Differences between migrant owned and locally owned small business retail stores: the case of Delft and Eindhoven

Abstract

This study aims to identify the core competitive factors that differentiate migrant owned small business retail stores from those that are owned by South African citizens. Primary research was conducted in two of Cape Town’s townships, Delft and Eindhoven. Data was collected through focus group interviews with open-ended questions. The findings revealed that South African citizen retailer’s lack funding to start or expand their businesses, they do not collaborate among themselves, and they lack pricing strategy. The findings also revealed that migrant small business retailers have strong business networks that enable them to collaborate in a number of business-related issues such as the buying of stock and they have networks that help them raise finance for their businesses. The researcher notes that there are agencies such as the Small Business Development Agency (SEDA) that aim to help Small and Medium Enterprises (SMME’s) but such agencies deal with all types of SMME’s. There is a need for a targeted support for the small business retail sector as it is a very unique sector in the South African small business market. The challenges faced by local small business retailers are unique when compared to those faced by their migrant trader counterparts. The foreign national small business retailers are more competitive than local South African small business retailers in the township retailing sector. The study recommends that the South African government department of Small Business Development should assist the South African citizen owners of small retail businesses to improve their competitiveness. Corresponding author: Maphelo Malgas Email addresses for the corresponding author: Malgasma@cput.ac.za First submission received: 14th March2019 Revised submission received: 12th August 2019 Accepted: 30th August 2019 Introduction In South Africa informal small business retailers are mainly found in township environments and the township residents buy from these informal retail stores known as “spaza shops”. In South Africa townships are residential areas predominantly occupied by the black population as previously designated by apartheid legislation until the dawn of democracy in 1994. South African townships were dominated by general dealer stores until the development of the shopping Malls in the township areas. In fact, it could be argued that the shopping Malls have led to the displacement of the general dealer stores and the rise of the “spaza shop” as township residents can now simply walk to a Mall which has a variety of offerings. Malls are dominated by national food chain franchises such as, Pick & Pay, SPAR or Shoprite where people can buy fresh products cheaply and the ambience of the Mall is far more attractive than your spaza shop. Residents then use the “spaza shop” as a convenience store when the Mall is yet to open in the morning or has closed in the evening. There were no spaza shops established during the apartheid years, long before the mushrooming of the Mall. During the early period of post democratic era in South African the “spaza shops” were solely owned by South African citizens who reside in the townships. However, this changed when South Africa experienced the influx of African and Asian migrants who also found residence in the South African townships as South Africa never had camps or separate accommodation for migrants. Currently in the Journal of Business and Retail Management Research (JBRMR), Vol. 14 Issue 1 October 2019 www.jbrmr.com A Journal of the Centre for Business & Economic Research (CBER) 10 South African township environments there is a perceived decline of South African citizen owned “spaza shops” and the dominance of Migrant owned “spaza shops”. The South African context for small business retailing is very challenging in the sense that the government does not seem to be aware of the correlation between the growth of the small business sector and the creation of employment opportunities (Badenhorst-Weiss, Cilliers and Eicker, 2014). Furthermore, the authors noted that the government is heavily focused on developing the big business sector instead of opening and creating the market conditions for small businesses to thrive. The authors further stated that the small business owners face a unique challenge because they need to constantly and consistently explain their importance and existence in order to receive some attention from the authorities. So, for small businesses to survive, they need to fend for themselves under market conditions that are favourable to them as a sector and within that they also need to compete with each other for business opportunities (Badenhorst-Weiss et al, 2014). According to Bowen, Morara and Mureithi (2009: 26) “it is appreciated that each business has its own unique combination of critical success factors, but some are important for all businesses”. Bowen et al (2009: 26) further noted that: “First small businesses should have a ‘global outlook’. Businesses of all sizes across the globe can interact and share information, technology and products. Small businesses should consider what global trends are affecting availability of resources, increasing or decreasing demand for products or service and where there is an unfilled need one might be able to meet”. The aim of this article therefore is to understand the competitive factors among South African citizen owned small business retail stores and those owned by migrant retailers in the South African township retailing environments. In this paper recommendations for South African citizen owned small business retail stores are proposed in order for the South African retailer to become better competitive in the sector. The article addresses the following objectives: To identify core competitive factors that differentiate migrant owned small business retail stores from South African citizen owned small business retail stores. To propose recommendations for South African citizen owned small business retail stores to improve their competitiveness. Literature Review 2.1 Competitiveness in the small business retailing sector in South Africa The survival rate of small businesses is known to be very low with only less than half of small businesses surviving beyond five years and this phenomenon is not only applicable to South African context but true for global contexts (Brink, Cant and Ligthelm, 2003). Nandonde and Kuada (2016) argued that the South African economy has witnessed a substantial shift in consumption centres from the urban developed economies to the emerging township economies. This shift has introduced new dynamics into the local marketing strategies, with companies having to adjust their strategies to new and hitherto unknown realities (Nandonde and Kuada, 2016). Furthermore, the authors noted that the growing populations in the township retailing environments have provided new market opportunities for retail companies facing saturation in their traditional markets. Strydom (2015: 466) noted that “informal businesses that keep track of business activities such as financial records, do budgeting, prepare cash flow statements and have procurement documentation have a higher proclivity for survival”. It is estimated that only about 50% of new entrant spaza shops really survive to beyond five years and those who survive enjoy sustainability over time (Battersby, Marshak and Mngqibisa, 2017). Porter (2008: 80) noted that “new entrants to an industry bring new capacity and a desire to gain market share that puts pressure on prices, costs, and the rate of investment necessary to compete”. However, in developing countries the lack of institutional capital is a major challenge for small businesses as they are started through personal funds (Adisa, Abdulraheem and Mordi, 2014). Furthermore, the authors noted that institutional finance requires collateral security which small business owners do not have in developing countries. The authors further noted that in Africa the requirement for credit facilities are still very stringent for small businesses as they do have collaterals to offer to the credit funders. Journal of Business and Retail Management Research (JBRMR), Vol. 14 Issue 1 October 2019 www.jbrmr.com A Journal of the Centre for Business & Economic Research (CBER) 11 The small business retail sector is one of the most persistent and resilient sectors in the informal business sectors in Africa (Woodward, Rolfe, Ligthelm and Guimaraes, 2011). Furthermore, the authors noted that in South Africa it is estimated that about 70% of micro-businesses are in fact in the retailing sector and mainly informal retailers located in township environments. Chen and Rensleigh (2009) observed that the lack of access to information is one of the biggest problems facing local South African traders because some of the traders are not even aware that the South African government has small business development agencies that are supposed to assist them with skills and funding. However, according to Quartey, Turkson, Abor and Iddrisu (2017:26) the SME sector in most African countries face serious constraints in accessing formal finance and this problem is connected to factors such as “SMEs’ lack of collateral, difficulties in providing creditworthiness, small cash flows, inadequate credit history, high risk premiums, underdeveloped bank-borrower relationships and high transaction costs”. Furthermore, Menzies and Erwin (2017) noted that SMEs in South Africa need access to affordable bookkeeping services and practical training on financial recordkeeping. Small Enterprise business have numerous challenges such as access to finance, lack of business management skills, and human resource management skills amongst others (Sandada and Mangwandi, 2015). The authors also observed that the long-term existence of small enterprise entities is linked to training, development of staff and management of talent as these are very