Is the electronic manufacturing industry in SA dead?

November 28th, 2013, Published in Articles: EngineerIT, Featured: EngineerIT


by Murison Kotzé, Tellumat Electronic Manufacturing

Despite tough times, the manufacturing industry has seen some improvement over the  last 18 months. The market remains very competitive, with many companies competing for a limited number of customers.

The majority of the electronic manufacturing in South Africa is either for local companies (many of whom export their products) or for international companies, for local consumption.

Even though there is a  good base of local companies having their products manufactured in South Africa, it is imperative that the industry’s pool of customers expands, and that will require looking for new opportunities beyond our borders.

For local companies, the difference in production costs between South Africa and our competitors from the East isn’t significant enough to justify the effort, cost and risk associated with managing complex manufacturing projects from a distance. In fact we’ve seen a number of OEMs that tried to manufacture offshore but have repatriated their businesses because they’ve realised that low cost manufacturing in the Far East isn’t necessarily the answer. That said, as electronic manufacturing service providers we cannot rest on our laurels and expect this business to remain local without doing our bit to help our customers remain internationally competitive. There are of course factors like the relatively high cost of labour and electricity as well as our exchange rate that we can do little about, but the areas within our scope of influence are where we need to focus. Driving efficiencies, investing in better equipment and employing “lean” manufacturing practices are crucial for keeping our industry alive – to keep our local customers local and to attract foreign companies to produce locally.

Beyond the factors inherent in electronic manufacturing, there are a number of external factors that are key to the survival of our industry. The biggest cost contributor to any electronic product is the cost of electronic components and printed circuit boards. Almost all electronic components are imported into SA and distributors are under pressure to justify the costs associated with their services in the face of ever-increasing accessibility of online component distributors and direct imports of components.

As with local manufacturers, local distributors need to focus on their internal efficiencies, accessibility and innovative supply solutions to ensure their (and manufacturers’) survival. One of the significant factors impacting the cost of components is actually self-imposed: import duties.

Some time ago there was a degree of electronic component manufacturing in South Africa and while that industry is for the most part long gone, we are left with a legacy of import duties that serve no purpose other than to hamstring the electronic manufacturing industry. Some projects are currently underway to remove these but ultimately it will be up to government to intervene.

Increased government support for the industry also plays a vital role. While there is a lot more that government could do to support local electronic manufacturing it’s important to give them credit where it is due. Programs such as the MIP/MCEP, incentives for R&D, import duties on products like TVs and set top boxes (STBs), as well as a number of other initiatives have had a substantial impact on helping our industry to survive.

Throughout the world developing countries are focusing more and more on how to expand local manufacturing to create jobs and make their industries more attractive to other countries. Government organs such as the Department of Trade and Industry need to evaluate where their initiatives have had success and replicate these. The success stories of local television manufacture and now STBs could so easily become success stories featuring electricity meters and LED lighting with the appropriate measures.

The local electronic manufacturing industry isn’t dead, nor is it dying. If South African companies continue to design innovative products and local manufacturers provide cost-effective means of production, this industry will certainly survive. If we manage as an industry – with increased government support for local manufacturing – to attract more international companies to produce locally, the industry will thrive.

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