Are there too many guesthouses, coffee shops, builders and estate agents on the Garden Route? South investigates the impact of too many similar businesses in small economies, which sectors are most affected, alternatives and opportunities.
WORDS Louise F Venter
Too many similar businesses clustered in one area, competing for the same market, is often felt more severely in smaller economies such as the Southern Cape, where opening just one similar shop in a tiny town could literally split the customer ‘pie’ in half.
Ilse van Schalkwyk, manager in the Knysna Municipality’s economic development department (EDD), says businesses across all sectors are vulnerable to many factors. “The occurrence of too many similar businesses in some sectors, such as contractors, estate agents and in the hospitality industry, is a natural part of a free market economy. You cannot and should not try to regulate it.”
In an effort to address this challenge, the Southern Cape’s various municipal EDDs collaborate with each other and other role players, including tourism offices, business chambers and government institutions such as the Small Enterprise Development Agency (Seda), to broaden the scope within sectors and industries. By identifying, showcasing and motivating new opportunities, they provide information and help to attract and create new business while leaving space for existing businesses to grow or change focus.
Seda Eden branch manager Quinton Coetzee says businesses often struggle to survive in a competitive market place because of a lack of information and mentorship. “Entrepreneurs don’t always know where to look and find help or lack the confidence to ask for help.”
Seda works closely with the formal business sector and other role players, offering workshops, training, technical assistance, mentorship programmes, business advice and incubation programmes.
Factors that contribute to the doubling up dilemma are a lack of relevant skills, ignorance about an industry and its specific challenges, bad business timing and a lack of proper planning. Other reasons why competing small businesses don’t make it include a lack of business skills, limited access to markets and high operating costs. “People look at a successful business and think ‘I can do that too’ but don’t do the research. Healthy competition is good, but instead of copying others, prospective entrepreneurs should come up with unique business concepts,” says Quinton.
Paul Hoffman, business consultant and project manager for the South Cape Economic Development Partnership (SCEP), agrees fly-by-night copycat businesses can flatten the market to the detriment of an entire industry, but adds: “Whenever one talks about this issue, what is often missed is the number of businesses in the same industry that are doing really well.
“A true entrepreneur will always be pro-active and try to find opportunities within the challenge, perhaps by restructuring or diversifying, curbing costs, exploring new markets or improving marketing strategies. To survive and grow as a business one cannot afford to be complacent or negative. An attitude of ‘I can’t do anything about the recession or the competitor across the street, let’s hope my business survives’, can be fatal to success,” he says.
Among the solutions for local businesses is a different approach to their own market sectors or exploring new opportunities.
Agro-processing, export and tourism are among the top economic drivers identified by the Western Cape government to boost the local economy.
“Proposed upgrades to Mossel Bay harbour and George Airport to an international airport that can accommodate cargo and passengers will open huge opportunities and new markets,” says Paul.
To promote shared economic growth and development throughout the Southern Cape, a more integrated approach across towns and boundaries is required. SCEP aims to provide an integrated platform for local business leaders in the private and public sectors to share information, collaborate and solve problems to benefit the greater community. It is also looking at ways to address specific needs within high growth sectors in collaboration with role-players like the Western Cape investment and trade promotion agency, Wesgro, and the various Southern Cape business chambers.
In 2015 the Western Cape’s Municipal Economic Review and Outlook (MERO) indicated Eden and the Southern Cape, with George as its business hub, was the fastest growing region in the province. George alone had a growth rate of 2.5% in 2015, one of the highest growth rates in the country compared to the national average of 0.3%.
George Business Chamber (GBC) chairman, Dr Willie Cilliers, who owns an accounting firm as well as an entrepreneurial navigation company called Ten-SA, says from a business chamber perspective it is vital to empower existing businesses for further growth, but “we also need to create opportunities for new businesses so we can address the unemployment rate in our region”.
Calling it “the entrepreneurial missing link”, he reiterates that entrepreneurs with the right mind-set, innovative ideas, talent, the willingness to learn and the commitment to work hard, need to step forward.
“It starts with parents and our education system. We need to raise children to think like entrepreneurs.”
Willie, who is also the Western Cape chairman of the Afrikaanse Handelsinstituut (AHI)(Afrikaans Business Institute), says the entire region’s business chambers are actively working to encourage entrepreneurship and create new business opportunities in the Southern Cape.
“Prospective entrepreneurs and business people are encouraged to contact and join their local business chambers as a pro-active first step to ensure they start a business suitable to themselves and the local economy and market.” The George Business Chamber, in cooperation with Trias, an international development NGO based in Belgium, intends to train 1000 entrepreneurs over the next three years by using the existing formal business economy to create, mentor and support new businesses, focusing especially on the youth, women and the informal business sector.
According to Willie, this approach benefits everyone and the occurrence of too many similar businesses becomes less of a concern as new entrepreneurs will be encouraged to support and add value to the existing business sector as suppliers and service providers to businesses that have helped mentor them.
While he concedes there are sectors in which doubling up occurs, Willie does not necessarily see it as a bad thing within the context of the growth climate in the region. “However, businesses in Eden face unique challenges because we don’t have the same kind of buying power that larger cities have and can be affected by the seasonality of tourist activity.
Willie also expressed concern regarding the impact of large mall complexes, which are springing up all over the region, on the small business sector. “These complexes are drawing business away from the small business sector and, worse, are causing many small businesses to close doors. This is particularly alarming if one considers that big corporate mall complexes, as part of bigger networks, don’t really contribute significantly to the local economy as does the small business sector, which constitutes about 98% of all businesses in the region and is a top economic driver.”
George and Knysna are currently looking at much needed CBD renewal projects, and Willie is considering approaching CBD property owners about using vacant buildings as incubation centres for new small businesses.
Many believe there are too many tourism and hospitality service providers, but the 2016 edition of Western Cape Business, a guide to business and investment in the province, indicates that tourism remains one of the top economic drivers in Eden. Around holiday peak seasons statistics indicate an average local economic growth rate of about 20%, mostly due to tourism and related industries. While there may be an oversupply in some areas of the tourism and hospitality industry, Ilse says the region has very good brand value internationally and statistics indicate there are sufficient tourists to accommodate more local tourism and related businesses.
Willie is confident community markets such as the Outeniqua Farmers’ Market in George, the three Saturday markets in Sedgefield and the Harkerville Farmers’ Market can be good sources of niche products for the export market.
The construction industry, which at one point was the region’s top economic driver, definitely seems to have suffered because of an over-supply and other economic factors in the past few years.
Many contractors went under, and supportive and related businesses like tool hire services took a knock, but Willie says there’s a definite rise in this sector and renewed growth is expected in future.
There is unanimous agreement that more artisans should start their own businesses and more artisans must be trained to supply in this major demand. “The Western Cape government plans to train about 7500 new artisans such as welders, plumbers and electricians per year and aims to place nearly 4000 in sustainable jobs,” says Willie.
While Oudtshoorn is expected to have a negative population growth, proposed expansions to the local South African Police Services college and South African National Defence Force training facilities are expected to draw more people and hopefully boost the business economy.
Other sectors and industries that are expected to perform strongly over the next five years include the financial and business services sector, transport, the oil/gas and marine energy sector, the green economy sector (especially waste management), creative (especially design-related businesses), a revival in the timber industry and the film industry.