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Sino-Senegalese Cooperation: An Impulse to Innovative Growth Strategies for Senegalese SMEs

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International Journal of Innovation and Economic Development
Volume 1, Issue 5, December 2015, Pages 26 – 43


Sino-Senegalese Cooperation: An Impulse to Innovative Growth Strategies for Senegalese SMEs

DOI: 10.18775/ijied.1849-7551-7020.2015.15.2003
URL: http://dx.doi.org/10.18775/ijied.1849-7551-7020.2015.15.2003

Pape Alioune Diop

School of Management, Wuhan University of Technology, Hubei, P.R. China

Abstract: Since 2005, Senegal and China have developed painstaking efforts to flourish in win-win cooperation. However, the outcome of this collaboration is still under scrutiny due to several constraints in the small and medium enterprise (SME) sector. This study examined how the Sino-Senegalese cooperation could be a mean for Senegalese SMEs to grow their businesses through competitive strategies. The purpose of the study was to explore practical uses of growth strategies that may enable the Senegalese SMEs to develop sustainably. We adopted an inductive research approach by using descriptive and interpretive statistical analysis methods. We explored the data using SPSS 16.0. We can summarize the findings as follows: (1) Senegalese SMEs in China face problems related to unstable government regulations; high money transaction costs and high tax rates rather than access to finance; (2) there is a high degree of informality among SMEs in Guangzhou and Yiwu despite the relatively high level of education of the SME managers; (3) they can incorporate many growth strategies in the management of their businesses concerning the idiosyncratic pitfalls we have identified in the research. The Ansoff matrix, innovative strategic moves, and strategic networking have shown to be important tools for the Senegalese SMEs operating in China to grow steadily and sustainably. A way to grasp the originality of this thesis is that many of the major works published in this field mainly focus on China’s strategy for Africa. We find less evidence in the literature for China’s presence in a resource-independent economy like Senegal. And by doing so, they barely mention the negative impacts of this cooperation, nor do they alleviate the opportunities and strategies that can be put forward for SMEs growth.

Keywords: Small and Medium Enterprise, Growth Strategy, Entrepreneurship, Senegal, China

1. Introduction

The Sino-African relations represent a perfect example for describing the new economic paradigm that is shaping today’s world trade prospects. The Sub-Saharan African (SSA) region is composed partly of West African countries; the economic exchanges here with China have become much more decentralized. We witness significant improvements in trade and investment to the detriment of aid-driven flows. We can interpret the interest for the two entities’ cooperation in different perspectives. West Africa engorges natural resources like fishery products, oil, gas, cotton, gold, and phosphate, wood, diamond, etc., whereas the Middle Kingdom represents a role of a supplier, manufacturer, investor and a strategic partner. China’s fast-growing economy has surged exponentially and inevitably weight on the other economies all over the world.

In a more particular viewpoint, China has become a leading economic partner of Senegal right behind France, but still, surpassing former bilateral traders like Italy, Spain, Portugal, UK, and India. It is the first supplier of commodities and manufactured products. Additionally, China invested around $50 million to support small- and medium-scale enterprises (Mamta Badkar, 2012), and direct investments attained €325 million in 2009.

However, while the trade and investment are increasing, concerns have been raised concerning the impacts of this cooperation on SMEs competitiveness and growth. It has opened doors to Senegalese SMEs on a commercial footing, but they face enormous problems to grow their businesses in China. Therefore, the impacts of China as a driving force in Senegal’s private sector needs to be questioned.

The rationale suggests that we need to do more investigation on what growth strategies to implement to pertain SME expansion and development vis-à-vis the Sino-Senegalese cooperation. The desired outcome of this approach is to bestow the Senegalese SMEs with the ability to come up with the maximum profit from this cooperation by adopting relevant entrepreneurial and innovation-led growth strategies.

Nowadays, the key role of small and medium enterprises in local and international development is widely acknowledged. SMEs are the backbone of economic growth in almost all countries over the world (Chris Hall, 2007). Indeed, they represent not only valuable factors of social cohesion in the fight against poverty and underemployment but also, they widely contribute to the national GDP growth and human capital development mostly in the private sector (Rajesh K. Singh et al. 2010). Liu (2004) contends that economic growth and SME development are completely interrelated, and innovative small businesses create and maintain significant numbers of jobs (Bridge, 2011).

On the other hand, the SMEs’ role in technological issues such as innovation, research and development (R&D) is relatively considerable. When we apply this literature to the West African country, Senegal, where microenterprises and SMEs provide income to more than 90 percent of the employable population, it would be unrealistic to take this country as an exception. In fact, the Ministry of SMEs reported that Senegalese SMEs represented more than 90 percent of the formal enterprises, 30 percent of employment, 25 percent of the total turnover and 20 percent of the value added (Sector Policy Letter, 2009; AfDB, OECD, 2005). The SMEs, operating in the rural and informal sectors, play a leading role in the national economy in two main areas: the creation of job and wealth and the mobilization of economic and social resources. The government considers small businesses as the engine of growth and an influential private sector whose impacts regarding development is no longer to be demonstrated. Further, the Senegalese tertiary sector, including the overall service sector of the merchants selling finished goods and services, contributes 50% of GDP. It also provides employment to the majority of the local population (Sijh Diagne, 2010).

