Localisation is the (prescribed) use of local content (skills and components) in manufacturing. Many companies struggle with the concept, but these insights can help.
As a requirement, it’s almost impossible to avoid localisation as governments (globally) impose policies that require firms to use domestically manufactured goods or supplied services in order to operate in an economy. South African local content requirements serve as either a precondition to receive government support or an eligibility requirement for government procurement.
However, localisation is not just an exercise in compliance because it promotes skills development, innovation in local manufacturing and job creation, and is usually coupled with other policy measures to encourage economic growth.
A high-profile local example can be found in digital terrestrial television (DTT) set top boxes: These highly-publicised digital TV signal receivers for use with old analogue TV sets have created jobs and training for hundreds of workers, with knock-on benefits for tens of thousands of installers, households and their local economies.
Making localisation work for you
How can localisation be assured of attaining these excellent objectives?
Location, location, location
A local partner can be an important success factor for an original equipment manufacturer (OEM) entering a new market. But to woo international brands, manufacturers should offer easy access to local markets. Choose your setup location carefully.
Related: 3 Ways you can beat the odds in contract manufacturing
Expect a full audit
Candidates should expect searching questions about their ability to match the historic output, manufacturing standards and quality of the outsourcing OEM. Anticipate compliance with IPC and ISO quality standards, traceability of components, and health and safety to come up as preconditions to contracts.
Remember, it’s a partnership
As with any business relationship, a manufacturing deal is about trust, commitment, transparency and communication. If anything, the degree of trust involved in sharing intellectual property with another company raises the relationship requirement to the level of a trusted partnership.
Don’t expect everything to run smoothly from day one. Potential trouble areas include sourcing – if the OEM prescribes specific sources, the manufacturer is obligated to disclose known issues with quality or availability, as this will affect its (and the customer’s) ability to deliver.
Diligence – a two-sided coin
Partnership obligations also extend to the OEM. There must be a real commitment to providing the manufacturer with a full set of manufacturing processes and procedures, including changes to these over the course of time.
Related: Contract manufacturing success factors you must consider in 2017
Sensitivity to change
At a high level, liaison between OEM and manufacturer ‘merely’ involves a meeting of minds; at operational level, far more frequent liaison is necessary to iron out everyday issues. OEM staff may feel aggrieved at losing manufacturing to an outsider firm, requiring sensitivity on the part of the latter.
The long haul
Typically, six months are needed to identify the ideal manufacturing/OEM partner, perform audits, hand over processes, obtain the necessary equipment and components, produce and test ‘first-offs’, and then go into mass production. On the upside, diligent preparation can form the basis of a sustainable long-term relationship.
It’s just business
In the end though, it is just business. A cost-benefit analysis at the outset will reveal if localising manufacturing is profitable. No end user will pay more for a product just because it is locally made, so any extra costs must be off-set against quantifiable benefits.