mpumalanga stainless steel cluster local market viability ... - dedet gis

MPUMALANGA STAINLESS 

STEEL CLUSTER 

LOCAL MARKET VIABILITY STUDY 

Stainless Steel Final report -local 

Compiled by: Mr Grey van der Hoff 

Global Marketing 

August 2004 

© Global Marketing

CONTENTS 

- i - 

PAGE 

1. TERMS OF REFERENCE 1 

1.1 BACKGROUND 1 

1.2 OBJECTIVES 1 

1.3 METHODOLOGY 2 

2. FINDINGS 2 

2.1 PALL RINGS – USED IN REFINERIES 2 

2.2 MINING SECTOR 4 

2.3 AUTOMOTIVE (SAFETY STORAGE PRODUCT) 6 

2.4 FOOD AND BEVERAGE INDUSTRY 8 

2.5 COINS/TOKENS/MEDALS 10 

2.6 RETAIL SECTOR PRODUCTS 11 

2.7 ELECTRICAL, TELECOM AND GENERAL PURPOSE ENCLOSURES 12 

2.8 SOUTHERN STAINLESS TAKEOVER 13 

2.9 VESTO STOVE 15 

2.10 PALISADE FENCING 18 

2.11 PIPE FITTINGS AND FLANGES 19 

2.12 VESSEL INTERNALS 19 

2.13 CABLE RACKING, WALK WAYS, RAILS, STEPS AND DECKING 20 

2.14 SUGAR MILLS 21 

2.15 WORLD CUP 2010 23 

2.16 DE-MOTHBALLING OF POWER STATIONS 23 

2.17 TOURISM IN MPUMALANGA 24 

2.18 REFURBISHMENT OF COACHES FOR METRO RAIL 24 

2.19 GAU-TRAIN 24 

3. SELECTION AND RANKING OF OPPORTUNITIES 25 

4. PROFILE OF TARGET MARKET SEGMENTS 29 

5. KEY DECISION MAKERS FOR PURCHASING AT THE TARGET MARKET 

SECTORS 30 

6. CONSTRAINTS AND MARKET PERCEPTIONS 31 


© Global Marketing

7. KEY SUCCESS FACTORS 32 

7.1 MARKETING 33 

7.2 FUNCTIONING AND STRUCTURE OF THE CLUSTER 34 

7.3 PLANNING 34 

7.4 QUALITY MANAGEMENT 35 

7.5 MARKET SEGMENTATION 35 

8. CONCLUSIONS 35 

9. RECOMMENDATIONS 37 


- ii - 

© Global Marketing

1. TERMS OF REFERENCE 

1.1 BACKGROUND 

1.2 

- 1 - 

• This project flows from the HSRC/Blue Print study done in 2003 where broad 

based opportunities were identified for the manufacture of stainless steel 

parts and components for the communications, mining and food & beverage 

industries. 

• The Mpumalanga Department of Finance & Economic Development initiated 

the project to now identify more specific and practical opportunities. 

• The Mpumalanga Stainless Steel Cluster (including the MSI) has not been 

able to get off the ground in any significant manner. 

• 

• 

• 

Several marketing initiatives have, however, been launched including 

discussions with Sasol and the 

mining sector to convince these organisations 

to purchase from the cluster. 

The project scope of this project was enlarged to investigate the supply of 

fully manufactured stainless steel products as 

well and not only 

components/parts as indicated by the earlier study. 

Cluster and cooperation arrangements are well documented and evident in 

many parts of the world and the main requirement 

for the cluster to succeed 

is identifying sufficient market opportunities. 

OBJECTIVES 

The objectives of the study were to: 

• Investigate the local market 

to identify existing and practical market 

opportunities for the cluster. 

• Investigate export market opportunities in selected African countries. 

• Enable existing and potential fabricators and manufacturers in the region 

to 

become suppliers of stainless steel products to target markets identified. 

• 


Formulate marketing strategies based on the outcome and findings of the 

study to facilitate market entry and capitalise on the opportunities identified. 

• Promote the 

development and growth of the Mpumalanga stainless steel 

cluster and thereby contribute to the overall economic objectives of the 

province. 

© Global Marketing

- 2 - 

• Identify a number of physical, existing and practical market opportunities. 

These opportunities are ranked according to a matrix approach to facilitate 

selection. 

1.3 METHODOLOGY 

The project entailed various phases for both the local and export surveys. The 

following activities were involved: 

• Literature search 

• Internet surfing 

• 

2.1 A 

Competitive intelligence gathering 

• Personal interviews 

with a wide range of role players, individuals and 

companies 

• Telephonic interviews with potential buyers, competitors and manufacturers 

• E-mail and fax communication and requests for information 

• Studying annual reports, 

industry publications, articles, newspaper reports 

and business reports. 

• Visits to retail outlets, wholesalers and distributors. 

• Visits and discussions with cluster members and competitor manufacturers. 

2. FINDINGS 


P LL RINGS – USED IN REFINERIES 

• Sasol purchase R2,0 million per annum in stainless steel pall rings. 

• Consumption takes place in September while orders placed in March. 

• Petro-chemical and other refineries use similar pall rings to an approximate 

value of R32 million per annum or 5 500 m 3 

• To focus on Sasol individually would not 

be viable – the wider market 

including Mossgas, Engen, Shell, BP, Caltex, Natref, Sasfin and 

others 

should be targeted as a market segment 

per annum. 

• Approximate going price is R5000 to R6 000 per m 3 • Sasol use volumes of approximately 350 m 

. 

3 pall rings 

• The average use per refinery is between 250 to 450 m 3 per annum. 

© Global Marketing

- 3 - 

• Sasol presently purchase locally and import from China out of Nan-Jing. 

• Sasol encountered delivery problems with imports and it is ideal timing to 

approach for manufacturing all their requirements locally. 

• Lead-time required is three 

to four months – orders placed by Sasol in March 

for delivery in August. 

• Market entry is relatively easy and production is not sophisticated entailing a 

relatively simple production process. 

• 

No patent exists on the design of the pall rings. 

• Common types of pall rings include CMR2 cascade mini-ring 

in a 3-mm 

thickness and CMR 2.5 cascade ring with 50 x 50 x 0.7-mm dimensions. 

• Supplying different refineries would mean cyclical demand. 

• Specifications would not differ markedly 

from one to the next refinery. 

2.1.1 REQUIREMENTS TO ACCESS 

• Investment of around R1 

presses with dials/dies. 

• 


million to purchase and set up two pneumatic 

Employ 6 to 10 workers 

• Cash flow of R250 000 mainly for raw material. Sasol 

would agree to 

purchase payment terms of 15 days in the first year (from date of statement) 

and then expect to convert 

to a 30 day period for payment. 

• Strong marketing campaign aimed at other oil 

refineries 

• Factory area of 250 m 2 

• BEE approved vendor 

• Possible joint venture with existing suppliers 

• Competitive pricing of around R5000 to R6 000/m 3 

• Samples for approval, which could be made up on competitor equipment. 

© Global Marketing

2.2 MINING SECTOR 

2.2.1 MAINTENANCE, REPLACEMENT AND REPAIRS AT EXISTING MINES IN 

THE STEELPOORT/BURGERSFORT REGION AS WELL AS COAL MINES 

IN THE PROVINCE 

- 4 - 

• A strong need was identified for maintenance, parts, replacement and 

refurbishment at platinum, coal and other mines in the region. 

• There are around 21 mines in the Steelpoort region within a 120-km range 

(one hour’s drive) from Middelburg. 

• Local association of resident mine engineers expressed strong interest as 

presently being serviced from Johannesburg, which is time consuming. 

• Average maintenance, replacement and repair spend 

at these mines is 

anything between R50 000 to R60 000 per month. 