2. A Review of Selected Literature

2.1. SME Definition

Trying to label the term SME to a single and unique definition may become a never-ending task if we readily know how eclectic this concept is and how much it can vary from one country to another. Indeed, there is not a universally accepted definition of SME (e.g. OECD, 2003; World Bank, 2005; Meghana Ayyagari, et al. 2005). The abbreviation SME stands for Small and Medium-scale Enterprise (or small and medium-scale enterprise and variations hereafter). It is most commonly defined regarding industry category, the number of employees, sales volume and value of assets (Toshiki Kanamori, Jamus Lim & Tracy Yang, 2007). For instance, the Chinese central government requirements for medium-size enterprises are to have an annual sales volume worth 30 to 300 million Yuan, to own assets between 40 to 400 million Yuan, and to use up to 300 employees. Small businesses should earn less than 30 million Yuan in annual sales with assets valued at less than 40 million Yuan, and employees between 301 and 3000 according to their industry sector (LI Xiling, 2009; Lauren Hilgers, 2009; China Daily, 2010). However, as asserted by Chris Hall (2007), what we consider as an SME in China may be quite large compared with the ones in Europe or Africa. And this large range of SME classification in China is due to its labor-intensive production and the large size of its active population that makes these firms relatively small.

Another definition that is consistent with the above mentioned is the one provided in the letter of sector policy for Senegal’s SMEs. The latter is defined in a legal and institutional framework known as the 2003 SME Charter. The articles 1 to 4 of the charter define SMEs as ‘any moral or physical entity that can provide goods and services of which the main criteria lay on their number, annual turnover, accounting transparency and net investment’ (SME Charter, 2003). They are classified in twofold categories as described in the following table.

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Figure 1:
Senegal SME Categorization

2.2. The SMEs Problems in General

Starting a business anywhere is notoriously risky. Small businesses often fail, for more than half, within their first four/five years whether in low-income countries or elsewhere (Kevin McQueen et al. 2007; Reiss, 2006). This may be due to the competitive pressures in the international economic arena, allowing more efficient firms to expand and develop to the detriment of less ones (Toshiki et al. 2007). Against this development, local SMEs find it quite impossible to survive or even maintain their current business position in their respective markets (Rajesh K. Singh et al. 2010). Weaker SMEs are often incapable of achieving economies of scale and take advantage of market opportunities. These constraints may be due to their lack of access to adequate technologies, excessive costs of production (Chorda et al. 2002), inability to meet the demand for multiple technological competencies (Narula, 2004), and lack of funds (Xiong et al. 2006). Moreover, red tape (or formalities) was identified as a common barrier to small business growth. It is particularly burdensome to smaller companies and may inhibit entrepreneurship (OECD, 2011).

2.3. The Senegalese SMEs Problems and Challenges

Numerous studies have been produced to bewail the paucity of innovation, the flat organizational structure and the increased level of business failure of micro and small-scale entrepreneurs in many African countries, and on women entrepreneurs specifically (ILO, 2006; Pat Richardson et al. 2004). These women often make use of their resources and ingenuity, or the support from their families and relatives to finance and develop income-generating activities (Paul Vandenberg, 2006). Marlow & Patton (2005) believe that the increased level of difficulty for entrepreneurs may result from the held gender stereotypes against female entrepreneurs. Consequently, many female entrepreneurs tend to use entrepreneurship as a means of balancing work and family rather than achieving financial success (Kepler & Shane, 2007).

In Senegal, more than half of the legally registered Senegalese SMEs die even before their first year (Sud Quotidien, 2010). Access to finance, high taxes, complex procedures and incompetent administration are listed as the number one constraints for doing business in the country (ICA, 2004) followed by challenges like starting a business, and enjoying a quality skilled staff (World Bank & IBRD, 2013).

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Figure 2: Most Problematic Factors for Doing Business in Senegal

2.4. On Strategies for SME Growth

Michael Jessen Holm & Flemming Postfelt (2002) listed focus strategy for growth through self-financing, high level of export and internationalization, good business systems and highly effective value chains including strong relations and networks as necessary approaches for SME growth. In the same vein, it was stipulated in a survey of 308 C-level executives that strategic innovation, Green IT business practices and a company’s expansion in emerging economies such as China have become essential to driving economic growth (Forbes Insights and Wipro, 2011).

These studies excelled in giving insights on ‘best’ strategic management practices, but they failed to take into account the limited resources of SMEs to export especially in low-income countries. Also, they both focused on the expertise of successful executives managing high growth companies, thus, overlooking entrepreneurs and small business owners operating in a turbulent and fragmented environment.

