SA's Small Businesses Need A Big Break: How Enterprise Development Needs A "Small" Rethink
Small businesses could flourish if big business brought them into their supply chain, here's how.
With 55% of South African youth unemployed and the economy labouring, the country badly needs small businesses to work their magic – and big business connections can be the game-changer that South Africa's small business sector needs, says leading business incubator Raizcorp.
Major corporations currently spend billions of Rands a year on suppliers, buying everything from tyres and software to catering and marketing services, says Raizcorp's sales director, Dylan Baxter.
This is a massive potential market for small businesses as breaking into the supply chain of a large company is often a springboard for exponential, sustained growth.
"We've got to do a better job of linking suppliers to enterprises and increasing the number of small firms acting as suppliers to South Africa's biggest corporations," says Baxter.
"Lots of big businesses have enterprise and supplier development and inclusive procurement programmes. We need to step this up if we're going to get close to creating the job opportunities and economic growth we desperately need."
Small business is a catalyst for progress and growth
According to National Treasury figures, there are around one million formally registered small businesses in South Africa, with the potential to contribute substantially to the flagging GDP. It's estimated that small businesses provide about 60% of the country's jobs.
"In this tough economic environment, it's about time we viewed small businesses as a serious catalyst for progress and growth and find ways of giving them more access to markets and opportunities for growth," says Baxter.
A good starting point for big corporations is to look at which items can be sourced locally with little risk to the business. Likewise, for small businesses, the aim is to become a contractor first, focus on upskilling, and prove their quality and reliability before they look to grow their presence in a corporate supply chain.
So, while it is unlikely that a big company would outsource key elements of its production line to an untested small business straight away, there are real opportunities for small businesses to deliver goods and services in areas where there is a greater tolerance for taking a chance with a smaller supplier – like cleaning, courier services, maintenance, security and even software development.
Raizcorp Business Growth Programme
Raizcorp has worked with over 100 blue-chip companies to craft ESD strategies that deliver strategic value, helping corporates create supplier-development programmes that speak directly to their business needs.
This is because many South African corporates find it difficult to effectively link their supplier-development initiatives to a substantial and sustainable preferential-procurement impact.
A corporate can sponsor a black-owned business on a 12 to 36-month Raizcorp business growth programme during which it will receive, among others, access to markets, access to finance, back-office support, entrepreneurial learning and business guidance from "mentors". After completing the programme, the small business can be incorporated into the sponsor's supply chain.
"Ultimately, the goal is for corporates to move small suppliers from non-strategic and non-capital-intensive elements of their supply chain – low barrier to entry – to the strategic and capital-intensive element of their supply chain – high barrier to entry," says Baxter.
The good news is that enterprise and supplier development is moving beyond the traditional measure of scoring B-BBEE points towards metrics like growth in revenue and net profit, and how many jobs have been created.
Growing engagement from big business
"We have seen a tangible shift in approach over the last three years where there is real engagement from the top down in the interest of developing sustainable impact for the entrepreneurs who are supported and scaled through corporate ESD budgets," says Baxter.
He goes on to outline three steps to transform supplier development:
- Firstly, identify candidate businesses with the potential to be included in your supply chain and groom these businesses for supply chain partnerships with you.
- Secondly, address the need and benefit from the BBBEE focus on supplier development, allowing you to increase the number and quality of existing and potential new black-owned companies in your supply chain.
- Finally, distinguish between nonperforming or under-performing suppliers currently on your supplier database, and identify performing suppliers who have specific growth needs."
The ultimate endpoint is to make supporting small businesses of strategic value to corporates so that they can receive additional benefits such as innovation, flexibility and agility from their suppliers.
"It's only when corporates start to actually engage with small businesses that they will realise the true benefits and value," says Baxter.