|Exporting Africa: Technology, Trade and Industrialization in Sub-Saharan Africa (UNU, 1995, 434 pages)|
|Part II. Country studies|
Prof: R. Lamusse
Phases of industrialization
The industrialization of Mauritius has gone through three distinct stages: the import substitution (IS) phase which began with the creation of Development Certificate enterprises in 1964: a mixed phase following the passing of the Export Processing Zones (EPZ) Act in 1970, characterized by a combination of IS and export-oriented (EO) strategies; and a third phase in which industrialization strategy and policy became almost exclusively oriented towards exports, during which a number of measures were taken to liberalize trade and prices and reduce exchange control restrictions. Yet a number of features of the earlier IS period remain, especially in the form of high import tariffs on a large number of commodities.
Thirty years ago, Mauritius was in many ways a typical monocrop plantation economy, virtually entirely dependent on sugar, which, with its by-products, accounted for some 98 per cent of total exports. There was, however, one way in which the Mauritian economy differed from many other plantation economies: the sugar industry was predominantly owned and controlled by local interests, rather than by foreign companies. This had led to the emergence of an indigenous business class initially consisting of the planters and their affiliates in commerce, banking, garages and workshops. The development of the sugar industry thus gave rise to a network of local supportive activities and a supply of local entrepreneurial talent. Much of the surplus arising from sugar was at that time exported but the existence of a local plantocracy and of a locally generated surplus were important factors in the later development of manufacturing industries.
The development of manufacturing was originally seen as a means of job creation. During the 1950s, the rate of population increase was some 3 per cent per annum. The problem was how to find employment for the growing labour force. Meade (1961), argued that the sugar industry could not provide any substantial volume of increased employment and that other agriculture was likely to provide employment for only a strictly limited, if appreciable, labour force. Since it was assumed that local savings were a limiting factor, Meade argued that it was necessary to choose labour-intensive industries. Although the point was not made, these would be industries employing low-level technologies.
During the 1960s several measures were taken to encourage industry. Development Certificates (DC) were granted to selected enterprises, entitling them to income tax and other concessions. Industrialization was envisaged in terms of IS, with the certificates going to enterprises which produced for the local market. An existing Agricultural Bank was transformed into the Development Bank of Mauritius, with responsibility, inter alia for helping to finance industry. A complex structure of import duties and quotas helped protect industries in the home market, while the exchange control system made it expensive to export capital and more profitable to employ local savings in local manufacturing.
Export processing zones
These measures had a degree of success, but by the early 1970s, the limited scope of import substitution industrialization (ISI) in a country with a population of less than one million and a low per capita GDP was increasingly felt. Export industries became the focus of attention. The critical measure was the Export Processing Zones Act (1970). In addition to very favourable tax concessions, the Act permitted firms to import commodities used in the enterprise free of duty.
These measures had the effect of creating two classes of industrial enterprise - 'DC enterprises' and EPZ enterprises'. The DC firms remained IS enterprises and branched into exports to only a very slight degree, while the EPZ enterprises were allowed to sell their products on the local market to only a limited extent. It is possible that the failure of DC firms to diversify into export markets reflected their cost structure, which had developed under protection and was thus unable to compete outside Mauritius.
In spite of a levelling-off during the past five years, the EPZ sector has been the most dynamic part of the Mauritian economy. By 1991, manufacturing accounted for 23.3 per cent of the GDP at factor cost. Of this the sugar industry accounted for 2 per cent, EPZ businesses for 12.1 per cent, and other manufacturing for 8.5 per cent. Exports of manufactured goods other than sugar, which were negligible in 1961, amounted to 67 per cent of total exports in 1991 - virtually all from the EPZ.
The success of the EPZ - especially during the 1980s - was due to a variety of factors. Mauritius had a reserve labour force of literate women who were readily trainable for semi-skilled production jobs and whose wage levels were internationally competitive. The island benefited from preferential access to the European market. Various Hong Kong enterprises were seeking new locations in preparation for the take-over by China in 1997 and were attracted by the low wages and political stability of Mauritius. The growing Mauritian business community was seeking new opportunities for profitable investment.
All these factors served to encourage investment in the EPZ and to provide the labour force required. But the EPZ has its weaknesses. Because of low wage levels, and in line with government objectives during the first phase of industrialization, it attracted industries with a high labour/capital ratio. Thus in September 1982, 83.9 per cent of employment in the EPZ was in wearing apparel and a further 5.9 per cent in textile yarns and fabrics. All other industries accounted for only some 10 per cent of total employment. But wages have been rising and there is no longer a reserve labour force. Further expansion based on cheap, literate and plentiful women workers is no longer a viable option. The creation of a single European market raises doubts concerning the conditions of access of Mauritius' products to its traditional markets.
Mauritian society has undergone a process of rapid economic and social change and modernization over the last three decades. Previously, Mauritius could be described as a remote, secluded, peripheral, colonial society. Its history of colonization and settlement and the sugar industry produced a society of great variety - a kaleidoscope of races and cultures.
