A sector study of manufacturing in the
Boland District Municipality area
Report prepared for the Boland District Municipality
This document consists of 66 pages
Prof. Jonathan Bloom
March 2004
Study of manufacturing enterprises in the
Boland District Municipality area
GLOSSARY
Cluster means a geographic concentration of related companies and institutions in a
particular field, including suppliers, universities, trade associations, government institutions,
and other organizations that provide specialized training, education, information, research,
and technical support.
Dumping means selling items below cost to eliminate surplus, hurt competitors or gain
market share.
Gross Domestic Product means the total market value of all goods and services produced
within the political boundaries of an economy during a given period of time, usually one
year. This is the government's official measure of how much output an economy produces.
Manufacturing means a process whereby raw material is transformed into a finished
product, especially by means of a large-scale industrial operation.
Market-oriented economy means a mixed economy that relies heavily on markets to
answer the three basic questions of allocation, but with a modest amount of government
involvement. While it is commonly termed capitalism, market-oriented economy is much
more descriptive of how the economy is structured.
Trade means the business of buying and selling commodities, the act or an instance of
buying or selling and may also refer to the conclusion of an attraction.
Value chain means the integration, collaboration and synchronization of activities.
Internally to a company we talk about integrating the supply chain functions across the
enterprise. Externally we talk about collaborating with both vendors and customers.
Comprehensively we talk about synchronizing the supply chain functions across all. This is
the value chain. Trying to reach infinity of optimising all of the supply chain functions across
trading partners and customers to maximize efficiency and value for the customer.
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Study of manufacturing enterprises in the
Boland District Municipality area
Executive summary
Within the BDM area the manufacturing sector is diverse and covers a wide scope of
manufacturing activity. Manufacturing businesses also vary in terms of size as measured by
turnover and employee remuneration. In order to achieve meaningful information about the
sector, the views from owners and mangers of a broad scope of manufacturing enterprises
were required. A representative number of enterprises were selected to form part of the
sample. The sample was selected on the basis of the following variables:



The type of business, classified according to industry;
The annual turnover, classified according to the levy paid; and
The region where the business is located.
The sample design was a stratified systematic random sample procedure drawn from the
manufacturing businesses listed in the database of the BDM. An 8,15% sample size were
drawn from the 515 manufacturing businesses who are actively doing business in the region.
The researcher visited each selected manufacturing enterprise and conducted personal faceto-face interviews that lasted from one and a half to two hours.
A total of five of the selected businesses generated turnover of more than R100 million, six,
R15 million to R80 million, 18 between R1 million and R9 million and a further six recorded a
turnover of less than R1 million per annum. The manufacturing businesses included in the
sample have been operating on average for forty years, with the oldest enterprise being
Pioneer Printers in Worcester that will celebrate its centenary in 2004.
The number of workers employed by the enterprises forming part of the sample totals 5872.
The number employed by individual enterprises differs in terms of the type and turnover.
The ratio between coloured, black, white and other employees are 57:32:10:1 for the sample
of enterprises. Various respondents indicated that they are still in process of changing this
ratio in favour of coloured and black persons.
Forms of businesses ownership is spread evenly between sole proprietorships, partnerships,
close corporations and private companies. There is no example of co-ownership in the form
of Black empowerment among the respondents. Although the majority are aware of Black
empowerment, only four of the respondents are assessing the requirements to restructure in
order to make provision for empowerment groups in the business. Respondents require
expert-advise in order to restructure and implement affirmative action, diversity and Black
empowerment in their businesses that would be beneficial to all stakeholders.
The skills levels of managers/owners in the larger enterprises were of exceptional quality. In
contrast, several of the managers/owners of the smaller businesses did not have any
management qualifications. This implies that there is some scope for these managers/
owners to attain a business qualification or training to operate their businesses in a more
efficacious manner. Specific management problems encountered by the sector include
affirmative action, Black empowerment and the issue of managing these different economic
transformation strategies. Several other management problems that were highlighted by
respondents include the existence of double standards of hygiene in the same industry,
factors related to transportation and the difficulties in managing the risks associated with
fluctuating exchange rates. Addressing the abovementioned management problems and
shortcoming represent an urgent need among almost all the respondents.
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Study of manufacturing enterprises in the
Boland District Municipality area
The management of labour and understanding the accompanying legislation is a primary
concern among all the respondents. Apart from labour legislation other labour related
aspects that were mentioned by respondents include the limited knowledge and skills of
workers, lack of communication skills among workers, and work ethics leave a lot to be
desired. Respondents also claim that employees do not understanding the economic
environment and their contribution to the productivity and production output of the
manufacturing enterprise.
Among the respondent enterprises, 27% are currently active in the export market. The
output of the smaller businesses is primarily destined for the local market or other markets
within the BDM area. Only several businesses expanded their operations during the past 3 to
5 years either through product differentiation or through direct investment in expansion of
facilities. The fluctuating Rand and the confined size of the local South African market
appeared to curtail investment among the other manufacturing businesses. There exists a
need among owners and managers for information and some expert advice about markets,
market expansion and developing trends in local and export markets.
Various barriers to entry exist for new businesses aiming to locate to the BDM area such as
access to capital, size of the local market, and prohibitive material and labour costs. Several
barriers to exit were also identified, i.e. the substantial investment and no buyers for the
business to recoup the investment; other opportunities in South Africa as avenues for
employment; and the business may be part of family business that has existed for decades.
A major factor among the larger manufacturing enterprises in the region is their association
with agriculture, which provides substantial job opportunities, but primarily on a seasonal
basis. These seasonal workers have a job for seven months of the year and thereafter no
income for the remainder. Thus an urgent need exists for other businesses to locate to the
district that can compliment businesses with a high number of seasonal workers and provide
job opportunities to the seasonal workers for the remainder of the year.
Industry co-operation among manufacturing businesses in the BDM area is all most nonexistent. Business owners and managers believe it is better to go it alone due to the intensity
of competition, mistrust exists between businesses within an industry and across industries;
continuity is lacking in product and service delivery, and the quality of manufactured
products is often questioned. Industry co-operation could have a positive effect on
productivity and assist with the expansion of businesses with less available capital. A need
exists to facilitate co-operation among the businesses, which would be beneficial to all
parties.
Institutional support and the role it plays in a country as a whole, and also in a specific
region, could make a difference in the business sector as a whole in terms of creating
employment, uplifting people and addressing socio-economic issues. Several negative
aspects highlighted by respondents included the de-motivation caused by various taxes and
tax rates, limited efforts from government to promote exports, and no protection for
businesses against the dumping of poor quality products on the local markets is provided.
The thought of a brand name and logo for manufacturing in the BDM area is considered by
owners/managers of manufacturing enterprises as a commendable initiative. All the
respondents were very positive about developing a brand for manufacturing in the BDM area
and the initiative would be fully supported. A brand name would assist with the promotion of
the region and its manufactured output.
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Study of manufacturing enterprises in the
Boland District Municipality area
Table of Contents
1.
INTRODUCTION AND BACKGROUND ..............................................................................6
1.1
2.
OBJECTIVES OF THE ASSIGNMENT ............................................................................................6
METHODOLOGY .....................................................................................................................6
2.1
APPROACH TO PRIMARY RESEARCH .........................................................................................6
2.1.1
Universe ...........................................................................................................................7
2.1.2
Sample design...................................................................................................................7
2.1.3
Sample size .......................................................................................................................8
2.1.4
Selection and interviewing of respondents .......................................................................9
2.1.5
Limitations of the survey ..................................................................................................9
3.
OVERVIEW OF MANUFACTURING ...................................................................................9
3.1
INTERNATIONAL PERSPECTIVE .................................................................................................9
3.2
SOUTH AFRICAN PERSPECTIVE ...............................................................................................13
3.2.1
Confidence in the manufacturing sector of South Africa ...............................................17
3.3
BOLAND DISTRICT MUNICIPALITY AREA ...............................................................................18
3.3.1
Primary, secondary and tertiary economic activity .......................................................18
3.3.2
Manufacturing in the five B-municipal areas of the BDM .............................................19
3.3.3
Location characteristics within the municipalities.........................................................20
3.3.4.
Nature and scope of manufacturing enterprises in the BDM .........................................21
3.3.5.
Comments across various industries in BDM manufacturing........................................22
3.3.6.
Opportunities in BDM manufacturing ...........................................................................23
4.
CHARACTERISTICS OF MANUFACTURING .................................................................24
4.1
SCOPE OF ENTERPRISES IN THE BDM-AREA ...........................................................................24
4.1.1
Turnover .........................................................................................................................25
4.1.2
Operating years in the BDM-area..................................................................................25
4.1.3
Products manufactured within the BDM-area ...............................................................28
4.1.4
Number of employees .....................................................................................................29
5.
OWNERSHIP ...........................................................................................................................29
5.1
5.2
6.
OWNERSHIP TRENDS AND ISSUES ...........................................................................................29
OWNERSHIP ISSUES.................................................................................................................31
MANAGEMENT ......................................................................................................................32
6.1
6.2
6.3
7.
MANAGEMENT TRENDS AND ISSUES ......................................................................................32
MANAGEMENT PROBLEMS......................................................................................................32
ADDRESSING INDUSTRY RELATED MANAGEMENT PROBLEMS ...............................................33
LABOUR ...................................................................................................................................34
7.1
7.2
7.3
8.
LABOUR ISSUES AND TRENDS .................................................................................................34
SPECIFIC LABOUR PROBLEMS .................................................................................................35
ADDRESSING SECTOR RELATED LABOUR PROBLEMS .............................................................38
CONSUMER AND SUPPLIER MARKETS .........................................................................38
8.1
8.2
8.3
9.
MARKET TRENDS AND ISSUES ................................................................................................38
MARKET AND MARKETING PROBLEMS ...................................................................................40
ADDRESSING INDUSTRY RELATED MARKET AND MARKETING PROBLEMS .............................42
INDUSTRY CO-OPERATION ..............................................................................................43
9.1
INDUSTRY CO-OPERATION TRENDS AND ISSUES .....................................................................43
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Study of manufacturing enterprises in the
Boland District Municipality area
9.2
9.3
10.
10.1
10.2
10.3
11.
11.1
11.2
11.2
12.
12.1
12.2
12.3
13.
13.1
13.2
SPECIFIC CO-OPERATION PROBLEMS ENCOUNTERED BY THE SECTOR ...................................44
ADDRESSING INDUSTRY RELATED CO-OPERATION ................................................................44
LEGISLATION ........................................................................................................................44
LEGISLATIVE TRENDS AND ISSUES .........................................................................................44
SPECIFIC LEGISLATION PROBLEMS ENCOUNTERED BY THE SECTOR ......................................45
ADDRESSING INDUSTRY RELATED LEGISLATION ...................................................................46
INSTITUTIONAL ORGANISATION AND SUPPORT ......................................................46
INSTITUTIONAL ORGANISATION .............................................................................................46
INSTITUTIONAL TRENDS AND ISSUES......................................................................................48
ADDRESSING PROBLEMS RELATED TO INSTITUTIONAL SUPPORT ...........................................49
ECONOMIES AND ECONOMIC TRENDS OF SELECTED TOWNS IN THE BDM
AREA........................................................................................................................................50
ECONOMIC TRENDS AND ISSUES .............................................................................................50
SPECIFIC ECONOMIC PROBLEMS .............................................................................................51
ADDRESSING ECONOMIC PROBLEMS ......................................................................................52
BRANDING MANUFACTURING IN THE BDM AREA ...................................................52
BRANDING BENEFITS AND ISSUES ..........................................................................................52
BRANDING OPTIONS ...............................................................................................................53
14.
RECOMMENDATIONS .........................................................................................................54
15.
CONCLUSION .........................................................................................................................56
CASE STUDY: PIONEER PRINTERS .............................................................................................57
CASE STUDY: KOOSE TRICYCLES .............................................................................................60
CASE STUDY: BRENN O’ KEM .....................................................................................................63
v
Study of manufacturing enterprises in the
Boland District Municipality area
1.
Introduction and background
The Boland District Municipality (BDM) requires an assessment of the manufacturing sector
in the area under its jurisdiction in order to determine appropriate interventions in support of
economic growth, diversification and transformation of the sector. The study is undertaken
in support of the BDM mandate to ensure redistribution and equitable access for businesses
and residents to the benefits of the economy throughout the District.
The manufacturing sector assessment presented in this report forms part of several sector
studies that would inform the identification and implementation of targeted LED strategies
within the agriculture, manufacturing and service sectors of the BDM area. The other sector
assessments, which form part of the business plan of the Development and Community
Department, are agriculture and services and design.
Prof Jonathan Bloom of Stellenbosch University has been requested by the BDM to research
and prepare an assessment of the manufacturing sector in the BDM district. The work
presented in this report has the Terms of Reference issued by the BDM as the basis.
1.1
Objectives of the assignment
The objectives of the manufacturing sector study are as follows:
2.

To conduct a macro assessment of manufacturing in the global, South African and
BDM context;

To conduct a micro assessment of manufacturing firms in the BDM area by focusing
on performance, business opportunities, labour, etc of established firms and existing
new market entrants;

To assess the market (meso) level by considering aspects such as business-tomarket linkages, businesses-to-business linkages, barriers to entry, etc;

To identify interventions for the BDM to consider in support of the sector;

To position and consider a brand for the manufacturing sector in the BDM area;
Methodology
The methodology for the manufacturing study is a mix of secondary sources of information,
which primarily forms a platform to ascertain trends in manufacturing, the contribution of
manufacturing to the economy of the BDM, and understand various macro and micro aspects
related to various firms operating in the manufacturing sector of the BDM area. The
methodology of the study is presented in Figure 1.
2.1
Approach to primary research
The primary research procedure was scientifically designed and implemented in order to
ensure the credibility, consistency and relevance of all collected data, the interpretation of
information and the dissemination of findings. More detail of the research methodology is
presented below.
6
Study of manufacturing enterprises in the
Boland District Municipality area
Figure 1: Methodology of the manufacturing study
2.1.1 Universe
The universe for the study is defined as all manufacturing businesses the pay levies to the
BDM and are located in different municipal areas of the BDM area. A current list of
businesses obtained from the BDM was used to determine the universe of manufacturing
enterprises.
2.1.2 Sample design
The sample design for this study includes location, size of the business and type of industry
as the three most important stratification variables for the selection of the manufacturing
businesses.
Location focuses on the geographical area as a whole, which implies that all businesses in
each town in the BDM area that appear on the database of the BDM could potentially be
selected as part of the sample.
The size of the business is assessed on the basis of remuneration and annual turnover for
the last two years. Businesses were categorised on the basis of the two measures for the
purposes of the sample selection.
The type of industry was assessed on the basis of categories of manufacturing activity as
specified by the BDM. The number of businesses in each category of economic activity was
used to ensure weighted representation of businesses in the final sample.
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Study of manufacturing enterprises in the
Boland District Municipality area
2.1.3 Sample size
Initially a sample of 42 manufacturing enterprises was selected according the
abovementioned criteria. A total of 35 businesses were willing to participate in the research
project. Several reasons for the unwillingness of the seven enterprises, initially included in
the sample, to participate in the study included the following:



Research does not contribute to any useful knowledge for the enterprise;
Owner/manager was not available for an appointment; and
Not interested in providing any useful information.
The total turnover of the enterprises included in the survey is R2,4 billion, which represents
22,8% of the total turnover in Rand value from the universe of manufacturing businesses
(R10,5 billion) from which the sample was drawn, and 3,9% of total turnover (R61,0 billion)
generated by levy paying businesses operating in the BDM area during the 2001/2002
financial year.
Table 1 shows the total number of manufacturing businesses within each industry and in the
different municipal areas. The sample size per industry and municipal area is also
highlighted. Different industries with more or less the same type of product were merged in
order to obtain 13 workable industries. For example, wood and wood products as well as
paper and paper products were combined.
Table 1:
Industry
Food & Tobacco
Textiles
Tanning, dressing
of leatherfootwear
Wood, paper-board
& paper
Publishing &
Printing
Petroleum &
Chemicals
Non-metal
Metal
Special purpose
machinery/equipme
nt
Household/office
equipment
Electronic/orthopae
dic appliances
Motor
vehicles/
bicycles
Other:
Jewellery,
Diamonds
TOTAL
Number of manufacturing businesses per industry in total and by sample size
for the different municipal areas of the BDM
Breede River
Winelands
Breede Valley
Drakenstein
Stellenbosch
Total
n
Total
n
Total
n
Total
n
Total
n
Total
N
35
4
22
-
44
1
50
1
14
-
165
6
3
1
14
-
17
1
6
1
1
-
41
3
0
-
1
-
1
-
0
-
1
1
3
1
9
2
17
1
34
1
8
-
6
2
74
6
2
1
4
1
15
1
7
-
3
-
31
3
3
-
3
-
13
-
3
-
1
1
23
1
1
-
7
1
16
-
11
1
3
1
38
3
8
-
22
3
30
2
25
3
1
-
86
8
-
-
1
-
10
-
5
1
-
-
16
1
-
-
-
-
1
-
1
-
1
1
3
1
-
-
-
-
1
-
13
1
1
-
14
1
-
-
3
1
2
-
0
-
1
-
5
1
-
-
4
-
3
-
7
-
2
-
16
-
61
8
98
7
187
6
136
8
33
6
515
35
8
Witzenberg
Total in
BDM-Area
Study of manufacturing enterprises in the
Boland District Municipality area
Table 1 also indicates that the food industry is the largest in the BDM in terms of number of
enterprises. The link between agriculture and the manufacturers of food products (in the
broadest sense) is also apparent from the number enterprises operating in the food industry.
Metal and metal products and wood and paper products follow the food industry in terms of
number of operating businesses.
2.1.4 Selection and interviewing of respondents
A mix of systematic random sampling and judgemental sampling was used as the basis of
the selection of the manufacturing enterprises. We are also cognizant of the possibility that a
business, which contributes a large portion to the output of the district, may be excluded due
to the randomness of the sampling procedure. Larger manufacturing businesses that fall
into this category were considered and selected using a judgemental sampling approach.
In-depth face-to-face interviews were conducted with either the owner of manager of the
selected enterprise. Most of the 76 questions were of a qualitative (open-ended) nature to
ensure maximum input from the respondent. Interviews lasted between 90 and 120 minutes.
2.1.5 Limitations of the survey
The following problems were encountered during the fieldwork phase of the manufacturing
businesses survey:
3.
3.1

It was undertaken during two of the most difficult months of the year, namely
November and January, when management would not necessarily susceptible or
have any extra time to participate in any research projects.

