5 reasons why foreigner-run spaza shops do better than local counterpar

Study outlines the reasons why foreigner-owned spaza shops are more competitive

BY SIPHELELE.DLUDLA

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Published: 20 Oct, 2014 02:43 PM

The township spaza shop competition is tough, and the subject of foreign-owned spazas is a thorny one for many local spaza shop owners.

A Cape Town based non-profit organisation, theSustainable Livelihoods Foundation (SLF), conducted a two-year in-depth study to understand the current characteristics of ownership, the scope of employment within the business and trading practices of spaza shops in the Western Cape and Gauteng townships.

Spaza shops are micro-convenience stores which operate in township residential areas, selling groceries, bread, cool drinks, prepaid airtime, sweets and cigarettes.

The findings

​The study surveyed over 6000 micro-enterprises in nine localities, covering an estimated 50,000 households.

One of the most striking findings documented in the SLF's report, The Informal Economy of Township Spaza Shops, is that South African owned spaza shops are less competitive than foreign-run spazas.

The reasons given by the study - why foreign shopkeepers enjoy success than South Africans - are attributed to the strength of their social networks, which provide them with access to labour and capital, and thus enable them collective purchasing and market domination.

However, the study also reveals a growing concern from local business owners that much of the economic value now generated within the spaza shop market, including wages, is exported from the township economy to home countries of these foreign entrepreneurs and workers. The study also shows a further concern, that is the role of foreign shops in providing access to contraband goods.

We take a look at five key business areas that differentiate foreign-owned spaza shops from local ones as identified by the SLF research.

Foreign spaza businesses are successfully using supply chain networking and price discounting to procure goods more cost effectively.

1. Ownership dynamics

​The majority of South African spazas are home-based, whereas foreign-run spazas usually operate from a semi-detached room or from a rented premises - usually an existing spaza shop venue.

Another differentiating factor, even though its impact is not fully understood, is that a significant number of South African owned spazas are owned and run by women, whilst almost all foreign operated spazas are male-owned businesses. 

There is also evidence of collective or cooperative ownership among foreigners. This means that the majority of foreign spaza shops are either owned through a share-holding agreement or a single entrepreneur owning several stores.

2. Capital investment

​According to SLF's research, foreigners' competitive advantage is evident in the scale of investment which is approximately R45,000 on average, within start-up businesses. This is compared to R1,500 to R5,000 on average for South Africans.

The financial backing from these ownership models combined with the benefits of a ethnic business networking enables foreign spaza shops to purchase within buying collectives and achieve greater economies of scale.

The study reveals that this increased purchasing power, together with lower unit transaction cost such as transport and labour, enables these collectives, similar to large enterprises, to secure more favourable terms from wholesalers and obtain direct supply linkages to manufacturers.

3. Stock procurement

​An important business advantage of foreign shopkeepers, for example, lies in the semi co-operative supply system through which the shop owners procure their goods from wholesalers and manufacturers. According to research, foreign spaza businesses are successfully using supply chain networking and price discounting to procure goods more cost effectively.

Each business thus benefits from a procurement and distribution chain that supports multiple stores. As a result of their scale of operation, each buying collective, is able to secure premium terms from suppliers and can reduce transport costs and ensure that shops within the group receive an uninterrupted supply of merchandise.

The study found that in contrast, as sole traders, South African spazas are unable to match the collective purchasing power and labour advantages of the foreign businesses and have opted to either close their shops or focus on commodities in which they can sustain a competitive advantage like take-away food and liquor retailing.

4. Business operations

​On the operations of business, research found that some local spaza shops, such as the house shops, operate part-time to supplement other household income. Most South Africans operate their businesses themselves or draw on family labour.

Foreign spazas conduct business on a full-time basis and provide employment to persons other than the business owner and family, commonly known as casual workers. Some of these employees work under conditions akin to bonded labour, which means they work around the clock as shopkeepers during the day and security guards at night.

