SIGNIFICANCE OF ENTREPRENEURSHIP TRAINING FOR EMERGING SME's IN THE CENTRAL REGION OF THE NORTHERN PROVINCE, SOUTH AFRICA. BY M.W. LADZANI (UNIVERSITY OF THE NORTH) & J. J. VAN VUUREN (UNIVERSITY OF PRETORIA) SOUTH AFRICA
ABSTRACT
This article starts by describing the challenges that small business enterprise face. The international, national and local perspectives of SME (Small, medium and micro) development is briefly reflected. The study review and analyse the course content, training methods and profiles of trainers and trainees of SME Service Providers in the Northern Province, South Africa. The findings of the study emphasise the importance of entrepreneurship training for successful small business enterprises. Recommendations that could help sustain emerging small business enterprises are presented to the SME stakeholders.
1. INTRODUCTION
Big businesses have for years enjoyed much support from governments, financiers and other stakeholders. This situation is however, fast changing in all the economies of the world (Scarborough and Zimmerer: 1996). The focus is shifting towards small business development. Big businesses are trying to survive and even beat competition by downsizing, merging and retrenching many of their employees. This process results in many retrenched and unemployed people establishing their own small business enterprises, not only for survival, but also to generate wealth in their respective communities.
The process of many small businesses mushrooming is welcome since through entrepreneurship, small, medium and micro enterprise (SMEs) development contribute greatly to job creation, social stability and economic welfare across the globe. In the United States of America, for an example, small business enterprises have introduced innovative products and services, created new jobs, opened foreign markets, and in the process sparked the U.S economy into regaining its competitive edge in the world (Scarborough and Zimmerer: 1996).
Japan’s small and medium enterprises account for the bulk of the country’s business establishment and most of its employees are indispensable members of a free and robust market economy. The small and medium enterprises (SMEs) provide vital support for employment, for regional economies and by extension for the day-to-day life of the Japanese people (MITI:1997).
In Taiwan, Republic of China, small and medium businesses amount to about 98% of the nation’s total economic institutions. These businesses are relatively small in scale, limited in funds, weak in structure but make significant contributions to their economic prosperity, creating innumerable jobs and promote social stability (Annual Report, 1983).
African countries are also re-orientating their economic policies accommodating small business enterprises. The development of small and medium enterprises is promoted in many African countries (NEPRU, 1995). In the Republic of South Africa, the White Paper on National Strategy for the Development and Promotion of Small Business (1995) vented the wheel of small business development.
It should however be noted, that when many small business enterprises are emerging, a considerable number of them end in failure. There are those that fail in their infancy stage and those that fail within a few years after they were started. The failure rate could be attributed to a lack of preparedness and not calculating the cost of starting and running a own enterprise (Macleod: 1996). These failure rate poses serious problems given that high amounts of start-up capital is lost and both the economy and the individual entrepreneurs are left negatively affected.
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There seems to be little difference regarding small business failure rates between developed and developing economies. It is for example, estimated that approximately 50% of all start-ups fail in their first year and 75% to 80% fail within the first three to five years in the USA (Anderson & Dunkelburg;1990). The Small Business Development Corporation indicates that up to 50% of small businesses started eventually fail in South Africa. According to Macleod (1995) 80% of new businesses that were started in the Durban region in South Africa, failed during that year.
The Northern Province, which is one of the poorest provinces in South Africa has a bigger challenge. It has an estimated total population of 4,1 million and 46% of this population is unemployed. This Province has the lowest household income ( 55,8% of the workforce earns less than R6 500 per annum). The Province has low literacy levels (27,8% have no education and only 7,8% have post matriculation, grade 12, qualifications). The Public Sector is the single most important provider of employment opportunities (UP; 1996).
Entrepreneurship development in this Province is undoubtedly of paramount importance. The enterprise density (the number of enterprises or people in the population for which self-employment is the primary source of household means per 100 people) in the Province is the lowest (1,1%) of all the provinces of South Africa. The difference could be attributed to the fact that the Northern Province is mostly rural as compared to urbanised provinces like Gauteng and the Western Cape. This should however be seen as an opportunity, for low enterprise density in the Province indicates that there is still room and opportunity for enterprise expansion. The Northern Province’s potential industries where successful SME development can be launched are mainly in agriculture, mining, manufacturing and tourism.
