Transcript MAV Corporation

MAV Corporation
MAV Corporation
Business Expansion Plan from Directors
Group 7:
Ryan M Lucas
Kyo Hyug Koo
Rian A Maguire
Anthony S Martinez
Reshel Kurniadi
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MAV Corporation
Outline
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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
MAV Corporation – General Facts
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Company founded in 1989
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Developed 7 large factories over the last 15
years
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Has over 1,000 employees
MAV Corporation
MAV Corporation - Products
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100% of MAV’s production is passenger cars
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Specializing in compact, fuel-efficient models
Production consists of 5 different models of cars
and 2 models of small SUV’s
MAV Corporation
MAV Business Strategy
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Low cost supplier
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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 Corporation
MAV Marketing Strategy
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Target markets:
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Low to middle income families and singles
First time buyers
Environmentally concerned consumers
Primarily marketed in urbanized environments
MAV Corporation
Proposal to CEO
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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
MAV Corporation
South Africa
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Located on the southern
coast of Africa
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Total land 1,219,912 sq km
and has 2,798 km of
coastline
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Abundant natural resources
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Large portion of land
unusable for irrigation
MAV Corporation
Demographics of the People
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Population: 42,718,530
65.3% between the ages of 15 and 65
Median age: 24.7 years
Ethnic groups
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Black 75.2%
White 13.6%
Colored 8.6%
Indian 2.6%
Literacy rate: 86.4%
Unemployment rate: 31%
11 official languages
MAV Corporation
Social History of South Africa
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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
MAV Corporation
A Time of Change
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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
MAV Corporation
Government and Economic History
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In the early 1900’s, 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 1950’s
Government banned all organizations opposed to apartheid;
Nelson Mandela was sentenced to imprisonment for life
MAV Corporation
Growing Economy
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Despite growing international criticism for apartheid,
the government’s 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
MAV Corporation
Democracy Introduced
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Through the 1970’s and 1980’s, 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
MAV Corporation
Destination for Private Sector and
Foreign Investment
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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
MAV Corporation
Economic Background (I)
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The automotive sector is a fast growing industry in the
South African economy
This sector’s 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
MAV Corporation
Economic Background (II)
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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
MAV Corporation
Multinational Motor Vehicle
Manufacturers
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The leaders in the passenger car sales
segment in the domestic market during 2002
were
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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
MAV Corporation
Multinational Investments
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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 OEM’s 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
MAV Corporation
Other Key Industries in South Africa
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Agro processing
Banking and Finance
Chemicals
Food and Beverages
IT and Electronics
Mining and Minerals
Tourism
Telecoms
Textiles
MAV Corporation
Industry Advantages
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Infrastructure
Flexible production ability
Raw material availability
Labor and Productivity
MAV Corporation
Key Advantages
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Location
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Stable Employment Rates Nationwide
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Access to Ports
Large population in surrounding areas
Ample supply of ‘able-bodied’ laborers
Low wage rate average
Educated labor force
MAV Corporation
Governmental Advantages
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Multiple Tax Breaks including:
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Import and Export taxes
Property taxes
Corporate Income taxes
Further Capitalization incentives for
expenses
Accommodating Monetary Policy
MAV Corporation
Governmental/Economic Advantages
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Low interest rates
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Low inflation rates
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Allow us to borrow at lower rates than we could
worldwide
Encouraging statistic for long-term growth
MAV Corporation
Economic Advantages (I)
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Price Stability for Raw Materials
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Exchange Rate Benefit
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In real terms, domestic prices have actually
decreased due to the increasing strength in the Rand
Thus far in 2004, the Rand is the strongest it has ever
been
MAV Corporation
Economic Advantages (II)
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Positive Business and Consumer Sentiment
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Strong Replacement Demand
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Enhanced New Vehicle affordability
MAV Corporation
Manufacturing Advantages
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Ample Supply of Most Raw Materials
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Large rail network and port location will allow
for lower transportation charges
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Capital expenditures have increased by
700% over the last 4 years
MAV Corporation
Manufacturing Advantages
► Production
capacity nationwide has increased
33% Over the last 4 years
Year
2000
Year
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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%
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MAV Corporation
Manufacturing Advantages
► Domestic
passenger car sales have increased
23.9% over the last 12 months
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MAV Corporation
Manufacturing/Sales Advantages
► Per
day selling rates have increased by almost 62%
over the last 10 years
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MAV Corporation
Barriers to Entry
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Language barrier
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Low availability of Steel and Rubber
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Supply problems due to vendors lack of
logistics planning
MAV Corporation
Negative Social Impact
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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
MAV Corporation
Negative Economic Impact
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Decreased exports
– Due to increasing strength of Rand
MAV Corporation
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
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MAV Corporation
Appendix
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MAV Corporation
Appendix
Auto Industry overview
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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.
Appendix
MAV Corporation
Competitive Advantages
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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)
MAV Corporation
South Africa Key Other Industries
Industry
Description
Major Companies
Agro processing
SA is a food self-sufficient country and the
bulk of the population’s 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.
Mining and Minerals
South Africa holds the world’s 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.
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)
Siemens, Alcatel, SBC, Telecom Malaysia,
Cell C, and Vodaphone
Nexus Connexion
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Appendix
MAV Corporation
Labour and Productivity
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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
US$1.05/hour, for a technician to approximately US$ 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.
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•Source: DeLoitte & Touche
Appendix
MAV Corporation
The African Growth and Opportunity Act (AGOA)
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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.
Appendix
MAV Corporation
Motor Industry Development Programme (MIDP)
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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 industry’s 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
Appendix
MAV Corporation
Exports
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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.
SA’s 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.
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Appendix
MAV Corporation
Market Size?: Total Domestic Production & Total Aggregate Exports
Source: National Association of Automobile Manufacturers of South Africa (NAAMSA)
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