This enables the foreign spazas to minimize their labour costs, whilst employing sufficient staff to operate the business over longer trading hours. Many trade between 6am and 10pm.

5. Product diversification

​According to SLF research, the success of foreigners within the spaza market has been achieved through the careful positioning of businesses to operate within particular niche markets.

The study reveals that product diversity and range has given foreign run businesses competitive advantage while local spaza entrepreneurs have failed to interpret this market.

Foreign spaza shops engage in diversifying business through selling alcohol and installing arcade games. This is a competitive advantage that many South African spaza owners have not yet capitalised on.

Read full report: From local survivalism to foreign entrepreneurship: the transformation of the spaza sector in Delft, Cape Town
Source: SME SOUTH AFRICA

SA Business Process Management Industry Is Globalising

THANDISIZWE MGUDLWA

The BPESA industry is fast gaining momentum and creating much needed jobs in South Africa.

BPESA, is the national association for companies operating in the Business Process Management (BPM) industry.

Tebogo Molapisane, BPESA CEO proudly reveals, "The BPM market accounts for 26,700 jobs and is expected to exceed 30,000 in 2016, surpassing the previous target of 29,000 set for 2016.

Recently, BPESA partnered with ContactCenterWorld.com, the largest Contact Centre Association globally, as their official Industry Awards partner. 

This exciting partnership is set to offer an enhanced opportunity for individuals and organisations operating in the South African BPM industry. 

With the aim being to showcase their talents through a new entry and judging system. 

In-which if all goes according to plan, will ensure that the industry aligns with world-class standards.

 
Meanwhile, a new study has found that the South African BPM sector remains one of the Department of Trade and Industry’s priority sectors. 

"This is largely due to its significant contribution to sustainable job creation. The Industry continues to grow from strength to strength, supported by favourable macroeconomic conditions."

"A suitably skilled labour force and significant operating cost savings, combined with plunging communication costs, all contribute to this industry success story. Linking local expertise with a global contact centre management leader will further bolster the development of the industry."

Headquartered in Canada since 2001, ContactCenterWorld boasts more than 147,000 members across the globe.  

And the international body provides world-class research, conferences, awards, networking opportunities and information on best practices in the contact centre industry.

Commenting on the partnership, Raj Wadhwani, President of ContactCenterWorld.com said, “We are delighted to partner with BPESA and are proud to be associated with this initiative which will help showcase the diversity and strength of the South African contact centre industry."

Wadhwani added, "Many of our members in South Africa can comfortably compete with the best in the World and we have seen several win our Global Top Ranking Performer Awards, which have been likened to the Olympics of BPM. This initiative is great for South Africa and the industry as a whole – who doesn’t want to be considered one of the best in their nation and ultimately one of the best in the World?”

This year’s BPESA National Industry Awards comprise of 26 entry categories.

This includes a process that will span over 6 months, culminating in a national awards ceremony in October. 

The awards, which are free to enter, opened on May 6th.

Molapisane adds, "Between 2010 and 2015 the BPM market has more than doubled. These awards offer a platform to acknowledge the hard work and exceptional talent we possess in South Africa. Partnering with a global leader means we can offer the industry more value."

ENTREPRENEURSHIP NEWS

Small Business Friday aims to produce more women-owned enterprises

12 AUG 2016 | SAVE | EMAIL | PRINT |  PDF    

Small Business Friday (SBF) kicks off on 2 September 2016 and Mike Anderson, CEO and founder of the National Small Business Chamber (NSBC), says that the drive is not just to develop women from an economic perspective, but the bigger picture of reshaping the modern-day global economy.

“Women are underestimated powerhouses of an economy. This is not a fact that is relevant only to South Africa, but it is a global phenomenon. South Africa needs to not only build entrepreneurship, but to encourage and develop female business owners. 

“Forbes says that what’s good for women is good for the economy and I think this is truer for South Africa than anywhere else right now. While we have many rural women who are already trying to be sustainable, we need to focus on developing our formal sector and boost female entrepreneurship and small business development.”

