Introduction

This paper will elaborate on some experiences with Business Development services requirements for enterprises, in order to do better in business. To reach some conclusions, the paper will briefly elaborate on entrepreneurship, the importance of entrepreneurship to economic growth, the benefit of franchising to entrepreneurship development, some of the problems entrepreneurs face in running (small) businesses, and the requirements to overcome these challenges, and finally provide some conclusions on the expectations of the private sector, in particular SMEs, in terms of business development services.


BDS requirements for effective entrepreneurship development

Robert Zegers, ADB

 

Introduction

This paper will elaborate on some experiences with Business Development services requirements for enterprises, in order to do better in business. To reach some conclusions, the paper will briefly elaborate on entrepreneurship, the importance of entrepreneurship to economic growth, the benefit of franchising to entrepreneurship development, some of the problems entrepreneurs face in running (small) businesses, and the requirements to overcome these challenges, and finally provide some conclusions on the expectations of the private sector, in particular SMEs, in terms of business development services.

 

A few introductory notes on entrepreneurship

There are many different definitions for entrepreneurship. One of them is as follows: Entrepreneurship is "the process of looking at things in such a way that possible solutions to problems and perceived needs may evolve in venturing." In this view, entrepreneurship is the activity of observing problems, or needs, in the market, and translating these into answers, and business opportunities. This definition suggests that this is a personal skill or trait. Indeed, it is often said that not everyone can be an entrepreneur. Whether this is a trait is genetically inherited is not proven. Clearly, entrepreneurial skills need some kind of triggering to come to fruition, and it is known that children of entrepreneurial families tend to be more entrepreneurial themselves. Similarly, in some countries entrepreneurship is better developed than in others. In countries coming from an socialist or communist background for example, such as Eastern Europe, entrepreneurships skills are less developed than in countries where entrepreneurship has always been regarded as an important societal ‘value’, such as in the USA. The same difference also applies in the African context, where entrepreneurship is less developed in countries with a socialist history or in countries recovering from a previous (civil) conflict.

 

Being entrepreneurial does not mean one will be successful in business. Entrepreneurship is closely linked to ‘innovation’ of new ideas and ‘diffusion’ of those ideas, and indeed entrepreneurship leads to the discovery of new products and services and the identification of new markets. However, product development and market development are but two strategies a company can follow to be successful in business. The third commonly adopted strategy by businesses is market penetration. Market penetration is a low cost strategy that is much easier to adopt, and also probably requires lower levels of entrepreneurship. This is a strategy more often adopted by companies being a ‘followers’ or ‘copycat’, based on the innovations done earlier by other companies.

 

Entrepreneurship is also merely one of the essential characteristics a business will require. In literature, a distinction is often made between the role of an entrepreneur, a manager, and a leader, as three important and distinctive roles necessary to advance a business.  The entrepreneur will see new opportunities for the business, the leader will provide the inspiration to the team to work together to achieve the business strategy, and the manager will organize the resources of the business in an effective and efficient manager to achieve the desired outcome. The three traits need to go together in a business, but are often not found within one and the same person. A division of skills will in that case be important. Within MSMEs, however, where there is often only one person leading the company, this would mean that there is only little scope for the division of those skills. It is also unlikely that one person is strong on all those three core skill sets. Therefore, even if a person is entrepreneurial in nature this does in itself not mean that all essential skills sets (i.e., entrepreneurship, management, and leadership related skills) are available to successfully grow a small business.  In fact, the absence of one or more of the above skills sets is probably one of the reasons for the high rate of SME failure.

 

Whilst entrepreneurial skills are important for every business, this will be more so the case for young SMEs than for larger and more established businesses. Larger businesses have an established market and clientele, a reputation, and may be market leader in their industry. SMEs, and in particular young ones, need to find their product niche, need to identify a client base, and still need to build up a reputation, and in doing so need to distinguish themselves from larger businesses. SMEs that are not able to position themselves in the market among their competitors, will find the competition hard and may not survive. There are many small trees in the forest and only some can grow big. Entrepreneurial skills are definitely an essential factor is distinguishing the winners from those closing shop.

