Industrial Policy, Multinational Strategy and Domestic Capability: A Comparative Analysis of the Development of South Africa’s and Thailand’s Automotive Industries

Abstract

For developing countries seeking to promote the automotive industry, it has been essential to attract foreign investment, and the terms under which this takes place are key determinants of the resulting development impact. This article examines the development of the sector in South Africa (SA) and Thailand. Both industries have been driven by growing domestic demand, government support and rapid international integration, but the Thai industry has grown at a significantly faster pace. The article demonstrates that the Thai automotive industry has major firm-level cost and market advantages. The combination of a favourable location, supportive trade and industrial policy and supply-side strengths has led to large-scale investment and Thailand’s development as a major regional hub. Foreign investment in SA on the other hand has been at a lower level, aimed primarily at accessing the domestic market. The consequence has been more limited development of the automotive cluster.

Abstract

Pour les pays en développement cherchant à promouvoir l’industrie automobile, il a été essentiel d’attirer les investissements étrangers et les conditions dans lesquelles ces investissements se déroulent sont des facteurs déterminants pour l’impact sur le développement qui en résulte. Cet article examine le développement de ce secteur en Afrique du Sud et la Thaïlande. Ces deux industries ont été stimulées par une demande intérieure croissante, le soutien du gouvernement et par l’intégration internationale rapide, mais l’industrie thaïlandaise a grandi à un rythme nettement plus rapide. L’article démontre que l’industrie automobile thaïlandaise possède d’importants avantages au niveau des coûts d’entreprise et du marché. La combinaison d’un emplacement avantageux, de politiques commerciales et industrielles favorables et de forces au niveau de l’approvisionnement ont conduit à des investissements à grande échelle et au développement de la Thaïlande en tant que pôle régional majeur. D’un autre côté, les investissements étrangers en Afrique du Sud ont été moindre, visant principalement l’accès au marché intérieur. La conséquence a été un développement plus limité du cluster automobile.

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Notes

  1. 1.

    See also Lung and van Tulder (2004) for what constitutes a viable automobile space.

  2. 2.

    This article draws on an initial analysis of the Thai and SA automotive industies’ comparative competitiveness position completed in 2009 (Barnes et al, 2009). This was followed by an additional round of detailed firm-level interviews and factory visits completed by the authors in SA in June 2012 and Thailand in May 2013. It also includes benchmarking data, which captures the firm-level competitiveness characteristics at a matching set of component manufacturers in the two countries.

  3. 3.

    These figures are based on the import duty being levied on the vehicle selling price after the excise tax has been added. In SA, if import duties are rebated using import credits, the import duty will be levied on the vehicle price plus actual duty paid.

  4. 4.

    The SAABC is a national benchmarking programme for automotive component manufacturers. In 2009, it was able to secure data from four Thailand firms, thereby allowing it to pair-match the competitiveness performance of four competing SA manufacturers.

  5. 5.

    Factory visits in Thailand in May 2013 confirmed Thailand’s labour cost advantage, although the differential has been moderated by exchange rate movements, and more aggressive wage increases in Thailand. As of May 2013, the Thai advantage appears to have decreased to approximately 50 per cent of the SA cost.

  6. 6.

    www.haygroup.com/Downloads/sg/misc/World_Pay_Report_2007.pdf; www.boi.go.th/english/how/labor_costs.asp (assuming an exchange rate of R0.23 = THB 1).

  7. 7.

    eThekwini Municipality water and electricity rates were used for comparative purposes. This is the municipality in which Toyota’s SA plant is located.

  8. 8.

    Assuming an exchange rate of R0.23=THB1.

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Barnes, J., Black, A. & Techakanont, K. Industrial Policy, Multinational Strategy and Domestic Capability: A Comparative Analysis of the Development of South Africa’s and Thailand’s Automotive Industries. Eur J Dev Res 29, 37–53 (2017). https://doi.org/10.1057/ejdr.2015.63

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Keywords

  • industrial policy
  • multinational
  • automotive industry
  • competitiveness
  • South Africa
  • Thailand