Together with title sponsor Nedbank, the NSBC and its SBF movement hope to encourage the support of local small businesses every Friday. He says it would be great if these businesses were also female-owned. “In the US, economists and academics agree that women entrepreneurs are an under-tapped force that can rekindle economic expansion. They are becoming more entrepreneurial and already own 36% of all businesses in the US.”

Access to capital

While progress has been made, he says that it is nowhere near enough, or at a level where it will make enough of an impact on social and economic issues. A recent study, by an international National Business Women’s Council, indicated that women-owned entrepreneurs raise smaller amounts of capital to finance their businesses and are more reliant on personal rather than external sources of financing. 

Within the context of growth-oriented entrepreneurship, this distinction is important according to the council because growth-oriented businesses typically require substantial amounts of external capital in the form of both debt and equity. If women entrepreneurs do not seek, or if they are not able to obtain external capital, prospects for growing their small businesses are diminished considerably. 

Three sectors offer opportunity

Locally, the SME Growth Index examines three sectors with growth and value-adding potential: manufacturing, business services and tourism. The Index claims that 21% of its panellists are women, but would like to see an increase in female businesses within these sectors. The multi-country Global Economic Monitor (GEM) survey has conclusively shown that businesses’ owned by women tend to be smaller than those owned by men, both in terms of turnover and number of employees. The findings from the SME Growth Index are consistent with this global pattern, finding that women-owned businesses generally have a lower turnover, and fewer employees, than those owned by men.

Anderson says that according to Stats SA’s latest Quarterly Labour Force Survey, women comprise 23% of South Africa’s total employers. “We have a fantastic opportunity to grow female-owned small businesses and the NSBC and Nedbank would love to see support for female entrepreneurs during August especially. Make Small Business Friday a mechanism to support women and help them become the economic force predicted.”

Nedbank also supports several initiatives, aimed at empowering women in business, such as the events through the Business Women’s Association, including sponsorship for the past three years of a an event to celebrate exceptional women in business and society. 

On a broader level, as a bank, Nedbank was involved in a mutually beneficial Broad-Based-Black Economic Empowerment deal with its partners Brimstone and women’s empowerment firm WIPHOLD that concluded in 2015 on its 10th anniversary. However, as part of the deal, along with Old Mutual Group and its partner Izingwe, Nedbank, Brimstone and WIPHOLD continued with the relationship, agreeing to establish three sustainable legacy funds of R100m a year. Disbursement from the first fund established in 2015 has benefited a women’s agricultural initiative in the Eastern Cape. 

For more information, go to www.smallbizfriday.co.za.

AGRICULTURE NEWS

Annual gathering to empower women in agriculture

11 AUG 2016 | SAVE | EMAIL | PRINT |  PDF    

Women farmers across Southern Africa are getting ready for the annual gathering of women in agriculture, aimed at strengthening the entrepreneurial capacity of women in this sector. The annual gathering will take place from 26-29 September 2016 and is organised by the Southern African Confederation of Agricultural Unions (SACAU).

William Creighton via Wikimedia Commons

Turning ambitious dreams into reality

SACAU CEO Ishmael Sunga has urged women to escalate their aspirations in agriculture. “We need to have ambitious dreams. Then we need to translate these dreams into reality. The sad truth is that many dreams are never realised due to poor execution of plans. As such, SACAU is focused on helping all farmers get the skills, knowledge, and access to resources to turn their ambitious dreams into reality,” said Sunga.

“There are numerous opportunities for women farmers to take advantage of in the business of agriculture. The stage is set for farmers to begin driving agricultural entrepreneurship across the continent,” he noted.

“We must move beyond conventional thinking of women empowerment. We must look towards technology and how we can take advantage of the agriculture value chain to grow women farmers in Africa.” He urged the sector to begin new conversations on gender in agriculture. 