Many of the businesses in and around Stellenbosch and Paarl were inundated before
by research studies because of their convenient location near the University of
Stellenbosch. This explains why these enterprises were not as forthcoming as we
hoped.

People are tend to focus on and around their immediate environment and do not
easily see the opportunities which may exist in other parts of the district or further
afield.

Business people are very sceptical to part with what they regard as confidential
information, since they fear the misuse of such information.
Overview of manufacturing
International perspective
Worldwide manufacturing in 2002 recorded a value of US$ 4,708 billion, which represents
75,1% of all merchandise trade. The findings are presented in Table 2 together with annual
percentage changes from 1980 to 2002.
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Study of manufacturing enterprises in the
Boland District Municipality area
Table 2: Worldwide manufacturing in 2002 with percentage changes from 1980 to 2002
Value (US$ billion)
4708
Annual
percentage
change
Year
1980-85
1985-90
1990-95
1995-99
2000
2001
2002
Share in world merchandise trade
2%
15%
9%
5%
10%
-4%
4%
75.1
Source: WTO
Table 2 also indicates that that from the early 1990s the value of manufacturing has shown
signs of decline on an annual basis. From the turn of the millennium (2000), it is also
apparent that the value of manufacturing declined with 2001 registering a value of 4% lower
than the previous year.
11.29
12
Percentage
10
8
8.64
7.44
6.64
6.03
5.54
6
3.02
4
2.22
2
0
1950-63
1963-73
Trade
1973-90
1990-02
Output
Source: WTO
Figure 2: Average annual percentage changes in global manufacturing trade and output for
the period 1950 to 2002
Figure 2 also suggests that a reduction in trade of manufactured goods and output has
occurred from the mid 1970s. Although the average annual growth in the 1990’s was
slightly higher than the period from 1973 to 1990 a declining trend is prevalent in
manufacturing trade. A steady decline in average annual growth of output production from
7,44% to 2,2% also occurred from the mid 1970s to 2002 and is evident from the graphic
representation above.
Global manufacturing trends are likely to impact not only on South Africa as part of the
international community, but is also likely to impact on the manufacturing operations of
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Study of manufacturing enterprises in the
Boland District Municipality area
enterprises in the BDM area which trade in a global environment with extensive competition.
The following trends focus on changes which are likely to occur in manufacturing worldwide,
which will also impact manufacturing businesses in the BDM area. Consequently, these seven
key trends offer opportunities and/or pose challenges to the manufacturing sector and in
particular businesses that already operate in or are in a position to enter the global
manufacturing environment:

Global economic integration will continue and will trigger significant changes
within the manufacturing sector
There are many positive growth aspects of global economic integration including increased
trade-based revenues, additional technological innovation, improved access to a diversity of
products and inputs, and an easier flow of production factors. Notwithstanding, several
challenges and obstacles exist. In many economic sectors, especially manufacturing,
economic globalization has also broadened the field of competitors. A shift in manufacturing
centres is also occurring.
There is some initial evidence to indicate that similar
manufacturing centres may develop in the southern Indian Ocean area and in Africa,
continuing a westward shift through and out of Asia. Africa is also becoming a more
attractive business environment. A joint survey by the International Chamber of Commerce
and the United Nations found that a third of companies polled wanted to increase their
investment in Africa. This included investment in manufacturing industries in South Africa,
Morocco, Cote d’Ivoire, Mozambique, and Uganda were among the markets of interest.

The knowledge economy is transforming manufacturing
The knowledge economy is organized around flexible production of goods and services
instead of standardized mass production. In this environment, competitive advantage
depends on the ability of the manufacturer to add value to a product through customization,
design quality or customer service. Products can still be produced on a large-scale basis, but
manufacturers are changing their operations in such a way as to tailor their products to
individual customer needs and desires.
Pressure is increasing among manufacturing enterprises to develop e-Business capabilities in
order to maintain their customer bases. However, according to a survey by the US National
Association of Manufacturers (NAM) and Ernst and Young, e-Business has made only modest
in-roads into small and medium sized manufacturing operations. Most of the manufacturers
surveyed (42%) were in the “e-interaction” stage of e-Business initiatives, i.e. they have
some electronic interactions between themselves and major customers and are beginning to
use the Internet as their primary medium for information exchange. Some 27% have
advanced to the transactional stage, which implies that they have integrated the Internet
with their existing corporate processes and systems and can transact electronically with
customers, suppliers, partners, and employees.
There are several reasons for the slower rate of adoption of e-Business strategies among
manufacturing businesses. According to the NAM/Ernst and Young survey, 98% of the small
and medium sized manufacturers invested in these applications out of their operational cash
flow which is often under tight constraints. These companies themselves identified lack of
human resources and lack of technical knowledge as the top two barriers to developing and
executing e-Business initiatives.
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Study of manufacturing enterprises in the
Boland District Municipality area

Providing the best value to customers is increasingly important to
manufacturers
Success as a supplier depends increasingly on the ability of a manufacturer to add value to
the customer’s business processes, which ultimately add revenue to the organization. The
focus on value is manifesting itself in a number of ways including online sales and
procurement, product customization, just-in-time delivery and environmental accountability.

Manufacturers are examining their value chain to identify and maximize their
companies’ advantages and core competencies
Manufacturing firms today view themselves in the context of a larger value creating system.
Each firm seeks out its competitive niche within this system by focusing on its core
competencies while outsourcing other work areas to outside firms which have unique advantages and production efficiencies. Thus, through the value chain, manufacturers can
leverage their own abilities with the expertise of their partners. Outsourcing appears to be
limited among manufacturing enterprises in the BDM area as will be demonstrated in a
following section.
Manufacturers have undertaken various productivity enhancements to dramatically
streamline their operations in order to position themselves within value chains. For instance,
many firms are increasingly integrating and automating traditional purchasing, inventory
management, and order fulfillment functions, and managing those activities through
enterprise resource planning (ERP) software.

Manufacturing processes are increasingly automated and the related
machinery is more and more sophisticated
During the last few decades manufacturing automation efforts have increased substantially.
Computer skills and technology training are quickly becoming a requirement for the shop
floor. Manufacturers continue to invest in more computer-aided design, manufacturing, and
engineering (CAD/CAM/CAE) technologies, computerized numerical controls (CNC), and
statistical process controls (SPC). Although the manufacturing sector continues to generate
jobs and make significant contributions to the economy, manufacturing jobs are shrinking as
a percentage of the total labor force in the knowledge economy. This trend is also endorsed
by the declining trend in both manufacturing trade and production output (see Figure 2).

Regional and local manufacturing industry clustering will intensify
Clusters are defined by systems of market and non-market links between geographically
concentrated companies and institutions. The links enable cooperation among suppliers and
competitors on business processes, purchases, investments, strategies, technical research
and resource exchange.
The purpose of clusters is to develop vital flows and relationships at multiple levels within
the economy to enhance a region’s growth potential and competitiveness. They link
competing businesses and competing suppliers with collaborative research, public and
private sources of financing, government regulatory and development agencies and new
institutions built for the sole purpose of organizing and energizing these relationships. Firms
within a cluster exhibit strong interrelationships among themselves. The flow of goods and
services between geographically concentrated industries in a cluster is stronger than the flow
12
Study of manufacturing enterprises in the
Boland District Municipality area
linking them to the rest of the economy. An industry cluster is different from the classic
definition of industry sectors (e.g., construction, manufacturing services, etc.) because it
represents the entire value chain of a broadly defined industry from suppliers to end
producers, including supporting services and specialized infrastructure.
An important cluster-related trend is the growing link between manufacturing
and agriculture. Examples of new products derived from agriculture include bioproducts
such as plastic from corn, lubricants and inks from soybeans, fiberboard from wheatstraw,
and biofuels, including ethanol, biodiesel, and biomethane. Another growth area is
production of pharmaceutical products from plants.
Cluster-based development provides a framework for helping various stakeholders define
common goals, share knowledge and resources, and promote mutually beneficial commerce
and trade.

Manufacturing is evolving from a single-focused mechanistic model into a
systemic model characterized by self-improving networks and feedback
loops.
The systems-based model applied to manufacturing includes four main aspects: machines
and machine-based processes that mimic natural systems; the expanding use of living
organisms for manufacturing; the seamless integration of biological and mechanical
processes; and the creation of value for, and dependence upon, multiple stakeholder
relationships.
The global manufacturing trends discussed above will impact on various manufacturing
enterprises operating in the BDM area. How individual enterprises react to these trends and
the manner in which the BDM attempts to influence the way manufacturing business is
conducted in the BDM area will either enhance the sectors potential to partake in the global
manufacturing market place or maintain the current status quo.
3.2
South African perspective
South Africa's value chains have traditionally been poorly integrated, emphasizing resources
and only limited manufacturing. However, value can be added at every stage of production
and increasingly this value addition results from the incorporation of business services,
information and communication technology, and efficient logistics into the various production
stages.
Trends in manufacturing in South Africa over the past 20 years have indicated a decline in
manufacturing as a percentage of Gross Domestic Product (GDP) from 1982 to 2002 of
26,1% or an average annual decrease of 1,3%. Figure 3 is a representation of the
percentage contribution of manufacturing to GDP in South Africa for 1`982, 1992 and 2002.
Clearly the contribution of manufacturing to the GDP of South Africa has declined over the
past 20 years in favour of services. The contribution to GDP of manufacturing was 18,8% in
2002, which represents a 16,48% decline from 1982.
13
Study of manufacturing enterprises in the
Boland District Municipality area
2002
18.8
1992
21.9
1982
23.7
0
5
10
15
20
25
Percentage of GDP
Source: Adapted from IMF, 2003
Figure 3:
Manufacturing in South as a percentage of GDP for 1982, 1992 and 2002
Over the period 1982-1992 the value of exported manufactured goods increased by 85,5%,
while a decline of 15,9% occurred over the period 1992-2002. Growth in the value of
manufacturing exports also declined from 1992 to 2002 with an average annual decline in
export growth by 1,6%. However, from 1982 to 1992 an average annual increase of 8,5%
in the value of manufacturing exports occurred. Figure 4 indicates the export value of
manufactured products from South Africa for 1982, 1992, and 2002.
4750
2002
Decline of 15,97%
Decrease 5653of
15,9%
1992
Increase of 85,5%
3048
1982
0
1000
2000
3000
4000
5000
6000
Exports (US$ millions)
Source: Adapted from IMF, 2003
Figure 4:
Value of South African manufacturing exports for 1982, 1992 and 2002
An assessment of the production volumes and sales values over the period 1997 to 2001
indicates fluctuating changes in different industries of the manufacturing sector in South
Africa. Figures 5 indicates the total volume of production for the manufacturing sector in
South Africa, while Figure 6 and 7 indicate the relative changes in production volumes and
sales values for selected manufacturing industries in the national context, but which also
14
Study of manufacturing enterprises in the
Boland District Municipality area
have a consequences for the BDM area due to the level of manufacturing among businesses
operating in the BDM area.
160
150
140
130
120
110
100
90
1995/1996
1997
1998
1999
2000
2001
To tal vo lume o f manufacturing pro ductio n
To tal value o f manufacturing sales
To tal vo lume o f agriculture pro ductio n
Source: Statistics South Africa as adapted
Note: No comparable figures for agriculture sales values are available
Production volumes: 1995=100; Sales values: 1996=100
Figure 5: A relative comparison of production volumes and sales values for the
manufacturing sector in South Africa over the period 1997 to 2001
Figure 5 indicates that total volume of manufacturing production relative to volume of
agricultural production has been slightly lower from 1997 to 2000. From 2000 to 2001 the
trend in manufacturing production continued upward, while agriculture production declined
over the period. Total value of manufacturing sales over the period has exhibited strong
growth of 8,19% on average over the period 1997 to 2001. From 1999 to 2001 a 12,09%
growth rate in the value of sales was recorded. The strong sales growth may be attributed
to a faster increase in consumer prices than production prices over the period, a favourable
Rand–US dollar exchange rate and an increase in the value of manufacturing exports.
An assessment of the food industry indicates that production volumes grew at relatively
constant growth rates over the period, while the value of food sales grew consistently from
1997 to 2001 (Figure 6). Total value of food sales over the period exhibited strong growth
of 6,28% on average over the period 1997 to 2001. From 1999 to 2001 an 8,35% growth
rate in the value of sales was recorded. The strong sales growth may be attributed to a
faster increase in consumer prices than production prices over the period, a favourable
Rand–Dollar exchange rate and an increase in manufactured food exports.
It is apparent from an assessment of the textile industry that production volumes and sales
values followed a similar trend pattern over the period 1997 to 2001 (Figure 6). In terms of
sales values an average 3,65% growth rate was achieved over the four-year review period.
The value of sales grew from 1999 to 2000 and 2000 to 2001 at a rate of 4,03% and 8,46%
respectively. From 1997 to 1998 the value of sales decreased by 5,49%, while a more or less
a similar value for textile sales was achieved from 1998 to 1999 (growth rate of 0,05%).
15
Study of manufacturing enterprises in the
Boland District Municipality area
140
135
130
125
120
115
110
105
100
95
90
1995/1996
1997
1998
1999
Volume of food production
Volume of textile production
2000
2001
Value of food sales
Value of textile sales
Source: Statistics South Africa as adapted
Production volumes: 1995=100; Sales values: 1996=100
Figure 6: A relative comparison of production volumes and sales values for the food and
textile industries in South Africa over the period 1997 to 2001
A clear contrasting trend is visible for the printing and publishing industry from 1997 to 1999
(Figure 7). Production volumes steadily decreased, while sales values increased consistently
from 1997 to 2001. This situation may allude to the exit of enterprises as a consequence of
competition in the industry and higher margins due to possible oligopoly formations or the
industry may not be seen as being profitable for new entrants. An assessment of the growth
rates in the value of sales indicates an average annual growth rate of 4,31% from 1997 to
2001. The average annual growth rate over the period 1998-2001 the average growth rate
per annum decreased from 4,31% over the period 1997 to 2001 to 3,18%.
130
125
120
115
110
105
100
95
90
85
80
1995/1996
1997
1998
1999
2000
Volume of Pub&Print production
Value of Pub&Print sales
Volume of machinery production
Value of machinery sales
2001
Source: Statistics South Africa as adapted
Production volumes: 1995=100; Sales values: 1996=100
Figure 7: A relative comparison of production volumes and sales values for the printing and
publishing and machinery industries in South Africa over the period 1997 to 2001
16
Study of manufacturing enterprises in the
Boland District Municipality area
It appears from an assessment of the machinery industry that production volumes were
higher than the sales values on a relative basis up to 1998. An oversupply and possible the
importation of machinery from outside South Africa at reduced prices may have been the
cause of the lower sales value. However, it is apparent from 1998 that production volumes
started to decrease and demand started to increase rising the value of sales. Average
annual growth in sales value for the machinery industry was 3,89% over the period, well
below the average annual inflation rate over the same period. The sales values also allude
to relatively strong growth of 8,20% over the period 1999-2001.
The assessment provided above could be summed up by the Department of Trade and
Industry (DTI) in a document "Accelerating Growth And Development: The Contribution Of
An Integrated Manufacturing Strategy". DTI states that the manufacturing industry has
grown slowly over the past five years, with an average increase in output of 1,8%. Three
sectors in particular have shown slow growth: the wage-goods sector (e.g. clothing,
footwear, food), the resource intensive sectors (e.g. metal products) and the capital good
and equipment sector. In contrast, the automotive, chemical, radio, television and
communications equipment sub-sectors have shown exemplary performance.
The document further states that much of the growth in the sectors resulted from increased
exports, as manufacturing exports increase its share of South Africa's total exports.
Manufacturing exports have been increasing more rapidly than overall sales, and this
growing export orientation is valid in all manufacturing sectors. This trend is expected to
continue, due to improved market access into the US, EU and SADC region, as well as
substantial tariff reductions. The task of lowering and simplifying tariffs has been largely
completed. However, Non-Tarriff Barriers (NTBs) still constrain many South African
manufacturers and include efficiency, cost and the capacity for intermodal transfers in the
infrastructure system. Imports have also increased, but at a lower rate than exports.
In general, investment rates in manufacturing are low. Some sub-sectors (e.g. plastic;
leather; television, radio and communications equipment; motor vehicles and parts; paper
and paper products; and basic chemicals) have experienced healthy growth in investment.
There is a significant correlation between industries with high and growing export
orientations and industries with high rates of investment. There is evidence to suggest that
companies are investing primarily in capital equipment and capital and skill intensive
technologies as they prepare themselves for greater involvement in export markets.
The DTI further reports that labour productivity in the manufacturing sector has increased by
26% since 1994, however, the manufacturing sector has consistently reduced employment
numbers, a trend that is expected to continue. There is a growing tendency to outsource and
use subcontractors, as the demand shifts from unskilled to semi-skilled and skilled workers,
who are often in short supply. SMMEs provide 44% of employment in the manufacturing
sector, and the increase of this percentage over the last few years may be as a result of
outsourcing trends. This trend reported by DTI is in line with global manufacturing trends
(see section 3.1), but is not well developed in the BDM area (see section 9).
3.2.1 Confidence in the manufacturing sector of South Africa
Confidence among owners/managers of manufacturing businesses in South Africa is an
important measure of direction for the industry. The Bureau for Economic Research (BER)
indicate in their quarterly manufacturing survey that manufacturing confidence showed an
increasing trend from mid 1998 to the end of 2002. The BER manufacturing report alludes
17
Study of manufacturing enterprises in the
Boland District Municipality area
to several factors that indicate the reasoning behind the confidence expressed by
owners/managers of manufacturing firms. These factors, which have been prevalent over
the past two years, include the following:

