Title: MAV Corporation Business Expansion Plan from Directors
1MAV CorporationBusiness Expansion Plan from
Directors
- Group 7
- Ryan M Lucas
- Kyo Hyug Koo
- Rian A Maguire
- Anthony S Martinez
- Reshel Kurniadi
2Outline
- 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
3MAV Corporation General Facts
- Company founded in 1989
- Developed 7 large factories over the last 15
years - Has over 1,000 employees
4MAV 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
5MAV 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
6MAV Marketing Strategy
- Target markets
- Low to middle income families and singles
- First time buyers
- Environmentally concerned consumers
- Primarily marketed in urbanized environments
7Proposal 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
8South Africa
- Located on the southern coast of Africa
- Total land 1,219,912 sq km and has 2,798 km of
coastline - Abundant natural resources
- Large portion of land unusable for irrigation
9Demographics 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
10Social 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
11A 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
12Government 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
13Growing 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
14Democracy 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
education - The continuing violence and political uncertainty
contributed to a steady decline in the value of
the Rand in late 1996 and early 1997
15Destination for Private Sector and Foreign
Investment
- 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
century
16Economic 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
17Economic 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
18Multinational 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
ports
19Multinational 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
reasons - It is expected that General Motors recent buyout
of all Delta shares will result in component
suppliers expanding their presence in South
Africa
20Other Key Industries in South Africa
- Agro processing
- Banking and Finance
- Chemicals
- Food and Beverages
- IT and Electronics
- Mining and Minerals
- Tourism
- Telecoms
- Textiles
21Industry Advantages
- Infrastructure
- Flexible production ability
- Raw material availability
- Labor and Productivity
22Key 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
23Governmental Advantages
- Multiple Tax Breaks including
- Import and Export taxes
- Property taxes
- Corporate Income taxes
- Further Capitalization incentives for expenses
- Accommodating Monetary Policy
24Governmental/Economic Advantages
- Low interest rates
- Allow us to borrow at lower rates than we could
worldwide - Low inflation rates
- Encouraging statistic for long-term growth
25Economic Advantages (I)
- Price Stability for Raw Materials
- In real terms, domestic prices have actually
decreased due to the increasing strength in the
Rand - Exchange Rate Benefit
- Thus far in 2004, the Rand is the strongest it
has ever been
26Economic Advantages (II)
- Positive Business and Consumer Sentiment
- Strong Replacement Demand
- Enhanced New Vehicle affordability
27Manufacturing 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
28Manufacturing 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
29Manufacturing Advantages
- Domestic passenger car sales have increased 23.9
over the last 12 months
30Manufacturing/Sales Advantages
- Per day selling rates have increased by almost
62 over the last 10 years
31Barriers to Entry
- Language barrier
- Low availability of Steel and Rubber
- Supply problems due to vendors lack of logistics
planning
32Negative Social Impact
- High crime rates
- Both organized crime and petty street thugs
- AIDS epidemic over 21 of population has
HIV/AIDS - Water shortage
- Lack of major arterial rivers
33Negative Economic Impact
- Decreased exports
- Due to increasing strength of Rand
34Final 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
35Appendix
36Auto Industry overview
Appendix
- 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
internationally. - Therefore, this industry has specific impacts on
other industries that arise from vertical
integration functions across producing countries.
37Competitive Advantages
Appendix
- 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
Africa. - 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)
38South 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)
39Labour and Productivity
Appendix
- 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
40The African Growth and Opportunity Act (AGOA)
Appendix
- 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.
41Appendix
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
42Exports
Appendix
- Total automotive related exports have grown by
38 on an average annual basis and component
exports by 31 since 1995 when the MIDP was
introduced. - 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.
43Market Size? Total Domestic Production Total
Aggregate Exports
Appendix
Source National Association of Automobile
Manufacturers of South Africa (NAAMSA)