A framework for holistic risk management and sustainability of fast moving consumer goods SMEs: Cape Metropole, South Africa

Abstract

High failure rate of SMEs and their vulnerability have rendered risk management and sustainability very relevant areas for this study. The study aimed at contributing to the sustainability of SMEs by means of risk management practices. Specifically, the focus of the thesis is to investigate risk management and sustainability issues in SMEs with a focus on Fast Moving Consumer Goods (FMCG SMEs), which are based in the Cape Metropole, South Africa. The author seeks findings to present them as answers to the questions concerning risks which affect SMEs’ performance, how owner-managers manage such risks, the obstacles to such risk management, components of sustainability relevant to SMEs and as well as the risks associated with such components. This was motivated by a lack of research in South Africa on risk management and sustainability issues of SMEs in the FMCG sector. This study therefore attempted to bridge the theoretical gap by combining the traditional risk categories and sustainability categories, to present a more holistic risk management framework for SMEs. To achieve this, 320 questionnaires were distributed to FMCG SME owners and managers for completion. In order to validate the quantitative data gathered through a questionnaire-tool, qualitative data were collected by interviewing four risk experts and also two focus group discussions of six and eight participants were held with FMCG SME owner-managers. The results showed that strategic risk and environmental risk, in different forms, have major effects on the performance of FMCG SMEs. The results reflected the true Cape Metropole scenario, particularly with regard to environmental risk because Cape Town just survived day zero couples of years ago. To manage such risks, the results revealed that the FMCG SMEs have risk management mechanisms in place, but the tools are too simplistic and very informal. Besides, it was noted major that these enterprises tend to lack the crucial elements of a useful risk management toolkit as dictated by best practice. Aligned to this was the lack of budgetary control and contingency fund account in SMEs; lack of risk knowledge and so forth. Furthermore, the study revealed that SME owner-managers’ characteristics such as their positions, experience and highest qualification are major determinants of risk management practices adopted by them, thus establishing a strong implication for SMEs’ sustainability. As far as the sustainability is concerned, the results revealed that the social, environmental and economic components of the critical factors of sustainability are major threats to the sustainability of SMEs, with the environmental component taking the lead, closely followed by the social component, and then the economic. The results of dynamics of risks associated with the aforesaid critical factors showed that these components present risks that pose a great threat to the sustainability of SMEs, with the environmental component taking the lead, closely followed by the social component, and least of all, the economic component. Despite this, it was noted that a majority of FMCG SMEs never incorporate robust analysis of sustainability factors into their risk management processes. Aligned to this was a lack of understanding of risk management process and its effect on enhancing business sustainability among SME owner-managers. This pose a great threat to the sustainability of FMCG SMEs and raised critical issues for policy framework. Besides closing the knowledge gap, the study also provides important insights to the Department of Small Business Development as the findings can inform its interventions intended to boost the survival rate of the SMEs, by for example developing a risk management and sustainability training programme for SME owners and managers. The findings may also assist sustainability and risk managers to coordinate more with each other to enhance the sustainability of their businesses. Besides, the study presented a framework which was informed by the theoretical framework, empirical results and best practice as documented in the literature. This can serve as a practical risk management and sustainability toolkit for use by SME risk and sustainability managers.