Lynda Loxton speaks to Plessey chief executive Dr John Temple about South African opportunities in the Far
The Far East is potentially the most exciting market for South African industries — provided they are competitive and on the ball, Plessey Corporation chief executive Dr John Temple believes.
Interviewed in the run-up to Plessey’s listing on the Johannesburg Stock Exchange after the public offer closes today (Friday), Temple said it had taken a mere four months to land a contract to manage a US$1,4- billion project to install Malaysia’s first all fibre- optic-based telecommunications network — and business possibilities in Malaysia and neighbouring countries seemed endless.
Temple said he went to Malaysia last October with some basic knowledge about the country. He quickly linked up with local company Time Telekom in a joint venture called Time Plessey, and by January the first Plessey staff were in Malaysia starting up the project.
“This is the region that South Africa should be looking to. It just needs hard work, which should not be too difficult,” Temple said.
“Malaysia is an exceedingly dynamic country, the people are sharp and bright. They are fairly hyped up, but on the other hand they are very stretched organisationally and that is exactly where the gap has come for us to go in there to assist them.”
Temple explained that although Plessey was, at present,only offering management services, it would move into providing telephone systems and other equipment later through wholly-owned subsidiary Plestel Malaysia.
It was also considering business possibilities in Indonesia and Vietnam, while opportunities were also opening up in the Middle East.
Temple said that Plessey’s offer had generally been very well received although he had been rather surprised to hear one broker say that its success “had nothing to do with Plessey as such, which did not do our ego any good, but that we have Bill Gates to thank for it”.
“The terrific hype that is going on around Microsoft 95 has caused all high-tech stocks around the world to rise, so when a new high-tech stock comes on the market, there is considerable interest.”
Since the early 1980s, Plessey has developed from making electro-mechanical switchboards to developing the first digital electronic exchange in the world in co-operation with a Canadian company.
Plessey was originally a subsidiary of Plessey United Kingdom, which moved out of telecommunications in the early 1980s to become a defence electronics company.
Because of sanctions, this technology could not be passed on to Plessey South Africa, which took the decision to start investing heavily in research and development (R&D) to develop its own technology.This was reinforced in 1987 when General Electric Corporation (GEC) and Siemens made a bid for Plessey
“For the next three years we were under threat of ownership by GEC and Siemens. This meant that nobody would give us new technology,” Temple said.
R&D spending moved as high as 11 percent of sales, peaking out in 1993.
“A lot of the growth in profits that we have seen in the last few years has been because of R&D,” Temple said.
Attributable income is forecast to rise to R49-million in 1996 compared to R27-million this year and only R14- million in 1993.
“We learnt that you make your best margins and profits out of products that you develop yourself, and you can export them freely.
“And when you do form a relationship with a foreign company, you do it on a more equal basis. You don’t then just become a post office for a foreign company. You become a real partner.”
One of the major threats facing high-tech companies is, ironically, technological change. Temple is concerned about the fact that South Africa as a whole is not spending enough on developing science and technology locally and that it could face technological
He said it was all very well acquiring technology from abroad, “but what you actually do is to give up any control over your destiny and that is colonisation. All the technology strings are pulled in another country.
“The problem is the previous government did not place a very high store by new technology and allowed our spending on new science and technology to sink well below one percent of gross domestic product (GDP) to about 0,6 percent whereas it should have been about 2,5 percent.
“Even worse than that, I think that the money that we do spend on science and technology is not well
Temple said the new government was more aware of the importance of R&D and he hoped it would reconsider the present incentive scheme whereby industry gets R1 from the state for every R2 spent on R&D.
“Some people have attacked this as a subsidy for fat cat companies but it is a very small amount and there is a very significant reason why we need more money from government,” he said.
“In any research project, there is a very high risk associated with it. Either you need orders in advance, which no one is going to give you, or you need somebody to pay for the R&D in case it doesn’t come off and you are not able to sell it. You just need somebody to share that risk with you.”
Temple has mixed feelings about the possible privatisation of parastatals such as Telkom. “The privatisation of Telkom could be negative in that it will be more inclined to pursue its own profits. I don’t judge them for that, but that is not necessarily good for our country,” Temple said.
For example, he said, if it was cheaper for Telkom to buy foreign equipment, they would have every right to do so even if it killed off existing local suppliers. But the interesting question was how it would square off this focus on profits with its development responsibilities, especially in unprofitable areas such as rural and domestic telephone links.
This highlighted the need to regulate the industry and provide competition before any moves were made to privatise Telkom, something Temple did not believe would be on the cards for some time yet.
On international competition Temple said that the short-term problem was that “every foreign company believes that there is a pot of gold here in South Africa. They do not come here to invest, but to sell.”
“What we have already seen happening is that companies come here and say they are going to get into the South African market, by hook or by crook, by buying market share.
“They come in with prices that are well below what they sell at to anybody else in the world and they clean up the market. That just wipes out local production and then they charge their normal prices.”
It would be up to local companies to become even more competitive but Temple believed that the government could also help by providing “some measure of protection similar to that enjoyed by our foreign competitors over the next five years or so.”
This could include tariffs or countertrade deals stipulating that if foreign equipment was brought in, this had to be matched, preferably, by manufactured exports from South Africa.