Tire recycling industry

Executive Summary

The report provides deep analysis of how Molectra can take the tire recycling industry into South Africa and gain market substantial market shares. Molectra’s tire recycling process technology makes them the front leaders in the Australian tire recycling industry and the technology is the key for their future export. Because this technology is unique in relation to cost, by-products, effectiveness and environmental friendly tire recycling in a worldwide perspective, it is recommended that Molectra focus on exporting the technology. Compared to the Tire recyclers in South Africa, Molectra has the technological lead, but lack firstly capital to set up new plants and secondly knowledge about local culture and political and legal constraints.

The report provides the Pest analysis of South Africa. By doing a Political, Economic, Socio-cultural, Technological, and Environmental (PESTE) analysis which will give the Political awareness and rules, the economic benefits, the socio cultural influences, technological advances

Towards the end the report discusses about the trade infrastructure, market conditions and as well as the company as a whole.

The report has limitations as all the information provided is secondary information and some of it may be speculative in nature as it is very difficult to obtain accurate information about the ever changing of this country.

1. Introduction

1.1 Aim:

The aim of this report is to analyse how Molectra can take the tire recycling industry into South Africa and gain market substantial market shares.

1.2 Scope:

The analysis will be conducted on South African political, economical, social, cultural, and technologica aspects. In addtion the trading infrastructure and also the market will be analysed.

1.3 Methodology:

The information for this report was taken from the web sites of Molectra and double checked with technical engineering sites to ensure correct technical details on Molectra’s technology and search engines likes Google are used.

1.4. Limitations

Limitations faced while doing this report were very few. Word limit followed by the time constraint were the major ones. Another major limitation was that the data is all secondary.

1.5. Assumptions:

The information provided is up to date; however, very recent information may not have been taken into account.

2. Company Back ground

“The art of recycling is to emulate nature’s process of recreating useful compounds from the elements of earth” by John G. Dobozy, the inventor of Molectra waste tire resource recovery process.

Molectra Technologies Pty Ltd is an Australian company which was established in the year 2000 and it located in Gold Coast, Queensland. The company has established with three part process comprising mechanical, chemical and microwave treatments. This process completely eliminates pollution and disposal problems as well as all associated costs. The various valuable by-products obtained by 100% tire recycling process are Crumb Rubber, Carbon, Hydrocarbon (Oil), Steel, Plastic Fibers and these products are used in various industries such as construction, mining, agricultural, gardening, sporting, equestrian, home-renovation and automotive industries(molectra.com.au).

Molectra’s unique and sophisticated technology has pushed the company’s profile to greater heights, with some 27 countries interested in licensing the technology, which is protected by an international patent. Until the 4th November, 2008 Molectra did not export their technology (molectra.com.au).

2.1 Mission of the company

The commitment of Molectra was to meet the following five key features and this motto may help the industry increase its performance in international markets (molectra.com.au).

• Energy efficient technology
• Environmental sustainability
• Useful by-products
• Captured market
• Innovative value-adding processes

2.2 Performance of the company

Molectra has received many awards for its innovative invention

• 2003 Australian Museum Eureka Prize
• Molectra Wins 2007 DaimlerChrysler Australian Environmental Research Award
• Nominated as a YBE (Year of the Built Environment) 2004
• Won a Global 100 Eco-Tech Award

3. Country Analysis

     Known as “World in One Country” because of its remarkable diversity: from spectacular natural beauty to the vibrant “rainbow nation” mix of cultures. A sunny climate, world-famous game parks, sophisticated infrastructure, and cosmopolitan cities like Cape Town. (ccafrica)

     Boosting the most vibrant democracy on earth – it emerged from half a century of apartheid oppression to become a model of progressive governance, and gave the world Nelson Mandela. (ccafrica)

     Divided into nine provinces namely Gautenq, Limpopo- Province (formerly Northern Province), Mpumalanga, North-West Province, Free State, Eastern Cape, Northern Cape, Western Cape, and KwaZulu-Natal and three capitals: Cape Town is the legislative capital; Pretoria, the executive capital; and Bloemfontein, the judicial capital. (sa.info)