 

 

Small business, entrepreneurship and economic growth

 

Economic theory on entrepreneurship and economic growth

Economic prosperity is created through economic growth. Growth is the result of private sector activity. The assumption that government business activity creates economic growth and welfare has shown not to be correct, through the fall of the Eastern European block, and other socialist economic models. If the private sector is the basis for economic growth, than entrepreneurship lies at the core of this growth. Entrepreneurship itself is difficult to measure, but has, in arious theories, been operationalised in terms if ‘innovation’ and ‘diffusion’. Entrepreneurship is then measured in terms of new idea generation (‘innovation’) and the dissemination of these new ideas, through new products and services, into new markets, called ‘diffusion’. It is the creation of new ideas, and the diffusion of these ideas to (new) markets that creates economic benefits.[1] Since entrepreneurship is about looking at opportunities and translating that into business venture, it is the entrepreneur that is the creator of economic benefit to him/herself and society.[2]

 

Neoclassical theories see the relation between entrepreneurship and economic growth as one whereby each person seeks individual optimization, resulting in a social equilibrium. ‘Perfect information’ and the ‘invisible hand’ make this happen. With perfect competition, and perfect information, the role of entrepreneurship is limited.

 

Contemporary theories approach this relationship somewhat differently, and attribute economic growth to market disequilibria with entrepreneurship functioning as the equilibrating mechanism. Entrepreneurs are then the catalysts for identifying new opportunities and allocating resources to better opportunities. This is related to uncertainty and risk taking ability by entrepreneurs. Other ‘economic growth’ models focus on the role of innovation, industry competition, or number of firm start-ups. These are all quantifiable indicators, which entrepreneurship as a more abstract measure, can be translated into. After all, entrepreneurs are the agents for change and innovation that search for new opportunities and compete to translate these into profitable undertakings. These factors (innovation, competition, firm start-ups), as measured through various models and theories, demonstrate a positive correlation with economic growth.[3]

 

Empirical evidence on the relationship between entrepreneurship, in particular ‘growth enterprises’, and economic growth

Empirical evidence suggests a positive relationship between entrepreneurship and economic growth. The Global Entrepreneurship Monitor (GEM 2000) for example concludes that entrepreneurship, defined as start-up activities, has a close relationship with economic growth, and is the strongest single factor among a number of others that explains economic growth. In other words, countries with high entrepreneurship level tend to have more business start-ups, and as a result achieve higher economic growth.

 

Interestingly, some studies make a distinction between growth oriented businesses and ‘survival’ businesses. For example, Davis et al (1906) and Bednarzik’s (2000) empirical studies indicate that the influence of start-ups on job creation is smaller than that of expansionist firms. A study undertaken in Canada[4] on growing small and medium sized enterprises indicated that the more successful SMEs had a greater reliance on entrepreneurship through innovation. Innovation appeared to be the main determinant explaining SME business success.

 

The recent 2005 edition of the Global Entrepreneurship Monitor (GEM 2005) which focuses on ‘high-expectation’ entrepreneurs, which is a largely comparable concept as that of ‘growth-oriented’ entrepreneurs, concludes based on its empirical work in a large number of countries that these ‘high-expectation’ entrepreneurs are very few in number but are responsible to up to 80% of all jobs created by entrepreneurs.

 

Entrepreneurship in itself will not lead to growth if the entrepreneurial drive cannot be translated into business activity. An environment that allows for and promotes the establishment and growth of private business is an essential precondition for economic growth and prosperity to be realized. Some of the conditions that influence entrepreneurial activity include: availability of capital, the availability of technology, (skilled) labour, information, a supporting infrastructure (land, power, transportation, telecom), business support services (BDS), general safety and stability, adequate rule of law to enforce contracts and to guarantee property rights, limited rules and regulations and simple licensing and bankruptcy procedures, good and efficient governance and quality of public services, absence of corruption, and a general enabling environment. Clearly, many of these conditions are not very favourable in many African countries and do explain relatively low economic growth, despite often high entrepreneurship levels.[5] In Mozambique for example, some of the limitations for economic growth identified are the lack of access to finance and the high cost of it, an uncertain policy environment and the regulatory and administrative barriers, and an inadequate infrastructure.

 

These conclusions are also interesting for Africa, where the bulk of small enterprises are considered ‘survival’ enterprises with a small percentage of growth-oriented enterprises, the latter being more important contributors to economic growth. The AfDB and UNIDO conducted a research in 2002 on SMEs in Africa. To interpret the findings it is necessary to adopt a definition on SMEs in Africa. For the purpose of the study, the following were the MSME classifications: a micro business has less then 5 workers, a small business 5-20, and a medium sized business 20-100 workers.

