A Q&A with Edward Hightower, author of the book “Motoring Africa: Sustainable Automotive Industrialization”
Ed, you mentioned in the book that you have seen first hand how the introduction of auto production transformed the economies of China, India, Mexico, and South Korea. Our readers are likely familiar with the story in China, Mexico, and South Korea, but perhaps not so familiar with the story in India. What did you see there?
One of the fastest growing automotive markets in the world is India, and one of the most successful companies there is a company called Maruti Suzuki. Maruti formed a partnership with Suzuki in the 1980s. They have been successful by localizing production in the country, and grown as the automotive market has grown. They have not only localized production, but they localized the supply chain. They focused on the customer and really built high-quality products that the customers have gotten excited about. They now have over 50% market share in India. And they are one of the 10 most valuable automotive companies in the world from a market capitalization standpoint.
You described the African auto manufacturing sector as “wide open.” What should that mean to our readers?
To put it in context, the African continent has 1.2 billion people living in 54 countries. Only about 1.1 million cars are manufactured on the continent. Compare that to just the country of China, where there are 1.3 billion people and where 28 million cars are produced. So there’s definitely a very small ratio of vehicles produced on the African continent given the population. In addition to production, the ratio is quite small from a vehicle consumption or vehicle ownership standpoint. Globally, there are an average of 160 cars per 1,000 people in the world. Now, in the United States where we’re a heavily “vehicle” market, there are 800 vehicles per 1,000 people. That’s almost one person per car here in the United States. On the African continent, across all 54 countries, that number is only 44 vehicles per 1,000. So there is a significant opportunity to grow the number of vehicles, even just to get to the global average let alone to a very developed market like the United States.
Ed, please describe the challenge that you present in the book.
It is the opportunity for global manufacturers, whether they be automotive manufacturers or other manufacturing companies, to participate in the world’s next emerging growth market—which is the African continent. Over the next 30 years, the population of the African continent is going to double, and Africa, as a continent, is going to have the world’s largest workforce, larger than the workforce in India and larger than the workforce in China. So what I present in the book is a practical roadmap for how you can more profitably serve those markets through local manufacturing, local production, and localization of your supply chain on the African continent.
You worked at BMW, Ford, and GM. Is any one of them likely to take up the challenge or the opportunity, and why?
Well, I don’t speak for any of the auto makers where I have previously served. But I can say Ford currently produces vehicles and engines in South Africa in the Eastern Cape. BMW produces vehicles in the Gauteng province of South Africa near the city of Pretoria. They, for many years, have produced the BMW 3 Series in South Africa. As a matter of fact, most of the 3 Series sedans sold in the United States were actually produced in South Africa. And they recently made significant investments to change over from producing the 3 Series to their new G01 generation of the X3 sports activity vehicle. GM has decided to exit the South African market. So of those three automakers where I previously served, Ford and BMW are currently on the continent, and I think they both have a significant opportunity to expand their presence as the markets grow.
Which other companies are most likely to take up the challenge, or the opportunity, in earnest and why?
I would point to Hyundai Kia out of South Korea, and the Renault-Nissan-Mitsubishi alliance based in France and obviously including Nissan and Mitsubishi out of Japan.
Hyundai Kia has had success in industrializing automobile production outside of their home market. They have followed many of the principles that I lay out in Motoring Africa in India, and have found success there localizing production, localizing their supply chain, and bringing to market products that the customers have really taken to and bought in significant numbers; like the Hyundai Creta crossover sport utility vehicle. They’ve also done similar things in Brazil, in Latin America. By producing locally and localizing their supply chain, Hyundai and Kia are experiencing success in Brazil.
The Renault, Nissan and Mitsubishi alliance is another of the non-US companies that I expect could take up the mantle, as you described it. Renault is already experiencing success in North Africa, in Morocco. They started investing in expanding their production capability in Morocco in 2012. They brought it to somewhere between 150,000-200,000 units of production capacity. They now are in a position that by next year, by 2019, they will double that capacity to 400,000 units. And Renault is also speaking of expanding into Nigeria—by working with one of the local dealer groups to expand production in Nigeria, which is the largest country on the African continent by population.
