The Factors That Influence the Scalability of Tenderpreneurs

THE FACTORS THAT INFLUENCE THE SCALABILITY OF TENDERPRENEURS

Amanda Ngwane

Dissertation submitted in partial fulfilment of the requirements for the

MASTER’S DEGREE IN BUSINESS ADMINISTRATION

in the

FACULTY OF BUSINESS AND ECONOMIC SCIENCES

of the

NELSON MANDELA UNIVERSITY

Supervisor: Professor Margaret Cullen

2019

DECLARATION

DEPARTMENT OF ACADEMIC ADMINISTRATION EXAMINATION SECTION

SUMMERSTRAND NORTH CAMPUS PO Box 77000 Nelson Mandela Metropolitan University Port Elizabeth 6013 Enquiries: Postgraduate Examination Officer

DECLARATION BY CANDIDATE

NAME: Amanda Ngwane

STUDENT NUMBER: 9645449

QUALIFICATION: Master of Business Administration (MBA)

TITLE OF PROJECT: The Factors that Influence the Scalability of Tenderpreneurs

DECLARATION:

In accordance with Rule G4.6.3, I hereby declare that the above-mentioned treatise is my own work and that it has not previously been submitted for assessment to another University or for another qualification.

I hereby give consent for my treatise, if accepted, to be available for distribution and for interlibrary loan, and for the title and summary to be made available to outside organisations.

SIGNATURE:

DATE: 05 December 2018

ACKNOWLEDGEMENTS

The MBA journey would not have been possible without the support from my family, friends, employer, colleagues, Nelson Mandela Business School and other academic institutions. A special thank you goes to the following persons:

 The God Almighty, for preparing me for this journey and surrounding me with your warmth, grace, comfort and endless love. You have watched over me in times of doubt and challenges. You have embraced my fears and in You, I am a conqueror.

 My mother, Nomathamsanqa Ngwane, who gave full support throughout the journey. She committed to live with me and my kids until the completion of my studies. She often reminded what it would mean to her that this journey becomes a success. I was therefore not only doing this for myself and kids, but for her too, to be proud of my success. A heartfelt thank you to this wonderful lady who has without fail, stood by me.

 My two kids, Ayola and Alizwa, who have been patient throughout this journey. They knew that I had to juggle time between home, work and school. They taught me to be the best mom I could ever be. I want them to remember that the sacrifice they made has not been taken for granted. I love them with all of me and I will celebrate this success with them for the rest of my life.

 My dearest friend, Sebastian, who went out of his way to support me and my family when I was consumed by the demands of the programme. He made this journey so much easy by always being there for us. Thank you for being my right-hand man, but most importantly, for being the caring person you have been.

 My employer who afforded me a bursary opportunity that saw me participating in the programme, the study leave that has been granted without reservations and the general support given by my colleagues throughout the journey.

 My friend, Sinenhlanhla, for always cheering me up and saying the right things at the right times. You were meant to be part of this journey. Thanks a lot, for your words of encouragement that kept me going.

 My supervisor, Professor Cullen, for giving me the drive to push even when I had no energy to pick myself. I knew that my association with you will give me nothing but the best. Thank you for giving me the courage to do my research.

 Nelson Mandela Business School, for the conducive learning environment and the professional engagements. I came out a better person from the institution, thank you for the great support you have provided through your staff.

 University of KwaZulu-Natal and Durban University of Technology, for granting me access to their library facilities. The use of their facilities contributed tremendously to the successful completion of my MBA programme. Thank you indeed.

iii

ABSTRACT

This study investigated the scalability of tenderpreneurs in South Africa. The South African government has invested a lot of capital towards small and medium-sized enterprises (SMEs), through the tender system. The unemployment trend in the country continues and is a reflection of symptoms and problems that impede the effectiveness of government initiatives such as the tender system. The main aim of this study was to establish the factors influencing the scalability of tenderpreneurs in South Africa. Further objectives intended to establish the factors that would enable tenderpreneurs to scale their businesses, to define the characteristics of a tenderpreneur in South Africa, to determine the factors that influence the growth of tenderpreneurs in South Africa and to establish the strengths, weaknesses, opportunities for and threats to the scalability of tenderpreneurs in South Africa.

In order to achieve the said objectives, a sample of ten tenderpreneurs from the Ilembe District in KwaZulu-Natal, was selected from an estimated population of over 50 tenderpreneurs in the region, using the convenience sampling technique. The phenomenological paradigm was employed and qualitative research was done using the exploratory research design. Semi-structured interviews were used to collect data for the study.

The findings of this study characterised a tenderpreneur as an individual bent on providing requested services, engaging in competitive bidding, usually awaiting opportunities or bids, who do business with or without prior capital. In the political front, the advent of the end of the apartheid era, the emergence of the democratic movement and emancipation of the black majority contributed to the drive towards business ownership by the previously disadvantaged groups.

Recommendations made included the fact that the relevant government authorities should assist in supporting the tenderpreneurs through a number of policy and political initiatives such as ensuring broader stakeholder participation, fostering established public funded partnerships, mainstreaming corporate social investment to uplift communities, enforce sustainable business practices and drive infrastructure development.

Keywords: Scalability, Tenderpreneurship, Tender System, Government Spending, SME, Unemployment, South Africa.

TABLE OF CONTENTS DECLARATION ...... i

ACKNOWLEDGEMENTS ...... ii

ABSTRACT ...... iv

LIST OF ABBREVIATIONS ...... x

LIST OF FIGURES ...... xi

LIST OF TABLES ...... xii

1 CHAPTER 1: RESEARCH CONTEXT ...... 1

1.1 Introduction ...... 1 1.2 Research Problem ...... 3 1.3 Research Objectives ...... 3 1.4 Research Questions ...... 4 1.5 Research Significance ...... 4 1.5.1 The definition of an “entrepreneur” ...... 5 1.5.2 The activities of a tenderpreneur ...... 5 1.5.3 The models through which tenderpreneurs accumulated capital and business enterprise ...... 5 1.5.4 Other negative or positive sides of tenderpreneurship in South Africa ...... 6 1.6 Research Methodology and Design ...... 7 1.7 Data Analysis ...... 7 1.8 Ethics Clearance ...... 7 1.9 Structure of the Study ...... 8 1.9.1 Chapter 1: Research Context ...... 8 1.9.2 Chapter 2: Literature Review ...... 8 1.9.3 Chapter 3: Research Design and Methodology ...... 8 1.9.4 Chapter 4: Results and Analysis of the Study...... 8 1.9.5 Chapter 5: Recommendations and Conclusion ...... 8 1.10 Summary ...... 9

2 CHAPTER 2: LITERATURE REVIEW ...... 10

2.1 Introduction ...... 10

2.2 The concept of tenderpreneurs ...... 11 2.2.1 The aim of Broad Based Black Economic Empowerment (B-BBEE) ...... 12 2.2.2 The arguments for Broad Based Black Economic Empowerment ...... 13 2.2.3 The arguments against Broad Based Black Economic Empowerment ...... 14 2.2.4 The impact of B-BBEE on economic development...... 15 2.3 Tenderpreneur: Definition and Description ...... 16 2.3.1 Definition of an entrepreneur ...... 16 2.3.2 Definition of tendering ...... 17 2.3.3 Description of a tenderpreneur ...... 18 2.4 The Global perspective of tenderpreneurship ...... 19 2.4.1 Tenderpreneurship in Canada ...... 21 2.4.2 Tenderpreneurship in Australia ...... 21 2.4.3 Tenderpreneurship in Europe ...... 21 2.4.4 Tenderpreneurship in China ...... 22 2.4.5 Tenderpreneurship in Brazil ...... 22 2.4.6 Tenderpreneurship in Russia ...... 23 2.4.7 Tenderpreneurship in South Africa ...... 23 2.5 SMEs in the South African context ...... 24 2.6 Government initiatives that support the growth of the South African SMEs ...... 27 2.6.1 Small Enterprise Development Agency ...... 27 2. 6.2 Small Enterprise Finance Agency ...... 28 2. 6.3 National Empowerment Fund ...... 28 2. 6.4 National Youth Development Agency ...... 28 2. 6.5 Black Business Supplier Development Programme ...... 28 2. 6.6 Technology and Innovation Agency ...... 29 2.7 The limitations to South African SMEs ...... 29 2.7.1 Education ...... 31 2. 7.2 Entrepreneurial training and awareness ...... 31 2. 7.3 Entrepreneurial Intention ...... 32 2. 7.4 Access to Finance ...... 32 2. 7.5 Business support Services ...... 34 2. 7.6 Regulation Framework ...... 34 2. 7.7 Access to Markets ...... 35 2. 7.8 Human Capital ...... 35

vii

2. 7.9 Infrastructure ...... 37 2. 7.10 Networks and Networking Activities ...... 37 2.8 SWOT for the scalability of SMEs in South Africa ...... 38 2. 8.1 Socio-economic ...... 38 2. 8.2 Political ...... 38 2. 8.3 Capital ...... 39 2. 8.4 Technological ...... 39 2. 8.5 Policy ...... 39 2. 8.6 Socio-economic ...... 40 2. 8.7 Capital ...... 40 2. 8.8 Competition ...... 41 2.9 Summary ...... 41

3 CHAPTER 3: RESEARCH DESIGN AND METHODOLOGY ...... 42

3.1 Introduction ...... 42 3.2 Research Design ...... 43 3.2.1 Research Philosophies ...... 44 3.2.2 Research Approach ...... 45 3.2.3 Research Strategy ...... 46 3.2.4 Research Methodology ...... 46 3.2.5 Methodological Choices ...... 47 3.2.6 Time Horizons ...... 47 3. 3 Target Population and Sampling Strategy ...... 48 3. 3.1 Target Population ...... 48 3. 3.2 Sampling Strategy ...... 49 3.4 Data Collection ...... 50 3.5 Interview guide and Administration ...... 51 3.6 Pilot Study ...... 52 3.7 Data Analysis ...... 52 3.8 Trustworthiness and Authenticity of findings ...... 54 3.8.1 Authenticity ...... 54 3.8.2 Trustworthiness ...... 54 3.9 Limitations of the Study ...... 55 3.10 Elimation of Bias ...... 55

viii

3.11 Ethical issues ...... 55 3.11.1 Informed Consent ...... 55 3.11.2 Ensuring no Harm ...... 56 3.11.3 Ensuring Confidentiality and Anonymity ...... 56 3.11.4 Ensuring permission to complete study ...... 56 3.12 Summary ...... 56

4 CHAPTER 4: RESULTS AND ANALYSIS OF THE STUDY ...... 57

4.1 Introduction ...... 57 4.2 Section A: Demographic Data ...... 58 4.3 Section B: Definition and characteristic of South African tenderpreneurs ...... 61 4.4 Section C: The factors that influence the scalability of tenderpreneurs in South Africa ...... 71 4.5 Section D: SWOT for the scalability of tenderpreneurs in South Africa ...... 80 4.6 Section E: Recommendations on dealing with tenderpreneurship in South Africa ...... 91 4.7 Summary ...... 96

5 CHAPTER 5: FINDINGS, RECOMMENDATIONS AND CONCLUSIONS ...... 97

5.1 Introduction ...... 97 5.2 Findings from the Literature Review...... 97 5.3 Findings from the Primary Study ...... 98

5.3.1 Research Question RQ1 ...... 98

5.3.2 Research Question RQ2 ...... 99

5.3.3 Research Question RQ3 ...... 101

5.3.4 Research Question RQ5 ...... 102 5.4 Conclusion ...... 104 5.5 Areas of Further Research ...... 105 5.6 Summary ...... 105

REFERENCE LIST ...... 106

Appendix A: Covering Letter ...... 117

Appendix B: Research Instrument ...... 118

Appendix C: Form E (Research Ethics Clearance) ...... 120

Appendix D: Plagiarism Report ...... 122

LIST OF ABBREVIATIONS

Black Economic Empowerment BEE

Black Business Supplier Development Programme BBSDP

Broad-Based Black Economic Empowerment B-BBEE

Congress of South African Trade Union COSATU

Department of Trade and Industry DTI

Employment Tax Incentive ETI

Ernest and Young EY

European Union EU

Global Entrepreneurship Monitor GEM

Government Procurement Law GPL

Gross Domestic Product GDP

Information, Communication and Technology ICT

National Empowerment Fund NEF

National Youth Development Agency NYDA

Nelson Mandela University NMU

Organisation for Economic Co-operation and Development OECD

Research Objectives RO

Research Questions RQ

Small and Medium Enterprises SMEs

Small and medium sized businesses SMB

Small Enterprise Development Agency SEDA

Small Enterprise Finance Agency SEFA

South Africa SA

South African Revenue Service SARS

Technology and Innovation Agency TIA

LIST OF FIGURES

Figure 1.1 Overview of Chapter 1 ...... 2

Figure 2.1 Overview of Chapter 2 ...... 10 Figure 2.2 The extent of growth factors of SMEs ...... 30

Figure 3.1 Overview of Chapter 3 ...... 43 Figure 3.2 The Research Onion ...... 44 Figure 3.3 Population, Elements and Sample ...... 48 Figure 3.4 Sampling Techniques ...... 49 Figure 3.5 Major theme and broad codes of the study ...... 53

Figure 4.1 Overview of Chapter 4 ...... 57

Figure 5.1 Overview of Chapter 5 ...... 97

LIST OF TABLES

Table 2.1 Share of SME participation in Public Procurement by Country by value .. 20 Table 2.2 The classification of SMEs in South Africa ...... 25 Table 2.3 South African SMEs’ challenges ...... 29

Table 3.1 The differences between quantitative and qualitative research ...... 47

Table 4.1 Disaggregation by Gender...... 60 Table 4.2 Disaggregation by Age ...... 61 Table 4.3 Disaggregation by Highest Level of Education ...... 62 Table 4.4 Disaggregation by Professional Area ...... 62 Table 4.5 Disaggregation by Years as a Practicing Tenderpreneur ...... 63 Table 4.6 Opinion and experience of a tenderpreneur in the South African context 64 Table 4.7 Opinion and experience of a tenderpreneur in the South African context 71 Table 4.8 What changes in South Africa do you think have resulted in the birth of tenderpreneurs? ...... 75 Table 4.9 Tenderpreneurs are growing as a sign of redistribution of wealth ...... 79 Table 4.10The strengths and opportunities that support the growth of tenderpreneurs ...... 83 Table 4.11 Issues that you perceive as threatening the scale up of tenderpreneurship ...... 85 Table 4.12 The contribution of tenderpreneurs to the social economy ...... 89 Table 4.13 Recommendations to the national authorities regarding the tenderpreneurship model ...... 92

xii CHAPTER 1- RESEARCH CONTEXT

1.1 Introduction According to the Department of Trade and Industry (2018), South Africa’s first democratic government brought about legislative frameworks that sought to transform South Africa’s economy. The South African democratic government’s aim was to redress systematic exclusions by the apartheid government, which created political, social and economic imbalances. The impact of these systematic exclusions led to a severe distortion of income distribution amongst the black communities (The DTI, 2018). The Broad-Based Black Economic Empowerment Amendment (B-BBEE) Act of 2013 is one of the legislative frameworks designed to promote economic transformation in South Africa.

The Constitution of South Africa prescribes that procurement policy of any public entity categorises the allocation of contracts and the protection or advancement of persons or provides categories of previously disadvantaged persons (The Constitution of the Republic of South Africa, 1996). The B-BBEE Act places a burden on public entities to develop and implement the Preferential Procurement Policy (The DTI, 2018). The government’s efforts, aimed at creating and growing entrepreneurial activity, gave birth to the concept of tenderpreneurship. A tenderpreneur can be described as an entrepreneur who contracts with any public entity to supply goods or services.

This study specifically investigates the potential of tenderpreneurs as a component of SMEs, to scale their businesses and how they contribute to redressing the economic imbalances caused by South Africa’s apartheid government. South Africa’s government invests large sums of money on small and medium-sized enterprises (SMEs), through its tender system. Despite the injection made by the government into the SME sector, the rate of unemployment remains high and is nullifying the gains from the role played by the SMEs in creating employment opportunities for South African communities (Penfold, 2012).

According to Statistics South Africa (2018), the unemployment rate in the second quarter of 2018 at a national level in South Africa was at 27.2%, representing an increase of 0.5%, when compared to the first quarter. The persistent unemployment

is a socio-economic problem which influences poverty and crime in South Africa (Bhorat et al., 2017). Figure 1.1 below presents the framework of Chapter 1 and the rest of the chapters.

Chapter 1 - Research Context

1.1 Introduction 1.2 Research Problem 1.3 Research Objectives 1.4 Research Questions 1.5 Research Significance 1.6 Research Methodology and Design 1.7Chapter Data 1Analysis - Research Context 1.8 Ethical Clearance 1.9 Format of the Study 1.10 Summary

Chapter 2 – Literature Review

Chapter 3 – Research methodology and design

Chapter 4 – Results and analysis of the empirical study

Chapter 5 – Findings, Recommendations and Conclusions

Figure 1.1: Overview of Chapter 1

SEDA (2012) reported that in South Africa, people do not see entrepreneurship as a possible career option, but rather consider it as a last resort. This is despite the importance of entrepreneurship in economic development and job creation, as acknowledged by many South Africans (SEDA, 2012). The SA Institute for Entrepreneurship (2018) states that the total entrepreneurial activity in the country is way below the required level to contain the unemployment problem.

The unemployment trend in South Africa reflects factors and problems that hold back the effectiveness of government efforts such as the tender system, which is a system whereby a public entity contracts for goods or services (The DTI, 2018). It is therefore in the interest of the government to ensure that the purpose served by its tender system, amongst other initiatives, is inclusive of the entire South African population and not just the recipients of the tender payments.

Since the problem identified by the researcher is the unknown scalability of tenderpreneurs, the study seeks to explore the potential of the tenderpreneurs to scale their businesses, thereby contributing to the economy. The following sections present the problem statement, followed by the research objectives and questions. The significance of the study, as well as the research methodology and design are provided, followed by the data analysis and ethical considerations. The chapter concludes with an overview of the structure of the study.

1.2 Research Problem

The factors influencing the scalability of tenderpreneurs in South Africa are not known.

1.3 Research Objectives The study explores the factors contributing towards the scalability of South African tenderpreneurs, thereby creating awareness for both tenderpreneurs and policy makers of the said factors. The study will review the relevant literature to arrive at more appropriate factors in addressing the problem about the scalability of tenderpreneurs through qualitative enquiry.

1.3.1 Main Research Objective (ROM)

Main research objective (ROM) of the study was:

 To establish the factors that would enable tenderpreneurs to scale their businesses in South Africa.

1.3.2 The Research Objectives

In order to achieve ROM, the following secondary objectives must be achieved:

 RO1: To define South African tenderpreneurs and provide their characteristics.

 RO2: To establish the strengths, weaknesses, opportunities for and threats to the scalability of tenderpreneurs in South Africa.

 RO3: To explain and justify the research methodology used in the study.

 RO4: To make recommendations to the relevant government authorities on

dealing with tenderpreneurship in South Africa.

1.4 Research Questions

The research questions were identified, to solve the research problem, thereby achieving the research objectives:

1.4.1 The Main Research Question (RQM)

The main research question (RQM) is based on the main research objective and is stated as follows:

 What are the factors that enable tenderpreneurs to scale their businesses in South Africa?

1.4.2 The Research Questions

The research questions below seek to address the secondary research objectives:

 RQ1: What are the characteristics of a tenderpreneur in South Africa?

 RQ2: What are the strengths, weaknesses, opportunities of and threats to the tenderpreneurs in South Africa?

 RQ3: How can the research methodology applied in this study contribute to the unknown scalability of tenderpreneurs?

 RQ4: What recommendations may be made to the relevant government authorities on dealing with tenderpreneurship in South Africa?

1.5 Research Significance The aim of the findings of this study was to provide information to the authorities who manage the tendepreneurial process, on how to manage the process and extent of tenderpreneurial process in South Africa, so that tenderpreneurial businesses can be scaled. The findings of this study will also add to what is known in literature, regarding tenderpreneurship, as this is a relatively new concept and will add value to what is known on the subject at an empirical basis. Research has been published with regard to the topic of this study. Below is a general sample of literary sources on published tenderpreneurial activity in South Africa:

1.5.1 The definition of an “entrepreneur”  Burger, C. (2010) Professional Engineer, Ingqandi Consulting. Statement to author, 23 March. East London. South Africa.  Gartner, W. (1989). “Who is an entrepreneur?” Is the Wrong Person. https://www.researchgate.net/publication/237360637_%27_Who_Is_an_Entrep reneur._Is_the_Wrong_Question. Retrieved on 26 July 2018.  Mahadea, D. & Kaseeram, I., (2018). Impact of unemployment and income on entrepreneurship in post-apartheid South Africa: 1994–2015. The Southern African Journal of Entrepreneurship and Small Business Management, p 1-9. ISSN: (Online) 2071-3185, (Print) 2522-7343. AOSIS.  Mbeki, M. (2009). Architects of poverty: why African capitalism needs changing. Johannesburg: Picador Africa.

1.5.2 The activities of a tenderpreneur.  Kalula, E. & M’Paradzi, A. (2008). Black economic empowerment: can there be trickle down benefits for workers? www.research2008.net.ac.za/pdfs/Research 2008.pdf. Retrieved on 24 July 2018.  Omondi, D (2018). The ‘tenderpreneur’ legacy that is destroying Kenya’s private sector. https://www.standardmedia.co.ke/business/article/2001288358/the-making-of- faceless-tenderpreneurs. Retrieved on 02 August 2018.  S.A. Tenders (2018). Tenders Explained. https://www.sa- tenders.co.za/content/hints-tips-and-news/tenders-explained. Retrieved on 28 July 2018.