Addressing challenges faced by women in agriculture

“For agro-entrepreneurship to thrive, equitable access to production resources is needed by all - including women. We must ensure access to rewarding markets to all farmers, since markets are the pulling force for production,” said Sunga,

He noted that a conducive policy environment that will lead to the transformation of the agriculture sector was essential. In this regard, it was important to monitor government implementation of commitments to global instruments including the Malabo Declaration on African Agriculture.

The Malabo commitments have specified that Africa has to address the challenges faced by women that include limited access and control of ownership of land, limited access to agricultural labour, limited access to technologies and agricultural extension services, limited access to financial services, low productivity, and lack of adequate disaggregated data and indicators. 

There are already several treaties for gender empowerment including COMESA’s initiatives on Gender and Women Empowerment and CAADP’s National Agriculture Investment Plans (NAIPs) which all have a gender component.

HARDWARE NEWS

Empowering the female technicians of the future

4 AUG 2016 | SAVE | EMAIL | PRINT |  PDF    

In the electronics repair industry, a field where 99% of employees are men, Samsung Electronics South Africa has begun making inroads into these numbers with its Samsung Women Technical Programme. The first 16 graduates of what will be an ongoing programme have recently begun working at Samsung's various service centres.

The Samsung Women Technical Programme is an initiative which started in November 2015, when 20 female students from previously disadvantaged backgrounds were chosen from a group of some 200 at the Samsung Engineering Academy in Ekurhuleni. These young women had already undergone training on Samsung’s various products and appliances and were then selected for the first ever training programme specifically for hand held devices.

“They were trained on how to repair various mobile device models, how to conduct updates to software, as well as the different aspects around fixing hardware. The idea was to turn these young women into qualified cell phone technicians,” says Samsung’s director: SSA service, Richard Chetty.

“The 16 young ladies who graduated from this course are certified to work on Samsung cellphones and they have been placed at a number of our service centres, where they will undergo a year of practical work in order to gain necessary and valuable experience. Following a final assessment, they will be certified as technicians, which will open up a meaningful career path to them.”

Focus on future development

Chetty adds that while similar training programmes have been established in the industry, there is also a tendency for the hosting company’s responsibility to end when the trainees start their careers. However, he indicates that Samsung believes in focusing on things for the longer term, which is why the organisation will remain closely involved in the future development and occupational paths of these graduates.

“Most importantly, these young ladies are merely the trailblazers of what we hope will become a flood of young female technical learners in South Africa. We are planning to have three intakes every year for women, although each intake will cover a different product focus area. For example, a course focusing on larger appliances will require the learners to have a valid driver’s licence. In this way, they will not only learn how to service the appliances, but will be trained and certified as in-home technicians,” he explains.

Chetty states that Samsung is considering the bigger picture with courses of this nature. They are designed to develop skills and create jobs and will even include training in aspects of entrepreneurship, so that future graduates have the opportunity to set up small businesses of their own.

“Samsung is committed to our responsibility toward our community and our goal of positively impacting on people’s lives. Our Samsung Women Technical Programme proves that job creation, skills development and women empowerment can be achieved. We want to encourage other corporate organisations to contribute to the economy and job creation by getting involved in similar schemes. Samsung is leading the way and we hope others will follow,” concludes Chetty.

SERVICES NEWS

Silulo Ulutho Technologies: A franchise built from the boot of a car

5 AUG 2016 | SAVE | EMAIL | PRINT |  PDF    BY: LAUREN HARTZENBERG

Khayelitsha is said to be the second largest and fastest-growing township in South Africa, home to roughly 1.5 million residents, 75% of whom are under the age of 35. Half of its people are unemployed, living below the poverty line and more than a third have no easy access to water. But what may have seemed like challenges reserved for government or big business, high school teacher and resident Luvuyo Rani viewed as an opportunity for social innovation.

Luvuyo Rani, founding director of Silulo Ulutho Technologies.

Eyeing opportunity

Witnessing his fellow educators struggling to cope with the newly-introduced outcomes-based education (OBE) system without access to computers, Rani quit his job and began selling refurbished computers out of the boot of his car. This marked the humble beginning of Silulo Ulutho Technologies as it's known today. But Rani says the computers sold often ended up collecting dust in teachers’ homes, due to almost non-existent computer literacy.

