Left wing governments often resort to protection of their labour forces. This is generally necessitated by political rather than economic imperatives. This leads to rigidity in the labour markets and has a number of negative consequences.
SMEs are generally unable to pay top prices for their staff members, and by default feed from the bottom of the labour barrel. They cannot offer perks such as pensions, medical etc. Therefore when it becomes too difficult to acquire, retrench or fire staff, they simply keep it tight. They try and reduce staff before the new legislation comes in. They tailor everything to existing revenue streams. They simply do not have any of the assets necessary to handle the situation. They do not have money for legal employees, or legal advice. They cannot pay minimum salaries.
Rigid labour markets have a negative impact on economic and job growth. SMEs are equally affected by this situation. As they close ranks in order to reduce staff, so they reduce their ability to grow their businesses. Everyone is a loser, including SMEs.
South Africa has been particularly heavy handed in this regard and are about to add even more to this hamfisted approach to economic development. The new round of labour legislation is a potential nightmare for SMEs and large businesses.
Friday, December 31, 2010
SME - types of opportunities
The starting point for me with writing this document was Prof Mark Casson from the University of Reading on the UK.
As an economist he wanted to know how many opportunities there were and who decided who got which opportunities.
I did a little desktop research as I found the question intriguing. My research revealed the following. Opportunities vary in complexity. Therefore the skills, knowledge and experience needed to sell fruit to people at a taxi rank in a developing country is minimal. However, at the other end of the scale, identifying two companies for a merger, and then succeeding in achieving a merger between the two, requires a high level of skills, knowledge and experience.
So the first thing to note is that opportunities can be graded from extremely simple through to extremely complex. Similarly, the simpler the opportunity, the more of them there are, and the converse is also true for complex opportunities.
The second thing to note is that as complexity increases so too does the profitability in respect of both % and actual value. While you may be selling oranges at the taxi rank for US $1, the merger could be a US $10bn deal.
Therefore the question must be asked as to whether you are looking for simplicity or complexity when looking for a new business opportunity?
Bear in mind that your ability to handle complexity will be informed by your education and experience.
How complex is your business or your new idea? Here in South Africa there are too many copy cat entrepreneurs. They are lifestyle entrepreneurs simply looking for an easy buck. I have seen very very few business plans that have made me sit up and say wow. However, we can do it, and this is evident when we look at the number of world leading products designed in South Africa.
As an economist he wanted to know how many opportunities there were and who decided who got which opportunities.
I did a little desktop research as I found the question intriguing. My research revealed the following. Opportunities vary in complexity. Therefore the skills, knowledge and experience needed to sell fruit to people at a taxi rank in a developing country is minimal. However, at the other end of the scale, identifying two companies for a merger, and then succeeding in achieving a merger between the two, requires a high level of skills, knowledge and experience.
So the first thing to note is that opportunities can be graded from extremely simple through to extremely complex. Similarly, the simpler the opportunity, the more of them there are, and the converse is also true for complex opportunities.
The second thing to note is that as complexity increases so too does the profitability in respect of both % and actual value. While you may be selling oranges at the taxi rank for US $1, the merger could be a US $10bn deal.
Therefore the question must be asked as to whether you are looking for simplicity or complexity when looking for a new business opportunity?
Bear in mind that your ability to handle complexity will be informed by your education and experience.
How complex is your business or your new idea? Here in South Africa there are too many copy cat entrepreneurs. They are lifestyle entrepreneurs simply looking for an easy buck. I have seen very very few business plans that have made me sit up and say wow. However, we can do it, and this is evident when we look at the number of world leading products designed in South Africa.
SME - types of entrepreneur
Research indicates a number of different types of entrepreneur. These include survivalist entrepreneur; salary replacement entrepreneur; lifestyle entrepreneur, small business manager, franchisee, copycat entrepreneur, franchisor, inventrepreneurs, serial entrepreneur, portfolio entrepreneur, angel funder and venture capitalist.
However these can be grouped into three (3) groups of people who act in a similar manner.
The first is the survivalist. The survivalist is often associated with informal sector survivalist businesses, but could also include the formal sector person forced through circumstances into self employment. This could be someone who has been retrenched.
