promotion of the country’s SMME economy. Hallberg (2003, cited in Rogerson, 2004b) indicated that in common with the experience of many developing world countries, post apartheid South Africa has been at the forefront of the development and implementation of a set of pro-SMME policies. One such policy the Government of National Unity developed was the National Small Business Strategy whose intention it was to promote small business development in South Africa.
Rogerson (2004b) argued that despite its good intentions as outlined in the White Paper, the Government of South Africa has made little progress in terms of the outreach of both financial and non financial support services. This was, according to Rogerson (2004b), attributed to the limited amount of funding that was available, weak implementation and ineffective coordination of programmes. Although large institutions were created to ensure that subsidies went to small entrepreneurs, often these subsidies were captured for the benefit of more powerful groups with the result that only limited benefits actually accrued to the poor (Dawson, 1997, cited in Rogerson, 2004b). Atkinson (2004) supported this view and argued that the core aspect of delivery failure was that national government’s SMME programmes simply have not been reaching their target groups, especially the poor. She further indicates out that it is against this background of disappointments associated with national support programmes that the former approaches to SMME developments need to be reviewed.
According to Miehlbradt and McVay (2003a), the late 1990s and early 2000s saw the emergence of a strategy for business development services which focused on developing markets for services that were appropriate to, and small enterprises demanded, rather than the direct provision of business development services by governments or donors. Miehlbradt and McVay (2003a: 8) argued that this shift was in the direction of an emphasis upon being “business-like and demand-led” at the institutional level and it focused intervention strategies toward facilitating transactions between SMME clients as opposed to beneficiaries. According to Tanburn et al. (2000: 1), motivating the search for a "new paradigm" for BDS was the shared recognition that traditional interventions had failed to provide quality, affordable BDS to a large proportion of the target population of small enterprises. These authors argue that there was a general feeling that publicly-provided and publicly-funded services have not achieved their objectives: enterprise productivity and competitiveness, job creation, poverty alleviation and social mobility. Moreover, good
performance measurement was lacking to be able to evaluate and compare programmes (Tanburn et al., 2000). These authors further assert that the BDS market development framework grew out of the belief that achieving economic and social goals was only achievable through the dependence on the private sector to provide a wide range of services. This dependence on the private sector, according to Tanburn et al. (2000: 1), to achieve greater outreach required a better understanding of how BDS providers could be financially sustainable or profitable
The core challenge, according to Rogerson (2006), is to develop low-cost service products and delivery mechanisms in order to match the needs and willingness to pay by the smallest clients.
This new best practice approach also signifies a shift towards a stress upon the creation of an enabling environment for SMME competitiveness and on developing markets for SMME relevant services rather than substituting for them as in the old approach (see Figure 4.1).
Figure 4.1: Changing approaches to BDS Provision
World Bank. (2001). Business Development Services for small enterprises: Guiding principles for donor intervention, prepared by the Committee of Donor Agencies for Small-scale enterprise Development.
In Figure 4.1 both the old approach and the new approach to BDS provision is described. The old approach is characterised by direct government support and intervention in the form of subsidies to business support providers while in the new approach, also referred to as the Market Development Approach (MDA), there is a shift away from direct government to use of a facilitator. According to Torrpa (2006: 3), the MDA places emphasis on “what problems businesses have and why the market environment is not providing solutions to these? The old approach asks what problems do businesses have and how can government solve these?”
Rogerson (2006) emphasised that this shift represents a move away from supply-driven State (or donor) subsidised services and support for individual organisations towards developing more
effective market environments that facilitate the delivery of demand-led services. Moreover, Miehlbradt and McVay (2003a) argued that there was a heightened acknowledgement that public sector organisations had proved to be ineffective providers of BDS to SMMEs. They further argued that government organisations were viewed as insufficiently business like or similar to SMMEs in terms of their cultures, staffing or structures. Moreover, these authors assert that subsidies for State provided business support has created a set of market distortions that hinder the development of private sector provision.
The Market Development Paradigm, according to Miehlbradt and McVay (2003a), emerged from a convergence of innovative practices, research and pioneering thinking. These authors emphasise the point that there were isolated BDS practitioners around the globe, who were determined to reach large numbers of firms through sustainable delivery of BDS, and therefore experimented with and developed innovative ways of delivering BDS that would overcome the challenges of traditional programmes. Miehlbradt and McVay (2003a) highlighted the fact that the MDA is entrenched in a concrete belief in private sector markets as drivers of growth and competent suppliers of goods and services. This approach, Rogerson (2006) emphasised reflected a new vision for success. The reason for this is that programmes start by understanding both the existing supply of BDS from the private sector and government. Market failures can result from a gap between the supply and the demand for services. The goal of market development interventions then is to overcome these market failures and take advantage of opportunities to expand the service market for SMMEs. The desired result, Miehlbradt and McVay (2003a) underscored, is that numerous SMMEs buy the BDS of their choice from a wide selection of products offered from unsubsidised, private sector suppliers in a competitive and evolving market. They further highlight that buying can mean paying fees for services or procuring them through commercial relationships with other businesses. Miehlbradt and McVay (2003a) argued that this is very different from the direct provision of services by government departments who often do not charge for their services. In addition to this, services are often not tailored to meet the needs of the SMMEs themselves but are offered in very general terms. They further argue that the resulting effect is that there is a mismatch between what SMMEs need and the services they are given by government. It has been the experience the world over, according to Miehlbradt and McVay (2003a), that when people do not pay for services, it is not appreciated
and they may therefore decide to use or not use the service which results in the wastage of resources.
