We test whether managerial human capital has a first order effect on the performance and growth of small enterprises in emerging markets. In a randomized control trial inPuebla, Mexico, we randomly assigned 150 out of 432 small and medium size enterprises to receive subsidized consulting services, while the remaining 267 enterprises served as a control group that did not receive any subsidized training. Treatment enterprises were matched with one of nine local consulting firms and met with their consultants once a week for four hours over a one year period. Results from a follow-up survey, conducted after the intervention, show that the consulting services had a large impact on the performance of the enterprises in the treatment group: monthly sales went up by about 80 percent; similarly, profits and productivity increased by 120 percent compared to the control group. We also see a significant increase in the entrepreneurial spirit index for the treatment group, a set of questions designed to illicit the SME owners’ confidence in their ability to manage their business and deal with any future difficulties. However, we do not find any significant increase in the number of workers employed in the treatment group.
That is the abstract of the paper "The Impact of Consulting Services on Small and Medium Enterprises: Evidence from a Randomized Trial in Mexico" by Bruhn, Karlan, and Scoar (February 2012).
From the conclusions:
Our results suggest that lack of managerial skills constitutes a significant constraint to firm growth and the ability of micro, small, and medium enterprises to withstand economic shocks. The effects of the study are large. On average we find an increase in sales and profits of 80 and 120 percent, respectively, for the treatment group compared to the control group. However, we believe that the magnitude of the impact is not unreasonable given that many enterprises in the sample had not received any formal management training prior to our intervention. The sales and productivity improvements seem to be brought about primarily by improvements in marketing and financial controls. Consultants also appear to have helped enterprises to set clear goals and define a strategy for how to achieve these goals.
In contrast, we do not see any significant impact on employment generation or the number of employees.HT: