Macro Environmental Analysis Pestl Of Zimbabwe Finance Essay
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Published: Mon, 5 Dec 2016
The survival rate of small business is quite small, and the proportion of those surviving that go on to success and long term sustainability is even smaller. It would appear that Colins’s (2001) research has much to say about what it takes to build an exceptional company and sustain it over the long term. His view was to try and identify what it was that enabled some companies to be continuously successful through negative and positive external conditions. This research seeks to establish the sustainability and growth strategies of partnerships in legal practice in Zimbabwe with a focus on Mawere and Sibanda Legal Practitioners in Harare. These are classified under small and medium enterprises (SMEs). In view of the survival threatening nature of the operating environment in Zimbabwe, the research seeks to proffer further the valuable insights into the sustainability and growth strategies available for adoption by the legal practitioners for their viability and sustainability in business. It also seeks to establish contributing factors in long term success and growth.
Starting up is one thing – actually surviving the changes that accompany rapid growth provides different challenges and can require very different skills. The abbreviation “SME” occurs commonly in the European Union and in international organizations, such as the World Bank, the United Nations, and the World Trade Organisation (WTO). The term “small and medium businesses” or “SMBs” is predominantly used in the United States of Africa (USA). The current WTO definition categorizes companies with fewer than 10 employees as “micro”, those with fewer than 50 employees as “small”, and those with fewer than 250 as “medium”. In the United States, by contrast, the Small Business Administration sets small business criteria based on industry, ownership structure, revenue, and number of employees, and is typically capped at 500. In Zimbabwe SMEs takes a similar structure and are taking a bigger and more significant role although the SME story has not been quite rosy (Relevance??). Law firms fall into this category as well. Although from a government perspective, the recognition of SMEs is considered?? as a dominant part of the economic matrix it is yet to fully happen. Historically, the sector has been referred to by the term “informal sector”, and was represented initially as a department in the President’s Office, prior to being awarded full Ministry status relatively recently. Even after this recognition was awarded, the Ministry’s emphasis has been more on micro-enterprises, with the proper SME sector as defined internationally seeming to fall into no-man’s land.The SMEs are becoming as important as large firms in the creation of gross and net new jobs in the country as a result of the high unemployment levels in the country in the new economic order. As small business entities, they are very flexible and move fast to adapt to any environment. In this study legal practitioners both solo and group or partnerships operating in Harare shall therefore fall under SMEs.
1.1.1 The legal system in Zimbabwe
Zimbabwe employs a dual system of law that is the traditional law and the Roman Dutch Law. The traditional law is mainly applied by the traditional chiefs, who are the custodians of the traditional law. The conventional law is the Roman Dutch Law. However, both laws are accepted and the decision arrived at based on each of these systems is legally binding. Zimbabwe has a relatively vibrant legal sector providing essential services with more than a thousand registered firms. Legal service providers range from individual (sole) practitioners to group practices.
There has been a significant increase in the number of group practices in Zimbabwe since 2004. In previous years, before the economic downturn, which is from around 2000, legal service providers in the private sector enjoyed success in their businesses and sole (solo) practitioners was part of the thriving business approach to this sector. The years to follow saw a drastic downturn of the economy which led to the dramatic crisis experienced from the years 2004 to 2008. This period saw the collapse of virtually most of the businesses as inflation and brain drain, among other issues, raked havoc on the economy. The legal sector was not sparred either although Mawere and Sibanda somehow survived the storm.
In particular some sole practitioners closed their firms and left for greener pastures and the remaining few kept on struggling. The elections held in 2008 brought in a government of national unity in 2009 which ushered a new economic environment. This new dispensation gave rise to a new business environment which brought hope and expectations of economic growth. Although some businesses are on the road to recovery, with some sectors reaching around 50% to 80% capacity utilization, the current economic environment has impacted on the operations of the legal practitioners in Zimbabwe. The Government of National Unity (GNU), ushered in a new dispensation of the multicurrency system. This has given rise to further challenges on the legal practitioners, which include high operational overheads, liquidity crunch, unemployment as well as new practices from newly qualified lawyers who prefer to start their own business as compared to working under others.
1.1.2 Environmental analysis
PESTL, (Political, Economic, Social, Technological, Legal and Environmental factors), is a business measurement tool often used within a strategic analysis Strengths, Weaknesses, Opportunities and Challenges (SWOC) which are used to assess the market for a business or organizational unit strategic plan. The unstable macro-economic fundamentals and adverse socio-political conditions that affected the country since 2004 have not spared the operations of the legal practitioners in Harare. According to Thompson and Strickland (2003), studying and interpreting the impacts of social, political and economic events help in an effort to spot budding trends and conditions that could become driving forces for business. The external environment in which the legal firms are operating in is analyzed below.