Many of the SMEs obstacles are because of their isolation rather than their size (Porter, 2008). Consequently, strategic networking, clustering, and strategic innovation are more likely to shape routes for individual SMEs to improve their competitive positions. In believing so, the book of Allan Afuah (2009) on Strategic Innovation: New Game Strategies for Competitive Advantage has sharply influenced our view on this topic. He not only provided a painstaking work on issues such as the Long Tale, new game strategies and strategic innovation that can create new value to customers and empower the firms to position better themselves but also managed to apply concretely these theories on enterprise case studies. He used analytical tools such as the Activities, Value, Appropriability, and Change (AVAC) model and a wealth of quantitative examples of successful strategies to analyze the profitability potential of a strategy, a brand, a business unit, a resource, etc.

Porter (2008) defined clusters as a ‘geographically proximate group of interconnected companies and associated institutions in a particular field, linked by various commonalities and complementarities’. Although this definition has been helpful in explaining the structure of different industrial concentrations around the world, it has been thought to be vague and superficial (Rugman & Boyd, 2003). However, it is agreed that clusters enable lower operating costs and ease the firm’s access to specialized labor, materials and equipment. Nearly any industry can benefit from clustering. But, at the very least, none can succeed without some input from government (James Watson, 2011). The government has a crucial role to play in promoting a culture of innovation and entrepreneurship. Entrepreneurship is a means through which clusters achieve their benefits (Karen G. Mills et al. 2008) especially when they occur in some local businesses such as restaurants, antique shops, small business services, and so forth. And so does the market because, while some clusters work without government backing, none will work without market forces.

Porter (2009) asserted that clusters increase productivity and operational efficiency. They stimulate and enable innovation, facilitate commercialization and new venture creation. He further mentioned that, as barriers to trade and investment have fallen and new countries (such as China) have become cost-effective locations for outsourcing, international competition has become the way firms can gain a competitive advantage by expanding and coordinating activities in the value chain across borders in regional or global markets. His theories on a cluster and strategic innovation are fundamentally helpful in shaping our research and answering some of the core questions including which strategies the Senegalese SMEs operating in P. R. China, could use to develop their business.

C Sara L. Minard (2009) contributed a lot on the importance of entrepreneurship and its crucial impacts on SMEs development in Senegal, West Africa. The purpose of Minard’s work was to provide a theoretical reflection on social entrepreneurship as a driving factor for the development of Senegal’s informal economy. She used an exploratory, multi-disciplinary approach including open-ended interviews and focus groups.

Minard’s work has successfully generated practical implications in strategic and creative approaches to promoting informal entrepreneurial social innovations in Senegal. It is on this position where our study will stand; on one hand it is a complement to the theory of entrepreneurship as the intersection of embedded social and economic condition for the Senegalese SME growth. In addition, it seeks to address a perceived gap in the theoretical and empirical literature. It gives highlights on the contribution of the international Senegalese businessmen in the national economy and how they can make use of a cluster approach as a tool for meeting their challenges related to globalization and trade liberalization in the process of increasing their competitiveness and growth.

2.5. On the China-Senegal Cooperation

There is little to find in the literature about the Sino-Senegalese Cooperation. Maybe it is because the commercial relations between China and Senegal are diverse and complex. According to Eilert Stamm (2006), China may represent a favourable market for Senegal although the exportations to the Middle Kingdom seem to raise little hope. He mostly discussed the political interests for the two countries to renew their diplomatic relations, putting the stress on the bilateral trade issues, the weak and reluctant Chinese FDI inflows and the lack of balance in imports between the two countries.

Furthermore, Dzifa Kpetigo and Sampawende J-A Tapsoba (2011) enthusiastically argued that Chinese investments have a positive and significant impact on exportations not only in Senegal but also in the Sub-Saharan countries as a whole. A number of studies have disdained this idea by claiming that aid inflows indirectly eroded the export competitiveness of developing countries by causing real exchange rate appreciation. However, Bazoumana Ouattara and Eric Strobl (2004) confirmed, in an empirical analysis, that ‘foreign aid inflows do not generate Dutch disease effects.’ Their dynamic panel analysis of 12 countries of the CFA Franc zone, including Senegal, concluded that CFA countries could still receive aid without fear of harming their competitiveness.

Sijh Diagne (2010) developed a thorough analysis of China’s economic impact on the informal economy of Senegal. He conducted the study on a twofold basis: First, Diagne sought to draw the line between China’s physical presence in Senegal as an economic partner and as an economic competitor. And then, he outlined policy recommendations regarding the best ways for Senegal to gain from this south-south cooperation. As he considered Senegal in a position of a weaker economy, he adapted the controversial neo-liberal and dependency theories throughout his research.

Diagne’s study is seemingly one of the closest to our topic in so far as it provides not only a bulk of empirical and qualitative information about the impacts of the Sino-Senegalese cooperation on the local informal sector, but also it pertains significant insights on how Senegal can profit from this bilateral cooperation. The question remains in whether Chinese presence is or is not the factor influencing SMEs counter-performances.