Domestic demand conditions have the highest impact on manufacturing business
confidence, while international demand conditions has become a more significant
factor than one year previously;

Exchange rate fluctuations have also influenced the perceptions of confidence among
manufacturing business owners/managers, but to a lesser extent than one year
previously;

Crime and violence and the general political climate have receded over the past two
years as a factor affecting business confidence in the manufacturing sector;

Labour relations and regulatory framework governance have increased and are
stated as important factors of confidence among manufacturing businesses over the
past two years; and

Short-term interest rates have also increased prior to 2003, which also affected
confidence of manufacturing businesses over the past two years.
A brief assessment of confidence among manufacturing businesses in the Western Cape
suggests that entrepreneurs are still upbeat about manufacturing particularly from the turn
of the millennium (2000). This increase came off a dramatic decrease in confidence during
the fourth quarter of 1999 and the first quarter of 2000. From 1997 to the second quarter of
1999 a steady decline in confidence among manufactures was evident in the Western Cape.
An assessment of domestic sales volumes indicate that during 2000 manufactures were
neutral to slightly positive about prospects for growth in domestic sales volumes going
forward. A steady increase in confidence about greater sales volumes arose from a low ebb
in the first quarter of 2001 to the third quarter of 2002. A decline in confidence related to
domestic sales volumes has occurred since the high in the third quarter of 2002.
3.3
Boland District Municipality area
The Boland District Municipality (BDM) area encompasses the five B-municipalities of
Stellenbosch, Witzenberg, Breede Valley, Drakenstein and Breede River/Winelands. An area
known as the District Management Area (DMA) falls directly under the auspices of the BDM.
3.3.1 Primary, secondary and tertiary economic activity
The economy of the BDM area comprises other primary and tertiary activity besides
secondary activity, which includes manufacturing. In order to assess the contribution of the
manufacturing sector to the economy of the BDM area, it is required to contextualise
manufacturing in terms of other categories of economic activity, i.e. primary and tertiary
economic activity. However, limitations with the integration of the data from the areas prior
to the formation of the BDM district makes a comparative trends analysis between sectors
and areas in the BDM unachievable. Consequently, a top-level assessment for the
2001/2002 financial year is provided to place manufacturing activity in the BDM into
perspective.
18
Study of manufacturing enterprises in the
Boland District Municipality area
Data provided by the BDM indicates that the total levies received on turnover in 2001/2002
were R61,02 million which translates to a total turnover for business registered for levies in
the BDM area of R30,5 billion. The potential number of enterprises from which the sample
of businesses was selected for the manufacturing survey contributed approximately a third
or R10,2 billion to the total turnover of enterprises operating in the BDM area.
3.3.2 Manufacturing in the five B-municipal areas of the BDM
The levies collected by the BDM are used to assess the distribution of manufacturing in the
area under the jurisdiction of the BDM. The levies collected during the 2001/2002 financial
year are used as a basis to indicate the magnitude of manufacturing activity as measured by
turnover and remuneration levies collected by the BDM. Due to the changes in municipal
boundaries the BDM has only a complete set of district-wide levy figures from the 2001/2002
financial year. We used the levy data in order to provide a snapshot of the distribution of
manufacturing activity as measured by turnover and remuneration in the BDM area. Table 3
indicates the total remuneration and turnover figures of the five B-municipalities for the
2001/2002 financial year.
Table 3: Distribution of levies obtained from manufacturing enterprises per municipal area
B-Municipality
Remuneration
Turnover
Total
(R)
(R)
(R)
R%tot
20.06%
T%tot
T:R
Breede River/Winelands
148,187,565
590,646,837
738,834,402
79.94% 25.09%
Breede River
116,933,039
1,381,847,988
1,498,781,027
7.80%
Drakenstein
561,189,557
4,058,373,583
4,619,563,140
12.15%
87.85% 13.83%
Stellenbosch
470,072,314
1,559,628,489
2,029,700,803
23.16%
76.84% 30.14%
Witzenberg
59,913,931
957,768,355
1,017,682,286
5.89%
92.20%
94.11%
8.46%
6.26%
Total
1,356,296,406 8,548,265,252
9,904,561,658
R%T is the remuneration expressed as a percentage of total turnover and remuneration costs
T%T is the turnover expressed as a percentage of total turnover and remuneration costs
T:R is the ratio of turnover to labour costs
The latter three columns of Table 3 indicate that the Drakenstein municipal area followed by
Stellenbosch and Breede River/Winelands generated the highest turnover in terms of sales
from manufacturing. The lowest wage bill that is commensurate with the turnover
generated from manufacturing is in the areas of the Breede Valley and Witzenberg
municipalities. However, it is interesting to note that although Drakenstein manufacturing
businesses have the highest turnover and accompanying remuneration, the municipality has
the third lowest labour cost as measured by remuneration as a percentage of realised
turnover. Alternatively, R7,23 is generated as turnover for every R1 of remuneration paid as
wages/salaries to workers in the Drakenstein municipal area.
The most expensive municipality in terms of labour costs is Stellenbosch followed by Breede
River/Winelands. For instance, the ratio of turnover to labour cost in Stellenbosch is R3,31
to R1 and in the Witzenberg municipality the ratio is R15,98 to R1.
19
Study of manufacturing enterprises in the
Boland District Municipality area
3.3.3 Location characteristics of manufacturing enterprises
The location decision of a trading enterprise is different to that of a manufacturing concern.
Various factors such as the source of raw materials, the available labour and transport are
factors impacting on the decision of a manufacturing enterprise to locate to an area. In
contrast the market area of a trading business is more critical in terms of location.
Over and above the traditional base factors considered by manufacturing enterprises when
making a location decision, various other factors, which offer a location advantage in the
BDM area, are also considered by manufacturing enterprises.
Our research suggests that the availability of infrastructure in a town or region has a definite
influence on the decision whether or not to locate or relocate. Many towns in the BDM area
have over time “equipped” themselves to accommodate industrial activity.
All the
municipalities have zoned certain erven and buildings in towns for industrial purposes in
order to accommodate industrial-related activity. All industrial areas within various towns
have provided the required services of water, electricity and sewage.
During the 1970 and 1980’s municipalities offered manufacturing enterprises incentives to
locate to a certain area or town. Location advantages offered to manufacturing enterprises in
the BDM area (at that stage not known as the BDM area) included the following:

Lower rates on land;

Reduction in the cost of land;

Cheaper water and electricity rates;

Transport subsidies provided by Transnet (Spoornet); and

Communication networks were provided at reduced tariffs.
Over an above the provision of incentives to attract manufacturing businesses to an area or
town, the attitude and willingness of local authorities to assist and accommodate industries
also plays a substantial role in the choice of a location. Many local authorities are
accommodating by not introducing additional red tape over and above the regulations and
guidelines which manufacturing enterprises need to adhere too in terms of national and
provincial legislation.
Various industries developed around the production of fruit and wine within the broader BDM
district. Construction companies were established to erect canning factories and cellars and
other enterprises provided equipment required by various related manufacturing industries.
For instance, HG Molenaar was established in Paarl in response to a need for stainless steel,
machinery and tanks. Brenn O’ Kem developed a process for the development of products
which require wine sediment as an input. Consequently, location was influenced by a need
to be close to the source of the raw material in the case of the latter, while HG Molenaar
located in Paarl which may be considered central to their client base and users of their
products.
It is apparent from the research that most manufacturing enterprises located close to their
source of raw materials. The following are examples of manufacturing enterprises that
located in certain towns in close proximity to the base of their raw materials:
20
Study of manufacturing enterprises in the
Boland District Municipality area
Ashton Canning and Langeberg factories located in Ashton in order to be close to the
producers of the fruit used in the canning process. Notwithstanding, Ashton is a small town
with not nearly the scope of infrastructure of larger towns and industrial centres in the BDM
area.
Other enterprises such as Brenn O’ Kem located in areas where families own land or erven
and therefore considered the location from a cost perspective, i.e. in terms of the saving
associated with the price of land and buildings.
The climate in the Worcester, Robertson and Ceres regions is suited for the location of
chicken farms, wine cellars and fruit and vegetable canning factories. The climate is
conducive to the production of agricultural products and farming with chickens due a
reduced risk of infections and crop failure. The infrastructure provided by the N1 and the
proximity to the Cape Town harbour for imports and exports also contributed to locating in a
specific area of the BDM region.
The assessment of location factors provided above alludes to several natural reasons why
certain manufacturing enterprises locate within certain areas or towns in the BDM area.
Other reasons include the following:

Each municipality is required to have a Zoning Plan, Spatial Development
Framework and an Integrated Development Plan which regulates the location of
industries and related activities. Within each of these plans certain legislation has to
be adhered too in terms of location for specific types of manufacturing enterprises
within specified zones.

Once the appropriate area is identified for the location of the manufacturing
enterprise, the local municipal council is required to give the necessary approval.

Manufacturing enterprises that do not “fit” within the preferred location due to
applicable legislation and/or local bylaws and regulations cannot be accommodated.
The location of manufacturing enterprises generally occurs in an orderly manner within
towns situated in the BDM area. Each type of manufacturing enterprise has specific reasons
why they locate in certain areas. However, most of the reasons alluded to above could be
considered as a broad scope of location factors applied by most enterprises that have and
may want to locate to a certain geographical area in the BDM area.
3.3.4. Nature and scope of manufacturing enterprises in the BDM
The manufacturing sector of the BDM area comprises diverse industries. The number of
business operating in the following manufacturing industries in the BDM area and pay
remuneration and/or turnover levies to the BDM are highlighted in the Table 4. The value of
sales per industry as defined for the purposes of this study is also highlighted.
21
Study of manufacturing enterprises in the
Boland District Municipality area
Table 4: Current scope of manufacturing industries in the BDM area with vale of sales
Industry
Food
Tobacco
Textiles and related industries
Wood and related industries
Stationery and related industries
Publishing
Chemicals
Non-metal
Metal
Machine and related industries
Other
Total
No of
enterprises
163
2
44
29
5
31
23
37
86
21
74
515
%
31.65%
0.39%
8.54%
5.63%
0.97%
6.02%
4.47%
7.18%
16.70%
4.08%
14.37%
100.00%
Value of sales
per industry (R)
4,825,498,142
285,942,904
557,842,866
220,321,945
282,595,644
430,621,797
505,016,202
363,508,615
540,377,558
255,958,247
280,581,332
8,548,265,252
%
56.45%
3.35%
6.53%
2.58%
3.31%
5.04%
5.91%
4.25%
6.32%
2.99%
3.28%
100.00%
Note: Enterprises forming part of the above table are considered by the BDM to be active levy paying
businesses. Other non-levying paying businesses or those classified as an inactive are excluded.
Table 4 indicates that food manufacturing enterprises contribute almost a third to the total
number of manufacturing enterprises in the BDM area. Metal related manufacturing activity
represents 16,70% of the operating enterprises in the BDM area. Textile related businesses
contribute 8,54% to the total number of manufacturing businesses in the BDM area. In
terms of the value of sales the food businesses generated 56,45% of the total sales recorded
by manufacturing businesses in the BDM. Also refer to Table 1 for an in depth classification
of manufacturing businesses by municipal area.
3.3.5. Industry specific impacts
Differences occur within specific industry sectors in the BDM area in terms of growth
potential, opportunities and general wellbeing of manufacturing enterprises.
A large number of manufacturing enterprises in the BDM area are dependant on the
agricultural sector. Due to the climate and various other factors such as price movements,
which are not constant from area to area causes changes in growth and profit potential of
manufacturing enterprises reliant on agriculture production.
Many enterprises that operate in the export market have over the past year suffered
financially due to the strengthening of the Rand against the US dollar. Manufacturing
enterprises that operate in the food production and canning industries achieved
negative growth over the past two years. Input costs have not declined in line with the
decline in revenue as a consequence of the strong Rand.
The textile industry has over the past number of years suffered due to the reduction or
abolition of government subsidies and the reduction or elimination of import tariffs on textile
products. The former resulted in the “dumping” of textile products onto the South African
market at the expense of the local textile industry. The consequences of these decisions
have also led to a reduction in the labour force, while a reduction in job opportunities within
the textile sector has resulted in a net loss of jobs.
Our research suggests that the competition factor could be considered as an important
reason for poor growth and limited opportunities for further expansion in the metal
22
Study of manufacturing enterprises in the
Boland District Municipality area
industry. A number of small metal producers and
market and are also able to provide competitive
overheads and cost structures. Lower prices remain
metal producers and consequently the larger metal
smaller metal producer does not absorb these jobs
result within the metal industry.
welding enterprises have entered the
products and services due to lower
a strong barrier to expansion by larger
producers reduce jobs. However, the
and a net loss of opportunities is the
3.3.6. Opportunities in the BDM manufacturing sector
Our research among manufacturing enterprises in the BDM area indicated that limited
opportunities for the entry and/or establishment of new manufacturing enterprises within the
different industry sectors exist in the BDM area. However, discussions with officials of the
planning departments of the B-municipalities and the location queries they receive from
manufacturing enterprises provides some indication of potential opportunities within specific
municipal areas within the BDM region. The queries and interest differs between the
municipalities as a consequence of different location factors which are of importance to
specific manufacturing enterprises.
The following are manufacturing opportunities with specific reference to different municipal
areas in the BDM region:
Stellenbosch / Franschhoek / Klapmuts – Limited opportunities exist for the location
and establishment of manufacturing enterprises within the Stellenbosch / Franschhoek area.
The un-availability of appropriate land within and on the fringes of the town is the primary
reason. In addition, the two primary towns in the Stellenbosch municipal area are not
located on main routes. Klapmuts however, is situated adjacent to the N1 and is more
suited for the location of manufacturing enterprises. Currently, a project is planned to locate
smaller industries to an area earmarked for an industrial park at Klapmuts.
Various applications received from larger manufacturing enterprises were declined due to
limited infrastructure. These included the manufacturing of:

large wine vats and tanks; and

fibre cement.
Paarl / Wellington – The following manufacturing opportunities have been identified
through queries received by the Drakenstein Municipality:

