In the loop - JSE MAGAZINE

In the loop

Corporate backing of small-scale entrepreneurs is helping to build better skill sets for SME owners

In the loop

Being an SME has its advantages, including being agile enough to respond quickly to challenges, changes or opportunities. But it also has its drawbacks, such as cash flow, funding and access to market.

‘Small businesses simply do not have the access to supplier networks, markets, finance or even mentoring that big businesses do,’ says Suzanne Ackerman-Berman, director of transformation at Pick n Pay. ‘It’s not a difficult or even expensive thing for big business to provide. At Pick n Pay, we’ve addressed this through our enterprise and supplier development [ESD] programme by providing small suppliers with the tools required to be successful and sustainable. We’ve had some incredible successes.’

The company’s ESD programme helps SMEs enter the retail market by providing mentorship, guidance and business development support. These businesses also gain access to Pick n Pay’s internal experts to assist with business-management processes such as marketing and advertising techniques, buying and negotiating skills, cash flow and business principles.

One of its current initiatives is its Market Store Partnership With Independent Traders programme (founded in 2016), which works with independent traders (spaza shops) to upgrade and modernise their stores. There are now 25 stores across the Western Cape and Gauteng, equipping independent retailers with cutting-edge systems and retailing techniques to help grow their businesses.

To ensure the model is successful, Pick n Pay sets minimum standards of operation, range and pricing, though the store owners remain wholly independent. It also provides extensive mentorship and training, including store systems and point-of-sale; banking, cash and finance management; customer service; and entrepreneurial development. ‘We believe that entrepreneurs are key to the economic freedom of South Africa,’ says Ackerman-Berman. ‘They are job creators; the developers of skills and innovators. By supporting, sustaining and scaling small businesses in this country, they can become meaningful contributors to our economy.’

Another large retailer heavily involved in ESD is Woolworths. According to Kirsten Hewett, the company’s head of corporate communications: ‘Woolworths is on a purpose-led journey to transform entrepreneurial passion and energy into sustainable, local, black businesses absorbed in our supply chain. At the heart of it is the unlocking of market opportunities for small and medium black- and black-women-owned enterprises, and further providing capital and relevant capacity-building to deliver to supplier expectations.’

In the financial year under review, Woolworths contributed more than R2 billion to the revenues of SMEs in its supplier base, and R2.7 billion in revenues of its black- and black-women-owned suppliers.

As a direct result of the support they received, the 46 beneficiaries of the ESD programme have grown from a total revenue of R246 million at the beginning of the period to R293 million by year end. ‘A lot of the support we render entails innovative enablers such as facility sharing, mentoring by business coaches, cash-flow support or linkages with other established suppliers or prospective clients,’ says Hewett. ‘These we don’t account for in a rand-and-cent investment but rather in terms of the impact on the young enterprise’s long-term success.’

Mmathebe Zvobwo, executive: enterprise and supplier development at Telkom, says the organisation’s ESD value proposition is to provide the business with access to external innovation and a diverse supply chain and value chain through entrepreneurship, all while meeting BEE compliance and achieving social impact. There are plentiful opportunities for ICT SMEs across Telkom’s business, she says, through various programmes. These include the BCX Subcontractor programme, where Telkom allocates about 30% of the total contract value to SMEs; and Openserve, which contracts SMEs for servicing faults and laying fibre.

One of Telkom’s current ESD initiatives is its FutureMakers programme, launched in 2015. There are four parts to it, namely FutureFund, FutureHubs, FutureProof and FutureSource, which finance and incubate enterprises, empower them through technology, and link them to opportunities in the supply chain. About 1 700 direct and 3 879 indirect jobs have been created since the launch, and 2 500 SMEs have been supported. ‘Technology and intellectual property are enablers that are critical drivers of economic growth,’ says Zvobwo. ‘By empowering technology small businesses, we play a key role in growing the South African economy.’

Tiger Brands, one of the largest manufacturers and marketers of fast-moving consumer goods in Southern Africa, focuses its supplier development programmes on the farming value chain, believing that a flourishing local agri-market is a win-win for all stakeholders, as well as a catalyst for broader rural economic development.

