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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 folder3. Business development service instruments
View the document(introduction...)
View the document3.1 Training
View the document3.2 Access to information
View the document3.3 Technology development and transfer
View the document3.4 Access to larger and more profitable markets
View the document3.5 Consultancy and counselling services

3.5 Consultancy and counselling services

Skilled and experienced consultants normally provide consultancy services by appraising the situation of their MSE clients and recommending various courses of action to the clients. They may offer their services in relation to various aspects of the business, such as technology, marketing, business management, etc. In the case of private sector consultants, expert knowledge of one or more of the above aspects is required since the client expects concrete and useful results from the consultancy.

Consultancy services are provided at the enterprise premises or in other settings. They can also be provided before the establishment of an enterprise (pre-investment activities) or after it has been established (finding solutions to problems faced by the enterprise or assessing possibilities for expansion). Staff members of government agencies and non-government organizations provide most of the consultancy services for MSEs. In the short and medium term, it is doubtful that MSEs would be able to obtain the services of private consultants on a commercial fee-paying basis. Indeed, studies in industrialised countries show that few MSEs actually use the services of a consultant, with the exception of accountants who are needed for completing their tax forms.

The major problem with consultancy services provided by government agencies and non-government organizations relate to the general poor quality of services provided. Government agencies and non-government organizations do not always use strict criteria when recruiting staff members who will act as MSE consultants. Business experience is not always required, and various educational backgrounds are accepted, even some that may be of little relevance to the job. Yet, the skills required for providing relevant, effective and high quality consultancy services are probably much more complex than those required of staff members involved in training. Many evaluations of the consultancy services provided by various types of organizations have compiled long lists of the weaknesses of government agencies and non-government organizations, including technical weaknesses, lack of experience, little knowledge of the business world and, in some situations, a condescending attitude to the MSE clients.

Another major problem - which paradoxically reduces the importance of the previous one - is that a very small proportion of MSEs actually make use of consultancy services provided by government agencies and non-government organizations! Many studies indicate that this proportion is probably at most five per cent, but may be much less. The same studies indicate that the majority of MSEs actually get some form of counselling and, at times, some limited consultancy services free-of-charge from friends, relatives, clients and suppliers.

By acknowledging these criticisms and problems, this has resulted in some adjustments, with new and additional forms being developed for providing advice to entrepreneurs. This includes strengthening local consultancy services, group consultancy, business clinics and counselling. However, these improvements cannot on their own increase the proportion of MSEs seeking these services from the service providers. The fact that many of these providers rarely ask for the payment of even low fees has not been a sufficient inducement for MSEs to take advantage of this facility. The main issue is seen as promoting the demand for consultancy services, as it is felt that such services could significantly improve the performance of MSEs.

A few new and promising approaches aimed at promoting demand for consultancy services are currently being tested in a number of countries. These include:

· The establishment of a consultancy fund which operates according to principles similar to those of the voucher system in the case of training.

· The provision of consultancy services as part of other services which the entrepreneur regards as of greater and more immediate urgency, such as assistance in accessing a particular market; getting supplies of materials at lower prices; solving a difficult production problem; etc. It is important that the business development service providers are capable of finding the right solutions to these problems so as to increase the interest of the MSE owner in other types of consultancy.

· Promoting the provision of consultancy services by MSE associations for the benefit of their members. It is relatively easier to convince the management staff of these associations about the importance of consultancy services, than to convince the individual owners of MSEs. Once an agreement on this issue is reached between the service provider and the association, it is up to the association to convince its members to try the available services. In this case, advice coming from a peer may have a greater impact. The service provider may make available the services of one of its staff members working from the association's premises.

In order to maximise the chances for the above approaches to succeed, it is important at the same time to tackle some of the other issues discussed earlier - issues such as the consultants' qualifications, the need to use a business-like approach, cost-effectiveness, quality of the services, etc. In particular, it is important that the qualifications correspond to the requirements of specific types of consultancy assignments. The consultants should have expert knowledge in specific areas such as marketing, production technology, etc. It is also possible that they will need to be sectoral specialists.

There have been a number of promising approaches in the provision of consultancy services.

a) Establishment of a consultancy fund

A consultancy fund operates according to principles similar to those of the voucher scheme in the case of training. Micro and small enterprises are provided with the possibility of selecting their own consultant from the public or private sector, and the consultancy fees are paid by the government agency sponsoring the programme.

A consultancy fund has been recently established by the DIP in Thailand, using similar principles. There are many variations in the way consultancy funds are operated. Vouchers may be provided to the MSE owner, or a contract may be established between the sponsoring organization and the consultant once the latter has been selected. In Thailand, the entrepreneur visits the organization (e.g. Department of Industrial Promotion) and expresses the wish to obtain the services of a consultant to solve a specific problem. Terms of reference for the consultancy are drawn up by the DIP and the MSE owner, and then these are advertised. Usually, there is a limit to the fee paid per consultancy. The DIP reviews the bids and usually selects the lowest bid, whereupon the consultancy may then take place. For the time being, the MSE owners are not required to cover part of the cost of the consultancy, although there are plans to have him/her contribute to the fee. Such an approach presents a number of attractive features. First, it ensures some level of commitment from the part of the entrepreneur. Second, the entrepreneur should be able to require quality services from the consultant, which may not be possible if these services were obtained from an organization that does not treat the entrepreneur as a real client. Third, this approach should increase the supply of local consultancy services, and may in the long-term promote a higher demand for this type of service. Finally, it would seem from a limited assessment of the DIP consultancy fund scheme that the cost of private consultancy assignments is lower than the cost of providing this consultancy directly by a government agency.

