Localising automotive electronics production in South Africa: how to manage the technical and commercial risks successfully

August 25, 2015 // By Christoph Hammerschmidt
In the 1980s and 1990s, Europe’s automotive industry underwent a painful process of change as volume production of sub-systems, components and even entire vehicles moved from high-cost production locations such as Germany and France to cheaper sites in the former Communist bloc. Concerns about the quality, reliability and scale of the production facilities in Eastern Europe were acute at the time. Looking back with hindsight, it now appears that those concerns were overplayed, and that the industry was well able to manage the risks inherent in the move.

Automotive electronics design engineers and production engineers in South Africa are now experiencing what their counterparts in Eastern Europe went through 20 or more years ago. Here too, automotive OEMs and Tier 1 suppliers can benefit from very substantial savings on the cost of production of electronics systems and sub-systems. These savings are due to:

  • competitive labour costs
  • an exchange rate which is favourable to European currencies such as the Euro, Pound Sterling and Swedish Krona
  • in some cases, generous incentives from the South African government to produce locally components or vehicles that would otherwise be imported from Europe, Asia or North America.

But how can European OEMs and automotive suppliers shift production to South Africa while maintaining ultra-high quality standards and avoiding high management expenses?

This article shows how the business environment in South Africa and proven technology-transfer processes can in tandem ensure that European automotive suppliers and manufacturers can benefit financially from moving production without incurring excessive costs or facing unwelcome commercial risks.

Familiar business environment

South Africa has proved to be an attractive environment for automotive offshoring because of the striking similarities between the business environment here and in Europe. Just like eastern Europe 20 years ago, South Africa benefits from a large pool of educated, highly skilled engineers in the fields of electronics and factory automation. Local engineers are generally the product of one of South Africa’s world-class universities, with which the automotive industry has built productive links to enable manufacturers to draw on specialist scientific and engineering expertise and research (see Figure 1).

In addition, a robust legal system based on European models ensures that there is a culture of respect for contracts. The framework of rules and regulations governing the conduct of business in South Africa is similar to that of the European Union, and adherence to the rules is in general just as widespread as in nations of the European Union.

Fig. 1:
Design category: