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AFRICA SMME CONFERENCE, JOHANNESBURG, 25 OCT 2007
INTEGRATED SUPPLY SIDE MEASURES FOR
VIABLE AND COMPETETIVE SMALL BUSINESSES
VUYO MAHLATI
INTEGRATED SUPPLY SIDE MEASURES FOR
VIABLE AND COMPETETIVE SMALL BUSINESSES
COMPETETIVENESS
LINK WITH
‘ECONOMIC PERFORMANCE’
Economic Performance Measures– Sustained ROIC– Sustained Revenue Growth
Foundations of Economic Performance
IndustryIndustryStructureStructureIndustryIndustryStructureStructure
Relative Position Relative Position Within the Within the
IndustryIndustry
Relative Position Relative Position Within the Within the
IndustryIndustry
- Overall Rules of Competition - Sources of Competitive Advantage
Good or Bad Business Good or Bad Position
• The fundamental unit of strategic analysis is the industry− Defining the relevant industry a company competes in is essential to strategy
• Company economic performance results from two distinct causes, and strategy must encompass both:
Source: Prof M. Porter, 2007
Marketing& Sales
(Lead generation, Model home
display, Sales force, Customer
selection of personalized
options)
Land Acquisition & Development
(Identify attractive markets, Secure
land, Procure entitlements and permits, Prepare
site)
Construction
(Design, Engineering, Schedule and
manage construction
process)
Closing
(e.g. Customer Financing,
Contract, Title, Closing)
After-Sales Service
(e.g. Warranties, Customer
Complaints)
M
a
r
g
i
n
Primary Activities
SupportActivities
Firm Infrastructure(e.g. Financing, Planning, Investor Relations)
Procurement(e.g. Materials, Subcontracted Labor, Advertising, Services)
Technology Development(e.g. Product Design, Testing, Process Design, Materials Research, Market Research)
Human Resource Management(e.g. Recruiting, Training, Compensation System)
Foundations of Competitive Advantage: Defining the Industry Value Chain
Value
What buyers are willing to pay
Source: Prof M. Porter, 2007
There can be different ways of configuring the value chain in the same industry
GovernmentPolicy
Threat of SubstituteProducts or Services
Threat of New Entrants
Rivalry AmongExisting
Competitors
Bargaining Powerof Suppliers
Bargaining Powerof Buyers
Industry Structure in ContextRole of Government
Source: Prof M. Porter, 2007
ASGI-SA: Isolating key constraints
Relative volatility of the currency and interplay among main indicators
Cost and efficiency of national logistics system and some infrastructure
Binding constraints that inhibit movement to a higher range of investment, job-creation and thus economic growth
Deficiencies in state organisation, capacity and strategic leadership
Regulatory environment and burden on small and medium enterprises
Barriers to entry and competition in sectors of the economy
Size of domestic market and distance from major global markets.
Shortage of suitably skilled labour and disjointed spatial settlement patterns
Value Proposition: A case for:-
• Integrated Supply Side Measures that are:– Demand-driven– Enhancing value-chain based mainstreaming– Prioritizing economic performance– Building on existing potential– Adaptive to context, and– Optimize/Maximize – Collaborative Strategies
Value Proposition: A case for:-
• Integrated Supply Side Measures that CAN:– Bridge the small and big; informal and formal;
rural-urban, 1st and 2nd economy divide – Move from isolated micro projects to scalable
interventions– Maximize the Procurement potential in both
public and private organizations
SMME CHALLENGES
• Current growth context has relied on imports of consumer goods
• Poorly developed alternative markets available at low income households
• Weak capability of new producers & distributors to penetrate existing markets
HSRC
SMME CHALLENGES
• GDP growth of 5% has not translated to massive reduction in unemployment & poverty.
• Level of SA productivity is amongst the lowest in the world – ranked 47 out of 50 countries. SA Productivity Institute Study, 2004
• Level of entrepreneurship amongst the lowest in the world – at 12% compared to 56% in developing countries. Global Entrepreneurship Monitor Study 2005.