While both low- and middle-income countries progressively dismantle their trade barriers, this has not appeared to unleash considerable export growth in all of them (World Bank, 2007). Therefore, the trade terms between China and countries in Sub-Saharan Africa (SSA) should be reviewed and improved.

Our study will otherwise put the stress on the idiosyncratic cross country-level of Senegal versus China. We focus on Senegalese SMEs operating with or within China and propose a list of growth strategies that may help them improve their business environment and acquire sustainable economic growth.

3. Methodology

3.1. Methodology Approach

We use both explanatory and exploratory research methods when approaching this study. The purpose is to ascertain the different factors influencing the Senegalese SMEs competitiveness in a foreign market namely China and the relevant strategies to propose as countermeasures.

The explanatory research, including both descriptive and correlation analysis, vows to shed light on ‘why’ and ‘how’ there is a link between two (or more) elements of a situation or a phenomenon (Ranjit Kumar, 2005). In this study, it explains how the Sino-Senegalese cooperation has influenced the Senegalese SMEs activities in China.

The exploratory research is undertaken to investigate in an area where little is known. And, in fact, there is hardly little research on the Senegalese SMEs management system especially the strategies they use to grow their business. Eventually, this choice will enable to bring innovative features to the research and contribute to the literature as well.

3.2. Sampling Methods

3.2.1. Sample Type

Non-probability sampling methods namely judgment sample and convenience sample seemed to suit the most to this research. In fact, they can enable the researcher to select deliberately the easiest population members from where to get relevant information. Therefore, we interviewed not only small business owners and managers, but also entrepreneurs, service providers, and other respondents running small businesses.

The sample selection includes two categories of Senegalese firms operating in China: Micro and Small Enterprises (MSEs) on one hand, and Medium Enterprises (MEs) on the other. Some of them are exclusively in services, either managing restaurants or shops in cities like Guangzhou and Yiwu or practice cargo loading, renting, and shipping. The other segment is people trading textiles, clothes, high-tech & electronics, furniture, construction equipment, automobile & spare parts, and cosmetics.

3.2.2. Sample Size

We surveyed a hundred of SMEs as a sample size for this research. However, for the relevance of the data analysis, thirty-six were tabulated, as they are the only respondents to have provided available answers. The reason we chose this scale is because of the small number of participants in the questionnaire and the difficulty to register the number of Senegalese SMEs available in China in a given period.

The chosen geographical samplings were Guangzhou and Yiwu. These cities were selected because they enclose almost all the Senegalese SMEs operating in China. They were mainly import-oriented groups of entrepreneurs either established in China or going to and forth between China and Senegal.

3.3. Data Collection Methods

We collected primary and secondary data for the purpose of this research. The primary data are information collected for the first time while secondary data are those that have already been collected and analyzed by another author.

3.3.1. Primary Data

Different methods were put forward to collect primary data sources. To avoid biased answers from respondents, we first made observations as fieldwork before setting the questionnaires via hard copies and soft copies as well. Thus, as primary sources, data were collected through:

Observations

We conducted several field research observations at first hand to be familiar with the Chinese market especially where the Senegalese SMEs operate. Several trips were also necessary for Guangzhou, Beijing and Yiwu.

Questionnaires and Interviews

After being acquainted with the business environment that revealed to be very invasive, we resulted in choosing a questionnaire as the basic framework for primary data collection. Both written and oral questionnaires were used to gather information from respondents. In fact, some of them do not have the ability to read English. Consequently, the questionnaire was either duplicated in French or performed orally as an interview.

Mail questionnaires

As a component of the investigation, we introduced mail questionnaires to the Senegalese entrepreneurs and traders who did not have enough time to fulfill the documents and the ones who mostly commute between China and Senegal or in markets other than Senegal.

3.3.2. Secondary Data

As above-mentioned, the research did not exclusively rely on primary data. It also made use of secondary data from different sources. Indeed, the secondary data collection consisted of books, journals, annual reports, and reviews dealing with business strategy, SMEs, and other topic-related concepts. It empowered the research with theoretical assumptions embedded by growth strategies for SMEs. It is, therefore, the basis of the different countermeasures proposed as solutions to the theory-based study. In other words, the secondary data collection gave highlights on best practices that might help SMEs to grow steadily while primary data served as measures to determine the problem and justify those theories.

3.4. Data Analysis Methods

Beforehand, it is worth mentioning that conducting a pilot survey would be of great importance for increasing the validity and reliability of the investigation. In fact, these elements represent common problems for all researchers. They play as pre-tests to the survey questionnaire. However, since we do not consider this research as a survey study due to the small size of the population investigated, it was apparently not compulsory to do such kind of probation. Instead, serious experimentation was conducted to be familiar with the business managers and retrieve the maximum information from them. These previous observations helped to increase the respondents’ motivation to be willing to participate in the completion and distribution of the questionnaire. It, therefore, facilitated the selection of which questions would be relevant to the research objectives and which ones would be considered as taboo. The results from the investigation are initially based on the research questions and the author’s tabulation and interpretation.