During the last thirty years the island has undergone an accelerated process of development under the pressure of external and internal events. In the first place there was the population explosion and its aftermath. The Mauritian population doubled between 1948 and 1970, leaving Mauritius to cope with a young population, with its challenge to traditional cultures and values, and a rapid increase in the labour force as the younger generations reached working age and entered the labour market. Thirty years ago, families with six or seven children were common: today the typical family has two or three children. Girls stay longer at school, the age of marriage has risen and social attitudes which used to inhibit the employment of some girls have been relaxed.
Secondly, there was the spread of education at the primary and secondary levels. Increasing amounts are being spent by families on education as a means of fulfilling rising aspirations. Education is a fundamental factor and a powerful catalyst in the process of modernization. It improves the quality of labour and enhances its attitudes to social mobility and aspirations. But it may also lead to frustration and maladjustment if the job opportunities do not correspond - as they rarely do in developing societies - to the expectations of school-levers. In that sense the rapid spread of education in the island in the 1960s and 1970s, while desirable in itself, may have aggravated the imbalances, both quantitative and qualitative, between job opportunities and the aspirations of school levers.
The third important element in the rapid transformation of Mauritian society was the political and constitutional events which preceded and followed the island's independence in 1968. The strong democratic tradition which developed in Mauritius. and the country's political stability, was very important for the success of the industrialization strategy. More recently, political events, particularly the 1982 general elections and their aftermath, have been instrumental in securing continued popular support for the measures taken by government under the structural adjustment programme (SAP) which in many respects has transformed the local economic environment.
A fourth feature is the mobility and adventurous spirit of Mauritians who' especially after World War 11 and in the late 1960s, have created a substantial Mauritian 'diaspora'. A large number of Mauritians left the island to work and settle in Europe, South Africa and Australia but they retained ties with their families in Mauritius. As a result, new ideas and attitudes were disseminated within the family network and contributed to the process of change.
Another factor in the process of social change in Mauritius was the opening up of the island itself to the rest of the world. The establishment of frequent air services with Europe, Africa, Asia and Australia and the development of the tourist industry had a profound effect on the attitudes and aspirations of the people. The success of family planning and the consequent drop in the birth rate in turn freed more women from household chores and the care of children for work outside home.
The future of Mauritian industry
In the search for new patterns and new emphases, we must distinguish between the reactions of the local business community and those of investors from abroad. The Hong Kong firm has little to lose from closing down in Mauritius and starting again in another location where wages are lower and trainable workers are available. The locally controlled enterprise has a greater incentive to seek new solutions inside Mauritius.
Industrial development must continue to be predominantly for export. Such industries must therefore be competitive on world markets. They can no longer base their competitive position on cheap labour. They must rather look to increasing labour productivity for continued expansion. One possible means of raising labour productivity is through the use of high technology. This would be a new departure in Mauritius. None of the existing industries employs high technology; the predominant industry -the manufacture of clothing - typically employs low technology. Mauritius lacks the research and development base for high-technology industry. Many enterprises might see the move as a high-risk option. But steps are being taken to strengthen education in science and technology as a preliminary move towards a more science-based industrial structure. The questions to be asked are:
· How realistic is it to see high-technology industry as the dynamic for the next stage of industrial growth?
· What measures could be taken to encourage and assist the development of such industries?
· Are existing firms appropriately structured to move into such industries? If not, how could they be helped or encouraged to do so?
· Are there alternative strategies which would enable Mauritian industry to compete on world markets?
History and structure
Our sample of seven firms includes three import substitution enterprises (ISEs) which produce for the domestic market, with exports accounting for a marginal share of total output. Their entry into export markets has been a fairly recent development. It also includes four export-oriented enterprises (EOEs), which may sell only a small proportion of total production on the local market, under certain specified conditions. The three ISEs are a firm producing chemical fertilizers, with a virtual monopoly of the domestic market, a firm producing edible oil, also with a predominant share of the domestic market (formerly with a monopoly on the domestic supply of edible oil) and a paint manufacturing enterprise. The EOE firms include the leading exporter of knitwear, which is the world's third largest exporter of Woolmark products, a producer of cloth for shirts and trousers, an enterprise producing canned tuna and a small jewellery firm: a fairly wide range of firms, all occupying a vantage position in their respective fields.
The historical background
As expected, the establishment of most of the ISE firms antedated that of the EOE enterprises. The paint manufacturer started to operate in 1964, the edible oil refinery firm in 1968 and the fertilizer firm in 1975. Two of the EOE establishments - the knitwear factory and tuna canning plant -began to operate in 1972 and the other two in 1988 and 1990 respectively.
