Why are we interested in Business Development?
Poverty reduction relies on sustained economic growth, with the benefits
shared equitably throughout society. Enterprises generate growth. Given an
environment that encourages them to start or grow, businesses will provide
jobs and incomes for poor people, and contribute to taxation to fund public
services. Donors have invested heavily in business development in the past,
because these benefits flow to society at large, increasing employment and
reducing social tensions.
“SMEs play an essential role in distributing the benefits of economic growth to
a wider segment of Bangladesh’s population, creating the bulk of paid
employment, and linking the large business sector with the informal
microenterprise sector” – DFID Bangladesh
This paper is about building business productivity and competitiveness by
developing markets for non-financial services to businesses. It explains:
• What are business development services (BDS)?
• How BDS help develop the private sector
• How not to make BDS interventions!
• How good practice in BDS can make markets work for the poor
• How DFID is leading the shift to “market-centred” BDS
• How to support BDS in practice
What are Business Development Services?
BDS are any non-financial service to business, offered on either a formal
or informal basis.
They include:
Training & skills development
Product & packaging design
Networking & brokering
Business advice & counselling
Courier & delivery
IT services & advice
Market information & research
Advertising and trade fairs
Technology information and advice
Strategy & operations consulting
Sometimes businesses pay a fee for such services; sometimes they are
“embedded” in a commercial transaction (such as when agricultural seed
suppliers offer free advice on planting and crop care).
How can BDS help the Private Sector?
A sound macro-economic environment, sensible regulation, and adequate
infrastructure are all vital elements helping businesses grow (See How to
Note 2: How to Assess and Improve the Investment Climate). However, in all
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economies start-up and young businesses need additional support. Small and
medium sized enterprises (SMEs) need access to a diverse range of services
that enable them to become more efficient and competitive, building their
capacity and reducing unit costs. Very often it is BDS that enable a firm to
find customers, design products, improve administration, communicate
effectively, and access new technology.
How Not to Support BDS!
Until fairly recently, governments and international agencies promoting BDS
tended to focus on delivering generic business services that they perceived to
meet the needs of SMEs, yet which were often not tailored to particular
circumstances. The result was that in developing countries many agencies
have supported supply-led training courses or subsidised business advice.
These interventions tend to be relatively high cost, to serve only few firms, to
be unsuitable for poor or unskilled participants. In addition, donors frequently
supported BDS providers with full subsidies - thereby creating no incentive for
demand-driven services (through willingness to pay) or any strategy for
sustainability. Being donor dependant, such services were apt to disappear as
soon as donor funding dried up.
Case - Business Advice Centres in Transition Economies
The UK’s own domestic approach of promoting a network of enterprise
support centres spread to transition and developing countries in the 1990s. In
these environments, experience has now shown that the variety of funding
subsidies available in developed countries (central and local government
sources as well as private sponsorship) is not widely available elsewhere.
This gave rise to poor sustainability in cases where institutional income
depended on supply-led services. To achieve sustainability, services must
respond more explicitly to client demand. As donor support diminishes, BDS
must be tailored to the needs of small business, identifying the services that
poor clients believe can raise their business income, and for which they are
prepared to pay. The challenge is to demonstrate benefits that convert latent
demand for services into actual demand. See “Business Service Centres in
How Good BDS Makes Markets Work for the Poor
The development community has learned from previous poor practice. In
2000, following several regional conferences and an international consultation
process involving a wide range of stakeholders, the Committee of Donor
Agencies for Small Enterprise Development published ‘Business
Development Services: Guiding Principles for Donor Intervention’1 (popularly
known as the “Blue Book”). This publication broke new ground in advocating a
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market-oriented approach to BDS. Central to these guidelines are the
principles of:
Providing services that respond to market demand
Building sustainability through early phasing out of donor support
Measuring performance of BDS and providers of BDS.
It is now widely agreed by the donor community that the purpose of BDS is to
facilitate the development of markets that stimulate supply and demand of
BDS, rather than to subsidise direct service delivery. Moreover, direct service
delivery should be carried out by commercially-oriented organisations that
understand and respond to business trends, rather than by government,
donors or their local agencies.
The new BDS principles start from the basis that it is market forces, rather
than donor and partner perceptions, that are the major driver for increasing
BDS delivery. BDS is most effective for businesses needing relatively
sophisticated technical, marketing or management skills. This, and the need
for clients as far as possible to pay for such services may lead to the
development of SMEs rather than microenterprises. Thus the main impact on
poor people is likely to be in the form of secondary benefits arising from the
increased employment, higher incomes and positive microenterprise linkages
generated by a larger SME sector and a stronger economy.
