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SMEs have what it takes to hold their own: Findings from SME Survey 2005

When it comes to being competitive in the South African economy, most small and medium enterprises (SMEs) feel they have what it takes to hold their own, according to the final results of SME Survey 2005 backed by Standard Bank, MWEB Business and Microsoft.

Although there was no surprise in the fact that Johannesburg leads the way with more than half its SMEs considering themselves to be extremely competitive, the city and area with the next highest confidences was Port Elizabeth (49%) and the Eastern Cape (48%), respectively.

“This was a real turn up for books, particularly considering that it was a region that, until recently, was considered to be in economic disarray,” says Arthur Goldstuck, principal researcher for the survey.

“It is obviously an indication of the amount of energy and attention that has been focused on the area recently, and of course the development of the Coega project has also been a major economic driver.”

Goldstuck points out that not only would there be a trickle down effect in terms of business opportunities for SMEs in the region, but that because the Eastern Cape is not really part of the economic heartland, a project the size of Coega would inevitably have much bigger impact than a similar sized development in Gauteng, for example.

“The other issue that will have impacted this region is the recent boom in vehicle sales, as this is an area that practically lives and dies on its motor car industry,” he says.

“These findings indicate that there needs to be some kind of special treatment for economically disadvantaged areas from government’s side. Of course the SME sector as a whole needs this type of support, so government must not be doing this at the expense of another region, but perhaps pay a little more attention to these disadvantaged areas.”

In terms of the impact of services on the competitiveness of SMEs, business owners surprisingly consider banking services as having the highest impact. 75% of SMEs say that banking services have a positive impact on the competitiveness of their business. Online banking received a similar positive rating, with 73% of business owners claiming it has a positive impact on their competitiveness. “This indicates that we are starting to meet the needs of SMEs both offline and online,” says Roy Ross, Director Business Banking of Standard Bank. “The high level of online banking usage by SMEs has enabled us to better meet the need of SMEs”.

The survey results also suggest that SMEs view Internet connectivity and the form this takes – whether dial-up or ADSL – as impacting greatly on perceptions of competitiveness.

Some 53% of players using ADSL regarded themselves as being highly competitive, while only 43% of those using dial-up held the same views.

“ADSL is particularly useful for the SME that has a large phone bill, as it can help to cut the bill extensively. Between this and the fact that Telkom has substantially reduced the cost of ADSL recently, using this becomes a no-brainer,” states Goldstuck.

The commonly held perception that e-mail is the killer application of the Internet has been confirmed. In fact, as many as 69% of small or medium sized businesses regard the impact of e-mail on competitiveness as positive, while only 18% say it has a negative effect and 13% are neutral.

According to Goldstuck, such perceptions are very much sector-dependent.

“Certain sectors of the market view e-mail as very important and these were way above the average, while others were well-below. It is obviously a sector-based issue – after all, if the SME is in the agriculture sector, e-mail would be almost irrelevant, while in the IT arena, for example, it would be critical.”

Gender once again made a significant difference in the perception of being highly competitive, with a far higher percentage of female respondents (51%) against just 44% of male respondents regarding their companies as highly competitive.

The survey results also show a direct correlation between the size of company and the perception by decision-makers in those companies as to levels of competitiveness, with the rating increasing steadily from a very low 33% for one-person businesses and 39% for other micro-enterprises (up to five staff members), and going as high as 58% for companies with 40-50 staff.

However, once the companies get beyond a staff complement of about 50, the perception of being highly competitive declines slightly.

“It is basically an efficiency issue, as once a company reaches a certain size, but without attaining the level of a corporate that will have a strong human resources department; it can become a bit unwieldy.”

“Nonetheless, it is still only a small decline overall, whereas the perception of competitiveness from the one-man operation up to the larger (50+) organisations showed a massive increase,” says Goldstuck. “Size does count in feeling competitive.”

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Posted in the category: Trends

South Africa's SMEs buoyant

Small and medium enterprises in South Africa are alive, well and regard themselves as highly competitive.

This is one of the key findings of SME Survey 2004, a project that researched the role played by government, information technology and financial services in small and medium business in South Africa. Conducted with the backing of Hewlett-Packard and Standard Bank, the research involved interviews with 2919 SME business decision makers.

A startling 86% of the SMEs surveyed regarded themselves as somewhat competitive or very competitive. A further 12% believed themselves to be neither competitive nor uncompetitive. This left a mere 2% of SMEs who believed they were not competitive.