In the case of the ISE firms, the main reasons for their establishment were the existence of a sizeable domestic market, the availability of land in proximity to the harbour and the incentives given by the government under the DC Scheme. Initially the edible oil and chemical fertilizer firms were granted a monopoly on the local market under certain conditions as to the price, quantity and regularity of supplies. This situation was summed up by the manager of the oil refinery, who said that 'Oil is a political commodity.' Both enterprises operated in a highly regulated environment. It would appear that this close monitoring of operations by the authorities did handicap their performance to some extent. These two ISEs operated on a fairly large scale with substantial equity and the financial participation and backing of large local groups. The third ISE - the paint manufacturer- began as a small family concern with a mere Rs 140 000 in seed capital. At that time all paints were imported from South Africa and Europe by a number of firms. With a booming economy, market conditions were good and the enterprise rapidly increased its share of the local market.
The EOE firms were set up as export enterprises. The knitwear firm was created mainly to take advantage of cheap labour and the privileged access of Mauritius to the then EC market. It was created initially by Hong Kong investors with a minority Mauritian participation. After a few years the Hong Kong shareholders were bought out by Mauritians and since 1977 the company has had an entirely local shareholding. The bulk of the shares is held by a local investment company belonging to a large sugar group.
The tuna canning enterprise was established and operates under a very different set of conditions. It is a joint venture between local and Japanese shareholders. One of the Japanese shareholders owned a fishing fleet and used Mauritius as a transshipment base for its catch of albacore tuna. The establishment of a local tuna canning plant was thus seen as a logical outcome of its other activities in the region. Cheap labour, good shipping facilities and the privileged relationship of Mauritius with the then EC were other considerations.
The manufacture of cloth for shirts and trousers started in 1990. The plant was established by a conglomerate of local and overseas interests and was planned and heralded at the time as a significant move towards high-fashion and high-technology production in clothing manufacture and exports. The firm was equipped with the latest textile machinery available on the European market. However, due to a defective marketing strategy and a narrow and excessively concentrated customer base, sales collapsed and the firm was placed in receivership barely two years after its creation.
The jewellery firm was created by a local group with extensive experience in jewellery and precious metals. This group pioneered export processing in the island with the establishment in 1970 of Microjewels, a firm producing industrial jewellery. It is a joint venture with French partners. The Mauritian side provides the capital, technology and managerial skills and the French partner looks after marketing.
The role of partners
The role of partners varies according to the nature of the product, the scale of operations, the capital structure and the type of market.
In the case of the fertilizer firm, local importers of chemical fertilizer and a foreign (American) company decided to set up a fertilizer factory. The American shareholder provided the technology and the local shareholders - essentially the sugar industry - were the clients. Today it is a public company with entirely local shareholding, in which no individual shareholder holds more than 15 per cent of the shares.
The oil refining firm was created by a foreign promoter in partnership with a local firm. The initial share capital was Rs2.5 million and the firm obtained a loan from the Development Bank of Mauritius. All the former oil importers were invited to subscribe to the capital and were offered a quota and commission on sales. The company is now listed on the Stock Exchange, which has fed to a large increase in the number of shareholders. There is now only one overseas shareholder, who owns 4 per cent of the shares.
As mentioned before, the paint company began as a small family concern. It was the creation of one man, its present managing director and chairman. Funds were initially raised within the family. The company is still family-controlled and managed, though with a wider share ownership. It has entered into a joint venture with another large local paint manufacturer, an affiliate of an important local industrial and commercial group. The firm became a public company in 1989.
With regard to the EOE firms, the role of partners would be expected to be different from those of the ISE companies. As already mentioned, the tuna canning company was set up as a joint venture between Japanese and Mauritian interests. The Japanese partners provided the technical assistance and marketing services and the Mauritian side, a prominent and long-established local firm' managed production and the administrative aspects of the enterprise.
The knitwear firm was set up initially as a joint venture by Hong Kong investors with a minority Mauritian participation. All shares are now held by a local investment company, an affiliate of a large sugar group with extensive financial and commercial interests. The Hong Kong investors initially provided the capital and sales outlets while the Mauritian partners looked after the management. Today the firm provides its own financial, marketing and managerial resources. It has recently set up a production unit in the Malagasy Republic. for the production of basic knitwear, while locally it is shifting to the production of more fashionable fancy products.
The cloth manufacturer is a joint venture between the leading Mauritian commercial bank, a large local insurance group, local sugar companies, international financial institutions and the Commonwealth Development Corporation. The French promoter, with a substantial personal stake in the company, is responsible for the firm's production and marketing strategy.
In the case of the jewellery firm, local partners supplied the capital, technology and management while the French partner was responsible for marketing operations.
The size of the enterprises
With regard to size (in terms of employment, turnover and total assets) there are considerable differences among the firms in the sample. On the one hand we have the large ISE enterprises the fertilizer and edible oil companies - which since their inception have had a virtual monopoly on the domestic market. But the paint manufacturer, in spite of its relatively small size (the workforce is only 151 persons), has now secured 65-70 per cent of the local market.
The EOE establishments also present a very heterogeneous picture according to various measures of size. With 24 production units located all over the island, the knitwear group is by far the leading firm for the production of knitwear. It employs 12 000 people. The tuna canning enterprise also has a sizeable workforce and has substantially increased its production capacity recently with the opening of a new factory in the northern outskirts of the capital. The cloth manufacturer is a medium-sized enterprise with a workforce of around 500. As mentioned before, this firm is in receivership and its future is uncertain.' The jewellery firm is a small, specialized unit. Its activities require a great deal of manual dexterity on the part of the operators: the production process is closer to handicraft than to industrial production. The firm employs only 25 people and value added accounts for 56 per cent of total sales. The total assets amount to just Rs2.1 million.