1.5.3 The models through which tenderpreneurs accumulate capital and business enterprise.  Fritz, A (2014). Tenderpreneurship is the stuff of crooked cadres & fighters. https://www.gov.za/tenderpreneurship-stuff-crooked-cadres-fighters. Retrieved on 02 August 2018.  GEM. (2014). The crossroads - a goldmine or a time bomb? Cape Town: Global Entrepreneurship Monitor.

 Mbeki, M. (2016). A manifesto for social change: How to survive South Africa. Johannesburg: Picador Africa.  Omidyar Network (2012). Omidyar Network and Monitor Group reveal initial results of accelerating entrepreneurship in Africa survey. http://www.omidyar.com/news/omidyar-network-and-monitor-group-reveal-initial- results-accelerating-entrepreneurship-africa. Retrieved 25 July 2018.

1.5.4 Other negative or positive sides of tenderpreneurship in South Africa.  Bolton W.K. and Thompson J.L. (2000) Entrepreneurs: Talent, Temperament, Technique. Butterworth Heinemann, Oxford.  Chen, L. & Thompson, P., (2016), ‘Skill balance and entrepreneurship’, Entrepreneurship Theory and Practice 40(2), 289–306. https://doi.org/10.1111/etap.12220. Retrieved 24 July 2018.  Department of Basic Education (DBE) (2012), School realities 2012.  Mackenzie-Hoy, T (2010). Tenderpreneurs frustrating legitimate contractors. Engineering News, 05 March 2010. www.engineeringnews.co.za/article/tenderpreneurs-frustrating-legitimate- contractors-2010-03-05/rep_id:4136. Retrieved on 29 July 2018.

 Olawale, F and Garwe, D. (2010). Obstacles to the growth of new SMEs in South Africa: A principal component analysis approach. African Journal of Business Management 4(5), pp. 729-738.  Penfold, E., (2012). Create entrepreneurs instead of tenderpreneurs. http://transformationaudit.org/blog/wp- content/uploads/2013/02/Create%20entrepreneurs%20instead%20of%20tenderp reneurs.pdf. Retrieved on 15 July 2018.

1.6 Research Methodology and Design

The sections below provide a description of the research approach and design of the study.

1.6.1 Research Approach

The study is located in the phenomenological paradigm and employs the qualitative method. A phenomenological paradigm enabled the researcher to obtain greater knowledge that is based on opinions, insights and experiences of participants.

1.6.2 Research Design

This study was exploratory as it aimed at providing a great exploration and insight into the subject of study. The exploratory research design only aimed to deeply explore the scenario, but was not meant to be correlational, analytic, causal- comparative or aimed at making conclusions on a subject of study. However, the exploratory design allowed for the generation of deeper information that allows for an objective assessment` of the results.

1.7 Data Analysis

In this study, the qualitative research methodology was used. Data were collected using semi-structured questionnaires and the process was recorded using a vocal recorder after verbal consent of all participants. The responses from all the participants were transcribed into short phrases called themes and subthemes, which were analysed using thematic analysis. The data were analysed and discussed in relation to the literature gathered on the subject matter. .

1.8 Ethical Consideration

Adams and Lawrence (2015, p. 291) state that there are boundaries of ethical issues in the practice of research activities. In this study, the following ethical issues were dealt with. Babbie (2014) states that participants should be given a covering letter informing them about the process of the study and requesting for their voluntary participation in the study. All participants were therefore provided with a copy of the covering letter, requesting their voluntary participation to conduct the study (see Appendix A). The researcher ensured the safety of the participants and no physical or psychological event or activity occurred, that could cause harm. The collected data was kept safely in password-protected computer files. Ethics Clearance application (Appendix C – Form E) was submitted for approval to the Ethics Committee at Nelson Mandela University Business School.

1.9 Format of the Study

The section provides an overview of chapters covered in this research study.

Chapter 1: Introduction to the Context

Chapter 1 sets the context of the overall research study. This chapter contains the background to the study and problem statement, research objectives and questions of the study. The chapter also informs the reader of the research approach and design, data analysis and ethical consideration applied in the study.

Chapter 2: Literature Review

Chapter 2 contains a review of the relevant literature for this study. This chapter investigates the factors that influence the scalability of tenderpreneurs thus developing insights on the main research question of the study: “What are the factors that enable tenderpreneurs to scale their businesses in South Africa?”

Chapter 3: Research Design and Methodology

Research question RQ3: “How can the research methodology applied in this study contribute to the unknown scalability of tenderpreneurs?” is addressed in Chapter 3. In this chapter, the research methodology, research instruments, data collection and analysis are outlined. The chapter also describes and justifies the choice of research methodology applied in this study.

Chapter 4: Results and Analysis of the Empirical Study

Chapter 4 addresses research question RQ1: “What are the characteristics of a tenderpreneur in South Africa?” and research question RQ2: “What are the strengths, weaknesses, opportunities of and threats to the tenderpreneurs in South Africa?” This chapter presents, describes, analyses and interprets the findings of the study. This chapter also discusses the findings in line with the research objectives and the preliminary findings of the literature review.

Chapter 5: Recommendations and Conclusions

Chapter 5 documents the conclusions to the study. The chapter also documents the recommendations of the study and the overall conclusions of the study. This chapter

therefore addresses research question RQ4: What recommendations may be made to the relevant government authorities on dealing with tenderpreneurship in South Africa? The chapter concludes with a summary of areas for further research study.

1.10 Summary

Chapter 1 introduced the study, its objectives, reasons and significance. The research methodology was discussed as well as the data analysis, structure of the treatise and the ethical issues. Chapter 2 discusses the literature relevant to study.

CHAPTER 2: LITERATURE REVIEW

2.1 Introduction

Chapter 1 described background to the study of the scalability of tenderpreneurs in South Africa. It provided an explanation of the nature and extent of the research problem. Chapter 2 reviews the available literature pertaining to perspectives of the tenderpreneurship concept. The chapter aims to investigate the factors influencing the scalability of tenderpreneurs. The chapter therefore reports on the main research question, RQM, “What are the factors that enable tenderpreneurs to scale their businesses in South Africa?” The results address the main research objective, ROM, “To establish the factors that would enable tenderpreneurs to scale their businesses in South Africa”.

The section below provides an insight on the concept of tenderpreneurship. The different perspectives about tenderpreneurship are discussed in the section. Finally, the chapter will report on the summary of the key findings of the literature review. The summary will include the factors that impede the scalability of tenderpreneurs. Figure 2.1 illustrates the layout of Chapter 2.

Chapter 1 - Research Context

Chapter 2 – Literature Review

2.1 Introduction 2.2 The concept of Tenderpreneurs 2.3 Definitions and Descriptions 2.4 Global perspective of entrepreneurship 2.5 SMEs in South Africa 2.6 The limitations to entrepreneurship 2.7 The scalability of Tenderpreneurs – Conceptual Model 2.8 Summary

Chapter 3 – Research methodology and design

Chapter 4 – Results and analysis of the empirical study

Chapter 5 – Findings, Recommendations and Conclusions

Figure 2.1 Overview of Chapter 2

2.2 The concept of tenderpreneurship

The increasing unemployment rate in South Africa is a big challenge which results in the thinking that South Africa should employ strategies that foster more job creators than prospective employees (Penfold, 2012). In other words, the South African economy needs sustainable entrepreneurial growth. Penfold (2012) stated that a decrease in employment has a negative impact on skills development and transfer. She argued that by not engaging in active skills development and gaining work experience, the potential for further employment is reduced (Penfold, 2012).

Penfold (2012) further stated that the escalation of unemployment is far-reaching and the tools that the government and the private sector can employ to stop it are limited. Against a backdrop of poverty, income inequality and rising unemployment in South Africa, entrepreneurship development, by way of creating and expanding small and medium enterprises (SMEs), is important for economic growth (Herbst & Mills, 2015; Herrington, Kew & Mwanga, 2017).

Mahadea and Kaseeram (2016) mentioned that entrepreneurship is responsible for generating income, output and employment through employing labour and capital. According to Fritz (2014), the Black Economic Empowerment (BEE) Act of 2003 resulted in the unintended consequences of influential and/or well-connected individuals of colour jumping the economic queue. The Act also called for preferential procurement practices aimed at giving small black business a hand-up and foot in the economy (Fritz, 2014). The government’s efforts, aimed at creating and growing entrepreneurial activity, therefore gave birth to the concept of tenderpreneurship.

According to Penfold (2012), tenderpreneurship has been tainted by unnecessary scepticism, where it has been associated with individuals and/or companies who use their political connections, instead of their skills, at the expense of the more deserving candidates, to obtain government tenders. She blames the negative association of many South Africans with the concept of tenderpreneurs to the connotations of corruption and the distortion of the well-intended B-BBEE objectives. The perceptions of many South Africans include a limitation posed by tenderpreneurs to the growth of non-politically connected entrepreneurs.

The former Public Prosecutor, Thuli Mandonsela, highlighted that the Black Economic Empowerment has failed to support smaller companies that compete for tenders. She explained that companies that had relied solely on the acquisition of tenders for their survival were inclined to be corrupt (Mackenzie-Hoy, 2010).

2.2.1 The aim of the Broad-based Black Economic Empowerment (B-BBEE)

According to the Department of Trade and Industry (2018), South Africa's first democratic government had a mandate to redress the political, social and economic imbalances of the apartheid government. Since then, the government has embarked on provision of a legislative framework for the transformation of South Africa's economy. In 2013, the B-BBEE Strategy was published as a precursor to the B- BBEE Act, No. 53 of 2003. The fundamental objective of the Act is the social inclusion of black people in the South African economy. The Department of Trade and Industry (2018) pointed the aims of the B-BBEE strategy to be economic development and an increase in the number of black owned businesses. B-BBEE’s strategic objective is also to place black people in senior positions and increase the income levels of black individuals within qualifying B-BBEE companies (The Department of Trade and Industry, 2018).

Penfold (2012) highlighted the aim behind the amended requirements for bidders to present scorecards that prove their B-BBEE compliance. The amendments prevented the practice of fronting, where company governance structures were artificially restructured to give the false impression of black ownership. A company has to provide a verified scorecard (Penfold, 2012). When companies fall short in terms of compliance, they will be disqualified from the tender process. The scorecards will force business owners to ensure that essential areas of business development, including skills and entrepreneurial acumen, are established and provisionally funded (Penfold, 2012).

2.2.2 The arguments for the Broad-Based Black Economic Empowerment

Shava (2016) argued that despite the many challenges facing the local government in South Africa, the Black Economic Empowerment, if well implemented, can still resuscitate the economy of the country by empowering emerging black entrepreneurs and small businesses with funding and equal opportunities to attain

tenders that can uplift their standards of living. He asserted that the South African government should encourage entrepreneurship and innovation among the Black South Africans. Skills development and training programmes need to be strategically implemented in various black communities and with emerging entrepreneurs, since they are fundamental in generating employment and uplifting standards of living (Shava, 2016).

National Wide Security (2018) and Michael Denenga, the Founder and Director of The Corporate Counsel, as quoted by the Destiny Man (2010), agree about the ripple benefit effect of the B-BBEE. They argue that in pursuance of procurement targets, companies support black suppliers who in turn support black service providers in their value chain. They stated that the B-BBEE has far-reaching implications for economic growth and the growth of the black middle class. The Destiny Man (2010) cited Denenga saying that the B-BBEE transactions have not only seen many aspiring black business people benefitting from owning shares in established businesses, but that have also participated in decision making.

Ronald Makomva, an Associate Director at Sphere Holdings, was cited by the Destiny Man (2010) as saying that the B-BBEE is necessary if South Africa is to achieve sustainable growth and attract foreign direct investment. Makomva believes that the B-BBEE has both socio-economic and macro-economic benefits which are critical for the future economic growth, political stability and ultimate success of the country (Destiny Man, 2010).

2.2.3 The arguments against Broad-Based Black Economic Empowerment

Kalula and M’Paradzi (2008) argued that the Constitution of South Africa (1996) condemns all acts of gross economic disempowerment of non-white individuals during the apartheid era and gives leeway to the implementation of Black Economic Empowerment in local government, which is a fundamental and entrepreneurial strategy towards controlling and equitably redistributing the resources of the country across all races.

Shava (2016) observed that the Black Economic Empowerment has led to the emergence of powerful black individuals who manipulate the procurement systems at local government level, thereby giving tenders to their friends, peers and relatives.

Fraud and fronting have been constraining the attributes, which thus compromises the Black Economic Empowerment procurement systems, hence increasing the poverty gap in several marginalised groups in South African communities.

The Black Economic Empowerment has done little to assist the deserving Black South Africans, since the tendering system seems to benefit the few minority organisations that have enough human and financial resources to exploit big contracts. Skills deficit, coupled with limited funding and poor monitoring of procurement systems, cause corruption to persist undetected, which causes the rise of unemployment and poverty among the economically active groups in the country (Shava, 2016). Mbeki (2016) also condemned the Black Economic Empowerment, as it has promoted ‘tenderpreneurs’ or thieves who acquire tender through politically motivated influence. Mavundla (2010), who was the President of the National African Federated Chamber of Commerce and Industry, lambasted the Black Economic Empowerment and its procurement systems, as it has impoverished emerging entrepreneurs and small businesses, instead of assisting them. He argued that small businesses provide jobs, but tenders and the Black Economic Empowerment do not. Mavundla (2010) referred to tenders and the Black Economic Empowerment as benefiting only one or a few individuals. The former Deputy Minister of Trade and Industry, Elizabeth Thabethe, as cited by Khanyile (2010), acknowledged that Black Economic Empowerment has been promoted at the expense of small businesses and that the department needs to find the balance between the two.

Mbeki (2009), a political analyst from 1998-2008, boldly spoke about the need to “formalize BEE through legislation”. In Mbeki’s opinion, the Black Economic Empowerment creates a form of “black entrepreneurship”, whereby small “classes of unproductive but wealthy black crony capitalists” consisting of African National Congress politicians become rich and strong allies of the economic oligarchy. Mbeki (2009) stated that the BEE and its subsidiaries (affirmative action and affirmative procurement) have become both the core black ideology of the black political elite and simultaneously, the driving material and enrichment agenda, which is to be achieved by maximising the process of reparations that accrue to the political elite.

2.2.4 Impact of Broad-Based Black Economic Empowerment policy on economic development

The Black Economic Empowerment policy was meant to economically empower black people (workers, women, men, disabled persons and rural citizens) (Burger, 2010). The policy is meant to increase control ownership and management of properties by black people in an equitable and sustainable manner in all sectors of employment and governments. This was enabled through the preferential procurement policies.

Shava (2016) identified various challenges and prospects associated with the Black Economic Empowerment as an economic development policy aimed at redistributing wealth to the previously marginalised people in South Africa. He argued for the need to curb corruption in the Black Economic Empowerment tendering system. He also acknowledged the advent of government tenders that has caused what most South Africans call “tenderpreneurship”, or acts of gross nepotism, fraud and mismanagement that have crippled the intended purpose of the Black Economic Empowerment as an employment creation mechanism in South Africa.

Senior or awarding public officials in the tendering or procurement system are not paying attention to detail. The Black Economic Empowerment system, which stipulates the awarding of tenders to deserving Black South Africans in diverse economic activities, has bred more harm than good for most of the citizens (Shava, 2016).

Shava (2016) concluded that evidence on the ground proves otherwise, as the Black Economic Empowerment contributes to the development of classes, where the rich Black entrepreneurs emerged, thereby widening the poverty gap between the rich and poor in communities, instead of regenerating employment in local municipalities.

Secondary evidence reveals that the Black Economic Empowerment in South Africa is being constrained by corruption, fraud, mismanagement, poor accountability, lack of monitoring and evaluation, difficulties in registering companies, lack of demand management and gross incompetence by the public officials across municipalities. These obstacles have hindered the capacity of the Black Economic Empowerment to

become an economic imperative aimed at redressing past imbalances (Shava, 2016).

Penfold (2012) described the Broad-Based Black Economic Empowerment as the promotion of wealth creation for the previously disadvantaged communities to gain a foothold in the economy. She argued that the practical implementation of these policies has drawn criticism from those who claim that a small group of politically connected individuals has exploited them for their own narrow benefit. The following subsections provide some descriptions of “tenderpreneur” and “tenderpreneurship”. Tenderpreneurship is discussed in the context of its contribution to the economy, as a component of the SME sector.

2.3 Tenderpreneur: Definition and Description

The word ‘tenderpreneur’ ‘is a portmanteau of tendering and entrepreneur (Fritz, 2014). The concept of ‘tenderpreneurs’ is relatively new and for the purpose of this study, the definitions of tendering and entrepreneur are explored and thereafter the available descriptions of what a ‘tenderpreneur’ are examined.

2.3.1 Definition of an Entrepreneur

Gartner (1989), cited Cole (1969), arguing that researchers had not succeeded in defining an entrepreneur and concluded that each of the researchers had some notion of it. Brockhaus and Horwitz (1985) emphasised that there is no generic definition of the entrepreneur, and thus explained that most of the attempts to distinguish between entrepreneurs and small business owners or managers have discovered no significant differentiating features.

Schumpeter (1965) defined entrepreneurs as individuals who exploit market opportunity through technical and/or organisational innovation. According to Peter Drucker (1970), as cited by Gartner (1989), entrepreneurship is about taking risk. For Hisrich (1990), an entrepreneur is characterised as someone who demonstrates initiative and creative thinking, is able to organise social and economic mechanisms to turn resources and situations to practical account and accepts risk and failure.

Bolton and Thompson (2000) defined an entrepreneur as a person who habitually creates and innovates to build something of recognised value around perceived

opportunities. Onuoha (2007) defined entrepreneurship as the practice of starting new organisations or revitalising mature organisations, particularly new businesses generally in response to identified opportunities. The Small Enterprise Development Agency (2018) defines an entrepreneur as a person who identifies business opportunities, in the face of risk and uncertainty, for profit.

The Global Entrepreneurship Index (2018) defines an entrepreneur as a person with the vision to see an innovation and the ability to bring it to the market. The Global Entrepreneurship Index (2018) distinguishes between a business owner who replicates what others are doing and an entrepreneur who is innovative and concludes that entrepreneurs are a bridge between inventions and commercialisation.

2.3.2 Definition of tendering

SA Tenders (2018) describes tendering as a process of making an offer, bid or proposal. Tendering can also be expressing interest in response to an invitation or request for tender. The tendering process is generally used by government departments, offices, agencies, the private sector companies and businesses for procurements or contracts involving substantial amounts of money (SA Tenders, 2018).

SA Tenders (2018) explains that a tender is an offer to perform work, supply goods, services or products at a fixed price. Tracker (2018), a market leader in tendering intelligence in Europe, agreed to the explanation by SA Tenders and referred to tenders as contract opportunities published by a public sector organisation for goods, services, works and utilities. In the public sector context, the word tender refers to the whole tendering process from contract notice to the tender bid. Once the tenderer accepts a tender, it is binding to both the tenderer and the person or company who won the tender. Therefore, the person or company has to provide the goods or services in the manner agreed to and at the price offered. In turn, the tenderer must pay the agreed price on the agreed deadline (SA Tenders, 2018).

Tenders are usually widely advertised in both print and electronic publications. This is to allow as many people as possible to take note of the opportunity. It also stimulates competition and provides a wide variety of choice. Interested suppliers will

then prepare a tender response to the offer, including pricing, schedules, as well as their eligibility for the project (SA Tenders, 2018). Tracker (2018) state that the public procurement process allows public sector organisations to generate competing offers that meet specific requirements.

2.3.3 Description of a tenderpreneur

‘Tenderpreneur’ is a South African colloquialism for a businessperson who uses political contacts to secure government procurement contracts (called ‘tenders’) often as part of reciprocal exchange of favours or benefits. The term is a portmanteau of ‘tender’ (to provide business services) and ‘entrepreneur’. Today, ‘tenderpreneurs’ are associated with corruption, nepotism and clientelism. This is because the award of many tenders is driven by informal interests and/or political affiliation, rather than the requirements of formal procedure. The informality of ‘tenderpreneurship’ thus resides in these extra-legal social and political relationships.” (Piper & Charman, 2018, p.1)

Tenderpreneur describes a person within or outside the government, who abuses their political power and/or influence to secure government tenders and contracts (Fritz, 2014). According to Mackenzie-Hoy (2010), a tenderpreneur in South Africa is a person who has made an extraordinary sum of money from a government contract that has been awarded for some sort of service.

Ribeiro et al. (2015) cited the Congress of South African Trade Union (COSATU) former general secretary Zwelinzima Vavi, stating that a ‘tenderpreneur’ is a person who uses his political connections to win tenders and provides services that are substandard to the government. Tenderpreneurs sideline more skilled entrepreneurs that can provide proper services to the government (Ribeiro et al., 2015).

Omondi (2018) describes tenderpreneurs as opportunistic. He further describes them as those who obtain government tenders and enrich themselves by supplying anything to governments (Omondi, 2018). Dr Ndii, an economist and critic of the Jubilee Government, refers to public procurement in Kenya as a casino economy. Kenyans are gambling for government tenders and sell to the government, items that they are not even traders of (Omondi, 2018).

It can therefore be concluded that the word tenderpreneur describes a person who obtains a tender to provide goods or services to an organ of the state. The different perspectives about tenderpreneurship are discussed in the next section.

2.4 Global perspective of tenderpreneurship

SMEs are by far the most common businesses around the world. The economic role played by SMEs is therefore recognised worldwide. Given the proportion of the economy that SMEs take up, their role in economic development is crucial. SMEs provide a disproportionate share of gross and net new jobs and high growth new firms provide most new firm jobs (SBP: Business Environment Specialists, 2017).

