Research: What Works and What Doesn’t in Enterprise Development

The International Growth Centre (IGC) at the London School of Economics, and the Aspen Network of Development Entrepreneurs (ANDE), reviewed the enterprise development literature with a focus on how to best support Small and Growing Businesses (SGBs) to grow, and the impact of jobs at SGBs. Key findings are summarized below, a research fund is being established to address key gaps, and emergent findings will be shared here.

Key findings so far:

  • There is a large variation in the impact of enterprise support programs.
    • Some standard, short-term, low intensity, classroom based training have been found to have little to no meaningful impact on the growth of participating enterprises (including ILO’s Start and Improve Your Business, the largest enterprise training program in the world)
    • Others, such as small enterprise consulting, peer-to-peer networking, and more intense training programs have been shown to make a meaningful impact on the growth of participating enterprises.
    • Therefore paying attention to the impact of enterprise development programs is really important.
  • Peer-to-peer learning is effective in increasing the growth of small and medium sized enterprises, and for selecting high potential firms.
    • SMEs in China which met monthly in small groups grew 8-10% faster. Firms grouped with larger firms benefitted the most. The results suggested that the optimal small group structure is where firms share some characteristics, but are not direct competitors.
  • Trust is related to enterprise growth, and can be created. Firms located in higher trust regions have more decentralized decision-making processes and are therefore able to grow larger. Recipients of a management consulting intervention, which improved record keeping and communication, were more likely to establish new factories, suggesting an increased willingness to delegate and decentralize decision-making.
  • Mentorship can help small businesses, but different mentorship structures have different effects. In studies on small enterprises, local, in-person mentors were found to help small businesses to improve practises and increase profits by providing localized information that is customized to the individual business. International mentors communicating through Skype, did not change business practices but were found to help enterprises ‘’pivot’’ their business strategy.
  • Exporting benefits SMEs. Egyptian carpet manufacturers learned new skills from foreign buyers and intermediaries, which resulted in improved quality, productivity, and profits.
  • The origin of large manufacturing firms in several African countries is more often traders, foreigners and state-owned firms rather than local start-ups. This has implications for those interested in identifying the highest-potential enterprises.
  • Salaried wage jobs are the distinguishing feature separating the middle class from the poor in developing countries. Understanding the role of small firms in job creation is a priority moving forward.

The full paper is available here, a practitioner summary is available here, and the findings are also summarized in this well written SSIR blog.