I'll supply the truck, you supply the parts

African infrastructure building feeds demand for heavy vehicles

A South African truck assembler backed by Chinese parts suppliers is committed to building vehicles ideal for use on Africa's toughest terrain. It is also looking to reinforce its brand image in the continent with new products.

"The customers have accepted the quality of our products. It's the brand that needs to be reinforced," says Alan Parry, of Ever Star Industries (Pty) Limited, in an interview in the company's office in Centurion, between Pretoria and Midrand, Johannesburg.

Acquiring a local brand is a good start for Chinese businesses entering South Africa because locals "like to buy established brands, which make them comfortable", says Parry, Ever Star's general manager of human resources and administration.

Ever Star was part of Super Group, a transport logistics and mobility group, in South Africa. This division of Super Group was not doing well and the business was restructured. A new management structure took over from Super Group in August 2010. Ever Star has the support of the China Development Bank Corporation and the China-Africa Development Fund, both of which pledged financial backing. The deal involves China North Vehicle Corporation, known also as Norinco Motors.

Ever Star primarily has two operations: the head office and the Johannesburg dealership; and an assembly plant in Pietermaritzburg including a dealership. The other dealerships are independent, Parry says.

The truck assembler employs about 150 people, of whom 105 are permanent, the rest being contractees. Four employees are from China, including the CEO overseeing five local senior managers, while the rest are locals. The company sold 630 trucks last year (its target was 600), and hopes to sell 800 this year.

"The prospects are very good, but the market is getting more and more fierce," Parry says.

"There are a lot of competitors who are also from China. But I think we have the right recipe, and the main selling point is price. Quality is good and the cost per kilometer has been kept low. Localization is really what the African markets want."

Ever Star's pricing is competitive and, by keeping parts pricing in line with the vehicle purchase price, combines to ensure low cost of ownership.

The in-house financing division has made buying the company's vehicles more attractive, bolstered by trade-in deals.

Ever Star is "still in its infancy and is growing with a lot of new products", Parry says. Leaders in the market include Mercedes-Benz and Volvo.

Neil Genis, Ever Star's head of procurement and logistics, says European trucks "are getting very sophisticated and expensive and it's very difficult to get the expertise in other African countries".

Peter Stirk, senior head of Ever Star's assembly operations, says: "The Powerstar is a simple vehicle and the engines from China are not that high-tech. Local experts can work on it without computers, making the products very suitable for Africa. The construction is usually done away from cities, and the vehicles can be serviced on site rather than being taken into the city for servicing."

Parry says: "We get the parts from China. Most of the stuff is produced in China, and we use local labor to put it together while adapting the product to the South African market."

Parts come from Chinese original equipment manufacturers: Baotou Bei Ben Heavy-Duty Truck Co, in Baotou, Inner Mongolia; and the engines come from Weichai Group. The plant in Pietermaritzburg is designed to make 800 to 1,000 trucks a year.

The target markets for Powerstar vehicles are fields such as construction, mining, agriculture and waste management. The vehicles fill a demand for an on/off-road truck that is robust, economical, simple to maintain and easy to drive.

"Local construction and mining businesses are the major customers, and those businesses will keep expanding," Parry says.

"We have listened to what the market wants. Meeting the demands of our customers is how we have become successful."

Apart from selling its trucks in South Africa, it also sells them in other African countries, including the Democratic Republic of the Congo, Malawi, Mozambique, Namibia, Zambia and Zimbabwe.

As more African countries attract Chinese investment in building roads, bridges, dams and other infrastructure, the demand for trucks continues to rise.

"The supply chain is one of the most important foundations," Genis says. "If you don't control the supply chain well, the cost of the trucks will be very high. In the past we bought everything from Bei Ben. But we then got some parts, such as the engine, directly from the manufacturers and saved more than 25 percent on costs."

Ever Star maintained a stable management team after the reorganization in 2010, and that has played a role in the company's success.

"Chinese companies give you broad guidelines and afford you your own individual space," says Genis, who worked for European and US companies including Bosch, for more than 40 years. "In contrast, European companies are very formal and conservative, and American companies are very strict regarding procedures."

The Chinese business mindset is "easier", Parry says. "They don't have hordes of protocols and are more flexible. With cultural differences, we have bridged that a lot along the way."

The company plans to expand its product inventories, such as smaller and bigger trucks, to build the brand, he says.

David Gao, Ever Star's regional sales manager, says "the suggestion comes from the local markets, and the final decisions on introducing a new model or variety into the market will be made by the board of the joint venture, which usually takes about six months".

Despite Ever Star's successes, it says it still faces challenges on several fronts.

"Labor legislation in South Africa is a big thing, and strikes last year affected us for seven weeks," Parry says. "That's why we don't want to manufacture the truck/parts locally. Also the semi-knocked down model will bring us a 20 percent tax rebate owing to the use of local people. We don't want local manufacturing because there are too many external factors, such as (including) strikes and the cost of labor."

Wages are always increasing, and they will rise about 10 percent this year, he says.

"We pay the average salary on the line of 8,000 rand ($770), which is a lot. We also send five or six employees every year to China for training, which is very expensive. Labor is cheaper in China. Also it's easier to employ people."

Genis says: "The biggest problem for Chinese companies is getting skilled locals who understand how to set up a company, how to import parts into South Africa as well as all the logistic things in the domestic market."

Contact the writers through lijiabao@chinadaily.com.cn

(China Daily Africa Weekly 05/23/2014 page21)