3.1 Political Aspects of South Africa

3.1.1 Structure

     With Republic government type and known as Republic of South Africa (RSA). Until 1994, a white minority government ruled South Africa. It enforced a separation of races with its policy called Apartheid. In May 1996, parliament adopts new constitution delivering not only a right to vote but also entrenching equality before the law. (bbc.news)

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     South Africa has a bicameral Parliament: the National Council of Provinces consisting 90 members and a National Assembly with 400 members. Ten members elected to represent each province in the National Council of Provinces, regardless of the population of the province. Elections held for both chambers every five years. The government forms in the lower house, and the leader of the majority party in the National Assembly is the President. (Nationmaster)

3.1.2 Current politics

     The African National Congress (ANC), which received 66.3% vote in 2006 municipal election, dominates current politics. The main challenger to the ANC’s rule is the Democratic Alliance party, which received 14.8% in the 2006 election. Other major political parties represented in Parliament are the Inkatha Freedom Party, which mainly represents Zulu voters, and the Independent Democrats. (k12.academics)

     In May 2008, Wave of violence directed at foreigners hits townships across the country. Dozens of people die and thousands of Zimbabweans, Malawians, and Mozambicans return home. This was helpful move by South Africans because they can occupy their properties. In September 2008, judge threw out a corruption case against ruling ANC party Chief Jacob Zuma, opening the way for him to stand as the country’s president in 2009. To make Zuma as country’s president who is involved in rape and corruption cases will open the doorway even to citizens to commit more crime. (bbc.chronology)

3.1.3 Judiciary

Constitutional Court, Supreme Court of Appeals, High Courts, and Magistrate Courts are prevalent. Black South Africans may choose to bring civil claims based on indigenous law and custom to a local chief’s court, with subsequent right of appeal in one of the Magistrate’s Courts. (Encarta)

3.2 Legal system:

The legal system is based on Roman-Dutch law and English common law; it deals with the consequences of apartheid-related abuses and crimes, although it aims primarily to promote a spirit of national reconciliation and a new “culture of human rights,” rather than to resolve long-standing grievances. (countrystudies)

3.2.1 Law making

Only Cabinet members, Deputy Ministers, or a member of a National Assembly committee may introduce legislation in the National Assembly. Any Bill can be introduced in the National Assembly. It refers to the NCOP for consideration. The National Assembly must reconsider a Bill in cases of amendments or rejections, and pass it again with or without amendments. (sa.info)

3.2.2 Bi/Multilateral relations

Multilateralism is one of the pillars of South Africa’s foreign policy. South Africa and the Peoples’ Republic of China (PRC) celebrate 10 years of diplomatic relations this year, 2008.The bilateral trade and economic relations between Turkey and South Africa received a major boost in April 2008 when the Joint Economic Commission was launched in Pretoria. (sa.org)

3.2.3 Summary

Recycling industry has already proven its potential in South Africa such as paper, plastic, glass. Hence the president of South Africa has proposed to pass a new legislation in order to support the recycling industry and making arrangements for the introduction of tires recycling (freefinancial.com). The proposed legislation, is an initiative to support the local tyre industry that would enable companies to establish itself in tire recycling, it would help them to facilitate the collection of waste tyres and also support the waste tyre user industry that is responsible for recycling and energy recovery.

Local recycling companies have shown a great deal of interest in tyre recycling; the industry hence is looking at ways of subsidising the recyclers, such as the free delivery, of the waste tyres. The legislation, if passed, would make it compulsory for all tyre dealers to participate in the safe disposal of waste tyres (engineeringnews.com). This would involve sorting used tyres and identifying waste tyres, mutilating them to prevent them from being reused and submitting the tyres to officially-appointed collectors, who will deliver them to recyclers and energy-recovery plants.