Ed, you suggest in the book that, because the African continent’s population is expected to double by 2050, its automotive industrialization could be a strategic solution to the workforce skills gap in manufacturing. Why would it make sense to jump at the opportunity rather than wait for other automotive firms to train, educate, and coach workers in Africa?
Typically, when you’re early to an investment opportunity or a growth opportunity, you receive the highest rewards. Yes, there is additional risk, but you tend to receive the highest rewards. The first movers in China in the 1980s and 1990s, Volkswagen and GM, are now the market leaders in the world’s largest automotive market, in part because they went in early. They made the investments. They started developing the workforce. They introduced products that the customer would like. They localized their supply chain. And as the market grew, they were able to grow along with it—and are reaping the rewards of their early investment today.
How much of a role do global politics play in your thinking?
Global politics do play a role: A big reason why nations succeed in the automotive sector is through trade agreements. In Motoring Africa, I recommend six countries for industrializing automobile production, in part because of the trade agreements that they have with their neighboring countries.
Nigeria, as an example, is part of a block of other West African nations. South Africa is part of a block with other southern African nations. Kenya is in a block of other eastern African nations. And Morocco is part of a block with other North African nations. The other two countries were Ethiopia and Ghana. But each of those countries has the ability to serve not just their home market but the adjacent countries, as well. And many have agreements off of the continent, with Europe, the United States, and Asia for example. That would allow those countries to build additional scale through export volume outside of the continent.
A good example of a nation that has been successful at this is Mexico. Mexico has somewhere between 45 and 46 trade agreements with other countries around the world, and that has enabled them to be one of the top five exporters of automobiles.
You also suggest in the book that there is an unprecedented greenfield opportunity in those six nations you just mentioned because of Industry 4.0 advanced manufacturing tools. How would you sum up this opportunity?
Industry 4.0 advanced manufacturing tools will allow automakers to enter the markets in these newly industrialized nations and produce in these markets at a lower break-even volume. So the investments do not need to be at as high of a level to develop the large scale of 150,000 or 200,000 units of production; they could build scale at much lower volumes—50,000-75,000 units—and become profitable much sooner with many of these advanced tools.
How long might that greenfield opportunity remain available?
That opportunity is going to be there for quite some time. It’s all a matter of who takes the step and who decides to enter the market. Remember, we’re looking at a continent of 1.2 billion people that only builds approximately one million cars. So that’s 1/28th the size if you only look at China as a country. So there is significant opportunity–and China is going to continue to grow, at a much slower rate, but it’s going to continue to grow. And if you look at the low concentration of vehicles, you look at the low concentration of vehicle production, the opportunity is likely to be there for a considerable amount of time, even as automakers jump at this opportunity to participate in this next growth miracle.
You wrote that the BMW 3 Series plant in the Republic of South Africa regularly achieves internal production quality scores that surpass all other BMW assembly plants in the world. Can you comment on that?
That is something BMW is very proud of. BMW has been producing vehicles in South Africa since the late 1970s. And in that plant in South Africa, they use the same global platforms, vehicle platforms. They use the same global manufacturing processes in the other plants. And when you compare them on internal quality metrics with, say, their plants in Germany or the United States or in China, the plant in South Africa often achieves scores higher than the other plants in the network. In part that’s because there’s been a strong focus on quality, consistency in the processes. In fact, many new processes are developed and trialed in South Africa because it is a slightly lower volume plant than, say, the plant in the United States. That allows them to be perfected in a smaller environment before being rolled out into their entire global production network.
Let’s travel to South America for a minute. Would you recount briefly why you were so impressed with Chris Cintros, the Brazilian maker of seatbelts, when you first visited it?
