NEWSLETTER // March 2015
SMEs: Creating Jobs in Tough Times
Small businesses do not provide jobs as a service to any economy. Companies hire more employees to make the business more profitable. Therefore, there is a need to stimulate the private sector if we want job growth.
Businesses do not always sustain themselves. Government should assist by creating a business environment that encourages businesses to generate more profits in order to encourage business expansion. In that manner, companies can afford to hire more people.
The government, in section 1 of the National Small Business Act of 1996, as amended by the National Small Business Amendment Acts of 2003 and 2004, says a small business is “a separate and distinct business entity, including co-operative enterprises and non-
governmental organisations, managed by one owner or more which, including its branches or subsidiaries, if any, is predominantly carried on in any sector or subsector of the economy”.
Locomotive for Economic Growth
There are several types of small businesses in South Africa, ranging from survivalist to small and medium. The number of employees and profit margins vary, but it is expected of these businesses to be the locomotive for not only economic growth but also job creation.
Dr Asli Demirgüç-Kunt, Chief Economist of the Financial and Private Sector Development Network (FPD), says small and medium-sized firms are the biggest contributors to employment across countries. However, she says that risks faced by small to medium enterprises are gargantuan. Attempts to obtain finance on a sufficiently large scale are likely to be met with failure, as are attempts to push larger banks to lend to them through priority-sector mandates.
Willy Stewart, strategic business consultant and co-creator of the consulting firm, i2 Integrated Intelligence, says, for example, that, in the United States alone, small businesses create between 60 to 70% of new jobs. They employ more than half of the entire workforce throughout the country.
Creating Jobs in a Volatile World
Regardless of size, small businesses face numerous challenges in their quest for job creation. They often face a lack of capital, an unwillingness from senior leaders to take large risks and commit to new investments, a harder time targeting the right individuals due to a lack of recruiting resources, new and underdeveloped relationships that larger businesses have had for years and, in some cases, difficulty in managing the company’s finances.
Stewart adds that “small businesses usually have to deal with more financial surprises and are often less equipped to handle them effectively”.
Another risk inherent in small business is that, by virtue of their size, small businesses often rely on each and every employee and his or her work. If an employee unexpectedly leaves the company, it will be harder for a small business to recover and get things back up to speed.
For small businesses to thrive, and hence create more jobs, Stewart advises companies to make strategy a top priority. The current business environment demands that businesses take a hard look at strategy in order to respond to market changes and differentiate themselves from the competition.
He offers three ways to approach this: “Come up with a big, smart, realistic and relatively fast way to gain a sustainable market advantage. Research and development are the tools needed for innovation. Then, invest in placing the right people in the right jobs to drive your strategy forward.
“Finally, relentlessly seek out the best practices to achieve your big goal, and adapt them and continually improve upon them,” he says.
Skills development in small enterprises has to empower people to make a living for themselves. The Minister of the dti (Trade and Industry) Rob Davies, noted, during the International Small Business Congress, that small businesses have a key role to play in providing opportunities and creating new jobs in emerging economies.
The onus for new, small companies is on hiring the right people. Define the skills that are needed for your small business to succeed and then hire individuals who have these skills. Beyond that, offer opportunities to your employees to develop and grow their skill set.
South Africa needs to create a symbiotic relationship between big companies and small suppliers. But, as drivers of the economy, the ball is clearly in the small companies’ court. Always make strategy a priority. Take time to invest in a sophisticated hiring and training programme. Proper training can help your employees become highly motivated and self-managed, enabling them to perform at a higher level and so benefit the company at large.
Do not get complacent. Hire the right people with the right personality traits and skills to take your company forward and create more jobs.
The market is always changing, just as consumers’ wants and needs are always changing. Unlike big and established companies, Stewart says, small businesses are better able to adapt to these changes and meet the needs of consumers. As such, small businesses should be the focal point for job creation in any economy.
However, as Gary Patterson, fiscal doctor and author of Best Practices for Long-term Business Health, notes, ‘small businesses’ cannot go it alone. Their success requires a focused emphasis from government and resisting the temptation of focusing on consistently reaching numerical goals. Instead, make decisions for the best long term so as to build values. You can always make more money in the next season.
There is a worrying global trend that is emerging. Young, educated and trained individuals are leaving perfectly acceptable jobs for new roles. “The number one reason for their leaving is a lack of training and development opportunities in small businesses. Invest in your employees and their respective skills as you wish for them to invest in you,” Stewart says.