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Barnes dac agm 07 08 13


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  • 1. REVISITING THAILAND’S SA AUTOMOTIVE LESSONS Prof. Justin Barnes Chairman, B&M Analysts Chair of Industrial Studies, UKZN 7th August 2013
  • 2. Benchmarking and Manufacturing Analysts SA (Pty) Ltd owns all rights, including those in copyright in the content of this document, unless explicitly stated. You are hereby authorised to make internal use of this document by Benchmarking & Manufacturing Analysts SA (Pty). Findings, conclusions and recommendations are based on information and sources believed to be accurate and reliable at the time of publication. The publisher makes no representation or warranty of any kind as to the accuracy of any information provided, and accepts no liability whatsoever for any loss or damage resulting from opinion, errors, inaccuracies or omissions affecting any part of the content. © 2013 Benchmarking and Manufacturing Analysts SA (Pty) Ltd Copyright and Disclaimer
  • 3. Presentation outline • Contextualising the Thailand automotive industry’s recent growth • Overview of study tour to Thailand • Development lessons: • World Class Manufacturing standards • Benefits of volume associated specialisation • Labour market flexibility, and associated wage model • An innovation master plan? • Lessons for the South African automotive industry?
  • 4. Thai auto industry in context Thailand South Africa GDP USD 366 bn USD 384 bn Population 67 m 52 m Vehicle sales (2012) 1.4m 0.6m Vehicle production 2.4m 0.5m OEMs (>100k) 9 2 T1 suppliers 690 +/- 150
  • 5. Thai auto industry in context 0 200 400 600 800 1000 1200 1400 1600 1800 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Units(Thousands) Thailand Automotive Industry Growth Total Production Domestic Sales Export 2012 = 2.45m produced 2013 = 2.8m target (1.6m local)
  • 6. Thai auto industry in context Source: Thai Automotive Institute. (2012)."Vision 2011". Thailand Automotive Institute. Presentation. Area covers size of DAC membership!
  • 7. Thai auto industry in context Source: Board of investment. (2013). [Online] Available:
  • 8. Overview of study tour to Thailand • Objectives:  Deepen understanding of Thai competitive advantage (previous study findings)  Unpack position of Thai as source of component and CBU exports • Itinerary Mon, 27 May  Meeting - Prof. Kriengkrai Techakanont, Department of Economics, Thammasat University Tue, 28 May  Academic seminar and meetings – Department of Economics, Thammasat University Wed, 29 May  Site visit 1 – Large pressings and plastic injection mouldings  Site visit 2 - OEM  Site visit 3 – Harness supplier Thu, 30 May  Site visit 3 – OEM Fri, 31 May  Site visit 4 – Lighting supplier
  • 9. DL #1: WCM standards • Plants visited and interviews conducted indicate Thai OEMs and suppliers have variable capital equipment profiles, and adherence to WCM standards • On the whole, variation was not substantially different from the level of variation observed amongst SA firms, e.g. • Inventory: 5 to 60 days • Outbound ppm of 24 vs. 21,800 ppm inbound • Attendance: 93% to 97.5% • C/O times on presses: 5 mins to 1 hr. • But, an incremental advantage may exist for Thai suppliers in respect of WCM standards due to their lower input costs (e.g. labour costs are lower and high levels of operator idle time would therefore be less costly)
  • 10. DL #2: Volume associated specialisation • Localisation activities frequently linked to the vertical integration of firms (but not exclusively so) rather than the presence of base raw materials (steel and polymer largely imported). Localisation of processes is enabled by the scale of demand • Scale of operations was substantially greater than that of SA firms at all levels of the value chain:  Single OEM production sites enjoy greater scale, and this is complimented by sister production sites within close proximity  Additional volume is secured via CKD production activity on selected processes/products  Tier 1 suppliers benefit from scale derived from full scale assembly plants, multiple assemble plants and CKD production activity • In some instances production scale seems to have underpinned the Thai firms’ ability to position themselves as regional/global centres of excellence for products, suggesting this is a major source of Thai advantage • Also, no 470.03 equivalent - localisation critical for exports
  • 11. DL #3: Labour market flexibility • Operator base wage for OEMs and suppliers is THB1,750 pw, although actual cost to employers is 2X-3X base. Cost of labour is therefore higher than basic wage rate cited • But, huge competitive advantage is secured by how the labour market functions to enable firms to recover overhead costs and manage demand variances  Firms have 2X shifts per day, but typically operate 24 hrs. per day 5-6 days per week by being able to extend each shift 2.5 hrs.  Notification of overtime is required at start of relevant shift (max of 12 hrs. per day and 72 hrs. per week)  Any hours worked above 42.5 in week results in 50% wage premium  Meals during shift and transport to/from site are provided to employees  Bonus of 30-70% of annual basic wage paid in 2012 – based on company performance  Limited contract labour due to flexibility – improved QA
  • 12. Thailand labour costs Base hr. rate* Hrs. worked Daily wage Weekly wage Base THB 41.20 8.5 THB 350 THB 1 751 Overtime THB 61.80 2.5 THB 155 THB 773 Total 11 THB 505 THB 2 524 Annual wage CTC Annual bonus Total CTC Annual Rand cost Base THB 91 052 THB 118 368 THB 45 526 THB 163 894 R 49 168 Overtime THB 40 170 THB 40 170 THB 0 THB 40 170 R 12 051 Total THB 131 222 THB 170 589 THB 0 THB 170 589 R 61 219 Previous: SA = R142k, Thailand = R34k * Assuming ½ day shift @ THB 300, and ½ night shift @ THB 400
  • 13. DL #4: Innovation master plan? Innovation ProductProcess Paradigm Position Source: Bessant, J. (2013) Incremental… to disruptive… How interlinked?
  • 14. Lessons for South Africa • How to realise scale economies? SA vs. Thailand or SSA vs. ASEAN? • How to create an operating model that is aligned with market demand variances, and that reduces operating risk? • How far does driving WCM as the only source of sustainable competitive advantage take us? • Linking the 4-Ps into a virtuous cycle (process, product, position, and paradigm challenges)?