Innovative Journal of Business and Management 2 : 4 July – August (2013) 60 - 79.

Contents lists available at www.innovativejournal.in

INNOVATIVE JOURNAL OF BUSINESS AND MANAGEMENT

Journal homepage: http://www.innovativejournal.in/index.php/ijbm

KOPANONG MUNICIPALITY’S LOCAL ECONOMIC DEVELOPMENT A CATALYST FOR ENTREPRENEURIAL REVIVAL IN A SHADOW OF POOR INCUBATION

Simphiwe Nojiyeza*, Kesteitsoe Mathebe

Management College of Southern Africa, MANCOSA, Southern Africa.

ARTICLE INFO ABSTRACT Corresponding Author: The objective of this study is to investigate the challenges that Simphiwe Nojiyeza are facing the small businesses in Kopanong which was once a hive of Management College of Southern business activities but now a shadow of itself. The methodology used for Africa the study is the combination of Qualitative and Quantitative research methods. Questionnaires were distributed around the nine towns of Kopanong Local Municipality and interviews were conducted on Government officials and employees at the incubators in Trompsburg and Bloemfontein. ©2012, IJBM, All Right Reserved 1 INTRODUCTION South African government’s democratic strategy is levels of education of employees; little or no technology to create better life for all. A national strategy for the usage in business; no involvement of consultants in development of small business in South Africa was running the business and withdrawal from the assets of the formulated and the National Small Business Act was passed business. by the Parliament, which provided for the institutions to The study is very challenging and needs to be implement this strategy. The small businesses were aimed conducted in other parts of the country as findings might to eradicate poverty, create jobs and wealth. be different due to different demographics. A lot needs to Small businesses are sufficiently flexible to meet be done in realizing the objectives of small businesses in and exceed customer expectations. Indeed, the ability to the country. Government is spending a lot of money in adapt to market demands and profitably exploit niche running the incubators and Local government. Therefore markets has catapulted the SME sector to prominence of training, monitoring, mentoring and guidance can help the late, rapidly turning it into the preferred business model of small businesses in creating jobs, eradicate poverty and the future (Parker and Illetschko, 2006:4). create wealth. Agencies were developed that would assist and finance The promulgation of the White Paper has identified the small business owners. The policies and laws developed by SMME sector as a key factor that contributes tremendously government are not practiced by the small businesses to the economy of South Africa. The broad goals and because the results would be evident. There is a big gap challenges as entrenched in the White Paper of (1995:27) between the expectation by the government and what is are summarised as follows: actually taking place in small businesses.  To create an enabling legal framework; The study by Clover and Darroch (2005:256) shows that  Streamlining regulatory conditions and encourage joint the lack of governmental support for Small, Medium and ventures; Micro Enterprises (SMME) owners is a major constraint to  Access to finance, information, advice, marketing, business survival and growth. This indicates that small procurement and appropriate technology; businesses are failing because they do not meet their  Improve industrial relations, business infrastructure expectations of alleviating poverty, create employment and and the labour environment; improve economic growth.  Expand the capacity of business organisations to The objective of this study is to investigate the support SMMEs; challenges that are facing the small businesses in Kopanong  Differential taxation and other financial incentives. which was once a hive of business activities but now a It is therefore important to note that the above shadow of itself. The methodology used for the study is the mentioned goals are aimed at addressing challenges facing combination of Qualitative and Quantitative research small businesses (SBs). This is based on the assumption methods. Questionnaires were distributed around the nine that Small Businesses are considered as catalysts for towns of Kopanong Local Municipality and interviews were poverty alleviation, job creation, innovation and economic conducted on Government officials and employees at the growth of the country (Nieman, 2006:3). The extent at incubators in Trompsburg and Bloemfontein. which the sector contributes to the economic well-being of The findings from the study include among others the country remains uncertain due to the majority of SBs lack of support from the government and agencies; low operating informally.

60 Simphiwe et.al/Kopanong Municipality’s Local Economic Development a catalyst for entrepreneurial revival in a shadow of poor incubation Due to the historical complexities and realities of defining deals with the theoretical framework that guided the study. the SMME sector, a National Small Enterprise Act 102 of The fourth section deals with key findings of the study and 1996 was introduced. The Act defines small enterprises the fifth and final section deals with conclusions and “as a separate and distinct business entity, together recommendations. with its branches and subsidiaries, if any, including co- 1.2 Research Methods operative enterprises, managed by one owner and 1.2.1 RESEARCH QUESTIONS predominantly carried on in any sector or subsector of the The research questions are shaped this study are: economy,” and it is further described in terms of industrial  What are the characteristics and qualities that can assist classification satisfying the quantitative approach of being an entrepreneur operating a small business to succeed? micro, very small, small or medium enterprise (National  What are the features that distinguish entrepreneurship Small Enterprise Act 102, 1996:2). from small business management? A key strategic plan of government is to offer  What are the challenges facing small businesses at support to the small business as they are addressing the Kopanong, South Africa and the developing world? issue of job-creation, poverty alleviation and economic  What is the role of business incubators in helping small growth (Nieman, 2006:12). businesses to gain competitive advantage? It is therefore of importance to note that, small businesse’s 1.2.2 SAMPLING contribution to employment creation and the role they play The research method used was the combined in national economies prompted the SA government to be research approach which is the combination of Qualitative constantly involved in its efforts to bolster and support and the Quantitative Methods. It is appropriate to use the SMMEs in numerous ways (Nieman, 2006:12). The small combination of these methods makes the weaknesses of businesses are getting more support in the form of skills one method to be balanced by the strengths of the other training, financing, access to government tenders and (Mancosa, 2011:56). assistance with market access as well as development and The study was conducted using explanatory, descriptive implementation of SMME-friendly legislation (Nieman, and exploratory approaches. Explanatory research is a 2006:12). study that is conducted to closely study the problem, collect The main objective is to ensure that institutions and analyse data, using statistical analyses and explain the like Small Enterprise Development Agency (SEDA), Free relationship among the variables (Mancosa, 2011:64). In State Development Corporation (FDC), Wholesale and Kopanong people are living in high levels of poverty Retail SETA (W&RSETA), Department of Trade and resulting from low key exposure of individuals to regular Industry (DTI), Khula Finance Limited, Industrial income (Xhariep District IDP, 2012:19, Davis, 2006:23). Development Corporation, Ntsika, Small Enterprise The income distribution analysis of individuals in Foundation, Business Referral and Information Network Kopanong with the majority of individuals not earning (BRAIN), Franchise Advice and Information Network income is 38.8% and those earning below R400 is 6.1%. (FRAIN), National Co-ordinating Office for Manufacturing This study was to get the most possible solution to the Advisory Centres (Namac) Trust, Business Partners Limited problem because it is believed that small businesses and Tourism Enterprise Programme can be able to fuel the increase in social and economic growth, sustainability, development and growth of the sector. Government has no employment, wealth creation and long-term development intention to curtail the diversity of support agencies but to of economies (Nieman, 2006:3). ensure that the scarce public resources are channelled in a Unemployment rate in four municipalities in most effective way (White Paper, 1995:47). Xhariep in 1996 and 2001 is high and has risen by 35% The forms and levels of making business have over the period with the highest in Kopanong. Policies to changed dramatically due to globalization and Foreign support micro-enterprise development and other job Direct Investment (FDI). Globalization involves internet, creation programmes are critical. It is paradoxical to note changing technology, use of credit cards, legislative laws, e- that the gross geographic product (GGP) of Kopanong is the commerce, management and control systems and many highest in all local municipalities that constitutes Xhariep more that may be some of the challenges that may face District Municipality and Kopanong is the richest are with a other small enterprises (Hill, 2009:13). contribution of almost half of the GGP derived from The purpose of this study is to investigate the agriculture. Local economic growth would contribute to the challenges facing Small Businesses (SBs) in achieving ability of the households to pay for municipal services as economic growth in Kopanong Local Municipality in order well as consumer goods from SMMES (Davis, 2006:24, to ascertain the shortcomings so that recommendations Krugell, Otto and van der Merve, 2009:8). may be made to the Local Municipality and the institutions According to Mancosa (2011:64) the descriptive that offer finance, training and support. research describes the characteristics of an existing It is generally accepted by policy-makers that small phenomenon. The study was conducted to investigate and businesses are a source of employment, wealth creation describe the challenges facing small businesses in and innovative. However, there are also doubts in terms of Kopanong. financial acumen, innovation, skills development, The exploratory nature is whereby the study is concerned management skills, marketing and book-keeping. Doubts with finding out what is happening regarding the research emanate from the number of businesses that are failing and problem and discover what is actually taking place. There not reaching their full potential. The paper is divided into 5 is a lot of information and knowledge about the challenges sections. The first section includes introduction and facing small businesses, but the study was conducted in methods used in conducting the study. The second section Xhariep District and not Kopanong (SEDA, 2009:12). deals with the overview of the study are and it is meant to locate the reader within the local economic development Probability or random sampling was the appropriate context of Kopanong Local Municipality. The third section method used in selecting elements. It occurs when the

