International Best Practice in Micro and Small Enterprise Development Isep Logo

International best practice in micro and small enterprise development
ISEP LOGO
MICRO AND SMALL ENTERPRISE DEVELOPMENT & POVERTY

ALLEVIATION IN THAILAND
Project ILO/UNDP: THA/99/003
WORKING PAPER 2
SERIES EDITOR: Gerry Finnegan
ILO UNDP
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Foreword
I am pleased to see this series of working papers produced as outputs of the
ILO/UNDP Micro and Small Enterprise Development and Poverty Alleviation Project in
Thailand. As the UN agency with special responsibility for employment matters, the ILO is
concerned about employment in all sizes of enterprises, in both the formal and informal
sectors. The ILO is as much concerned about the quality, as the quantity of jobs created.
This point is well amplified in the recent report on "Decent Work" by the ILO Director-
General, Mr Juan Somavia.
From related studies carried out by the ILO following the financial crisis in
East Asia, it is apparent that both the level of employment and the quality of employment
conditions in Thailand have been adversely affected by the crisis. Consequently, the work
being undertaken by this project is most timely, assessing as it does the role of micro and
small enterprise (MSE) development in poverty alleviation and employment creation.
Governments are no longer expected to be the principal providers of jobs –

jobs should be and are increasingly being created by successful, well-managed private sector
enterprises. However, governments do have a vital role to play in ensuring that the policy
environment is ‘enterprise friendly’. The path into enterprise should be smooth, and
entrepreneurs should be able to receive relevant advice and support (both financial and non-
financial) in a highly effective manner from both government and private sector agencies.
The needs of the MSE sector should be clearly identified, and linked with a better
understanding of the scale and scope of the enterprise sector and its role in national
development. At the same time, those employed in enterprises, the organizations that
represent them, and the management of these enterprises should be able to mutually consult
to ensure decent work and optimum productivity.
A broad range of important aspects of MSE development are addressed in this

set of six working papers. Together they provide a substantial body of knowledge and
significant inputs for policy-makers and decision-makers in Government, the private sector,
those employed in enterprises, international organizations and the donor community, as well
as for entrepreneurs themselves.
Given the prominence of the small and medium enterprise sector in

Government policy, this information is being made available at an appropriate time. It is also
highly relevant, coming as it does at a time when the ILO has recently completed a Country
Employment Policy Review in Thailand, as well as providing support to make its Start and
Improve Your Business (SIYB) training materials available for extensive use in Thailand.
Rueben Dudley
Officer-in-Charge
ILO/EASMAT
Bangkok, Thailand
February 2000
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Preface
This working paper, International best practice in micro and small enterprise
development, prepared by Maurice Allal, has been produced as part of the ILO/UNDP Support for
Policy and Programme Development project on Micro and Small Enterprise Development and
Poverty Alleviation in Thailand (THA/99/003). A full description of this project can be found in the
project document, which is available on request.
This series of six working papers is the combined output from the team of national
and international consultants engaged by the ILO in Thailand between March and June 1999.
Preliminary findings for each of the reports was shared with a group of key informants at a
workshop/consultation, held at the Royal Princess Hotel, Bangkok, in May 1999. We are indeed
grateful for all comments and feedback received at that workshop. While every effort has been made
to ensure the accuracy of the information in these reports, we regret any omission or error contained
herein. These working papers are intended as a means of advancing the public debate on the small
enterprise sector in Thailand, and the ILO is eager to share this information with the widest possible
audience.
The term "micro and small enterprise" (or MSE) is not commonly used in Thailand,
as more frequent reference is made to the designation, "small and medium enterprise", or SME. Each
of the ILO consultants has made some reference to the issue of definitions of micro, small and
medium enterprises, and Paper six in the series is dedicated to this topic. Therefore, to facilitate a
clear and unambiguous understanding of these working papers, we have been at pains to make
distinctions between different categories of small enterprises. We believe that the issue of definitions
is not simply one of semantics.
One basic premise of this project is that there is a significant number of smaller
enterprises which do not fit into the conventional enterprise support programmes of the Royal Thai
Government. With targeted forms of support, these enterprises could improve their productivity and
competitiveness, make a greater contribution to generating wealth and alleviating poverty among the
families of owners and workers alike, and create more jobs.
The ILO has been supporting micro and small enterprise development for more than
three decades. In 1998, in a significant landmark event for the Organization, the ILO's Conference -
at which Thailand was represented - unanimously adopted a new Recommendation on Job Creation in
Small and Medium-sized Enterprises (No.189). Because of its extreme relevance to the subject of our
enquiry, we have reproduced this Recommendation as an Annex. Particular attention is drawn to
sections 11 and 8, dealing with the development of an effective service infrastructure and actions in
times of economic difficulties, respectively. In addition, to coincide with this new Recommendation,
the ILO launched a global International Small Enterprise Programme (ISEP) to provide technical
assistance for member countries, including Thailand. The work carried out under this ILO/UNDP
project is also part of the ILO's ISEP programme.
Gerry Finnegan
Senior Specialist & Series Editor
ILO/EASMAT, Bangkok
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Table of contents
Forward ........................................................................................................................iii
Preface ........................................................................................................................v
Table of contents................................................................................................................vii
Acronyms ........................................................................................................................ix
Executive Summary...........................................................................................................1
1. Introduction to business development services...................................................3

1.1 Guiding principles of best practice in BDS ..................................................7
2. Assessing business development services ............................................................10

2.1 Indicators of good practice.............................................................................10
2.2 Assessment of MSE needs.............................................................................12
2.3 Assessing performance of BDS providers.....................................................14
3. Business development service instruments..........................................................15

3.1 Training..........................................................................................................15
3.2 Access to information....................................................................................22
3.3 Technology development and transfer...........................................................25
3.4 Access to larger and more profitable markets................................................30
3.5 Consultancy and counselling services...........................................................35
4. Providing business development services............................................................40

4.1 Types of BDS organizations..........................................................................40
4.2 Strengthening the capacity of service providers............................................42
4.3 Lessons learnt from international best practice.............................................43
Annexes
I: List of web sites ......................................................................................................49

II: Bibliography ...........................................................................................................52
III: ILO Recommendations concerning General Conditions to Stimulate....................58
Job Creation in Small and Medium-sized Enterprises, 1998 (No. 189)
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Acronyms
Akili Advance Kenyan industry through local innovation
ApproTEC Appropriate Technology (organization)
BDS Business development services
CEFE Competency-based economies through formation of enterprises
DIP Department of Industrial Promotion (Ministry of Industry)
EASMAT East Asia Multidisciplinary Advisory Team (of the ILO)
EDA Enterprise development agency
EDP Entrepreneurship development programme
ERVET Emilio-Romagna regional support agency, Italy
ESSA Enterprise Support Services for Africa
FIT Farm Implements and Tools
GEMINI USAID-assisted MSE project
GIMPA Ghana Institute of Management and Public Administration
GTZ Technical assistance programme – Government of Germany
IDB Inter-American Development Bank
IDE International Development Enterprises
ILO International Labour Organization
ISEP International Small Enterprise Programme (of the ILO)
IYB Improve Your Business
LIUP Local Industry Upgrading Programme
KAB Know About Business
MSE Micro and small enterprise
NBIA National Business Incubation Association
NGO Non-governmental organization
PCS Business development service provider, Colombia
PROMICRO Regional federation of microenterprise associations, Central America
SITE Strengthening informal sector training and enterprise (Kenya)
SIYB Start and Improve Your Business
SME Small and medium-sized enterprise
SPX Sub-contracting and Partnership Exchanges
SYB Start Your Business
ULI User-led innovation
UNDP United Nations Development Programme
UNIDO United Nations Industrial Development Organization
USAID US Agency for International Development
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Executive summary
This working paper is part of a series of six working papers prepared under the
ILO/UNDP project on micro and small enterprise (MSE) development in Thailand. It reviews
international best practice in the area of business development services1 (BDS) and assesses
the potential for replication of some of the more promising approaches in Thailand. Readers
interested in getting a full understanding of the various issues underlying the supply of and
demand for business services in Thailand are encouraged to review this working paper
alongside working papers 1 and 5.
The business development services (BDS) covered by this working paper include: access to
various types of information of direct interest to micro and small enterprises; consultancy
services; skill and business training; marketing services; and technology transfer and
development. The main types of business development service providers reviewed and
assessed include both institutional, not-for-profit business development service providers
(such as government agencies, parastatal organizations, membership organizations, non-
government organizations and associations of micro and small enterprises) and commercial
for-profit business development service providers, such as consultants, consultancy firms and
suppliers.
Various types of bodies provide business development services. These include

government agencies, non-government organizations, private sector providers, and micro and
small enterprises associations. These bodies may also be organised in networks, and the same
services may be offered through a number of channels or sources of BDS. Similarly, the same
channel or source may offer a number of services. Therefore, this working paper also reviews
and assesses the more promising sources and channels of BDS based on international best
practice.
The criteria for assessing the effectiveness of BDS instruments and performance are
also described. These criteria relate to the outreach, efficiency, effectiveness and institutional
and financial sustainability of the various BDS instruments and business development service
providers reviewed in this working paper.
This working paper comes at a particularly opportune time when the Royal Thai
Government has adopted a policy to gradually transfer the direct provision of BDS by
government agencies to other service providers outside the Government. It is hoped that this
working paper will be useful to the Government in deciding which types of BDS instruments
and service providers should be promoted.
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Business development services (BDS) refers to any kind of business development support that
is not financial.
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1. Introduction to business development services

Following the review and assessment of institutional business services development
(BDS) providers in Thailand (see working paper 1 prepared under this ILO/UNDP project),
this working paper elaborates on the coverage, concepts and issues relating to the design and
provision of, and access to business development services and provides examples of
international best practice.
Micro and small enterprises (MSEs) require two types of services: financial services
and non-financial services - more commonly referred to as “business development services”
or by the acronym “BDS”. Financial services help existing or would-be entrepreneurs acquire
the means for establishing or expanding a business (e.g. finance for machinery, production
premises, and working capital). In the majority of cases, these services refer to bank loans or
credit made available through wide-ranging credit schemes. In recent years, new types of
financial services have been offered to MSEs. These include the leasing of equipment, joint
ventures, and special types of subcontracting arrangements. The working paper on financial
services (number 4), prepared under the ILO/UNDP project, provides information on
financial services available for MSEs in Thailand.
Business development services (BDS) refer to the provision of information,

knowledge and skills, as well as advice on the various aspects of a business. This definition
of BDS implies a conscious action performed by the service provider for the benefit of the
receiver of the service. Thus, the action of an individual using savings for establishing a
business may not be considered as a “financial service”. Similarly, information obtained
inadvertently by an entrepreneur (e.g. on a supplier of materials) may not be considered an
“information service”. This is an important distinction that is not made by some practitioners
who tend to use the term business development services whether a service provider is
involved or not.
BDS are provided to help owners of enterprises get new ideas on how to improve
their business through, for example, increasing productivity, reducing production costs, or
accessing a more profitable market. These services include the transfer of information in
various forms through, for example, consulting services or special events (e.g. exhibitions
and trade fairs). The impact of this category of BDS depends on how the owners of
enterprises make use of the new ideas.
Business development services may also be required for the establishment and
operation of an enterprise. Services required in this instance may include legal services (e.g.
registration of the enterprise), training of owners and workers, special laboratory services for
testing goods produced by the enterprise, and assistance in arranging contracts with larger
firms.
Formal BDS are those provided through special arrangements, conditions or contracts
between a business development agency and the owner of the business. They include services
provided by public and private sector organizations, private sector consultants and consulting
firms, as well as services specifically included in a contract between the owner of the
enterprise and a supplier or contractor. These services may be provided free-of-charge or for
a fee. Informal BDS are those that are not provided by service providers. They include
information and advice provided by the relatives, friends or employees of the owner of the
enterprise, as well as those services provided in the context of normal commercial
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transactions with suppliers, clients or contractors. Informal BDS also include information
obtained from media programmes (e.g. radio and television). These services are usually
obtained free-of-charge. In many situations, these are generally the most important sources of
BDS used by MSEs.
Business development services can be provided by commercial, for-profit agencies, or

by institutions that are not-for-private-profit organisations. Those services provided on a
commercial basis include the services made available by private consultants and consulting
firms, as well as those provided under contract in the context of commercial transactions with
suppliers, contractors or firms offering specialised services (e.g. repair and maintenance of
equipment). The fees applied in these cases cover the full cost of the services. Making profits
is the main motivation of these service providers. These services are demand-driven and
client satisfaction plays an important role in the growth of these service providers. BDS
provided on an institutional basis includes those made available by private sector
organizations (e.g. chambers of commerce), government organizations and institutions or
associations of MSEs and NGOs, under various arrangements and conditions. These services
are usually provided free-of-charge or at subsidised fees, for non-private-profit motives, as
part of the organization's mandate to promote the MSE sector. These services may or may not
be demand driven. Indeed, good quality BDS providers respond to quantifiable demands of
the MSE sector.
In most developing countries and emerging economies, those involved in MSE

development usually pay more attention to financial services than to the non-financial BDS.
Working paper 1 indicates that this is also the case in Thailand. This emphasis, however, is
often misplaced. Many studies show that the large majority of micro-enterprises, and to some
extent small enterprises, use their own savings for establishing a business or their
accumulated profits for expanding an existing one. They do not attempt to obtain finance
from external sources. Furthermore, MSEs are often discouraged by banks from applying for
finance, and available credit schemes usually only reach a small proportion of the total
population of MSEs. A large proportion of people wishing to establish a business are doing
so, therefore, without the benefit of financial services.
Few existing or potential entrepreneurs can establish or expand a business without

access to some form of business development services, as defined earlier. These may be
formal or informal services, provided through commercial or institutional sources. The
proportion of MSEs that never use development services of one sort or other is very small.
Most MSEs need some information and training, whether this is provided through formal or
informal channels. They may also need to deal with contractors or intermediaries if they are
involved in subcontracting, or the services of a technician may be required for major repairs
to their equipment. Access to quality BDS by MSEs can boost the growth and
competitiveness of the enterprises. It can also increase the impact of existing financial
services and improve the capacity to repay loans.
The impact of BDS depends on the proficiency of the service provider and on the use
made by MSEs of other services. BDS should be demand driven, and the owner of the
enterprise should recognise the need for BDS assistance. However, the service provider may
also have a role in helping the entrepreneur to identify the specific problems of the enterprise,
and in offering appropriate assistance. This sould ensure that the BDS services are relevant.
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Service providers should be sufficiently qualified to provide good quality services.