 

Before drawing some conclusions on entrepreneurship and economic growth from this study, let us first look at the general features of SMEs in Africa. The below table shows that: 

  • In Africa between 17-27% of the population in working age are employed in SMEs. However for the countries studied, household surveys highlight that the number is far large than official statistics because of the large number of informally operating businesses
  • Most SMEs are micro and small enterprises accounting for 70-80% of private businesses
  • The share of SMEs with 10-50 workers, in the studied countries, is only 1-3 percent of all businesses.
  • In urban areas SMEs engage in commerce and trading activities, except in Zimbabwe, South Africa and North Africa
  • In rural areas, manufacturing gains importance indicating a large spread of small manufacturing activities
  • The majority of SMEs are owned and run by women & the majority of SMEs workers are women. However, women are mostly the owners of micro businesses whereas men are more often owners of small and medium sized businesses.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


This study also made a distinction between subsistence enterprises and growth oriented enterprises. The study concluded that the internal features of growth oriented enterprises are totally different from survival enterprises. Their growth dynamics and market orientation are also completely different. The bulk of the growth oriented enterprises with 5-20 employees could grow to become medium sized. Whilst this often is the case in international markets, in Africa this growth potential is mostly not realized due to ‘the state of the economy’ which can be interpreted as the general economic environment, and possibly due to their lack of ‘clustering’ (networking). When clustering happens, these businesses tend to improve the quality of their products and grow more.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


These growth oriented enterprises also lack adequate technology and face stiff international competition. Nonetheless, despite the low number of these enterprises the study concludes that they do play an important role in the local economies in their contribution to economic growth, regional development, and in stimulating local entrepreneurship development.

 

The situation is different for the survivalist companies. The contribution of these enterprises to development is also important, but in the sense of their effects in terms of poverty alleviation and (self) employment potential. These micro-enterprises are not innovative, and compete on the basis of low prices.

 

 

 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

The 2004/2005 OECD / AFDB Economic Outlook had a special focus on SMEs and specifically on Africa’s ‘missing middle’. The missing middle signifies the virtual absence of medium-sized enterprises on the African continent. This observation is in line with the above study findings indicating that on average only 1-3% of SMEs are found within the medium-sized business category of 20-50 workers. The Economic Outlook recognizes the importance of medium-sized enterprises in developed countries as ‘pools of entrepreneurship and job creators’, with an important contribution to national GDP, and identifies a number of reasons why the middle is missing in Africa. Apart from historic reasons, and a lack of general economic empowerment of many black Africans to climb beyond the ‘subsistence level’, other reasons for this include the generally unfavourable business environment as described earlier, as well as a lack of access to adequate BDS and a lack of access to finance for growing businesses.

 

The question arises whether the survivalist businesses could graduate to become growth-oriented SMEs. The study suggests ‘that the dynamics of small enterprise development can be fully understood only in light of longitudinal studies that try to understand how enterprises grow and how their characteristics and needs change and evolve over time’. 

 

One study that was conducted specifically on growth oriented enterprises in Uganda, Zambia and Zimbabwe[6], suggests that the potential to ‘migrate’ from survivalist enterprise to growth oriented enterprise is quite limited. The reason for this is that growth-oriented enterprises are different in their ‘entrepreneurial character’ and ‘background’ of the owner. The owners tend to be fairly well or well educated, and have often had some international exposure. They are also very entrepreneurial in character, which is exemplified by some of the following common traits and business features of growth oriented entrepreneurs[7]:

 

  • Relatively high but balanced risk takers
  • Are good and active networkers
  • Command basic knowledge of business management concepts
  • Find it important to be successful in what they do and derive satisfaction and self-confidence from high achievement
  • Have a strong drive to grow their business and set high achievement targets
  • Constantly seek new opportunities in the market
  • Have high energy levels
  • Value balance between work, family and friends but struggle to achieve it
  • Are determined to achieve high aspirations
  • Want to build their business, but find it difficult to delegate
  • Are open to criticism and are eager to learn and do better
  • Have ideas for business growth, but lack a coherent strategy
  • Are dynamic, innovative, and curious by nature
  • The Business does not follow the growth ideas of the owner fast enough

 

 

Migration from the survival business to a growth oriented business would, based on this study, be possible if the micro-entrepreneur has the right entrepreneurial characteristics that are unlocked through enhanced self-confidence resulting from the successful experience as micro-entrepreneur, and possibly through some form of BDS assistance. This also implies that without the entrepreneurial characteristics as outlined above, this would not be possible.

