Majority of small Soweto businesses fail: survey

2011-02-07 13:12

Only 40% of informal businesses started in Soweto were still in operation four years later, a survey released yesterday showed.

“During the four-year period 2007 to 2010, only two in every five small businesses were still in operation,” said Professor André Ligthelm of the Bureau of Market Research of the University of SA.

This implied that almost 60% closed their doors in the past four years, said Ligthelm, who conducted four studies in Soweto.

Street vendors and home-based businesses were the most likely to fail, he said.

A small business panel was selected in 2007 and was revisited each year until last year to study small business sustainability and mortality.

It found that, during this time, small informal businesses faced an increasingly competitive environment as large shopping malls opened in response to the rapid increase in consumer expenditure by township residents in the past decade.

Big business were attracted by the overwhelming majority of township dwellers (83% in the case of Soweto), expressing no intention of moving out of their townships.

“This has resulted in a drastic change in township retail (shopping) structures,” said Ligthelm.

The most stable small businesses were those operating from “old” business centres, where 56% were still open in the same premises.

This was followed by home-based businesses such as spaza and tuck shops, with 36% still open.

Only 12% of vendors were still operational in 2010.

“The relatively low percentage of street vendors operating from the same premises is to be expected – they are mobile and may easily roam to alternative locations offering better trading opportunities or simply close down.”

Ligthelm found significant differences between the businesses that survived and those that closed.

Successful businesses appeared to be older and were established due to exploring a business opportunity, rather than as a response to unemployment.

The owners were involved full-time and the businesses were more likely to be incorporated, a franchise or a multi-owned institution.

Successful businesses operated in permanent brick structures and were likely to have access to several municipal amenities.

In terms of employment and turnover, they were larger businesses.

They also implemented “typical entrepreneurial practices”, he said.

“This suggests that the effect of shopping mall development on small business survival cannot be explained unidimensionally, purely attributing a decline in small business activity to shopping mall development,” he said.

The analysis confirmed “the importance of the human factor in business survival”.

Businesses which failed were more likely to not have adjusted their business strategies to the changed competitive environment.

“Entrepreneurial initiatives such as updating business and operational plans, formulating marketing policies and regularly analysing the competitive environment resulted in the adjustment of strategies... ultimately aimed at ensuring business sustainability,” said Ligthelm.?

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