• 

• 

• 

Market potential in value for maintenance at the Steelpoort/Burgersfort mines 

amount to approximately 

21 x R50 000 x 12 = R12,6 million per annum for all 

types of steel. 

The maintenance spend can also be estimated in terms of tonnage produced 

e.g. R0.15 per ton. Mines produce up to 350 000 tons 

per month and at 

R0.15/ton it would again amount to R52 500 per month. 

At the Modikwe Platinum Mine, 3 000 tons steel was used to build the mine, 

which is one of the newest mines at Steelpoort. Kilometres of cable racking, 

rails, walk ways, steps, etc. were observed at the mine. However, mild or 

galvanised steel was predominantly used due to cost and/or ignorance 

regarding the cost/benefits of stainless steel. 

• Good opportunities exist for the conversion 

of galvanised mild steel to 3CR12 

steel at the mines in the region. 

• 


Maintenance in the coal mining sector is viewed to be totally inadequate and 

even as non-existent at some cases. The market potential for maintenance 

expenditure is R30 million per annum (50 mines x R50 000 p.m x 12 months) 

• Presently there is a strong 

drive and initiative to improve the maintenance 

function at coalmines in the region confirming strong market potential for 

stainless steel products. 

© Global Marketing

2.2.2 

- 5 - 

• However, little awareness exists about the advantages of stainless steel and 

the orientation is largely towards the use and application of mild or 

galvanised steel. 

• Some 

existing steel fabricators have facilities consisting of workshops, 

welding, equipment and parts on the mine premises to fabricate and supply 

products promptly on request. 

REQUIREMENTS TO ACCESS 

• 


Follow-up presentations to both the Steelpoort/Burgersfort and coal mine 

resident engineers associations. 

• Prepare less technical and 

comprehensive 3CR12 sales promotional 

material. The present Columbus catalogue was viewed as too complicated, 

technical and not user friendly. 

• Firm prices for particular products such as cable racking, walkways, rails, 

steps, casings, fittings, etc. 

• Establish strategic alliances with existing fabricators based at the mines to 

undertake joint installations, marketing and promotion. 

• Educate these fabricators regarding use and advantages of stainless steel to 

obtain their buy-in to the 

use of the material. 

• Embark on continuous marketing and interaction with mine engineers and 

maintenance managers to build customer relations. 

• Ongoing presentations to mine managers to explain the advantages of the 

use of stainless steel. 

• United marketing front by the cluster with a profile of members including 

capabilities, lead times and contact detail. 

• Registration as a vendor and allocation of vendor 

registration number prior to 

submitting quotations. 

• Obtain vendor registration according to mining charter BEE requirements and 

the point scoring system applied by the mines. 

© Global Marketing

2.2.3 

2.3 

NEW MINE SHAFTS AND SURFACE PLANTS 

- 6 - 

• Rand price has negatively influenced mining industry expansion plans. Anglo 

Platinum actually has large advertising boards stating “Currency 

fluctuations 

may slow us down, but will not deter us” 

• Plans for 40 new mines were reduced to 15 and according to Anglo Platinum 

there are now 3 new mines in an implementation phase in Steelpoort area. 

• The cost of a new mine/processing plant is anything from R250 million to 

R400 million in capital 

expenditure. 

• The projected expenditure for the above three new mines is R900 million. 

The projected stainless steel spend will be R81 million or 9%. 

• Consulting engineers DRA based in Midrand are involved with specifications 

of materials to be used but final decisions rest with the mine management. 

• A strong orientation exists towards mild steel due to price differences. 

• At present the difficult trading conditions forces the mining sector to be even 

more price driven. 

• However, certain parts and products have 

to be stainless steel by necessity 

due to the high corrosion and abrasive nature at the production process. 


• Interaction with and presentations to consulting engineers to create 

awareness and promote cluster as well as stainless 

steel advantages. 

• Product literature and prices must be sent to mining house and offices. 

• 


Register as vendors to supply mines. 

• Comply with vendor registration procedures. 

AUTOMOTIVE (SAFETY STORAGE PRODUCT) 

• Foldsafe is a strong, safe and secure container that can be fitted on the back 

of a bakkie. It comes in three different sizes. 

• Export opportunity identified for local first tier fabricator 

and manufacturer. 

• Product offers multi-purpose packaging 

and storage use fitted on the back of 

delivery vans, bakkies and pick-up trucks. 

© Global Marketing

• US and European market assessment proved positive with firm interest. 

• 

• MIDP incentive could allow price reduction of 20% 

without effecting margin. 

• Alternative 

raw material could be considered if target price cannot be met. 

• Co mmon features of the Foldsafe product include the following: 

� Registered trademark 

� Patented locally and internationally 

� Manufactured on CNC equipment 

� Powder coating finishing option. 

- 7 - 

• The 

product has several competitive advantages which include: 

� Security: The 

security is in the design of the box. It has a hinge on the 

inside, 

the lid lip is folded and there is a fold over the lip on the sides. 

There is a pin to prevent the sides from being forced open and a scroll on 

the sides to ensure that the bottom tray cannot be lifted. The lock is set 

into the box and cannot easily be tampered with. 

� Benefits: 

The main benefit of fitting Foldsafe is the reduction of risk of 

theft of goods from the cab, bin or canopy. It is also a space saver, as 

when it is not in use it can be folded 

against the bakkie side. It is very 

robust and will not scratch or dent easily. Made of stainless steel it is 

rustproof. 

� Fitment: Can be fitted on the back or the side of the bakkie bin. 

Can be 

done as a DIY or at a fitment centre. There is a template in each 

packaging with instructions 

on how to fit into the various types of bakkies. 

Each product has a set of rivets/bolts for installation. 

• Market opportunity amounts to a volume of 1 000 increasing 

to 5 000 units 

per month or 60 000 units per annum. 

• Market value is R72 million per 

annum at average manufactured price of 

R1200 per unit. 

• 


Possible to obtain MIDP incentive if classified an automotive product. 

Employment creation of 150 people. 

• Manufacturing machinery and equipment 

available at the cluster. 

© Global Marketing

- 8 - 

• Certain parts, i.e. hinges, lids, handles and fittings could be made 

• USA and Europe are the target markets. 

Product has been patented locally and internationally. 

2.3.1 REQUIREMENTS 

TO ACCESS 

• 

• 

• 

2.4 FOOD 

AND BEVERAGE INDUSTRY 

• 

• 

downstream in the cluster. 

• Seven lever locks required that may have to be imported 

• 


• Pricing at R1 100 per unit for the 900-mm width item is a key requirement. 

Present costing indicate a price of R1 300 per unit but 2-mm thickness 

material may be reduced to 1,6 mm. 

Prototype sample to be made up. 

Powder coated finish to be applied. 

• Costing to be recalculated. 

Clarify availability of MIDP incentive and qualification criteria. 

• Eighty per cent (80%) of food and beverage facilities and equipment is made 

of stainless steel. The bulk of material used, however, applies only for new 

enterprises or expansions at existing plants. 

• Larger operations such as Brompo, Frucon, Dickon Hall (taken over by Afgri), 

Geest, Ceres, Granor Passi, Bull Brand and Langeberg spend only R10 000 

to R20 000 per month on replacement parts, products and maintenance. 

However, the majority of parties interviewed indicated that they use very little 

(R500 to R5 000 p/m) stainless steel. 

The market in Mpumalanga (Nelspruit area) offers a market potential of R1.2 

million per annum at an average of R2 000 per month per plant. 

• Food and beverage plants does not offer large potential or opportunity from a 

maintenance and replacement point of view as it simply does not require a lot 

of replacement or at best it is infrequent. 