3.4.1. Data Processing and Analysis

As the central concern was to identify the business environment in which the SMEs are evolving and how much they deal with strategic networking, innovation, and entrepreneurial growth strategies, we were directly involved in the research field as an interviewer, translator and assistant (for the untaught-English respondents).

The answers from respondents were analyzed on different criteria. Both univariate and bivariate analysis were done using SPSS 16.0 version. We asked different questions in different formats to the respondents according to their experience, domain of activity and organizational activities. Closed-ended questions including all possible prewritten answers, multiple choice questions, and scale questions were privileged to facilitate the computing and ease of analysis. But, the open-ended questions contributed also in limiting the size of the questionnaire by aiming directly at respondents’ point of views on some issues like their opinion about the governmental and financial institutions in supporting SME development.

The Percentage Number of Respondents: The total number of valid responses that the questionnaire has taken into account is thirty-six, with 25 males (representing 69,4%) and 11 females (representing 30,6%) with 0 missing value. The table is a summary of the main demographic characteristics of the respondents operating exclusively in the services and commerce and trade sectors.

Table 1: Demographic Characteristics of Respondents

                             Characteristics Male Female Total
Gender   25 11 36
Age From 20 to 29

From 30 to 39

From 40 to 49

8

15

2

5

4

2

13

19

4

Educational Level No School

Primary

Middle

Secondary

Tertiary

7

2

2

3

11

4

1

2

1

3

11

3

4

4

14

Working Experience Yes

No

19

6

10

1

29

7

Enterprise Status Sole Proprietor

Limited Liability Company

Corporation

Other

9

4

6

15

4

Organization Manufacturing

Engineering

Services

Commerce and Trade

8

17

3

8

11

25

Approximate Number of Employees From 1 to 20

From 21 to 50

From 51 to 100

24

1

11

35

1

Note: Some numbers do not add to correct totals due to missing data.

SMEs in Formal and Informal Sectors: the missing values in the table above shows 17 missing responses in the question related to the status of the enterprises. The reason is that some respondents are not registered in the Chamber of Commerce of Senegal that is the principal institution in charge of controlling and dispatching the enterprises according to their degree of formality or informality. Thus, some respondents did not tick any answer in this subcategory since none of the options proposed to them suited to their status as informal small business owners. They usually are students who find out ways to buy several commodity goods such as natural hair packs, fashionable shoes, bags, and clothes, and send them to Senegal, France or Italy, with four-three times the actual price.

The other informal traders are risk-taking freelancers who do not need to make use of annual reports or financial spreadsheets for their business because it is based on day-to-day hustling. They represent 47,2% of the overall SMEs interviewed (see pie chart below). The more successful they are in business, the more likely it is that they will need entrepreneurial and small business management skills. Some of them have succeeded in running ready-to-wear clothing shops, beauty and hairdressing salons in Senegal while others have upgraded their businesses by diversifying their products. The least successful ones face never-ending problems with their resident permit regulations and other business-related issues.

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Figure 3: Current Status of the Senegalese SMEs Surveyed

Gender Specialization and Cross Tabulation: Most of the women surveyed in the questionnaire do not permanently stay in China. They are active in the import of shoes, textiles, clothing, and other goods Made in China. They periodically go to and forth the two countries and do not happen to stay for more than a month in China. The ones who stay for a longer period are either student who indulges in business or restaurant owners. As we can notice in the table below, there is a same percentage value of the number of female entrepreneurs who provide products/services in China by direct sales because they mainly run their own restaurants. This 27,3% highlighted in the cross tabulation below represents women who manage restaurants in Guangzhou. In fact, we did not find any other woman who is working in the service sector, who has been living in China for years, and who is not running a business in food and beverages except those who are providing housing services.

 

Table 2: Gender Cross tabulation with Other Variables

Cross Tabulation
(% Within Gender) Gender Total
Male Female
In which market do you sell your products? In Senegal 92,0% 72,7% 86,1%
In China 8,0% {27,3%} 13,9%
Total 100,0% 100,0% 100,0%
How do You Sell your Products/Services Reselling 68,0% 72,7% 69,4%
Direct Sales 32,0% {27,3%} 30,6%
Total 100,0% 100,0% 100,0%
Type of Activity Trade 68,0% 72,7% 69,4%
Services 32,0% {27,3%} 30,6%
Total 100,0% 100,0% 100,0%

There are a small number of business owners (8%) who sell products or provide services within China. Mostly, they manage the inventory or shipping operations, which is the most successful but more sophisticated business in the eyes of the Senegalese traders.

Table 3-2 shows another interesting factor related to how these SMEs sell their products/services both in China and in Senegal. Actually, a third option that is c) E-commerce (online sales) was presented to respondents along with a) direct sales and b) reselling. However, none of the respondents chose this option. This is significant to the extent that it implies either a lack of means to implement such strategies for product/service sales or a lack of strategic innovation.

