WPI US-AFRICA Business Conference Capacity Building for African Small & Medium Enterprises:

EXPERIENCES,CHALLENGES AND OPPORTUNITIES

March 9,2008

SOUTH AFRICAN INTERNATIONAL BUSINESS LINKAGES United States Agency for International Development Corporate Council on Africa (CCA) ECI Africa (Pty) Ltd

SAIBL OPERATIONS

Facilitates and leverages:

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business linkages between South African black owned/partnered SMEs and large corporations

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access to US & SADC export markets

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access to business development services

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access to finance for SMEs

SAIBL 1998 – 2008

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Assisted over 500 black-owned/partnered SMEs

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Total reported turnover of $1.44 billion)

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Total reported exports of $130 million

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Total reported net new jobs of 17,323

AFRICAN ECONOMIC LANDSCAPE

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Dominant public sector

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Dominant role by large corporations in private sector & commanding heights

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Globalization a reality

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Increasing recognition & role of emerging indigenous small & medium enterprises

CHALLENGES & OPPORTUNITIES

Creating and growing business partnerships between private and public corporations and local small and medium enterprises Business Linkages

BUSINESS LINKAGES ENVIRONMENT Significant procurement available to BEE SME companies from private and public corporations Support & incentives for SME procurement (BBBEE codes) Small and Medium Enteprise Development A growing number of competitive BEE SME companies Effective entrepreneur and SME development support programs Policy and Regulatory Frameworks

KEY FACTORS IN SME PERFORMANCE Enabling business environment and conditions (policies, legal, skills, infrastructure, etc) Access to market information, and opportunities (local and export) Small and Medium Enteprise Development Access to and cost of finance (risk finance, loans & working capital) Access to and affordability of business development support services Transparency, confidence, energy, vision Changes in knowledge attitudes and behaviour Improved strategies, processes, investment capacity & performance Increase in sales, profits and employment

SME Supply Of Goods & Services

Linkage Framework

Corporate expectations

•Quality; •Cost; •Delivery [time; spec] Linkage Program Large Company Demand for Goods and Services

SME expectations

•Information •Skills •Finance [s/up & w/capital]

DEMAND SIDE FIGURE1: SAIBL BUSINESS LINKAGES MODEL Existing SME Suppliers SUPPLY SIDE New SME Supplier Companies Linkage team meets senior management to secure commitment for SME outsourcing Linkage team meets procurement managers to quantify non-core & core business available to SMEs e.g services, components, etc Team works with procurement managers/engineers on pre qualification, qualification & tendering requirements Requirements established and agreed and made available to SMEs Company diagnostic/ audit of SMEs Prepare compliance/ deficiency report Draw up a program with SMEs to build capacity and competencies to take advantage of procurement business -Business strategy

-Sourcing finance

-Working capital

-MIS,

-Quality assurance, -Certification (ISO) -Production improvements, - Tender document preparation -Mentorship, coaching, training Needs Additional Assistance

No Progress Drop from list

Assisted by local Business Dev. Service Providers Periodic Reviews To Monitor Progress INCREASED BUSINESS LINKAGES Local SMEs competent to bid and deliver on standards required by large corporations

SAIBL DIAGNOSTIC & CAPACITY BUILDING AREAS Mentorship and Training Business Management Skills Business Planning and Sourcing Finance Business Linkages Matchmaking Financial & Working Capital Management Tender preparation Marketing and Sales Management Information Systems & Accounting Quality Management & Assurance Production and Capacity Improvements Certification (ISO)

SME DEVELOPMENT PATH Formalization of Ma n sult in g Bu Entrepreneurs with specific si demands and needs n es s E xper T rai n in g & Co Entrepreneurs with basic demands and needs ie Entrepreneurs who don't know what they n ce don´t know about managing a modern business nage ment -

CHAINS OF SERVICES Enterprise Level I don´t know what they don´t know about running a modern company Promotional Actions Radio program Focused on the product Don't easily accept they have problems Consult via phone and internet Involved in all aspects Business roundtable Don't understand the magnitude of their problems Group and self diagnostics Workshops Access to credit Enterprise Level II Interventions TRAINING & MENTORSHIP Customer Service Basic demands and needs Customer Support Sales Management Personalized style with little delegation Marketing Plan HR Management Poor administration Business Management Confuse symptoms with problems Leadership Negotiating Techniques