3.3 Economical Aspects:

Being the economic powerhouse of Africa and is leading the continent in industrial output, mineral production, and generating a large proportion of Africa’s electricity. South Africa is a middle-income country with abundant natural resources, well-established financial, legal, communications, energy, and transport systems, and a stock exchange that ranks among the ten largest in the world (gov.za).

3.3.1 GDP growth:

South Africa’s economic performance has been strong in recent years due to sound macroeconomic policies and a favorable external environment. In 2007, annual real GDP growth has averaged 5.1%, compared with 3.1% in 2003(sothafricainfo.com).

In 2006, the fiscal balance turned into a surplus of 0.4% of GDP, the first surplus in several decades, reflecting a large increase in tax revenue owing to strong economic activity, improved management in tax collection, and brought down debt to 31.4% of GDP in 2006 from 33.9% of GDP in 2005. (gov.za)

3.3.2 Provincial contribution to national GDP

3.3.3 Key Industries in South Africa

3.3.4 Key Trends and Exchange Rates

South Africa’s BEE portal

The Department of Trade and Industry (DTI) has launched a new website offering a wealth of resources, including legal information and useful tools, related to black economic empowerment (BEE) in South Africa.

‘Speaking phones’ for the sight impaired

South African cellular operator Vodacom has launched three new Vodacom Speaking Phones as part of its drive to make cellular communication accessible to people with specific needs, specifically customers who are blind or partially sighted. (sa.info)

The currency of South Africa is Rand and currently South African rand is equal to 7.9 US dollars (onada.com.au).

3.3.5 Inflation Rates

The consumer inflation of South Africa came under 5%from 2004 and continued till 2006 before the global prices pushed it up to 6.5% in 2007. In 1994 it stood at 9.8 %(southinfo.com).

South Africa’s inflation rate (CPIX)

3.3.6 Unemployment Challenges:

According to the statistics of IMF, there is a long standing issue of unemployment as one of the biggest challenges to economic growth in South Africa. In addition to it poverty, large wealth disparities and a high incidence of HIV/Aids are also responsible.

3.3.7 Summary

Corruption is endemic. Corruption impedes the further development and wealth repartition. In addition, the country’s judicial system is dysfunctional and many of its judges are corrupt. Although there are no restrictions on foreign capital, South Africa’s tax system is complex and may add substantially to business costs. (Euro monitor, 2008). The corporate tax burden in South Africa is 29% which can be considered as a high tax in an international perspective(heritage.org). Opening any sort of business in South Africa involves large amounts of paperwork. There are still several regulations and each corporate process takes a lot of time (Euro monitor, 2008).

3.4 Geographical Settings

3.4.1 Topography

South Africa is known for its diversity. The estimated total population of South Africa in 2008 was 43,786,115. The largest cities include Johannesburg (3,225,812, 2001), the commercial capital and metropolis of the goldfields; Durban (3,090,122), the country’s leading port; Cape Town (2,893,247), the legislative capital; Pretoria (1,985,983), the administrative capital; Port Elizabeth (1,005,779), an industrial city and major port ;(Encarta)

3.4.2 Climate

It is semiarid, subtropical along east coast, sunny days, and cool nights. However, the climate will not affect Molectra in any way.

3.4.3 Minerals

South Africa is the treasure trove, and it has abundant mineral resources, producing and owning a significant proportion of world minerals. It has vast resources of nearly 90% of the platinum metals, 80 % of manganese, 73%f chrome, 45% of the vanadium and 41% of the gold. Only crude oil and bauxite are not found here (southafricainfo.com).

SA’s share of world reserves & production

3.5 Social Aspects

3.5.1 Family

The general family unit of South Africa will be nuclear family, extended family or the tribes. In traditional African society, tribes constitute the most important part of the community (kwintessential.com).

