Using a randomized evaluation with 432 Mexican small and medium enterprises, this paper shows that access to management consulting led to better firm performance: one-year results show positive effects on return-on-assets and total factor productivity. Owners also had large increases in "entrepreneurial spirit" (an entrepreneur's' managerial confidence index). Using Mexican social security data, the analysis finds a large increase in the number of employees and total wage bill several years after the program. The paper documents large heterogeneity in the specific managerial practices that improved as a result of the consulting, but there is no singular mechanism as a panacea for all firms.
Business Performance Measures: Monthly sales, profit (sales minus costs), enterprise productivity (residual from log sales on log employees and log business assets, and return on assets, number of employees, total wage bill). Business Processes: Developed new products during last year, attracted new clients during last year, implemented new process during last year, attracted new investors during last year, began process to register a patent during last year, began certification process for an international standard, made new marketing effort during last year, expanded installations during last year, remodelled installations during last year, human resources management index, keeps formal accounts. Entrepreneurial Spirit: 8 survey questions (e.g. I have professional goals), Kling et al. (2007) standardised index.
Overall, the consulting services didn’t help firms to improve their business practices in the short run.
Only marketing efforts and formal bookkeeping improved as a result of receiving consultancy support, while innovation, resource seeking and human resources practices remained unaffected.
In the short run, the consulting services didn’t lead to higher employment, assets, sales or profits.
However, supported firms used inputs more efficiently and increased their productivity.
In the longer run, over the following five years, the programme led to important impacts on employment, with the number of full-time employees increasing by 57 per cent and the total wage bill by 72 per cent.
Some of the firms continued to use the consulting services after the subsidy had ended.
Annual return on labour didn’t need to be very high for the consulting service to be cost-effective.