Large companies are in business to make lots of money full stop! But with the rate of globalisation encumbered by high operational costs, there has never been an opportune time for large companies to participate in local enterprise development initiatives, through partnering with Small and Medium Enterprises (SMEs).
A publication entitled: “The Business of Enterprise, Meeting the Challenge of Economic Development through business and Community Partnerships” hereinafter referred to as the “BOE” notes that “The demand is for the companies to demonstrate, through action that they understand their responsibility towards the communities in which their businesses are or will be located”.
A business linkage workshop convened by the United Nations Conference on Trade and Development (UNCTAD) and Intel Malaysia, outlined that best practise for business linkages. Some of these were that: Multinational companies must act as “agents of change” by working with SMEs to ensure that they are technologically upgraded with the necessary business skills that include management and logistics.
In turn, the SMEs were supposed to have “a commitment to compete, survive and succeed with a vision for their own evolution and capacity to change their mind-set in line with new opportunities and requirements”
What are the advantages of Large Companies engaging with Small Business?
The 2001 World Investment Report, from the United Nations Conference on Trade and Development, observed that “Linkages offer benefits to foreign affiliates and domestic suppliers as well as to the economy in which they are forged as whole”.
For example, in South Africa the construction of the Kusile Power Station, the biggest coal station in the world has seen downstream industries in the Mpumalanga region benefiting from Economic empowerment policies that benefit SMEs and marginalised communities within the province.
The beauty about this project lies in its inclusivity as it sets aside certain quotas of project funds to develop women, youths and People Living with Disabilities (PLWDs) as enshrined within the national BBBEE policy.
Perhaps the greatest benefit of business linkages to large companies are reduced costs of procuring goods from outside suppliers.
In Zimbabwe, this is particularly important as companies who procure goods within the borders of Zimbabwe will contribute towards cutting down our enormous national import bill.
Currently Zimbabwe still imports luxury items such as ice-cream and jam. The country also imports bottled water and wheelbarrow parts to name just a few items.
Ice-cream companies can easily capacitate small production companies to make up for the deficit in ice cream production. (We hope this will keep the peace in homes as our children will have a consistent supply of ice-cream)
Business linkage activities can also result in wider supplier and distribution networks and acquisition of new markets consequently elevating the company’s brand image.
Investing in local SMEs can also reduce time spent in penetrating communities, as the SMEs are already established in these areas and have gained trust. In addition, downstream jobs will also be created in communities that the HR department will not have dreamed of recruiting from.
What are the benefits to SMEs?
Partnering with big business has far reaching advantages to local businesses. First and foremost SMEs will benefit from improved business skills which will enable them to improve their quality of goods and services.
Most importantly SMES will improve on infrastructure especially within the Information Technology realm. The Vodafone, Corporate Social Responsibility Report 2000-2001 cited in the BOE notes that “Yet bridging the Digital Divide-between those with access to new technologies and those without remains one of the major economic and social challenges of the new century”.
One of Vodacom’s flagship programme which was originally meant to meet license conditions and social investment policy, created local phone shop facilities in remote communities enabling millions of people to have access to phones.
It also created a network of SMEs in remote areas who would have otherwise not have dreamt of owning a shop. According to Nobuhle Chonco, Head of Vodacom’s Community Service, at that time, community phone shops generated more traffic than the company’s entire prepaid user base”
How can large companies engage with small companies to enhance Enterprise Development?
According to Youth Business International, large companies can engage with SMEs during different stages of their growth cycle. These growth cycle include start up, development, maturity and expansion stage.
During the start-up phase large companies can offer, business advise, counselling and start up finance to name just a few. Start-up finance is particularly very important among youth enterprises in Zimbabwe.
Commercial Bank of Zimbabwe has done very well on this one with their YEP programme. Creating Business Incubator units are particularly important.
Diageo, a subsidiary of the international food and drinks producer Guinness converted a disused hop store and kiln house (those who drink beer will probably know about what a hop and kiln mean) in Dublin to offer business support for 77 businesses.
One of the most important functions that large cooperates can proffer to small companies is the availability of start-up or growth finance with favourable rates of return. Access to finance is far the most difficult thing that SMEs have. In the same breadth large corporates can offer market linkages especially in the agricultural sector. In the same breadth the corporates can supply test market for the local products. Large corporates can specifically develop new start-up companies specifically for them to supply goods and services.
Large companies are well versed with export logistics. With Zimbabwe aiming to increase more exports within the next few years, there is a gap of knowledge among SMEs to increase their capacity in this area. To this end capacity building with regards to standards and best business practice will suffice.