POLITICAL – LEGAL FACTORS
GNU gives political comfort as there is relative stability.
Imposition of tariffs.
Weak entry/registration barriers
Uncertainty which comes with violent general elections in Zimbabwe. No one is prepared to invest in this environment.
Low commodity prices
No long term finances
Less salaries and high unemployment
No meaningful international lines of credit
Deteriorating social structures like education and health
High brain drain
High HIV prevalent rate
Poor technological development in the industry.
Over reliance on imports
Macro-environmental analysis (PESTL) of Zimbabwe
The changes that occur in domestic, regional, international and global business environments are characterized by periods of discontinuous and large scale changes (Nyandoro and Matanhire, 2002). Only by continuous revisiting of processes will organizations be able to keep aligned with their environment and survive. Therefore there is need to continuously scan the environment, as stated by Mullins (1993), “organizations must adapt or die.” PESTL analysis helps companies to come up with new strategies that address current environmental factors. Political, legal, economic, societal, technological and cultural factors were used to scan the macro-environment.
Businesses are affected by the political environment in a country because at times they might suffer a loss. Government actions can result to change in the political environment at all levels, from the central government level to the local authority level. Therefore, businesses must be fully prepared for the fallouts in government politics. The apparent divisions in the Zimbabwe’s inclusive government do not auger well for a stable business environment,” according to the recent Kingdom Financial Holdings Limited (2011) report. “Conflicting government policies or stances on policies not only confuse the business community but also stall the current economic recovery process. A good example would be the indigenisation law whose implementation has raised more uncertainty.”
“The uncertainty over the timing of the elections, combined with the mixed policy messages coming from the current inclusive government negates the business environment and is weighing heavily on the country’s ability to attract much-needed foreign investment. The 2011 rankings (World Bank) indicated that the major decline in ranking was on the enforcement of contracts where Zimbabwe slid 29 places to 110.”
There are however factors on how political environment affect a business, either negatively or positively depending on the current situation of a country. Here are the four main factors perceived to affect legal practices in Zimbabwe.
126.96.36.199 Impact in the Country’s Economy
The political environment existing in a country primarily affects the economic environment. As a result, the economic environment also affects the business organization’s performance. In Zimbabwe, a considerable number of differences can be seen in the two main political parties the MDC and Zanu PF and Democratic policies. The two parties have been opposing for years regarding their rules and regulations. This often has implications for government spending and taxes, which may in turn affect the stable economy and business of a country. With higher level of spending in the government body, it may stimulate the economy as well.
188.8.131.52 Change in Government Regulation
Additionally, the change in government regulation is another known factor that affects business. With the constant change in rules and regulations, this can relatively have an effect in all businesses. In Zimbabwe the indigenisation policy that require all foreign firms to hold only 49% control in their companies has had an effect of affecting flow of incomes in businesses.
184.108.40.206 Political Stability
Apart from it, a lack in political stability may in particular affect businesses that operate internationally. In any country, a hostile takeover may overthrow a government that could also affect the business. This can lead to looting and rioting as the businesses in turn will become general disorders of the society. These may all disrupt the operation of a business, such disruption has occurred in Sri Lanka which went through a civil war. In Syria and Egypt, they have been subjected to disturbances as their citizens agitate for their own rights. Law firms thrive in a very stable environment. This kind of disturbances if they occur here, may affect political stability thereby affecting the current business environment as well.
The Economic outlook.
The uncertainties surrounding the pre-election political and regulatory environment, the associated high risk profile and the concomitant negative investor sentiments has maintained a misty business environment, characterized by the extensive capacity under-utilization. The economic environment is characterized by high interest rate. This has made borrowing in the country very expensive. The country still does not have its own currency since February 2009 when the use of multi-currency was introduced.
The Minister of Finance, in his 2012 Budget presented in November 2011, stated that the prevailing economic environment has kept inflation rate below 5%. However, the market is highly illiquid, with lower levels of disposable income, affecting the purchasing power of clients. The Zimbabwean economy is also characterized by lower levels of investment. For instance, the capacity utilization in the industrial sector is below 60% (STERP, 2009). The banking sector lacks adequate capital to advance to prospective customers and hence it requires well-calculated investments. The tax rate is very high. According to the Zimbabwe Revenue Authority (ZIMRA) the corporate taxation rate is 30% (www.zimra.co.zw, accessed on 09/12/11). This high tax rate discourages potential investors.
