|Training Entrepreneurs for Small Business Creation: Lessons from Experience (ILO, 1988, 154 p.)|
Throughout the 1960s, 1970s, and 1980s there has been a growing awareness of the important social and economic roles of the small business sector and of the importance of entrepreneurship to the growth of the economy. This has been true in both the developed and developing economies of the world.
In the developed economies it has been found that the smaller-scale enterprises have provided most, if not all, of the net new jobs created over the last decade or so. In addition much of the innovation and invention leading to the creation of industries for future growth (micro-electronics, information technology, biochemistry, etc.) has emerged from and been initiated by the small-scale enterprise sector.
The developing countries, with their capital shortages and growing labour surpluses, have also noted a number of characteristics of the small-scale sector:
1. Small-scale enterprises (SSEs) are generally more labour-intensive than larger organisations. SSEs include small, but relatively modern, manufacturing industries; organised non-manufacturing activity, such as construction, transport, and trading; and traditional or informal activity.
2. SSEs generate more direct, and probably more indirect, jobs per unit of invested capital on the average; and in service industries capital costs are even lower.
3. SSEs provide productive outlets for the talents and energies of enterprising, independent people, many of whom would not fulfil their potential in large organisations.
4. Small firms often flourish by serving limited or specialised markets that are not attractive to large companies.
5. They provide a seedbed for entrepreneurial talent and a testing place for new industries.
6. They supply dynamism and contribute to competition within the economy.
7. They enhance community stability, do less harm to the physical environment than large factories, stimulate personal saving, promote agro-industrial linkages, improve rural welfare, and generally raise the level of popular participation in the economy.1
As a result of these observed advantages, a number of attempts to stimulate the sector have been made. Whether by intent or by accident the early efforts addressed primarily the smaller-scale manufacturing activities and, on reflection, it would be wrong to think that they were aimed specifically at the general, small-scale enterprise sector. Early attempts were characterised by the approaches of the policy-maker trained in economics and political science:
1. Provision of incentives - investment tax credits, tax free holidays, grants and subsidies.
2. Provision of infrastructure - industrial estates, development banks, transport and communication facilities.
3. Provision of markets - tariffs and duties on imported goods, designated national industries, local purchase preferences, subcontracting and joint-venture encouragement.
While a certain amount of success was enjoyed by these approaches, in general, those who can take advantage of such policy instruments tend to be the larger, better managed enterprises. Such instruments, while necessary, do not in themselves address the critical constraints on the initiation, survival and growth of the small-scale sector.
As programme managers, who were in direct contact with the small-scale enterprise sector, experimented with adaptations to meet the needs of the target groups, it became apparent to some that the significant constraint was the lack of an adequate supply of indigenous entrepreneurial/managerial talent. A small number of programmes providing counselling and training both in managerial concepts and techniques and in behavioural aspects - such as achievement motivation training - experienced some success. The opinion that is now emerging from a small cadre of experienced developers is that economic development through small enterprise promotion requires a multi-faceted, co-ordinated approach, involving socio-economic policy inputs and managerial/entrepreneurial training and development.
It is to derive lessons and guide-lines from this field experience in the design and delivery of entrepreneurship development programmes that this monograph was written. While there are probably more examples of failures than of successes in such programmes, enough success has been accumulated for there to be a sufficient number of lessons from which one can derive a body of knowledge relevant to those attempting to stimulate economic development through business creation.
While programmes from both developed and developing countries have been reviewed, the lessons derived are those deemed applicable primarily for those working in the least economically developed countries. For those interested, a theoretical and conceptual book on business creation and entrepreneurship development is currently being written for publication by the ILO. This monograph, however, is not a handbook or cookbook giving a step-by-step procedure to designing successful training programmes. Rather it addresses themes, topics and issues, collecting the insights and wisdom of those who have had successful field experience in the design and delivery of effective programmes.
Business creation involves both the entrepreneur and the project (venture opportunity). While, in the extreme, programmes concentrate on one aspect or the other, most involve some mixture of the two. In covering both aspects this monograph places emphasis on entrepreneur development - that is, increasing the supply of manpower capable of undertaking business creation. The emphasis will also be on developing new, first-time entrepreneurs, though not excluding existing business owners, for the initiation, survival and growth of small-scale enterprises. While some of these will grow into medium and large-scale businesses, most will start and remain small, as is the pattern in all countries.
The emphases of the monograph reflect the fact that most entrepreneurship development programmes in developing countries arise as a result of manpower development and employment generation. Governments need to encourage more of their people to be less dependent on the government and on large businesses for their employment and thus place greater emphasis on encouraging self-reliance. Considerations of autonomy lead to an emphasis on developing an indigenous business class. Of course, the desire for economic growth and the role played by the small enterprise sector in such rapidly developing economies as Japan and the Republic of Korea has not gone unnoticed. But such development is contingent upon an entrepreneurial, small-scale sector which serves as a training and proving ground for internally generated growth.
