Why are SMEs in the manufacturing sector important to the South African economy?
Although manufacturing operations rely on a core of highly skilled people to develop products for the market, they usually employ significant numbers of people, with basic skills, on the factory floor and production lines. It is at this level that small manufacturing companies make a major contribution to the economy – they contribute to job creation in a country where unemployment is a major challenge. What is most exciting about manufacturing is that it creates jobs in the very area where we need them most – low to semi-skilled positions.
If manufacturing activity at all levels is not encouraged, the possibility of creating employment will not be realised.
What are some of the major barriers for manufacturing companies operating in South Africa and looking to conduct business beyond our borders?
Many are struggling at the moment. Some of the difficulties are related to currency fluctuations and the value of the rand against other major currencies. The low value of the rand against the dollar does lend some competitive advantage, relative to other economies but definitely not to Asia.
On the other hand, we need to do more with regards to marketing and sales into the continent. We are simply not taking advantage of the natural markets for our products available on the continent. We also need to educate the rest of Africa about the depth of our manufacturing expertise in South Africa. We need to emphasise our broad range of product offerings.
How is this lack of marketing impacting on perceptions about South African products?
There is generally little understanding in the rest of Africa about our country’s manufacturing capabilities. In dealings with major companies and governments, people are unaware of what our manufacturing concerns can produce.
This is especially the case in the defence sector where people are surprised at the range of high quality products we offer. But, I also think that we are not spending enough time getting to know the continent and its needs. We do not send our best and brightest into the rest of Africa.
Are smaller manufacturing companies aware of the support they can get from government to assist with growing their businesses?
There are many small businesses who do not know where, or how, to find government support. The ‘Think Big’ TV series, however, showed that where entrepreneurs have taken the time to find out what is available, they benefit greatly from initiatives from sources like the Department of Trade and Industry.
How can contact between small business and government funders be improved?
Processes can be made easier. The compilation of material required for submission to the department can be daunting. The level of detail required is obviously in place to reduce risk, but I believe that reducing the volume of material required should not necessarily result in a sharp increase in government’s risk exposure.
It appears to outsiders that small manufacturing companies are battling for their place in today’s markets. This can be attributed to the cost of materials and high levels of international competition – especially from Asia. What is your view?
There is no way of avoiding the fact that Asia is a cheaper manufacturing destination than South Africa, and that their cheaper products compete for local market share. I don’t believe that this competitive advantage will last forever – particularly in Africa.
This is mainly because many people buy goods on the basis of the cheaper prices of Asian products, rather than focusing on quality. What we could be doing better is engaging with Africa and telling potential customers exactly what they will get when they buy from a South African company.
We should focus more on supporting the industrialisation and skills development processes in the countries we trade with. Win-win relationships can only develop when we leave real capacity in the countries we partner with.
For example, if you’re in Zambia and a South African-manufactured product breaks, support is close by. If you are buying from India or China, the picture is totally different. However, the real objective is to develop the capacity in-country to undertake basic maintenance with a view to support the move further up the value chain.
We need to be clever about what we can bring to the table in our neighbourhood and market these advantages. It is our neighbourhood after all.
While the ‘Think Big’ series has concluded on TV screens, episodes can still be viewed online by visiting www.standardbank.co.za/thinkbig. For an array of additional tips and tools on how to start, manage or grow a business, visit bizconnect.standardbank.co.za.
Related: Manufacturing in South Africa
South African entrepreneurs have one singular advantage that makes them stand out and succeed – optimism.
Game drives. There is a remarkable similarity between the South African on a game drive and the South African entrepreneur. In both cases you’re driving through new territory on the lookout for that ultimate sighting or an opportunity. It’s the endless optimistic belief that around the next corner, after that last stretch of long, hot road, will be that crocodile eating that leopard that’s chasing a caracal. It’s an optimism that’s permeated the very fabric of our culture, our business personalities and the way we face adversity.
South Africans live with adversity every day. We face challenges and issues that our entrepreneurial counterparts in Europe or American don’t even realise exist. Adversity sits on every street corner, hangs out at every robot and reminds us of its presence whenever we stop and look around.