61 Simphiwe et.al/Kopanong Municipality’s Local Economic Development a catalyst for entrepreneurial revival in a shadow of poor incubation probability of including each element of the population can main economic function of the town is to serve as a be determined (Bless, Higson-Smith and Kagee, 2006:101). regional agricultural services centre; Each member of the population had an equal chance of  Reddersburg serves as a general agricultural service being selected into the sample. centre within the Kopanong Municipality and is situated Maree and Pietersen (2007:178) outline three approximately 65 km northeast of Trompsburg. The factors which largely determine the sample size as the type main economic function of the town is to serve as a of statistical analyses planned, accuracy of results required general agricultural service centre to surrounding and characteristics of population. The size of the sample farming areas; was not small as it will not give a true reflection. A larger  Edenburg serves as a general agriculture service centre sample size is ideal for a quantitative research and the within the Kopanong Municipality. The main economic sampling error is smaller. The total number of small function of the town is to serve as a general agricultural businesses in Kopanong could not be established due to service centre to surrounding farming areas; many businesses operating without licenses (SEDA,  Jagersfontein serves as a commercial and social service 2009:10). The respondents were drawn from the pilot (10) centre within the Kopanong Municipality. The main and ten from each of the nine towns. That made a sample of economic functions of the town is to serve as diamond hundred. Farmers could not be contacted due to their mining operations, general agricultural service centre to schedules of being in far-away camps during the day, which surrounding farming areas; made the respondents to be ninety-three.  Springfontein serves as a general agricultural service Data was collected through surveys. A research centre within Kopanong Municipality. The main instrument was compiled with a five point likert scale with economical function of the town is to serve as a general responses ranging from strongly agree to strongly disagree. agricultural service centre to surrounding farming The instrument was used to collect the primary data for areas; this study.  Fouresmith serves as a commercial and social service A questionnaire is an instrument specifically centre within the Kopanong Municipality. The main designed to elicit data. In this study the questionnaire used economic functions of the town is to serve as a general structured and closed-ended questions. Questionnaires agricultural service centre to surrounding farming were distributed and collected face to face. areas; Interviews were conducted on government  Phillippolis serves a general agricultural service centre officials and newspapers and reports were consulted. within the Kopanong Municipality. The main economic 1.2.3 PILOT STUDY function of the town is to serve as a key regional tourist A pilot study was conducted on 10 small destination and secondary agricultural service centre; businesses that are not in the KLM. These small businesses  Bethulie serves as a regional agricultural service centre are outside KLM in Mangaung Municipality in within Kopanong Municipality. The main economic Bloemfontein. The main aim was to prepare for the study function of the town is to serve as a key regional and test whether the intentions of the questionnaire will be destination and secondary agricultural service centre; realized, examine clarity and the meaningfulness of the  Gariep Dam serves as a service centre and tourism questions. The feasibility of the intended methods to be attraction within the Kopanong Municipality. The main used was measured when conducting the pilot study. The economic function of the town is to serve as a key feedback from the pilot study was integrated into the regional tourist destination and general agricultural instrument used for this study. service centre to surrounding farming areas. Changes in terms of simplifying the language were made on Generally there is nothing much in economic activities in the questionnaire after the pilot study as respondents Kopanong area except for agriculture and tourism. needed explanation on other aspects. Figure 4.1: The map of Kopanong. 2.0 THE OVERVIEW OF KOPANONG LOCAL MUNICIPALITY Kopanong Local Municipality forms the middle section of the Xhariep District and comprises of nine towns of which Trompsburg is the main centre. It is the biggest local municipality in Xhariep District in terms of area. Xhariep District Municipality is a category C municipality constituted by three Category B municipalities, Kopanong, Letsemeng, and Mohokare. Kopanong covers 11.7% of the Free State which is 1 523 407 hectares squared (Kopanong IDP, 2012:3). Kopanong Local Municipality is made up of nine towns namely, Bethulie, Gariep Dam, Phillippolis, Springfontein, Trompsburg, Edenburg, Reddersburg, Jagersfontein and Fouresmith. Both Kopanong and Xhariep have headquarters in Trompsburg and the latter is located 105 km south of the Free State from Bloemfontein along N1 Courtesy: KLM. The map of Kopanong Local Municipality (van der Watt and Fourie, 2003:15). The key economic activities taking place in the different towns according to Xhariep IDP (2012:27) are:

 Trompsburg is the centre of Kopanong where the Administrative offices of Kopanong Local Municipality and Xhariep District Municipality are situated. The

62 Simphiwe et.al/Kopanong Municipality’s Local Economic Development a catalyst for entrepreneurial revival in a shadow of poor incubation Table 2.1: The towns from which the respondents come from Entrepreneurship is the emergence and growth of Number Name of town Number of new businesses. Entrepreneurship can be defined as the respondents 1 Bloemfontein – 10 process that causes changes in the economic system Mangaung. (Pilot) through innovations of individuals who respond to 2 Bethulie 9 opportunities in the market (Nieman, 2006:9). 3 Edenburg 12 Opportunities are exploited in a process of creating value. 4 Fouresmith 10 For entrepreneurship to take place, three pillars must be 5 Gariep Dam 11 6 Jagersfontein 12 present. They are innovativeness (growth), risk-taking 7 Phillippolis 6 (success or failure) and proactive-ness (persistence and 8 Reddersburg 10 creativity of entrepreneur). 9 Springfontein 6 Basically the development of entrepreneurship is 10 Trompsburg 7 based on two theories, i.e. those of economists and those of Total 93 behaviourists. Fox and Van Rooyen (2004:171) state that 3.0 Theoretical Framework the small businesses are not growing as entrepreneurial This section serves to discuss the meaning of entities, but function as survivalist to unemployment entrepreneurship, an entrepreneur and a small business. meaning that they do not respond to the economic The discussion goes on to determine whether small dysfunctionality of the economy in rural areas such as businesses fail or succeed; investigate the level of Kopanong. expertise, knowledge and skills of small business According to Herrington (2011:107) South Africa owner/manager; examine the reasons that lead to business has an unsupportive entrepreneurial milieu for both failure whilst others are being successful; and determine aspirant and existing entrepreneurs; there is lack of proper the experience of the business in accessing services from formal and informal education and training (which is cited the financing and supporting institutions. by the Global Entrepreneurship Monitor report as the most A lot has been done in this study and findings are critical factor), a lack of financial support, insufficient that small businesses are faced with challenges (Clover and government policies and programmes, restrictive policies Darroch, 2005:256). It is estimated that the failure rate of and regulations, and prevalent negative perceptions and small, medium and micro enterprises (SMMEs) is between attitudes. 70% and 80% (Brink, Cant and Ligthelm, 2003:1). The South Africa currently rates below average in all survival rate of SMEs (small and medium enterprises) is entrepreneurial activity indicators, and this finding has relatively low. Less than half of newly established been a consistent trend over previous surveys, according to businesses survive beyond five years (Brink, Cant and the 2010 Global Entrepreneurship Monitor (GEM) South Ligthelm, 2003:1). This leads to an investigation as to why Africa Report released in May 2011 (Herrington 2011:106). challenges are still there when the South African According to Parker and Illetschko (2006:5) the advantages government in general and Free State Province in of entrepreneurship are the freedom to act; substantial particular is investing in local economic development financial rewards; an opportunity to make a difference like (LED). making decisions and creating jobs. When South Africa became a democratic country, many Entrepreneurship has no definite definition. That avenues were created in terms of poverty alleviation and means there is still a lot to research in this field. As job-creation. Politicians emphasized the importance of entrepreneurship involves emergence and growth of new small business as a mechanism for job creation, innovation businesses which create changes in economic system and the long-term development of economies (Nieman, through innovation, none of this is visible in Kopanong as 2006:3). The combination of all businesses determines the most of the SMMEs are survivalist type (Davis, 2006:34). state of economy (Nieman, 2006:4). New businesses are emerging but there is no growth. Economy is associated with employment because There are no changes in economic systems and no when there is no growth in economy there are fewer innovation. employment opportunities (Nieman, 2006:4). The study of 3.2 The Meaning of an Entrepreneur in rural areas this nature was done in Free State by SEDA on Xhariep There are many definitions of entrepreneur and District SMME Development Support Plan basing it on the some of them are as follows. An entrepreneur is an SMMEs in their database. One of the challenges of the study individual who establishes and manages a business for the was the different levels of economy from the different local main purposes of passion, profit and growth. The Municipalities of Xhariep District. According to the findings entrepreneur is characterised by innovative behaviour and of the study done by SEDA (2009:14) in Xhariep District, will apply strategic management practices (Nieman, Hough where Kopanong Local Municipality is situated, the area is and Nieuwenhuizen, 2008:9). Gordon-Davis and mainly rural. Education levels are low. Most of the Cumberlege define an entrepreneur as a person who employees are semi-skilled or unskilled. Income levels are undertakes an enterprise, especially one with an element of very low whereby 55 percent of the workforce is engaged risk (2007:4). An entrepreneur is someone who sees a gap in “elementary” occupations and about 45 percent of the in the market and acts to fill it so as to profit by it. There population has no more than primary level education are so many gaps in the market, so many ways to fill them, (SEDA, 2009:14). The findings of the SEDA study are in that any attempt at a narrower definition excludes a whole agreement with the earlier findings of Davies (2006:23). lot of entrepreneurs (Macleod and Terblanche, 2005: 10). The first thing to investigate is the meaning of an According to Marx, Van Rooyen, Bosch and entrepreneurship and entrepreneur in relation to small Renders an entrepreneur is an individual who constantly business. searches for economic opportunities in the market and who 3.1The Meaning of Entrepreneurship utilizes them in an innovative way to increase prosperity by combining and managing the necessary resources, of

63 Simphiwe et.al/Kopanong Municipality’s Local Economic Development a catalyst for entrepreneurial revival in a shadow of poor incubation which a substantial part is usually contributed personally over and over until they get it right. They do not accept within a specific enterprise (2008:698). Nieman (2006:4) failure easily (Adams, 2010:2). They must also be ready to describes an entrepreneur as a person who sees an fail. This will help one to pick up, learn from the mistakes opportunity in the market, gathers resources, and creates and move over again (Moss, 2012:1). and grows a business venture to satisfy those needs. They must be relentlessly focused (Moss, 2012:1). Being a He/she takes the risk of the venture and is rewarded with true entrepreneur means never giving up and learning profit if it succeeds. from previous failures and mistakes (Nieman et al., One cannot fully define business without including 2008:30). entrepreneur or entrepreneurship. An entrepreneur is 3.3.1.6 Locus of control and strong people skills defined in the Concise Oxford Dictionary as a person who Nieman et al. (2008:29) stress the importance of sets up a business or businesses, taking on greater than entrepreneurs in taking control of their business activities normal financial risks in order to do so (Anonymous, and must have good delegating skills. Entrepreneurs 2006:386). possess strong communication skills for marketing, Defining an entrepreneur remains a problem as academics communication and motivating the employees (Adams, and researchers have not yet agreed on a definition. Every 2010:2). Entrepreneurs must be able to manage author defines from the point of view of his or her own businesses. This involves planning, organising, leadership approach to the subject (Nieman and Bennett, 2006:49). and control of all the functions within the business This might be attributed to the fact that entrepreneurship (Nieman, 2006:4) is a young developing field with growing importance in the 3.3.1.7 Strong work ethics global business environment (Co and Mitchell, 2006:349). Entrepreneurs must lead by example, be the first In Kopanong area there are very few to arrive and the last to leave the business premises. They entrepreneurs who are innovative, apply strategic even come to work on their day-offs. They prefer to be management practices, search for economic opportunities ahead of their objectives than behind (Adams, 2010:2). and act to fill the gap. Instead many business owners are 3.3.1.8 Passion following and copying existing businesses. Mostly they do According to Nieman et al. (2008:29), if people business to survive. start a business they must pursue business activities for 3.2.1 Characteristics of an Entrepreneur which they have passion. Entrepreneurs are driven by The definitions of the entrepreneur show that the passion to do their work. They enjoy their work more than entrepreneur has to possess certain qualities in order to be getting money (Adams, 2010:2 and Moss, 2012:1). They are able to attain the goals. They can be acquired through life likely to succeed in a business driven by passion (Nieman experiences (Nieman et.al, 2008:28). et al., 2008:29). 3.3.1.1 Disciplined 3.3.1.9 Need for independence Entrepreneurs have to focus on reaching their According to Nieman et al. (2008:30) many goals. This means that they have to be disciplined and individuals leave their jobs to become entrepreneurs eliminate hindrances that may distract them (Adams, because they are tired of working for somebody else. 2010:1). Entrepreneurs do not like to be tied to rules and 3.3.1.2 Confidence regulations. Entrepreneurs must be confident that they will 3.3.1.10 Risk taking and uncertainty succeed and must always enforce the confidence in their There are many risks involved when an actions (Adams, 2010:1). entrepreneur is in business like financial, personal and 3.3.1.3 Competitive social risks (Nieman et al., 2008:30 and Nieman, 2006:4). Entrepreneurs are aware that they start a business Financial risks are associated with business failure and because they “see” a gap. That means there are other liquidation. Personal risks involve the long hours spent in entrepreneurs already in business but the objective is to business related matters and sacrificing time with family. win the market (Adams, 2010:1). Social risks deals with the stigma associated with failure 3.3.1.4 Creativity and innovation and personal distress (Nieman et al., 2008:30). Entrepreneurs are open minded people who 3.4 The Difference between Entrepreneurs and Small always look for opportunities and turn them into business Businesses Managers ideas (Adams, 2010:1). For a business to take place there Both entrepreneurs and small business managers must be a real business opportunity (Nieman, 2006:4) and create goods, contribute to Gross Domestic Product (GDP) it must be something new and different. For anything to be of the country, create employment and provide the done, entrepreneurs take it upon them to start it. They are lifeblood that keeps governments working. proactive and they don’t wait for permission from other Despite the similarities, they are different. The people to start (Adams, 2010:1). They exploit new entrepreneur opens the way to new innovations and to technology and are on the lookout of constant changes new worlds, while the small business manager works hard (Moss, 2012:1). In order to establish a niche market, to sustain whatever he or she has built. Small business entrepreneurs need to establish a sustainable competitive owners see themselves as successful when their businesses advantage in their businesses (Nieman et al., 2008:30). are profitable (Nieman, 2006:7). Entrepreneurs always come with solutions which are the With the characteristics of an entrepreneur synthesis of other items (Adams, 2010:1). They must hire discussed earlier, it is evident that the entrepreneur goes to good people that will make a good team (Moss, 2012:1). business because he or she wants to make a change and is willing to pay for talents and skills needed. While the small 3.3.1.5 Determination and persistence business owner starts business because he or she wants to Entrepreneurs look at defeat as an opportunity for make a living and thus has to be hands-on on a daily basis success. They are determined to succeed and will then try in order to make a regular income. Small business owners

