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Township Patterns Case Study- Richard Kennedy

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Township Patterns:

A Business Model for Enterprise

Development in Emerging Economies

A Case Study Research Report presented to

The Graduate School of Business

University of Cape Town

in partial fulfilment

of the requirements for the

Masters of Business Administration Degree

by

Richard A. Kennedy

December 2006

Supervisor: Ms. Elspeth Donovan

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Table of Contents

Table of Contents....................................................................................................................... I Acknowledgements..................................................................................................................IV Abstract .....................................................................................................................................V Glossary of terms .....................................................................................................................VI Abbreviations...........................................................................................................................IX List of Figures and Exhibits......................................................................................................X 1 Introduction........................................................................................................................1 2 Literature Review...............................................................................................................2

2.1. Introduction................................................................................................................2 2.2. Challenge of enterprise development in Emerging Economies.................................2

2.2.1. Globalisation ......................................................................................................3 2.2.2. Foreign Direct Investment .................................................................................4 2.2.3. Restricted Access to markets .............................................................................5 2.2.4. Role of the State.................................................................................................6 2.2.5. China ..................................................................................................................7

2.3. South Africa as an Emerging Economy.....................................................................8 2.3.1. The legacy of apartheid......................................................................................8 2.3.2. Poverty ...............................................................................................................9 2.3.3. Healthcare ........................................................................................................11 2.3.4. Crime................................................................................................................13 2.3.5. Education .........................................................................................................15 2.3.6. Access to Finance ............................................................................................16 2.3.7. Currency stability.............................................................................................17 2.3.8. Jobless Growth.................................................................................................18 2.3.9. Productivity......................................................................................................20 2.3.10. Political Stability..............................................................................................21

2.4. Social Enterprise ......................................................................................................22 2.4.1. Introduction......................................................................................................22 2.4.2. Business models...............................................................................................24

2.5. Summary ..................................................................................................................26 2.6. References................................................................................................................27

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3 Case Study: Township Patterns- ......................................................................................33 3.1. Introduction..............................................................................................................33 3.2. Company Background .............................................................................................34 3.3. Company Structure ..................................................................................................37

3.3.1. The NPO ..........................................................................................................38 3.3.2. The cooperatives ..............................................................................................39 3.3.3. Township Patterns cc .......................................................................................41

3.4. 2006 and current challenges.....................................................................................42 3.5. The Future................................................................................................................43 3.6. Case Exhibits ...........................................................................................................46

4 Instructors Guide..............................................................................................................50

4.1. Synopsis ...................................................................................................................50 4.2. Teaching Objectives.................................................................................................51

4.2.1. Question 1: Cooperative versus ‘sweatshop’...................................................52 4.2.2. Question 2: Breaking the poverty cycle...........................................................53 4.2.3. Question 3: Fair trade.......................................................................................54 4.2.4. Question 4: Fair globalisation..........................................................................55 4.2.5. Question 5: Increasing productivity.................................................................57 4.2.6. Question 6: NPO role.......................................................................................59

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Acknowledgements

This report is not confidential and may be used freely by the Graduate School

of Business.

Firstly, I would like to thank my supervisor, Elspeth Donovan, for all of her

help and support over the last three months and for introducing me to

Township Patterns.

I am also deeply grateful to both Nicole-Marie Iresch and Christophe

Labesse, the directors of Township Patterns, for their openness and

willingness to share their story. Their passion and spirit has been a real

inspiration to me.

I certify that this report is my own work and all references and quotations

used are reported using the Harvard referencing technique.

I dedicate this study to my supportive wife, Liz, and our beautiful daughter,

Hannah, who have made this a most unforgettable year.

Signed:

RICHARD ANDREW KENNEDY

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TOWNSHIP PATTERNS:

A BUSINESS MODEL FOR ENTERPRISE DEVELOPMENT

IN EMERGING ECONOMIES

Abstract

Enterprise development is vital in order to propagate economic growth and redistribution of

wealth. In South Africa a unique set of social problems exist which also need to be

addressed. This case study research report presents Social Enterprise as a solution to both of

these problems.

The case tells the story of Township Patterns, a Social Enterprise with a unique business

model. Township Patterns currently makes biodegradable Hessian bags, along with other

products, in small cooperatives in the South African township of Khayelitsha selling

predominately to local businesses. It is in the process of developing a clothing range which,

if successful, will dramatically increase its customer base. This business was created and is

in existence to provide employment for the previously disadvantaged women of Khayelitsha

and is now a sustainable textile business on the verge of a global expansion.

Keywords: Enterprise development, social enterprise, entrepreneurship, emerging

economies, poverty alleviation, globalisation, non-profit organisation,

cooperative, fair trade

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Glossary of terms

Capacity building The process of developing skills and knowledge.

Community enterprise Organisations trading for social purpose with a community

base.

Co-operative Structured and run in accordance with the seven

international co-operative principles:

1) Voluntary and open membership;

2) Democratic member control;

3) Economic participation by members;

4) Autonomy and independence;

5) Education, training and information;

6) Co-operation among co-operatives; and

7) Concern for community.

A key feature of co-operative is ownership and control by

members.

CSR Corporate social responsibility. An agenda that involves

businesses attempting to improve their social and

environmental impact.

Employee-owned business Owned and controlled by people who work for it.

Ethical investment Investment chosen according to ethical (environmental,

social, moral) concerns of the investor, rather than one

chosen purely for financial gain.

Fair trade Paying a fair rate for goods or products when trading with

businesses in the developing world.

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Not-for-profit A term used to describe companies which do not distribute

their profits to shareholders but use them for social or

community benefit.

Social capital A term used to describe the value of social connections and

quality social relationships. These non-financial resources -

such as trust, partnership, shared values - enable a

community to thrive and function more effectively.

Social economy The part of the economy which is neither private sector nor

public sector. It includes social enterprises but also

voluntary organisations, foundations, trade unions, religious

bodies and housing associations.

Social entrepreneur Somebody who identifies and brings to life new business

opportunities but who is motivated by public and social

good rather than the need for personal profit.

Social exclusion Where people or groups find themselves excluded from

society and economic opportunity. Commonly cited causes

of social exclusion are poverty, ethnic origin, age, lack of

skills, bad health, low income, criminal record or gender.

Social firm A business created to provide integrated employment and

training to people with a disability or other disadvantage in

the labour market.

Surplus The profit in many social enterprises is referred to as a

surplus, to reflect their 'not-for-profit' status.

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Sustainability There are two commonly used versions of this term:-

Financial Sustainability refers to the ability of an

organisation to meet its ongoing costs over the long term;

and Environmental Sustainability, which refers to the

adoption of environmental practices which minimise the

impact on natural resources such that future generations can

make use of the same resources.

Triple bottom line When an organisation attaches equal importance to social

and environmental objectives and outcomes as to financial

objectives.

Workers Co-op Commonly and Industrial and Provident Society bona fide

Co-op where the members are the employees of the

business. As such, the employees both own and manage the

business that they work for.

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Abbreviations

AIDS Auto Immune Deficiency Syndrome ANC African National Congress BEE Black Economic Empowerment BBBEE Broadbased Black Economic Empowerment CBE Community-Based Enterprise DTI Department of Trade and Industry FDI Foreign Direct Investment GEM Global Entrepreneurial Monitor GDP Gross Domestic Product HIV Human Immune Virus IFAT International Fair Trade Association IMF International Monetary Fund MFIs Microfinance Institutions NPI National Productivity Institute NPO Non Profit Organisation SARS South African Revenue Service SMEs Small and Medium Enterprises TP Township Patterns CC UN United Nations USP Unique Selling Point

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List of Figures and Exhibits

Figure 2.1: Manufacturing as a percentage of GDP ..................................................................5

Figure 2.2: Worsening Income Gaps and the Future ...............................................................10

Figure 2.3: Change in the number of people living on less than $1 a day (1987-1998)..........11

Figure 2.4: Projected ‘normal’ and AIDS deaths in South Africa to 2010..............................12

Figure 2.5: The estimated number of orphans in sub-Saharan Africa. ....................................14

Figure 2.6: Unemployment rates by Region ............................................................................18

Figure 2.7: South Africa’s dual economy................................................................................19

Figure 2.8: Jacob Zuma............................................................................................................22

Figure 2.9: The Sustainable Local Enterprise Network (SLEN) model ..................................25

Figure 3.1: A selection of products produced by Township Patterns ......................................37

Figure 3.2: Township Patterns business model........................................................................38

Figure 3.3: Some of the women working in one of the cooperative workshops. ....................39

Figure 3.4: The Proudly South African and IFAT logos. ........................................................41

Figure 3.5: Nicole-Marie with women from the cooperatives.................................................45

Exhibit 1- TP’s Profit and Loss account (‘000) .......................................................................46

Exhibit 2- TP’s balance sheet year end 28 February 2006 ......................................................47

Exhibit 3- TP’s projected Profit and Loss account year end 28 February 2007 ......................48

Exhibit 4- TP’s future organisational structure........................................................................49

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1 Introduction

Enterprise development in South Africa is vitally important for the economic and social well-

being of its citizens. There has been increased Gross Domestic Product (GDP) growth and

improving economic performance but unfortunately this growth has been ‘jobless’ growth.

The companies that have contributed to the economic development have increased their

efficiency, not their manpower. The rich are becoming more affluent while the poor are

getting poorer. The challenge that businesses need to rise to, is to bridge the gap in the dual

economy. Empowering those from previously disadvantaged communities and bringing them

into the primary economy will help reduce the gap between rich and poor and further

contribute to economic growth.

The purpose of this case study is to tell the remarkable story of Township Patterns - a

business conceived out of the need for employment in 1998, but now a sustainable business,

creating opportunities for previously unemployed and disadvantaged women. Township

Patterns make biodegradable Hessian bags and their most prominent customers are the

various corporate clients of the International Convention Centre in Cape Town. 2006 has so

far been an extraordinary year for Township Patterns starting with the signing of their biggest

contract and ending with expanding their networks in Europe with large retail contracts in the

pipeline and an invitation to a clothing exhibition in Paris in September 2007.

This company, on the solid foundations built over the last decade, is on the verge of

exponential global growth. This company, empowering the women of Khayelitsha, is driving

the fair trade movement in South Africa. Township Patterns could soon become one of South

Africa’s most recognisable international brands.

