February is Funding & Enterprise Supplier Development Month on SME South Africa.
In the final edition of our ESD series (See Part 1 & 2 here) Hasnayn Ebrahim, founder and CEO of strategi exe talks us through the other side of the ESD equation – corporates.
Ebrahim, who is a strategy, innovation and SMME development specialist, explains why ESD requires two committed parties, and the reasons he believes it is one of the most sustainable mechanisms for real transformation in South Africa.
Q: What are some examples of successful ESD programmes – why do they work?
In my view it is too early to say. Corporates really started investing in ESD Programmes with the updated B-BBEE Codes in 2014. Yes, most companies had some form of ESD prior to 2014, yet the real drive came with the more onerous requirements in the updated Codes.
Those that see it as a compliance exercise and do not put the right resources into it are struggling. That’s a fact and the reality is once it ends up failing, the cycle is perpetuated and the stereotype is established.
“And that’s really the crux of it, have you taken ownership of your own success and are simply leveraging the opportunities of ESD programmes or are you fully reliant on these programmes?”
Yet, there are those that see it from a strategic perspective and are taking a longer term view on it, and in our perspective those are the ones that will see success.
The thread for success is that they often have a solid team with highly qualified individuals at the helm. They have capacitated themselves to incubate their SMEs, and have a Trust or multi-faceted Fund established to best help their beneficiaries. And finally, they seek to get them participating in the value chain through Procurement.
At the end of the day it really is a partnership, and a partnership needs at least two committed parties. Putting the right resources, having patience, understanding the developmental requirements, capacitating with technology and skills, having access to funds, mentors and specialist support are all key ingredients to making it successful from a corporate perspective.
But mostly, it comes down to the SME. Do you know what it takes to really compete in a corporate supply chain. Do you know how to satisfy your customer, what will you do to succeed? And that’s really the crux of it, have you taken ownership of your own success and are simply leveraging the opportunities of ESD Programmes or are you fully reliant on these Programmes?
The one who takes ownership, who puts her neck on the line – that’s the one I’d look to invest in, and that’s the one who is most likely to succeed.
“The biggest problem we see in industry is that companies simply view it as a B-BBEE compliance exercise and not as a strategic sourcing exercise”
Q: What is the advantage for corporates in implementing a supplier development programme?
I personally am extremely passionate about Enterprise and Supplier Development as it is, in many respects, the most sustainable mechanism for real transformation in South Africa. If done correctly, it can potentially be the largest use case for creating shared value, globally.
For a corporate, there is both a direct and indirect benefit for a successful ESD Programme. The direct benefit is that there are more suppliers into their supply chain, which means greater competitiveness and improved pricing from suppliers.
In many instances companies have a single source to procure from, which allows the individual Supplier free reign to price as they please. By diversifying the supply chain strategically, companies then would have more suppliers, meaning more competition and the benefits associated with competition from a customer perspective. That is, more choices, more prices and better value. The net benefit would then be a lower procurement spend.
The indirect benefit is the macro economic effects. A growing economy with greater black participation benefits everybody. A more inclusive economy means more people participating in the economy which has significant benefits to all. A lower burden on the state through increased total collected taxes which leads to a potential decrease in individual tax which further stimulates growth and so on. Greater economic inclusivity means more customers, which means more profits for companies. This creates a more stable socio-political and economic environment – which is critical for credit ratings.
SA domiciled companies have a credit rating linked to sovereign. Meaning, corporates have more than just a short term responsibility to their shareholders and stakeholders. Having a long term responsibility, really means contributing towards the transformation of the economy – with ESD really being critical to drive it from the bottom – up. Help support future Mark Shuttleworths and it has the potential to change our nation completely.
Q: Is ESD just a compliance exercise? What are the disadvantages of corporates taking this view?
The biggest problem we see in industry is that Companies simply view it as a B-BBEE compliance exercise and not as a strategic sourcing exercise. For all of the reasons highlighted above, we view this as being extremely short sighted.
Whether we like to admit it or not, there is a major structural problem with the South African economy that requires a form of radical socio-economic transformation. Apologies for using a political term, and I view things completely apolitically, but the levels of poverty, inequality, education and unemployment (specifically youth unemployment) is extraordinarily worrisome. Unless a radical approach is taken, a realistic socio-economic outcome is mass instability and the rise of populist movements. This, most certainly, will be seriously detrimental to corporates and their shareholders and all stakeholders.