Developing entrepreneurs for business creation is but one aspect of the promotion of small-scale enterprise. The typical array (although not all agencies offer all services and most emphasise one or the other) has been described by Goldmark and Rosengard as follows:2
1. Financial assistance - grant and credit programmes designed for SSEs and direct investment by an outside agency; foreign agencies may be sources of seed money, venture equity, fixed and/or working capital, with the local owners usually maintaining control.
2. Training - managerial, financial, vocational, entrepreneurial, and technical training; design of appropriate accounting systems; inventory and human resource planning; production manual preparation; training in production efficiency and quality control.
3. Technology - assistance in identifying and adapting technology appropriate to the SSEs needs; equipment installation and maintenance training.
4. Marketing - improving promotion, market penetration, and distribution of SSE products; this may also involve extension services offered to input suppliers and enterprise product users.
5. General research services - economic research, including marketing surveys, industry feasibility studies, appropriate technology generation, production process improvement, and information leading to policy formulation.
6. Institutional brokering - fostering increased collaboration between private and public sector institutions and the SSE sector (financial, governmental, and exporting agencies).
7. Raw material and other inputs/services supply - locating sources of raw materials, organising purchasing co-operatives, improving and standardising input quality, and stabilising input availability.
This typical array prompts the following observations. First, since very few, if any, agencies offer the whole array very little co-ordination takes place in targeting the efforts to specific sectors and groups. Second, the efforts are directed largely at existing enterprises. In this sense they are directed at strengthening the status quo of the social fabric and rely on a trickle-down effect to reach those people who are not yet in business or those activities that would encourage new products or services, creating new sources of economic development and new competition.
These observations lead to the focus of this monograph. Field experience which concentrates on developing specific target groups of first-time entrepreneurs has been chosen for review. In lesser developed economies, in particular, there is a need to diversify economic activities and to include target sectors of the population in the mainstream of economic activity. The programmes chosen, for review are based on their potential contribution to knowledge for this task plus the following criteria:
1. Documentation on the programme and an evaluation of results is readily available.
2. They are particularly successful, in that a higher than average percentage of the trainees ultimately create businesses; or,
3. While having a lower success rate, they give evidence of dealing well with particularly problematic target groups or economic environments.
Some brief information on the programmes selected is given below. Certain aspects of the programmes have been extracted from information supplied to the ILO. These programme descriptions will be referred to throughout the monograph.
1. XAVIER INSTITUTE OF SOCIAL SERVICES - Ranchi, India
Xavier Institute of Social Services has been training village entrepreneurs since 1974. It offers a six-month programme to tribals with minimal literacy and numeracy skills, involving technical training by placement with local trades people, motivation training, management training, project preparation, follow-up and counselling.
Of the 353 potential entrepreneurs trained since 1974, 25.5 per cent are now in business and successful. Those who may still start in business would increase the percentage to 40 per cent. While this success ratio is low when compared to other programmes it is still considered very good when one considers the handicaps of the target group and their environment.3
2. MADHYA PRADESH CONSULTANCY ORGANISATION LTD. - Madhya Pradesh, India
This technical and management consultancy organisation, promoted by all-India financial institutions and state corporations, undertakes assignments for project planning, detailed engineering, market surveys, management services and entrepreneurship development programmes. The entrepreneurship development programmes are for four target markets: (a) technical graduates, (b) unemployed graduates (general category), (c) scheduled caste, scheduled tribes and others, and (d) women.
Data are reported on 1,122 trainees in 45 courses, from which 380 businesses have been started - an overall success rate of 34 per cent. If one removes the 295 trainees whose completion has been too recent to evaluate in this manner, the overall success rate climbs to 45 per cent. It is worth noting that in the 23 courses conducted for tribals and scheduled castes 57 per cent of those trained have started units so far.4
3. Self-Employment Programme of the VOCATIONAL TRAINING INSTITUTE - Kampala, Uganda
The Vocational Training Institute is a unit of the Directorate of Industrial Training of the Ministry of Labour of Uganda. In co-operation with the International Labour Office a pilot programme of accelerated training of unemployed secondary school graduates was designed and tested. The programme of technical, management and entrepreneurship training was designed to encourage self-employment and workshop creation in services needed for reconstruction and rehabilitation of the economy in the rural areas.
