Upskilling micro-entrepreneurs

 

Micro-entrepreneurship in emerging economies

Micro-entrepreneurship is big business in emerging economies. In countries like India, Sudan and Tanzania, estimates suggest that between 75 and 90 percent of all those engaged in paid economic activity are self-employed —for example as fruit, vegetable and grain vendors, market stall or shop owners, or farmers employing perhaps four or five workers. As providers of necessary goods and services, employers and tax payers, micro-entrepreneurs are important engines of economic development in the world’s poorest countries. But these engines are slow. 

Studies by the World Bank and others reveal that the majority of these small business owners are desperately poor, most barely able to eke out a living. Some reports suggest that micro-entrepreneurs constitute around half of the world’s poor. 

The World Bank and other organisations spend billions in aid each year, much of it on training and upskilling initiatives for micro-entrepreneurs to support growth and job creation. But this work has been historically hampered on several fronts.

• First, there remains some scepticism around the efficacy of business-style education programmes in emerging economies. Influential figures like Grameen Bank founder and Nobel Laureate, Muhammad Yunus, have argued that efforts should focus on building out existing capabilities and not on developing new skills.
• Then there is a general dearth of quantitative evidence around the impact of training programmes on people’s livelihood; or indeed the type of training or skills development that should be prioritised.

 

How business skills training is shaping the solution

Rajesh Chandy is the Tony and Maureen Wheeler Chair in Entrepreneurship at London Business School and Academic Director of the School’s Wheeler Institute for Business and Development. He has developed a substantial body of work that provides research-backed answers to these questions, as well as clear insights and directives that are now reshaping the way that support can be targeted and delivered. 

Research methodology

Involving 1,000 micro-businesses in Cape Town

One large-scale field study in South African townships has yielded compellingly concrete evidence not only on the long-term benefits of business skills training, but around how different types of skills training—what Rajesh and his co-authors call “pathways to profits’—can drive different outcomes. 

Together with Texas A&M University’s Stephen Anderson-Macdonald and Bilal Zia of the World Bank, he conducted a 2016 experiment involving just under 1000 microbusinesses in Cape Town, mostly operating in township settlements. These businesses—among them food and grocery, hair and beauty, household and maintenance, computer and electrical repairs suppliers—were randomly assigned into three groups.

• A first group was assigned intensive finance and accounting training.
• A second received equally intense training in marketing skills.
• And a third control segment received no training at all during the study period.

All three groups were observed over an 18-month follow up period to record data. The research team collaborated with Business Bridge, an NGO founded by a former London Business School faculty member (the late Michael Hay) to develop the curriculum for the training and adapted it to the local context. The teaching itself was delivered by Business Bridge, with local business experts serving as volunteer instructors and facilitators. 

Research findings

The impact of finance and marketing training on profits

Initial analysis of profits over the observation phase revealed a stark difference in outcomes between those businesses that had received skills training and those that had not. At the 18 month mark, these businesses were posting monthly profits at least 40% greater than those shared by the control group.

Digging deeper into the results, Rajesh and his colleagues were then able to separate out the impact of finance versus marketing training.

The important difference between the finance and marketing groups, say the researchers, was in the pathways that business people in each group took to achieve these profits. Where the finance group made more money by increasing efficiency and cutting costs, the marketing alumni were seeing profits as a result of growth. And that’s not all. The businesses in the marketing group went on to hire on average one additional employee to manage their growth—effectively doubling their workforce in most instances.

In South African townships, where micro-entrepreneurship is the predominant form of economic activity and unemployment typically hovers around the 50% mark, these results point to two things: first, the inalienable impact of business skills development on prosperity in general; but also the importance of marketing skills as a driver of growth and job creation. As Rajesh and his colleagues attest: teaching matters; but so does what you teach.

 

 

 

How this research is changing skills training worldwide

International organisations have taken note of the evidence generated by Rajesh's research.

World Bank

Nigeria, Peru, Mexico

The World Bank in particular has been swift to respond, comprehensively integrating marketing skills in a multi-million redesign of training programmes for emerging economies. 

Working on the basis of Rajesh's South African findings, the World Bank trialled a $200 million programme offering marketing training as an option to Nigerian SMEs in 2018. Two thirds of the participants proactively selected the marketing content and preliminary results point to significant impact both in sales and employment among these businesses.

In Peru, a $50 million World Bank project was launched in 2020 to grow 200 tech startups, again integrating marketing support as a critical component. And initial results from a recent World Bank collaboration with the government of Mexico reveal that the inclusion of marketing skills has dramatically enhanced sales performance and job creation across a group of 15,000 micro-entrepreneurs in the food and retail sectors. 

Grow Movement

Rwanda, Uganda, Tanzania, Kenya and more

Elsewhere, Grow Movement, an NGO founded by LBS alum Chris Coghlan has designed a scheme to provide operational and marketing upskilling to thousands of small firms across Rwanda, Uganda, Tanzania and Kenya, among other places. By connecting volunteer consultants to small business owners over the phone, the Grow Movement has created significant impact with participants who receive marketing consulting reporting an average increase in sales by just under 30% per month. 

 

"A game changer"

Rajesh's research into the impact of skills training—and of marketing skills in particular—is driving a major, worldwide shift in the way that support is reaching micro-entrepreneurs in markets where need is greatest.

The World Bank, the European Union and others have routinely handed out cash to the tune of billions of dollars without focusing on the specific skills that are most likely to drive growth and fuel employment in struggling communities.

One lead economist at the World Bank has described Rajesh and his colleagues’ South African work as a “game changer” that has shifted thinking on marketing skills; an effect, he says, that will make a “fundamental difference” to the design and implementation of future programmes, both those run by the World Bank and by governments. 

 

What's next?

Rajesh's work is also inspiring new lines of research. Juan Espinosa Balbuena, a PhD researcher at London Business School, is analysing differences in outcomes by cohort within the original South African study. His hypothesis is built around the role of diversity in accelerating impact; specifically whether diversity in the classroom setting has more or less of an effect depending on the type of content being taught.

Preliminary findings suggest that increasing diversity among participants—mixing it up more in terms of gender, race, international exposure and existing familiarity with concepts—has greater impact when participants are studying marketing subjects rather than the more “rule-based” topics of finance. The intuition here is that with more contingency-based areas like marketing—subjects that are less confined by norms and rules—learning outcomes are even greater when there is diversity within the cohort.

While this research is ongoing, these initial insights already have enormous implications for aid programmes. Espinosa Balbuena is currently working with The World Bank to explore the impact of diversity in certain skills training programmes where the cross-pollination of ideas, perspectives and experience might be more important than in others. Effecting greater diversity, along with an increasing focus on the types of skills that are imparted, may well become a priority for providers of training for the world’s micro-entrepreneurs—those all-important engines of growth, employment and prosperity in so many of the world’s economies.