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MAV Corporation Business Expansion Plan from Directors


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Title: MAV Corporation Business Expansion Plan from Directors

MAV CorporationBusiness Expansion Plan from
  • Group 7
  • Ryan M Lucas
  • Kyo Hyug Koo
  • Rian A Maguire
  • Anthony S Martinez
  • Reshel Kurniadi

  • MAV Corp. General Facts
  • MAV Corp. Business and Marketing Strategy
  • Proposal to CEO
  • Demographics and History of South Africa
  • Economic Background of South Africa
  • Key Advantages of Proposal
  • Barriers to Entry and Negative Impacts
  • Final Recommendation to CEO

MAV Corporation General Facts
  • Company founded in 1989
  • Developed 7 large factories over the last 15
  • Has over 1,000 employees

MAV Corporation - Products
  • 100 of MAVs production is passenger cars
  • Specializing in compact, fuel-efficient models
  • Production consists of 5 different models of cars
    and 2 models of small SUVs

MAV Business Strategy
  • Low cost supplier
  • Price range from 12,000 to 25,000
  • Capitalize on cost savings from foreign
    production through exports to American markets
  • To increase sales presence through exports to
    Japan, Europe and other Asian markets

MAV Marketing Strategy
  • Target markets
  • Low to middle income families and singles
  • First time buyers
  • Environmentally concerned consumers
  • Primarily marketed in urbanized environments

Proposal to CEO
  • Develop a market presence in Japan, Europe and
    the remainder of Asia
  • Accomplish multi-national presence by building
    car manufacturing plant in South Africa near
    ports and rail spur
  • South Africa offers central shipping location to
    all major markets of interest

South Africa
  • Located on the southern coast of Africa
  • Total land 1,219,912 sq km and has 2,798 km of
  • Abundant natural resources
  • Large portion of land unusable for irrigation

Demographics of the People
  • Population 42,718,530
  • 65.3 between the ages of 15 and 65
  • Median age 24.7 years
  • Ethnic groups
  • Black 75.2
  • White 13.6
  • Colored 8.6
  • Indian 2.6
  • Literacy rate 86.4
  • Unemployment rate 31
  • 11 official languages

Social History of South Africa
  • Racial conflict date from the Dutch arrival at
    the Cape of Good Hope in 1652
  • European established a company to acquire goods
    to re-supply its ships
  • Europeans took up arms and drove most of the
    local population into the interior
  • Expanded the use of slave labor

A Time of Change
  • The discovery of minerals in the late nineteenth
    century--diamonds in 1867 and gold in
    1886--dramatically altered the economic and
    political structure of southern Africa
  • Valuable resource that attracted foreign capital
    and large-scale immigration

Government and Economic History
  • In the early 1900s, laws were put in place to
    ensure that Africans would have to seek jobs from
    white employers
  • Many Afrikaners pooled their funds to established
    banks, insurance companies, etc to wrest a
    portion of the economy out of the control of
    English businessman
  • In 1948, the National Party won the election on
    its apartheid platform
  • Blacks, led by Nelson Mandela, rose up in protest
    against apartheid in the 1950s
  • Government banned all organizations opposed to
    apartheid Nelson Mandela was sentenced to
    imprisonment for life

Growing Economy
  • Despite growing international criticism for
    apartheid, the governments success in capturing
    its enemies fueled an economic boom
  • Foreign investment more than double between 1963
    and 1973
  • Beginning in 1973, people grew fearful of
    instability in South Africa, causing foreign
    investors to withdraw their money or move it into
    short-term rather than long-term investments

Democracy Introduced
  • Through the 1970s and 1980s, the world publicly
    denounced the apartheid, causing the value of the
    Rand to collapse
  • On May 9, 1994, Nelson Mandela was unanimously
    elected president by the National Assembly
  • The government has made substantial progress in
    expanding social services, health care, and
  • The continuing violence and political uncertainty
    contributed to a steady decline in the value of
    the Rand in late 1996 and early 1997

Destination for Private Sector and Foreign
  • The government is offering incentives to increase
    foreign participation in South Africa
  • The Ministry of Finance outlined new economic
    strategies aimed at
  • liberalizing foreign-exchange controls
  • imposing stricter fiscal discipline
  • lifting of import tariffs and exchange controls
    to expand foreign trade
  • Pressing for fiscal responsibility,
    private-sector development is likely to receive
    even greater emphasis in the early twenty-first

Economic Background (I)
  • The automotive sector is a fast growing industry
    in the South African economy
  • This sectors contribution to the GDP in 2002 was
    6.3 up from 5.7 in 2001
  • The close correlation between vehicle sales and
    GDP growth is a positive sign for the future
    since GDP is forecasted to grow by over 16 over
    the next 3 years
  • All major multinational motor vehicle
    manufacturers are represented in SA, some of
    which share the same manufacturing facility

Economic Background (II)
  • There are 7 passenger car assemblers, 12 medium
    and heavy commercial assemblers and 8 independent
    importers currently operating in South Africa
  • In the automobile component part sector, there
    are approximately 270 first tier suppliers and
    over 300 second and third tier suppliers
  • Persons per passenger car in South Africa are
    10.2 to 1. The major proportion of vehicles are
    however 10 years and older