According to Makhmudova and Korolveva (2017), the economic functions of SMEs are defined by their role as employers, taxpayers, producers or service providers, innovators and economic agents. These authors claim that a small business is an economic, social and political role player that defines the economic development of any countries. This is agreed to by Mills et al. (2016), who assert that the developed economic system is based on its small entrepreneurial sector that allows it to solve serious economic and social tasks. Wessner (2009) argues that small businesses have a vivid regional nature and focus on the needs of the local market. He concludes that their specificity is related to a considerable reference of their activities.

Gafurova et al. (2016) state that severe budgetary constraints and economic stagnation add to the problem of access of small businesses to the government. Procurement will help to solve other problems such as unemployment, the growth of tax revenues from small businesses to the budget system and expand competition in the public sector (p7).

The share of public purchases as a percentage of GDP is reflected in the significant participation of SMEs in public procurement and is shown in Table 2.1 below. The table also provides a sample of SME participation rates in public procurement, illustrated in terms of value of contracts awarded.

Table 2.1: Share of SME Participation in Public Procurement by country and value

Country SME Percentage share

Austria 48%

Brazil 30%

Czech Republic 59%

France 35%

Germany 37%

Greece 78%

Ireland 65%

Mexico 15%

United Kingdom 31%

United States 23%

(Source: The Business Environment Working Group – 2017)

Aguilar (2016) describes that the participation of SMEs in public procurement may be direct, either because the SME is selling the product that another enterprise manufactured, or because the SME is the manufacturer selling, or indirect when they are the manufacturer or provider of materials, but another enterprise sells directly to the public sector. The SME could also be part of a bid as a sub-contractor or be the contractors themselves. The SMEs take part directly in public procurement by offering directly and competing with any size of competitors, or as subcontracts, or by directly offering through special programmes that give them preference (Aguilar, 2016).

Tenderpreneurship is a South African term, which, for the purpose of this study, will be used to describe SMEs which do business with the public sector. The following section provides an overview of the public sector procurement practices across the globe and their contribution to economic development.

2.4.1 Tenderpreneurship in Canada

Berg (2018) reports Canada as representing a market opportunity for small businesses. Government spending in Canada was reported as $344.24 billion representing 20.82% of GDP (World Bank, 2017). The government of Canada secure 475 000 contracts with 300 000 suppliers every year, with most of the country’s companies being small and medium sized businesses (SMBs). The SMBs in Canada are 2.4 million, when compared to 13 000 large corporations. Canada has also improved its bidding process and systems to become user friendly and accessible to the small business owners who want to bid on government contracts (Berg, 2018). The next subsection will explore the impact of Australian procurement system on Australia’s economy.

2.4.2 Tenderpreneurship in Australia

Carnell (2018) points out the potential millions of dollars’ worth of government procurement contracts in Australia for small-to-medium sized enterprises. According to Carnell, Australian SMEs are 99 per cent of Australian businesses, employing almost half of Australian workers and creating a substantial proportion of new jobs. Bloom (2017) stated that SMEs in Australia contribute about 57% of Australia’s GDP. Innovative Science Australia recommended that government increases its procurement target for Australian SMEs to 33% of contracts by dollar value. The next subsection explores how public procurement creates economic opportunities for European businesses in the global markets.

2.4.3 Tenderpreneurship in Europe

The European Commission (2018) argues that SMEs are the backbone of Europe's economy and represent 99% of all businesses in the European Union (EU). SMEs have created approximately 85% of new jobs and provided two-thirds of the total private sector employment in the EU. The European Commission considers SMEs and entrepreneurship as key to ensuring economic growth, innovation, job creation and social integration in the EU. In 2017, the GDP in the EU amounted to around 15.33 trillion Euros. Over 250 000 public authorities in the EU spend around 14% of GDP on the purchase of services, works and supplies annually. The EU advocates open international public procurement markets for certain goods and services and

works to help EU companies get access to global public procurement markets (European Commission, 2018). The next subsection discusses the procurement system of China.

2.4.4 Tenderpreneurship in China

China’s government spending for 2017 amounted to $1745.06 billion, which represented 14.26% of GDP (World Bank, 2017). According to the OECD (2016), the Chinese government adopted a number of laws and measures that promote the development of SMEs. Government Procurement Law (GPL) 2002 provides in Article 9 that “Government procurement shall be conducted in such a manner as to facilitate achievement of the economic and social development policy goals of the State, including but not limited to environmental protection, assistance of underdeveloped or ethnic minority regions, and development of small and medium sized enterprises”. Law on Promotion of Small and Medium-sized Enterprises 2002 provides in Article 34 that “In government procurement, preference shall be arranged to goods or services originated from SMEs”.

The 2011 Interim Measure on Facilitating the Development of SMEs in Government Procurement provides that 30% of government procurement budget shall be set aside to purchase goods and services from SMEs and 60% of such reserved contracts shall be awarded to small or micro enterprises. The Interim Measure also encourages big companies to use SMEs as subcontractors, to form consortia with SMEs and encourage financial institutions to provide credits/guarantees for SMEs to pay deposits and perform the contract (OECD, 2016).

2.4.5 Tenderpreneurship in Brazil

According to Aguilar (2016), Brazil has around 8.5 million small businesses, representing 99% of total Brazil’s businesses and generating 52% of employment. Fifty seven percent of the suppliers to public procurement in Brazil are SMEs. Brazil’s government spending for 2017 amounted to $412.09 billion, which represented 20.05% of GDP (World Bank, 2017).

Aguilar (2016) alluded that Brazil has different laws regarding sustainable public procurement that grants preferential treatment for micro-enterprises and small enterprises in many circumstances, including public bidding procedures. Therefore,

in the case of a tie between the proposals of a micro-enterprise or a small enterprise and of an ordinary company, the public administration must grant priority rights to the former over the latter. The Brazilian laws include public procurements of up to BRL80,000 that must be carried out by means of bidding procedures exclusive for small and micro enterprises. The public administration may require bidders to subcontract the small and micro enterprises for the provision of certain services or goods. The next section explores Russia’s public procurement system and SMEs.

2.4.6 Tenderpreneurship in Russia

According to the Russia Business Today (2018), the share of small and medium businesses in Russia’s GDP is currently about 20%. The newspaper cited the Russian President, Putin (2018), stating that by the middle of the next decade, small and medium business contribution to the country’s GDP should approach 40% and the number of employed there should grow from 19 million to 25 million people.

OECD (2015) cited that the public procurement market in the Russia is worth about RUB13 trillion per year and therefore, represents a potential tool for SME and entrepreneurship promotion. In 2005, between 10% and 20% public procurement contracts were aimed at small businesses. In 2009, the public procurement contract value for small businesses was fixed at RUB15 million to make it feasible for small businesses to submit bids and ensure that they were competing against each other and not against large businesses. In 2011, the provisions of the procurement policies were extended to state owned enterprises and their subsidiaries. In 2013, the quota of procurement from small business was increased from 10% to 15%, thereby increasing the proportion of public contracts going to small businesses. New policies to combat corruption in the awarding of public contracts were also introduced in 2013 (OECD, 2015).

This section explored Russia’s public procurement system and SMEs. The next section highlights SMEs’ contribution to South Africa’s economy.

2.4.7 Tenderpreneurship in South Africa

In South Africa, SMEs make up 91% of formalised businesses, provide employment for about 60% of the labour force and total economic output accounts for roughly 34% of GDP (The Banking Association South Africa, 2018). The South African

former Minister of Finance, Malusi Gigaba, stated in his budget speech that the public procurement policies were being strengthened in a bid to support black economic empowerment, industrialisation and the development of small businesses (SME South Africa, 2018).

According to Quinot (2017), an important dimension of public procurement law in South Africa is the granting of preferences to certain categories of suppliers in support of economic transformation. This practice, which is known as preferential procurement, is based on Section 217(2) of the Constitution of the Republic of South Africa Act No. 108 of 1996, which allows for “categories of preference in the allocation of contracts”. South Africa’s procurement policy prescribes a pre- qualification criterion for a government tender to be reserved, for example, for certain small businesses or bidders who subcontract at least 30% of the contract to small businesses, 51% owned by women or Black youth.

According to Ambe and Badenhorst-Weiss (2012), a procurement reform led to an introduction of a supply chain management system in 2003 to institute best procurement practices. The implementation of these reforms was the government’s attempt to correct the inconsistent policy application that defeated the desired public procurement policy outcomes (McCrudden, 2004, p. 257).

This subsection highlighted the SMEs and public procurement system in South Africa. In the next subsection, SMEs in the South African context are explored.

2.5 SMEs in the South African context SMEs are described by the National Small Business Act of 1996 as amended in 2003, as a “separate and distinct entity including cooperative enterprises and non- governmental organisations managed by one owner or more, including its branches or subsidiaries (Government Gazette of the Republic of South Africa, 2003). The National Small Business Amendment Act (26 of 2003) further defined business according to five categories established by the original act, namely, standard industrial sector and subsector classification, size of class, equivalent of paid employees, turnover and asset value – excluding fixed property (The Banking Association South Africa, 2018). Table 2.2 provides a summary of the businesses within the SME sector of South Africa.

Table 2.2 The classification of SMEs in South Africa

Sector or subsector in The total fulltime Total gross asset Size of Total accordance with the standard equivalent of paid value (fixed class turnover Industrial Classification employees property excluded) Agriculture Medium 100 R5m R5m Small 50 R3m R3m Very 10 R0.50m R0.50m Small Micro 5 R0.20m R0.10m Mining and Quarrying Medium 200 R39m R23m Small 50 R10m R6m Very 20 R4m R2m Small Micro 5 R0.20m R0.10m Manufacturing Medium 200 R51m R19m Small 50 R13m R5m Very 20 R5m R2m Small Micro 5 R0.20m R0.10m Electricity, Gas and Water Medium 200 R51m R19m Small 50 R13m R5m Very 20 R5.10m R1.90m Small Micro 5 R0.20m R0.10m Construction Medium 200 R26m R5m Small 50 R6m R1m Very 20 R3m R0.50m Small Micro 5 R0.20m R0.10m Retail and Motor Trade and Repair Medium 200 R39m R6m Services Small 50 R19m R3m Very 20 R4m R0.60m Small R0.20m Micro 5 R0.10m

R10m Medium 200 Wholesale Trade, Commercial R64m Agents and Allied Services

Small 50 R32m R5m Very 20 R6m R0.60m Small Micro 5 R0.20m R0.10m Medium 200 R13m R3m Catering, Accommodation and other Trade

Small 50 R6m R1m Very 20 R5.10m R1.90m Small Micro 5 R0.20m R0.10m R6m Transport, Storage and Medium 200 R26m communications

Small 50 R13m R3m Very 20 R3m R0.60m Small Micro 5 R0.20m R0.10m

Medium 200 R26m R5m Finance and Business

Services

Small 50 R13m R3m Very 20 R3m R0.50m Small Micro 5 R0.20m R0.10m Medium 200 R13m R6m Community, Social and Personal Services

Small 50 R6m R3m Very 20 R1m R0.60m Small Micro 5 R0.20m R0.10m (Source: The Banking Association South Africa, 2018)

In comparison with South Africa, Canada defines a micro-business as a business with less than 5 employees. In Canada, SME is a term that is generally used to refer to businesses with fewer than 500 employees and gross revenue of less than $50 million. Europe defines a medium sized business as a business with a headcount of fewer than 250, a business with a headcount of fewer than 50 is classified as small, and a business with a headcount of fewer than 10 is considered a micro-business. Europe, in its SME definition, also considers the turnover and the balance sheet of the business. The UK has no standard definition for SMEs and therefore, adopts the European definition. China’s SME definition varies by industry (Ward, 2018).

Russia defines a micro business as a business with a headcount of less than 15 and turnover of less than RUB60 million, a small business as a business with a headcount of fewer than 100 and turnover of lesser than RUB400 million, and a medium sized business as the business with a headcount of fewer than 250 and turnover of less than RUB1 billion (European Commission, 2018). According to Gilfillan (2015), a small business in Australia is a business with a headcount of fewer than 20 and a turnover of less than $2 million, a micro business has a headcount of fewer than 5 and turnover of less than $2 million.

Brazil defines a micro enterprise as a business with a turnover of less than BRL 2.4 million, a small company has a turnover of more than BRL2.4 million but less than BRL 16 million, medium sized company has a turnover of more than BRL16 million, but less than BRL90 million. The classification of small business in Brazil also considers the industry, size of the business, in terms of the number of employees, which varies according to industry. The Brazil Revenue Service adopts different

criteria for small businesses, to enable them to enjoy simplified taxation scheme (Mello, 2012).

Olawale and Garwe (2010) noted that the development of the SME sector is a development focus to promote global economic growth. The Banking Association South Africa (2018) concurs with Olawale and Garwe, by confirming that SMEs are the drivers of reducing unemployment and an important contributor to the economy. Olawale and Garwe (2010) cited Herrington et al. (2009), stating that the failure of the formal and public sector to reduce the unemployment rate in South Africa has increased a focus on entrepreneurship and new firm creation and its potential to contribute to the economy and job creation.

The following section highlights government initiatives aimed at supporting and promoting the growth of SMEs in South Africa.

2.6 Government Initiatives that support the growth of the South African SMEs

According to the Bureau for Economic Research (2016), in 2014 South African government established the Ministry of Small Business Development with an intention to increase economic participation of small businesses. Government policy initial action plan, which included access to finance, access to markets and reducing burdensome regulations for South African SMEs, was documented on the development of SMEs in the 1995 white paper (Bureau for Economic Research, 2016).

The Minister of Small Business Development, Lindiwe Sisulu, acknowledged the decline in the business activity, growth and sustainability rate of small businesses despite the upward trend in the number of businesses registered since 2000 (Small Business Development, 2015). The government institutions and agencies which were established to support the growth of SMEs in South Africa are discussed in the next section.

2.6.1 Small Enterprise Development Agency

Small Enterprise Development Agency (SEDA) was established in 2004 by the National Small Business Amendment Act to facilitate the design and implement development support programmes for SMEs in areas targeted by the government

(The DTI, 2018). According to Small Business Development (2014), SEDA works in partnership with other organisations to provide business development and non- financial support mechanisms that promote interests of SMEs.

2.6.2 Small Enterprise Finance Agency

Small Enterprise Finance Agency (SEFA) was established in 2012 with an intention to simplify and expand finance to small businesses (Small Business Development, 2014). The agency provides direct financial support to business owners and entrepreneurs to fund their business models (Bureau for Economic Research, 2014). SEFA offers bridging loans, term loans and structured finance, up to a value of R5 million, to businesses to enable them to meet their current financial obligations, finance their assets or any other business needs (Parliamentary Liaison Office, 2014).

2.6.3 National Empowerment Fund

National Empowerment Fund (NEF) was founded to provide financial and non financial support to black empowered businesses and promote a culture of savings and investment among the black community (Bureau for Economic Research, 2016). The fund provides loans, from R250 000 to R75 million across all industry sectors, to finance new projects and expansions and equity acquisition (The DTI, 2018).

2.6.4 National Youth Development Agency

National Youth Development Agency (NYDA) was formed to assist young people aged between 14 and 35 to start new businesses and finance existing businesses (Bureau for Economic Research, 2016). The agency is responsible for designing and implementing youth development programmes aimed at improving the lives of young people in South Africa (National Youth Development Agency, 2018).

2.6.5 Black Business Supplier Development Programme

Black Business Supplier Development Programme (BBSDP) is a cost sharing programme, of up to a maximum of R1 million, for small black-owned enterprises to assist them to improve their competitiveness and sustainability (South African Government, 2018).

2.6.6 Technology and Innovation Agency

Technology and Innovation Agency (TIA) was established by the Department of Science and Technology to enable and support technological innovation and enhance the global competitiveness of South African businesses (Bureau for Economic Research, 2016). The agency is responsible to facilitate the intervention that bridge innovation chasm between research and development from higher education institution, science council, private sector and public entities and commercialisation (Technology and Innovation Agency, 2018).

The following section introduces and highlights the factors that influence the growth of SMEs in South Africa.

2.7 The factors influencing SMEs’ growth in South Africa

The results of the Monitor Group’s Accelerating Entrepreneurship in Africa Survey found that South Africa lacks proper education, legislative and regulatory barriers to business development and lacks the entrepreneurial training and awareness (Omidyar Network, 2012). The Banking Association South Africa (2018) also identified challenges faced by SMEs in South Africa. Table 2.3 summarises these challenges.

Table 2.3 South African SMEs’ challenges Challenges Source

Crime The Banking Association South Africa, 2018 and Global Entrepreneurship Monitor, 2017

Technology The Banking Association South Africa, 2018

Education and entrepreneurial Omidyar Network, 2012 and The Banking training Association South Africa, 2018

Regulatory compliance Omidyar Network, 2012 and The Banking Association South Africa, 2018

Finance and credit The Banking Association South Africa, 2018

Recognition by large companies The Banking Association South Africa, 2018

Corruption The Banking Association South Africa, 2018 and Global Entrepreneurship Monitor, 2017

Management skills and skilled labour Omidyar Network, 2012 and The Banking Association South Africa, 2018

Production capacity The Banking Association South Africa, 2018

Government bureaucracy Omidyar Network, 2012 and The Banking Association South Africa, 2018

Access to markets and customer The Banking Association South Africa, 2018 relationship

Business knowledge and support The Banking Association South Africa, 2018

Source: The Banking Association South Africa (2018)

The factors impeding the growth of SMEs are shown in Figure 2.2. The survey was based on 500 established firms employing less than 50 people and operating in manufacturing, tourism and business services sectors (SME Growth Index, 2015).

Figure 2.2 The extent of growth factors of SMEs Source: SME Growth Index (2015)

Section 2.7 explores the extent of these factors in growing and sustaining the SMEs in South Africa. The following section therefore discusses the factors that influence the scalability of tenderpreneurs, namely, access to finance, access to markets, entrepreneurial intentions, human capital, infrastructure, education, entrepreneurial training and awareness, networks and networking activities, business support services and regulation framework.

2.7.1 Education

Chen and Thompson (2016) asserted that enhancing the quality of education and training can make labour more employable and attract more people of ability to become entrepreneurs. Van Wyngaardt (2016) mentioned that an educated workforce, appropriately skilled and with the capacity for innovation, is vital for an economy’s competitiveness, productivity and growth. The Global Entrepreneurship Monitor (2017) stated that a sound education system gives a country a competitive advantage, because such a system contributes towards an individuals’ self-efficacy and self-confidence, thereby increasing the individuals’ chances of starting a business and their ability to successfully navigate competitive and changing business environments.

Vegter (2012) asserted that South Africa’s dysfunctional education system produces workers who are ill-prepared for the business world and that many learners are untrainable when they leave school. The poor educational and training system creates a gap in the capacity and readiness to start a business. One expert, as cited by the Global Entrepreneurship Monitor, lambasted South Africa’s education system for not being in tandem with the development of a strong foundation of transferable skills and not preparing for the economic realities of the South African workplace.

2.7.2 Entrepreneurial training and awareness

Penfold (2012) acknowledged that the highest level and/or the best qualification do not guarantee entrepreneurial success. She stated that businesses can fail because of the lack of solid entrepreneurial training. She recommended that coursework that is focused on entrepreneurial development be introduced at school level. She argued that if the objective of quality education is to create jobs, it cannot be simply assumed that there will be enough vacancies to be filled in traditional occupations (Penfold, 2012). In other words, schools should be the drivers of change by training the learners into becoming entrepreneurs and build a source of employment for the South African economy.

The World Bank (2017) and World Economic Forum’s (2012) research findings reported that entrepreneurial activity will have an impact on unemployment during deflated economic conditions, compared to industries in the traditional spheres. The

findings also mentioned that the desired entrepreneurial activity will require resources, co-ordination and stern commitment.

2.7.3 Entrepreneurial Intention

Ribeiro et al. (2015) define entrepreneurial intention as the percentage of the 18-64- year-old population (excluding individuals who are already engaged in any stage of entrepreneurial activity), who intend to start a business within the next three years. According to the Global Entrepreneurship Monitor (2017), entrepreneurial attitudes and perceptions play an important role in creating an entrepreneurial culture. Societal attitudes refer to whether entrepreneurship is seen as a career choice, whether high status is given to successful entrepreneurs and whether such entrepreneurs gain significant media attention. Societal attitudes can therefore influence the pool of potential and intentional entrepreneurs.

Rodrigues, Jenkins and Samuels’ (2017) survey noted a robust level of media attention in South Africa, with three quarters of respondents reporting a belief in substantial media visibility for successful entrepreneurs. The media attention given to successful entrepreneurs is reported as having gained South Africa a belief that entrepreneurship is a good career choice. Eighty percent of respondents also believed that entrepreneurs are admired in their societies and linked this to the high levels of media attention acquired by entrepreneurs since 2010.

The Banking Association South Africa (2018) reported that entrepreneurial intentions in South Africa have dropped from 15.4% to 10.1% in 2013 and 2016 respectively. This rate was significantly lower than the average for the African region. The persistent low entrepreneurial intention level in South Africa is a concern, given the positive societal attitudes towards entrepreneurship and more so, that the country is faced with a challenge of chronic unemployment and underemployment (GEM, 2017).

2.7.4 Access to finance Policy makers and researchers agree that a thriving SME sector is the key to job creation in this country, but accessing finance, particularly in the early stage of a business, is very difficult. Darlene Menzie, the Chief Executive Officer of FinFind,

argued that the problem is not the lack of funding, but the issue is access to it (Business Tech, 2018).

According to The Banking Association South Africa (2018), entrepreneurs who lack collateral or who have no formal records are likely to be denied financial assistance by these institutions. Given this scenario, the youth, women and people in the rural areas are likely to fail in their attempts to raise start-up funds hence they are likely to also fail to start small businesses. Most financial institutions fund all categories of SMEs. However, on one hand, the lower end of the SMEs enjoys less approval rates due to unfavourable financing evaluation criteria. On the other hand, the SMEs with high turnovers enjoy higher approval rates because they are required less ancillary support prior to becoming a candidate for finance (The Banking Association South Africa, 2018).

