Indigenous owned businesses’ issues

A couple of decades ago, government decided to move all Asian-owned businesses to urban areas. Reasons resonated around giving indigenous Malawians a chance to run business in rural areas. Remnants of those businesses are still apparent in some of the rural areas.

Call it protecting locally-owned businesses against competition with investors with a foreign touch. High import taxes have been imposed before on some goods to protect the local producer.

Fast forward to recent times. There has been an outcry that Chinese investors are taking over business opportunities for local Malawians. Consequently, a decision was made by government stopping local assemblies to issue business licenses. The ministry of trade has now taken over the task. Most of the Chinese investors are now moving out of the rural areas. There has also been violence against Burundi nationals plying various businesses often in the retail sector. This is happening nationwide and everyone expects government to address the issue.

We need to look at both sides of the coin, especially what indigenous business owners must do to remain competitive. There are a number of issues that businesses owned by indigenous Malawians need address to face competition. Government cannot always solve the problems.

The power of partnerships

Most of the locally-owned businesses fail to grow. Two things happen that lead to failures and eventual closure. They fail to grow and eventually close up. A reason is sought to blame someone, including foreigners. Everyone wants to do it alone. Such businesses come to an end once the owner is dead or simply cannot cope with competition.

There is power in partnership and no one needs to go alone. The cost of finance remains very high.  One cannot easily raise capital. We are still stuck in the mind of “this is mine” and “I will do it alone” or someone wants to steal from me. Rational as it sounds, but again it doesn’t help if you can’t pull resources together and compete with a foreign investor that has other cheaper sources of capital beyond the borders. Most of our local businesses will bid for contracts on their own in the belief that they will get all the money. It doesn’t work that way. Being small businesses or medium sized ones, there is a lot of gain in partnerships. Besides sharing the cake, it enhances ability to stay alive in a competitive environment given that different skills are shared. Just put in place proper legal framework within a partnership.

Get rich quick

One argument that local businesses have put in place is that foreign-owned businesses offer low prices. Consequently, it is expected that they will be put out of businesses. Government is, therefore, expected to put in policies to protect them. It is a logical argument depending on which side one belongs to. Malawi is a member of the World Trade Organisation (WTO) and has also has signed a number of trade agreements. In other words, the government of Malawi has committed itself to free trade and the benefits of trade ought to trickle to both businesses and households. Businesses cannot have it all. To households, such benefits are reflected through reduced commodity prices. If foreign businesses are offering lower prices, it is rational for any consumer to buy from such outlets. That is how free trade benefits individuals.  While government has a duty to promote business interests of local entrepreneurs, it has a similar duty to safeguard rights of consumers. The Competition and Fair Trading Act exists for this reason.

Getting rich-quick appears to be an obsession of most local businesses. It is often reflected in over-charging. Foreign businesses beat us this very cardinal rule of business. By offering lower prices, they build a faithful customer base that becomes blind overtime to price change. Psychologically, they create an image that they are cheap and survive. It is a long-term survival strategy that is combined with a huge risk of losses at inception of business.

Investing in the right business

You will be surprised that the average business person has strange reasons as to what prompted their decisions. Usually, it’s because everyone is doing it. Examples abound.  We need not dwell on them, but some are identifiable. After liberalisation of the transport sector, everyone who had some cash wanted to buy a 16-seater mini-bus with a vague idea of the transport business.

Similarly, any reasonable structure in the suburb was turned into a private school because everyone thought it’s profitable.

And it goes on to stationery suppliers.  A thorough understanding of the business that one is putting their money into remains fundamental. Such is the lesson from the world’s leading investor, Warren Buffet. Just because everyone is establishing a car hire company, it doesn’t really mean you should simply because you can afford. Do some research and know what are you are putting your money in. Who are your target clients? Understand the opportunities, risks and far more important, know when to quit.

Business ethics and social connections

Malawi has a rich history and a vibrant culture which sometimes runs against ethics of business. A business is a profit oriented undertaking and any serious investor wants it to grow. It is important to establish a clear line between business dealings and personal affairs. Most of the times, we do not do this simply because we own the business. It’s a business that has to grow and must outlive you. Why think short-term?

We have often underrated the power of social connections and capital. A closer look at most of the foreign-owned businesses in town shows how they support each other. Within the indigenous community, often everyone wants to go alone and even overcharge their clientele. We need to support locally-owned businesses, but at the same time take full cognizance that as consumers, price is key factor in purchasing decisions.