Linking large and small firms

Developing Strategic Partnership and Alliances between Large Organisations and SMES has found an ally in Jane Nelson’s Building Linkages for Competitive Entrepreneurship.

‘Start Small, Think Big’ is a popular saying that goes with SMES. The Small and Medium Enterprises Development Agencies of Nigeria (SMEDAN) is very much at home with this. The agency ran an advert that carries this slogan as copy. A good way to think big is to relate with the big. Most of the bigcompanies we see today were small companies in the past. They all went through a growth stage and became big thereafter.

Jane Nelson has a fine tooth comb analysis of linkages between large and small firms. According to her, critical to the process of upgrading, innovating and remaining competitive are the number, type, intensity and “spillover effects” of linkages between small enterprises and other firms - both firms of their own size for example through horizontal integration at the level of industry clusters, or vertical integration within value chains.

UNIDO, she argues, says that integration into global value chains driven and governed by large national or global firms, which makeup a significant part of world trade, represents one of the most effective ways of promoting the upgrading of developing country small enterprises since such integration can provide them with access to markets,upgraded technology, improved management practices, and other benefits.

Different types of business linkages

There is much variety in the possible types of linkages between large and small firms.

UNCTAD’S 2001 World Investment Report and the UK’S Department for International

Development (DFID) use the common categorization of forward linkages, backward linkages, and horizontal linkages outlined as follows:

Vertical backward linkages

These exist when foreign affiliates or domestic companies acquire goods and services from small enterprises, for example, through procurement, sub-contracting or outsourcing arrangements.

Vertical forward linkages

These occur when foreign affiliates or domestic companies sell goods and services to small enterprises or distribute goods and services through small enterprises, for example under franchise or retailing arrangements

Horizontal linkages

These involve interaction or cooperation between small enterprises, often engaged in competing activities e.g. sharing production of

large orders, bulk purchasing, or group leasing of equipment. Such linkages often provide the impetus for the development of industrial clusters.

Linkages, broadly defined, can also involve non-business entities like universities, training centres, research and technology institutes, NGOS, export promotion agencies, quality organizations, trade and industry associations, and other official and private institutions. The vertical backward linkages for instance are applicable to the subsisting arrangement under the USsponsored African Growth and Opportunity Act (AGOA).

These linkages are applicable to our economy here and actually exist. Nigerian Export Promotion Council(nepc) set up a garment manufacturing centre where young Nigerians are trained how to make garments and export to the United States under the AGOA arrangement. Several Nigerians have been trained at this NEPC garment manufacturing centre to date. They are trained, encouraged to set up their own businesses and linked with fund locally, and order from the US.

Lesotho is ahead of Nigeria regarding this AGOA business. It has a well developed apparel manufacturing industry. Its manufacturers are the single largest users of the apparel provisions of the African Growth &Opportunity Act (AGOA).

According to a report by

AFK INSIDER, the textiles and

garments industry in Lesotho, exported at least $330 million worth of products to the U.S. in 2015, making it the country’s largest private-sector employer as the nation reaps big from the African and Growth and Opportunity Act (AGOA).

Says the publication: “The tiny Southern African nation is one of the African nations benefiting from the trade pact signed in 2000, allowing at least 6,000 products from 38 sub-saharan African to enter the U.S. market duty free. About 80 percent of the nation’s textiles and garment exports go to the U. S., according to the Lesotho Textile Exporters Association. The sector currently supports over 44,000 jobs. Several factories in the nation’s industrial district of Thetsane, in the capital Maseru, export nearly $250 million annually in garments to leading U.S. brands like

Old Navy, Walmart and Levis,

The Christian Science Monitor reported. Lesotho, Kenya, Mauritius and Swaziland are leading in garment exports to the U.S.”

NEPC must have seen small Lesotho’s intimidating garment manufacturing portfolio as a challenge.