 

These findings are in line with the recent GEM study, which also recognizes ‘high expectation’ entrepreneurs (or growth-enterprises) as a specific target group based on the particular personal characteristics of its owners. The same is also confirmed through a study by Mead (1994):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


In the above study, the number of micro-enterprises that graduate into 10 employee firms is minimal for the 5 African cases. In Malawi, Swaziland and Zimbabwe, this figure is below 1 per cent, and in Botswana and Kenya it is just above it. However, those companies that did grow also started as a ‘micro’ enterprise.

 

In conclusion, we can say that growth firms constitute the basis for and are pivotal players in the developing world. In addition, growth businesses are likely to be more resistant to external shocks and macro-economic instabilities and offer more formal sector ‘decent work’ opportunities. They have a greater spillover effect and can play an important role in adopting and disseminating technology, and provide for learning for other small companies. Furthermore, they are better positioned to benefit from the new international context with fewer trade barriers and increasing technical progress. They can therefore constitute the basis for more dynamic and more competitive economies.

 

On the other hand, survivalist companies are also important given their large numbers in Africa, and their contribution to (self) employment and poverty reduction.

 

Given that subsistence SMEs and GSMEs follow different strategies and face dissimilar problems, and given that they have different impacts on the two main goals of development (‘poverty’ versus ‘growth’), these two broad groups need to be targeted with separate strategies to achieve ‘poverty alleviation’ and ‘growth’ respectively.

 

 

Some data on the contribution of SMEs to employment and economic growth

How does the above more qualitative description translate into figures?

In Africa, the informal sector is large, and increasing, in comparison with the formal sector.

  • It is believed that in Africa it accounts for nearly 80% of non-agriculture employment compared to 57 and 45% in Latin America and Asia
  • It accounts for more than 50% of total urban employment in Africa and around 40% in Latin America and Asia
  • In several African countries, it accounts for nearly 30% of total income and over 40% of total urban income (Chen, 2001)
  • By comparison, the (formal) SME sector in Africa is small relative to other continents

 

This translates into a relative large contribution of the informal sector contribution to GDP in Africa. Overall, the informal sector contributes 47.2% to GDP in low income countries (specific details for Africa could not be established). For high income countries this is 13%. In terms of employment, the informal sector provides 29.41% of employment in the informal sector in low income countries (and higher in Africa), and 15.16% in high income countries.

 

The contribution of formal SMEs to employment constitutes 17.5% in low income countries, 39% in middle income and 57.24% in high income countries. The contribution of SMEs to national GDP follows the same trend, with a 15.56% for low income and a 51.45% for high income countries.  These figures are low in low-income countries due to that fact that most micro-businesses operate in the informal sector.

 

The joint contribution of the informal and SME sectors to GDP remains approximately constant across low and high income county groups at around 65-70 percent. Clearly, however, with increasing income levels between countries the number of businesses operating in the informal sector reduces and the number of formal SMEs increases.

 

Overall Conclusions

In conclusion we can say that entrepreneurship is important to be successful in business. This applies in particular to SMEs which face a competitive environment and often need to compete on price. Theoretic and empirical research indicates that it is difficult to correlate and measure the direct impact of entrepreneurship on economic growth. This is often measured through derived variables such as business start-ups, industry competition, and innovation. Research indicates a positive correlation between those factors and economic growth, indicating that entrepreneurship as an underlying factor is important for economic growth. Nevertheless, factors other than entrepreneurship influence the ability of entrepreneurs to grow their business and contribute to economic growth. This concerns one the one hand internal skills such as management and leadership skills, and on the other hand outside factors, in particular the enabling business environment. Unfortunately, in many African countries the business environment is not very favourable for doing business. Nevertheless, African economies are dynamic, with informal, small and medium sized enterprises in many industries, and with a large rural dispersal. The contribution of SMEs to economic development is significant, both globally and in Africa. In Africa the informal sector is particularly large and assists in the reduction of poverty. Most businesses are survivalist in nature. A small percentage is growth-oriented, and bolster true entrepreneurial spirit and the skills and ambitions to grow. Both survivalists and growth oriented firms are important in their contribution to employment and economic growth, albeit in different manners, with the former contributing to poverty reduction and the latter to growth. Both groups have different needs to be addressed to achieve their survival and growth objectives respectively.