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Figure 1: Enterprise Density by Province Country
Enterprise Density (%)
Gauteng
3,8%
Western Cape
2,9%
Northern Cape
2,1%
Kwa-Zulu Natal
1,7%
North-West
1,4%
Free State
1,4%
Eastern Cape
1,3%
Mpumalanga
1,3%
Northern Province
1,1%
Source: Ntsika, 1997
2. PROBLEM STATEMENT
This paper intends to address the problem of the high business failure rate in the Northern Province, South Africa[source]. It is assumed that most emerging small business enterprises are started without proper prior entrepreneurship training. A further assumption is that the small business training centres/organisations in the Province either do not provide entrepreneurship training or provide very little high quality training.
3. LITERATURE REVIEW
Marais and Israelstam (1997) indicate that fast changing circumstances require ongoing training at all levels of the organisation. Not only private and public organisations but also the small, medium and micro enterprise sector (SMEs) should be subjected to training. Kroon and Moolman (1992) have in the same breath pointed out that an
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individual can learn how to approach certain problems, and in this way saves time and money and become aware of certain rules and procedures that could help him to do the work with less difficulties.
Areas of training could be categorised into motivational, business and entrepreneurial skills training. It seems as though many training institutions conduct training wherein only one area of training is provided, to the detriment of other areas of training.
Institutions that mainly focus on business skills (i.e. management training) or mainly on motivational skills and perhaps very little or nothing on entrepreneurial skills are doing a disservice to the SME sector. The SME training should be understood like a three-legged pot; one cannot do without the other.
Van Vuuren and Nieman (1999) developed a model which is due for empirical testing. It attempts to address the question: How do you improve the entrepreneurial performance of an individual by means of a training intervention? The model postulates the following variables: E/P =a + bM(cE/S x dB/S). This model indicates that entrepreneurial performance (E/P) is a multiplicative function (f ) of motivation (M) times entrepreneurial skills (E/S) and business skills (B/S). The constants a, b, c & d is merely an indication of a certain level of skill that is accepted to be part of the average individual’s skills before the training intervention is made.
Entrepreneurial performance (E/P) is based on starting of a business/utilising an opportunity and growth of the business idea. Motivation (M) is seen as the level of the need for achievement of the entrepreneur. Entrepreneurial skills (E/S) include creativity, innovation, risk-taking, the ability to interpret successful entrepreneurial role models and the identification of opportunities. Business skills (B/S), on the other hand, include business plans, financial skills, marketing skills, operational skills (technical), human resources skills, legal skills, communication skills and management skills.
Entrepreneurial skills training is however, relatively new in South Africa. The government’s Reconstruction and Development Programme (RDP) places a major emphasis on entrepreneurial awareness and training, as well as other forms of small, medium and micro enterprises. It is only recently in the early 1990s that colleges for Vocational
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Education and National Senior Certificates started recognising the need for intensive training in entrepreneurship as a subject (Bowler and Dawood; 1996).
Many studies conducted proved that entrepreneurs can be trained and developed. While most authors agree that SMEs are important for development, Bechard and Toulouse (1998) indicate that organisations wishing to develop entrepreneurship by education presuppose that the lack of training for entrepreneurs is the main reason for failure of small and medium enterprises (SMEs). In a similar note, Gupta (1989) cited the results of the research done in the state of Gujarat, India; which revealed that trained entrepreneurs had less than 10 percent business closure rate as compared to 20 to 25 percent among other small enterprises. Profit and loss analysis in this research revealed that 80 percent of the trained entrepreneurs were making profits, as opposed to 60 to 70 percent of the other small enterprises.
For an institution to claim that it provides entrepreneurship training is not enough. The content of what is provided, analysis of potential entrepreneurs and the expertise of trainers should also play an important role. High quality training interventions are earmarked by inter alia reduced failure rates, increased profits and growth of SMEs.
4. METHODOLOGY
A descriptive, case study design was conducted among the SME Service Providers in the central region of the Northern Province, South Africa. An in-depth description of entrepreneurial training in the geographical area was reviewed and compared with one another. A sample of three SME Service Providers was drawn from a list of eleven such service providers in the region. Their prominence and impact in comparing with other similar service providers in terms of entrepreneurial training was taken into consideration when these service providers were chosen. These service providers service an average of 1 300 trainees per annum.
A basic questionnaire (not standardised) was used to collect the data through both personal and telephonic interviews. Face validity was however determined by distributing the questionnaire among a group of colleagues,
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followed by a group discussion to strengthen the validity of the questionnaire. Interviews were held with the managers heading the training divisions of these service providers.
Preliminary descriptive analysis was executed to draw the conclusions. Tables and graphs were used to aid the analysis and interpretation of the data.
