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Five lessons on how an SME can become a successful exporter

Ten years ago, Letsema acquired an SME called Cirebelle. The firm is a manufacturer in the speciality chemicals value chain, and at the time had 12 employees. Cirebelle provides invaluable insights into the requirements for successfully exporting as an SME from a developing country that is far away from major markets.

Developing countries provide unique challenges, especially for SMEs, because the operating environment can be inhibiting as it typically does not have the necessary cluster of supporting and complementary firms. We are the only firm in South Africa that manufactures our specific basket of value-added wax-based products that are components into formulations for the global cosmetics and personal care industry.

Cirebelle has taught me how an SME can be geared towards successfully participating in complex global value chains. As these value chains are being reshaped by the COVID-19 pandemic, these insights may be even more relevant. South Africa simply must improve its performance of manufactured exports. SMEs can be successful exporters and contribute to the national imperative. Cirebelle’s 10-year track record as a successful SME exporter rests on five pillars:

  1. The value of quality distributors

Cirebelle manufactures and exports a basket of value-added intermediate wax products, both natural and synthetic (so-called FT waxes) through regional intermediaries to leading consumer brands in North and South America, Europe, ASEAN, East and South Asia and the Middle East. We are truly represented globally. This would not be possible without our relationship with leading regional and national distributors.

Many South African export-ready firms may not understand the important role of distributors. It is near impossible to acquaint oneself with all the commercial nuances of various export markets.

Secondly, small firms simply cannot visit customers on a regular basis from South Africa. We are just too far away from major markets. The exercise is time and resource-intensive, and ultimately cost-prohibitive for an SME.

Thirdly, an effective understanding of regulatory requirements and compliance in a variety of countries is hard to achieve. Fourth, and this is the big one… large OEMs in the cosmetic and personal care industry (and I suspect in other global value chains) use distributors to solve supply chain complexity challenges.

These include vetting and rationalisation of suppliers (acting as gatekeepers), acquirers of information in a complex world and ensuring security of supply (reliable suppliers, inventory warehousing). Distributors may also possibly package various products from different suppliers into a single basket, as required by OEMs.  

Export strategy for SMEs at both a national and enterprise level must consider the important role of these value-adding intermediaries. In my experience, it is far easier to secure a sound relationship with a distributor than trying to export directly to end-customers.

The price for this strategy is a significant loss of margin, but it’s a price worth paying. In this vein, policymakers such as the dti may need to consider how support and incentives given to export-ready SMEs could be modified.

We regularly visit and increasingly digitally interact with our distributors. We provide them with up to date information and train their staff on our products. We also receive information from them on new product development and trends in the market. Distributors help arrange visits to existing and potential customers. We often co-exhibit at their stalls at industry exhibitions, which is more cost-effective. It is never wise to disintermediate them.

  1. The value of marketing and competent and energetic technical salespeople

It would be moot to have fantastic distributors without support provided by marketing, and sales representatives who are technically competent and energetic.

Cirebelle employ salespeople who are deeply knowledgeable of our range of products, and the specifics of how they fit into the complex formulations of the end-products that they form a part of. This knowledge allows them to effectively communicate with customers, enhancing both Cirebelle’s brand, product and service reputation.

We are now complementing the work of our salespeople with a targeted content-based digital marketing effort to transcend COVID-19 prohibitions on travel. SME often under-invest in marketing.

  1. The importance of scientists, technicians and engineers

Highly skilled staff in a skills deficit country like South Africa – scientists, technicians and engineers – are hard to attract to small firms, with their specialist skills coming at a significant cost for an SME. We worked hard to attract our group of specialist skills at an affordable price.

To compete in a complex value chain like speciality chemicals, you need the right mix of technical and operational skills to close the advantage of large firms.

At Cirebelle we use these skilled personnel to run core manufacturing operations, answer technical questions from our clients, help ensure regulatory compliance, create formulations to animate our clients, and develop new products and innovate on our core production processes.

Cirebelle would not be able to compete globally without their skilled team.

  1. Investment in an analytical lab

Given its small size and status as an SME, Cirebelle has no right to possess the analytical lab that it does. But, if you want to give your expert staff the best chance of success, they need the right tools to do the job.

This investment means Cirebelle can run its own quality control on new formulation paths and final products versus outsourcing the work. It can test in real-time, an ability that enables faster turnaround, iteration and lowers costs on new product development and production process innovation.

The sad reality is third party laboratories in South Africa do not prioritise small and medium firms. It is – understandably – not their target market and it is practically impossible to respond to Cirebelle’s demanding requirements without levying an exorbitant fee because of the smaller volumes involved.

  1. Certifications are essential in exports

Certifications are important because a certification is a credible shorthand for quality and provides comfort from a distance. These certifications, combined with independent audits by large global customers, help set a qualifying benchmark.

Without the appropriate certifications attesting to product quality and process integrity, you simply do not have a ticket to the show. Cirebelle has been certified ISO 9000 compliant, with Good Manufacturing Practice (GMP) certification next on the list. Cirebelle already uses GMP internally in preparation for this certification.

Conclusion

Cirebelle is a case study, with both national and enterprise-level strategic lessons. It also offers insights into the right and proper role for shareholders. Letsema and Cirebelle have benefitted from a relationship mutualism. Cirebelle has over 10 years provided Letsema with a real-world opportunity to innovate and execute on a variety of contributions that an SME operating on its own may find difficult to implement.

This non-exhaustive list includes strategy development, sophisticated recruitment, accounting and management information services, marketing, and capital raising for growth.

Letsema has enhanced its own service offering to clients by virtue of its track record of execution at Cirebelle. Cirebelle is a clear beneficiary, having grown four-fold and is poised for greater scale, as it has enjoyed the benefits of a long-term value-adding activist shareholder.

Ultimately though, South Africa could be the biggest beneficiary. Cirebelle offers valuable lessons and encouragement for South Africa. SMEs can successfully and sustainably export manufactured products to leading global brands.

The employment and fiscal benefits for the country if this were more widespread would be significant. SMEs need and deserve help from government and larger South African firms. COVID-19 has made this imperative even more stark. DM 

 

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