Consulting services should be based on a good understanding of the problems faced by the
enterprise. The entrepreneur should have confidence and trust in the BDS provider, and this
should increase the chances of the entrepreneur adopting and applying the relevant advice of
the service provider.
MSE owners and managers are a mixed group. There are those that exhibit a high
degree of initiative and who are able to actively seek and take full advantage of information.
There are those who are more passive. Studies in several countries have shown that the
former group comprises only five per cent of MSE owners, although this group contributes to
over 50 per cent of new jobs. They manage what is called “growth-oriented firms”, and are
frequently referred to as the “gazelles”. Therefore, a large proportion of the total impact of
BDS could be attributed to this small group of entrepreneurs. If this is true, it can have
important policy implications in relation to the provision of institutional BDS. Due to their
limited resources, current providers can only reach a small proportion of all entrepreneurs.
Therefore, they need to decide to give priority to the “gazelles” among entrepreneurs, or to
assist any entrepreneur seeking such services.
The provision of BDS to this small group of entrepreneurs exhibiting a high degree of
entrepreneurial spirit could be justified according to the criterion of maximum impact.
However, from an ethical and political point of view, a formal policy on this issue may not be
feasible. Furthermore, it can be a difficult, if not impossible task, to identify and find these
“gazelles” or “winners”.
The involvement of government and non-government organizations in the provision

of subsidised BDS is prevalent in many developing countries and countries in economic
transition. Few governments in industrialised countries are involved in the direct (or even
indirect) provision of BDS. Some NGOs are involved in these activities, but they are few and
mostly deal with vulnerable groups in society.
In industrialised countries, the provision of BDS is largely the job of the private
sector, and is manifest in many forms. In relation to technology transfer, equipment
manufacturers compete with each other in order to increase their share of the MSE market.
They constantly develop equipment that is more advanced and use aggressive advertising to
attract MSEs. The equipment is made available through a wide network of dealers, which
also provide maintenance and repair services. Leasing of equipment is also available to
interested entrepreneurs who may fear that equipment may quickly become obsolete.
Innovators develop more advanced production technologies and sell their patents to larger
firms for their commercialisation. Entrepreneurs subscribe to a wide range of technical
magazine which provide information on the latest technologies and equipment. They visit
specialised fairs and exhibitions where they can get first hand information on developments
in their trade. Thus, it can be seen that many of the most important aspects of technology
transfer are dealt with by the private sector.
The same applies to marketing information. In industrialised economies, many owners

of MSEs tend to subscribe to various specialised magazines which provide the latest market
information on their field of business. They become members of trade associations or
chambers of commerce which represent the MSE sector. These organizations carry out
research on market trends and manage information centres, which provide up-to-date market
information to their members. This information can also be obtained from specialised fairs. A
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well-developed network of wholesalers and retailers, and good telecommunications, transport

and financial networks facilitate commercial transactions and the quick processing of orders.
More recently, many MSEs are making use of electronic commerce (called “e-commerce”)
through the Internet. However, such marketing information is not so easily accessed in
developing countries.
The situation in the area of consulting services is somewhat different as MSEs in both
industrialised and developing countries do not appear eager to use the services of consultants.
A recent study in one part of Switzerland shows that a very small proportion of MSEs have
used the services of a private consultant or consulting firm in order to find a solution to a
particular problem or to get advice on how to improve their business. However, there are a
few important differences between industrialised and developing countries in this respect.
The majority of owners of MSEs in industrialised countries use the services of an accountant
to help them prepare their yearly statement for the relevant authorities. Accountants also help
in assessing the financial situation of the enterprise. Another difference is in the increasing
use that MSE owners make of software to carry out various assessments of the enterprise, and
to help decide on the best course of action. This software may be partly considered as a
substitute for consultants.
Linkages between MSEs and larger enterprises, as well as among MSEs themselves
offer additional possibilities for access to BDS. These linkages can take the form of joint
ventures, subcontracting arrangements, technology transfer and marketing contracts. Such
linkages are essential for the growth and international competitiveness of the larger
enterprises, particularly in the face of globalisation and trade liberalisation. They also
contribute to the development and growth of MSEs.
Similarities and differences between BDS in industrialised countries and developing

countries and countries in economic transition can be found. The main similarity is that the
large majority of MSEs access BDS from the private sector - either formally or informally.
Studies carried out in a number of developing countries show that one of the most important
sources of business services for MSEs are their suppliers and clients, as well as larger firms
with which they have established subcontracting arrangements. Approximately five per cent
of MSEs access business services provided by government agencies and NGOs. Another
similarity is the infrequent use of consultants, the main difference being that accountants are
generally used by MSEs in industrialised countries. However, the main difference between
industrialised countries and developing countries is that MSEs in industrialised countries
make a greater use of formal business development services. Furthermore, the average
educational level of owners of MSEs in industrialised countries is generally higher than that
of developing countries and emerging economies. These higher educational levels facilitate a
more effective use of available services, especially those with a literacy requirement – such
as many forms of training.
There are more sources of information in industrialised countries than in developing

countries. Thus, entrepreneurs in industrialised countries are quickly informed about new
technological changes, market trends, etc. This can help the entrepreneurs to make quick
adjustments in the enterprise and maintain their competitive edge.
In contrast to MSEs in developing countries, those in industrialised countries are

generally considered as equal players with the larger ones. They are associated to the larger
enterprises through a dense web of linkages, which significantly increase the inter-
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dependence between all sizes of enterprises. These strong linkages facilitate further access by
MSEs to a wide range of services. Furthermore, MSEs are well represented in private sector
organizations and can play an important role in decision-making within these organizations.
On the other hand, these linkages are still weak in developing countries, and few MSEs are
members of private sector organizations.
In industrialised economics, many large equipment manufacturers and suppliers of

raw materials and intermediate inputs are aware of the importance of the MSE market, and
are active in responding to demand for capital goods, services and inputs from this market. In
developing countries, large enterprises are less responsive to this market for reasons not
clearly established. Thus, MSEs are frequently obliged to depend on suppliers of expensive
imported equipment or sub-standard second hand equipment. Furthermore, maintenance and
repair services are not easily available for this type of equipment.
Investment in education by both governments and the private sector should promote a
new breed of better-educated entrepreneurs capable of competing with their counterparts in
industrialised countries, and capable of using new information and other technologies in their
business. Promoting more use of new information technologies and the facilities provided by
the Internet for e-commerce or for accessing all types of information of interest to MSEs is
also essential.
In expanding the role of the private sector in BDS provision, private sector
organizations should promote a broader membership base to increase the representation of
MSEs. They should take measures to strengthen, expand and diversify linkages between all
sizes and types of enterprises. Larger firms should be encouraged to review their current
strategy for growth to determine whether such strategy pays sufficient attention to
possibilities for expanding and strengthening linkages with MSEs, and improving the
business performance of their “smaller” (MSE) business partners.
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
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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
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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.
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2. Assessing business development services

A large number of studies, reports and guidelines were used for this review. However,
the main source of information is a report published by the Donor Committee on Small
Enterprise Development that is made up of representatives of the major international
agencies, donors and non-government organizations involved in MSE development. This
Committee commissioned the preparation of guidelines on the issue of BDS, based on an
extensive review and analysis of the approaches used in the area of BDS by the members of
the Committee (Business Development Services for Small and Medium-Sized Enterprises:
Preliminary Guidelines on Donor-Funded Interventions). These Guidelines were published in
1998 by the ILO, which was assigned the responsibility for this task. Following the
publication of these Guidelines, the Committee organised two regional workshops for a
further exchange of ideas and experiences relating to the provision of and access to BDS by
MSEs: in Harare (Zimbabwe) in 1998, and in Rio de Janeiro (Brazil) in 1999. Papers
presented at these two workshops were also used in the preparation of this working paper.
Other major reports on the issue of BDS were also reviewed.
Some of the examples of best practice reviewed here are also based on a number of
technical assistance projects (completed or on-going) implemented by the ILO in a large
number of countries in Asia, Africa, Latin America and Central Europe.
In the context of this working paper, the term “international best practice” refers to a
range of approaches for promoting access to quality and sustainable BDS, which have been
successfully applied in a number of countries or have been proven particularly promising. It
should be stressed that these approaches would not necessarily succeed in other countries or
even replicated in the country where they were originally developed for a number of reasons.
Firstly, the structure of the economy and cultural factors largely determine whether an
approach may succeed or fail. Secondly, experience shows that potentially good approaches
are more likely to succeed if they are initiated by individuals who exhibit drive, motivation,
honesty, and inventiveness.
Therefore, it is possible that the replication of some of the approaches that have been
successfully applied in other countries may not succeed in Thailand if the economic structure
and cultural factors are not conducive to replication. In other cases, the approaches may need
to be adapted specifically to the Thai environment. In all cases, the successful replication of
promising approaches can depend to some extent on the choice of the individuals assigned
the task of replication.
The main objective to facilitating access to quality BDS by MSEs is to help them
improve their overall performance. Achieving this objective should lead to their growth - that
is, that they employ more workers and become more profitable. Good practice, therefore, has
to be seen in relation to this overall objective.
2.1 Indicators of good practice

This section discusses the meaning of good practice and the use of benchmarks for
assessing the performance of service providers. Good practice in BDS interventions is
defined here with respect to four essential levels of impact and four broad performance
criteria. The impact should be measured at the enterprise level (i.e. changes in the behaviour
and capacity of the owner of the enterprise); the meso or service provider’s level (i.e. changes
19
in performance); the household level (improvements in living conditions resulting from the
better performance of the MSE ); and at the macro level (changes to the policy and regulatory
environment resulting from the provision of sustainable and better quality BDS). However,
this working paper will focus on impact at the enterprise and meso levels only.
The main performance criteria used to measure good practice are:
• Outreach––i.e. number of enterprises and organizations reached by the

interventions;
• Efficiency––i.e. how resources are used by the service provider for

implementing its interventions;
• Effectiveness––i.e. whether or not the interventions achieved their stated

objectives; and
• Sustainability––as previously defined in Chapter 1.
It may be difficult to measure the performance of business development service

providers based on the above criteria, especially because there may be conflicts between
some of the criteria (e.g. strong outreach may be achieved to the detriment of impact at the
enterprise level).
Given the above criteria, it is necessary to develop qualitative and quantitative

indicators of good practice. One may choose one or more indicators when taking into
consideration the specific objective. While it is possible to find long lists of indicators in the
literature, it will be necessary to develop practical indicators that reflect local circumstances.
There are two main types of indicators. Firstly, there are those pertaining to the
service provider (internal indicators), such as efficiency and outreach, which measure the
performance of the provider but may not give useful information on the impact of its services
on the actual enterprises. Secondly, there are those pertaining to the ultimate objective of the
provider’s intervention, such as the creation of large numbers of growth-oriented enterprises.
While quantitative indicators (e.g. the number of enterprises serviced each year) may
be easier to apply and to use in evaluations of the service provider, they can be misleading.
For example, while the logbooks of a provider may show that contacts were established with
thousands of entrepreneurs, it is plausible that only a few actually benefited from the services.
The contrary could also be true - the number of entrepreneurs may be low, but most of them
may have benefited significantly from the services.
Qualitative indicators are more difficult to apply, but can yield extremely important
findings on both the business development service providers and their clients. These may
include changes in behaviour, which could have important long-term effects on the enterprise
than, for example, a short-term assistance in marketing. While one can find a large number of
examples of indicators in the literature, it is best to develop one’s own indicators to reflect
local circumstances, intervention objectives, and the characteristics of the clients.
Responsibility should be assigned to the business development service providers to

develop indicators of business development, although they could also benefit from technical
assistance from specialised organizations. In assessing the service providers themselves, it
20
may be necessary to involve relevant government departments or donors to decide which

indicators to use. These “outsiders” may also use their own staff or consultants to assess the
performance of the BDS service providers. In addition, the business development service
providers may also wish to assess their own performance, whether they benefit from
subsidies and external support or not.
2.2 Assessment of MSE needs

The importance attached to assessing the needs of MSEs before designing the
development has been increasing over the past ten years, in parallel with economic and
political liberalisation. People must express their wishes and be full participants in
programmes that affect them directly. Some donors have been active proponents of this
policy and apply it systematically in their technical co-operation programmes. The terms
‘demand-driven’ or ‘demand-led’ can now be found prominently in most project documents.
Another phenomenon, which may also explain the increased focus on needs
assessment, is the gradual transfer of the business development activities from government to
the private sector or semi-private bodies. Thus, business development services are being
viewed as commercial activities, especially in the context of the increasing pressure to
achieve financial sustainability. Consequently, business development service providers are
beginning to behave like the owners of successful enterprises who pay special attention to
market research, i.e. through carrying out market or needs assessments.
Needs vary according to a wide range of variables, including location, size of the
enterprise, sex of the owner, type of sector, etc. Good practice means that the service provider
should try to be as precise as possible in the assessment of needs.
Before describing various approaches to assessing the needs of MSEs, it is important

to clearly define what is meant by MSEs’ needs. In summary, there are three types of needs.
These are:
• felt or perceived needs based on the entrepreneur’s own assessment of the

problems and potential solutions;
• logical or real needs, which are the result of the service provider’s own analysis
of the situation; and
• demand, as expressed by the entrepreneur who is willing to pay for assistance

to solve a problem or pursue an opportunity.
Many donors and local service providers have carried out studies aimed at identifying
the felt needs of entrepreneurs in countries such as Kenya, Dominican Republic, Zimbabwe
and Malawi. Although the priority needs were not the same in the countries surveyed, all
respondents in these countries mentioned three major service needs: credit, training and
marketing.
In view of the three types of needs mentioned above, the consensus has been that
business development agencies should respond by giving priority to the felt needs of the
entrepreneurs, as well as their willingness to pay. However, this should not prevent the
service providers from educating entrepreneurs about other “logical” needs they may have,
21
but are not be aware of, or about the existence of new, more effective interventions. Many
successful examples of service providers who decided to respond to the felt needs of the
entrepreneurs clearly constitute examples of good practice. Two service providers in Kenya,
ApproTEC and SITE, were able to recover 100 per cent and 50 per cent of their training and
other costs respectively, partly because the trainees were ready to pay for services they
regarded as being particularly important to them.
Various approaches to needs assessment have been developed and used in different
countries. The more successful ones make use of five guiding principles1:
• The individual in charge of the needs assessment should be psychologically close to

the MSE client. Such a person usually has a crucial influence in determining which
needs will be assessed and, ideally, is also be in charge of the planned interventions.
• The MSE client should participate fully, both in the needs assessment and the design
of interventions based on the assessment. This should yield better intervention design
and develop a stronger sense of client ownership.
• A needs assessment exercise should not be a one-off activity. The service provider
should visit clients periodically to determine if further assistance is needed.
• It is important to develop a tight focus, and problems and interventions should be

described in detail. Generic interventions based on general statements are not
normally very useful.
• It is very important to explain how support interventions should be delivered and

carried out - for example, there may be few clients for a training course that is held at
the wrong hour or the wrong day of the week.
These guiding principles have been used in the development of a number of needs
assessment techniques, two of which are described below.
Needs assessment based on a sub-sector analysis2

This technique was developed by USAID under the GEMINI programme. A sub-
sector is a vertically integrated group of (large and small) enterprises concerned with the
same product. The rationale behind this needs assessment technique is that the enterprise in
the sub-sector face similar constraints, which are different from those faced by enterprises in
other sub-sectors. Interventions to address these constraints should, according to international
experience, have a much greater impact than generic interventions.
The success of this needs assessment technique depends on a number of factors. First,
it is important to choose the right sub-sector, based on discussions with representatives of the
entrepreneurs in the sub-sector. Second, one should produce an accurate sub-sector “map” - a
detailed description of the major characteristics of the sub-sector. Third, it is very important
to understand the sub-sector dynamics: who are the main actors and what are the driving
forces? What are the challenges, constraints and opportunities? Fourth, it is necessary to
develop a sub-sector development strategy, and then plan the interventions accordingly.
1
Source: Committee of Donor Agencies for Small Enterprise Development, ‘Business development
services for SMEs - Preliminary guidelines for donor funded interventions’, 1998, ILO
2
Source: ibid, page 26
22
Examples of successful programmes based on this sub-sector approach are described with
some detail later in this working paper.
Action-research
Action-research is based on cycles of action, followed by reflection, then by further
actions. Local service providers can learn by doing and they can share their new knowledge
with their own clients. Since MSE owners and managers are more likely to be able to take
account of the complexity of their own particular situations, the solutions that they
themselves generate should be more sustainable. Action-research projects should come to an
end once the approach developed through the project becomes operational and can be easily
replicated by other business development service providers.
2.3 Assessing performance of BDS providers