Murtthy and Bhojanna (2008) warned that access to finance is a necessary factor but not a fundamental one. In the absence of the right and adequate infrastructure, market opportunities and business and management skills, providing finance is unlikely to lead to an increase in the number of successful businesses. Conclusions drawn by Murtthy and Bhojanna (2008) state that in stimulating entrepreneurial activity, investing and funding approaches must be adopted by corporate, investors and the government. They need to encourage entrepreneurs to experiment, even if they fail the first time.

Mbeki (2016) mentioned the approach by the United States of America and United Kingdom investors, which is such that they accept that there is a high chance that a first venture will fail and recognise that such failure is a necessary part of the entrepreneurial journey. The approach is particularly important in funding decisions to be made by corporate, investors and the government. Mbeki (2016), in his conclusion, emphasised the importance of providing adequate support to entrepreneurs at the very early stages of their development. The financial support can assist entrepreneurs in market research, product development and proof of concept.

2.7.5 Business Support Services

Ernst and Young (2013) reported improved access to various support structures, including business incubators, mentor programmes, industry-specific training programmes, entrepreneurial workshops and corporate engagement with start-ups. Only a few entrepreneurs note improvement in perception of network related elements of coordinated support such as clubs, associations, chambers of commerce and small business administration. South African entrepreneurs placed emphasis on the importance of non-financial development support or services from government agencies. They indicated that business planning assistance, skills training and access to information on funding and market opportunities are the most important support that they require as entrepreneurs (GEM, 2017).

2.7.6 Regulation framework Despite the ease of doing business created by the new Companies Act 71 of 2008, such as simplification of new business registration, the government tender process remains a challenge for businesses in South Africa (Penfold, 2012). Vegter (2012), a columnist, said that “the rules for tenders to supply products and services to government can be detailed and even intimidating to the uninitiated, yet too often these rules fail to prevent corruption”.

According to Penfold (2012), the government is responsible for passing legislation that recognises the challenges of small businesses and ease the process of creating businesses. She called for alignment of the legislative provisions and their practical implementation, to ensure that the applicable legislation serves its intended purpose. She quoted the Broad-Based Black Economic Empowerment as an example of a piece of legislation where misalignment was experienced by business owners from previously disadvantaged communities (Penfold, 2012).

New businesses cannot afford to comply with the burdensome labour laws. Many will remain small or fall into the informal sector to avoid them. Regulatory reforms or tax credits could relatively easily help ease hiring terms, especially for the previously unemployed or for young workers, while incentivising firms to hire more freely. The cost of firing workers was indicated as a notable detractor and highlighted the ongoing need for labour reform in South Africa (Ernst & Young, 2013).

The SME Growth Index (2015) revealed that burdensome regulations are the top impediment to the growth of SMEs. Seventy-five percent of SMEs report that there has been an increase in the amount of red tape, compared to 2014. From a competitive perspective, this means that South African businesses are operating in adverse and severe circumstances, in a challenging business environment that competitor economies may not have to contend with (SME Growth Index, 2015).

According to Mackenzie-Hoy (2010), the transition from an intentional entrepreneur to an actual one is complex for a variety of reasons. GEM (2017) also stated that government policies play a critical role in enhancing entrepreneurial activities through creating an environment that is conducive to start and sustain businesses. The government can achieve this through reforms and regulations that increase the ease of doing business and lessen unnecessary bureaucracy burdens.

Doing Business 2017: Equal Opportunities for All, reported that there is a relationship between income inequality and the quality of business regulations within economies. The report stated that business regulation that is transparent and accessible makes it easier for people of all income levels to access markets, develop their businesses and navigate the bureaucratic world. It explained that low income people benefit from transparent regulation because, unlike wealthy people, they cannot afford experts to help them navigate the bureaucratic systems. If business regulations are bureaucratic and cumbersome, low income people are likely to be excluded from economic opportunities (World Bank, 2017).

2.7.7 Access to markets

The Global Entrepreneurship Monitor (2017) refers to an open economy as a key driver of economic growth because it boosts competition, brings price stability and forces producers to be innovative and efficient. Large firms with experience are gatekeepers of the public procurement system, constraining small businesses from competing successfully (GEM, 2017). The report concluded that the market entry is very biased in South Africa’s public procurement system.

Ehlers and Lazenby (2007) were cited by Olawale and Garwe (2010), emphasising that the economic factors influence the demand of goods and services, as well as the growth of new SMEs. South Africa’s economy is characterised by high

unemployment, interest and inflation rates and declining exchange rates. These consequentially affect the consumption levels and new SMEs’ sales, revenue and market potential.

Olawale and Garwe (2010) mentioned the impact of the extent of competition on the SMEs market potential and growth opportunities. The authors affirmed that for the new SMEs to survive and achieve success, they need to understand the dynamics of competition in their industry and develop skills and competencies that give them a competitive advantage.

2.7.8 Human Capital

The Bureau for Economic Research (2016) explained that SMEs are finding it costly to hire unskilled and semi-skilled workers, adding to the hindrance of growth of SMEs. The National Development Plan reports on the skills shortages and its negative impact on SMEs in South Africa. It further cites the Department of Trade Industry’s concern of shortage of skills and limited entrepreneurship that constrain employment growth. According to Hassan (2015), the former South Africa’s Finance Minister, Nhlanhla Nene in his budget speech referred to the employment tax incentive scheme that was aimed at addressing unemployment and skills development of young and less experienced people

Leboea (2017) emphasised that the skills shortage in the SME sector in the South African context include experience and qualification. The author mentioned that one of the factors contributing to the lack of skills faced by South African SMEs is the low quality of education that the majority of South Africans receive. It is sometimes not the quality of education, but the lack of education, that is contributing to the skills shortage in South Africa (Leboea, 2017). The author highlighted that lack of education is not the only hindrance responsible for the high failure rate of SMEs. He added that SMEs’ inability to attract the right talent compounds the issue of lack of skilled labour. The author concluded that this inability is caused by the costs involved in attracting highly qualified individuals, hence, SMEs cannot afford to hire them. South African SMEs also lack managerial skills amongst SME owners and managers (Leboea, 2017).

Boyatzis (2011) defines managerial competencies as a set of emotional, social and cognitive intelligence which can be used to predict the effectiveness in professional management and leadership roles. Leboea (2017) pointed out that the ability for managers and business owners to effectively navigate through these competencies is critical to the growth and success of any business venture. He concludes that the lack of education and training are, amongst other things, the reason for the high failure rate of SMEs, and the low level of entrepreneurial creation in South Africa.

2.7.9 Infrastructure

The quality of infrastructure can affect the growth prospects of SMEs, particularly in developing countries such as South Africa. Well maintained infrastructure facilitates trade, improves connectivity, attracts investments and allows communities to access services (Statistics South Africa, 2018). Several developing countries suffer from a poor state of infrastructure like transport, electricity and telecommunication (Olawale & Garwe, 2010).

Brand South Africa (2017) mentions that South Africa is on a multibillion development drive to remedy the skewed implementation of infrastructure during apartheid years and meet the growing demand of its economy and population. The country also invested heavily in energy, transport and telecommunication infrastructure, in its preparation to host a massive event, the 2010 FIFA World Cup.

Kalra (2009) was cited by Olawale and Garwe (2010), stating that the demand for electricity in South Africa surpasses the supply, resulting in power cuts which can affect the operations and profits of SMEs. Investment in electricity infrastructure dominates the public sector capital expenditure (Statistics South Africa, 2018). Statistics South Africa (2018) further states that decent infrastructure improves efficiency, for example roads, equipment and buildings, can allow industries, businesses and workforce to be more productive.

2.7.10 Networks and Networking Activities

There are a number of important roles played by networking, which suggests a positive impact on the growth of SMEs. Olawale and Garwe (2010) cited Okten and Osili (2004) and Shane and Cable (2002) as agreeing that the formation of networks helps entrepreneurs to tap resources in the external environment successfully and

that the networks can be used to reduce asymmetry in debtor/creditor relationships. Ngoc et al. (2009), as cited by Olawale and Garwe (2010), asserted that networks spread knowledge about a firm’s existence and its practices. The SMEs can obtain the needed support from key stakeholders and the general public through learning an appropriate behaviour (Olawale & Garwe, 2010).

2.8 SWOT for the scalability of SMEs in South Africa

SMEs have the capacity to fulfil economic transformation objectives to provide employment and include those excluded in the economy mainstream (SME Growth Index, 2013). The opportunities to grow SMEs exist because of South Africa’s economic prospects. The key areas that present opportunities for the growth of SMEs in South Africa are discussed below.

2.8.1 Socio-economic

According to the SBP:Business Environment Specialists (2013), SMEs in South Africa have a significant contribution towards product innovation therefore responsible for economic growth. SMEs are more labour than capital intensive providing an opportunity for employment creation in the country. Further, the SMEs are geographically spread, offering wealth creation across rural and non-rural areas in South Africa. Nationwide Security (2018) also suggested that government play a role in growing the economy and the black middle class through inclusive economic participation.

2.8.2 Political

The establishment of the Ministry of Small Business Development has a potential to improve the business environment through co-ordination of policy responses that are customised to consider different needs of small businesses (SBP: Business Environment Specialists, 2014). For example, tax reforms that seek to support the growth of small businesses through introduction of tax incentives. Shava (2016) mentioned in his arguments for B-BBEE that the social inclusion of previously disadvantaged people, rests in the well implementation of the policies designed to address the social imbalances.

2.8.3 Capital

The networking opportunities available through social activities have a potential of providing small businesses with good exposure thereby assisting them to access bank finance (Talavera et al., 2010). According to the study by Chimucheka and Mandipaka (2015), the majority of small businesses had no knowledge of the available network opportunities to assist them in obtaining bank finance while some businesses were not engaging on social activities that leverage their access to bank loans. Government should facilitate accelerated payments as a tool to provide financial assistance to SMEs (SBP: Business Environment Specialists, 2017).

2.8.4 Technological

SBP: Business Environment Specialists (2017), SMEs benefit from use of online tools and internet access and provide them with cheap and fast communication, which support their growth. For example social media, has lowered market barriers and fostered new marketing channels (Chimucheka & Mandipaka, 2015). South African Institute for Entrepreneurship (2018) identified a need to promote information technology in the rural and peri-urban parts of the country with an objective to grow entrepreneurship in these areas.

In public procurement, the use of technology improves governance and government operational efficiencies because of paperless environment and standardised processes amongst other things (SBP: Business Environment Specialists, 2017).The study by Marnewick (2014) indicated that small businesses have no idea of the opportunities presented by use of ICT in their businesses.

The key areas that present threats and weaknesses to the growth of SMEs in South Africa are discussed below.

2.8.5 Policy

The burdensome South African laws are posing a limitation to the growth of small businesses. The deficiencies in the public sector governance result in the poor implementation of the law in South Africa (SBP: Business Environment Specialists, 2013). For example, in a bidding application, businesses are likely to be made non- compliant on account of incorrect processing of their applications. These

burdensome laws may be a motivation for corrupt practices. Further, the study results by Chimucheka and Mandipaka (2015) reported inadequate support received from government to promote the sustainability of small businesses. These results reflect inadequacy of the implementation of support services by the government through its initiatives.

2.8.6 Socio-economic

According to the SBP:Business Environment Specialists (2013), the education system in South Africa poses a threat to the growth of small businesses because it does not facilitate a preparation process for entrepreneurial careers. The education system in South Africa needs to create entrepreneurs who are not just capable of starting a business but who are also capable of growing and sustaining their businesses. The success of small businesses in SA is hindered by the lack of skills, experience and training (Chimucheka & Mandipaka, 2015).

The former Public Prosecutor, Thuli Madonsela, avers that tenderpreneurship is compounding socio-economic problems faced by South Africa and costs South African economy (Van Wyngaardt, 2016; Mahadea, 2014). She argues that tenderpreneurship usually results in loss of jobs of employees employed by tenderpreneurs and loss of revenue of more qualifying and competent companies (Van Wyngaardt, 2016). Theft of public funds by the public officials contributes towards the widening poverty gap and loss of public confidence on policies in South Africa (Mahadea, 2014).

2.8.7 Capital

The reluctance by the commercial banks to grant financial assistance to small businesses is a threat to their growth. The study by Chimucheka and Mandipaka (2015) revealed that banks are not confident in small businesses and usually wants collateral that the small businesses cannot provide in support of their loan applications. These results were consistent to the study by Olawale and Garwe (2010) which also highlighted access to finance as a barrier to the success of SMEs. An interest rate hike negatively affects small businesses’ ability to fulfil their financial obligation (Cant & Ligthelm, 2002). This interest rate hike also hinders small

businesses’ access to capital required to finance their business venture (Leboea, 2017).

2.8.8 Competition

Chimucheka and Mandipaka (2015) revealed that small businesses do not know how to market their products and compete successfully with their rivals because they are neither innovative nor entrepreneurial oriented. The substitute products are likely in any fragmented market within which small businesses operate in. This subjects small businesses to intense rivalry. The small businesses are therefore unable to compete with larger firms due to their lack of experience and resort to exiting the market or run their businesses at a loss (GEM, 2017).

2.9 Summary

This chapter described tenderpreneurs as economic drivers operating in the SME sector. The chapter highlighted some insights into the factors that influence the scalability of tenderpreneurs. The concept of tenderpreneurs was discussed within the South African context and the Broad Based Black Economic Empowerment policy that underpins the concept, was also explored. The impact of the B-BBEE policy on economic development, arguments for and against this policy was all captured in this chapter. The definition and description of tenderpreneur and other related concepts were sought.

A global perspective of entrepreneurship was discussed. The final section provided a summary of the factors that influence the growth of South African SMEs, namely access to finance, access to markets, access to human capital, education, business support services, networking and networking activities, infrastructure, regulation framework, entrepreneurial intentions and entrepreneurial training and awareness.

Chapter 3 describes and justifies the design and choice of research methodology applied in the study, hence, addressing the RQ2 stating “how will the research methodology be applied appropriately in the similar future studies?”

CHAPTER 3: RESEARCH DESIGN AND METHODOLOGY

3.1 Introduction

The previous chapter explored the literature about tenderpreneurs, by discussing their role in the economy and the factors that promote and/or hinder their growth. Chapter 2 explained the following factors: education, entrepreneurial training and awareness, entrepreneurial intentions, access to finance, business support services, regulation framework, access to markets, human capital, infrastructure, as well as networks and networking activities, with an objective to establish the scalability of tenderpreneurs in South Africa.

This chapter reports on the research question, RQ3, “How can the research methodology applied in this study contribute to the unknown scalability of tenderpreneurs?” The chapter addresses the research objective RO3, “To explain and justify the research methodology used in the study”.

In order to deliver the research objective (RO3), each subsection expounds on the following subjects, with an overview of the chapter in Figure 3.1. Section 3.1 offers an introduction to Chapter 3 including the research questions and objectives that are addressed. Section 3.2 provides the research design for this study. In Section 3.3, the target population and the sampling strategy are explored. Section 3.4 discusses the data collection method employed for this study. The administration of the research tool is explained in Section 3.5. Section 3.6 and Section 3.7 discuss the pilot study and data analysis respectively. Trustworthiness and authenticity of the findings are addressed in Section 3.8. The limitation of the study and elimination of bias are explained in Section 3.9 and Section 3.10 respectively. The consideration of ethical issues is discussed in Section 3.11. Finally, Section 3.12 provides a summary of this chapter. Figure 3.1 offers an overview of Chapter 3.

Chapter 1 - Research Context

Chapter 2 – Literature Review

Chapter 3 – Research methodology and design

3.1 Introduction 3.2 Research Design 3.3 Target Population and Sampling Strategy 3.4 Data Collection Method 3.5 Interview guide and Administration 3.6 The Pilot Study

3.7 Data Analysis 3.8 Trustworthiness and Authenticity of the Findings 3.9 Limitations of the Study 3.10 Elimination of Bias 3.11 Ethical Issues 3.12 Summary

Chapter 4 – Results and analysis of the study

Chapter 5 – Findings, Recommendations and Conclusions

Figure 3.1: Overview of Chapter 3

3.2 Research Design

According to Bryman and Bell (2011), research design relates to how the overall study will be considered and done. In business and social science research, the main types of research designs include the descriptive, experimental, correlational, causal-comparative, exploratory, analytic and a few more. The research design acts as a roadmap that satisfies the research objectives and questions, and it constitutes the blueprint for the collection, measurement and analysis of data, based on the research questions of the study (Blumberg et al., 2008: Dudovskiy, 2018). Saunders et al. (2009) use an ideology of a ‘research onion’ to describe the research process that guides the researcher to obtain answers to research questions. The research process explained by the layers of the ‘research onion’, illustrated in Figure 3.2, is discussed in the next sections in the context of this study.

Figure 3.1 - The Research Onion Source: Saunders, et al. (2009:108)

In this study, the exploratory research design was used. The research for the exploratory research design dwells in the assumption that not much is known, researched or reviewed, regarding the current scalability of tenderpreneurs in South Africa, hence the data collection required deep reach and richness of information through qualitative research methods.

3.2.1 Research Philosophies

Adams and Lawrence (2015) state that there are two main philosophies in research, which are the positivist and the interpretivism. Adams and Lawrence (2015) define positivism as an assumption that data and information exist in a manner that can be quantified and viewed with high empiricism, creating the view of quantitative research where data collected can be subjective to number or quantity-based statistical analysis and assumptions. The practice supporting positivist research is therefore quantitative research.

However, since not all phenomena can be captured quantitatively, such as deeper opinions, perceptions, experiences and other aspects of society, Bradley (2007) explains that phenomenology is the view that such data and information are socially constructed in a manner that can be only truly explained through words and phrases, but not quantifiable. Phenomenological research is therefore practiced using

qualitative research. This employs an array of methods such as interviews and other non-quantity-based practices of gathering the data.

This subsection provided the main philosophies applicable to this research. The next subsection will explain the research paradigm for this study.

3.2.1.1 Research philosophy for this study

This sub-section discusses the research philosophy applied to this study, while justifying the reasons for selecting it. The study aims to determine the scalability of tenderpreneurs in South Africa, hence, it falls within the interpretivism or phenomenological research philosophy. The relevance of this philosophy stems from the requirement to investigate the opinions, perceptions and experiences. The research objective is to gather the following data:  The characteristics of tenderpreneurs in South Africa;  The factors that influence the growth of tenderpreneurs in South Africa; and  The strengths, weaknesses, opportunities for and threats to the scalability of tenderpreneurs in South Africa.

3.2.2 Research Approach

The next phase of the ‘research onion’, namely the research approach, is examined in this subsection. Saunders et al. (2009) describes the research approach as either inductive or deductive, depending on the intent of the research study. The deductive approach is a research study that tests the validity of hypotheses and generalises from general to the specific inferences. The inductive approach, on the other hand, contributes to the emergence of new theories and generalisations, while it generalises from the specific to the general inferences (Dudovskiy, 2018). This study follows the inductive approach, as the researcher wishes to extrapolate from the specific to the general inferences.

In Chapter 2, a literature review was undertaken to investigate the factors that influence the scalability of tenderpreneurs in South Africa. Thematic analysis will be used to develop themes that will analyse the factors that influence the scalability of tenderpreneurs in South Africa. This research study will follow inductive approach to enable the researcher to extrapolate general inferences from specific patterns.

3.2.3 Research Strategy

The next phase of the ‘research onion’, namely the research strategy, is examined in this subsection. According to Sekaran and Bougie (2016), a research strategy helps the researcher to meet the research objectives and to answer the research questions of the study. The research strategy followed aims to organise the research process and considers access to data sources and time constraints (Sekaran & Bougie, 2016). The research strategies include experiments, surveys, action research, case studies, ethnography and grounded theory (Saunders, et al., 2009). For this study, in depth interviews were conducted to collect the qualitative data.

The next subsection discusses the next phase of the ‘research onion’, the research methodology and choices.

3.2.4 Research methodology

This subsection outlines the research methods to be used in this study. There are two main research approaches used in business and social science studies, namely quantitative or qualitative research. Babbie (2014) defines quantitative research as the collection and analysis of research data in the form of numbers or quantities, which often concludes as a statistical analysis and interpretation. The disadvantage of quantitative data is that it may not be used to explore in-depth phenomena, but the advantage is that it allows for results that are empirically demonstrable and may be generalised with a good degree of certainty. Examples of quantitative research methods include surveys, the questionnaire, observation and experimentation.

Qualitative research, on the converse, entails the gathering and analysis of data in the form of words and phrases and not in quantities (Adams & Lawrence, 2015). The basis of qualitative research is that data are normally arranged in society as opinions and other subjective measures, which cannot be quantified but can rather be best collected and analysed in the form of words. One advantage of qualitative research is that it allows for the in-depth study of phenomena, as with the exploratory or case study design studies.

This study adopts a qualitative research approach to explore the in-depth phenomena of the scalability of tenderpreneurs in South Africa. Table 3.1 details the

differences, in the characteristics of qualitative and quantitative research in terms of the process, purposes, approaches and other elements.

Table 3.1: The differences between qualitative and quantitative research

Source: Babbie (2014)

3.2.4.1 Methodological choices Research choices refer to the quantitative and/or qualitative method of data collection and statistical analysis procedures available to the researcher. Researchers may therefore choose between the mono-method, multi-method and mixed-methods. The mono-method is the methodological choice for this research study. The mono method is described as either a quantitative design (survey, analysed statistically) or a qualitative design (in-depth interview, analysed as narratives) with related statistical analysis procedures (Saunders & Tosey, 2013).

