- Ninety five percent of startup businesses fail (Hallberg, 2000). The Zimbabwean economy is mainly composed of these kind of businesses in sectors like mining and agriculture. The bulk of the references will be mainly concentrated on Small to Medium Enterprises (SMEs) as they are dominant in the country of Zimbabwe. The failure of bigger enterprises is however not undermined, although it is identical to those of SMEs.What other people are reading from this blog5. Explain in detail, why creativity and innovation are critical traits of a successful entrepreneur.The growth of Small to Medium Enterprises (SMEs) is a critical ingredient in the sustainable development of developing economies. The history of economic development tells us that promotion of infant industries is one of the major drivers behind the success of industrialization in Europe (Ballasa, 1972). Furthermore, improvement in SME productivity and size is also cited as a crucial phase in the successful implementation of export led growth (ELG) strategy employed by East Asian countries which resulted in a remarkable increase in economic growth in those countries (Pack, 1993). However, the growth and development of SMEs in Zimbabwe is generally undermined by a lot of challenges resulting in a high rate of failure of such businesses (SEDCO, 2004). According to SEDCO (2004), about 60% of SMEs in Zimbabwe fail in the first year of establishment, 25% fail within the first three years and the remaining 15% are likely to survive. This therefore implies that about 85% of SMEs will eventually collapse.There are numerous reasons why businesses fail. Some are just doomed from the beginning, not thought out and carefully executed. You can’t really just do whatever you want and hope that it works. In all this Zimbabwe is not an exception. Many businesses have succumbed to this tragic event. These reasons are come down to lack of knowledge and the passion for that business. Passion is a key for success in business but it cannot guarantee profitability. If you are passionate about something but cannot monetize it, and yet you venture into it, then you are more of a social entrepreneur who might be providing a service for no or minimal reward. The reasons for include:• Lack of Financial Discipline• Poor Networking and Synergies• Failure to separate Ownership and Business• Lack of stimulative policies by the former government• Low involvement of Support Groups• Shortage of foreign currency• Shortage of advanced technologyMany researchers including Ballasa (1972) agree that financial prudence leads to small business success. However it is important to realize that prudence alone do not make good performance. It is necessary to seriously consider other critical measurable like cash budgeting, shrinkage management, gross profit and expenses. Most businesses spend profits that they calculate on paper and fail to follow the realization concept. They must wait for the profits to be realized before they use them. Moreover most businesses fail to use network and synergy strategies.According to Freeman (1987) Networking and synergy strategies help to increase reach in the market and also form coalitions to drive prices down Many are very individualistic and want to go it alone all the way. More volumes can be achieved if orders are combined and that is used to bargain with suppliers. In that way their costs can be reduced. In the process marketing strategies like discounts may be put to effect.Another cause of failure is that business owners fail to understand the need to separate ownership and management. They hire professional or expert managers but do not give them the mandate to run their businesses and be accountable. They want to make their businesses look professional yet daily they disregard the advice and decisions that these professionals make. With a lot of players in the consulting industry, business experts may improve their chances of success and minimize failure if they take advantage of their expertise. In addition to failure to separate the business from their personal activities, business owners are also affected by government policies.For instance government policy in Zimbabwe does not fully support SMEs by creating a workable environment to promote investment and avail cheaper access to credit. Introducing of Tax incentives for small businesses could help them thrive and increase their chance of survival. The trade off is that employment rate will increase and Government will benefit in PAYE. In addition the citizen buying power will also increase resulting in GDP growth. The growth in businesses also results in the government collecting more tax. Furthermore policies of the government should be put in such a way that they attract foreign direct investment. For example the 51% policy which was later scrapped. The policies have to be easily understood by the potential investors because if they not most investors won’t take the chance. The shortage of foreign currency is also limiting businesses from buying the required raw materials. The companies are bound to fail if they are no raw materials.Support the work of the blogger today through paypal.
On another point, the SME sector reflects that many SME players want the SMEs Association and SEDCO to act as advocates for SMEs in the areas of cheap finance, taxes and regional and international opportunities (SEED CO, 2014). The support groups can realize a good market for their consultancy services within the SMEs and at the same time assist them with sustaining their businesses. Their expertise in industry will aid in minimizing chances of SME failure. The SME association can also set up a fund for bailing out troubled SMEs.
Moreover it is pertinent that business people seek professional advice. This will help them ascertain whether or not the business is profitable as was thought. Another advantage of seeking professional advice is that, you are meeting people that have already done the business and they have made the mistakes and known the best way of doing it.
Mentorship is also important, the likes of Bill Gates and Sir Richard Branson have Warren Buffet and Sir Freddie Laker respectively as their mentors (Hallberg, 2000). If the big players in the business had mentors then it shows how vital the issue is. It is also crucial for business people learning, read and learn about marketing not just about your industry but how other industries buy and sell products and service and how you can do things even better (Inkoun, 2003).
In conclusion Zimbabwean businesses are operating in an environment which is not favorable for growth. They is shortage of foreign currency; unclear policies and regulations; high taxation and lack of the latest technology for industries. On the other hand the unemployment rate is very low (more than 90%) therefore a few people have the buying power. The demand for products is very low therefore businesses compete for this narrow market. As a result some companies might fail.
On the other hand not all failure can be attributed to the business environment of the country. Some business practices may result in the failure. For example business people might be amateurs who have no experience in the running of the company hence the firm is bound to fail. A combination of a harsh environment and bad business decisions have resulted in the closure of many businesses
REFERENCES
1. Ballasa, B. (1972). The process of industrial development and alternative development strategies, Princeton Essays in international finance, no 141, Dec, Princeton: Princeton University, Department of economics
2. Freeman, C. (1987.) Technology policy and economic performance: Lessons from Japan. London. Frances Printers.
3. Hallberg, H. (2000.) A market-oriented for Small and Medium Scale Enterprises. The World Bank (Washington D.C. Discussion paper number 40)
4. Inkoun, L (2003). Portrait of the entrepreneur characteristics. University of Ghana. Discussion paper series.
5. Pack, H. (1993) Productivity and industrial development in Sub-Saharan Africa. World Development, 21 (1)
6. SEED CO, (2014) Regional Assessments Reports.
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