A good assessment should be based upon solid monitoring of the BDS support. The
cost of an assessment should not be excessive, and it should not exceed ten per cent of the
total project budget. The assessment exercise should be both rigorous and practical, with
clear recommendations for further actions.
While many manuals are available on how to assess the performance of organizations
in general, assessing the performance of BDS service providers is a complex undertaking not
normally catered for in such manuals. There are three major effects which are difficult to
assess, and which could considerably reduce the reliability of the assessment. The first is that
business development services are only one factor among many that affect the growth and
competitiveness of enterprises. It is, therefore, necessary to isolate the effects of BDS, and
this can usually be done by the use of a control group. However, many evaluators are
reluctant to use this technique for ethical and cost reasons. Secondly, it is difficult to estimate
the “snowballing” effect of the BDS, where other entrepreneurs who are not formally covered
by the intervention obtain information and ideas from the same intervention. Finally, business
services provided to an entrepreneur by a government agency or not-for-profit organization
may actually have a negative effect on another entrepreneur who did not benefit from these
services (e.g. cases of excess production of the same good in a limited geographical area),
thereby creating a displacement effect. Thus, any negative effects should be set off against
the positive ones.
The difficulties mentioned above clearly show that assessing the performance of a
BDS service provider is very complex. It requires highly qualified staff and can be somewhat
expensive. These kinds of assessments are very important in view of the large amount of
money spent every year on promoting business development service providers. Countries
cannot afford to ignore this issue and, therefore, government agencies and other organizations
should carry out some extremely professional and in-depth assessments to determine whether
the public investment in this area is justified. The assessments should not only focus on
specific business development service providers, they should preferably cover the raange of
different BDS approaches used by a number of providers.
23
3. Business development service instruments

Access to quality BDS by MSEs implies the existence of various business
development instruments and channels through which these services can be provided. This
chapter describes the following business development instruments:
(1) training;
(2) access to information;
(3) technology development and transfer;
(4) access to larger and more profitable markets; and
(5) consultancy and counselling services.
The methods used for describing and assessing business development instruments are
based on those used in the business development service guidelines prepared under the
overall responsibility of the Committee of Donor Agencies for Small Enterprise
Development1. The following examples of instruments are taken from these guidelines, as
well as from a number of reports published by various international organizations, such as the
ILO, the UNDP, the UNIDO and the USAID. Many of these reports have been presented at
regional or international meetings on business development services, such as the regional
meeting in Harare (Zimbabwe) in 1998, and the international conference in Rio of Janeiro in
1999. A few examples are also based on technical co-operation projects implemented by the
ILO.
It should also be noted that most service providers offer a range of services, using
some of the BDS instruments described here. Thus, they may excel in the provision of some
services, while achieving limited results with others. This is the reason why some MSE
development practitioners suggest that service providers ought to specialise in a small
number of services.
3.1 Training
The main objective of training is to help owners of MSEs acquire new technical and
business skills or improve their current skills. It is generally provided to groups, although
one-to-one training is at times practised. Another important objective of training is to teach
the MSE owner to analyse and find solutions to problems, and to identify where to obtain
specialised assistance. This second objective of training should ultimately reduce the need for
the owner of the enterprise to obtain the services of a consultant.
In industrialised countries, most MSE owners and their workers get their basic
training in educational institutions, including public and private vocational training schools.
On-the-job training within the enterprise usually complements this training, where the
trainees acquire the additional specialised skills required for the job. In many developing
countries, the large majority of MSE owners and their workers do not benefit from the basic
training provided by public training institutions, although institutional training is becoming
more prevalent. Thus, most of them (especially the older generation of MSE owners)
1
ILO, 1998
24
acquired their skills from on-the-job training in Box 1:

enterprises. Such training is generally of Impact of a semi-generic training product
limited scope and variable quality. developed by CEFE
Consequently, governments, as well as semi- The Competency-based Economies,
private organizations and non-government Formation of Enterprise (CEFE) approach to
organizations, have had to invest heavily in SME development was first developed in
training programmes aimed at improving the Nepal in the 1980s by GTZ and has since
skills of a large numbers of MSE owners and been adapted and implemented in many
their workers. Indeed, before the recent other countries. The general CEFE 'model'
predominance of micro-finance support focuses on developing the capabilities,
motivation and resources of people either
interventions, training was the most important
already in business or aspiring to start in
service provided by these organizations. Large business (there are different programmes for
training centres were established and mobile each). CEFE emphasises the importance of
training used in many countries to reach the local adaptation of its approach,
isolated communities. depending on the local needs and
environment. However, the broad
A number of evaluations of national framework of the programme is common to
training programmes, particularly those all. A recent evaluation of CEFE's pilot
provided by public organizations, point to activities world-wide, focussing on its
weaknesses in terms of efficiency and impact. start-up programme (not including
Training is often too generalised and does not follow-up activities), found that an average
of 45 per cent of the trainees had started a
respond to the specific needs of the trainees. It
business. In long-term projects (including
is supply-driven and delivered in a top-down post-training services), the corresponding
fashion, whilst the qualifications of the trainers figure is more than 50 per cent. Financial
are often inadequate. Finally, there is often contributions from trainees typically average
little concern for cost-effectiveness, and around 30-50 per cent of direct costs.
follow-up of the trainees is rare.
A number of national and international organizations have developed new training

approaches to overcome these weaknesses. Some noteworthy examples, which will be further
discussed later, are the ILO Start and Improve Your Business (SIYB) Programme; the GTZ
Competency based Economies for Formation of Enterprise (CEFE) Programme (see Box1);
and the Entrepreneurship Development Programme (EDP), originally started in India and
replicated later in a large number of countries. Some countries have made significant
adaptations to these training programmes. There are also programmes aimed at specific
groups of MSEs, such as programmes for the benefit of growth-oriented enterprises,
originally developed in the United Kingdom.
3.1.1 Lessons learnt from past and current practices in training

A number of lessons have emerged from past and current MSE training programmes.
The most important ones are briefly discussed below.
• Training should be business-oriented. Training services for MSEs

are often viewed as an extension of the basic general educational system. However,
the objective of MSE training is different. Training should aim at helping the MSE
owners and their workers to acquire specific skills for running their businesses
profitably. Training should be provided in a business-like manner, with the trainers
treating the trainees as clients rather than having a teacher-student relationship.
Business development training should be based on a good knowledge of MSE markets
and needs. Training programmes should be designed in line with these needs and
25
ensure that the trainers are qualified for the job. Furthermore, they should provide
training in ways that are acceptable and agreeable to their clients (e.g. period of the
day for training). These principles should apply whether the service provider is a
private sector firm or semi-private or non-government organization.
• Avoid mixing training and financial services. This issue is not yet
fully resolved and there are those who believe that the same service provider should
not provide these two types of services, arguing that mixing these services may force
only those MSEs interested in getting a loan to enrol in a training course. Others argue
that it is possible to keep each service operationally and financially separate, without
putting any additional pressure on the MSE owner.
• Training should be designed on the basis of the clients’ needs.

While some generic training may require minimal adaptation to the clients’
characteristics (e.g. a service provider may only need two different packages of
training materials for training in accounting), clients usually expect specific training
related to their business. The level of training also depends on the basic qualifications
of the clients. Problems arise when one-to-one training is too expensive and the
mixing of clients with different needs and characteristics within the same training
course, may not prove effective. A solution could then be to provide training to
homogeneous groups of clients, such as members of the same MSE association, who
may have similar training needs and characteristics. Another solution would be for
training providers to specialise in a few training areas or with specific groups of
clients, and to advertise themselves accordingly.
• Training should be delivered to maximise its impact. Training

should not be delivered according to traditional approaches, such as classroom
lectures; it should simulate real MSE situations and actively involve the trainees; and
it should be practical and problem-oriented. Training exercises should require trainees
to apply their training in solving some of their current problems. Training should be
provided at times of the day convenient to the trainees.
• Trainees should consider trainers as ‘one of their own’. Studies

show that trainers who are very close to the trainees in terms of their values, language
and other characteristics, provide the most effective training. Ideally, they themselves
should have been owners of MSEs or have come from a family of entrepreneurs.
• Maximise the outreach of training. This is an important objective

that partly overlaps with that of efficiency. Service providers should be
geographically close to their clientele. Clients should be able to reach the training
centre, by bus or other means, within two hours (at most). Trainers may also move
from one venue to another, using premises provided by local organizations, whenever
training does not require specialised equipment that cannot be transported. Training
may also be provided to associations of MSEs in their own premises. Mobile training
has also been particularly effective under some circumstances.
26
• Monitoring and feedback. If training is to be conducted in a business-like

way, regular monitoring and responses from the clients should be an important part of
the process. In most cases, trainees are asked to complete a post-training evaluation
sheet. However, while these sheets may provide some interesting responses
immediately after the training course, follow-up checks by the service provider are
very important for assessing the real value of the training and its longer-term impact
on the MSEs.
• Training commitment and charging fees. Achievement of the

objective of training requires a strong commitment on the part of the trainees.
Selecting trainees according to their sense of commitment at the time of enrolment is
difficult, and it may not be possible to turn away some trainees. One solution,
therefore, would be to charge training fees that should ensure some level of
commitment. The fee should be more than a nominal one that would not represent any
financial sacrifice for the trainee. On the other hand, it does not necessarily need to
cover the full training costs. There are many examples showing that this is a very
effective solution to ensuring commitment. In any case, the practice of paying an
attendance fee to the trainees should be avoided.
3.1.2 Some examples of best practice in training

Successful or promising approaches are being
used or tested in a number of countries. These Box 2:
approaches are briefly described and discussed Empowering SME clients: the training
below. voucher scheme in Paraguay
The starting point for this scheme
(supported by the IDB) is the view that
a) Training vouchers creating a successful system requires it to
The use of vouchers in Paraguay is described be demand-led and market-oriented.
in Box 2 and many countries have applied this Although external subsidies are required
approach. The voucher system consists of providing for micro enterprise training, they should
be provided in such a way as to
the owners of MSEs or would-be entrepreneurs with strengthen the market relationship
vouchers, which allow them to select a training between training customers and suppliers.
institution (public or private) and purchase the In this system, micro enterprises can
training they need free of charge in exchange for the purchase vouchers from government
voucher. Presenting the voucher to the government offices at a subsidised rate and use these
to pay for training programmes at
agency which manages the voucher system, means institutions which have been approved by
that the training institution gets paid. There are many the government. Institutions can exchange
variations on this system. The entrepreneur may be vouchers only after programmes are
given the voucher free of charge or may pay a small completed and only if participants have
fee. There can be restrictions on where the voucher attended more than 75 per cent of the
classes. In the first 20 months of
can and cannot be used, and vouchers may be
operation, 11,324 micro entrepreneurs
provided to any entrepreneur or may be attributed participated in 696 training programmes
only to some groups. with an external cost of only $220,000 (a
relatively modest subsidy). Empowered
The voucher system presents many attractive by the purchasing power of vouchers,
entrepreneurs are exercising their choice
features. Firstly, it helps select entrepreneurs who are
and there are already signs that
interested in training, although the payment of a fee institutions are having to become more
is more effective in ensuring commitment on the part responsive to their needs. Furthermore,
of the entrepreneur. Secondly, the system should entrepreneurs are re-evaluating their own
stimulate higher quality training since the clients are attitudes to training. This may result in a
free to choose the training institution they prefer. further reduction in the external subsidy.
27
Trainers will, therefore, attempt to attract the largest number of trainees by paying greater
attention to the quality of training. Thirdly, the system should increase the supply of private
sector trainers. Finally, vouchers are particularly useful in regions where government training
centres are not available, and where only private sector trainers provide training. The system
can, however, lead to some abuses by trainees or trainers. It is therefore important to monitor
it closely and to use external auditors from time to time.
b) Promoting the organization of group training

The merit of this approach is that it facilitates training that is adapted to the client
needs at an affordable cost. Organising training groups from the same sub-sector (e.g. 20 to
50 group members at a time) will considerably reduce the cost per trainee. Furthermore, the
group may negotiate with the trainer on the type of training it requires. Peer pressure should
also ensure greater commitment on the part of the trainees. It should be possible to use the
voucher system in conjunction with group training.
c) Provision of training along with other services

It was indicated earlier that training could be provided by an organization which is
also involved in micro finance. The dangers of combining BDS with financial services were
also discussed. However, training may also be provided along with other business services,
such as consulting and information services. Indeed, this mix of services is already being
provided by many business centres (see later). In general, the possibility of conflicts between
the various functions of the service provider should be more manageable than in the case
where business and financial services are mixed.
One of the merits of this approach is that the trainer should be more aware of the
problems of MSEs (e.g. if also involved in the provision of consulting services), and should
therefore be able to design training programmes more adapted to their needs. The
establishment of one-to-one relationships between the trainees and the trainer in relation to
other business services should also increase the commitment of the trainees, as well as their
confidence in the trainer.
d) Tapping the local training capacity

FIT Uganda Ltd is a private BDS provider established with ILO technical assistance
and initial funding from the Government of the Netherlands and the Austrian Development
Service. The objective of FIT Uganda Ltd is to reach financial sustainability within a period
of five years by charging of fees for its services and subcontracting with donors. A business
plan was prepared at the time FIT Uganda was established to determine whether this
objective can be realistically achieved. Thus, the issue of financial sustainability was clearly
taken into consideration from the start of the project.
FIT Uganda found out through a survey that there was a relatively large number of
private, for-profit trainers and training organizations, which do not receive any government or
donor funds. There was also a high demand for training amongst MSEs. These trainers
provided training to MSEs at low fees, but also needed to handle other jobs because revenues
from training were not sufficient. The quality of training was also variable. FIT Uganda
decided to tap the local training capacity by providing training in two specific areas relating
to technology transfer and marketing, and on how to run a training business and develop the
market for training. A pilot phase involved 12 trainers who benefited from a five-day
training course at a cost of US$ 42 per person. Subsequently, the 12 trainers started training
MSE clients. Five hundred such clients were trained over a period of six months. However,
28
the fees paid by the clients were not sufficient to cover the full cost of training, although the
trainers did their best to cut costs. Therefore, the training courses were partly subsidised by
FIT Uganda. The subsidy per trainee is, however, lower than that required by formal training
institutions. While this initiative is still in the pilot phase, it is a promising one because it is
deeply embedded in the local market for services. (See Box 3 on FIT’s activities – Kenya.)
Box 3:
Enterprise visits to promote exchange and learning in Kenya
In Kenya, partner BDS organizations of the FIT programme organised enterprise visits for SMEs
(informal sector jua kali businesses) aimed at providing them with a real opportunity to learn and
exchange information and to develop commercial linkages. The process had several stages. First,
the BDS organizations selected the sub-sector that would be the focus of the programme and
assessed its main needs and, on this basis, laid out an initial programme. Second, the participating
entrepreneurs were selected. Care was taken to ensure that they did not include direct competitors to
facilitate the free exchange of information. A workshop then followed, during which the
participants were introduced to the programme's objectives and assisted in setting personal goals
and formulating a work plan for the exchange visit and later activities. Baseline data was collected
on the enterprises. Visits were mostly in groups, accompanied by someone from the organization.
After the visit, one-to-one advisory services on product design, development and skills upgrading
were provided. Further learning was facilitated by later joint workshops with the entrepreneurs,
which also helped to assess impact. Enterprise visits appear to have had some success in terms of
new practices and skills acquired by the enterprises. Direct costs of the visits were covered by the
SMEs. There is also some indication that entrepreneurs who did not participate but learned about
these visits, organized their own similar visits without support, which in itself is a useful indicator
of perceived impact.
e) Using technology to improve outreach and the quality of training

The education system is already using technology to improve the quality of teaching,
reach isolated communities or handle large increases in the student population without an
equivalent increase in teaching resources. These technologies include computer-based
learning and distance learning. Many countries are now using these and other technologies
for MSE training with a view to increasing outreach and reducing training costs. However,
there is little documentation of progress achieved todate, although this is a promising idea.
f) Start and Improve Your Business (SIYB) Programme

The ILO’s SIYB Programme has been in operation for more than ten years. This is a
world-wide programme, covering over 70 countries and implemented in a large number of
languages. It is a good example of how an international organization, such as the ILO, can
reduce the need for its member countries to develop costly training materials, while at the
same time putting at their disposal materials which have been successfully used in a wide
range of environments. The following description of the programme is based on the
development of SIYB in Eastern and Southern Africa, located in Harare.
The Start Your Business (SYB) and Improve Your Business (IYB) programmes are
separate but complementary. SYB focuses on start-up training needs while IYB focuses on
the training needs of growth businesses. The two programmes have a number of linked
training materials. A third programme, KAB (Know About Business), is an entrepreneurship
training package for vocational and technical training institutions which is still under
29
development. The training assistance is provided through carefully selected non-government

organizations and private consulting firms (user organizations) that are involved in business
creation activities, have the capacity to sustain the training activity after initial assistance
from ILO, and have linkages with other support institutions.
The beneficiaries of SIYB training are carefully selected and must have a concrete
business idea. They must possess, or have access to, relevant vocational skills and be able to
read and write in the language of training. They must also be able to make simple
calculations. SIYB is meant for entrepreneurs who want to start or expand businesses with
growth potential, and not for “survivalist” entrepreneurs. The programme places great
emphasis on ensuring that programme users reach the right target group. Target group
selection methods are therefore regarded as very important.
g) Market driven and sector-based training

