4.5. Strategies used to improve the competitiveness of SMMEs 102
4.5.1. Creating a conducive environment for SMMEs 103
Improving an environment in which a SMME operates is often critical for the success of its operation. The government of South Africa has made a serious attempt to create an enabling environment as reflected in the National Small Business Act of 1996. Nieman (2003: 166) perceived an enabling environment as one which “provides various levels of support which contributes to efficient functioning of SMMEs”.
Rogerson (2004b) agreed that improving the regulatory environment is a significant means of creating an enabling environment. He further believed that regulations and policies are clearly important in that they provide direction and guidance to SMMEs and introduce a level of order into their operations. The National Strategy for the Development of Small and Medium-sized enterprises for the period 2003 to 2008 in the Republic of Serbia which the Republic of Serbia (RoS) (2002) adopted, indicated that the SMME sector, both sole proprietors and companies, face many complex procedures and regulations at the start-up stage, in day-to-day operations and in the event of cessation of the enterprise. Compliance with rules is imposing a heavy burden on the restricted financial, management and personnel resources of SMMEs (RoS, 2002: 10).
SMMEs in South Africa are often subjected to a plethora of legislations such as by-laws, requirements by South African Revenue Services (SARS), labour legislation, business registration and the list can go on. Rogerson (2006) argued that such legislation often proves to be more onerous to the SMME owner who is also struggling to establish himself in his/her business. SMMEs often do not comply with legislation and this sometimes prevents them from moving to the next stage of the business cycle. However, the flip-side of the coin could indicate that SMMEs are comfortable at that stage and don’t necessarily want to graduate to the next stage, hence they avoid regulatory compliance. Only where SMMEs are interested in moving to the next stage of the business cycle, does it become critical to reduce such regulatory burden and to simplify procedures for SMMEs. It is very important to constantly assess the impacts of certain regulations on SMMEs, identify the challenges they face and make attempts to rationalise existing regulatory burdens. Promoting a greater awareness among SMMEs of the need to comply and the subsequent benefits which Finnegan (1999) recommended. Once SMMEs are confident about the legal status of their operations, it enables them to focus Finnegan (1999) all
of their attention on the business at hand. The RoS, in order to facilitate the process of improving the regulatory environment of SMMEs created a special Inter-Ministerial Working Group which effectively assisted in the creation of proposals for simplified terms and procedures for the establishment and development of SMMEs and private entrepreneurship, and had a mandate to coordinate deregulation measures taken by various ministries (RoS, 2002). According to the RoS (2002), this Working Group made recommendations on all proposed laws and regulations which impacted on SMMEs taking into account internationally accepted norms of good laws and regulations. This Working Group was also involved in the preparation and implementation of simplified registration procedures as well as specific measures which were designed to strengthen the SMME sector (RoS, 2002).
The Government of Albania (GoA) recognised that they and their agencies had a role to play in providing an environment that was favourable to business operations and conducive to private investment (OECD, 2005). They also recognised that in order to flourish they need an environment that facilitates and enables business start-up and does not encumber them with unwarranted and expensive regulations, and instead promotes access to finance and business services (OECD, 2005). It was for this reason in 2002, that the GoA launched the Enterprise Policy Performance Assessments (EPPAs) which was aimed at assessing the quality of government policy for the SME sector and regularly monitor its implementation covering seven policy dimensions: institutional framework, regulatory environment, tax policy, access to finance, advisory services, business incubators, entrepreneurship, vocational training and access to technology (OECD, 2005). The EPPA report was offered as an innovative and beneficial contribution to the deliberation on enterprise policy in Albania, bringing forward the views of the small business sector and providing a set of priority actions and policy recommendations to the government and the small business community (OECD, 2005). It is critical to create the conditions that are conducive to the SMME sector to operate in a streamlined and secure legal environment depending on the basic principle that laws and regulations serve to facilitate SMMEs and not to hinder their work (OECD, 2005).
While there may exist a large body of research on SMMEs, very often the validity and relevance of such research comes under question and it therefore becomes necessary to improve and
coordinate SMME research as well as to ensure its dissemination. According to the SMME strategy of the eThekwini Municipality (EM, 2007b), research is important in that it provides a framework that guides the intervention process in each organisation. Very often there appears to be a mismatch between the SMME needs and the programmes that are developed by organisations and this is often as a result of inferior research conducted. The strategy states that ongoing research is necessary in order to assess economic trends, assess various markets and ascertain the most efficient practices in various sectors (EM, 2007b). Once research has been conducted it then becomes necessary to facilitate SMMEs access to such information.
