Call for SMEs clustering

LIVINGSTONE MARUFU 

An executive at ZB Financial Holdings has called for the clustering of Small to Medium Enterprises (SMEs), which will be essential for small traders to weather economic storms.

ZB corporate finance manager Hugh Gutura told Business Times that the move would allow small traders to benefit from economies of scale as part of efforts to navigate the current economic headwinds. He was speaking on the sidelines of the recent Zimbabwe Agriculture Society SMEs workshop.

“SMEs clustering will  allow the business to have economies of scale just like big businesses,” Gutura said.

The country’s products are less competitive because of the high cost of production, which businesses are finding difficult to maintain, leading to muted profitability.

When SMEs come  together, economies of scale can result in lower costs per unit as the cost of production (including fixed and variable costs) is spread over more units of production. This is because economies of scale have cost advantages that can happen when a SME cluster increases its scale of production and becomes more efficient.

“Economies of scale provide larger companies with a competitive advantage over smaller ones, because the larger the business, the lower its per-unit costs. The benefits of economies of scale to industries and businesses are wide-ranging, but generally speaking, it enables large corporations to reduce their costs, pass the savings onto the consumer, and gain an advantage over the competition,” he said.

The SME clustering  will allow the beneficiaries to enjoy  reduced costs and enable  businesses to improve their price competitiveness in global markets.

This also leads to increased profits, generating a higher return on capital investment and providing businesses with the platform to grow.

With the  combining of resources, challenges such as inadequate infrastructure – lack of work space and lack of access to markets/failure to secure markets to sell products and services (both locally, regionally and internationally, will be addressed.

“[When you are SME s clustering] consider exploring export opportunities to diversify your customer base and reduce reliance on the domestic market. Investigate potential markets where your products or services may have a competitive advantage and explore partnerships or distribution networks in those regions and you can utilise ZB SME export facility,” Gutura said.

He  also called upon SMEs to consider diversifying their business operations to reduce reliance on a single sector or product. “Explore opportunities in different industries or expand your product/service offerings to cater to a wider market.

This diversification can help minimise the impact of economic volatility on your business integration (backward/forward/horizontal).

“The emerging businesses  should also establish and maintain strong relationships with suppliers, customers, and other stakeholders. Maintaining open lines of communication and building trust can help you navigate challenges together and find mutually beneficial solutions during unstable economic times,” Gutura said.

He said securing funding for entrepreneurial ventures can be challenging due to limited access to capital, high interest rates, and stringent lending requirements but with SMEs clustering the small businesses  can  access credit lines.