The second group is the lifestyle entrepreneur. They vary in a number of ways, but generally are the same “animal”. For some the “lifestyle” is about working the hours they want, or the type of business (maybe a hobby) or about maintaining a lifestyle which includes holidays, and toys such as motorbikes, cars, caravans, boats etc. All of them have clearly defined “rules” on how they run their business. These rules are written in stone most of the time. Do not ask these entrepreneurs to work late or weekends.
The third group are the high growth entrepreneurs. These are the entrepreneurs who generate large profits quickly, normally create the bulk of new jobs in an economy, and are able to retire young. Notice I said “able to”; many do not and start the next business soon after they harvest from their business.
Where do you fit in?
The South African government has not recognised this current research, and consequently are not fine tuning their SME development strategies accordingly. This is a pity, as the job creation we so desperately need in South Africa is not being achieved as a result. It is time governments all over the world start consulting with SME specialists in order to understand the research findings in this area of expertise. This will assist in creating better SME development interventions.
However these can be grouped into three (3) groups of people who act in a similar manner.
The first is the survivalist. The survivalist is often associated with informal sector survivalist businesses, but could also include the formal sector person forced through circumstances into self employment. This could be someone who has been retrenched.
The second group is the lifestyle entrepreneur. They vary in a number of ways, but generally are the same “animal”. For some the “lifestyle” is about working the hours they want, or the type of business (maybe a hobby) or about maintaining a lifestyle which includes holidays, and toys such as motorbikes, cars, caravans, boats etc. All of them have clearly defined “rules” on how they run their business. These rules are written in stone most of the time. Do not ask these entrepreneurs to work late or weekends.
The third group are the high growth entrepreneurs. These are the entrepreneurs who generate large profits quickly, normally create the bulk of new jobs in an economy, and are able to retire young. Notice I said “able to”; many do not and start the next business soon after they harvest from their business.
Where do you fit in?
The South African government has not recognised this current research, and consequently are not fine tuning their SME development strategies accordingly. This is a pity, as the job creation we so desperately need in South Africa is not being achieved as a result. It is time governments all over the world start consulting with SME specialists in order to understand the research findings in this area of expertise. This will assist in creating better SME development interventions.
Monday, June 21, 2010
Have we got over the global recession?
The economist at KZN treasury presented evidence to show that South Africa generally lags the global economy by 6 months, and the KZN economy lags the South African economy by a further 6 months.
So if we assume that December 2009 was the estimated time when the global recession was turned around, then KZN can expect to turnaround by the end of 2010. So KZN business people, just 6 months more to suffer, or so the experts say. Watch this spot :)
So if we assume that December 2009 was the estimated time when the global recession was turned around, then KZN can expect to turnaround by the end of 2010. So KZN business people, just 6 months more to suffer, or so the experts say. Watch this spot :)
Saturday, October 24, 2009
SMEs - Will SMEs flounder or flourish in South Africa under Zuma
South Africa is going through immense political turmoil at present. Labour and the Communist Party are wanting a greater say in government for bringing Zuma to power. Labour is demanding the end to labour broking, of which government is an enthusiastic user. Umkhonto we Sizwe are attacking moderates like Kader. The ANC Youth League and it's leadership, using the term broadly, are demanding the nationalisation of the mines. Netshitenzhe has resigned. Trevor Manuel is under pressure to go from these same players. Look at our FPI.
Talk about supping with the devil. Zuma must be regretting his choice of partners I should imagine.
Labour broking is a direct consequence of labour market rigidity that has its roots firmly embedded in the unbelievably complex and labour friendly legislation in South Africa, which is further complicated by the CCMA who believe it is their duty to always award money to labour, even when finding in favour of business. Never mind the impact on inward FDI.
The efficiency of SARS in tax collection is sadly not recognisable elsewhere, mores the pity. Policies are uninformed by reality, and becoming more and more socialist as the days progress. Purchasing by government does not focus on sustainable business creation. I could go on and on, but the message would remain the same.
The fragile embryo stage SME component of our economy is very much like the humpty dumpty story, sitting on the wall. The question is how it will land, soft or hard. There is ample evidence that entrepreneurship prefers a free market (or close as possible) in order to grow and create new businesses and jobs.