Finnegan (1999) indicated that the objective of information dissemination is to facilitate access of SMMEs to information that is of value to them in both verbal and written forms. He further indicates that most SMMEs use informal sources of information such as relatives, friends and employees and this is possibly a reflection of the fact that public and private organisations have invested little in the development of effective information sources. Such information can be disseminated through the organisation of trade fairs and one-stop-shops (OSS) which provides information of interest (Finnegan, 1999). According to Finnegan (1999), other methods of information dissemination can be through the distribution of technical publications, the operation of information centres where SMMEs can consult specialised publications and the publication of newsletters. He adds that some private sectors have started to disseminate information through their own websites. Finnegan (1999) argued that an associated challenge could well be that SMMEs cannot afford to have a computer or subscription to the internet and that many of them are often not computer literate. He goes on to suggest that business development service providers offer an internet service at a nominal fee.
Another suggestion Finnegan (1999) promulgated is that there should be television and radio programmes that broadcast special programmes which are of interest to SMMEs. They could broadcast information which is technical in nature such as marketing, sources of finance and new government incentives for SMMEs. There is increasing evidence, according to Finnegan (1999), that SMMEs are willing to pay for information which they consider critical to improving their businesses, such as information on new models and designs and demand by their market niche (for example, a foreign market). Finnegan (1999) added that current innovations include
promoting exchange visits and meetings between SMMEs operating in the same sector but in different parts of the world. He indicated that bringing together producers and customers for an exchange on how products might be enhanced to make them beneficial and more appealing has also created some encouraging impacts as has the publication of technical booklets. It is therefore evident that conducting relevant research and ensuring the dissemination of such information can achieve a significant measure of success in improving the environment in which an SMME operates.
SMMEs rely heavily on the availability and quality of infrastructure facilities and as a result improving on the business premises and infrastructure available to SMMEs becomes a critical strategy which is intended to address the challenge of a lack of appropriate infrastructure. A lack of infrastructure can lead to the demise of an SMME operation in its infancy stage (EM, 2007b).
Often just operating within a decent office environment and having access to telephones, transportation, computers and other equipment can contribute to the success of an SMME. It therefore becomes critical to assess the infrastructure needs of SMMEs operating in various sectors and identify and develop facilities that will meet such infrastructure needs. Incubators, hives, office and industrial parks are some of the options identified in the SMME strategy available to addressing such infrastructure needs.
Incubators appeared in industrial countries in the early 1980s (Finnegan, 1999). Finnegan (1999) added that incubators provide affordable workspace, shared facilities, counselling, training, information, and access to external networks for entrepreneurial groups, thereby helping to promote venture creation and economic development. Finnegan (1999) indicated that the majority of incubation world-wide can be characterised as public-private partnerships in which government provided initial financial support. He further demonstrated that many governments consider them as part of the business infrastructure and that evidence indicates that the annual taxes and other benefits from new economic activity more than offset the capital and operating cost subsidy. This then leads to the private sector only participating when it sees that the programme will lead to greater economic spin offs and business opportunities.
It is expected that OSS will create a one-stop solution for all SMMEs leading to enhanced co- ordination and therefore less duplication of effort, ensuring that the investment in the SMME sector is more efficient. As the information and support required is centrally housed, according to the EM (2007b), it would certainly contribute to ensuring higher levels of compliance to laws and regulations by SMMEs. SMMEs stand to benefit greatly with having a wide range of stakeholders accommodated within a single venue. The SMME strategy (EM, 2007b) identified the establishment of an OSS as a critical method of building and improving the capacity of SMMEs. The strategy suggested that the OSS should be created for a wide spectrum of SMMEs from the survivalist to the well established and that consideration can also be given to sector specific support for those industries that have a significant base within the boundaries of the Municipality. The Strategy further suggested that this facility should be a proud semblance of the SMME sector that offers world-class service and assists in improving the image and understanding of this highly under-rated sector (EM, 2007b).
According to the SMME strategy the EM (2007b) developed, this increased and focused support increases the chances of the SMMEs survival and leads to sustainable business practice. It should, however, be stated that the incubation period should be for a limited number of years in accordance with a development plan that closely monitors the progress of the operation and thus also determines an appropriate exit strategy.