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The reason why indigenous companies usually fail

Editorial Team
Last Updated: 14-09-2021 7:52 AM

The number of indigenous companies that are folding and have folded has increased significantly. My view is that most of these companies are failing because of weak governance systems, weak human resources systems, lack of capacity, weak financial systems and lack of funding.
I will address the human resources issues first.  In most indigenous companies there are no human resources systems to talk about. If there has been an attempt to put such systems they are not complied with. Indigenous companies must learn to recruit people on merit.  Stop recruiting relatives into the business. The moment your relatives join you in your business you create a system that stifles individual employee freedoms to discuss issues that are affecting the business and in the process build residual resentment that affects performance of the other employees. In some businesses, the wife, brother, cousins etc. work for the same organisation. If your relatives are good enough they must go and start their own businesses or work for others. In the process you spread family risk.
Governance issues, as we all know, have brought down most of the indigenous banks and other companies in all sectors of the economy. What is surprising is that in some instances some of the indigenous people bought or benefited from well-run companies that they have now destroyed. In the initial stages after buying a company, most of the indigenous people have received accolades of success. I do not think such accolades are deserved. What it means is that after buying a successful company, these individuals will be benefiting from systems put in place by the previous owners over the next few years. After around 5 years, things start falling apart and eventually the companies close. The reason; the indigenous people come and destroy all systems as they try to amass wealth without due consideration for good corporate governance.  The owners are the chief culprits in flouting proper governance standards and eventually the whole system starts feeding off itself, resulting in the company collapsing.
The other reason why local companies collapse is the leaders’ lack of capacity to manage and lead organisations. Highly qualified but with no capacity to lead a business. For local companies to succeed, local leaders must invest in learning proper leadership skills, not just degrees. Good leaders have good people management skills above anything else.  This skill, in most cases, does not come naturally and no local university is teaching this skill called “people management” which is different from “human resources management” taught in university degrees.
Weak financial systems can also lead to failure of local companies. The owner comes and takes money anytime they want without indicating if it’s part of their salary or not. They are not accountable. If you are running a business and you can just come and take money out of the business, then you have a long way to go before you can build a word class business entity.  There must be a system for accounting for every cent that comes in and out of the business. That way, you instil confidence in the people that work for you and the customers that give you money. Most of the local business people that flaunt cash and success in public have no known record of running successful, professionally run businesses. In most cases, their business are struggling.  What it means is that all the money they are flaunting is coming from taking more than their fair share from their own business. They are not the only stakeholders who need money from such a business. They deprive other key stakeholders of what is due to them, namely, employees, suppliers and government through tax. The majority of them are not proper business leaders but crooks involved in money laundering and then hide behind a formally registered business.
Failure to raise funding is another contributor, but funding follows good systems. If your company is well run it will attract funding. Most of the indigenous leaders have a very bad record when it comes to repaying loans. They are tarnishing the image of a whole generation that will come after them. Just look at the number of property attachments targeted at the local business leaders.  It paints a picture of leaders who can’t exercise financial prudence.  Remember this is not a group of illiterate people, it’s a group that holds all sorts of degrees.
Besides running down companies and, in the process, destroying people’s lives, some of these people should be blacklisted from running any company in the country because they have no capacity to do so.
The only way indigenous business leaders are going to compete with international companies is by building solid systems in all facets of the business and respecting those systems.
Memory Nguwi is the Managing Consultant of Industrial Psychology Consultants (Pvt) Ltd, a management and human resources consulting firm. Phone 04-481946-48/ 481950/ 2900276/ 2900966 or email: mnguwi@ipcconsultants.com or visit our website at www.ipcconsultants.com

Editorial Team

This article was written by one of the consultants at IPC

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