January – June 2018

Success factors of small business owners

What are the success factors of small business owners in South Africa?

The Steinhoff Saga Management review - University of Stellenbosch Business School

January – June 2018

What are the success factors of small business owners in South Africa?

Success factors of small business owners

  • USB MBA Students
  • MAY 2018
  •  width=Tags Insights, Finance

20 minutes to read

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The need for small business growth

Globally and also in South Africa, small, medium and micro-enterprises (SMMEs) represent the majority of private businesses. Their success is important for the creation of employment and the well-being of society.

As recently as 1996, South Africans were resisting entrepreneurship, preferring formal employment with fixed remuneration. But this has changed. People have begun to realise the importance of entrepreneurial businesses as unemployment remains a defining feature of this country’s challenges. Yet, the failure rate of our small businesses is among the highest in the world. Some reports say over 50% of them fail to grow. Without growth, these businesses cannot move from the existence-survival to the success-maturity stage.

… the failure rate of our small businesses is among the highest in the world. Some reports say over 50% of them fail to grow.

To help small business owners from lower income areas, training is typically offered by the government, corporates, academic institutions and NGOs. However, there seems to be a lack of evidence showing improvement in the management of these small companies after their owners have attended training. As a result, the research focus is now shifting to the reasons why small business owners do not take this training on board and to what they themselves regard as important for business success. This insight is important because the SME sector can absorb thousands of workers, especially from among the unskilled and semi-skilled.

To support small business owners from lower income areas, the University of Stellenbosch Business School (USB), through its Small Business Academy (SBA), provides a nine-month SBA Development Programme in the Western and Eastern Cape. Concurrent with this, USB undertakes research on small business development to accumulate a body of knowledge on various aspects of small business growth. MBA and other Master’s students at USB have the option of doing their research assignments on aspects of small business owners’ enterprises to gain insight into the success factors for growth in this sector.

Says Dr Marietjie Theron-Wepener, Head of USB’s Small Business Academy (SBA) and supervisor of the MBA research studies summarised in this article: ‘It seems that everyone agrees – successful small businesses are the key to much-needed economic growth and job opportunities. This is true for South Africa and the rest of the world. We encourage students on the USB MBA to do research on small business to learn how to ensure small business success. The knowledge gained in this way is embedded in the curriculum of our SBA Development Programme currently running in the Western and Eastern Cape. Our sponsors and partners have access to the published research and it is also used in workshops in our communities where the SBA has just started a Growth Initiative to support a wider group of small business owners.’

Below are some the findings of recent research by USB MBA students on the success factors for small business owners in South Africa.

Success depends on a combination of financial and non-financial factors

What do small business owners, who have graduated from USB’s SBA Development Programme, regard as important to achieve business success? USB MBA student Henem van Staden found that for small business owners from lower-income areas it is not all about turnover, revenue growth and employee numbers. His research focused on gaining a deeper understanding of the financial and non-financial factors that these small business owners regard as key to achieve success.

To gather the primary data, semi-structured interviews were conducted with seven small business owners from Khayelitsha and Mitchells Plain who graduated from the USB SBA Development Programme between 2014 and 2016, and whose businesses were still operational in 2017.

All the participants reported how personal life incidents combined with a specific interest or passion encouraged them to become small business owners. This made them consider their local area to see what they could do. Significantly, none of the participants interviewed mentioned that they perceived age, gender, education, business experience or years in business as factors required to achieve business success. Based on the participants’ feedback, they regarded the following factors as important to achieve business success:

Financial factors have an impact on their business success:

  • Economic conditions (inflation): All the participants noted with concern that their small businesses were extremely vulnerable to economic conditions, such as high inflation, which negatively affected input costs such as fuel, electricity and raw materials. These conditions also affected the disposable income of customers and made them more price conscious.
  • Business plan: Of the participants interviewed, 71% regarded their business plan as important for business success. They admitted that it was an important tool to guide their businesses.
  • Access to finance: All the participants indicated that access to finance for expansion and growth was a factor required to achieve business success while 57% indicated that they required funding to relocate their home-based businesses to business premises. These participants recognised that visible business premises in high-traffic areas represented business growth, increased brand awareness and work-life balance opportunities.

