creating a platform for long-term competitiveness through preparation for sustainable production, regulatory reform and the development of Standardisation, Quality Assurance, Accreditation and Metrology (SQAM) systems. Strategies aimed at specific sectors, such as those in the auto and components sector, have significantly transformed their performance and created benefits for associated industries.

All types and sizes of enterprises must become adaptive, innovative and internationally competitive. A platform of infrastructure and logistics, competitive input prices, skills, technology and innovation, partnerships, efficient regulation and effective government offerings exists and must be built on.

Coordination and rigorous actions are required to realise the potential within the domestic economy, integrate constructively into a rapidly changing global economy and build competitiveness based on an increased knowledge intensity, value addition, wider and more equitable participation in the economy and regional production systems. Knowledge intensity is at the core of improved performance. This means using and growing the knowledge and skills of people as a means to integrate ICTs, technology, innovation and knowledge-intensive services into the functioning of the economy as a whole.

Source: the dti "Accelerating Growth and Development: The contribution of an Integrated Manufacturing Strategy"- a full copy can be downloaded from www.dti.gov.z