5. RESULTS AND DISCUSSION
5.1 Content of Entrepreneurship Training
The Northern Province Directory of SME Service Providers (1998) listed about eleven SME Service Providers in the central region of the Northern Province. Many of these service providers claim to be inter alia providing entrepreneurship training. When scrutinising their services it was found where the emphasis lies as far as training services is concerned.
As indicated in figure 2 only three of the eleven service providers do provide both business, entrepreneurial and performance motivation training. It results in 27% of the institutions that provide significant entrepreneurship training. These institutions also provide entrepreneurship training to a relatively larger extend in comparison to the rest that either have very little or no entrepreneurship training at all among the services they provide to the SME’s.
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Figure 2: Entrepreneurship Training and SME Service Providers
CONTENT OF ENTREPRENEURIAL
SMME
TRAINING
SERVICE PROVIDERS
*creativity & innovation
COD
*risk propensity
NICPAC
*need for achievement
NTT
*new venture idea generation
AFRICON
*screening venture opportunities
A, B, D & T
*drafting of business plans
Agishana Credit
*birth and growth of a business enterprise
Department of Labour
*commitment and determination
Golden Computers
*leadership
Regbuff
*ability to inspire
SBDC
*development of personal & ethical values
Price Waterhouse Coopers
Entrepreneurial training Little and/or no entrepreneurial training
* Refer list of acknowledgements for detail on Service Providers
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The managers interviewed pointed out that all these areas of training as indicated in Figure 3 are provided. The training materials reviewed however, indicates that more emphasis seem to be more on business skills training. That is, skills that include general management, financial management, marketing management, production management, pricing, costing and legal skills.
Figure 3: Training Services Provided
TRAINING SERVICES
INSTITUTION COD
NICPAC
NTT
Business
>
>
>
Entrepreneurial
>
>
>
Performance Motivation
>
>
>
*Other/s
>
>
>
*This includes after-care services, tendering procedures and negotiation skills.
As indicated in figure 4 a few fundamental elements of entrepreneurship training were selected. The content and extent of training in these elements were compared one with another. Two service providers provide these services to a very large extent and to a large extent respectively. The third one seems not to put more emphasis on some of these elements.
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Figure 4: Content and Extent of Entrepreneurship training
SKILLS
COD
NICPAC
NTT
Self-assessment
1
2
1
Opportunity identification
1
2
3
Business plan
1
2
3
Need for Achievement
1
2
1
SCORES:
To a very large extent = 1 ; To a large extent = 2 ; To some extent = 3 ; To a lesser extent = 4 ; Not at all = 5
5.2 Profiles of Trainers and trainees
A positive finding regarding the trainers from all the institutions interviewed, indicates that they have undertaken an entrepreneurship course in one level or another (either at degree, diploma or certificate level). Training and business experience were also taken into consideration when these trainers were employed.
As shown in figure 5 most of the business owners/managers did not undergo training prior to starting their enterprises. This is a negative finding in the sense that much money is lost when these emerging entrepreneurs are struggling to find their way in starting and growing their own enterprises towards entrepreneurial success.
Figure 5: Entrepreneurship Training Prior to Starting an Enterprise
INSTITUTION COD
NICPAC
NTT
Few
None
None
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The number of business enquiries compared against those that actually attended training is incomparable. While on the one hand it proves that there is potential for training, answers should also be sought why many people do not make use of the existing SME service providers.
6000
5000
4 8 0 0
N 4000 U M 3000 B E R 2000
1000
Business Enquiries
3 6 0 0
1998 1997 1996
2 4 0 0
6 4 4 4 7 2 6 1 9
5 4 3 2 0 0 0 0 0
4 4 5 5 7 0 0 4 0
0
COD
NICPAC
NTT
INSTITUTION
Figure 6: Statistics of Entrepreneurship trainees and Business Enquiries per Annum
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6. CONCLUSION AND RECOMMENDATIONS
6.1 Conclusion
Although the failure rate among emerging small business enterprises is high, there are at least some institutions that are trying to address this situation. What needs to be done in the Northern Province, South Africa is to improve the training that is presently provided. The present institutions should be supported by both the public, private and international community.
One contends with some researchers and those respondents of the study that training alone may not make the magic for small businesses to flourish. Constraints like lack of financial resources, lack of access to markets, lack of support services and low literacy levels should be addressed.
According to Hisrich and Peters (1995) training plays a pivotal role in supporting the emerging entrepreneur e.g.: one may have the needed finances, but if there is lack of financial controls, it would not make any difference. In the same manner, one may have access to the markets but if there is no knowledge as to how to be a competitive marketer of your products and services, there will still be no progress to enable small businesses flourish.
