CHAPTER 2: LITERATURE REVIEW
2.6 T ENET T HREE : T HE ROLE OF THE DEVELOPMENT AGENCY
With a better understanding of the first two tenets, the study now shifts its focus to the third tenet which is the potential role of the development agency in supporting SMEs in the technology sector. I shall again (1) draw contributions of knowledge from various articles and related academic resources; (2) evaluate the knowledge contributions per category and decide whether they constitute synthesised, progressive or non-coherence; and (3) extend the evaluation of the intertextual coherences by identifying gaps and the potential for contribution by this study.
2.6.1 Contributions of knowledge
Table 2.11 summarises the contributions of knowledge of the potential role of the development agency.
Table 2.11: The contributions of knowledge of the potential role of the development agency
I regard development agency to be the means by which assistance is rendered by government to relevant stakeholders to ensure the expansion of the economy. Lexical definitions of ‘development agency’ seem to aggregate into the common
understanding that these are entities whose aim it is to assist, develop and support growth (particularly but not exclusively, economic growth) within a region through the provision of resources and assistance, usually from state organisations. According to Le Roux (2010), this development either refers to the creation of a new business, the redevelopment of the business, or the growth of existing businesses. The enterprise development strategy must ensure the viability of the business idea which should lead to the creation of new business value. The agencies partner with the business
through the provision of funds, guidance or support of the enterprise development activity in pursuit of the business objective.
The potential role of the development agency Reference
Strategic Support: The identification of long-term and overall aims and interests of the SME and the means of attaining them.
Le Roux (2010), Davies (2013), DTI (2016)
Promote Opportunity: A set of conditions that makes it possible for the SME to generate revenue.
Mountford (2009:9), Mandel (2012:1)
Capacity Building: Assistance to SMEs that require development of a certain skill or competence, or performance ability.
Mountford (2009), Le Roux (2010); Feinstein (2013) Growth and Sustainability: The creation of enabling environments for
SMEs to develop enduring business.
Le Roux (2010:2), Davies (2013:1), SEDA
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All of this agency should lead to the strengthening of the local economy through the creation of jobs, enlargement and reinforcement of the tax base, and ultimately improving the standard of living of citizens. With specific reference to the creation of jobs, Mandel (2012) suggests that the potential solution to boosting employment lies in innovation. Through innovation, new goods and services are created, giving rise to new industries through which employment is created. A prime example of this would be the rise of the app economy, where each app represents jobs for developers, designers, marketers, and other related staff. Based on this then, it appears that development agency could have a pivotal role to play in the mobile application development sector.
Mountford (2009) states that internationally over the last two decades governments have fashioned innovative development tools and development agencies, and other entities specifically to pursue their development agendas. The author also states that development agencies have been re-inventing and refreshing their role, shifting their intervention foci and changing which tools are applied to ensure that they remain relevant. With this in mind then, it is important for a development agency to establish a vibrant rationale, mission, strategic framework and considered choices of tools and programmes to function effectively.
It is vital to this study to understand the types of development agency in the Western Cape of South Africa which will serve as a sample for empirical research. Table 2.12 represents a summary of the key development agencies in SA, with either national, regional or local mandates for development.
Table 2.12 The key development agencies in South Africa Development Agency Geographic
Focus
Function
Business Support and Skills Development (BSSD)
(https://www.capetown.gov.za/
en/ehd/Pages/BusinessSuppor tandSkillsDevelopment.aspx)
Cape Town The aim of this entity is to ensure that the City of Cape Town’s strategic objectives to ensure a greater and wider impact are met. This is achieved through recommendations to the regulatory and policy environment surrounding business. It provides information to businesses, supports procurement processes, and encourages enterprise development services and entrepreneurship by driving various relationships, partnerships, and agreements.
Cape Higher Education Consortium (CHEC) http://www.chec.ac.za/
Western Cape This entity aims to establish the Western Cape as a strong higher education region which, through systemic inter-institutional cooperation and academic programme collaboration, will be, amongst others, instinctively responsive to regional, national and international developments in the knowledge economy of the 21st century.
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Cape Town Partnership http://www.capetownpartnersh ip.co.za/
Cape Town This entity was formed in 1999 as a non-profit (Section 21) organisation to mobilise and align public, private and social resources towards the urban regeneration of Cape Town’s central business district.