Law firms have been greatly affected by the above scenario mainly because of the low disposable incomes of the clients and hence low profitability and growth.
Zimbabwe Statistics (ZIMSTATS) (2010) estimated the unemployment rate is estimated to be 85% in the year 2010-2011. The scourge of HIV/AIDS has not spared the skilled labour. The levels of corruption practices continue to increase having a bearing on the crime rate. The turbulent economic environment resulted in disintegration of families as a result of spouses leaving for greener pastures in the Diaspora. The high corruption and criminal levels in the country has seen an increase in litigation cases handled by law firms in Zimbabwe.
According to the Minister of Finance, in his 2012 Budget presented in November 2011, Zimbabwe has a better infrastructure compared to other countries in the region besides South Africa. However, the country continues to lag behind technologically. This has caused unsustainable high production costs resulting in loosing cost and quality competitiveness. Law firms are yet to fully embrace and adopt the use of high technology in their operations since most of them are not yet digitalized. Law firms in Zimbabwe are using emails, phones and faxes for communication but have not yet embraced Voice over internet protocol (VOIP) and video conferencing technologies available.
The major concern about Zimbabwe is the rule of law. Many believe that all institutions including police, army, parastatals and courts have been politicized. Laws continue to be changed more frequently with the most recent one being the Indigenization Act which requires at least 51% local ownership on businesses.The operations of law firms in Zimbabwe are governed and monitored by the Law Society of Zimbabwe.
1.1.3 Mawere and Sibanda Legal Practitioners
Founded in 2001, Mawere and Sibanda Legal Practitioners is a full service law firm whose main thrust is in corporate law, with offices in Harare’s central business district at 10th Floor, Chiyedza House, Corner First Street and Kwame Nkrumah Avenue, Harare. The firm’s areas of business in on international trade, banking, finance and insurance law, commercial and corporate law, administrative and labour law, conveyancing and intellectual property law, civil litigation and alternative dispute resolution.
It appreciates the implications of globalization on its clients and has been positioned as a player by developing close relationships with law firms in various parts of the world in order to provide and coordinate a cost effective legal service across different jurisdictions. The founders of the firm also founded Makuyana legal Practice in Botswana, the beginning of its expansion into the region and the continent. The firm is divided into departments of the various facets of law, which are headed by partners who specialize in those particular areas of law. As a result of the partners’ extensive experience they are usually involved in all departments to ensure the proper and constant supervision of the junior lawyers.
The firm’s Vision
The firm’s overriding vision is embodied in the following commitments;
To understand the clients’ business, commercial and legal needs
To develop long term mutually beneficial relationships with clients and other business associates
Compliance with the highest ethical, moral and professional standards
To keep abreast of technological developments.
To provide an efficient, quality and cost effective legal services to clients.
The firm’s mission is to provide a high quality, creative, and result – oriented legal team to individuals and businesses, and serve as a primary resource and partner in all aspects of clients’ business growth and development.
The Partners’ Background Skills and Experience
Mr Vulindlela Bongani Sibanda who holds a Masters in International Trade Law from Potchefstroom University in South Africa heads the International Trade, banking, Finance and Insurance department. He studied various aspects of international trade including taxation and many facets of cross-border sales and financial transactions. He has been involved in many areas of commercial law. He is also a registered legal practitioner in Botswana and has also practiced in that country before.
Munyaka Wadaira Makuyana obtained his Bachelor of laws degree from the University of Zimbabwe in 1994. He worked in private practice in Harare for two years before moving to Botswana at the end of 1996. He co-founded the firm in 2001. He also holds a Masters in International Trade Law with special emphasis on Import and Export Law from Potchefstroom University in South Africa. Munyaka is also admitted as a legal practitioner in both Zimbabwe and Botswana. He is presently the Managing Partner of the Botswana office, which is directly linked to the Harare office.
Tatenda Mawere heads the Litigation department and the Foreclosures and Debt Recoveries. He is also extensively involved in Corporate and Banking Law department. Tatenda obtained his Bachelor of Laws degree from the University of Zimbabwe in 1994. He worked for the Ministry of Justice as both an Assistant Magistrate and Public Prosecutor before going into private practice at the end of 1996 and co-founding the firm in 2001. Tatenda is admitted as a legal practitioner in both Zimbabwe and Botswana.
Interestingly the four partners were in the same class at the University of Zimbabwe and their coming together seem to have contributed to the success of the firm as they formed a very formidable team.