Non-financial factors as having an impact on business success:

  • Human capital: All seven participants reported that they struggled to find reliable, committed, mature, experienced and affordable employees. According to the participants, younger generations lacked perseverance. Absenteeism, late arrivals due to transport problems, self-entitlement and an unwillingness by staff to learn more of the business negatively affected trust levels between small business owners and their employees.
  • Time management: All seven participants said time management was important for business success. The small business owners thought the lack of skilled and reliable staff to take over certain daily functions negatively impacted their ability to attend to various aspects of the business – such as marketing and business growth. The participants in this study were aware that they should work on the business and not in it, but time management combined with a small staff complement were challenges they struggled to overcome.
    Business support services: All the participants stated that ongoing business support services were required to achieve success. In particular, they needed business mentoring and assistance with strategic management decisions related to marketing, finance and human capital. Other needs included IT infrastructure and digital technology set-up, and assistance with final preparation of annual financial statements and tax returns. Some participants reported that despite attempts made to acquire accounting services, the response rate from service providers was disappointingly low.
  • Customer service: All the participants regarded customer service as key to achieving business success. Participants associated the following with customer service: integrity, creating a unique and memorable customer experience, genuine connecting and communicating with clients, building and maintaining relationships, product knowledge, prompt response to enquiries and resolving issues raised by dissatisfied customers.
  • Business identity: An unexpected finding, not explicitly found in literature, was that 57% of the participants regarded a unique business name as a factor required to achieve business success. They said a unique business name aided the formal registration process. A unique business name that was representative of the business vision, mission and strategy also provided differentiation in their communities where first or last names are traditionally used. This suggests that small business owners are well aware of brand identity.

All of the participants agreed that participation in the SBA Development Programme had positively contributed towards their business and personal development. In total, 71% acknowledged the value of their business plans, which they continued to revisit. All the participants valued the increased awareness and positive effects of marketing, branding, and exposure to traditional media and social media. Their financial management competencies also improved. After attending the programme, 43% of the participants identified opportunities outside their immediate area where changing consumer demands created room for their businesses to expand. All the participants found the mentoring component extremely valuable.

All the participants reported how personal life incidents combined with a specific interest or passion encouraged them to become small business owners.

It’s about training, financing, research, crime, competitors, and networks

USB MBA student Donovan Adams explored the factors that lead to the failure or non-growth of small business in the Western Cape. For this study, he interviewed the owners of ten small businesses representing various industries – from construction and transport to fishing, waste management and liquor. The following factors negatively impacted these small businesses:

  • Lack of proper management capacity and training: In his study, the owners of fishing, passenger transport and goods transportation businesses said that they acquired much of their business management skills through informal training as apprentices. However, the other small business owners believed formal training to be the key to business success.
  • Lack of access to sustainable financial assistance: The lack of access to financial resources was prevalent among all business owners in this study as they funded their enterprises from their own personal savings. One reason for this could be the relatively small initial investment required to establish their businesses. All the respondents reported that securing additional capital was a major challenge as traditional financial institutions rejected applications for financial assistance. The study participants mentioned that banks charged high interest rates on loans. Business owners claimed that they relied on either informal institutions or their family and friends for financial assistance because they had no access to information on alternative financial sources. Some of the small businesses eventually had to close their doors because they could not source the funding they required.
  • Inadequate industry research: Most of the small business owners interviewed cited the lack of proper industry research as one of the main causes of business failure. This is because these businesses are based on good business ideas but they lack understanding of the industry in which they operate.
  • Crime: Only a few entrepreneurs reported that they experienced a problem with crime, either from criminals or from their employees. Small business owners with fishing and liquor businesses experienced more crime than other types of entrepreneurs.
  • Business competition: One of the biggest challenges facing entrepreneurs in the Western Cape is business competition. This puts pressure on profits and business growth.
  • Lack of entrepreneurial networks: This study found that most of the entrepreneurs are not part of any entrepreneurial group or network. However, some of the respondents stressed the importance of immigrant networks in the success of their businesses. The entrepreneurs in the liquor and transport businesses specifically mentioned that good entrepreneurial networks can be used to obtain financial capital to launch or grow a business.

The findings revealed that most of the business owners perceived their challenges to be unique and believed that other small business owners are not in similar situations.

An unexpected finding … was that 57% of the participants regarded a unique business name as a factor required to achieve business success.

Increasing the implementation rate of business training

USB MBA student Sabelo Ntanjana looked at the demographic attributes of small business owners to see whether there are any links between these attributes and the uptake of business knowledge after training.