Package material for the fruit and vegetable industry;

Establishment of a fruit and vegetable juice processing facility depending on the
market (e.g. carrot juice);

Fertiliser and related products for the agricultural sector; and

Agriculture related products such as the manufacture of tractors, agricultural
implements and other mechanically related agricultural products.
Worcester – The Breede Valley Municipality received queries with regard to the following
manufacturing activities:

Sawmill;
23
Study of manufacturing enterprises in the
Boland District Municipality area

Packaging material; and

Vehicle assembly facility.
Ceres – A query was received from a manufacturer interested in establishing a sawmill and
producing wooden poles in the area of the Witzenberg Municipality.
Robertson – The Breede River/Winelands Municipality received queries from a metal
manufacturer with specific reference to the production of tin cans for canning industry.
The smaller towns of the BDM area do generally not receive queries about the establishment
of plants for manufacturing or the introduction of manufacturing activities. The larger towns
mentioned above provide more appropriate location opportunities. However, the larger
towns are located and are accessible from smaller surrounding towns within the different
municipal areas.
Opportunities are not only confined to the manufacturing sector, but the existence of the
sector offers down and upstream opportunities for the services sector. The following are
several services required by manufacturing enterprises included in the survey:

A service from an enterprise that is able to use an X-ray machine to evaluate
stainless steel welding and identify weakened spots;

A service which could assist manufacturing enterprises to asses the economic impact
of their location in a specific area and ensure that the appropriate location is
selected; and

Rail transport to and from the Cape Town harbour is required for manufacturing
businesses operating in the BDM area.
An assessment of the services sector is beyond the scope of this study, but will form part of
a separate study for service delivery and design.
4.
Characteristics of manufacturing
4.1
Scope of enterprises in the BDM-area
Our assessment suggests that large and small businesses differ in several respects with
specific reference to the following:

Approach towards exports;

Effect of the exchange rate;

Approach to management;

Management of labour; and

Issues of marketing.
Over and above the differences in the manner in which large and small businesses address
the above issues, there is some commonality in terms of the location in which they operate,
24
Study of manufacturing enterprises in the
Boland District Municipality area
etc. In addition, several macro-related aspects, which also impact on both large and small
businesses, include the following:

The general deterioration of the South African economy over the last three to five
years;

The general labour situation in South Africa;

The strengthening of the Rand;

The general condition of agriculture in South Africa and especially in the BDM area;

The deterioration in the provision of services, and

The approach of enterprises towards the provision of services.
The above factors will be discussed and contextualised in more detail in the appropriate
sections that follow.
4.1.1 Turnover
As already mentioned in section 2.1.2, turnover was selected as one of the stratification
variables for the selection of businesses that formed part of the sample. From the data it is
clear that the turnovers are spread fairly normally between large, medium and small
enterprises. Any divergence, deviating from a normal distribution, would typically occur
when an enterprise has registered a major increase or decrease in turnover during the
previous year, which differs from the existing information supplied by the BDM. The highest
turnover of a business included in the sample was R500 million, while the turnover of the
smallest business in the sample was approximately R120 000 per annum.
The five largest businesses in terms of turnover (i.e. more than R100 million per annum)
were SAD, Ashton Canning, Paarl Media, Mr Farmer and Cape Wrappers. A total of six
businesses have a turnover of between R15 million and R80 million, while eighteen are in the
range of R1 million to R9 million. A further six businesses in the sample have a turnover of
less than R1 million per annum.
4.1.2 Operating years in the BDM-area
Enterprises included in the sample have been actively operating in the BDM-area on average
for more than forty years. It is clear from the interviews conducted that the majority of
respondents are able to discuss their respective enterprises from a position of authority and
experience because they have been operating in the BDM area for so many years. For
instance, when they discuss the deterioration of services in the area, credence has to be
given to their view since they have become accustomed to and observed levels of standards
over many years while operating in their current location.
Table 5 provides a summary of key characteristics of enterprises that formed part of the
sample.
25
Study of manufacturing enterprises in the
Boland District Municipality area
Table 5: Characteristics of enterprises that formed part of the research sample
Business
No.
1
Name of Business
Type of Business
Industry
Fruit Canning
Food
2
3
4
Ashton Canning
Company
Ashton Abattoir
Ashton Slaghuis
JP During
Abattoir /meat processing
Meat Processing
Furniture
5
Robertson skrynwerkers
Wood and wood products
6
7
Be Nice
AL De Jong Drukpers
Clothing
Press/printing
8
9
Henpig
Worcester Vervaardigers
Silage
Paper rolls
10
Implements and repairs
11
Boland Ingenieurs
Trekkerdienste
Pionier Drukkery
Food
Food
Wood & Wood
products
Wood & Wood
products
Textiles
Publishing &
printing
Food
Wood & Wood
products
Metal
12
Rotix Africa Industries
13
Koose Tricycles
Off Road trailers +
Irrigation equipment
3-wheel bicycles
14
15
Goudini staal
Boland Kartonne
Steelworks
Manufactures of cardboard
16
Paarl Media
Printing business
en
Press/printing
Publishing &
printing
Metal
Special purpose
machines
Metal
Wood & Wood
products
Publishing &
printing
26
Municipal Area
Operatin
Operating within
g
BDM
outside
BDM
Quantity
Area
Quantity
Turnover
per annum
Operating
years in
BDM
400 000 000
54
1
1
0
3 700 000
2 000 000
7
38
1
1
1
1
0
0
600 000
17
1
1
0
2 500 000
25
1
1
0
500 000
12
1
1
0
4 000 000
85
1
1
0
2 800 000
30
1
1
0
450 000
8
1
2
0
5 000 000
50
1
2
0
1 500 000
100
1
2
0
4 000 000
10
1
2
0
120 000
12
1
2
0
2 500 000
22
1
2
0
7 500 000
8
1
2
0
350 000 000
99
2
3
0
Study of manufacturing enterprises in the
Boland District Municipality area
Business
No.
Name of Business
Type of Business
17
H.G. Molenaar
18
Cape Wrappers
19
20
21
22
23
SAD
(Pioneer
Food
Group)
Prestige Auto Radiators
Nappy Weave
Mr Farmer
Stellenbosch Orthopaedic
24
25
26
Proto Africa
Comar International
Glasschem
4 x 4 equipment
Stainless steel products
Scientific glass equipment
27
28
29
Absolute Absolutions
Koelenhof Wynkelder
Stainless Tech
30
31
32
Brenn-O-Kem
Ceres Fertigation
Du Toit Houtnywerheid
Mobile toilets
Wine manufacturing
Stainless steel products for
food and wine industry
Chemicals for wineries
Fertiliser
Furniture and pallets
33
Tarzan Skoenfabriek
Shoes
34
35
Tulbach Bricks
Chrisann Meubels
Building bricks
Built-in cupboards, wooden
toys
Industry
Municipal Area
Operating
Operating within
outside
BDM
BDM
Quantity
Area
Quantity
Turnover
per annum
Operating
years in
BDM
50 000 000
55
3
3
0
100 000 000
54
1
3
0
500 000 000
96
4
3
10
Stainless steel and other
machinery
Light weight wrapping
paper
Dried fruit and nuts
Metal
Manufacturing of radiators
Reusable nappies
Clothing
Orthopaedic equipment
Metal
Textile
Textile
Special purpose
machinery/
equipment
Metal
Metal
Electronic
appliances
Non-metal
Food
Metal
1 500 000
5 500 000
130 000 000
20
3
53
1
1
1
3
3
4
0
0
0
600 000
5
1
4
0
1 000 000
6 000 000
6
20
1
2
4
4
0
0
36 000 000
31
1
4
0
5 000 000
20 000 000
9
58
1
1
4
4
0
0
7 500 000
9
1
4
0
Chemicals
Chemicals
Wood & Wood
products
Leather & food
wear
Household
Wood & Wood
products
60 000 000
80 000 000
40
16
3
1
5
5
0
0
9 000 000
55
1
5
0
15 000 000
65
1
5
0
4 500 000
34
1
5
0
800 000
10
1
5
0
Wood & Wood
products
Food
27
Study of manufacturing enterprises in the
Boland District Municipality area
The oldest enterprise in the area is Pioneer Printers in Worcester that will be celebrating its
centenary in 2004. Although the Pioneer School is still the main owner, a number of factors
led to changes in the ownership of several divisions (see case study on Pioneer Printers at
the end of the report). In contrast, Nappy Weave is a business that has been actively
operating in the BDM area for only three years, which make it the business with the shortest
period of exposure to doing business in the region.
Many of the businesses have been in business for several decades, but have adapted their
business structures during the past 10 to 15 years. Several examples include SAD, Brenn-oKem, Ashton Abattoir, Paarl Media and Koelenhof Wines. Some of the more important
reasons for adapting the business structure emanate from changes in tax legislation and
management due to takeovers or mergers.
Only five of the businesses forming part of the research sample have other similar facilities
within the BDM area, while only SAD has facilities outside the BDM area. Notwithstanding,
several businesses, such as Pioneer Printers, located in the BDM area have facilities that are
unique in South Africa.
4.1.3 Products manufactured within the BDM-area
As mentioned previously, the manufacturing industry is diverse as can be seen from the
range of products listed in Table 6. The product list represents the main products that are
manufactured by the businesses included in the sample. A variety of products are produced
in the BDM area, which range from well-known food products such as dried fruit and nuts to
lesser-known products such as Oxiprovin, an antioxidant preparation intended to enhance
youthfulness and appearance. The latter is a new product on the market that is produced
from 100% pure grape seed extract.
Metal and metal products are very well known in the area and range from materials related
to construction to more sophisticated stainless steel machines for the food, fruit and wine
industry. Several food products are manufactured of which wine, meat and meat-related
products record significant demand.
Table 6: Scope of primary products currently manufactured in BDM area
Agricultural and other clothing for the work environment
Built-in cupboards
Calcium tartrate
Chemical glass instruments
Clothing like sweaters, school wear, etc.
Cream of tartar
Different types of wood furniture
Dried fruit and nuts
Face cloths
Food packing material
General engineering parts
Heat exchangers/radiators
Labelling machines
Meat and meat products
Mobile toilets
Off road camping trailers and equipment
Organic fertiliser
28
Orthopaedic products like artificial arms, legs, etc.
Oxiprovin
Pasteurizers
Printing, offset printing, brail printing and magazines
Products for the food industry like bottling equipment
Reusable nappies
Roof racks and other 4 x 4 accessories
Rotary cookers and coolers
Scientific glass instruments
Self propelled irrigation systems
Shakers
Shoes and shoe related products
Silage
Special camping equipment on vehicles
Stainless steel products for food and wine industry
Steel constructions
Wine
Study of manufacturing enterprises in the
Boland District Municipality area
4.1.4 Number of employees
It is apparent that a clear trend exists between the turnover of an enterprise and the
number of employees. SAD employs the highest number of permanent labourers. Other
organisations active in agriculture, such as Ashton Canning, has around 200 permanent
workers, but may employ up to 3 000 seasonal workers during harvest time. This type of
temporary employment is a serious socio-economic problem for the labourers and the
communities in which they live (please see more detail regarding this in section 6).
The ratio between coloured, black, white and other employees is 57:32:10:1 for the sample
of enterprises included in the survey. Various respondents indicated that they are
addressing this ratio in favour of coloured and black employees. Several respondents
commented that these changes should and cannot be addressed hastily since it needs to be
done judiciously in order to minimise the impact on the business. Approximately 70% of the
businesses surveyed in the BDM area expressed concern that legislators should be exposed
more intensively to the situation on ground level to become aware of and foresee the impact
of overhasty legislative changes and decisions (see section 6 for further discussion on wages
and related legislation).
5.
5.1
Ownership
Ownership trends and issues
The type of enterprise ownership plays an important role within the present business
environment, bearing in mind future expansion, the existing tax system, as well as the
continued existence of the enterprise over many generations. Table 7 provides an indication
of the type of business ownership, co-ownership in the form of black empowerment,
representation of blacks in business, and opportunities for black economic empowerment for
businesses in the survey sample.
Table 7 indicates that ownership is spread evenly between a sole proprietorship,
partnerships, close corporations and private companies. None of the businesses included in
the survey were registered as a public company, while only one business was operated as a
Trust.
None of the surveyed businesses indicate co-ownership in the form of black empowerment.
However, most of the respondents (84,8%) are aware of the existence of, and need for
black empowerment and of the potential opportunities for the further development of the
enterprise. However, smaller enterprises indicated that black empowerment was currently
not regarded as a priority for the following reasons:

Poor economic conditions are forcing smaller enterprises to operate on a day-to-day
basis;

A perception exists that various black empowerment groups do not have sufficient
training to serve at management or board level;

Black empowerment groups first need to acquire certain industry expertise in order
to become successful within the business; and

Smaller enterprises do not have the potential to accommodate black empowerment
groups due to limited market potential.
29
Study of manufacturing enterprises in the
Boland District Municipality area
Table 7: Ownership, co-ownership, representation and appointment of empowerment groups in the manufacturing sector
Business
number
Type of Ownership
Co-ownership in the form of
Black Empowerment
Representation of Blacks
in the business
1
Private Company
No but looking
Nearly in line*
2
Sole proprietorship
No
Not inline
3
Sole proprietorship
No
Not inline
4
Partnership
No
Not inline
5
Partnership
No
Not inline
6
Sole Proprietorship
No
Not inline
7
Private Company
No
Not inline
8
Sole Proprietorship
No
Nearly inline
9
Close Corporation
No
Not inline
10
Private Company
No
Nearly inline
11
Private Company
No
Not inline
12
Close Corporation
No
Nearly inline
13
Close Corporation
No
Not inline
14
Sole Proprietorship
No
Nearly inline
15
Close Corporation
No
Nearly inline
16
Private Company
No
Nearly inline
17
Close Corporation
No
Not inline
18
Public Company
No but looking
Nearly inline
19
Private Company
Working on a structure
Nearly inline
20
Sole Proprietorship
No
Not inline
21
Close Corporation
No
Nearly inline
22
Trust
No
Nearly inline
23
Private Company
No but looking
Nearly inline
24
Partnership
No
Not inline
25
Close Corporation
No
Nearly inline
26
Private Company
No
Nearly inline
27
Close Corporation
No
Nearly inline
28
Close Corporation
No
Nearly inline
29
Close Corporation
No
Not inline
30
Private Company
Busy with strategy
Nearly inline
31
Close Corporation
No
Not inline
32
Sole Proprietorship
No
Not inline
33
Private Company
No
Nearly inline
34
Close Corporation
No
Not inline
35
Sole Proprietorship
No
Not inline
* Inline implies representation of employees based on the distribution of the population of the Western Cape province.
30
Opportunities for Black
Economic Empowerment
Yes
No
No
No
No
No
Yes
No
No
No
Yes
No
No
No
No
Yes
No
Yes
Yes
No
Yes
Yes
Yes
No
No
Yes
Yes
No
No
Yes
No
No
No
No
No
Study of manufacturing enterprises in the
Boland District Municipality area
5.2
Ownership issues
Affirmative action, diversity and black empowerment are words often heard during
discussions between business people.
However, an apparent apathy exists among the
respondents in this survey due to an apparent lack of understanding the before mentioned
concepts, or the effort that would be required to accommodate changes associated with
implementation of affirmative action policies or black economic empowerment ventures.
Businesses operating in the BDM regard affirmative action and black empowerment
processes as problematic due to the following:

Hiring of new affirmative action employees;

Promoting existing employees;

Communication on different levels with employees; and

Delegation of responsibility to affirmative employees in organisations.
Business owners/managers suggest that these issues are not easily comprehendible neither
is implementation thereof a trivial task. Among the larger enterprises, four indicated that
they were planning and restructuring with a view to accommodating black empowerment
groups that would bolster the businesses (see Table 7). In general (with the exception of
25% of the smaller enterprises), black empowerment was not deemed as a threat, but
rather as a process that should not be initiated in a haphazard manner. Business managers
believe that black empowerment would be beneficial for their business in the following ways:

A business could enter new markets and open new outlets;