New food and beverage plants offer potential but will be on a project basis. A 

new food or beverage plant could cost anything from R3 million to R40 million 

depending on size, application and type of processing. 

© Global Marketing

- 9 - 

• Hassop regulations for EU exports make the use of stainless steel more 

important, however, foodsafe chromadek is also commonly used at reduced 

prices and still complying with Hassop regulations. Price is frequently 

mentioned as the reason for not using stainless steel. 

• Fruit juice producers in the Northern Province face great uncertainty due to 

land allocation issues and have all but come to a standstill when it comes to 

maintenance. Producers 

are replacing or upgrading very little at present as a 

result. 

• 

• 

• 


The main products used are stainless steel tanks, pasteurizers, drums, 

piping, fittings, work tables, 

conveyer equipment, mixers and walk ways. 

People have to eat and there will always be expansions, upgrades or new 

ventures. The market potential for such applications is estimated to be R75 

million per annum but depends largely on the number of 

new operations 

established or expansions and would be located all over the country. 

Existing first tier manufacturers expressed reservations about switching 

sources of supply or contracting out parts and components to a new 

unknown entity. Suppliers in this business advise that it is a cutthroat 

business and very difficult to maintain. 

• The refrigeration industry uses very little stainless steel in their manufacturing 

process. The majority consumption of steel in this industry is galvanised steel 

bought from Iscor. 

• Small insignificant 

quantities of stainless steel is used in specialised 

applications like drip trays by Defy and Whirlpool and panels for the 

refrigeration industry. 

• The reason for the low usage of stainless steel is mainly due to the 

expensive nature and the hardness of the material to work with. 

Complaints 

were increasingly found regarding the price of stainless steel and imports are 

increasing especially with the strong 

Rand exchange rate 

• Little stainless steel is used in the fruit packaging industry on an ongoing or 

continuous basis again mainly due to price when compared with galvanised 

steel. Respondents indicated that they use mainly 200 litre/kg drums made 

from rolled steel plates and the inner linings of the drums are 

then plastic 

coated as it is cheaper and cost effective. 

© Global Marketing

- 10 - 

• Defy advised that the raw material used to manufacture the “new” look 

aluminium coloured products is imported from Italy. The volume of this 

specially treated material is not significant to justify a change over to 

stainless steel. 

• They do not use stainless steel panels due to cost, hardness and cleaning 

requirements because of fingerprints being a problem. 

• It was also found that foreign owned operations tend to fit all stainless steel 

while locally owned operations use a mixed bag of material. 


TO ACCESS 

2.5 


• Interaction with and presentation to food and beverage operations in the 

region and selected areas to confirm their exact needs and requirements. 

• Preparation of a cluster document with profile, capacities, product range, 

BEE status, quality 

procedures and list of present customers. 

• Re-look at costing and pricing on products commonly used 

by the sector. 

Negotiate better raw material prices with Columbus or some improved 

advantages to capitalise on being on Columbus’ doorstep. 

• Strong marketing action to create 

awareness and image. 

• Relationship building with the target segment. 

COINS/TOKENS/MEDALS 

• Kelpar (Pty) Ltd is the existing manufacturer and supplier based in Pretoria. 

• Kelpar is planning to move its production 

facilities to Middelburg for the 

cluster to manufacture the products. 

• Kelpar will continue undertaking the marketing function. 

• The company manufactures and supplies blank coins from stainless steel, 

brass, aluminium and other non-ferrous materials. 

• Coins are used for cash management monetary use and anticipated for 

Nepad as well. 

• The market potential is 600 to 700 million coins per annum. 

• World Cup 2010 offer 

tremendous potential and plans are in process. 

© Global Marketing

- 11 - 

• Presently the only production mints in Africa are in South Africa, Zimbabwe, 

Egypt, Algeria and Nigeria. 

• The common gauge required range from 1.0 to 1.9 mm in grade 430 

stainless steel 

• Kelper has the capacity to produce 10 tonnes per day x 20 days = 200 tons 

per month. 

• At present only blank coins are manufactured – coinage machinery would be 

required to produce complete coins. 

• Investment required for blanking machines is R12 million. 

• Price for blank coins is R16/kg or R16 000/ton. 

• 

The market potential at 200 tonnes per month amount to R3,2 million per 

month or R36 million per annum offering an excellent opportunity 


TO ACCESS 

2.6 

• Need to meet with the Kelpar owner to discus s and conclude the initiative as 

a cluster project. 

• 


Determine factory requirements, negotiate financial structure and conclude 

agreements. 

• Risks – market demand to be verified as presently based on historical 

sales. 

• Follow-up on the marketing proposal presented to DTI 

in 2002. 

• The business profile presented to DTI need to be updated. 

RETAIL SECTOR PRODUCTS 

• Identified as one of the sectors offering large potential for the cluster. 

• Requires strong product development 

and design input. 

• Retail store groups have indicated interest including: 

� Builders market (56 stores) 

� Makro (12 mega stores) 

� Afgri (93 stores) 

• Market opportunities consist of: 

� House numbers (10 x 20 x 58 x 12 x R9) = R1,25 million p.a. 

� Letters (26 x 20 x 58 x 12x R9) = 

R3,24 million p.a. 

© Global Marketing

� Barbeques (160 x 5 x 12 x R500) = R4,8 million p.a. 

� Souvenirs and decorative 

items (160 x 15 x 12 x R15) = R432 000 p.a. 

- 12 - 

� Kitchen and bathroom rails (200 x 6 x 12 x R100) = R1,47 million p.a. 

� Nuts, clamps, bolts, hinges and flanges = R1,0 million p.a. 

� Hollow ware (150 x 12 x 12 x R140) = R3,3 million p.a. 

Total 


• Quick response 

time. 

• Proactive marketing. 

• Structured cluster approach. 

• Leading edge designs. 

• Attractive and innovative packaging. 

• Bar coding. 

• Merchandising and store checking. 

• 

• 

• 

• 

R15.5 million p.a. 

2.7 EL ECTRICAL, TELECOM AND GENERAL PURPOSE ENCLOSURES 

• 


In-store promotions. 

Samples and prototypes. 

Promotional and point of sales leaflets. 

Recipe leaflets with purchase. 

• Competitive pricing. 

This opportunity consists mostly of tender business. 

• Customer segments include 

� Municipalities 

� Telkom 

� Eskom 

� Mining 

� Exports. 

• Municipalities are mostly price driven 

and preference is frequently for 

galvanised mild steel due to cost differentiation. 

• Coastal areas are more likely markets and to specify the use of 3CR12 steel. 

© Global Marketing

- 13 - 

• Competition is fierce characterised by many small operators. 

• Telkom is trying to move away from using cables (going wireless) and 

expectations are that current expenditure of R35 million per annum (20 000 

units) will reduce over the coming years. 

• Eskom is a growing segment with the electrification expansion program. 

Eskom spend approximately R60 million per annum (50 000 units) on 

enclosures produces from all types of material. 

• The mining sector spends approximately R2 million per annum on 

maintenance, replacing and new enclosures. A new mine would typically 

spend R250 000 (200 units) on enclosures. 

• 


• Registration with the various mining houses as a vendor and allocation of a 

vendor registration number. 

• Strong marketing campaign, regular interaction and sales 

visits to purchasing 

departments at the mines. 

• 

• Factory visits for accreditation in terms 

of quality procedures, facilities and 

capability audits. 

2.8 SOUTHERN 

STAINLESS TAKEOVER 

• 

The present owner has existing and established markets for several products 

• Owner wishes to sell or rent the production facilities but continuing with 

marketing function. 

• 


Exports offer potential although most African countries are restricted with 

cash flow and opt for price rather than product life span. 