3.2.5 Time horizons The next layer of the ‘research onion’ introduces the time horizons. The time horizon in the research context may be cross sectional or longitudinal. Sekaran and Bougie (2016) describe a cross sectional as a study that is undertaken in which data are gathered just once or over a period of days or weeks or months in order to answer a

research question. In a longitudinal study, a research wants to study people or phenomena at more than one point in time in order to answer a research question (Sekaran & Bougie, 2016). This research study wants to establish the factors that influence the scalability of tenderpreneurs in South Africa. A cross-sectional study is conducted to understand these factors at a point in time.

3.3 Target Population and Sampling Strategy 3.3.1 Target Population

Chaudhuri (2010) defines a target population as the total of all elements or individuals from which a smaller subgroup, called a sample, is selected for the purpose of the actual data collection. Figure 3.3 illustrates that the population is the overall sphere with many stars, from which, a few stars will be selected into the sample. In this study, the target population was considered as the number of current tenderpreneurs in the Ilembe District region. The main stakeholder, the Enterprise Ilembe Economic Development Agency in KwaZulu-Natal, estimated the current tenderpreneurs to be more than 50. Figure 3.3 is a schematic view of the relationship between the population and sample.

Figure 3.3 Population, Elements and Sample Source: Saunders et al. (2009, p. 211)

3.3.2 Sampling Strategy

There are two basic techniques of sampling, namely probability sampling and no- probability sampling. Bradley (2007) explains probability sampling as the methods in which the probability of each element or individuals being selected into the sample is known. The main methods of probability sampling include simple, systematic, stratified and cluster sampling. Simple random sampling entails the selection of elements at random by allocating random numbers generated. Chaudhuri (2010) explains that systematic sampling is a practice of sampling by choosing the nth element is an ordered population, with “n” being the second, third, and so on. Stratified sampling, on the other end, divides the target population into layers or strata, which are layers of individuals with similar characteristics, from which each layer supplies a random sample that is added to other strata sample to get the final random sample. Figure 3.4 illustrates the types of sampling strategies in business sciences.

Figure 3.4 Sampling techniques Source: Cooper and Schindler (2013)

On the converse, non-probability sampling entails a number of sample selection techniques in which a predetermined, non-probable criterion to select individuals is made into a sample. The main non-probability methods include availability sampling, convenience sampling, purposive sampling, quota sampling and snowball sampling.

Babbie (2014) defines purposive sampling as a technique to select individuals to a sample, based on a defined characteristic or experience, with the availability sampling selecting the first available or agreeable individuals of the population.

A quota sampling ensures that the sample selected represents certain characteristics in the population that the researcher has chosen (Saunders & Lewis, 2014). In snowball sampling, the researcher approaches a few individuals from the relevant population and these individuals then act as informants and identify other members from the same population for inclusion in the sample (Welman & Kruger, 2001). Convenience sampling refers to the collection of information from members of the population who are conveniently available to provide it (Sekaran & Bougie, 2016).

In this study, convenience sampling was selected as the appropriate sampling method. The first ten individuals were accumulated by chain referral by participants first identified through the Enterprise Ilembe Economic Development Agency. The identified tenderpreneurs were approached and agreed to take part in the study. The participants that met the following criteria were approached and were agreeable to take part in the study.  The participant must be an owner or shareholder or member in a business; and  The participant must have an existing tender or was previously awarded a tender by the Enterprise Ilembe Economic Development Agency.

3.4 Data Collection Method

There are two groups of data collection methods, also called research tools, which are quantitative and qualitative research instruments (Flick, 2011). Quantitative research instruments relate to the methods that collect data in a manner that can be processed and interpreted statistically or in numbers (also quantities). Examples include the survey, questionnaire, some forms of observation and experimentation. Quantitative research data collection methods were not used in this study as the aim was to collect rich data in the form of opinions, perceptions and experiences of the participants using their non-quantifiable words and phrases.

On the other end, qualitative research methods collect data that are amenable to analysis and interpretation using words and phrases that are not in quantities or numbers. According to Cooper and Schindler (2013), it can be used to collect and present rich and deep data from the community on phenomena as they can extract the information from the various opinions, experiences and perceptions of the participants. The common qualitative data collection methods include interviews, focus group discussions, case studies, some forms of observation and ethnography. Bryman and Bell (2011) assert that the advantage of qualitative research tools is their capacity to gather data with high richness and reach, especially where little is known about the study.

In this study, the interview was used as the data collection method. The use of the interview was justified by the need to explore more on the topic of scalability of tenderpreneurs in South Africa, as this is a new topic with limited empirical reviews. There are different kinds of interviews, which are normally structured from the more open unstructured interviews, semi-structured interviews, structured interviews and the closed-fixed question interviews, depending on the need of the extent of the data to be gathered (Bradley, 2007). In this study, the semi-structured interview was used.

3.5 Interview guide and administration 3.5.1 Interview guide and technique

The interview guide contained five demographic items and nine questions on tenderpreneurs and their scalability, including the associated factors and recommendations. The construction of these questions was guided by the research questions and the findings of the literature review. The interview guide had fourteen questions and was separated into five sections, Section A to E. The researcher used planned and floating prompts during the interviews. Planned prompts were used to uncover specific themes whereas floating prompts on the other hand were used to encourage further elaboration without being obtrusive (McCracken, 1988). According to McCracken (1988), the planned prompts are meant to provide the participants with an opportunity to consider phenomena that do not readily come to mind or speech. The planned prompts were placed at the end of each section of the interview guide.

The purpose of the demographic data was to collect the profiles of the participants. The next part of the interview guide, Section B, was aimed at obtaining the opinions and experiences of the characteristics of South African tenderpreneurs. The purpose of Section C was to encourage the participants to tell a story in their own understanding, of the factors influencing the scalability of tenderpreneurs in South Africa. Section D sought to explore the strengths, weaknesses, opportunities for and threats to the scalability of tenderpreneurs in South Africa. Finally, Section E, prompted the participants to provide recommendations on dealing with tenderpreneurship in South Africa. The guide ensured that the researcher covered all the terrain in the same order for each participant (McCracken, 1988). A copy of the interview guide employed in this study is attached as Appendix B.

3.5.2 Administration of the Interview

Appointments for face to face, one on one interviews were made between the researcher and each of the ten identified and selected tenderpreneurs. The process with each participant took almost an hour of verbal exchange, with all participant responses being recorded using a voice recorder following a verbal consent to do so.

3.6 Pilot Study

Prior to the main field data collection, a pilot study was performed. Babbie (2014) defines a pilot study as a smaller study, which is a trial, performed to check the feasibility and issues that will emanate from the main study and provides an opportunity for redress. In this study, a single identified tenderpreneur from the same target population was identified by the researcher and subjected to the full interview. The aim was to ascertain the accuracy of the tool, the process and any unforeseen issues with the interview process. In this study, the analysis of the pilot study noted that the interview questions were well understood by the participant, the questions were not ambiguous, and the issues related well with the experiences and expectations of the typical tenderpreneur in the South African context.

3.7 Data analysis

In this study, the recorded responses were safely stored and then transcribed and reduced into small key words and phrases, termed themes and subthemes

(Chaudhuri, 2010). They were then systematically grouped for thematic analysis. Braun and Clarke (2006) describe thematic analysis as a method of identifying, analysing and reporting patterns or themes within data. The coding was developed from words at their face value, with the codes used to identify the feature of data that was aligned to the research questions and also appeared interesting to the researcher. The main theme of the study is the scalability of tenderpreneurs. Its broad codes surfaced from the literature review and data analysis are discussed below. The main theme and its broad codes are illustrated in Figure 3.5:

Code 1: Characteristics Code 2: Growth factors

Main theme: Scalability of tenderpreneurs

Code 3: SWOT Code 4: Recommendations

Figure 3.5 Major theme and broad codes of the study (Author’s own construction)

 The first code linked to RQ1 is classified as ‘Characteristics’. The questions that sought to obtain inputs for this code were covered in Section B of the interview guide.

 The second code linked to RQ2 is classified as ‘Growth factors’. The questions that sought to obtain inputs for this code were covered in Section C of the interview guide.

 The third code linked to RQ3 is classified as ‘SWOT’. The questions that sought to obtain inputs for this code were covered in Section D of the interview guide.

 The last code linked to RQ5 is classified as ‘Recommendations’. The questions that sought to obtain inputs for this code were covered in Section E of the interview guide.

The codes were rationalised against constructs identified from the literature review. Insights that each code conveyed were investigated and some of them were grouped

together to form themes and subthemes. The themes and subthemes were developed from the codes that cut across the data set and were grouped from each participant per question. They were presented in the form of tables, interpreted and discussed towards satisfying the main research objective.

3.8 Trustworthiness and authenticity of the findings 3.8.1 Authenticity

Bryant (2006) defines the term authenticity as the disaggregating measure used in ascertaining the aspects of reliability, validity, goodness and strength, when it comes to the assessment of the main characteristics of qualitative research outcome. According to Bryman and Bell (2011), the concept of authenticity in qualitative research findings is of key importance in ensuring authenticity, since the researchers try to meet some level of reassuring acknowledgement that the findings are as near to being genuine and credible in representing the target population.

3.8.2 Trustworthiness

Kumar (2011) defines trustworthiness as an attribute in qualitative research that entails the interdependent elements of credibility, transferability, dependability and conformability. In this regard, as Kumar (2011) posits, credibility relates to the way the findings of the research may be trusted and accepted as correct and representative, evidently able to answer the research questions and attain the main research objective. Saunders et al. (2012) also describe transferability, another element, as espousing the extent to which the study results may be considered to represent the target population and reflect the true prevailing circumstances.

Creswell (2012) investigates dependability as a facet in qualitative studies, that is coined on measuring the reliability in terms of evaluating the quality of the research process of data collection and data analysis. In this research, in addressing the credibility of the interview tool and process, the findings demonstrated that the semi structured interview questions are well knitted to achieve the responses expected and desired to answer the research questions, and as guided by the pilot study findings. In this study, transferability and conformability were attained by the fact that the findings were largely in line with the findings of the literature review.

3.9 Limitations of the Study

The research study only reviewed a relatively small sample of the population of tenderpreneurs in South Africa. The sample selected resided in a smaller district of KwaZulu-Natal, with only 50 estimated tenderpreneurs. The sample size is therefore a limitation of this study. Secondly, there was no validation of the experience that the participants have had as tenderpreneurs in South Africa, raising potential speculation.

3.10 Elimination of Bias

Bryman and Bell (2011) define research bias as the process of employing methods that potentially erode the study of its real accuracy. Many types of biases in studies are known, such as selection bias, participant response bias and interviewer bias. Creswell (2012) ascribes these to the way either the unfair manner of selecting participants, interviewing them inappropriately such as suggesting answers for them, or the participants intentionally providing incorrect responses.

In this study, selection bias was eliminated in several critical processes which were that prejudicial practices such as sampling based on age, race and gender, were not done. With the snowball approach to sampling used, there was little capacity for the research process to introduce significant planned research bias in this study.

3.11 Ethical Issues

Creswell (2012) decries the importance of any study to ensure and document how they adhere to key ethical issues, so as to protect both the subject’s health and dignity, and the status of research as a field. In this research, the following were undertaken to ensure that the study complied with the required ethical principles:

3.11.1 Informed Consent

Chaudhuri (2010) explains that informed consent as a written, verbal or implied permission given to a researcher entails that the participant has full understanding of the potential effects of the results of a planned event. In this study, all participants received a covering letter (see Appendix A) explaining the aim of the study and that

their being in the research was completely voluntary, reminding them of their right to exit the study for any reason.

3.11.2 Ensuring no Harm

Another key ethical principle entailed in research is non-malfeasance, which is the principle that a study or treatment of an individual must not cause harm (Bryant, 2006). In this study, the participants were not exposed to any known form of physical or psychological harm, since the activity only bordered on verbal dialogue.

3.11.3 Ensuring Confidentiality and Anonymity

Cooper and Schindler (2013) explain confidentiality as the practice of limiting access to personal material or data from unauthorised individuals. In this study, the responses from the interviews were locked in password protected computer files. Further, no participant’s name was affixed anywhere on the results, thereby ensuring anonymity.

3.11.4 Ensuring permission to complete the Study

It is mandatory that a researcher gets permission to access the participants’ personal data or material for research purposes (Creswell, 2012). In this study, written permission to conduct the interviews was individually obtained from each of the ten identified participants. An informed consent through the NMU Business School ethics committee, (refer to Appendix C) and explaining the privacy, confidentiality and anonymity of the respondents.

3.12 Summary

This chapter described that a phenomenological philosophy was employed, with qualitative research used and an exploratory design employed. The population of the study was estimated to be above 50, without certainty, with a sample of ten selected using convenience sampling. The research instrument used was semi- structured interviews. The data collection process, data analysis process and the ethical considerations were described. Chapter 4, which follows, describes the narration of the findings of the study.

CHAPTER 4: RESULTS AND ANALYSIS OF THE STUDY

4.1 Introduction Chapter 3 discussed the research design applied in this treatise, the data collection methods, data analysis, sampling strategy and other research concepts. The chapter answered RQ3, “How can the research methodology applied in this study contribute to the unknown scalability of tenderpreneurs?” and addressed RO3, “To explain and justify the research methodology used in the study”.

This chapter documents the results of the study. The responses from interviews are presented and interpreted, based on the prevailing patterns and the emerging themes. The findings are also discussed in relation to how they help answer the research questions and in comparison, with the findings of the literature review. An overview of this chapter is outlined in Figure 4.1.

Chapter 1 - Research Context

Chapter 2 – Literature Review

Chapter 3 – Research methodology and design

Chapter 4 – Results and analysis of the empirical study

Section A: Demographic Data Section B: The characteristics of a tenderpreneur in South Africa Section C: The factors that influence the growth of tenderpreneurs in South Africa Section D: The strengths, weaknesses, opportunities for and threats to the scalability of tenderpreneurs in South Africa Section E: The recommendations to the relevant government authorities on dealing with tenderpreneurship in South Africa

Chapter 5 – Findings, Recommendations and Conclusions

Figure 4.1 Overview of Chapter 4

This chapter begins with the profile of the participants. The chapter is structured based on the three research objectives shown below. The overall views and opinions of the participants pertaining to the scalability of tenderpreneurs in South Africa are reflected in the summary of this chapter.

RO1: To define characteristics of a tenderpreneur in South Africa.

RO2: To establish the strengths, weaknesses, opportunities for and threats to the scalability of tenderpreneurs in South Africa.

RO4: To make recommendations to the relevant government authorities on dealing with tenderpreneurship in South Africa.

4.2 Section A: Demographic Data

The first section of the interview guide was aimed at obtaining demographical data of the participants, which included gender, age, education, professional area and years of experience as a practicing tenderpreneur.

4.2.1 Disaggregation by Gender

Table 4.1: Disaggregation by Gender

Gender Male Female Number 8 2

Table 4.1 above illustrates that there were more (8) male participants than those of the female gender (2). This finding may be due to the randomness in the sample and population or might reflect the proportion by gender within the target group of tenderpreneurs in the Ilembe District. Arumugan (2006) posits that in risky or venture business in general, and in the South African entrepreneurial markets in contemporary times, most of the players are males. Gartner (1989) further posits that the increased incidence of males in new or risky business may be entrenched in the male ego personality-type fostered by the biopsychosocial model. It is therefore not particularly untoward that this demographic existed in this study and does not reduce the credibility of the findings.

The ratio of male to female participation in early stage entrepreneurial activity reveals that males are more likely to be involved in entrepreneurial activity than females (Global Entrepreneurship Monitor, 2017).

The GEM (2017) reports that the difficulties faced by females include higher levels of domestic responsibility, lower levels of education (particularly in developing countries), lack of female role models in the business sector, fewer business- orientated networks in their communities, lack of capital and assets, lower status in society and a culturally-induced lack of assertiveness and confidence in their ability to succeed in business. These factors may prevent women from perceiving, as well as acting on entrepreneurial opportunities (GEM, 2017).

4.2.2 Disaggregation by Age

Table 4.2: Disaggregation by Age

Age 18-29 30-39 40 – 49 years 50 – 59 60+ years years years years

Number 0 3 6 1 0

As seen in Table 4.2, the findings show that most individuals (6) were between the ages of 40 and 49, which Herrington (2012) defines as middle aged, with three (3) participants being younger, between 30 and 39 years and one (1) participant being over 50 years of age. The findings may also reflect the prevailing age for tenderpreneurs in the Ilembe District as middle aged. The middle aged represents the social, economic, environmental and intrinsic factors shaping the way people aspire to success in business. According to Denton (2006), middle age for venture business may be driven by the correct mix of two factors in the participants, probably adequate business experience and ambition of midlife events driving the need to secure wealth.

4.2.3 Disaggregation by Highest level of Education

Table 4.3: Disaggregation by Highest level of Education

Highest Below Matric / Diploma / Bachelor’s Postgraduate level of Matric Certificate Tradesman Degree Degree education

Number 3 3 1 2 1

Table 4.3 above shows the participants profile by disaggregation using the highest level of education. The results demonstrate different levels of education, with no particular pattern. Of the ten participants, three participants were in each of the group with below matric education and matric level education respectively. Two participants had a Bachelor’s degree level of education and one had a Diploma. These results may have significance in that the practice of tenderpreneurship may be unconditional on the level of education, as it is premised to be based on principles away from the traditional profession-based business sense to include the issue of acquiring services and using experts rather. Herbst and Gills (2015) agree that there is generally no greed for career development among most practicing tenderpreneurs in South Africa.

4.2.4 Disaggregation by Professional Area

Table 4.4: Disaggregation by Professional Area Professional Area None Technical Financial

Number 5 4 1

Table 4.4 above shows the disaggregation of the participants by professional area. The findings demonstrate that half of the participants (5) had no specific professional career, with an additional four (4) participants being of technical professional background and the remainder (1) being in the finance profession. Khanyile (2010) states that technical professions are easier to create entrepreneurs as they are

practical services demanded daily by all communities, citing electrical, plumbing, construction and other vocations.

4.2.5 Disaggregation by Years as a Practicing Tenderpreneur

Table 4.5: Disaggregation by Years as a Practicing Tenderpreneur

Years as a practicing <1 yr 1 to 2 years 3 to 5 years > 5 years tenderpreneur

Number 2 2 5 1

Table 4.5 above shows the length of service of participants as tenderpreneurs in South Africa. The results show varied lengths of service as tenderpreneurs, with half (5) of the participants having been practicing as tenderpreneurs for a period between 3 and 5 years, with two (2) participants having experience in the field of less than one year and between 1 to 2 years respectively. These findings may show that there was no specific trend regarding the number of years that the participating tenderpreneurs had been practising. Leboea (2017) alleges that due to the nature of the field of practicing entrepreneurship, individuals enter and exit regularly, therefore resulting in a pool of individuals of varying experience.

Tenderpreneurship is a post 1994 South African term generally used to refer to a politically connected person who becomes rich purely by receiving government tenders (Madi, 2016). The concept of tenderpreneurship has become an option for South Africans, however the market entry is biased for government tenders because of politically connected persons who win tenders unfairly, while more genuine entrepreneurs are side-lined (Riebero et al, 2015). This is therefore explained by the practice of regular entry and exit by the SMEs operating in this particular sector.

4.3 Section B: RO1 - To define the characteristics of a tenderpreneur in South Africa.

In order to understand what a tenderpreneur is, the researcher asked the participants to discuss what a tenderpreneur is and provide views on the

characteristics of a tenderpreneur. The analysis of the responses from the participants resulted in themes discussed under interview questions 6 and 7.

4.3.1 Interview Question 6. Please discuss what, in your opinion and experience, what a tenderpreneur in the South African context is. Explain this including your view of the concept.

When the participants were asked to discuss their opinions and experiences in order to explain what a tenderpreneur is, the results revealed seven themes described by the short phrases. Table 4.6 provides a summary of these themes and is followed by the discussion of each theme.

Table 4.6: Opinion and experience of a tenderpreneur in the South African context

Themes and subthemes  Provides requested services  Usually awaits opportunities or bids  Engaging in competitive bidding

 Does business with or without prior capital

 Focuses on emerging opportunities  Harnessing existing systems or processes  Focus on making profit from opportunities

Table 4.6 above shows the issues raised by participants in the process of describing the term tenderpreneur in the South African context.

4.3.1.1 Provides requested services

The participants perceived tenderpreneurs as individuals bent on providing requested services and products, especially as demanded or advertised by clients already willing to pay. This provides a ready market to the successful bidders. Aguilar (2016) explains the participation of small business in public procurement, as either direct or indirect selling of goods or services. This concurs with the SA Tender (2018) explanation that tenders are an offer to provide goods or service at an agreed price.

“A tenderpreneur provides goods or services to the government, so there needs to be an invitation by the government to service providers or suppliers. Without this invitation a tenderpreneur does not exist....” (Participant 6)

“....doing business with local government cannot be seen as an act of corruption. It is a service provided in exchange for a payment...” (Participant 3)

“...we offer a service to the government for the benefit of the public...” (Participant 10)

Participant 10 quoted above highlights the fact that the existence of tenderpreneurs is to benefit the public. Ironically, this is contrary to many who believe that this form of entrepreneurship is benefiting a few minority, whom Mbeki (2009) calls “classes of unproductive but wealthy black crony capitalists…they have become both the core black ideology of the black political elite and, simultaneously, the driving material and enrichment agenda which is to be achieved by maximising the process of reparations that accrue to the political elite” (Mbeki, 2009, p.61). In essence, Mbeki’s argument is that the BEE was meant to change ordinary South Africans’ lives by creating employment, alleviating poverty and improving the general economy. Instead, what the BEE has done is to widen the poverty gap between a few rich Black entrepreneurs and the majority of the poor communities.