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2 Literature Review

2.1. Introduction

This literature review starts with perspectives on the challenges of enterprise development in

emerging economies due to exploitative globalisation and the underdeveloped nature of their

markets. Next the challenges that are faced specifically in South Africa are discussed

including the legacy of apartheid, poverty, education and ‘jobless’ growth. Finally, Social

Enterprise is explored as a potential solution to problems of enterprise development in

emerging economies.

2.2. Challenge of enterprise development in Emerging Economies

The term "emerging market" was first used 25 years ago by the World Bank (Economist,

2006a). Since the industrial revolution in the 19th century, the countries in the ‘first world’

have dominated worldwide trade while emerging economies, with five sixths of the world’s

population, only produce half of its output (Economist, 2006a). Further, the recent boom in

emerging economies such as Russia, Brazil and South Africa may be unsustainable as they

have been boosted by rising commodity prices, falling interest rates and a strong import

demand from America (Economist, 2006a).

The factors affecting enterprise development in emerging economies include: Globalisation,

Foreign Direct Investment, restricted access to markets, Role of the State and the

competitiveness of China. These factors are discussed below.

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2.2.1. Globalisation

There are many positive consequences of globalisation including better communication,

lower transport costs (providing cheaper and broader range of products) and an increase in

the productivity of local workforces which in many cases has enabled a rise in living

standards (Isard, 2005). Further, Farrell, Remes, & Schulz (2004) argue that their research

shows globalisation has improved global standards of living through foreign direct

investment (FDI) and suggest emerging economies should embrace FDI as a vehicle to

further improve standards of living.

However, globalisation has not improved all global economies as some have been

marginalised or by-passed. While ‘on average’ global living standards may have improved,

in many countries there is a widening gap between rich and poor, growing inequality and

unrelenting poverty (Isard, 2005). Globalisation has been likened to an unstoppable train but

with a very selective passenger policy. Economies with developed manufacturing

capabilities, international networks, access to advanced technologies, reliable financial

resources and a well educated workforce can board the train and make significant gains.

Benefits are largely obtained by the capable and prepared and those that are not are left in the

station (Sakbani, 2005). Consequently, marginalisation worsens.

Generally, emerging economies are more ‘open’ (i.e. have a large proportion of their GDP

devoted to imports and exports) than developed economies and they rely more heavily on

FDI. As a result, emerging economies are more vulnerable to the imperfections of the global

financial markets (Das, 2003). These imperfections, amongst other things, cause unfounded

confidence, herding behaviour and market crashes. Therefore, particularly in emerging

markets, financial globalisation can result in macroeconomic and financial volatility (Das,

2003).

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2.2.2. Foreign Direct Investment

One of the direct consequences of globalisation is increased FDI. The research of Farrell et

al (2004) shows that FDI benefits emerging economies independent of government policies,

industry and the period studied. The effects of FDI include the stimulation of capital

accumulation by increasing domestic savings, raising efficiency, triggering competition,

improving domestic financial markets as well as reducing the local cost of borrowing

(Kandiero & Chitiga, 2006). The supporters of FDI argue that it brings new capital,

technology and jobs to the countries that need them. Further, one of FDI’s greatest benefits is

its ability to raise local living standards (Farrell et al, 2004). FDI often leads to a drop in

local prices, often causing a boom in demand and the creation of new wealth. This is

achieved by improving efficiency and productivity by bringing in new skills and forcing

inefficient local companies to improve or exit (Farrell et al, 2004).

Unfortunately, in Africa there is a lag in FDI flows due to perceptions of corruption, weak

governance and poor infrastructure (Kandiero & Chitiga, 2006). Further, critics of FDI cite

the exploitation of workers and the infringement of labour laws as some of the negative

consequences (Farrell et al, 2004).

Farrell et al (2004) suggest that in order to get the most out of FDI, emerging economies

should focus on strengthening their economic foundations rather than using incentives and

regulations to encourage FDI. Further, emerging economies need to continue to develop

infrastructure (e.g. roads, power supplies and ports) especially if they want to attract export-

oriented FDI (Farrell et al, 2004).

The opposing view, put forward by Schneider (2003), suggests that the basic view of

globalisation as benefiting all in the global economy is inaccurate and dangerous as it ignores

the contradictory way in which globalisation has impacted various regions of the world and it

obscures the effects of greater openness on communities.

While often suffering from a lack of FDI, emerging economies also have underdeveloped

markets and access for entrepreneurs is frequently restricted.

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2.2.3. Restricted Access to markets

One of the greatest challenges to enterprise development in emerging economies is the

restricted access to markets. This includes both markets in which the products or services can

be sold and the financial markets from which funding, or seed capital, is provided. In order

to fund Enterprise Development there must be excess wealth in the economy (Bornstein,

2004:6) and this is another factor that puts emerging economies at a disadvantage.

The globalisation of business has forced local businesses to look at foreign markets in order

to gain and sustain a new competitive advantage (Aulakh, Kotabe, & Teegen, 2000).

Unfortunately one of the reasons for Africa’s poor economic performance has been its lower

levels of industrialisation and therefore a decreased ability to build up strong export-oriented

manufacturing companies (Business Africa, 2005). When compared to three Asian countries

(China, India and the Philippines) Africa’s manufactured exports make up only 3.3% of GDP

versus 17.9% for the Asians countries (Business Africa, 2005). See Figure 2.12.2.3 below.

Figure 2.1: Manufacturing as a percentage of GDP

Source: Business Africa, 2005:8

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Further problems for export-oriented companies in Africa include bureaucracy. In recent

Investment Climate surveys around 40% of exporting African firms cited customs and trade

regulations as “a serious obstacle” (Business Africa, 2005:8). In fact one of the World Bank

Economists, Mr Clarke, has concluded that barriers to trade such as export taxes and customs

regulations are a “serious concern” in Africa (Business Africa, 2005:9). There are other

factors in which the government can impact on enterprise development and these are briefly

discussed below.

2.2.4. Role of the State

It has been internationally acknowledged that small and medium enterprises (SME’s) play an

essential role in the economy by stimulating economic growth, bringing about the

redistribution of wealth and responsibility and by creating jobs (Abrie & Doussy, 2006).

Therefore in emerging economies the state should be encouraging the development of

SME’s. Government support includes policies such as legislation and regulation and

programmes such as the support structures offered by business development services and

incubator programmes.

In South Africa, the government has promoted small business development by trying to

streamline the business environment in which SME’s operate (Abrie & Doussy, 2006). For

example there was selected restructuring of labour regulations and tax relief and it did bring

some relief. However, the South African Revenue Service (SARS) Commissioner, Pravin

Gordhan, has recognised that it is still a substantial burden for small business to comply with

tax regulations (Abrie & Doussy, 2006).

In a recent study by Strategic partnerships for growth in Africa (SBP, 2004), it was

concluded that the South African businesses incurred regulatory compliance costs of R79

billion or 6.5% of GDP. For small businesses, those with a turnover under R1 million,

compliance costs as a percentage of turnover was an astonishing 8.3%. In contrast, for larger

businesses the compliance cost is under 2% of turnover. New research by the World Bank

(cited in SBP, 2004) has shown that an improved regulatory environment could increase

GDP growth by as much as 1.4% a year. While the government has been seen to take

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remedial action in terms of company taxation, the current labour laws are still seen as

limiting for small businesses especially those wishing to become fully registered and

compliant.

In conclusion, it is clear that the government needs to radically rethink its policies with

regard to support for small businesses and entrepreneurial activity.

2.2.5. China

China is a dominant driver of the world economy. It is almost the size of the United States

and is home to one in every five people in the world. Its GDP had quadrupled between 1978

and 2002 and some analysts believe that China’s economy could overtake America’s by 2045

(Sull, 2005). China leads the world in attracting FDI as well as in the production of colour

televisions, microwaves, air conditioners, mobile phones and many other products (Sull,

2005). Consequently, China is now a force to be reckoned with especially due to its

competitiveness in the market and its increasing volume of exports since joining the World

Trade Organisation in late 2001.

At the forefront of China’s competitiveness is its highly efficient and productive workforce.

R3 an hour may seem very little to a South African manual worker but to Chinese ex-farmers

it is a fortune as they used to earn around R70 a year (Gulke, 2006).

The CEO of Edcon, Steve Ross, was recently quoted as saying:

In South Africa there are 2 200 Chinese stores selling apparel and footwear, 470 million items were imported from China in the past year. The five biggest retailers account for only 25% of unit sales – 75% are being distributed through SMEs. (Gulke, 2006:40)

These are striking statistics and other emerging economies need, at the very least, to learn

from the incredible economic growth and upliftment that has occurred in China over the last

two decades. Unfortunately, the competitiveness of Chinese exports has severely impacted

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the textile industries in South Africa which are now looking for a new competitive advantage

in the marketplace.

2.3. South Africa as an Emerging Economy

In 1994 when the democratically elected government came to power it inherited a

“contradictory legacy” (Terreblanche, 2002:25). On one hand South Africa was the most

developed economy in Africa but on the other hand it had major socio-economic problems

(Terreblanche, 2002). These problems included high rates of unemployment, severe poverty

in more than 50% of the population, distinct inequalities in income, property, education,

healthcare and opportunities and high levels of crime and violence.

The transition that has occurred in South Africa since 1994 has been hailed worldwide as a

political miracle (Terreblanche, 2002). This peaceful political and human rights transition is

largely credited to the reconciliatory attitude of the former president Nelson Mandela.

However, this change has not been accompanied with corresponding socio-economical

reform. For example, only 21% of Black Africans have piped water in their dwellings

compared to 96% of Indians and 97% of Whites (Pieterse & van Donk, 2002). Further, the

unequal income distribution in South Africa is one of the most marked in the world. Those at

the top of the pyramid exhibit a level of affluence equal to any developed country while those

at the bottom live in a state of poverty associated with developing countries.

Some of the factors which differentiate South Africa from other developing countries are

discussed below.

