As globalization takes roots, enterprises in developing countries face major challenges in strengthening their human and institutional capacities to take advantage of trade and investment opportunities. As governments make policies in trade and investment areas, it is enterprises that will do the actual trade and invest. Therefore, supply-side holdups in respective trade and investment areas and how governments, development partners and the private sector address these constraints have direct implications on economic growth.
It has been said over and over, but we need to realize and understand that small and medium enterprises (SMEs) play a very strategic role in developing countries. These businesses typically account for more than 90 per cent of all firms outside the agricultural sector, they constitute a major source of employment and they generate significant domestic and export earnings. As such, SMEs development emerges as a key instrument in poverty reduction efforts.
Infrastructure development is particularly critical for the success of small businesses, particularly because it is a gateway to ensure that entrepreneurs have access to markets through road networks, complete railway networks for bulk products as well as take advantage of ICT platforms to publicize and market their products to a wider range of potential customers.
In addition, there are other unique opportunities in relation to accessing international markets through export-oriented products and services. This is particularly the case through various trade agreements. The Vision 2030 framework still holds a special place for this country because it has created among other things Special Economic Zones across the country where businesses can take advantage of unique development opportunities.
With these and many other opportunities, it is important for SMEs to consider building their own internal capacity so as to meet demand for their products and services.
The local and global market is very dynamic. Therefore, SMEs must be able to respond quickly and efficiently to market signals to take advantage of trade and investment opportunities and reap the benefits. This means they need to be competitive and productive. Effective business support systems are needed to enhance competitiveness and productivity.
Even when governments make efforts to create a stable infrastructure platform, businesses need to be actively prepared and be sensitive to any market signals. But more importantly, they need to ensure that their internal business support processes are adaptive enough to handle this capacity.
Mega infrastructure projects are planned for East Africa and are set to create unique opportunities and open new markets. Industry sectors expected to benefit from the planned infrastructure developments include oil and gas, mining, agriculture, manufacturing and retail.
New analysis from Frost & Sullivan, African Infrastructure Tracker: Kenya, reveals that Kenya is set to become a hub for intra-regional trade in Africa. An estimated $55.6 billion in investment into infrastructure development for Kenya is planned (as of 2015), the majority of which will focus on telecommunications and power generation infrastructure.
This essentially gives a picture of the significance of the infrastructure that we currently have and how important it is to SMEs. As we mentioned earlier, SMEs ought to be prepared and have the capacity to exploit most of these opportunities.
One of the main bottlenecks that SMEs face is either having a product on high demand with the capacity of not meeting the required supply, or participating in a small niche of many suppliers serving a small market and therefore unable to grow as expected. In order to demystify this, there are a number of key things that SMEs ought to have in place to take advantage of such opportunities:
Understand the market dynamics
Every single business ought to have a picture of the market they represent or the market they wish to venture into. Sectors such as agriculture, manufacturing, transport and others, each have their own set of market dynamics that an enterprise need to be aware of. For instance, the completion of the Standard Gauge Railway (SGR) means that traders will be in a position to transport their products faster and cost effectively.
Consequently, SGR will open trade routes across different counties, an increased number of employment opportunities and different towns will be in a position of setting up convectional economies where they can produce and “export” their produce to other towns more efficiently.
Building capacity vs making money
All SMEs, irrespective of industry representation, are in the business of making money through revenue. Without revenue, a business is unable to meet its obligations such as salaries, tax among others. But the focus here is not to pay too much attention on “how much money we think we can make”, but focus on how to leverage on your internal capacity and create wealth.
John D. Rockefeller once said; “I would rather earn one per cent off a 100 people’s efforts than 100 per cent of my own efforts.” This concept plays out very well in the growth of SMEs. Unfortunately, we have seen scenarios where majority of business owners pay more attention on making 100 per cent on their own while they can achieve and surpass their target if they leverage on the skills and capacities of others.
Capacities for SMEs are in different perspectives; human capacities where business owners need to define the roles of their employees as well as expectations with clear guidelines and policies; a well-defined supply chain that will describe the process flow of the organization from the production to the final customer and a clear financial model that describes the cash inflows and outflows.
Majority of businesses that fail to focus on building their internal capacity ultimately result in “choking”, whereby they are unable to meet the existing demand and consequently they begin to compromise on the quality of their products and services.
Define your value chain
Every single business needs to understand the processes by which they receive their inputs/raw materials so as to create finished products and services.
However, businesses that are product-oriented are different from those that are service oriented. For instance, a posho mill depends on maize and other products as its raw materials. Therefore, the owner ought to ensure that raw materials are consistently available. On the other hand, a business that deals with web design is in the service sector and raw materials could be the equipment and information from different companies that will be used to produce the finished product which is a website.
Irrespective of the industry of a business, SMEs need to have clarity on where they get their raw materials from and especially how long it takes to acquire them so as to ensure continuity of the business.
As the country continues to grow its infrastructure, SMEs need to look at the bigger picture and not only provide “solutions” to their customers but also provide solutions such as employment creation.
The writer is the Chief Executive Officer of Gateway Success Consultancy Ltd.
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