4.3.1.2 Engaging in competitive bidding

The various participants noted that one characteristic of a tenderpreneur is the capacity and aptitude to engage in competitive bidding for products and services better than competitors. Tracker (2018) state that the public sector, through a tender process, is able to generate competitive offers. The responses from four of the participants emphasised the importance of understanding the bidding process.

“....no one to help you in this business because competition is threatening.... you must know how to prepare your documents....” (Participant 7)

“....you must master the art of bidding to stay in this business...if you fail to compete during the tendering process, someone else will walk out with a contract.” (Participant 5)

“...it doesn’t matter how good you are at what you do...you must compete to win the tender...” (Participant 2)

“...bidding requires attention to detail...you have to know this process...it gives a tenderpreneur a competitive advantage”. (Participant 6)

The participants quoted above indicate the fact that tenderpreneurship is about bidding, and the highest bidder gets the tender. To many tenderpreneurs who are politically connected, the bidding process is just a formality, as many of them just ‘jump the queue’. This points to important governance issues of accountability and transparency. Local government has become synonymous with public officials’ lack of accountability, as they do not comply with good governance principles of information dissemination, accountability, transparency and monitoring and evaluation of the procurement structures.

The lack of these principles has resulted in maladministration and corruption, thereby killing the spirit of entrepreneurship amongst the tenderpreneurs (Shava, 2016). The point is that if local government officials are socially accountable to the public, the black economic empowerment dream can also be realised by the poor and marginalised communities of South Africa. Unfortunately, the current situation is that the public officials are not capable of effectively accounting for their actions in the tendering process and this has escalated poverty and inequality among the intended beneficiaries of the BEE (Ambe & Badenhorst-Weiss, 2012, p. 11004).

4.3.1.3 Usually awaits opportunities or bids

According to the participants, tenderpreneurs usually wait for opportunities or bids from participating business for key service provision or supply of products, and this is, according to Mackenzie-Hoy (2010), typically paradoxical to normal business marketing principles. Two of the participants encapsulated their opinions on what a tenderpreneur is.

“There are plenty of opportunities in government tenders and that is what creates competition...a tenderpreneur must see these opportunities when they are presented”. (Participant 8)

“...the tenderpreneurs do not initiate the transaction with the government, the government calls for tenderpreneurs to sell them their services...” (Participant 5)

One characteristic that was mentioned by one participant was that of relying on competitive opportunism and predatory behaviour of advertised opportunities. This behaviour concurs with the observation by Omondi (2018) where he refers to tenderpreneurs as opportunistic.

“...a missed opportunity is never returned in business. You need to be ready for any opportunity...” (Participant 4)

Participant 6 mentioned the awaiting of opportunities when he was explaining a bidding process. He stated that the businesses wait for an invitation from the government. This awaiting of invitation represents an opportunity for businesses to transact with the government.

The participants of the study clearly indicated the process of waiting for an opportunity. However, for those tenderpreneurs who are politically connected, most of them know about the tenders before they are even advertised in the public platforms. By the time the tenders are being advertised, some people might already be knowing that they are going to get certain tenders. The BEE procurement system is known to be flawed by chronic fraud and corruption, whereby the officials handling the tendering process engage in corrupt practices like fraud, bribery and dishonesty (Craythorne, 2003). These attributes often hinder the government’s efforts towards redressing the socio-economic inequalities and empowering communities. Thus, instead of being an employment creation mechanism, the BEE is often synonymous with mismanagement, fraud and gross nepotism. Wensink and Ecorys (2013) argue that the BEE system is doing more harm than good, as the officials trusted to execute the tendering process are misusing it for their personal gain, thereby hindering the empowerment dream.

4.3.1.4 Does business with or without prior capital

The participants noted that tenderpreneurs are believed to do business with limited capital or liquidity, as they get the money soon after a guaranteed supply of the won bids, creating a gap where there is limited need for capital on the part of the

tenderpreneur. The participants noted that in most cases, tenderpreneurs may operate and be successful, with or without prior capital injection. This is supported by Murtthy and Bhojanna (2008) who state that access to finance is not the only fundamental factor in the success of the business.

In discussing what a tenderpreneur is, three of the participants shared their personal experiences that are captured below.

“...run different projects simultaneously so that I don’t rely on just one project. This is how I keep my business profitable without loans or debt”. (Participant 4)

“...cover all your costs in the quotation, in this way your business will not run at a loss or need loans to finance your activities....” (Participant 1)

“...treat your submission of a quote like a budget...make sure you do your maths to arrive at a favourable profit position, then you won’t need a loan...” (Participant 2)

Participant 4, who mentioned the notion of successfully running several projects simultaneously, raises some issues of concern, especially in the context of the ownership of all the projects at one goal. What has become common in this tenderpreneurship business is the concept known as fronting, whereby companies artificially restructure to provide a false impression, giving companies black ownership, when in actual fact the actual owner of the company remains ‘behind the scenes’.

Fronting occurs “when black people signed up as fictitious shareholders in essentially white companies and/or inaccurate dis-closure in the submission of tenders” (Barlett, 2010). This is done to ensure that the company ‘complies’ with the tendering process. Thus, fronting has become increasingly common in the procurement system which has also become embroiled in nepotism, fraud and mismanagement as mentioned earlier. Kalula and M’Paradzi (2008) argue that fronting is a deliberate violation of B-BBEE Act, as it is a gross manipulation of the tender system, which in turn hinders deserving tenderpreneurs to benefit from the system, but rather benefits the wrong people. In this view, it has been noted that those who engage in fronting “stand to be prosecuted, since fronting amounts to fraud and as such it is a criminal offence” (Kalula & M’Paradzi, 2008).

4.3.1.5 Focuses on emerging opportunities

The participants also stated that tenderpreneurs focus on emerging opportunities in business development to competitively bid for tenders.

“...being a risk taker gives a tenderpreneur a good exposure to other fields or industries...” (Participant 9)

“...given that the markets are expanding, a tenderpreneur must be an all-rounder and not stick to one line of business...” (Participant 10)

“...tenderpreneurs are not innovative because they operate within tender specifications...they respond to presented opportunities...” (Participant 4)

Hisrich (1990) states that in South Africa, tenderpreneurs engage in a variety of opportunities and industries, not necessarily limited to what they may be experienced or interested in. However, the country’s economy requires entrepreneurs, not tenderpreneurs who await opportunities. Since the emergence of the concept of tenderpreneurship, entrepreneurship is slowly becoming tainted with unjustified pessimism, as most people are focusing on leveraging their political connections, so as to benefit from tenders (Penfold, 2016)

4.3.1.6 Harnessing existing systems or processes

The tenderpreneur was also described as an individual capable of harnessing existing systems or processes to ensure they are capable of doing their business transactions even when they do not have the platforms. Olawale and Garwe (2010) affirm that for small businesses to survive and succeed, they need to align their systems to understand the dynamics of the competition.

The participants gave their opinion and observations in describing a tenderpreneur.

“The required service sometimes does not talk to your current skill...I must be creative and manoeuvre from my current resources...” (Participant 10)

“A tenderpreneur must have systems that are flexible because there is nothing fixed in business...a tenderpreneur must go with the flow...” (Participant 9)

“...that is why tenderpreneurs are able to offer just about everything...we improvise from our limited resources...” (Participant 3)

There is a misconception that to be a tenderpreneur, you can be very flexible and execute any task. This has now resulted in some tenderpreneurs delivering poor quality goods and services, at the expense of the public. The point is that, for any form of business, entrepreneurial training is necessary, even though qualifications and education do not guarantee success in entrepreneurship. However, the lack of entrepreneurial skills might also result in business failure.

4.3.1.7 Focusing on making profit from opportunities

An overall impression was that tenderpreneurs are bent on making profit from opportunities that are presented out there, whether they possess the expertise or understand the field of business concerned. Omondi (2018) also describes tenderpreneurs as those who enrich themselves by supplying anything to the government.

“....I don’t believe that to run a business you need bank finance, my main goal is to make a profit not to service a bank loan...” (Participant 1)

“...The aim is to standout in the competition of bidding, remain profitable and pursue your other business interests...” (Participant 2)

“...the mentality of tenderpreneurs is to make a quick profit and this is normal in this business because you get a tender today and once the contract comes to an end, there is no guarantee that it will be renewed...” (Participant 8)

The findings presented above makes one believe that if ever you want to make quick profits, particularly the youth, tenderpreneurship is the way. Nzimande (2010, p.1) summarises this syndrome this way: …in this epoch of history, there is a huge ideological offensive, especially targeted at young people who are the future leaders, to push them towards the idolization and the glorification of wealth, obscene demonstration of

consumption, and generally the endorsement of a “get rich quick” mindset. This mentality is reaching out to many, if not all the curves of the society …

Perhaps what the participants pointed to concurs with the mandate of the B-BBEE, which is theoretically aimed at promoting wealth creation among the citizens, even though sometimes the intended previously disadvantaged communities do not benefit. However, the government has increasingly come under pressure because of the practical implementation of the B-BBEE system. As an effort to address the situation, tenderpreneurs are now required to present their scorecards as evidence of their compliance to the B-BBEE (Omondi, 2018).

4.3.2 Interview Question 7. In your view, how do you characterise a tenderpreneur in South Africa?

When the participants were asked about their views on what characterises a tenderpreneur, the results revealed seven themes described in short phrases. Table 4.7 provides a summary of these themes and is followed by the discussion of each theme.

Table 4.7: Opinion and experience of a tenderpreneur in the South African context

Themes  Predominantly males and/or of colour (Africans, Asians and Indians)  Having a shelf company and/or little business infrastructure  Not necessarily having a professional or technical education

 Has an appetite risk-taking character  Capable of high business networking  Amenable to corrupt business practices  Mainly considered to be focused on rapidly growing wealth

Table 4.7 above shows the results regarding the participants’ views of the characteristics of a tenderpreneur in South Africa.

4.3.2.1 Predominantly males and/or of colour

Six of the ten participants mentioned that in their observation, the tenderpreneurs were males and were dominantly of colour (such as Africans, Asians and Indians),

while eight of the ten participants only mentioned the dominance of black people that were not necessarily males. This observation of black dominance in tenderpreneurs, links to the B-BBEE policy which aims at increasing the number of black owned businesses and the income levels of black individuals within qualifying B-BBEE companies (The Department of Trade and Industry, 2018).

4.3.2.2 Shelf company and/or little business infrastructure

In line with the modus operandi, eight of the ten participants noted that the tenderpreneurs had limited solid business infrastructure while three of the eight further noted high shelf company usage by the tenderpreneurs. According to Stats SA (2018), infrastructure improves business efficiency. The limited business infrastructure is therefore likely to impede the performance and growth of tenderpreneurs.

4.3.2.3 Professional or technical education

Further, seven of the ten participants noted that the tenderpreneurs do not necessarily have a professional or technical education background in the area in which they trade, but their plight to make business allows them to use experts once they secure the tender for a business. The other three participants did not note the same trend about the education or profession of the tenderpreneurs. Chen and Thompson (2016) explain the education or profession of the tenderpreneurs by referring to South Africa’s dysfunctional education system which produces learners who are not employable. GEM (2017) also mentioned that in South Africa, entrepreneurship is seen as a career choice thereby explaining why people would not after completion of their formal education necessarily use their profession or technical education to pursue business interests.

4.3.2.4 Appetite risk-taking character

Five of the ten participants mentioned that the drive to perform business in an area in which the tenderpreneur has limited business knowledge is promoted by appetite business risk-taking and easy profits. The results resonate well with the definition by SEDA (2018), that an entrepreneur identifies business opportunities, in the face of

risk and uncertainty, for profit. The other five participants did not refer to tenderpreneurs as risk takers.

4.3.2.5 High business networking

Three of the ten participants also noted that tenderpreneurs are capable of high business networking processes, which allows them to use networks to survive market containments and cross borders. This agrees with Murtthy and Bhojanna (2008) who assert that tenderpreneurs tend to have high ability to be able to understand current and future market trends. The other seven of the ten participants were silent about tenderpreneurs’ use of networks.

4.3.2.6 Corrupt business practices

Seven of the ten participants noted that tenderpreneurship may be amenable to the rise of corrupt business practices especially when considering policy and criteria for awarding tenders, giving rise to the fact that the concept of tenderpreneurs cannot be sustainably scaled up. Shava (2016) agrees that procurement system has caused persisted corruption that constrains the growth of marginalised groups. The other three participants did not consider tenderpreneurs to be amenable to corrupt practises.

4.3.2.7 Focused on rapidly growing wealth

Six of the ten participants considered tenderpreneurs as mainly focused on rapid growing personal wealth, creating a perception of lack of support towards transformation. This concurs with Mbeki (2009), who refers to tenderpreneurs as people who become rich through the system of tenders. The other four participants did not make the same observation.

4.4 Section C: To determine the factors that influence the scalability of tenderpreneurs in South Africa.

In order to determine the factors that influence the scalability of tenderpreneurs in South Africa, the researcher asked the participants to explain what resulted in tenderpreneurs in South Africa. The participants were also required to provide any policy or legislative changes that, in their view, support the growth of tenderpreneurs

in South Africa. The participants were further asked to indicate whether the growth of tenderpreneurs in South Africa is a sign of redistribution of wealth to previously marginalised people. The analysis of the responses from the participants resulted in themes discussed under interview questions 8 and 9.

4.4.1 Interview Question 8. From your understanding, what changes in South Africa do you think have resulted in the birth of tenderpreneurs? Please explain these changes.

When the participants were asked to explain what resulted in the birth of a tenderpreneurs in South Africa, the results revealed four themes namely, political, policy, socio-economic and technological and globalisation. Table 4.8 provides a summary of these themes and is followed by the discussion of each theme.

Table 4.8: What changes in South Africa do you think have resulted in the birth of tenderpreneurs?

Themes and sub themes Themes and sub themes  Political  Socio-economic - End of apartheid era - Expanding the economy to the - Democracy and Black majority rule previously disadvantaged

- Reversing the inequities of apartheid regions - Empowering previously - Expanding the middle class disadvantaged  Technological and Globalisation

 Policy - Increased technological - Black economic empowerment platforms countrywide - Affirmative Action act - Reduction in cost of business - Employment Equity act technology

- Preferential levies and quotas - Increasingly diverse economy - Buying local and brand South Africa - Increasing household incomes - Indigenisation or economic empowerment policies

Table 4.8 above shows the results of the changes that could be influencing the tenderpreneurial activity in South Africa.

 Political

In the political front, the end of the apartheid era, the emergence of the democratic movement and emancipation of the black majority contributed to the drive towards business ownership by the previously disadvantaged groups. The B-BBEE Act has called for preferential procurement practices, aimed at giving small black business a hand-up and foot in the economy (Fritz, 2014). Page and Meyer (2011) posit that the 1994 independence of South Africa brought renewed hope to those who were previously not opportune to create wealth. Further, the participants perceived that the need to reverse the inequities of apartheid were the reason to drive the tenderpreneurial approach to business. Empowering the previously disadvantaged communities has been seen as a focus for the scalability of the tenderpreneurship.

When asked about what gave birth to tenderpreneurs in South Africa, the results revealed that none of the participants were tenderpreneurs during the apartheid era. Interesting to note, was that none of the participants mentioned tenderpreneurs’ affiliation or connection to any specific political party. The other participants thought that the end of apartheid in South Africa is responsible for the birth to the concept of tenderpreneurs.

“...being awarded a tender was a big achievement for me, after so many years of hustling...This had a lot to do with the political drive...” (Participant 3)

“I can only attribute the tender system that recognises Black people to the end of apartheid in South Africa...” (Participant 7)

“...This country has a history of racial discrimination. The struggle by our grandfathers is starting to pay off....” (Participant 4)

The term ‘tenderpreneur’ emerged and gained momentum during Thabo Mbeki’s presidency (1999-2008) and had mixed connotations. Positively, the term was associated with the empowerment of black entrepreneurs (Dlamini, 2010), while on the other hand, it was associated with corrupt practices as discussed earlier.

 Policy

Regarding policy perspectives, the B-BBEE and its subsidiaries, Affirmative Action Act, Employment Equity Act, preferential levies and quotas, were designed to provide preference to those from the previously disadvantaged societies in South Africa. Section 217 of the Constitution provides for government organs to execute preferential procurement to enable those who were disadvantaged during the apartheid era to engage in entrepreneurship. The policies include the Preferential Procurement Policy Framework (PPPFA 2000), the Black Economic Empowerment (BEE) Act, as well as the subsequent Broad-Based Black Economic Empowerment Act (B-BBEE 2004). Penfold (2012) described the Broad-Based Black Economic Empowerment as the promotion of wealth creation for the previously disadvantaged communities to gain a foothold in the economy. One of the elements stated by participants was the concept of the stimulation of the local economy by buying local and brand South Africa.

The majority of the participants stated that government policies such as the Preferential Procurement Policy are big contributors to the emerging black entrepreneurs in South Africa Some of the participants thought that the B-BBEE policy is not implemented in a manner that serves its intended purpose of promoting economic development of previously disadvantaged. Their thoughts are captured in the statements below.

“...Preferential Procurement Policy has set a procurement target of 30% of goods and services from small businesses...” (Participant 6)

“If the custodians of the B-BBEE policies are a bunch of corrupt people, then we (tenderpreneurs) must forget that the policies are going to work...” (Participant 1)

The participants commended Brand South Africa to be a good intervention to build the reputation of the country.

“...I am very positive about initiatives such as Brand South Africa because they put the country on the map and create a market for small businesses...” (Participant 9)

“...Brand South Africa is a good initiative for the country for building a positive reputation....to reach out to extended global markets...” (Participating 10)

Fritz (2014) also asserts that these policy and legislative provisions have driven the typical tenderpreneur to take opportunity to create wealth, supported by the drive towards indigenisation of business development. The participants had some knowledge of the existing policies and other initiatives, which seek to redress the imbalances created by the apartheid government in South Africa. The participants stated that government initiatives such as the B-BBEE policy triggered the concept of tenderpreneurs in South Africa.

The participants echo the role played by SEDA, NYDA and SEFA in supporting the growth of small businesses. According to these participants, these Agencies provide small businesses with the tools needed to run business operations successfully. They pointed out that the early stage support provided by the Agencies will ensure sustainability of small businesses in South Africa. They cited that non-financial support creates an enabling environment for small business to thrive. The National Small Business Amendment Act has established various agencies to create an entrepreneurial culture that promotes the growth and sustainability within the small business sector. SEDA, SEFA, NYDA and others are responsible for non-financial and financial support thereby advancing the interests of the small businesses in South Africa (The DTI (2018); Bureau of Economic Research (2016); Small Business Development (2014).

“...the National Small Business Act... we expect an establishment of ombudsman to deal with complaints from small businesses...” (Participant 1)

Ernst and Young (2013) argued that tax credits and other regulation reforms be considered to ease hiring terms for small business, for example incentivising businesses to hire more workers freely. The participants agreed that the tax breaks provide relief to their businesses. One participant mentioned an example of employment tax incentive (ETI) as one of the tax relief granted to small businesses. Hassan (2015) mentioned the ETI seeks to address unemployment and skills development while incentivises business for employing young and less experienced people.

“...ETI (employment tax incentive) seeks to reduce the cost of employment for small businesses...” (Participant 3)

As indicated throughout this study, the BEE Commission Report (2001) highlights that the BEE is aimed …at addressing the imbalances of the past by seeking to substantially and equitably transfer and confer ownership, management and control of South Africa’s financial and economic resources to the majority of the citizens...to ensure the broader and meaningful participation in the economy by black people (so as) to achieve sustainable development and prosperity (2001:2).

Now, the truth is that the B-BBEE instrument is confronted with two major challenges: firstly, the government has to, beyond considerable doubt, transform the economic status of the Black majority, beyond the politically connected few who are benefiting and secondly, seemingly it has confirmed the notion that public procurement is embattled in serious predicaments like fraud, bribery, maladministration, all which defeat the purpose of the B-BBEE system which is aimed at black economic empowerment and good quality of service delivery.

 Socio-economic

The participants stated that opportunities have increased due to the improvement in the size of the middle class since the 1994 independence. The Department of Trade and Industry (2018) highlighted that government strategies are aimed at increasing income levels of Black people. The Business Tech (2018) argued that the B-BBEE policy has far reaching implications for growing the economy and the Black middle class.

The following statements address the question of what gave birth to tenderpreneurs in South Africa.

“...government tenders are one alternative of injecting money to small businesses... venture capital firms are neglecting to invest in small businesses...” (Participant 8)

“...small businesses have been afforded the opportunity to contribute towards the implementation of policies such as B-BBEE...” (Participation 7)

“...increase in the number of black owned businesses contributes to a fight of unemployment within the black communities...” (Participant 6)

 Technology and Globalisation

Dudovskiy (2012) states that advanced business technologies have made scalability of businesses sustainable. In this study, the participants noted that in South Africa, there were increased technological platforms countrywide. The participants noted that the reduction in the cost of business technology has resulted in more sustainable marketing and increasing reach for international trade, growing local markets using new models such as tenderpreneurship.

The participants stated that South Africa’s connectedness with the rest of the world is creating opportunities for small businesses.

“...South Africa realises that to compete globally, it needs to increase its support for small businesses....” (Participant 3)

“...overseas, countries see South Africa as a better option when compared to other African countries, that is why they are bringing business to South Africa...” (Participant 10)

“....technology has changed the business landscape...there are more market players...created opportunity for small businesses to become suppliers of choice and do business with the government...” (Participant 2)

4.4.2 Interview Question 9. Do you believe that tenderpreneurs are growing as a sign of redistribution of wealth to include the previously marginalised, in line with post-apartheid South Africa? Kindly explain your view.

