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close this bookInternational Best Practice in Micro and Small Enterprise Development - Working Paper 2 - Micro and Small Enterprise Development and Poverty Alleviation in Thailand - Project ILO/UNDP: THA/99/003 (ILO-ISEP - ILO - UNDP, 2000, 80 p.)
close this folder1. Introduction to business development services
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View the document1.1 Guiding principles of best practice in BDS

1.1 Guiding principles of best practice in BDS

These guiding principles are based on international best practice in the delivery of quality business services to micro and small enterprises. Several practitioners have shared their experiences and ideas at a series of workshops and other similar events over the past few years. The driving force behind these guiding principles is the Committee of Donor Agencies for Small and Medium Enterprise Development, which is made up of a large number of international donors, UN agencies (including the ILO) and international NGOs. These guiding principles are considered to be sufficiently elaborated for application under most socio-economic environments. They are summarised below.

i. Ensuring that BDS services are provided to the right clientele: The main objective of facilitating access to good BDS by MSEs is to help them to grow and become more competitive and profitable. This objective implies that BDS should be provided to those who exhibit good entrepreneurial characteristics and can make a good use of the services. Whether full fees are charged for the services or not, the provision of BDS should be considered as a commercial transaction between the entrepreneur and the service provider. Both the client and the provider of services should be satisfied with the transaction. Therefore, a clear distinction should be made between this type of business transaction and one based on social welfare considerations involving individuals with no real capacity to establish and run a business. (Such is the case with many income generating activities intended for people who would otherwise have been forced to depend on charity or welfare for their livelihood.)

ii. Ensuring that BDS are demand-driven: Experience shows that institutional service providers often neglect to assess the type of services needed by their clients. In these cases, services (especially information services and training) are mostly supply-driven and do not reflect the real needs of the clients. Under normal commercial conditions, service providers would make a loss because clients would not pay for services that do not correspond to their needs. In cases where services are free of charge or highly subsidised, clients may accept the service although it may be of little use to them. This is often found in training, when trainees are provided with financial or other incentives for participating in training courses. Thus, ensuring that services are demand-driven presents two advantages: it can create a greater and more positive impact on the business, and it can encourage clients to start paying for the services they value.

iii. Ensuring a strong sense of ownership: International experience shows that the best business providers are people working in environment, which induce commitment and a strong sense of ownership. This is often found amongst not-for-profit organizations or commercial firms where the managers and staff members have a clear idea about the objectives of the organization and long-term plans for growth within the organization. These conditions do not generally apply to large bureaucracies where staff rotation may be the norm, achievements are not always recognised and goals not clearly defined.

iv. Ensuring maximum outreach: MSEs have always been able to access some basic services without the assistance of institutional service providers. Most studies show that 90 to 95 per cent of MSEs receive BDS services as part of their commercial transactions with clients, suppliers or contractors. They get useful information from friends, relatives or people in the same business. Owners and workers are often trained on-the-job. This does not mean that these services are all of the best quality. They are, however, sufficient for their immediate needs. Therefore, the objective of maximum outreach - in terms of helping MSEs all over the country to obtain good quality services that have a positive impact on their business - should be established. This is often best achieved by strengthening private sector service providers, creating better networks between service providers, and promoting informal systems of learning.

v. Ensuring integration of BDS and financial services: Whilst there are differences in opinion as to whether the same organization should provide both BDS and financial support services, it is generally agreed that integrating these supports is essential. One approach to achieving this is to accommodate both services in the same organization, whilst ensuring that the unit in charge of financial services operates independently from the one providing BDS. Also, it is generally agreed that clients should not be forced to pay for business services in order to get a loan.

vi. Ensuring cost-effectiveness: Any enterprise strives to control costs to remain competitive or increase profits. This should also be the case for service providers, whatever their legal status. Achieving maximum cost-effectiveness yields many positive effects. More clients can be served with the same available resources and the cost of services can be reduced. The reduction of costs may be achieved in a number of ways. There may be improvements in working procedures or in the introduction of office automation. Staff productivity may be enhanced through performance-based bonuses. Some services can be sub-contracted, and preference may be given to providing services to groups or associations of MSEs with a view to simultaneously reducing costs and reaching a larger number of clients.

vii. Ensuring that BDS services achieve the greatest impact: The growth of an enterprise can depend, among other things, on the entrepreneurial spirit and qualifications of its owner and on the quality of BDS services it can access. Service providers should be concerned with the impact of their services on the enterprise and, therefore strive to provide services that are responding to demand and of sufficient quality. It is important that BDS providers regularly assess the impact of their services. This can be done through a variety of ways and can be complemented by the development of performance indicators to measure the desired impact.

viii. Ensuring financial sustainability: Sustainability in BDS can be defined at two related levels. Firstly, sustainability is concerned with the delivery of effective, demand-led services to MSEs on a sustainable basis. This means building the institutional capacity of service providers as well as their financial viability. Secondly, sustainability is about ensuring that the MSEs themselves are sustainable, making long-term contributions to the generation of high-quality employment, and to economic growth. However, the term "sustainability" is most often associated with the financial sustainability of the service provider. When used in relation to the enterprise that benefits from BDS, this term refers to the long-term impact of the services on the enterprise.