3.5.2 Education

Even with one of the highest rates of government investment in education in the world, R105.5billion in 2007/08, people in rural areas especially black people are backward in literacy. (Statistics South Africa)

3.5.3 Literacy

Overall, adult literacy rate stands at around 86.4%. The literacy rate among males aged fifteen and over is 87%, while it is 85.7% among females in the same age group. (CIA)

3.5.4 Health

Health system consists of a large public sector and a smaller but fast-growing private sector. The public sector is under-resourced and over-used, while the private sector, run largely on commercial lines. The people living with HIV/AIDS are 5.3 million (2003 EST.). (sa.info)

3.5.5 Age Structure

The age structure of South Africa is as follows

0-14 years:29.7% (male 6,603,220/female 6,525,810)

15-64 years: 65% (male 13,955,950/female 14,766,843)

65 years and over:5.3% (male 905,870/female 1,429,944) (2006 EST. . .)

3.5.6 Population Growth Rate

The growth rate of South Africa is as follows

0.4% (2006 EST.)

0.02% (2002 EST.)

3.6 Cultural Aspects

3.6.1 People

     The people in rural areas value human decency over materialism whereas people from Johannesburg are more interested in what you own rather than what you are. For Capetonians social standings are important. This impact of acculturation within the same country leads to gap between rich and poor. (Kwintessential)

3.6.2 Classification of subcultures

3.6.3 Languages:

3.6.4 Religion

3.6.5 Business Culture

South Africans are transactional and do not need to establish long-standing personal relationships before conducting business. Networking and relationship building are crucial for long-term business success. Although the country leans towards egalitarianism, businesspeople respect senior executives. South Africans avoid confrontations and maintain harmonious working relationships. They often use metaphors and sports analogies to demonstrate a point. They strive for consensus and win-win situations. (Kwintessential)

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3.7 Technological Aspects

     The RSA industry boasts several unique technologies, such as differential locks for off-road vehicles, aluminum welding technology for radiators, and air cleaners. The country’s first-world production facilities are coupled with access to raw materials and relatively cheap electricity, stable transport and telecommunications infrastructure. This kind of beneficiation, or adding of value to raw mineral materials before export, has been identified by the government as a major growth area.

     The country has world-scale primary processing facilities covering carbon steel, stainless steel, and aluminum, in addition to gold and platinum. It is also a world leader of new technologies, such as a groundbreaking process that converts low-grade superfine iron ore into high-quality iron units. It also has coal-based synthesis and gas-to-liquid technologies. It is among the lowest-cost producers of ethylene and propylene

     With a network that is 99.9% digital and includes the latest in fixed-line, wireless and satellite communication, the country has the most developed telecoms network in Africa. (sa.info)

4. Trading Infrastructure

Molectra should adopt a Licensing arrangement with one of the major tires recyclers in South Africa as this offers a good balance of profits, control, local market knowledge and minimum capital investment. The control cost for this option is affordable for Molectra, and the licensee mode provides them with patent protection as well as a possibility for several licensees with strict guidelines in place to have control over the proceedings. The licensee will buy a technology license for a period of 5 years and then renegotiations will take place. In this way, Molectra has possibility to make several recyclers to tender for the license as an auction after the 5 years period when the technology has proved its worth in South Africa. The licensee entry mode also ensures that Molectra does not allocate all their capital in one project.

As setting up and investing infrastructure to South Africa would be too costly to transport and Molectra could not value add enough to cover this cost and still make a profit. Molectra could maintain a certain level of control over production and operations and at the same time advantage off the local recyclers understanding of the South African market. Ffurthermore, given the current corruption levels in South Africa, investing heavily in a Molectra owned plant, or even a joint venture is viewed as extremely risky. Molectra should approach the local tire recycling companies to offer them the opportunity to market Australia’s most energy efficient technology, environmental sustainable which also produces useful by-products and negotiate an appropriate profit sharing agreement that is mutually beneficial.

5. Market

5.1 Customers

As already discussed in the key industries, South Africa’s one of the key industry is auto mobile industry and there are lot of waste tires in the country causing lot of pollution. The main target audiences of our industry are the automobile industries in South Africa.

