|Exporting Africa: Technology, Trade and Industrialization in Sub-Saharan Africa (UNU, 1995, 434 pages)|
|Part I. Exporting Africa: an analysis|
|5. Main findings of the study: a synthesis|
Having entered the export markets, maintaining and possibly improving their market position becomes a major challenge for firms. Understanding this process and gaining insights into the basis of their competitiveness has been a major interest of this study. The likely sustainability of such competitiveness over time and how consistent it is likely to be with overall increases in productivity in the economy were also of interest. Some firms have tried to maintain their positions in export markets by cutting the costs of inputs and other factors of production, while other firms have been improving productivity through searching and learning continuously over time. Only in the latter case is international competitiveness in export markets sustainable.
A competitive strategy would be expected to grow out of a sophisticated understanding of the structure of the industry and how it is changing. The changes that matter may be technological or market requirements. Firms need to maintain and improve their positions in export markets by facing the threats of new entrants and of substitutes and by coping with the rivalry among existing competitors.
The case studies have shown that the main sources of comparative advantage are in the primary activities of production and marketing, with little advantage deriving from the availability of support services such as the providers of purchased inputs and infrastructure. The advantage has been derived from lower-order factors such as low labour costs or cheap raw materials, factors which are relatively easy to imitate and therefore less sustainable. The case studies have indicated that some exporting firms have striven to develop higher-order advantages through sustained and cumulative investment in physical facilities, human resource development and searching.
Making investments in technology improvement
The case studies have indicated that exporting firms maintained and improved their market position by investing in technology and making technology improvements on a continuous basis. Improvements were made either in the production processes or in products. The processes of production were improved in order to cope with pressure to keep costs at competitive levels or to improve product quality (level and consistency). These responses were derived from signals given in export markets.
Older and simpler technology has been found to have an advantage, in that local skills can operate and maintain such equipment more efficiently. The case studies have also shown that efficiency in the use of such technologies can be pushed to its limits by the demands of export markets. For instance, much of the equipment in shoe factories in Zimbabwe is old, but it is also 'appropriate' in that it is operational and is readily maintained with local skills. Productivity, measured in units such as pairs per person per day, is low by international standards (from 7 to 45, with international levels two to three times higher for comparable styles) but the total costs of production, reflecting the written-down costs of the antiquated but operational equipment and relatively low labour costs, would appear to be competitive. This situation may have been favoured by the relatively slow pace of technological innovation in the footwear industry world-wide, as noted in Chapter 4. Productivity could be improved by reducing the number of styles being produced, while cost efficiency is already being improved through more efficient stock control, a spin-off of the present tight monetary conditions. However, given the speed at which technological development in general is moving, such efforts can at best guarantee survival for a while. In the longer run, investment in newer technologies is necessary. Some firms have started to do that already. For instance, Bata installed new export production lines in Gweru in 1993 and has just commissioned a three-colour screen printer at its Kwekwe factory. Coupled with a combined lasting and two-colour plastic sole injection moulding machine, this should make it possible to attain internationally competitive productivity levels for high-fashion sports shoes and sneakers.
Technology improvements have also been made in response to rising costs of labour. In Mauritius, for instance, as labour became less abundant and labour costs started to rise, there was a shift towards less labour-intensive processes. Owing to labour scarcity and the consequent increase in salaries, the paint manufacturing firm in Mauritius has moved to the use of more powerful equipment and less manpower. Although it has a very large share of the domestic market, the paint manufacturer faces strong competition from other domestic producers. The knitwear manufacturer in Mauritius has made significant changes in process and product technologies - the use of more sophisticated equipment and increasing automation. There have also been changes in the type and quality of its products. Fancy knitwear now accounts for 60 per cent of the firm's total output. However, unlike some large leading firms in the developed countries, these changes have not been a result of large R&D investments, since they are based on imported technologies rather than development of production processes by the firms themselves.
Some firms have introduced a number of new technologies in their production processes in order to achieve higher levels of productivity and product quality. For instance, investments in more modern spinning technology in the textile industry have led to higher production rates and higher and more uniform quality than was possible with conventional ring-spinning technology.
The use of new technologies such as computers has started to spread in various fields. Computers are used for general office work in accounting and payroll functions and in some firms they are used in projecting market demand and machine inventories. Most firms also have fax facilities. The use of computers in controlling production processes was limited, although several firms were contemplating the introduction of computer control in selected production processes as a major step towards increasing efficiency, improving quality and raising productivity. The finding that micro-electronic-based technologies are being introduced selectively in some processes suggests that the further development of these technologies in Africa itself may be appropriate and perhaps unavoidable. For instance, Pack (1993) has suggested that, in the short run, relatively low rates of effective domestic protection could be granted to production based on mechanical and chemical engineering but that no protection should be given to production based on electronics or biotechnology The latter industries, it is feared, are associated with rapid changes in technology. However, the separability of these categories (mechanical versus electronic) is more questionable if micro-electronic-haled technologies are becoming widespread, albeit selectively.
Exporting firms have been investing in product design and in quality control facilities as required by export markets. Typical exporting firms have strict quality control systems in place. Quality is regarded as an important part of production, and quality standards are insisted upon at every stage of the production process. In one firm, management said that their in-house training programmes insist that quality and output go hand in hand. A trainee is only brought into the production line after achieving 75 per cent efficiency in both quality and targeted output levels. In other words, the concept of putting quality in the forefront of production is treated as a long-term strategy by companies which have been maintaining their positions in the export business. Investments in product quality sometimes involved moving from labour-intensive methods of production to more automated methods. The introduction of automatic power spraying of paint by Northern Electrical Manufacturers (NEM) of Tanzania was in this sense a necessary investment to achieve the quality standards which were required if the firm was to maintain its position in export markets.
Product design capabilities were found to be limited to copying or making minor adaptations of imported designs following the logic of import substitution. Most of the garment manufacturers said that they had no designers to speak of, except for some women's garments. The local designers generally only copy fashions and trends from overseas. Where firms have, over the years, developed design capabilities, their designs have initially been intended for the domestic market but some have been progressively adapted to the demands and specifications of external markets.
Firms which are manufacturing products whose demand characteristics are specific to the region, such as agricultural machinery, were found to have made the most consistent progress in their adaptations and design capabilities. For instance, Bain and Tinto, making agricultural machinery in Zimbabwe, have design departments staffed by highly qualified engineers and agriculturalists. Both companies have a policy of continuous improvement and innovation, not only to keep up with each other, but with an eye on the export markets in the region. During the fieldwork, it was noted that Tinto was undertaking various capital investments such as the refurbishment of the foundry at the Harare works, the installation of an arc furnace control system to improve energy efficiency and the acquisition of computer-controlled machining centres.
Larger firms have technical development departments which, beside their long-term project development, look into market requirements, especially the need for new varieties of products. However, in general R&D is done on a small scale.
Case studies revealed the introduction of new technologies such as CAD in the design functions. CAD is primarily applicable to small batch-type manufacturing organizations, since resetting becomes merely a matter of selecting and activating different computer programmes For instance, Fashion Enterprises, the leader in women's clothing in Zimbabwe, have acquired CAD/CAM facilities for their long-run production for the export markets. The company's design capabilities have been developed jointly with overseas customers or through promoting its in-house designs for both the domestic and export markets. Both Bata and Superior Shoe manufacturers in Zimbabwe have acquired their own CAD facilities, coupled to laser pattern cutters, in recent months. This technology was first introduced to the Zimbabwean shoe industry through a grant from UNIDO to the Leather Institute, the equipment being installed in the Institute's premises in Bulawayo. It is, unfortunately, not much used at present, although it is available for use by the smaller companies in the industry. The widespread application of such new technologies is still limited by various infrastructural problems.
One major obstacle to the introduction and spread of microelectronics in industry is the lack of resources and the inadequate supportive infrastructure (e.g. constant telephone interruptions and power failures) resulting in constant machinery breakdowns. The telecommunications infrastructure needed for data transmission between user and producer is non-existent or malfunctioning. Already there are problems of inadequate software and difficulties in obtaining specialized components. Moreover, low levels of education mean that most workers are not easily trainable to handle or operate new technologies.
