Business Development Services (BDS) Strategies and key concerns in Kenya.

INTRODUCTION Business Development Services are defined as the wide array of non-financial ser vices critical to the entry, survival, productivity, competitiveness and growth of enterprises and co-operatives. Business development services are designed to help micro, small and medium enterprise sand co-operatives to overcome barriers to increased profitability by improving their productivity and access to high va lue markets. In this way, they can create and sustain productive, remunerative a nd good quality jobs reduce poverty and contribute to the development of the loc al communities. Business development services (BDS) include a wide variety of non-financial serv ices such as labor and management training; extension, consultancy, and counseli ng; marketing and information services; technology development and diffusion; an d mechanisms to improve business linkages through subcontracting, franchising, a nd business clusters as well as consultancy and advisory services. Business development services (BDS) refer to the provision of information, knowl edge and skills, technology transfer, marketing assistance, as well as advice on the various aspects of the business. This definition of BDS implies a conscious action performed by the service provider for the benefit of the receiver of the service. Thus the action of an individual using savings for establishing a busi ness may not be considered as a financial service. Similarly, information obtained inadvertently by an entrepreneur (e.g. on a supplier of materials)\may not be c onsidered an information service. This is an important distinction that is not mad e by some practitioners who tend to use the term business development services w hether a service provider is involved or not. These services form an important part of the market support structure that helps b uild SME competitiveness. Traditionally, governments and donors have provided BD S through public institutions or non-governmental organizations, often on a free or subsidized basis. Many organisations have bee involved in providing business development services to SMEs and co-operatives in Kenya. Such these organisations include among other s: International labour Organisation (ILO) - ILO has been involved in improving acc ess of enterprises to BDS, primarily through the capacity building of intermedia ry service deliverers. It has developed a number of BDS programmes and approache s which have provided credibility and an entry point for other enterprises devel opment interventions. United Nations Agency for International Development (USAID) the Kenya USAID prog ram started in 2002 to support the growth of business services markets for micro and small enterprises MSEs within a number of sub-sectors in Kenya. It has deve loped and implemented interventions in the tree-fruit and fish sub sectors. Thes e interventions have generally focused on establishing sustainable market linkag es between small holder and lead buyers as well as developing a vibrant market f or business services required by shareholders for sustaining their competitivene

ss in the market. Techno serve

A BDS strategy enables managers to provide organisational vision, monitor and un derstand a dynamic business environment, generate creative strategic options in response to environmental changes, and base every business effort on sustainable competitive advantages. Developing business strategies provides the knowledge a nd understanding needed to generate and implement such a strategy. A successful business strategy includes plans for creating a positive and memorable business image. A BDS strategy focuses on helping MSEs accelerate revenue growth.

ROLE AND IMPORTANCE OF BDS STRATEGIES BDS strategies are important as they support MSEs to offer both safety valves fo r the survival of surplus workers unable to find steady wage employment and an o pportunity for the entrepreneurial poor to raise their incomes. They also offer a vehicle for applying and acquiring skills to raise productivity and private se ctor growth, providing better wage earning opportunities for the poor while rais ing national income. They help owners of enterprises get new ideas on how to improve their business t hrough e.g. reducing production costs, or accessing a more profitable market. Th ese services include the transfer of information in various forms through e.g. c onsulting services or special events. They may also be required for the establis hment and operation of an enterprise. Services required in this instance may inc lude legal services e.g. registration of the enterprise, training of owners and workers. MSEs play an important role in poverty reduction and economic growth by generati ng employment and incomes, empowerment of low income workers, development of ent repreneurship and skills. BDS can raise MSE productivity by addressing key const raints, these are; low skill levels, weak management, financial accounts, market ing, low level of technology, weak linkages and support systems. The increasing focus in BDS programs is driven by the growing scarcity of donor resources and the need to recover costs. Advances made in microfinance show that adapting cost-efficient methodologies and business principles can make a substa ntial difference in the proportion of costs recovered, enabling BDS programs cov er their own costs. DEVELOPMENT OF BUSINESS DEVELOPMENT SERVICES The field of BDS is continually evolving and after decades of experimenting with subsidized programmes having modest impact, the approach to developing commerci ally sustainable business service markets for enterprises of all sizes is now wi dely acceptable. Through these approaches, BDS practitioners and donors are crea ting both innovative services and new business models for delivering them. The f ollowing significant trends are influencing BDS initiatives and raising critical issues in the broader context of development. BDS market development initiatives are increasingly becoming part of broad devel opment initiatives rather than stand-alone programs. These broad programmes aim to improve sector competitiveness, develop the private sector, and strengthen th e agricultural sector, help SME compete in global markets, reduce poverty or emp

ower disenfranchised groups BDS development initiatives are increasingly taking an enterprise system approac h so as to address the constraints that hinder enterprises participation in value chains.