Of the first 56 trainees an independent consultant was able to interview 15 graduates three months after completion of their programme. Of these, 12 had started in self-employment and, on average, had hired one other individual. Overall it was estimated that 50 per cent of the trainees had started or would start in self-employment.5
4. CALCUTTA Y SELF-EMPLOYMENT CENTRE - Calcutta, India
The Calcutta Y Self-Employment Centre began as a vocational programme to provide self-employment for educated youths. However, it has developed innovative approaches to help people set up their own businesses and to reach the much smaller economic activities of rural dwellers. Its target group is youths between 18 and 30 years of age who are currently without regular employment (approximately 50 per cent are high school graduates).
The programme was established in 1971, and by 1978 over 500 men and women had graduated and 373 businesses had been set up. The failure rate of businesses started began at 50 per cent but is now down to 25 per cent.6
5. Self-Employment of Educated Unemployed Youth Programme of the BANGLADESH MANAGEMENT DEVELOPMENT CENTRE (BMDC) - Dacca, Bangladesh
The programme for self-employment of educated unemployed youth was launched in July 1978 with the objective of creating employment opportunities on a limited scale for educated unemployed youth, through their development as potential entrepreneurs.
Out of the first 306 youths selected, 300 have submitted projects after their training, of which 228 projects have been duly approved by the Project Appraisal Committee of the programme.
From a survey conducted during a recent study on the overall effectiveness of the programme, and from the response of the entrepreneurs trained under the programme and settled in business, it is found that 177 youths are doing well in their businesses and may be said to have become successful entrepreneurs.
One of the unique features of this programme is its attempt to measure the contribution of each component of the design to the overall results. Thus measures are derived to identify separately the effectiveness of selection, training, credit and the overall programme. As stated later in this monograph, failure to differentiate and measure the results of each component of the programme is a significant handicap to deriving knowledge which can be used to improve results. Thus the BMDC programme contributes to our understanding of how to go about making such improvements.
Evaluation of the programmes is broken down into the following components: the efficiency of Selection + Training under the programme is thus found to be (228/306) x 100 = 74.5 per cent and the efficiency of the banking sector in settling the trained entrepreneurs is found to be (177/228) x 100 = 77.7 per cent. The efficiency of the Programme as a whole comes out to be (177/306) x 100 = 59 per cent. Total employment created (including the entrepreneurs) is 900.7
6. ENTREPRENEURSHIP DEVELOPMENT INSTITUTE OF INDIA - Gujarat, India
This Institute has evolved from the Centre for Entrepreneurship Development in Gujarat. Since 1970 it (and its antecedent orgnisations) has conducted some 312 entrepreneurship development programmes for 7,710 trainees. From these trainees some 2,913 businesses have been created and another 1,438 are expected to be formed. The success rate thus varies from 38 per cent to 56 per cent depending on how restrictive the definition is. The success rate on the more recent programmes is even higher.
The programmes run by the EDI-I and its antecedent organisations represent the longest-standing, largest-scale, most comprehensive, most successful, and best organised entrepreneur development effort of any country - developed or developing.8
7. HAWAII ENTREPRENEURSHIP TRAINING AND DEVELOPMENT INSTITUTE (HETADI) - Honolulu, Hawaii, United States
HETADI was founded as a non-profit corporation in the State of Hawaii in 1977. The company was formed as an outgrowth of the East West Center Program on International Entrepreneurship Development. The goal of the company was to promote entrepreneurship development in the United States and overseas through training and consulting programmes.
During the last seven years, HETADI has conducted entrepreneurship training and provided technical assistance and other management services for more than 2,000 small businesses and potential entrepreneurs in six countries. The majority of the clients are minority ethnic groups.
An independent evaluation of a sample of 105 clients from one of their programmes found that 55 per cent had started businesses as opposed to only 10 per cent from those who had applied but had not been accepted.9
8. THE ENTREPRENEURSHIP INSTITUTE - Columbus, Ohio, United States
The Entrepreneurship Institute is a non-profit corporation specialising in the development of strategies for creating jobs by assisting entrepreneurs to start businesses or to expand their young firms. The Entrepreneurship Institute programmes assist entrepreneurs by the direct involvement and financial support of the leadership of the community within which the programmes are conducted. The Institute organises a directorship of leading bankers, lawyers, accountants, entrepreneurs and other entrepreneurial support resources with which it shares decision-making and programme planning responsibility. As a high-level network of support with contacts in the entrepreneurial community, this group is asked to assume a leadership role in creating new businesses, helping to expand young firms, and providing jobs in the area.
The programme is thus directed in a way that addresses a significant handicap of government-run programmes - lack of contact with, and the involvement of, the business community - and acts as a means of localising a national effort.