Additional capital for expansions could be acquired; and

New and appropriate suppliers of raw materials and other inputs could be sourced.
From the above it is clear that there is a definite need among enterprises for assistance in
terms of the most appropriate approach to achieve the best possible fit between black
empowerment and the specific structure and culture of an enterprises. Experts in this field
could assist to accelerate the process where both the advantages and disadvantages of coownership would be clear to all parties. In this manner the most appropriate options to
engage black empowerment could be selected by an enterprises that is tailored to their
unique circumstances. Business managers in the BDM area emphasised the following needs
in order to address problems with ownership and the introduction of black empowerment,
i.e.:

Expert advice about the most appropriate business structure that would ensure an
adequate fit between the existing business and the introduction of black
empowerment venturing;

Updated advice about legislation and the subsequent impact on the business; and

Information about empowerment trends and diversity issues.
The BDM should assess these issues and consider alternatives to enhance black
empowerment and co-ownership that would contribute to the development of the local
economy and create jobs in each region of the District.
31
Study of manufacturing enterprises in the
Boland District Municipality area
6.
6.1
Management
Management trends and issues
The term manager, for the purposes of this study, is used to include anyone who performs
the four fundamental functions of management, namely planning, organising, leading and
controlling. The four managerial functions are performed by the owner/manager in the
smaller enterprises, while managers are responsible for different departments in the larger
enterprises. They work at different levels and have to meet different requirements.
The levels of training and skills for managers in the larger enterprises that formed part of the
sample were of exemplary quality. Several of these managers not only have a business
management degree, but also an engineering degree and are therefore able to contribute
and impart technical knowledge as part of their management task.
Several of the small enterprise owners did not have any management qualifications, but had
some technical qualification. Most of these owners took a retirement package at an early
age to work for him/herself, or was retrenched with a retirement package. Various owners
of smaller manufacturing businesses in the region were forced to start his/her own business
in order to survive and support their families, but without the expertise to operate and
manage their businesses effectively.
The abovementioned implies that there is scope for small business managers to attain a
business management qualification to enable them to manage their businesses and
employees more effectively and ensure their business becomes more profitable and
competitive. All the smaller enterprise owners in the region expressed a need for
management and human resource training and development. The larger enterprises also
expressed a need for this type of training and development, as well as other training
requirements (see further detail on training needs in section 7).
6.2
Management problems
In South Africa, both a need for and an interest in managing diversity and a multicultural
labour force exists. This country has been described as a radical pluralist society where race
and ethnicity are the most visible dimensions of its diversity. There are numerous cultural
differences between ethnic groups, such as whites, coloureds, blacks and Asians. Although
these groups share a common history, each group maintains certain uniqueness. However,
the imbalances between the different ethnic groups in South Africa result in managerial and
economic imbalances that needs to be managed. In this research study, three categories of
management problems were identified in the workplace that confirms an urgent need for
research and education in this regard:

The first issue relates to the debate on managerial and economic transformation,
entailing a quest for a new management philosophy. Since the environment of
organisations in both developed and developing countries is different from the South
African perspective, management theories and practices from the developed world
may have only limited applicability in the context of a specific type of developing
country such as South Africa.
32
Study of manufacturing enterprises in the
Boland District Municipality area

The second issue refers to the imbalances of employment within South African
enterprises. The question of affirmative action forms an integral part of any policy or
strategy on diversity management. In the BDM this employment policy is being
developed and to a large extent implemented by the larger enterprises to ensure that
they reflect the demographic diversity of the country. The owners of the smaller
enterprises find it difficult to reflect diversity in their businesses due to a need for
specialist assistance and the small number of employees.

The third issue covers the question of black empowerment. External pressure for the
transfer of economic power is evident, but it is not a trivial task. This is also a
management problem confronting all managers/owners and the question of how they
are dealing with this and the progress made thus far are further discussed in
section 7.
Other types of management problems that exist among three quarters of the businesses
include the following:

Double standards are applied in the business industry in terms of hygiene factors and
drainage systems. Within the same food industry or environment, the standard for
food processing differs in terms of hygienic equipment and building specifications of
the manufacturing businesses.

Transport is also an issue that must be well managed due to the cost involved. All
the larger enterprises have a need for railway transport to and from the BDM area to
urban centres such as Cape Town and specifically the harbour. The following reasons
indicate the preference among businesses for railway transport over road transport:

6.3

The larger capacity makes loading easier;

Shipments are taken directly into the harbour;

Charges per ton are less; and

Delivery speed is not that important for a large number of manufactured
goods.
Businesses that export their goods have difficulties in managing the exchange rate.
The management of risk appears to be a problem due to the necessity for entering
into term contracts and having to use forward cover. Although this assists with the
management of risk, it does effectively address the issue of fluctuating exchange
rates.
Addressing industry related management problems
Addressing the abovementioned management problems and shortcomings represent an
urgent need among virtually all the respondents in this study. Specific needs that should be
addressed include the following:

Develop theories and policies as a guide to the implementation of tailor-made
management practices among manufacturing enterprises in the BDM area;

How to manage diversity within the unique circumstances of the BDM-area;
33
Study of manufacturing enterprises in the
Boland District Municipality area

How to deal with economic empowerment in the most appropriate manner that also
serves the interest of the employer, employee and other stakeholders such as
businesses, the region and country;

Look at the standardisation of different standards related to hygiene, drainage and
other regulations for different types of industries. Different standard should not be
set by a local health inspector, but minimum standards should be implemented to
which all businesses must adhere.
The management problems referred to above are on a macro scale. Institutions need to
obtain a thorough understanding of the problems and exhibit practical experience in order to
guide such enterprises and their managers towards practical and implementable solutions.
7.
7.1
Labour
Labour issues and trends
The concern for economic and managerial empowerment reflects the prevailing commitment
to equal opportunity for all in South Africa. It also reflects the challenges and opportunities
created by South Africa’s cultural diversity. Such diversity in the workplace is a significant
factor since 60% of the people who enter the labour market represent diverse cultures in
respect of gender, language and background. The abovementioned signifies that the way to
manage this cultural diversity is to follow a new management approach. Although the BDMarea is not representative of South Africa, the management of labour and diversity in the
region will be similar to principles that apply to the country as a whole. There is consensus
among respondents regarding some key features, such as a lean, flat, flexible team-based
orientation for managing the operations of an enterprise.
Table 8 indicates both the labour situation of the respondents included in the study, and the
correlation between labour and turnover. Most of the respondents did not exchange labour
for modern machines, but see equipment and machines as an aid to assist employees to
work more effectively.
The workforce employed by the 35 respondents totals 5872, with 97% of the total labour
force originating from local areas. Almost all the employers know their employees, their
living conditions and traditional values, and regard their employees as important and not a
mere number on a payroll. The respondents made the following positive remarks:

Labour legislation has not impacted on industries in the BDM area to the same extent
when compared to similar industries in urban areas, due to the employer-employee
relationship that exists among manufacturing businesses in the BDM area.

Only 20% of employees in the businesses surveyed are members of a union. There
appears to be a perception that the unions cannot compete with their employers in
terms of care, uplifting their living standards and understanding their personal
circumstances.

No annual wage negotiations are required due to above average (in terms of inflation
rate) wage increases over the past 10 years.
Businesses would prefer that government should be less prescriptive and belief that
employer-employee problems could adequately be addressed within the context of the
34
Study of manufacturing enterprises in the
Boland District Municipality area
existing labour legislation. The role of government, which includes local governments,
should focus on the creation of jobs for the unemployed and maintain the infrastructure in
order to enhance productivity, which in turn will contribute to growth in the local economies
of the BDM area.
7.2
Specific labour problems
Businesses encounter various labour related problems, which include the following:

The knowledge and skills levels of the unskilled labour force remain very low;

Training facilities are lacking, or those that do exist are not of an acceptable standard
to provide skills development training for businesses operating, for instance in the
chemical industry;

The people from the former homelands have difficulty when having to converse in
either English or Afrikaans. Consequently, effective communication represents a
sizeable problem to businesses;

Productivity of employees in terms of actual outputs and the commensurate wages
earned for the work is below acceptable standards;

A work ethic whereby people have pride in their jobs is lacking. A culture of
adhering to the minimum work requirement and doing nothing more is also apparent
among employees;

Many unskilled persons do not seem to understand the operations of a business’s
internal and external environment, and hence do not know where they fit into the
wider economic system.

A limited number of skilled workers live in rural areas;

The practice of borrowing money from cash loans is prevalent among low-income
employees. However, repercussions invariably occur due to apathy with regard to
repayment of the loan.
35
Study of manufacturing enterprises in the
Boland District Municipality area
Table 8: Labour assessment of businesses forming part of the sample
Business
No.
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
Total
Number of employees
Blacks
1 327
2
1
1
14
2
5
1
8
10
28
15
32
282
1
3
1
3
1
1
1
25
6
2
10
3
3
1 788
Coloured
1 808
25
7
5
9
3
7
6
2
11
17
5
1
12
22
151
100
35
837
8
21
15
3
3
14
4
6
12
71
8
7
55
9
3 299
White
45
7
3
2
5
1
10
2
1
5
10
4
1
4
5
82
115
42
280
3
1
1
3
2
2
5
5
5
6
14
6
4
5
3
2
691
Other
90
2
1
1
94
Permanency of employees
Total
3 270
34
11
7
14
4
18
22
5
21
27
10
2
24
37
263
230
110
1 400
12
25
16
3
6
8
20
10
12
18
110
20
13
70
15
5
5 872
Seasonality
3 000
1
10
1
4
10
1
10
4
3 038
37
Permanent
220
34
11
7
14
4
18
10
5
18
27
10
12
27
243
230
110
1 400
12
25
16
3
6
8
20
10
12
18
30
16
10
60
15
5
2 668
Part time
50
2
3
2
8
20
70
3
10
166
Percentage of
active union
members
40,5
6
9
11.5
18
24
26
33
32
19
24.0
29
27
8
12
20
17
17
5
23
30
30
14
40
Average = 21.54%
Percentage of skilled to
unskilled workers
Skilled %
Unskilled %
11.9
88.1
20.6
79.4
63.6
36.4
100.0
0.0
85.7
14.3
100.0
0.0
66.7
33.3
36.4
63.6
80.0
20.0
81.0
19.0
85.2
14.8
90.0
10.0
100.0
58.3
41.17
70.3
29.7
66.5
33.5
84.5
15.5
68.2
31.8
87.0
13.0
92.0
8.0
80.0
20.0
96.0
10.0
100
100.0
0.0
75.0
25.0
85.0
15.0
90.0
10.0
83.0
17.0
89.0
11.0
73.0
27.0
65.0
35.0
84.5
15.5
78.5
21.5
80.0
20.0
80.0
20.0
Study of manufacturing enterprises in the
Boland District Municipality area
7.3
Addressing sector related labour problems
Respondents stated that the more important labour problems in the BDM area stated above,
should be addressed effectively by considering among others the following:
8.
8.1

Conduct a research study that covers the expectations of and the skill levels required
by manufacturing businesses in the BDM area;

Use existing unutilised buildings or do subsidised outsourcing to train employees in
order to address the identified needs in section 7.2;

Specific training needs required by more than two thirds of the respondents include:

Appropriate language training to enhance communication levels;

Work ethics and instilling pride among workers;

Life skills;

Budgeting and spending of money (personal finance); and

Specific skills related to communication, relationships with other people and
etiquette.

Migration patterns should be studied and a workable plan should be compiled to
assist all the parties in the process of dealing with informal settlements. For
example, the servicing of informal settlements is a substantial capital outlay for local
government and ultimately, the taxpayer pays for these services. Respondents
postulate whether or not settlements should be developed at strategic places within
the different municipal areas to provide labour to a larger area;

Cultural differences appear to be a problem for businesses in the BDM area due to
the changing historical mixes of employees. For example, traditionally only a few
black people were employed in the Western Cape, but more black people have
migrated to the BDM area and their culture differs significantly from that of coloured
or white employees.
Consumer and supplier markets
Market trends and issues
The market for the products or services of any business comprises both consumers and
other businesses. If the relevant business is to achieve any success with the implementation
of its marketing strategy, management should be informed about all aspects of consumer
needs, purchasing power and purchasing behaviour. This requirement is also endorsed by
the developing trend in the international environment of enhanced consumer awareness (see
section 3.1). Management should also realise that these aspects are influenced directly by
the variables in the macro-environment. For example, the demographic trends and also the
purchasing power of the black inhabitants of the BDM area, have changed considerably over
the past few years.
Among the enterprises forming part of the research, 27% are active in the export market
(see Table 9). The three largest exporters are Ashton Canning (90% of all production), SAD
(60%) and Brenn-o-Kem (52%). The other businesses export between 1% and 20% of their
manufactured production. The strong value of the Rand against the currencies of South
Africa's main trading partners exerts additional pressure on the larger enterprises in terms of
revenues and earnings, as more than 50% of their total manufactured products is exported.
38
Study of manufacturing enterprises in the
Boland District Municipality area
Table 9: Market characteristics of businesses forming part of the sample
Level of satisfaction
with location
Primary market destinations as %
Business
No.
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
Price issues
Local
In BDM
Western
Cape
South
Africa
International
(%)
Advantages
in BDM
0
55
75
70
50
60
30
50
5
10
20
10
5
100
80
0
5
5
1
80
1
2
50
70
30
1
5
5
1
3
70
80
1
90
80
1
45
25
20
40
25
50
50
50
50
30
15
15
10
10
20
10
9
20
9
6
10
35
60
30
15
45
9
15
20
10
25
10
20
2
0
0
10
10
15
20
45
40
30
40
30
10
80
50
20
10
20
10
40
5
10
55
30
5
5
25
10
10
45
-
7
0
0
20
35
50
10
15
55
20
70
80
13
30
45
75
5
21
-
90
0
0
10
10
60
2
1
20
0
10
52
8
-
90
100
100
60
70
100
100
100
100
100
90
100
100
100
100
100
80
90
90
90
80
70
80
100
100
100
100
100
100
100
80
85
100
100
100
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
39
Advantages
outside
BDM
No
No
No
No
No
No
No
No
No
No
Yes
No
No
No
No
No
Yes
Yes
Yes
No
Yes
Yes
Yes
No
No
No
No
No
No
No
No
No
No
No
No
Barriers for
businesses
to enter
BDM
Barriers to
exit
Joint
ventures
and
alliances
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
No
No
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
No
No
Yes
No
No
No
No
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
No
No
No
No
No
No
No
No
No
Yes
No
No
No
No
Yes
No
No
Yes
No
No
No
No
No
No
No
No
Yes
Yes
No
No
No
No
No
No
No
Study of the manufacturing sector in the
Boland District Municipality
Destination markets within South Africa in particular and the SADC to a limited extent, are
too small to influence the export policy of the larger enterprises. Reduction in revenues from
exports has detrimental effects on the employment situation due to the link between
revenues and rates of employment. Ashton Canning for instance, only employed 10% of its
normal complement of seasonal workers during the fruit-canning season in 2003/2004. This
impact will reflect on the local economy of a small town such as Ashton during 2004, with
increasing socio-economic problems.
The total output of the smaller enterprises is destined solely for the local market or other
areas in the BDM district. Export markets remain part of the vision for many smaller
manufacturing enterprises operating in the BDM area. Lack of capital for expansion and the
required capacity to achieve critical mass for the export market are limiting factors.
However, several of the enterprises achieve an acceptable production output that serves the
needs of the business. As a consequence, these businesses did not expand during the past
three to five years, and made no provision to do so in the medium to long term.
Only 20% of the respondents have expanded their business over the past three to five years.
Expansion implies either a further differentiation of the existing range of manufactured
products, or the development of a new facility for manufacturing new products. Decisions to
expand depend on the development of new markets or the need for a total new product in
the existing markets. Due to the limited local market potential for most of the products
manufactured in the BDM area, businesses believe that expansion could only occur by
adopting the following strategies:

Gain market share from competitors in South Africa; and

Expand into new international markets.
Expansion is the vision for most of the manufacturers. However, a lack of capital and/or
know-how to expand into the envisaged markets appears to be lacking. Competition in
industries such as the metal industry is strong. Retrenched persons start businesses to
survive and compete with existing businesses. Some of the other businesses, such as Brenno-Kem, indicated that they did not have direct competition from other manufacturers in
South Africa, but the relaxation of import duties on certain products introduced competition
from international manufacturers (see also sections 10 and 11).
8.2
Market and marketing problems
Many of the managers of the smaller businesses experience the following problems:

They do not have the time to gather necessary information on current trends;

They do not have the knowledge of how and where to obtain statistical information
and how to interpret it;

They lack the know-how regarding the interpretation of trends and the impact on
their specific industry and enterprises;

The long period of isolation gave businesses a “false sense of security” by the
previous government;

The rate of change in industries such as technology is so rapid that it is extremely
difficult to decide whether or not to remain up to date and competitive;

