South Africa and, indeed, Africa are built on small medium enterprises (SMEs) and, more than ever before, countries in the region are relying on these entities to drive employment, up GDP ratios and alleviate poverty.
President Cyril Ramaphosa has on numerous occasions referred to the vital role SMEs have to play in South Africa and that their development is key to the country’s economic turnaround. They are also becoming much more important players in the channel.
One obvious example is the State IT Agency (SITA), which procures all ICT on behalf of the government – still the nation’s biggest spender on ICT. SITA has taken the president’s message to heart and issued guidelines which ensure the inclusiveness of SMEs in all state IT tenders. Many think that big corporates may soon follow suit.
And, while the industry and the channel have long supported SMEs, developments such as the aforementioned have spurred the industry, and the channel, to adopt initiatives and programmes aimed at further promoting SMEs and securing their future as the very lifeblood of the market and the economy.
Small and medium-sized enterprises (SMEs) enjoy a lot of support among economists and for good reason. They are typically the core of growing economies and among emerging countries are responsible for up to 60% of GDP and employing at least as much of their workforces.
South Africa falls well short by comparison at about half on both counts, according to data from the Small Business Institute and Small Business Project. Yet that also suggests a silver lining: the SME market has significant room to grow, just as one industry in particular needs that kind of groundswell.
Demand for IT services, particularly around emerging technologies such as DevOps, security, artificial intelligence, analytics and business continuity, is ballooning. SMEs are an ideal vehicle for delivering such projects which often require small but highly impactful teams focused on specific parts within a larger picture, or as a beachhead for digital enhancements to the business.
SMEs are also much more attuned to the market, often because failure can mean their end. They have the flexibility and focus that larger outfits, particularly vendors, can struggle to provide.
“SMEs would have the strong intelligence of the market in the space they play in and the business astuteness they have makes them highly capable of delivering excellent service,” says Mbali Khumalo, business development manager: Micro Focus at Axiz, adding that the two companies jointly run an SME programme. “The size of the business gives them an advantage to be nimble enough to dedicate efforts and focus on delivering strong solutions and excellent service for our customers.”
But there are limits as well. SMEs struggle with market interactions, legal assistance, activations and other barriers. These can be overcome with the support of larger players. Axiz and Micro Focus, says Khumalo, have been pursuing such a relationship since May last year when they launched their SME programme.
“For most, access to the market is a challenge and having strong brands such as Axiz and Micro Focus assists them in this regard,” Khumalo says. “Through understanding their strategy, we are able to advise and assist on building a solid go-to-market strategy with the SMEs.”
The programme was launched in collaboration with SITA, its focus on SMEs helping modernise the state. But the programme also found traction in the private sector. What began with six potential SME partners is, at its anniversary, 15 strong and growing. Partners are helped with recruitment and training, as well as tackling the above-mentioned barriers.
This was the clear purpose of the programme from the start, says Gary De Menezes, Micro Focus’ Country GM – Africa.
“I don’t think I’ve yet seen a sustainable SME programme – prior to launching this programme – and when I say sustainable, I mean one that actually delivers value to the customers from the SME partners,” De Menezes says. “Not one that derives value from procuring BBBEE points from SME partners. We took a different slant.”
That such a programme came into being was, he adds, because Micro Focus needed it. He says that since the vendor acquired HP Enterprise, the complexity of its products and solutions have skyrocketed. This is an issue affecting many vendors and solution integrators. As such, the programme is definitely not just about ticking boxes. It’s a strategic imperative: the market’s ability to offer and consume emerging technologies relies heavily on SMEs, particularly in a market as strained for skills and graduate pipelines as South Africa.
Yet SMEs that deliver cutting edge and necessary services are not a new phenomenon. There is an unfortunate reputation for burning the market. Organisations looking for technology products, particularly ones that deliver long-term value and require matching investment, are skittish of SMEs. But many of those failures were down to bad business models and poor SME programmes:
“I believe that if you have the right business model, established at the beginning, and you have the right governance, you can eliminate most of the problems,” De Menezes says. “But if you just have a programme that sounds good for a few points and you give it to a project manager and throw some money at it, that doesn’t work.”
De Menezes says there are two clear messages he wants to deliver: Any country hoping to build real and lasting value from emerging technologies needs SMEs to carry that change across – so much so that it’s key to the deliverables of vendors and other large IT players.
The other is that the way SMEs are often approached and empowered in the market has not been working.
“Axiz and Micro Focus believe they have something that does – and so far the results are agreeing,” De Menezes adds.
Emerging ICT resellers and integrators face a range of challenges – from accessing the capital they need to facilitate larger deals, to completing vendor certifications and accessing skilled technical staff. This is a gap that value-added distribution groups should look to plug with their enterprise development programmes.
This is the view of Shirlinia Jacobs, GM: channel sales at Tarsus Distribution, who says that the industry needs to support the development of black-owned ICT resellers as a contribution towards sustainable, equitable economic growth in South Africa and in order to support transformation of the industry.
The Stellenbosch Business School defines enterprise development as “the act of investing time and capital in helping people establish, expand or improve businesses.” As such, an enterprise development programme involves the growing of small and medium-sized black businesses through the provision of finance and support, assisting in their business development and sustainability.
Jacobs says that while most large vendors and distributors have enterprise development programmes in place, many smaller black-owned businesses are slipping through the cracks because they are too small to qualify. The result is that many of these businesses cannot benefit from rebates that help them fund growth, or they lack access to the credit they need to pitch for larger contracts.
She says that Tarsus Distribution is looking to address this gap with its enterprise development programme, targeted at exempt microenterprises and qualifying small enterprises that are majority black- or black women-owned and that have revenues below R50-million. This year, the group has taken around 70 small enterprises on board in the programme.
These small companies gain access to credit through Tarsus’s credit underwriters as well as account management support, training, and vendor and corporate exposure. “This approach enables us to assist in business growth, employment creation and vendor certification in a sustainable manner,” says Jacobs.
The resellers on the programme are given formal growth targets and guided through regular business reviews to achieve these growth targets. They are assisted in building credit records that allow them to access the financing they need to grow from small resellers into larger players.
In addition, Jacobs adds, Tarsus Distribution will provide product training and vendor certification support to these enterprises, enabling them to move to the next level of growth. The company is also looking to place candidates from its learnership programmes with these resellers to help them build up their skills base.
“The distribution channel needs to be an enabler of growth for small, black-owned enterprises if we are to build up a sustainable reseller channel for the future,” says Jacobs. “In the process, we can help to develop skills and foster economic development. We look forward to working with the channel in the months and years ahead to help grow a dynamic, diverse ICT industry that reflects the vibrancy and potential of our country.”