Birds of a feather By Rick Ed, Do.Better Business

Transformation of black spending lends itself to cultivating real power and generational wealth. Rick Ed from DoBetter.Business unpacks the Birds of a Feather ideology.

Sweat shop labour proves to be the common factor for disassociation with popular brands, where consumers choose to not support businesses that benefit from slave labour. In a similar way, people have actively supported others with common interests: those who back the same team or those with a common heritage. Kids in school who share common interests – a particular type of music, say – tend to stick together. We socialise with people we feel comfortable with. The downside of such exclusivity means exposure to diversity is limited. Moving out of our comfort zone to try out a new culture, its language and traditions, expands us. People who travel are often more accepting of other points of view and more open to exploring other positions. When it comes to important decisions like the school that we send our kids to, reputation is important. We rely on who and what we know. The same is true for important buying decisions: does this make of car have a reputation for being reliable? Does it keep its resale value? Advertising has taught us that imported is better and apartheid has conditioned us to believe that white is better. Two decades on, many black businesspeople will still trust a white professional over a black one. Reputable black lawyers and accountants still have to fight the perception that superior expertise is to be got at established practices with white names. How do we break this mind-set and give black businesspeople and entrepreneurs the opportunity that they rightly deserve? Established five years ago, the Black Business Council (BBC) has been trying to do for black business what the Broederbond achieved for Afrikaner commerce. But BBC CEO, Mohale Ralebitso, notes that in South African minds, black business is still equated with small business, limiting their access to capital and markets and thus inhibiting growth. As at the end of 2015, according to TimBukOne.com, almost half of the JSE’s top 40 companies (about 80% of the JSE capital) are now controlled by overseas shareholders and the National Empowerment Fund (NEF) says that direct black equity control over the JSE in mid-2014 stood at 3%. Whichever figure you use, black South Africans have little control over their economic destiny through the JSE. Then there’s the legal route. The BBBEE and skills legislations have built-in incentives and penalties but are complex and talk largely to bigger businesses. To date, BBBEE has had a limited impact because many small businesses, black and white, find it too taxing to implement its requirements and maintain their scorecards. It’s a complicated and time-consuming process that is not their core business and they prefer to treat the levy as a tax and write off the possible scorecard benefits. Income tax is the government’s main source of income. Of the R900bn in tax collected by SARS in the 2014 tax year, almost R308bn came from personal income tax and almost R180bn from company tax. VAT accounted for almost R238bn. South Africa’s 16.8-million taxpayers’ spending power is thus a very powerful tool. The bulk of tax is collected from consumers, the same people who make important buying decisions. Additionally, a significant proportion of businesses are informal and hundreds of thousands of employees earn a salary below the tax threshold. Both of these groups can also make an impact by deciding to spend their money with black businesses. There is a multi plier effect at work when South Africans decide who to employ to do a job. When 10 companies choose a black ad agency, and each spends between R10k and R100k, more than half a million rand is injected into the business. It can then hire more staff, contract out work or buy more consumables. Employees have more disposable income. Communities benefit and the economy grows. More importantly, businesses now have the opportunity to grow their expertise and to develop their employees, building their capacity to take on more work and more challenging contracts. And so they share their new-found growth with other businesses, cultivating a symbiotic eff ect. In recent years, there have been a number of uncoordinated “buy black” initiatives. For example, last year Africa is Open for Business author, Victor Kgomoeswana, encouraged the Black Management Forum (BMF) to endorse a “buy black” campaign. But this initiative needed a committed, concerted groundswell of decision makers to swing the tide. Today, searching the web for “buy black South Africa” is discouraging. The only article about supporting black business in South Africa is not a positive one. Yet the opportunities abound: a cursory glance at the members of Kwanele Tshabalala’s Soweto Business Network reveal an exciting list of enthusiastic entrep

entrepreneurs. However, we as consumers still gravitate towards the same suppliers pre-democracy. Commentators enquire about the fact that there is now a sizable black middle class so why are people no longer as determined to strive for the common good as they were two decades ago? Have people become too comfortable? Do we need some outside threat, some force to jog us into collaborating with one another to coordinate our eff orts to support black businesses? There are plenty of NGOs supporting the establishment and growth of small black businesses: Activate!, Awethu Project, Branson Centre, Endevor, Fetola, The Hope Factory… but it’s more than outside help that we need. It has to come from within the community. And we need to extend our scope beyond small businesses. We need a co-ordinated national campaign to persuade people to consciously break out of their comfort zones, to not rely on our only birds of a feather mentality. Can it be done? Yes it can, but it is a slow, deliberate, incremental process. Just talking about it is a step in the right direction. But if each person thinks about where he or she is going to spend their next hard-earned rand, and consciously decides to put it with a black business, we will eventually get there.