5.2 Competition:

Molectra’s technology is the key for their competitive advantage in South Africa. The local recyclers in South Africa consist primarily of rubber crumb producers (watseenvironmental.expert.com), which is a simple process that still produces emissions and waste. This means that there are no any existing solutions to the tire problem that are environmentally friendly solution so far in the country.

The fact that the South African government is looking for an environmental friendly solution, places Molectra in a favourable position as the owner of a technology that potentially could be the solution to their problem. The stockpiles are primarily situated around the big cities especially near Cape Town (wasteenvironmental.com), this means that Molectra would gain an advantage by situating their recycling facility near Cape Town. In this way Molectra will place its activities close to Cape Town’s well developed infrastructures such as international airport, highways and railways that provide the necessary access to the rest of South Africa and to international harbours.

Molectra has proven in Australia to have a technology that enables them to gain more profit from each tire than by using conventional recycling technology as production of rubber crumb. The competition in South Africa is based on the same technology as the competition in Australia and therefore should Molectra be able to keep their competitive advantage in South Africa.

5.3 Market Size and Sales Estimates

In South Africa 11 million used tires are generated annually (environmentalexpert.ocm), but until recently there wasn’t any system for collection and recycling tires, this meant that larges stockpiles of used tires have been accumulated over time. It is estimated that 28 million used tires are located in stockpiles around the big cities in South Africa (flooddaily.com).

South Africa has a lot of problems with fires in tire stockpiles, and these fires are extremely difficult to extinguish and they create much pollution. Half of the car fleet has worn down tires, and these are a big health risk as well. Because such a big part of the cars in South Africa has tires that are worn down, 24% of all car accidents are related to tire failure. No national policies have been applied for the recycling of tires until lately. Now the government’s attention has been put on finding a suitable and environmental solution to the problem. A new law has recently been passed which made collection of tires an issue for the tire related industries together with the delivery of used tires to tire recyclers free of charge (environmentalexpert.com). This has caused the related tire industries; automobile industry and tire suppliers in South Africa to establish a non-profit South African Tire Recycling Process Company (SATRP Co)(engineering news).

SATRP has created a national system for collection and transportation of tires to the tire recyclers, and hereby making it possible to make a tire recycling industry.

This illustrates a big change for tire recycling in South Africa and the fact that the South African Government is looking for a sustainable and environmental solution to the problem(rubbers.com), shows that a big market potential exist.

5.4 Summary

The various steps to maximise the competitiveness are

1. More investment on research
2. Advertising various by-products it produces in business to business networks

Advertise their technology’s effectiveness and zero emission and waste production

6. Company as a whole:

Molectra should adopt a differentiation focus strategy to gain market acceptance and penetration in the South African recycling of tires market. The Molectra technology is world-first and a breakthrough in the industry. As Molectra has taken an innovative and an unconventional approach to recycling of waste tires, they are the most sophisticated, effective and profitable system they are technological front leaders. There is also the fact that South African government is becoming more and more environmental conscious. The government is imposing much Legislation for the reuse and recycles of tires. South Africa has the seventh highest per capita income in Africa it suffers from large income gaps and a dual economy marking it as a developing country. There is a constant increase in the demand of commodities produced from Molectra Products such as silicone tiles and bio soil activator, so indirectly it generated target markets consequently.

South Africa has one of the highest rates of income inequality in the world the gap between the rich and poor is very large and there is a huge rate of unemployment in South Africa. Therefore, Molectra can also target unemployed people but Molectra might need to provide them with skills and job training. Since Molectra has an innovative and an unconventional way of recycling tires and the process produces many by-products, hence the scope for Molectra to enter South Africa and capture the market is very lucrative.

7. Conclusion

In conclusion, South Africa’s market for tire recycling can become a major export market for Molectra if they enter through the licensee entry mode. They need to locate local tire recyclers that are interested in acquiring Molectra’s world leading technology and because of Molectra small size.

8. References

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Engineering News, viewed on 20th may 2010 Http://www.engineeringnews.co.za/article.php?A_id=64309

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Fbodaily, viewed on 20th may 2010 Http://www.fbodaily.com

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