Two examples are described of business training programmes initiated in Kenya by
Akili and SITE. These two programmes provide BDS to informal sector micro-enterprises in
the metal, wood, and textiles sub-sectors. Before the start of these programmes, these sectors
were stagnating and the MSEs were facing saturated markets where competition was high
and profit margins low. Vertical growth was inhibited by enterprises lacking the technical and
managerial skills necessary for business expansion and diversification. Both SITE and Akili
share the objective of stimulating enterprise growth by providing services to upgrade skills,
improve product quality, identify and develop new products, and improve marketing
techniques.
To ensure that services are market driven, both programmes attempt to serve the
demand of micro-entrepreneurs and of their clients. However, since micro-entrepreneurs are
usually not aware of their own training needs, an important aspect of the programmes
involves stimulating demand for the programmes’ services. Both programmes identify
specific training needs by looking at market opportunities and working backwards. By
demonstrating the returns to be made from the training, this stimulates demand. This also
involves good marketing of the programme, linking training to tangible and immediate
benefits, and demonstrating the market opportunities that the training will help clients access.
Both Akili and SITE use a sub-sector approach that allows them to focus their support
on production skills, new products, and quality improvements within a specific sector. As
client inputs are important in ensuring the relevance of the assistance provided, courses take
place as close to participants' workshops as possible, and at convenient hours. This also helps
minimise the opportunity costs associated with training.
The services provided by Akili focus on innovative, low-cost products that have the
potential to serve niche markets. Akili provides a comprehensive set of services to help
entrepreneurs think in new ways about their products and markets. It interacts regularly with
its clients, using their ideas, skills and motivation to determine the direction of the
programme’s technical assistance phase. The training includes group training and individual
follow-up technical assistance in product development, on accessing new markets, and on
costing.
SITE uses a participatory approach in defining the training course agenda and
schedule. Through discussions with its clients on specific market opportunities, product
quality, product diversification, design skills, and business management the course
30
facilitators seek agreement with clients on training needs, topics to be covered by the course,
frequency and timing of classes, and on fees. Courses usually cover product specific skills
training, along with business management topics. Improved apprentice training techniques
are integrated into the course design.
Neither of these two programmes considers the achievement of full financial

sustainability to be a high priority. The focus for both has been on developing methodological
approaches and an appropriate mix of services, as well as on building demand from and
credibility with clients. Through careful monitoring of experience and action research, both
programmes hope to develop appropriate pricing policies that will gradually permit cost
recovery over time. In 1998, SITE was recovering 75 per cent of the direct costs of providing
training courses. It had 420 business owners and 1,700 apprentices as clients. Early
indications are that the MSEs’ profits have increased by 25 per cent on average, and that
there has been a 20-30 per cent increase in apprenticeship training.
Both programmes face the challenge of closing the gap between “perceived” and
“real” training needs. Entrepreneurs may think that they do not need training and thus the
demand does not exist in a form ready to be tapped by the training programmes. This implies
that the programmes have to place emphasis on stimulating demand by showing clients
market opportunities they are missing; making an up-front investment in the careful selection
of first time clients who will then act as “role models” and help sell the programme; and
demonstrating the tangible benefits to be gained.
The sub-sector approach used by both programmes provides additional lessons. It is

effective in ensuring that assistance is relevant to the clients’ needs. However, it does have
some limitations. Firstly, staff must have a thorough knowledge and technical competence in
the sub-sector. This tends to limit the number of sectors that can be covered. Secondly, the
approach limits cross fertilisation between sectors, which can be important in promoting
innovations based on market opportunities. Finally, the approach could limit outreach, and
thus overall sustainability.
3.2 Access to information

The objective of information services is to facilitate access by MSEs to information
that is of value to them in either written or spoken form. In this sense, there is clearly an
overlap with training and counselling since both include some level of information transfer.
Many studies carried out by the ILO and other organizations show that the majority of
owners of MSEs use “informal” sources of information, such as relatives, friends and
employees. Information is also accessed through commercial transactions with clients and
suppliers. These sources constitute over 90 per cent of all information sources accessed by
MSEs. This demonstrates that formal information sources are rarely used. Some public and
private organizations have established costly information centres for the benefit of MSE
enterprises, but few MSE owners use them. Thus, the unit cost of information used in these
centres is relatively high.
Public and private organizations have initiated programmes to facilitate access to

information by MSEs. These include the organization of trade fairs; one-stop-shops providing
information of interest to MSEs in addition to other services; the preparation and
dissemination of various technical publications; the operation of information centres where
MSE owners can consult specialised publications; and the publication of newsletters. More
31
recently, some private sector organizations have started to disseminate information through
their own Internet sites. Finally, there are a number of television and radio programmes that
broadcast special programmes of interest to MSEs.
Although no business can really flourish and grow without relevant and reliable
information, public and private organizations involved in MSE development have invested
relatively little in the development of effective information sources. Information services rank
at the bottom of almost all services in terms of investments. The fact that MSEs mostly use
informal sources of information may explain this pattern.
3.2.1 Lessons learnt

The fact that MSEs mostly use informal sources of information or information
obtained through commercial transactions, demonstrates that these are either preferred
sources of information or that there is little awareness of other formal sources. Studies
indicate that the first explanation is more common. Entrepreneurs prefer to get information
from people they trust and from those who are knowledgeable about their business, such as
clients and suppliers. The information they get through these sources is also more directly
relevant to their needs, especially that obtained through commercial sources.
However, MSE owners also face difficulties in obtaining particular types of

information, especially in relation to production techniques and suppliers of materials. Others
may be unaware that such information could help them to improve their business. This is
indicative of the inadequate promotion of formal information sources and shows that minimal
efforts are made to raise awareness amongst entrepreneurs about the importance of
information.
MSE owners with a more entrepreneurial attitude tend to place value trade fairs and
exhibitions, and attend them whenever they can. They also appreciate media on programmes
or newspapers that provide information on their business. However, few subscribe to trade
magazines, either because they cannot afford them or because they believe that they do not
provide the type of information of interest to them.
There is emerging evidence that MSE owners are willing to pay for information of
particular importance to them, such as information on new models and designs in demand by
their market niche (e.g. a foreign market). The information market in industrialised countries
is a very active and expanding one, with thousands of specialised magazines in circulation.
Many MSE owners subscribe to some or other of these publications. They participate in
numerous workshops, trade fairs and exhibitions often organised by their trade organizations.
The Internet is also becoming an important source of information used by computer-literate
MSE owners.
Current interesting innovations

Current interesting innovations include promoting exchange visits and meetings
between MSEs operating in the same sector, but in different areas. There is some evidence to
suggest that MSEs will organise these visits themselves after an initial sponsored exchange
(see Box 3). Bringing together producers and customers for a frank exchange on how
products might be improved to make them more useful and more attractive has also created
some positive impact, as has the publication of technical booklets, including drawings, with
the finance coming from customers and advertisements (see Box 4).
32
Box 4:
Information services for SMEs:
Experiences from ILO technical co-operation projects in Kenya and Benin
These two projects initiated activities aimed at promoting access by MSEs to useful information.
Three particularly promising approaches have been test-piloted: (1) The facilitation of
opportunities for SMEs to discuss product design, quality and price with their customers in a
neutral setting (User-Led Innovation or ULI); (2) The sale of information to SMEs through street
hawkers; (3) The use of existing extension networks to provide a question-and-answer service.
All of these services were provided in a 'minimalist' fashion, drawing on indigenous sources of
information, rather than external experts, to keep costs low. Information booklets were sold
through street hawkers for $1.70; this price included a mark-up of 100 per cent on the production
costs. While only 50 were sold, much was learned about the buying habits and preferences of
SMEs; for example, almost all of the booklets were bought at the beginning or end of the working
day. It remains possible that the publication of information booklets could be profitable, if the
information was carefully designed and marketed.
In the six months of operation, the question-and-answer service has generated 127 questions. For
each question, the SME pays $2; the answer is also paid for at a rate of five times the cost of the
photocopying required. This has generated revenue that has covered 30 per cent of the costs of
answering the questions. It is hoped that scaling up the service will lead to several SMEs asking the
same questions. Costs will thus stabilise, while revenue will continue to increase.
User-Led Innovation (ULI) seems to have had a substantial impact on the product range and
revenues of participating SMEs. One group of 9 metalworkers developed 7 new products, and
improved on 2 existing designs. Consequently, they generated additional sales worth $4,500 over
the following six months. In another ULI pilot activity, the 8 participating SMEs developed eleven
new products, generating additional sales worth $8,200 over the following year. One SME
increased its sales by 180 per cent.
Many organizations maintain Internet sites that provide potentially interesting

information for MSEs. While the volume of such information many still be limited, MSEs
should be encouraged to use it. The problem is that most MSE owners cannot afford the
acquisition of a computer and the subscription to an Internet server. Many of them may not
be computer literate. A solution to this problem would be for business development service
providers to provide an Internet service to MSEs for a modest fee. They could, for example,
install a couple of computers at their own offices and show MSE owners how to access
information. It will be shown later that Web sites may also be used for consulting services.
The mass media (radio and television) are accessible by the large majority of MSE
owners. They could broadcast special programmes for MSEs relating to some less technical
domains, such as marketing, sources of finance, new government incentives for MSEs, etc. It
is probable that the cost effectiveness of this source of information is very high.
33
3.3 Technology development and transfer

The purpose of technology transfer and development is to improve enterprise
productivity and the quality of the goods produced by enterprises to help them withstand
local and international competition. This applies to all types and sizes of enterprises and to all
sectors of the economy, but more particularly to the manufacturing sector.
Policies for increasing the technological capacity of the country should not simply
focus on the larger enterprises only, they should encompass all enterprises, whatever their
size. In particular, technological gaps between the MSEs and the larger enterprises should be
reduced. Medium and large firms may not be able to achieve a sufficient level of
competitiveness unless they can establish strong linkages with MSEs that are also
technologically advanced. In industrialised countries, the technological gap between small
and large firms has been considerably narrowed, with small firms being able to take over
some of the technology development activities of the larger firms.
The technological advancement of any country requires action by both the private and
public sectors at many levels. Firstly, it is necessary to raise awareness about the importance
of technology. Secondly, the flow of information within a country and access to information
from foreign countries must be improved. Thirdly, innovation by individuals and all sizes of
firms should be encouraged. Fourthly, public and private investments in research and
development should be expanded. Finally, the capacity of the machinery production sector
should be increased with a view to reducing dependence on imported equipment.
Over the past 20 years, the technological efforts of many developing countries were
limited to improving the technology used by MSEs. This was the result of the achievements
of the appropriate technology movement initiated by international organizations and non-
government organizations, and subsequently replicated by local organizations. MSEs were
the beneficiaries of the incremental technological improvements, rather than active
participants in this process. Local and foreign experts developed the technologies, and they
identified small tools and equipment manufacturers needed for the production of the
improved tools or equipment, and provided training in the use of the improved technology.
While this approach to technology development achieved some success, it did not have a
significant impact on the technological capacity of developing countries.
3.3.1 Lessons learnt from practices in technology development

This section will focus mostly on lessons learnt in relation to technological
development outlined above, rather than in relation to the appropriate technology approach.
• The technological development of MSEs should be viewed in the

overall context of the technological development of the country. The appropriate
technology movement focussed on the incremental technological development of
MSEs, without any reference to the overall technological development of a country.
While this may be justified for some countries, it has been generally found that where
there is a significant industrial base, the technological development of MSEs should
be part and parcel of an overall national technology development plan.
• Increasing awareness about the potentially profitable technology

market. In many developing countries, there is little evidence of an active technology
market. It is necessary to increase awareness about the importance of shifting to other
modes of production, based on a higher content of locally produced inputs and capital
34
goods, and relying much more on local technological capacity. For example, large
metalworking firms can be made aware of the potentially large market for tools and
equipment required by MSEs, and devote more resources to developing, producing
and marketing such tools and equipment. This should also reduce dependence on
imported tools and equipment which many MSEs may not be able to afford, and
which frequently forces MSEs to use sub-standard or second-hand equipment.
• Encouraging and promoting a market for innovations. The

technological and industrial achievements of advanced economies are, largely, the
result of a myriad of innovations developed by individuals and all sizes of firms.
These innovations are then actively marketed, and a large number of them adopted by
the innovators themselves or those who acquire the patent rights. Many countries
organise “innovations fairs” to facilitate deals between innovators and manufacturers.
Services are provided by the state to facilitate the establishment of patents which
protect the innovator. In developing countries, the innovations market is fairly under-
developed for a number of reasons. This includes a lack of awareness of the potential
importance of this market; limited industrial capacity to bring innovations to the
production stage; and difficulties faced in protecting one’s own innovation.
• Promoting an integrated approach to technology development.

Individual enterprises find it difficult to raise their level of technology in isolation.
There is a need for close collaboration between a wide range of partners who can
contribute to various aspects of technological development and transfer. This includes
the MSEs themselves – especially the suppliers of machinery and inputs – and
universities and research institutes; government organizations responsible for
developing standards and for the protection of intellectual property; training
institutions; and financial institutions. Collaboration between these organizations is
essential for the successful development and commercialisation of technological
innovations. Many countries have promoted the establishment of structures which
facilitate interaction between these actors listed above. Some of these structures
include technology parks, incubators, industrial districts (similar to the successful
Emilio Romania in Italy), or regional development models (such as the Valencia
model in Spain) which facilitate interaction between enterprises, universities and local
authorities. Some of these examples are described briefly later. (See Box 5 on
technology development in Bangladesh.)
• MSEs’ capacity to invest in new equipment. Most owners of MSEs

face great difficulties in accessing loans from banks which enable them to invest in
new equipment that is more productive. The available micro credit schemes do not
provide sufficient financial resources for this purpose. Without a change in the current
policies of the micro finance and lending institutions, little can be achieved in this
area.
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Box 5:
An example of appropriate technology development:
Marketing the treadle pump in Bangladesh
The treadle pump was designed by an NGO in the early 1980s. Although it was sold commercially,
there was also significant subsidised distribution by NGOs. International Development Enterprises
(IDE) became involved when the design had been finalised. They set about changing the existing
approach to transferring the technology, arguing that this should not be a subsidised process and that
the most effective way of reaching the largest number of people was a self-sufficient, private
network of manufacturers and retailers. Eventually, after resistance from the charitable instincts of
some NGOs, this view prevailed. IDE then set about a process of selecting village dealers and
agreeing on terms with them (among which was a requirement that they had to set up a
demonstration pump), training village well dealers and advertising through a variety of means,
including village theatre and a film. The result of this effort has been that over 1 million pumps have
been sold - around 4 times the initial target - and according to an external evaluation the ratio of
benefits to costs is over 40:1.
3.3.2 Interesting innovations

Many of the recent interesting innovations focus on the establishment of linkages
between different groups of partners, such as MSEs on the one hand, and the larger firms on
the other. Some of these innovations are briefly described below.
a) Technology-based business opportunities

Low levels of innovation and inadequate technical skills are significant constraints to
MSE growth. ApproTEC believes that many entrepreneurs fail to identify or realise viable
technology-based business opportunities to manufacture and sell new products, resulting in a
market dominated by homogenous, often low quality products. ApproTEC's response to these
constraints is to develop technologies that can be used by dynamic entrepreneurs to establish
profitable, growing MSEs, and assisting them in business opportunity identification,
technology choice and marketing.
ApproTEC does not work with the poorest MSEs, and its clients are those who are in
a position to make use of technologies effectively. These are people who have sufficient
skills, capital and networks. In particular, they are people who are willing to make a business
investment in ApproTEC technologies. Clients can be split into two groups: manufacturers
and users.
ApproTEC has a “corporate” approach (i.e. akin to that of a large commercial

organization) to technology development and transfer. This approach emphasises the
importance of professional technical expertise, its application in a demand-driven process,
and the need for strong marketing capacity. This approach is in contrast to approaches to
technology development based on the development of technologies by MSEs themselves.
ApproTEC charges fees for some services, such as training and tool production, and ensures
that relationships with MSEs are defined by contractual agreements, thereby establishing the
parameters of responsibilities and obligations. It is recognised that by trying to recover the
direct costs of certain services, contractual agreements are cemented, and the commitment of
MSEs is enhanced. However, ApproTEC does not yet have an objective of becoming fully
financially sustainable.
36
Other than facilitation and marketing, ApproTEC's most significant role in this supply
chain is quality control. A 'quality plate' is awarded to manufacturers for each press produced
to specified quality, giving the product the very marketable ApproTEC brand name.
ApproTEC has developed a practical means of getting technologies to final users and has
done so on an extensive scale through the private sector. It has also successfully placed
technology development in a market context, by developing technologies that are based on
business opportunities and feeding into a commercial supply chain.
The ApproTEC example proves that it is feasible to use a corporate approach to

technology development by putting technology in the market place; by using a demand-led
and business oriented approach to the process of identifying a market niche through to sales
and distribution; and making technologies self-financing after initial development costs.
b) Financial instruments for the acquisition of equipment

In addition to loans, MSEs may use other types of financial instruments in satisfying
their needs for both fixed and working capital. Subcontracting has been used for this purpose
over a relatively long period, while other instruments are of more recent origin.
• Sub-contracting: There are various types of subcontracting

arrangements. One arrangement involves the transfer of equipment by the contractor
to the subcontractor. In this arrangement, the contractor also supplies the materials
and technical assistance to the subcontractor. The latter may in fact be considered as
an informal affiliate firm of the contractor. Under this arrangement, the subcontractor
does not have to seek loans from banks for investments in equipment and working
capital.
• Leasing: The leasing of equipment to MSEs is used in many countries.