The corporate investor – a missed opportunity By Pascal Fröhlicher

With private sectors catering predominantly to high income groups there is a limited understanding of how to serve the majority population. Spotting the potential of lower income customers is where major corporates fall short. Pascal Fröhlicher, an expert on Entrepreneurship and Impact Investing in Africa, expands on the subject.

Narrowing economic disparity should be a pressing goal for anyone with an interest in South Africa’s economic wellbeing. But this type of change, when done sustainably, often moves slowly. Looking at the success rates of numerous remedial policies underscores this point: most have struggled to have a significant impact on South Africa’s extreme economic stratification. Short-term measures can catalyse long-term change, however. This was the thesis behind the hotly debated black economic empowerment policy, whose goal when conceived was to alleviate economic inequality and improve integration of the majority of the population into an economy that competes on a high level internationally. This was again the thesis when the BEE codes were amended to shift the policy’s focus from ownership redistribution to a more comprehensive framework that is supposed to strongly support enterprise development. And while the policy has had limited success so far in moving the needle towards its transformational goal, there is plenty of evidence globally that the new iteration could be used as a catalyst for change — in everyone’s favour. For that to happen, South African corporates have to begin doing what top tier companies all over the world are doing: thinking like investors. Global corporates are increasingly recognising the value of engaging with and enabling innovative ventures to achieve their own strategic business goals. These goals could include anything from entering new markets and testing new business models, testing new products and services (effectively using them as an external R&D department), diversifying their supply chains, or achieving social goals. Whatever the purpose, most are testing it as a way to de-risk some of their core business activities and grow their reach.

Unsurprisingly, technology leaders like Intel, Google or Facebook are leading the so-called “corporate venturing” trend. The tech giants’ models involve setting up venture funds that are strategically aligned to each company’s core business model. They find, finance and in some cases, incubate, ventures that are focused on activities that support the company’s key goals. This model accomplishes two things: it helps the main company — the “investor” — develop a channel for testing and expanding innovative ideas, ensuring that they are at the cuttingedge of their industry. It also fosters a culture of entrepreneurship, encouraging an economic environment where individuals see opportunity in executing ideas and creative problem-solving. Successful “corporate venturing” investments and exits will only propel this trend. South Africa’s corporate sector has dabbled little with this approach to business development. But Enterprise Development could be used as a catalyst for doing more. The reason it has not, at least so far, is because most corporate leaders fail to recognise the potential to develop their own businesses with the help of entrepreneurs who have the potential to be more innovative and who are willing to assume a much higher level of risk. Instead, the Enterprise Development “function” of most South African corporates is either outsourced to external providers or relegated to a department that is not actively involved in core business strategy development. The Enterprise Development Report 2013 found that most corporate professionals responsible for leading Enterprise Development at their companies were based in human resources, corporate social responsibility or general BEE compliance departments; very few reported to have a direction relationship with the company’s procurement or strategic business development divisions. Those which did noted that their Enterprise Development programmes focused on entrepreneurs who distribute or source non-essential products or services. While these initiatives may have positive impacts for those who are directly involved, they are incapable of addressing core issues for either the corporate sponsor or so

include anything from entering new markets and testing new business models, testing new products and services (effectively using them as an external R&D department), diversifying their supply chains, or achieving social goals. Whatever the purpose, most are testing it as a way to de-risk some of their core business activities and grow their reach.