2.3.1. The legacy of apartheid

The marked unequal distribution in South Africa is rooted in the legacy of apartheid which

ended only 12 years ago. Apartheid restrained African entrepreneurship, education and skills

development. Further effects included the exclusionary legislation, lack of access to credit

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and markets and higher input costs (Mayer & Altman, 2005). The direct consequences of

apartheid are a drastic imbalance between the financial and educational level of whites and

non-whites. However, since the end of apartheid, this pattern of inequality is slowly

changing. Boardrooms are increasingly populated by black businessmen and the growing

emergent black middle class is embracing western consumption patterns and demanding

premium salaries. Nevertheless, the poor and unskilled continue to struggle, particularly in

peri-urban township and rural areas. (Datamonitor, 2005)

2.3.2. Poverty

Poverty is hunger. Poverty is lack of shelter. Poverty is being sick and not being able to see a doctor. Poverty is not having access to school and not knowing how to read. Poverty is not having a job, is fear for the future, living one day at a time. Poverty is losing a child to illness brought about by unclean water. Poverty is powerlessness, lack of representation and freedom (The World Bank, 2006)

Despite the efforts of the government and Non Profit Organisations (NPOs), between 40%

and 50% of the population in South Africa have incomes below poverty levels (Burger,

Mahadea, & O’ Neill, 2004). Breaking the poverty cycle in South Africa is proving to be a

very difficult challenge.

Almost half, 2.8 billion, of the world’s 6 billion people live on less than $2 a day. In

developed countries less than 1 in 100 children die before the age of five, whereas in the

poorest countries as many as 20 in 100 do not reach their fifth birthday. Similarly, less than

5% of children are malnourished in developed countries whereas up to 50% of children are in

the poorest countries. (World Development Report, 2000/2001).

While addressing Parliament in May 2004, President Thabo Mbeki commented that the

second (informal) economy was the result of poverty, underdevelopment and marginalisation

in South Africa.

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The structure of our present political economy is rooted in the cheap migrant labour system resulting from the development of mining and industry. The apartheid state institutionalised the system by laws and practices, thereby entrenching its manifestation as a dualistic economy and society marked by disenfranchisement, massive inequalities and impoverishment. (President Mbeki quoted in Nevin, 2005:50).

One of the most striking features of South African demographics is the difference between

the rich and poor. As seen in Figure 2.2, South Africa has one of the highest differences of

the developing countries.

Figure 2.2: Worsening Income Gaps and the Future

Ratio of the poorest 20% of the population to the richest 20% Country Ratio

South Africa 45:1

Brazil 32:1

Guatemala 30:1

Senegal 17:1

Mexico 14:1

Malaysia 12:1

Zambia 9:1

Algeria 7:1

China 7:1

South Korea 6:1

India 5:1

Source: (Renner, 1997 cited in Horsfield, 2005).

Even more disturbing is the fact that in Sub-Saharan Africa the number of people living on

less than $1 a day has actually increased by nearly 75 million between 1987 and 1998. This

is shown in Figure 2.3 below.

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Figure 2.3: Change in the number of people living on less than $1 a day (1987-1998)

Source: World Development Report, 2000/2001

2.3.3. Healthcare

“The HIV/AIDS epidemic is the most devastating epidemic in recent history” (Whiteside,

2002:313).

HIV/AIDS is one of the key issues facing South Africa today. This will have a marked

impact on the potential economic growth of the country in the future. Between 1994 and

1999 the average life expectancy dropped from 64 to 54 and by 2010 life expectancy could

reach as low as 38 with 25% of the labour force being HIV positive (Datamonitor, 2005). In

1997 an estimated 2.8 million adults in South Africa were infected with HIV/AIDS and this

figure increased to 4.7 million in 2001 (Booysen, 2004). The estimated prevalence of

HIV/AIDS in the adult population is 20.1% and this is one of the highest in the world

(Booysen, 2004). Unfortunately, the true death toll of the disease cannot be estimated until

the full wave of the epidemic has been seen and this could take as long as 20 years

(Whiteside, 2002). This relationship is demonstrated in Figure 2.4 below.

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Figure 2.4: Projected ‘normal’ and AIDS deaths in South Africa to 2010

Source: Whiteside, 2002.

There is a clear link between HIV/AIDS and many kinds of poverty. As members of the

household become infected the earning power drops and the households become poorer

(Whiteside, 2002). Booysen (2004) has found that households affected by HIV/AIDS are

poorer than unaffected households independent of how income and poverty is measured.

This situation has been worsened due to the South African government sending out mixed

signals as to the causes of AIDS and has also failing to enact legislation to stop the spread of

the virus and initiate treatment for those already infected (Kauffman, & Lindauer, 2004).

Clearly, the government needs to do more to increase awareness of HIV/AIDS as well as

support businesses, particularly small businesses, to effectively treat and prevent the spread

of HIV/AIDS.

Households affected by HIV/AIDS are caught up in a vicious poverty cycle. Household

income falls as members of a household become infected and are forced to give up their jobs.

In order to survive with the reduced income and increased medical costs, children are often

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taken out of school to work. As income drops, so does the spending on food and malnutrition

often results. Further access to basic human needs such as housing, sanitation and health care

is also threatened. This reduces the effectiveness of the immune system to fight opportunistic

infections (particularly in those affected by HIV/AIDS) resulting in increased mortality.

This, along with malnutrition and a lack of schooling, severely impacts the children’s mental

and physical development. (Booysen, 2004)

Clearly HIV/AIDS is a serious problem in South Africa and needs to be addressed with

urgency. As highlighted, not only is it impacting on this generation but will also impact

future generations by stopping families breaking out of the poverty trap.

2.3.4. Crime

The need for security in South Africa is as high today as it has ever been. The reality in

South Africa is that it is characterised by a low level of policing, inadequate legislation and

understaffed and under-resourced law enforcement agencies (Goredema, 2005).

One of the more frightening recent findings is that there is some evidence that AIDS-related

orphaning may lead to higher levels of crime (Pharoah & Weiss, 2005). For example, the

illness and death of a child’s parents leaves children scarred and marginalised in such a way

that they are more likely to become delinquent and engage in criminal behaviour (Pharoah &

Weiss, 2005).

Figure 2.5 below shows the estimated number of orphans in sub-Saharan Africa and how

many are due to AIDS.

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Figure 2.5: The estimated number of orphans in sub-Saharan Africa.

Source: Pharoah & Weiss, 2005:3

Other variables which also give rise to a greater propensity for criminal behaviour include

growing up in a single parent family, poor levels of supervision, violence, abuse, lack of

formal schooling and exposure to overcrowded and unsupportive school environments

(Pharoah & Weiss, 2005).

Despite increasing standards and progressive policies by the government, many South

Africans, both black and white, continue to have a very negative perception of the police

force (Singh, 2004). These perceptions, however unfair, will continue until the police service

has proved itself beyond criticism (Singh, 2004).

The African National Congress (ANC) is perceived to have failed in its promise to control the

crime problem in South Africa (Southern African Monitor, 2006). The government is now

spending twice as much per capita on internal security than the world average (Southern

African Monitor, 2006). In 2004 the government spent 3% of GDP - or $130 per person -

compared with a world average of 1% and $66 per person (Economist, 2006b). Despite this,

many police officers complain that they are badly equipped to face the dangers of the job and

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are burdened by unnecessary procedural tasks which seem to favour the perpetrator (Southern

African Monitor, 2006).

The United Nations (UN) still claims that South Africa has the highest rate of gun crime in

the world (except for Colombia) and UN statistics from 2000 show that South Africa had the

highest rate of murder in the world (60 per 100,000) (Bhorat & Cassim, 2004). This has

resulted in a fearful culture where private security guards outnumber police by at least two to

one (Economist, 2006b).

2.3.5. Education

According to the conceptual model in the 2005 GEM (Global Entrepreneurial Monitor)

report, education and training is one of the key entrepreneurial framework conditions (von

Broembsen, Wood, & Herrington, 2005). These framework conditions create entrepreneurial

opportunities but more importantly in the case of education, they create entrepreneurial

capacity in terms of skills and motivation. According to the South African experts

interviewed by GEM in 2004 dramatic improvements in education are needed to improve the

human capital base. In a recent study in the 2004 World Competitiveness Yearbook on a

sub-index for education SA ranked 55th out of 60 countries (Orford, Wood, & Herrington,

2004)

The lack of entrepreneurial training in primary and secondary schools is also not helping.

Preliminary research discussed in the 2004 GEM report (Orford et al, 2004) indicates that

students that have been exposed to knowledge of entrepreneurship can be positively

influenced by dedicated entrepreneurship teaching programmes. As there is a strong

correlation between education and entrepreneurial activity in South Africa, the continued

failure of schools to provide basic education to the majority of the population will only

continue to dampen entrepreneurial activity in the future.

In the 2004 GEM report (Orford et al, 2004), the evidence from expert questionnaires

suggests that South Africa’s schooling system is comparable to other developing countries in

promoting entrepreneurship. However, in a separate study van der Berg (cited in von

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Broembsen et al, 2005) found South African students performed extremely badly even when

compared against much poorer countries. The subjects that compared least favourably

include mathematics, science and reading comprehension. This poor performance by

international comparison is likely to be due to the continuing impact of apartheid. Even

though there have been huge investments in education since 1994, there is still a marked

difference in pass rates and students at predominantly white schools are more than twice as

likely to pass than students at predominantly black schools.

According to van der Berg (cited in von Broembsen et al, 2005), South Africa’s poor

performance in the areas of mathematics and science is highly likely to be one of the main

contributing factors to South Africa’s poor entrepreneurial performance.

Enabling entrepreneurship and enterprise development is critical to combating unemployment

and poverty in South Africa. The country does not suffer from a lack of creative spirit, but

rather from a lack of business education and entrepreneurial skills in an enabling environment

that can empower individuals to further themselves through taking the entrepreneurship route

(Burger et al, 2004).

2.3.6. Access to Finance

Access to financing is clearly needed during the entrepreneurial start-up phase. For

entrepreneurs without a credit history or track record this is obviously a problem. Funds are

available to establish and develop new enterprises but the problem found by hopeful

entrepreneurs is a lack of access and an abundance of red tape.

One solution to the problem of access to finance in emerging economies has been provided

by microfinance institutions (MFIs). Microfinance programmes have become one of the

most important interventions in emerging economies in the fight against poverty. Khula

Enterprise Finance Limited is one such example in South Africa and a recent study by

Makina & Malobola (2004) showed that microfinance programmes can lead to

improvements in the economic well being of households, stimulated enterprise development

as well as the empowerment of women. However, in spite of all the initiatives by DTI (such

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as Business Partners and Sizanani Advisory Services) access to finance remains a challenge

for would be entrepreneurs.

Many argued that the fact that loans were being repaid was evidence that incomes had

increased, but it has been shown that even if the business has failed, clients may repay the

loan due to complex social factors (Makina & Malobola, 2004). However, this empirical

evidence has been shown to be inconclusive and controversial (Makina & Malobola, 2004).