So, to gain a better understanding of the inability of small business owners to take new training on board, this study looked at business owner characteristics – such as age, gender, race and small business owners’ business experience with another employer prior to opening their own business – to see whether there is a relationship between the implementation of business training and small business owner characteristics. The thinking was that this could ultimately help to improve the business performance of these small businesses. A questionnaire was distributed to business owners in the Western Cape who had attended training offered by a government agency. This is what the study found:

  • The older the business, the more readily the owner will implement business training. This means that the older the small business, the higher the chance of the owner attending business training and the higher the chance of the owner implementing the training. In this study, the implementation of all the management elements – namely general management, marketing, financial management, operations (production) as well as the overall training –has a positive correlation with the number of years the business has been operational.
  • The more experience the owner has had with previous employers, the more readily the owner will implement business training. The experience of the small business owners with previous employers has a positive correlation with the perceived implementation of the business training elements.
  • The higher the education level of the owner, the more readily the owner will implement business training. Even though the correlation is weaker than with the other attributes, it is still positive.
  • The higher the number of employees, the more readily the owner will implement business training. The number of employees that the small business employs has a positive correlation with the perceived implementation of the business elements learnt during the training. Interestingly, the number of employees has a statistical significant impact on perceived implementation of the marketing element as well as the overall implementation of the training. However, the number of employees has no significant impact on the implementation of general management, financial management and the operations (production) management elements of the training.
  • The higher the number of training days, the more readily the owner will implement business training. This means the more training days the business owner has attended, the higher the probability of implementing the elements learnt during the training.

The study showed that, mostly, there is no significant difference between small business owner characteristics and the implementation of training elements. However, the study pointed to some interesting results that need to be explored in future.

There is a positive correlation between years in operation, number of training days, the small business owner’s level of education and the number of employees employed with the elements of training that the small business owner implements. This shows that the longer the business has been in operation the higher the value of implementing training and attending training.

People have begun to realise the importance of entrepreneurial businesses as unemployment remains a defining feature of this country’s challenges.

The importance of understanding your customers and competitors

The construction industry in South African was boosted by the infrastructure development brought about by the Soccer World Cup in 2010. Growth slowed down after this although some firms continued to perform well. USB MBA student Odirile Mametse looked at the impact of market orientation on the financial performance of construction firms, asking: Why is management’s understanding of the firm’s customers and competitors important for financial success?

This research therefore wanted to determine whether the market orientation of SME companies in the construction industry has an impact on their financial performance with the assumption that financially successful companies will report stronger growth and employ more people.

The relationship between the financial performance of a business and the three components of market orientation – namely customer orientation, competitor orientation and inter-functional coordination – was also investigated.

To gather primary data, questionnaires were sent to 488 small and medium-sized Gauteng-based construction companies all belonging to the Master Builders South Africa. Market orientation and its components (customer orientation, competitor orientation and inter-functional coordination) were used as the independent variables with financial performance of the business (measured by revenue, profit margin and return on assets) as the dependent variable.

The results confirmed a positive relationship between market orientation and financial performance. The implication of the study for management and other interested parties is the need to put more emphasis on understanding the customer and competitor landscape in order to be market-oriented and to have an impact on the financial performance of the business.

This article is based on the research assignments of four USB MBA students:

  • Adams, D. 2017. Exploring factors that lead to failure or non-growth of small businesses in the Western Cape. Unpublished MBA research assignment. Bellville: University of Stellenbosch Business School.
  • Ntanjana, S.S. 2017. Do the demographic attributes of small business owners play a role in their implementation of business elements after training? Unpublished MBA research assignment. Bellville: University of Stellenbosch Business School.
  • Mametse, O.R. 2017. The impact of market orientation on the financial performance of small and medium-sized construction firms in South Africa. Unpublished MBA research assignment. Bellville: University of Stellenbosch Business School.
  • Van Staden, H. 2017. Exploring small business owners’ perceptions of factors required to achieve business success. Unpublished MBA research assignment. Bellville: University of Stellenbosch Business School.

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Fin Tech

Is Fin Tech the fix for financial inclusion in Africa?

The Steinhoff Saga Management review - University of Stellenbosch Business School

January – June 2018

Is FinTech the fix for financial inclusion in Africa?