An effort should be made to balance the three constructs indicated in the model (Van Vuuren and Nieman 1999) in the training programmes of the institutions mentioned in this study. The content of entrepreneurship training should be reviewed and be in line with the basic requirements of starting and running a business.
The region reviewed indicated a very high potential for small business establishment. This potential needs knowledgeable SME training providers to be in place. The SME Service Providers in the Province should pool all their resources together to service this up-coming market. Efforts should be done to train both existing and emerging entrepreneurs.
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6.2 Recommendations
The following issues are among others recommended in order to reduce the failure rate and strengthen entrepreneurship training for successful small business enterprises in the Northern Province.
• Existing Training Institutions Should Review Their Training Materials
It is good that business skills are offered to entrepreneurs. It is even better to introduce and strengthen entrepreneurial skills, particularly to emerging entrepreneurs so that they should know before hand how to generate ideas, screen these ideas, identify opportunities from the ideas generated and whether they have entrepreneurial characteristics that would enable them to venture into and succeed in business.
• SME Service Providers Should Benchmark Their Services With Successful Similar Institutions
SME Service Providers that are successful should share the secret of their success with those that are battling to succeed. The Northern Province should learn from successful economies of the world.
• Educational Institutions Should Introduce and/or Strengthen Entrepreneurship Education An entrepreneurial culture should begin at home, proceed to school level and not at higher education and training institutions. When pupils are oriented into entrepreneurship from early age, it becomes easier when they grow into having their own entrepreneurial ventures.
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• Emerging and Potential Entrepreneurs Should be Encouraged to Take Courses in Entrepreneurship
The government, labour and business should join hands in empowering SMEs with the necessary skills. SME owners should for example be encouraged to be trained either through correspondence, attend short courses, diploma courses or have in-house training.
• SMEs Stakeholders Should Form Business Forums
Entrepreneurs should meet periodically and successful entrepreneurs give motivational talks to the rest and all learn from their success stories.
6.3 Limitations of the Study
The study did not include the interviewing of individual entrepreneurs and small business owners. The assumption is that training institutions deal closely with these people on a periodic basis and resultantly know their strengths and weaknesses. The interviewer could not attend training sessions in order to observe the training techniques and reactions of trainers and trainees. It was however not the focus of the study.
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ACKNOWLEDGEMENTS
LIST OF ELEVEN SMEs AND THE SERVICES THEY PROVIDE IN THE CENTRAL REGION OF THE NORTHERN PROVINCE, SOUTH AFRICA
1.
Adam, Baker, Datay & Tayob Chartered Accountants (A, B, D & T) §
Legal / accounting services, i.e. audit statutory, accounting, taxation, training and management consulting services.
2.
Africon - Training and Communications Division §
3.
Agishana Credit §
4.
Business training, legal/accounting and technical training services.
Loan finance : lending to lower-income groups.
Centre for Opportunity Development (COD) §
Business counselling and advice, business training, life skills, management training and consulting and networking. Services mainly the unemployed youth.
5.
Department of Labour Regional Office §
Funding of training of technical and business training through training provide, helping to develop sound labour relations and eliminate inequality and discrimination in the workplace.
6.
Golden Computers §
Promotes the use of the latest in technology through business counselling and advice, business training and legal/accounting services.
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7.
National Industrial Chambers Purchasing & Advisory Centre (NICPAC) §
Enhances and stimulates the level of manufacturing industries through business counselling and advice, business training and tender information.
8.
Northern Training Trust (NTT) §
Empower people through experiential learning in a cost effective manner through entrepreneurial training, technical training, management and community training, driver training and cottage industry training.
9.
REGBUFF §
Improve the quality of small civil engineering and building contractors by providing business training, and technical training.
10. Small Business Development Corporation Ltd (SBDC) … presently named Business Partners §
Business counselling and advice, business training and equity finance.
11. Price Waterhouse Coopers §
Provides auditing, accounting, financial and business advisory services.
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REFERENCES
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13. Scarborough, N M & Zimmerer, T W. (1996). Effective Small Business Management. 5th edition. Prentice Hall, Inc, Upper Saddle River, NJ.
14. University of Pretoria (UP). (1996). Final report: economic development StrategyEastern Regions of the Northern Province : Phase One. In: Statomet: Bureau for Statistical and Survey Methodology. 15. Van Vuuren J J & Nieman, G. (1998). Entrepreneurship and Education in Training: A Prospective Content Model. A paper read in Slovenia, June.
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