BUSINESS DAY TV: Educated workforce is vital when competing abroad
MIKE Vincent, Africa industrial products and services sector leader at Deloitte shares his views on why Brics (Brazil, Russia, India, China and SA) countries are falling behind in their manufacturing competitiveness
BUSINESS DAY TV: The 2016 global manufacturing competitive index by Deloitte ranks China, the US and Germany as the top three countries; SA slipping in the rankings to number 27. Joining me now to discuss what’s important in manufacturing these days is Mike Vincent, the Africa industrial product and services sector leader at Deloitte.
Thanks so much for coming in, wonderful stuff to talk about because the manufacturing sector is so reflective of all the trends that are happening in the broader business world. So this index focuses on the drivers which are important for competitiveness and, interestingly, intellectual capital in the investment in advanced technology, is one of the most important?
MIKE VINCENT: Yes … these drivers, as long as we understand them, we know how to compete. Globally, what has happened is that there has been some countries which have managed to out-compete other countries based on their understanding of those drivers obviously. So the kinds of drivers that are important and the sorts of things that drive us in Africa, that we are aware of, are things like education.
So if you don’t have an educated workforce and you’re trying to compete against countries that have undertaken advanced technology activities, it makes it very difficult to compete against them. So the whole issue of our competitiveness, it’s an ecosystem…
BDTV: But so advanced technology is one of the most important, which makes your sector and your companies competitive, but what does that mean … education as you say … what does that mean in the whole move, in the whole digital age where no more people, robots?
MV: Yes … the amalgamation of people and machines is where manufacturing is headed. I don’t think that you’re ever going to find a situation where there are no people involved in manufacturing although a lot of that is taken out of the day-to-day component. So how can people use machines in an effective way in order to be able to compete? What we found in our survey for instance is that the days of a single point of competitiveness for a country are long gone, a country like China for instance, where cost was everything … China is moving up the chart in terms of its ability to be able to move away from “made in China” to “designed in China”. And so as the continent of Africa we need to be able to choose our battles and choose where on the value chain we would like to play.
BDTV: One of the other drivers surely is natural resources. Now in your press release I can see one mention of the importance of natural resources, now surely you can have all the competitive policies and practices, the best in the world but if you don’t have things like water, and you don’t consider the availability, price and quality, then what’s the good of that? So why doesn’t natural resources come into your survey?
MV: Well, it does come into the survey but of course it’s not the primary driver. We live in a world which is almost borderless, your competitive advantage is not about the resources that you’ve got.
BDTV: But surely that’s one of the most important drivers? No water no business?
MV: Yes … there are some fundamental things that you require, you require electricity, you require water, you require skills, but it’s not a single point of competitiveness. What we’ve seen in our survey is that the days of a single point of competitiveness are long gone. It is about an ecosystem.
BDTV: Okay, how important is the supply chain these days? About a decade ago it was all about supply chain? Is it still important?
MV: Yes, very much so. So when I talk about an ecosystem it is about the supply chain, but it’s about getting smarter in your supply chain and using technology to be able to do predictive analytics in order to better service your clients, your customers, but to make sure that you have no unplanned downtime.
BDTV: Isn’t the move to global competitiveness fought mostly on currencies? Low currency, lots of exports, you’re the winner?
MV: Yes, currencies are a double-edged sword. I was asked today by a client what my view was around the currency here in SA. We’ve seen the strengthening of the rand. The truth is it depends on which side of the manufacturing equation you sit. So importers would be happy with the strengthening currency, exporters would be sad with where the currency is going. So currency is but one component of it and it really depends where you are.
BDTV: But it’s interesting that the forex market … because you see all these currency wars and countries trying to lower their currency, trying to make their currency as low as possible … I want to go onto SA. So we’re slipping back, we lost three spots, what can we do to make things better?
MV: The truth is we’ve slipped down these rankings by six spots in the last six years and so just coming back to your earlier question around resources, one of our greatest strengths has been that we’ve been endowed with wonderful resources, but it has also been a major issue in terms of lulling us into a false sense of security.
So Hidalgo and those guys talk about economic complexity where at the most basic, what you do is you dig a hole in the ground and then you do extractive stuff, whereas on the other end of the spectrum, places like Silicone Valley, they’re in advance manufacturing. So the challenge for us is that how can we compete when we have a single point of competitiveness around our extractive industries.
So this is about an ecosystem where it’s a combination of government’s policy and what government does, together with our ability to produce engineers. If you have a look at the number of engineers which SA produces in comparison to the US with China or places like that, we’re one-tenth of what the US does, and the US is smaller than China. So it’s no wonder that a place like China is so competitive. So what can we do? As a country we’ve heard … it’s said often, what we need to do is to make sure that there is a collaboration between government, private sector and the public sector, that the unions are involved as well.
BDTV: But even if you have that, your survey points to there being three major regions — US, China and Europe — and Africa doesn’t feature.
MV: Yes … so I was listening to Jeff Immelt from GE and his major point was that a big quick organisation will always out-perform a small, quick organisation and using that analogy the amount of development which is taking place in the US and in China and those nodes attract all the skills, attract all of the investment, attract everything that happens around manufacturing.
So we’re already on the back foot because those guys have long since worked out that they don’t need to own the means of production in the form of raw materials, in order to be able to compete.
BDTV: And seemingly always one step ahead …
Mike Vincent, Africa Industrial Products and Services Sector Leader at Deloitte shares his views on why BRICS countries are falling behind in their manufacturing competitiveness