The case studies have shown that firms which maintained or improved their position in export markets had a way of accessing information on changes in technology. The common information channels were international industry journals, international trade fairs and membership of international industry associations. However, it was found that there is very little support by the government and other public institutions in this area. The subsidiaries of TNCs had an edge on other firms because of their connections with the parent companies abroad.
Exporting firms in which important technological functions are performed by foreign individuals and/or firms can have good export performances without necessarily building the local core capabilities which are needed to sustain exports. This phenomenon was found largely in subsidiaries of TNCs. Technological capabilities tend to be limited, since the parent company is responsible for recommending the selection of technology and the recommendations are ordinarily followed by the subsidiaries. The parent companies provide the subsidiaries with the necessary product designs and drawings (e.g. Uniwax of the Ivory Coast gets its product designs from Vlisco of Holland). The subsidiary firms therefore undertake very little technical innovation. At best they possess a technical workshop which undertakes some maintenance and the processing and preparation of designs received from the parent companies. This lack of their own technological capabilities is reflected in the high royalties and technical assistance fees paid by the subsidiary companies to their parent companies, as shown by the case study on the Ivory Coast.
However, it was found that in subsidiaries which had activities which were rather singular, in that they had no exact replica in the activities of the TNC, there was greater willingness to invest in local adaptations and in the development of local technological capabilities. The circumstances make it imperative for the local subsidiary to make modifications and innovations, as the case of Del Monte of Kenya has shown. Many vital pieces of machinery unique to the pineapple industry are made at the firm's own machine fabrication workshop. This innovative workshop produces massive, 120-feet-span boom harvesters in addition to fumigators tailored to local conditions. Some in-house modifications have also been made to mechanical slicers, crushers and sterilizers/coolers. The in-house equipment, though slightly inferior in engineering efficiency, was said 17, to be more reliable, easily serviceable and more cost-effective. In addition, a sugar recovery plant uses waste pineapple skins to manufacture high-grade refined sugar. The refinery provides 20 per cent of the cannery's sugar needs and has helped the company to integrate its activities.
The position of those who have argued that TNCs and their subsidiaries can be effective vehicles for raising productivity because they choose appropriate factor proportions, provide advice on the purchase of appropriate equipment and can advise on marketing (e.g. Pack, 1993) is supported by evidence from this category of TNCs. But the findings from the case studies do not seem to support this position as a generalization for all TNC activities in Africa.
Human resource development as investing in learning
Improvements in the production processes or product technology need to be accompanied by a labour force which has the skills to utilize such technologies efficiently. It was found that many exporting firms maintained or improved their position in export markets by investing in training the workforce and upgrading in-house labour skills and by making efforts to engage expatriate staff for selected activities for which local personnel did not have the requisite capabilities.
It has been pointed out in the previous section that firms have maintained their positions in export markets by making continuous investments in technological upgrading. The human resource requirements to cope with these technologies are also changing. The case studies have shown that the level of formal education among the recruited workers has been rising. The firms indicated that this has been encouraged by the need for flexible labour skills and rapid learning to operate new machinery and more sophisticated technologies. Thus firms which were recruiting primary-school levers in low-skill jobs are now recruiting secondary-school levers (holders of 'O' level or 'A' level certificates). Graduates are increasingly replacing secondary-school levers for middle-level jobs. These trends imply that industrial demands for higher educational levels will have to be met by further investments in education. Governments may be called on to take the lead in this respect. In the light of these findings, the suggestion that African manufacturing should make intensive use of unskilled labour (e.g. by Pack, 1993) should be received with great caution.
The case studies have shown that various forms of training, in-house, in specialized local institutions and in other countries, were used to enhance production capabilities. Many exporting firms have an elaborate training programme and their production managers indicated that trained labour was an important requirement if the firm was to achieve its production and export targets. Overseas training is expensive and has therefore largely been confined to a few managerial and specialized technical and professional skills. Local training in technical and professional institutions had catered for the training of the majority of staff. A major limitation which came out in the case studies is the absence of specialist institutions for specific industries to teach subjects such as textiles technology, and garment- and shoe-manufacturing technical skills. Lower-level skills were acquired through in-house training, either within the production facility or in the firm's training institute, for those which had one. This is an area in which investments by the state will be necessary.