Fin Tech

  • Stephanus J de Bruin
  • MAY 2018
  • Tags Insights, Futures Studies

15 minutes to read

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Article written by USB MPhil in Futures Studies alumnus Stephanus J de Bruin

About financial services, growth, and technology for all

Around the world, financial inclusion strategies and principles are directly linked to economic growth and employment statistics.

Not all financial inclusion initiatives have worked so far. There are cases where financial inclusion initiatives have failed even though similar measures were introduced in the different territories. A generalised model can therefore not be used to meet financial inclusion targets because success depends on the idiosyncrasies of each country.

Around the world, financial inclusion strategies and principles are directly linked to economic growth and employment statistics.

In this context, it is also essential to understand the financial inclusion landscape, which is characterised by:

  • The ongoing evolution in the financial industry
  • Exponential advances in internet-based technologies
  • Lower entry barriers to the financial industry
  • Diminished or poorly defined boundaries in some financial services’ eco-systems.

In the past, the financial services industry was dominated by banks, insurers and investment houses. Now technology companies are also making their mark in this landscape. What’s more, the splicing of finance and technology, known as FinTech, is broadening the financial industry. While new competitors in the market might impact adversely on traditional banks, FinTech could be a powerful tool to create financially inclusive societies.

The growing importance of financial inclusion

Complete financial inclusion is a state in which all people have convenient access to a full suite of quality financial services at affordable prices. Financial inclusion allows access to a wide variety of products and services to ensure positive outcomes for individuals, households, micro and macro enterprises, and regional economies.

Although the concept of financial inclusion has been topical for several decades, global financial inclusion only recently became essential political and strategic building blocks in most countries.

A surge of findings over the past decade made it clear that financial inclusion is not just an emerging markets issue. It also affects advanced economies. Even in developed countries, large segments of global populations still do not have bank accounts. In fact, in 2015, around 2 billion individuals in developed countries still did not have their own bank accounts. These people are financially excluded from economic resources, access to basic services, property ownership, inheritance, natural resources, appropriate new technology, financial services and microfinance.

Financial inclusion can help to alleviate poverty and stimulate economic growth. It can help to eradicate famine, support health and well-being, ensure quality education, resolve gender inequality, safeguard pure water supplies, provide hygienic sanitation, supply affordable and clean energy, create employment opportunities, inspire innovation, secure infrastructure, and generate justice and peace for all.

Technologies at work or not at work

History is littered with cautionary tales involving adoption rates and the applicability of new technologies. New technology does not necessarily lead to acceptance and mass implementation. In fact, mass acceptance depends on the technology itself and the way in which stakeholders perceive its added value.

For example, in 2001, Segways scooters were heralded as the future of individual transportation. It was thought that these new self-balancing, two-wheeled personal transport devices would change the way humanity thinks about personal transportation. It is now almost two decades later, with the original scooters still going strong while the uptake of Segways remains limited.

However, other technologies have massively altered human behaviour. In just over a decade, in June 2016, Facebook exceeded all expectations and acquired 1.71 billion globally active monthly users.

The financial services industry also has evidence of mass adoption rates. M-Pesa, the mobile money provider in Kenya, is part and parcel of the Kenyan economy. In 2013, the M-Pesa user base of more than 18 million illustrated the significant social and economic impact of technological innovation. Kenya is the most financially inclusive emerging market economy, with South Africa in the overall global fourth position, and in second place on the African continent (see Figure 1 below). Yet, the uptake of the M-Pesa failed in South Africa. It was launched in the country in 2010 and shut down in July 2016.

These contrasting outcomes of the same technology-based solutions is a stark reminder that technology itself is not a panacea. Various underlying variables lead to success or failure.

FinTech provides a powerful, readily available and effective mechanism to help eradicate poverty and achieve global financial inclusion.

Enter FinTech

FinTech is a combination of the words financial and technology, and the latest portmanteau to grace the covers of leading business and technology publications. The concept of technology in the finance world has been around for decades, but exponential advances and lower entry barriers are increasing the rate at which technology is being used to provide global financial services and products. So, FinTech is a moniker for the combination of technology and any area remotely related to finance. Its scope has gone beyond its origins of bank transactions and into adjacent areas such as insurance, lending, investments, digital crypto-currencies and personal digital identity.

Can FinTech help to facilitate financial inclusion?