Preparation of samples and prices. 

The owner has experienced management, theft and other problems at the 

Middelburg factory and has not been able to properly manag e it being based 

in Johannesburg, hence the plan to subcontract production or to rent or sell. 

Conflicting views were received from cluster members who are of the opinion 

that the enterprise is in fact facing 

liquidation. The actual situation was 

explained by the owner, which involved a summons from VRN. 

© Global Marketing


- 14 - 

• The factory in Middelburg consist of 3 500 m 2 with machinery and equipment 

with a book value of R2, 8 million. 

• Rental of the plant and machinery based on the above value and at the prime 

interest rate would amount to R30 800 per month. The factory rental required 

is R28 000 per month based on R9 per square meter. 

• With the right management Southern Stainless could be a profitable 

enterprise with growth potential. It is already listed with several retail outlets 

with ongoing business opportunities. 

• Southern Stainless also has its own factory shop outlet in Middelburg. 

• Raw material requirements (series 200) is presently imported from India at a 

cost of R9/kg, which is considerably less than the local price of R24, 50 per 

kg for grade 304 stainless steel. Invoices for imports were shown as proof. 

• Market potential and ongoing business opportunities for the Southern 

Stainless factory include: 

� Ganmid/Cobb work frying pans: 2 000 units p.m. @ R72 R144 000 

� ACT/Factory shop pot sets: R 60 880 

� Massmart (Game, Dions, Makro): 500 sets p.m. @ R450 R225 000 

� Camper sets (5 and 8 piece): 400 sets p.m. @ R420 R168 000 

� Stainless barbeques: 500 units p.m. @ R300 R150 000 

� Total per month 

(R8, 9 million per annum) 

R747 000 

© Global Marketing

• Projected cash flow requirements would be as follows: 

� Rent R28 000 

� Machinery R31 000 

� Labour (75) R90 000 

� Material R120 000 

� Salaries R30 000 

� Electricity R25 000 

� Total expenses per month R324 000 


• Select party to run operation – good BEE opportunity 

• Allocate responsibilities to run operation. 

- 15 - 

• Enter into agreement with Southern Stainless 

after conducting “due 

diligence” to confirm market and sales figures. 

• Cash flow requirements of R500 000 as bridging finance for first four months. 

2.9 V S 

• Undertake staff selection, training and orientation once project goes ahead. 

• New Dawn Engineering (NDE) plans to relocate its stove manufacturing 

facility from Swaziland to Middelburg. 

• The company only recently commenced manufacturing the newly designed 

and patented “Vesto” stove. 

• 

• 


ESTO TOVE 

The owner advised he found negative staff attitudes at MIS and was advised 

that no factory space is available. 

The Vesto stove is a fuel-efficient wood stove based on a 25-litre paint can. 

• An advantage this stove has over other stoves is that the incoming air 

captures the heat normally lost to the stove body below the pot. This means 

there is a certain amount of pre-heating of the primary air. 

• There is no attempt made to insulate the 

stove body. The heat that may 

ordinarily be radiated away is instead allowed to enter the hollow sidewalls of 

the stove where it heats the incoming air. 

© Global Marketing

• 

- 16 - 

low pyrolization temperature for more efficiency. 

As the secondary air is also 

preheated, the effective combustion of biomass fuels like low density 

briquettes and dung improves significantly. 

• The stove is designed to use flat-bottomed pots and three-legged cast iron 

pots up to size 2 (2 gallons). The cross piece is the support for pots. The 

handles allow the stove to be moved around even when the fire is burning. 

• The rotating section with holes in it wrapped around the can controls the air 

supply to the whole fire. There is no separate control for the secondary air. 

• A significant 

amount of variation in fire temperature is possible. The “power 

phase” of cooking requires far more heat than the “simmering phase”. 

Closing the air control door can reduce the heat output by a factor of 5 or 

more. 

• 

• 


The preheating of the primary air allows the stove to burn fuels that have a 

The construction of this simple stove features primary combustion, secondary 

combustion, preheated 

primary and secondary air injection and significant air 

control and can deliver a remarkable 35% total system efficiency, which is 

the total available wood 

heat energy measured against heat delivered into a 

pot of water. 

A person who collects firewood every other day will now only need to fetch 

wood once a week. 

• Ash from the fire drops straight down onto the ground. Combustion tends to 

be very complete and almost smokeless due to the re-ignition of the primary 

combustion products. An hour of cooking with wood typically produces 10 to 

30 grams of charcoal. 

• The Vesto stove consists of four main components: 

� the main stove body 

� the fire grate with holes punched through it 

� the cross piece to support the pots 

� the air control strip wrapped around the 

stove body. 

• NDE has commenced with production of small volumes in Swaziland and has 

appointed marketing person in Johannesburg. The market response from 

potential buyers has been very positive. 

• Adding the stove to the product portfolio as a possible item to be supplied 

by 

the cluster holds strong market potential for the local and export markets. 

© Global Marketing

- 17 - 

• The market pot ential can be conservatively based on the following 

volumes: 

• 

� Local market retail outlets: 250 000 units p.a. 

� Mozambique: 100 000 units p.a. 

� Namibia: 35 000 units p.a. 

� Angola: 

200 000 units p.a. 

� Botswana: 35 000 units p.a. 

� Total 620 000 units p.a. 

At R200 per unit the market opportunity is R124 million per annum. Even 

phasing in production to reach these volumes offer substantial and 

immediate opportunities. 

• NDE is also busy developing a paraffin stove that will cost less than R20 with 

emission of one thirtieth of a Panda stove. The Vesto stove has won the 

Design Institute of South Africa (DISA) award. 

NDE has been awarded a grant of R300 000 by the Central Energy Fund 

(CEF) to buy tooling and are also intending buying a 51% stake 

in NDE. 

• Production capacity can be based 

on producing a stove in 8 minutes or 1 000 

2 

per 

day requiring a 500 m factory area. Based on the above market potential 

it is clear that considerable expansions would be required. 

• The main equipment and machinery required are eccentric and hydraulic 

presses and spot welders. 



• Enter into immediate negotiations with NDE to conclude a working 

agreement. 

• Allocate available factory space with immediate effect, consider subsidised 

rental, finalise relocation arrangement and occupation date. 

• Commence orientation for production of parts to overcome technical 

problems previously encountered subcontracting work to the cluster. 

• Confirm pricing for subcontracting as amount charged for stamping is offered 

at lower prices from competitors. Pricing viewed as an attitude issue 

by NDE. 

© Global Marketing

2.10 

- 18 - 

• Negotiate marketing rights and production subcontracting for African states 

• Embark on active marketing campaign through appointment 

of agents. 

• Agree on selling price for the stove based on different volumes. 

• 

newspaper classifieds or home improvement leaflets. 

• Prices vary widely depending on the type of material used, thickness of the 

material, type of finishing and assembly method. 

• Suppliers offer anything from back yard factories with little overheads 

offering the most basic (and often flimsy) palisade fencing aimed at the 

bottom end of the market, to high quality robust (3 mm thickness) powder 

coated products at the top end of the market. 

• The market is over supplied and niche marketing is called for. Although the 

market is large and growing the market for 3CR12 palisade fencing is at the 

top end of the market and would only appeal to specific sectors, e.g. 

� Coastal areas with high corrosion 

� Municipalities 

� Mines, factories and commercial sites 

� Sport stadiums (Soccer 2010) 

• 

where export-marketing initiatives took place and potential was identified. 

PALISADE FENCING 

• The crime situation in South Africa has lead to a vibrant, lucrative and 

growing industry sector for this product category. 

• 


It is a highly competitive industry evidenced by opening any yellow pages, 

The market size for palisade fencing is large and estimated at R96 million per 

annum based on 400 homes per month requiring 20 metres of fencing for 

new dwellings and 300 homes in the replacement or refurbishing market. 