However, the closer we move towards socialism, the more like we will have omelette instead of boiled eggs.
This means that the SME sector is under serious threat from these people, and as businesses we need to understand the seriousness, and tell Zuma that he has our support to follow the capitalist line, as opposed to the socialist line. He can get the votes he needs without these living antiquities and uninformed posers that claim to be the leaders of various fringe organisations.
Rob
Talk about supping with the devil. Zuma must be regretting his choice of partners I should imagine.
Labour broking is a direct consequence of labour market rigidity that has its roots firmly embedded in the unbelievably complex and labour friendly legislation in South Africa, which is further complicated by the CCMA who believe it is their duty to always award money to labour, even when finding in favour of business. Never mind the impact on inward FDI.
The efficiency of SARS in tax collection is sadly not recognisable elsewhere, mores the pity. Policies are uninformed by reality, and becoming more and more socialist as the days progress. Purchasing by government does not focus on sustainable business creation. I could go on and on, but the message would remain the same.
The fragile embryo stage SME component of our economy is very much like the humpty dumpty story, sitting on the wall. The question is how it will land, soft or hard. There is ample evidence that entrepreneurship prefers a free market (or close as possible) in order to grow and create new businesses and jobs.
However, the closer we move towards socialism, the more like we will have omelette instead of boiled eggs.
This means that the SME sector is under serious threat from these people, and as businesses we need to understand the seriousness, and tell Zuma that he has our support to follow the capitalist line, as opposed to the socialist line. He can get the votes he needs without these living antiquities and uninformed posers that claim to be the leaders of various fringe organisations.
Rob
Sunday, July 12, 2009
SMEs in South Africa - why is finance difficult to access
SMEs in South Africa do struggle to raise start-up finance from banks. The question is why?
There has been little, if any, in-depth research into why banks are not lining up to lend to this large, risky, yet very profitable market.
I myself am hoping to research the following suggestion in order to see if it has any validity. The suggestion is that a major contributory factor is that SME and entrepreneur are being interchangably used in South Africa.
There is a continuum of entrepreneurial endeavour suggested by Burch, and I believe that the SME owner is not synonymous with being an entrepreneur. Some SME owners may well be entrepreneurial, but it is not a given.
Consequently, banks have no tools with which to assess these SME owners, which makes the loaning of finance to them extremely difficult.
There has been little, if any, in-depth research into why banks are not lining up to lend to this large, risky, yet very profitable market.
I myself am hoping to research the following suggestion in order to see if it has any validity. The suggestion is that a major contributory factor is that SME and entrepreneur are being interchangably used in South Africa.
There is a continuum of entrepreneurial endeavour suggested by Burch, and I believe that the SME owner is not synonymous with being an entrepreneur. Some SME owners may well be entrepreneurial, but it is not a given.
Consequently, banks have no tools with which to assess these SME owners, which makes the loaning of finance to them extremely difficult.
Sunday, June 21, 2009
SMEs - the new Companies Act
There is a new version of the South African Companies Act on its way. This is a highly modified version of the previous Act, and is supposedly coming into action later this year.
A key change which is interesting from a number of respects, is an attempt to introduce the equivalent of Chapter 11 in the USA as I understand it. The intention is to help businesses that get into trouble to get through the difficulties they are experiencing by giving them some temporary protection from their creditors.
The current system is prohibitively expensive and not particularly helpful to SMEs.
I am busy reviewing this new version of the Companies Act and will hopefully be able to shed more light on this particular topic in the next week or two.
However, it will require that the business be an incorporated business, in other words a company, remembering that the Closed Corporation will also disappear and become a simple form of company, on which I will also provide more information.
A key change which is interesting from a number of respects, is an attempt to introduce the equivalent of Chapter 11 in the USA as I understand it. The intention is to help businesses that get into trouble to get through the difficulties they are experiencing by giving them some temporary protection from their creditors.
The current system is prohibitively expensive and not particularly helpful to SMEs.
I am busy reviewing this new version of the Companies Act and will hopefully be able to shed more light on this particular topic in the next week or two.
However, it will require that the business be an incorporated business, in other words a company, remembering that the Closed Corporation will also disappear and become a simple form of company, on which I will also provide more information.
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