AMASSING black economic empowerment (BEE) credentials is one of the most powerful ways to compete in today’s marketplace.
With less than 5% of companies verified against the broad-based BEE scorecard, compliance is still somewhat of a novelty that can be exploited by smaller firms seeking to differentiate themselves from their competitors.
The trade and industry department will shortly release the final second phase of the codes of good practice, including a separate set of codes for qualifying small enterprises (QSEs).
This means that small companies, which were largely exempt from complying with BEE regulations, will be required to contribute to transformation in a measurable way.
By then more and more companies will be waking up to the competitive advantage of being BEE-compliant. And things are already hotting up; a survey conducted by auditing firm Grant Thornton last year showed that 70% of business owners who employ between 50 and 250 employees believed that empowerment was a key issue for them in winning business. This was up from 61% in 2004 and 51% in 2003.
However, this has not stopped a greater number of small businesses from seeing BEE as more of a threat or additional cost than an opportunity. While compliance with BEE regulations became standard for business since 2003, it is only now that SMEs have been formally brought into loop. BEE law requires QSEs to comply with just five of the seven elements of empowerment.
This means the empowerment contributions required of SMEs are not as onerous as those made on larger firms.
But owners of small and medium enterprises still appear sceptical about the benefits that BEE can bring to their business. The SME Survey 2005 indicated that as many as 56% of owner-managed businesses believed that BEE did not reduce the costs of running a business.
Of one thing small business owners can be sure, transformation does not hinder growth. In some cases, a company’s transformation efforts go a long way to ensuring that it remains in business. There is no doubt that BEE has already become a necessary criterion to retain business, let alone win new contracts.
Referred to as the cascade effect, BEE regulations are binding on all public entities and organs of state. That means government bodies are compelled to do business with BEE-compliant companies and so any company wishing to provide them with goods and service will have to transform.
The impact of this kicks in when firms supplying goods and services to the government require their suppliers to show good BEE credentials before they can continue doing business with them. This is because they want to maintain or improve their own BEE status and the chances of securing more business.
First-tier suppliers, in turn, put pressure on the second-tier suppliers, which in turn transfer that pressure to the third-tier suppliers until all supplier tiers are affected.
Forming a substantial part of the tiers, small enterprises will most certainly feel the heat.
Large corporations have already embarked on massive supplier assessments in an attempt to ascertain the BEE status of each and every company that supplies them with goods or services. It is only by knowing the status of their suppliers that companies will be able measure how much they spend with BEE suppliers. Small companies which have yet to receive a supplier questionnaire should brace themselves for questions over their BEE credentials.
Knowing the firm’s BEE credentials will not only put a business owner a step ahead of other suppliers scrambling for the same business but also give the company access to new and emerging growth markets.
Those who ignore BEE do so at the peril of their business. BEE is a business imperative and therefore, a strategic imperative too. South African business is going through a period of fundamental structural and cultural change.
Those who win will not be those who have merely transformed but those who see the change as a business opportunity and a way to create value.
Bridge is research and publications manager, Empowerdex.