Local manufacture versus imports, it is not always about pricing.
Revisiting a topical issue – local manufacture versus imports – Hi-Tech Security Solutions discovered that it is not always about pricing. Quality, track record, longevity and instantaneous customer service and support keep customers loyal and the wolves at bay.
Brent and Lee-Ann Andreka are the owners of Radio Data Communications (RDC), a company that develops and manufactures VHF and GSM-based communication equipment for the security industry.
“We design specific products for both local and international consumption. We chose not to take a generalised approach towards manufacturing. This has enabled us to provide the requisite technical support on a contained range of products.”
RDC runs its own network, similar to the infrastructure service available from cellphone providers. “I am pretty certain that this is not the type of service that could be provided by importers of products similar to RDC’s,” says Brent Andreka.
“What we have found is that, while in certain circumstances they may be able to bring product into South Africa cheaper than we can supply it at, the cheaper imports do not come with a 24/7 backup service. The result is that customers are left high and dry when something goes wrong with their products.”
Gus Brecher, MD of Cathexis Africa, an electronics systems development and manufacturing house specialising in digital surveillance and management systems, said that his company does not try to compete with cheap imports.”We quite simply do not play in their market as we target different customers. It is a misconception that South Africa is a Third World country in terms of technology since we are in fact producing some extremely sophisticated electronics equipment. In addition, while we may have lost some of the inherent skills to overseas markets, we still have a number of extremely talented and knowledgeable engineers and designers.”
Brecher is adamant that we are not floundering in terms of either the quality of products South Africa can produce or functionality. “However, we do need to educate consultants and some of the larger corporate organisations who believe that local offerings are inferior to European and American imports. This is where an established customer footprint pays huge dividends as you can then simply reference your blue chip client experience to plead your case.”
“We have a wide range of products which allows us to play on both sides of the field, competing with both cheap imports and first-world imports,” says Barry East, sales and marketing director at Impro, manufacturers of access control and product identification systems. “With regard to the cheaper imports, we believe in the concept that quality wins out and we adamantly refuse to discount our pricing to that of the cheap imports. While the First World imports might have higher quality levels, local market knowledge and longevity come into play and put local manufacturers in an advantageous position. It is important, however, that local companies do not become complacent. They need to ensure that they stay up to date with global technology trends.”
Keeping ahead of the pack
The confidence levels of the three companies are high, but one thing that they all highlight as critical to staying ahead of the cheap import pack is customer service and support.
“You need to make the process as easy as possible for the customer to implement,” explains Lee-Ann Andreka. East agrees wholeheartedly with this and adds that people want to be able to simply walk up to a door, present a tag or their finger, and have the door open without any issues.
Also high up on the list of ‘must haves’ is customer access to technical know-how and support. “Technicians should be proactive and should be able to anticipate possible problems and have solutions to hand. This effort should be complemented by a strong and knowledgeable sales and distribution team, as well as a stockholding of products to give customers the assurance that their needs will be met promptly and expeditiously,” says East.
Brecher insists that a differentiating factor is ensuring in the original design and development stages that products have backward compatibility. “Local manufacturers should ensure that their equipment can integrate with legacy equipment already in the field. By designing proactively, companies can ensure that systems are future proofed, and will therefore allow for upgrades to be implemented with ease.”
The Andrekas believe that in order to remain competitive, local companies need to anticipate the needs of their market and to react accordingly. Brecher added that it is impossible to compete on the pricing of the cheap imports and reiterates that quality and support, backed by solutions-based products rather than off-the-shelf boxed equipment, will win the game for local manufacturers.
Avoid proprietary solutions
“Products should be developed with multiple, open platforms in mind. We are seeing the move to IP-based systems accelerating quite rapidly and local developers would be wise to take cognisance of developments in this arena,” notes Brecher. He explains that Cathexis is launching an open platform-based system that allows for interface via both the Linux and Windows environments for ease of integration to third-party products.
“We have been competing in the international arena for some time and, because we concentrate on access control, we have been able to maintain a position at the forefront of technological development. By constantly innovating to cater to market demand, we continue to negate the effects of the onslaught of mass produced cheap imports,” says East.
He points out that by staffing up, the company has been able to provide service levels that surpass those of importers who choose to target South Africa as their playground. “We have eight support engineers and we provide 24-hour service centres for our customers in Johannesburg, Cape Town and Durban. All our engineers are trained to think outside the box and to leverage previous solutions scenarios to provide customers with the benefit of this hands-on experience.”
Unique environment
“The South African environment is very unique in a number of ways and overseas suppliers do not truly appreciate the difference in approach that is required to successfully apply products here,” notes East.
