Chronicle Editor
Bernard Gwarada
The 2020 National Budget projects the economy to grow by 3 percent. However, in recent years the economy has not grown according to expectations.
Such a trend is reflected through company closures, retrenchments, liquidations and a stagnant market.
This stagnant market is the major reason why SMEs in Zimbabwe should consider entering regional or even international markets. The stagnant market implies that the SMEs in Zimbabwe are fighting for a dwindling piece of cake.
Furthermore, there is a tendency in the SMEs sector for an employee to leave employment and start his or her business venture within the same market after having acquired sufficient skills and experience to do so, thus competing with the erstwhile employer for the same dwindling piece of cake. Zimbabweans have developed what may be called an entrepreneurial mind-set which refreshingly leads to a shunning of formal employment in preference for self-employment.
While this is a positive development (in that for example this may lead to employment creation and poverty reduction), this however only serves to intensify the competition for a vanishing piece of cake.
Established SMEs cannot match prices charged by such businesses which have very low overhead costs. According to the first report of the 2016 Parliamentary portfolio committee on SMEs, about 10 000 graduates are rolled out annually from tertiary institutions and universities.
A significant number of these graduates are likely to end up self-employed and again competing for the same business with established SMEs.
There is also the threat from foreign firms which compete by offering better products or lower prices. All these are reasons why SMEs in Zimbabwe should seriously consider investing across the borders.
Internationalisation entry strategies
The first step is for the SME is to access its preparedness and readiness to enter a foreign market.
This can be done through the identification of the company’s capabilities and core competencies that can be used to create a unique market position in a foreign market.
It is on the basis of such a review that the SME can convince itself if it is ready to enter the foreign market with its superior products and services. The issue of the perceived superiority of the SME’s products and services cannot be overemphasised.
This is because a firm with inferior products and services will stand no chance in the foreign market. A case in point is where aviation executives from another African country were impressed by a certain product offering available at Robert Mugabe International Airport in the restaurant sector. They invited the local entrepreneur to their own country and asked him to consider setting up a similar business venture at all international airports.
The second critical step for the SME to enter into a foreign market is choosing the entry mode between a non-equity mode and an equity-based mode. These modes vary according to costs involved, the risk involved and the level of business control.
The non-equity modes category includes export and contractual agreements. Export entry mode involves directly or indirectly exporting to a foreign agent or distributor. For instance, a manufacturer of spices in Zimbabwe can appoint an agent or distributor in a foreign country to sell its products on its behalf.
Contractual entry modes involve for example licensing and franchising. The equity mode category includes for example joint ventures, mergers and acquisitions, and foreign direct investments (FDI).
Barriers to Entry
There are barriers to contend with when contemplating entry into a foreign market such as language, local legislation and regulations, infrastructure (roads, telecommunication), the geographical distance (travel and logistics), the economy (currency volatility, inflation and interest rates).
This means that the SME has to do its research well in order to identify the barriers and solutions. For instance, the Internet is now an important source of business. It is therefore critical that the telecommunication infrastructure is in place to support business.
Government’s role and benefits
For the SMEs to successfully internationalise, the support of the Government of Zimbabwe is required in order to lower the barriers through a conducive regulatory framework and polices. The SMEs can in part conduct its market research by exploiting relevant Government databases concerning the targeted foreign markets. SMEs in Zimbabwe can also acquire market intelligence through platforms such as Harare Agricultural Shows and the Bulawayo Trade Fairs. The Government benefits from internationalisation through an enlargement of the tax base, increased employments opportunities for local citizens through export promotions, and a reduction in poverty.
Expanding business in foreign markets requires that the SME remains focused and knowledgeable in its area of endeavour. Above all, it must be driven by a sense of conviction with regard to the superiority of its products and services.
This is a potentially profitable strategic option for SMEs in Zimbabwe to consider, notwithstanding any challenges they may encounter along the way.
– Bernard Gwarada is a research candidate in International Business at University of Pretoria’s GIBS Business School. He writes in his own capacity.
– Feedback: [email protected]
Online Reporter