Interactions with foreign partners was found to have enhanced managerial and technological capabilities but only under certain conditions. Top management or entrepreneurs who had previous experience in commerce and/or industry tended to accumulate learning faster. Their visits abroad could be a useful eye-opener when such visits were well targeted (the experience of NEM of Tanzania being a good case in point). The training of local personnel to replace expatriates was found to be more rigorous in TNC subsidiaries. These firms could take advantage of their greater size to achieve economies of training.
Where the subsidiaries were set up to do simple assembly work and sell primarily in the domestic market, very little learning took place. The main motivation in these cases was to gain access to the market of the country in which the assembly activities were located and to neighbouring countries whose domestic markets were not big enough to warrant the setting up of similar assembly activities (e.g. exports to Burundi by Matsushita Electrical Manufacturing Co. in Tanzania). The kinds and level of skills that were required were rather low and could be acquired in-house through on-the-job training without requiring any high level of formal or professional training. In spite of the emphasis these firms placed on local training, there were fewer opportunities for the indigenous workers to upgrade themselves technologically. This is partly because they worked on assembly lines which were labour-intensive and in the least skill-intensive parts of the production process. There is thus little incentive to search for or train more skilled operators and technicians. Recruitment has thus been focused mainly on primary-school levers (seven years of schooling) who are then trained on the job. The lack of opportunities is also partly because the areas with the greatest potential for enhancing capability acquisition are reserved for expatriate personnel. For instance, in the case of Matsushita Electrical Manufacturer in Tanzania, the top management is foreign and most of the training for local workers has therefore focused on manual skills. There has been little training to enhance indigenous management, administrative and marketing capabilities.
The TNCs which were manufacturing locally for world markets were making considerable investments in training. For instance, Del Monte of Kenya placed great emphasis on training local employees in all relevant fields, on both the management and technical sides of its operations. Employees in the agricultural, canned foods processing, management, finance and accounting departments of the firm are all likely to go through the company's training department at least once in their careers. Their training needs are assessed every year. The firm uses both in-house and local training institutions and works closely with the government's Management Training and Advisory Centre, the Directorate of Industrial Training and the Kenya Polytechnic. The firm's internal courses are supplemented by on-going local management programmes conducted by reputable local firms, and several staff members are sent overseas for further training and practical experience within the Del Monte network every year. These on-going training programmes have enabled Kenyans to take up senior posts. In the past two years, the number of expatriate employees has dropped from 20 to 9, all of whom hold highly technical or senior management positions. The productivity of labour also increased. Between 1980 and 1990, the total labour force increased by 20 per cent, while canned pineapple production increased by 142 per cent, leading to a decline in the share of labour costs in total output from 10.4 per cent in 1970 to 7.1 per cent in 1990.
As the case studies have indicated, training is an important source of capability acquisition for even low-technology activities. With the emergence of new technologies, the demands for higher levels of education and professional training are increasing. Many firms have made investments in staff training but this is largely on-the job training and other kinds of short-term training which may not be sufficient to develop the capabilities to handle the more demanding stages of industrial development. Many firms could not train their staff at a higher technical or professional level because they lack resources and face the risk of losing staff after training them. Training within firms can expand the base of required human resources but it cannot be a substitute for investment in basic and higher formal education for higher-level managerial and technical personnel. At higher levels of industrialization, the demands for government intervention in investment on education, especially in technical and engineering areas, is likely to increase. There is a strong case for the government to provide the levels of formal education and training needed to acquire industrial capabilities.
Organization of production
A new technology may or may not conform to the core capabilities of a firm. If it does not, a change in some of the core capabilities may be required. A change in management and organization systems is often necessary. In the long term, organizational changes are needed to enhance dynamic innovative capabilities.