This study investigated the barriers to a financially inclusive society and wanted to find out if financial technology could be used as a mechanism to address financial exclusion on the African continent. The objective of the research was to postulate on various outcomes of a technological approach to solve the lack of financial inclusion in Africa and to understand which characteristics will ensure the use of sustainable financial technology over the long term.

Four distinct yet interrelated variables were identified:

  • Providers: These are the institutions providing financial services and products.
  • Products and services: These are the financial products and services offered by institutions, and products and services needed by consumers.
  • Channel: This refers to the mechanism or conduit distributing products and services to consumers, or the method through which consumers prefer access to financial products and services.
  • Consumers: These are the end users who benefit from access to and the usage of products and services.

The research design used a scenario approach. Scenarios are used to influence decisions by illustrating the consequences of those decisions over time. The scenarios weave together different concepts enabling participants to gain a better understanding of the building blocks, their interaction and the eventual outcomes. Scenarios are therefore ideal to illustrate the impact of choices, decisions, events and consequences.

The scenario field consisted of two areas, namely financial inclusion and FinTech. The variables associated with these two areas were identified. The purpose was to measure the impact of the variables on the rate of financial inclusion across the African continent.

Affordability for consumers … includes access to more funds, personalised interest rates and lower administration costs.

The four research scenarios and their nutshell explanations

  • The Usual Exclusion Scenario: This is the reference scenario. The status quo remains intact and no change is implemented nor expected. Traditional providers are burdened by systems and processes which affect their ability to provide consumers with an appropriate range of products and services through suitable channels. FinTech providers are acknowledged but remain a systemic externality.
  • Potentially Eventually Scenario: FinTech is hailed as a mechanism to facilitate financial inclusion. Traditional providers pivot parts of their business to create financial inclusion. Multi-national providers cross-subsidise consumer segments and geographical territories. These principles are combined with incentives to increase the reach of financial products and services. Non-traditional enterprises partner with traditional financial service providers to amplify market presence and log consumer data.
  • Fast For a Few Scenario: FinTech technology is applied and rapidly accepted in geographical areas. Providers who deploy products and services to consumers in order to create a more inclusive society become a dominant consumer force.
  • Africa Incorporated Scenario: Collaboration between various stakeholders ensures increasing financial inclusion for the excluded population. FinTech providers can innovate as long as they adhere to LASIC principles (Low margin, Asset light, Scalable, Innovative and Compliance easy).

Heed was given to these thematic barriers to entry:

  • Affordability for consumers: This includes access to more funds, personalised interest rates and lower administration costs.
  • Affordability for providers: This includes access to consumer data and profiles to offer appropriate products and services, the availability of products and services without expenditure on business premises, and products and services pinned at attractive price points.
  • Access for consumers: This includes the availability of financial services in consumers’ immediate location, increased mobile penetration rates, access to bank transactions and a broad range of products and services, pay-point technology and connectivity reducing the need for cash in hand, and government authorities paying citizens electronically.
  • Access for providers: FinTech can eliminate the need to build or run a business in areas with questionable economic viability. In addition, FinTech can leverage access points and increase product distribution without additional capital investment.
  • Regulatory requirements for consumers: Documentation is reduced because government and financial service providers share data. Also, transactional records of financial services and products allow consumers to capitalise on credit with personalised interest rates.
  • Regulatory requirements for providers: Consumer data allows providers to offer accurate price points and share risk. Also, government incentives and reduced compliance burdens encourage providers to offer financial services and products. The sharing of client data between providers lead to lower initiation costs and higher consumer acquisition rates.
  • Financial education and literacy for consumers: National government, traditional and FinTech providers as well as third-party agents network and use campaigns to educate consumers about the value of formal financial services and products. Consumers learn about the correct usage of credit and how different ancillary financial services or products work so that they can take control of their financial journey.

Financial education and literacy for providers: Providers are usually faced with time-consuming education processes and little revenue during the process. Incentives are provided to third-party banking agents to educate consumers in order to compensate for the lack of revenue. Government supports initiatives and manages stakeholder expectations and responsibilities.

If FinTech is applied correctly, it could address provider and consumer concerns about affordability, access, regulation and financial education.

What does the future hold for FinTech?

Financial exclusion is a result of barriers limiting consumers’ access to financial products and services, and barriers limiting the ability of providers to supply products and services. Financial inclusion is a systemic problem requiring collaboration from multiple stakeholders to gain the expansion of financial inclusion and nurture continental growth.