Products and Services Provided by the Company: After tabulation, one of the most striking remarks we made was that the more sophisticated the business supply chain was, the less people choose to get involved in such kind of activity. As demonstrated in the diagram below, there are four times more SMEs trading food, clothing, and textiles (47,2 percent) than those providing freight and shipping services (11,1 percent). In the same way, the Senegalese small businesses prefer more trading apparels, high-tech electronics or automobile spare parts than freight services. Importing clothes, shoes, bags and common goods is much easier, faster and above all cheaper than loading a container with furniture, construction equipments or large amounts of luggage. This is the occasion to precise that dichotomies in SMEs performances and strategic management skills mostly reside on their abilities to acquire more financial and human capital. That is to say SMEs specialized in freight services need more financial resources and organization than do the freelancers.

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Figure 4: The Different Products and Services Provided by SMEs

4. Research Findings

4.1. The Women’s Weak Participation in Strategic Networks

Women involved in business can be divided into two distinctive groups: the women entrepreneurs who commute between the two countries and who are generally specialized in commerce and trade and the ones who stay longer in China as students involved informally in business or as small business owners who provide services such as restaurants and accommodation.

As one of the most important topics of this research, investigating on how much the SMEs dealt with Strategic networking and clustering had become a must. In the questionnaire, 18,2% of females and 68% of males, with zero missing value, affirmed they were involved in strategic networks. The rest worked in solo or in partnership with other businessmen located in Senegal (see figure below).

55

Figure 5: SME Participation in Clusters and/or Strategic Networks

A Chi-square test was performed to ascertain whether there is statistically a significant relationship between gender patterns and the issue of participating or not in clusters and/or strategic networking (referred to as the null hypothesis). The test conveys that if there is an association between two categorical variables, then the expected asymptotic significance often called p-value must be inferior to 5% (meaning 0,05). The results in Table 4 below do show that there is significance in the relation between genders and respondent’s trend to belong or not to a cluster organization as the p-value is 0,006.

Table 4: Chi-Square Test of Gender with Percentage of SMEs Participation in Clusters and Strategic Networks

Chi-Square Test
Value df Asymp. Sig. (2-sided) Exact Sig. (2-sided) Exact Sig. (1-sided)
Pearson Chi-Square 7,607a 1 , 006
Continuity Correctionb 5,739 1 , 017
Likelihood Ratio 8,021 1 , 005
Fisher’s Exact Test ,010 ,008
Linear-by-Linear Association 7,396 1 , 007
N of Valid Casesb 36

This small percentage of participation of women may be due to socio-cultural factors. Generally, in Senegal, there are distinct gender roles between men and women. The businesswomen who have got the chance to travel to China for ordering merchandises have restricted interactions with men as married women. Thus, they generally do not get involved in social networks or other kind of groupings. The other ones running restaurants are hooked by their job that requires much time and energy.

4.2. A Relatively High Informality

The degree of informality is still high among the Senegalese SMEs, with 47,2 percent of the SMEs not registered as formal enterprises. The small business owners who have not attended school tend to operate in the informal sector. However, there is an unusual percentage of educated people who add themselves to this sector despite their high level of education as illustrated in the following chart.

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Figure 6: Percentage Level of Education of the Respondents

4.3. The Lack of Managerial Skills

A consistent notice is that the profile of those generally labeled as Senegalese entrepreneurs supposedly lack of strategic expertise such as innovation and strategic networking. As a matter of fact, they unanimously confirmed that they do not make use of E-commerce for selling their products or services, while it is nowadays an inevitable marketing tool for business growth strategies. In addition, SMEs investigated have revealed their reluctance to participate in clusters. They barely have business management experience and are not keen on sharing market information. However, observations have shown that one of the reasons is that there is almost no trust between businessmen and the environment is complex with the existing of a melting pot of foreign traders in the city so much so that people barely share information and ideas to develop their business operations.

A notable lack of management skills was especially observed while running the investigation in Guangzhou. Contrarily to the most businessmen and businesswomen living in Guangzhou, the ones going to Yiwu do not stay there for long-time. They content themselves to stock up the goods they need and ship them back to Senegal with the help of a few number of country mates who are running their offices as cargo service providers. But the SMEs located in Guangzhou have different characteristics. The most successful enterprises there generally specialized in cargo services too and shipments can regularly load containers fully stacked with merchandises. They usually do not permanently gain significant profit margins through the channels of clients they have. Whether seeking for commissions from the perfunctory deals they get after guidance or negotiation services, or getting involved in fragmentary selling. They cannot realize tangible revenues with regard to the high cost of living in Guangzhou. The situation is critical with these solo MSEs because not only don’t they have an annual sales record but also they even do not have any technique for defining and executing strategies for running their business.