 

 


What are the BDS needs of SMEs for effective entrepreneurship development[8]

 

Introduction

Various donors have been united in the ‘Donor Committee’, because of the unsatisfactory performance of past BDS programmes in the field. Traditional programmes had failed to provide quality and affordable BDS to a large proportion of the target populations. There was also an increased feeling that publicly funded BDS has not reached its objectives, in terms of enterprise productivity and competitiveness, job creation, and poverty alleviation. It was felt that the state should intervene in the provision of public goods, and correct market failure, and ensure therefore the creation of an enabling environment for business growth, but should not interfere in the direct provision of private goods such as BDS, that are better provided by the private sector. It was also felt that donors should adjust their roles, and assist in the establishment of market exchange between BDS supply and demand, in other words, to ‘make the market work’.  The assumption was that BDS should in principle not be subsidized, as it was believed that, based on appropriate product design, payment and delivery terms, BDS can be provided on a commercial basis even to the lowest income segment of MSMEs. Subsidies, e.g. from the state or donors, or public delivery, would only distort the effective market functioning between BDS providers and MSMEs.

 

This emerging ‘BDS market development framework’ grew out of the conviction, shared within the donor community, that achieving social and economic goals was possible by relying on private sector actors to provide an array of BDS services. Relying on the private sector to achieve the main objectives in terms of outreach, impact, sustainability and cost effectiveness, required a better understanding of how BDS providers could be financially sustainable. The donor community therefore set an agenda to gain experiences in this area.

 

What is BDS?

BDS are the wide array of non-financial services critical to the entry, survival, productivity, competitiveness, and growth of SMEs. It comprises training, consulting, advisory services, marketing assistance, information, technology development and transfer, and business linkages promotion.

 

A distinction is sometimes made between operational and strategic BDS services. Operational services are those needed for day-to-day operations, such as ICT, management of accounts and tax records, and compliance with labour laws and other regulations. Strategic services are used by enterprises to address mid- and long-term issues in order to improve the performance, its access to markets, and its ability to compete. This includes for example services to identify new markets, design products, set-up facilities, and seek financing. The market for operational services largely exists, and the focus of BDS programmes therefore is more on strategic services, or those services that are strategic for a business within its given situation.

 

Some interventions focus on a single service, e.g. training, whereas others attempt to address a multitude of needs, e.g. training along with facilitating access to finance, or access to technology.

 

BDS services can be delivered by a provider who has no relation with the business other than the provision of the particular services. Or the service may be part of a wider business-to-business relationship, e.g. a supplier/buyer, sub-contract, or franchise relationship. Training can for example be provided as part of the purchase of some piece of equipment. Payments may be done through direct fees, as a broader payment (for other goods/services), or on a commission (no cure no pay) basis.

 

A distinction should be made between the following actors in the BDS market: the SME, the BDS provider, the BDS facilitator, donors, and governments. BDS facilitators are those that support BDS providers by developing an adequate product, promoting a good practice, and build provider capacity. They can also be active on the demand side and educate SMEs on the advantages of BDS so as to promote demand. Their role within BDS programmes is also to conduct quality control, and programme evaluation, as well as to execute general advocacy for a better enabling environment to assist the BDS market to function. These facilitators can be development institutions, associations, NGOs, government, as well as donors. Governments can provide funding to BDS programmes like donors do, and otherwise focus on their principal role of ensuring an enabling environment for SMEs and BDS providers, and to provide related important public goods such as infrastructure, education, and information. The government can also facilitate and promote the functioning of vibrant markets.

 

Governments, based on the ‘BDS paradigm’, should not intervene in service provision, to allow the private sector to function and not to distort the market. Government services provision has traditionally had a low quality, low outreach, and low sustainability, the latter due to the often temporary nature of government funding and the cease of programme implementation upon ending of the funding. It also crowded out the development of a private BDS market.

 

The belief within the market paradigm is therefore that the objectives of BDS outreach and sustainability can only be achieved through well-developed markets for BDS, and not through government intervention. The focus therefore ought to be on the development of such a market.

 

 

The steps in designing and implementing BDS programmes.

