adminGift Mugano
THE Ministry of Small and Medium Enterprises and Cooperative Development (MSMECD) is working on the formalisation of the informal sector. One of the aspects of the formalisation strategy is related to the business linkages. I found it useful to revisit the Empretec Zimbabwe and Delta Corporation initiative, an example of an international organisation which was initiated by Busi Bango, Director, Empretec Zimbabwe. The main motivation here is to take stock of our own lessons and see how we can build from what we did before as we are going full throttle in formalising the informal sector.
The Empretec Zimbabwe and Delta Corporation initiative which was tabbed stand up and go programme was created in 1995 to build entrepreneurship among Zimbabwe’s youth. The main partners were Empretec Zimbabwe and the Delta Corporation, a beverage company listed on the Zimbabwe Stock Exchange.
Empretec Zimbabwe was created in 1992 as a business development service provider. It was initially funded by UNDP and installed by the former UN Centre on Transnational Corporations (UNCTC), now a part of the UN Conference on Trade and Development (UNCTAD). The initiative came from the background that FDI does not always produce positive results if it is not rooted in the local economy. In response to UN criticism that much FDI was shallow and footloose, Multinational Corporations (MNCs) always give excuse that they found it extremely difficult, if not impossible, to work with local enterprises.
The MNCs’ are of the view that SMEs are weak and not reliable business partners. Hence, Empretec Zimbabwe came into life to help in building stronger and more reliable SMEs as business partners. UNCTC took up the challenge to design a programme that would strengthen local enterprises and enable them to link up with the MNCs. What MNCs were looking for were local enterprises with a good track record and innovative production and management systems.
Field research showed that, while business partnerships were negotiated on the basis of production volumes and product quality, it was the behaviour and personal conduct of the entrepreneur that reinforced the confidence of the MNCs in the small firm’s ability to deliver. This led UNCTC not only to focus the programme on developing the technical and managerial skills of SMEs but also to develop a training component that would both alter the behaviour and improve the performance of the entrepreneur. UNCTC came up with an integrated capacity-building programme, promoting the creation of sustainable business support structures that could help entrepreneurs build innovative and internationally competitive SMEs.
UNCTC’s programme was started in Latin America and called Empretec, which is short for “emprendedores” (entrepreneurs) and “tecnologia” (technology). Since Empretec’s inception in 1988, it has become operational in 26 countries. It has trained about 70,000 entrepreneurs in more than 2,700 workshops. National programmes have been funded mainly by UNDP, the Inter-American Development Bank and several bilateral donors such as the Danish International Development Agency, the Italian Department for Development Cooperation, the Swedish International Development Agency, the UK Department for International Development and the US Agency for International Development. It has also received assistance from various national banks and ministries. Empretec Zimbabwe is currently part of UNCTAD’s Empretec network.
Empretec Zimbabwe’s mission is to build and nurture a community of high-quality, growth-oriented and internationally recognised men and women entrepreneurs in a commercially viable manner. Throughout its years of operation, Empretec has been instrumental in the development of some of the most successful entrepreneurs in Zimbabwe.
- It undertakes a number of activities to fulfil its mission and prepare SMEs for business linkages. It:
- Identifies promising entrepreneurs;
- Conducts training to develop entrepreneurial traits and business skills;
- Provides state-of-the-art follow-up advisory services to enhance productivity, competitiveness and modern business practices;
- Encourages the exchange of experiences and networking among programme participants locally and internationally;
- Helped in arranging mutually beneficial partnerships with national and foreign companies. The last activity was compatible with Delta Corporation’s corporate strategy. In 1995, Delta, a major conglomerate in food and leisure sectors in Zimbabwe, started a programme to support SMEs called Stand Up and Go. Delta’s interest lay in its desire to play a major role in developing the youth of Zimbabwe. The programme was called Stand Up and Go because it targeted young people with no tertiary education and no work experience. The idea was to expose young people to entrepreneurship training and assist them with access to finance and identification of business opportunities.
Due to the deteriorating economic environment in Zimbabwe then, the Delta Corporation also needed to find ways to reduce its cost base, focus resources on its core business and increase outsourcing to SMEs. Delta wanted to move out of a number of activities through subcontracting in such areas as office and premises cleaning, catering services and grounds maintenance, all of which presented business opportunities within Delta for the participants. Delta’s senior management worked with its procurement department to identify SME outsourcing opportunities. Each business unit was free to pursue the business linkages and outsourcing opportunities best suited to its needs.
Since Empretec Zimbabwe was a natural partner for this initiative, Delta invited Empretec to administer the programme. Delta agreed to finance 3-4 Empretec entrepreneurship development workshops at which at least 25-30 participants would be trained. The first step was to identify youth with potential. In order to ensure transparency, participants were recruited through the local media. Advertisements were placed in the daily newspaper and there was an overwhelming response (300 applicants for the 75 slots). Delta used its own criteria to identify and select participants considered fit for the programme. The participants had to go through an interview with Delta executives. Once the participants were identified, they then went through the Empretec screening. The entry point for business training was entrepreneurship training, which would modify participants’ behaviour and help improve their business performance.
The most promising graduates of the basic entrepreneurship training were offered the opportunity to subcontract with Delta. Delta executives played the role of mentors for those who were afforded the business opportunities previously run by Delta. Delta took a hands-on-approach to engaging with SMEs, providing SMEs with access to its advanced business systems and processes, and working closely with them to ensure they were able to use them. Delta provided management support and access to capital equipment at no cost. Delta also made business loans available at less than market interest rates to those participants who met three criteria:
- Adequate “business readiness”;
- Bankable business proposal; and
- Willingness to repay the loan.
By 1997, a total of 250 jobs had been created. Delta managed to outsource cleaning, catering and laundry services, and its hotel division had outsourced housekeeping and food and beverages. The Delta Corporation continues to do business with 26 entrepreneurs who participated in the programme. Through this initiative, Delta maintained its position as a leader not only in beverages but also in the development of the private sector.
SMEs gained access to wider corporate markets, leading to higher turnover and continued contracts with the Delta Corporation. Even to date, a number of the beneficiaries of the programme are still in business.
A number of them have changed businesses, while several have also expanded their original businesses in terms of turnover, asset investment, geographical spread and markets.
The lessons from the Empretec Zimbabwe and Delta initiative is that prior to the linkage process, it is necessary to strengthen entrepreneurial skills through a business development programme. Careful participant identification and recruitment are key factors that ensure a programme of this nature succeeds. Advertising in the local media allows for a wider selection pool, but also implies higher risks of gathering bad apples. The target group, consisting of very young, virgin entrepreneurs, was high risk. SMEs did not know the implications of being in business, had no credit history or experience, and attached no price to reputation in the case of default.
However, coupled with the rigorous Empretec selection criteria and the Delta process of selection, the risks of recruiting the wrong participants were reduced. The programme could have had more impact if it had spread to other corporations. Possibly, other corporations were not willing to innovate and invest in high-risk entrepreneurs because the business environment continues to be very difficult.
The 65 percent enterprise survival rate could have been higher. Many of the entrepreneurs struggled with various aspects of business management. The mentoring by Delta executives helped mitigate the negative effects of the lack of management skills. However, the situation could have been improved if the participants had availed themselves of additional follow-up services in business management.
The Empretec Zimbabwe and Delta Corporation is a classic model which the government can use to spearhead business linkages which comes with formalisation. It is also important to keep in mind the lessons derived from the Empretec Zimbabwe and Delta Corporation and guard against the reasons behind the failure by other corporations to copycat this impressive approach.
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