This approach provides a number of benefits for the MSEs and avoids taking loans in
order to acquire a piece of equipment and, therefore, having to deal with banks -
which usually require collateral. Normally, the leasing firm provides repair and
maintenance services, something often neglected by the entrepreneur. Leasing
contracts may include terms that require the entrepreneur to look after the equipment
and, in the case of a business closure, the equipment can be given back to the leasing
firm without the need for the entrepreneur to continue paying back the loan. The
regular payment of a leasing fee ensures that the entrepreneur will take due
consideration of the cost of using the equipment in the output price (a cost often
neglected by the entrepreneur).
• Technical services: The production process in some MSEs may

require the use of very expensive equipment which cannot be afforded by the MSE, or
the acquisition of which may not be justified if the utilisation rate is relatively low.
Under these circumstances, MSEs may establish a contract with medium or large
firms to use their equipment where excess capacity exists in these larger enterprises.
For example, an MSE producing furniture may rent equipment by the hour from a
large enterprise in the same industry.
c) Business incubators
Incubators appeared in industrial countries in the early 1980s, and they are now
several years old and reaching maturity. In contrast, those in industrialising countries are of
more recent origin. Their numbers are growing rapidly in People’s Republic of China, Brazil,
37
Turkey, the Republic of Korea, and Indonesia, as well as in many of the economics in
transition to more open market systems.
Incubators generally provide affordable workspace, shared facilities, counselling,
training, information, and access to external networks for entrepreneurial groups, thereby
helping promote venture creation and economic development. Some incubators target clusters
of technology-based sectors, such as biotechnology and computer software, but most have
mixed tenants. The survival rate of firms in these incubators is much higher than that of firms
outside the incubators (e.g. three to four times in the USA, compared to those starting outside
the incubator). A 1998 survey of incubation by the National Business Incubation Association
(NBIA) in the USA, indicates that current tenants and graduates at north American incubators
have helped establish 19,000 viable companies and created 245,000 new jobs. The average
incubator occupies 36,000 square feet, with 24 tenants, and helped establish 20 companies
within a period of six years. Average residence time in the facility is 2.3 years. State and city
governments sponsor the majority of the incubators in the USA, while around 15 per cent are
private, for-profit units. Many incubators take equity in tenant companies and serve affiliates
outside the incubator. About one-fourth of the incubators have a technology orientation.
A recent impact study of 50 incubation systems (Business Incubation Works, 1997,

NBIA) shows that about 80 per cent of the programmes received some sort of operating
subsidy. On an average annual operating budget of US$278,240, the subsidy was US$86,254.
The average number of jobs created over a seven-year period was 702, including indirect
employment of one-half job for each direct job in the incubator. This resulted in a public
subsidy cost of $1,109 per job. The tax revenue generated was $4.96 per dollar of subsidy.
The majority of incubation programmes world-wide can be characterised as 'public-

private partnerships' in which initial (and often continuing) financial support is provided by
the government. Many governments consider them as part of the business infrastructure, and
the evidence indicates that the annual taxes and other benefits from new economic activity
more than offset the capital and operating cost subsidy. The private sector participates when
it sees that the programme will lead to greater business opportunities and promote spin-offs.
The evaluation of incubators in relation to the main BDS performance criteria (in
particular, in relation to outreach, effectiveness and financial sustainability) shows that they
have largely succeeded in meeting these criteria. These performance criteria were assessed in
relation to two incubators in Brazil: the ParqTec and Biominas incubators. The assessment
shows that they had a significant impact on the economies of the states where they are located
through the nurturing of entrepreneurs and creating sound enterprises with good survival
rates. ParqTec has generated employment with a public subsidy of around US$3,258 per job,
excluding jobs in affiliates. The estimated return in the form of taxes is six dollars (US) per
dollar of public subsidy.
The linkages to universities and research institutes have resulted in the

commercialisation of some technologies. The sponsors and tenants at both incubators have
expressed satisfaction with the results achieved, particularly the help in marketing, business
planning, and securing government permits. Both are helping their government sponsors in
promoting technological development together with other social aspects, such as promoting
an enterprise culture and co-operation between universities and businesses.
d) Partnerships between the state and other stakeholders

Although the following examples are not exclusively focussed on technology
38
development, they present many interesting features which should help such development.
Throughout Europe, many MSE development programmes are initiated through interaction
between different levels of private sector and interest groups with the government playing the
role of a broker, ensuring a smooth integration of the various contributions. Many countries
subsidise technology acquisition and training, especially in Ireland, France, Norway,
Portugal, and Sweden. Many Asian countries, such as Japan, have adopted an integrated
approach to MSE promotion by providing, among others, incentives to large firms to co-
operate with the smaller ones.
Singapore promotes inter-firm linkages between multi-national enterprises (MNEs)

and local micro, small and medium-sized enterprises through the Local Industry Upgrading
Programme (LIUP) which encourages MNEs to ‘adopt’ local enterprises and upgrade their
technical and management capabilities. Experienced engineers from MNEs (whose salary is
paid by the Economic Development Board) who identify areas for focussed assistance are the
people who manage LIUP on a rotating basis. This system uses market forces as an incentive,
since the expertise that is transferred to the MSEs should, in turn, make them more effective
suppliers and partners of the MNEs.
Emilia-Romagna, an Italian province, is particularly known for having initiated a very

innovative small and medium enterprise development approach. Emilia-Romagna is
considered one of the ten wealthiest regions in Europe. In the 1980s, the province decided to
have its industries focus more on quality than quantity. It adopted the industrial district
approach where enterprises focus on specific sub-sectors. The greatest success has been
achieved in knitwear, ceramic tiles, machine manufacture and other engineering and metal
products intended for other industries, such as footwear and food processing. The factors that
contributed to the Emilia-Romagna success include a readiness of firms to co-operate,
especially vertical co-operation between firms at different stages of the production process;
the collective organization of services and the promotion of specific industries; and a
willingness of individuals and firms to exchange information. Emilia-Romagna is also well
known for an interventionist policy on the part of the regional government that helps small
firms modernise and upgrade by providing a supportive institutional structure of service
agencies. The service centres include industrial research; the dissemination of information on
markets, fashion trends, standards and regulations; services for the upgrading and transfer of
technology; training; testing; and certification services.
Micro, small and medium-sized enterprises are encouraged to become members of

those centres serving their particular industrial sector and they pay a membership fee. A
regional organization, ERVET, covers part of the operational costs of the service centres.
Because it is funded and owned by the regional government, ERVET has the authority to
work closely with producers in the framework of a regional strategy. Thus, an integrated
public policy mix is secured at the regional level.
3.4 Access to larger and more profitable markets

Marketing services cover a wide range of services, including information on local and
foreign markets; assistance in undertaking a market appraisal study; assistance in accessing
foreign markets and in using distribution channels; and technical assistance in developing
designs in line with market demand and packaging materials. Marketing services may also be
classified according to whether they are provided during the input phase (e.g. product
development and design, raw materials supply) or during the output phase (e.g. quality
control, packaging, transport).
39
In contrast to other services, there are fewer organizations providing services to MSEs
in the area of marketing. The only MSEs that do manage to get help are those involved in the
production of handicrafts. Non-government organizations, government agencies and
subcontractors who market the output of the craft workers provide this assistance.
International non-government organizations that promote fair trade are also present in many
countries, and provide technical and marketing assistance to groups of craft workers.
The following observations and lessons from international practice are worthy of note.
• A market with limited growth potential. MSEs mostly supply the

immediate local market. Very few are able to access the regional or national market,
and even fewer can directly access the export market. Only those involved in
subcontracting indirectly access foreign markets. This explains, to some extent, why
MSEs are predominantly represented in the trade and services sectors, which are
better suited to supplying local markets.
• Production aimed mostly at the consumer goods market. Most

MSEs in the manufacturing sector produce consumer goods. Very few produce
intermediate inputs or capital goods, which require a much larger market than the one
they are able to access. The limited business linkage with the larger firms partially
explains why MSEs are not involved in non-traditional subcontracting arrangements.
• Limited or no attempt to investigate new market opportunities.

Micro and small enterprises do not usually have the necessary skills for simple market
research, and they may not be tempted to investigate new markets if they feel that
they cannot expand production.
• Subcontracting potential and problems. In many countries, the main market outlets for
a large number of MSEs are through contractors. Subcontracting is usually restricted
to a narrow range of products including for example, garments, leather goods and
footwear, electronic assemblies, and handicrafts. There are many types of
subcontracting arrangements such as those where the subcontractor produces the
finished product without any input from the contractor (this is mostly the case of
handicrafts), to those where the contractor is closely involved in all aspects of the
production (these are mainly the equivalent of labour contracts where the
subcontractors provide mostly its labour). In some cases the motives of the contractor
are to avoid the minimum wage and other labour legislation since many
subcontractors are part of the informal sector. Subcontracting is not usually viewed
by the contractor as a form of a mutually beneficial business linkage with smaller
firms, which should be nurtured into a long-term relationship (e.g. the type of
relationships established between contractors and subcontractors in Japan). Some
contractors use intermediaries who keep for themselves a substantial part of the
contract payment.
The following promising initiatives for expanding the MSEs’ market potential
provide some solutions to the above questions.
3.4.1 Facilitating access to larger markets

The following examples illustrate some new and effective ways of improving access
40
to larger markets.
a) Providing a mix of marketing and ancillary services
This example is based on an IDB project implemented in Colombia by a business
development service provider (PCS) which was previously established with IDB assistance. It
shows how a marketing service provider can help MSEs overcome various constraints which
prevent them from accessing larger and more profitable markets through the provision of a
mix of marketing and ancillary services, such as financial services and training. This example
also shows that it is possible to achieve almost full cost recovery.
PCS works with approximately 1,000 micro-enterprises (less than ten workers), with
50 per cent being women and 50 per cent being informal sector enterprises. These enterprises
produce a variety of consumer goods for the local and national markets. The approach is
based on the premise that for producers wishing to penetrate new markets or improve their
position in the current market, the use of an intermediary may significantly reduce marketing
costs, provide important consumer feedback, and open up access to a larger client base. The
time-consuming tasks assumed by marketing service providers include identifying new
clients or markets; consolidating existing ones; sourcing good raw materials; and figuring out
how to ship various kinds of goods to different destinations by various means of
transportation. From working in specific sectors, marketing service providers often become
experts in relevant issues, such as consumer preferences, and new trends and designs. This
expertise translates into important suggestions and ideas for the producers in terms of what to
produce and how.
The issue of sustainability was considered from the beginning of the project. In
relation to buying, selling or brokering (i.e. the standard functions of a marketing service
provider), the issue of sustainability is a relatively simple one, and it uses a simple mark-up
mechanism. However, it was also felt that clients also needed some ancillary services, such as
training and financing, without which the marketing services would have little impact. The
cost recovery for these services is not feasible in the short-term for a number of reasons,
although it may be possible to achieve it in the long-term. Therefore, it was possible to
achieve a high, overall level of cost recovery through subsidising the non-profitable ancillary
services by revenues from the profitable marketing services. Thus, by end 1998, PCS was
able to cover its full operational and administrative costs. In addition to profits derived from
the buying and selling activities, PCS was able to increase revenues by playing the role of an
intermediary in subcontracting arrangements. An important ingredient in the success
achieved by PCS is the elaboration and application of a long-term marketing strategy based
on an in-depth investigation of the sectors that it covered. Based on this strategy, PCS was
then able to decide which clients it should serve, which services it should provide, and how
they should be provided.
b) Improving subcontracting arrangements for the benefit of subcontractors.