• Most small businesses are not making profit – just surviving.• CIPRO is recording the highest number of company/cc registration
in the last 2 years, yet most of these companies are dormant. • BEE deals are not redistributive in nature …very small amount of
these deals trickle into the 2nd economy. • Various Small Enterprise Development initiatives are not well
coordinated resulting in waste of resources. • Too much reliance on what the government does to develop small
enterprises Source: Dreamplus
BUSINESS PYRAMID
00000000000000000000000000000000000000000000
000000000000000000000000000000000000000000000000000000000000000000000000
0 0 0 0 0 0 0 0 0 0 00 0 0 0 0 0 0 0 0 0
0 00 00 00 00 00 00 0 0 00
0 0 0 0 0 0 0 0 0 0
Private Limited Co’s Public companies
Private Limited Co’s Few CC’s, Partnerships
CC’s, Sole propriety, Unregistered businesses
Source: Dreamplus
Micro/ small
small/medium
Big
At the bottom of the pyramid businesses focus on survival as they struggle to make a decent profit
100%92% <R8000p.m.
0%
78% <R3500p.m.
35% <R400p.m.
Corporate Sector
Medium
Small
Micro
Survivalists
Mainly Urban
Mainly Rural
PA
RA
STA
TA
L C
OV
ER
AG
E
UPPER CLASSMainly White Males
MIDDLE CLASSAll Races
LOWER MIDDLE CLASSMainly Black
POOR LOWER CLASSMainly African
POOREST OF THE POORMainly African Female
CO
MM
ER
CIA
L B
AN
KIN
G C
OV
ER
AG
EStandard BankFirst National Bank
ABSANedbank
Etc.
IDCDBSA
LandbankKhulaEtc.
DeregulatedCommercial
LendingIndustry
NGOFinancialInitiatives
Financial Services
SocialGrants
Business Communities
TWO ECONOMIES OF SOUTH AFRICA TODAY
•Regulatory Environment: well developed and state supported
•Legal instruments: well developed and are fully accessed by the institutions
•Institutions/agencies: serve primarily the well-off and employed
•Skills and HRD training Clear career tracks from secondary school to management
•Resource base: massive available resources with substantial backing from the state
•Business culture: promoted by private sector
SocialResponsibility
74% <R2500p.m.
48% <R800p.m.
14% No income
•Regulatory Environment: Hardly exists•Legal instruments: Poorly developed and inhibits development of CBOs and NGOs•Institutions/agencies: Almost non-existent•Skills and HRD training No career opportunities•Resource base: Very poor and almost no state backing•Business culture: Non-existent and ignored by private sector
<1
00
Em
pl.
Tu
rnover
R1
50
00
0 <
10
Em
plo
yees
No E
mp
loyees
UNBANKED
Source: WDB
DFI mandates - focus areas
Retail
Business Finance
Infrastructure
Other
Housing
TYPE OF USE
Tourism
Manufacturing
Mining
Housing
Agriculture
SECTORS
ND
AID
T
NH
FC
IDC
KH
UL
A
La
nd
ba
nk
DB
SA
NT
SIK
A
RH
LF
Retail
Business Finance
Infrastructure
Other
Housing
TYPE OF USE
Tourism
Manufacturing
Mining
Housing
Agriculture
SECTORS
ND
AID
T
NH
FC
IDC
KH
UL
A
La
nd
ba
nk
DB
SA
NT
SIK
A/
SE
DA
RH
LF
Institution
Focus
Large
Medium
Micro/Small
BUSINESS SIZE
Large
Medium
Micro/Small
BUSINESS SIZE
A MODEL FOR ENTREPRENEURSHIP SUPPORT
Economic growth occurs Incomes increase Living standards improve Investment opportunities arise
Entrepreneurial orientationCulture Role models
Education Work experience Personal orientation
Enterprise culture
Supportive Environment
Infrastructure Finance Laws Training
Policy framework
Co-operative Environment
Institutions which are actively involved and assist with new
org development
Entry of entrepreneurs
Acquired abilities Inherent abilities
Products / Services
Results of entrepreneurship
+ Tax base is enlarged by a greater
number of new firms Technological development occurs Job opportunities arise
Prof Nieman
INTEGRATED AND COLLABORATIVE METHODS FOR LOCAL ECONOMIC DEVELOPMENT
An integrated furniture cluster
A garmentcluster
A large metal-working company
Regional service providers:• Health care• University• Wholesale trade
Farmers and small food processors
Local producer services:IT, transport, construction, ...