The lack of infrastructure and services offered in the community meant that residents had no affordable access to technology and were forced to travel to outlying areas for simple internet access. He knew he had to extend his reach within the area. The realisation led to Khayelitsha’s first internet café in 2006, opened by Rani and his partners Nandipha Matshoba and Sigqibo Pangabantu.

The café provided members of the community with email and CV assistance, access to basic software packages and the internet. But this was the start of something bigger. “We realised that many people couldn’t differentiate between fax and email so we knew that people needed training badly,” Rani said during his talk at last week’s Internet and Social Media Summit in Cape Town. To address this deficiency, they established the first Silulo Ulutho training centre. Demand increased rapidly, and soon more of these one-stop IT shops were rolled out in other townships and rural areas in need.

Key business

Fast forward 10 years, and the company now has 40 branches to its name scattered between the Western and Eastern Cape, offering computer and phone sales and repairs, web development, CV creation, printing, scanning, faxing, binding, lamination, typing of letters and computer training. 15 of these are franchised. Central to the business model is affordability, so prices are kept as low as possible to cater to emerging markets. 

Rani says training is quickly becoming their key business as Silulo grows into one of the largest computer training organisations in the Khayelitsha community. 25,000 students have passed through the company’s training programmes, 80% of whom are female. Along with basic computer training, Silulo also offers certificates in office administration, graphic design, web design, end user computing, technical support, and digital video editing. He says that the training provided has greatly enhanced the possibility of employment, while some graduates become inspired to study further, and about 10% go on to start their own small business. 

Cycle of employment

Sharing in Silulo’s success are the 178 staff members it employs, 60% of them being former students. Four of the 15 franchised branches are also owned by graduates. Commenting on this Rani says, “We need to share part of the cake that we’re baking with our people. They need to benefit from the model that we’ve built, and we need to produce other entrepreneurs through our work.“

He believes his entrepreneurial spirit was sparked at a young age assisting customers in his mother’s shebeen after school. And when the police raids ensued (as shebeens were illegal at the time), he says that taught him the resilience needed for the demands of running his own business. As the only black recipient of the Schwab Foundation Social Entrepreneur of the Year award, Rani asserts that personal triumphs must be highlighted. He says, “We need more entrepreneurs. As a country we need to create a culture of entrepreneurship and celebrate their success.”

Silulo Ulutho's story is certainly one worth celebrating.

RESEARCH NEWS

Big money in little spazas; accessing informal sector spend

11 AUG 2016 | SAVE | EMAIL | PRINT |  PDF    

There is big money in the little spaza; some informal sector traders earn six or seven digit annual figures, but this economic activity in South Africa is underreported, in some cases by as much as 1000%.

It is vitally important for brand owners targeting the mass market to understand how this sector operates and to appeal not only to consumers, but also to the informal traders. 

© Pixabay

Estimating informal market spend

According to the UCT Unilever Institute report 'Connecting with Survivors', there are a number of different estimates of annual spend in the informal sector in South Africa. StatsSA puts it at R120bn, Haroon Bhorat (UCT) at R280bn and Loane Sharp (Adcorp) at R680bn – the UCT Unilever Institute estimates the annual informal market spend to be about R285bn. 

Whichever figure is correct, this is significant, as marketers targeting the mass market who focus all their attention on the formal sector supply and demand chain, are missing out on huge opportunities.

The UCT Unilever Institute has estimated that there are 2,500 ‘chain stores’ in South Africa, 18,500 independent traders and 80,000+ spazas. According to Trade Intelligence, the independent wholesalers are worth R100bn a year (3% of GDP). The informal sector is growing and changing rapidly.

The mass market is full of consummate entrepreneurs, who are always looking for ways to supplement their income. Informal traders are often foreigners with little loyalty to South African brands and to have any traction in this market, local brands have to work hard to gain exposure - 76% of spaza owners in Soweto are foreign (HSRC) and in other parts of South Africa, the percentage is even higher.