4.4. Regulatory and Procedural Constraints in the Chinese Market

One of the findings from the questionnaire analysis resides on the most problematic factors of Senegalese SMEs for doing business in China. The results are portrayed in the following chart:

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Figure 7: SMEs Problems for Doing Business in China

As pointed out in the pie chart, the political factors are regarded as the most critical factors to SME development. While doing the investigation, it was unexpectedly discovered that access to finance was not the most problematic factor to SME growth for the Senegalese enterprises. Instead, high money transaction costs (17,4 %), procedural constraints (13,6 %), problems related to unstable legal environment (12,5 %) and the lack of support from authorities (11,96 %) were the most worrying impediments to the Senegalese SME development. The Chinese policy makers have made painstaking efforts to develop the local SME environment within the framework of its national innovation system. However, what measures have been taken in the regulatory environment for foreign small businesses remains unclear. Many of the Senegalese freelancers, often called ‘borom sac à dos’ (the backpack hustlers), always face problems with their resident permit. This has become a nightmarish adventure for them, seeing that market entry opportunities were one of the chief incentives for Senegalese SMEs going to China.

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Figure 8: SMEs Previous Incentives for Moving Activities to China

4.5. The Financial and Marketplace Trade-offs

Respondents to the research questionnaire complained about the high money transaction costs and high tax rates rather than the micro-financing problems. With the currency differences between the two economies, trade fares become more expensive. So, many businessmen use illegal channels to make money transactions. Furthermore, most of them prefer to avoid loans from the micro-financial institutions. They usually make use of their own monetary resources or from family to run their businesses.

Some other economic factors hindering SME activities in China reside in the distant location of the markets. Essentially, there are many entrepreneurs who come to China in few days for loading containers and who find it very difficult to master the whole market system where they are to find out the merchandises, which they came for. As they say, China is not as appealing as Dubai in terms of marketplace. Thus, there is a strong link between the separate market locations and the lack of market information. However, these impediments are more or less beneficial to the many students and backpack hustlers who are familiar with the marketplace and gain a lot from the commissions they get as business guides, translators and negotiators.

5. Countermeasures for SME Development

5.1. Strategic Innovation

In this globalized world market, it is generally believed that innovation along with best business practices is fundamentally important to driving growth. And the biggest hurdle to achieving this task seems to be cutting cost. However, innovation can be done through many channels even for SMEs operating with scarce resources. One way is to push the boundaries of the unknown by finding solutions through customer partnership. In other words, propose products and follow up services as solutions to the customer needs and expectations.

Another way is through partnership with suppliers, above all Chinese manufacturers. SMEs all around the world are targeting China as the most appealing investment spot. Her population’s clear rising purchasing power presents opportunities to diverse enterprises that wish to internationalize. SMEs can realize end-to-end solutions to grow their businesses by building strong relationships based on ‘guanxi’ and innovation from concept to the finished product.

All of the solutions previously described are linked with innovative aspects that Senegalese SMEs can use to perform more professionally in China. Here are some tips to get started with some innovative points.

Strengthen partnership with the Chinese suppliers and manufacturers through «Guanxi»

Referred to as the Chinese way of handling relationships and networks (Mans Gellerstam & Jannike Wiesner, 2010), “Guanxi” can be the path for Senegalese SMEs to successfully do business in China. The term is common in the Senegalese culture too. The Senegalese entrepreneurs should seriously adapt with the Chinese business environment and the Chinese culture as a whole. Therefore, it can be crucial for B2B relations between the two entities namely Chinese suppliers and Senegalese importers.

Encourage the import of industrial goods

SMIs and Medium enterprises should explore the untapped market of industrial goods instead of always focusing on the import of consumer goods. Chinese expertise can be helpful for learning, mastering and developing technology by the use of sophisticated machines designed for manufacturing. The first movers who succeed in importing Chinese technology, rather than Chinese finished consumer goods, can even monopolize the business for there would be not many competitors in this newly opened market.

Business cards and signage are efficient promotional tools

Most of the Senegalese SMEs broaden their business networks by word-of-mouth (WOM) or by family/friends promotion. Marketing promotion tactics such as advertizing and branding do not prevail in this industry. If they suppose that such strategies necessitate significant financial capital, alternatives can still be of great surplus. For instance, they can easily make business cards and flyers to promote their products and services. Signage is another tool, not only cheap, but it is also a starting point for brand recognition and approval.

Pay attention to best practices

Senegalese SMEs can also grow their businesses by paying attention to the best practices. Also known as ‘learning-by-doing, these enterprises can learn from Chinese SMEs and from the Chinese large companies (e.g. in the case of vertical diversification) with which they interact regularly, and eventually from the other transnational originated in other countries.

Export! Why not?

Encouraging Senegalese exports to China can balance trade between the two countries. There is a plethora of products that can be exported to China such as fisheries, leather, and a huge variety of cereals, fruits and vegetables. However, this cannot be done without coping with better emphasize on the bilateral trade and trade fares regarding the Sino-Senegalese Cooperation.

Change in the type of goods imported to Senegal

Instead of focusing on the import of clothes, bags and shoes, SMEs could target Senegalese households with other interesting and useful items. There are many products in China that do not exist or are scarce in Senegal. For example, agricultural machineries, water supply materials, high-end electronics, solar system technologies and many other items can enable these SMEs to specialize and expand their business faster than their competitors.