All firms provide amenities such as toilets, canteens and rest rooms for their workers. In spite of complaints about noise and dust at the fertilizer plant and the cloth manufacturer, working conditions are generally reported to be good. Besides the usual amenities, the tuna canning firm also provides bathrooms and bread and tea. Yet their management complains of high labour turnover. Conditions at the knitwear manufacturer are said to be 'excellent and always improving', yet this firm has a relatively high rate of absenteeism.
The organization of production: inputs and outputs
The chemical fertilizer company produces CAN and NPK fertilizers for the local and export markets. The firm is fairly flexible and can manufacture a wide range of granular fertilizers according to market demand. The edible oil firm imports raw oil, from which it produces edible oil to international standards. In the face of a sharp rise in cost, especially labour costs, and regulated prices, there have been significant changes in both process and product technologies. Production is highly automated and the firm now uses continuous rather than batch processing to deodorize and neutralize the oils. This has resulted in higher-quality products, greater flexibility of production operations and substantial savings in labour and energy. But strict price controls have tended to hinder the firm's development.
The chemical fertilizer and oil refining firms both operate round the clock. The fertilizer firm is capital intensive; the automation of production operations has resulted in more production time and higher efficiency.
The paint manufacturer produces a wide range of products -decorative, industrial and marine paints, primers, undercoat, varnishes, thinners, lacquers, fillers and adhesives, printing inks and resins and continuously seeks to improve the quality of its products. All chemical inputs are imported. The firm has invested substantially in R&D. Owing to labour scarcity and the consequent increase in salaries, the firm 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.
One striking feature of the ISE firms is the fairly extensive range of products manufactured. This demands some flexibility in the technological processes. The EOE enterprises, producing for a wider market and to the specifications of overseas buyers, tend to be more specialized. The tuna canning factory produces canned tuna in oil or brine for export. Inputs consist of frozen fish, cans and oil. The firm also produces pet food and fish meal for the local market. The knitwear manufacturer produces basic and fancy knitwear. Significant changes have been made in process and product technologies - the use of more sophisticated equipment and increasing automation. Some 20 per cent of production is now done on automated machines. There have also been changes in the type and quality of product. Fancy knitwear now accounts for 60 per cent of the firm's total output. The cloth manufacturer produces shirting and trouser cloth from imported yarn, either 100 per cent cotton or blends of polyester and cotton. The firm was conceived as a high-technology venture and was equipped from the start with the latest textile machinery. There has been an improvement in quality standards, with the use of high-quality yarn and with greater quality awareness on the part of the work force due to training and constant monitoring of production and output.
The jewellery producer makes gold chains from imported metal, according to orders and specifications received from its French partners. This is a highly skilled activity which requires much care and precision on the part of the operators. Chains are made by hand with machine assistance.
Exporting history, technology and human resources
With regard to the exporting history of firms, we must again differentiate between the two categories of enterprises. For the ISE enterprises, exporting is a marginal activity, while it is the predominant concern of the EOE enterprises. Of the ISE firms, the chemical fertilizer firm is now exporting more: some 6 per cent of its total output goes to regional markets and East Africa. It is currently targeting the East African market. It approaches customers directly and sometimes also employs local agents. With its limited production capacity, the firm has a competitive advantage in those markets which are small, specialized and not likely to interest larger producers and exporters. Its export market is generally low-income customers.
Roughly the same situation applies with regard to the oil refinery and paint manufacturer, who export to nearby markets. The oil firm targets Preferential Trade Area (PTA) markets and countries of the Indian Ocean Commission (neighbouring islands). Its range of products is intended to meet the demand from customers of all income groups. The paint manufacturer exports both low-quality paints and special products at higher prices.
The growth of the EOEs is closely determined by their success at exporting. In the EOE firms the choice of process and product technologies and equipment is influenced by buyers' specifications.
Under these conditions, firms must adapt continuously to market changes, especially those firms operating in the more fashionable more volatile' higher-value segments.
Their marketing strategy varies according to the type of product. The knitwear manufacturing firm which is one of the most outstanding successes among the clothing export enterprises uses both direct approaches to overseas customers and agents. It exports specialized types of products but it also supplies large overseas retail stores servicing medium-level customers. It has built up a network of over 150 overseas clients, with whom it keeps in close touch, through which it is regularly informed about fashion trends. Its sales staff do regular tours of markets. Exports of fancy knitwear, mainly to France, Germany and the UK, account for 60 per cent of its total output. The firm has built a strong reputation for reliability and high-quality fashion products.