Multinational Motor Vehicle Manufacturers
  • The leaders in the passenger car sales segment in
    the domestic market during 2002 were
  • Volkswagen South Africa with a 22 market share
  • Toyota with a 19.5 market share
  • Industry is mainly concentrated in Gauteng,
    Eastern Cape, and Kwazulu-Natal, all located near

Multinational Investments
  • Investment in the vehicle assembly industry has
    increased steadily since 1995
  • From 2001 to 2002 investment increased by 14.6
    following the 31.2 increase from 2000 to 2001
  • The German OEMs were first to reap the benefits
    of the Motor Industry Development Programme
    (MIDP), and as a result, have increased their
    investments in South Africa for solid financial
  • It is expected that General Motors recent buyout
    of all Delta shares will result in component
    suppliers expanding their presence in South

Other Key Industries in South Africa
  • Agro processing
  • Banking and Finance
  • Chemicals
  • Food and Beverages
  • IT and Electronics
  • Mining and Minerals
  • Tourism
  • Telecoms
  • Textiles

Industry Advantages
  • Infrastructure
  • Flexible production ability
  • Raw material availability
  • Labor and Productivity

Key Advantages
  • Location
  • Access to Ports
  • Large population in surrounding areas
  • Stable Employment Rates Nationwide
  • Ample supply of able-bodied laborers
  • Low wage rate average
  • Educated labor force

Governmental Advantages
  • Multiple Tax Breaks including
  • Import and Export taxes
  • Property taxes
  • Corporate Income taxes
  • Further Capitalization incentives for expenses
  • Accommodating Monetary Policy

Governmental/Economic Advantages
  • Low interest rates
  • Allow us to borrow at lower rates than we could
  • Low inflation rates
  • Encouraging statistic for long-term growth

Economic Advantages (I)
  • Price Stability for Raw Materials
  • In real terms, domestic prices have actually
    decreased due to the increasing strength in the
  • Exchange Rate Benefit
  • Thus far in 2004, the Rand is the strongest it
    has ever been

Economic Advantages (II)
  • Positive Business and Consumer Sentiment
  • Strong Replacement Demand
  • Enhanced New Vehicle affordability

Manufacturing Advantages
  • Ample Supply of Most Raw Materials
  • Large rail network and port location will allow
    for lower transportation charges
  • Capital expenditures have increased by 700 over
    the last 4 years

Manufacturing Advantages
  • Production capacity nationwide has increased 33
    Over the last 4 years

  Year 2000 Year 2001 Year 2002 Year 2003 Q1 2004 Q2 2004
Cars 66.1 72.2 73.2 77.2 72.3 81.4
Light Commercials 60.2 62.6 70.6 69.6 68.1 68.5
Medium Commercials 64.2 69.8 67.8 60.7 60.3 56.0
Heavy Commercials 74.8 78.1 85.7 85.6 85.0 84.9
Manufacturing Advantages
  • Domestic passenger car sales have increased 23.9
    over the last 12 months

Manufacturing/Sales Advantages
  • Per day selling rates have increased by almost
    62 over the last 10 years

Barriers to Entry
  • Language barrier
  • Low availability of Steel and Rubber
  • Supply problems due to vendors lack of logistics

Negative Social Impact
  • High crime rates
  • Both organized crime and petty street thugs
  • AIDS epidemic over 21 of population has
  • Water shortage
  • Lack of major arterial rivers

Negative Economic Impact
  • Decreased exports
  • Due to increasing strength of Rand

Final Recommendation
  • MAV Corporation SHOULD go through with
    development of a factory in South Africa
  • MAV Corporation needs to act fast as the MIDP
    will end in 2012

Auto Industry overview
  • The auto industry is one of the key
    oligopolistic, dynamically complex and networked
    global industries.
  • To produce car, which consists of some 20,000
    parts and components, a producer needs to
    orchestrate the logistics and assembly of various
    kinds of input factors such as steel, glass,
    rubber and plastic, semi-assembled components
    though many manufacturing technologies that are
    spatially distributed and located
  • Therefore, this industry has specific impacts on
    other industries that arise from vertical
    integration functions across producing countries.

Competitive Advantages
  • Infrastructure -SA has one of the best
    infrastructure and service industries among
    developing nations, particularly in roads,
    telecommunication, harbors, banking systems,
    insurance and shipping. With its 3000 kilometers
    of coastline and 7 commercial ports, SA has by
    far the largest and best-equipped network of
    ports in Africa. With the major upgrading of
    these ports underway, SA will be able to function
    as a hub for increasing commercial traffic
    emanating from and destined for Europe, Asia, the
    Americas as well as the east and west coasts of
  • Flexible production ability -The SA automotive
    industry has retained its ability where single
    production facilities manufactured a range of
    quality products at competitive prices to satisfy
    the domestic market. Given this flexibility, SA
    has a unique competitive advantage when it comes
    to low volumes, such as the case with lower
    volume vehicles and niche markets or at model run
    out, compared to other countries where production
    is set up for long runs.
  • Raw material availability- SA has an abundance of
    raw material availability including steel,
    stainless steel, aluminum, chrome, plastics,
    leather and precious metals.
  • Labor and Productivity
  • The African Growth and Opportunity Act (AGOA)