The participants were asked to indicate whether they believed that the growth of tenderpreneurs was a sign of redistribution of wealth to include the previously marginalised people. The participants were required to elaborate on their views. The results revealed that a positive and negative response to the question of whether the growing number of tenderpreneurs was a sign of redistribution of wealth.

Table 4.9: Tenderpreneurs are growing as a sign of redistribution of wealth

Themes and subthemes: Themes and subthemes:  Yes, I believe so  No, I don’t believe so  Create inclusive economic  Little capacity for involving all development social levels  Improves equity  Amenable to corrupt practices

 Sorting the reparations of the  Potential to exclusivity and elitist apartheid legacy economic practices  The intention to create collateral  Few are currently benefitting for development for those  Not resulting in radical previously disadvantaged socioeconomic transformation of

the economy

Table 4.9 above documents the opinions of whether the redistribution of wealth has resulted in tenderpreneurs.

 Yes, I believe the tenderpreneur contributes to the redistribution of wealth

The participants agreed that the government procurement policies support the creation of inclusive socio-economic development. They stated that the policies achieve this inclusive socio-economic development by improving income level, creating employment and improving equity in the distribution of wealth, especially in the previously disadvantaged communities. Kalula and M’Paradzi (2008) argued that the government procurement policies are a fundamental and entrepreneurial strategy towards controlling and equitably redistributing the resources of the country across all races.

The participants also agreed that the government procurement policies contribute to the sorting out of the reparations of the apartheid legacy. The intention in being a tenderpreneur was to create wealth with limited collateral for development for those previously disadvantaged, and the redistribution of wealth through favourable procurement policies has served this purpose.

Of the ten participants, four agreed that the growing number of tenderpreneurs is a sign of redistribution of wealth and elaborated as follows:

“Yes, the growing number of tenderpreneurs is a sign of wealth redistribution... South Africa is doing something to address the economic imbalances...” (Participant 8)

“I agree... the redistribution of wealth is not merely equity stats exercise...changes to the legislation are evidence that black and female owned businesses are accommodated...” (Participant 6)

“...my business has grown...... there is an increase in the number of black middle class since government has introduced the preferential procurement policy...” (Participant 4)

“...... people cannot expect leaps and bounds in addressing the social issues...I am happy about the growing number of small businesses in general, including tenderpreneurs...” (Participant 7)

 No, I don’t believe so

Some participants did not agree with the fact that the tenderpreneurship contributes to the redistribution of wealth, agreeing with the assertions of World Bank (2016). The participants stated that there was limited capacity for involving all social levels in benefiting from the proceeds of the tenderpreneur, leaving it to be seen as an elitist practice and highly perceived as amenable to corrupt practices. It was also stated that the tenderpreneur could unfortunately provide potential exclusivity and elitist economic practices and that a few were currently benefiting. One participant also stated that the tenderpreneur was not seen as contributing to the radical socioeconomic transformation of the economy.

Of the six participants who disagreed about the redistribution of wealth being reflected in the growing numbers of tenderpreneurs, four of the participants responded as follows:

“I don’t agree... there is still corruption to be curbed in order for small businesses to enjoy the full benefits of this policy” (Participant 10)

“...big businesses are enriched...in my mind redistribution should cover a wide range of people, not just a few...for example the transformation appears to be far from reaching people with disabilities...” (Participant 5)

“I don’t believe that this is a sign of redistribution of wealth because we don’t make significant profits”. (Participant 9)

“I don’t agree that the number of tenderpreneurs is growing...some small businesses are shutting down and new faces are coming in...redistribution is a question of how the government help small businesses to be sustainable...” (Participant 1)

As indicated, the participants of the study had mixed or divergent views, regarding the redistribution of wealth by the whole concept of tenderpreneurship. Under the presidency of Jacob Zuma, tenderpreneurship increasingly became synonymous with corruption and the manipulation of tenders, particularly with regards to large contracts aimed at supplying goods and services to state owned enterprises (Southall 2011). Ngobeni (2007, p. 15) rightly put it that “Corruption affects the entire country as it increases the cost of public services and slows down service delivery to the public… [and goes] against the Constitution and the Batho Pele principles.”

In most cases of tenderpreneurship, the so called tenderpreneur establishes some kind of relationships with politicians and their families, the famous one being the Gupta brothers who sealed a political patronage with most leaders of the ANC, to an extent of employing members of Zuma’s family (one of his wives, son, daughter and nephew) and in reward for this they received major government procurement contracts in most sectors (Conway Smith, 2017; Pauw 2017, Pilling & Cotterill 2017). This saw the Guptas expanding their businesses, particularly in the energy sector. The point here is, as identified by the participants, instead of redistributing wealth to the previously disadvantaged groups, the tenderpreneurship rather enriched a few individuals and organisations of those who did not even qualify to benefit from it.

4.5 Section D: To establish the strengths, weaknesses, opportunities for and threats to the scalability of tenderpreneurs in South Africa.

In order to establish the strengths, weaknesses, opportunities for and threats to the scalability of tenderpreneurs in South Africa, the researcher asked the participants to explain the strengths and opportunities that support the growth of tenderpreneurs in South Africa. The participants were also required to assess the weaknesses and threats to the growth of tenderpreneurs. The participants were further asked to

explain the contribution of tenderpreneurs in the social economy, and how this contribution influences the growth of tenderpreneurs. The analysis of these responses from the participants resulted in themes discussed under interview questions 10, 11 and 12.

4.5.1 Interview Question 10. From your experience, please explain the strengths and opportunities that support the growth of tenderpreneurs in South Africa. Kindly explain how these factors came about and give examples where you may.

When the participants were asked about their own experiences in order to explain the strengths and opportunities that support the growth of tenderpreneurs, the results revealed four themes namely, political, capital, technological and socio-economic. Table 4.10 provides a summary of these themes and is followed by the discussion of each theme.

Table 4.10: The strengths and opportunities that support the growth of tenderpreneurs

Themes and subthemes: Themes and subthemes:  Political  Technological - Social inclusion of previously - Expanded ICT disadvantaged people - Enhanced e-commerce - Well implementation of economic strategies policies and programmes  Socio-economic  Capital - Expansion of all sectors of the - Increase access to capital for economy previously disadvantaged - Employment and wealth - Favourable interests on capital creation - Improved access to finance

Table 4.10 above show the strengths and opportunities that drive the scalability of tenderpreneurship in South Africa.

 Political

The positive economic policy for previously disadvantaged societies that provides them with preferential access to business with government, to cheaper finance and to reduced capital interest rates drive the scalability of the tenderpreneur. The

participants cited the opportunities for the scalability of the tenderpreneur that include the policies on black economic empowerment which provide preferential trade with previously disadvantaged individuals. The Banking Association South Africa (2018) asserts that the B-BBEE has been a vehicle that has catapulted many companies to create employment and reduce unemployment. The policies on market liberalisation, indigenisation and the drive of buying local brands, have been opportunities for the scalability of the tenderpreneur.

The participants thought that some of the policy decisions have created business opportunities, hence supporting the growth of tenderpreneurs in South Africa.

“...B-BBEE policy is one of the key policies that the South African government should be commended for because of its potential to create opportunities for the previously disadvantaged people...” (Participant 7)

“...the preferential procurement policy is an enabler for small businesses...I can showcase my skills and abilities and make my mark in the business because of the opportunity presented by such policies...” (Participant 4)

“...one of South Africa’s strong points is the sound economic policies... with the correct implementation of these policies businesses have a potential to flourish... parliament holds the office bearers to account for economic transformation...” (Participant 8)

 Capital

The participants noted that the strengths of the tenderpreneur also lied in the fact that there is an increase in the access to capital for previously disadvantaged communities, the enhanced and expansion of venture capital to periphery areas of the country or business, and the reduced need for collateral on business financing for selected groups. OECD (2016) highlights the role of China’s government in encouraging big companies to use SMEs as subcontractors, to form consortia with SMEs and encourages financial institutions to provide credits/guarantees for SMEs to pay deposits and perform the contract. Murtthy and Bhojanna (2008) also mentioned that in stimulating entrepreneurial activity, investing and funding approaches must be adopted by corporate, investors and the government.

“...bank application process is not as tedious as it used to...there are also willing investors to provide financial support to small businesses with viable ideas” (Participant 3)

“...the banks also need more clients and small businesses are a good market for them... there are products designed for small businesses...” (Participant 10)

“...the agencies are contributing to the success of small businesses, they are assisting us a lot in doing good business plans and arranging for us finance at preferential terms...” (Participant 6)

“...increase in government spending is resulting in more tenders being awarded and assisting small businesses with finance instead of bank financing...” (Participant 5)

 Socio-economic

The participants noted that the post-apartheid South Africa resulted in increased income levels for the previously disadvantaged communities, supporting the scalability of entrepreneurs. Public procurement solves problems such as employment, revenue tax collections from economic activities (Gafurova et al., 2016). Further, the expansion of all sectors of the economy has been encouraged by the government initiatives on entrepreneurship development programmes. The participants’ responses are captured below.

“...tenders have led to an increase of business activities...creating opportunity for employment...improved income levels will grow small businesses...” (Participant 4)

“...participation of small businesses in the forums and platforms created for their advancement...the forums represent a big opportunity to synergise and make an impact in the economy...” (Participant 7)

“...programmes for entrepreneurship development have taught small businesses best practices... programmes encourage entrepreneurial activity... ” (Participant 8)

 Technological

The participants also raised that the expanded Information, Communication and Technology (ICT) and increasing business technologies, including the fall of the cost of using technology for business, continue to underpin and support the scalability of the tenderpreneur. Further, the widening e-commerce channels were also lauded for supporting entrepreneurial activities. This is in line with Vegter (2012) who echoes the increasing potential of ICTs in sustainable business and international trade.

“...reduced cost of technology is giving small businesses an opportunity to be advanced and contributes to the efficient operations...” (Participant 2)

“...I understand the increased use of technology to be the consequence of South Africa trading with other countries...technology simplifies business therefore creates opportunity for businesses to grow” (Participant 10)

“...South Africa’s infrastructure is aligning to international standards...exposing small businesses to various electronic channels...” (Participant 3)

From the data presented above, it is clear that the mandate of the B-BBEE was to present an entrepreneurial platform aimed at redressing the socio-economic ills of the past. The aim was to empower the previously disadvantaged communities of South Africa who were deprived from participating on the economic platform (Barlett, 2010). Indeed, some form of wealth have been able to be re-allocated to some individuals and corporations, thereby transforming the economy, as well as the lives of some of the country’s communities. This means that the B-BBEE policy has managed to economically contribute to the welfare of people, especially the Black majority, thereby accelerating economic growth and transformation.

However, some scholars have lamented that the policy has also affected or disempowered some people, particularly the Whites who had been thought to have benefitted from the apartheid regime. Needless to say, the Constitution of South Africa (1996) stipulates against the economic disempowering of some races at the expense of others. This particularly speaks to the B-BBEE policy which was an

entrepreneurial strategy aimed and controlling and equal redistribution of resources amongst all races (Kalula & M’Paradzi, 2008).

4.5.2 Interview Question 11. From your assessment, what are the issues that you perceive as weaknesses and threatening the growth of tenderpreneurs in South Africa? Kindly outline these negative factors that you are familiar with.

When the participants were asked about their own assessment on what is threatening the growth of tenderpreneurs, the results revealed four themes namely, socio-economic, policy, competition and capital. Table 4.11 provides a summary of these themes and is followed by the discussion of each theme.

Table 4.11: Weakness and threats to the growth of tenderpreneurs

Themes and subthemes: Themes and subthemes:  Socio-economic  Competition - Poor economic performance - Increased barriers to entry

- Lack of sustainability - Threats of substitute products - Lacks social cohesion or services - Loss of public confidence - Increased competitive rivalry

- Lack in social development  Capital  Policy - Limited availability of - Not well understood affordable finance - Difficult to implement and - Lack of collateral monitor - Preferential funding - Corrupt practices

In Table 4.11 above, the results of the factors perceived by the participants as resulting in threatening the scalability of tenderpreneurs are highlighted.

 Socio-economic

The prevalence of long lags of poor economic performance in the country has been tied to the potential under-performance of tenderpreneurs, just like all other sectors. The participants also thought the tenderpreneur mode of doing business may be expensive and dwindling public funds more than the traditional aspects of business. In terms of sustainability, many participants agreed with Mbeki (2009), who stated that there are poor prospects of sustainable business practising with tenderpreneurs.

The participants noted the reduced faith on tenderpreneurship and related this to the perception that the processes and model are linked to the perception of greed and corruption in the business model. The participants also agreed with Omondi (2018) that tenderpreneurship is perceived to lack the potential to be inclusive and create sustainable social development. The responses from three of the participants are captured below.

“...the perpetrators of corruption will make it difficult for the policies to be well implemented...for example there are big businesses that are fronting in an attempt to improve their scorecards...this is taking food on others’ mouths...” (Participant 9)

“...tender system has lost public confidence...the recipients of tenders are viewed as people that have political connections or connections with the public...these views can lead to more policy restrictions that harm small businesses ...” (Participant 2)

“...small businesses are likely to make small profits....likely not to keep up with the competition and the flawed bidding processes...the funds intended for small businesses are going in the pockets of public officials” (Participant 1)

 Policy

The participants mentioned that the policy precepts supporting black business such as indigenisation, black empowerment, affirmative action and others, are either not well known, barely understood, not correctly adhered to, or lack monitoring or enforcement. These comments agree with Omidyar Network (2012) who stated that policy supporting the empowerment of previously disadvantaged communities may have been manipulated to benefit only a few who are linked, being abused for corrupt practices.

“...the correct implementation is not possible if the policies are not understood by the public officials...government must train the officials...” (Participant 2)

“...the policies are difficult to understand...government need to simplify and make them user friendly...” (Participant 5)

“...public officials are instigating corrupt practices... the tenders are being awarded to the same people...businesses either shutdown or resort to colluding with officials in order to survive...” (Participant 1)

 Capital

The participants decried the limited availability of affordable finance for capitalisation of projects as a negative for tenderpreneurs, with the lack of collateral. The Banking Association South Africa (2018) noted that small businesses that lack collateral are refused assistance by financial institutions. Further, participants agreed with Ribeiro, et al. (2015), that the increasing risk of venture financing in the economy is a threat to the scalability of the tenderpreneur. The participants also argued that delayed payments from the government are a threat to their growth. The following statements reflect the responses from four of the participants.

“...high value tenders are reserved for well-connected people...departments are paying us late...it becomes a challenge to finance our projects” (Participant 4)

“...we still make use of micro-lenders who have high interest rates because the banks are not willing to support...keeping healthy cash flows is difficult...” (Participant 9)

“...venture capital poses a risk of ownership to small businesses... government must expand on other financing options for small businesses because small businesses don’t favour this type of investment...” (Participant 2)

“...delayed refunds from SARS are contributing to the financial strain experienced by our businesses...” (Participant 5)

 Competition

The participants listed the issue of increased barriers to entry into various industries in the country as negating the scalability of the tenderpreneur, and these barriers included need for licences and registration and tax clearance certificates. Further, increasing competitive rivalry in the various industries in the economy has resulted in a disadvantaged tenderpreneur. GEM (2017) stated that large firms with experience

are constraining the small businesses from competing successfully for government tenders. The participants also echoed the sentiments of Ribeiro, et al. (2015) about the increasing threats of substitute products or services, such as cheaper imports from China and the Easter seaboard.

“...predatory behaviour is a threat to the growth of tenderpreneurs...the intensity of competing for tenders needs to be somehow controlled...” (Participant 8)

“...licensing, registration, tax clearance certificates are all hindering the growth of small businesses...it is time consuming to comply with these requirements and we cannot compete successfully without meeting them...” (Participant 5)

“...there is a threat of use of imported goods from China...to save costs and improve profits...the growth of tenderpreneurs is at stake...it becomes impossible to compete against such cheap prices” (Participant 4)

The participants highlighted the requirements and qualifying procedures as a hinderance to the success of tenderpreneurship. Most individuals and organisations disregard the process of applying for tenders because of the complexity of the registration and compliance process. This is a setback to the envisaged black economic empowerment. It has to be noted that some of the people who want to set their feet in the tenderpreneurship business have limited education qualifications, hence, they find the registration process as too lengthy and frustrating. The point here is that there is indeed the need to improve the registration process. The Department of Trade and Industry (2014) acknowledged the set-blacks associated with the need to comply with the B-BBEE policy. This has resulted in many organisations employing the services of Verification Agencies (VAs), which some poor individuals might not afford to do. This therefore calls for the need for authorities to improve the efficiency of the BEE system (The DTI, 2014).

Another threat posed the by tenderpreneurship business has been the abuse and manipulation of the procurement system be the powerful, as discussed earlier in this chapter. Despite having succeeded to some extent, in ensuring the equal distribution of resources, one can argue that the equitable restoration of wealth amongst the previously disadvantaged groups still remains a mystery (Papenfus, 2015). Jeffery

(2016) also noted the failure of tenderpreneurship in igniting the much-anticipated black economic empowerment, a scenario which made the public lose interest in the ruling ANC, whose economic policy flawed. Even the Minister of Public Enterprises, Pravin Gordhan, indicated in 2010 that the "BEE policies have not worked and have not made South Africa a fairer or more prosperous country." The argument is that instead of helping the emerging small businesses and entrepreneurs, the B-BBEE further impoverished them (Shava, 2016). Thus, the point being argued here is that the effectiveness of the B-BBEE and its procurement process, in addressing the economic imbalances of the past, is still under scrutiny, hence, the implementation strategies of the policy needs thorough interrogation.

4.5.3 Interview Question 12. Please explain your view of the contribution of tenderpreneurs to the social economy of South Africa and how can that be viewed as influencing their growth. Give examples that you know.

When the participants were asked about their own views regarding the contribution of tenderpreneurs to the social economy and how that contribution is influencing their growth, the results revealed both negative and positive contributions of tenderpreneurs as themes. Table 4.12 provides a summary of these themes and is followed by the discussion of each theme.

Table 4.12: The contribution of tenderpreneurs to the social economy

Themes and subthemes: Themes and subthemes:  Positive contribution  Negative contribution - Improved household income levels - Advances corruption and elitist - Reduced unemployment business practices

- Enhanced quality of life of - Lacks sustainable development previously disadvantaged - Does not equate to true equitable - Expansion of economy social development - Improved equity - Does not build traditional business acumen

Table 4.12 above illustrates the view of participants regarding the contribution of tenderpreneurs to the economy.

 Positive contributions

The participants cited that there were generally improved household income levels among the previously disadvantaged groups, tailors with reduced unemployment and an enhanced quality of life. As cited by Onuoha (2007), the tenderpreneur was seen as having contributed to the expansion of economy and the attainment of improved equity. Seven of the participants agreed that tenderpreneurs have a positive contribution to the social economy of South Africa. The explanations from three of the seven participants are captured in the statements below.

“...provide jobs and pay my employees decent wages so that they can support their families... become part of the economic activities, demanding more products and service across all sectors” (Participant 4)

“...we (tenderpreneurs) are tasked to push a transformation agenda...we are also measured on non-financial aspects like skills development, employment equity, socio-economic development...” (Participant 8)

“...small businesses have brought about social cohesion...the society has realised that ill practices such as marginalisation should be fought against....” (Participant 7)

“...small businesses pay a fair share in taxes to assist the government in delivering public services...” (Participant 9)

As indicated by the participants, tenderpreneurship was aimed at improving the lives of the previously disadvantaged societies, which to some extent, this has been achieved, through those tenderpreneurs who employ a number of people to execute their duties. This contributes to economic development, poverty alleviation, unemployment reduction, as well as the improvement of the quality of life of the general people (Shava, 2013).

 Negative contributions

The results from the participants were also that the society perceives tenderpreneurs as advancing poor corporate culture, corruption and elitist business practices. As

observed by Onuoha (2007), the participants decried the perceived lack of sustainability in tenderpreneurship. Further, it was thought that tenderpreneurs did not adequately equate to build traditional business acumen that build sustainable infrastructure. Three of the participants thought that tenderpreneurs have a negative contribution to the social economy of South Africa. Their explanations are captured in the statements below.

“...the guys that are getting big fat contracts live lavish lifestyles...there is no sense of social and economic development displayed...” (Participant 2)

“...I live from hand to mouth...it’s just not possible to make that kind of impact...the business is not sustainable...” (Participant 3)

“... tender system is in shambles...it has no capacity to sustain small businesses...tenderpreneurs are susceptible to corruption....the system is attracting people without business acumen...” (Participant 1)

From a governance perspective, tenderpreneurship has two implications. From an earlier discussion, the participants mentioned that they are only concerned about profit-making, because they are not guaranteed that they will win the next tender. In some cases, the concept is linked with poor service delivery, as the tenders are often ‘won’ by incompetent individuals or organisations which are rightly connected (Corruption Watch, 2014). It is during the pre-selection process that corrupt officials award the tenders to ineligible companies, thereby compromising on the quality of goods and services delivered. The issue of competency is often ignored. In some cases, those who get awarded the tenders become shell organisations which then also sub-contract other contractors. This concept has already been explained- fronting. When poor service delivery occurs, this defeats public accountability and also increases the mistrust towards the government officials who award tenders to unqualifying individuals and organisations (Penfold, 2016).

4.6 Section E: To make recommendations to the relevant government authorities on dealing with tenderpreneurship in South Africa.

In order to ascertain the recommendations to be made to the relevant government authorities on dealing with tenderpreneurship in South Africa, the researcher asked

the participants to make recommendation that can be implemented by the relevant authorities. The analysis of these responses from the participants resulted in themes discussed under interview question 13.

4.6.1 Interview Question 13. Based on your view, what would you recommend to government authorities regarding the tenderpreneurship?