The case studies show that some of the firms which were maintaining their positions in the export markets through undertaking continuous investments in technology, training and marketing had also taken initiatives to change the way they organized production. For example, Bain of Zimbabwe has benefited in recent years from an International Trade Centre project which seconded a master welder to assist in improving performance on the shop floor. Apart from offering training in welding skills and suggesting changes in component design to improve weld strength and overall finish, the person concerned also made suggestions about plant layout, handling equipment and maintenance. The changes implemented have had a marked effect on efficiency. In response to increasing competition, Tinto has taken steps to improve its production management system. By employing a local consulting organization, the Kawasaki Production System has been introduced. This is essentially a 'just-in-time' production system, which has been particularly successful in improving productivity and efficiency at the Norton factory. There have been significant financial savings from reducing the amount of work in progress, which has also allowed for a 60 per cent reduction in working space.
Investing in marketing capabilities
Firms which invested in marketing, either by building in-house capabilities or by engaging various types of marketing services, managed to follow changes in the export markets and to make adjustments in response to the signals which came from the market.
Investments in marketing have taken the form of building in-house capabilities by strengthening marketing departments. Firms chose one or more of the following channels for marketing their products in export markets: using overseas agents, making direct contacts with some chain stores, posting their own agents in export markets and relying on the assistance of national external trade institutions.
Larger companies were more likely to be able to afford to set up their own agents in marketing offices in the export market. The subsidiaries of TNCs had an advantage in that they already had established offices which could handle marketing functions in many countries.
Some firms continued to sell in export markets, even at a loss, for the sake of maintaining their market positions while they were making the investments in technology necessary to improve their competitiveness. This kind of exporting at a loss is an investment, provided it is a matter of temporarily holding onto export markets while specific core capabilities are being built or strengthened.
Small and medium-size firms may find the investments needed to build core capabilities in marketing beyond their means. In these cases public institutions for handling trade matters such as organizing trade fairs and establishing contacts can be very useful. Institutions such as ZimTrade of Zimbabwe, the Board of External Trade in Tanzania and the Kenya External Trade Authority were established to play that role. Many firms in the case studies benefited from the services of these institutions but it was often said that their effectiveness needs improvement.
The trade-production nexus
The trade-production nexus was manifested in two forms. First, the contacts which were made in the trading phase with consumers or with suppliers enabled firms to accumulate capabilities and knowledge about the characteristics of the markets and of suppliers. These contacts were a useful asset when these firms entered the manufacturing stage. Second, as some firms shifted from trading to manufacturing, part of the family continued with trading activities and some of them were located abroad. The local manufacturing firms then made use of the family connections, who acted as trusted agents and 'marketing offices' abroad. Networking with family members in foreign countries has been useful in getting access to information about market opportunities and sources of technology. Such family connections were found very effective in Mauritius, in Zimbabwe within the white community and in Tanzania and Kenya within the Asian community. A large number of these contacts were retained and operated as networks through which new ideas about changing technological and marketing conditions were disseminated, contributing to the improvement of firms' positions in export markets.
Exporting firms which are subsidiaries of TNCs have benefited from a production-trade nexus of a different kind. Through their global networks of companies, TNCs in resource-based activities have engaged in the production and processing of primary resources and trading in the final products. Either they control the source of raw materials by developing their own plantations or, by establishing processing activities at the source of the raw materials, they have priority over procurement. For instance, the production of cotton is highly dispersed world-wide but its marketing is concentrated in the hands of a few big traders (notably 15 cotton traders of whom two are European companies, eight are US companies and five are Japanese trading houses). The coffee market is dominated by a few trading companies (General Foods, Nestlé, Suchard).
Even in areas where TNCs used to procure the raw materials from local producers, technological developments are opening up possibilities for them to establish their own plantations. For instance, tissue-culture coffee trees have already been planted in large plantations (mainly by multinationals such as Nestlé) in Malaysia, Singapore and Indonesia with an eye on the Japanese market (Brown and Tiffen, 1992). Trading activities are also carried out by their own companies.
In clothing production, barriers to entry are low, but in the garment trade large OECD-based buying groups dominate the market, using their vast purchasing power to influence the design, quality and price of garments. The degree of concentration in international buying is very high, so, instead of making direct investments, buying groups use their assets to undertake non-equity forms of investment in developing countries, mainly in the form of international subcontracting and licensing of trade marks and brand names (OECD, 1989).