There is certainly an opportunity for government to support more non-profit financing

schemes such as the Grameen bank in Bangladesh or the PRODEM Private Financial Fund

in Bolivia (Hernandez & Mugica, 2004).

A particular problem in South Africa (relating back to poor education) is a lack of

understanding by entrepreneurs of the world of finance. Many of the experts interviewed in

the 2004 GEM report believe that access to finance is likely to remain a reality for start up

firms in South Africa (Orford et al, 2004).

2.3.7. Currency stability

Since the severe weakening of the Rand in 2001, the currency has strengthened considerably.

This has obviously been positive for consumers with a decrease in price for imported goods

but has reduced the competitiveness of exported goods (Datamonitor, 2005). The recent

devaluation of the Rand, caused initially by the US Federal Reserve Bank raising interest

rates for the 16th consecutive time and hinting that the increases were likely to continue

(Maestro, 2006:1), has increased exporter competitiveness but has decreased foreign

confidence in South Africa.

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2.3.8. Jobless Growth

Since the mid 1990’s South Africa has delivered a credible economic growth rate of around

3%. Following the strengthening of the Rand in 2002 the growth has been even stronger but

unfortunately this has not converted into increased employment. The public and private

sectors have been restructuring and shedding labour over the last decade due to economic

situations and global trends (Burger, Mahadea, & O’ Neill, 2004; Economist, 2001). This

increasing substitution of capital for labour has meant that this growth has been ‘jobless’

resulting in official figures for unemployment of around 32% (Datamonitor, 2005). In fact,

South Africa’s level of unemployment is currently higher than any other country for which

data is available (Mayer & Altman, 2005). See Figure 2.6 below.

Figure 2.6: Unemployment rates by Region

Source: Mayer & Altman, 2005:42

While there has been a 14% increase in the number of people in employment between 1970

and 1995 there has been a 154% increase in the number of people unemployed. The number

of black Africans in employment has actually fallen over the same period and the percentage

of black Africans unemployed has increased from 24% to 46% (Terreblanche, 2002).

When addressing Parliament in May 2004, President Thabo Mbeki acknowledged that the

underdevelopment and marginalisation in South Africa is worsening.

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In 1994, the first democratic government abolished all discriminatory laws and dismantled the associated practices, but dualisms remained in both the economy and society. A decade later, the polarisation has worsened and the challenge of overcoming underdevelopment looms large with no simple answers in sight (President Mbeki quoted in Nevin, 2005:50)

The International Monetary Fund (IMF) commended South Africa in 2005 for its remarkable

economic progress since democracy in 1994 but warned that serious challenges remain

including persistent high employment, poverty and a high incidence of HIV/AIDS (Nevin,

2005). The key to overcoming these challenges is in integrating the previously disadvantaged

majority into the mainstream economy.

However, there are still major barriers stopping the development of entrepreneurialism such

as unreliable transport and red tape. Ridle Markus, a senior economist at ABSA Bank, is

quoted as saying "For some businesses in the second economy, there are no incentives for

making the transition to the formal sector" (Nevin, 2005:51).

Figure 2.7: South Africa’s dual economy

Photographs taken in Cape Town, 28 September 2006

In order to support employment growth in the future, the government needs to continue to

create an environment for economic stability and growth. This can be achieved by

“…maintaining fiscal discipline throughout government; maintaining Reserve Bank

independence; ensuring inputs are cost-competitive; and a competitive tax environment” (Job

Summit, 1998:6).

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Unfortunately, over 3 million people do not have a job in South Africa and in the new

economy jobs have been lost in the formal economy and gained in the informal one. The

scarcity of work is one of the biggest disappointments of the new South Africa (Economist,

2001).

2.3.9. Productivity

The productivity of workers in South Africa, when compared to other emerging economies

such as China, is relatively low. This may be due to the legacy and suppression as a result of

Apartheid as well as the plentiful availability of cheap labour. This sentiment was recently

echoed by Peter Swart, a fair trade operator, in an article in the SA Exporter supplement

where he cited productivity as one of his key business challenges (Masondo, 2006:13).

Unfortunately, there is no ‘quick fix’ to the problem of poor productivity. In an article

entitled “Business South Africa - proposals towards an agenda” the following

recommendations are offered as a way to improve productivity in South Africa:

- Achieve world-class primary and secondary schooling through effective teaching and creation of a culture of learning.

- Create the right incentives for firms and employees to enhance worker skills through continuing training.

- Increase managerial efficiency and firm innovation through low trade barriers and enhanced product market competition.

- Promote the linking of pay to productivity and performance, among other ways through bargaining protocols. (Job Summit, 1998:6)

The first recommendation is a long term goal for which it will take many years to see the

results. The second recommendation has been partially addressed by the Skills Development

Act published in 1998 which provides incentives for businesses to train their employees. The

third recommendation will require a delicate balancing of trade barriers to ensure an increase

in managerial efficiency without endangering businesses through increased international

competition. The final recommendation needs to be embraced by business to drive

productivity internally.

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Organisations such as the National Productivity Institute (NPI), a public benefit organisation

largely funded by government grants, are helping both South African enterprises and the

public sector to increase their productivity. The NPI’s stated mission is to be “dedicated to

the development and enhancement of South Africa’s productivity by unleashing the spirit of

continuous productivity improvement in all South Africans” (National Productivity Institute,

2006:2).

2.3.10. Political Stability

For foreign investors, political stability in South Africa is one of the most important factors to

consider when weighing up investment opportunities. The country has experienced a much

needed period of political stability during the Mandela and Mbeki governments but the future

is less certain. South Africa recently suffered a downward revision to ‘C+’ partly due to the

growing support for the populist presidential hopeful Jacob Zuma (Emerging Markets

Monitor, 2006).

Mr Zuma has been building an alliance of left of centre followers who believe Mbeki’s

government is doing too little for the poor. He has strong support from the trade unions,

youth leaders and ANC activists (Economist, 2006c).

Unfortunately the growing popularity of Zuma threatens the stability and predictability of

macro-economic policy. As commented recently (Borain N, 2006, 21 September, e-mail)

anything seen to increase Zuma’s chances of succeeding the presidency is ‘market negative’

as investors see Zuma as poorly educated, uniquely tainted by corruption and holding

damaging views on ethnicity, women and HIV/AIDS.

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Figure 2.8: Jacob Zuma singing “Awuleth’ umshini wami” or ‘Bring back my machine

gun, stop delaying me’ in Pietermaritzburg following the dismissal of his corruption

case on 20 September, 2006.

Source: Economist, 2006c:58

2.4. Social Enterprise

2.4.1. Introduction

Emerging economies have many challenges to overcome in a fiercely competitive and

globalised world. Further, South Africa has some particular issues which are reducing its

ability to develop. Given this environment, it is essential that governmental policies provide

support for skills development, promote small enterprise development in order to create

sustainable employment opportunities (Mayer & Altman, 2005). Social enterprise is seen as

a potential solution not just to the empowerment of employees and in the redistribution of

wealth but also as a vehicle to address the many social issues in South Africa.

This was recognised in the new democratic South Africa as early as 1995: “Small, medium

and micro-enterprises (SMMEs) represent an important vehicle to address the challenges of

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job creation, economic growth and equity in our country” (RSA, 1995 cited in McGrath,

2005:113).

However, centuries of discrimination and barriers to entrepreneurship has resulted in a

culture of dependency and entitlement reducing proactive efforts of individuals.

Unfortunately most black South Africans would rather wait around for handouts rather than

proactively look for work and take control of their own destinies (Co, 2003). There were

more than 500 laws and regulations that blocked the involvement of the Black community in

the economy (Co, 2003).

A Social Enterprise could be defined as: “organisations seeking business solutions to social

problems” (Thompson & Doherty, 2006: 362). Social Enterprises have a social purpose,

trade in conventional markets, re-invest rather than distribute the profits and are focused on

either a double or triple bottom line. In the United Kingdom, Social Enterprise contributes

£18 billion (R250 billion / $36 billion) annually to the economy (Corrick, 2006).

Around 98% of South African companies employ fewer than 50 people and account for 45%

of total employment (McGrath, 2005). Worldwide SMEs make up 90% of businesses and

account for approximately 55% of employment (Vives, 2006). Surprisingly, 75% of all

enterprises in South Africa are not registered with the South African Revenue Service

(SARS) and are therefore considered part of the informal economy (McGrath, 2005)

Social Enterprises have an advantage over non-profit organisations (NPOs) due to their

ability to turn to the financial markets for funding. They are able to do this as their income is

generated from the sale of goods and services rather than relying on donations. As a result

Social Enterprises, if successful, are more sustainable over the long term than NPOs. A

growing source of funding for Social Enterprises is venture philanthropy. In return for their

investment, venture philanthropists get either a financial return or social return or both

(Pepin, 2005). Another advantage of the Social Enterprise model is that due to their greater

contact with the market and its competitive pressures, Social Enterprises are required to have

a higher efficiency to survive rather than relying on inconsistent donations. (Mancino &

Thomas, 2005) Consequently, the positive societal benefits derived from Social Enterprises

are more sustainable over the long term than those of traditional NPOs.

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2.4.2. Business models

In the emerging economies there are many examples of successful, sustainable enterprises

comprising of informal networks including businesses, not for profit organisations and

communities working together to create value in economic, social and ecological terms

(Wheeler, McKague, Thompson, Davies, Medalye, & Prada, 2005).

Recently, the United Nations has been working together with many governments and NPOs

to promote the use of private-sector efficiency and creativity to address many of the world’s

social problems. In a recent UN commission, Unleashing Entrepreneurship (UN, 2004),

specific recommendations were made for the private-sector to mobilize capabilities and

resources in order to make business work for the poor. Further recommendations for the

public sector included encouraging property rights, simplifying regulatory systems and

ensuring good governance in developing countries to facilitate a thriving spirit of

entrepreneurship. Wheeler et al (2005) cite survey data which suggests that the

overwhelming majority of people around the world want businesses to make a more

sustainable contribution to society other than to just make a profit. The World Bank’s

‘Voices of the Poor’ survey revealed that people with low incomes have hopes and

expectations that private business will provide a decent standard of living for them and their

families (Wheeler et al, 2005).

At the same time management literature has begun to discuss commercial opportunities that

exist in emerging economies which can be exploited both for the benefit of the businesses

and the consumers in these emerging economies (e.g. Prahalad, 2005). Further, these

businesses are more efficient and are able to transfer knowledge between international

markets, build relationships and commercial infrastructure better than NPOs or governmental

states (Wheeler et al, 2005).