In the simplest form of subcontracting, the subcontractor independently produces the
goods at the request of the contractor, using its own equipment and materials. Payment is
made once the goods are delivered. In the other extreme, the contractor is fully in charge,
using the subcontractor simply as a source of labour – sometimes “cheap” labour. Apart from
handicraft production, this type of subcontracting is more prevalent in the garment industry.
Subcontractors are generally financially weak and cannot afford to wait until they have
finished processing the orders before they can be paid. Some principals take advantage of the
situation by imposing very low prices on the goods.
41
Financial services provided by the contractor may take various forms, depending on
the subcontracting arrangement. The contractor may provide the materials needed for
producing the goods and may also provide some advance payments to cover labour costs, or
provide both the materials and the advance payments. In labour subcontracts, the contractor is
in full control of the production, providing the technology, designs, tools and equipment, as
well as the materials. Subcontractors are used in these cases mostly because the cost of labour
is lower than the cost of the contractor’s own employees.
In many countries, subcontracting has given rise to abuses by contractors––squeezing

the price down by playing large numbers of subcontractors off against each other.
Subcontractors are usually not able to use legal means in the event of the contractor refusing
to pay the contract amount for one reason or another. Subcontractors can strengthen their
bargaining power vis-à-vis the contractor if they form subcontractors’ associations on a
sectoral basis.
In the Philippines, the ILO provided assistance to subcontractors involved in garment

making and in the production of footwear and leather goods by helping them to establish
associations in these two sectors and by training the managers of these associations in various
aspects of subcontracting. The assistance may take various forms.
• The government may adopt specific legislation on sub-contracting with

a view to protecting both the principals and the sub-contractors (mainly the latter
under current conditions) in the case of unfair practices or conflicts.
• To promote the establishment of sub-contractors’ associations in each

of the most important sectors where sub-contracting is prevalent. The role of these
associations will be to provide information to members on sub-contracting
arrangements; provide legal aid to members in the case of conflicts with the
contractor; train members in negotiating and following up sub-contracts; adopt
policies for an appropriate range of sub-contract prices in order to avoid pressures
from the principals to lower prices and train members in relation to quality control
avoiding delays, and other key topics.
• Through information and workshops, the government could induce the

principals to establish more positive relations with the subcontractors. The impressive
growth of the industrial sector in Japan can be partially attributed to the very positive
relationship established between principals and their sub-contractors.
c) Promotion of subcontracting and partnerships

Various types of linkages are considered essential for the growth of small and
medium enterprises as it is recognised that without such linkages large enterprises may find it
difficult to achieve global competitiveness. There are two major types of linkages: up-stream
linkages with suppliers and contractors, and down-stream linkages with the distribution and
marketing channels.
Industrial subcontracting and out-sourcing are modern and efficient ways of

organising industrial production. New forms of industrial subcontracting, referred to as
“industrial partnerships”, are based on the complementary nature of the large contracting and
assembling enterprises and the various specialised subcontractors and suppliers, as well as on
the necessity of involving them from the early stages of the production cycle (design, testing
42
and developing prototypes). Moreover, MSEs frequently co-operate closely with each other
in order to complement their activities within the production cycle by forming production
associations or clusters and, increasingly, through networking arrangements. These new
forms of collaboration among enterprises tend to become more stable and more lasting with a
more equitable distribution of responsibilities (risks and profits) between the various partners.
In fact, such subcontracting and partnership linkages enable the MSEs to concentrate on their
field of specialisation.
In order to increase the chances of success, these linkages often call for other
complementary forms of linkages, such as the provision by the main contractor of special raw
materials, specialised equipment, moulds, technical assistance, training, know-how and
licence agreements. In some cases, equity participation or joint investments are established
between the partner firms, and the traditional subcontracting relationship becomes a fully-
fledged partnership.
Box 6:
With a view to assisting countries to Production of hammocks by Ecohamaca
promote subcontracting and partnership
arrangements, the UNIDO has developed a new Ecohamaca is a network of 11 enterprises
programme, entitled “the Subcontracting & operating in the hand-made hammock
Partnership Exchanges”, known as “SPXs”. sector. While the network members
These are technical information, promotion and compete against each other in the local
market, they have decided to collaborate
match-making centres for industrial
with a view to accessing foreign markets.
subcontracting and partnership agreements Previously, none of the local producers
between main contractors, suppliers and had direct exporting experience. With the
subcontractors, aiming at the optimal utilisation of project’s assistance, the producers were
the manufacturing capacities and capabilities of able to standardise their production in
the affiliated industries. SPXs should preferably order to collectively produce sufficient
be organised as non-profit industrial associations quantities for export and at the same time
run by qualified entrepreneurs. They perform a improve the quality and design of the
number of core functions, including collecting products. The network also adopted a
and disseminating information; identifying pricing policy. The group selected an
subcontracting and partnerships opportunities; ecologically friendly strategy in their
production process to respond to
assisting in organising production clusters and
international concerns about the
associations, and in negotiating agreements with environment. This strategy proved to be
main contractors; etc. More recently, SPXs have successful since it permitted the group to
started to provide other services, such as training penetrate important markets like the EU
and financial services. and USA. In order to consolidate results
and increase collaboration, the group has
The services are provided either directly acquired a legal status and has hired a
by the SPX in the form of surveys, advice, manager whose functions include the
training, awareness seminars and industrial fairs, identification of more formal training
or by referring the enterprises to other specialised schemes for the workers, the search for
organizations. Countries interested in establishing other technical and financial assistance
from a variety of local SME support
SPXs may use various instruments developed by
institutions, and improving the group’s
the UNIDO for this purpose (guidelines, computer marketing strategy. Ecohamaca maintains
programmes for data base management, legal a Web site on the Internet.
statutes for establishing SPXs, etc.). Over 50
SPXs have been established with UNIDO’s
assistance in 30 countries since 1984. The total number of companies registered in these
SPXs is close to 16,000.
43
d) Networking
Networks or association of MSEs usually provide a wide range of services to their
members including training, loans, information and, in some cases, some form of social
protection. However, it is in the area of marketing (including the purchase of raw materials
required for production) that networks or associations of MSEs play a particularly useful role.
In general, wholesalers or exporters deal only with large orders and they may impose certain
conditions in terms of quality control, timely delivery of the goods, etc. They also prefer to
deal with a single client rather than a large number of small producers. Under these
conditions, networks or associations of MSEs can play the role of an intermediary between
wholesalers or exporters and their members. They usually take full responsibility for the
timely delivery of the goods and for quality control. Networks and associations also help their
members by facilitating access to cheaper and better quality materials and intermediate inputs
through bulk purchases at reduced prices. An example of such linkages, from a UNIDO-
assisted technical co-operation project, is described in Box 6.
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
44
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
45
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.
46
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.
47
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.
48
4. Providing business development services

This chapter describes various types of business development service (BDS) providers
that have a record of good performance and have achieved some level of sustainability, or
have demonstrated the potential to do so. Some of the BDS providers focus on a single
service, while others cover two or more services. Furthermore, some service providers carry
out all the services themselves, while others collaborate with other BDS providers and refer
clients to them for some services.
The legal status of these service providers is diverse, including private sector
organizations, semi-private bodies, professional organizations, associations of MSEs and
non-government organizations. Although government agencies have been and still are
involved in the direct provision of BDS, they are not described here because most
governments are gradually reducing their involvement in this area. Government agencies are
currently focusing efforts on developing new BDS instruments and on promoting the
establishment of autonomous BDS providers.
The most important guiding principle is that government agencies should no longer
provide BDS directly to enterprises. They should focus instead on promoting and
strengthening the capacity of BDS organizations. The objective of government interventions
should be the enhancement of BDS organizational efficiency, effectiveness and sustainability.
Such capacity building should aim at:
• Strengthening and expanding existing BDS organizations to improve

their services, add new services, and expand to new target groups or geographical
areas.
• Assisting in the establishment of new BDS organizations, especially

where existing organizations may not be able to expand into new BDS areas.
• Assisting in the formation of networks between BDS organizations

through, for instance, referral services or sign posting. This recognises the fact that no
single institution can deliver all services.
There are significant differences between organizations, especially in relation to their

ownership, management, funding and the services they provide. Such differences can have
important implications on their performance and on their potential to attract government or
donor support.
4.1 Types of BDS organizations

Membership associations are essentially self-help organizations created and owned by
MSE owner-managers to support or represent their interests and provide members with
services. They include chambers of commerce, business associations, trade or sectoral
associations and different types of co-operatives. They may be formal or informal, very large
or relatively small. They can fund their activities through a number of sources such as
membership fees, fees for services and donor support. In some countries, chambers of
commerce and sector-based organizations receive government subsidies and may be under
the authority of a government ministry. In other countries, private sector MSE development
49
professionals have established their own associations, although such occurrences are
currently rare.
Service delivery organizations are institutions which have been set up and are owned
by agents other than entrepreneurs. These have the aim of providing specific services to
MSEs and sometimes (though less common) to represent their interests. In a few countries,
these organizations have organised themselves into networks to improve their effectiveness.
Service delivery organizations can be further differentiated on the basis of ownership,
management and funding. One the one hand there are government or semi-government
organizations (government agencies, parastatal organizations, etc.) and not-for-profit or non-
governmental organizations, which are usually independent––although most countries have
legislation which regulates this sector. On the other hand, there are commercial private sector
organizations (e.g. consultancy firms, private training institutes and other forms of private
business) which provide services on a for-profit basis or as part of normal commercial
transactions.
Membership associations as well as service delivery organizations show great

variation in the services they provide. While advocacy is the core role of many associations
made up of a large number of medium and large firms, they can also provide some BDS, such
as training, information and financial services (e.g. savings and credit, provident funds).
However, the majority of MSE associations play a smaller advocacy role (probably because
they are politically less powerful), while providing a wider range of BDS services to their
members (see section on MSE associations below). This makes them more akin to service
delivery organizations.
Service delivery organizations can be achieve or offer various levels of specialisation.

At one level are those organizations providing one service only, such as training or
technology development institutions. At an other level are those organizations for which
micro, small and medium-sized enterprise development is just part of their broader
development mandate.
Government agencies still directly provide BDS, but their involvement in this area is
gradually reducing. As a first step, many government agencies have established parastatal
organizations or other types of semi-autonomous bodies to which they have transferred the
direct provision of BDS. It is doubtful that government agencies in the majority of countries
will continue to provide these direct services to MSEs 10 to 20 years from now. The current
policy is for government agencies to promote the establishment of new business development
service providers and to strengthen the capacity of existing ones. However, it will take some
time before government agencies fully assume this role. It is probable that the newly
established parastatal or semi-private organizations will, in turn, be fully privatised in due
course, especially as they gradually start adopting private sector principles.
Associations of MSEs are gaining much greater importance. This may be partly
explained by the fact that the owners of MSEs find it difficult to join existing professional or
sectoral organizations, many of which are dominated by larger enterprises. National
federations or associations of MSEs are also becoming more prevalent, and a few regional
federations (comprising a number of national federations) have also been established (e.g. a
federation of national micro enterprise associations covering seven countries of Central
America, known under the name of PROMICRO). It should be noted, however, that for
historical or cultural reasons, the prevalence of associations varies greatly from country to
country.
50
Until recently non-government organizations (NGOs) were traditionally mainly

involved in income generating activities, along with other social welfare functions. While
they have increased their involvement in the area of MSE development, they tend to focus
mostly on the provision of micro finance and their role in the provision of BDS remains
marginal. However, there are a number of noteworthy exceptions, such as those described in
the previous section of this working paper. It would seem that, partly as a result of the efforts
of donor agencies, the number of these non-government organizations may increase in the
near future because they constitute one of the few options available to donors wishing to fund
BDS-related projects.
The provision of BDS to MSEs by private consultancy firms or private consultants is

a recent and only marginal phenomenon. However, governments and donors are currently
paying much greater attention to this possibility, in line with current policies to
commercialise the provision of BDS. For example, the establishment of consultancy funds
(described earlier) should increase access by MSEs to private sector consultancy services.
4.2 Strengthening the capacity of service providers

In their efforts to promote the establishment of new business development service
providers and to strengthen the capacity of existing ones, government agencies and donors
have tended to focus on the following aspects of capacity strengthening.
• Organizational capacity: this relates to an organization having a clear mandate with

vision, objectives and goals. While many BDS service providers supported by
governments and donors are not private sector consultancy firms, they are expected to
operate according to private sector principles. This implies that the staff of these
organizations have a long-term commitment to the successful growth of their
organization.
• Managerial capacity: an organization requires a legal and organizational structure that

allows it to realise its vision, and appropriate management systems and procedures,
along with staff with the necessary management capabilities.
• Technical capacity: an organization should use the instruments or methods that allow it to
realise its vision, and its staff should be able to use these instruments. This includes a
capacity for further development of the programme, and to meet the changing needs
of the clients.
• Financial capacity: this refers to an organization's ability to obtain funding for the
implementation and development of its programmes, through self-financing or
external support, and to keep its costs at an acceptable level.
The promotion of new business development service providers and the strengthening
of existing ones is a relatively new field of intervention by government and donors.
Approaches and procedures are still being developed. One important constraint is that in
many developing countries there are few staff members of MSE development agencies with
sufficient knowledge in this area. There are still no obvious solutions to this problem, and as
a consequence there is a reliance on local and foreign experts, at least in the early stages of
interventions in this area.
51
In addition to business development service providers, there is an increasing interest

in promoting the establishment of networks of business development service providers and of
MSEs themselves.
4.3 Lessons learnt from international best practice

Business development organizations should practice what they preach and operate in
a business-like manner. This implies that they should have a good understanding of the needs
of their clients. Their staff should be aware that their long-term position in the organization
depends on its overall performance and, therefore, their own performance should contribute
positively to this. They should be able to quickly adjust to changes in demand. BDS
managers should be fully convinced of the need to achieve full or at least some agreed upon
level of financial sustainability over a given period, and strive to meet this commitment. They
should also be aware of the comparative performance of other business development service
providers in the same market, in the same way that private entrepreneurs should follow
closely the performance of their competitors.
BDS organizations such as these can be promoted in a number of ways. Firstly, the
various support agencies such as government and donors need to be clear about what is
expected from the BDS providers. There should be no ambiguities in the objectives to be
achieved. For example, if some level of financial sustainability is to be achieved, then the
service provider should be free to select its clients, to setting the level of fees it may apply, or
to other various ways of generating revenue.
In terms of organizational capacity, the BDS service provider should use a business-
like vision and promote a corporate culture. It should maintain a transactional relationship
with its clients, and client satisfaction should be a constant concern. The legal status of the
service provider should facilitate an open and business-like management style, and it should
have the capacity to freely select its staff; the freedom to adopt a salary structure which will
help attract staff with the right qualifications, and have the possibility of providing bonuses to
the better performing staff members. In addition, the service provider should be close to its
clients. Thus, it should not be required to cover too large a geographical area. It would also be
useful that representatives of MSEs be members of the board of directors (or similar body) of
the business development organization.
In terms of technical capacity, it is important that the service provider focuses on a

narrow range of functions in order to ensure the provision of quality services. Finally, it is
important that the service provider uses various approaches to achieve some level of financial
sustainability, such as finding ways to make the charging of fees more attractive for the
entrepreneurs; diversifying funding sources; and finding ways to reduce costs.
A very important factor in the success of a service provider is the selection of the
chief executive of the organization. In addition to meeting solid qualifications for the job, this
person should exhibit the best characteristics expected from successful entrepreneurs,
particularly a keen entrepreneurial spirit. This implies that a routine bureaucratic transfer of a
civil servant from a ministry to the business development organization is likely to defeat the
whole purpose of establishing this type of organization.
Another important factor is the need for the business development organization to
specialise in a small number of technical areas, rather than trying to cover the whole field of
52
BDS. Service providers may specialise in one or two services (e.g. training), sectors or
clientele. The trend towards specialisation is being complemented by a parallel trend towards
networking. Thus, a specialised service provider may refer a client to other BDS providers
specialised in other services.
The issue of cost-effectiveness is also very important in the growth of a BDS

provider. It implies two sets of complementary measures. On the one hand, this involves
reducing the cost of specific activities, and seeking additional external resources for
particular tasks. One the other hand, cost-effectiveness should result in greater outreach and
impact and should attract further funding by donors and the government. (A service provider
is like a private enterprise - the more competitive it is, the more clients will use its services).
In relation to membership associations, governments and donors should carefully

assess the relevance and effectiveness of these organizations, including their “internal
politics”, before allocating funds for their BDS activities. Funding should be allocated on a
priority basis for services that are not usually provided by service delivery organizations. For
example, funds could be allocated for social services provided by organizations to their
members (e.g. some embryonic form of social security), as well as assistance to members to
participate in fairs, supply of raw materials, and other development services.
The past few years have witnessed the development of a large number of innovations
related to the establishment of new types of business development organization. Out of these,
three models have been selected for further elaboration in this working paper. These have
attracted the interest of a large number of donors and governments. One of the models relates
to the long-term strategy for facilitating access to BDS by MSEs discussed earlier. The
second model is based on the establishment of various types of business centres. The third
model is a recent adaptation of an approach used over ten to fifteen years ago in relation to
the informal sector. This model focuses on the establishment of MSE associations that could
play a similar role to that played by professional organizations of medium and large
enterprises.
4.3.1 Promoting private sector business development organizations

Earlier, it was noted that the provision of BDS to MSEs in industrialised countries
was mostly the result of private sector transactions, and benefits from the active involvement
of a wide range of private sector organizations. The profit motive is, in many cases, the
driving force behind the provision of BDS. In other cases, it may be the realisation that all
enterprises, whatever their size, should join forces to achieve common goals. Thus, MSEs in
industrialised countries do not face major problems in accessing business services - obtaining
information, procuring the most modern type of equipment, finding clients, etc. Most of these
services are provided through normal commercial transactions. In other cases, the MSE gets
the services from professional organizations where the interests of the MSEs are well
represented. The provision of BDS in developing countries should, in the long-term, follow
the above model.
4.3.2 Promoting business development centres