The success of this programme is measured on the basis of a limited sample of programmes conducted and participants contacted. An independent consulting firm, Ann Becker and Associates of Chicago, was able to reach only 57 per cent of past registrants. From this sample, 96 companies had been formed, 117 had been expanded, and 1,087 new jobs had been created.
The salient features of this programme are: (a) building of entrepreneurial support networks, (b) active involvement of the leadership of the local community, and (c) private sector initiative.10
9. New Enterprise Programme of the MANPOWER SERVICES COMMISSION - Sheffield, United Kingdom
As part of the Governments overall commitment to new and small business, the Manpower Services Commission has introduced a number of training schemes whose purpose is to aid redundant or unemployed workers to set up in business on their own account.
Normally participants on an NEP course must be unemployed at the time they go on the course. Each course lasts 16 weeks. In the first four weeks there is usually a residential period at a business school, with class and tutorial work on topics such as marketing and finance. The remaining 12 weeks are non-residential and are spent in starting to put a business proposal into practice.11
The NEP courses started in 1977 and by the end of 1981 about 350 people had been trained. There was a very low drop-out rate. Nearly 300 businesses were known to have been set up. These employed approximately 2,000 employees.
The following studies have also been referred to extensively:
1. Technonet Asia: Achievement motivation training: Trainers guide and Handbook of exercises,12 covering experiences in Indonesia, Malaysia, the Philippines and Thailand.
2. Harper, Malcolm: Entrepreneurship for the poor,13 covering a survey of 53 programmes in all five continents.
3. Buzzard, Shirley: Income-generating projects of small-scale development organizations: A field study,14 covering 65 income-generating projects in India, Indonesia, the Philippines, Kenya and Sierra Leone.
4. Hunt, Robert W.: The evaluation of small enterprise programs and projects: Issues in business and community development.15,16
In the sections to follow the information received from the above-mentioned sources will be referred to extensively under the headings of (1) Factors influencing programme design; (2) Organisation and administration; and (3) Training programme components. Under these headings major themes and issues of concern to programme managers will be discussed.
1 World Bank: Employment and development of small enterprises, Sector Policy Paper (Washington, DC, February 1978).
2 Goldmark, Susan G. and Rosengard, Jay: Evaluating small-scale enterprise promotion: State-of-the-art methodologies and future alternatives (Washington, DC, Development Alternatives, Inc., 1981).
3 Xavier Institute of Social Services: Training village entrepreneurs: Guidelines for development workers (Ranchi, India, 1980).
4 Madhya Pradesh Consultancy Organisation Ltd., Nagar, Bhopal. Correspondence with International Labour Office, 7 June 1985.
5 Loucks, Kenneth E. The author was the entrepreneurship consultant on this project. The information contained here is derived from the project files at the International Labour Office, Geneva, and from the evaluation report of Professor Malcolm Harper.
6 Brown, Jason: Program for Investment in the small capital enterprise sector: Assisting the smallest economic activities of the urban poor, Part II: Case studies India (Cambridge, Massachusetts, Accion International/AITEC, 1980).
7 Chowdhury, A. Momin: A behavioral model of entrepreneurship development for self-employment of educated unemployed youth in Bangladesh (Dacca, Bangladesh Management Development Centre, 1981).
8 Patel, V.G.: Entrepreneurship development programme in India and its relevance for developing countries, paper prepared for the Economic Development Institute of the World Bank (Ahmedabad, Entrepreneurship Development Institute of India, 1985).
9 HETADI: Overview of HETADIS Entrepreneurship Training Programs (Honolulu, Hawaii, Hawaii Entrepreneurship Training and Development Institute, 1985).
10 Zupnick, Jan William: Information supplied to the International Labour Office by The Entrepreneurship Institute, Columbus, Ohio, 3 April 1985.
11 Johnson, Peter and Thomas, Barry: Training means (small) 10 business: An economic evaluation of the New Enterprise Programme, in Employment Gazette (London), January 1983, pp. 17-20.
12 Technonet Asia: Achievement motivation training: trainers guide and Handbook of exercises (Singapore, Technonet, 1984).
13 Harper, Malcolm: Entrepreneurship for the poor (London, Intermediate Technology Publications, 1984). Professor Harper kindly provided this author with access to the original research data and computer printouts for this study.
14 Buzzard, Shirley: Income-generating projects of small-scale development organizations: A field study (Warwick, Rhode Island, Foster Parents Plan International, 1984).
15 Hunt, Robert W.: The evaluation of small enterprise programs and projects: Issues in business and community development (Washington, DC, Agency for International Development, Office of Evaluation, 1983).
16 Hunt, Robert W.: Approaches to small enterprise development. Unpublished report prepared for Foster Parents Plan International (Illinois State University, 1984).