One of the things that was impressive about the Brazilian seatbelt manufacturer was the amount of vertical integration, meaning parts they built themselves. One of the key principles of industrialization is local production. So the extent to which an automaker or a supplier can locally produce all of the different elements that go either into their vehicle or into the part or subsystem that they’re making, the more advantages they are going to get in terms of reducing manufacturing costs, whether it be lower labor costs or lower logistics costs because they are not shipping parts around the world in order to go into the next assembly or into the vehicle. Producing closer to your market also gives you quality advantages because you are not storing parts in different locations. This seatbelt manufacturer produces practically everything themselves. They even extract nitrogen from the atmosphere to use as part of the aluminum casting process. I also noticed that they wove the fabric out of thread to make the seatbelts themselves. So there were no long rolls of webbing that had been flown in from another country. And when you’re doing all of that work locally and internally, you’re creating tremendous opportunities for entrepreneurs, as well as tremendous numbers of jobs: You’re having a positive impact on the local economy, which leads to your company and your brands having a positive image in the minds of consumers.
If India is becoming well known for the concept of “frugal innovation,” what is any one (or more) of the African nations you favor for automotive manufacturing set to become known for?
I see the frugal innovation that India is becoming to be known for potentially repeating on the African continent. You see examples of that in technology, such as the mobile payment system using cell phones to make payments. That is a big innovation that came out of the country of Kenya with their M-Pesa system. Kenya is in east Africa and is one of the six countries recommended in Motoring Africa.
When I first started traveling to the African continent for business over 25 years ago, I noticed that many of the taxi vehicles would shut off their vehicles at every red light to save fuel. If you’ve been paying close attention to what most new vehicles are coming out with, most of them have stop-start technology that automatically does that. So just as in India, when the markets with fewer resources have become involved in different sectors, lower cost solutions and innovative solutions have come out of that. I see that repeating on the African continent, especially given the population growth and rising education levels. Once you integrate that level of capability into a new sector, the sky is the limit in terms of the number of innovations I expect to see.
Is it your understanding that no automaker has yet to listen to the African customer to prioritize their needs?
There have been a few manufacturers on the African continent that have done niche vehicles, which have been focused on local customers or on poor road conditions or on using natural resources. But what we’re recommending in Motoring Africa is about building scale, building vehicles at high volume. And a good example of this is Nissan’s use of the B-segment platform to develop a crossover specifically for the Latin American market. They studied the markets in Brazil and Mexico, and now this new vehicle called the Kicks is produced in both of those markets. It’s one of the leaders in each of those markets in terms of B-segment crossovers. So listening to their customers has enabled them to succeed the way Maruti Suzuki has succeeded in India.
You propose a B-segment crossover EV as the optimal choice. Why is that?
A big part of that is the point of listening to the customer. Crossovers are the fastest growing vehicle type in most segments and most geographic markets and even price points. The industry is migrating away from sedans to more utility-focused vehicles like crossovers and SUVs. Probably the best way to describe the B segment is the second size price and size class. Think of the Kia Soul. A vehicle in that size range would allow the newly industrializing nations to build scale, meaning it’s a vehicle that would be popular with the customers. It’s a vehicle that’s popular globally. So as the new automakers form partnerships with existing automakers and use an existing platform, there is more scale off that platform and greater opportunities for profitability.
A BEV, a battery electric vehicle, is likely a good choice for industrializing, as well. Over the coming years, it’s expected that the industry is going to migrate toward electrification. It is best to “skate toward where the puck is going,” to use a hockey term. Successful products help build that scale. Scale helps to improve cost structures and make the vehicles more affordable and accessible to customers. And the best way to really build scale is with a successful product the customer absolutely loves.
With additive manufacturing, digitization, and mass customization coming into manufacturing worldwide, you note that new African auto manufacturing operations can be working labs for advanced manufacturing processes. How has that selling point gone over with companies to which you have put it?
The best example of it is BMW’s work in South Africa, where its plant has a capacity of about 75,000-77,000 units per year. As they’re able to test out new manufacturing technologies, new assembly technologies, new paint technologies, they’re able to perfect them at a smaller volume and at a smaller scale—and then roll them out to other plants like the plant in South Carolina, which produces over 400,000 units per year. So you’re reducing the risk by piloting it at a small scale, and then rolling it out.
So that is to say that BMW has been the most receptive to that argument?
They’ve been receptive to that argument, and it’s how they have used that plant in several instances over its history.