Many small firms lack the finance and marketing skills needed for growth. A standard approach is to train the entrepreneur in these skills. However, rather than requiring entrepreneurs to learn everything, an alternative is to move beyond the boundary of the entrepreneur and link firms to these skills in a marketplace through insourcing workers or outsourcing tasks to professionals. A randomized experiment is conducted a in Nigeria to test the relative effectiveness of these different approaches in improving business practices. Insourcing and outsourcing both dominate business training and do at least as well as business consulting at half the cost.
Business Practices and Firm Growth.
Both the individual and group-based consulting support led to similar improvements in management practices, with adoption of structured management practices increasing from 56 per cent to 64–66 per cent.
The improvements in management practices occurred across all five areas of interest and persisted for at least one year after the intervention ended.
Only the group-based scheme resulted in firm growth, with the number of employees employment increasing by 10–12 per cent and sales by 8–9 per cent.
Number of employees effects persisted for at least three years after the intervention ended.
None of the schemes had an impact on firm productivity, as measured through sales per worker.
Peer learning within groups seemed to be driven by co-ordinated experimentation and learning, not by group members taking existing best practices from other group members into their own firms.
The group-consulting scheme paid for itself in just over a year.