In contrast, the cloth manufacturer has an affiliate company to market its output. All marketing operations are controlled by the major partner and shareholder. The customer base is not strong enough and the firm has been hit hard by the recession in the European clothing industry. The European market takes 95 per cent of its output. The decision to concentrate on exports to upper-market customers in Europe was in the circumstances the wrong choice. Furthermore, the government has penalized the firm for misusing administrative channels in order to obtain duty-free access to the then EC. The government has, in fact, refused to endorse the firm's EUR.1 certificate, which would allow this access. As a result the firm's marketing strategy is now being completely altered. It has started recently to diversify its markets and explore middle- and lower-market segments, both locally and overseas. There are many garment manufacturers in the EPZ to whom cloth could be supplied but they have long-term contracts with overseas suppliers who can provide a vast range of fabrics and styles sought by overseas customers. This explains the difficulty faced in trying to market its cloth on the domestic market. Sales collapsed in 1992 and the firm is now in receivership.
The tuna canning firm sells its output in Europe through one of its Japanese partners - Mitsubishi - which employs intermediaries. The establishment of the canning factory in Mauritius was a joint venture by local and Japanese enterprises, each concentrating on a particular aspect of the operation. KGKK (Japan), which operates a fishing fleet based in Mauritius, was one of the initial promoters and is a major shareholder. KGKK is responsible for technical assistance and the supply of fish. Mauritian partners are responsible for the local operations the capital and management and Mitsubishi markets the product. Increasing competition from other, more efficient suppliers has led to a considerable drop in prices in the European market, where the customers are food distributors and supermarket chains. The by-products of the tuna canning operations - pet food and fish meal - are sold locally.
The jewellery manufacturer operates in a specialized niche. It was established with an eye on the market for high-class jewellery in France. The long experience of the local partner in jewellery and in the management of similar enterprises, coupled with substantial innovative flair, are essential factors. The local firm produces according to the orders and specifications of the French partners.
Development of technological processes
In most cases there have been no major changes in the technological processes employed since the firms were established. No clear link can be seen between the development of process and product technologies and the firms, export performances, although most firms have made some technological changes to adapt to changes in market conditions locally and overseas.
The production processes for chemical fertilizer, refined oil and paint are capital intensive. There has been little change in the case of the fertilizer firm in the technology used since its creation. The oil refinery has moved from batch processing to continuous processing for deodorizing and neutralizing operations. This resulted in products of better quality and savings in energy. They have also introduced consumer retail packs, following the market shift away from buying edible oil in drums.
With growing labour scarcity and the increase in salaries, the paint manufacturer has installed more powerful equipment. New technologies are obtained from visits to overseas suppliers or trade fairs and the firm has invested substantially in R&D to improve quality and to develop new types of products.
In the case of these three ISEs, technological improvements appear to be determined by the nature of the product and by market size. The oil refinery and paint manufacturer have some excess capacity. For the chemical fertilizer manufacturer, demand approximately matches capacity.
The cloth manufacturer was seen from the start as a venture in high technology. Its ill-conceived marketing strategy and a narrow customer base made the firm highly vulnerable to the recession in the European textile industry, and sales collapsed in 1992. This shows strikingly that high technology is not sufficient for success in export markets: adequate marketing strategies and core capabilities are also required.
Human resource development
The types and levels of skills in the firms were fairly comparable. Clerical staff generally have a broad-based education: most of them have passed their 'A' levels. Managerial staff hold a diploma or degree, while production workers have received some form of technical training. The main departments are generally headed by professionals.
Firms have recourse to various forms of training: in-house or on-the job for factory workers, formal outside training for certain (limited) categories of personnel, overseas courses or tours of factories. Some firms have their own in-house training staff. Recruitment procedures vary between firms. Firms may recruit on the local market or from their existing staff. The paint manufacturer recruits through a local agency or through applications received at the personnel department. The cloth manufacturer recruits in both the local and international markets depending on the level and specifications of the position to be filled. The knitwear firm has sometimes resorted to head hunting to fill key posts. Most new recruits, however, join at the lower rungs of the ladder.
In recent years, some enterprises have used aggressive advertising to attract workers. Poaching of workers, especially skilled personnel, is also common. This contrasts with the situation several years earlier, when most enterprises displayed 'No vacancy' posters outside their premises. Labour relations are smooth and healthy. There have been no work stoppages among the seven firms. The chemical fertilizer firm has encountered some problems with shift workers over weekends, which have disrupted production. The institutional framework inhibits stoppages. Industrial disputes have to go through a series of stages of negotiation and if this fails, arbitration. The effect is to reduce considerably the risk of disputes degenerating into work stoppages.
In all the firms covered in the study, remunerations are made up of basic wages, fringe benefits, and attendance and productivity bonuses. The remuneration policies of individual firms are often determined by reference to current market wages and practices.
Wages and conditions of employment in Mauritius have long been subject to extensive government regulations. Through the National Remuneration Board, the government fixes the minimum wage for various categories of labour. There are also annual meetings between government, employers and union representatives to decide on compensation for increases in the cost of living.
