|Entrepreneurship in South Africa|
|Wednesday, 27 January 2010 10:31|
South African SMEs face relentless global markets and unending customer demands every working day. According to the 2006 Global Entrepreneurship Monitor (GEM) report, South Africa has the lowest entrepreneurial activity rate out of the 35 developing countries that participated in the annual survey. The SME sector is widely regarded as the driving force of economic growth in both developed and developing countries. SMEs are the growth engines of the world’s economies; yet, their success rate is not as impressive as it could be, simply because of a lack of proper business management practices. The release of the 2007 IMD World Competitiveness Yearbook reveals a drop in South Africa’s rankings from 38th position to 50th position out of 55 countries.
Problems entail skilled labour, 55th, the brain drain, 55th, and the availability of financial skills and competent senior managers ranking 52nd and 51st.
If South African SMEs are to stay a force in the economic growth and development of the country, they need to be better equipped to survive in the long-run. The low conversion rate in South Africa press home the fact that most entrepreneurs neither devote adequate time to contemplate the future nor take the necessary steps to regularly recap the performance of their business operations. Dockel and Ligthelm (2002:2) classify the problems experienced by business owners in conducting a successful business into two categories; namely, market related issues and enterprise-based issues. Enterprise-based problems are associated with 65% of business failures.
The chances of success are better when enterprises understand and address anticipated problems before the launching of a business. Unfortunately, the record of survival is not auspicious among all businesses started. SMEs encounter numerous problems relating to financial, marketing, human resource, social and managerial issues, among others. Literature often cites a lack of business skills and training as a major cause of business failure. Among the most frequently mentioned macro factors that bring on defeat are recession periods, interest rate changes, amendments in government policy, inflation, the entry of new competition, and product obsolescence. However, they are rarely the sole reason for business failure. External shocks have an impact on all businesses in an industry, and only some fail. Moreover, most causes of failure materialise within the business management cadre. The most frequently cited failures fall into three broad areas: inattention to strategic issues, general management problems, and poor financial systems and practices.
Since businesses are influenced by changing factors of modern economies, they need to adjust their strategic course continuously within numerous opportunities and threats that cross their way.
The Dun and Bradstreet Failure Record indicated that unbalanced experience, and a lack of managerial experience create problems in areas such as operating expenses, receivables and inventory management”. SMEs have been rather slow in adopting tools and techniques to help them adapt to changed circumstances and meet new market challenges. A large number of studies over the past decade have pointed out that SMEs frequently suffer in the management of their product innovation process through a lack of structure.
In many cases, entrepreneurs do not set viable long-term goals and targets, without which the business cannot focus on what is truly important. Even enterprises that do attempt to plan take missteps along the way, such as neglecting to break down the factors that comprise real sources of business revenue, ignoring trend lines, putting together unreasonable forecasts, and making assumptions about markets that are not factually based. The end result is missed sales and profit targets, and eventually, a high probability to come to naught.
The business world is considered by many to be a dangerous place, where the rules of engagement are foreign. Critical to success in fast moving and complex business environments are adaption and speed. Speed is one aspect of adaptation. The other aspect is the ability to handle complexity. Just like individuals, organisations need constantly moving reference points to keep pace with the changing business environment.
Higher potential ventures do not stay small very long. While an entrepreneur may have done a good job of assessing an opportunity, forming a new venture team, marshalling resources, planning, managing, and growing, a high potential venture is a different managerial game. Difficulties in recognizing crisis signals and developing management approaches compound by the rate of growth itself. The faster the rate of growth, it seems the higher the probability for difficulty arises - the reason being that various pressures like chaos and confusion and loss of control enter the picture. The contemporary entrepreneur has to be able to analyse trends as well as to plan for growth. They will be required on a daily basis to make decisions that require basic knowledge of business.
Without education and knowledge to address issues such as financial management, inventory control, and market research, the chances are high that a new business will not succeed. Some entrepreneurs believe they do not have to plan, i.e., test theory against reality. Literature reveals that poor business management can be the greatest, single cause of business failure. Management of the business encompasses planning, organising, controlling and communicating. Taking this into account, practices of planning, organising, directing and controlling of the enterprise are some of the key features over which SMEs have control, that indicate their risk profiles.
|Last Updated on Monday, 17 October 2011 08:11|