Miehlbradt and McVay (2003a) asserted that the market development perspective recognises that the provision of operating subsidies to particular suppliers may crowd out other private sector suppliers who do not receive subsidies. They further asserted that market development programmes tend to promote as many suppliers as the market will bear. Some programmes also encourage demand simply through the provision of information about services and marketing, however, the main activity of a subsidised BDS programme is not direct service provision.
Rather, it is market research, provision of information for consumers, new product development, supplier training, monitoring and evaluation, and activities aimed at facilitating market improvement by increasing demand and/or improving supply (Miehlbradt and McVay, 2003a).
Rogerson (2006) supported and emphasised Miehlbradt and McVay’s (2003a) arguments.
Private sector participation in the provision of services has largely risen out of the failure of the State to provide services. According to Bear, Gibson and Hitchin (2001: 7), an appropriate role for the State needs to be identified in order to alleviate the misconception that the BDS market development is “anti-government” and “neo-liberal” in its outlook. In alleviating these misconceptions, however, they argue that the whole concept of the MDA is certainly opposed to the unquestioned State subsidised provision that has become the trademark of government’s role, particularly in developing countries. While there may be no widely accepted rule or formula for the role of the State, they further argue that government should be playing a more appropriate role that fits with its core competence as a provider of public goods. Hitchins (2002) argued that BDS are private goods. He further argues that it is critical that such business services are not mistaken for other functions which may justifiably be regarded as public goods.
Bear et al. (2001) argued that these roles may vary and should also be driven by an understanding of the wider market and the context within which it occurs, for example, activities related to regulation, information, research and standards. They further argue that the State’s key role in supporting market development will be to focus on general priorities such as education,
social welfare, infrastructure and funding for research. Although these issues are not specific to Business Development Services, they can impact directly or indirectly on it.
It is encouraging to note that the introduction of the Integrated Small Business Development Strategy (ISBDS) (DTI, 2003a) also recognised that the level of support for small businesses revealed major challenges. The Strategy also identified a number of weaknesses which, according to the DTI (2003a), emphasises the fact that the generalised approach towards small business development proved ineffective and suggests the need for differentiated services, instruments and delivery concepts that should be adapted to the different segments of small, medium, and microenterprises. It is noteworthy that the DTI recognises in its ISBDS that the broad brush approach to small business development contained in the 1995 Strategy had run its course and more importantly, a more sharply defined strategy is required. However, once again as in the implementation of the 1995 Strategy, the ISBDS (DTI, 2003a) has not (five years since its introduction) been fully implemented and small businesses have not yet felt its impacts.
Hitchins (2002) suggested two appropriate roles for government as a service provider or as a facilitator. As a service provider, experience suggests that the most efficient providers of business services are organisations or individuals that are “close” to or similar to SMMEs, commercially motivated and entrepreneurial with similar backgrounds, status and structures (Hitchins, 2002). This “closeness”, argued Hitchins (2002: 6), is critical, enabling service providers to understand SMMEs and deliver appropriate viable products on some form of commercial principles. Government, on the other hand, in terms of structure, culture, orientation and people has been deemed to be inappropriate to deliver these business services to SMMEs and therefore, Hitchins (2002) further argued that there is broad agreement that government should not attempt to provide BDS to businesses directly.
In considering the role of government as a facilitator, Hitchins (2002) maintained that facilitation is a temporary intervention which uses public funds to address specific market failures. A facilitator tries to develop a market to encourage access and competition, with a view to making the market work more effectively in terms of price, product diversity or standards. While the nature of facilitation will vary according to context, it will comprise of the following: the identification and analysis of constraints as the basis for intervention, the development of a clear
exit strategy (that is, the facilitating function ceases once a specific service market achieves a defined degree of effectiveness), the time-bound and focused use of public funds and finally the use of non cash instruments rather than subsidising transactions between service consumers and providers.
Hitchins (2002) reemphasised the fact that international experience regarding government facilitation of BDS market development is somewhat restricted and as a result definitive rules to direct government is non-existent. Hitchins (2002) noted that the distinction between short-term facilitation and more permanent market-supporting functions will most certainly differ in accordance with the context in which it occurs. Hitchins (2002) also argued that the distinction between facilitation and more permanent roles will be determined by time, scale, government competence and most appreciably a translucent view of how a particular market needs to operate in the longer term. He further argues that it also appears to be the case that government's role - be it facilitatory or permanent – reflects its core competencies and responsibilities, in particular relating to policy-making, regulation, competition and standards regimes, coordination, information, science and technology infrastructure, and public sector practices. The ISBDS (DTI, 2003a) acknowledges the roles Hitchins (2002) proposed and supported it for two reasons.
Firstly, “because government programmes are restricted and can only reach a limited number of enterprises” (DTI, 2003a: 23). According to the DTI (2003a: 23), the other reason provided was because “there are broader influences affecting the business environment in which small businesses operate, which can undermine the impact of specific government programmes”.
The whole public–private sector debate, while being widely debated on a global scale, has not reached conclusive evidence as to which has been the better model to use in the delivery of services. This study will investigate SMMEs perceptions of both the public and private delivery of services to them within the context of the eThekwini Municipality. In addition, this study will also investigate the modus operandi of service providers from both the public and private sectors and attempt to establish their effectiveness in as far as they are able to meet the needs of SMMEs.