64 Simphiwe et.al/Kopanong Municipality’s Local Economic Development a catalyst for entrepreneurial revival in a shadow of poor incubation do not mind getting a smaller income that they would have  Small businesses are owner-managed, have more than as employees (Nieman, 2006:7). The business strategies five but less than fifty employees and less than R1 used by small business owners are to create sales, to keep million in assets. costs low and compensate employees at or below the Theory on how to run small businesses is well- market rate. prepared by government but the owners are not trained or The entrepreneur uses a collaborative approach of prepared. According to Kopanong IDP Review 2010-11, using employees, customers and others investors’ Kopanong Local Municipality is situated in the south of the experiences and resources to define the value in the market Free State province. It is made up of nine towns of which place. Small business owners measure their assets in terms Trompsburg is the main centre. This municipality is known of inventory and other assets with known economic value. for mixed farming. Entrepreneurs are not afraid of failure. In the event of Fauresmith and Jagersfontein were popularly failure, they get involved in different businesses (Nieman et known for mining but now it is the latter that has minimal al., 2008:30). mining activities taking place. All mines that were in Looking at the characteristics of an entrepreneur, Kopanong have since been closed down leading to high in Kopanong area there are more small business unemployment rate. The agricultural sector dominates owner/managers than entrepreneurs. There is no particularly in farming particularly in Kopanong, innovation and diversification in the businesses. The focus specializing in meat production and wool (SEDA, 2009:15). is only on the sales and they are afraid of failure. Those Some of these towns were developed initially as service who had failed decided to quit. centres for the farming communities and still play that role 3.5 Definition of a Small Business in the context of (SEDA, 2009:14). In Kopanong there are many farmers and Kopanong Local Municipality informal small businesses in any type of business. The small enterprise is an important contributor to According to the findings of a study conducted by the gross national product of any country and offers an SEDA in 2009 many households are surviving on social opportunity to gain experience to small business owners grants. Education levels are very low, with 18 percent of who might, at a later stage, progress to the management of adults over the age of 20 years having no formal education. a larger enterprise (Marx, Van Rooyen, et. al, 2008:757). A further 21 percent have some primary education, while Nieman (2006: 4) explains that, according to the National 6.5 percent had completed the first seven years of formal Small Business Act 102 of 1996 (as amended), the small primary education. Only 9.65 percent of those over 20 business in South Africa covers all sectors of economy and years of age had completed matric (Grade 12) and a further all types of enterprises and consists of quantitative and 3.5 percent had attained some post-matric qualifications qualitative criteria. (SEDA, 2009:15). Qualitative criteria relates to the ownership From these findings it is clear that people are living in structure of the business while quantitative criteria classify poverty and there are many informal businesses. business into micro, very small, small and medium in 3.6 Success and Failure rate of Small Businesses at different sectors of the economy in relation to a Kopanong number of total full-paid employees; total annual turnover The small, medium and micro-enterprise and total gross asset value (Nieman, 2006:5) Small development was pioneered by the South African enterprises are commonly identified by the number of government as a vehicle of creating jobs in order to reduce people employed in them. Small or micro enterprise (SME) the unemployment rate. That resulted in the introduction ranges in size from 5 to 50 (Gordon-Davies and of the Small Business Act in 1996 (Nieman, 2001). The Cumberlege, 2007:4). government aims to encourage entrepreneurship and the The sectors of small businesses in Kopanong that development of small businesses in order to grow the contribute towards the gross national product of the economy and create employment. Small business country are Government and Agriculture sectors promotion and development is the responsibility of (Kopanong Annual Report, 2010:11). business, government and labour. It is the key to The White Paper on National Strategy for the development substantial job creation and redistribution of wealth and Promotion of Small Businesses in South Africa (Gordon-Davies et al., 2007:6). (1995:9) outlines the definition of a small business as: Government is promoting small businesses by  owner-managed, having more than five but less than introducing policies like The Integrated Small Enterprise twenty employees and less than R2 million in assets, Development Strategy. The strategy is based on three except in the agricultural sector and their business pillars (DTI, 2005:4), namely, promoting entrepreneurship; practice are more complex than micro businesses (Small strengthening the enabling environment through more Business Amendment Act 2003:6) or they have flexible regulations, better access to finance and markets, outgrown direct supervision by the entrepreneur improved infrastructure facilities and business support (Department of Trade and Industry, 2003:14). and; enhancing competitiveness and the facilitation of technology transfer.

These pillars are illustrated by Department of Trade and Industry (DTI, 2005:7) as follows; Table 3.1: Unlocking the potential of South African entrepreneurs PILLAR 1 PILLAR 2 PILLAR 3 Promoting entrepreneurship Creating enabling environments Enhancing competitiveness and

65 Simphiwe et.al/Kopanong Municipality’s Local Economic Development a catalyst for entrepreneurial revival in a shadow of poor incubation capabilities at enterprise level a) strengthen national awareness about maintain small business sensitive strengthen managerial, business and the critical role of entrepreneurship business regulations technical skills b. promote alternative focus on improve access to finance facilitate improved quality, ownership productivity and competitiveness c. expand franchise opportunities Strengthen access to markets via Support technology transfer, procurement, exports and business incubation and the commercialization linkages of business services d. strengthen business associations and Facilitate the availability of business Expand SMME-focused sector support networks infrastructure and premises strategies e. increase the effectiveness of enterprise support f. localize support infrastructures 4. CROSS-CUTTING FOUNDATION Information, research, monitoring and evaluation SERVICES

In South Africa, policies and programmes to support small In the study conducted by McPherson in 1996, it is business development are an important part of the evident that certain SMEs are capable of rapid growth. In democratic government‘s strategy to create better life for the conclusion of McPherson’s study (1996:274) it is stated all. This strategy is outlined in a White Paper by the that SMEs with more experienced, educated, and trained Department of Trade and Industry (DTI) the lead business managers often grow more rapidly than those department for small, medium and micro enterprises managers possessing smaller stocks of human capital. (SMEs). A national strategy for the development of small This indicates that small businesses can succeed but in business in South Africa was formulated in 1995. A year Kopanong they experience failure more than success. This later, the National Small Business Act was passed by the necessitates the reason of a study as to research why there Parliament, which provided for the institutions to are imbalances and challenges experienced because it is implement this strategy. Small businesses are sufficiently evident that small businesses in Kopanong are failing. flexible to meet and exceed customer expectations. Indeed, In Kopanong there are institutions like SEDA and the ability to adapt to market demands and profitably FDC that are government-related incubators that were exploit niche markets has catapulted the SME sector to established to support the SMMEs. SEDA is mandated by prominence of late, rapidly turning it into the preferred government to act as a catalyst in poverty reduction, business model of the future (Parker and Illetschko, support the establishment of sustainable micro-finance 2006:4). institutions, intermediate financially and create working The policies and laws developed by government markets for the enterprising poor. There are no institutions are not practiced by the small businesses because the created by Kopanong to support the SMMEs. The Local results would be evident. There is a big gap between the Economic Development (LED) strategy that is still in a draft expectation by the government and what is actually taking form is not supported by any institutional arrangements place in small businesses. within the municipality. The study by Clover and Darroch (2005:256) 3.7 THE LEVEL OF EXPERTISE, KNOWLEDGE AND shows that the lack of governmental support for Small, SKILLS OF OWNERS Medium and Micro Enterprises (SMME) owners is a major It is imperative for owners of small business to constraint to business survival and growth. This indicates have expertise, knowledge and skills to run the business. that small businesses are failing because they do not meet Plans like business plan must be in writing and adhered to. their expectations of alleviating poverty, creating Any business must have a mission, vision and objective employment and improving economic growth. statements that must give guidance to the future of the business. Statistics indicate that a high percentage of small Strategic planning can help any business to grow businesses fail within the first two years of start-up (Sha, and expand during a period of time. The owner must 2006:35). According to McPherson (1996:258) the possess management and leadership skills. Strategic traditional neoclassical economists believed that the management which is among the most important skills is success of a business will occur as a reaction to changes in defined by Marx, Van Rooyen, Bosch and Reynders technology, the wage rate, or the price of the product. This (2008:351) as the management process through which suggests that the focus must be on the factors that have an timely and effective decisions are made and implemented impact on supply and demand for the product produced. in order to ensure the pursuit of the mission and the The Javanovic model predicts that the annual growth rate survival of the organisation. Lack of financial management of the firm will be a function of the accuracy of the skills and inability to read the market have contributed manager’s predictions regarding his or her ability and the towards failure of most small businesses in South Africa price of the product (McPherson, 1996:258). The (Black Business Quarterly, 2012:166) economies of scope’s emphasis on diversification are It is also expected of the owner to market the extremely important in order to be successful as the business extensively and thoroughly to attract a bigger alternative route when the know-how does not function share of the market. According to Marx, Van Rooyen, et.al, properly (McPherson, 1996:259). Success of the business (2008:753) restrictions on the expansion of small can be measured in several ways including growth in sales, enterprises are often attributed to the size of the markets, profits or number of workers (McPherson, 1996:261). the latest technology which cannot really be afforded, lack

