|Exporting Africa: Technology, Trade and Industrialization in Sub-Saharan Africa (UNU, 1995, 434 pages)|
|Part II. Country studies|
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.