Testing the impact of information and quality ratings on SME use of professional business services

We conduct a baseline survey of SMEs, and randomly assign them into one of five groups:
1. A control group, that receives no intervention
2. Four groups that get shown a dashboard with information about business service providers, in which they are asked to choose their top three providers in marketing, accounting, and HR. They are also given an information pamphlet with the contact details of these providers. The four groups differ in what information is provided about quality;
Treatment group 1: information only, no quality information
Treatment group 2: quality star ratings, no comments
Treatment group 3: quality star ratings, plus negative comments
Treatment group 4: quality star ratings, plus positive and negative comments

2019-09-02

2019-10-12

We have two types of outcomes:
1) Choice of Providers on the platform, made by those in the four treatment groups, and made at the time of using the platform.
2) Steps towards hiring a provider, and use of a provider, measured 6 months later.

We will consider the following outcomes, motivated by our grant proposal to EDI submitted in February 2018, and finalized in July 2018.

For each of HR, Marketing, and Accounting provider type:
(i) The proportion of providers shortlisted by an SME (i.e., three selections) that have a quality ranking in the top third of all providers
(ii) The average quality rating of the three providers chosen
(iii) The proportion of providers chosen which have a rating in the bottom third.

From the 6-month survey:
(iv) Steps towards hiring a provider:
- knows a business service provider
- is confident in ability to find a high-quality specialist if they want one
- has contacted a business service provider in the past six months
- plans to use a specialist in the next 12 months
(v) Did the SME hire a business service provider in the six months post-intervention?

Randomization is stratified by survey mode (fixed list vs door-to-door), and firms were first randomized to the control group or an information treatment group, then conditional on being in the information treatment, randomized to whether or not they received quality ratings information.,

The survey company were given separate lists of identification numbers to use for surveying from a fixed list of firms, plus for using with firms found through door-to-door surveying. These numbers were randomly assigned to the pure control group, or one of the four different treatment groups.

Randomization done ex ante by computer privately.

Firm

No

1,054 firms

1,054 firms

Sample sizes are:
Pure control group: 297 firms
Information only group: 187 firms
Quality star ratings only: 187 firms
Quality star ratings plus negative information: 184 firms
Quality star ratings plus positive and negative information: 200 firms

Why do more small firms in developing countries not use
the market for professional business services like accounting,
marketing, and human resource specialists? Two key reasons
may be that firms lack information about the availability
of these services, and that they struggle to distinguish the
quality of good versus bad providers. A brand recognition
exercise finds that most small firms are unaware of most
providers in this market, and a survey of service providers
reveals that they largely rely on word-of-mouth and informal reputation mechanisms for acquiring customers. This
study set up a business services marketplace that contains
information about the different providers present in the
market and used mystery shopper visits to develop a quality ratings system. A randomized experiment with more
than 1,000 firms provided access to this marketplace to the
treatment group and randomized whether firms received
just information or also quality ratings. The provision of
quality ratings information shifts small firms’ preferences
over which provider they would like to use, increasing the
average quality rating of their preferred providers by 0.2 to
0.4 ratings points out of 5. However, neither the provision
of information nor these quality ratings had any significant
impact on the likelihood that small firms go on to hire a
business service provider over the subsequent six months.
The results suggest that alleviating information frictions
alone is insufficient to increase usage of professional business services.

Anderson, Stephen and David McKenzie (2021) What Prevents More Small Firms from Using Professional Business Services? An Information and Quality-Rating Experiment in Nigeria. World Bank Policy Research Working Paper no. 9614

https://documents1.worldbank.org/curated/en/407751617722646649/pdf/What-Prevents-More-Small-Firms-from-Using-Professional-Business-Services-An-Information-and-Quality-Rating-Experiment-in-Nigeria.pdf

Many small firms lack the finance and marketing skills needed for growth. A standard approach
is to train the entrepreneur in these skills. However, rather than requiring entrepreneurs to learn
everything, an alternative is to move beyond the boundary of the entrepreneur and link firms to
these skills in a marketplace through insourcing workers, or outsourcing tasks to professionals. We
conducted a randomized experiment in Nigeria to test the relative effectiveness of these different
approaches to improving business practices. Insourcing and outsourcing both dominate business
training; and do at least as well as business consulting at one-half of the cost.

Anderson, Stephen and David McKenzie (2022) "Improving business practices and the boundary of the entrepreneur: A randomized experiment comparing training, consulting, insourcing and outsourcing", Journal of Political Economy, 130(1): 157-209, 2022

https://doi.org/10.1086/717044