 

BDS market assessment

Before designing interventions, it is critical to understand the market, and what its needs are. What are the market opportunities, and the weaknesses in the market? Why is there low demand, why is supply absent, are there market distortions? The assessment will assist in the identification of the local delivery mechanisms, interventions strategies, and instruments, and provide a baseline for measuring progress. Ample experience has been gathered with the application of BDS market assessments which is available from various websites.

 

Demand versus supply side interventions

Demand side approaches focus on awareness raising and incentives to stimulate demand for BDS, such as vouchers or matching grants. Supply side interventions include specific training, technology transfer, etc etc.

 

Payments

Adequate payment schedules and methods are required to maximize the possibilities of a commercial market exchange, particular in the case of the new product and new market that requires to get used to payments. Indirect payments such as commissions or mark-ups can be good approaches where possible. Subsidies will distort the market, and should only be used as temporary measures to create market demand.

 

Exit strategy

Donors need to have a clear and pre-determined exit strategy after which the BDS service market should be operating in a sustainable manner by itself. The service should largely focus on technical assistance (capacity building) to ensure adequate marketing, product delivery, SME client satisfaction, and business systems (e.g. M&E) to continue to operate the programme by the BDS providers in a commercially sustainable manner, and matching with the BDS needs of the market. This requires the donor to select entrepreneurially driven and market-led partners. Apart from that, the services should be open to all market players to prevent monopolistic behaviour by a single BDS provider and therefore new market distortions.

 

Performance measurement

Performance measurement should include client impact, institutional performance (outreach, sustainability, cost-effectiveness) and market development results.

 

 

BDS Requirements of SMEs

The above section has stressed that any BDS service needs to be demand driven and market-oriented. Part of the service delivery process is the assessment of needs and wants of SMEs. A BDS provider would normally, based on its competitive advantage and potential market niches, have a range of services that it can competitively deliver to specific target groups. The actual BDS services will therefore depend both on the needs of the specific target group, and the specific competencies of the BDS provider, such that there is a match that warrants an effective market exchange.

 

The question of the BDS needs of SMEs is therefore situation specific and cannot be answered. Would can possibly be answered is what the broad possible range of needs of the broad range of SMEs could comprise of. To answer this, we refer here to the earlier AfDB / UNIDO research which identified two broad clusters of SMEs, one that is more survivalist in nature and one that is growth-oriented. This paper tries to describe the possible BDS needs for these 2 groups briefly. This description does not include demand-oriented approaches such as vouchers and other ways to stimulate demand, as these are merely approaches to simulate market demand but do themselves not constitute BDS services.

 

The possible BDS needs of survivalist SMEs could include the following: Training, consulting, mentoring, information, adequate technology development or transfer, and business linkage promotion.

 

Training programmes could include business idea generation training, business start-up training, business planning training, and training on basic business and management systems, such as on record keeping, costing, marketing, human resource management, stock control, buying procedures, etc. Specific training could be needed on productivity, leadership, management techniques, delegation, time management, etc. Business games and simulations can be offered to assist entrepreneurs in the understanding of market exchange processes with their clients, and to enhance learning of particular business topics. Many programmes are available in the market, many of which is of poor quality, and therefore not financially sustainable. Experiences with quality programmes has taught that it is possible to deliver training programmes through a commercial exchange, if there are no other market distortions such as government subsidized competing programmes.

 

Information could be wide-ranging, and could include information on new markets, including also the subcontracting of market research, information on new products, new technologies, information on competitors, information on how to access new markets, direct linkages to new clients in the same or new markets, etc. Information could also focus on the medium, such as business-oriented newspapers or parts of papers dedicated to SMEs and their needs. These papers can be operated commercially through adverts. Other media could include commercial radio channels for SMEs, trade fairs, business card systems in public places, etc etc. here again there is increasing evidence that many of these approaches are viable in a commercial manner, if capacity with local BDS providers is built to provide these services.

 

Business linkages promotion focuses on bringing parties together, e.g. linking a SME with a financial institution or MFI (but not providing a financial service directly), linking them to marketing agencies, and other agencies that can assist SMEs. This in itself is not a profitable BDS activity, but can be commercially interesting if it is linked to other services of the BDS provider. For example, a BDS provider that provides business training and also links the trainees to a financial institution to present their business plans for consideration. The link to the finance institution can make the training programme more attractive as a result of which the training provider can charge a higher price for the training.

 

BDS services at a more ‘operation level’ could include for example, accounting or audit services, design and packaging, IT and computer services, etc. These are often required by an SME for legal compliance reasons and have proven to be financially viable.