When the participants were asked to provide recommendations on how the government authorities could deal with tenderpreneurship in South Africa, the results revealed five themes described in short phrases. Table 4.13 provides a summary of these themes and is followed by the discussion of each theme.

Table 4.13: Recommendations to government authorities regarding tenderpreneurship

Themes and subthemes:

 Policy changes (restructure, monitor and expand)

 Fostering established public funded partnerships and ensuring broader participation  Mainstreaming corporate social investment  Ensure infrastructure development and enforce sustainable business

 Build expansion strategies (e.g.collaborations, joint ventures, strategic alliances)

Table 4.13 above shows the findings regarding the recommendations to the relevant government authorities regarding the tenderpreneurs and their scalability.

 Policy changes (restructure, monitor and expand) The participants noted that it is critical for the authorities to look into the policies enabling the tenderpreneurs to ensure clarity, alignment and capability for expansion. This was suggested to include restructuring untoward policies and processes and enhance the policy monitoring component.

“...policies should be redefined and extended to as many previously disadvantaged people as possible...” (Participant 6)

“...the policies must be easily understood if they are to be implemented successfully... processes must also be fair and user-friendly ...” (Participant 5)

“...it is recommended that the government consider simplifying the processes that support policy implementation... aligning processes to the policy will prevent loopholes in the system...” (Participant 2)

“...for early detection of corrupt practices, a monitoring system should be developed...both businesses and public officials must be held accountable for corruption...” (Participant 1)

One participant mentioned a very important point, that of monitoring and evaluation. The absence of monitoring and evaluation in many government agencies has compromised the quality of services provided, as well as the effective execution of the BEE as a mechanism for job creation and addressing the inequalities of the past. The increasing cases of fraud, corruption and maladministration are often a result of poor monitoring and evaluation structures (Bogopane, 2013). Stemele (2009) also pointed that the embezzlement of funds by government officials is made possible due to the fact that no-one is holding the officials accountable. The policy-making structures should thus be assessed to ensure that they are meeting the set objectives (Acevedo et al., 2010).

Another participant pointed to the need to reduce loop hole in the tendering system. One way of achieving this is to get rid of the decentralisation process, which has successfully created loopholes for fraud and corruption. Centralisation of the tendering process would improve accountability, reduces costs and wastage of resources, and might also provide sound decision making (Handfield et al., 2011).

 Fostering established public private partnerships and ensuring broader participation

The participants noted that the sustainable scalability of the tenderpreneur requires the participation of the public sector for the existing infrastructure and suggested that the authorities build in the aspect of strong private-public partnerships to engage lasting socio-economic development. There was a suggestion for greater industry and community participation in the decision of enabling the growth of the economy through tenderpreneurs that this may mean a lasting, sustainable and inclusive

purpose of socio-economic development. Three of the participants shared their recommendation as follows:

“...government must continue to invite small businesses to express their views on policy formulation relevant to small businesses...” (Participant 7)

“...professional services such as accounting and tax must be subsidised... to promote proper record keeping for tenderpreneurs arrangements must be entered into by the government with the private sector...” (Participant 5)

“...South Africa needs to encourage innovation in the small business sector... innovation can be facilitated by collaborations between industry experts, large businesses, academic institution and government...” (Participant 3)

 Mainstreaming corporate social investment

The participants noted that one aspect of contemporary business is giving back to the community, termed corporate social responsibility, which is increasingly being considered a necessity by many communities. The relevant authorities must ensure that the monitoring of tenderpreneurs include the aspect of enforcing corporate social responsibility practice in order to achieve sustainable growth and development.

“...targets for social development should be stretched...if small businesses do not give back the tender system might collapse...” (Participant 2)

“...the support for local suppliers and brands should be made mandatory by the government to those businesses that have been awarded tenders...” (Participant 9)

“...BEE scorecard should not be seen as an administration function, there must be a system to monitor that businesses do adhere to their commitments... to ensure that the tender system is not betrayed after the businesses have been awarded...” (Participant 5)

 Ensure infrastructure development and enforce sustainable business practices

The participants noted the lack of engrained sustainable business practices among tenderpreneurs. The recommendation was therefore that the authorities enforce sustainable business practices, so that each tenderpreneur can demonstrate business acumen and meet the expected performance standards. The participants also decried the need for the authorities to ensure that tenderpreneurs do not “hit and pass”, but create sustainable business infrastructure where they operate, that promotes business development and sustainability. The participants also suggested that the government should channel public funds to under-developed areas. Some of the participants suggested that the tenderpreneur concept is not sustainable due to poor governance in the tender system.

“...Business plans must be assessed to ascertain the potential of business to grow...the intention of small businesses to grow can be determined from their business plans...” (Participant 8)

“...poor performance by the businesses and tender irregularities should not be tolerated...government must deal promptly with these issues...” (Participant 7)

“...Government should root out the practice of fronting which prevents small businesses from growing and making their mark in the industry...” (Participant 6)

The following statement reflected on the need to focus infrastructure development for businesses in the rural areas.

“...government should extend things like telecommunication infrastructure support to businesses in the rural areas as means of promoting business development...network technologies should be made available to businesses operating in the rural areas...” (Participant 4)

 Build expansion strategies (collaborations, joint ventures, strategic alliances etc.)

The participants indicated the need for tenderpreneurs to grow, so as to have a greater impact on the economy and recommended the authorities to help facilitate such expansion moves.

“...subcontracting should be limited to ensure that the businesses have the capacity of delivering the required service...government should promote joint ventures and alliances...” (Participant 1)

“...tenders should be used as a building block to finance and grow businesses...government should put strategies in place to help these businesses to be independent so that they don’t rely on tenders...” (Participant 6)

“...companies that are awarded with high value tenders should be tasked to identify and partner with small businesses from rural areas or businesses owned or managed by people with disability...” (Participant 5)

4.7 Summary

This chapter has provided an outline of the results of the primary study and its analysis. The interpretation of the findings was also given and discussed in line with the research objectives and the preliminary findings of the literature review. The main argument in the findings of the study is that, despite the setbacks faced by the local government, if properly implemented, the B-BBEE has the potential to resuscitate the country economy, through black economic empowerment. What came out strongly from the participants is the fact that fraud and corruption in the procurement system need to be eradicated, in order to improve the effectiveness of the B-BBEE system. Essentially, the tenderpreneurs themselves would also benefit from a bit of skills training and development, which should be strategically designed for the bulk of the black communities and budding tenderpreneurs. Chapter 5 discusses the summary of findings, recommendations and conclusions of the study.

CHAPTER 5: FINDINGS, RECOMMENDATION AND CONCLUSIONS

5.1 Introduction

This chapter documents the findings of the study, contains the recommendations and conclusions to the study. The findings of the study are also concluded in line with the research objectives. The recommendations for further research are also included. The overall conclusions of the research project are also made. An overview of this chapter is outlined in Figure 5.1 below.

Chapter 1 - Research Context

Chapter 2 – Literature Review

Chapter 3 – Research methodology and design

Chapter 4 – Results and analysis of the empirical study

Chapter 5 – Findings, Recommendations and Conclusions

5.1 Introduction 5.2 Findings of the Study 5.3 Recommendations 5.4 Conclusions 5.5 Areas of further research 5.6 Summary

Figure 5.1 Overview of Chapter 5

5.2 Findings from the Literature Review

Various theorists have characterised the tenderpreneur and the factors leading to the practice of tenderpreneurship in South Africa. Burger (2010) and others noted the expanding economy to previously disadvantaged regions. The increase in the middle class has also provided opportunities for tenderpreneur behaviour. In terms of the social context of the post-apartheid South Africa, Herrington (2012) alluded to the increased liberalisation of the socio-economy, the increased public participation and

other demographic changes such as the increasing economic education in previously disadvantaged communities, for the opportunity for such entrepreneurial behaviour.

Herbst and Gills (2015) view the prevailing purposes of tenderpreneur behaviour as increasing household incomes for the previously disadvantaged demographics, including reducing unemployment through creating jobs and wealth. Technological advances such as the increased technological platforms countrywide over the years, and the ongoing reduction in the cost of business technology have contributed towards market expansion and innovation. The DTI (2018) also noted the changing demographic dynamics and an increasingly more diverse economy have resulted into a bolstered need for goods and services, allowing opportunity for tenderpreneurs.

Political support towards tenderpreneurship has been through the various policies and legislation that support emanating from the end of the apartheid era, the advent of democracy and black majority rule and reversing the inequities of apartheid. Fritz (2014) also adds that tenderpreneurs were designed to empower the previously disadvantaged communities by creating an equity notch.

5.3 Findings from the Primary Study

The following were the findings of the primary study, addressing the research objectives.

5.3.1 To define the characteristics of a tenderpreneur in South Africa

The findings of the study showed that a tenderpreneur was considered as an individual bent on providing requested services, engaging in competitive bidding, usually awaiting opportunities or bids, who did business with or without prior capital. The results of this study agree to Aguilar (2018), wherein he explains that the participation of small businesses in public procurement involves selling of goods and services. The results also demonstrated that the tender process is able to generate competitive offers from the service providers as depicted by Tracker (2018). Murtthy and Bhojanna (2008) were supported by the outcome of the results of this study in that access to finance is not the only fundamental factor in the success of the

business. The participants acknowledged that they could do business without prior finance.

Further, the entrepreneur was perceived as focused on emerging opportunities. The entrepreneur engages a variety of opportunities and industries, while at the same time harnessing the existing systems or processes. The participants agreed to Hisrich (1990) statement that given the nature of tenderpreneurship, the tenderpreneurs are required to be diverse and not be limited to what they may be experienced or interested in. A tenderpreneur was also described as being focused on making profit from opportunities and relying on some competitive opportunism. The focus on profit making is in fulfilment of the theoretical aim of the B-BBEE policy, of promoting wealth creation (Omondi, 2018).

The tenderpreneur is also noted as predominantly of colour (Africans, Asians and Indians), often having a shelf company and little business infrastructure. The results of the study also demonstrated the aim of redressing previously disadvantaged people are benefitting from tenderpreneurship in SA (The DTI, 2018). The people doing tenderpreneurship are perceived as not necessarily having a professional or technical education, having an appetite risk-taking character and often capable of high business networking. GEM (2017) mentioned that in SA, entrepreneurship is seen as a career choice, explaining why people often pursue business interests. Finally, the results demonstrated that tenderpreneurs meet the SEDA (2018) definition of an entrepreneur, in that they are risk takers.

The findings of research objective 1 were based on the opinions and experience of participants of what a typical South African tenderpreneur is including the characteristics thereof. The summary of the characteristics is as follows:

5.3.2 To determine the factors that influence the growth of tenderpreneurs in South Africa

In the political front, the end of the apartheid era, the emergence of the democratic movement and the emancipation of the black majority, all contributed towards business ownership by the previously disadvantaged groups. Further, the participants perceived that the need to reverse the inequities of apartheid were the reason to drive the tenderpreneurial approach to business. The results of this study

demonstrated that the aim of the BBBEE policy to give black owned businesses a hand-up and foot in the economy is being realised (Fritz, 2014). One of the elements stated by participants was the concept of the stimulation of the local economy by buying local and brand South Africa. The results demonstrated that government, through various initiatives such as SEDA, SEFA, NYDA, has created opportunities for small businesses to grow. The DTI (2018); Bureau of Economic Research (2016); Small Business Development (2014) explain the role played by these government agencies in the development of small businesses in SA.

The increased public participation and private-public partnerships brought by the new dispensation resulted in a drive for the scalability of tenderpreneurs. Demographically, the markets in previously disadvantaged societies have expanded and the population has increased over the years, thereby expanding the market, participants noted that in South Africa, there are increased technological platforms countrywide. The participants noted that the reduction in the cost of business technology has resulted in more sustainable marketing and increasing reach for international trade, growing local markets using new concepts such as tenderpreneurship. Dudovskiy (2012) states that advanced business technologies have made scalability of businesses sustainable hence create a potential growth for tenderpreneurship.

The Brand South Africa approach to focusing on stimulating local and indigenous business has also been noted to be contributing to the scalability of tenderpreneurs. Affirmative action policies that were put in place from 1996, also resulted in preferential support for business development for those from the previously disadvantaged South African communities. Other policy precepts driving the scalability of the tenderpreneur include the current radical socio-economic transformation programmes aimed to provide integrated development, and favourable capital terms for the previously disadvantaged groups. The policy on the broad-based economic empowerment has resulted in the protection and preferential business opportunities for individuals from the previously disadvantaged groups. Shava (2016) states that the Black, Indian and Asian communities fall under a banner that provides them with preferential consideration on business with governmental entities.

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The main findings of this study are based on the participants’ understanding of the factors that contribute towards the growth of tenderpreneurs in South Africa. The findings are summarised as follows:  The end and reversal of inequalities created by the South African apartheid government.  The Economic Empowerment policies such as B-BBEE, Affirmative Action, Employment Equity and Preferential Procurement policies.  The increased technological platforms and the reduced cost of business technology.  The expanding middle class, increased household incomes and the expanding markets.  The increased public participation and private-public partnerships.  The increased number of government tenders awarded to the previously disadvantaged people.  Access to finance.  Access to entrepreneurship development programmes.

5.3.3 To establish the strengths, weaknesses, opportunities for and threats to the scalability of tenderpreneurs in South Africa

The positive economic policy for the previously disadvantaged societies provides them with preferential access to business with the government. The participants noted that the strengths of the tenderpreneur also lied in the fact that there is an increase in the access to capital for the previously disadvantaged communities, the enhanced expansion of venture capital to peripheral areas of the county or business. Favourable interests on capital have also been advanced to Black South Africans through the applicable entrepreneurship development agencies. China’s government, through its procurement policy, has encouraged big companies to use SMEs as subcontractors, to form consortia with SMEs and encourages financial institutions to provide credits/guarantees for SMEs to pay deposits and perform the contract (OECD, 2016).

The participants also noted that post-apartheid South Africa resulted in increased income levels in the previously disadvantaged communities, supporting the scalability of entrepreneurs. Further, the expansion of all sectors of the economy in

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the current South African government entrepreneurship and development programmes have increased entrepreneurial activity in South Africa. The participants cited the opportunities for the scalability of the tenderpreneur include the policies on black economic empowerment, which provides preferential trade to previously disadvantaged individuals. The results of this study are in line with the DTI (2018) explanation of the objectives of the B-BBEE objectives.

The policies on market liberalisation, indigenisation and the drive to buy local (South African) brands have been opportunities for the scalability of the tenderpreneur. Further, the widening e-commerce channels were also lauded at supporting entrepreneurial activities. This is in line with Vegter (2012), who echoes the increasing potential of ICT in sustainable business and international trade.

The participants noted the perceived greed and corruption, poor corporate culture and elitist business practices as threats to the growth of tenderpreneurs. Mbeki (2016) refers to the beneficiaries of the public procurement system as thieves who acquire tenders through their political connections. The results of this study also demonstrated a perceived lack of social inclusion of the BEE policy. The participants stated that large businesses and politically connected individual are the few that are benefitting from the policy. There was also an outcry from the participants about compliance to the regulations that forms barrier to entry in certain industries. According to GEM (2017), small businesses are unable to compete successfully as a result of increased entry barriers caused by the burdensome regulations.

5.3.4 Recommendations

The recommendations from this study to the authorities regarding the management of tenderpreneurs are as follows.

 Socio-economic transformation

There was suggestion for greater industry and community participation in the decision to enable the growth of the economy through tenderpreneurs is that this may mean a lasting, sustainable and inclusive purpose of socio-economic development. The participants highlighted a need for the government to provide

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skills development and training programmes in black communities, especially rural areas.

 Policy recommendations

Regarding policy changes (restructure, monitor and expand), the participants noted that it is critical for the authorities to look into the policies enabling the tenderpreneurs to ensure clarity, alignment and capability for expansion. This was suggested to include restructuring the untoward policies and processes and enhance the policy monitoring component. The participants emphasised that the design of the policies should facilitate successful policy implementation and simplified processes. The participants called for government to hold government officials accountable for corruption and reduce loopholes in the procurement system.

 Engaging in partnerships

The participants noted that the sustainable scalability of the tenderpreneur requires the participation of the public sector for the existing infrastructure. They also suggested that the authorities build in the aspect of strong private-public partnerships to engage in the lasting socio-economic development. The participants called for government to partner with the private sector in an attempt to professionalising black owned businesses. They stated that the government could provide black owned businesses with a subsidy for accounting and tax services.

 Sustainability planning and monitoring

The participants noted the lack of engrained sustainable business practices among tenderpreneurs. The recommendation was that the authorities enforce sustainable business practices, so that tenderpreneurs demonstrate how they ensure sustainable business such as environmental conscience and addressing climate change. They suggested that the government should hold tenderpreneurs accountable for poor performance.

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 Corporate investment

The participants noted that one aspect of contemporary business is giving back to the community, termed corporate social responsibility, which is increasingly being considered a necessity by many communities. The relevant authorities must ensure that the monitoring of tenderpreneurs includes the aspect of enforcing corporate social responsibility in order to encourage high levels of commitment, sustainable growth and development.

 Business support

The participants indicated the need for tenderpreneurs to grow and have a greater impact on the economy. They also recommended the authorities to help facilitate such expansion moves. This can be achieved by enforcing partnerships, joint ventures and alliances between businesses that are awarded with high value tenders with businesses from rural areas or those owned by people with disabilities.

 Infrastructure development

The participants decried the need for the authorities to ensure that tenderpreneurs do not “hit and pass”, but create sustainable business infrastructures where they operate, that promotes business development and sustainability. The participants suggested that public funds should be channelled to the rural areas to build infrastructure and encourage entrepreneurship.

5.4 Conclusions

The findings of this study have characterised a tenderpreneur as an individual bent on providing requested services, engaging in competitive bidding, usually awaiting opportunities or bids, who did business with or without prior capital. Further, the entrepreneur was perceived as being focused on emerging opportunities. The tenderpreneur is also regarded as predominantly males of colour (Africans, Asians and Indians), often having a shelf company with little business infrastructure.

In the political front, the end of the apartheid era, the emergence of the democratic movement and emancipation of the black majority, contributed towards business

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ownership by the previously disadvantaged groups. The policy on the broad-based economic empowerment resulted in the protection and preferential business opportunities for individuals from the previously disadvantaged groups. Other policy precepts driving the scalability of the tenderpreneur include the current radical socio- economic transformation programmes aimed to provide integrated development and favourable capital terms for the previously disadvantaged groups.

The main factors revealed by the study as influencing the growth of tenderpreneurs in South Africa are summarised as follows:  The socio-economic transformation programmes driven by government policies.  The well implementation of policies designed to address economic disparities within the previously disadvantaged business communities.  The non-financial and financial business support granted by the government through its agencies.  Increased e-commerce channels and reduced cost of business technology.  The promotion of local brand and small businesses from the previously disadvantaged communities.

5.5 Areas of Further Research

More research may be taken to consider the more granular aspect of tenderpreneurs, such as the extent of corruption and how these contribute to genitive spending, the actual effect on growth domestic product of tenderpreneurs and other aspects of development.

5.6 Summary

Chapter 5 discussed the findings of the study, outlined the recommendations of the study and provided the conclusions of the study.

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Appendix A: Covering Letter

04 September 2018

Dear Participant,

My name is Amanda Ngwane. I am a student at the Nelson Mandela University, based in Port Elizabeth and am pursuing a Master of Business Administration degree. As part of the requirements for obtaining my degree, I am required to conduct research and submit a dissertation. The research topic I have selected is ‘The Factors that Influence the Scalability of Tenderpreneurs’.

May I request your participation in this by answering some interview questions. Completing the interview will take about an hour. I also need to let you know that you participation is voluntary and you are free to stop your participation in this process anytime.

Thank you in advance.

Yours sincerely,

Amanda Ngwane (Researcher)

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Appendix B: Research Instrument

Section A: Demographic Data

Instructions: Please put an ‘X’ in the most appropriate box for each statement.

1 Sex Male Female

2 Age 18-29 30-39 40 – 49 years 50 – 59 60+ years years years years

3 Highest level Below Matric / Diploma / Bachelor’s Postgraduate of education Matric Certificate Tradesman Degree Degree

4 Professional None Technical Administration Financial Operational Area

5 Years as a Less 1 to 2 3 to 5 years More than practicing than years 5 years tenderprenuer 1

Section B: To define the characteristics of a tenderpreneur in South Africa.

6. Please discuss what, in your opinion and experience, what a tenderpreneur in the South African context is. Explain this including your view of the concept.

7. In your view, how do you characterise a tenderpreneur in South Africa?

Section C: To determine the factors that influence the growth of tenderpreneurs in South Africa.

8. From your understanding, what changes in South Africa do you think have resulted in the birth of the tenderprenuer? Please explain these changes.

9. Do you believe that tenderprenuers are growing as a sign of redistribution of wealth to include previously marginalised in line with post-apartheid South Africa? Kindly explain your view.

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Section D: To establish the strengths, weaknesses, opportunities for and threats to the scalability of tenderpreneurs in South Africa.

10. From your experience, please explain the strengths and opportunities that support the growth of tenderpreneurs in South Africa. Kindly explain how these factors came about and give examples where you may.

11. From your assessment, what are the issues that you perceive as threatening the growth of tenderpreneurship in South Africa? Kindly outline these negative factors that you are familiar with.

12. Please explain you view of the contribution of tenderpreneurs to the social economy of South Africa and how that can be viewed as influencing their growth. Give examples that you know.

Section E: To make recommendations to the relevant government authorities on dealing with dealing with tenderpreneurship in South Africa.

13. Based on your view, what would you recommend to national authorities regarding the tenderpreneurship?

End of interview questions

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Appendix C: Form E

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Appendix D: Plagiarism Report

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