A vibrant small and medium-sized enterprise (SME) sector is a vital ingredient for a healthy market economy.
Supporting small enterprises lies at the heart of the EBRD’s mandate and, as a bank we offer a whole variety of ways to help small businesses grow, starting with providing finance both directly and through our network of partner banks in the region.
However, finance alone often cannot address the challenges facing small and medium-sized businesses. They also need access to know-how to improve their performance, develop their business and grow.
That is why, with the support of donors, the EBRD also provides advice to small and medium-sized businesses. Every year it undertakes around 1,600 projects helping small and medium-sized businesses across 25 countries access business advice through local consultants and international industry experts.
Here, we find a remarkable statistic. Across this whole portfolio, only 15% of the enterprises involved have ever worked with a professional business consultant before.
What is even more striking, however, is that when these projects are evaluated one year after they finish, the enterprises are asked whether they would be willing to engage a consultant again – without EBRD support. Ninety-five per cent say that they would in fact work with a consultant again; and almost half these businesses have already done so, independently and at their own cost, within the year that has passed.
That very few small businesses seek out business consultants is a familiar story across the region. In Russia 20 per cent have used a consultant before, in Georgia and Armenia 5 per cent and Romania 10 per cent. So what is holding them back?
The role of external advice in business growth is a fairly rare topic in academia, but two papers were published on the subject in 2013, based on randomised impact evaluations in India and Mexico. Both point to the same conclusion: companies fail to seek external advice primarily due to a lack of information.
Small and medium-sized enterprises in particular often do not immediately see the benefits that external advice can bring to their businesses. Advice is something intangible, after all, and firms are often unclear about what the real outcomes of an advisory assignment will be.
The Know How campaign is trying to change that. Launched today by the EBRD and rolled out across 25 countries, this information campaign promotes the value of external advice for small and medium-sized businesses.
The aim is simple: to demonstrate the value of knowledge and how it can help small businesses to succeed. At the heart of the campaign are individual cases of EBRD advisory projects, putting detail into the deliverables and the changes in performance that resulted.
“This campaign is asking: What could a marketing consultant, for example, really bring to your business?” explained Charlotte Ruhe, Director of the Small Business Support Team. “It’s more than just building a website.”
“For our project with Castle Park, a hotel and rafting centre in Albania, for example, the consultant developed two separate corporate identities for the two components of the business, prepared a whole kit of marketing materials, and, when it came to the website, it wasn’t just about updating the look, staff were trained to use online marketing and analytics tools to inform their e-marketing.
“This is what really drove the change. A year later, the majority of customers to the hotel were international, and it enjoyed a 100 per cent occupancy rate all summer. The same goes for projects in strategy, quality management, information communications technology, energy efficiency and beyond.”
Not knowing the value advice will add to a business inevitably makes it difficult to place a fair price on the service. But we know that the price-tag per se (average project costs are below €10,000) is not the deciding factor.
An additional obstacle results from a widespread lack of understanding of the process and practicalities of hiring a professional consultant. It is difficult to know how to choose a high-quality consultant, especially as in the countries where we work, these sectors are generally unregulated and without professional industry associations that set standards. Similarly, how do you structure a contract if you are unsure what you can get?
That is where programmes like ours come in. Drawing on an ever-expanding network of more than 6,000 local consultants and 1,500 international experts, we help the company through the whole process, from defining their business need to choosing the right expert, monitoring the project’s delivery and evaluating results. Thanks to donor support, we are able to help businesses take that first step and engage a consultant for the first time.
And our results show that once is enough. Once that project is completed and the company sees the results for themselves, a whole new world of wider possibilities is open to them.
“Companies, especially small ones, cannot expect to have all the expertise they need in-house,” continued Ms Ruhe.
“It is often difficult to have a stranger come in and give advice, but that is where effective change starts, in being open to different perspectives. This campaign will help businesses realise the benefits of external advice, spurring them on to innovation, investment and new growth.”