Opportunities for disadvantaged entrepreneurs in the Western Cape
A resourced based approach
December 2004, Grabouw, South Africa
By: Jan van der Velde
Opportunities for disadvantaged entrepreneurs in the Western Cape
A resourced based approach
December 2004, Grabouw, South Africa
By: Jan van der Velde, 1154583 Supervisor University: F. A. A. Becker-Ritterspach Co-Supervisor University: Prof. Dr. G. J. E. M. Sanders
Instructor: Elgin Learning Foundation, Grabouw M. Walker (director)
Rijksuniversiteit Groningen
Faculty of Management and Organization
Key terms: Resource Based Approach, disadvantaged entrepreneurs,
South Africa.
Index
Index... 2
Management Summary ... 5
Preface ... 7
Abbreviations ... 8
Chapter 1: Introduction ... 9
1.1 Introduction ... 9
1.1.1 Entrepreneurship in South Africa... 9
1.1.2 The Resourced-Based Approach ... 10
1.1.3 A case: The Elgin Learning Foundation ... 10
1.2 The Elgin Learning Foundation ... 10
1.2.1 Elgin Learning Foundation... 10
1.2.2 Mission statement, vision and goals... 10
1.2.3 Departments ... 11
1.3 Problem Statement ... 12
1.3.1 Main objective... 12
1.3.2 Main research questions ... 12
Chapter 2: Theoretical Framework ... 13
2.1 Introduction ... 13
2.2 The Resource Based Approach ... 13
2.3 Market Research... 16
2.4 Scenario analysis ... 18
Chapter 3: Research design ... 19
3.1 Introduction ... 19
3.2 Research Method Part A ... 19
3.2.1 Resources (A.1) ... 19
3.2.2 Capabilities (A.2) ... 19
3.2.3 Identifying Business Groups (A.3)... 19
3.3 Research Method Part B... 20
3.3.1 Identifying Market (B.1) ... 20
3.3.2 Research Market (B.2) ... 21
3.3.3 Future Market (B.3)... 22
3.4 Research Method Part C... 22
3.5 Conceptual model... 23
3.6 Definitions, Relevance, Activities Beside the Research, Time Span... 23
3.6.1 Definitions ... 23
3.6.2 Relevance ... 24
3.6.3 Activities beside the research ... 24
3.6.4 Time span ... 25
Chapter 4: Identifying Resources ... 27
4.1 Introduction ... 27
4.2 Resources ... 27
4.2.1 Physical ... 27
4.2.2 Reputational ... 29
4.2.3 Organizational ... 29
4.2.4 Financial ... 30
4.2.5 Intellectual and human ... 31
4.2.6 Technological ... 35
4.2.7 Psychological ... 35
4.2.8 Social ... 37
Chapter 5: Identifying Capabilities ... 39
5.1 Introduction ... 39
5.2 Resources and weaknesses ... 39
5.2.1 Resources ... 39
5.2.2 Weaknesses ... 40
5.3 Capabilities... 41
Chapter 6: Determine Business Groups ... 43
6.1 Introduction ... 43
6.2 Opportunities and Threats ... 43
6.2.1 Opportunities ... 43
6.2.2 Threats ... 44
6.3 Criteria... 45
6.4 Business Groups ... 45
Chapter 7: Identify market ... 48
7.1 Introduction ... 48
7.2 General impression of markets... 48
7.2.1 Imports ... 48
7.2.2 Furniture ... 48
7.2.3 Decoration / Craft... 50
7.2.4 Catering ... 51
7.3 Importing and Distributing Parties ... 53
7.3.1 Furniture ... 53
7.3.2 Decoration / Craft... 53
7.3.3 Catering ... 53
Chapter 8: Research market ... 54
8.1 Introduction ... 54
8.2 Response... 54
8.3 Furniture ... 54
8.3.1 Furniture Chains ... 54
8.3.2 Furniture Wholesalers and Distributors ... 55
8.3.3 Independent Furniture Shops ... 56
8.3.4 Furniture Importers ... 57
8.4 Decoration / Craft... 57
8.4.1 Decoration / Craft Markets and Retailers... 57
8.4.2 Decoration / Craft Importer... 61
8.5 Catering ... 61
8.5.1 Supermarkets ... 61
8.5.2 Fast food / restaurant chains... 62
8.5.3 Catering ... 64
8.5.4 Food importers ... 64
8.6 Conclusion... 65
Chapter 9: Identify Future Market ... 67
9.1 Introduction ... 67
9.2 Identifying important factors... 67
9.3 How the factors develop... 68
9.3.1 The value of the Rand ... 68
9.3.2 The development of the climate ... 68
9.4 The Scenario’s... 69
9.4.1 The scenario’s ... 69
9.4.2 Strong Rand... 69
9.4.3 Changing climate... 70
Chapter 10: Recommendations ... 73
10.1 Introduction ... 73
10.2 General ... 73
10.3 Furniture ... 74
10.4 Decoration / Craft... 75
10.5 Catering ... 76
10.6 Main conclusions... 76
Chapter 11: Evaluation... 78
11.1 Introduction ... 78
11.2 Resourced Based Approach ... 78
11.3 Other Methods... 78
11.4 Process... 79
Management Summary
On instruction of the Elgin Learning Foundation (ELF) I conducted research at the opportunities there are in the Western Cape market for the entrepreneurs they support (ESE). Beside gaining insight in these opportunities it was an excellent change to bring the Resource Based Approach (RBA) into practise. Therefore the objective of this research is twofold:
1. Gaining insight in the opportunities for ELF supported entrepreneurs 2. Bring the RBA into practise
Part A – Internal
In this part I answer the following sub question, with use of the RBA: What can ELF supported (future) entrepreneurs provide, in which they have a competitive advantage, now and in the future?
