SMEs Should Work With Big Firms To Grow
By Sa Nyoung Kim Small and Medium Enterprises (SMEs) constitute over 90 percent of businesses in Kenya and provide seven…
By Sa Nyoung Kim
Small and Medium Enterprises (SMEs) constitute over 90 percent of businesses in Kenya and provide seven out of ten jobs in the country. Despite their economic significance, many fail to thrive and survive due to challenges such as lack of capital and technical resources.
Hence the need for innovative partnerships between SMEs and larger businesses, through which smaller enterprises leverage the expansive ecosystem of established companies and brands to grow their market footprint.
To be effective, such strategic partnerships should be complementary in nature and focus chiefly on developing new products and markets but more importantly, creating customer value.
Conventional wisdom is that small businesses view their larger counterparts as a competitive threat but this should not always be the case. In fact, small businesses stand to gain immensely from linkages with larger companies not just at a business-to-business (B2B) level, but also from a business-to-customer (B2C) perspective.
Also, many large firms are realizing that collaborating with local entrepreneurs has many benefits like enabling access to new customers and innovation opportunities. Such alliances also enhance brand awareness and trust thus building consumer loyalty. Backed by a strong company with a good track record, SMEs benefit from strong brand associations thus attracting more clients.
Critically, when SMEs team up with well-known brands, they are able to scale up their own networks as more people are willing to support and work with them including financiers and corporate clients. There is no better way to accelerate the growth and prosperity of startups and their long-term sustainability.
For instance, where a large corporation partners with local entrepreneurs, this not only helps create jobs but also improves the economic fortunes of that particular community. This is part of strengthening sustainable business practices.
An example of such a strategic partnership is one where LG Electronics, a global consumer appliances brand, has partnered with local entrepreneurs in Kenya’s fast-growing professional laundry market.
The initiative involves LG working with local distributors to supply its latest innovative laundry technology to local entrepreneurs who are also trained on how to set up and manage the outlets. Additionally, the shops are located in strategic locations with high footfall such as shopping malls so as to generate high customer traffic thus guaranteeing a rapid buildup of clientele.
Research by our partner Hotpoint Appliances shows that it costs between Ksh 1.5 million to 2 million to set up a laundromat shop in Kenya. This includes the cost of acquiring two or three washing and drying machines. Yet, the laundry business in Kenya has been shown to be viable and profitable mainly due to fast urbanization and the expanding middle class.
There is therefore a big business opportunity in harnessing this growing market to create entrepreneurial and job opportunities for Kenyans. Following initial success, the initiative is now being scaled up to empower over 1,000 entrepreneurs eyeing the fast-growing on-demand laundry market over the next five years.
This will not only create additional jobs but also revolutionize the Kenyan laundry market through the adoption of the latest innovative technology. A key lesson from the initiative is that many entrepreneurs venturing into the laundry market in Kenya understand what the consumer desires but they lack the capacity, especially innovative technology, needed to meet the rising demand for such services owing to the cost.
Partnering with vendors who install and maintain such technology allows the business owner to focus on ensuring customers get the superior level of service they desire. This is a clear testimony that ecosystems connecting large and small companies, if well crafted, can be catalysts for B2C success while fostering innovation that creates consistent value for customers.
Mr. Kim is the Managing Director, LG Electronics East Africa