Unsurprisingly, technology leaders like Intel, Google or Facebook are leading the so-called “corporate venturing” trend. The tech giants’ models involve setting up venture funds that are strategically aligned to each company’s core business model. They find, finance and in some cases, incubate, ventures that are focused on activities that support the company’s key goals. This model accomplishes two things: it helps the main company — the “investor” — develop a channel for testing and expanding innovative ideas, ensuring that they are at the cuttingedge of their industry. It also fosters a culture of entrepreneurship, encouraging an economic environment where individuals see opportunity in executing ideas and creative problem-solving. Successful “corporate venturing” investments and exits will only propel this trend. South Africa’s corporate sector has dabbled little with this approach to business development. But Enterprise Development could be used as a catalyst for doing more. The reason it has not, at least so far, is because most corporate leaders fail to recognise the potential to develop their own businesses with the help of entrepreneurs who have the potential to be more innovative and who are willing to assume a much higher level of risk. Instead, the Enterprise Development “function” of most South African corporates is either outsourced to external providers or relegated to a department that is not actively involved in core business strategy development. The Enterprise Development Report 2013 found that most corporate professionals responsible for leading Enterprise Development at their companies were based in human resources, corporate social responsibility or general BEE compliance departments; very few reported to have a direction relationship with the company’s procurement or strategic business development divisions. Those which did noted that their Enterprise Development programmes focused on entrepreneurs who distribute or source non-essential products or services. While these initiatives may have positive impacts for those who are directly involved, they are incapable of addressing core issues for either the corporate sponsor or society at large. In all cases, the result of passive approaches like these is lost money and opportunity. Financially, the potential returns are limited, given the high investment costs required for such a programme. But the opportunity to learn strategic lessons and test new markets and business models is also lost. For South African corporates to remain competitive — both in their own home market and internationally — they should seize the opportunity to use Enterprise Development as a framework for engaging in cutting-edge corporate venturing. This will require them to think at the highest level of how Enterprise Development can support their strategic goals, both within and outside of their supply chains. It also necessitates moving Enterprise Development functions from their marketing, corporate social responsibility and human resources departments into the operational and business development side of the company. Finally, it will demand building up venture capital expertise, as they will need to comfortably wear an investor’s hat for Enterprise Development to succeed. Looking through an investor’s lens will allow South African corporates to follow their pioneering global counterparts towards the goal of building and strengthening sustainable and inclusive supply chains. For example, in financial services there are innovative new models emerging that cater to a customer base that the banking sector has largely failed to engage so far. Right now, these ventures and platforms are competing with traditional institutions. Corporate venturing is an avenue for alignment and shared value instead. There may be a glimmer of recognition of the potential value of this approach. In 2015, Barclay’s Africa Group launched Tech Lab Africa, which claimed to be the “first ever corporate venture accelerator” in Africa. Its mission was to “discover, nurture and empower the next generation of technology innovators”, and of the 90 applicants it received across the continent, it found 10 to support through a six-week acceleration programme. These companies ranged from mobile wallet solutions to unsecured lending platforms to digital healthcare solutions. Barclay’s programme was not South Africaspecific, but the low-income and base-of-thepyramid-focused ventures it attracted highlights the strong potential for such programmes to help South African corporates reach new customer markets while meeting the immediate requirements of supplier diversification and economic inclusion under BEE Enterprise Development. And long term, it could also ensure that corporates foster win-win relationships for everyone — for entrepreneurs, the corporate sector and South Africa’s economy at large. This would strengthen South Africa’s economy by catering for the entire population and prepare businesses for expanding into Africa.

Aligning the enterprise and supplier development strategy to business needs By Sisa Ntshona, CEO of SA Tourism

In most instances, practitioners and other stakeholders, through the prism of BBBEE compliance, grudgingly comply with the Enterprise and Supplier Development component. Sisa Ntshona, CEO of SA Tourism, lends insight into why it should be professionalized.