“It is clear that social transformation is taking many different forms in the mass market and that previous assumptions no longer hold true,” states Lebo Motshegoa, MD of Foshizi, in an article in the Media Online.

Stokvels increase as young generation adopt the model

“One of the areas in which this transformation is most evident is in the financial services sector. While more people in the mass market now have banking and loan accounts, an altogether different trend is unfolding beyond the confines of traditional banking. A uniquely local institution, the Stokvel, is taking on an entirely new role, especially in the urban areas. Stokvels or savings clubs have been a feature of mass market money management for many years, but now a new generation of young black people are taking the concept into an expanded and even more empowering space,” says Motshegoa.

“The traditional savings clubs are being used by a younger, more educated and business-savvy generation in a different way and their knowledge benefits stokvel members in a different way. Stokvels have transformed into investment rather than just savings vehicles. People are often part of multiple stokvels for different purposes, some for big-ticket items. A larger and younger segment of the mass market is taking this traditional savings vehicle into important new territory.”

Old Mutual’s latest Savings and Investment Monitor reveals the importance of stokvels in an article on Moneyweb. “Informal savings vehicles and funeral policies remain the most popular savings and investment vehicles used by South Africans. Some 76% of black households surveyed make use of informal savings vehicles, which Old Mutual defines as stokvels, burial societies, grocery schemes and unbanked cash savings. Funeral policies remain the largest single savings category, while 41% of respondents said they have no formal retirement savings whatsoever.

“More than 70% of individuals earning R40,000 a month and more put money into informal savings vehicles every month. Old Mutual finds that there has been increased usage across all informal savings types. Stokvels remain the most popular, with 59% of black households surveyed contributing to at least one stokvel and those in higher income categories sometimes contributing to more than one. This is followed by burial societies (34%), grocery schemes (18%) and unbanked cash (18%). 

“Contributions made by high-income and low-income groups to stokvels posted a year-on-year increase, while middle-income groups contributed considerably less and dragged the overall average down. The uptick among lower income groups may be because stokvels are now acting both as savings vehicle and personal loan provider, based on Old Mutual’s findings.”

Multi-generational households

The next trend that Foshizi explored was multi-generational households. Motshegoa says, “Another way in which young black people are re-defining traditional ways of life is by revisiting the concept of the multi-generational household – with a twist. Many professionals and office workers, who have been able to buy houses in the suburbs, find they long for the social structures and way of life in the townships, which are affectionately known as eKasi, an urban term for ‘home’.

“Many of the younger generation have moved back in with their parents or parents-in-law, but are expecting more equality. The net effect is that young working people are re-embracing their cultural and geographic roots, but at the same time redefining their roles within the extended family. From a consumer point of view, the additional income they are bringing in from renting out their suburban properties is raising the overall disposable income of township households in a significant way.” 

Township life is not being abandoned, but it is changing rapidly and brands need to keep in touch with the transforming consumer landscape. 

“All of this indicates how rapidly and profoundly the nature and character of the mass market is changing, driven in many ways by access to smartphones and the internet. For marketers of both products and services, this presents a wide array of opportunities, but it does mean that they need to keep their fingers on the pulse of changing trends and to understand that a new world is dawning in the mass market,” concludes Motshegoa.

One way of doing this is for brands to associate themselves with successful newspaper titles in the mass market that have reach across print, online and social media. In order to stay relevant to their readers, these newspapers have to keep up with the mass market. Ads24’s mass market titles,Daily Sun, Son, Soccer Laduma and Ilanga, are read by both traders and consumers in the informal sector and, with their digital properties, they have an unduplicated reach of 9.5 million. 

According to Brad Aigner, MD of Freshly Ground Insights (FGI), “Advertisers can engage most effectively with the informal sector through these newspapers and their digital properties by being honest, consistent and committed. Do not try to pull the wool over this market’s eyes, because they will catch you. Commit to the mass market for the long term and they will commit to you.”