Building High-Growth Firms Through Training the Owner vs Through Linking the Firm to Business Service Markets

Firms will be randomly assigned to one of four interventions: business training; business consulting; insourcing of an accounting or marketing worker; or outsourcing to an accounting or marketing firm.

The target population for this intervention is firms in the five priority industries (light manufacturing, construction, ICT, hospitality and entertainment) who meet the following criteria:
i. They show interest in growing their firms by applying to the BIG platform.
ii. They then attend an induction workshop where they receive a baseline survey and are scored on their current level of business practices. Firms that receive a score of below 5 out of 10 are excluded (with some offered basic training), while those with scores above 8 that may have less room to improve are also excluded (with some offered consulting services or grants).
iii. They have 2 to 15 workers, and are not already insourcing or outsourcing both their financial and marketing functions.
iv. They are located in Abuja or Lagos (where we have been able to identify sufficient human resource specialists and business service providers).
These criteria aim to select firms with high-growth potential, who have scope to improve and grow, and who operate in a location where linkages to markets are possible.

Firms which meet the eligibility criteria will be offered one of the following four interventions:
1) Business Training: The objective is to strengthen the capacity of SMEs by providing them with a mix of online and in-class training. The curriculum is based on the IFC Business Edge and adapted to the local context. The core modules are in financial management, marketing, and human resource management. Firms have to complete a minimum of 12 days in-class along with online courses. The business owners can choose the dates and locations for the modules.
2) Business Consulting: 88 hours (11 full days) of business consulting services provided by consultants over 6 to 9 months, meeting at least once a month. The initial visits (about 8 hours including site visits) will help the MSME define a Need Assessment and a Growth Strategy. The consulting services provider will then propose a list of business enhancing activities (Scope of Support) for the remaining 80 hours. These activities are personalized to the MSME but typically focus on Management, Finance, Sales & Marketing, Operations and Human Resources.
3) Insourcing: Firms in this group access an online marketplace to choose a Human Resource (HR) specialist from a list of vetted firms. This HR specialist will then help recruit an accounting worker or marketing worker to join the firm and perform tasks in the respective functional area. The firm will receive a wage subsidy that fully pays the cost of such a worker in the first few months but then gradually declines over 9 months (by which time the firm covers the whole wage).
4) Outsourcing: Firms in this group access an online marketplace to choose an Accounting firm or Marketing firm from a list of vetted firms. They will then outsource their accounting or marketing activities to this firm. As with insourcing, a subsidy will cover the cost of these services initially, which will be phased out over time.

2016-12-15

2018-12-31

In the short-term, we are interested in which program has the most impact on business practices
In the longer-term, key outcomes are business survival, profitability, sales, and employment

The pre-analysis plan will describe how these outcomes are defined and constructed

Short-term: time-use of the business owner
Longer-term: use of market for business services, access to and use of finance, subjective well-being, innovation

The pre-analysis plan will describe how these outcomes are defined and constructed

Firms will be randomly allocated in enrolment batches. Within each batch, firms are randomly allocated to one of the four treatments, or to a control group, in equal proportions.

To be included in the study, firms undertake the following steps:
Step One: apply online through the BIG platform in response to advertising campaign. McKenzie (2017) notes that requiring online application already screens on firms which are more sophisticated and likely to be plausible candidates for high-growth. Moreover, by applying for the program firms indicate their interest in developing their skills.
Step Two: pass an initial screening based on having complete data on the application, operating in one of the 5 GEM sectors, being 18 and older, and having more than one and fewer than 100 workers.
Step Three: attend an induction workshop in Lagos or Abuja, and answer baseline survey at this workshop. This screens further on motivation and effort.
Step Four: have a score of between 5 and 8 out of 10 for business practices based on this screen, have between 2 and 15 workers, and not be already outsourcing or insourcing both marketing and finance functions. This generates a group of potential high-growth firms who are determined to grow, and have made it past the barrier of hiring other paid workers apart from the owner.

In the 2016 launch, more than 2,500 firms attended the induction workshops in Lagos and Abuja, of whom 943 firms passed these screening criteria and become the first part of the experimental sample. The total planned sample size is 2,000 firms, although this is dependent on numbers inducted by the government program.

Firms are then randomized by induction group (enrolment batch) - for example, the batch of firms that attended the Lagos induction workshop on a particular date. Firms are randomly assigned in equal proportions to the four treatment groups and to a control group.

A second sample outside of Lagos and Abuja are randomly assigned to consulting, training, and control only.

Randomization done in office by computer, stratified by enrolment batch

Firm

No

The number of clusters is the same as the number of units. It is planned to be 2,000 firms, but is currently 943 and the total sample will depend on the numbers inducted in 2018.

2,000 firms planned, currently 943

The sample size is equally allocated across the five groups (subject to rounding).
The target is 400 in each group, but currently we have:
Training 190 firms; consulting 188 firms; insourcing 187 firms; outsourcing 191 firms; control 187 firms

The sample size is determined by the project budget and geographic distribution of applicants (firms applying from other parts of Nigeria will not be offered the insourcing or outsourcing treatments, but will still be randomized to control, grants, training, or consulting, and to date we have 730 control, 434 training, and 434 consulting outside of Abuja and Lagos – we will use this other sample to measure impacts of these first two treatments in those regions). Our power calculations are then designed to determine the minimum detectable effect possible with this sample. We are in a better position for making these calculations than most studies because the 2016 application window has closed and gives us data on the initial 943 experimental firms. Moreover, based on the first batches, we have over 90% take-up for the consulting, insourcing, and outsourcing treatments (training take-up data not yet available). We therefore assume 90% take-up in these calculations. We report the minimum detectable TOT effect assuming this take-up rate. Table 2: Minimum Detectable Effect (80% power, 5% significance level) Business Practices Score Employment Log Profits Unit Level Firm Firm Firm Variable Mean 6.31 4.22 13.05 Variable SD 0.75 2.59 1.35 MDE (in SD) 0.22 0.18 0.19 MDE (as % of reference mean) 2.6% 4.3% 25% Business practices: calculation is made using only a single round of follow-up data. MDE for the ITT is then 0.15, so for the TOT is 1.1*0.15 = 0.165. This is 0.22 s.d., or 2.6% increase in the mean. Since the score is on a 10-point scale, this is equivalent to a 0.02 improvement in the proportion of practices implemented. This is less than half the size found in business training experiments cited in the literature review. Employment: power calculations assume Ancova estimation, controlling for baseline value of employment. Autocorrelation is assumed to be 0.5. MDE is then 0.43 workers , so a TOT of 1.1*0.43 = 0.47 workers. This is 0.18 S.d., or a 4.3% increase on the control mean. For employment we believe the increase in the number of workers is the most useful metric. 0.47 workers increase in employment will occur if half the firms hiring an insourced worker keep this worker on, even if they do not grow enough to hire more workers. McKenzie (2017) finds high-growth enterprises achieve employment gains of 4-5 workers per firm from winning the business plan competition, so we are only trying to detect increases one-tenth of that size. Log monthly sales: power calculations assume Ancova estimation, controlling for baseline value of sales. Autocorrelation is assumed to be 0.5. MDE for the ITT is 0.23, so TOT is 0.25 log points, or a 25% increase in the control mean. We aim to reduce this further through three steps: i) controlling for baseline covariates like sector, business practices, and employment size that can soak up some of the variation in size and reduce heterogeneity; ii) budget allowing, use multiple measurements of monthly sales within a given follow-up period as in McKenzie (2012); and iii) reduce measurement error and hence noise by utilizing a cross-checking survey technology.