66 Simphiwe et.al/Kopanong Municipality’s Local Economic Development a catalyst for entrepreneurial revival in a shadow of poor incubation of management skills and lack of adequate funds. to withstand the harsh realities of business life. Strategic planning is the process of developing a mission and long- term objectives for the organisation as a whole (Nieman The expansion which is required for this is and it is and Bennett, 2006:89). Most small businesses fail to craft often financed by borrowed capital at high interest rates. business plans and this account for the greatest latitude of This may not be achieved if the owner has no knowledge on their failures. how to access funds and the requirements thereof. The most general challenges affecting SMEs International surveys place SA close to the bottom of the include lack of management skills, finance, access to bank log for bad service (Parker and Illetschko, 2006:149). This credit, access to markets, appropriate technology, low is a challenge to owners in knowing and improving their production capacity, recognition by big companies, lack of businesses. With expertise, knowledge and skills, small interest, long bureaucracy processes, and support for the business owners can promote their businesses into roles that small businesses can play in economic medium or micro enterprises. development. The conditions set by most financial Skills level at Kopanong is very low. With high rate of institutions to acquire credits/loan disqualify most illiteracy, few people are interested in acquiring any skills. applicants from getting needed finances. These limitations The skills available are sewing and farming. Presently there disproportionately affect small businesses given their are no initiatives to facilitate skills development either than scarce financial and human resources. However, South sewing and farming. Africa has resolved to face these challenges by creating an 3.8 The Reasons for the Failure of Small Businesses at alternative source such as Khula Finances that provides Kopanong Local Municipality new entrepreneurs with financial assistance. Despite its commendable contribution to the The emphasis on generating more revenue is nation’s economy, SB sector does not get the required important for the country and its economy, because it helps support from the concerned government departments, to bring in much needed foreign currencies to support the banking sector, financial institutions, and corporate sector, country’s development process. More foreign currencies which is handicapped in becoming more competitive in the will help create much needed jobs including related national and international markets, and which need to be economic activities that enhance and support social and taken up for immediate and proper intervention (Clover economic development in the country. and Darroch, 2005:256). 3.8.1 CHALLENGES FACING SMALL BUSINESSES SMMEs need to do business internationally so that According to Nieman et al. (2008:260) small they can get foreign currency. Exportation helps in businesses are vulnerable to possible failure – the injecting foreign currency into the country. The foreign environmental threats may become too severe because currency that has more value than ZAR can make the these ventures simply do not have the “back-up” of extra businesses to grow and be successful. finances and resources and they normally are less able to A simple example of selling a bag of oranges source finance from banking institutions. internationally for $5, if the exchange rate on that day is $1 In order to understand failure it requires a is R8, will be worth R40. Locally R40 can be achieved after thorough understanding of the intricacies of business selling eight bags of oranges. Foreign currency helps in operations and the business environment. Business failure developing and growing the businesses. Furthermore that can be regarded as non-achievement of realistic goals. The allows the business to create more jobs. Businesses must realistic goals can be classified into three that is, personal trade internationally for reasons that include expansion of goals, financial goals and strategic goals. The decrease in sales, resource acquisition, diversification, minimization of net margins and early irregular cash flow patterns are competitive risk, saturated markets and depreciating indicators that the business is failing (Nieman et al., currencies (Nieman et al., 2008:307). According to Black 2008:260). About eighty percent of all new small Business Quarterly, (2012:166) forecasting is very businesses fail within the first five years (Small Business important in financial planning for the business and this South Africa, 2011:1). skill is lacking in many small business owners at Kopanong. 3.8.1.1 POOR MANAGEMENT Although, having the potential to create jobs and accelerate The business owner often does not have relevant economic growth in South Africa, small businesses are information regarding business performance, and bound to various challenges affecting their ability for consequently may not know when a situation requires growth and development. Clover and Darroch (2005:256) corrective action (Marino, 2005: 29). Wrong decisions can say the challenges include among others; lack of access to cost a business dearly. services, funding constraints at start-up level, lack of The main pressure on the small business owner is management capacity, access to tender contracts, to deal with multiple tasks (Nieman, 2006:22). Businesses compliance costs associated with VAT and labour are unable to make decisions and/or implement them, legislation, liquidity stress, lack of collateral, inability to usually due to a combination of poor leadership, multi-task, lack of institutional support. inappropriate company structures, lack of explicitly Parker and Illetschko (2006:113) explain that defined accountability and responsibility and an inability to research has shown that entrepreneurs who manage their respond to changes (Marino, 2005: 30). Business owners businesses according to a well-devised plan are taking on big projects where costs are underestimated and significantly more successful than those who claim to be income overestimated (Marino, 2005:30) are heading for naturals. It is not surprising that banks insist on being failure. Business owner’s under-quote on a project for fear presented with a business plan before they will make a of loosing a tender or over-quote because they are not sure decision regarding a loan application. Parker and Illetschko of the production costs (Marino, 2005:30). (2006:111) illustrate the importance of the planning process as the expression of dreams, appropriately adapted

67 Simphiwe et.al/Kopanong Municipality’s Local Economic Development a catalyst for entrepreneurial revival in a shadow of poor incubation Businesses that have a higher cost structure than their profitability, market and corporate strategies (Marino, major competitors are likely to be at a competitive 2005:31). Not knowing them well can result in money disadvantage (Marino, 2005:30). wasted unnecessarily on unattainable aspects. Many small 3.8.1.2 INADEQUATE FINANCIAL CONTROLS businesses in Kopanong are trading on similar products According to Marshall, McManus and Viele and situated in the same area. Business is slow to both (2008:146) financial controls include a series of checks and because they do not possess sustainable competitive balances ensuring that more than one person is involved in advantage. According to Nieman (2006:270) competitive a transaction from the beginning to the end. This means the advantage means that the venture has some advantage cheque signatory must not be the one who prepares the over its competitors that is difficult to copy or follow and cheques. which distinguishes it from the others. If the management fails to identify products or 3.8.1.5 LACK OF FINANCE markets that are not profit-making, money is wasted on Small businesses experience problems in accessing them and no cash is available to run the business (Marino, finances from the institutions due to, reasons among 2005: 29). When sales are growing faster than the business others, they do know where to go or they do not have the is able to generate cash flows to finance growth (Marino, proper documentation needed (Nieman, 2006:256). As 2005:30), the business may fail. Poor cash flow is one of Herrington (2011:107) writes, many entrepreneurs put too the major causes of failure in small businesses and you can much emphasis on accessing finance, but some of the most make profits but still go bankrupt if your business has a successful businesses are products of entrepreneurs who cash flow problem (Small Business South Africa, 2011:7). were driven by passion and had unique innovative ideas. Lack of financial management skills contributed to The examples of that caliber are Raymond Ackerman, the failure of most small businesses in South Africa (Black Richard Branson and Warren Buffet. The recommendations Business Quarterly, 2012:166). The working capital is used are that entrepreneurs need to do their research first and to fund debtors and inventory (Marino, 2005:30) and if financing can be done through savings or borrowing from mismanaged there will be shortage in working capital. A family and friends. process of requisition must be followed when purchasing 3.8.1.6 FAILURE TO EMBRACE NEW TECHNOLOGIES goods as it does not allow for impulsive buying. It controls AND NEW DEVELOPMENTS buying in terms of price, quantity and quality. Petty cash Since the end of the World War II major advances must be made available to pay for small items that would occurred in communication, information processing, cost a lot to pay by cheque. transportation technology and the emergence of Internet The financial statements of the business must and World Wide Web (Hill, 2009:13). This technology periodically be examined by an independent third party allows the buyers and sellers to meet at marketplace (Marshall et al., 2008:7). Businesses who do not audit their twenty four hours a day and seven days a week. There are books get problems when they are seeking financial no geographic boundaries as this technology is assistance. international. According to Nieman (2006:158) the Internet 3.8.1.3 POOR MARKETING has made it possible for companies to expand their target Marketing is the identification and profitable markets globally, overcoming the barriers of time and satisfaction of customers’ needs (Parker and Illetschko, space, and even cultural gaps have been closed by this 2006:47). According to Nieman (2006:57) marketing is the economy. process of planning and executing the conception, pricing, Technology today tends to be an important tool in promotion and distribution of ideas. Marketing should the success of a small business (Nieman, 2006:257). provide direction for these activities and coordinate them Business has now moved to a level of crossing boundaries, (Nieman, 2006:57). A successful small business owner languages and business systems. That is called combines the product, price, the place and promotion to globalization. Globalization is a shift towards a more create value and achieve the objectives of the business. integrated and interdependent world economy (Hill, Business owners fail to keep pace with changes that occur 2009:6). National markets are now giving way to global within the marketplace, responding inadequately to markets. Consumers do not have to go into the businesses marketplace changes (Marino, 2005: 30). Businesses that personally to do business but can do it through technology. are successful are those that know and meet the needs of Many businesses in Kopanong do not make use of their customers. the new technologies like the Internet and the World Wide Web to make business, they suffer great losses. This If the business is not responding to the changes in technology makes businesses to be operational day and demand for a product or service or wait too long to night all-year round. There is very little use of e-business respond (Marino, 2005:31), it may face failure in meeting and e-commerce in doing business in Kopanong. E-business its main objective of profit-maximizing. Business cards and refers to any business activities conducted electronically billboards available at Kopanong belong to the small that involve the buying and selling of products and services businesses that were helped by the governmental (Nieman, 2006:157). institutions. Most businesses are not marketing their The web makes it much easier for buyers and businesses as among other reasons fear waste of their little sellers to find each other, wherever they may be located profits. and whatever their size (Hill, 2009:14). It allows small and 3.8.1.4 COMPETITION large businesses to expand their global presence at a lower The business must know its competitors well, cost than ever before (Hill, 2009:14). know their strengths, limitations, pressures, costs, Table 3.2: Advantages of e-business to both sellers and buyers Sellers Buyers

68 Simphiwe et.al/Kopanong Municipality’s Local Economic Development a catalyst for entrepreneurial revival in a shadow of poor incubation 1. The internet gives access to a bigger market since it is The product is available more widely because the business is globally accessible. not bound by boundaries. 2. The cost of processing is reduced if online Customers can have personalized offers and customised administration is cheaper and faster. information sent to them about those products that interest them. 3. A seller can be in business 24/7 A buyer can shop online 24/7 4. Sellers can reach niche markets even if they are If the product is digital, it can be downloaded immediately. situated in geographically distant locations. 5. Information can be exchanged faster and more Buyers can take part in auctions and buy online without accurately than with manual systems. having to be physically present at the auction site. (Nieman and Bennett, 2006:291) However, according to Nieman and Bennett (2006:292) there are challenges that are associated with e-business. Table 3.3: Challenges of e-business to both sellers and buyers Sellers Buyers 1. Technology changes daily and information management 1. Buyers are vulnerable to breaches of transaction systems have to stay. security and fear losing their privacy when 2. Some countries telecommunication infrastructure is still shopping online. insufficient for conducting online business effectively. 2. Incidents of fraud highlight the need to trust the 3. Not all organisations know how to integrate their existing seller when dealing with the unknown sellers. systems with e-business software applications. 3. The online environment prevents buyers from 4. The global nature of e-business makes the cultural, language touching and feeling products before buying. and monetary differences of many countries a reality to 4. Buyers may be ignorant of the process of buying manage. without cash, for instance, using electronic 5. Legal also impact on business from a global perspective. money or vouchers or conducting paperless 6. There is still a skills shortage among potential employees for transactions. the online environment. (Nieman and Bennett, 2006:292) 3.8.1.7 POOR CHOICE OF LOCATION