The assembling methodology also plays an important purchasing role. The 

elimination of bolts, nuts, rivets or welding has become a feature where the 

poles fit through horizontal sections and are clipped into position like a 

mecano set. This eases the installation process 

and time required. 

• The same price and competitiveness principles apply for razor blades/spikes 

placed on walls and gates to prevent entry. 

© Global Marketing

2.11 PIPE FITTINGS AND FLANGES 

- 19 - 

• There is a large market potential for these items, which are mostly, or 

predominantly forgings depending on size. 

• 

• 

depends on the size) in the Mpumalanga, Gauteng and 

North West 

Provinces. 

• The cost of setting up manufacturing facilities is high with low margins on 

high volumes of products. 

• While a high capital investment would be required most of these components 

are imported. The 

required investment would be meaningful for import 

replacement and could be backed by government 

incentives. 

• Sasol by example indicated that 80% 

of their pipe fittings and flanges are 

imported and provided price and quality are on par with present suppliers, 

they would consider changing to local market suppliers. 

• 

2.12 VESSEL INTERNALS 

• Products refer 

to non-pressure bearing components and involve trays, tray 

decks, bubble caps, decanter drums, heat exchangers, columns, tubes, etc. 

• 

The market potential for these items amounts to R36 million per annum. 

Sasol for example spend R5 million 

per annum on this category. 

• The Italians (Terbrugge) in particular are known to have the technology but 

the items are now being locally supplied as well. 

• 


The market size is estimated to be worth R45 million per annum (volume 

Sasol alone spends R15 million per annum on this product category. 

A phased approach would be required to build capacity and expertise. 

• The project could be of national interest and longer term planning for these 

items is required. 

• China and India are precluding the market. 

Sasol indicated that there is presently a company in Gauteng 

(Vanderbiljpark) planning to move closer to Sasol to supply them more 

effectively. 

© Global Marketing

- 20 - 

• This particular company is able to also supply Mossgas, Safren and other 

refineries and it was recommended to approach them for a possible joint 

venture or strategic alliance. 

• An advantage of supplying non-pressure-bearing 

components in that no ISO 

accreditation is necessary or required. 

• Industry and market feedback strongly recommends a joint venture (JV) with 

an existing supplier should this opportunity be pursued. 

• Supplying pressure-bearing components require a variety 

of accreditation’s. 


• Target other refineries together with Sasol as a total market. 

• Consider and explore joint venture options with existing 

suppliers. One party 

has already been contacted. 

• Prepare prototypes/samples and cost to have firm prices on the product 

range. 

• Embark on pro-active marketing campaign 

and identify all present users. 

• Aggressive marketing 

would be the key success factor 

2.13 CABLE RACKING, WALK 

WAYS, RAILS, STEPS AND DECKING 

• 

Project Turbo at Sasol offers a R2, 5 million per annum market opportunity. 

• KBR are the project managers for the Project Turbo. 

• 


The vessels will be up by July/August 2005. 

• Maintenance 

and replacement parts offer a further market potential of R1 

million per annum including hinges 

and hatches. 

• Other target market segments could include: 

� AECI 

� Kynoch 

� Omnia 

� Ash handling plants 

� Fertiliser companies. 

• The market value amounts to R9 million per annum including all material. 

© Global Marketing

- 21 - 

• The above listed companies use ammonium nitrate, which is known to eat 

through carbon steel thus enhancing the use of stainless steel. 


TO ACCESS 

• Identify possible JV partner and target total market. 

• Register as vendor at target market 

segments by addressing accreditation 

process. 

2.14 SUGAR 

MILLS 

• There are 18 sugar mills in South Africa of which Tongaat/Huletts and Ilovo 

own the majority. Press releases confirm that the sugar industry has been 

suffering due to droughts leading to lower financial results. 

• 

Although considerable volumes of stainless steel is used in sugar mills it is 

mostly when new plants are built. 

• The older mills used predominantly galvanised steel with only 

Komati Sugar 

Mill using substantial stainless steel. Komati is the most modern mill in South 

Africa and used 245 tons when it was built. This volume is less than 5% 

of 

the total steel applied to build the mill. 

• Price is stated as a big issue by purchasers interviewed who advised that 

it is 

definitely an important purchasing factor linked with availability and reliability. 

• 

Technical applicability is also viewed as important as it must be used for the 

right application. Komati advised that stainless steel tended to crack where 

vibration occurred. Komati confirmed they do a lot of their ongoing 

requirements themselves and have their own workshop. 

• TSB Malelane was commissioned 

in 1965 and has a refinery as well while 

Komati was commissioned 

in 1994 and consists of just the sugar mill. 

• Products commonly 

used in 3CR12 include bunkers, conveyer lines, 

defusers, boiler shutes, conveyer decking, etc. Most of the mills have 

workshops on site making many of their own product requirements. 

• 


A new sugar mill today cost up to R280 million and a new boiler with fittings 

could cost in the region of R120 million. However only approximately 

3% of 

the boiler cost would be stainless steel or R3, 6 million in the above example. 

© Global Marketing

• 

mentioned by sugar mills include: 

� Workability (weldability) 

� Price is very high 

� Too exotic 

- 22 - 

Negative perceptions and factors regarding the use of stainless steel 

• The refurbishment and expansion of a sugar mill offer potential 

and is 

estimated 

to be R30 million per mill on average. However, new mills and 

expansions are project based with little continuity. TSB at Malelane has 

expansion plans for next year after completing a viability study. 

• There is still a very strong galvanised steel orientation prevailing at the sugar 

mills. It would require strong marketing and persistence to convince 

purchasers regarding the advantages of stainless steel where it is not 

perceived to be essential. 

• Komati advised that their 

monthly maintenance usage of stainless steel is 

negligible. In the “off crop” season they use approximately 10 tons of 

stainless steel amounting to R300 000. Based on this volume the sugar 

mills 

would spend R5,4 million per annum during the “off crop” season. 


TO ACCESS 


• Undertake preparation and then do professional presentations 

to purchasers 

at the sugar mills. 

• Comply with technical and commercial evaluation required by most 

mills. 

• Comply with BEE purchasing procedures. The aim of the sugar mills is to 

purchase 35% of requirements 

from BEE vendors within 10 years without 

compromising quality. 

• Be aware of purchasing policies applied, e.g. at TSB the following applies: 

� For purchases under R3 000 – verbal quotations can be obtained 

� For orders of R3 001 to R49 999 – require two written quotations 

� For orders up to R100 000 – require three written quotations 

� For purchases over R100 000 – require putting out tender. 

• Tenders are sent to all approved vendors as well as to a “list” of possible 

suppliers who are not yet registered or on the vendor list. 

© Global Marketing

- 23 - 

• Prior to registering and going through the accreditation process no access 

would be possible other than for small orders under R50 000. 

2.15 WORLD 

CUP 2010 

The event and in particular the anticipated new stadium in Nelspruit, offers 

enormous market potential. A variety of stainless steel products would be 

needed such as seat brackets, fixtures & frames, access control, 

enclosures, 

palisade 

fencing, cable racking, office booths and rails to name a few. 

Preliminary estimates indicate that the planned stadium would require capital 

expenditure of R75 million. Based on an assumed 10% stainless steel usage 

the potential market opportunity for stainless steel products and components 

would be R7.5 million for the provincial stadium alone. 

Given the stated provincial government policy to support local industry there is 

no reason why the cluster could not negotiate obtaining substantial contracts. 

Due 

to the project brief to identify existing and practical market opportunities it 

must, however, be stressed that the world cup opportunity is a little premature at 

this stage. Construction would at best commence in 2006. It is however 

necessary to start marketing to the authorities at this stage. 