There is no reason why enterprise development should not be professionalized; as a matter of fact, it is imperative for our country to endeavor to place enterprise development on a different trajectory from the current one. All of us need to come to the quick realisation that enterprise development is a business imperative that big companies can leverage to carve out a significant competitive advantage in the marketplace for their products and services. Accordingly, one of the efforts that companies can invest in is the development of those suppliers who add value to their business. The integration of supply chain into the way you do business is a key imperative. Enterprise development should complement your business strategy and bring about innovation and product or service development. The current economic challenges notwithstanding, the fact of the matter is that the South African economy is open and vibrant, considering that the present-day situation is a far cry from the 1970s and 1980s. Firms had no choice but to invest internally, unlike today where there are dynamic investment opportunities. It thus makes sense for major corporates to invest in enterprise development, thereby creating an opportunity to develop and bring new suppliers into their value chain. Another area that demands serious attention is the level of skills and competency among the community of procurement professionals. According to professional body Chartered Institute of Procurement Professionals, or CIPS, the average procurement professional does not possess the requisite skills to implement strategic procurement principles. Many of the individuals in these positions are just buyers and consequently are primarily driven by securing the best possible price for their employers. Which means that in the process they are missing out on opportunities to develop new suppliers. This phenomenon partly explains the lack of progress in the procurement and enterprise development space. This in itself is not necessarily a reflection on the competency of enterprise development professionals, but rather a consequence of the manner in which the space in which the enterprise development professionals are supposed to practice in is configured. For instance, private and public sector organisations have assigned a myriad people from a diverse range of professional backgrounds such as human resources, corporate social investment and procurement to be in charge of enterprise development. This chaotic approach demonstrates a lack of rules, understating of regulations and common purpose governing the space, and what enterprise development is meant to achieve. The creation of incubation hubs by big corporate seems to be the flavour of the day in corporate South Africa, with small companies subjected to the incubation “silver bullet” irrespective of a company’s development stage and capabilities. Instead these businesses seem to be engaged in a perpetual cycle of mandatory programmes often peddled by consultants who want to extract maximum value for themselves out of developing and facilitating these initiatives. These programmes are seemingly only mandatory for black firms, as if their existing and mainstream suppliers do not require any development or assistance. Against this background it stands to reason that the quality of advice received from advisers also needs to be interrogated in order to understand, among others, what qualifies these consultants to do what they do. The unraveling of some of the highly vaunted and seemingly successful enterprise development programmes amplifies the susceptibility of the current enterprise development model. Amalgamated Beverages Industry’s (ABI) owner driver scheme is a case in point. The major objective of the arrangement was to convert drivers employed by the company into business people contracted to the company. As things stand the intended beneficiaries of the scheme claim that ABI forced them to be a price taker through squeezing their earnings downwards, rendering what was seemingly a relatively lucrative business arrangement into an untenable morass. Consequently, some 150 former owner-drivers have lodged a damages claim in court totaling R6.3bn against the company. The summons accuses the beverages company of unlawfully terminating its owner driver contracts. Industry collaboration as far as suppliers are concerned may need to be considered, especially for niche industries. For instance, the mining industry did this quite well and successfully so. have assigned a myriad people from a diverse range of professional backgrounds such as human resources, corporate social investment and procurement to be in charge of enterprise development. This chaotic approach demonstrates a lack of rules, understating of regulations and common purpose governing the space, and what enterprise development is meant to achieve. The creation of incubation hubs by big corporates seems to be the flavour of the day in corporate South Africa, with small companies subjected to the incubation “silver bullet” irrespective of a company’s development stage and capabilities. Instead these businesses seem to be engaged in a perpetual cycle of mandatory programmes often peddled by consultants who want to extract maximum value for themselves out of developing and facilitating these initiatives. These programmes are seemingly only mandatory for black firms, as if their existing and mainstream suppliers do not require any development or assistance. Against this background it stands to reason that the quality of advice received from advisers also needs to be interrogated in order to understand, among others, what qualifies these consultants to do what they do. The unraveling of some of the highly vaunted and seemingly successful enterprise development programmes amplifies the susceptibility of the current enterprise development model. Amalgamated Beverages Industry’s (ABI) owner driver scheme is a case in point. The major objective of the arrangement was to convert drivers employed by the company into business people contracted to the company. As things stand the intended beneficiaries of the scheme claim that ABI forced them to be a price taker through squeezing their earnings downwards, rendering what was seemingly a relatively lucrative business arrangement into an untenable morass. Consequently, some 150 former owner-drivers have lodged a damages claim in court totaling R6.3bn against the company. The summons accuses the beverages company of unlawfully terminating its owner driver contracts. Industry collaboration as far as suppliers are concerned may need to be considered, especially for niche industries. For instance, the mining industry did this quite well and successfully so. The mining houses collaborated to ensure there was a competent and capable pool of suppliers which they could all draw from. Ultimately true and sustainable enterprise development should be the responsibility of dedicated, capable and talented professionals within organisations. This should be a salient approach with clearly defined objectives, targets, economic and social benefits for all parties and should strengthen our ability to persuade companies that enterprise development is a business imperative and should form an integral part of any business strategy, and not be reduced to an inane tick box exercise. With this approach it will be easier to appeal to the private and public sectors to look at enterprise development beyond BEE and view it as a socioeconomic development imperative. Corporate South Africa should embrace the fact that enterprise development is not inimical to profit generation and sound business principles; if anything, properly implemented enterprise development has the potential of putting businesses on an upward growth trajectory. This is premised on the simple logic that, correctly implemented, it can stimulate economic growth and make a significant contribution to job creation and social stability. I am often asked about what more can be done to enhance the BEE codes in order to extract the desired socioeconomic impact. My answer is always “nothing”, because the BEE codes as currently constituted are adequate – what is lacking is willingness and genuine intent on the part of business leaders. Unfortunately, business leaders still have to understand that it is in their interest to create inclusive economies, otherwise there will be no social cohesion and, consequently, a hostile business environment within which to operate.