Council for Scientific and Industrial Research (CSIR) http://www.csir.co.za/
National This entity sees itself as one of the leading scientific and technology research, development and
implementation organisations in Africa. It undertakes directed and multidisciplinary research and
technological innovation as well as industrial and scientific development to improve the quality of life of South Africans.
Department of Trade and Industry (DTI)
www.thedti.gov.za
National This entity is the department of the South African government charged with overseeing commercial and industrial policy. The DTI works closely with the BPO/Call Centre sector and has been instrumental in driving investment to SA through various initiatives including the incentive scheme.
Government Communication and Information System (GCIS) www.gcis.gov.za
National This entity provides strategic communication
leadership and support to all of government. Its vision is to create government communication that empowers and encourages citizens to participate in democracy and improve the lives of all.
National Research Foundation – The Technology and Human Resources for Industry Programme (THRIP) www.nrf.ac.za/thrip
National This entity aims to boost SA by supporting research and technology development, and by enhancing the quality and number of appropriately skilled people.
Small Enterprise Development Agency (SEDA)
http://www.seda.org.za/Pages/
Home.aspx
National This entity is mandated to implement government’s small business strategy; design and implement a standard and common national delivery network for small enterprise development; and integrate
government-funded small enterprise support agencies across all tiers of government.
Support Programme for Industrial Innovation (SPII) http://www.spii.co.za/index.ht ml
National The South African Government through the
Department of Trade and Industry (DTI), has always placed a priority on the development of new
technologies as part of an important thrust to
strengthen SA’s competitiveness globally. This entity is an initiative of the DTI, and strives to play a key role of supporting the development of new technologies in the South African industry.
TABEISA
http://www.dut.ac.za/support_s ervices/tabeisa_enterprise_ce ntre
National This entity is a unique national initiative that harnesses the resources and knowledge of the university and the creativity and enthusiasm of staff and students to uplift communities by creating new businesses and jobs.
The Barn
http://www.bandwidthbarn.org/
Cape Town This entity enables people to start successful businesses, develop great products and thus help change the world. It drives social and economic prosperity by leading Cape Town’s and the region’s innovation mission.
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The Business Place eKapa. (TBP)
http://www.tbp.co.za/capetown /index.htm
Cape Town This entity is a network of small business support centres with a branch in Cape Town. It assists new entrepreneurs with information, referrals, training, workshops, networking and business opportunities.
The Cape IT Initiative (TheCITi) http://www.citi.org.za/
Western Cape This entity was established in 1998 to address systemic challenges undermining the growth and sustainability of the technology sector) in the Western Cape, SA.
WESGRO
http://wesgro.co.za/
Western Cape This entity is the official marketing, investment and trade promotion agency for the Western Cape. Its aim is to grow the economy through trade and investment opportunities to benefit the people of the Western Cape.
Having identified a sample of the development agencies in SA, I now establish the framework within which they operate. Present development agency interventions in SA have their roots within the Industrial Policy Action Plan (IPAP) 2013 – 2016. The IPAP is located in the vision of the National Development Plan and forms one of the principal pillars of the New Growth Path of the South African Government. Part of the future plans of the IPAP is to strengthen technology platforms that will encourage innovation and technology development and the acquisition and commercialisation of new technologies. Close coordination and the integration of support measures and incentives managed by the DTI and the Department of Science and Technology for industry are envisaged. Amongst others, further attention will be given to the promotion of technology sharing and the support of small business development (Davies, 2013).
In attempting to identify the potential role of the development agency in supporting SMEs in the technology sector, I believe that it will be useful to map the dimensions of business innovation against the functions of the development agency. The following table represents the potential functions of the development agency as recommended by Le Roux (2010), Mandel (2012), Mountford (2009), and Davies (2013), combined with the dimensions of business innovation as suggested by Sawhney et al. (2006).
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Table 2.13: The potential functions of the development agency Anchor
dimensions of business innovation
Minor
dimensions of business innovation
Definition Function of the
development agency
The offerings a company creates
Develop innovative new products
or services
Strategic Support Capacity Building Promote Opportunity
Platform for the
offering
Use common components or building blocks to create derivative offerings.
Solutions of the
offering
Create integrated and customised offerings that solve end-to-end customer problems.
