When done successfully, business linkages bring numerous benefits to SMEs, big firms and the local community.
In any well-functioning economy, business linkages develop naturally as enterprises seek the most economical and efficient way of sourcing the skills, materials and services needed to produce commercial goods. In this way linkages lead to increased production, product diversification, specialisation and higher productivity.
Most business linkages are made in the form of supply chains, comprising procurement, outsourcing or sub-contracting of activities between large and smaller firms. They take various forms; both formal and informal.
Formal arrangements include supply contracts; marketing, franchising or technology licensing agreements; partnerships or joint ventures. Informal arrangements can include collaboration in market information or technology transfer networks.
Linkages can be of several types:
Backward Linkages: In an effort to restructure their supply chains or focus on their core operations, larger companies often sub-contract local SMEs to provide goods and services previously imported or produced in-house.
Forward Linkages: A company might contract an SME to distribute its products or services (e.g. under franchise) in distant or remote markets
Horizontal Linkages: These link-
ages involve co-operation between SMEs, eg sharing production of large orders, bulk purchasing or group leasing of equipment. Such linkages often provide the impetus for development of industrial clusters.
HOW CAN SMEs CREATE LINKAGES WITH BIG FIRMS?
Many SMEs have developed the habit of waiting for someone else to grow their businesses. We have heard some entrepreneurs advocating for the enactment of laws compelling big firms and government departments to purchase products and services from SMEs.
While that might be a good way of helping SMEs grow, the “high-performance entrepreneur” does not wait for the government or someone else to give him business on a silver platter. He or she knows that success is entirely in his own hands; no one is going to give it to you — you have to go out there and get it. Entrepreneurs must develop their marketing and negotiating skills so that they can hustle for business on their own.
The starting point in creating linkages is to establish their business case; you need to ask yourself if the proposed arrangement makes commercial sense? What benefits will the big firm enjoy from dealing with you? Are you going to offer good quality and reliable products and services? Will the deal help the big firm cut its costs?
The next stage is to sell the proposal to potential business partners. This calls for gathering intelligence about the big firm’s operations, processes and buying patterns. Your proposal should point out the benefits of the linkage, right from the start, in order to stand a chance of being considered by busy executives.
You have to keep in mind the fact that not everyone will see things your way. So, be prepared to hear many “NO”s before you clinch a deal. Very few people get what they want in any deal; however, you can get what you need by being prepared.
Power comes from being well prepared than trying to force people to accept your proposal. Do all necessary research, think of possible outcomes, rehearse what you will say and set goals. Have an agenda and stick to it as closely as possible.
In order to succeed in your linkage proposal, remember the words of Zig Zigler in Secrets of Closing the Sale (1984): “You can get everything you want in life, if you can help enough other people get want they want”. In your proposal and negotiations, always remember the needs of the other side.
5 KEY ELEMENTS OF WINNING BUSINESS PROPOSALS
i. Solutions: After mentioning the company’s needs and problems, follow up with a solid presentation of how your business can provide solutions. The key here is to promise solutions you can deliver.
ii. Benefits: All winning business proposals clearly outline the benefits to be gained from doing business with you. If your small business can offer complete confidentiality and meet tight deadlines, state it in your benefits section.
iii. Credibility: This is often the overlooked portion of a business proposal, but all winning proposals glow with credibility. If you have worked with clients in the same field or have an award-winning business, then third-party endorsements will build credibility.
iv. Samples: A business proposal with samples and evidence of your ability to deliver is vital to gaining the winning bid. A small sample of your work can show your ability to do the job.
v. Targeted: A winning business proposal is all about communication. Speak in a language spoken by your intended audience. If the proposal evaluators are from an engineering background or financial department, use the appropriate jargon.
(Adapted from The Entrepreneur’s Guide to Starting a Business in Zimbabwe, available for downloading at my blog http://chichonip.wordpress.com.)
Phillip Chichoni is a business planning consultant who works with SMEs and entrepreneurs. His e-mail address is