In order to promote a BDS intervention with maximum impact on the poor,
consider whether it will:
Contribute to increasing employment generally, and for women or
minorities in particular;
Improve the quality of jobs or work environment for SME employees;
Improve the outreach of services to businesses in difficult geographic
areas (mountainous or rural locations) where many poor people live
and work, or towards disadvantaged social groups with high
proportions of poor people (e.g. economic migrants).
How DFID is leading the Shift to “Market-Centred” BDS
DFID has been one of the major supporters of the “paradigm shift” from
supply-led towards more market-centred BDS. Once the BDS market for a
single service, or range of services, is understood, then donor programmes
can build on existing provision to ease the constraints to growth in incomes,
employment, and business activity. In Bangladesh, Uganda, Kenya,
Swaziland and South Africa, DFID is re-designing BDS programmes to better
incorporate the principles of the new market-centred approach.
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Drawing from seven country surveys of BDS markets, a recent paper
illustrates the variety of market development of business services. In some
countries, such as Nepal, enterprises have used a wide range of services,
whilst in others, such as Ghana, only a few services have been used by a
reasonably large proportion of small enterprises. See “Assessing Markets for
BDS: What have we learned so far?” A. Miehlbradt for ILO (2002).
More recent DFID programmes have learnt from the emerging BDS paradigm:
A multi-donor project in Bangladesh is putting customer needs first by
building on a survey of the markets for BDS by a Swiss NGO, and tracking
SME service needs throughout the life of the project.
In China and Bosnia-Herzegovina, DFID’s State-Owned Enterprise Reform
and enterprise development projects have invited enterprises to bid in the
open market for project services, instead of being wholly selected by
funding partners.
In Mozambique, DFID supports a “matching grant” approach where SME
trainees fund a proportion of the costs of business service inputs, whilst
retaining wide choice about which services they use.
How to Support BDS in Practice
DFID’s approach is to operationalise the donor BDS guidelines, and focus on
making BDS markets work for the poor. Subject to context and available
resources, consider following these steps:
Survey the existing indigenous market for BDS: who already supplies
what services at what price and quality? Who are the buyers? How are the
services paid for? What are the core services demanded? Analyse any
supply and demand mis-match.
In other words, take a “market
Cross-examine the survey findings to see where building BDS capacity
might either directly contribute to the growth of the SME sector, leading to
employment and incomes for poor people, and/or directly contribute to
serving poor people
Focus on certain locations and/or sectors, and consider how to facilitate
growth in or productivity of existing providers of demand-driven BDS
services. Instead of working direct with these providers, identify BDS
“facilitators”, organisations that help service providers improve or further
commercialise their service to SMEs.
Whilst looking at facilitating approaches, also examine whether the
enabling environment for business service providers can be improved,
and work with government to achieve this.
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Always keep in mind exit strategies for BDS inputs and aim for
sustainability from day one. This is easier if capacity building work is
carried out by existing providers that already have other sources of
income, and by building appropriate incentive structures from the outset.
Don’t forget to measure performance of facilitators, of DFID’s investment
in them, and of service providers.
Case: Developing BDS Providers in Russia
In Russia, DFID took two approaches to building capacity for business
services. One project’s objective was to increase private investment. A British
Business School worked with more than 20 existing Russian management
consultancies and accounting firms to build their capacity to offer investment
advice. A second project had wider objectives to promote the supply of
management and business consulting services through two new business
support centres. Whilst the latter are still in operation serving mainly donor
and government customers, the former approach has much greater prospects
of sustainability through its diversity of partners, each already operating in
local markets . The moral repeats an old development lesson – consider
building on existing institutions rather than risking more on new ones.
BDS Resources
Information of interest can be accessed at:
BDS Market Development: A Guide for Agencies on the Emerging Market
Development Approach to Business Development Services (2001):
Microenterprise Best Practices/The Springfield Centre for Business in
IFC discussion paper 40: Hallberg (2000) A Market-Oriented Strategy For
Making Markets Work Better for the Poor - A Framework Paper, DFID
Private Sector Policy Department & Oxford Policy Management (2000)
Joining up Donors’ approaches to Small and Medium Enterprise
Development, DFID (September 2001)
DFID Economist’s Guide (section 4.6)
The Strategic Framework for DFID’s Role in Business Services in East
Africa DFID (2001)
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For further information contact:
Investment, Competition and Business Development Services Team
Policy Division, DFID, London.
This Teams belongs to the Pro-Poor Growth Cluster in Policy Division and
has drafted this Note, which forms part of a series of short “How To Notes”
intended to be of practical value to all those working on Private Sector
Development agendas in DFID Country Offices and Regional Policy
Departments. The series is being co-ordinated by PD’s Investment,
Competition and Business Development Services Team, to whom comments
on this Note and recommendations for further Notes should be addressed:
[email protected]
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