Returns to Consulting for SMEs

Small businesses are often believed to serve as engines for innovation, employment and social mobility, due to their flexibility in responding to new opportunities and their potential for rapid growth. In developing countries, SMEs make up a particularly large part of the economy, yet data suggests that very few small enterprises in developing countries grow into larger businesses. Human capital constraints on growth might be even more severe than financial constraints if having adequate managerial skills in place is a prerequisite for accessing other resources. However, the market for business skills training is prone to under-investment. Young people and new market entrants are often credit constrained from investing in their own training--even though it would be privately and socially efficient. Second, a perception exists that managerial skills must be learned through experience, rather than taught. These forces lead to an under-investment in business skills training. This pilot study will look at the various constraints hindering SME growth and evaluate whether graduate business students providing consulting services to small business can be an effective conduit for skill transfer.