Local companies should change business models

The competitiveness of business in Zimbabwe has been the greatest headache. The local market has been faced with foreign products, goods and services which are cheaper than locals to force shrinking of local industries.

Rodney Ndamba

Questions continue to be raised on why local companies are failing to compete in their own home market. While reasons have been attributed to high cost of utilities and labour, corruption, high taxes, policy inconsistency and the Ease of Doing business in Zimbabwe, there has been little attention placed on inherent issues like the business models behind many companies. It is painful to note that most companies in Zimbabwe are still operating under very traditional and old fashioned business models. This article, however, explores critical inherent issues on implications of business models and corporate culture impacting on competitiveness of companies in Zimbabwe. It is critical to point out from the onset that current business practices and models in many companies cannot support a competitive economy but a “limping” one. Without changes in the corporate culture in Zimbabwe, there is no future for many companies in a fair and competitive economy.

Corporate Culture

The corporate world in Zimbabwe has developed unimaginable characteristics over the past two decades such as corporate incest, institutionalised corruption, skepticism to change and international practices, outdated business models, self-enriching ideology, anti-changes attitudes overstatements, poor corporate governance, superficialism and corporate window dressing. In many cases, you will find companies whose corporate governance structure is mainly made up of accountants, with same qualification and belonging to the same professional accountancy board creating a corporate governance circus. One could ask questions as how such directors could competitively run the company from the same ideology or philosophy? Some companies have tended to reflect a Social Club hence being immune to strategic changes and competitiveness.

Corporate culture and governmentality plays a critical function in competitive business models. While lack of competitiveness has been blamed on politics, inherent issues like poor corporate governance, leadership ideology and business models have largely received little attention. Although politics cannot be ruled out, the extent of corporate incent, corruption, poor corporate decisions, corporate governance, passive shareholder activism culture and business models continue to spoil investor confidence on Zimbabwe. The extent of passive shareholder activism, poor corporate disclosures and dysfunctional stewardship has creation of “corporate gods” in Zimbabwe where executives are accountable to themselves and not to shareholders. Corporate actions have proceeded with little involvement of shareholders as evidenced in forensic audits or investigations.

In emerging competitive economies like Singapore, South Korea, Japan and India, company business models incorporate sustainable business practices and strong corporate governance practices. Similarly, strong international companies and brands like Unilever, Coca Cola and Samsung have solid business models that are underpinned by sustainability business practices and corporate disclosures. Interestingly, Hopwood et al (2010) shared case studies of how utility companies like British Telecom (BT) are competing on sustainable business practices unlike some of utility and private companies in Zimbabwe that are still stuck in traditional and old fashioned business models. The global business practices have been changing at faster pace leaving many businesses in Zimbabwe caught in the euphoria that they possess a unique scenario that requires preferential treatment. Competitiveness is a reality in the global business world. Chinese, Japanese, Taiwanese and South Korean companies provide great lessons for Zimbabwe companies.

Business Models

The Business model is the heart of a competitive and resilient company. According to Osterwalder and Pigneur (2010) a business model is defined as a ‘rationale of how an organisation creates, delivers and captures value’ based on shared values. The latter provides that the building blocks of a company business model rest upon Key Activities (KA), Key Partners (KP), Key Resources (KR), Cost Structure (CS), Customer Relations (CR), Customer Segments (CS), Value Propositions (VP), channels (CH) and Revenue Streams (RS) which allow creating value. Classical example of entrepreneurs and small businesses from Nigeria and China managed to segment local customers and build revenue stream by channeling their products based on low cost structure which is competitive against local companies accustomed to neo-capitalistic business models that have long been abandoned in many countries.

The reality is that many companies in Zimbabwe are less attractive to foreign investor because of their business models which are not consistent with prevailing international practices. Many international investors prefer setting up fresh companies with competitive business models and culture than invest in existing companies.

Currently, there are about 3 to 4 companies in Zimbabwe that have adopted and implemented sustainability reporting standards using international guidelines provides Global Reporting Initiatives (GRI) which are considered 21st Century Business model in competitive and sustainable economies and companies. In Zimbabwe, the only company that publishes its business model in its annual report to its stakeholders is Dairibord Holdings Zimbabwe. It is hard to understand how some local companies compete or be trusted when their business models are not understood. Evidence has shown such companies are notable of price hikes which cannot be justified to support their lack of competitiveness.