FinTech provides a powerful, readily available and effective mechanism to help eradicate poverty and achieve global financial inclusion. It provides an opportunity which could contribute significantly to create a continent where most individuals are financially included. If FinTech is applied correctly, it could address provider and consumer concerns about affordability, access, regulation and financial education.

  • Original research: De Bruin, S.J. 2017. Scenarios for the excluded: A technological approach to financial inclusion in Africa. Unpublished MPhil in Futures Studies research report. Bellville: University of Stellenbosch Business School.

Stephanus J de Bruin completed his research report under the supervision of Prof André Roux as part of his MPhil in Futures Studies at the University of Stellenbosch. Prof Roux is the head of USB’s Futures Studies programmes.

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Airbnb – corporate entrepreneurship served up on digital platter

The Steinhoff Saga Management review - University of Stellenbosch Business School

January – June 2018

Airbnb – corporate entrepreneurship served up on a digital platter

  • Labeeqah Schuurman
  • MAY 2018
  • Tags Insights, Futures Studies

13 minutes to read

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Article written by USB MPhil in Futures Studies alumnus Labeeqah Schuurman

The Fourth Industrial Revolution – a game changer

Economic growth and industrial development have been the building blocks of all four the industrial revolutions up till now. The First Industrial Revolution (1760 to 1840) was characterised by machine manufacturing while the Second Industrial Revolution (1870 to 1914) boosted rapid industrial developments and mass production and the Third Industrial Revolution (also called the digital revolution) introduced computers and the internet in the 1960s.

The Fourth Industrial Revolution started at the beginning of the 21st century by building on the technological achievements of the previous industrial revolution. This new revolution differs fundamentally from the previous three because of the combination of, and interface between, the emerging technologies predetermining exponential growth and continuous change to create a new world and a new future.

… the online exchange of goods and services opened up a completely new trade platform to re-use existing and under-utilised goods and services at affordable prices.

The Fourth Industrial Revolution will not only change the patterns of consumption, production and employment, it will also challenge businesses, governments and individuals to adapt proactively in order to remain at the cutting edge in this perpetually changing world.

Advanced technologies have a major impact on businesses across all industries. This means that the established industry value chains are disrupted because technology-enabled platforms drive, among others, demand and supply. This is evident in the sharing economy which creates new ways of buying and consumption, and lowered barriers for entrepreneurs and individuals to enter the economic landscape in order to claim their proverbial slice of the economic pie.

Here, Airbnb serves as an excellent example of the Fourth Industrial Revolution type of company. Airbnb, established in San Francisco in 2008, is a digital hosting platform on which available accommodation in homes, flats and privately owned suites in hotels are advertised and rented out.

The unique quality of these online platforms allows for worldwide trading without any assets being owned by the operating platforms.

What is the sharing economy?

The conclusion of local and international transactions has changed drastically over the past few years. New terms and phrases – such as collaborative consumption, access economy and sharing economy – have been coined to describe new trading trends. Collaborative consumption is defined as peer-to-peer-based exchanging of goods and services online, while the access economy focuses on technology-based platforms that cater commercially for individuals as well as businesses. This study uses the term sharing economy, as it is more widely used across the board, and regularly features in academic literature and the broader media environment.

In general, sharing economy refers to a new way of going about transactions using technological advancements that develop at a disruptive and exponential pace. It allows everyone with access to the internet to participate in the exchange of goods and services. What’s more, the online exchange of goods and services opened up a completely new trade platform to re-use existing and under-utilised goods and services at affordable prices.

Using Airbnb to explore the sharing economy

This study examined the role and impact of the sharing economy on the tourism industry. For the purposes of this study, it was decided to select a specific company in the sharing economy space, namely Airbnb. The study therefore covered Airbnb’s contribution to the tourism industry, assessed its business model and sustainability, and provided a futures perspective on Airbnb’s likely role and contribution to the tourism industry by 2030. This research also took into account the tourism ecosystem, which includes transport, hospitality, accommodation, dining and personal experiences.

Looking at Airbnb from various angles

The following combination of methodologies was used to examine Airbnb:

  • An environmental scan of the sharing economy, tourism and hospitality industry, and Airbnb
  • A business model evaluation of Airbnb
  • A scenario planning exercise.