CONSULTING

Diagnostic Services Organization Marketing Production & Process Financing MIS Enterprise Level III Interventions CONSULTING & COACHING Company Diagnostics Specific demands and needs Organization Management Difficulty managing change and concerned about added value Have delegation problems, lack of order and administrative organization Marketing & Sales Finances Production & Process Quality Assurance MIS Technological Innovations Are familiar with their problems but require methodologies and organization to be able to confront them Internet Commerce Work Safety, Health, HIV/AIDS Environment & Clean Production Linkages & Outsourcing SME Clusters

Entrepreneur Level IV

Enterprises with verifiable economic improvement (impact) Competitive Enterprises

CONSTRAINTS FOR CORPORATES

• Corporate policy • Local autonomy • Risk aversion • Scale • Capability & competence of local SMEs

THE CASE FOR BUSINESS LINKAGES

• Deepening & broadening local economy • Create jobs and income • Improve capability of local companies • Improve supplier base • Attract inward investment • Provides sustainable market solutions

RECOMMENDED PRACTICES

• “High level” corporate champion • Include in procurement managers’ KPAs • Pragmatism- one building block at a time • Enlist and work with partners • Input-output • SMEs as business partners, not beneficiaries

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Program Deliverables

Stakeholder buy-in and establishment of champions at Board and management level.

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Streamlined and written policies & practices.

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Linking accountability, performance to incentives

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Increased number of SMEs doing business with corporations

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Increased Rand value of business with BEE sector SMEs

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Improved access to capacity building support for SMEs.

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Improved monitoring and reporting

The Three Step Process: Market and Client Identification

Includes; a Rapid Assessment and our company Diagnostic Tool, sector selection and market research, and identifying the key players in the market

Synchronization between Client and Market Needs

Includes; preparing clients through our rigorous training program and developing a business and export plan, a market exposure workshop, and developing a critical path to market penetration

Market Penetration and Development

Includes; a group trade mission to export market, an extensive to do list based on feedback, a return trade mission that is more focused on matchmaking and closing deals, and then another follow up visit to help partner promote clients products

South African International Business Linkages

Case Study on Izala Wines

Impact:

Winery finds U.S. importer in second trip to the United States

Marthinus Saunderson of Izala and SAIBL staff displays Izala food and wine products at the Fancy Food Show in New York, NY. Marthinus found an U.S. importer by incorporating feedback from SAIBL seminars.

Challenge:

Marthinus Saunderson of Izala Warehousing and Exports wanted to export his Lutouw wine and AfriDeli specialty food products to the United States. His own attempts to penetrate the U.S. market were not successful. Despite a 350-year tradition of wine making, South Africa is not well-known to American consumers for its wines. Small, Black-owned wineries face additional challenges trying to enter the U.S. market e.g. the average wine company trying to enter the U.S. market spend on average $750,000 a year to that end. • His objectives included a greater understanding of U.S. marketing strategies such as restaurant vs. retail, packaging, price points, and the three tier system. Izala also prioritized the economic and social impact potential of successful market enter to the local community. By growing his exports, Mr. Saunderson hopes to increase the financial independence and job security of the surrounding community.

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Initiative:

In 2006, Izala became a client of the SAIBL program which assists Black Empowered South African SMEs. SAIBL staff in the Western Cape worked with Mr. Saunderson to improve his company's business operations, and to develop a long-term business plan. After having worked with local staff, SAIBL contracted a U.S. wine consultant to improve Izala's market entry strategy, packaging, and labeling for the U.S. market. • Late in 2006, Mr. Saunderson made his first market research trip to the United States where he and four other Black-owned wineries met with wine experts and conducted tasting seminars that evaluated their wines and packaging. After returning to South Africa, he incorporated the experts' suggestions and returned to the United States in 2007 to exhibit his new product ranges at a premier U.S. trade show.

South African International Business Linkages

Six months later, Mr. Saunderson returned to the United States where he participated in another SAIBL-sponsored wine trade mission, held in conjunction with Wines of South Africa in three of the largest wine consumptions markets in the United States. Along with three other BEE wineries, Izala exhibited new vintages and a new bottle design. Again, industry experts evaluated his wine and packaging.

Mr. Saunderson included in his visit promotional events and buyer meetings with retailers and restauranteurs organized by his importer.

South African International Business Linkages

Results:

After returning to South Africa, he incorporated the experts' suggestions and returned to the United States in 2007 to exhibit his new product ranges at a premier U.S. trade show, the Fancy Food Show in New York, NY. At a prearranged meeting by SAIBL. Mr. Saunderson met with a boutique wine and food importing company Vin Aspen who was impressed by the quality of the products and the empowerment objectives of the company.

THANK YOU

South African International Business Linkages (SAIBL)