Why SMEs will cannibalise big business in Zimbabwe

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Kudzai M. Mubaiwa
I am still convinced we should be focusing more on Small to Medium Enterprises than big business in Zimbabwe. The past two decades have seen many big businesses fail and others completely collapse due to business models that are failing to survive the dynamic Zimbabwe economy.

There are enterprises that exist today that came up only because they are filling in gaps left by large ones that folded.

The tough economic conditions have left consumers extremely price sensitive, and willing to compromise on quality of household goods.

For example there are many new brands that have emerged in dairy products, peanut butter, dry goods, cooking oil, household cleaning agents, soap, fuel stations.

Some major brands that offer these goods have survived but they face stiff competition and are often undercut by pricing. They struggle to respond as quickly and therefore cannot turn-over the historical large volumes.

We also know that many large companies invested in equipment and machinery sometime back when we only used United States dollars.

Shifting product or decommissioning the machinery will be costly and some continue to offer the market the same type of goods in the hope of recouping their investment.

Unfortunately they may not be able to compete with fairly new ventures that have not committed as much.

Prices are continually changing in Zimbabwe because of information and perceptions, which in turn push up (or depress) the informal exchange rate between the bond note and the United States dollar, certainly a notable premium from the official one to one Reserve Bank rate.

This period before elections makes it even worse as speculation is rife. Business — large and small — is unsure of the direction the economy will take. We will import a lot of raw materials — whether components or chemical substances used to make products.

The uncertainty on what the price will be on subsequent production cycles forces many to price in for a likely hike and this has made prices on supermarket shelves spike.

Consumers, with limited disposable income can only afford so much and so many items that are non-basic are completely struck off grocery lists — or a more affordable product is purchased. This affordable product has increasingly become local SME brands.

This is a good thing for local business owners but not necessarily good for old big brands, unless they too introduce a value product.

Another interesting phenomenon is that of former employees of large corporations that are starting up. Because certain big business has failed due to inflexible economic models — certain smart former employees are coming together and producing a similar product from that made with their former employers. They simply do it at a smaller scale, with a leaner team and smaller investment.

They are able to leverage the relationships from past suppliers and customers, and in some cases produce an even better quality offering as they can innovate in ways they could not under big business arrangements.

They replicate the good systems and discard the old, inefficient methods. Some businesses that started off in this was a decade ago have now carved out niches for themselves and are comparable with their erstwhile employers.

They thus cannibalise the market and eat into what were monopolies or huge market shares.

Consumers in Zimbabwe are no longer afraid to try new things and through word of mouth a once unknown brand can easily grow. Such was the case recently with a certain cordial company that changed a formula.

Consumers started sharing endorsement of an alternate product of similar quality and it has started picking up.

The fact of the matter now is anyone can prosper in the Zimbabwean market if they offer a quality product.

This understanding must inspire government to invest much more in making “Zimbabwe open for local business”.

There is no harm in receiving foreign investment, and making it easy for new business to enter, however, this must not be at the expense of those local brands that have emerged in this season.

They too need support in the form of accessible funding, workable tax regimes and endorsements. They are quite likely to play the long game and will produce meaningful employment for local people.

They will develop products and services that serve the local tastes and preferences. They will be loyal to local economic development agendas because they are natives of the land.
Across the world, disruption is the name of the game in every sector. Big business will not be spared.

Companies are becoming smaller, leaner and more efficient by using new economic models and technology.

As a nation that has been struggling, we have an opportunity to start on a new trajectory and leap frog such that our new companies are already in the new season. It cannot be a new dispensation when we are fixated with the old models.

Large companies must actually self-introspect and rethink their models. They must not be afraid to replace their own most profitable products and services if they no longer serve the market.

They must be deliberate in setting up new business units that compete with the old — start-ups within the current company. This needs to be done with correct timing before the present products demand declines.

Replacement of products can be completely new ones coming in or an incremental approach can be adopted.

Big companies can also consider buying into the new emerging SMEs to leverage on the innovation whilst bringing in their good points.

It can no longer be business as usual if we intend the economy to grow in a sustainable way.

Small, efficient companies are the model for the now and for the future and we must embrace that. Businesses that do not continue to innovate and respond quickly and appropriately to the changing market landscape — particularly consumer needs, will die.

Greater effort and resources must be poured into scaling up the SMEs that are doing well than in making operations easy for big business with old models.

Feedback: Twitter @kumub, Email kudzi@investorsaint.co.zw

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