The first step of the RBA method is to identify the resources and determine their potential for an sustainable competitive advantage. I classified the resources according to the PROFIT method and also described the limits of the resources. I found it hard and unrealistic to determine the resource potential for sustainable competitive advantage only based on internal research. After drawing up the resources I combined the resources to create capabilities. The next step in the RBA would be to formulate a strategy. To my opinion this comes to early and would be an to broad starting point for my external analysis. Therefore I first scanned the environment for opportunities and threats.
Based on this, the capabilities and certain criteria set by ELF, I formulated three business groups (sectors): Furniture, food processing and decoration / craft products.
Part B – External
In this second part I will answer the following sub question: What does the Western Cape market need now and in the future that could be provided by ELF supported (future) entrepreneurs?
To do this I had a look at the sectors and import figures and concluded it was interesting enough to further investigate the sectors. Based on several reports I classified the important distributing parties in all three sectors and identified the actual parties. I approached the parties with email, telephone questionnaires.
Because of a low response I visit some parties as well. This to identify their criteria and rational when judging their suppliers and their attitude towards buying from disadvantaged entrepreneurs.
The main conclusions are that the Porter model of focussing on cost or differentiation
applies to the sectors. It appeared that especially the food processing and furniture
industry where highly concentrated. For all suppliers low capacity, unreliable delivery
and lack of communication means where important factors why not buying from
disadvantaged entrepreneurs. In the craft market there is some space for simplified
products that not necessarily have an traditional “African” look. In the furniture
industry ESE could supply parts of furniture.
With help of an scenario analysis I concluded that the free availability of apple wood and the increasing tourism shouldn’t be taken for granted due to a stronger Rand and changing climate.
Part C - Direction
What recommendation could there be given to help, ELF supported (future) entrepreneurs exploit their opportunities? Is the sub question I will answer in the third part.
I answered this by identifying the gap between the existing resources and the needs of the markets and then gave recommendations how to bridge this gap.
Important recommendations are: Craft sector is most suitable, work together in
network form to create scale advantages, develop new diversified products, supply
parts of furniture, develop communication facility in community and transport to city is
business opportunity.
Preface
On instruction of the Elgin Learning Foundation I conducted research at the opportunities there are in the Western Cape market for the entrepreneurs they support. For me this was a great opportunity to graduate on a challenging subject in an very interesting environment.
This thesis is based on the assumption that black and coloured South Africa should participate in the western economic system, dominant in South Africa. But I am fully aware that from origin they used a tribal system to deal with scarcity. And maybe this is the way they want and is best suitable for them and their environment. That is another issue far beyond the scope of this research. But it has my interest.
Classification of groups in South Africa is not something of the past. To control and manage the affirmative action legislation research and policies still have to speak in terms like blacks and coloureds. I as well use these terms in this paper. For readers this can sound harsh, but I stress that the intentions behind this are not.
I would like to thank Florian Becker-Ritterspach, who was my university supervisor, for all his useful comments and advice during the process. Also sharing his experience of conducting research abroad worked very reviving
I would like to thank all the warm people of the Elgin Learning Foundation who not only helped me with my project but also with giving me a wonderful time.
In loving memory I keep Henry Truter, who beside being an instructor and colleague
also was a father and friend during my time at the Elgin Learning Foundation.
Abbreviations
DET Department of Environmental affairs and Tourism of South Africa DTI Department of Industry and Trade
ELF Elgin Learning Foundation
ESE ELF supported (future) entrepreneurs
ISRDS The Integrated Sustainable Rural Development Strategy RBA Resource-Based Approach
SMME Small, micro, medium enterprises
SAQA South African Qualification Authority
SARS South-African Revenue Services
SATOUR South-African Tourism
Chapter 1: Introduction
1.1 Introduction
1.1.1 Entrepreneurship in South Africa
Almost half of the 42 million South African citizens live below the minimum living standard. And this number is still rising, just like the unemployment rate of 32%.
During apartheid government dominated economic activities and coloured and blacks weren’t allowed to have their own businesses outside the “homelands”. Therefore the local private sector never has developed and government took this over as an
“economic manager” who created large scale government controlled industries. As an result of this political legacy there is a large concentration of big business in South Africa. And a missing critical mass of medium enterprises, a large number of small and micro enterprises (SMMEs) with low levels of sustainability. These are mainly disadvantaged people who drive their business in a one person setting.
Especially in developing countries small business and entrepreneurship is very important cause it is usually labour intensive and low skill in nature, producing goods and services for low income people. Therefore these businesses (very often in the informal sector) gives disadvantaged people opportunities to improve their situation and deserve stimulation.
Gray
1gives some additional reasons why to develop this sector: First, instead of favouring capital-intensive technologies by multinational corporations, labour- intensive work is necessary in a country with shortage of capital and abundance of labour. The (informal) SMME sector can provide a large number of workplaces with small capital requirements.
