Why SMEs in Zim should consider global markets

Zimbabwe's 2020 National Budget  Statement was presented by Professor Mthuli Ncube

The 2020 National Budget projects the economy to grow by three percent, but in recent years it has not grown according to expectations.
Such a trend is reflected through company closures, retrenchments, liquidations and a stagnant market.
This stagnant market is the major reason why Small and medium enterprises (SMEs) in Zimbabwe should consider entering regional or even international markets.
The stagnant market implies that SMEs in Zimbabwe are fighting for a dwindling piece of cake.
Furthermore, there is a tendency in the SMEs sector for a worker to leave their job and start competing with their erstwhile employer for the same piece of cake.
Zimbabweans have developed what may be called an entrepreneurial mindset which refreshingly leads to shunning of formal employment.

While this is a positive development (in that for example this may lead to employment creation and poverty reduction), this however, only serves to intensify the competition for a vanishing piece of cake.
Established SMEs cannot match prices charged by such businesses which have very low overhead costs.
According to the first report of the 2016 Parliamentary Portfolio Committee on SMEs, about 10 000 graduates are rolled out annually from tertiary institutions and universities.
A significant number of these graduates are likely to end up self-employed and again competing for the same business with established SMEs.

There is also the threat from foreign firms which compete by offering better products or lower prices. All these are reasons why SMEs in Zimbabwe should seriously consider investing across the borders.
Internationalisation entry strategies
The first step for the SME is to assess its preparedness and readiness to enter a foreign market.
This can be done through the identification of the company’s capabilities and core competencies that can be used to create a unique market position in a foreign market.
It is on the basis of such a review that the SME can convince itself if it is ready to enter the foreign market with its superior products and services. The issue of the perceived superiority of SME’s products and services cannot be overemphasised.
This is because a firm with inferior products and services will stand no chance in the foreign market.
A case in point is when aviation executives from another African country were impressed by a certain product available at Robert Gabriel Mugabe International Airport in the restaurant sector.
They invited the local entrepreneur to their own country and asked him to consider setting up a similar business venture at all international airports.

The second critical step for the SME to enter into a foreign market is choosing the entry mode between a non-equity mode and an equity-based mode.
These modes vary according to costs involved, the risk involved and the level of business control.
The non-equity modes category includes export and contractual agreements. Export entry mode involves directly or indirectly exporting to a foreign agent or distributor.
For instance, a manufacturer of spices in Zimbabwe can appoint an agent or distributor in a foreign country.
Contractual entry modes involve for example licensing and franchising. The equity mode category includes for example joint ventures, mergers and acquisitions, and foreign direct investments (FDI).
Barriers to entry
There are barriers to contend with when contemplating entry into a foreign market such as language, local legislation and regulations, infrastructure (roads, telecommunication), the geographical distance (travel and logistics), the economy (currency volatility, inflation and interest rates).
An SME has to do its research to identify barriers and solutions. For instance, the Internet is now an important source of business. It is therefore critical that telecommunication infrastructure is in place to support business.
Government’s role
For SMEs to successfully internationalise, the support of the Government of Zimbabwe is required to lower the barriers through a conducive regulatory framework and policies.
The SMEs can in part conduct market research by exploiting relevant Government databases concerning the targeted foreign markets. SMEs in Zimbabwe can also acquire market intelligence through platforms such as the Harare Agricultural Show and the Zimbabwe International Trade Fair (ZITF).

The Government benefits from internationalisation through an enlargement of the tax base, increased employment opportunities for local citizens through export promotions and a reduction in poverty.
Expanding business in foreign markets requires that the SME remains focused and knowledgeable in its area of endeavour. Above all, it must be driven by a sense of conviction with regard to the superiority of its products and services.
This is a potentially profitable strategic option for SMEs in Zimbabwe to consider, notwithstanding any challenges they may encounter along the way.
Bernard Gwarada is a research candidate in International Business at University of Pretoria’s GIBS Business School. He writes in his own capacity. Feedback: blgwarada@yahoo.com

This article first appeared in The Herald   https://www.herald.co.zw/why-smes-in-zim-should-consider-global-markets/