Last year RMI commissioned IQ Business, the largest independent management consulting firm in South Africa, to conduct research into the cost of compliance and its impact on commercial sustainability in the retail motor industry. The provisional findings of this report have just been concluded and I wanted to share some top level findings with you.
Business owners generally see the value in regulation
Barring some exceptions, business owners understand the role that compliance plays in their industry and are more often than not, grateful that the industry is regulated. Albeit to varying degrees, many business owners also recognise how the current set of compliance that pertains to their business is relevant to both their industry, as well as to South Africa’s unique socio-economic context. This generally means that if communicated properly, resistance to regulation is unlikely to be unmanageable. However, this does not mean that business owners perceive the regulatory environment to be perfect.
Health & Safety and the environment
The research provided insights into the compliance areas business representatives believed they could perform better in. Health and Safety enjoyed a lot of emphasis. This has been earmarked, given the potential risks involved, as an area requiring further investigation.
There is overwhelming consensus amongst business owners that not enough is being done by all stakeholders concerned to reduce the impact that industry is having on the environment. Many RMI members also believe that this is an area that is under-regulated. Given the attention that sustainability and sustainable development is receiving globally this finding is not surprising and, at the same time, encouraging to see. It also suggests that if regulation matters in this area are communicated and driven tactfully, then businesses are likely to respond responsibly.
Although, business owners didn’t always highlight compliance in labour-related matters as an area that they could do better in, across the associations there exists a unanimous and almost-consistent view that labour-related matters are over-regulated. Specifically, business owners expressed the view that the regulation disproportionately favours the employee, with employers feeling that they have inadequate recourse in cases of poor performance. There is a perception that employees are excessively protected even when underperforming or transgressing. Assessing the extent to which regulation in this space is fair and just to both parties is beyond the scope of this exercise. However, one can conclude that this is an area that cannot be ignored for long.
Commercial impact: Smaller businesses are more likely to be threatened by compliance costs
In spite of the fact that many business owners find themselves worried about the impact of cost of compliance on commercial sustainability, as well as the fact that 23% of business owners overall have considered closing their business on account of compliance costs, when it comes to the question of threat to commercial sustainability, not all businesses are impacted to the same extent. Smaller businesses (categorised as less than R30 million turnover per annum) are the most susceptible. Therefore, this research lends support to the notion that small businesses are the hardest hit, relatively. For example, a SAMBRA business with turnover under R30 million is calculated to show a net profit margin of 14% when not compliant and only 5% when compliant. This phenomenon will inevitably serve as a disincentive for non-compliant SMMEs that are considering becoming compliant and also considering becoming RMI members. It begs the question if there is scope for the compliance obligation to be relaxed somewhat for businesses that fall under this smaller category? If so, what could it mean in practical terms?