Second, developing entrepreneurship in a country helps to make economic activities more indigenous. A new middle class can develop with the development of SMME.
These entrepreneurs mostly local citizens, come out of the lower income groups and make use of resources appropriate for local conditions.
The Department of Trade and Industry (DTI) formulates this as follows: “The small business sector plays a crucial role in people’s efforts to meet basic needs and help marginalised groups (like female heads of households, disabled people and rural families) to survive during the phases of fundamental structural changes where the formal economy is unable to absorb the increasing labour supply, and social support systems are grossly inadequate.”
2The DTI also says that, “there is ample evidence that the labour absorptive capacity of the small business sector is high, the average capital cost per job created is usually lower than in big business and its role in technical and other innovation is vital for many of the challenges facing South Africa’s economy.
3”
The government of South Africa recognise the importance of enduring emerging businesses as a potential medicine against the high unemployment and poor life circumstances in the disadvantaged communities. This is stated in the so-called
1 Gray (1996)
2 DTI (1996)
3 DTI (1996) p.8
“small business act” of 1996, which also says that these entrepreneurs should be supported in every kind of way.
1.1.2 The Resourced-Based Approach
The Resourced-Based Approach (RBA) is an inside-out approach which suggest that a sustained competitive advantage is generated by the unique bundle of resources at the core of the firm. Therefore a firm should build on those resources which are valuable, rare, hard to copy and non-substitutable. Especially when the means to build new resources are very limited this is an appealing thought. Recognizing your own strengths and make this the starting point seems very suitable for disadvantaged entrepreneurs cause they don’t posses the means to build from scratch new resources. That is why I will use and test this method within the context of disadvantaged entrepreneurs.
1.1.3 A case: The Elgin Learning Foundation
To analyse the claims the RBA makes and to create an example of RBA being used in practise I will use the case of the Elgin Learning Foundation (ELF). The ELF is situated in the heart of the beautiful Elgin valley, famous for its fruit industry. But also feared for its seasonable unemployment that comes along such types of industry.
Especially now the fruit industry has run through a major set-back a few years ago, poverty, alcoholism and gangsterism are serious problems in the region.
Paragraph 1.2 gives an idea of what the ELF already does in their region. The newly SMME department is at this moment setting up a training program to provide emerging entrepreneurs with the necessary skills (business, production and basic life skills). Beside this they help entrepreneurs start up businesses. But they also want to gain insight in the opportunities there are for the people they train. Insight in “if” and
“how” they can increase their market.
For me this is an excellent case to: 1. Bring into practise the RBA for entrepreneurs.
2. In that way gain insight in the opportunities for ELF supported entrepreneurs.
At some phases I will slightly differ from that what the general RBA theory prescribes.
Also I will use other methods and theories. This will all be described in chapters two and three.
1.2 The Elgin Learning Foundation
1.2.1 Elgin Learning Foundation
The Elgin Learning Foundation (ELF), also known as the Elgin Community College, is a non-profit organization established in 1995 through a trust fund established by a farming couple for the benefit of the community. The college provides training and skills development to people from the disadvantaged sector. A range of learner ships are offered aimed at employability and empowerment towards entrepreneurship.
1.2.2 Mission statement, vision and goals The mission statement of the ELF is:
The Elgin Learning Foundation serves disadvantaged communities in the rural
Western Cape, South Africa, through education, training and development. Through
our activities and programs, we believe we are actively involved in eradicating
poverty in al its forms.
The vision of the ELF is: Changing lives through education and service.
The goals of the ELF are:
- Identity needs to provide our community with appropriate training and services.
- Train at nationally recognized and accredited standards.
- Create job opportunities through our programs and projects.
- Promote, facilitate and be part of community health and welfare programs, as well as manage ELF community health programs and projects.
- Support and assist under resourced schools in our community.
- Create an environment for personal and family growth.
- supply appropriate services, infrastructure and resources.
- Co-operate and collaborate with relevant partners to ensure a co-ordinated campaign to achieve our mission statement.
1.2.3 Departments
The ELF is divided in different departments. For an organisational structure see figure 1.
Each department has its own target group, activities and programmes. The most important departments that are distinguished at the ELF are:
- Adult basic education and Training
This department provides education and training to adults. It goes from a basic level (learning to read and write) to different standards at high school level.
- Agriculture
This department has different projects to qualify and skill farm workers.
- Health care department
This department operates at the college and in the field. This includes for example: aids education, occupational health and safety and trauma care.
- Schools department
This department offers the use of facilities to schools in the area. The children can be trained in computer skills, learn to swim and make use of the library.
- Small medium and micro enterprise
This department identifies business opportunities in the Elgin/Grabouw region and sets up these businesses for the unemployed people in the region by providing training and support
Board of Trustees
Management Board
Director (Mr. Mark Walker)
Agriculture Department
ABET Department
Administration Department
Ground &
Buildings Department
SMME Health
Department
Computer Department
Resource Department Figure 1: ELF departments
1.3 Problem Statement
The objective of the research is twofold. One practical and one academical in nature:
1. Gaining insight in the opportunities for ELF supported entrepreneurs 2. Bring the RBA into practise
So the first objective determines the actual outcome and the second deals with the method (RBA).