The tight labour market has had a number of consequences: higher wages, more generous fringe benefits and a better work environment. Actual wages are now much higher than statutory wages. This has forced enterprises to pay more attention to productivity and cost-effectiveness. Some of the weaker, poorly managed firms have not survived the transition.
The tightness of the labour market has been accompanied by a drop in productivity and high absenteeism, perhaps due in part to the sense of security it has generated among workers.
There were a number of bottleneck factors which helped to determine firms' strategies. Access to finance (short-term and long-term) is not a problem for five of the firms: it is very easy for the jewellery firm and satisfactory for the fertilizer and knitwear manufacturers. It is rather difficult for the tuna canning firm and the cloth manufacturer. Access to managerial and technical skills is easy or satisfactory for all firms except the knitwear firm and cloth manufacturer, where it is rather difficult. Likewise access to technology is not a problem (it was rated easy or satisfactory) in all cases except for the knitwear manufacturer, where it is said to be very difficult. Access to foreign exchange does not appear to be a problem anywhere.
We must again differentiate between ISE and EOE enterprises. The type of market and degree of competition differ between import substitution and export-oriented enterprises, and a firm's strategies are influenced by the type of market in which it operates and the competition which it faces.
Investment strategies for the ISEs relate to more mechanization for higher productivity and up-to-date equipment to keep up with international trends, better process control and substantial investment in R&D to improve the quality of the product, and product diversification. All three ISEs give considerable attention to marketing, which is a predominant element of their strategies.
The oil refinery
The production strategy of the oil refinery seems to have been shaped by its former monopoly position and the need to ensure a regular supply of edible oil of the appropriate quality for the local market. Its marketing strategy changed following the liberalization of oil imports in 1988 and the opening of a competing refinery. Their emphasis is on adapting to changing local market conditions, with the introduction of consumer packs in the place of drums, new brands and sizes, and the development of a new public image. The firm also runs consumer promotions and trade offers. Management control processes include 'proper' qualify control and the Mauritius Standard Bureau Certification Mark.
Product development also appears on the firm's agenda: the firm keeps abreast of changes in the world edible oil industry. Technology search consists of visits to overseas refineries and membership of leading international societies. Project identification and feasibility studies are done by a team with the help of outside consultants (both local and overseas). Besides developments within the firm itself, such projects have been concerned with the creation of successful subsidiary companies for the production of metal containers and plastics. The management team does the feasibility studies.
The marketing strategy of the fertilizer firm is to maintain direct contact with overseas clients and to participate in fairs. The firm has recently adopted an 'aggressive marketing policy' in East Africa. On the production side, the firm's strategy emphasizes higher productivity to reduce costs (chemical fertilizers in Mauritius are subject to price control), and technology research and product development. They also employ management control processes.
The Technical manager and technical department team (i.e. the chemical engineer, mechanical engineers, draughtsman and engineering assistant) are responsible for new projects and investments. The technical manager is in overall control of a project from preparation to commissioning. In this regard he liaises with the other heads of departments responsible for production, maintenance, instrumentation and materials handling.
Internal and external linkages were said to be of equal importance, although it was clear from the answers to this question that the various firms defined these linkages in different ways. The picture which emerges is that of a fairly innovative firm, producing to international standards, with virtual control of the local market and aiming at a breakthrough in regional export markets.
The paint manufacturer, operating in a more competitive market than the other two ISEs, uses a range of marketing strategies such as advertising, public relations, sponsorship of cultural and sporting events and direct contact with buyers. The firm also participates in local and international trade fairs. Recent changes include increases in capacity, better service to customers and keeping a greater variety of products in stock. Project identification and feasibility studies are carried out by the management and financial teams. Such feasibility studies are always carried out before launching a new project or innovation.
Over the years the firm has bought four competing firms which were producing paint for the local market. New products have also been introduced. Since 1985 they have produced inks under licence for Coats SA Ltd. (through a subsidiary company). Activities also include technology search (literature search and visits to suppliers and fairs), expanding its range of products for the local and overseas market, developing internal and external linkages, and human resource development.
With regard to management control processes, standards are set for each type of paint. This was the first paint manufacturer to obtain the MS3 (highest rating) from the Mauritius Standard Bureau.
The industry and market structures within which EOE firms operate are very different from those facing ISE enterprises. EOEs face world-wide competition and sell on open markets. This conditions their strategies.
The tuna canning firm uses chain production and markets its products through an intermediary. The firm's production capacity has been increased but there has been a considerable drop in world prices for canned tuna. The firm is responding by investing in updated technology. Information about new technology is obtained from suppliers and other foreign firms. The firm's objective is to look for more remunerative markets and possible new products. It has an 'independent approach' regarding internal and external linkages.
Performance is gauged in relation to yield (quantity of canned tuna produced per tonne of fish) and output, while quality is checked regularly to conform to buyers' specifications. Wastage is negligible. Provision is made for feedback and corrective action through inspections, reports and factory and management meetings.
The chief operating officer is responsible for new projects. Feasibility studies are done by the relevant departments: i.e. the trading department does the market studies, the production department the technical studies and so on. Each divisional manager is responsible for the preparation, design and commissioning of projects which relate to his division.