International Practices

Global leading companies and organisations have developed competitive business models around the philosophy of sustainability by embedding environmental social and good corporate governance in business strategy, decision and value propositions. Some of the business models have been influenced by stock exchanges and business regulatory frameworks. For example, countries like South Africa, Singapore, South Korea, Kenya, Egypt and Nigeria provide case studies where sustainability reporting has been driven by stock exchanges. While Zimbabwe is slowly taking a step towards adopting sustainability reporting, companies like Dairibord Holdings, Innscor Africa Ltd, Turnall Holdings and Zimplats have already taken a proactive adoption and implementation of international standards. One could be tempted to question how some local companies and parastatals are stuck in traditional business models and ideologies? To date, embedding sustainability reporting (environmental, social and governance reporting) is a competitive advantage. The reality within business leadership in Zimbabwe is that such issues are not taken seriously in their business models hence some companies are not competitive and even fail to access international finance as they are considered too risky to lend.

In Africa, competitive economies like South Africa, Kenya, Nigeria and Egypt companies have adopted international practices, hence they have been able to attract Foreign Direct Investment (FDI) inflows. Interestingly, Egypt during Arab Springs, its stock exchange achieved significant growth because of models which provided a safe place for investors. In Zimbabwe, mattresses have become safer financial management model than our local banks. Many banks have unsustainable business models which leave them to rely heavily on bank charges hence deterring depositors. Some banks are running like ‘Burial societies’ than real banks hence the confidence to attract savings and deposits has diminished. An analysis of the United Nations Environment Program Financial Initiatives (UNEPFI)’s signatories to the ‘Statement of Commitment to Sustainable Development by Banking Institutions’ showed no single Zimbabwean bank is a signatory to UNEPFI. Notable signatory banks to UNEPFI includes Standard Bank (SA), Nedbank (SA), Access Bank (Nigeria), Commercial Bank of Africa (Kenya), Moza Banco (Mozambique) and Zenith Bank (Nigeria), leaving many local banks missing on the international arena of competitive business ideology.

Paradigm Shift

It is definitely unavoidable for Zimbabwe to embark on a paradigm shift to change current business models in its companies to achieve competitiveness. Global business models are fast changing and the catching up for Zimbabwe will come at higher cost and tough decisions in mindset change from the euphoria that the country has a unique situation. The reality is that investors do not care about that because they have other 51 countries in Africa to invest their money. However, the United Nations Principles of Responsible Investing (UNPRI) whose members oversees over US$68 Trillion investments funds prefer their members to invest sustainable businesses with strong corporate governance, sustainable business practice and transparent. Therefore, it inevitable that current business models in Zimbabwe are far from attempting to unlock such funds without a paradigm shift.

Finally, there is no way local companies are going to be competitive unless inherent issues around business models, philosophy, corporate governance and leadership culture are addressed urgently. The current business leadership ideology will not take Zimbabwe far in competing on the global economic front. There is need to establish very strong Business Schools like Gibbs and Wits in South Africa to develop very strong and ethical business leaders who do not run business on the basis of holding qualification but the skills and the business spirit. The potential achieve changes in business models could be available through New Companies Act (24:03) 2016 by incorporating sustainability reporting, strong corporate reporting practice and business ethics requirements. However, there is great misconception in Zimbabwe’s business models that financial reporting using IFRSs means corporate reporting.

Corporate reporting in modern businesses requires reporting on both financial and non-financial information (environmental, social and governance reporting) to stakeholders in annual reports. Lastly, it is important to confirm that business models within local authorities, parastatals and state owned enterprises are unsustainable and uncompetitive hence impacting on the competitiveness of private sector companies, let alone the national economy.

Ndamba* is the Founder of the Institute for Sustainability Africa, an independent think tank and research institute on sustainability and sustainable development. New Perspectives articles are coordinated by Lovemore Kadenge,president of the Zimbabwe Economics Society (ZES) email kadenge.zes@gmail.com, cell +263 772 382 852.