Wheeler et al (2005) developed a framework which they have called the Sustainable Local

Enterprise Network (SLEN). This model describes how sustainable enterprise can flourish in

a “trust based, densely networked environment” (Wheeler et al, 2005: 35).

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Figure 2.9: The Sustainable Local Enterprise Network (SLEN) model

Source: Wheeler et al, 2005: 39

Wheeler et al (2005) found that many of the cases they analysed contained businesses with an

obvious social agenda. They also found that the large networks surrounding these businesses

were able to leverage a shared asset base and construct “virtuous cycles of asset growth and

sustainable outcome” (Wheeler et al, 2005:35). These sustainable outcomes tend to include

local development and trade, enhanced quality of life and individual and community

economic self-reliance in the case of SLENs. Wheeler et al (2005) found that entrepreneurs,

local business, NPOs and local communities were almost always present in the cases they

analysed.

Surprisingly, Wheeler et al (2005) found that not all of the network participants had to agree

on the primary purpose of the collaboration.

SLENs are also focused on value creation as in traditional businesses. However, ‘value’ is

constructed socially for the stakeholders rather than financially (Wheeler et al, 2005).

Unfortunately there are too few SLENs in the developing world to be able to achieve

significant progress on issues such as poverty alleviation and redistribution.

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Wheeler et al (2005) also found that enabling the development of human capital is also likely

to improve the environment for the creation of SLENs.

Another model discussed in the literature is a Community Based Enterprise (CBE). Peredo &

Chrisman (2006: 310) define a CBE as “a community acting corporately as both entrepreneur

and enterprise in pursuit of the common good”. They believe that CBE offers an alternative

and hopeful model for community development (Peredo & Chrisman, 2006). This

unconventional form of entrepreneurship is based on collective and individual interests being

viewed as complimentary and focuses on the common good (Peredo & Chrisman, 2006).

This model could be used for sustainable poverty alleviation as it integrates many different

aspects of the community in which it operates. Further, within a CBE the communities’

cultural identity and traditions can be seen as a driving force compelling economic, social and

environmental initiatives simultaneously (Peredo & Chrisman, 2006).

2.5. Summary

South Africa is at a disadvantage, compared to the developed world, when it comes to

enterprise development. This is due to both a restricted access to markets and a low level of

seed capital for investment in new ventures. Further, the stability of the Rand causes added

problems for exporters and threatens many operators. The increasing prevalence of

HIV/AIDS also puts South Africa at a disadvantage by reducing life expectancies,

productivity and the earning ability of families.

The recent economic stability and a large employment base will help South Africa begin to

overcome these problems and build towards a more prosperous future for all. One vehicle for

continued economic growth and increasing employment is the development of Social

Enterprises. Due to their contact with the commercial world, these businesses are forced to

be efficient and productive in order to compete and survive. I believe Social Enterprises can

and will make a significant, sustainable contribution to the economy while focusing on social

needs such as employment and skills development.

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2.6. References

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enterprises in South Africa”, Meditari Accountancy Research, Vol. 14, No. 1, pp. 1-13.

Aulakh PS, Kotabe M, & Teegen H, 2000, “Export strategies and performance of firms from

emerging economies: evidence from Brazil, Chile, and Mexico”, Academy of

Management Journal, Vol. 43, No. 3, pp. 342-361.

Bhorat H, & Cassim R, 2004, “The challenge of growth, employment and poverty in the

South African economy since democracy: an exploratory review of selected issues”,

Development Southern Africa, Vol. 21, No. 1, pp. 7-31.

Booysen FLR, 2004, “HIV/AIDS and Poverty: Evidence from the Free State Province”,

South African Journal of Economic and Management Sciences, Vol. 6, No. 2, pp.

419-438.

Borain N, ([email protected]), 21 September 2006, The Zuma machine, Political

Commentary e-mail to R Kennedy ([email protected])

Bornstein D, 2004, How to Change the World- Social Entrepreneurs and the Power of New

Ideas, Oxford University Press, New York.

Burger L, Mahadea D, & O’ Neill C, 2004, “Perceptions of Entrepreneurship as a Career

Option in South Africa: An Exploratory Study among Grade 12 Learners”, South African

journal of economic and management sciences, Vol. 7, Issue 2, pp. 187-205.

Business Africa, 2005, “African exports: Market access is not enough”, Business Africa, Vol.

14, Issue 13, 1st-15th July, pp. 8-9.

Co MJ, 2003, “A socio-cultural explanation of black entrepreneurship in South Africa”,

South African Journal of Business Management, Vol. 34, No. 4, pp. 35-44.

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Corrick K, 2006, “Giving Something Back”, New Statesman, 22 May, p. 18.

Das DK, 2003, “Emerging market economies: Inevitability of volatility and contagion”,

Journal of Asset Management, Vol. 4, No. 3, pp. 199-216.

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February, pp. 11-13.

Economist, The, 2006a, “Climbing Back”, The Economist, Vol. 378, Issue 8461, 21 January,

p.69.

Economist, The, 2006b, “Fear Factor”, The Economist, Vol. 380, Issue 8489, 3 August, p.43.

Economist, The, 2006c, “The comeback kid”, The Economist, Vol. 380, Issue 8496, 23

September, p.58.

Emerging Markets Monitor, 2006, “MEA Sovereign Risk Ratings: A Mixed Bag”, Emerging

Markets Monitor, 11 September, Vol. 12, Issue 22, pp. 4-5.

Farrell D, Remes JK, & Schulz H, 2004, “The truth about foreign direct investment in

emerging markets”, McKinsey Quarterly, Issue 1, pp. 24-35.

Finance Week, 2005, “Low cost schemes a priority”, Finance Week, 8 June, pp. 40-41.

Goredema C, 2005, “Organised crime and terrorism: Observations from Southern Africa”,

Institute for Security Studies, Paper 101, March, pp. 1-8.

Gulke W, 2006, “China: Stark realities of a roaring economic dragon”, Management Today,

Vol. 22, No. 6, pp. 39-40.

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Hernandez R & Mugica Y, 2003, What works case study: PRODEM FFP’s Multilingual

Smart ATMs for Microfinance, World Resources Institute, pp. 1-27.

Horsfield G, 2005, “ ‘The Poverty Penalty’ The Price of being poor? ”, MBA Research

Report, University of Cape Town Graduate School of Business, Cape Town, South

Africa.

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Can Be Done, Cambridge University Press, Cambridge, UK.

Job Summit, The, 1998, “Business South Africa Proposals towards an agenda”, [online]. pp.

1-6. Available from: http://www.polity.org.za/html/govdocs/summit/subbus.html [18

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South African Journal of Economic and Management Sciences, Vol. 9, No. 3, pp.

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Kauffman, K.D. & Lindauer, D.L. (2004), AIDS and South Africa- The Social Expression of

a Pandemic, New York: Palgrave Macmillian.

Maestro Investment Consulting, 2006, “What’s happening in the markets?”, Maestro

Investment Consulting, 18 May, Cape Town.

Makina D, & Malobola LM, 2004, “Impact assessment of microfinance programmes,

including lessons from Khula Enterprise Finance”, Development Southern Africa, Vol.

21, No. 5, pp. 799-814.

Mancino A and Thomas A, 2005, “An Italian Pattern of Social Enterprise The Social

Cooperative”, Non profit Management & Leadership, Vol. 15, No. 3, pp. 357-369.

Masondo S, 2006, “Getting a fair deal for all”, Business Day- The South African Exporter

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Mayer MJ, & Altman M, 2005, “South Africa’s economic development trajectory:

implications for skills development”, Journal of Education and Work, Vol. 18, No. 1,

pp. 33-56.

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for micro and small enterprises in South Africa”, Journal of Education and Work, Vol.

18, No. 1, pp. 111-125.

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Institute, Midrand.

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51.

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linkages”, Institute for Security Studies, Paper 107, June, pp. 1-16.

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http://siteresources.worldbank.org/INTPOVERTY/Resources/WDR/overview.pdf

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3 Case Study: Township Patterns-

A Business Model for Enterprise Development

in Emerging Economies

3.1. Introduction

In early March 2006, Nicole-Marie and Christophe were driving in their car along Ocean

View Drive in Cape Town when Ronan L’Heveder called from Brussels. He was confirming

that the International Diabetes Foundation (IDF) would be proceeding with an order of some

10,000 delegate bags for the 19th World Diabetes Congress to be held in Cape Town in

December 2006. From such tiny beginnings Township Patterns had reached a defining

moment.

Today, this company, on the solid foundations built over the last decade, appears to be on the

verge of exponential global growth. This company, empowering the women of Khayelitsha,

is now a significant driving force for the fair trade movement in South Africa. Township

Patterns could soon become one of South Africa’s most recognisable international brands.

The IDF order was a watershed moment for Township Patterns (TP) as their largest previous

order had been for 4,500 bags for the June 2005 South African Medical Association

Conference in Durban (worth R130,000). The IDF contract, shrewdly negotiated in Euros, is

worth over R600,000 eclipsing the order for the conference in Durban. It was at this point

that Nicole-Marie and Christophe realised their dream was beginning to unfold. A

sustainable township based business was starting to become a reality and it was clear that

2006 was going to be a year like no other.

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3.2. Company Background

The entrepreneur behind TP, Nicole-Marie Iresch,

was born in Algeria in 1955. In 1956 her family

emigrated to France knowing that there was no

future in the country for ‘pieds noirs1’.

Nicole-Marie’s father had a very strong

entrepreneurial character but was unfortunately not

very successful. He viewed formal education as

unnecessary and consequently Nicole-Marie

experienced ‘permanent failure’ at school and left at

the age of 15. As a teenager, Nicole-Marie was

‘forced’ to become more creative and open herself

to opportunities in the outside world. Nicole-Marie

found this a very intense period during which she

grew enormously on a personal level through a wide

reading of spiritual literature. She developed an

acute sense that a different life was possible.