Choosing a location for the business can impact negatively entrepreneurship. The income levels are very low or positively to the success of the business. The target whereby 55 percent of the workforce is engaged in market must easily access the products or services they “elementary” occupations as about 45 percent of the need without struggling or else they may look for population has no more than primary levels of education convenience. A good location is the one that appeals to (SEDA, 2009: 14). large numbers of customers, while at the same time According to Herrington (2011:107) South Africa minimizing costs (9 Reasons why businesses fail, 2012:2) has an unsupportive entrepreneurial milieu for both 3.8.1.8 LACK OF CLEAR OBJECTIVES aspirant and existing entrepreneurs; there is lack of proper A business needs to have a clear strategy and formal and informal education and training (which is cited objectives well-communicated to everyone in the business by the Global Entrepreneurship Monitor report as the most so that it can achieve sustainable competitive advantage. critical factor), a lack of financial support, insufficient The crafting of Mission and Vision represents a managerial government policies and programmes, restrictive policies commitment to pursue a particular set of actions in and regulations, and prevalent negative perceptions and growing the business, attracting and pleasing customers, attitudes. competing successfully, conducting operations, and Fox and Van Rooyen (2004:171) state that the small improving the company’s financial and market businesses are not growing as entrepreneurial entities, but performances (Hough, Thomson, Strickland III and Gamble, function as survivalist to unemployment meaning that they 2008:4). do not respond to the economic dysfunctionalities. Strategic planning is the process of developing a South Africa currently rates below average in all mission and long-term objectives for the organisation as a entrepreneurial activity indicators, and this finding has whole (Nieman and Bennett, 2006:89). Parker and been a consistent trend over previous surveys, according to Illetschko (2006:111) illustrate the importance of the the 2010 Global Entrepreneurship Monitor (GEM) South planning process as the expression of dreams, Africa Report released in May 2011 (Herrington 2011:106). appropriately adapted to withstand the harsh realities of 3.9 THE EXPERIENCE OF THE ENTERPRISE IN business life. According to Marx, Van Rooyen, Bosch and ACCESSING SERVICES FROM FINANCING AND Reynders (2008:351) strategic management can be briefly SUPPORTING INSTITUTIONS defined as the management process through which As Herrington (2011:107) writes, many timely and effective decisions are made and implemented entrepreneurs put too much emphasis on accessing in order to ensure the pursuit of the mission and the finance, but some of the most successful businesses are survival of the organisation. products of entrepreneurs who were driven by passion and 3.8.1.9 UNDER-SKILLED LABOUR FORCE had unique innovative ideas. The examples of that caliber Xhariep District is mainly rural. Education levels are Raymond Ackerman, Richard Branson and Warren are low. Most of the employees are semi-skilled or Buffet. The recommendations are that entrepreneurs need unskilled. As Maas and Herrington, (2006:6) illustrate, low to do their research first and financing can be done through levels of education is a major constraint to savings or borrowing from family and friends. The

69 Simphiwe et.al/Kopanong Municipality’s Local Economic Development a catalyst for entrepreneurial revival in a shadow of poor incubation challenges are rigid and restrictive labour regulations; red tape associated with registering a business needs to be improved and simplification of tax laws. Small businesses experience problems in accessing finances from the institutions due to, reasons among others, they do know where to go or they do not have the proper documentation needed (Nieman, 2006:256). The reasons why SMEs generally face difficulties in obtaining financing: lack of collateral, low equity, insufficient documents to support loan application, lack of financial track record and viability of businesses, processing time for loan applications (Clover and Darroch, 2005:243), overly complex application procedures (Clover and Darroch, 2005:243), private intermediaries and parastatal organisations must offer training activities, business Figure 4.2 illustrates that the males were 50.5% while counselling, advise on tender and help in securing loans females were 49.5% of the respondents. This is the (Clover and Darroch, 2005:243). opposite when considering the population and gender of The other factors that contribute in SMMEs not inhabitants of Kopanong. According to the Xhariep IDP getting funding are: small businesses are mostly started (2012:12) Kopanong has more females than males. Men with small equity base (Clover and Darroch, 2005:243), are into business more than the females although females small businesses mostly do not afford a wage rate that stand better chances in terms of getting finance and attracts highly qualified or skilled labour (Clover and support for business. Darroch, 2005:243), small businesses fails to present Figure 4.3: Highest qualification of sample convincing Business Plan (Clover and Darroch, 2005:243). 3.9.1 FINANCIAL SOLUTIONS FOR SME Therefore, risk capital investment is urgently needed to enhance the rapid development of SMEs. For financial institutions to develop appetite for and to better manage SME risk, the sector must address the following credit analysis issues:  Viable business model in a profitable and growing industry.  Sound and focused management  Clear succession plan  Demonstrable financial management capabilities  Focused cost structure and financing plan Many small businesses in Kopanong are not formed formally and thus they do not know there is help in form of government institutions like NYDA, Khula, FDC, Women in Business, SEDA, and others. 3.10 Addressing Challenges Facing SMMEs Since Kopanong is a very rural and remote municipality, some small business owners experience financial problems in going to Bloemfontein to seek Figure 4.3 illustrates the level of education of the sample. information and help. Bloemfontein is where all the The majority of the respondents, 40.9% have matric. The institutions are found. If the governmental institutions can group is followed by those who did not finish high school at be brought closer to them, that would make a difference. 23.7%. Respondents with certificates amount to 19.4%; That can also be done in a form of mobile offices those with diplomas are 14% while those with going to their different towns as FDC and SEDA offices are undergraduate degrees and Masters are 1.1% each. There in Trompsburg only. Most small business owners are were no respondents who hold Honours/B Tech, Doctorate illiterate and unskilled. They need skills development and nor PhD. training. This table justifies the fact that the education levels of the 4.0 THE DESCRIPTIVE AND FREQUENCY STATISTICS OF inhabitants are very low (SEDA, 2009:15). At least 45% of THE RESEARCH FINDINGS the population of Xhariep had no more than primary levels 4.3.1 The demographic information of education (SEDA, 2009:15). Figure 4.2: Gender profile of sample The shape of figure 4.3 is the same as the one supplied by Xhariep IDP (2012:16). Figure 4.4 Age Profile of sample

70 Simphiwe et.al/Kopanong Municipality’s Local Economic Development a catalyst for entrepreneurial revival in a shadow of poor incubation

Figure 4.4 illustrates the ages of the respondents. Of the 93 respondents 33.3% are 5 years and above, 31.2% are at 41 – 50 years, 23.7% are at 31 – 40 years, 9.7% are at 21 – 30 years and 2.2% are below 20 years. The shape of the graph is increasing with age. The number of owners increases as the age increases. Those below 35 years stand Most of the businesses, 94.6%, started their operations a good chance of securing loans and support from NYDA with one to five employees including the owner. This can and other agencies. Seemingly youth is not interested in be illustrated by figure 4.6. Of the 93 respondents, 5.4% going into business although they are encouraged to be started with six to ten employees including the owner. self-employed. The White Paper on National Strategy for the development 4.3.2 Profile of the business and Promotion of Small Businesses in South Africa Figure 4.5: Duration of business in existence or in (1995:9) outlines the definition of a small business as operation owner-managed, having more than five but less than twenty employees (Department of Trade and Industry, 2003:14). Figure 4.7: Mission and Vision of company

The majority of respondents (54.8%) are running their businesses without a Mission and/or Vision statements compared to 45.2% of those who have them. From the observation of the researcher, only 8.6% of 93 businesses

had their Mission and Vision statements displayed. From figure 4.5 it is evident that businesses of 0 to 1 year in The crafting of Mission and Vision statements represents a existence are the least at 6.4%. It is observed from the managerial commitment to pursue a particular set of study that at two to four years 24.7% were in existence. In actions in growing the business, attracting and pleasing the category of five to seven years, 18.3% were in customers, competing successfully, conducting operations, existence. In eight to ten years, 15.1% were in operation. and improving the company’s financial and market The largest category is that of 35.5% of the businesses that performances (Hough, Thomson, Strickland III and Gamble, are more than 10 years in existence. Of the 93 respondents 2008:4). 6 have survived the first year, making it 6.4% to have been Strategic planning is the process of developing a mission at 0 to 1 year. and long-term objectives for the organisation as a whole Figure 4.6: The number of employees when the business (Nieman and Bennett, 2006:89). Parker and Illetschko was first started (2006:111) illustrate the importance of the planning process as the expression of dreams, appropriately adapted to withstand the harsh realities of business life.

71 Simphiwe et.al/Kopanong Municipality’s Local Economic Development a catalyst for entrepreneurial revival in a shadow of poor incubation Figure 4.8: The sector or industry of the business

The respondents were not from all sectors listed in the questionnaire. They were mainly from Manufacture (6.5%), Figure 4.10: How financing to start the business was raised Construction (5.4%), Services (27.9%), Business and Financial services (2.1%), Franchise (3.2%), Retail (37.6%) and Catering and Accommodation (17.2%). The Integrated Development Plan (IDP) of Kopanong Local Municipality (2012:4) states that the basic agricultural products are exported from this municipality for processing and re-imported into the areas as consumer products. Kopanong is dominated by agricultural activities and is contributing 45% (R95,545,000) to the Gross Geographic Product (GGP) of Xhariep District Municipality in 1996 (IDP, 2012:6). The findings do not support the IDP of Kopanong because the farms are far from the towns and difficult to reach. The questionnaires were distributed to some farms but the owner/managers could not be reached for collection. Farmers did not want to participate because the study As Herrington (2011:107) writes, many entrepreneurs put coincided with the brutal killings of a couple in their farm. too much emphasis on accessing finance, but some of the Figure 4.9: Legal status of the business most successful businesses are products of entrepreneurs

who were driven by passion and had unique innovative Figure 4.9 shows the forms of business of the respondents. ideas. The recommendations are that entrepreneurs need They are Sole Proprietor (56%), Partnership (9.7%), Close to do their research first and financing can be done through Corporation (16.1%), Pty (Ltd) (5.4%), Business Trust savings or borrowing from family and friends. (3.2%), Franchise (1%) and unregistered businesses Owners took their savings and investments to start (8.6%). business. Hence 64.2% of the respondents started their SEDA, FDC, NEF, and DETEA support and promote the businesses through Personal savings. Family and friends existence of cooperatives. There are cooperatives in helped 23.2% of the respondents, 11.6% started though Agriculture sector in Kopanong. Farmers did not loans and 1% through Investors. participate in the study. 4.4 THE RESEARCH OBJECTIVES (RO) 4.4.1 To determine whether Small businesses fail or succeed The aim of this objective is to check whether businesses fail or succeed by establishing what might be contributing to the success or failure of the business. Table 4.2: Average level of education of employees Very High Don’t Low Very High know Low 1.1% 21.5% 4.3% 62.3% 10.8% Table 4.2 shows the levels of education of the employees of the respondents. Only 1.1% is regarded as educated on a very high level. Then 21.5% have a high level and the level of 4.3% is not known. Of the 93 respondents,

