Entrepreneurship in Tanzania How local SMEs deal with the socio-cultural and economic context of the Tanzanian business environment S.A.M. Geers - 1536605 Graduation thesis MSc. Management of Technology February 2018 This page is intentionally left blank Entrepreneurship in Tanzania How local SMEs deal with the socio-cultural and economic context of the Tanzanian business environment By S.A.M. Geers (1536605) Master thesis submitted to Delft University of Technology in partial fulfilment of the requirements for the degree of MASTER OF SCIENCE in Management of Technology Faculty of Technology, Policy and Management To be defended in public on the 13th of February 2018 GRADUATION COMMITTEE Chairman Prof. Dr. Ir. I.R. van de Poel Ethics/Philosophy of Technology First Supervisor : Dr. J.O. Kroesen Delft Centre for Entrepreneurship Second Supervisor Dr. U. Pesch Ethics/Philosophy of Technology i | Page This page is intentionally left blank ii | Page Acknowledgements This report marks the end of my time at the Delft University of Technology and the last step towards the completion of my Master of Science degree in Management of Technology. After finalising my Bachelor’s degree in Molecular Science and Technology, I decided to start this particular program, as it provided the possibility to understand the role of technology in management, society and ethics. These interests led to the development of this research project and I am proud to have taken the opportunity to travel to Tanzania to conduct the field research. It turned out to be a incredible adventure, in which I submerged myself into a completely different culture and to see theory come to life in every-day Tanzanian business practices by visiting various companies and other organisations. Along the way, there were some struggles, especially in Tanzania, where the way of living vastly differs from the way of living in the Netherlands or even other parts of the world. Nevertheless, I would not have wanted to miss this endeavour. And even though these struggles have led to a delay of the project, I am proud to have gained the experiences and of the final result in the form of this thesis. Nonetheless, this result would not have been accomplished without the help of various people that contributed throughout the duration of the project. First and foremost, I want to thank my first supervisor Dr. Otto Kroesen. His time and effort provided important new insights that significantly enriched my understanding on many subjects and ultimately this report. In addition, his advice and contacts in Tanzania contributed to the use of my time in Tanzania to the fullest. Lastly, his flexibility and time invested in meetings through skype or in Delft really contributed to the process of the project and the quality of this report. Thank you so much for the great supervision; I hope you are as satisfied with the supervision and our meetings as I am. Second, I would like to thank my other committee members Prof. Dr. Ir. Ibo van de Poel and Dr. Ir. Udo Pesch for guiding me throughout the project. Especially at the end of this research project, they provided valuable new insights and suggestions to approach certain aspects of the report. They approached problems from another perspective, which significantly improved the analysis and findings. Thirdly, I would like to thank all the people I have met in Tanzania who contributed to the project. Many thanks to all the entrepreneurs and managers who took time and effort to meet me at their companies or elsewhere to conduct the interviews with me. Without their input, such an in-depth study would not have been possible. Special thanks to Jeroen Vegt and his partner Frank Hosea for their efforts and contributions to the field research in Northern Tanzania. And lastly, many thanks to my roommate A.J. Mynah for our great moments of leisure, getting me into contact with various entrepreneurs and the hours of discussion about the Tanzanian culture, business practices and politics. Fourth, I would like to thank my family and friends for the continuous support throughout my international endeavours. Particularly, I would like to thank my sister Eveline and brother in-law Paul for providing a roof over my head between my return from Tokyo and departure to Tanzania, as well as after I returned home from Tanzania onwards. Lastly, I would like to thank the Universitiets Fonds Delft for their financial support. Sam Geers February 5th, 2018 iii | Page Executive summary Poverty elevation is on the agenda of many governments and aid organisations. Yet, it remains widespread across the globe and particularly persistent on the African continent. Entrepreneurship is often seen as one of the main measures to combat poverty SSA, as it generates revenue, effective resource allocation and employment. Yet, even though various steps have been taken to increase entrepreneurial activity and private sector development, these efforts still have not led to sustainable economic development. In the recent years, criticism on policies developed and executed by these governments and aid organisations has increased, often arguing that their policies are in sharp contrast with the socio- cultural and economic values and institutions of developing countries in SSA, including Tanzania. As a result, some scholars are arguing that new policies should be developed that build forth on existing values and institutions, instead of working against it. At the same time, the contemporary values and institutions in every-day business practices is significantly underreported in the current literature, with in particular qualitative research that captures the behaviours and strategies exerted by local entrepreneurs. For these reasons, the ambition for this research was to develop a qualitative research project that investigates the behaviours and strategies exercised by local entrepreneurs in Tanzania in light of the socio-cultural and economic context. It will therefore answer the research question: How are SMEs operating in the technology industries dealing with the socio-cultural and economic demands originating from the Tanzanian business environment? As Tanzania is a developing country, it is transforming from a traditional system that includes traditional socio-cultural and economic values and institutions, towards a modern system including more modern values and institutions. A clear distinction between the two systems has thus been proposed, where each system encompasses a different set of socio-cultural and economic values and institutions articulated as ideal-typical descriptions. These ideal-typical descriptions form two extremes of a continuum, between which Tanzanian businesses are moving. Various companies have been analysed as to what extent they conform to each system, looking at the levels of the internal business management, the civil society and markets, and the Tanzanian state. During the field research over a period of two months, 16 cases were developed by interviewing managing directors and senior managers, as well as making observations. The scope of the research includes SMEs operating in the technology industries in Tanzania. Cases were consequently cross- analysed to unveil commonalities and differences among the entrepreneurs and their companies in light of the value and institutional systems. The findings were consequently used to adjust the theoretical framework by an iterative process into a theoretical model that captures the socio-cultural and economic context of the Tanzanian business environment. The first findings include behaviours and strategies found at the internal business management. Many businesses in Tanzania tend to have a hierarchical management style, where coercion and iv | Page paternalism is common. This often goes hand in hand with a workforce that requires guidance and showing little professionalism and initiative. Some companies showed a more egalitarian management style, which generally led to a more professional workforce, although this required a shift in attitude and thus a significant amount of effort. Informal ties and social networks remain to play a key role to obtain resources, capital, labour and business contact. This is usually met with reciprocities such as providing loans and school fees through the company. Yet, some entrepreneurs are becoming aware of the drawbacks of having strong family ties, such as employing unproductive family members, and are thus reluctant to do so. Furthermore, companies tend to have a fatalistic attitude to production controls and rules, as these were generally not present other than instigated by regulatory organisations. Lastly, synchronic time management is commonly found at the SMEs, such as a loose attitude to punctuality, basic bookkeeping and limited to no planning and forecasts. The nature of the supply chain is generally compartmentalised with solely buy-sell relationship and with little cooperation, coordination, information sharing and suggestions for innovations. This negligence towards coordination and a lack of internal business planning makes demand forecasts difficult. This often results in ad hoc ordering behaviour of small quantities and inefficient batch production, making inventory management and obtaining economies of scale problematic. In addition, companies are hesitant to switch to other suppliers irrespective of the quality of the supplies, as entrepreneurs are bounded by personalised relationships and subjected to underdeveloped markets. Both the lack of cooperation and the