Local consumer services:Retail, beauty, ...
Government
Wood valuechain
Textile + garmentsvalue chain
Global buyers
Traininginstitutions
Businesspromotion
Financeinstitutions
PROCUREMENT
• Anglo American’s divisions and operations recorded R2,4 billion in procurement transactions with BEE SMEs and related business development initiatives during the 2002 financial year, up from 807 million in 1999.
SAE Case StudyFacts (2003 – 2004 Fyr)
Details Figures
Sample of tenders issued by Municipality 215
Tenders withdrawn 13%
Tenders awarded to Big Construction Co 58%
Tenders awarded to white SME 22%
Awarded to HDE’s 7%
HDE that sell tenders (no equipment/ collateral) 92%
HDE Failure rate (those that did not sell) 60%
HDE outright success rate 0.224%
Estimated BEE portion of R90bln budget 0.23%
Estimated years to have 50% of HDE participation 223
Challenges
• Lack of Access to working capital
• Lack of access to equipment
• Lack of Capital To buy Equipment
• Poor business &/or technical skills
• Poor Project Management skills
Value Proposition
• Develop a dedicated Emerging Contractor Support Programme
• Provide Technical Assistance to SME in the Construction Industry
• Facilitate a partnership between Government and Financial Institutions
Key Players in the VP
EDA
CLIENT
FINANCE INST
SMME
•Issue & award tender•Facilitate repeat business
•Issue & award tender•Facilitate repeat business
•Make Loan Available to SME•Contribute to TA cost
•Make Loan Available to SME•Contribute to TA cost
•Provide Technical Assistance Manage loan repaymentProject ManagementFinancial Management
•Facilitate material procurement
•Provide Technical Assistance Manage loan repaymentProject ManagementFinancial Management
•Facilitate material procurement
•Secure business•Meet specific requirements•Performs as per contract•Commit to support scheme
MACRO/MICRO FRAMEWORK CHALLENGES
• Rural economy revitalization thru local value creation (rural poor as labour, consumers & social service beneficiaries)
• Tradeoffs between the rate of reduction of inflation and the rate of real growth and employment creation in (particularly) the rural economy.
• Relationship between sustained economic growth and rural economic drivers
• Urban – Rural Linkages • Economic Institutions (see below)
EMBEDDEDNESSINFORMAL
INSTITUTIONS,TRADITIONS, NORMS,
RELIGION
INSTITUTIONAL ENVIRONMENT: FORMAL
RULES OF THE GAME – ESP, PROPERTY (POLITY,
JUDICIARY, BUREAUCRACY)
GOVERNANCE:PLAY OF THE GAME – ESP.
CONTRACT (ALIGNING GOVERNANCE STRUCTURES
WITH TRANSACTIONS)
RESOURCE ALLOCATION AND EMPLOYMENT (PRICES AND
QUANTITIES; INCENTIVE ALIGNMENT)
Source: Williamson, 1999.
ECONOMICS OF INSTITUTIONS
L1
L 2
L 3
L 4
Social Theory
Economics of Property Rights(Institutional Environment)
Transaction Cost Economics(Governance Structures)
Neoclassical Economics/Agency Theory(Marginal Conditions)
Thank You!