No 'bed of roses', but a bright future...

Today's guest entry highlights John Callaghan's project work in South Africa...

Well, that just about wraps it up for our work with companies here in Johannesburg. Yet while the class moves on to an interesting and exciting few of days seeing other aspects of South Africa – today visiting telecom company MTN, tomorrow hopefully seeing some of SA’s ‘big five’ on safari – the challenges facing township companies still continue.

Over the last week and a half, José Luiz (Brazil) and I have been working with a small bed manufacturing and sales company in Soweto, led by local entrepreneur Joshua Ngesman. At 26, Joshua brings a lot of energy and dynamism to the company, which is reflected in its progress to date and the respect with which it is held by business associates and the IDC, a state-owned development bank which has provided a loan.

Joshua’s business is to manufacture and sell low cost, high quality beds to township markets in Joburg and beyond. It seems a good proposition – as yet, there are relatively few furniture stores in the suburbs, and while he has some competitors, their quality is highly variable (you can tell by lying on the beds!) and their prices often higher than is reasonably affordable, given wage levels. Selling locally is also important; Joshua estimates that in the areas he’s targeting, only one in five people have their own transport.

But at the moment, the company faces big challenges. Demand for beds is lower than expected due to the recession, and with some customers (existing retail stores) exceeding their credit terms by many months while materials suppliers demand prompt payments, cash is tight. Considering this, we initially wondered if the company could ask consumers to pay in advance of manufacturing and delivery, as is common in some other countries and exemplified by the way Dell sells PCs. But Joshua advised this probably wouldn’t work, since consumers wouldn’t trust the company with advance payments.

And reflecting on the overall exercise, this issue of trust seems paramount. While large companies in SA operate in similar if not identical ways to those in advanced economies, it seems that successful trading in townships still relies very much on personal relationships, making building a solid network very important. This can start (as in Joshua’s case) with family links, then build into the local community. Indeed, as well as being physically local, an important part of Joshua’s value proposition is being culturally local; the fact his company is black-owned carries significant weight with customers.

Despite the current difficulties, there are good reasons to believe that Joshua can turn things around and build a successful business. In fact, it’s not inconceivable he could follow in the footsteps of his uncle (who is backing the company) and become a serial entrepreneur! During an interview with a local newspaper on Monday, he positively sparkled when asked about his dream for the years ahead, which is to set up a substantial manufacturing operation and a network of stores. And while he needs to focus on his cash flow in the short term, our best advice to him is to continue to believe in this dream and persuade others to do the same. We wish him all the best for the future.

John