1.3.1 SWOT Analysis of Mawere and Sibanda
According to Pearce II and Robinson, Jr (2005), SWOT is an acronym for internal strengths and weaknesses of an organization and environmental opportunities and threats facing an organization. Thompson and Strickland (2003), asserts that SWOT analysis provides a good overview of whether a firm’s business position is fundamentally healthy or unhealthy. Hill and Jones (2004) contend that its central purpose is to identify the strategies that will create an organization-specific business model that will best align, fit or match an organization’s resources and capabilities to the demands of the environment in which it operates.
A SWOT analysis is a powerful diagnostic tool to assess Mawere and Sibanda law firm and its environment. Whereas the firm has little or no influence over the external environment, it has full control of the internal environment; it can change the internal factors in reaction to changes in the external environment (Mawere and Sibanda Strategic Plan Document, 2011-2012).The internal strengths of the firm are the source of its competitive advantage. The intention of the SWOT analysis is to enable Mawere and Sibanda to build on its strengths, minimize its weaknesses, and take advantage of identified opportunities and counter possible threats. The SWOT analysis was carried out in a consultative manner and the results of this environmental scan are summarized below:
Table 1.1: SWOT Analysis
good corporate brand,
high net worth,
large market share,
wide experience by all our senior lawyers
well trained Professional Assistants
High staff retention
slow growth rate,
slow adaptability to market conditions
poor brand awareness
growing market share,
unexploited business in the region
changes in the society beneficial to the firm. expansion of business into mining sector,
new investment opportunities that arose as a result of relatively stable environment experienced in the past two years in Zimbabwe.
increase in competition due to the influx of law firms being established on a daily basis.
The current social, political and economic environment pose a threat in that political posturing by politicians bring some level of uncertainty and unpredictability that leads to business stagnation.
Source: Mawere and Sibanda Law firm strategy document 2011-2012
The strength of Mawere and Sibanda lies in the good corporate brand locally and regionally. This makes it easy for the firm to attract and retain key customers. Clearly, lawyers have a significant depth of experience in the core product a law firm produces, intellectual legal services and material. With years of experience in most firms, there is no shortage of expertise. And combining older attorneys with new recruits fresh out of law schools with the latest information creates a synergy in finding and using the right information to win cases. This makes it easy for the clients to access services on a wide range of areas from the same law firm. Some of the firm’s strengths are that the firm has a large market share, good reputation, well trained Professional Assistants and high staff retention. This has led to the building of an organizational culture perculiar to the firm where the firm is seen as one big family.
Further, lawyers must deal with people all day long. This develops relationship, and more importantly sales, skills in providing services. Combined with expertise and knowledge, the aggregate produces revenue for the business via clients.
Pearce II and Robinson Jr. (2000) defined a weakness as a limitation or deficiency in one or more resources or competencies relative to competitors that impedes a firm’s effective performance. Thompson and Strickland (2003) indicated that threats and weaknesses affect the company’s profitability and competitive well-being. As much as lawyers know the law, they frequently have poor business skills until they’ve spent a significant amount of time running a business. Accounting, personnel issues, operational management, facility management and general leadership issues are not taught in law school. Too often lawyers learn these skills the hard way, and an analysis can quickly gauge the business weakness of a firm by evaluating its administrative resources. (Mawere and Sibanda Strategic Plan Document, 2011-2012). These issues among others have affected the competitiveness of Mawere and Sibanda.
An opportunity is a major favorable situation in a firm’s environment (Pearce II and Robinson Jr., 2005). Thompson and Strickland (2005) avers that opportunities shape a company’s strategy. There are a lot of opportunities available to Mawere and Sibanda. Significant advancement in technology has opened up new arenas in property rights, information management and related laws, criminal law, international law and many other areas. These are all legal-prone topics that need guidance and expertise to avoid problems in the future. Law firms can easily make a name for themselves in these areas and use them as business opportunities that can pay long-term dividends with technology clients.
These include customer relationship management; access to capital, broadening the product range and huge and untapped market for legal services. These make the business outlook promising.
Pearce II and Robinson Jr. (2005) stated that, a threat is a major unfavorable situation in a firm’s environment. They went on to say that threats are major impediments to a firm’s desired position. There are a considerable number of potentially devastating threats to Mawere and Sibanda Law firm. The increased competition among competing law firms continues to be the number one threat to the legal business. The field continues to become more and more glutted with new lawyers and ventures trying to make a go in the same crowded territories. As a result, law firms that are innovative and lock a niche on specific areas of law better than others will win out, particularly if they can show a record of winning cases on the given subject matter.
A SWOT analysis should compare expertise availability and case win/loss statistics with affected client/customer populations to gauge how much of a threat competition is to a reviewed law firm. (Mawere and Sibanda Strategic Plan Document, 2011-2012).