Nicole-Marie had a strong desire to explore the

world. She worked as an au pair and as a tourist

guide in many countries in Europe and travelled

through China, Japan, West Indies and North and

South America. Later she was employed at the

CNES (Centre National d’Etudes Spatiales - The

French Space Agency) within the transport

department for three years and subsequently worked

at Air France. After completing a university

business degree (a huge personal victory) she

moved to a role in the creation and development of

The First Watershed

Looking back on the history of TP, Nicole-

Marie remembered the last watershed

moment in 2002. Initially, Mrs Ackerman

from Pick ’n Pay (who Nicole-Marie had

met with when TP was first started) offered

to stock TP bags on the supermarket’s

shelves and they were sold here for between

R20 and R69.

In 2002, a nation-wide beautification

campaign to decrease the number of plastic

bags littering the streets prompted Pick ’n

Pay to order green re-useable bags from

Asia. Unfortunately, a shipment of the green

bags did not arrive on time, so Pick ’n Pay

asked TP to make vast numbers of additional

bags as replacement. The TP Hessian bags

were placed at the checkouts. TP could not

keep up with the demand and consequently

the bags were being taken straight from the

cooperatives in Khayelitsha directly to Pick

’n Pay. Once the green bags finally arrived

from Asia, the TP bags were replaced in less

prominent positions in the stores. Sales

understandably decreased markedly, but

branding on a national scale had been

achieved.

Pick ’n Pay was, in the financial year ending

February 2006, TP’s largest customer,

accounting for around 40% of their sales.

1 Literally means ‘Black feet’ and refers to the French colonists of Algeria.

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a quality control department for Air France Cargo. Nicole-Marie looks back at this time in

her life positively but explained that she remained ‘very unsatisfied and full of unanswered

questions about the real meaning of life’.

Nicole-Marie first met the women of Khayelitsha on a holiday in 1994. On later reflection,

Nicole-Marie identified this as an incredible opportunity where she embarked on a long and

effective healing process both for herself and the women of Khayelitsha. Nicole-Marie felt

that for the first time in her life she was able to express herself entirely, put ideas into actions

and really make a difference.

Although Nicole-Marie was touched by the plight of the women who were desperate to work,

she says she did not offer her help, they asked. “People were coming up to me and saying

they wanted jobs and this struck me because usually people ask for money,” Nicole-Marie

described in an interview for the Cape Times2. Nicole-Marie goes on: “So I said, “what do

you want to do?” and many answered, “sewing”. This was the beginning of TP, a business

formed to create employment opportunities for the previously disadvantaged women in

Khayelitsha.

The initial part of the project was implemented while Nicole-Marie was still working for Air

France in Paris. She took a part time job giving her the opportunity to travel between Cape

Town and Paris and during this period the Non Profit Organisation (NPO), Afrique du Sud,

Bidonvilles (ASB), was created in 19973.

New members of the NPO, mainly Nicole-Marie’s friends, Air France colleagues and

sponsors, enabled the project start-up in Khayelitsha. Nicole-Marie managed to get Air

France to sponsor the team’s flights between Paris (her base at the time) and Cape Town,

Renault donated a car and the South African government donated sewing machines. Nicole-

Marie has a strong and likable personality. She is an engaging, smart woman who has used

her diverse personal resources in getting TP off the ground. Finances were limited in the

beginning and Nicole-Marie had to rent out her own flat in Cape Town in order for the

different initiatives to stay afloat. Nicole-Marie then took the decision to leave Air France

2 Rosenberg R, 2006, “This Khayelitsha company has opportunity all sewn up”, Cape Times, 11 January, p.5. 3 NPO No.: 017-527 NPO

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after 17 years service and fully commit herself to the project. Her leave package was enough

to keep the project afloat albeit at a rather low profile.

‘Township Patterns cc’, the marketing arm of the business model, was established in 19984 .

As the women had said they wanted to work in Khayelitsha, Nicole-Marie approached the

municipality of Tygerberg to convince them to lease her a building in Khayelitsha. This took

a long time, but not disheartened by the wait in the interim, Nicole-Marie rented an office in

Cape Town and brought the women from Khayelitsha to work in the office.

Finally they were offered a building in Khayelitsha but it was a ruin with no doors or

windows. After raising some money to renovate the building the first cooperative was set up

in February 2001. The women chose the name of their cooperative: Masikhule Makhosikazi

which means ‘lets grow up women’. Two more cooperatives were established in January

2005 and were named Nomzamo (‘trying to do the best’) and Sophumelela (‘we are going to

succeed’). The forth cooperative was opened in July 2006 and is called Siyaka (‘we are

building it’).

As the company began to grow, Nicole-Marie found she could not cope with the volume of

work and was desperate to find the right person to come on board. This was a particularly

difficult time as she was quickly running out of money and felt very isolated in Cape Town.

She was very aware of the fragility of the whole project and it was also a period of intense

spiritual practice. She went back to France and sought out her spiritual advisor in an

Orthodox Church in Béthanie. Nicole-Marie was on the verge of closing the businesses in

Khayelitsha so her spiritual advisor told her that she must pray for guidance.

Nicole-Marie then met Christophe Labesse who later became her husband in December 1999.

Christophe provided financial support for the businesses and took over the financial and

accounting sides of the business while working for Xerox in Europe. In 2003 Christophe left

Xerox and he and Nicole-Marie settled permanently in Cape Town. This decision was made

in order to focus more on business development - to grow the business to ensure

sustainability.

4 Reg. No.: CK98 67059/23

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TP’s primary products are Hessian bags (see Figure 3.1 below). It also makes a range of

accessories including homeware products. These are produced for major customers including

Pick ’n Pay and corporate clients of the Convention Centres in Cape Town and elsewhere.

TP is also equipped for customised offerings as the need arises.

Figure 3.1: A selection of products produced by Township Patterns

Source: http://www.township.co.za

TP is unique in the market place. It offers a desirable product of high quality at an affordable

price. Its unique selling point (USP) is that by buying their product, the consumer is

supporting an emerging enterprise bringing opportunities and employment to previously

disadvantaged women in Khayelitsha.

The business is now making a profit for the first time (year end 28 February 2006 see Exhibit

1) and the current financial year is expected to be even more successful (see Exhibit 3).

3.3. Company Structure

Nicole-Marie developed a unique and effective business model for TP. As described above,

this model consists of an NPO, supporting and working with the cooperatives in Khayelitsha.

Township Patterns cc then purchases 100% of the cooperative’s production and sells and

markets to businesses and consumers both locally and internationally. The business model is

shown in Figure 3.2 below:

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Figure 3.2: Township Patterns business model

Adapted from: http://www.township.co.za/township_business_model.pdf

3.3.1. The NPO

The NPO, ASB, supports the cooperatives in Khayelitsha. The mission of ASB is to alleviate

poverty in the townships of South Africa through the transferring of skills and capital to

disadvantaged women enabling them to start and develop their own sewing workshops. ASB

aims to achieve this by raising funds through sponsorship, accelerating the opening and

development of new workshops, establishing a permanent, effective on site operational

presence in the townships for training and quality control and maintaining focus on business

skills development.

On a day to day basis, ASB organises the servicing of sewing machines, purchases new

machines and deals with various human resource issues as well as personal issues affecting

the well being of the women.

ASB allows the cooperatives to run the day to day businesses as they see fit. The chairlady

of each cooperative is responsible for all aspects of the business and makes decisions on

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issues such as recruitment, remuneration policies and productivity. However, the cooperative

businesses would collapse without the support offered by ASB. Donations from corporate

sponsors and individual philanthropists sustain the NPO, as previously mentioned with

Renault and Air France.

3.3.2. The cooperatives

The objective of the cooperatives is to empower the previously disadvantaged women of the

townships to run their own businesses enabling the phased integration of the first and second

economies.

The cooperative workshops are located in Khayelitsha, a township just outside Cape Town, in

a small business district with good infrastructure. These workshops are approximately 6

meters long and 3 meters wide and accommodate between five and eight women. One of the

workshops is shown in Figure 3.3 below. The four cooperatives, which are in close

proximity, are constructed of concrete and have sturdy, lockable shutters. Within each

cooperative there are between five and seven sewing machines.

Figure 3.3: Some of the women working in one of the cooperative workshops.

Source: http://www.township.co.za

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The women themselves own 100% of the cooperatives and the chairladies control the bank

accounts relating to their businesses. The buildings used for the cooperatives are government

owned and no rent is paid but there are utility costs such as electricity which are paid by the

chairladies.

Depending on the number of bags produced in a given week, Christophe transfers payment

(to the corresponding cooperatives bank account) on a weekly basis. The women have

elected to get paid on a monthly basis but as many of them do not have bank accounts, the

chairladies make a large withdrawal at the end of each month. Christophe explained that

even though the chairladies are the primary signatories on the accounts and that he has no

legal control over the accounts, he still gets occasional phone calls from the bank who are

concerned that these ladies ‘from the townships’ are attempting to withdraw up to R20,000.

Christophe cites this as an example of the old Apartheid South Africa still present today. The

women earn around R2,000 – R2,500 a month, which is about double the government’s full

time recommended minimum wage for a domestic worker5.

While the productivity of these workshops is seen as a potential weakness of the business

model, their existence as independent cooperatives is also their competitive advantage in the

marketplace. Christophe commented recently on the completion of the IDF order that there

has been a stepped improvement in the productivity of the workshops and the amount paid

per worker is going to be a record for the month of December.

What is the result of the formation of the cooperatives? - A renewed sense of dignity and

recognition for the women as they are able to bring home a regular and decent income. By

enabling these cooperatives, TP hopes to be a leading example and inspiration for other

township enterprises.

5 Current minimum wage for full time (domestic) workers is R1085 (as of 1st November 2006). Source:

http://www.labour.gov.za/basic_guides/bguide_display.jsp?id=5566 [17 November 2006].

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3.3.3. Township Patterns cc

Township Patterns cc designs and markets a wide range of textile products inspired by the

unique environment and culture of the townships. The office is located on Shortmarket Street

in the centre of Cape Town. This office is currently used for the administration of TP and the

NPO as well as for the design and production of new product prototypes. Due to current

operational constraints the office is also being used for storage of both finished products and

raw materials.

TP offers “sharp creativity paired with market reality” (Township Patterns, 2006:5)6 and

offers a flexible and reactive service for its clients. TP has been a member of the ‘Proudly

South African’ association since 2002 promoting the products of South African origin.

Further, TP is IFAT (International Fair Trade Association - a global network of Fair Trade

Associations) compliant and in the process of being fully registered.

Figure 3.4: The Proudly South African and IFAT logos.

TP is responsible for purchasing the finished bags from the cooperatives and markets and

sells them on the open market. This is the commercial arm of the business ensuring that the

business model as a whole is sustainable.

