Zimbabwe : business linkages

Section I assesses government policies and other social factors that may prevent larger businesses from seeking and contracting with smaller indigenous businesses for supplies of inputs and subcomponents. Section II identifies existing business support organizations in Zimbabwe and evaluates their potential to provide relevant services. Finally, Section III draws lessons from linkage programs in South Africa and the United States that could be applied to a business linkage programs in Zimbabwe. The research indicated that the government-imposed system of foreign exchange allocations may be one of the greatest obstacles to the expansion of subcontracting in Zimbabwe. Currently, the system of foreign exchange control negatively affects a business"s ability to maintain a steady supply of key inputs and creates an uncertain business environment. This in turn gives firms an incentive to remain large -- both to increase their "muscle" in the capital and foreign exchange markets and also to allow them to maintain larger inventories. At the same time, the uncertainty created by the distribution of foreign exchange (and hence imports) by government authorities pushes firms to control all aspects of a good"s production and distribution. In effect, no matter how inefficient and expensive it becomes for a firm to do everything in-house, internal production is superior to risking subcontracting uncertainties such as timeliness of delivery, and quality and price of products. A second constraint is the insularity of the Zimbabwean businessman, regardless of race. This fear of outsiders causes large firms to deal mainly with companies within the same corporate structure or owned by the same group of persons. Small businesses tend to deal only with family and to keep strangers (even if they have the management skills needed to help the business grow) at arms" length. In both cases, this insularity inhibits the flow of information about the products and services available in the marketplace (and therefore inhibits a firm"s ability to rationalize production by subcontracting) and creates a corporate mentality that is biased against subcontracting. Based on current research, it remains difficult to assess whether this insularity is a product of current policies or has its roots elsewhere. However, if in all probability, the insular mentality resulted because of Zimbabwe"s history and policies, the government"s current Economic Structural Adjustment Program (ESAP) may well help alter the attitude. Zimbabwe"s current program of incentives is primarily one which promotes exports. Since most subcontracting firms would not export directly (instead they would supply exporters with subcomponents or services), the incentives do not directly benefit increased business linkages. However, to the extent that these export incentives translate into more business activity or a more steady flow of foreign exchange, they could indirectly benefit subcontracting activity. For example, as profits increase, an exporter may subcontract for larger orders, or if an exporter has access to foreign exchange and therefore a steady flow on imported raw materials, the exporter could pass these imported inputs on to a subcontractor for processing. Finally, unlike in South Africa, Zimbabwe"s labor unions may lack the political clout needed to derail a business linkage program. In effect, although labor unions may fear a loss of employment or benefits for their members if large businesses spin-off operations to smaller, more efficient entities, labor unions appear to lack the organization or political independence needed to mount an effective campaign against a government-supported business linkage initiative. Inadequate management skills and lack of medium-term financing are two of the major problems facing small businesses that wish to start production, or to expand or modernize. A number of organizations in Zimbabwe provide management training and help to small businesses seeking financing. Programs, such as UN Entrepreneurship Development (EMPRETEC), supported by outside bilateral or multilateral donors, also offer a range of services. But some of these institutions, such as the Indigenous Business Development Centre, may themselves lack the management depth to create an effective business linkage program. A well-designed business linkage program in Zimbabwe should aim not only to aid small businesses but also to build the management capabilities of the implementing organization. A review of business linkage programs in South Africa and the United States highlighted that certain factors must be present to develop a successful program: (1) There must be support from the top. No linkage initiative would succeed without total support of senior management of the large corporations taking part, especially in terms of monetary support, to do such things as create small business development divisions or to subsidize training of the small entrepreneurs with whom relations are formed. (2) Sound business principles must apply -- subcontracting relationships, to be sustainable, must be based on fundamental business principles: lowest price wins the contract, highest quality wins, delivery must be of the right quantity on the promised date. (3) "Hands-on" involvement is imperative. The gap between the business procedures found in most small enterprises (especially in South Africa) and those required by corporate businesses which buy from them is generally great. Full time involvement of skilled personnel in the small entrepreneur"s business in the initial phase is often needed to upgrade operational procedures; on-going involvement can be necessary to verify that procedures and systems are adhered to. (4) Access to capital is vital. Often, programs could succeed only if the small entrepreneurs could gain access to capital to upgrade existing equipment, purchase new equipment, buy raw materials, and fund working capital. Finally, perseverance is a must. Failures in business linkage initiative will be common, especially in countries whose small business enterprises are relatively unsophisticated. A business linkage initiative must be viewed as a long-term project. An understanding is required by the corporate company of the difficult operating conditions faced by small entrepreneurs. Business linkage projects are not new to USAID. There are on- going business linkage activities in Botswana, Swaziland, South Africa, and Kenya. But the activity will be new in Zimbabwe, a sufficiently different environment which will require country-specific interventions. As a result, an effective business linkage program in Zimbabwe will require a pilot program.