While owners of South Africa’s small and medium enterprises (SMEs) are regularly faced with challenges in the day-to-day running of their businesses, many are now having to rethink their company’s strategies due to the current economic conditions, such as rising running costs and diminishing growth outlooks for the country. It has been reported that growth of 2.1% is expected for the South African economy this year, rising to 3.5% by 2016, while the IMF projects growth of 4.5% for developing countries in 2013.
According to Gerrie van Biljon, executive director of Business Partners Limited, while measures need to be taken to ensure a business’s strategy is relevant for the business climate it currently finds itself in, business owners also need to ensure that their strategy remains balanced.
Van Biljon points to the recent CFO Survey 2013 by Deloitte which measures the current mindsets of CFOs, that revealed that in an environment of uncertainty, many CFOs and businesses are behaving more cautiously and leaning towards defensive strategies, rather than adopting growth strategies, or innovation programmes.
“The survey highlights how many businesses have taken a cautious approach whereby the focus has changed from investing in the future to protecting their current position, which includes retaining their client base, refraining from expansion programmes and preserving their cash.”
Van Biljon adds that in a period of economic uncertainty this is often the sensible business decision to be taken. “This preserves existence, and a seemingly conservative approach of survival tactics is a justified and responsible approach. The business owner has the primary responsibility of protecting the future existence of the business, in order to ensure the business will also be there when the economic upswing materialises. Not only will this protect the already scarce jobs, but also the investment of the entrepreneur.”
These challenging times, however, also offer the opportunity for entrepreneurs to revisit their business model, says Van Biljon. “This defensive strategy has its positives in that it allows the time to critically evaluate all of the business’s offerings, from the product range and target market, to the marketing strategy used.”
He adds that it is a concern that so few businesses are spending time and resources on research and development, as reported in the survey. “While the defensive mode preserves the business, a business owner needs to think what price the business will pay for neglecting innovative initiatives, much needed maintenance on the plant as well as research and development.”
Possible consequences, he explains, can include being overtaken by your competitors who are using this downturn period to improve their processes and are introducing innovations. “It may also mean that the money that was not spent over a period will have to be invested in the near future. Maintenance on the plant and buildings are typical examples.”
Van Biljon says that ultimately, a business’s approach must be a responsible balance between efforts to ensure business existence and protection, while also positioning the business for tomorrow.
While business conditions may be currently strained, the survey also showed that CFOs remain optimistic with 85% believing 2014 will lead to an improvement in their company’s performance.
Van Biljon says this optimism was also confirmed by results from the Business Partners Limited SME Index, which revealed that the average confidence levels among the SME industry for the third quarter of 2013 was 54%, a year-on-year increase of 5%. “While the confidence may remain low, the increase is positive and is an indication that SMEs have put measures in place to deal with the economic challenges that are prevalent in South Africa.
“This highlights how, with the correct research and planning, effective business strategies can be put in place to ensure all boxes are ticked, which ultimately results in increased confidence for the business owner and the ultimate health of their business,” concludes Van Biljon.