Yet the entrepreneur can take these complexities and harness them to be better at business and more positive in the face of failure. Here are five ways to re-examine what the world has on offer with the eye of the optimistic entrepreneur…
1. The tremendous challenges in our socio-economic and political landscape, from poor sanitation to the unemployment situation, can inspire us to do more and better the world we live in.
Today, many of the most impressive entrepreneurs on the African continent are those who stood up from within adversity and used it to create opportunity. From organisations that ensure children have sanitary pads so they can attend school to non-profit businesses that use the blind to detect breast cancer, optimistic belief in the future is the beating heart of entrepreneurial endeavour.
2. Anyone can succeed
There are people standing at robots across South Africa who are using them as a shop corner, using the captive car audience to sell products and make enough money to get by. Some create works of art, some dance to an invisible beat, and some stand out in their ingenuity. There is a robot in South Africa today where a man stands selling life insurance. That’s the optimistic entrepreneur.
3. We are constantly surprising ourselves
South Africa’s transition from apartheid surprised the world. There wasn’t a bloody revolution, there was a peaceful shift. It was, and still is, imperfect, but it happened with far less brutality than many imagined. The same applied to the World Cup – the stories of doom were ready to be told, but the event was an incredible success. South Africans are capable of surprising themselves and this unexpected brilliance shines through in our ideas and our ventures.
4. Sometimes you just have to laugh
The corruption, the political manhandling, the rage, the insanity on the drive to work, the rising cost of living – the pressures of living in a volatile country take their toll, but South Africans manage to find the humour hidden in the hardness. The adverts that poke fun at the insanity, the ability to laugh at mistakes – this nation’s sense of humour is a very powerful quality that allows the South African entrepreneur to stand up and face each day with a fresh sense of purpose.
5. We bounce back
The one quality that every entrepreneur needs is resilience. Businesses fail, ideas crash, customers leave and bad times arrive, but through it all self-belief and the ability to see something positive in what’s happened will ensure that lessons are learned and new paths taken. It is perhaps one of the hardest things that any entrepreneur has to learn and yet in South Africa, with its ongoing failure to provide that crocodile-leopard-caracal viewing, has imbued its entrepreneurs with the enviable qualities of patient resilience.
Depressed Economy Leading To Business Bust-ups
Palmer looks at the most common causes of business bust-ups and how to avoid them.
News that our GDP had shrunk by 2.2% in the first quarter of the year, coupled with downward revisions of growth forecasts, are casting a pall on the investment climate. Deals are not only drying up, but there has been an increase in business partnerships bearing the brunt of the economic pressure.
After the initial flush of economic goodwill post the inauguration of President Ramaphosa, we’ve seen a flurry of business owners looking for finance to buy out their business partners.
We have had a number of attorneys and accountants refer dissatisfied partners to us who are looking to exit partnerships. When the economy slows – as we have seen over the last few months – many partnerships begin to show signs of stress. All too often partnerships are seen as tools of necessity and those who rush into these deals without properly exploring the common values between parties will not fare well when things get tough.
What many don’t understand is that undoing a partnership is not as simple as they may think and will come with legal and other costs over and above the finance to buy a partner out.
The most common causes of business bust-ups (and how to avoid them) are the following:
1. Misaligned expectations
This occurs when potentials partners don’t share a common vision of where they want to go, how they want to get there and what each wants from the deal.
Misaligned expectations of a business venture will result in disagreements sooner rather than later as they impact every strategic (and even some operational) decisions. It is worth considering a mediated session between partners before the deal is even drafted.
2. Effort Resentment
Another problem creeps in when one partner feels like they are tasked with doing all the work. Resentment around how much effort is put into the success of a venture is not something to be taken lightly – irrespective of it being based on perception or fact. Most contracts will be clear on the value of the equity each partner has, but many ignore the value of sweat equity and how that will be measured and factored into the deal structure.
3. The Golden Rule
Many partnerships are based on one individual who puts in the lion’s share of the capital and another who is committed to doing the day-today work. Effort resentment extends beyond the deal negotiation. When a contract between partners is drafted it reflects a future which is not yet known. As the venture progresses, reality will set in and the division of labour agreed at the outset may not match day-to-day business in year three or four.