6 Township Patterns, 2006, “Township Business Model” [online]. Available from:

http://www.township.co.za/township_business_model.pdf [17 November 2006].

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3.4. 2006 and current challenges

The latest contract, for the IDF conference, was completed on time and the convention centre

took delivery of 12,500 on the 1st December 2006.

With the completion of this contract, TP has entered a new age of large corporate orders and

has demonstrated its ability to manufacture on a large scale as well as proving the

effectiveness of its unique business model.

In order to continue to expand production in the future, TP is investing heavily to increase its

operational capabilities. Firstly, it has just signed a lease on a large 500m2 logistics facility in

Epping, an industrial area just outside Cape Town. The purpose of this facility is to manage

all purchasing (of raw materials), organise production planning for the cooperatives, to store

the completed products and overall inventory management. TP has just recruited a

production manager who will oversee operations here and work with Brine Siyolo, the

current logistics coordinator.

Secondly, TP is moving to a new, larger office on Kloof Street in Cape Town in December

2006. This new office will be used as the administrational hub for the company but will also

have larger, separate design facilities for prototyping and graphic design. The office will also

be used for the recruitment of new staff for all three parts of the business and will have a

showroom exhibiting TP products and services. TP is currently looking for an administration

assistant, a sales manager, a stylist, a graphic designer and an experienced international

marketing manager (see Exhibit 4 for proposed future organisational structure).

As with any business at this stage of development, the expansion is going to require

considerable investment. Christophe is expecting the forecasted increase in sales to cover all

logistics and new office costs including the cost of the facility in Epping and the

administration and sales staff costs. However the cost of the new marketing manager,

graphic designer and stylist are seen as investments in the future of the company. Christophe

is in the process of negotiating a grant with fair trade organisations in Europe (for example

the Rhone-Alpes region in France which have developed a number a partnerships with

African-based companies) to cover these costs and expects to need between €50,000 and

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€75,000 (R500,000 – R750,000). In the long term Christophe will approach The Industrial

Development Corporation of South Africa Ltd (IDC) when the business is larger (and has a

more diverse and sustainable client base) to finance its expansion.

Township Patterns cc is currently being kept afloat by Nicole-Marie and Christophe’s

financial input – the ‘member’s loan’ of R847, 200 (see Exhibit 2). The current retained

earnings is minus R457,300. Their ambition is to double sales every year until 2009 - this

growth being funded by this loan. ASB, as a section 21 company, is funded by donations

from members but is going to require increased funding as the business expands. It is

currently approaching various organisations (including the banks such as Old Mutual and

ABSA as well as other companies such as Anglo-American and Shell) for funding as part of

their corporate social responsibility (CSR). Very recently, Investec has invested in ASB and

will be purchasing bags from TP for future events. Investec is very interested in becoming a

partner in the development of the cooperatives.

3.5. The Future

Nicole-Marie and Christophe’s ten projects over the next two years are:

1. Fair trade fabric sourcing (Hessian for bags, cotton for clothing)

2. Township Patterns print for clothing

3. Development and launch of clothing range

4. Re-design of www.township.co.za

5. Find and open a boutique shop in Cape Town to showcase TP products

6. Development of a volume bag and accessories for ‘back-to-school’ range for Alter-

Eco (a Fair Trade retailer in Europe)

7. Development of a low-end volume bag for the people of the townships

8. Expand conference business in South Africa and globally

9. Target new retailers aside from Pick ’n Pay

10. Develop a TP hub in Europe for marketing and distribution of TP products

Initially, Nicole-Marie wants to concentrate the TP product mainly on bags (shopping bags,

conference bags, school bags etc.) and continue to develop the range by spending more time

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designing the products in order to make them more appealing to the consumer. Later, Nicole-

Marie wants to develop the design of unique textile fabrics inspired by the township

environment. These products will include sportswear, homeware, clothing and accessories

collections. It is believed that by generating large-volume products the long-term

sustainability of the business will be ensured.

After a recent trip to Europe, Nicole-Marie was invited to exhibit TP clothing at the ‘Pret-a-

Porter’ exhibition in Paris (Port de Versailles) in September 2007. This is an internationally

renowned trade exhibition which attracts buyers from all over the world. This could be a

dramatic beginning to the fulfilment of Nicole-Marie’s clothing aspirations.

Christophe is currently working with the company lawyer to fully register the cooperatives

and enable the cooperatives to start paying their employees in the orthodox way so they start

paying tax under the Pay As You Earn (PAYE) system. The women are not expected to pay

any tax in the near future as the tax free threshold is R3,332 per month after which tax is paid

at 18%7. Further, Christophe is looking into subsidising a basic healthcare insurance for the

women. He believes it is necessary to do this as the women are unlikely to choose to spend

their money on healthcare themselves.

Currently the conference business is their biggest opportunity for volume and simplicity (in

the design of their bags). The other large customer contributing 40% to revenue is Pick ’n

Pay. Sales are mostly domestic at the moment but the company would like to focus on the

export market, initially to France in order to exploit Nicole-Marie and Christophe’s

established networks but then expand through Western Europe from the French base.

A comprehensive branding strategy is currently being developed in order to make the TP

offering distinct. The key characteristics of the TP brand will be community upliftment,

along with high quality, unique design and moderate price. The recruitment of an

experienced marketing manager will enable TP to develop and optimise these aspects of the

business as well as drive sales in the conference business and through other retail outlets.

7 Correct at time of going to press. SARS Monthly Tax Deduction Tables [online]. Available from:

http://www.sars.gov.za/Operating%20Procedures/May/AS-PAYE-05-A14%2020MONTHLY%20TAX%20DEDUCTION%20TABLES%20-%20REV%20%200.pdf [17 November 2006].

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Nicole-Marie’s vision for the future is for the unique business model of TP to be fully

recognised as a powerful tool to develop the township based communities which cannot get

themselves out of the poverty trap. It is hoped that the Township Patterns brand will soon be

internationally recognised as a symbol of the change that is being experienced in South

Africa.

Christophe and Nicole-Marie envision a network of dozens of cooperatives scattered all

around South Africa becoming the backbone of a strong Trade Mark. Will

Township become a strong internationally recognised South African brand in the near future

and inspire other would be entrepreneurs in the development in the new South Africa?

Figure 3.5: Nicole-Marie with women from the cooperatives.

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3.6. Case Exhibits

Exhibit 1- TP’s Profit and Loss account (‘000)

2006 2005

Revenue R 970.8 R 274.7

Gross Profit R 487.1 R 83.8

% Gross Margin 50% 33%

Sales and Marketing R 146.5 R 39.8

Staff salaries R 103.6 R 66.5

Depreciation R 50.7 R 47.6

Office Expenses R 132.9 R 141.1

Total Expenses R 433.7 R 295.1

Royalties R 48.5 R 13.4

Profit R 4.8 R -224.6

Township based coop. spend R 246.6 R 100.9

% Revenue 25% 37%

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Exhibit 2- TP’s balance sheet year end 28 February 2006

2006 2005

Fixed Assets R 94.4 R 136.2

Inventories R 215.6 R 173.0

Accounts Receivable R 79.1 R 102.9

Cash R 44.3 R 17.0

Total Assets R 433.4 R 429.2

Retained Earnings R -457.3 R -462.1

Members Loan R 847.2 R 844.1

Accounts Payable R 28.2 R 35.1

Other Liabilities R 15.3 R 12.0

Total Liabilities R 433.4 R 429.2

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Exhibit 3- TP’s projected Profit and Loss account year end 28 February 2007

2007 Total Sales R 1,602 Other Revenue R 34 Trading Terms R -11 Revenue 1,625 Gross Profit R 697 Trading Terms (5,679) Pick'n Pay 39,000

Other retail chains (Makro, Checkers, Petrol co.) 0

Food stores / Curios, Tourist outlets 13,250 Corporate 100,000 0 Agents & Direct Sales 0 Export 0 % GP 43% Selling expenses R 45 Marcom R 132 Advertising R 14 Office expenses R 121 Travel R 42 Salaries R 213 Car expenses R 31 Professional Fees R 13 Depreciation expense R 42 Exchange gain/loss R -115 Interest expense R 0 Total Costs R 538 33% Royalties (8%) R -129 Other Income / Expense R 2 Profit R 31 2%

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Case Study- Richard Kennedy

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Exhibit 4- TP’s future organisational structure

Township Patterns

TBAAssistant

TBAMarketing Assistant

Fabrics SourcingOrganic, FT fabrics

Printed fabrics

Public RelationsTotal Media

TBAFashion Designer

township.co.za Denise LODIDesign Assistant

township Boutique Product DevelopmentClothing

Accessories

Trade Shows Distribution StrategySA / Export

Marketing AgencyMarketing

Advertising

TBAMarketing & Strategy Mgr

TBASales Assistant

Sales

Sales Admin

Merchandising

Agents

TBASales Mgr

Brine SiyoloLogistics Coordinator

PurchasingSuppliers base management

Production Planning

LogisticsMaterials sourcingCustomer delivery

InventoryManagement

Production CoordinationCooperatives

Nathi TSHABALALAProduction Mgr

Epping Manager

Admin & Finance

Legal

IT

Human Resources

External AffairsPSA, ifat, Max Havelaar

Export Sales

Christophe LABESSEChief Staff Officer

Nicole-Marie IRESCHCEO

Founding Member

Township Patterns

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4 Instructors Guide

4.1. Synopsis

This case is intended to teach students about the possibilities and potential of Social

Enterprises in emerging economies such as South Africa. In an environment of suppressed

human development, as a result of Apartheid and other historical problems, the case portrays

a unique business model which is being used to empower and support previously

disadvantaged women.

In a competitive and globalised world, emerging economies face the double challenge of both

trying to increase economic growth while addressing significant and often worsening social

issues. In South Africa, with up to 50% of the population living below the poverty line, one

of the highest incidences of HIV/AIDS in the world, very high unemployment, a high crime

rate and one of the worst performing education systems in the world, these problems are all

too apparent. Social Enterprise is seen as a potential solution not just to the empowerment of

employees and the redistribution of wealth, but also as a vehicle to address many of the social

issues in South Africa.

The case begins with the background of the social entrepreneur, giving details of Nicole-

Marie’s relatively humble beginnings (by first world standards), in order to demonstrate that

the possibility of developing a Social Enterprise such as Township Patterns is within us all.