Litha Kutta, enterprise and supplier business development director at Tiger Brands, says that through the company’s ESD programme, ‘we have naturally focused on developing black farmers to be at the heart of our supply chain, mirroring the desire to progress the economic transformation of the country through deliberate targeted initiatives’.

One of the company’s key initiatives is the Small-holder Farmer Development programme, designed to create access for small-scale black and black women farmers to actively participate in its supply chain through technical support and guaranteed off-take agreements. To date, the contribution of this programme has allowed participant farmers to create 412 jobs from mainly rural communities – almost half of which are held by females.

One of the biggest issues facing small-scale farmers is producing at the scale of, and to the standard required by, large food producers. To address this challenge, Tiger Brands recently introduced its agriculture aggregator model. Fully fledged business entities themselves, agriculture aggregators are new, expert black-owned farming companies that work directly with farmers to provide technical and management skills. Aggregators will procure from multiple farmers and enter into commercial agreements with corporates such as Tiger Brands, providing better guarantees on tonnages, delivery time frames and quality standards.

Tiger Brands assists aggregators with input finance, agrarian and technical support, business contracts and off-take agreements, with support services also extended to black smallholder farmers. Perhaps the real business growth for aggregators, though, is when they move from primary agriculture into agri-processors who manufacture value-added inputs that Tiger Brands can procure for its food production, as this diversification significantly enhances the aggregators’ sustainability. ‘By 2025, our ambition is to develop 500 sustainable black-owned enterprises, create 3 000 jobs, and significantly increase procurement spend towards black-owned enterprises,’ says Kutta. ‘We are focused on implementation.’

Nico Moloto, group executive: sustainability and stakeholders at Pioneer Foods, which also operates in the FMCG sector, says that ESD is a vital part of the group’s operations. ‘The group’s ESD funding portfolio has chosen to participate in two sectors deemed integral to its operations: distribution services and primary agriculture,’ he says. ‘Matching the ESD projects to the overarching corporate strategy boosts the likelihood of success and sustainability of each project.’

One of the ways in which Pioneer Foods invests in SMEs is by providing them with medium- to long-term loans. These funding facilities are available to ESD initiatives in the spheres of distribution services and primary agriculture, and comprise financial assistance, technical business support and market access. In the 2018 financial year, the total figure given out in such loans was R44.5 million.

Its distribution service works with the bakeries division. The favourable funding support allows independent distribution contractors (IDCs) to purchase vehicles and access Pioneer Foods’ product and distribution routes. ‘Two of our “star” IDCs worked their way through the ranks of Pioneer Foods before branching out on their own, and are now business owners and employers in their own right,’ says Moloto.

The primary agriculture sector sees mostly black-owned commercial farming operations supported financially and with mentorship. Established farmers work with these emerging farmers to offer guidance, access to specialised farming equipment and other expertise. The group then provides access to market by procuring their produce. In the 2018 financial year, Pioneer Foods procured R43.4 million from various BEE projects.

Asked what benefits there are for the small companies that work with the group, Moloto says: ‘The financial assistance is, of course, hugely beneficial but, almost more importantly, the guidance and technical business support they receive is invaluable. That, coupled with the access to market they are granted from a large established group such as Pioneer Foods, sets them in good stead to be able to sustain a viable business.’

In terms of why it is important for large organisations to support SMEs, Moloto says that ‘when small, emerging enterprises are given the opportunity and support required to grow into sustainable businesses, it affects so much more than just the direct beneficiaries of these projects. These enterprises create jobs and the communities in which they operate are able to see one of their own succeeding as business owners’.

Ackerman-Berman echoes this, saying: ‘Big business has a major role and responsibility to play in building and developing the economy across all levels. Transforming the supply chain is a fundamental part of growing this country. By creating opportunities for small-scale suppliers, farmers or entrepreneurs, we help them get into a position where they can service other retailers – or even go out on their own, in the process creating jobs and becoming more skilled themselves.’

By Toni Muir
Image: Gallo/Getty Images