Motivation for selecting these applications included the following: The methodologies are complementary in nature and appeared to be the best options to examine and understand the role of Airbnb and to evaluate its contribution to the tourism industry. In addition, the methodologies were considered to be the best way to evaluate Airbnb’s business model with regard to corporate entrepreneurship and sustainability in the tourism industry. Also, the methodologies allowed for a futures perspective on Airbnb.

Airbnb can be seen as the biggest disruptor of the hospitality industry. Airbnb’s listings grew from 200 000 in 2012 to approximately 1 million in 2015, and 3 million in 2017.

The connection between the sharing economy and Airbnb

The sharing economy refers to the online transactional space that has been created for goods and services to be exchanged between individuals and businesses. The unique quality of these online platforms allows for worldwide trading without any assets being owned by the operating platforms.

By their very nature, tourism and hospitality form part of the sharing economy because they exist and function in the global space. Airbnb can be seen as the biggest disruptor of the hospitality industry with its phenomenal exponential growth and no sign of slacking in its upward trajectory. Airbnb therefore influences consumers’ buying behaviour, can be labelled as a disruptive innovation, has had an impact on the hotel industry, and has brought regulatory and legal issues to the fore.

Airbnb facts and figures

The sharing economy has had an impact on four key areas of the tourism landscape:

  • Transport (car pool, car lending and car parking at private homes)
  • Accommodation (sub-letting in private homes)
  • Hospitality (sharing a meal and social reviews of restaurants)
  • Guides and tours (locals as tour guides and online guidebooks).

Using the Airbnb platform, accommodation owners can create accommodation profiles on this website after Airbnb has confirmed that the potential hosts comply with particular terms and conditions. One or more accommodation offerings per host can be uploaded as listings, featuring photographs, availability, rental costs, etc. Hosts may view the profiles of potential clients and decide if they want to accept the accommodation request, while potential guests may communicate with the host via Airbnb’s website if answers are needed in respect of bookings or other issues.

Airbnb’s listings grew from 200 000 in 2012 to approximately 1 million in 2015, and 3 million in 2017. In June 2012, Airbnb’s bookings added up to a total of 10 million nights, with 25 million nights booked in 2015, and 52 million nights booked in 2016. Airbnb’s value grew from $24 billion in 2015 to $31 billion in 2017.

What does the future hold for Airbnb?

This study investigated the following: What is Airbnb’s role in, and contribution to, the tourism industry, and does this enterprise have a sustainable business model that will keep on growing exponentially in the next few years? The research findings led to the following insights:

  • Airbnb’s external task environment is fundamentally different to that of a conventional business model, because it has two interdependent user groups (hosts and guests) as its customer base.
  • Airbnb’s business model is a multi-sided platform consisting of hosts and guests who are dependent on Airbnb’s website to enter into and conclude transactions. At the same time, the hosts are the suppliers.
  • Airbnb’s internal environment consists of small teams focused on entrepreneurial activity and innovation. Through strategic entrepreneurship and sustained regeneration, the organisation is progressively diversifying its products and services into new and existing markets. In this way, the organisation displays high levels of corporate entrepreneurship.
  • Airbnb’s business model has completely disrupted the traditional distribution channel of the tourism industry. As a multi-sided platform, Airbnb is central to a newly evolved distribution channel enabling the flow of transactions between hosts and guests, and guests and hosts.
  • A comparative analysis of the traditional tourism industry’s distribution channel with Airbnb’s distribution channel illustrates that Airbnb has opportunities to further expand into the categories of carriers and attractions.

Airbnb’s internal environment consists of small teams focused on entrepreneurial activity and innovation … the organisation displays high levels of corporate entrepreneurship.

What next?

Airbnb’s exponential growth has had a fundamental impact on the traditional travel, tourism and hospitality industries. Some legislative reforms are needed to accommodate and respond to Airbnb’s operational structures. Additional quantitative and evidence-based research is needed to assess Airbnb’s full impact on the travel, tourism and hospitality industries, especially on hotels and cities.

  • Original research: Schuurman, L. 2017. To Airbnb or not to be: A global futures perspective on Airbnb. Unpublished MPhil in Futures Studies research report. Bellville: University of Stellenbosch Business School.

Labeeqah Schuurman is an MPhil in Futures Studies student at the University of Stellenbosch Business School. She completed her research report under the supervision of Prof André Roux, head of USB’s Futures Studies programmes.

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