The customers it serves
Discover unmet customer needs or
identify underserved customer segments.
Growth and Sustainability Promote Opportunity
Customer
experience
Redesign customer interactions across all touch points and all moments of contact.
Value capture Redefine how the company gets
paid or create innovative new revenue streams.
The processes it employs
Redesign core operating processes
to improve efficiency and effectiveness.
Growth and Sustainability Capacity Building Promote Opportunity
Organisation Change form, function or activity
scope of the firm.
Supply chain Think differently about sourcing
and fulfilment.
The points of presence it uses to take its offerings to market
Create new distribution channels or innovative points of presence, including the places where offerings can be bought or used by customers.
Strategic Support Promote Opportunity Growth and Sustainability
Networking Create network-centric intelligent
and integrated offerings.
Brand Leverage a brand into new
domains.
The above table suggests that business innovation is not so much about new things as it is about new value. Innovation is relevant only if it creates value for customers and, ultimately, for the SME. The focus on creating new things is not sufficient for business innovation as customers are the ones who determine the value of an innovation by spending their money on it.
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Furthermore, business innovation requires meticulous reflection on all aspects of a business. An innovation with a poor marketing strategy or distribution channel could fail in the same way as new technology that lacks a critical technical aspect. The SME will, therefore, have to consider all dimensions of its business system in the
innovation process.
In all of this, the development agency can play a significant part in assisting the SME in the innovation process. This assistance may take the form of strategic support by aiding the SME to access support mechanisms that are available via state
interventions and policies. Along with this, capacity-building support can be given through skills development to assist the SME to be a competent business person within the innovation sector. In addition, the development agency should also allow for the promotion of business opportunity by helping the SME to identify real business prospects. Finally, the SME should assist the SME with its growth and sustainability by improved revenue and sales.
2.6.1.1 The status of SMEs in South Africa
In order to emphasise the vital role that development agency plays in respect of SMEs in SA, I now present the status of SMEs in SA. SA’s finance minister has declared that SMEs are critical to overall employment and job creation. The truth, however, is that the SA economy is shedding jobs and those that are being created are disproportionately in the public sector. The solution lies in
entrepreneurship and small business. The efforts to expand the number of small businesses need to be located within an understanding of the nature of
businesses that the economy can best support (SBP, 2011).
Olawale and Garwe (2010) concur with SBP (2011) when they report that new SMEs are regarded as vital contributors to SA’s economic development issues.
The travesty is that SA has one of the world’s highest failure rate at 75%, as the majority of SMEs do not grow. They identify the following obstacles to SME success in SA:
• Financial (internal factor)
• Economic (external factor)
• Markets (external factor)
• Management (internal factor)
• Infrastructure (external factor)
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The authors state that 56% of private sector employment in SA takes place in the SME sector and that SMEs contribute to 36% of the gross domestic product.
They argue that the SME sector is a means of addressing the 24.5%
unemployment crisis in SA by leveraging the employment creation potential of small businesses and promoting small business development. Rapid and sustained economic growth is critical to stem the tide of job losses.
SBP (2011) extends this viewpoint by stating that SA’s prospects of achieving satisfactory growth are highly dependent on its business entrepreneurs. Without a solid business sector and courageous entrepreneurs, the country’s prospects are limited. The disconcerting fact, however, is that despite acknowledgment of SMEs’ potential as employment generators, government efforts to support the sector have had minimal success.
2.6.1.2 The challenges facing SMEs
Seeletse and MaseTshaba (2016) state that SMEs are showing a decline in market share to larger corporations in the supply of goods to rural areas and townships. Large corporations are able to meet the contemporary demands of customers requesting value for money through high-quality products at low prices, greater convenience, and a wide range of choices. This has now become a competitive advantage that larger corporations have over SMEs in this sector.
Traditional SMEs struggle to compete at large levels of economies of scale and scope and they refuse to spend as they consider spending as waste.
Seeletse and MaseTshaba (2016) suggest the following as the leading causes of failure of South African SMEs:
• Lack of basic skills and establishing an SME for the wrong reasons.
• Lack of adequate market.
• Lack of or inadequate business plan.
• Lack of financial literacy and poor money/financial management.
• Inability to secure funding.
