adminservices from other firms, with some spending as much as half of their revenue this way. Managing the supply for an optimal mix of cost, quality, flexibility and strategic advantage are becoming an increasingly important source of competitive advantage. There is no business that can survive for as long as it is an island of wealth in a sea of poverty. Continuous exploitation of the local resources without local beneficiation is not sustainable.
In fact, it activates DNA of conflicts between the locals and exploiting firms. Last year, we witnessed the stoppage of mining of the black granite in Mutoko due to demonstrations by the local community. Mining companies didn’t make meaningful investments in the area to mitigate effects of mining operations.
Rather, they caused displacement of households, death of animals, especially cattle falling into pits, degradation of the environment and general disturbances of the ecosystem without compensation.
Established firms cannot continue to exploit but must also contribute in the development of SMEs for sustainable development.
In this spirit, Zimbabwe businesses must develop business linkages with SMEs. These linkages will cover a wide range of areas such as procurement, distribution and sales, contract farming, franchising and leasing, sale of financial services, ICTs, outsourcing non-core functions and productive inputs and tools. Key to these programmes is capacity building of SMEs to meet the needs of a large firm.
There are traditionally three forms business linkages can take. Firstly, companies can forge SMEs linkages in their own value chain. Supplier and channel development measures of various kinds such as contract farming usually complement this. A good example is the Delta outgrowers scheme. Over 4 500 smallholder and 250 commercial farmers are benefiting from a Delta Corporation contract scheme for the production of malting barley, malting sorghum, adjunct sorghum and maize in Zimbabwe.
Over the years Delta Beverages has supported farmers in Zimbabwe through procurement of the raw materials, provision of the agricultural services unit that provides farmers with prescribed grain varieties, fertilisers and pest control chemicals, and conducts research to develop improved seed varieties. Delta will be guaranteed of good quality throughput and the supply chain management becomes easy.
The farmers’ financial burdens are a thing of the past. Delta beverages have not only integrated backwards but also forward as well especially in the distribution of the beverages. This vertical integration has continuously reinforced their brand in the local market which everyone wants to be associated. This is a business model which most established businesses in Zimbabwe must follow.
Secondly, companies can also focus on SMEs development and linkages beyond their value chain. Companies have an obligation to undertake this strategy for corporate social responsibility reasons. Companies especially those engaged in mining have a responsibility of mitigating the costs they are imposing on the environment. In this case, mining firms may support “beyond the value chain” SMEs development and linkages in their locality and even beyond. The mining companies in Zimbabwe over the years have provided various forms of infrastructure such as roads, schools, hospitals, water and electricity, and also support for adjacent agricultural projects in many towns that have developed around mining in Zimbabwe, for instance, Shurugwi, Zvishavane, Hwange, Kadoma, Bindura and
Bulawayo, among others.
However, from the face value of these investments they are very low. One might be tempted to think that they are just “apologising for making profits”.
If mining companies follow the World Bank’s Extractive Industries Transparency Initiative (EITI) Zimbabwe could have seen close co-operation between the
Government, local communities and mining companies.
EITI sets a global standard for transparency, accountability and improved governance in mining, oil and gas. Mining companies would disclose their earnings, what they pay in taxes and what they RESERVE FOR THE COMMUNITIES. The Government would disclose what it earns from mining companies and how it applies the money while the community would agree with the other parties on priority projects.
If it was as transparent as it should be, we would have seen a lot of money going to community development than what is happening now. Just to shed light can one really be content that a mining company which is making say over US$100 million in annual profit can be said to have done justice by just building a Blair toilet/donating a box of textbooks for the locals? Crocodile tears!
Finally, companies may opt to strengthen the enabling environment for SMEs development and linkages through the establishment of schools and vocational institutes for SMEs, credit bureaus and SMEs Association. We want to see established firms joining hands in building a decent place for the popular Glen View furniture manufacturers with both factory and warehousing facilities.
This will give impetus to the manufacturers. As a result, these furniture manufacturers will be well organised and their marketing strategy will be easy. At the moment they are the mercy of rains and unpredictable fires yet established firms can do more to support them especially those in the same value chain and the blue chip companies in the mining sector.
A business linkages result in multiple benefits to large firms, SMEs, local communities and Government.
Large firms will tremendously benefit from this arrangement. Some of the benefits include:
- Reduced procurement, production and distribution cost.
- Increased ability to reach customers at the bottom of the pyramid.
- Reduction of foreign exchange need through import substitution.
- Increase in flexibility in making design and production changes due to proximity of local suppliers.
- Creation of a stable and sound relationship between large firms and the local community.
SMEs will benefit from:
- Opportunity to innovate, upgrade and improve competiveness.
- Access to finance
- Risk sharing through joint operations
- More stable relationship with the buyer (ready markets)
- Attraction of additional foreign direct investment in “cluster” effects
- Enhanced skills, standards and capacity
The local community will also immensely benefit from the business linkages. These benefits include:
- Increased employment and production
- Stimulation of economic activity and enhanced local economic development
- Development of local business services providers catering to SMEs
- Long term local and regional competitiveness which in turn will stimulates exports.
Government has a great deal of benefit as well through increase in revenue generation and employment.
Established firms and SMEs have a causal relationship. They need each other. It is a symbiotic relationship. Established companies and Government must take the lead is creating business linkages for sustainable development. Hence, Government must encourage business linkages through the ongoing empowerment programme. Procurement regulations must take centre stage in the empowerment of the locals. It does not make logic at all for established businesses to continue use few foreign as main players in the supply of industrial requirements. And, most importantly Government must set up SMEs DEVELOPMENT AND EXPORT PROMOTION AGENCY whose responsibility will be among other things forging business linkages between SMEs and established businesses.
- Gift Mugano is a Trade Expert based in Port Elizabeth, SA. He is studying P.h.D Economics at Nelson Mandela Metropolitan University (NMMU). He is a Lecturer of Applied Business Analysis in the Business Graduate School at the NMMU, Consultant and Chief Executive Officer of Africa Economic Development Strategies. Feedback: [email protected], cell: +2778 017 4112.
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