“This bears out all the assumptions that have been made in recent years about SMEs being the new driving force in the South African economy,” says Thierry Boulanger, Hewlett-Packard South Africa’s Solutions Partner Organisation manager heading up the SMB, Corporate and Enterprise Managed Partners division.

However, few of the businesses give the Government’s SME initiatives credit for their competitiveness. Less than 1 in 10 of the respondents rated government efforts to promote small business as effective.

Given the enormous resources Government is putting into SME development, this reflects poor communication rather than poor strategy. This is borne out by the findings, which show that no less than 70% of respondents gave government a poor rating for the way in which it communicates these efforts.

At the heart of the survey, SMEs were asked to rate the impact of various Government initiatives, from SME and business support programmes to legislation and regulation, on the ability of companies to survive or grow. SMEs were reasonably positive on legislation, with 41% of respondents positive on the impact of legislation in general, and only 21% negative.

“SMEs understand that a strong legislative foundation is needed to provide a healthy business environment,” says Spiro Georgopoulos, Director of Business Banking at Standard Bank.

The same proportion, 41% of respondents, was positive on the impact of import/export legislation, but with 33% negative. Impact of skills development programmes (30% positive) and impact of BEE (28% positive) also scored reasonably, but had more negative respondents than positive.

“The extent of neutral respondents, around a quarter to a third on most issues, indicates the opportunity for government to use communications to change perceptions,” says Georgopoulos.

The lowest ratings were given for the impact of general Government incentives for SMEs, with a mere 12% positive, while impact of SME support structures received an 18% positive rating, impact of preferential procurement 23% positive, and impact of export incentives 25% positive.

A high proportion of respondents, 41% of the total, reported a BEE component to their business.

About SME Survey 2004

SME Survey 2004, an annual research project on the factors influencing small, medium and micro enterprises in South Africa, this year focused on the role of government, information technology and financial services on SMEs. The project was backed by Hewlett-Packard and Standard Bank, and included interviews with 2919 SME decision-makers during March and April 2004. The research was led by Arthur Goldstuck, MD of World Wide Worx, call centre research services were provided by Netsurit, and strategic marketing and project management services provided by Debbie Whittaker of Coolcumba Communications and Celeste Whitaker of Fizz Marketing. The survey is a project of SME Survey (Pty) Ltd.

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Posted in the category: Insight

SMEs still love the PC

The PC, along with consumables like ink cartridges, paper and disks, remains the most important item in budgeting for IT purchases among SMEs in South Africa, according to SME Survey 2004, a project that researched the role played by government, information technology and financial services in small and medium business in South Africa. Conducted with the backing of Hewlett-Packard and Standard Bank, the research involved interviews with 2919 SME business decision makers.After PCs and consumables, which were ranked as the most important item in the IT budget by 51% of respondents, software runs a close third, followed by servers and peripherals, such as printers and scanners. Laptops remain a distant priority, in eighth place, ahead of only PDAs (personal digital assistants) and wireless technologies.

“The findings confirm international research on the South African market, which shows PCs outselling laptop computers by a ratio of almost 4 to 1,” says George du Plessis, SMB Segment Manager at Hewlett-Packard South Africa. “Laptop sales may be growing faster than any other format, at 73% for the first quarter of this year, but desktop PCs still grew at 51%.”

The low ranking of new mobile technologies is an indication of the fact that SMEs operate in the here-and-now, with budgets oriented almost entirely to practical demands, rather than the nice-to-haves, the unknowns, and the cutting edge technologies.

“The picture is very different in the enterprise environment, where corporates understand that these technologies have the potential to transform businesses,” says Du Plessis. “But SMEs tend to stick to what they know best.”

If SMEs know what works for them, they also tend to know what’s good for them. The number of SMEs connecting to the Internet via ADSL has increased tenfold over the 2003 findings, which is understandable given that the technology had just rolled-out at that stage. Despite this, ISDN has also increased its proportion of connectivity. The big change has come in SMEs moving away from dial-up to these more high-speed options – falling from almost two thirds to a third of respondents.

SME Survey 2004 confirms the finding in the 2003 survey that the proportion of companies spending 1% or more of turnover on IT would increase by 1% in 2003. However, this year’s survey shows SMEs budgeting to spend exactly the same proportion of turnover on IT in 2004 as last year.

The news is not necessarily bad for the IT industry, however.

