THE Walmart-Massmart merger has made supplier development a hot topic. Opponents of the merger argue it will hurt small suppliers by denying them access to the merged company's supply chain. But the truth is that even before the merger, small companies - particularly black companies - had little chance of penetrating the tightly controlled supply chains of most large South African companies. International consolidation is a red herring that could well obscure the more pressing problem of the structural exclusion of the 6-million small businesses from the local market.
And it is a problem. Unless we change the way in which big business engages with small business, especially small black business, the gap between the included and the excluded will grow. Of a population of 50-million people, only 13-million people are employed. About 50% of working-age people younger than 25 are unemployed and are likely to never find a job.
In the long term, that makes for very risky business - for small firms, for large firms, and for our social fabric as a whole.
Concerns that increased concentration in the retail sector will heighten the barriers to entry for small suppliers are valid. Exclusion is simply a function of the complex supply chain management practices typical of large companies, which can't accommodate suppliers deemed incapable of producing at the volumes, prices, standards and turnaround times they require. Herein lies the challenge for companies: how do they open up their supply chains to small and black businesses without undermining the competitiveness of their businesses?
There are few who would disagree that we need to nurture a strong base of small and medium-sized enterprises owned and operated by black business people, as all the evidence shows that it is these businesses that can make a real dent in the 5-million-jobs target the government has set.
Ironically, however, the very legislation enacted to encourage black firms has in many ways undermined them, as large companies figured out how to achieve high scores on black economic empowerment (BEE) scorecards without investing the effort needed to become authentically more inclusive - that is, without investing in these small businesses to make them fully competitive suppliers.
So impressive are the BEE scorecards of most major companies that one struggles to reconcile them with the reality of life for SA's small and black businesses. The KPMG 2011 BEE survey shows that JSE-listed companies are achieving close to 90% of their scorecard points for p referential p rocurement and 80% of the e nterprise d evelopment target. How much of this is going into doing business with black-owned and black-managed businesses is anyone's guess.
The solution lies in being more innovative in opening up opportunities for sound, bona fide black suppliers - opportunities beyond routine transactions in low-value discretional spending - and more committed to investment in small, especially black suppliers, accompanied by technical assistance and mentoring to grow their capacity. There are plenty of proven models for how this can be done successfully, locally and internationally. What is needed is the appetite to do it.
Investment of this quality and quantity - investment driven not by compliance concerns but by a genuine desire to make black suppliers competitive in price and quality - will require strong leadership from SA's business community, but the benefits to business are many. Broadening the base of suppliers will help to:
n Mitigate risk, especially in strategically sensitive areas of the supply chain. Replacing imported inputs with local goods can reduce vulnerability, and local suppliers who know your business can introduce savings through improved technology and processes;
n Knit together the social fabric of the economy, extend the tax net beyond the fewer than 6-million tax payers currently contributing to the government and enhance the sense of "shared value" beyond the few who currently benefit from the corporate footprint;
n Energise the local economy by boosting commercial interaction between locals and big business, thereby reducing dependence on corporate "handouts" and allowing corporate social investments to be managed more productively;
n Improve corporate stakeholder and public relations, while enhancing brand reputation and consumer loyalty. A time is coming when black consumer activism will reward companies that invest in local suppliers and communities and punish those who don't; and
n Address crime and social unrest. A country in which the vast majority is left out of the mainstream economy cannot enjoy full competitiveness or long-term stability.
Given benefits such as these, why has relatively little been achieved? Why have efforts to support local suppliers been segregated in "corporate social responsibility" shops away from the core business?
In part, the answer lies in those scorecards, which have given too many of us a fig leaf to hide behind. Some companies believe growing enterprises is the responsibility of the government. Many businesses bemoan the lack of reliable black suppliers. Others are happy to dump their enterprise development funds into pooled funds, which can be spent by firms on good causes, keeping their own supply chains insulated from "interference".
Certainly, business is not confronted with an immediate crisis threatening its existence. But all of these rationalisations, however understandable in the short term, are ultimately little more than excuses. We all know that a business-as-usual approach to how we run our companies is steadily taking us towards the economic precipice.
The good news is that a few enlightened companies have recognised this and are doing the hard work required to invest in black supplier development. In the past year, 20 large companies joined t he South African Supplier Diversity Council, a nascent organisation dedicated to black supplier development, affiliated with similar diversity initiatives around the world.
But it will take sustained, principled, far-sighted leadership to make such efforts truly mainstream in SA's corporate strategies. Unless there is a real commitment - led by corporate boards and executive management that recognise that the benefits of this approach far outweigh the risks and costs - such organisations will fail to bridge the gap between the included and the excluded.
Supplier development must become the mantra by which all of corporate SA lives and breathes, rather than a topical issue raised only because of a controversial transaction between a local and a foreign company. It must be a strategic imperative supported by proper incentives and managed by the core corporate procurement division.
Effective supplier development has the potential to be a reorientation in outlook that alters the course of our economic future. A radical first step would be for corporate leaders to set and enforce ambitious targets for procuring from small black businesses and make these targets integral to their performance assessments, all the way through the company, starting at the board.
Initiatives such as this will create the environment for big business to begin to tackle the real problems of bringing marginalised businesses into the mainstream economy. This is the kind of leadership that is required right now.
. Manning is the MD of economic consulting business ECI Africa and a member of the Presidential BEE Council.