Barnes dac agm 07 08 13

REVISITING THAILAND’S SA AUTOMOTIVE LESSONS Prof. Justin Barnes

Chairman, B&M Analysts

Chair of Industrial Studies, UKZN

7th August 2013

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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?

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

Thai auto industry in context

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Thailand Automotive Industry Growth

Total Production

Domestic Sales

Export

2012 = 2.45m produced 2013 = 2.8m target (1.6m local)

Thai auto industry in context

Source: Thai Automotive Institute. (2012)."Vision 2011". Thailand Automotive Institute. Presentation.

Area covers size of DAC membership!

Thai auto industry in context

Source: Board of investment. (2013). [Online] Available: www.boi.go.th.

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

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)

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

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

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

DL #4: Innovation master plan?

Innovation Product Process

Paradigm

Position Source: Bessant, J. (2013)

Incremental… to disruptive…

How interlinked?

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)?