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Symposium 2010

Implementation - Swisscontact - Tooling Sector Creates Jobs and Income in the Western Cape

The Challenge

Post-conflict economies and many low-income countries, such as Bangladesh, Haiti and Rwanda, offer prospects for high returns. But inward investment flows beyond oil and mining have remained scarc ...

Post-conflict economies and many low-income countries, such as Bangladesh, Haiti and Rwanda, offer prospects for high returns. But inward investment flows beyond oil and mining have remained scarce and have taken a substantial hit as a result of the global crisis.

Swisscontact is the organization of the Swiss private sector for development cooperation. Its aim is to promote private economic and social development in selected countries in the South and East through advisory services, training and continuing education.

In the 1960s, Swisscontact built up the first vocational training projects in Africa, Asia and Latin America. Later, in the 1980s, it developed the first small and medium-sized enterprises (SMEs) support concepts, as there was a great need in this domain, especially for graduates from vocational schools. SMEs find it very difficult to get inexpensive operational and investment loans, which is why programs were developed to help overcome these problems. Swisscontact specializes in project management, focusing now on four strategic work areas: Education and Training , Supporting Enterprises, Financial Services and Environment.

Project background

Even though the following project was implemented in South Africa that is not a low-income country, it illustrates how SMEs in a specific sector (tooling industry) can be supported to become more competitive and thus to strengthen regional economic activity based on manufacturing.

In the Western Cape region of South Africa, the tooling sector generates jobs and income for several thousand workers. However, the South African small and medium enterprises (SMEs) that make tools are increasingly outperformed by foreign companies, especially those in China. These firms are able to deliver products that exceed South African performance in both lead time and price.  An entire sector, made up of many individual suppliers, is threatened because of its poor competitiveness in the global market.

Project

Building Thriving Companies in Low-Income EconomiesThe Western Cape Tooling Initiative contracted Swisscontact in 2010 to implement a Market Development Program for the sector. The prime objectives were to improve the competitiveness of SMEs in the tooling sector and strengthen their market share.

The project had two phases: the first was a benchmarking process with 12 selected SMEs and their buyers; which contributed towards understanding strength and weaknesses of the sector. This allowed Swisscontact to identify gaps in the skills and expertise of the SMEs and to identify what assistance was needed for the South African toolmakers to produce more reliable tools at a better price and in less time.

The benchmarking of the sector was followed by a Supplier Action Plan in which 8 selected companies received support over a period of 5 months to improve identified processes. This intervention aimed to improve managerial as well as technical capacity at company level. The assumption was that if this is accomplished, the Tool, Die and Mold Contractors (TDMC) would increase commercial transactions with local toolmakers thus leading to an increasingly tightly knit industry based on competency and reliability. Swisscontact was responsible for overall project implementation and achieved its objective by contracting local business development service providers to develop the group of SMEs. Swisscontact facilitated the development of the new working relationships and project managed the interventions.

Through the Process Facilitation of the Market Development Program, Swisscontact linked the Western Cape Tooling Initiative (WCTI) with a USAID funded SME development program, the South Africa International Business Linkages (SAIBL) organization. This partnership combined WCTI and SAIBL resources, which ensures that selected SMEs in the Western Cape go through a holistic development program for a period of three years. The SMEs were also registered and could make use of the services provided by the Small Enterprise Development Agency to implement business improvement projects in the sector where appropriate. This collaboration has given the WCTI the confidence that each SME would be guided over a prolonged period of time, ensuring that the new systems and changes that were implemented sustainably would be monitored and correctly applied. […] In effect, WCTI with the support of Swisscontact leveraged access to new resources for their members far beyond the value of the Market Development Program contract with Swisscontact.

Results

This project worked directly with individual growth oriented businesses and established relationships with Business Development Service (DBS) providers. With each SME, the project identified the major challenges in the business and agreed on respective services to be provided and outcomes to be achieved. The project initiated and subsidized these services to the SMEs. The subsidy was exclusively used on a cost sharing basis with the SME for the development of management capacity through the development of business plans and other advisory services. The impact of BDS interventions and their sustainability can only be measured in the mid and long run. Nevertheless, there are indications of improved business management skills of supplier SMEs.  […]

The difficult economic situation of the country due to the international financial crisis has hit the tooling sector specifically hard in 2010, with all of the SMEs having gone through a dramatic downturn during the 2nd and 3rd quarter. Despite the difficulties of the 3rd quarter, the project was happy to report a surge in growth for all companies for the month of October. Two of the eight SMEs reported record months for October, and a continued growth projected for the month of November. The remaining six companies had an influx of work and were on an upward trend. Due to the costing workshop owners were more aware of managing their cost carefully, knowledge which led to increased profit margins now that sales were increasing again. The vast majority of SMEs was stabilizing, but would need to invest in continued marketing strategies and customer relationship management in order to overcome the crisis that has hit the tooling sector.

Through a better understanding of their own businesses and the ability to calculate their own cost more efficiently, business owners are able to quote more appropriately in order to ensure they make a profit. In the past these businesses under quoted without realizing it and in the process were not able to grow their businesses. Thus, by understanding the cost implications of a job they are in a better position to negotiate with buyers on their molds. In turn they are also more equipped with financial skills as well as confidence to negotiate a better deal with their own suppliers of materials, etc. […]

Source:

http://www.swisscontact.ch/english/pages/PR_Dn/PR_Dn_076.php

Final Report WCTI Market Development Program 2010: http://www.swisscontact.co.za/portfolio_2/project-tooling-initiative/

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