Many white-owned businesses have struggled since 1994. Many new businesses owned by all races since 1994, have found it difficult to establish themselves and grow.
Obviously the pre-1994 white-owned businesses allocate blame to the change of government. While this is a logical conclusion to draw, how accurate is it? There is no doubt that this had an impact on those businesses who had previously been a supplier to government, as government made an attempt to make their purchases reflect the country’s demographics.
However, what many of these business people have forgotten is that soon after 1994 South Africa rejoined the WTO. Furthermore, many businesses that had previously not been trading in South Africa due to anti-Apartheid trade restrictions, suddenly appeared at the front door to trade in South Africa and to use South Africa as a stepping stone into the rest of Africa.
Yes, globalisation had arrived! The problem is that very few South African SME business people have realised this. They still think they can continue to run businesses suited to lifestyle entrepreneurs without changing their businesses. They are still trying to understand why their profit margins have dropped and remain low. This is purely about globalisation. Thanks Walmart. While consumers may be happy with lower profit margins, SMEs are not. Low margins demand much higher volumes to stay in business.
The questions that this raises are whether these SMEs have increased sales volumes, have they tried to bypass the volume solution by becoming niche players in order to reduce the impact of the high volume/low price competitors? While my comments are based on anecdotal research, it appears to me that not many have changed how they do business. They all seem to be focused on the good old days instead of the future.
SMEs need to accept that they need to carve out a niche for themselves or scale up. The problem is that South Africa offers an incredible lifestyle opportunity, and this can distract attention away from the important issues. The problem is that our new SME owners have arrived bearing similar attitudes and expectations, and are wondering why they cannot make it. We all need to change our thinking going forward, because whether we like it or not we are part of the global village.
However, this problem is no doubt not only confined to South Africa. It is possible that this is a common problem in all developing countries. They have never had to compete and suddenly when their markets open up they are hit by a wave of very smart and determined businesses as competitors. Similarly, when economic development is based purely on SMEs, and does not include large industries, it becomes that much more difficult, if not impossible. assuming there are no large industries, perhaps as a result of FDI, where will the capital injection come from to kick start these new businesses, especially in developing economies. Too often there is no capital in the economy to establish and grow SMEs. It has to come from government or FDI. So corrupt governments will essentially, without FDI, kill off any economic development activities for SMEs.