2.16 DE-MOTHBALLING 

OF POWER STATIONS 


Plans are in place to de-mothball selected power stations which would require 

nozzles, bunker cladding and equipment used at the front end of the plants 

where coal flows in. These are very high corrosion and abrasive areas. 

Power stations known to be planning de-mothballing include Camden, Komati 

and Grootvlei. This is again a medium term 

opportunity that could be embarked 

upon. 

© Global Marketing

2.17 

2 

TOURISM IN MPUMALANGA 

- 24 - 

With the ever growing number of game parks in the province 

and expected 

influx of tourists 

leading up to the world cup in 2010, there is potential for 

memorabilia and decorative items. 

It would require some innovative designs and product development but is also a 

medium term opportunity. It could be well worthwhile embarking on this product 

category as part of the ongoing marketing campaign envisioned by the cluster. 

Items offering 

potential include maps, animal heads, coasters sets, picture 

frames and ornaments to name a few. 

.18 REFURBISHMENT OF COACHES FOR METRO RAIL 

Through Transwerk major refurbishment plans are in progress for the 

refurbishment of Metro coaches. This opportunity is project based and would be 

on a tender basis and is thus not an existing or practical opportunity that could 

be immediately embarked upon. 

2.19 GAU-TRAIN 


Implementation of the project has commenced and offers stainless steel market 

opportunities for a variety of applications such as walk ways, rails, palisade 

fencing, etc. The opportunity would be project based over the next couple of 

years commencing in 2006 and would therefore not materialise immediately. 

However, groundwork and marketing connections could be made for future 

negotiations. 

© Global Marketing

3. SELECTION AND RANKING OF OPPORTUNITIES 


- 25 - 

Based on the matrix approach (see next page) and on the scoring allocated by 

the author, the opportunities rank in the following order: 

1 Vesto Stove 

2 Southern Stainless project 

3 Coins, tokens and medals 

4 Pall rings 

5 Automotive product 

6 Enclosures for electrical, telecom and mining application 

The selection variables and weight allocations are according to the views 

of the author and by example only. It is not final and consensus need to be 

obtained after cluster members and role players have been given the 

opportunity to study the matrix. The final selection criteria, weights and 

scores would be concluded during the strategy formulation workshop. 

Nine selection variables were chosen based on having an impact on the 

“opportunity” the products offer. The criteria are as follows: 

Market size – it is a key determinant for opportunity identification and was 

allocated the highest weight of 30% 

Ease of market entry – closely linked to size as entry barriers could prevent 

market entry into even the largest of markets. A 15% weight was allocated 

New product or import replacement – considering not moving the cake is a 

consideration and allocated a 10% weight 

New investment required – could be a factor preventing potential materialising 

and allocated a 5% weight 

Complexity to produce – important as complexity could lead to quality and 

related constraints. Ten- percent weight allocated. 

BEE opportunity – weight of 10% allocated to bring into the equation 

Continuous and ongoing orders or project based – large market size may be 

linked to project based opportunities offering little continuity. Weight of 10%. 

© Global Marketing

Market 

size 

Ease of 

market 

entry 

New product or 

import 

replacement 

New 

investment 

required 

Selection Matrix 

Selection criteria 

Complexity 

to 

make 

BEE 

opportunity 

Continous 

order 

or project 

based 

Price 

sensitivity 

New 

design Total 

Products 30% 10% 10% 5% 10% 10% 10% 10% 5% 100% 

Pall-rings 8 5 9 3 8 8 5 2 2 6.35 

Mining Maintenace 6 5 2 6 8 7 5 2 2 5.10 

New mine deveopment 8 2 2 5 5 7 3 3 2 4.95 

Automotive component 8 5 7 5 4 5 8 1 7 6.00 

Food & beverage manufacturers 6 4 3 6 5 5 2 2 5 4.45 

Coins, tokens & medals 8 6 5 2 8 8 7 4 3 6.45 

Retail sector products 9 4 3 7 4 6 8 2 5 6.00 

Enclosures 5 4 3 7 8 8 5 3 5 5.20 

Southern Stainless takeover 8 8 8 4 5 7 8 3 5 6.75 

Vesto stove 8 5 8 3 8 8 8 5 8 7.15 

Palisade fencing 4 4 3 7 8 3 5 3 5 4.40 

Pipe fittings & flanges 5 5 4 5 6 6 4 2 2 4.55 

Vessel internals 5 5 4 5 7 5 3 3 3 4.60 

Cableracking, walkways, rails & decking 4 6 4 6 6 6 6 4 3 4.85 

Sugar mills 4 4 4 8 5 6 3 4 4 4.40 


- 26 - 

© Global Marketing

Scores 

Stainless Steel 

Final report -local 

8.00 

7.00 

6.00 

5.00 

4.00 

3.00 

2.00 

1.00 

0.00 

Pall-rings 

Mining Maintenace 

New mine deveopment 

Automotive component 

Coins, tokens & medals 

Food & beverage manufacturers 

Selection Matrix 

Retail sector products 

Enclosures 

Southern Stainless takeover 

Products 

Vesto stove 

Palisade fencing 

Pipe fittings & flanges 

Vessel internals 

Cableracking, walkways, rails & decking 

Sugar mills 

- 27 - 

© Global Marketing


- 28 - 

Price sensitivity – where prices are a major factor in order to capitalise on a 

market opportunity, consideration should be given to market perceptions, hence 

a weight of 10% is allocated. 

New design – identified as an important factor during the study especially for 

the retail sector as evidenced by Vest stove winning DISA awards and opening 

marketing opportunities. If designs were followed the potential would be less. 

Weight of 5% accordingly allocated. 

Scores were allocated according to findings and interpretations from the 

market study as well as feedback from buyers in the market place. It is 

subject to review and debate before concluding. 

It is, however, important to focus on the top 3 or 4 ranked market opportunities 

in order to fully capitalise and “make them happen”. The cluster does not have 

the resources to focus on all opportunities from a collective marketing point of 

view. A concerted and focussed effort is therefore required and trying to follow a 

shotgun approach would not be successful. 

The variables used and weights allocated to arrive at the rankings could differ 

from person to person or company to company depending on individual needs. 

It is therefore important to find common goals for cluster members in the pursuit 

of realising the market opportunities. The most important variable is market 

potential (size) linked to ease of market accessibility and should be of such a 

nature that it is above individual company level requiring a collective effort. 

© Global Marketing

4. PROFILE OF TARGET MARKET SEGMENTS 

- 29 - 

TMS Product usage Volume Value Buying criteria Present suppliers 

Sasol Pall rings 

350 m 

Enclosures 

Pipe fittings & flanges 

Cable racking, walk ways, 

rails, steps & decking 

3 

R2 million BEE 

Sudschemi 

R1 million Price 

Import 

R15 million Entity 

R2.5 million Accreditation 

Oil & other refineries Pall rings 3 500 m 3 

Mining: 

R32 million Price Various 

Steelpoort region Walk ways, cable racking, 

R100 million Service 

Onsite fabricators 

maintenance and 

new mines as well 

as Coal mines 

rails, parts & fittings, palisades 

Casings, enclosures, fencing, 

shutes, steps, rails, etc. 

Price 

BEE 

Availability 

Various other 

Retail sector: Barbeques, numbers, letters, 

R15,5 million Price 

Hendler & Hart 

gifts, office items, storage, etc. 

