Shift from competition to partnership culture is beneficial to SME growth
Most small medium businesses are on a race to become the best, entrepreneurs in Kenya often operate with the mantra of eat or be eaten
The reality is that a vast majority of businesses don’t have solid business models coupled with the traditional challenges SMEs face creates the perfect storm for high business mortality of over 70% in less than three years.
With little to no differentiation and value addition of products and a large number of businesses that are similar; chances of making any meaningful profit are slim compounding the question of business survival or going concern.
The most logical option for such businesses would be consolidation or partnership as has been seen recently in the financial sector where banks are opting to merge.
Business partnership, mergers or consolidation has its advantages and disadvantages but cognizant of the tough business environment in Kenya; the advantages outweigh the demerits.
The advantages vary depending on the business sector but if we were to look at trade where majority of SMEs fall, partnership advantages are as follows; economies of scale in bulk purchase of input or stock, shared overhead such as rent, access to bigger marker share, additional human capital, increased capacity to lobby with government and better checks and balances among others.
SMEs in the pharmaceutical sector could benefit from consolidation to shield themselves from the onslaught by deep pocketed foreign startups, Micro businesses in clusters located in Kariokor leather market and Uhuru textile market can also benefit by establishing an umbrella company that houses all the businesses and many more examples.
Despite the obvious advantages, partnerships among SMEs are quite difficult to implement. The following steps must be taken to ensure success.
Business partnerships must be viewed from a long term perspective given that it will take a while to sort out the many challenges that will keep on popping up, the partners must be willing to sacrifice their individual ambition and commit to collective gain, partners must work towards establishing shared value and partners must strive toward formalizing their combined business though business registration, developing systems and adhering to good corporate governance practices.