Developing the South African Auto Industry in a World of GVCs: Lead Firm Sourcing Strategies and Local Supplier Development

Abstract:

The South African automotive industry has been in existence since the early 20th century, but was globally uncompetitive until the early 1990s, protected behind high tariff walls and apartheid sanctions. This has changed significantly since the liberalization of the industry in the early 1990s. The South African assemblers have increasingly integrated into global automotive value chains. The industry managed to achieve higher production volumes, and successive rounds of investment were undertaken by both assemblers and Tier-1, multinational component manufacturers over the last 25 years. Today, more than 60 per cent of locally assembled vehicles are exported. The automotive component sector has also been relatively export-driven (with a particular pull effect by catalytic converters) and has not sufficiently channeled the deepening of the local supply chain. Today, local content levels are below 40 per cent and the industry is dominated by foreign ownership (Black, Barnes, Monaco, 2018 & 2021).

This research aims to contribute to the theoretical debate on GVCs-driven industrialization in Emerging Economies, and to the South African policy debate, by closely investigating the extent and the depth of the locally owned component manufacturing base in the South African auto industry. For this purpose, we conducted more than 50 semi-structured interviews throughout 2021, both online and in person in South Africa. These included locally active assemblers, as well as large multinational component firms with subsidiaries in South Africa, in order to understand their sourcing strategies and the level of incorporation of locally owned South African manufacturing firms in their supply chains. At the lower tiers, we interviewed 35 locally owned component manufacturing firms to understand their upgrading trajectories over time, their technological capabilities, their position in the supply chain, as well as the opportunities and obstacles that they encounter when participating in the automotive GVC. This industry-level research was framed by interviews with policy makers and industry experts.
Overall, research findings show how the South African auto industry undertakes limited R&D, design and product development – activities still mainly concentrated in global headquarters. When exploring local development options, it is clear that the scale of production is still insufficient to localize more sophisticated components like engines and electronics, materials production, as well as tooling and machinery. Ultimately, through an in-depth analysis of sourcing strategies and obstacles to localization, the present work seeks to provide a realistic assessment of South Africa’s future prospects for industrial development, and of concrete possibilities for strengthening local production and innovation capabilities. In doing so, it offers both empirical and theoretical contributions, that can be relevant to both academic scholars and policy-makers in the field.