Design 

Monarch 

Packaging Golden 

Import 

New Dawn 

Vesto stove 620 000 R100 million Design 

NDE 

Engineering 

Price 

Functioning 

Retail sector through Pots and pans, barbeques, 

R8.9 million Price 

Southern 

Southern Stainless wok’s, etc 

Quality 

Stainless and 

Service 

Steel contractors 

Telkom, Eskom, Enclosures, palisade fencing, 60 000 units R95 million Tender 

Aluex 

Municipalities and 

miing 

booths 

Price 

BEE 

Design 

Lynray 

Other 

Food & beverage Work tables, conveyors, etc R1.5 million Price 

Wide variety 

manufacturers 

Applicability 

Mints, Sport 

Coins and tokens 2 000 tons R36 million Price 

Kelpar 

stadiums 

Availability 

Sugar mills: 

Shutes, shredders, diffusers, 500 tons R5 million Applicability Sugarquip 

Tongaat Huletts ducting, etc. 

Durability Various other 

Ilovo and TSB 

Price 

Own Fabrication 

Residential, 

Palisade fencing R96 milion Price 

Hundreds of 

Municipalities and 

Institutions 

Durability suppliers 

Automotive retail Fold-up storage box 6 000 p.a. R72 million Price 

New product 

sector and OEM’s 

Quality 

Sasol and other Vessel internals R36 million BEE 

refineries 

Quality 

Price 


© Global Marketing

- 30 - 

5. KEY DECISION MAKERS FOR PURCHASING AT THE TARGET 

MARKET SECTORS 

TMS CONTACT PERSON TEL FAX/E-MAIL 

Sasol Leida Schuman 

Kieran Allen 

Barry Rawlins 

017 634 4339 

017 610 2677 

082 806 4963 

leida.schuman@sasol.com 

kieran.allen@sasol.com 

barry.rawlins@fluor.com 

Retail: 

Makro 

Tom Mynhardt 

011 797 0000 082 448 2413 

Afgri Andre Els 012 346 9025 

Builders Market John Carlile 013 283 6500 013 283 6511 

Sugar Mills 

TSB Malelane 

Neels Bosh 

082 570 6319 boschn@tsb.co.za 

TSB Komati Danie Olwage 013 723 4233 olwaged@tsb.co.za 

Consulting Engineers Bruce Wenman 011 808 3800 bwenman@pgbi.co.za 

Mining 

Steelpoort/Burgersfort 

Johan Viljoen 

013 230 2303 jviljoen@modikwa.co.za 

Tiaan Grobler 015 619 0044 tgrobler@amplats.co.za 

New mines DRA consulting engineers Luys@drasa.co.za 

Mr Uys 

Isandla Coal Peter Hand 083 447 0808 petehand@global.co.za 

Gold (Harmony) Kgothola Ngoasheng 011 278 0065 011 278 0056 

Eskom Marven Tshela 011 711 2590 011 711 2980 

Telkom Danie du Toit 012 3113622 

Southern Stainless Steve Prophet 011 42 8795 theprophet@iafrica.com 

011 452 8796 

New Dawn Engineering Chrispen Temberton-Pigot 09264 518 4194 sales@newdawn.sz 

Klepar (Pty) Ltd (coins) Gerhard van Deventer 083 287 3922 kelpar@mweb.co.za 

Foldsafe Automotive Grant du Plessis 031 700 1515 grantd@capilano.co.za 

Food and Beverage 

Fabrinox Andre Visser 021 862 2201 fabrinox@global.co.za 

Dicken Hall Roger Springer 013 752 7280 013 752 7288 

Brompo Hennie Strydom 013 753 2318 013 753 3377 

First tier fabricators 

Fabrinox Andre Visser 012 877 5000 Andrev@fabrinox.co.za 

Frucon Garth Jones 015 4093500 Jonesg@ffbc.co.za 

Precool Terence Zwick 012 3271834 Terence@precool.co.za 

Hendler & Hart Enver Samsooden 011 8986300 

Defy Jaco van der Westhuizen 013 4609711 

Siemens Roy Elliot 011 6522877 Roy.elliot@siemens.com 

Phalaborwa Mining Co Chris Cato 0157 802911 Chris.cato@phalabora .co.za 

Extrata Anton Crossly 013 2306500 

OTK Marble Hall Hannes Fourie 01202 3912 01202 3142 

Sudchemi Tony Scheffel 011 9295926 011 3934194 

Martello Engineering Johan van Zijl 082 450 0506 Marpello@mweb.co.za 


© Global Marketing

6. CONSTRAINTS AND MARKET PERCEPTIONS 

- 31 - 

During the execution of the project many comments were made and criticisms 

levelled and it is clear that different perceptions exist towards the cluster. It is 

important to note and be aware of these perceptions and constraints. 

• Strength of currency – we can only compete by importing raw material. 

• Rebates offered by Columbus discontinued leading to 10 to 20% increase. 

• Imported raw material is up to 40% cheaper landed in South Africa. 

• No significant advantage for cluster fabricators being close to Columbus 

– 

with material cost at 30% to 40% of product cost they should do more. 

• Present structure of cluster does not facilitate 

effective co-operation as a 

result scepticism exist towards the cluster 

• 


The quality, mentality, attitude of the cluster and MSI in particular does not 

nurture a business orientation. As a result requests for products & quotations 

are not even sent to MIS or cluster due to lack of market confidence. 

• Several stainless steel studies of the past overlap and lead to confusion. 

• Starting to get rivalry between provinces to attract investments 

• Lack of government incentives, e.g. similar to MIDP hamper sector growth. 

• Columbus charging what the market will bear - twice the price 

of mild steel. 

• Perception is that as Columbus has foreign owners it does not care about 

local fabricators as 95% of their production 

is exported. 

• There is a lot of competition in Middelburg resulting in some companies not 

wanting to be part of the cluster 

• Insufficient value added to products to capitalise on market potential – must 

guard against moving to less value added. 

• Past stainless steel component study found opportunities 

do exist but the 

Rand was much weaker then. Also found that the companies with the 

capacity to do volumes were few and far between. 

• Unawareness about the cluster’s real aims or how it can benefit companies. 

• Although 2003 was slow year for stainless steel there was some growth and 

globally the market is growing, e.g. Spain achieved 

5% growth. 

© Global Marketing

- 32 - 

• High volume or mass manufacturing 

of relatively low value added products 

difficult arena to compete in. 

• Lack of different or specialised 

skills in the Mpumalanga cluster – need 

• 

people doing different things, e.g.: 

� Design expertise and skills 

� Product development 

� Manufacturing expertise 

� Marketing, management and business orientation. 

• Have a group of manufacturers and not a “real” cluster. Question is why do 

you need a cluster? If you just want to make a product you 

are competing 

with the manufacturer down the road and offers little opportunity. Must have 

opportunities that are bigger or above than the individual company 

level. 

Government not sufficiently supportive of cluster and still purchasing from 

Gauteng companies and cluster 

not marketed adequately. 

• The material used is not glue to get and keep a cluster together – it must be 

a product and not a material. 

• Quality management systems of cluster fabricators need upgrading. 

Cluster communication is poor and fabricators do not know what each other 

is doing with little new ideas. 

7. KEY 

SUCCESS FACTORS 

Healthy local economies stem from the formation of new businesses. 

Unfortunately, the success rates for small businesses are typically quite low. 

Statistics indicate the chances of a new business 

surviving for five years are 

between 30% and 50%. 

In performing the feasibility study the following aspects 

were looked at: 

• Evaluate whether the cluster management team possess the characteristics 

most common to entrepreneurial success. 

• 


Assess the market for new business ideas and opportunities. 

• Estimate and quantify the market potential including potential sales revenues. 

• Identify the pitfalls the cluster may encounter. 

© Global Marketing

7.1 


- 33 - 

• Make an informed choice about which market opportunity or idea is most 

attractive and practical. 

