# **1. Introduction**

Walk into a typical micro or small business in a developing country and spend a few minutes talking with the owner and it is often clear that owners are not implementing many of the business practices standard in most small businesses in developed countries. Formal records are not kept, and household and business finances are mixed together. Marketing efforts are sporadic and rudimentary. Some inventory sits on shelves for years at a time, while more popular items frequently are out of stock. Few owners have financial targets or goals that they regularly monitor and act to achieve. The picture is not much better in medium and some large firms, with few firms using quality control systems, rewarding workers with performance-based pay, or using many other practices typical in well managed firms in developed countries.

Small wonder, then, that business training is one of the most common forms of active support provided to small firms around the world. There are a number of programs offered by governments, microfinance organisations and NGOs in many countries around the world. Perhaps the mostly widely implemented traiing program is the International Labor Organization (ILO)’s Start and Improve Your Business (SIYB) program. Started in 1977, the program claims over 4.5 million trainees with implementation in over 100 countries.<sup>1</sup> Other widely used programs include the GTZ/CEFE program, the UNCTAD/EMPRETEC program, business plan competitions and training run by Technoserve, content for microfinance clients developed by Freedom from Hunger, and the IFC’s Business Edge and SME Toolkit programs.

However, until recently there has been very little rigorous evidence on the impacts of these programs. An overview of impact evaluations in finance and private sector development written in 2009 found very little work on business training (McKenzie, 2010). The last three years have seen a rapid increase in attention to the idea that “managerial capital” or poor management is a constraint to production in developing countries (Bruhn et al, 2010; Bloom and Van Reenen, 2010), and the emergence of a number of impact evaluations of business training programs. This paper provides a critical overview of what we are learning from these evaluations and attempts to draw out the emerging lessons for both policy and the next generation of research.

We used a variety of methods to identify recent studies which examine the impacts of business training in developing countries. These include an Econlit search for published studies, Google Scholar searches of papers which cite these published studies or other working papers, our contacts with scholars working in this field, input from recent training program inventory exercises, and knowledge of papers presented in recent seminars or conferences. We restrict attention to papers which have a clear impact evaluation design dealing with selection on both observable and unobservable characteristics of business owners, and which focuses on enterprise management rather than solely on technical or vocational training. This yields 16 randomized experiments and one regression discontinuity study (Klinger and Schündeln, 2011) of business training, as well as three experiments which focus on individualized consulting services which we discuss separately.

> 1 <u>http://www.ilo.org/empent/areas/start-and-improve-your-business/lang--en/index.htm</u> [accessed September 6, 2012].

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