There is a sense in the extant literature that SMEs require more support from larger enterprises, government agencies and financial institutions to make them more competitive (2014). This view is extended by Feinstein (2013) when the author proposes that entrepreneurs need access to specialist skills, knowledge
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and financial and non-financial resources to develop and take a product to market.
The following table presents some of the challenges facing SMEs as proposed by Small and Medium Business Development Chamber of India (2014), Feinstein (2013) and Minority Business Development Agency (2014).
Table 2.14: Some challenges facing SMEs Challenge Description
Financial Resources
Access to resources to develop and take a product to market Access to investors and venture capital funds to grow business Access to business support funding for fledgling business Assistance with tax and other statutory obligations
Human Resources
Access to specialist skills within the industry Access to marketing and brand specialists Access to legal and industrial law specialists Access to business and economic specialists
Information
Exposure to business support
Exposure to state development and incentive programmes Understanding of how to commercialise innovation Exposure to the sourcing of relevant resources Exposure to knowledge transmission programmes
Partners
Access to mentors in the industry and business sector
Assistance to establish and enhance business and trade activities Assistance in establishing joint ventures and collaborations
Access to think tank consisting of complementary but diverse people within the value chain
Building on the synthesis of Table 2.13, and with the understanding of some of the challenges facing SMEs, I propose Figure 2.4 which represents a summary of the typical support that the development agencies render to SMEs.
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Figure 2.4: Development agency resources and support to SMEs
2.6.2 Evaluation of the knowledge
Table 2.15 extends the aforementioned contributions of knowledge of the potential role of the development agency by evaluating the body of knowledge to determine intertextual coherence.
Table 2.15: The evaluation of knowledge of the potential role of the development agency.
SME success and sustainability
Political / Legal Rules, regulations and policies
Economic / Market Size and liquidity of
market
Technology All disruptive
innovations Social
Customer preferences,
trends and demographics Stakeholders
Entities involved in the
supply chian
The potential role of development agency Intertextual coherence
Gap in the literature
Logic
Strategic Support: Involving the identification of long- term and overall aims and interests of the SME and the means of attaining them.
Progressive coherence
Inadequate Inductive
Promote Opportunity: A set of conditions that makes it possible for the SME to generate revenue.
Progressive coherence
Inadequate Deductive
Capacity Building: Assistance to SMEs that require development of a certain skill or competence, or performance ability.
Synthesised coherence
Inadequate Inductive
Growth and Sustainability: Creating enabling
environments for SMEs to develop enduring business.
Progressive coherence
Inadequate Inductive
Strategic Support
Growth and
Sustainability Capacity Building
Opportunity Promotion
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An evaluation of the body of knowledge reveals that the literature sways toward progressive coherence in the contributions to the existing body of knowledge. There appears to be a relation of literature contributions within three specific focus areas, namely, support, opportunity, and growth of the business that reflect the development of knowledge over time.
Synthesised coherence occurs in the discussion of the capacity-building role that the development agency could play, where there is a relation of literature contributions from seemingly unrelated sources. The respective authors focus on the factors that will assist the business and their contributions have a strong correlation with the potential role of the development agency to provide capacity support.
2.6.3 Gaps and potential for contribution by this study
Table 2.16 finally problematises the literature by identifying the gaps and potential contribution as recommended by Locke and Golden-Biddle (1997) and Golden-Biddle and Locke (2007) that this study could make in establishing the potential role of the development agency.
Table 2.16: The evaluation of knowledge of the potential role of the development agency
The potential role of the development agency
References Intertextual coherence
Strategic Support: Involving the identification of long- term and overall aims and interests of the SME and the means of attaining them.
Le Roux (2010:2), Davies (2013:1), BSSD, DTI (2016)
Progressive coherence
Promote Opportunity: A set of conditions that makes it possible for the SME to generate revenue.
Mountford (2009:9), Mandel (2012:1), TBP
Progressive coherence Capacity Building: Assistance to SMEs that require
development of a certain skill or competence, or performance ability.
Mountford (2009:9), Le Roux (2010:2), Feinstein (2013:1)
Synthesised coherence Growth and Sustainability: Creating enabling
environments for SMEs to develop enduring business.
Le Roux (2010:2), Davies (2013:1), SEDA
Progressive coherence