72 Simphiwe et.al/Kopanong Municipality’s Local Economic Development a catalyst for entrepreneurial revival in a shadow of poor incubation 62.3% and 10.8% have low and very low levels Table 4.5 shows that 30.1% do not even know respectively. whether they use the business plan. The respondents The level of education of the employees regarded themselves as using the business plan are 3.2% contributes directly to the business. Some employees may on very high, 31.2% on high, 17.2% on low and 18.3% on use their education in helping and improve the standard of very low levels. doing business. While it is costly and time-consuming to A business plan is a written presentation that carefully teach employees that are not educated or have little explains the business, its management team, its products or education. According to a study done by Simpson, Tuck services and its goals, together with strategies for reaching and Bellamy (2004: 481), education and training has a the goals (Nieman et al., 2008:90). positive effect on the success of the business. From an There are three main reasons of drawing a international business perspective, one important aspect of business plan. Firstly, it is to obtain funding. Secondly, it is education is its role as a determinant of national to serve an inside purpose of how to run the business and competitive advantage (Hill, 2009:107). Not only is a good lastly it is used as a tool for reducing the risk (Nieman et al., education system a determinant of national competitive 2008:91). Usage of business plan and adhering to it makes advantage, but it is also an important factor guiding the the business to succeed. location choices of international businesses (Hill 2009: Table 4.6: The marketing strategy is used in business 108). Very High Don’t Low Very Table 4.3: The level of technology usage/ability of employees High know Low Very High Don’t Low Very 14% 59.1% 3.2% 12.9% 10.8% High know Low The respondents regarded themselves as using the 5.4% 26.9% 1.1% 45.1% 21.5% marketing strategy very high (14%) and high (59.1%) to The use of technology including the explosive maximize profits. Respondents who didn’t know whether emergence of internet and the World Wide Web (www) they use any marketing strategy were 3.2%. While 12.9% makes business to know no boundaries as it promotes used it low and 10.8% used it very low. globalization (Hill, 2009:13). The WWW has developed into Marketing strategies differ according to people, the information backbone of the global economy with product, niche and product life cycle. A successful small businesses allowed to expand their global presence at a business owner combines the product, price, the place and lower cost than ever before (Hill, 2009:14). Knowledge on promotion to create value and achieve the objectives of the usage of technology allows businesses to keep up with the business. Businesses that are successful are those that global pace in doing business. know and meet the needs of their customers by using From table 4.3, 5.4% of employees have a very correct marketing strategies. Business owners who do not high level and 26.9% have high level of technology usage. use marketing strategy or use it low or very low are Meanwhile the majority have low (45.1%) and very low doomed for business failure. They do not know what their (21.5%) levels of technology usage in running the business. customers want. Business owners who fail to keep pace Technology today tends to be an important tool in the with changes that occur within the marketplace and success of a small business (Nieman, 2006:257). National responding inadequately to marketplace changes, fail markets are now giving way to global markets. Consumers (Marino, 2005: 30). do not have to go into the businesses personally to do 4.4.2 To investigate the level of expertise, business but can do it through technology. knowledge and skills of small business Many businesses in Kopanong do not make use of owner/manager the new technologies like the Internet and the World Wide Table 4.7: The level of the owner’s financial management Web to make business, they suffer great losses. This skills technology makes business to be operational day and night Very High Don’t Low Very all-year round. There is very little use of e-business in High know Low 1.1% 67.7% 4.3% 22.6% 4.3% doing business in Kopanong. E-business refers to any The respondents regarded themselves as skilled on business activities conducted electronically that involve the financial management skills with 1.1% on very high and buying and selling of products and services (Nieman, 67.7% on high. 2006:157). Financial management involves financial Table 4.4: How crime affects business operations Very High Don’t Low Very performance and financial controls. Financial analysis High know Low allows the entrepreneurs to determine the assets, 11.8% 2.2% 3.2% 31.2% 51.6% liabilities, operating expenses, cash flows of the business at There were 11 respondents that regarded crime as any given time. According to Zimmerer & Scarborough very high in their businesses. Surprisingly, 9 of them are (2005:334), 27% of small business owners calculate from the pilot group, Mangaung. Meaning two only are financial ratios and interpret them to run their enterprises. from Kopanong and that implies there is little or no crime. Small business owners need to improve their financial The majority of the respondents, 31.2% and 51.6%, agree management skills so as to use what they have at their that crime does not affect their business. According to the disposal to the maximum benefit. IDP Review of KLM 2010:56, there were only two cases of There were respondents who regarded themselves business robbery in Kopanong. Therefore crime does not as having low (22.6%), very low (4.3%) and those who do affect business operations. not know whether they have financial management skills Table 4.5: The usage of business plan in the business (4.3%). Lack of financial management skills contributed to Very High Don’t Low Very the failure of most small businesses in South Africa (Black High know Low 3.2% 31.2% 30.1% 17.2% 18.3% Business Quarterly, 2012:166). Table 4.8: The level of planning skills and the ability Very High Don’t Low Very

73 Simphiwe et.al/Kopanong Municipality’s Local Economic Development a catalyst for entrepreneurial revival in a shadow of poor incubation High know Low management involves the fundamental tasks of 3.2% 76.3% 2.2% 16.1% 2.2% management namely, planning, organizing, leading and The respondents rated themselves as very high at controlling. 3.2% and high at 76.3% on their ability of planning skills. The respondents are educated than their Planning entails a systematic and intelligent exposition of employees. Some have post-graduate degrees which makes the direction a business must follow to accomplish them to have the skills and the know-how. Others have the predetermined goals (Cronje, du Toit, Motlatla and Marais, experience gained through the years in business. Good 2006:140). management skills make the business to succeed. Planning is important as it gives direction; 4.4.3 To examine the reasons that lead to business promotes coordination; compels managers to look to the failure and others to being successful future; ensures cohesion; promotes stability and ensures Table 4.12: Making of withdrawals from the assets of the business that business keel abreast of technology (Cronje et al., Strongly Agree Don’t Disagree Strongly 2006:142). Some of the owners rated themselves as low agree know disagree (16.1%) and very low (2.2%) at planning. Poor planning 11.8% 44.1% Zero 38.7% 5.4% leads to business failure. According to Marshall, McManus and Viele Table 4.9: The level of marketing skills (2008:33), assets represent the amount of resources Very High Don’t Low Very owned by the entity. When making withdrawals from the High know Low assets of the business means the decrease in owner’s 10.7% 72% 2.2% 12.9% 2.2% equity. That is putting the business at a risky situation Cronje et al., (2006:283) define marketing as where it would find it difficult to survive during hard times. consisting of management tasks and decisions directed at Owner’s equity is the ownership right of the owner(s) of successfully meeting opportunities and threats in a the entity in the assets remaining after deducting the dynamic environment, by effectively developing and liabilities (Marshall et al., 2008:34). transferring a need-satisfying market offering to From table 4.12 the respondents who strongly consumers in such a way that the objectives of the agree (11.8%) and those who agree (44.1%) on making business, the consumer and society will be achieved. withdrawals are risking their business. This can lead to the On the other hand Nieman (2006:57) defines failure of the business. The respondents who disagree marketing as the process of planning and executing the (38.7%) and strongly disagree (5.4%) are saving so as to conception, pricing, promotion and distribution of ideas, keep the business afloat even in hard times. Their goods and services to create exchanges that satisfy businesses will be successful. individual and organizational goals. This makes marketing Table 4.13: Making use of consultants in running the business to be more than selling or advertising (Nieman, 2006:57). Strongly Agree Don’t Disagree Strongly The business owner/manager must have the necessary agree know disagree skills to market the business for its survival. There are 3.2% 35.5% 1.1% 41.9% 18.3% many techniques to market small business like networking, On table 4.13 the respondents strongly disagreed radio, print, word of mouth, internet, social media and (18.3%) and disagreed on the use of consultants in running billboards. their business. Owners that do no use consultants in From table 4.9, it can be noted that the running their businesses lack external advice and that may respondents regard themselves as having very high and lead to failure. There is 35.5% and 3.2% of the high marketing skills at 10.7% and 72% respectively. There respondents that made use of consultants in the form of were those who did not know whether they have those bookkeeping and accounting. According to Nieman skills at 2.2%. Of the 93 respondents, 12.9% regarded (2006:125), even though the small business owner may ask themselves as having low and 2.2% as having very low consultants to give advice regarding financial matters, the marketing skills. The businesses had promotional owner/manager has to know personally how the business materials and notice boards displayed items on specials is doing. Table 4.14: Is tax liable paid on time? and new products. As noted before that 68% of the Strongly Agree Don’t Disagree Strongly businesses were more than five years in existence that agree know disagree shows there is customer relationship. 5.4% 76.3% 10.7% 6.5% 1.1% Table 4.10: The level of leadership skills Business must pay value-added tax when it Very High Don’t Low Very exceeds a turnover of R300 000 per annum (Nieman, High know Low 2006:282). Individual income tax must be paid by owners 3.2% 85% 1.1% 9.6% 1.1% Respondents rated themselves high (85%) and of sole proprietorships and partnerships. Liabilities must very high (3.2%) on leadership skills. Leadership is that be paid on time to avoid penalties that may negatively element of management that sets activities in motion and affect the business by reducing the owner’s equity. keeps the activities moving until the goals have been From table 4.14 it is evident that 5.4% and 76.3% accomplished (Cronje et al. 2006:173). Leadership entails of the respondents strongly agree and agree respectively in influencing, motivating and directing the employees paying their taxes on time therefore saving money on late towards the Mission and Vision of the business. penalties. From the table 10.7% of the respondents do not Table 4.11: The level of general management skills know whether they pay their tax on time. The 6.5% of Very High Don’t Low Very respondents disagree and 1.1% strongly disagreed on High know Low paying liable tax on time. This is another factor that leads 4.3% 86% Zero 8.6% 1.1% to business failure because the money that is supposed to The respondents regarded themselves as skilled in be re-invested is wasted on avoidable expenses. general management skills with 4.3% of the respondents at Table 4.15: The business was strongly marketed very high and 86% at high. Those with low (8.6%) and Strongly Agree Don’t Disagree Strongly very low (1.1%) are failing their business. General agree know disagree

