Car manufacturers and financial institutions may receive government bailouts during the current recession, but this is not the case for SMEs – particularly in South Africa. So just how prepared and capable are local SMEs for survival?
This is one of the key issues the SME Survey 2009 – sponsored by Standard Bank, Umsobomvu Youth Fund and Fujitsu – will seek to answer as research for the survey gets underway among 2 500 SMEs.
“The essential issue faced by all SMEs – indeed, all businesses – is the recession," says prinicpal researcher, Arthur Goldstuck. "We will seek to gauge the ability of SMEs to deal with a dramatically different operating environment from that of 2008. The economy is heading for a recession for the first time in 17 years, trading conditions have swung from boom times to bust with stunning rapidity.
“The SME Survey will establish how this change is affecting SMEs, their readiness to deal with it and the strategies they may have in place,” adds Goldstuck.
Amrei Botha, head of SME Propositions at Standard Bank, says: “Global economic turmoil hasn’t left the South African economy untouched and as the effects are felt locally, many SMEs are battening down the hatches and strategising smart survival strategies.”
Despite the challenges that come with an economic slowdown, SMEs have an advantage over larger companies – they are more likely to be able to adapt, innovate and cut costs quickly, particularly when compared to larger companies that are often weighed down by onerous processes and larger operating costs. It is this advantage that will enable small businesses to cope better.
The hypothesis, says Goldstuck, is that SMEs are weathering the storm, but are anxious about the impact and the possibility of an extended period of depressed markets. “When times are hard, the old saying is that cash is king. We will therefore be exploring the extent to which SMEs are dealing with the cash flow issue, with credit far more difficult to secure and the possibility of increased bad debt.”
The SME Survey Roadshow in October forms a component of the survey and will provide practical advice for SME business decision makers on how to address this and other issues.
Simultaneously – and almost paradoxically – there continues to be opportunity in adversity. “Some sectors are carrying the boom through, such as telecommunications and some elements of construction,” Goldstuck says.
However, these are industries which can be difficult for the SME to break into. For example, construction is centred on large, government-driven infrastructure projects, while telecommunications brings the challenges of shifting legislative and regulatory requirements.
With the participation of the Umsobomvu Youth Fund for the first time in this year’s survey, Goldstuck says the availability and impact of funding to SMEs will be explored. “Five years ago, we looked into government support and found it inadequate. We’d like to relook this and compare what has changed over the years and what changes for the SME when funding is available.”
Malose Kenana, CEO of Umsobomvu Youth Fund, adds: “The global financial crisis is indeed affecting SMEs, especially those that are at an entry level. As a development funder, Umsobomvu exists to balance market failure, support and address the burden faced by entrepreneurs. To ease the pressure, earlier this year we cut our base interest rates by 2.5%, we are also willing to negotiate loan repayment terms and have business development and a mentorship programmes. We hope that these initiatives will improve entrepreneurs’ chances of surviving the adverse economic conditions.”
In addition, Goldstuck points out that in keeping with past research, the impact and consequence of financial and ICT-related issues on the competitiveness of SMEs will continue to be explored.
Jane Tully, channel manager at Fujitsu Technology Solutions says: “The recessionary environment places new challenges on businesses. It is in times like this that they need to be increasingly conscious of the efficiencies and competitive advantages that can be reaped from their technology solutions. With the ever-increasing power from technology innovation, businesses can get more out of their technology (often for less expenditure) by staying abreast with developments and investing in the appropriate solutions. This has never been more important to businesses than it is in the current economic climate.”
Now in its seventh year, interim findings of the SME Survey 2009 are expected at the end of July, with final results in October.