The establishment of business development centres is an approach that was intitiated a
few years ago by a number of donors and international organizations, including the ILO.
Interestingly, many such centres were established in Central Europe, probably because there
were few government agencies already involved in providing business services, and there
were also few MSEs before the adoption of a market economy by these countries.
53
Business development centres are known under various names, including enterprise
development agencies (EDAs) or simply business centres. Business centres are usually
established as semi-private bodies enjoying a large degree of operational autonomy under the
aegis of a board of directors or similar body. In practice, they are very close to private
consulting firms in the way they operate. There are few restrictions on the type of clientele
that they should serve, or the way any generated surplus should be used. Although there have
been cases of political interference, the large majority of business centres have been free from
this type of interference. The main reason why business centres were not established as
private sector firms from the start is that their establishment required initial “pump priming”
funding from donors or governments. It was not possible to transfer funds in the form of a
grant directly to a group of private individuals.
While there are a number of models of business centres, the following one
encompasses all the features one may find in the best-known, established centres. It is based
on business centres established with ILO assistance in a number of countries in Central
Europe under the name of Enterprise Development Agencies (EDAs).
The EDAs were established after a careful study involving identifying the needs of
the entrepreneurs, highlighting the potential of a number of economic sectors, and reviewing
the existence of other local business development organizations. In order to be able to operate
in a business-like way and to achieve financial sustainability, it was essential for EDAs to be
granted maximum autonomy to operate based on commercial principles. To achieve this the
centres were granted the legal status of an autonomous, not-for-profit agency, operating under
the aegis of a board of directors. The membership of the board included representatives of the
local authorities, associations of private entrepreneurs, local development agencies, the banks
and other local bodies involved directly or indirectly in MSE development. Any possible
surplus generated by the EDAs was to be strictly used for non-commercial development
activities and/or for expanding the capacity of the centres.
The board of directors tend to have three main functions: firstly, to formulate and
approve the broad policy guidelines and procedures under which the centres will operate;
secondly, to oversee the financial transactions and activities of the centres (the board ensures
that the centres do not deviate from their original objectives, and that the revenues generated
are used properly); thirdly, to perform the role of an intermediary between, on the one hand,
the staff and, on the other hand, the local authorities, donors and other relevant bodies.
The EDAs perform some or all of the following functions, depending on local
circumstances and market demand.
• Business and vocational training - either directly or through other training institutions - to
both the owners of the enterprises and their workers, using training materials such as
the ILO’s Start and Improve Your Business (SIYB);
• Assistance in preparing business plans that will help entrepreneurs secure loans from
banks;
• Technical information, such as information on processing techniques; procurement of

equipment and materials; local, regional and international market opportunities; the
policies and regulations related to the establishment and the operation of businesses;
54
• Accounting, secretarial and other services;
• Counselling and other consultancy services that help entrepreneurs improve and expand
their business.
In addition to delivering various types of services to MSEs, the EDAs undertake the
following activities required for the effective delivery of these services:
• Carry out various types of studies, such as general market studies concerning priority
sectors, needs surveys of MSEs, studies on technology selection, and identifying the
availability of skilled labour;
• Establish and maintain an information centre for MSEs which can include operating a
computerised database, collecting and storing information, operating a question and
answer service, operating a library, and even publishing a newsletter;
• A credit delivery scheme in situations where there are no credit providers in the area
covered by the EDAs, or where suitable forms of credit are not available;
• Undertake feasibility studies for the establishment of MSE industrial estates or common
facility services centres, and facilitating the establishment of these in close
collaboration with the MSEs themselves, as well as associations of private
entrepreneurs and local authorities;
• Assist entrepreneurs to establish subcontracting arrangements with local or foreign firms;
• Develop local promotional activities for the benefit of MSEs;
• Train staff of EDAs established at the regional, provincial or district level, and provide
them with various services they require for their work;
• Liaise with local authorities to help them in assisting MSEs to overcome various
constraints, such as the lack of infrastructure or premises, or cumbersome registration
procedures;
• Various commercial activities for the dual purpose of achieving financial sustainability
and providing assistance to MSEs in a number of ways.
Several EDAs have been established in recent years as part of MSE support projects,
and it is still too early to determine the extent of their success. However, preliminary
evaluations show that they are performing well. Their impact on the local economies is
starting to be felt, with hundreds of MSEs having been established in relatively small
countries with little experience of a free market economy, and some of the EDAs are
recovering over 50 per cent of their running costs. It is hoped that this proportion will be
increased to 90 per cent by the end of the first five years of their operation.
55
4.3.3 Promoting associations of MSEs

Many associations of MSEs have been established over the past 20 years, mostly
made up of micro enterprises in the informal sector. The ILO has been very active in the
promotion of such associations, especially in Africa and Latin America. These associations
can provide a variety of services to their members, including some level of social security
protection.
More recently, activities were initiated to promote associations of larger and more
established MSEs, such as those existing in industrialised countries. The rationale behind
these initiatives is that the majority of small enterprises do not join as members of
professional organizations, as these are mostly made up of medium and large enterprises.
They MSEs are, therefore, somewhat isolated with little possibility of playing an active
lobbying role as a group, or availing of various services available to members of the
organizations of larger enterprises. Large numbers of such associations can be found in
Africa, Latin America and some countries in Asia (e.g. the Philippines), yet few associations
have been established in many other Asian countries such as Thailand.
In many countries, associations of MSEs have established national federations and in

Africa and Latin America such federations have joined forces to establish regional
federations. One very successful regional federation covers the national federations of seven
Central American countries, under the name of PROMICRO. This regional federation
organises many useful events for the benefit of its members. It has established a Web site that
can be accessed by the MSEs in these countries in order to obtain information, or even to
establish commercial transactions with other members.
Associations of MSEs are often based on a sector or location. Some are small, while
others may number tens of thousands of members. This is the case of the association of street
vendors in Metro Manila, and this association was recently able to establish a commercial
bank for the benefit of its members.
While some associations were established without any outside assistance, the majority
of them did receive some assistance from the government or donors. The following principles
should guide those involved in promoting and establishing MSE associations.
• They should use a bottom-up approach to ensure the full commitment of the members to
the objectives of the association, and sufficient time should be taken to promote the
idea among potential members;
• Promoting associations should avoid any political interference, as in some countries such
interference has ended up in the destruction of the associations;
• The selection of an association leader who is highly respected by the majority of the
members is an important factor;
• The efficient management of an association is a necessary condition if it is to provide

quality services to its members, as well as for its long-term survival. This may require
some initial technical assistance to train association managers. In some cases,
associations have hired professional managers;
• Associations should reach financial sustainability after a certain period.
56
Associations can provide a variety of services to their members in areas such as

information, training, consultancy services, financial services, and even some form of social
security coverage. Some associations are also involved in commercial activities, such as the
sale of raw materials to their members at preferential prices. Some play the role of
intermediaries in subcontracting arrangements, organise trade fairs, or run common facility
services centres. In many cases, these commercial activities are operated as separate profit
centres, and they help the associations cover the cost of their other non-revenue-generating
activities. In some countries, associations play an important lobbying role similar to that
played by professional membership organizations. In other countries, they are not in a
position to play such a role, and consequently restrict them to servicing the needs of their
members.
Associations can become effective service providers, but they may require some
limited assistance from donors and governments in the early stages. They can be in an
excellent position to assess the needs of their members, moreso than other organizations. It
should be possible for them to establish separate units that will provide specific services, such
as training, marketing or consultancy services, and this would probably require the
recruitment of specialists to run these units. However, this approach should be much more
efficient and effective than one based on the establishment of new government-funded
business centres.
57
Annex I
List of web sites
The following list of Web sites is a good source of information on MSE development
issues, including access to BDS. It contains the sources used in the preparation of this
working paper.
ILO websites on Employment and Enterprise

http://www.ilo.org/public/english/employment/index.htm
http://www.ilo.org/public/english/employment/ent/sed/index.htm
http://www.ilo.org/public/english/employment/empsed.htm
http://www.ilo.org/public/english/employment/ent/index.htm
ENTERWeb: http:// www.enterweb.org

This Web site has a series of useful links to other Web sites and is a
good starting point for getting information on the MSE sector on the
Web.
Donor Committee on Small Enterprise Development:

http://www.ilo.org/public/english/employment/bds/index.htm
Here one can access copies of ‘Business Development Services for
SMEs: Guideline for donor-funded interventions’, and copies of all of
the papers relating to the Harare BDS Workshop of 1998, as well as the
Rio de Janiero BDS Conference (1999), and the Hanoi BDS
Conference (2000).
Micro-enterprise Innovation Project:

http://www.mip.org
Funded by USAID, this site focuses on micro-enterprise development,
finance, policy and impact.
Micro-enterprise Best Practice Project:

http://www.mip.org/pubs/pubs-def.htm
Contains several useful SED papers.
ID21 http://www.id21.org or http://www.ids.ac.United Kingdom/id21

Hosted by the Institute of Development Studies, and supported by
DFID, is a search engine for development research publications.
The Small Business Administration of the government of the United States:

http://www.sba.gov
Web site on marketing and markets:

http://www.openair.org
58
Some of the approaches described in this working paper are based on papers prepared
for the Harare workshop. The websites of the organizations that presented these papers are:
Enterprise Support Services for Africa:
Empretec Ghana:
The overall Programme is described at:
http://www.unicc.org/unctad/en/techcop/invt0103.htm.
FIT: http://www.ilo.org/public/english/employment/fit/index.htm
Start and Improve Your Business:

http://www.ilo.org/public/english/employment/siyb/index.htm
Manicaland Business Linkages:

http://
The CEFE Network Project:

http://
There is a variety of relevant websites on Women’s Entrepreneurship.
ILO: http://www.ilo.org/public/english/employment/papers/gender.htm
http://www.ilo.org/public/english/employment/isep/gender/index.htm
National Association for Female Executives (NAFE):

http://www.nafe.com/
National Foundation for Women Business Owners:

http://www.womenconnect.com/Display/ContentHistory.htm?Type=NFWBO
National Women Business Owners Corporation (NWBOC):

http://www.wboc.org/framedoc/mainbody.html
Online Women’s Business Centre (created by Small Business Administration):

http://www.onlinewbc.org/docs/links.html
http://www.onlinewbc.org/resourcedatabase.html
Small Business at Women.com: http://women.com/smallbiz/
UNESCAP WID Section:

http://unescap.org/wid/mt01in.htm
http://unescap.org/wid/mt02ag.htm#PROVISIONAL AGENDA
http://unescap.org/wid/mt03tb.htm
59
Women and Business: http://www.enterweb.org/women.htm
Women Connect – Asia:

http://www.women-connect-asia.com/
http://www.women-connect-asia.com/articles.htm
http://www.women-connect-asia.com/articles/gender.htm
http://www.women-connect-asia.com/articles/glass-c.htm
Women’s Business Network: http://www.wbninc.com/content.htm
Women’s Work: http://www.wwork.com/index.shtml
WWWomen Women-Owned Businesses WebRing Home Page!

http://www.wwwomen.com/webring_biz2.shtml
60
Annex II
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66
Annex III
Recommendation No. 189
Recommendation concerning General Conditions

to Stimulate Job Creation in Small and
Medium-sized Enterprises
PREAMBLE
The General Conference of the International Labour Organization,
Having been convened at Geneva by the Governing Body of the International Labour
Office, and having met in its Eighty-sixth Session on 2 June 1998, and
Recognizing the need for the pursuit of the economic, social, and spiritual well-being
and development of individuals, families, communities and nations,
Aware of the importance of job creation in small and medium-sized enterprises,
Recalling the resolution concerning the promotion of small and medium-sized

enterprises adopted by the International Labour Conference at its 72nd Session, l986, as well
as the Conclusions set out in the resolution concerning employment policies in a global
context, adopted by the Conference at its 83rd Session, 1996,
Noting that small and medium-sized enterprises, as a critical factor in economic

growth and development, are increasingly responsible for the creation of the majority of jobs
throughout the world, and can help create an environment for innovation and
entrepreneurship,
Understanding the special value of productive, sustainable and quality jobs,
Recognizing that small and medium-sized enterprises provide the potential for women
and other traditionally disadvantaged groups to gain access under better conditions to
productive, sustainable and quality employment opportunities,
Convinced that promoting respect for the Forced Labour Convention, 1930, the
Freedom of Association and Protection of the Right to Organise Convention, 1948, the Right
to Organise and Collective Bargaining Convention, 1949, the Equal Remuneration
Convention, 1951, the Abolition of Forced Labour Convention, 1957, and the Discrimination
(Employment and Occupation) Convention, 1958, will enhance the creation of quality
employment in small and medium-sized enterprises and in particular that promoting respect
for the Minimum Age Convention and Recommendation, 1973, will help Members in their
efforts to eliminate child labour,
Also convinced that the adoption of new provisions on job creation in small and
medium-sized enterprises, to be taken into account together with:
(a) the relevant provisions of other international labour
Conventions and Recommendations as appropriate, such as the
Employment Policy Convention and Recommendation, 1964, and the
67
Employment Policy (Supplementary Provisions) Recommendation,

1984, the Co-operatives (Developing Countries) Recommendation,
1966, the Human Resources Development Convention and
Recommendation, 1975, and the Occupational Safety and Health
Convention and Recommendation, 1981; and
(b) other proven ILO initiatives promoting the role of small and
medium-sized enterprises in sustainable job creation and encouraging
adequate and common application of social protection, including Start
and Improve Your Business and other programmes as well as the work
of the International Training Centre of the ILO in training and skills
enhancement, will provide valuable guidance for Members in the
design and implementation of policies on job creation in small and
medium-sized enterprises,
Having decided upon the adoption of certain proposals with regard to general
conditions to stimulate job creation in small and medium-sized enterprises, which is the
fourth item on the agenda of the session, and
Having determined that these proposals shall take the form of a Recommendation;
adopts, this seventeenth day of June of the year one thousand nine hundred and
ninety-eight, the following Recommendation which may be cited as the Job Creation in Small
and Medium-Sized Enterprises Recommendation, 1998.
I. DEFINITION, PURPOSE AND SCOPE
1. Members should, in consultation with the most representative organizations of

employers and workers, define small and medium-sized enterprises by reference to such
criteria as may be considered appropriate, taking account of national social and economic
conditions, it being understood that this flexibility should not preclude Members from
arriving at commonly agreed definitions for data collection and analysis purposes.
2. Members should adopt measures which are appropriate to national conditions

and consistent with national practice in order to recognize and to promote the fundamental
role that small and medium-sized enterprises can play as regards:
(a) the promotion of full, productive and freely chosen employment;
(b) greater access to income-earning opportunities and wealth creation leading to
productive and sustainable employment;
(c) sustainable economic growth and the ability to react with flexibility to
changes;
(d) increased economic participation of disadvantaged and marginalized groups in
society;
(e) increased domestic savings and investment;
(f) training and development of human resources;
(g) balanced regional and local development;
(h) provision of goods and services which are better adapted to local market
needs;
(i) access to improved quality of work and working conditions which may
contribute to a better quality of life, as well as allow large numbers of people
to have access to social protection;
68
(j) stimulating innovation, entrepreneurship, technology development and

research;
(k) access to domestic and international markets; and
(l) the promotion of good relations between employers and workers.
3. In order to promote the fundamental role of small and medium-sized

enterprises referred to in Paragraph 2, Members should adopt appropriate measures and
enforcement mechanisms to safeguard the interests of workers in such enterprises by
providing them with the basic protection available under other relevant instruments.
4. The provisions of this Recommendation apply to all branches of economic

activity and all types of small and medium-sized enterprises, irrespective of the form of
ownership (for example, private and public companies, cooperatives, partnerships, family
enterprises, and sole proprietorships).
II. POLICY AND LEGAL FRAMEWORK
5. In order to create an environment conducive to the growth and development of

small and medium-sized enterprises, Members should:
(a) adopt and pursue appropriate fiscal, monetary and employment
policies to promote an optimal economic environment (as regards, in
particular, inflation, interest and exchange rates, taxation, employment
and social stability);
(b) establish and apply appropriate legal provisions as regards, in
particular, property rights, including intellectual property, location of
establishments, enforcement of contracts, fair competition as well as
adequate social and labour legislation;
(c) improve the attractiveness of entrepreneurship by avoiding policy and
legal measures which disadvantage those who wish to become
entrepreneurs.
6. The measures referred to in Paragraph 5 should be complemented by policies

for the promotion of efficient and competitive small and medium-sized enterprises able to
provide productive and sustainable employment under adequate social conditions. To this
end, Members should consider policies that:
(1) create conditions which:
(a) provide for all enterprises, whatever their size or type:
(i) equal opportunity as regards, in particular, access to
credit, foreign exchange and imported inputs; and
(ii) fair taxation;
(b) ensure the non-discriminatory application of labour legislation,
in order to raise the quality of employment in small and
medium-sized enterprises;
(c) promote observance by small and medium-sized enterprises of
international labour standards related to child labour;
(2) remove constraints to the development and growth of small and
medium-sized enterprises, arising in particular from:
(a) difficulties of access to credit and capital markets;
(b) low levels of technical and managerial skills;
(c) inadequate information;
69
(d) low levels of productivity and quality;

