Development of a business framework to integrate informal SMMEs and entrepreneurs with the formal South African economy

Brand, Riaan (2006-12)

Thesis (MScEng (Industrial Engineering))--University of Stellenbosch, 2006.


South Africa has an uneven distribution of economic wealth. The political history of recent decades is the main reason for this phenomenon and has led to a situation where vast numbers of citizens did not receive the necessary training and development to embark on self-employment or to be employed at existing companies. These circumstances place a burden on the present government to fight poverty and crime, and in return establish national well being and economic stability. It requires them to find innovative ways by which they can promote business development and create sustainable jobs for unemployed people. Various programmes to improve the delivery of essential social services to the majority of the population are under way. However, the vast numbers of people in desperate need for employment or other income generating activities outstrip the support programmes already implemented by the government. Actions from the government are aimed at supporting and training previously disadvantaged entrepreneurs to become active contributors to the economy. One method of generating employment opportunities is through the deployment of SMMEs (Small Medium and Micro Enterprises) that can operate as part of the formal economy. “South Africa's 2-million small businesses represent 98% of the country's total number of firms, employ 55% of the labour force and contribute 42% of the country's wage bill. Yet 87% of these enterprises are survivalist and operate outside the formal economy” (Le Roux, 2006).1 Ideally, one would like to see previously disadvantaged entrepreneurs as owners of these SMMEs. However, these entrepreneurs do not necessarily have the capacity to take up business responsibilities and management. This research project focuses mainly on situations in the South African economic environment with specific attention given to SMMEs. The primary objective is to find a sustainable solution that ensures effective and successful deployment of SMMEs. A solution is proposed in the form of a Business Framework where similar informal SMMEs are grouped together to operate under a governing body. This governing body (Business Framework) provides the necessary infrastructure to support the development of products and services within these SMMEs. Entrepreneurs and SMMEs affiliated to this Business Framework are nurtured till they are mature enough to partake in the formal economy. The Business Framework therefore focuses on the possibilities of incorporating survivalist 1 Source: Business Day, June 27, 2006.(informal) SMMEs with formal economic activities and by doing so, tries to improve their sustainability and create long-term income generating enterprises. Development of such a Business Framework requires investigations of the economic circumstances in which these SMMEs operate. This includes a study of current government support programmes and the influences of the formal and informal economies on each other. Various engineering tools and methodologies are applied to evaluate and characterise these SMMEs. Through the use of Enterprise Life Cycle and Value Chain analyses, internal business processes of informal SMMEs are studied and shortcomings in terms of business processes are identified. A GAP-Analysis is performed and from this a list of requirements is drawn up that the Business Framework should fulfil. A generic Business Framework is developed using the Zachman Enterprise Reference Architecture. This concept of a Business Framework is tested by means of a case study and documented at the end of the report. This document serves not only to describe project related issues from an academic perspective, but shares a concept that can be used by governments and private organisations to deploy business development more dynamically and effectively.

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