The case also shows how the business was built up over a period of many years and the

formation of the unique business model which is still proving effective today.

Looking to the future, Township Patterns has made some significant investments increasing

its capacity and is in the process of broadening its product range. By potentially securing

some large, repeatable orders in Europe it is further safeguarding overall sustainability hence

securing the livelihood of the women employed in the cooperatives. On further expansion,

more women will be taken on, trained and empowered.

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4.2. Teaching Objectives

This case is targeted at an MBA class within the context of an emerging enterprise, social

enterprise or any other course dealing with social or micro-economic development. The

issues surrounding this case include the challenge of enterprise development in emerging

economies, the poverty cycle, fair trade and a fairer globalisation strategy. It also considers

the specific social and historical issues present in South Africa including the legacy of

Apartheid, persistent poverty and productivity challenges.

It is expected that discussing the case and questions should take approximately two hours

(assuming the students have previously prepared for the case).

Case Questions

1. Discuss the pros and cons of a township cooperative versus a ‘sweatshop’.

2. Does this model help to break the poverty cycle? If so, how?

3. Is ‘Fair Trade’ a competitive advantage?

4. How can globalisation be more fair?

5. What could make this model more productive? What are the trade offs?

6. What is the role of the NPO? Is it empowering or disempowering?

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4.2.1. Question 1: Cooperative versus ‘sweatshop’

Discuss the pros and cons of a township cooperative versus a ‘sweatshop’.

Proposed answer: Township cooperative versus ‘Sweatshop’

Pros Cons

Women’s empowerment Less efficient

More politically acceptable More expensive (overpay versus market rate)

Greater sustainability Cannot ‘force’ large volumes

Increases confidence in Townships Less competitive in international markets

Decreases exploitation

Strong positive associations

‘Fair Trade’ backing

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4.2.2. Question 2: Breaking the poverty cycle

Does this model help to break the poverty cycle? If so, how?

Proposed answer:

With Christophe proposing a subsidised healthcare scheme for the women and their families,

this model could go a long way to breaking many of the aspects of the poverty trap. Apart

from encouraging investment in infrastructure and services, this model does not address the

problems of crime in the Townships even though they have never been affected by it.

This model empowers the women within the Townships. All the women live locally as they

said at the beginning of the story that they wanted to work in Khayelitsha. Having the

women based in Khayelitsha encourages them to spend their money in Townships as the

women do not have to leave the area to work. By working at the cooperatives, the earnings

of the women have increased and this has thereby increased their standard of living. This

model has therefore also decreased the gap between rich and poor and will continue to reduce

the number of people below the poverty line and living on $1 a day (average of R2,250 per

month ≈ $11 a day8) as the number of cooperatives increases.

Furthermore, by empowering them the women learn, especially the chairladies, about the

fundamentals of business. Christophe’s plan to fully register the cooperatives will further

integrate this previously disadvantaged sector of society into the first economy.

8 R2250 per month / 7 (R/$) = $321 per month ⇒ $321 per month / 30.4 (days / month) = $10.57 / day

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4.2.3. Question 3: Fair trade

Is ‘Fair Trade’ a competitive advantage?

Proposed answer:

The fair trade movement is increasing its presence in Western Europe and the US. As a

result, consumers are more readily prepared to pay a little more to ensure fair treatment of

those at the beginning of the supply chain.

Fair trade is "a philosophy that supports the marketing and sale of products at greater than

free trade prices" (LeClair 2003 quoted in Witkowski, 2005:229). Fair trade cultivates

positive consumer demand and is developing recognisable brands (Witkowski, 2005). Rather

than just satisfying customer needs and making a profit, fair trade aims to empower the world

most disadvantaged producers while maintaining high ethical standards (Witkowski, 2005).

Businesses that have high ethical standards are currently at an advantage in the market due to

increasing consumer awareness about the social and ethical components of products (Randall,

2005: 5510). Fair trade organisations that adopt these principles are in a good position to

capture this growing market (Randall, 2005).

“Fair trade products possess a competitive advantage by differentiating from products that do

not have a specific ethical value” (Randall, 2005: 64). However organisations will need to

market this difference vigorously.

9 Witkowski TH, 2005, Fair Trade Marketing: An Alternative System for Globalization and Development,

Journal of Marketing Theory and Practice, Vol. 13, Issue 4, Fall, pp. 22-33. 10 Randall DC, 2005, An Exploration of Opportunities for the Growth of the Fair Trade Market: Three Cases of

Craft Organisations, Journal of Business Ethics, Vol. 56, pp. 55–67.

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4.2.4. Question 4: Fair globalisation

How can globalisation be more fair?

Proposed answer:

There are no simple answers to complicated questions. However, the minimum condition for

fair globalisation should be that it benefits all people in the present and future generations

(van Ginkel, 2004)11. In order to achieve this we need to “work hard to improve market

access … (and) we must rethink how to balance more fairly our regulations with regard to

free mobility of goods, money, ideas and people.” (van Ginkel, 2004:2)

The following are recommendations put forward by the World Commission on the Social

Dimension of Globalization (2004)12:

• People focus: Meet the demands of all people, respect their rights, cultural identity

and autonomy. Empowerment of local communities and gender equality.

• Democratic and effective state: State must manage integration into global economy as

well as provide social and economic opportunity and security.

• Sustainable development: Social development and environmental protection needs to

be focussed on just as much as economic development.

• Fair rules: The global economy must offer fair opportunities and access to all

countries recognising the diversity in capacities and developmental needs of the

participants.

11 van Ginkel H, 2004, “A Fair Globalization: Benefiting All”, Symposium on Globalization and the Future of

Youth in Asia [online]. Available from: http://www.ilo.org/public/english/region/asro/tokyo/conf/2004youth/downloads/unu.pdf [6 December 2006].

12 World Commission on the Social Dimension of Globalization, 2004, “A fair globalization: Creating

opportunities for all” [online]. Available from: http://www.ilo.org/public/english/wcsdg/docs/report.pdf [6 December 2006].

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http://www.ilo.org/public/english/wcsdg/docs/report.pdf

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• Inter country solidarity: Shared responsibility to assist countries either excluded or

disadvantaged by globalisation. It must work towards eliminating inequality between

and within countries in order to eradicate poverty.

• Greater individual accountability: Both in public and private sectors those in positions

of power must be accountable for the policies they pursue.

• Deeper partnerships: Greater dialogue and partnerships between international

organisations, governments, businesses, non-profit organisations, communities and

many others towards the realisation of global and economic social goals to create a

better world for all.

• An effective United Nations: A stronger and more efficient multilateral system will

help create a democratic and fair framework for globalisation.

TP is working towards fairer globalisation by: empowering the women of Khayelitsha,

focusing on sustainable development, creating strong links between Europe and South Africa,

taking accountability for its actions and creating deeper, more effective partnerships across

different sectors of society. Fortunately, in developed countries the issues above are taking

on greater importance by influencing demand and consequently the habits of buyers and

lawmakers.

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4.2.5. Question 5: Increasing productivity

What could make this model more productive? What are the trade-offs?

Proposed answer:

The nature of the cooperatives is that they operate autonomously and consequently any

initiatives to improve productivity need to be carefully considered in order not to dilute the

decision making within the groups.

One way to make the cooperatives more productive, which has been proved by the successful

completion of the IDF order, is to increase the volume of work required of them. Other

possible opportunities open are:

• Encourage the changing of the payment structure to fortnightly or weekly to maintain

productivity throughout the month

• Publish a monthly magazine with advice and guidance initially from the upper

management of TP but eventually used to share best practice across the cooperatives.

This magazine could also be used to publish productivity and earnings figures,

highlighting and praising the most efficient and productive cooperative.

• The NPO could provide / sponsor short training courses aimed at improving

productivity.

• Optimise process flow and the production cycle within the cooperatives.

The trade offs for increasing the productivity of the cooperatives includes (amongst others):

• Reduction in the autonomy and responsibility of the women to drive this themselves.

• Decreased job creation.

• Decrease in ‘enjoyment’ at work, a more stressful target driven environment

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The recent changes to the Black Economic Empowerment (BEE) guidelines in December

2005 (DTI, 2005)13 encourage businesses to become involved in assisting or accelerating

enterprise development and sustainability. Inextricably linked to this is the productivity of

the cooperatives. The recent investment by Investec in the NPO is an example of a large

corporate business providing for and facilitating enterprise development and sustainability by

providing ongoing support for the cooperatives.

13 Department of Trade and Industry, 2005, Code 600: Measurement of the Enterprise Development Element

of Broadbased Black Economic Empowerment.

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4.2.6. Question 6: NPO role

What is the role of the NPO? Is it empowering or disempowering?

Proposed answer:

The stated mission of the NPO is to alleviate poverty in the townships by transferring skills

and capital to the disadvantaged women to enable them to start and develop sewing

workshops. Its role is therefore to provide the initial capital to enable a cooperative to set

itself up and then to provide ongoing skills training and financial support to assist the

cooperative in developing and maintaining a sustainable business.

This is certainly an empowering objective. However, the day to day role of the NPO is more

of a support function and as a result the cooperatives can become increasingly reliant on this

assistance. The two sides of this are discussed below.

Empowering

• Provides an opportunity for disadvantaged women to work

• Enables them to work at their own pace and meet their financial needs

• Maintains the businesses and supports the long term sustainability of the cooperatives.

Disempowering

• Protects the women from the challenges of the real world.

• Making the cooperatives reliant on NPO

• Reduces the capacity for decision making

One potential answer to this problem is to ensure the NPO has a long term strategic plan

moving from its current role of support to a more long term role of ensuring the cooperatives

can operate in a truly autonomous way with very limited support. From the perspective of

the cooperatives this transition would have to be incentivised and perhaps those cooperatives

which are truly independent could have first choice on which products to produce or would

be given more skilled / better paid work (i.e. clothing). The NPO could then move on to a

‘younger’ cooperative and work in a more supportive role.

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For example the NPO could have changing objectives depending on the stage at which a

cooperative is:

Stage of development NPO objectives

Start up Find and provide suitable workshop facility

Provide sewing machines

Provide basic sewing training

Provide general business skills training

Young Service sewing machines

Provide more specific business skills training

Mature Provide ad hoc productivity audits

Share best practice

Established No objectives

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Documents

Township Patterns: A Business Model for Enterprise ...gsblibrary.uct.ac.za/ResearchReports/2006/Kennedy.pdf · A key feature of co-operative is ownership and ... The purpose of this