1.3.1 Main objective
Together with the ELF I stated the following main objective:
With use of the Resource-Based Approach giving the Elgin Learning Foundation insight in the opportunities for ELF supported (future) entrepreneurs to increase their market and giving recommendations how to exploit these opportunities.
1.3.2 Main research questions
Because of the broad scope of the main objective, I state three main questions that should be answered to fulfil the main objective.
A. What can ELF supported (future) entrepreneurs provide, in which they have a competitive advantage, now and in the future?
B. What does the Western Cape market need now and in the future that could be provided by ELF supported (future) entrepreneurs?
C. What recommendation could there be given to help, ELF supported (future) entrepreneurs exploit their opportunities?
In chapter three the research design will be further discussed. Chapter two will give an literature review of the methods used.
Figuur 2: The Elgin Learning Foundation
Chapter 2: Theoretical Framework
2.1 Introduction
In this chapter I am going to review some of the literature used in this research. The subjects will be the Resources Based Approach (§ 2.2), Market Research (§2.3), and Scenario Analyse (§2.4). For the full titles and author names I refer to the bibliography of appendix A.
2.2 The Resource Based Approach
Sub question 1 as a starting point of my research implies that I will use a resourced based approach in this research. This is according to the will of the ELF. Because of limit means they prefer to build on the capabilities that they already have instead of starting with something completely new. This suits the concept of the RBA. Therefore the concepts and methods related to the resourced based approach (RBA) will be used in answering the first question.
To prepare the research I conducted a literature review in the field of Resource Based Theory. The following authors where included: J.B. Barney and E.T. Penrose, as two of the RBA pioneers. As main guide during my research I used M.J. Dollinger (also compulsory literature during my small business study). His work is, together with R. Grunig and R.M. Grant, one of the most practical oriented interpretations of the RBA I found. Beside these I read several articles which I don’t use as reference in this paper.
The Resourced-Based Approach (RBA) focuses on how sustained competitive advantage is generated by the unique bundle of resources at the core of the firm
4Therefore it is unlike most strategic theories a typical inside-out framework. Early work by Penrose defined a firm as a collection of physical and human resources and pointed to the heterogeneity of these resources
5. So identifying resources is the first step of the RBA, as showed in figure 3. It are the building blocks of a competitive advantage.
Barney defines a resource as: All assets, capabilities, organizational processes, firm attributes, information, knowledge, etc. controlled by a firm that enables the firm to conceive of and implement strategies that improve efficiency and effectiveness.
6The phrases “controlled by a firm” and “improve efficiency and effectiveness” are essential in this. These terms (or synonyms) are found in most definitions of resources. According to Dollinger, a resource is controlled if the entrepreneurs has an immediate and unimpeded access to it, legally and physical.
7But because the research question states that I take a look at possibilities now and in the future, I must look a little bit beyond the resources available at ELF now. I also consider
4 Barney (1991) 94
5 Penrose (1959) 9
6 Barney (1991) 101
7 Dollinger (1999) 122
resources that are at this moment not under direct control of ELF (and so under indirect control of the ESE) but fairly easy to get under control as part of my research.
Grünig has addressed one of the main weaknesses of the RBA: RBA has concentrated on clarifying the resource concept, examining the strategic relevance of firm resources and identifying the characteristics of valuable resources. There is a general lack of methods dealing with the analysis and shaping of resources.
8This is something I also struggled with when deepening into relevant RBA literature. There are hardly any practical methods to recognize and identify resources. It is still more a way of thinking about strategy then a real practise. Although there isn’t really a identifying method there are many classifications of resources that can be a guide in the identifying process. I will use the “PROFIT” classification described by Dollinger
9, which divides resources into: Physical, Reputational, Organizational, Financial, Intellectual and Technological resources. To get an realistic picture of the situation I find only identifying resources not enough. Also their limits has to be described to get an clear picture of not only the strengths of the ESE but of their weaknesses as well.
Due to the unique context of this research I find it necessary to also take a close look at the personal characteristics and social background of the ESE. Colbert
10and Dollinger
11also makes note of human factors as important contributors for failure or success. Dollinger developed a framework for personal characteristics and social background. This will shortly be discussed in the paragraphs that deals with them (§
8 Grünig (2001) 225
9 Dollinger (1999) 32
10 Colbert (2004)
11 Dollinger (1999) 38
1. Identify and classify resources Determine controlled and
controllable resources
2. Identify capabilities Analyze strengths and weaknesses
3. Analyze resources and capabilities -Potential for Competitive Advantage
-Appropriability
4. Select a strategy that exploits above relative to environment
5. Identify resource gaps
Figure 3: A resource-based approach to entrepreneurial opportunity assessment and analysis
4.2.7 and § 4.2.8). Just like Hofstede’s cultural dimensions
12which is used as measurement of Dollinger’s dimensions.
Beside the identification of resources it is also important to recognize the resources that make an significant contribution to the sustained competitive advantage.
Therefore the already mentioned Barney (an authority in the field of RBA) gives four attributes resources should have: (a) it must be valuable, in the sense that it exploits opportunities or neutralizes threats in a firms environment (b), it must be rare among a firms current and potential competition (c) it must be imperfectly imitable and (d) their cannot be strategically equivalent substitutes for this resource that are valuable but neither rare or imperfectly imitable.