The following Key Performance Areas were identified: 

MARKETING 

Assessing the market size for the cluster was a tricky but critical 

part of the 

feasibility 

analysis. For the business ideas to work the consideration was that 

there must be enough customers willing to spend enough money on the product 

or service to provide sales revenue that covers expenses and, hopefully, earn a 

profit. Accordingly, determining how many potential customers exist was an 

essential part of evaluating whether the business idea is viable. 

The first thing consumers do when they hear of a new product or service 

offering is comparing it to existing alternatives. Customers will buy from a new 

business only if they perceive the value provided by that new business to be 

greater than the value provided by existing competitors. 

Perceived value is a judgement. Consumers compare what they think they are 

going 

to get from the new business to what they think they are getting from 

existing businesses. To attract them one must convince them that they will be 

provided with something better, more convenient, healthier, more durable, 

cheaper, or of a higher quality at the same price. The perception must be 

created that the new supplier has a competitive advantage. 

This 

advantage can be based on many different characteristics: location, a 

specific product line, technology, service or exclusive access to some supplier. 

No matter what it is, there must be something about the supplier that makes it 

distinctive, different and competitively superior to the businesses customers will 

compare 

the supplier with. 

The issue of whether or not a supplier can communicate its competitive 

advantage simply and believably to the market place is important. It is not 

enough just to be better – it has to 

convince potential customers that it is better. 

© Global Marketing

7.2 

- 34 - 

One of the key success factors in a business is having the resources to wait out 

the inertia of customers. Customers are creatures of habit and, therefore, 

unlikely to change their behaviour immediately just because a new product or 

service enters the marketplace. 

Frequently, it takes a long time for people to become familiar and comfortable 

enough with a new business to patronise it. In fact, many studies show that it 

takes three years for a new business to break even and years to begin making 

profit. Most business plans, though, are considerably more optimistic and the 

cluster should guard against this 

Marketing was identified as a definite weakness at the cluster. Mixed messages 

are 

given, overlapping of activities take place and the market is not effectively 

approached at present. It is poorly positioned and many negative 

perceptions 

exist regarding hidden agendas and serving personal aims. To achieve 

success a dedicated marketing function need to be established to drive 

the opportunities identified. Without a market the cluster has no future. 

FUNCTIONING AND STRUCTURE OF THE CLUSTER 

The cluster need to be properly structured along common guidelines and 

allocation of clear responsibilities based 

on common objectives. Each member’s 

particular 

skills should be utilised for the benefit of the cluster to be effective and 

successful. The present situation of a group of manufacturers producing similar 

products and thus competing with each other is not a healthy situation. The 

market potential of opportunities pursued should be significant to be above 

individual company interest levels. 

7.3 PLANNING 


A formal structured plan needs to be formulated to focus activities and to gain 

consensus on the direction the cluster should take. Without a formal approach it 

would be difficult to allocate resources and for any marketing campaign to be 

effective. 

© Global Marketing

7.4 

7.5 

QUALITY MANAGEMENT 

Consistent 

- 35 - 

high quality will be taken as a given by all potential customers be 

they industrial or retail sectors. Many 

comments were received in the market 

indicating that more attention and focus need to be placed on quality 

management systems. Any perceived or actual quality defect from a new 

supplier would shut the door on any future possibility of doing business with that 

client. Although quality may look good insufficient quality management systems 

are in place. 

MARKET SEGMENTATION 

Market segmentation is at the heart of strategic marketing today. The 

cluster 

cannot be everything to everyone due to insufficient resources. The market 

must be selected by partitioning and prioritising. Partitioning is necessary as 

different groups have different needs and prioritising requires making choices 

about which segments to target. Low marketing productivity is often 

characterised 

by a shotgun approach. 

8. CONCLUSIONS 

• Several existing and practical opportunities were identified that could be 

embarked on immediately 

• 


Pall rings for the petrochemical and other refineries rank amongst the top 

three opportunities with a market potential of R32 million per annum. 

• Platinum and coalmines in the Mpumalanga region offer good 

maintenance 

opportunities for the replacement, upgrading or refurbishment of parts, 

products and components. It is also a “easier sell” as local resident 

engineers and maintenance staff take such decisions. 

• New mines and surface plants are planned and decisions taken at head 

offices where consulting engineers are involved. It is a much “tougher sell” 

and process involving longer-term projects. Several delays have occurred 

with the strength 

of the Rand. 

• Sasol in particular is keen to develop business 

with the cluster after a series 

of opportunity identification workshops. This is on the premise that their 

quality are vendor qualification criteria 

are met. 

© Global Marketing


• Sasol’s 

purchasing criteria are: 

� An legal entity must be established – will not do business otherwise 

� Complete a vendor application 

form 

� Samples need to be made-up and priced 

� Technical and commercial accreditation’s must be complied with 

� Bee requirements must be met 

- 36 - 

• Capitalising on the opportunities identified would be closely linked to 

managerial, competitive prices, quality products and an ongoing, pro-active 

marketing campaign. 

• Several 

new opportunities identified require new or existing factory space in 

Middelburg or Witbank. By all accounts there is a total lack of factory space 

in the industrial areas, which may seriously affect the growth of the cluster 

and capitalising on opportunities. 

• The 

market opportunities identified would only be as good as the support the 

cluster receives from the municipality, role players, government, etc. 

• A matrix system was used to rank the opportunities, as it would be very 

difficult for the cluster to embark on all opportunities due 

to a lack of 

resources. 

• The variables and weights allocated need to be finalised as the ranking in the 

report is presently only according to the interpretation of the author. Cluster 

members would have different priorities, which would influence the ranking, 

and consensus would be obtained at the marketing workshop. 

• It would be possible 

for different fabricators to pursue different opportunities, 

however there should be common goals to work as a unit. 

• The glue keeping the cluster together need not necessarily be the material 

and could also be a product or products. 

• Opportunities offering sufficient market potential should be pursued to ensure 

that the cluster needs and objectives 

be placed above the individual 

company level. If not it could easily lead 

to cluster members compete with 

each other. 

© Global Marketing

- 37 - 

• Several constraints exist preventing 

the cluster from functioning optimally or 

to its true potential. These include the following: 

� Present structure of the cluster 

� Lack of quality management systems 

� Lack of government incentives according to the MIDP program 

� In-effective and lack of marketing planning 

� Lack of business orientation and entrepreneurial flair 

� High raw material prices 

� Negative perceptions regarding the functioning and potential of the cluster 

� Not serving the needs 

of all members but only a selected few 

• With the further assistance of the provincial government, Mpumac and MSI 

there is much that can be done to fast track the development of the cluster 

• A full time cluster marketing function is a key and essential requirement 

9. RECOMMENDATIONS 

It is recommended that: 

• The marketing planning workshop be conducted 

as a matter of urgency 

• The matrix variables and weight allocation be discussed and finalised at the 

marketing workshop to gain consensus on a ranking of the opportunities 

• A formal marketing department is launched within the next 6 weeks for a trail 

• 

• 


period of 12 months. It is necessary to pro- actively market the cluster and 

selected products, provide greater visibility and create awareness and 

follow-up on the leads created during the execution of the project. 

Appoint a marketing specialist to drive the marketing function on a 

performance linked remuneration basis. 

Structure the cluster to better serve the needs of all members with clear 

guidelines and common goals above individual company level 

• Undertake a follow-up visit to the African countries offering the best potential. 

• Appoint agents in selected African countries 

• Send samples and sales material to the selected agents as a matter of 

urgency. 

© Global Marketing


- 38 - 

© Global Marketing

mpumalanga stainless steel cluster local market viability ... - dedet gis

You also want an ePaper? Increase the reach of your titles

Delete template?

Save as template?