 

The focus could also be on the delivery method, and new methods could be chosen that do not exist through existing BDS providers. Examples include business centres, one-stop-shops, incubators, where business obtain a range of BDS related services. Existing organizations that currently do not provide BDS could also be the target of the programme, such as in the case of business associations that are capacitated to provide specific services to their members. In establishing such centres and one-stop shops, the sustainability will need to be considered carefully at the design stage. Often, the design costs can not be recovered and could be borne by the donor. Still, experience indicates that even the operational costs of such centres are not easily fully recovered from the market, and it could be argued that part of the service provided by such centres are in fact public services (e.g. facilitating business licensing), for which subsidies are justifiable. Combinations with publicly funded services (of public nature) and privately funded (of private nature) services could work well in this case.

 

Needs of growth-oriented enterprises (GOEs)

GOEs reflects a specific target group with specific needs, unlike for ‘general’ SMEs. These businesses bolster a higher level of entrepreneurship and are seeking opportunities to develop new innovative products and enter new markets. Their owners usually have a reasonable or good educational level. This target group typically represents approximately 1-3 procent of all businesses in a given market. Research has indicated that the needs of this target group are fairly homogeneous. Firstly, this target group tends to have a number of internal management needs. This includes all or part of the following: a need for strategic planning, a realignment of the business to the strategic objectives, the creation of a layer of managers and a delegation of tasks from the owner/manager to this new layer, the strengthening and professionalisation of business systems in areas of marketing, HRM, operations, and finance, and an alignment of these business functions to the competitive strategy of the business. These services can be provided through training plus added mentorship. Research has indicated that currently the supply side for this target group is underdeveloped, with hardly any programmes available that can offer such integrated approach to business professionalisation. In practice, such support is therefore often provided through consulting. The problem with this approach is that it is difficult to ensure the financial sustainability of such elaborate consulting services for these relatively small firms, both because of limited capacity and of limited willingness to pay the full cost for those services.

 

In addition, given the growth ambitions of this target group, effective linkages facilitation can be an important support mechanism. Such BDS support includes links to accessing finance, links to improve quality of products, links to quality services (certification of processes and/or products), and links to accessing new markets.

 

Alternative approaches to address the management and business linkages needs of GOEs and enhance their growth in a financially sustainable manner can include: 1) industry clusters to enhance the product quality and access new markets; 2) Strengthening of the associative capacity to support the needs of these enterprises and to advocate for a better enabling environment; 3) building specific business linkages with larger businesses.

 

Programmes in this area have been executed for example through IFC in Latin America, ILO in Africa, and MPDF in East Asia. However, this is a relatively new area, and both the needs and the adequate and sustainable support mechanisms for growth-oriented enterprises have not been the subject of much research as yet.

 

 

 

 

 

 

 



[1] Entrepreneurship and economic growth, Randle Holcombe, The Quarterly Journal of Australian Economics, 1999. Some authors argue that entrepreneurship is about the identification of existing opportunities, whilst others say that true entrepreneurship also concerns the creation of new ideas where no opportunities earlier existed.

[2] Relating entrepreneurship to economic growth, Karlsson, Friis, and Paulsson, CESIS/JIBS, 2004

[3] In this view, competition stimulates rivalry which in turn stimulates innovation.

[4] Baldwin, 1995

[5] The IFC investment climate assessments measure a number of these factors, and provide a ranking of countries. In Africa, such climate assessments have been undertaken for  Algeria, Eritrea, Kenya, Madagascar, Morocco, Mozambique, Nigeria, Tanzania, Uganda and Zambia. South Africa is under preparation. These reports are available for free on http://www.ifc.org/ifcext/economics.nsf/Content/IC-InvestmentClimateAssessments. In addition this source, the World Bank ‘Doing Business’ publications provide both qualitative and quantitative information on the business climate in over 130 countries. Doing Business constructs a new set of indicators on the regulatory environment for private sector development and provides a collection of informative case studies of real-life experiences.

[6] 1) The profile and needs of growth-oriented enterprises, ILO Harare, 2001

  2) Constraints of Growth Oriented Enterprises in the Southern and Eastern African Region, P.Trulsson, Journal of Development Entrepreneurship, October 2002.

[7] Adapted from above indicated studies for this paper.

[8] This sections is largely derived from the Guiding Principles for donor Interventions 2001 Edition