13Barney also parameterised the four attributes:
(a) Valuable: Without this there isn’t a resource. It’s part of the nature of the resource. Valuable is the final part of the already given resource definition: “enables the firm to conceive of and implement strategies that improve efficiency and effectiveness.”
(b) Rare: In general, as long as the number of firms that posses a particular valuable resource is less then the number of firms needed in to generate perfect competition dynamics in a particular industry, that resource could be classified as rare.
(c) Imperfectly imitable: The competition cannot imitate over time, because of three main causes: Unique historical conditions, causal ambiguous, social complexity.
(d) Substitutability: A resource that can be exploited separately to implement the same strategy as the substituted resource.
14To me especially attribute (b) shows that whatever the approach is there is always a need to look beyond the firm, in this case to its competitors. So even though the internal resources are the starting point of an strategic analysis, this will never be enough. Not even in the beginning phase. It isn’t possible to determine if something is good or less good or an advantage or not without an external point of comparison.
Therefore I don’t think one should follow the RBA approach to rigid but find a balance between internal and external research during the whole research.
Resources itself, on their own, hardly ever form a source of competitive advantage.
Capabilities make the resource productive. Slightly different then the definition of Dollinger, I consider capabilities as groupings of resources. Clearly those resources that have a potential for competitive advantage are the most interesting. According to Dollinger capabilities are skills, knowledge and abilities needed to manage and configure resources
15. In my view these skills, etcetera are resources in itself. The groupings of resources makes the capabilities. Another distinction that is useful to make, is that between capabilities and competences. The latter one are the capabilities that a firm does relatively well compared to their competitors.
16Because I already judged the resources more or less, this is also what I am going to do. So the
12 Hofstede (1991)
13 Barney (1991) 105-106
14 Barney (1991) 106-111
15 Dollinger (1999) 123
16 Grant (1998) 118
described capabilities are all competences. Therefore I find it unnecessary and, without an extensive research of competitors, unfeasible to precisely determine the competitive advantage of the different capabilities/competences, although this is the next step in the RBA (as described by Dollinger). Determine those capabilities with a potential for competitive advantage is in this phase, to my opinion, the maximum outcome.
Also the developing of an product market strategy comes to early in my opinion (step 5). In this phase I prefer to first identify one or a few markets based on the identified capabilities with a potential for competitive advantage. And then further investigate those markets. Here as well the already mentioned balance between internal and external research comes into play. Identifying markets only based on capabilities seems a little bit naïve to me. Therefore in my framework I will also have a look at the external component of the SWOT analyse. After all till so far I focused only on strengths and the limits of the strengths (weaknesses). So opportunities and threats will be identified before identifying markets. An strategy that could be developed in this phase is one to protect and manage the resources and capabilities of the firm, as Dollinger suggested.
I think that characterizing a certain development as a opportunity or threat isn’t easy.
For example a lack in infrastructure could be a threat for firms but could also give opportunities for others to fill up that lack. Especially because the line between the internal and external part of the SWOT analyse is, in this case, vague. This because the target group (disadvantaged people) also could be an potential customer group.
Therefore I agree with Grant that an arbitrary classification of external factors into opportunities and threats, and internal factors into strengths and weaknesses, is less important than a careful identification of these external and internal factors followed by an appraisal of their implications.
17I will describe the opportunities and threats according to the PESTED classification. In a PESTED analysis trends in the fields of politics, economy, social field, technology, ecology and demography are reflected.
2.3 Market Research
To prepare the market research I conducted a small literature review which included the following authors: F.G. Bingham, who wrote a book about business to business marketing. In the next chapter I will explain that I also going to approach existing firms to get an insight in the market, therefore Bingham could be helpful. Another helpful author could be J.H. Martins who wrote about market research in the South- African context.
According to most marketing research literature, using secondary data as a starting point is a legitimate choice. Of course secondary data has its disadvantaged (not available in the right format, not specific enough). But if the aim of the first phase isn’t more then getting an broad overview of the market then this is, beside the obvious advantages of low cost and straight available, a good way of getting it. According to Martins secondary data are most useful in the spheres of formulating the decision problem, suggesting methods and types of data for meeting information needs, and
17 Grant (1998) 13
serving as a source of comparative data for the interpretation and evaluation of primary data.
18Bingham sees an market research as an inverted funnel (figure 4). A researcher will start with the most general level of information and work down to the most specific level. This provides a quick and logical manner in which to secure data.
19Martins formulates three fields you should evaluate when determine which sources you are going to use. The three matters are: Sources (use preferable original data), purpose of the publication (is preferable without any commercial intention), evidence concerning the quality of the data.
As already indicated, part of the research will be approaching firms. Main differences between dealing with consumers or businesses are listed by Bingham and contain amongst others the following
20: A smaller sample size but the statistical confidence is equal due to the relationship to the total (consumer) population. Definitions are more problematic because the purchaser could have an total different interpretation of certain terms then an user or producer in the same company.
My market research will also make use of questionnaires by mail. Martin spends one chapter on how questionnaires should look like. The following things are regarded as important when designing a questionnaire: The questionnaire and questions should be as short an simple as possible. Also in developing a questionnaire the already discussed “funnel” comes into play. So from general information to specific information. Insert sensitive questions preferable at the end, when there is already a sort of trust from the subject.
21Obviously, unstructured responses give more an explorative insight, and structured responses give more an quantitative insight.