South Africa Key Other Industries
Industry Description Major Companies
Agro processing SA is a food self-sufficient country and the bulk of the populations food needs are produced locally from raw materials. Unilever, Nestle, Coca-Cola, Danone, Kellogs etc.
Banking and finance 55 locally-controlled banks, 5 mutual banks, 12 foreign-controlled banks, 9 branches and 60 representative offices of foreign banks. ABSA, First National Bank, Standard Bank, Nedcor
Chemicals The largest manufacturing sector of the SA economy, accounting for 5 of the gross domestic product. 4 Oil refineries, Sasol, PetroSA
Food and Beverages Flour, beer and malt, slaughtering and preparing meat, canning and preserving of fruit and vegetable, wine
IT and Electronics SA has three cellular network operators, and a base 5 million mobile users. Siemens, Alcatel, SBC, Telecom Malaysia, Cell C, and Vodaphone
Mining and Minerals South Africa holds the worlds largest reserves of gold(35), platinum group metals(55.7), manganese ore(80) chrome ore (68.3) titanium metals (21) DIAMOND
Tourism South Africa tourism industry is valued 10billion a year
Telecoms South Africa is the telecommunication leader on the African continent. Nexus Connexion
Textiles A major boost to the industry has been approval of South Africa by the U.S.A. for benefits under the Africa Growth and Opportunity Act (AGOA)
Labour and Productivity
  • Significant advantages in terms of raw materials
    and labor
  • Union-employer partnership focus on results and
    quantum improvements in productivity and flexible
    skills direct labour cost in the vehicle
    assembly industry has been reduced by 30 over
    the past 5 years.
  • Average labour costs/month for an operator
    amounts to approximately US1.05/hour, for a
    technician to approximately US 4.65/hour and for
    an engineer/professional person to approximately
    US 1 700/month. Cost excludes medical, pension
    and car allowance contributions by the employer
    ranging between 30 and 40. (2002 US R10.52)

Labor costs (SA Rand vs. US ) (1US R10, 52)
Activity Operator Technician Manager
Basic 1.05 p/hour 4.65 p/hour 1 700 p/month
Purchasing Parity Price Rate (PPP rate) 2.90 p/hour 12.87 p/hour 4 773 p/month
Pension 7.5 7.5 7.5
Medical 15 15 15
Car allowance N/a 10 17.5
Food allowance 7.5 7.5 N/a
  • The PPP rate on 1/1/2002 was R3, 80 1US .
    This rate represents the rate of a comparable
    fixed basket of commodities purchased in SA and
    the USA.
  • Source DeLoitte Touche

The African Growth and Opportunity Act (AGOA)
  • The African Growth and Opportunity Act (AGOA)
    represents a non-reciprocal gesture by the USA
    aimed at assisting growth and development of
    sub-Saharan African countries by extending duty
    free and quota free access into the USA market in
    respect of a broad range of products for a period
    of 8 years. SA, together with 37 other African
    countries had been designated as an eligible
    country in terms of the Act.
  • The effective commencement date of the duty free
    access provisions in terms of AGOA is 1 January
    2001 until 30 September 2008. Various automotive
    components and, importantly, motor cars as well
    as motor vehicles for the transportation of
    persons and of goods will, subject to rules of
    origin, qualify for a duty free and quota free
    access into the USA. In terms of the rules of
    origin SA products exported to the USA must
    represent at least 35 of the free on board (FOB)
    value of the product into the USA - up to a
    maximum of 15 of such USA inputs of the FOB
    customs value will qualify as SA local content.

Motor Industry Development Programme (MIDP)
  • The strong growth in the automotive sector has
    been the result of well-designed and managed
    government policies and in particular the MIDP.
  • The MIDP, implemented in September 1995, has now
    been in operation for nearly 9 years and is
    regarded as a prime example of public and private
    sector co-operation.
  • The extension of industry support until the end
    of 2012 will ensure a ten year window as well as
    policy certainty for industrys long term
    strategy and planning and create the platform for
    sustained future development.
  • Linkages with multi-national companies lead to
    participation in global sourcing from SA and will
    become all the more important in future.
  • Total industry exports in total have grown by 38
    on an average annual basis since 1995 when the
    MIDP was introduced

  • Total automotive related exports have grown by
    38 on an average annual basis and component
    exports by 31 since 1995 when the MIDP was
  • The main destinations for passenger cars exported
    from SA during 2002 were the USA, Japan and the
    UK with the EU accounting for nearly 30 of total
    exports in Rand terms.
  • SAs main destination for medium and heavy
    commercial vehicles during 2002 was SADC that
    accounted for 52 of exports. During 2002 SA
    produced 404,441 vehicles of which 125,306 units
    were exported.

Market Size? Total Domestic Production Total
Aggregate Exports
Source National Association of Automobile
Manufacturers of South Africa (NAAMSA)
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