Influence of economic upgrading on South African small-to-medium enterprises’ participation in telecommunication global value chain

Abstract

The ability to access, successfully compete and participate capture gains within global value chains (GVC) is important for poverty and unemployment reduction and economic development, especially in developing countries like South Africa. The telecommunication sector has experienced rapid change over the last decade that has necessitated a restructuring of how stakeholders interact with the value chain. This study therefore sought to investigate the influence of economic upgrading of South African (SA) small to medium enterprises (SME) on their integration and participation in the telecommunications GVC. A broader picture was sought using the GVC framework theory to understand how and why SMEs economically upgrade in the telecommunications GVC including the challenges, benefits and critical success factors of such an endeavour. The study utilised a qualitative methodology using semi-structured interviews with 15 purposively selected SA SME directors operating in the telecommunications GVC for over 5 years. This means the results are limited to their viewpoints based on their judgement, perceptions and experience on the subject matter. The results show that SA SMEs are more involved in process, product and functional upgrading than interchain upgrading within the GVCs. The pace of economic upgrading is being slowed down by stiff competition, cost and cashflow challenges, lead firm challenges, skills gaps and bribes conduct. However, the economic upgrading results in the benefits of operational efficiency and effectiveness, economic zoning and black empowerment, telecommunications economic interplay, learn from lead firms, revenue growth, compliance advantages and attainment of a green environment. To ensure economic upgrading success, it is critical for SMEs to have competent and highly skilled employees, to continuously develop employee skills, to adapt to telecommunication environmental changes, to be leaders with entrepreneurial spirit, to have good relations with lead firms and to ensure compliance. It is therefore recommended to SME management that they prioritise employee skills development and introduce workplace mentoring, cross-departmental training and team building to improve the competences and skills of employees and form clusters. Other stakeholders such as lead firms are encouraged to promote more SME upgrading initiatives. Government should introduce funding initiatives specifically for SME upgrading and initiate changes in educational curriculum. Collective anti-corruption drive is called for across the industry.