Because my research will have a explorative character using open questions with unstructured responses would be best.
One of the biggest disadvantaged of questionnaires by email is the low response rate. This problem is less with the method of telephonic survey. For a telephonic survey Martins addresses the same issues as for an mail survey. The telephonic survey gives more opportunity for in-depth and explorative information. Even though I have an satisfying response rate for the mail survey, I still commit a few telephonic surveys to further investigate criteria and reasons. I should keep in mind that subjects
18 Martins (1996) 100
19 Bingham (1990) 173
20 Bingham (1990) 160
21 Martins (1996) 214-234
General information
Specific information Figure 4: Binghams funnel
of this telephone surveys tend to answer questions as briefly as possible and are reluctant to give sensitive information.
22Beside this literature advices to start with simple questions and end with more complex questions. Also group questions regarding the same topics.
2.4 Scenario analysis
As preparation for the scenario analysis I conducted a small literature review in this field. I included P. Wack as a member of the successful Shell team which got Shell prepared for the oil crisis. Included as well is H. Kahn, one of the first authors around Scenario Analysis and P. Schnaars who wrote a literature review about the theme. I will use the scenario analysis because it gives a forecast for a long time horizon. The ELF still has to start up its business skills courses and so it will take at least a year before the first new projects start.
Scenario analysis differs from most other approaches to forecasting in two important ways. First, it usually provides a more qualitative and contextual description of how the present will evolve into the future, rather than one that seeks numeral precision.
Second, scenario analysis, usually tries to identify a set of possible futures, each of whose occurrence is plausible but not assured. This combination is deemed by advocates to be a more reasonable approach than trying to predict what will happen in the future.
23According to Wack scenario analysis serves two purposes: 1.
Anticipating and understanding risk. 2. Discovering strategic options of which you where previously unaware. This latter is in the long run more important.
24Especially after the oil crisis in the 1970s, which was foreseen with help of scenario analysis techniques by Shell, the approach became popular. Scenario analysis is best suitable for situations with a few, easy to identify but hard to predict, important factors. It tries to predict over an long time horizon.
The first used way of scenario analysis is simply identifying basic trends that underlie a forecasting problem and project these trends to construct a “surprise-free” scenario, then alter some of these projections to create alternate futures.
25Later authors stressed out to use the predetermined factors (“assumptions”
26) as starting point.
These are the things that you expect to happen anyway. Then you will look at the uncertainties, trends. It is important to keep the amount of trends as low as possible.
A trend that can go two ways would be best suitable.
There seems to be a consensus in literature that ending up with three scenario’s is best.
27Two (usually one optimistic and one pessimistic) would make it tempting to
“split the difference” and come up with one scenario. Four or more makes it hard to work with.
22 Boyd (1989) 225
23 Schnaars (1987) 106
24 Wack (1985) 146
25 Kahn (1968)
26 Linneman (1977) 145
27 Schnaars (1987) 109
Chapter 3: Research design
3.1 Introduction
In the literature review of chapter two I already gave some clarity about the methods I am going to use for my research. In this chapter I will fully describe the methods and conditions of the research and present the conceptual model.
3.2 Research Method Part A
In Part A I will answer sub-question 1: What can ELF supported (future) entrepreneurs provide, in which they have a competitive advantage, now and in the future? I will do this according to the methods described in this paragraph.
3.2.1 Resources (A.1)
According to the RBA approach the first step is to identify and classify the resources.
This means getting a clear picture of the financial, physical, intellectual, technological, reputation and organizational resources available. I will not only identify resources but describe the limits of the resources too. Because the unique context I will also have a look at the personal characteristics and social background of the ESE. And in this phase I will have a glimpse at the potential of the resource for contributing to the competitive advantage. Therefore the resources should have certain characteristics that are described in the resourced based literature (§2.2).
Because the different nature of the resource-classes and the lack of a universal method to identify resources I will identify the classes of resources at different ways (interviews, literature study, sum-ups, descriptions and own experience). At start of every paragraph that deals with a resource class, I will mention the method. The main criteria for being a resource will be “in control of” and “improving efficiency and effectiveness”. I will also shortly discus the potential contribution the resource could give to competitive advantage with help of the four criteria set by Barney.
The results of this phase will be presented in chapter four.
3.2.2 Capabilities (A.2)
After this I will take a look at the capabilities (groupings of resources) there are for the ESE. And the possible capabilities there could be, in order to get an idea of future possibilities for ESE. This phase requires a creative spirit but also a realistic eye. The first step in identifying capabilities is to list the resources that could make a contribution to the competitive advantage. In this way I describe the strengths of the ESE and ELF. I will also describe the weaknesses to finalize the internal part of the SWOT analyze. After that I will, in consideration with ELF, combine the resources in such a way that capabilities are formed, without forming to specified products or services.
The results of this phase will be presented in chapter five.
3.2.3 Identifying Business Groups (A.3)
From this moment on I am slightly going to deviate from the steps set by Dollinger
and other RBA authors. They suggest that after identification of the capabilities you
should determine the competitive advantage of the capabilities. To my opinion you
only can do this after a quit extensive market/competitors research. Doing this only
based on capabilities will leave to much potential markets open research within an reasonable time frame. So in my research I will narrow the potential market. But not as far as specified products, services and a strategy to penetrate a market as the fourth step of the RBA suggests. Therefore it seems still to early to me cause a to narrow output of this part could easily lead to a disappointing market research in the following part.
