Complementing Managerial Capital with Business Information: A Field Experiment on International Consulting for Entrepreneurs in Uganda and Rwanda.

This research seeks to address a significant constraint to growth among businesses in developing countries: managerial capital. Managerial capital refers to the capabilities and confidence associated with managing cash, customers, competition, capital and constraints within businesses (cf. Bruhn, Karlan and Schoar 2012). Improvements in managerial capital offer the possibility of improved growth and prosperity. However, there exists substantial evidence that it is not abundant among micro and small businesses. In this research, we examine how managerial capital might help entrepreneurs in developing countries to transform their businesses: from micro- to small-sized enterprises and from small- to medium-sized enterprises. Despite the importance of this transformation for economic growth, few researchers so far have examined this phenomenon empirically.

The limited empirical work that has used experimental interventions to improve managerial capital has been inconclusive as to whether such interventions have an impact on firm growth, job creation or poverty alleviation. One potential issue is that existing studies typically involve offering business skills programs to a broad mix of entrepreneurs, the majority of whom are self-employed out of necessity and would prefer jobs in the formal sector. Greater selectivity in the recruitment of candidates for managerial capital programs might offer greater potential for impact. In addition, to the best of our knowledge, no study has delivered a consulting program to micro sized enterprises or one in which the participants concentrate on a single business function (e.g. finance or marketing). Prior interventions have also tended to focus on improving finance/accounting practices (e.g. book keeping) or efficiencies in operations (e.g. quality control), either of which can lead to improvements in bottom-line profits. Little emphasis has been placed on the enhancement of marketing and sales practices, which have the potential to increase top-line revenues and, in turn, stimulate firm growth and job creation. Further, researchers have not yet examined the impact of complementing managerial capital with access to business intelligence to improve productivity.

We seek to answer these research questions, and address the limitations of prior work, by implementing a randomized-controlled trial (RCT) that focuses on a more homogeneous group of firms, uses a more intense intervention, provides consulting programs that focus on only one dimension of managerial capital per project, and improves access to business information. In part 1, a screening tool will be implemented to identify a homogenous sample of 900 'high growth potential' micro and small enterprises in four urban areas across Uganda and Rwanda. Next, in part 2, participants will be exposed to a high quality Consulting Program provided by GROW Movement (www.growmovement.org). This managerial capital intervention represents a novel model for delivering free, high quality business advice to the world's poorest entrepreneurs via emails, mobile phone calls, and Skype video conferencing. Participants will be randomly assigned into one of three consulting groups: 300 participants will get a consultant who focuses on a "Marketing/Sales growth project". 300 participants will get a consultant who focuses on a "Finance/Accounting growth project". 300 participants will be assigned to a control group that does not receive any intervention. In part 3, within one week of beginning the GROW program, all 'treated' participants (n = 600) will receive an additional business information tool that complements their consulting service and allows them to track and analyze key business metrics. After completing the GROW program, all 900 participants will have their business practices and performance outcomes measured using post-intervention surveys conducted at months 6 and 12.

This project will inform policy in multiple ways. For each stakeholder group below we outline specific outputs against which the success of the project can be assessed for impact.

PROJECT TEAM (EFFECTIVE IMPLEMENTATION)

Implement all elements of the proposed research project within the timelines prescribed. Some key deliverables include:

(1) Sample: identify a sample of 900 potentially transformational entrepreneurs across two countries (i.e. entrepreneurs who qualify and are interested in participating in the project).

(2) Program for Evaluation: offer the consulting program and information technology tool to these 900 entrepreneurs.

(3) Compliance: achieve a compliance rate of 65% (i.e. 400 of 600 'treated' entrepreneurs complete their consulting program and implement the ICT tool in their business).

ACADEMICS (NEW KNOWLEDGE)

Make theoretical and methodological contributions that create new knowledge and make advancements in the relevant academic fields. Outputs will include:

(1) Conduct a mixed method data collection approach (as outlined in this proposal) that includes:
-3 qualitative interview rounds.
-6 quantitative survey rounds.

(2) Construct a harmonized dataset (across two countries) that can be:
-Analyzed for writing academic and policy papers.
-Made publicly available via the ESRC and IPA websites.

(3) Publish three journal articles, each focused on a different area of contribution:
-Theoretical (e.g. develop a new conceptual framework for understanding the antecedents and outcomes of managerial capital, including which dimensions of managerial capital are more closely linked to certain economic and social outcomes).
-Substantive (e.g. provide insights on how to design and offer training/technology programs that can help developing country entrepreneurs to build business capabilities, overcome constraints to growth, and enhance enterprise development).
-Methodological (e.g. outline the electronic survey tools and interview techniques that can be used when working with micro and small businesses in developing countries, including how to locate business owners, motivate them, track them over time, overcome recall bias, minimize demand effects, and improve the accuracy and precision of measuring firm outcome variables).

ENTREPRENEURS (INCLUSIVE GROWTH)

While completing rigorous and innovative research is in itself important, this project also aims to enhance firm productivity and stimulate growth. This can be measured in multiple ways; however, we will start with the following outcomes:

(1) Improve the economic outcomes of 900 entrepreneurs by:
-Increasing business sales by 20% per month on average.
-Increasing business profits by 30% per month on average.
-Creating 1 decent job on average per business (900 total jobs created).

(2) Improve the social outcomes of 900 entrepreneurs (and their families) by:
-Increasing household spending by 20% per month on average (e.g. food, health, education).
-Enhancing economic empowerment and responsibility in financial decision-making (particularly for female entrepreneurs).
-Increasing perceptions of happiness and overall wellbeing.

(3) Improve the lives of at least 13,500 people across the two developing countries involved in this project:
-900 entrepreneurs participating in the project (i.e. direct beneficiaries).
-1,800 employees in the participating firms (i.e. direct beneficiaries: each firm will have 1 employee on average at the beginning on the project; and we expect to create 1 decent job on average per business by the end of the project).
-10,800 household members (of entrepreneurs or employees) whose lives are enhanced by the economic and social improvements realized by the 2,700 direct beneficiaries (i.e. indirect beneficiaries: the typical household size could be very large, but we assume it to be 5 with 1 entrepreneur/employee who directly benefits and 4 family members who indirectly benefit).