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Study summary

Comparing training, consulting, insourcing and outsourcing

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Insourcing and outsourcing are both more effective than business training, are at least as effective as consulting and cost half as much.

General description

As part of the Growth and Employment (GEM) multi-year project, the government offers eligible small firms support through one of the following four schemes: 1) training for the entrepreneur, 2) personalised consulting for the entrepreneur, 3) support to hire a new worker to carry out marketing or accounting functions in the firm or 4) support to contract with a marketing or accounting service provider to have these functions carried out by an external specialist.

Aim

  1. To improve business practices
  2. To help small firms to grow

Implemented by

Nigerian Federal Ministry of Industry, Trade and Investment

Context

A country where, as in many other countries, human resources, accounting and marketing services providers are among the most common business service companies.

Participants

Firms with 2 to 15 workers which aren’t already insourcing or outsourcing their marketing and finance functions and which have been operating for at least one year in one of the following sectors: light manufacturing (including agribusiness), construction, hospitality and tourism, information and communication technologies (ICTs), and entertainment. Entrepreneurs are on average 38 years old, 44 per cent are women and most are highly educated (87 per cent have completed undergraduate education and 48 per cent have a postgraduate degree).

Activities

  • Business training: A mix of 25 hours online and 12 days of classroom-based business training covering five core modules on financial management, general operations, writing a business plan, marketing management and human resources. Optional modules are also available on enterprise governance, personal productivity and tourism/hospitality. 

    All business trainers have some form of skill certification, 82 per cent have completed postgraduate education and an average of over 15 years of work experience. Trainers don’t directly carry out any activities for the firm but instead try to increase the entrepreneur’s skills.
  • One-on-one consulting: The government pays for business consultants to provide 11 days (88 hours) of personalised consulting to the entrepreneurs. The support starts with an initial visit to review the current business situation and propose a list of business areas upon which the consultant can advise. These areas are tailored to each firm based on their needs, but they typically focus on management, finance and accounting, marketing and sales, operations and human resources. Ten more meetings follow over a period of six to nine months, with at least one a month.

    The consultants are from local companies that applied to work with the GEM project. They are screened based on qualifications and expertise, then given 5 to 10 days of training on value-added consultancy support. Consultants average over 12 years of work experience, are highly educated, with 88 per cent having postgraduate degrees, and most of them have some formal skill certification (80 per cent).
  • Insourcing: The firm is given access to an online marketplace where they can choose a human resources (HR) service provider to help them recruit an accounting or marketing specialist to join the firm as a full-time employee and carry out the relevant business function. If the firm decides to hire a worker, it receives an initial subsidy to cover the HR provider’s service fee plus monthly subsidies to support, at a decreasing rate, the worker’s wage for eight additional months.

    Insourced workers are much younger on average (around 29 years old), have less work experience (3.5 years) and are less likely to possess a postgraduate degree (32 per cent) or formal skills certification (24 per cent) than the professionals in the other support schemes.
  • Outsourcing: The firm is given access to an online marketplace where they can choose an accounting or marketing service provider who can be contracted to perform tasks in the respective functional area. If the firm decides to contract a service provider, it receives a declining monthly subsidy over nine months of the same value as the subsidy provided in the insourcing intervention. The external professional is required to spend at least one day a week doing these tasks.

    The outsourced specialists are similar to the business consultants in terms of experience, although they’re less likely to have a postgraduate degree (59 per cent) or formal skills certification (67 per cent).

The training, insourcing and outsourcing schemes are of equivalent cost to the government (around US$2,000 per firm). The consulting programme costs twice as much (at around US$4,000 per firm).

Tweak

Each firm is only offered one of the four support schemes:

  • Business training for the entrepreneur
  • One-on-one consulting to the entrepreneur
  • Support to hire a new worker (insourcing)
  • Support to contract an external specialist (outsourcing)

A fifth group doesn’t receive any support.

Results

  • The business training scheme didn’t have an impact on business practices nor on any of the measures of firm growth (number of employees, sales and profits). 
  • In contrast, the other three schemes resulted in improvements on a range of business practices which persisted well over a year after the end of the intervention (removal of subsidies or end of consultant support).
  • For the insourcing and outsourcing schemes, the largest improvements occurred in the areas of expertise of the contracted specialist: marketing and digital marketing.
  • Consulting had relatively more impact on accounting and finance practices, particularly over a longer period and on practices such as tracking money inflows and outflows, preparing income statements and balance sheets.
  • Two years after the intervention, both the outsourcing (more significantly) and the business consulting schemes resulted in an increased number of employees, sales and profits than the business training scheme. The impacts of the insourcing scheme were less clear.
  • Firms in the insourcing, outsourcing and business consulting schemes were more likely to be paying for outside HR, accounting, marketing or consulting services on their own one year after the end of the interventions.
  • Approximately one-third of the firms in the insourcing and outsourcing schemes continued to pay for the same insourcing or outsourcing services over one year after all subsidies had ended.

Policy implications

  • Insourcing and outsourcing are both more effective than business training, are at least as effective as consulting and cost the government half as much. 
  • Instead of training entrepreneurs in finance or marketing, it may be more effective to extend the entrepreneur’s boundaries by giving them access to a business services marketplace where they can acquire the expertise of skilled specialists.
  • There’s a need for a government policy aimed at improving the efficiency and reach of business services marketplaces.

Full study