(e) insufficient access to markets;
(f) difficulties of access to new technologies;
(g) lack of transport and communications infrastructure;
(h) inappropriate, inadequate or overly burdensome registration,
licensing, reporting and other administrative requirements,
including those which are disincentives to the hiring of
personnel, without prejudicing the level of conditions of
employment, the effectiveness of labour inspection or the
system of supervision of working conditions and related issues;
(i) insufficient support for research and development;
(j) difficulties in access to public and private procurement
opportunities.
(3) include specific measures and incentives aimed at assisting and
upgrading the informal sector to become part of the organized sector.
7. With a view to the formulation of such policies Members should, where

appropriate:
(1) collect national data on the small and medium-sized enterprise sector,
covering inter alia quantitative and qualitative aspects of employment, while ensuring that
this does not result in undue administrative burdens for small and medium-sized enterprises;
(2) undertake a comprehensive review of the impact of existing policies
and regulations on small and medium-sized enterprises, with particular attention to the impact
of structural adjustment programmes on job creation;
(3) review labour and social legislation, in consultation with the most
representative organizations of employers and workers, to determine whether:
(a) such legislation meets the needs of small and medium-sized
enterprises, while ensuring adequate protection and working
conditions for their workers;
(b) there is a need for supplementary measures as regards social
protection, such as voluntary schemes, cooperative initiatives
and others;
(c) such social protection extends to workers in small and
medium-sized enterprises and there are adequate provisions to
ensure compliance with social security regulations in areas such
as medical care, sickness, unemployment, old-age, employment
injury, family, maternity, invalidity and survivors' benefits.
8. In times of economic difficulties, governments should seek to provide strong

and effective assistance to small and medium-sized enterprises and their workers.
9. In formulating these policies, Members:

(1) may consult, in addition to the most representative organizations of
employers and workers, other concerned and competent parties as they
deem appropriate;
(2) should take into account other policies in such areas as fiscal and
monetary matters, trade and industry, employment, labour, social
protection, gender equality, occupational safety and health and
capacity-building through education and training;
70
(3) should establish mechanisms to review these policies, in consultation

with the most representative organizations of employers and workers,
and to update them.
III. DEVELOPMENT OF AN ENTERPRISE CULTURE
10. Members should adopt measures, drawn up in consultation with the most
representative organizations of employers and workers to create and strengthen an enterprise
culture which favours initiatives, enterprise creation, productivity, environmental
consciousness, quality, good labour and industrial relations, and adequate social practices
which are equitable. To this end, Members should consider:
(1) pursuing the development of entrepreneurial attitudes, through the system and
programmes of education, entrepreneurship and training linked to job needs and the
attainment of economic growth and development, with particular emphasis being given to the
importance of good labour relations and the multiple vocational and managerial skills needed
by small and medium-sized enterprises;
(2) seeking, through appropriate means, to encourage a more positive attitude
towards risk-taking and business failure by recognizing their value as a learning experience
while at the same time recognizing their impact on both entrepreneurs and workers;
(3) encouraging a process of lifelong learning for all categories of workers and
entrepreneurs;
(4) designing and implementing, with full involvement of the organizations of
employers and workers concerned, awareness campaigns to promote:
(a) respect for the rule of law and workers' rights, better working
conditions, higher productivity and improved quality of goods and
services;
(b) entrepreneurial role models and award schemes, taking due account of
the specific needs of women, and of disadvantaged and marginalized
groups.
IV. DEVELOPMENT OF AN EFFECTIVE SERVICE INFRASTRUCTURE
11. In order to enhance the growth, job-creation potential and competitiveness of

small and medium-sized enterprises, consideration should be given to the availability and
accessibility of a range of direct and indirect support services for them and their workers, to
include:
(a) business pre-start-up, start-up and development assistance;
(b) business plan development and follow-up;
(c) business incubators;
(d) information services, including advice on government policies;
(e) consultancy and research services;
(f) managerial and vocational skills enhancement;
(g) promotion and development of enterprise-based training;
(h) support for training in occupational safety and health;
(i) assistance in upgrading the literacy, numeracy, computer
competencies and basic education levels of managers and employees;
(j) access to energy, telecommunications and physical infrastructure such
as water, electricity, premises, transportation and roads, provided
directly or through private sector intermediaries;
71
(k) assistance in understanding and applying labour legislation, including

provisions on workers' rights, as well as in human resources
development and the promotion of gender equality;
(l) legal, accounting and financial services;
(m) support for innovation and modernization;
(n) advice regarding technology;
(o) advice on the effective application of information and communication
technologies to the business process;
(p) access to capital markets, credit and loan guarantees;
(q) advice in finance, credit and debt management;
(r) export promotion and trade opportunities in national and international
markets;
(s) market research and marketing assistance;
(t) assistance in product design, development and presentation;
(u) quality management, including quality testing and measurement;
(v) packaging services;
(w) environmental management services.
12. As far as possible, the support services referred to in Paragraph 11 should be

designed and provided to ensure optimum relevance and efficiency through such means as:
(a) adapting the services and their delivery to the specific needs of small
and medium-sized enterprises, taking into account prevailing
economic, social and cultural conditions, as well as differences in
terms of size, sector and stage of development;
(b) ensuring active involvement of small and medium-sized enterprises
and the most representative organizations of employers and workers in
the determination of the services to be offered;
(c) involving the public and private sector in the delivery of such services
through, for example, organizations of employers and workers,
semi-public organizations, private consultants, technology parks,
business incubators and small and medium-sized enterprises
themselves;
(d) decentralizing the delivery of services, thereby bringing them as
physically close to small and medium-sized enterprises as possible;
(e) promoting easy access to an integrated range of effective services
through "single window" arrangements or referral services;
(f) aiming towards self-sustainability for service providers through a
reasonable degree of cost recovery from small and medium-sized
enterprises and other sources, in such a manner as to avoid distorting
the markets for such services and to enhance the employment creation
potential of small and medium-sized enterprises;
(g) ensuring professionalism and accountability in the management of
service delivery;
(h) establishing mechanisms for continuous monitoring, evaluation and
updating of services.
13. Services should be designed to include productivity-enhancing and other

approaches which promote efficiency and help small and medium-sized enterprises to sustain
competitiveness in domestic and international markets, while at the same time improving
labour practices and working conditions.
72
14. Members should facilitate access of small and medium-sized enterprises to

finance and credit under satisfactory conditions. In this connection:
(1) credit and other financial services should as far as possible be provided
on commercial terms to ensure their sustainability, except in the case
of particularly vulnerable groups of entrepreneurs;
(2) supplementary measures should be taken to simplify administrative
procedures, reduce transaction costs and overcome problems related to
inadequate collateral by, for example, the creation of
non-governmental financial retail agencies and development finance
institutions addressing poverty alleviation;
(3) small and medium-sized enterprises may be encouraged to organize in
mutual guarantee associations;
(4) the creation of venture capital and other organizations, specializing in
assistance to innovative small and medium-sized enterprises, should be
encouraged.
15. Members should consider appropriate policies to improve all aspects of

employment in small and medium-sized enterprises by ensuring the non-discriminatory
application of protective labour and social legislation.
16. Members should, in addition:

(1) facilitate, where appropriate, the development of organizations and
institutions which can effectively support the growth and
competitiveness of small and medium-sized enterprises. In this regard,
consultation with the most representative organizations of employers
and workers should be considered;
(2) consider adequate measures to promote cooperative linkages between
small and medium-sized enterprises and larger enterprises. In this
connection, measures should be taken to safeguard the legitimate
interests of the small and medium-sized enterprises concerned and of
their workers;
(3) consider measures to promote linkages between small and
medium-sized enterprises to encourage the exchange of experience as
well the sharing of resources and risks. In this connection, small and
medium-sized enterprises might be encouraged to form structures such
as consortia, networks and production and service cooperatives, taking
into account the importance of the role of organizations of employers
and workers;
(4) consider specific measures and incentives for persons aspiring to
become entrepreneurs among selected categories of the population,
such as women, long-term unemployed, persons affected by structural
adjustment or restrictive and discriminatory practices, disabled
persons, demobilized military personnel, young persons including
graduates, older workers, ethnic minorities and indigenous and tribal
peoples. The detailed identification of these categories should be
carried out taking into account national socio-economic priorities and
circumstances;
(5) consider special measures to improve communication and relations
between government agencies and small and medium-sized enterprises
as well as the most representative organizations of such enterprises, in
73
order to improve the effectiveness of government policies aimed at job

creation;
(6) encourage support for female entrepreneurship, recognizing the
growing importance of women in the economy, through measures
designed specifically for women who are or wish to become
entrepreneurs.
V. ROLES OF ORGANIZATIONS OF EMPLOYERS AND WORKERS
17. Organizations of employers or workers should consider contributing to the

development of small and medium-sized enterprises in the following ways:
(a) articulating to governments the concerns of small and medium-sized

enterprises or their workers, as appropriate;
(b) providing direct support services in such areas as training, consultancy,
easier access to credit, marketing, advice on industrial relations and
promoting linkages with larger enterprises;
(c) cooperating with national, regional and local institutions as well as
with intergovernmental regional organizations which provide support
to small and medium-sized enterprises in such areas as training,
consultancy, business start-up and quality control;
(d) participating in councils, task forces and other bodies at national,
regional and local levels established to deal with important economic
and social issues, including policies and programmes, affecting small
and medium-sized enterprises;
(e) promoting and taking part in the development of economically
beneficial and socially progressive restructuring (by such means as
retraining and promotion of self-employment) with appropriate social
safety nets;
(f) participating in the promotion of exchange of experience and
establishment of linkages between small and medium-sized
enterprises;
(g) participating in the monitoring and analysis of social and
labour-market issues affecting small and medium-sized enterprises,
concerning such matters as terms of employment, working conditions,
social protection and vocational training, and promoting corrective
action as appropriate;
(h) participating in activities to raise quality and productivity, as well as to
promote ethical standards, gender equality and non-discrimination;
(i) preparing studies on small and medium-sized enterprises, collecting
statistical and other types of information relevant to the sector,
including statistics disaggregated by gender and age, and sharing this
information, as well as lessons of best practice, with other national and
international organizations of employers and workers;
(j) providing services and advice on workers' rights, labour legislation and
social protection for workers in small and medium-sized enterprises.
74
18. Small and medium-sized enterprises and their workers should be encouraged
to be adequately represented, in full respect for freedom of association. In this connection,
organizations of employers and workers should consider widening their membership base to
include small and medium-sized enterprises.
VI. INTERNATIONAL COOPERATION
19. Appropriate international cooperation should be encouraged in the following

areas:
(a) establishment of common approaches to the collection of comparable

data, to support policy-making;
(b) exchange of information, disaggregated by gender, age and other
relevant variables, on best practices in terms of policies and
programmes to create jobs and to raise the quality of employment in
small and medium-sized enterprises;
(c) creation of linkages between national and international bodies and
institutions that are involved in the development of small and
medium-sized enterprises, including organizations of employers and
workers, in order to facilitate:
(i) exchange of staff, experiences and ideas;
(ii) exchange of training materials, training methodologies
and reference materials;
(iii) compilation of research findings and other quantitative
and qualitative data, disaggregated by gender and age, on small
and medium-sized enterprises and their development;
(iv) establishment of international partnerships and alliances
of small and medium-sized enterprises, subcontracting
arrangements and other commercial linkages;
(v) development of new mechanisms, utilizing modern
information technology, for the exchange of information
among governments, employers' organizations and workers'
organizations on experience gained with regard to the
promotion of small and medium-sized enterprises;
(d) international meetings and discussion groups on approaches to job
creation through the development of small and medium-sized
enterprises, including support for female entrepreneurship. Similar
approaches for job creation and entrepreneurship will be helpful for
disadvantaged and marginalized groups;
(e) systematic research in a variety of contexts and countries into key
success factors for promoting small and medium-sized enterprises
which are both efficient and capable of creating jobs providing good
working conditions and adequate social protection;
(f) promotion of access by small and medium-sized enterprises and their
workers to national and international databases on such subjects as
employment opportunities, market information, laws and regulations,
technology and product standards.
75
20. Members should promote the contents of this Recommendation with other
international bodies. Members should also be open to cooperation with those bodies, where
appropriate, when evaluating and implementing the provisions of this Recommendation, and
take into consideration the prominent role played by the ILO in the promotion of job creation
in small and medium-sized enterprises.
76

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International best practice in micro and small enterprise development

MICRO AND SMALL ENTERPRISE DEVELOPMENT & POVERTY

Project ILO/UNDP: THA/99/003

SERIES EDITOR: Gerry Finnegan

Governments are no longer expected to be the principal providers of jobs –

A broad range of important aspects of MSE development are addressed in this

Given the prominence of the small and medium enterprise sector in

1. Introduction to business development services...................................................3

2. Assessing business development services ............................................................10

3. Business development service instruments..........................................................15

4. Providing business development services............................................................40

I: List of web sites ......................................................................................................49

Various types of bodies provide business development services. These include

1. Introduction to business development services

Business development services (BDS) refer to the provision of information,

Business development services can be provided by commercial, for-profit agencies, or

In most developing countries and emerging economies, those involved in MSE

Few existing or potential entrepreneurs can establish or expand a business without

Service providers should be sufficiently qualified to provide good quality services.

The involvement of government and non-government organizations in the provision

The same applies to marketing information. In industrialised economies, many owners

well-developed network of wholesalers and retailers, and good telecommunications, transport

Similarities and differences between BDS in industrialised countries and developing

There are more sources of information in industrialised countries than in developing

In contrast to MSEs in developing countries, those in industrialised countries are

In industrialised economics, many large equipment manufacturers and suppliers of

1.1 Guiding principles of best practice in BDS

vi. Ensuring cost-effectiveness: Any enterprise strives to control costs to remain

2. Assessing business development services

2.1 Indicators of good practice

The main performance criteria used to measure good practice are:

• Outreach––i.e. number of enterprises and organizations reached by the

• Efficiency––i.e. how resources are used by the service provider for

• Effectiveness––i.e. whether or not the interventions achieved their stated

• Sustainability––as previously defined in Chapter 1.

It may be difficult to measure the performance of business development service

Given the above criteria, it is necessary to develop qualitative and quantitative

Responsibility should be assigned to the business development service providers to

may be necessary to involve relevant government departments or donors to decide which

2.2 Assessment of MSE needs

Before describing various approaches to assessing the needs of MSEs, it is important

• felt or perceived needs based on the entrepreneur’s own assessment of the

• demand, as expressed by the entrepreneur who is willing to pay for assistance

• The individual in charge of the needs assessment should be psychologically close to

• It is important to develop a tight focus, and problems and interventions should be

• It is very important to explain how support interventions should be delivered and

Needs assessment based on a sub-sector analysis2

2.3 Assessing performance of BDS providers

3. Business development service instruments

(2) access to information;

(3) technology development and transfer;

(4) access to larger and more profitable markets; and

(5) consultancy and counselling services.

acquired their skills from on-the-job training in Box 1:

A number of national and international organizations have developed new training

3.1.1 Lessons learnt from past and current practices in training

• Training should be business-oriented. Training services for MSEs