74 Simphiwe et.al/Kopanong Municipality’s Local Economic Development a catalyst for entrepreneurial revival in a shadow of poor incubation 24.7% 51.6% 5.4% 17.2% 1.1% potential of creating jobs to a number of people for a long The respondents strongly agreed (24.7%) and time in order to alleviate poverty. agreed (51.6%) to have strongly marketed their Table 4.19: Got support and training from the DTI businesses. While 5.4% don’t know, 17.2% disagree and Strongly Agree Don’t Disagree Strongly 1.1% strongly disagreed to have strongly marketed their agree know disagree 1.1% 3.2% 1.1% 9.6% 84.9% business. Respondents who never got support and training The main aim of the existence of any business is to make from the DTI amount to 94.5%. Those who got support and profit. Marketing the business strongly is profit- training are 4.3%. What has to be established is whether maximization. Profitability in the long term is necessary for the owners/managers have to ask the DTI to come to them the business to survive and grow (Cronje et.al, 2006:285). or they have to go and approach the DTI. The Local Table 4.16: The business is run according to its business plan Strongly Agree Don’t Disagree Strongly Economic Development Officer from Kopanong has a duty agree know disagree to mediate and develop the economy. 15% 18.3% 25.8% 34.4% 6.5% DETEA and SEDA offer information sessions, The majority of respondents (34.4%) disagree and training and support on formation of cooperatives. They go 6.5% strongly disagreed in that running their businesses willingly where they are invited according to business plan. There is 25.8% who do not Table 4.20: Have asked for support from institution like SEDA know whether they run them according to business plan. It Strongly Agree Don’t Disagree Strongly is 15% that strongly agree and 18.3% agreed in using the agree know disagree business plan accordingly. 19.4% 22.6% 1.1% 10.7% 46.2% A business plan is a game plan on how to run the It is noted that 19.4% and 22.6% of the respondents business successfully and profitably. One of the objectives strongly agree and agree respectively to have asked for of a business plan is to present a written plan of how the support while 10.7% and 46.2% have disagreed and entrepreneur plans to exploit the opportunity (Cronje et al., strongly disagreed respectively. It is not the purpose of 2006:69). Not using the business plan is like heading to this study to establish why support was not asked. Table 4.21: If asked for support or finance did you get the support or where you did not plan to go to. finance requested easily and quickly 4.4.4 To determine the experience of the business in Strongly Agree Don’t Disagree Strongly accessing services from the financing and supporting agree know disagree institutions. Zero 3.2% 39.8% 10.8% 46.2% Table 4.17: Know the institutions offering finance and support that are Only 3.2% got the support they have asked for located in Kopanong Local Municipality like FDC easily and quickly. While 10.8% disagree, 46.2% strongly Strongly Agree Don’t Disagree Strongly disagree and 39.8% may be assigned to those who did not agree know disagree 15% 49.5% 2.2% 11.8% 21.5% ask for support. Of the 93 respondents 15% strongly agreed, 49.5% 4.5 INTERPRETATION AND DISCUSSION OF THE agree to know the institutions situated in Trompsburg. FINDINGS Whereas 2.2% do not know, 11.8% disagree and 21.5% A business plan, mission and vision statement strongly disagreed. must be visible and adhered to for a business to be FDC and SEDA are the only incubators available in successful. They are crafted in order to give direction, time Kopanong, situated in Trompsburg. DETEA and other frame and the reason for the existence of the business. The incubators are in Bloemfontein. objectives of the business are found in these documents Table 4.18: Received financial assistance from the institutions and thus all employees must know them and act Strongly Agree Don’t Disagree Strongly accordingly. agree know disagree The majority of the employees have a low average level of 1.1% 4.3% 2.2% 15% 77.4% education. This can lead to business failure. Most of the Only 1.1% strongly agreed and 4.3% agreed to literate in Kopanong are migrating to other town to look for have received financial support from the institutions. The greener pastures. The owners are forced to employ those majority (77.4%) strongly disagreed and 15% disagreed in with little or no education. getting the financial assistance. Failure of owners to use technology to benefit the Small businesses experience problems in accessing business can result in the business failing. There is very finances from the institutions due to, reasons among limited growth and expansion without technology usage. others, they do know where to go or they do not have the Technology helps businesses in marketing themselves and proper documentation needed (Nieman, 2006:256). The does business twenty four hours a day for the whole week. lack of financial track record and viability of businesses are Cites like Tweeter and Facebook are visited by millions of of great concern (NYDA, FDC, NEF and SEDA). The long prospective customers a day can be used by businesses to processing time for loan applications discourage other market themselves. owners (Clover and Darroch, 2005:243). Overly complex Asset withdrawal is an avoidable expense that can cause application procedures also discourage (Clover and the business to fail. Rather than withdrawing from the Darroch, 2005:243). business, owners must get salaries. When starting a The researcher interviewed some officials from business one needs a capital which can be in a form of a SEDA, FDC, NYDA and NEF as to why SMMEs are not getting loan, cash deposit or both. When making withdrawals from the financial support they required. They all agreed on the assets of the business, decreases the money suppose to applicants not having proper documents needed for the be reinvested into the business. applications. Secondly, the business ideas were not viable Consultants are not used in running the business. and sustainable. Funds cannot be given to businesses that Consultants detect problems early to avoid failure. Funders will not take off. Thirdly, the businesses must have a need audited reports so as to issue loans.

75 Simphiwe et.al/Kopanong Municipality’s Local Economic Development a catalyst for entrepreneurial revival in a shadow of poor incubation There is lack of governmental support in objectives for the organisation as a whole. Withdrawals Kopanong. There is no LED strategy in place at Kopanong from the business assets are being practiced by other Municipality. Private intermediaries and governmental owners/managers. There is no strong marketing and no agencies must offer training activities, business counselling, marketing strategy is used for some products. Marketing advice on tender and help in securing loans, mentor and must be done at all times with a different strategy aimed at monitor the small businesses different target groups. There is high competition between 4.6 CONCLUSION Kopanong owners/managers and non- South African The focus of this chapter was on the findings of the people doing business in Kopanong. This has led to closure study. The data was coded and analyzed. Statistical of many small businesses owned by the locals. calculations were performed and the results presented as Some respondents started business with their graphs and tables. Conclusions and recommendations will savings and had no financial backup. Others requested be presented in the following chapter. financial assistance but could not get it. Small businesses 5.0 Conclusions and Recommendations are mostly started with small equity base (Clover and 5.1 INTRODUCTION Darroch, 2005:243). The majority of respondents had a low Small businesses are faced with challenges as they level of technology usage/ability. Technology today tends go through stages of growth and changes in economy. It is to be an important tool in the success of a small business imperative for owners/managers to be embraced with (Nieman, 2006:257). Business has now moved to a level of proper knowledge and possible solutions to the challenges. crossing boundaries, languages and business systems. The This chapter outlines the findings, conclusions of the study majority of respondents confirmed that they do not have and the recommendations for the findings. the Mission and Vision. Mission and Vision give clear 5.2 FINDINGS FROM THE STUDY objectives of the business and how to attain them. In many businesses mission and vision statements Low and very low levels of education hinder the were not visible and not known by the employees. They growth of a business. Xhariep District is mainly rural. must be visible and adhered to for a business to be Education levels are low. Most of the employees are semi- successful. The objectives of the business were only known skilled or unskilled. As Maas and Herrington, 2006:6 by the owner. A business plan, as the directive of the illustrate, low levels of education is a major constraint to business, was not adhered to by many respondents. entrepreneurship. These findings are also applicable in The majority of the employees have a low average other parts of Free State or even other provinces. The level of education. This can lead to business failure. The extent may be worse in Kopanong due to a non-functional IDPs of Xhariep and Kopanong confirm this. LED strategy. The objective of job creation and poverty The low level of education affects the business alleviation is the main concern of government at national, operations negatively and the quality of the product can be provincial and local level. compromised. Customer satisfaction will then decrease 5.2.2 FINDINGS FROM THE PRIMARY RESEARCH. and so are sales. Employees can be victimized in terms of 5.2.2.1 What causes Small businesses to fail or their rights because they lack exposure and information. succeed? The level of income is low resulting in little household Low levels of education. It is costly and time- spending. consuming to teach employees that are not educated or Many businesses in Kopanong do not use technology except have little education. According to a study done by for a calculator. Technology is so rife and can do wonders Simpson, Tuck and Bellamy (2004: 481), education and for a business in terms of marketing. training has a positive effect on the success of the business. Failure of owners to use technology to benefit the Many businesses in Kopanong do not make use of the new business can result in the business failing. There is very technologies like the Internet and the World Wide Web to limited growth and expansion without technology usage. make business. They suffer great losses which lead to Asset withdrawal is an avoidable expense that can business failure. cause the business to fail. Owners of Kopanong make There is very insignificant crime in Kopanong. Thus crime withdrawals from business assets for personal use. These can not lead to business failure in this area. A business plan withdrawals reduce the owner’s equity which might be is a tool used to manage a business effective and efficiently. made up of a loan which has to be repaid in a specified Businesses that do not use business plans are heading for period. failure. Consultants are not used in running the business. 5.2.2.2 What is the level of expertise, knowledge and There were no books in other businesses. Transactions are skills of small business owner/manager? performed without recording. Consultants detect problems The owners of Kopanong regarded themselves as early to avoid failure. Funders need audited reports so as to possessing the marketing skill. Few businesses are branded issue loans. and marketed. The researcher observed that the businesses There is lack of governmental support in are not marketed but the products are marketed. The Kopanong. There is no LED strategy in place at Kopanong product marketing is the same in all businesses. There is no Municipality. It was during this study when LED forums differentiation and competitive advantage. were being formed. Private intermediaries and The owners of Kopanong do not possess enough expertise, governmental agencies must offer training activities, knowledge and skills to manage a small business to a point business counselling, advice on tender and help in securing of economic growth, create more jobs and create wealth. loans, mentor and monitor the small businesses 5.2.2.3 What are the reasons that lead to business 5.2.1 FINDINGS FROM THE LITERATURE REVIEW failure and others to being successful? There are some owners/managers who regarded Asset withdrawal is decrease in owner’s equity. themselves as lacking management skills. Strategic The money withdrawn could have been reinvested to planning is essential in developing a mission and long-term expand the business. Many respondents withdraw from the