It would be useful, however, to establish clear guidelines for the use of such a fund. It is suggested that the consultancy fund be made available to the more mature MSEs only, i.e. those requiring more sophisticated types of consultancies. Within this group of MSEs, it may also be useful to focus on priority types of consultancies, especially those which could have a greater impact on the MSE (e.g. marketing, technology). Some cost recovery could also be possible if the MSE owner is given the responsibility for covering part of the cost - assuming the consultancy has been of real benefit. Finally, the sponsoring organization should also establish clear guidelines on the use of the fund, so as to ensure that the consultant and the entrepreneur do not misuse it.

b) Computer-based consultancy services

There are currently two separate computer-based approaches through which MSEs may avail of consultancy services. One is through the use of special software - possibly in combination with the Internet either on their own, or with the assistance of the staff of a business development service provider. The second is through direct computer-based and Internet consulting facilities.

An increasing number of MSEs in industrialised countries (especially those managed by younger individuals) use available software for a wide range of business analysis that normally would require the services of a consultant, such as for a business plan, a cash-flow analysis, assessing the profitability of various business options, etc. They can also use the Internet to access additional information required by the software programme (e.g. information on prices of materials, equipment, and fiscal regulations). In some cases, software may be obtained along with up-to-date information available at certain web sites specifically developed for MSEs.

Consulting on the Internet is a very recent innovation that has been initiated in some industrialised countries, especially in the USA. It may be difficult to apply it in many developing countries in view of the limited telecommunications infrastructure, and the fact that the large majority of MSE owners may not be computer literate and may not possess a computer. However, it would be useful to test this system on an experimental basis. Even if MSEs cannot use it immediately, it could be useful for service providers who face difficulties finding information or problems in getting advice on a complex consultancy issues. For example, a proposed association of business development service providers could operate the system for the benefit of its members. It should be stressed, however, that while the potential of consulting on the Internet is very promising, this is a novel approach, the practicality and usefulness of which still needs to be demonstrated.

A recent evaluation was made of the few experiments of Internet consulting in the USA. The evaluation found that Internet-based consulting could be useful for only some MSE owners. The target market is extremely price sensitive and services of this sort can only be used to complement other modes of consultancy services. Ensuring that there is no "culture gap" between the Internet consultant and the MSE owner is also an important factor in the possible success of this new approach.

c) Brokering between SMEs and local consultants

In Ghana, the ESSA brokers linkages between micro, small and medium-sized enterprises and consultants with a view to helping the enterprises improve the performance of their business. This also works to increase the supply of better quality consulting services. As many micro, small and medium-sized enterprises may not be aware of the potential advantages of using consultants and may not be able to afford the fees charged by private consultants, ESSA acts at two different levels. It raises awareness among entrepreneurs about the benefits that can be derived from consultancy services; and it provides an initial subsidy for consulting services purchased by the enterprises. Thus, the main role of ESSA is essentially one of "priming the pump". The consulting services are provided, not by ESSA, but by the private sector.

Assistance is also provided to raise the level of technical capacity of local consulting firms. For example, the Ghana Institute of Management and Public Administration (GIMPA) has been assisted in developing and providing group training courses for micro, small and medium-sized enterprises on a fee-paying basis. The majority of ESSA's clients are small enterprises with more than five employees, and an average annual turnover of up to US$400,000. Some clients, however, are larger, with annual turnovers of up to one million dollars. Clients need to have the financial capacity and commitment to implement the actions identified by ESSA and the consultants. The larger firms are expected to pay a higher proportion of the cost of consultancies. These services are provided in response to the specific needs of the client, and ESSA considers one of the most distinctive features of its work to be that the enterprise is always seen as the client, and clients participate in both the design and the implementation of the services. ESSA staff work with the entrepreneur to assess the firm's capacity and operations, as well as its commitment to bring about internal changes. Modules of specialised support are then developed to address operational, technical and management problems, and these modules are provided by a local consulting company. They can include assistance in management information systems, reorganising operations, technical training in high technology areas, and in management.

The aim of ESSA is to reach financial sustainability over a limited period of time (i.e. having clients ultimately paying 100 per cent of the costs of services provided by the private sector). After about one and a half years in operation, clients pay an average of $6,800 for consulting services, representing about 50 per cent of the direct costs, and the proportion of costs recovered is rising. For training activities, cost recovery is currently running at 84 per cent, and 100 per cent recovery of the direct costs is expected soon. ESSA keeps computerised baseline information on its clients, and this is collected during the assessment phase and then periodically updated. A number of performance indicators are used to assess impact at the client level.

ESSA has been working with both large and small consulting firms. The large firms say they benefit by gaining access to a market (i.e. SMEs) they would otherwise find difficult to reach. They also see gains in terms of broadening their services and improving quality to meet the needs of the client base. However, these larger firms express only limited increases in operational and institutional capacity. The smaller firms are usually more specialised and there is greater impact in terms of improved capacity. ESSA also helps them develop new products and services, and identify niche markets.