Adaptation is the normal condition of knitwear producers. The knitwear manufacturer in our sample has invested in high technology and R&D, with an increasing proportion of fashionable knitwear in its total output. Owing to rising labour costs, the firm has introduced more efficient and better-performing machines and relocated part of its production of basic knitwear to Madagascar. The firm devotes much attention to the search for new and improved technologies. Technological improvements are the responsibility of the directors and heads of departments together with the technical team. The head of a department identifies a new project with the help of his subordinates. Responsibility for project preparation and design lies with the head of department under which the project falls, while feasibility studies are carried out at the appropriate level. It is the selling price of the article which 'decides' the feasibility of the project.
Both the chain approach and the polyvalent team approach to the organization of production are used. The firm's marketing is by direct contact with buyers, with production capacity rather than sales opportunities seen as the limiting factor.
The firm is paying more attention to strengthening external linkages. It has an active training policy (comprising both in-house and outside training) and an R&D department which is very active.
The firm's investment strategies relate to product diversification and R&D. The firm uses the chain approach with specialization in production, although its aim is to introduce the polyvalent team approach. In its marketing strategy, the firm uses direct contacts with prospective buyers, participation in local and international fairs and publicity. The firm's marketing strategy is being completely revised following the collapse in sales described above. The aim is to increase the customer base both locally and abroad.
The firm is continually required to come up with imitations and adaptations because it is expected to offer new customers what they have been buying elsewhere. At the same time the firm must adapt to fashion trends. The firm is not actively searching for new technologies but keeps itself informed through overseas business contacts.
Product development is largely a matter of changes in design. The CAD and technical management departments are fully trained and equipped to conceive and develop new designs and qualities. Changes in designs and the development of new products are done in close collaboration with the marketing commercial division following customer demands and fashion trends. Projects are identified by a team of two or three persons with overseas experience in the relevant field.
The firm is devoting more attention to internal linkages: its aim is to establish excellent communications and team spirit throughout the entire plant. External linkages take the form of contacts with all the textile-related companies in Mauritius. However, we must bear in mind that this firm faces severe financial difficulties following the collapse of its sales on the export markets, and is currently in receivership. According to our latest information, it may have ceased to operate altogether.
The jewellery firm produces jewellery to specifications received from its French partners. The emphasis is on fine craftsmanship, rather than volume of output. The firm has invested in high technology and uses the polyvalent team approach whenever it is possible.
As mentioned before, the jewellery firm is a small, specialized unit in which the general manager directly supervises various stages of operation. The local firm contributes capital, its experience in jewellery and high-precision operations (watch repairs) and experience in the management of similar ventures. All other aspects, including marketing, are looked after by the French partners. There is little real innovation. Change is limited to imitations and adaptations and technology search is primarily carried out by the French partners.
Project identification is done by a team, while a single person is responsible for feasibility studies, project preparation and commissioning. New products are tested with the firm's 'test workers'. The firm provides both in-house and external formal training.
All the firms in the sample, with one exception, occasionally use consultants' services, mostly to meet their training needs. This is particularly important for the knitwear enterprise, which wishes to improve internal communications and to create a sense of duty and responsibility among its workers. Consultants' services are also used by the cloth enterprise for marketing. These services are crucial for the survival of the firm, since it has failed to export the bulk of its production, as it had originally planned. The firm is now engaged in an active search for markets both overseas and locally. Marketing consultants are also used by the edible oil enterprise, partly because it has lost its monopoly over the local market and has to face local competitors as well as increasing imports.
Licensing and management agreements
Only one firm in the sample, the jewellery firm, has a licensing agreement, with its French partners. In fact all its production comes under this agreement. The firm also has a management agreement with the same partners. The paint manufacturing enterprise is producing inks under a licensing agreement too. However, this accounts for a negligible fraction of its total output.
Management agreements with foreign partners seem to be directly related to the level of foreign participation in shareholding. This is evident in the case of the jewellery firm and the cloth manufacturer. However, the cloth firm discontinued its costly management agreement recently because of the firm's financial problems.
The paint manufacturing enterprise set up a joint venture with another local company which was already in the same line of business. The purpose was to obtain a major share of the local market.
Joint ventures are important for EOEs because these facilitate, for the local partners, access to technology, material inputs and markets. Ultimately, joint ventures increase the competitiveness of EOEs. Thus the jewellery firm, which has to compete with well-established jewellers in France, could not have started operating had it not been a joint venture. Similarly, the knitwear enterprise, although very successful internationally, has set up business in Madagascar, where labour costs are lower. Such investments will increase the firm's production capacity and make it more competitive in international markets.
With the introduction of new technologies, new firms would be expected to rely heavily on providers of technical services, unless the firms have their own technical personnel. Only two firms in our sample have so far made use of outside technical services. The edible oil enterprise requires these for the servicing and maintenance of its computers. The knitwear enterprise also has an agreement for the maintenance of its computers, which are partly used for design and production.