Lastly, large companies can pool their resources together to create a revolving fund for start-ups for SMEs. In South Africa, 32 companies which included Anglo American, De Beers, First National Bank pooled together a fund which they channelled through an intermediary organisation. Large companies in Zimbabwe are encouraged to pool resources so that they can create a revolving fund that benefits start-ups and SMEs.
What are the benefits to the local SMEs?
By far the major benefit to the local SMEs is improvement in business skills and standards as large companies ideally demand very high standards for services and goods supplied.
In turn by meeting these global standards, SMEs can indirectly participate within the global economy. SMEs will also have access to a consistent market base.
Very importantly there is sustainability of employment opportunities among the local economies. A thriving SME sector is important for boosting government revenues through an increase in tax revenues.
What are the key success factors in these relationships?
A number of business linkage partnerships have failed in Zimbabwe largely due to broken trust. A company bought all agricultural inputs to produce a certain legume. When the farmers harvested they instead diverted the produce to other buyers who offered them more returns. Other SMEs were contracted to supply a hardware store with merchandise.
The first batch was of high quality but consequent products were not delivered and did not meet the expected standards. Consequently, in both cases the contracts were cancelled.
The scourge that has affected Zimbabwean SMEs is that of not giving large companies consistent supply and “cutting corners” with regards to product quality. To this end SMEs need to be honest in their dealings with large companies who sometimes have lost trust in these relationships
Large companies should ensure that the business linkage programme acquires buy in from the whole company. A dedicated resource person should also be assigned to the programme.
This person will deal with all matters pertaining to the programme including community liaison and monitoring and evaluation. A capacity building and training is an absolute must and these should be offered consistently to SMEs within their network
It is also important that large companies use intermediary organisations such as SME associations so that they can leverage on the networks that they already have.
Historical examples of successful business linkages
Research on the impact of Business Linkages within the Zimbabwean context is still ongoing. However I found these brilliant examples of powerful business linkages across the globe in the BOE. I am hoping our large companies can take a leaf from these examples to design their own programmes.
Anglo American Financed and developed Small Scale Suppliers
The company aimed at strengthening its core business by using commercially efficient small, medium and micro enterprises to provide non-core products and services. It was important that the SMEs meet the company’s health and safety standards.
Zimele, a business unit within the company facilitates small business development through a venture capital facility called LITET which also offers business and technical support. Contracts given to SMEs, included sugar cane purchasing from small holder farmers, garage services, railway maintenance and printing and publishing.
Delta Corporation Outsourced to local enterprises
Delta Corporation a Zimbabwean multi conglomerate initiated a programme called Stand up and Go in the early 2000s to support local enterprises. The company worked out a framework development to identify outsourcing opportunities to local entrepreneurs. To this end each strategic business unit was free to pursue business linkages that were suited to its needs. Then, Delta Corporation set out a revolving fund of US 1 million to provide seed capital to approved new enterprises. Cleaning, catering and laundry services have been outsourced to local entrepreneurs. I will explore more business linkages currently being run by Delta.
Small-Scale farmers in the Dominican Republic partnered with Ice-Cream Giant to produce New Crop
Helados Bon a national ice cream manufacturer in the Dominican Republic partnered with farmers from the community of Los Montoness through a community Non-governmental organisations called Plan Sierra.
The company was interested in making a new ice-cream with a Macadamia Nut flavour and partnered with Plan Sierra to capacitate farmers to grow trees. Farmers were trained on how to grow the Macadamia tree.
More than 140 000 hectares of forest were planted with the Macadamia tree not only saving the environment but increasing the livelihoods of the farmers. Helados Bon remained the biggest ice cream manufacturer in the Dominican Republic.
The Body Shop Sources products from Community Groups World wide
The Body Shop is a very high profile UK based retail shop that sells a range of skin and hair products. The Body shop’s Mantra’s is Trade not Aid so this has laid down the basis for its Community Trade Programme. The Body Shop is stringent with environmental Screening and Protection and building sustainable environmental communities. The Body Shop’s footprint of small scale suppliers extend from Ghana to Italy to Russia. Kuappa Kokoo and Tungteiya Shea Butter Association from Ghana supply Cocoa Beans and Shea Butter respectively. Silva Cooperative from Russia supplies wooden products while Assoberg supplies Bergamot Oil.
In conclusion though I have zeroed in on large companies, large State Owned Companies should also ensure that they put into place robust business linkages with SMEs to create economic growth within this sector. In addition programmes should ideally cut across the gender divide and should include youths and People Living with Disabilities.
Joseline Sithole is an SME Consultant and founder of Southern Africa Development Consultants (SODECO). For comments write to her on [email protected] or whatsapp +263773634062