5.2. E-Business and Entrepreneurship

As one of the striking findings of this study, the Senegalese SMEs sited in China do not practice electronic business and electronic commerce, despite their positive acumen towards such modern business models. As demonstrated in the pie chart below, 83,3 percent of respondents in the questionnaire mentioned how important was E-marketing to the growth of a business. However, they barely used it, which is despicable in today’s world of competition.

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Figure 9: Degree of Importance of E-business to the Senegalese SME

As observed by Vos (2005), the management skills of SME owners are weak insofar as they do not have the required capabilities to reflect strategically on their current business position. Information technologies (IT) has become one of the most important tools along with innovation for enterprises, whether large or small, to increase productivity and facilitate growth. The Senegalese SMEs can make use of Facebook, or other social networks to promote their products and/or services if they do not have the means to open their own websites or perform advertising through the popular web pages mostly used by the Senegalese Internet users.

SMEs specialized in Fret and cargo services should have an online open window where their clients can get all shipping information so they can track their merchandises from the inventory area up to the final destination. In addition, to spur innovation, small firms should start by thinking ‘formal’ and ‘big’. That is to say, they should embody an entrepreneurial spirit and learn managerial skills. The entrepreneurs who are willing to internationalize their business need to have the ability to think global and have a clear understanding of the Chinese business culture. They must have an ongoing concern for corporate social responsibility. However, without government backup, the task will be more difficult to embrace the formal sector and make synergies between entrepreneurial strategies and SME growth and development.

5.2. Clusters and Strategic Networking

The cluster approach is a theory developed by many scholars including management guru Michael E. Porter who stipulates that firms strategically organized with close proximity to a set of related enterprises and buoyed up by institutions are often more competitive than isolated firms working in solo. There are two major driving forces to achieve a good cluster organization: competition and cooperation. The former is much less intangible. It involves personified rivalry between firms while the latter does not always imply formal unions such as strategic technology alliances. At the local level, cooperation can be developed through basic and informal channels along with the value chain, or social interactions about innovation and new business trends. While innovation is recognized to be a prerequisite to competitiveness, clusters have mainly shown to be innovation-stimulating environments for SMEs.

If the Senegalese SMEs organize themselves into clusters, they can improve their business practices in several ways by:

  • Acquiring specific knowledge or traditional know-how
  • Gaining proximity to market
  • Increasing input and gaining economies of scale
  • Shared infrastructures and information
  • Better integration

In the same vein, researches have shown that the formation of networks significantly influences small business growth particularly when the networking is done with national and international entrepreneurs. The major arguments behind strategic networking are that they enable new entrepreneurs and small business owners to acquire experience and business knowledge via these networks. They can gather the necessary resources from the external environment through their personal networks.

In particular, the Senegalese transnational SMEs have been organizing socio-religious networks like Mouridism for decades in many countries in the world. This religious stream is renowned for its strong ethos on work and solidarity between Muslim brotherhoods. They have thus created a non-capitalist spirit of commerce, and to some extent entrepreneurialism. However, the Murid community doing business in China could make use of this strength to better run their businesses by including in their activities business-related meetings, seminars and information sharing.

6. Conclusion and Recommendations

As part of its National Strategy, through which different actors work for the realization of the national policy for SME development, the government of Senegal is making painstaking efforts to carry out rapid and sustainable economic growth solutions. However, in the context of the Sino-Senegalese Cooperation there is a large gap between the development programs for SMEs initiated by the two states and the actual results. The Senegalese policy makers are conscious of the importance of SMEs in the private sector as potential key engine to growth, wealth creation and employment. However, it should be noted that the contrast between the size of SMEs (90% of businesses) and their level of contribution to the national economy, including job creation (30%), and national value added (20%) has to be rebalanced. To correct this low level of contribution to the national economy, it is necessary to place the issue of competitiveness in the heart of the strategy for the promotion and development of SMEs and this competitiveness will result in new markets through continuous innovation process.

The informal sector plays a leading role in the Senegalese economy in terms of job creation, with 97% of new jobs created between 1997 and 2004, 90% of the workforce and 60% contribution to GDP. Thanks to its high absorption capacity of labour, it reduces significantly the pressure on the labour market. However, the informal sector works in precarious conditions. The lack of information, lack of organization and skills, make it difficult to access to markets, finance, training and technology. SMEs operating in this sector generally do not have social insurance, they do not register their activities to the tax authorities and there is no statistical data to retrace their actions.

The informal sector dominates the market in China too. One of the reasons for being informal is to escape bureaucratic procedures, taxes and labour laws, and the high cost of entering the formal sector. However, this is where the two governments should put the stress; facilitate the conditions to these SMEs to become formal. For instance, the Senegalese government can collaborate with micro-financial institutions and banks to facilitate credit allowances to the informal SMEs that need more capital and equipments to run their business on the condition that they are willing to enter the formal sector. This will enable the Chinese authorities to be more motivated in investing in the SME industry and alleviate their residence regulations in the host country.

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