So the step from capabilities to products is to harsh for me. As a compromise between the capabilities (to broad starting point for a market research) and specified products (a to narrow starting point for a market research) I will formulate business groups.
These business groups are based on: The identified capabilities, certain criteria the groups should meet, and identified opportunities and threats.
The external component of the SWOT analyse (as part of the already mentioned balance between internal and external research) will be build on information about trends in the PESTED fields that is gathered by a brainstorm session and literature/report (government reports) scan.
Together with ELF we set criteria which the business groups should meet. Then based on these criteria and on the capabillities, opportunities and threats, several business groups are formulated. These business groups we will use as starting point for the market scan of Part B.
The results of this phase will be presented in chapter six.
3.3 Research Method Part B
In Part A I will answer sub-question 2: What does the Western Cape market need now and in the future that could be provided by ELF supported (future) entrepreneurs? I will do this according to the methods described in this paragraph.
3.3.1 Identifying Market (B.1)
In part A I already did some external research by recognizing trends in the SWOT analysis. In Part B I will further explore the market. This market research will consist out of several phases. It will have the funnel structure as discussed by Bingham (§
2.3). Starting with general secondary data and ending with specific primary information.
With the three fields of Martins in mind I selected three institutions which data I am going to use for this market research. They are:
-Cape Chamber of Commerce. Equivalent to the Dutch kamer van koophandel. Their aim is to serve the interests of business by satisfying the needs of their members through representing their views and providing services of value.
28-WESGRO. The official Trade and Investment Promotion Agency for the Western Cape Province. An agency to inform foreign importers, local exporters and investors wishing to take advantage of the opportunities in the growing Cape. I will keep in
28 www.capechamber.co.za
mind that this institution also has as aim to promote the possibilities of the Western Cape.
29-South Africa’s Customs Service. Is an department of the South African Revenue Service.
30First: based on import figures of the customs department I will have a short look at if products, fitting the business groups, are being imported.
Then I will give an global impression of the Western Cape markets in which the business groups could be active. I will describe the structure of the markets. In this way I want to gain insight and make a classification of important parties that import and distribute. These market description are based on several reports, mainly provided by WESGRO.
The next step will be identification of the importing and distributing parties in the business groups. We choose to focus on these kind of parties for the following reasons: First of all the ELF already knows that getting to the market is an big problem for their entrepreneurs. Therefore supplying to companies who already have access to the market seems logical. Secondly, in this way you get an very broad view of the market without having to approach al the potential customers. As Bingham already pointed out, the sample size is smaller but the statistical confidence is equal.
In this phase I know what kind of companies I have to look for. I will make use of the member databases of Cape Chamber of Commerce and Wesgro to identify the parties. Because smaller retailers/stores hardly are listed in these databases I will also visit a few of these kind of distributors. In this way I try to include the whole distributing spectrum. The data is already becoming a little more specific in this phase.
The results of this phase will be presented in chapter seven.
3.3.2 Research Market (B.2)
The next step is to approach the importing and distributing parties to gain insight in their wishes towards suppliers and their reasons for importing (primary data). The goal of this market research is twofold: 1. Getting insight in the market and 2. See if there are any opportunities for ESE to become an supplier of the existing distributing parties.
I will first approach the parties by means of an email questionnaire developed with keeping in mind the issues stated by Martins. The questionnaire will consist of structured questions with structured and unstructured responses and has as purpose to get clarity about the following:
What their party does (more precise and in terms of products).
What their suppliers are.
What important criteria are when selecting a supplier.
If/what they import.
From where they import.
If they ever considered buying from disadvantaged entrepreneurs.
29 www.wesgro.co.za
30 www.sars.gov.za
Because the parties are quit different in nature, questionnaires are slightly adjusted to suit the specific group of parties. The main questionnaire can be found in appendix C.
This email questionnaire is an first exploriation of the parties. It can be expected that the response is low. Therefore it could be necessary to conduct an telephonic survey and visit certain parties that could be of special interest.
Conducting an telephonic survey would be my intention anyway because in this way I get an better in-depth view of the parties reasoning when it comes to their buying.
The email survey is more to identify a general picture and to identify certain interesting parties. Again the preparation of these interviews will be with help of Martins.
The results of this phase will be presented in chapter eight.
3.3.3 Future Market (B.3)
To gain insight in future markets I will make use of the scenario analysis technique described in paragraph 2.4. This means identifying a few important trends that influence the markets. Make several predictions these trends could go, and based on that draw explorative scenario’s for the markets.
The results of this phase will be presented in chapter nine.
3.4 Research Method Part C
In Part C I will answer sub-question 3: What recommendation could there be given to help, ELF linked, (future) entrepreneurs exploit their opportunities?
In this part I will identify the “gap” that I found between that what ELF supported entrepreneurs can provide and what the markets actually needs (now and in the future).
Based on this I will give recommendations, according to the RBA, which resources and capabilities should be developed, and how. This can be interpret as an strategic direction the ELF and the entrepreneurs should go.
The results of this phase will be presented in chapter ten.
Afterwards I will evaluate the use of the Resourced-Based Approach, other methods used and the research process as a whole.
The results of this phase will be presented in chapter eleven.
