Only two out of five informal businesses started in Soweto were still in operation five years later, a survey released on Sunday has shown.
“Business survival was particularly low among street vendors [hawkers] and home-based businesses,” said Professor André Ligthelm of the Bureau of Market Research of the University of South Africa.
A small business panel was selected in 2007 and was revisited each year until 2011 to study small business sustainability and mortality in Soweto, south of Johannesburg.
The study found that over 60% of small businesses closed their doors during this period.
At the same time, few new businesses opened in the study area leading to a net decline of almost 50% in small businesses.
The study found that small informal businesses faced increasing competition as large shopping malls opened in response to the increased consumer expenditure by township residents in the past decade.
Large shopping malls had been developed, or were under construction or in the planning phase in almost all township areas with sizeable population numbers.
The small businesses most likely to survive operated from “old” business centres where 55% were still going.
They were followed by 33% of home-based businesses, such as spaza and tuck shops, and only 12% of street vendors.
“The relatively low percentage of street vendors operating from the same premises is to be expected — they are mobile and may easily roam to alternative locations offering better trading opportunities or simply close down,” Ligthelm said.
Typical entrepreneurial practices
Ligthelm found prominent differences between the businesses that survived and those that closed.
Successful businesses appeared to be older and were established due to exploring a business opportunity, rather than as a response to unemployment.
The owners were involved full-time and the businesses were more likely to be incorporated, a franchise or a multi-owned institution.
Successful businesses operated in permanent brick structures and were likely to have access to several municipal amenities.
They also employed more people and had a higher turnover.
Above all, they implemented “typical entrepreneurial practices”, he said.
“This suggests that the impact of shopping mall development on small business survival cannot be explained unidimensionally, purely attributing a decline in small business activity to shopping mall development,” Ligthelm said.
This confirmed the importance of the human factor in business survival.
“The mortality rate among small businesses that failed to discount the heightened level of competition was considerably higher than among businesses that adjusted their business strategies to the changed competitive environment,” he said. — Sapa