Does business training for small enterprises in developing countries work?

What helps small businesses grow? In January 2009, two colleagues (David McKenzie and Chris Woodruff) and I began an experiment that examined the effects of general business training on current and potential female small business owners in urban Sri Lanka. For international comparison purposes, we focused on the most commonly used general business training programme – the ILO’s Start and Improve Your Business (SIYB) programme. This training programme has been given to over 4.5 million people in more than 100 countries in more than 40 languages.

How the study was structured

• We focused the experiment on two samples of females aged 25-45. This was because a previous experiment which examined the rates of return to capital injections into micro-enterprises, also conducted in Sri Lanka, had shown that female entrepreneurs tended to lag behind their male counterparts.
• The first sample was a group of 628 women who worked more than 20 hours per week in self-employment, in a sector other than seasonal agriculture or fisheries, and earned monthly profits less than SLR 5000 (around US$ 40).
• The second sample was a group of 628 women who were out of the labor force, but were planning to enter self-employment in the next year. They were able to identify the type of proposed business as an indication of their seriousness of intent.

We refer to these two samples as current and potential business owners respectively. The baseline survey was conducted in January 2009 (Round 1).

Treatments
From each of the two samples, we randomly chose 400 respondents to be offered business training. The potential business owners received the Generate Your Business (GYB) and Start Your Business (SYB) modules over 8 days. The current business owners received a refresher GYB and Improve Your Business (IYB) modules over 6 days. At the end, both groups joined together for an additional day of technical training to provide exposure to some relatively high-return business sectors which are also socially acceptable for women in Sri Lanka to engage in.  These included sectors such as food manufacturing, beauty culture, sewing clothes and plant nursery.  In each group, half of those who completed the training were also given a SLR 15,000 (around US$ 130) grant.  The training programmes were conducted in April/May 2009 and cash grants were distributed in June 2009. The remaining 228 respondents in each sample formed the control group.

Follow-up Surveys
Four rounds of follow-up surveys were conducted in September 2009 (Round 2), January 2010 (Round 3), September 2010 (Round 4) and June 2011 (Round 5). This corresponds to 3-4, 7-8, 15-16 and 24-25 months after the training. Attrition rates were relatively low, ranging from 6%-12% over a period of 2 ½ years.

Findings

• Training leads to improvements in business practices among current firms. We used a composite business practices score to reflect management practices related to marketing, stock control, record-keeping and financial planning. We found that training leads to improvements in these business practices in both the short term (Round 2) and medium term (Round 4 and 5). These improvements come in all the four components of the business practices score.  But the improvements in business practices are quite modest. The training only and training plus cash groups were only implementing an additional 2 or 3 business practices respectively (out of a maximum score of 29).  Current business owners are still a long way from implementing the practices taught in the SIYB programme.  Business practices are the management practices related to the four areas of marketing (0 to 7), stock control (-1 to 2), record-keeping (0 to 8) and financial planning (0 to 12).  This gives an overall score in the range of -1 to 29.   Business Outcomes refer to four measures of firm performance – monthly profits,  monthly sales, capital stock and hours worked in the business by owner.
• Training alone has no impact upon business outcomes. We examined the effect of training on four business outcomes – profits, sales and capital stock of the business, and hours worked by the owner in the business—and found no significant impacts. These results held up across all follow-up rounds so this cannot be attributed to a timing related issue either.
• Training and cash grants together have a positive impact on some business outcomes. The impact of training plus cash grants upon capital stock was positive and significant and held across survey rounds. In terms of magnitude, the increase in capital stock was close to the SLR 15,000 grant received. Profits also show a significant positive increase in the short term (Rounds 2 and 3). But in the medium term (Rounds 4 and 5) the magnitude is much smaller and loses significance. This suggests that the effect on profits is only temporary.
• Both treatments speed up entry into self-employment among the potential owners.  After receiving training plus cash grants, potential business owners were 29% and 20% more likely to be running a business by Round 2 and Round 3 respectively. Among those receiving training only, the likelihood of operating a business by Round 2 increased by 12%. However, the impact of both treatments fell and lost statistical significance by Rounds 4 and 5. The positive impact on self-employment rates among potential owners is short-lived and disappears in the medium-term.
• The treatments affect who is drawn into self-employment among the potential owners. Training drew less analytically skilled women (as measured by a Raven test) into operating a business. Training plus cash grants drew in women with less analytical ability and less household wealth.
• Training has an impact upon business outcomes of potential owners.  The training resulted in a 40% increase in sales and 43% increase in profits in the medium term. Short term impacts are not significant.

Implications

• Generating re-investable profit growth in subsistence-level female-run businesses remains a challenging task; the constraints seem to lie beyond the training and capital spheres.
• In contrast, training does seem to help potential owners to open businesses more quickly and helps to improve their business outcomes. This has implications for women’s livelihood development.
• Our study also demonstrated the importance of tracing progress over time; relying on a single follow-up survey would have led to very different conclusions.

This post first appeared on The World Bank Jobs and Development Blog.

Publication does not imply endorsement of views by the World Economic Forum.

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Author: Dr. Suresh de Mel is a Senior Lecturer in the Department of Economics and Statistics at the University of Peradeniya in Sri Lanka.

Image: An instructor (R) teaches trainees at a maritime transport training centre, which offers classes as part of a government-sponsored programme to train unemployed people in industrial professions. REUTERS/Stringer