A lack of know-how to expand or explore new markets especially at the international
level;
40
Study of the manufacturing sector in the
Boland District Municipality

They do not have the capital to expand into new markets and to explore the
implementation of marketing strategies; and

A lack of knowledge to establish a database of suppliers and markets.
Market and marketing problems experienced by the larger businesses are as follows:
 International marketing is difficult due to the fluctuating value of the Rand;
 Local markets are too small with no expansion potential;
 Smaller businesses with lower overheads pose a significant threat in terms of
competition for the larger businesses;
 Imported sub-standard substitute products enter the market; many local businesses
buy these cheaper products due to the high input costs of local raw materials;
 The quality of products from local suppliers have deteriorated during the last seven to
ten years, resulting in an ongoing search for new or better suppliers;
 Businesses in the export arena have the know-how to export products, but suggest
that no adequate export incentives are forthcoming from any institution at local or
central government (see also section 10 for further information).
Despite the negative experiences from respondents and the problems they experienced with
markets and marketing, many of these businesses remained in existence in the BDM area for
ten years and longer.
Barriers to entry exist for most of the industries in the BDM area. Only four respondents
involved in the manufacture of paper rolls, farming implements, bricks for building or
carpentry, indicated that they do not believe that the industries in which they operate have
significant barriers to entry. All the other respondents suggested various barriers that would
curtail the entry and location of new businesses into the district.
The following barriers to entry were mentioned:

New entrants need substantial amounts of fixed and working capital to enter a
specific industry in the manufacturing sector in the BDM area;

The local markets are too small to justify the capital outlay;

Raw materials and other inputs like labour costs are prohibitive for businesses
entering the manufacturing sector;

The seasonality of the agricultural market, which is relatively large in the BDM area,
has a significant effect and is a recognisable barrier;

A shortage of skilled workers in the different industries makes it impossible to start
and effectively produce a quality product; and

The length of existence among many businesses in the BDM area is tantamount to
the quality and standard of manufactured products.
Smaller players in the printing industry could face increased competition from new entrants
due to the technology that makes a start up printing operation cheaper. Computer
technology replaces many of the old and expensive machines currently being used by
smaller printers in the printing process. The larger printers in the BDM area are leaders and
remain competitive with established markets, which curtail entry by new entrants.
41
Study of the manufacturing sector in the
Boland District Municipality
The following barriers to exit were mentioned by respondents:

High investment and no buyers for the business to recoup the investment;

No other opportunities in South Africa as avenues for employment;

Specialisation in one type of trade, specifically among owners of smaller enterprises,
generally prevents them from acquiring the skills to do anything else; and

An enterprise may be part of family business that has existed for decades.
The abovementioned barriers to entry and exit suggest many manufacturing businesses that
have been operating in the BDM area for more than 40 years on average have survived the
competition or have managed to absorb new entrants. The positive effect of the barriers to
entry is that expertise is retained, a variety and quality of products and services is
maintained and a stable manufacturing sector is prevalent in the BDM area. A negative
effect of the barriers to entry is that no new expertise or new types of businesses enter the
sector, which could lead to stagnation in the manufacturing industry.
8.3
Addressing industry related market and marketing problems
Information regarding markets and market trends and the availability of such information
represents an important need among respondents. The BDM could deliver the following
services online for the businesses in this area:

Information about market trends of the different industries updated on a monthly
basis;

Statistical results and their interpretation with specific reference to trends, market
changes, exchange rate changes, etc;

A database that can assist suppliers of products to business in the manufacturing
sector of the BDM area and linking businesses in the BDM to potential new markets
for the different products produced in the area, could be considered.

Support market research that assesses the need for products and services produced
and delivered within the BDM area and then lobby people/businesses from outside to
locate to the area. Respondents believe new businesses can be lured to the BDM
area by introducing incentives such as the following:

-
Lower rates and taxes for the first three years;
-
A subsidy for job creation; and
-
A soft loan to buy land and plant to commence production.
Create a business broking agency for strategic important businesses in the area in
order to assist people to sell their businesses to the right person/business. In this
way an attempt is made to secure continued production of strategically important
products and services in the BDM area.
42
Study of the manufacturing sector in the
Boland District Municipality
9.
9.1
Industry co-operation
Industry co-operation trends and issues
Larger manufacturing enterprises in BDM area are have become accustomed to the
complexities global environment. However most of the businesses are familiar with the local
and national market and need to understand the basis of trade and co-operation prior to
entering the export market. Managers of enterprises operating in the international
marketplace have to deal with a much broader set of environmental forces. A number of
respondents in the study displayed a lack of knowledge regarding the export market, while
others also acknowledged that the network strategies within their businesses were not in
place before they embarked on the international circuit.
By using strategic alliances and outsourcing, organisations form networks that are sustained
by contracts and performance agreements. Each member of the network would perform
some portion of the activities necessary to deliver products and services to the network as a
whole. At the core of each network is the organisation that performs certain key functions
for the network and coordinates the activities of the network members. In general, there
are no formal networks that the respondents in the study had entered into. Specifically
smaller enterprises operate on their own and try to deliver their own products and services
by themselves. There are a number of reasons for this, which are described in more detail
in section 9.2.
The degree to which businesses outsource their primary function varies. There is invariably
an internal network within organisations not wishing to outsource, instead they develop
internal entrepreneurial ventures driven by market forces. These internal business units –
functioning as profit centres inside the organisation and specialising in a particular aspect of
the organisation’s product delivery system – compete with alternative sources of supply by
operating independently and negotiating with the central unit in the same manner as any
other supplier. Most of the larger enterprises operating in the BDM area employ this
strategy. Each of the respondents in the category for bigger businesses − SAD, Ashton
Canning, Paarl Media, etc. − expand their enterprises by establishing these internal
entrepreneurial organisations to deliver the products and services. Reasons for doing so are
the following:

The units are operated as a separate business unit, but within the same company;

More internal control within the same business culture;

Product and service quality remains unchanged within certain established
boundaries; and

The newly established entrepreneurial venture can deliver products and services to
other outside businesses within its capacity constraints.
A stable network is a network structure that utilises external alliances selectively as a
mechanism for gaining strategic flexibility. S table network organisations rely to some degree
on outsourcing to add flexibility to their product delivery system. The central organisation
concludes contracts with outside organisations to provide specific products and services that
are essential to its product delivery system. A dynamic network structure makes extensive
use of outsourcing through alliances with outside organisations.
43
Study of the manufacturing sector in the
Boland District Municipality
9.2
Specific co-operation problems encountered by the sector
Manufacturing sector businesses in the BDM have to deal with a large number of issues and
problems related to co-operation. Aspects related to the lack of co-operation, specifically
among smaller businesses, that should be mentioned and receive parallel attention include
the following:

Competition in certain industries is counterproductive and negatively impacts on the
market;

Mistrust exists between businesses within an industry and across industries;

Continuity is lacking in product and service delivery; and

Quality of manufactured products is often questioned.
The larger businesses experience problems with smaller business that are able to compete
on price. Apparently, smaller businesses take advantage of gaps in the market when
requested by larger enterprises to manufacture a similar product. These circumstances also
lead to an unwillingness of small and large businesses to co-operate on a longer-term basis.
9.3
Addressing industry related co-operation
Although industry co-operation does not fall under the ambit of local or district government,
the latter may contribute to fostering co-operation between enterprises by assuming the role
of a facilitator. The following aspects could provide some guidance for facilitation:

Identify situations of unproductive competition, for instance in the metal and textile
industry;

Examine the type of competition that exists;

Devise a plan that identifies contact points and try to facilitate these sessions by
explaining to businesses the economic and other advantages of partaking in
business-to-business linkages.
10. LEGISLATION
10.1 Legislative trends and issues
In the business sector it is difficult to separate the legal environment effectively from the
political environment. Manufacturing enterprises in the BDM generally experience the district
as a stable environment within which to operate their business. In addition, the ability of the
government to encourage direct investment and provide guidance with respect to legislative
policies, could further encourage the development of manufacturing enterprises in the BDM
area.
The respondents’ reaction to current labour legislation was as follows:

The specified number of labour hours did not provide any major problem;

The required minimum wage presented a problem to the smaller enterprises and
they had to lay off some employees;

Labour contracts are perceived as beneficial to employer and employee; and
44
Study of the manufacturing sector in the
Boland District Municipality

Businesses that already care for their employees have no problems with the trade
unions, as workers do not perceive unions as a positive influence. Consequently,
only about 22% of workers of manufacturing enterprises forming part of the sample
belong to unions.
Notwithstanding, many of the respondents’ are experiencing problems with the following:

A lack of knowledge about legislation is prevalent among 80% of all the businesses
that partake in the survey. They are uncertain about the impact of the “fine print” in
labour legislation and are unsure whether or not their contracts include the latest
information contained in legislation. Suggestions are that the plethora of labour
legislation is prohibitive and assistance is required by management to interpret and
understand the practical impact.

Small businesses that are entering the import and export market for the first time
require assistance with the practical execution of import and export legislation and
policies.

Different industries are subjected to different legislation. However, businesses often
operate across industries and therefore are uncertain of how the different legislation
should be interpreted and applied.
10.2 Specific legislation problems encountered by the sector
The first aspect causing a predicament is the levy payable to the BDM on the turnover of
enterprises. The problem is not the percentage of the levy per se, but rather the way those
funds are allocated and applied. There is a general perception among respondents that the
equivalent value of what is being paid, is not returned in the form of services and physical
infrastructure.
An example, which causes a considerable concern among entrepreneurs, is the expected toll
road from the BDM area to Cape Town. The question arises as to whether or not the full
levies currently paid are not sufficient to maintain the road system. The main consequence
of the toll road would be more expensive production prices and the competitiveness of
manufactured output by BDM enterprises visa vie international enterprises exporting their
products to South Africa. Businesses believe that the high costs of labour, raw materials and
fuel prices make it extremely difficult to remain competitive.
The second aspect viewed as a problem refers to the readiness with which the current
government permits the importation and dumping of inferior quality products. This practice
has already caused the demise of a number of local enterprises in the BDM area over the
past few years. This needs to be addresses urgently and settled in favour of certain local
strategic enterprises.
The following example confirms some of the problems regarding legislation that the
government and/or the local government should address to assist certain strategic
businesses. Brenn-o-Kem has been manufacturing and exporting cream of tartar and
antimony potassium tartar for a number of years. Previously cream of tartar had a 30%
import duty, which has been reduced to 4%, whereas antimony potassium tartar currently
has a 15% import duty. The local market is limited and the company is competitive in the
export market. However, in the development of the local tartaric acid market, it has been
found that a protection of at least 20% import duty on similar international products is
necessary to ensure that refined local raw materials receive preference in the local market.
45
Study of the manufacturing sector in the
Boland District Municipality
The waste products of the wine industry, such the grape seeds, skins and the sediment in
the wine tanks are used to manufacture these products. Brenn-o-Kem removes the waste of
90% of all the wine cellars in the Western Cape, given the business a strong strategic
position. If the waste is not removed and processed by Brenn-o-Kem, local government will
have to perform the task as part of refuse removal.
Other examples relate specifically to the poor quality of imported products that are to the
detriment of local enterprises and may have implications for job losses. Nails imported from
China, paper and certain spares for factory machinery are examples of products that
contribute to local enterprises not being able to compete and serve demand at the local
level.
The above examples highlight the impact of current legislation and the possible impact on
local enterprises at the ground level. A need exists among enterprises to receive assistance
in order to understand the impact of new legislation before Parliament finally promulgates
this legislation. As already indicated, labour legislation as such is not the problem, but the
plethora of applicable legislation clouds an already complex operating environment.
Businesses would prefer to see a simplification of existing labour legislation that could be
interpreted and understood by the ordinary business manager.
10.3 Addressing industry related legislation
The problems with the legislation highlighted previously represent a shortcoming that the
local authorities could address. An expert in labour legislation could be appointed to assist
enterprises on a regular basis to understand and comprehend the relevant amendments to
the legislation with a view to bringing existing employment contracts up to date. The
respondents regard this as a service to be rendered by the BDM that has the following
benefits:
-
Businesses that do not pay any levies would be excluded and run the risk of
concluding faulty contracts; and
-
Both employers and employees would have a clear understanding of
applicable legislation.
Equally, a similar information service could be rendered in order to convey types of
legislation applicable to managers of manufacturing enterprises. The BDM-area can appoint a
specialist (for example a retired advocate) to render a service to levy paying businesses in
the District.
11. Institutional organisation and support
11.1 Institutional organisation
The following associations, organisations or institutions represent the interests of various
manufacturing enterprises in the BDM area. Most of the manufacturing businesses are
affiliated to one or more of these bodies. Several of the associations are national with
regional representation through branches or chapters.
Chambers of Commerce – Only several manufacturing enterprises are members of the
chambers in their respective regions. Apparently, no value for manufacturing enterprises is
46
Study of the manufacturing sector in the
Boland District Municipality
obtained from membership. In addition, no chambers operate in small towns such as
Ashton, Bonnievale, Wolseley, Tulbagh and Robertson, which could serve the interests of
local manufacturing enterprises.
SA Fruit and Vegetable Canners Association – The association is located in Paarl and
canning factories such as Ashton Canning, Langeberg etc. are members. The association
provides services and offers support to members in the form of human resources, safety
standards, and food safety issues.
Chamber of Milling, Chamber of Baking and the National Association of Maize
Millers - are different associations to which millers and bakers are affiliated. These
organisations provide assistance in the form of product pricing, quality control and new
product development.
SA Association of Food Science and Technology. Most manufacturing enterprises in
the production of food are members of SAAFST. The Association is national with a branch in
Cape Town. They organize provision of services by listing consultants on their website for
access by members. The types of services provided include technology, marketing, hygiene
audits, quality control, etc.
Printing Industry Federation of South Africa. A national organisation that has the
Cape Chamber of Printing as a regional branch. Assistance is provided to members with
specific reference to labour issues, training, procurement of paper and ink and quality
control.
Small Builders Association. The Association has branches in Paarl, Wellington and
Stellenbosch. Smaller construction enterprises are members of the SBA and receive
assistance in terms of working and liaising with trade unions and solving issues related to
labour legislation. In addition, guidelines are also provided in terms of building and
construction regulations.
South African Textile and Clothing Association. – Textile firms are members of the
association, which provides assistance with export issues in particular and survival strategies
in the current unfavourable manufacturing environment. The association has a Cape Town
branch.
Cape Wine and Spirit Institute. The institute is located in Stellenbosch and provides
assistance to members in the form of opportunities in wine export and requirements for new
technology in the wine-producing industry.
HACCP – Hazardous and Critical Control Point - provides services related to
international food safety. The organisation works in a similar manner to the ISO 9000
accreditation provided to businesses. The organisation audits a business in terms of the
maintenance of certain food production standards. Suppliers of packaging material are also
audited to ensure that packaging material adheres to certain minimum requirements.
SAFLIA - SA Footwear and Leather Industries Association. The association operates
nationally with head office in Johannesburg and a branch in Cape Town. The association
provides among others, a mediation service between the unions representing the workers
and the employer.
47
Study of the manufacturing sector in the
Boland District Municipality
Irrigation Institute of South Africa is located in Worcester. Manufacturers of irrigation
equipment are members of the Institute. The Institute ensures that members are aware of
the latest irrigation technology and ensure that certain industry standards are maintained.
Several other associations that are not directly related to the manufacturing industry, but
focus on primary production are also highlighted as associations or organisations that liaise
with primary producers of perishable products and producers of value added food products:
Wynland Organiese Kragbemesting. The organisation is based in Tulbagh and offers
assistance with organic food production with a specific emphasis on fruit, vegetables and
grapes.
Perishable Products Export Control Board – The board is responsible for the control
and assessing of perishable export products.
11.2 Institutional trends and issues
Management decision-making is continually affected by the course of politics in a country
and accompanying government policies. The broader business environment, with which the
manufacturing sector continuously interacts, is also affected by the decisions of government.
As a component of the macro-environment, the State primarily influences the business
environment and organisations as a regulating force. The overall policy of the South African
Government is aimed at maintaining a market economy and private ownership, but it would
intervene where monopolistic or other conditions impede the free and smooth functioning of
the market.
Institutional support and the role it plays in a country as a whole, and also in a specific
region, could make a difference in the business sector as a whole in terms of creating
employment, uplifting people and addressing socio-economic issues.
Respondents alluded to the following positive effects of local government:

Local government is able to manage the region on a more hands-on basis.