“SME turnover on the whole tends to rise in line with national growth figures,” says Spiro Georgopoulos, Director: Business Banking at Standard bank. “So while the proportion of the pie going to IT may not grow in 2004, as the pie gets larger, the IT industry will benefit proportionately.”

Du Plessis agrees, and points out that competitive advantage within the IT industry is the key to growing market share of SMEs’ spending: “One of the reasons for HP’s leadership position in the overall IT market is our end-to-end offering to SMEs, from PCs to consumables to peripherals.”

In financial services, the 2004 survey confirmed last year’s finding that Standard Bank remains by far the most popular bank for business purposes among SMEs.

About half of all respondents were willing or able to reveal the proportion of procurement that is made from BEE companies. And more than half of these respondents, in turn, reported zero or less than 10% of procurement going to
BEE companies.

This is a clear indication that SMEs in general have not incorporated BEE procurement into their policies and procedures – even where they are BEE companies themselves.

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Posted in the category: Insight

SMEs point to IT recovery

Small and medium-sized enterprises are spending a higher proportion of their turnover on information technology each year, according to the SME Survey 2003.In the largest survey ever conducted on IT investment by small and medium enterprises in this country, it was found that, in 2001, 47% of SMEs spent more than 1% of turnover on IT, in 2002 48%, and in 2003 49% expect to spend more than 1% of their turnover on IT.

The findings were released last week by World Wide Worx, which interviewed 5742 companies on their investment in IT, impact of this investment, factors influencing purchases, and their use of financial and business services.

The one proviso for companies being asked to respond the survey, aside from being selected on a random basis, was that they used information technology in their businesses, even if only a single computer.

The scale of the project was made possible by the sponsorship of HP, Absa and PricewaterhouseCoopers, all of whom have identified the SME sector as an essential target market for large corporations. The interviews were conducted through a call centre managed by Netsurit, which provides IT outsourcing to SMEs, and partners World Wide Worx in SME research.

The results bear out the prevailing sentiment that SMEs represent a growth market for the IT sector even as large corporations are cutting back. Overall, investment in IT has remained remarkably stable for the SME sector as a whole from 2001 to 2003, with slight growth each year. Of course, this differs within specific industry sectors, which will be fully analysed in the final report, to be available at the end of June.

A notable finding of the SME Survey 2003 was that the SME sector is generally satisfied or very satisfied with its various service providers, ranging from IT providers and ISPs to banks and business advisory or accounting services.

This suggests that service providers have been forced to focus on their delivery, as small businesses are unlikely to tolerate poor service, regardless of size or sector.

In contrast to consumer attitudes to Internet Service Providers, for example, SMEs are exceptionally positive, with 75% of respondents providing a Good or Very Good rating. The 22% of respondents returning an Average rating indicate a significant target market for ISPs offering more targeted or high-quality services. The 3% of respondents returning Poor and Very Poor responses reflect a relatively insignificant level of dissatisfaction with ISPs among SMEs. The final report will analyse the extent to which this holds true within sub-sectors, companies of different sizes, and different levels of investment in IT.

Satisfaction levels with other service providers were almost identical.

The core of the research project, measuring the impact of IT on the competitiveness of SMEs, examined four key components of competitiveness, namely:

  • Cost reduction, which is in turn a measure of organisational efficiency and financial controls;
  • Turnover;
  • Ability to retain existing clients and win new clients, which is in turn a reflection of SMEs’ ability to grow market share;
  • Profitability.

The survey examined these four areas both in terms of perceived impact of past investment, and expected impact of future investment in IT. The overall findings were that SMEs were relatively neutral on the impact of past investment, but exceptionally positive on the expected impact of future investment. It is significant that negative sentiment is low for both past and future investment. There have been horror stories aplenty of the effect on productivity of computers crashing and similar IT calamities, but it is finally becoming clear that these are the exceptions. In the hard-nosed world of small and medium business owners, IT is earning its keep.

The survey examined these four areas both in terms of perceived impact of past investment, and expected impact of future investment in IT. The overall findings were that SMEs were relatively neutral on the impact of past investment, but exceptionally positive on the expected impact of future investment. It is significant that negative sentiment is low for both past and future investment. There have been horror stories aplenty of the effect on productivity of computers crashing and similar IT calamities, but it is finally becoming clear that these are the exceptions. In the hard-nosed world of small and medium business owners, IT is earning its keep.

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Posted in the category: Insight

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The Big Change is a business strategy blog and newsletter published by Arthur Goldstuck, managing director of World Wide Worx, a leading technology research organisation based in Johannesburg, South Africa.

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