It is sometimes useful to draft partnership agreements as you would a lease. Give it a three- or five-year timeframe, with clear deliverables and then, at the end of the period, reassess the partnership and allow for renewals or re-negotiation. Having a sunset clause in your partnership agreement removes the soul-crushing feeling that you are trapped in an unhappy relationship with no chance of escape.
4. Honour amongst thieves
Although seldom encountered, there are some partnerships which fall apart because someone is doing something blatantly untoward. Finding out your partner had their hand in the till can be devastating but in tough financial times, such as we are currently experiencing, some people will resort to desperate measures.
5. Absentee landlords
In many cases, a partner may have committed capital to a venture and even agreed to joint expectations. But other work commitments (or a lack of interest) means they disappear from operations for extended periods. No-one wants to work with people who are uninterested in the future of your company. However, the truth of the matter is any breakup has associated costs. Unwinding a partnership can cost more than setting it up and this should be considered before going down that road. Many investors are involved in multiple ventures with the same partners and exiting one deal may result in prejudicing the future of others.
While no-one can predict how long the economic slump may last, minimising the potential for partnerships falling apart requires a meeting of minds. This means agreeing to a common set of values and ethics which will govern how the business is run.
Partners need to agree on how they see the world if they hope to make a success of the business relationship. Thereafter, they should explicitly voice their expectations of how the venture will work, what they want out of it, and how they see their role in achieving that result. In some instances business partners have been together longer than they have been with their spouse. It makes sense to treat the relationship with the same care. More particularly, healthy partnerships will attract more investment and will be a key decision factor when it comes to raising future funding.
Giving Our Youths The Edge That The Need To Succeed
With youth month just past, LFP Training posed a challenge to corporates via its online platforms. Using a hashtag campaign, we looked to remind the private sector of its crucial role in educating and empowering the youth.
The latest IMD report depicts a grim picture of youth unemployment in SA; we currently have approximately 3.3 million youths without employment and South Africa is ranked a poor 62 out of 63 in our global competitiveness ranking. With this in mind, LFP’s #YouthMonthChallenge was created. Our team challenged corporates to do even more: whatever you are doing now, double it!
Whilst many countries prioritise their youth, our country chose to overlook them. Those who get to lead our legacy and are responsible for moving the country forward, will inherit our baggage and are left to fight some of the toughest battles yet.
What can aptly be described as a ‘system in crisis’ has left very little hope for South Africans. AJ Jordaan, Sales Manager for LFP Training says that a weak foundation from pre-primary onwards has left us with my unemployed and uneducated people, with very little hope of a successful future. “At LFP, we provide learnerships to the unemployed and disabled thanks to the assistance of corporates. A key requirement is that the learner should have a Grade 10 qualification. We see learners of all ages – some fall into the youth category whilst others are still fighting unemployment at an old age,”
“Many lack confidence and are truly victims of a flawed system. Basic education at a public level has certainly failed many South Africans and as a result, us as private sector participants are left to pick up the pieces” says AJ.
AJ explains that with all the odds stacked against the learners who come onto their courses, it might be surprising to hear that LFP Training’s pass rate well-surpasses the industry norm. “When you think about it, we receive unemployed, disabled and often very destitute learners”
“We believe that LFP’s pass rate signifies the benchmark for what our country could be. If we go the extra mile, employ quality educators and provide more opportunities in a growth conducive environment, our youths certainly will flourish. LFP Training’s formula once again proved itself in April when we hosted a graduation for more than 500 learners; a record-breaking ceremony” says AJ.
The formula takes all the wrongs of the system and rights them. “Beyond theory and winning methodology, we connect with our learners. Every single facilitator, moderator and employee at LFP Training is fair, compassionate, patient, stern when needed, knowledgeable and truly understands that more than just a learnership, this is actually an emotional journey for our learners too. We take the time to recognise and address weaknesses, ensure that our facilitators have a firm understanding of our course materials and can connect with the learners”
“We want to equip people for the workplace and ensure that they are hungry and able to take on opportunities. By giving people the tools to succeed, we have seen them do exactly this. Beyond circumstances, we know what it takes to create great leaders and we don’t let their pasts dictate their futures” AJ concludes.
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