Local taxes could be disbursed in support of infrastructure that has a positive effect
on local economy.
Various negative effects of government mentioned by the respondents included the
following:
 Taxes and tax rates: The current taxation structure does not contain any significant
encouragement for start-up enterprises. The same argument is valid for the local
levy system of the BDM area. There are no incentives for the establishment of an
enterprise in the BDM area. As mentioned in section 3, many of the businesses
taking part in the research study are old established enterprises and only a few have
been in existence for less than 10 years;
 The assessment of property values is too high in relation to the economic value of
the properties as measured in terms of production outputs;

The Public Sector does not control the import of products to secure and safeguard
local business activities. Some of the examples quoted are:
-
Any cheap product like rope, nails and certain chemicals are being dumped
on the South African market without any interference from the government.
48
Study of the manufacturing sector in the
Boland District Municipality
-
Import duties are being lowered without any acknowledgement from
manufacturers.
 Neither local nor central Government promotes exports of product in a manner that
encourages business activities and creates jobs.
 Provincial and local government awareness of strategic businesses in specific regions
is questioned;
 An incentive strategy for strategic businesses should be considered when they are
part of an export program;
 No protection exists against excessive foreign intervention which is aimed at
protecting certain strategic industries;
 Government should investigate and determine shortcomings of municipal areas
together with the assistance and inputs of local businesses. Measures should then
be introduced to guide and direct economic and businesses development;
 The spending of funds by local government should be examined due to the apparent
imbalance between income and outputs. The following arguments in support of the
latter include:
-
The number of jobs in terms of the services rendered are excessive;
-
Remuneration packages and fringe benefits of officials are above average;
-
A poor link exists between blue and white colour workers of manufacturing
enterprises within the BDM area.
11.2 Addressing problems related to institutional support
Institutional support seems to be a major issue among respondents partaking in the survey.
The following are some important issues that could be considered:

The overwhelming majority of respondents (85,7%) believe Government should
leave their enterprises alone – they should be allowed to operate their businesses in
their own way and without any interference;

Local content – there should be a certain minimum local content in certain products
manufactured and sold in South Africa;

Government should heed the call of local enterprises when they submit requests or
complain about problems such as those mentioned above. A forum should be
established to listen to and investigate complaints of manufacturing enterprises;

Toll roads – private consultants are apparently investigating and submitting
recommendations without any proper involvement of the local communities and
businesses;

Support should be given to enterprises that generate large electricity bills;

Business Partners does not provide any benefits, as in the past, in terms of
favourable interest rates or other advantages such as the development of free
business plans, etc.

The health sector and health clinics are in need of attention and there are scores of
issues that need to be addressed, which include:
-
Medical funds and the payment of accounts; and
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Study of the manufacturing sector in the
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
Possible subsidised medical costs for certain types of illnesses.
Create a revolving loan fund to provide loans to smaller new businesses under
certain conditions, which may include:
-
A loan period of up to three year with strict financial control and periodic
auditing;
-
Management assistance by specialists in the same industry;
-
Marketing assistance to explore new local and international markets;
-
Assistance with the management of employees and the development of
employee contracts;

Instituting some form of labour encouragement system to create more jobs in certain
areas.

Assist new enterprises to negotiate access to additional capital and new markets;

Labour disputes should be considered locally and not in Cape Town;

Encourage the purchase of local products so that rural areas could maintain an
acceptable level of economic activity; and

BDM should develop a web page to inform both local and other businesses of
changes in the business environment and activities in the district.
12. Economies and economic trends of selected towns in the BDM
area
12.1 Economic trends and issues
A high GDP growth rate of about seven to eight percent per annum in real terms represents
an economy which is expanding rapidly enough to create jobs for its workforce; one that
exports more products than it imports to sustain a positive trade balance, and one that is
able to provide improved living standards for its people. On the other hand, a lower growth
rate − especially one that is inferior to the population growth rate − usually decreases the
general standard of living.
South Africa, and especially the different regions within each province, requires a growth
rate of over seven percent per annum in real terms to provide jobs for the millions in the
unemployment queue and the hundreds of thousands who join it annually.
An economic growth rate for the BDM district or any of the primary towns is currently
unavailable. However, the vision of the local authorities is to maximise businesses activity,
which directly contributes to potential job creation opportunities in the rural areas. The
dependency factors in rural areas are high. Many of the manufacturing enterprises
participating in the research study and especially in the rural areas, are related to agriculture
and consequently employ seasonal workers for a part of the year.
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12.2 Specific economic problems
Several rural towns experience severe economic decline when the South African and global
economies are in decline. A factor that also contributes to these overall economic
circumstances is the restricted markets for some of the smaller businesses, as mentioned in
section 8.
Ashton is a perfect example of a rural town that was affected in early 2004 by seasonal
factors related to the two manufacturing firms, Ashton Canning and Langeberg Cooperative,
which provide most of the seasonal employment. Normally these two enterprises employ
between 6 000 and 7 000 workers in peak season. Under these circumstances, seasonal
workers are employed for 7 months of the year and become unemployed and earn no
income, or very little during the remainder of the year. Some may be fortunate enough to
be employed as casual labourers on an irregular basis.
The two enterprises mentioned above have devised a plan whereby a portion of the seasonal
income of the workers is withheld so that they are able to pay their levies, water and
electricity accounts for the other five months of the year when they are unemployed. The
likelihood exists that the local municipality would not receive any income for services
rendered during the remainder of the year if a portion of the wages is not withheld. The
above plan is implemented as follows:

For each working month, the employer would deduct 20% to 30% of the worker’s
payment and retain this for the five months when they are generally unemployed.

For every month the worker is unemployed, the company would deposit the
deductions in equal units into workers' bank accounts which would enable them to
pay the necessary levies, buy some staple food and other necessities.
Other towns that experience more or less the same level of economic decline are Tulbagh,
Wolseley and Ceres in the Witzenberg region for very similar reasons. A town like Tulbagh
has a problem with the sanitation system that curtails any further expansion of new
economic activity that required direct investment. The sanitation system has reached full
capacity and limits on the sale of land for development applies due to the capacity constrains
of the sanitation system.
Businesses from most of the smaller towns around Worcester mentioned the deterioration of
services rendered by businesses in Worcester. Many businesses in the smaller town are also
dependant on businesses in Worcester. The deterioration was noticeable over the past ten
years and the following comments, which related to the integration of economic activity and
systems, could be noted:

Stock levels of businesses are declining, which implies that demand for manufactured
products is declining. This situation also implies that more and more products must
be procured from outside the town or region and less demand can be met from
internal supply. The economy declines as more and more funds are disbursed to
businesses operating in larger centres. This problem is compounded by rising prices
and people and businesses would be inclined to shop outside the district or town.

Services rendered by businesses are generally of a poor quality. It appears that
business has become a run of the mill process whereby pride and commitment is
limited or no longer exists.
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12.3 Addressing economic problems
The Ashton example represents a working plan for a community and this example could also
be emulated by other seasonal enterprises to help the local economy to remain more stable
throughout the year. There is also another solution that the BDM could consider
implementing, i.e.:

Each town in the area should be included in a research study in order to investigate
the possibility of establishing other job creating firms to enhance employment in the
off-season;

The aim should be to identify firms that could complement existing firms and
encourage these enterprises to relocate to the area in order to create synergies with
existing firms;

Skills development and training would assist to address problems of poor quality and
service and in that manner encourage businesses and consumers to spend their
money in businesses located in the BDM area; and

A “buy local” programme could be introduced to also encourage people to spend
their money in businesses located in the area.
13. Branding manufacturing in the BDM area
13.1 Branding benefits and issues
The success of manufactured consumer products depends in part on the target market’s
ability to distinguish one product from another. Branding is the main tool for any business,
region or country to distinguish their products from those of their competitors.
A brand is a name, term, symbol, design or combination thereof that identify a seller’s
products and differentiates them from a competitor’s products. A brand name is that part of
the brand that could be verbalised, including letters (CNA), words (Nando’s), and numbers
(4X4). The elements of a brand that cannot be verbalised are called the brand mark, for
example the “Proudly South African” mark. A brand is a product that has earned a place in a
consumer’s life through perceptual experience, beliefs and feelings. A brand also relates to
trust, loyalty, friendship and belonging.
The BDM would be the first in South Africa to develop a brand name and logo for
manufacturing in the region. The branding of a region will engender a great deal of
advantages for the region and individual businesses operating in that region. Branding will
have three main purposes for the region, namely:

Region/product identification;

Repeat sales/visits;

Price premium; and

Enhancing new product sales.
Region/product identification: Yields advantages to both the marketers of products from
the region and for the purchaser of the product. Branding allows marketers to distinguish
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their products from their competitors’ products and over time could become a critical
competitive advantage.
Repeated sales: Proper identification of the region or product makes shopping easier for
buyers and thus reduces selling time and effort, thus implying more or repeat sales. Buyers
would rely less on sales people, and from the businesses viewpoint, money could be saved
on the employment of sales people.
Price premium: Effective branding also allows firms to charge a premium price for their
products if they are properly differentiated. BDM could execute the overall marketing of the
district in order to assist enterprises in their marketing strategy and to keep their marketing
cost down.
Enhancing new product sales: It is easier to sell a product with a label. It is also much
easier to sell a new product if it is related to an existing product from an existing well-known
region. In the BDM area there are many unique businesses with unique products. A brand
name for manufacturing in the region would enhance new product development because of
the enhanced selling and marketing of the region’s products.
13.2 Branding options
All the respondents were very positive about the notion of a brand name for manufacturing
in the region. Manufacturing enterprises would gladly assist with the launch of a branding
process due to derived benefits for the whole of the region. However, the question beckons
as to what brand name should be used and what the logo should represent. These aspects
have not yet formed part of the current thinking among manufacturers in the district. The
following were nevertheless some associations that the respondents thought may be useful
in creating a brand name and logo for manufacturing in the district:

Associated with agriculture;

Winelands;

Breede River Valley;

Boland; and

Mountains.
Several other remarks included:

An English, Dutch or French name should be chosen for international markets;

A name that is easily pronounceable;

A name that could be associated with the Boland region;

Not Black names that are unpronounceable;

Not an Afrikaans name; and

The logo should be modern and clearly visible.
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14. Recommendations
We analysed and interpreted the relevant research data together with the opinion, views and
suggestions of a sample of manufacturing enterprises operating in the BDM area.
The
following recommendations are based on our assessment and the input received from the
respondents that partook in the survey:

The BDM needs to devise a communication strategy aimed at manufacturing
businesses in particular and the broader business fraternity in general. The
manufacture sector needs to understand the role and the function of the BDM, what
level of assistance the different departments within the municipality could provide,
and how could the BDM represent their interests at the local, provincial and national
public sector levels.

Establish a forum for the different industries within the manufacture sector and hold
regular sessions to discuss industry related issues, problems and opportunities. Such
forums could be administered by the BDM and in this manner demonstrate
commitment from the BDM to businesses at a micro and macro level.

Assistance with understanding the impact of legislation on businesses operating
the BDM area is required. Aspects related to the complexity and implementation
labour legislation, migration from other areas into the BDM area, introduction
black empowerment, understanding issues of diversity, and legislation related
import and export regulations could assist manufacturing enterprises.

The dumping of low quality products on the South African market, which also affects
the manufacturing enterprises in the BDM area, is of grave concern. The BDM should
lobby the provincial and national government in order to address the impact and
economic consequences of dumping cheaper imported products in South Africa.
Suggestions to address the issue of dumping may include higher import duties,
quality and quantity control of products, and a total ban on products exclusively
produced by strategic manufacturers in certain regions of South Africa, which would
include the BDM.

Manufacturers that export products and particularly those that are creators of job
opportunities in the BDM region should receive incentives. Incentives that may be
implemented with the approval of the Department of Trade and Industry may include
transport, labour, electricity and taxes.

Skills development programs in the BDM area are an urgent requirement among the
enterprises. The spectrum of skills development programs may include the following:
in
of
of
to
-
Managerial theories and practices applicable to the South African situation;
-
Basic marketing principles;
-
Financial aspects like budgeting, cash flow and taxation;
-
Language training in Afrikaans and English;
-
Some basic principles like work ethics, work pride, honesty, budgeting and
personal financial management, communication skills, interaction with other
people and etiquette.
Skills and development training can be done in various places depending on the level
of presentation. The lower level type of training (for example the teaching of basic
skills) can be done within the communities or towns near places of employment. A
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Study of the manufacturing sector in the
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higher education and training institution can provide training for managers and toplevel staff in an organisation.

The lack of, or limited market information and market trends with specific reference
to businesses in the BDM area, is a major concern for managers and business owners
in the area. Advice about the local and international market for certain products is a
requirement that could be facilitated by the BDM. Market as well as other
information can be made available on an intranet network operating and
administered by the BDM for businesses that pay levies and operate in the BDM area.

Limited industry co-operation and business linkages among businesses in the BDM
area provide an opportunity for the BDM to explore and facilitate business-tobusiness co-operation and the establishment of alliances and joint ventures. Several
suggestions may include the appointment of a specialist in this field to help identify
gaps for different linkages that exist in the different industries within the BDM area.
The success of linkages should be communicated to businesses in order to
demonstrate the value that could be unlocked through business-to-business
venturing.

The nature and benefits obtained from institutional support is important to
businesses and should be clearly demonstrated. Institutional support can be
provided on a direct and indirect basis. The following direct institutional support
could be provided:
-
Identify shortcomings and opportunities in each area of the district. Develop
strategies to support shortcomings by utilising the strengths of each area.
Facilitate the implementation of strategies and co-operate with other NGOs
working on complementary business and economic development projects in
specific towns. For example, where seasonality of employment is a major
issue for a town, assist strategic businesses in the region to expand job
opportunities over the entire calendar year.
Indirect institutional support may include the following:

