Growing SME's through key construction partnerships - GIC

Growing SME’s through key construction partnerships
March 27, 2023

Small businesses are essential to the South African economy, employing some 80% of the country’s workforce.

Small and medium enterprises’ (SMEs) role in the construction industry especially cannot be understated, acting as key suppliers, contractors on independent projects, and sub-contractors supporting larger projects and construction companies.

“A rising tide lifts all boats. The construction industry as a whole benefits from a stronger SME presence, which provide a competitive alternative to national and multi-national companies. Additionally, these businesses play a crucial role in creating job opportunities for unskilled and lower-skilled workers, stimulating economic development and growth,” says Roelof van den Berg, CEO of the Gap Infrastructure Corporation.

Roelof van de Berg, CEO of Gap Infrastructure Corporation

He adds that small, local suppliers are often more flexible and accommodating to the client’s needs. Additionally, sub-contractors may offer the expertise needed to manage specialised segments of a project which could otherwise distract the main contractor’s teams from their core duties.

“However, the growth of SMEs is often dependent on factors such as their ability to continuously improve their internal operations, appoint competent team members, and shore up their finances. And to succeed and thrive, small businesses may also require support from larger, more established construction companies.”

Van den Berg notes that there are three key areas that require increased attention in order to further stimulate the growth of SMEs in South Africa’s construction sector:

1. Increased utilisation of technology

Numerous construction SMEs face a common problem: disorganisation.

SMEs often overlook key internal structures and strategies required to streamline processes, minimise material and financial wastage, and ensure that budgets and deadlines are met.

The solution is simple. By integrating easy-to-use digital technology into day-to-day operations, contractors can plan out and prioritise tasks, better manage individual employees, track material usage, and ensure that every team member remains fully informed.

“Large contractors rely heavily on various design, planning, and management software, as well as smart wearable technology. Construction SMEs, on the other hand, have been slow to adopt technology, which results in a marked mismatch of approaches between contractors and sub-contractors onsite.

“Something as simple as a free cloud-based scheduling programme or budgeting and accounting software can vastly improve an SME’s productivity, lower time-losses and material wastage, and improve profitability in the long run,” says van den Berg.

2. Enhanced financial management

The importance of accounting is regularly overlooked or undervalued in small businesses, especially among those that are new to the trade. However, without a clear record of the flow of capital and exactly where money is coming from or going to, it is difficult to determine how much spending power the company has, what budget constraints exist, and whether the business is profitable.

Stringent accounting and bookkeeping practises are essential to keeping track of material costs, inventory levels, debt obligations, taxes, savings, wasteful spending, and how much the business can afford to reinvest and where.

“Many major players in the construction industry started small. But through leveraging the benefits of enhanced accounting bookkeeping practises, they became increasingly competitive and financially stable enough to take on multi-million-rand projects.

3. Sustained emphasis on drawing SMEs into supply chains

Smaller contractors and suppliers largely rely on sustained business from larger corporations for new projects and growth.

The best way to stimulate small business growth is therefore for larger businesses to commit to purchasing material from smaller, local suppliers; outsourcing time-intensive tasks to sub-contractors; and opting to use small sub-contractors over national construction companies.

“The way companies work with small businesses after they have been appointed is also vital to the success of both businesses and projects. Because many SMEs are still learning the ways of the trade, it is usually mutually beneficial to provide training and give business advice throughout the duration of the project,” says van den Berg.

“Lastly, do not defer payments. Small businesses rely on every cent that comes in, and often don’t have the required reserves to wait a couple of months for payments to go through. Making payments early enough will permit small business partners to pay their employees, rent necessary equipment, buy materials, and pay for marketing.”

Through industrywide cooperation and increased efforts from SMEs to improve their internal operations, the construction industry will gain valuable new participants, construction projects will see better results, and employment rates and income levels will see considerable improvement.

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