The rules have changed

Wednesday, 31 March 2010 13:40

Opportunities abound if you know how to play the game

The basic rules of business do not change – business conditions do.

As the country slowly emerges from economic turmoil, the small and medium enterprise (SME) sector tries to come to grips with a new fiscal reality and finds itself in a different operating environment.

Many SMEs have not weathered the storm and others have been left battered and bruised. But, explains Nazeem Martin, entrepreneurship is often about conquering ground that others find too difficult.

Martin adds that opportunities are always there to be had by those with the vision to identify a gap and the drive to realise this vision.

Setting the scene

“It appears as if the recession might be over if one looks at the local and global figures coming through. If you listen to retailers and manufacturers, it seems as if there might be some growth in the first quarter,” he says.

“We certainly won’t see a rapid recovery to the levels experienced before the recession.”

He explains that understanding the macro-economic climate is the first step to identifying any possible opportunities because SMEs never operate in a vacuum.

“Based on our experience, SMEs are the first to be hurt when there is an economic downturn and they also hurt most, much more than big businesses,” says Martin.

“But when the tide turns, the SMEs that have survived are the best placed to take up new opportunities.”

Better days

A large proportion of independent businesses operate in the retail space, and Martin says that consumers are still a bit shell-shocked when it comes to spending sprees and that many a credit card now finds itself in little pieces.

“Retailers offering value for money will be well placed,” he says, adding that they must remain patient and avoid entering into price wars with larger chains. This value offering should give consumers the sense of getting more bang for their buck.

Martin believes that fast-food outlets will do better than their restaurant counterparts because of the pricing difference.

Simply because an international sporting spectacular comes to South Africa does not mean that money will flow like water.

Certain geographically placed retailers, food outlets and tourism establishments obviously will benefit, but Martin says that the greatest advantage stemming from the 2010 Fifa Soccer World Cup is a sense of optimism.

“The 2010 tournament is a bit of a double-edged sword. There will be some spin-offs from the soccer, but the positive energy it creates will foster better optimism among consumers and the country in general.

“In my experience, people tend to spend more when optimistic. But, there is also the lull or defection which may follow a successful World Cup,” he says.

Positive push

Martin says that SMEs operating in the mining sector as service providers can look forward to a good year. This is because China’s still-growing economy will lead to opportunities locally as primary resources are sought.

Another sector that shows promise is the agricultural value chain: “This economic area is often underestimated and agro processing is always a good industry to be in,” he says.

In turn, manufacturing had an extremely tough financial year last year and it looks as though the industry will continue to struggle.

Nevertheless, there are a few local SMEs in export and the opportunity to sell goods outside our borders is vast.

“SMEs need to see their market as the entire southern African region. Despite the economic crisis most economies in the region have done remarkably well,”
says Martin.

“Niche manufacturers – especially those specialising in short runs – can do well,” he says, adding however that international powers such as China are generally not interested in niche market with limited volumes.

There are several unknowns that will have a significant impact on the economy, including the threat of inflation and Eskom’s tariff increases. While more expensive electricity will hurt everyone, it also presents an opportunity.

Martin explains that any tariff increases immediately will create an electricity savings market and this includes supplying or installing products such as solar geysers or geyser insulation blankets.

He adds hat it is likely that opportunities focusing on clean energy will receive a boost. While this form of research involves huge capital outlays, SMEs still can score through service provision.

Regional resources

At a provincial and local level, there are always opportunities for SMEs. In addition, the attrition experienced by the sector during the downturn has opened the door to many opportunities as smaller businesses have fallen by the wayside.

Gauteng, KwaZulu-Natal and the Western Cape always are poised to do well because of the critical mass in population concentration levels.

The BoE Private Clients Provincial Barometer for Gauteng seems to have bottomed out and growth is returning slowly.

As a result, the mining and manufacturing indices are improving, but construction, transport and trade are stabilising still.

It has been stressed that SMEs, due to their streamlined nature, can better position themselves to take up new opportunities in recovering sectors because it takes longer for large corporates to get their act together.

The situation in the Western Cape is similar, but more industries are starting to show upward movement. Martin says despite the opportunities to be had in traditional sectors such as agriculture and tourism, the gates are still wide open for SMEs to position themselves in high-tech manufacturing and research and development.

“KwaZulu-Natal, on the other hand, always has much potential,” Martin says.

Get your act together

He adds that it is virtually impossible to pinpoint opportunities around the country if you do not have eyes and ears on the ground, and he encourages SMEs in large and growing centres to evaluate critically the markets in which they operate.

“The normal rules of business apply: find a niche; focus on providing world-class products and services; make sure that people know you exist; don’t try to compete with big business that has deeper pockets because you can’t compete on price.

“The recovery will be gradual, and mediocrity will not get you through.”

Nazeem Martin

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