“We have a lack of adequate infrastructure, both in terms of the physical environment as well as with respect to networking capacities. When designing products, local manufacturers are able to factor in the challenges of an ever-changing and demanding environment to ensure not only integration with other systems but, more fundamentally, operability.”
Other critical considerations when designing for local consumption include the harsh environment in which products are frequently placed, the calibre of installations and the quality of the cables installed. “Even with foresight and some market research, overseas companies would be hard pressed to fully grasp the challenges we face in this country. Industry is fraught by labour issues, the desperate need for more applicable workplace skills and, in many instances, complacency towards the value high-standard installations.”
East believes that if local companies find the details associated with site commissioning challenging, how much more so are they a major issue for overseas suppliers? “There is a necessity for local companies to gear up to address these issues in order to remain competitive and in doing so, they consequently produce an end product that could easily meet any challenges the more evolved overseas market could throw at them.”
Going offshore
The draw of less expensive manufacturing costs offshore has become quite appealing to a number of companies. The cost of owning or renting manufacturing facilities locally and the associated equipment costs make utilising offshore third-party premises extremely alluring.
Other driving forces have been the apparent escape from the labour problems that have beleaguered South Africa in recent years. Given that in most instances labour costs are controlled and much cheaper in specific overseas locations, why then are more South African companies not flocking to move their manufacturing offshore?
RDC constantly reviews the feasibility of offshore manufacturing and the Andrekas acknowledge that the costs of producing goods in China is definitely lower than in South Africa. “In addition, we have seen a marked improvement in the quality of the products coming out of these facilities,” says Brent Andreka.
Brecher admits that most of the company’s components are manufactured overseas. “The high volume work warrants our decision to move this element offshore. It is a known fact that a number of offshore facilities are geared around mass production and this places them perfectly to produce smaller, repetitive items such as componentry.”
East is somewhat more cautious about entrusting the company’s manufacturing to a remote facility. “We have tried offshore manufacturing a few times, but unfortunately the quality levels are somewhat erratic, with batches varying greatly in their final specifications.
“We actually do not see much benefit in outsourcing our manufacturing since we now have a local manufacturing facility based primarily on high-density automation. Obviously, for the larger items, we still undertake manual assembly, but all the smaller componentry is subjected to an automatic pick and place process,” says East.
On the downside, Brecher points out the restrictions that logistics, in terms of the management of the process and exchange rate fluctuations place on moving manufacturing overseas. Lee-Ann Andreka said that language barriers are a major negative factor when dealing with Chinese manufacturing facilities.
“It is also extremely difficult to hand over control of your product manufacturing and quality to a third party. This is exacerbated by the turnaround times on manufacture.” Brent Andreka adds: “This is particularly relevant at the prototype stages when we need to move product quite rapidly into the market to undertake field trials. We simply cannot afford the delays frequently encountered by offshore manufacturing at this critical step in our product cycle.
“In addition, much of the attraction of offshore manufacture, apart from the lower labour costs, is the reduced price of componentry sourced directly by the third party. This however, poses its own risks as you are never quite sure that what is being placed inside the box is of the high standard you would expect if you were sourcing the components directly from an OEM yourself,” he elaborates.
Mitigating risk
Resilience, flexibility in approach and a good sense of humour are prerequisites for anyone intent on succeeding in the local manufacturing environment. Labour action, the recession and a shortage of relevant skills have added further aggravation to the already demanding local environment.
“Interestingly, we have not been particularly hard hit by a shortage of technical people, but rather by a sales force that is capable of understanding technology. We have invested in our own employees by upskilling them and we also sponsor university students in the fields of study relevant to our industry,” says East.
Lee-Ann Andreka concurs with the philosophy of looking after one’s own staff. “This not only ensures a greater level of loyalty and job satisfaction, but it also provides the company with a larger skills pool. We have placed an emphasis on overlapping skills which ensures that there should always be someone available to perform a job if another person is sick, on leave or they leave the company.”
Brecher said that Cathexis has tackled the labour and skills issues around manufacturing by making the transition from hardware to software development based on an open systems platform.
“Local manufacturers desperately need buy-in from government to ensure their sustainability. While a lot of promises have been made, we are still waiting to see whether preference will be given to local suppliers and what incentives will be offered to assist local manufacturers,” Brecher adds.
While the looming threat of cheap, imported goods continues to plague local manufacturers, there is no doubt that the more discerning local and overseas customers do see the value of quality and longevity over cost. However, it would behoove local manufacturers to constantly and consistently direct their efforts into creating and maintaining high service levels in order to win over and keep their customer base.
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