76 Simphiwe et.al/Kopanong Municipality’s Local Economic Development a catalyst for entrepreneurial revival in a shadow of poor incubation business assets. The majority of respondents agreed that a catalyst in poverty reduction, support the establishment they do not involve consultants in running their business. of sustainable micro-finance institutions, intermediate Consultants help in identifying and correcting mistakes or financially and create working markets for the enterprising habits that can cause the business to fail. poor. There are no institutions created by Kopanong to The business needs the involvement of consultants support the SMMEs. There are respondents who do not more especially for bookkeeping and accounting purposes. know the institutions in Kopanong. These institutions have That also makes it easier when the business requests to market themselves intensively to the people. funding. Withdrawal of assets makes the business to fail as 5.4.4 To Kopanong the owner’s equity is decreased. Usage of business plan must be encouraged at all 5.2.2.4 What is the experience of the businesses in times.LED must mediate businesses and government accessing services from the financing and supporting departments. Organize the agencies to come to the people. institutions? LED must empower Owner/manager to identify and Small businesses experience problems in accessing overcome threats to business. LED forums are at the point finances from the institutions. There is lack of support and of establishment. SETAs must be involved to train the knowledge. The expansion which is required for growth is employees to be artisans and be skilled. LED must often financed by borrowed capital at high interest rates. encourage Owner/managers to export. Exportation helps This may not be achieved if the owner has no knowledge on in injecting foreign currency into the country. The foreign how to access funds and the requirements thereof. currency that has more value than ZAR can make the In Kopanong there is lack of government support businesses to grow and be successful. because LED is not functional in terms of identifying the 5.5 LIMITATIONS challenges facing SMMEs in Kopanong and look at ways to The study was limited to Kopanong and hence the solve them. There is no LED strategy in developing the results cannot be generalized. The study was done on all SMMEs in Kopanong. It was during this study that the LED forms of business available in Kopanong except farmers forums were being advocated in the various towns. The who were unavailable. Voluntary participation led to other towns of Kopanong are very far from Bloemfontein where questionnaires not being filled particularly by farmers. the incubators are. That makes it the duty of the LED Another study can be performed that will include non- officer to bring the departments and incubators closer to South Africans conducting business. Most businesses in the people locations are unregistered and taken over by people from 5.3 CONCLUSIONS outside South Africa. This made the study challenging Employees have a low level of education. A need of because respondents were mainly from towns or training and skills acquisition is needed to help the businesses belonging to Whites. The study was conducted employees. That will benefit the business by improving the on South Africans only. quality and performance. The owners might be skilled but The demographics and profiles of businesses in the employees also need to be skilled through the SETAs. towns and locations are totally different. There is no Business plans are not used by the majority of the yardstick to measure skills competency or education. owners. Business plans are designed to run the business. Respondents were rating themselves. They package all aspects of business and risk management. 5.6 CONCLUSION Templates may be supplied for the owners to fill in and There are owners/managers that are working workshops be conducted. Business assets are drawn for effectively to overcome the challenges facing the small personal use. Business management and skills training are businesses. External and internal business environments needed for the owners. are a challenge to the small business hence the owners Institutions offering support and finance are far for must capacitate themselves to overcome the situations. the reach of the owners. Satellites of the incubators need to During these times owners must know what to do and who be opened in other towns of Kopanong not Trompsburg. to turn to for intervention so that the objectives of small LED must bring information to the people like they are business can be met. Shortcomings are the barriers that doing for the forums. Small businesses are not getting affect the business negatively. This study achieved its training and support from LED and agencies. Illegal objective to investigate the challenges facing small businesses of non-South Africans offer high competition businesses in Kopanong Local Municipality. and kill local businesses. 6.0 BIBLIOGRAPHY 5.4 RECOMMENDATIONS 1. Adams, J. (2010) Qualities of a successful Entrepreneur 5.4.1 To Government: (Online) Available at http://under30CEO Accessed on Policy makers must formulate policies for non- 10 October 2012 South Africans who do business illegally in South Africa. 2. Brink, A., Cant, M and Ligthelm, A. (2003) Problems 5.4.2 To the Owner/manager experienced by small businesses in South Africa: A Owner/managers must understand the importance of paper for the Small Enterprise Association of Australia financial management, marketing management and New Zealand 16th Annual Conference, Ballarat, 28 and strategic management. Sept- 01 Oct 2003 Owner/managers must practice diversification for growth 3. Clover, T. A. and Darroch, M. A. G. (2005) “Owners’ and sustainability. The economies of scope perceptions of factors that constrain the survival and emphasizes in diversification in order to be growth of Small, Medium and Micro Agribusinesses in successful as the alternative route when the know- KwaZulu-Natal, South Africa” Agrekom Volume 44, how does not function properly. Number 2, pages 238 – 263 5.4.3 To the Agencies 4. Co, M.J. and Mitchell, B. (2006) Entrepreneurship Agencies need to market themselves and assist education in South Africa: a nationwide survey, entrepreneurs. They are mandated by government to act as Education + Training, Vol. 48 Iss: 5 pp. 348 – 359

77 Simphiwe et.al/Kopanong Municipality’s Local Economic Development a catalyst for entrepreneurial revival in a shadow of poor incubation 5. Cronje, G.J., du Toit, G.S., Motlatla, M.D.C. and Marais, A. 24. Maas, G. and Herrington, M. (2006) The Global de K. (2006) Introduction to Business Management 6th Entrepreneurship Monitor (pages 6 - 20) Macleod, G. ed. New York: Oxford and Terblanche, B. (2005) Starting your own Business 6. Davis, J.R. (2006) Evaluating and Disseminating in South Africa 10th Ed. Cape Town: Oxford Experiences in Local Economic Development: 25. Marshall, D. H., McManus, W. W. and Viele, D. F. (2008) Observations on Integrated Development Programmes Accounting: What the numbers mean 8Th Ed. New York: of the Free State, Republic of South Africa UK: Natural McGraw-Hill Resources Institute 26. Marx, S., Van Rooyen, D. C., Bosch, J. K. and Reynders, H. 7. Dhliwayo, S. (2008) Experiential learning in J. J (2008) Business Management 2nd Ed. Pretoria: Van entrepreneurship education. A prospective model for Schaik South African tertiary institutions, Education + 27. McMillan, J. H. and Schumacher, S. (2001) Research in Training, Vol. 50 Iss: 4 pp. 329 – 340 Education 5th Ed New York: Longman 8. Failing businesses: Want to know why businesses fail? 28. McPherson, M. A. (1994) Growth of micro and small 9 reasons why businesses fail? (Online). Available from: enterprises in southern Africa Journal of Development http://www.effectivebusiness.info/failed_business.ht Economics + Elsevier, Vol. 48, pp. 253 – 277 m (Accessed: 22/02/2012) 29. Mead, D. C. and Liedholm, C. (1998) The dynamics of 9. Fox, W. and Van Rooyen, E. (2004) The Quest for Micro and Small Enterprises in developing countries, Sustainable Development. Cape Town: Juta. World Development + Elsevier Science Ltd, Vol. 26, No. 10. Free State Development Corporation: Free State 1, pp 61 – 74 Development Corporation Annual Report 2009/2010. 30. Morales-Gualdrón, S., Dutiérrez-Gracia, A. and Dobón, Bloemfontein: Free State Development S. R. (2009) The entrepreneurial motivation in CorporationFree State Government: Free State academia: a multidimensional construct, Springer Development Act 6 of 1995 (Available on: Science + Business Media LLC, Iss: 5 pp. 301 – 317 www.fdc.co.za) Accessed on 20/10/2011. 31. Moss, J. J. 5 Qualities every entrepreneur should have Bloemfontein: Free State Government 06 October 2012. Accessed on 10 October 2012 11. Free State Government: Free State Growth and 32. Mouton, J. (2006) How to succeed in your Master’s and Development Strategy 2005-2014. Bloemfontein: Free Doctoral Studies: A South African Guide and Research State Government Book. .Pretoria: Van Schaik. 12. Gordon-Davis, L. and Cumberlege, P. (2007) Legal 33. Nieman, G. (2001) Training entrepreneurs and small Issues for Entrepreneurs. Cape Town: Juta. business enterprises in South Africa: A situational 13. Herrington, M. (2011) State of Entrepreneurship: Black analysis in Education and Training, Vol 43, No. 8, Business Quarterly 2nd Quarter 2011 (pages 106 – 108) (pages 445-450) 14. Hill, C. W. L. (2009). International Business: competing 34. Nieman, G. (2006) Small Business Management: A in the global market 7th Edition. New York: McGraw- South African Approach. Pretoria: Van Schaik Hill: 35. Nieman, G., Hough, J. and Nieuwenhuizen, C. (2008) 15. Kopanong Local Municipality: Kopanong Municipal Entrepreneurship: A South African Perspective. UNISA Annexure High Level Spatial Development Framework. Ed. Pretoria: Van Schaik. Trompsburg: Kopanong Local Municipality 36. Parker, E. and Illetschko, K. (2006) Run your own 16. Kopanong Local Municipality: Kopanong Municipal Business and make lots of money. Craighall: Paarl Print Annual Performance Report 2010/2011. Trompsburg: 37. Prause, G., Mendez, M. M. and Garcia-Agreda, S. (2011) Kopanong Local Municipality Attitudinal loyalty and trust in entrepreneurship: 17. Kopanong Local Municipality: Kopanong Municipal building new relationships, Springer Science + Annual Report for the financial Year ending 30 June Business Media LLCSmall business: Want to know how 2011. Trompsburg: Kopanong Local Municipality to start a small business in South Africa? Starting a 18. Kopanong Local Municipality: Kopanong Municipal small business in South Africa. (Online) available from Integrated Development Plan Final Document 2012- http://www.sabusinesswarrior.com/article3.html 2016. Trompsburg: Kopanong Local Municipality (Accessed: 22/11/2011) 19. Kopanong Local Municipality: Kopanong Municipal 38. Soni, S. (2005) The Challenges facing Small Businesses: Integrated Development Plan Review 2010-2011. The Global Approach. Connections: Scottsville. Trompsburg: Kopanong Local Municipality 39. South Africa National Government, 1995, The White 20. Kopanong Local Municipality: Kopanong Municipal Paper on National Strategy for the Development and Situation Analysis Section B Integrated Development Promotion of Small Business in South Africa, (Available Plan Review 2010-2011. Trompsburg: Kopanong Local on: www.gov.za). Pretoria: South Africa National Municipality GovernmentSouth Africa National Government: 21. Kopanong Local Municipality: Kopanong Municipal National Small Business Amendment Act No. 102 of Turnaround Strategy 14 May 2010 Trompsburg: 1996 (Available on: www.gov.za). Pretoria: South Kopanong Africa National Government. 22. Krugell, W., Otto, H., and van der Merve. J. (2009) Local 40. Stephenson, J. (2009) 25 Common characteristics of Municipalities and Progress with the Delivery of Local successful entrepreneurs (Online) Available from Municipality Basic Services in South Africa http://www.entrepreneur.com/article/200730 Potchefstroom: North West University Accessed on10 October 2012 23. Liñán, F., Rodríguez-Cohard, J. C. and Rueda-Cantuche, 41. Van der Watt, T and Fourie (2003) Role of District J. M. (2010) Factors affecting entrepreneurial intention Municipalities Pretoria: Human Sciences and Research levels: a role for education, Springer Science + Business Council Media LLC, Iss: 7 pp. 195 – 218

78 Simphiwe et.al/Kopanong Municipality’s Local Economic Development a catalyst for entrepreneurial revival in a shadow of poor incubation 42. Xhariep District Municipality: Xhariep Municipal 43. Zimmerer, T.W. & Scarborough, N.M. (2005) Essentials Integrated Development Plan 2012/2013. of entrepreneurship and Small Business management Trompsburg: Xhariep District Municipality. 4th ed. Upper Saddle River, NJ: Pearson Prentice Hall.

79