Thompson and Strickland (2005) concludes that a good SWOT analysis will however take all of the above elements of a law firm and conclude that a law firm’s greatest asset, it’s lawyers and partners, can also be the firm’s greatest weakness. How these two factors are balanced will dictate whether new market ventures can be taken advantage of, or if bad planning lets competitors take over valuable clients.
1.2 Statement of the problem
Most legal firms in Zimbabwe appear to be performing well. The question now is for how long they are going to sustain their current performance and whether they are going to continue growing. It is against this background that this study is premised to proffer valuable insights on survival and growth strategies for partnerships in the law fraternity in Zimbabwe in a dollarized economy for their survival and growth in business.
1.3 The Main Research Objective
The overall objective of this study is to establish and identify suitable models of the survival strategies for the growth, viability and sustainability of the law firm business practices in Zimbabwe.
1.6The Specific Objectives
The specific objectives of this study are to:
Identify the strategies for growth that are being used by Mawere and Sibanda Legal Practitioners?
Justify how these strategies (if any) can be relevant for the possible growth of Mawere and Sibanda Legal Practitioners?
Establish whether How can these strategies be used to yield expected results in form of Social responsibility, profits and company growth?
Identify the key survival and growth strategies that are appropriate for partnerships in law practice in Zimbabwe.
Establish the challenges faced by partnerships in law practice in their business operations and growth.
Identify the challenges to partnerships in law practice in general.
Assess the extent to which the group practice has been established as an alternative approach to sole practice.
Determine the best sustainable ways in which partnerships in law practice can adopt for business growth.
1.4 The Research Questions
What strategies for growth are used by Mawere and Sibanda Legal Practitioners?
What strategies (if any) are relevant for the possible growth of Mawere and Sibanda Legal Practitioners?
How can these strategies be used to yield expected results in form of Social responsibility, profits and company growth?
Which key survival and growth strategies are appropriate for partnerships in law practice in Zimbabwe?
What are the challenges faced by Mawere and Sibanda as in law practice in Zimbabwe?
What are the challenges to partnerships in law practice in general?
To what extent has the group practice been established in Zimbabwe as an alternative approach to sole practice?
What are the best sustainable ways in which partnerships in law practice can be adopted for business growth?
1.5 Research Proposition
The research proposes that the adoption of partnerships approach in Zimbabwe by law practitioners leads to efficient administration and business expansion opportunities.
1.6 Justification of the Study
The study will provide insight into the advantages and disadvantages in the adoption of either sole practice or group practice as sustainable business approaches. The study will also provide Mawere and Sibanda Legal Practitioners with adequate knowledge on the valuable sustainable and growth strategies that will, enable well informed decision making. The firm will also benefit from the recommendations which are meant to enhance effectiveness, efficiency in the operations of the law firm, through cost reductions, maximization of profits as well as the improvement of management and quality of their products. The provision of new insights and recommendations through this research will also benefit the academic fraternity as well as practitioners in the legal fraternity for the development of a roadmap towards improving business practices within the sector. There has been little or no literature on the area of the merits and demerits of sole and partnerships in law practice in Zimbabwe and thus this study will fill the literature gap. This will also work as resource material for academics, consultants and researchers in strategy formulation and implementation.
1.7 Scope of the Research
The research seeks to investigate the survival strategies for legal practitioners in Zimbabwe in a dollarized economy. The study will cover the period from January 2009 and August 2012. The research shall be carried out in Harare since this is where most of the legal practitioners are located and thus it is easier for the researcher to access the required information. This is also in keeping with the cost and other logistical constraints underpinning the conduct of this study. The respondents of the study shall be staff and management from Mawere and Sibanda Legal Practitioners, selected law firms and representatives from the Law Society of Zimbabwe in Harare.
1.8 Assumptions of the study
The study assumes that:
It will receive maximum cooperation and support from the legal practitioners.
It will be objective in data collection, analysis, presentation and discussion of the study findings.
The respondents will provide accurate information to the best of their knowledge.
There will be limited time since the research is done on a part time basis and preparations will be done after work and during weekends. The researcher will not get ample time off from the employer to have uninterrupted time to concentrate on the research. Accessibility of some of the respondents might also be a challenge in this study since some of them could always be busy and constantly be out of office.
1.10 Dissertation Structure
The following is the outline of the study:
Chapter 1:- This chapter contains the background of the study, background of the Zimbabwean law delivery system, problem statement, research questions, research objectives, research proposition, scope of the research, significance of the researc
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