-
Address the issue and impact of toll roads on transportation bills by lobbying
national government about greater and more effective use of railway
transport in the BDM area to key urban centres in the Cape Town
Metropolitan area.
-
Work with Business Partners to develop financing strategies to assist
businesses in a manner that is less conventional. The possibility of providing
revolving soft loans with the extension of a guarantee provided by the BDM
up to a certain amount is a possible option.
-
Introduce a similar principle to the successful “Tips for Trevor” forum to
involve businesses and individuals alike in the activities of the BDM. In this
manner, people feel empowered by being granted an opportunity to express
and opinion regarding the needs that have to be addressed in the coming
financial year.
The facilitation of a branding exercise for manufacturing in a district municipality like
the BDM area will further enhance and strengthen the link between businesses and
the BDM.
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15. Conclusion
Our assessment of manufacturing on a global, South African and District level indicates a
decline in the growth rate of manufacturing trade and output. We considered the input from
a sample of manufacturing business owners and managers operating in the BDM area. The
requirement of these businesses could be categorised as direct and indirect support. A belief
exists that the BDM could do more to lobby provincial and central government regarding
those issues which are of a national and provincial interest, but which are specific to
manufacturing businesses. More specifically, the BDM can provide a more facilitative role in
providing support to manufacturing businesses.
We also developed two case studies of businesses included in the sample. The first case
study (Pioneer Printers) is intended to offer an exemplary portrayal of a manufacturing
business that has or is attempting to address many of the aspects related to ownership,
management, markets, linkages, and labour elaborated upon in previous sections. A second
case study is intended to provide a portrayal of an enterprise (Koose Tricycles) that could be
described as an “established and settled” business. It provides a contrasting perspective to
the case of the Pioneer Printers.
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CASE STUDY: PIONEER PRINTERS
(Testing the boundaries)
1.
Background
Pioneer Printers originated a century ago as an extension of the Pioneer School for the Blind.
Pioneer School is a school for visually impaired people from grade 1 to grade 12 and was
established in 1888 at Worcester in the Western Cape. The original purpose of establishing
the school was to accommodate visually impaired people from Worcester and the
surrounding areas. The need for training and educating of visually impaired people was
underestimated and the school quickly grew into a centre that accommodates blind people
from all over South Africa.
As funds and government subsidies at that time were insufficient to cover the financial
expenses of the students, other options had to be considered to generate funds. As Braille
was not available in South Africa at that stage, the school had to acquire Braille reading
material at huge cost from countries overseas. The School Board at the time (now the
Governing Body) took the initiative to borrow the money in order to buy the necessary
equipment that would enable them to do their own Braille printing. They envisaged to print
their own Braille reading material and also utilises the Braille printer to generate additional
income for the school by selling the Braille material to other institutions such as universities,
colleges and schools.
2.
Products
Currently Pioneer Printers consists of four divisions that were developed over time as the
need arose, namely:
-
Braille printing for academic and technical manuscripts, exam papers and
various other reading material;
-
Surface printing as done by any normal print works. It includes products
such as books, reports, textbooks, promotional material, business cards and
flyers;
-
Audiovisual reproduction or the conversion of daily magazines and
newspapers into audio format for visually impaired persons; and
-
Products such as enlarged printing for people with very poor eyesight. This
is mainly for use by academic and other institutions where such material is
required.
Each of these four departments concentrates on the manufacturing of quality products for
specific target markets. Prior to August 2003, teachers at the school accepted responsibility
for the printing works and the printed material. Due to several factors, including the fact that
no printing was done during school holidays, Pioneer Printers was not profitable enough to
generate sufficient funds as well as reserves for upgrading their equipment. The printing
works generated sufficient funds to provide for the basic necessities, but no efforts were
made to explore new markets with modern equipment and new products.
Legislation promulgated in 2002/2003 stipulated that no school (except private schools)
could operate a separate profitable organisation like Pioneer Printers. This controversial
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legislation creates negative implications for various schools, especially Pioneer School. Three
of the four divisions, namely surface printing, audiovisual and the enlarged printing division
had problems because they were not necessary for the school only. These three divisions
were thus sold to a private person on 1 August 2003, and since operated as a private
company.
The fourth division, Braille printing, is still part of the school but is now under the supervision
of the Institute for the Blind. This Braille division is considered so important that the
National Lottery gave R2,5 million for new equipment.
The abovementioned revolution in Pioneer Printer’s manufacturing processes can be very
successful given sound managing procedures as well as the marketing of the total product
range.
3.
Markets and market potential
The products of Pioneer Printers are unique in South Africa as well as the whole of Africa
(except for a small printing works in Kenya). The reason for this uniqueness is that the only
competition for Pioneer Printers is a small business in Gauteng that deliver Braille services to
various institutions, but they are not rivals; they are complementing each other. This causes
a healthy market and further develops the growth potential for Braille services.
Since the takeover in August 2003, remarkable progress has been made with the expansion
and marketing of products in order to generate new markets, especially for the surface
printing division. The new owners of the three divisions are experts in the printing industry
and they have the skills as a result of being in the business for an extended period of time.
The average turnover of the three divisions was R1,5 million over a period of three years
before the takeover. After the takeover the surface printing division alone obtained an
international order for R600 000. They printed numerous other materials that have never
been printed before, including calendars for churches, brochures for food retailers and some
other promotional material.
Several potential markets exist and must be explored by the new owners in order to obtain a
larger market share within the BDM region for printing that is more competitive. The
following are new markets with potential:
-
Wine labels for the different wine cellars in the Western Cape;
-
Church year planners and calendars for all the different churches in South
Africa;
-
Promotional material like flyers and banners for franchise businesses; and
-
Course frameworks and academic study material for tertiary institutions in
the Western Cape.
Unlocking further market potential and expanding the audiovisual reproduction department
could entail the following:
-
Reproductions of all the popular newspapers on a daily basis;
-
Reproductions of all the popular Afrikaans and English magazines; and
-
Reproductions on request of any other books available.
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The third department, namely the printing of enlarged products, has less potential for
growth in comparison to the other two departments.
4.
Linkages with other enterprises
On account of the expertise of the new owners, their commitment to service, the provision of
quality products and the policy of not declining any new work, linkages with other similar
enterprises are of the utmost importance to them. Their motto is that no potential business
is turned away. The work that they cannot reproduce in one or more of the existing
departments, they outsource to other printers. Outsourced work contributes to the overall
turnover and profit of the business although they take less commission.
The potential that exist in the different departments makes it viable for black empowerment.
Groups that did not form part of mainstream business in the past could operate a
department with growth potential. They would be responsible for the management,
marketing and expansion of the products manufactured in that department, but under the
supervision of and would be accountable to top management. Black empowerment in the
business is of utmost importance because attention to impaired people is high on the priority
list of the government. Empowerment can result in government contracts for printing of
different products for state use. They are busy with a strategy on how to accommodate
black people and whether or not it is appropriate for one or more of the divisions.
5.
Management
The management and market expansion of the three divisions are of utmost importance and
a challenge for all the management staff in the business. Five months after the takeover it
was like the opening of a new business. Everything had to be revamped and rearranged to
make the different processes more adaptable and productive for larger outputs. In the mean
time some large orders were outsourced to other printers.
Affirmative action is necessary until the workforce is totally representative of the current
population of the Western Cape. Fifty per cent of the current workforce is already
affirmative action placements. People were sent for training before they were employed.
Some people with the necessary skills and previous work experience were already employed.
The business benefits from this in terms of cost saving because these people need no initial
training.
All the other management programmes and actions are in place for the current operation of
the business. They are working on new and other management programmes and the
expansion of the business to deliver products to potential markets.
6.
Conclusion
This specific organization is the one with the largest growth potential in the BDM area. The
existing market must be explored and new products must be developed. The different
divisions make black empowerment a possibility that can contribute to the image of the
business for doing business in Africa. The business was established in a rural area with all
the advantages of lower rates and taxes. The Pioneer school are the main customer for
Braille printing and the school also serves as a marketing tool for all the other products.
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CASE STUDY: KOOSE TRICYCLES
(Established and Settled)
1.
Background
Over the past several years, Koos Engelbrecht was involved with children who are hearing
impaired. As a result of his involvement with disabled people, he developed a certain
attentiveness for the needs of disabled people. Koos is a keen cyclist with an intense love of
the sport. He discovered the following types of problems that prevents some people from
cycling on a normal bicycle:
-
A person does not have the full use of all his/her limbs as a result of an
accident or a permanent illness; and
-
A person has problems with his/her balance either from birth or as a result of
illness.
The abovementioned paved the way for the development of the first tricycle for disabled
persons in 1992, which satisfied the needs of people with certain disabilities.
2.
Products
Post 1992 various types of tricycles were developed. More people became aware of the
product and a greater variety of tricycles were added to the rage. The following are types of
tricycles form part of the current range:
-
Racing tricycles;
-
Children’s tricycles;
-
Mountain tricycles; and
-
Normal tricycles for everyday recreational purposes.
All of the abovementioned models are developed for specific needs, thus tailor-made for a
specific person. The customer also specifies the colour and different types of accessories
such as lights, tires and weight of materials.
The manufacturing of the tricycles is quite basic. The owner plans and develops the tricycle
according to specific needs and specifications. A normal bicycle can be adapted or a new
tricycle can be developed from the start. The basic manufacturing processes such as
welding, are done by the owner of the business, while the other components are added and
fitted at a local bicycle shop.
3.
Markets and market potential
Koose Tricycles are well known in the Western Cape, but not so familiar to people in other
parts of South Africa. The average quantity of tricycles being sold during the previous three
years remained more or less fixed at 55 tricycles per annum.
The tricycle market for impaired people is limited because of the fact that only a few people
need an adapted tricycle and a lot of them can’t afford to buy one. The market has only a
certain number of buyers per annum. This is also the reason why the owner tries to keep
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the business’ overhead as low as possible by using people outside the business to finish the
product. Although the tricycle is a very good product, it has a limited market with limited
growth potential. The owner is well aware of this fact and he has no aspirations to put effort
into:
-
Marketing in terms of advertising and sales promotions;
-
Developing export opportunities, and
-
Developing and adding new models to the current range of tricycles.
The owner is quite satisfied with the current size of the market.
competitive products are not seen as a threat because the business
individual. The low overhead costs contribute to an affordable sales
However, the know-how may be the only differentiating factor that
from competitors to enter the market in the Western Cape.
4.
Rivals and any other
is able to sustain one
price for the tricycles.
could curtail attempts
Business linkages
The manufacturing process ends when the local cycle shop adds the final parts and
accessories to the tricycle. This linkage is necessary and of the utmost importance for
manufacturing of tricycles and the survival of the business. This may be attributed to the
fact that there exists no other infrastructure for manufacturing the tricycles in the area.
No linkages with any other business exist because no expansion is envisaged. No linkages
are formed with distributors because the product is manufactured by order only.
5.
Management
Management of the business is fairly basic. No permanent workers are employed. This
eliminates a problems associated with wage legislation, wage negotiations, strikes and
unemployment insurance.
The fact that there isn’t any envisaged growth potential ensures that negotiations for black
empowerment in the near future are of no importance. There is no potential for any other
person or group to be part of a limited potential product. Furthermore there isn’t
diversification and affirmative action because no other people are involved.
The core of the management of this business is the taking of orders, the correct execution
thereof, as well as ensuring the production of high quality products. The management of
finances in accordance with accepted practices and registration with the Receiver of Revenue
is also of utmost importance to ensure acceptable governance and ultimately the survival of
the business.
This type of business isn’t a challenging one in terms of managing, marketing, human
resources, and other important issues found in other manufacturing businesses. Expansion
is also of no priority as the business is more of a hobby than an actual business for the
owner.
6.
Conclusion
Koose Tricycles is a business that is registered as a close corporation. The business is
registered for, and pays levies to the BDM, PAYE to SARS and is also registered for VAT.
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The business’ contribution to growth and employment in the area is of limited significance in
terms of other businesses that partook in the study. The contribution of each business to
economic growth and the creation of jobs in any area are important. Koose Tricycles delivers
an important service and product to a certain market segment in the Western Cape, but
because of its’ nature and scope could not be considered as a model small manufacturing
businesses in the BDM area, specifically due to the future outlook of the business.
Notwithstanding, Koose Tricycles has the potential to expand in term of the manufacturing of
some related products like electric cars for disabled people. This expansion can help the
business to grows in term of turnover and contribute to the creation of jobs and ultimately
the overall economic growth of the BDM area.
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Study of the manufacturing sector in the
Boland District Municipality
CASE STUDY: BRENN O’ KEM
(A model approach to co-ownership)
1.
Background
Brenn O’ Kem is situated outside Wolseley on the road to Ceres. A Mr. du Toit started the
business in 1968 on a piece of land that still belongs to the Du Toit family. He was
employed by the KWV in Paarl and realised the market potential for the current business.
After a small beginning, the business grew in the 1980’s to such an extent that he could no
longer run the business on a part-time basis. He involved other enterprises such as
transport companies and the production expertise of another company to run the business
more effectively. The business was transformed into a company managed by executive
directors from other companies. However, the business didn’t grow as expected since the
managers didn’t take ownership of Du Toit’s company. After Du Toit’s death, his children
worked hard to change the company back to a family business in the early 1990’s and it is
still managed as a family trust today.
The company consists of a variety of departments that specialise in the production of
different types of products. The main production streams of the various products are
managed as different companies within the family trust. From a management and strategic
viewpoint, this form of enterprise allows for better management (see more detail in the
section on management).
2.
Products
Brenn O’Kem manufactures four different product ranges and provides a service to
approximately 90% of the wineries in South Africa. The wineries provide the ingredients for
a number of their mainstream products. The service entails the removal of wine lees or
sediment from wine tanks, grape pips and skins from the premises of wineries. This
important service saves the wineries the effort and cost of removing these waste byproducts
themselves. Ironically, Brenn O’Kem pays the wineries for the opportunity to remove the
waste, whereas the international trend is to pay a removal company for the service.
These waste products are processed to extract the essential ingredients for the
manufacturing of potassium tartrate (tartaric acid) and cream of tarter. These are
completely natural products that are sold to local and international wineries as products
required during vinification (see section on markets and market potential for more detail).
The second product range is used as raw material for a number of products, including
insecticide for thrips in citrus orchards, and various medicinal products such as citrosoda for
the treatment of bladder infection in humans.
The third product range is organic fertilizer for the cultivation of fruit and vegetables.
Organic production of these products is not as well developed as in European countries due
to a smaller demand. A greater demand by consumers for organic products will also
increase the demand for organic fertilizers. At present, the production of fertilizer at the
Wolseley plant is sufficient to meet the demands of farmers in the area that employ organic
agricultural practices.
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Study of the manufacturing sector in the
Boland District Municipality
The fourth product range entails health products that are new in the market. The
ingredients of these products are extracted from grape pips and are referred to as grape
seed extract. Oxiprovin is marketed as a product that protects the human skin from ageing.
There are also other products being manufactured that can be used as slimming aids.
Due to the scope and divergent nature of the products manufactured by Brenn O’Kem, two
other plants in Worcester focus on the chemical processes for the manufacturing of several
product ranges thereby integrating on a vertical basis.
3.
Market and market potential
The diversity of Brenn O’Kem’s product portfolio provides the company with stability in terms
of its markets and growth. Although this may sound positive from a theoretical perspective,
there are a number of underlying problems that need to be addressed continuously.
The export opportunities for potassium tartrate and cream of tarter are infinite. The
challenge is to obtain enough raw materials to manufacture sufficient amounts. As
mentioned before, Brenn O’Kem removes the wine lees, grape pips and skins from
approximately 90% of the wineries in South Africa. However, this is not sufficient to meet
the demand in the market, while the provision of raw materials outside the usual grape
season is a problem.
Another problem that threatens the local market for these two products is the large scale
dumping of similar imported products that are not naturally produced. Synthetic L(+)
tartaric acid has recently become available on the South Africa market. Until recently,
synthetic tartaric acid was only available in the form of the racemic mixture of both L(+) and
D(-) isomers. This material could easily be differentiated from grape derived L(+) tartaric
acid by virtue of its optical rotation and solubility. The molecular structure and configuration
of the synthetic L(+) tartaric acid now available is identical to that of the L(+) tartaric acid
produced by grapes, giving identical optical rotation and solubility properties. During
December 2002, the EU introduced regulations that effectively state that tartaric acid used in
winemaking in the EU must be of agricultural origin and extracted specifically from wine
products. This regulation has a definite impact, not only on Brenn O’Kem, but also on the
wine industry in South Africa. Wineries that do not use the correct products, can expect
problems with wine exports to especially European countries. This can seriously harm the
total image of South African export wines. As a consequence, Brenn O’Kem will refuse to
remove waste material from wineries that do not use the natural products, and therefore do
not produce wine that are completely natural. These wineries will therefore be responsible
for the removal of their own waste.
These are a few examples that indicate the scope and effect of regulatory measures and the
problems encountered when the government authorities do not recognize the strategic
importance of certain industries. These problems, together with the instability of the Rand
versus the currencies of South Africa’s main trading partners, result in uncertainty in the
market. Since the local market is too small for the respective products, the company is
dependent on international markets.
Although the new health products only recently entered the market, there seems to be
substantial potential in terms of local and international market opportunities. The modern
trend to be more health conscious further enhances the marketing of these products.
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Study of the manufacturing sector in the
Boland District Municipality
As mentioned before, the market for organic fertilizers is growing slowly. However, the
same regulations that are applied to organic agriculture in the EU countries are also
applicable to imported fruit and vegetables. Exporters of these products will therefore be
forced to use more natural input materials to ensure that their export potential is optimised.
4.
Linkages with other businesses
There is no formal linkage between Brenn O’Kem and any other enterprise in the same
manufacturing industry. One of the main reasons for this is that Brenn O’Kem is almost
exclusively responsible for the removal of winery waste material, leaving little opportunity for
a similar company to enter the market. There is, however, a linkage with all the wineries
and wine companies in terms of a contract or agreement to remove the waste material.
Other linkages are with transport companies that are responsible for the transport of the
waste material from the wineries to the manufacturing sites.
Distell and KWV has a joint project in Worcester that may increase the amount of waste
material that needs to be removed. Another possibility that has been investigated and that
will commence in 2004 is the potential expansion of the service to the Northern Cape
wineries in the Upington area. This expansion in the provision of raw materials will also
create new opportunities for expanding existing markets and evaluating the potential to
enter untapped markets.
5.
Management
The company currently provides job opportunities for approximately 100 people. Given the
potential market opportunities for the company stated above, the number of job
opportunities may increase to 120 during the 2004/05 financial year.
Each manufacturing department is managed and controlled separately and is thus
responsible for their own profit/loss. A system that proved to be successful is the
opportunity afforded employees to work for shares in the company. This serves as a
motivation for employees since shares can only be obtained with a performance bonus. It
also increases continuity in the working environment since employee turnaround has been
relatively low in comparison to the average for the industry in which Brenn O’ Kem operates.
This principle will also be applied when a model for Black economic empowerment is
introduced. The view of the senior management is that employees have to work to obtain a
share and thereby co-ownership in the company. Ownership obtained in this manner
ensures responsibility since it didn’t come easy.
6.
Summary
The enterprise is unique in terms of the service it provides to wineries, as well as the
different types of products it manufactures from winery waste material. As an enterprise
that developed from a small family business into its current size over its fourty year life span,
it speaks of good management, decision-making and strategies. With the necessary
assistance from local and national government in terms of import and export assistance
regarding chemical products, the company can be even more successful and create more job
opportunities. The company can also be considered as a strategic asset for the BDM area
since there are no similar manufacturing companies operating in South Africa.
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