.
3.5 Conceptual model
In the following conceptual framework I placed the research steps and their mutual relationship as I see it:
The letter combinations refer to the research steps described in this chapter. A.1, A.2 and A.3 is the internal analysis conducted in part A. The arrow between the internal analysis and B.1/B.3 is where the research is basically about: The gap between what the ESE could do and what the market needs. To get clarity about this first the market has to be investigated (B.2). Then recommendations can be given (C).
3.6 Definitions, Relevance, Activities Beside the Research, Time Span
3.6.1 Definitions
The most fundamental terms will be defined:
Opportunities: An major favourable situation in a firms environment
31.
31 Pearce (2000) 202
A.1 Identify resources A.2 Identify capabillities A.3 Determine business groups
B.1 Identify market
B.2 Research market C. Identify “gap” and
give
recommendations Internal ELF/ESE
Figure 5: Conceptual Framework B.3 Identify future
markets
Elgin Learning Foundation (ELF): See §1.2.
ELF supported (future) entrepreneurs (ESE): The emerging entrepreneurs that are educated by the ELF now or in the future. See §1.2. These are
disadvantaged people living in the townships of Grabouw.
Competitive Advantage: Implementing a value creating strategy not simultaneously being implemented by any current or potential competitors.
32So the research is focused on the ESE. They are those who should enlarge their market. But the starting point of the research is the ELF cause this is also the staring point for the ESE. Here they get their training and education, here they first work with equipment and material funded by ELF. So when scanning the possibilities of ESE, I also scan the possibilities of ELF cause they are dependent of each other. In the end it is the purpose of ELF to get the ESE move out and do their business on their own.
3.6.2 Relevance
The first contribution of this research is practical in nature. Hopefully triggered by this report ESE find their way to a bigger market.
The academically value lies in the fact that an pretty abstract paradigm (the RBA) is brought into practise and so can be “tested”. After all a induct ional process always starts in the field. Also an increasing insight in problems of disadvantaged entrepreneurs reaching a bigger market is an relevant contribution.
3.6.3 Activities beside the research
Beside the research I will do mainly three other things for the ELF.
Creating teaching material: During the whole time of my research I will write for several subjects teaching materials. With this material disadvantaged people will be learned the business skills they need to start their own business. The material will accord to government, outcome based, standards.
Advice the already started ESE: The ELF already started with two entrepreneurial projects. I advice them about things like: price calculation, maintaining customer relationships, etc.
Help writing an business plan: The ELF is planning to buy a farm where disadvantaged farm workers learn to become a self-employed farmer. I will help writing the business plan for this project.
32 Barney (1991) 102
3.6.4 Time span
In the following Gant chart (figure 6) you will find the activities described in this chapter.
2
Duration (weeks)
Activity June July August September October Nov. Dec. Jan.
2
8 3 Settle down
Create teaching material, advising ESE
Create Research Set up
A 1. Identifying resources
A.2 Identifying capabilities
A.3 Determine Business Groups B.1 Scan import figures
B.2 Approaching importing/distributing
parties
B.3 Draw a scenario analyse
Help write an Business Plan
C. Recommendations
Writing Research report
3
5
2
4
3 5
3
2 28
Part A – Internal Chapter 4: Identify Resources
Chapter 5: Identify Capabilities
Chapter 6: Determine Business Groups
Chapter 4: Identifying Resources
4.1 Introduction
In this chapter I will identify, as first step of the RBA, the resources and their limits that are available to, and part of the ESE.
4.2 Resources
4.2.1 Physical
Physical resources are the tangible property the firm uses in the production and administration. These include the firms plant and equipment, its location, the amenities available at that location and sometimes the natural resources a firm controls.
33I am going to describe the equipment and their possibilities at ELF, the ELF’s location and the natural resources in the area. The information is partly an sum-up and an description of the location and region.
ELF’s Equipment resources
The ELF has a pretty wide range of machinery as a result of the entrepreneurial projects. The woodworkers have the following machinery at their disposal:
Several saw tables for rough and more detailed sawing.
Several plainers for multiple wood thicknesses.
Two turners which could produce any shape out of a log.
The machinery is not professional, light (power) and basic and has a low production capacity. Most of the machinery is in a bad condition and needs to be repaired and maintained. There is no regular maintenance done on the machinery. Most of the machinery is imprecise which makes it difficult to produce high quality products and to produce equal products. The advantage of this machinery lies, not in the special possibilities they have but simply because they are already their. So starting wood entrepreneurs don’t have to do these investments yet.
The linen ladies have about eight sewing machines at their disposal. Three of them can be used for thicker material.
The ELF owns a touring bus with 50 seats.
ELF and ESE Location
The Elgin/ Grabouw region has for many years been one of the foremost deciduous fruit producing areas of South Africa. The industry however, lost its major impact on world markets. Like other deciduous fruit growing areas, the region is going through a taxing and extremely difficult time. Farmers find that they have to reinvent their farming strategies and diversify to growing roses, planting vines and promote agri- tourism. All land is cultivated by farmers so the land price is high and the land reform process isn’t going as fast as promised in 1994.
Grabouw is situated along the N2, a highway from Cape Town to Mossel Bay. Most of the roads in the region are asphalted, however in the townships the roads are mostly dirt roads.
33 Dollinger (1999) 32