Linkages with input suppliers and financial institutions
Most EOEs and ISEs maintain links with their suppliers of equipment to keep up with new types of equipment coming on the market and to evaluate their usefulness. These links are also maintained to ensure that after-sales service and maintenance are provided.
As for links with financial institutions, these refer mainly to links with commercial banks which are used for normal banking transactions. In addition, the services of insurance companies are also required for the insurance of the assets of the firms.
Given the labour shortage which industrialists have been facing in recent years in Mauritius, firms would be expected to shift to more capital-intensive production whenever this is profitable. This is confirmed by two firms in our sample, the paint manufacturer and the knitwear manufacturer. It is also interesting to note that these firms report that they have recently been recruiting skilled rather than unskilled labour, indicating that higher capital intensity may require higher skill intensity also.
Interaction with product market conditions
EOEs in the sample keep up with aggregate demand trends overseas and with changing conditions in their export markets. Business newspapers, specialized reports and contacts with customers provide them with the necessary information. In fact regular links with customers are maintained through personal visits, phone calls and written correspondence. The ISEs also maintain regular links with their local customers through personal visits.
Not all firms maintain links with similar firms or competitors. Four firms in our sample do this indirectly through employer or producer associations. The main objective is to exchange information on their respective industries.
Government policies and regulations
The firms in the sample had little to report in this section of the questionnaire. There has been no reaction to changes in the exchange rates of the major currencies used for trade transactions, although hedging is now possible for exporters as the central bank allows them to engage in forward exchange transactions. Similarly, there has been little reaction to the recent reduction in interest rates (an average of 3 percentage points): only one export enterprise, the knitwear manufacturer, reported that it had increased its borrowings to buy more machinery' as it wishes to increase its capital intensity, given the tight labour market conditions.
To clarify certain points, we have probed deeper into the relation between the export experience of the enterprises in the sample and their level of technology. It appears that the firms generally use modern technology and invest in new and more efficient equipment in order to increase production capacity, improve product quality and cut costs. At the oil refinery, recent purchases of equipment comprise a continuous refining plant (1988) and bottle blowing and filling equipment (1992). The firm now has on order a bleaching and filtration plant. The fertilizer firm has installed a modern nitric acid plant and an NPK plant. Its latest piece of equipment is a high-efficiency nitric acid absorption column acquired from Rhone Poulenc under a licence agreement. The knitwear firm has this year installed new equipment for knitting and dyeing. Its aim is to keep in step with technological improvements elsewhere in order to introduce more advanced production methods to fulfil export orders and cut costs. The firm endeavours to maintain its position on export markets through productivity increases with the use of modern technology. It also achieves cost reductions through better control of raw material, reduction of wastage and just-in-time stock procurement. The paint manufacturer also uses up-to-date technology. The last piece of equipment was acquired in 1992, with the aim of increasing production capacity. The firm uses up-to-date production methods to cut costs and remain competitive. It has secured a foothold in export markets owing to its reputation for quality and competitive prices.
In short, it appears that these enterprises are generally innovative and keep up with technological improvements. Better organization of production and the use of modern equipment for greater efficiency, quality improvement and cost reduction are the main aspects of their competitive strategies. These enterprises purchase their equipment directly from machinery suppliers who generally send their own technicians for the installation of the equipment. Routine servicing and maintenance are performed by the firms' own staff or are contracted out to local workshops.
The next question concerned the extent to which the firms acquired new skills and improved their organization as a result of their export experience. The oil refinery acquired new skills through regular contracts with leaders in the edible oil industry and professional institutions. It claims to have gained considerable experience in achieving customer satisfaction since it introduced a market-oriented strategy two years ago' after a 23-year monopoly of the local market and a production-oriented strategy. The fertilizer firm states that its export experience has been very beneficial in improving its marketing skills. It now has considerable experience and plans to start a free port trading company. The paint manufacturer has introduced new types of products to suit the requirements of export markets. For the knitwear firm, production is directly related to international market requirements and this has necessitated continuous improvements in skills, standards and organization.
How far have the firm's past industrialization histories helped in building skills for subsequent exporting? This question concerned only those ISE firms that have recently begun to export. According to the fertilizer firm, past industrialization experience helped a good deal but 'export is a game which [the firm] had to learn the hard way through extensive marketing missions'. The oil firm for its part attributes its recent performance on export markets to its new market-oriented strategy and its emphasis on consumer satisfaction. In the case of the paint manufacturer, local production enabled the firm to set up a research and development laboratory staffed with good technicians. As a result the firm can now supply 'tailor-made' products for the export market.
Generally it appears that the recent entry of ISE enterprises to export markets builds on experience gained over the years in producing for the local market. To that extent the export market may be seen as an outgrowth of the domestic market. Exporting forms part of a rational strategy for those firms' future expansion and development.
1 The final draft for this contribution was submitted in March 1993. There may well have been changes with respect to this and other companies in this rapidly evolving sector.
Meade, J.E., Report to the Government of Mauritius: The Economic and Social Structure of Mauritius, Port Louis, Government of Mauritius, 1961.