EMERGING STRATEGY The emerging strategy for BDS focuses on developing markets for services that ar e appropriate to and demanded by SMEs, rather than on the direct provision of BD S by governments and donors. The lessons of recent experience show that facilitating the provision of service s by private providers and stimulating the demand for them by small enterprise c lients is an effective way; to raise the coverage, quality, and sustainability of services, and To increase their impact on small enterprise performance. It leads to emphasis on being businesslike and demand-led at the institu tional level. The shift toward market provision of BDS reflects a move toward a systems approac h analogous to the microfinance revolution. As with microfinance, it directs gove rnment and donor intervention toward facilitating transactions between small ent erprise clients (as opposed to beneficiaries) and BDS providers seeking to develop p rofitable market niches. The starting point for BDS market development is an understanding of the existin g marketwhat is currently provided and by whom (including informal and indigenous providers); the characteristics, needs, and willingness-to-pay of small enterpr ises; and the nature of market failures that constrain market development. Often, the delivery and price of services may not be easily visible, since SMEs tend to rely on inter-firm relationships and informal sources of information rat her than formal, external service providers. Supply-side interventions to promote BDS market development can be used to exten d and replicate models of financially sustainable, cost-effective services. Demand-side interventions, such as matching grants and vouchers, may be justifie d on a temporary basis if markets are under-developed because small enterprises lack knowledge (or perceive high risks) of the benefits of BDS. Nevertheless, th e success of demand-side subsidies should be judged by whether they develop rath er than distort markets In general, it is believed that subsidies are less distortionary at the pre-deli very stage (e.g., market assessment, product development) and post-delivery stag e (monitoring and evaluation) than at the level of the BDS transaction. As in microfinance, the challenge in BDS is to develop low-cost service products a nd delivery mechanisms that meet the needs and willingness-to-pay of the smalles t scale clients. BDS institutions can often achieve lower cost and higher qualit y when they involve the private sector in the delivery of servicesthrough industr y associations, larger firms linked to SMEs through buyer or supplier relationsh ips, and other SMEs themselves. Recent advances in information and communication s technology as well as improved Internet access offer opportunities to lower th e cost of information, training, marketing, and business linkages. Standardized or group approaches for some services (such as basic business diagnostics) can b

e a cost effective way of delivering services, although they may be inappropriat e for more sophisticated services to larger clients (such as technology upgradin g services for medium-scale firms). Indicators of performance of BDS organizations themselves can provide a solid ba se for appraisal, evaluation, and improved design of future interventions. Efforts to develop private BDS markets should be complemented with a reduction a nd rationalization of public sector involvement. Reducing the traditional govern ment role in service provision will take time, but can be encouraged by requirin g steady increases in cost recovery to achieve financial sustainability; more bu siness-like institutional management; using the private sector to deliver servic es; and more rigorous impact evaluation tied to budgetary allocations. Rationali zation of public expenditure on BDS can be accompanied by selective privatizatio n of programs that have achieved full cost recovery. In the long run, subsidies should limited to those supporting the provision of public goods; in the short r un, they may be justified if they contribute to the development of markets, with a clear strategy for their reduction as this objective is achieved. Besides con tributing to BDS market development, these efforts make better use of scarce fis cal resources. Efforts to develop private BDS markets should be complemented with a reduction a nd rationalization of public sector involvement. Reducing the traditional govern ment role in service provision will take time, but can be encouraged by requirin g steady increases in cost recovery to achieve financial sustainability; more bu siness-like institutional management; using the private sector to deliver servic es; and more rigorous impact evaluation tied to budgetary allocations. Rationali zation of public expenditure on BDS can be accompanied by selective privatizatio n of programs that have achieved full cost recovery. In the long run, subsidies should limited to those supporting the provision of public goods; in the short r un, they may be justified if they contribute to the development of markets, with a clear strategy for their reduction as this objective is achieved. Besides con tributing to BDS market development, these efforts make better use of scarce fis cal resources. Business Development Services Strategies - Market-Oriented SME Interventions 1. Open Access to Markets, Accelerate Market Development Target subsidies for market development to specific market failures Information on service providers, impact of services Enforce competition in service markets

2. Invest in Public Goods, Build Institutional Capacity Reduce and Rational ize Traditional Innovation in products (especially for the smallest firms), delivery mechanisms Development of performance and impact indicators Training and TA to private BDS providers Limit long-term subsidies for BDS to public goods (e.g., information, labor and management training) 3. Public Interventions Increase cost recovery for publicly-provided or subsidized services Improve management and cost control in public BDS institutions Condition budgetary allocations to the achievement of impact Reduce duplication across agencies in services provided Use the private sector to deliver services - Privatize service providers when fi nancially sustainable 4. 5. Promoting enabling policies and regulations Supporting an enterpreneurial culture

6. 7. 8.

Building capacity for the provision of support services Assessments of marketing opportunities and target markets Intelligence gathering on customers and competitors

KEY CONCERNS There is broad consensus that publicly provided business development services su ffer from: 1. being too general and supply-driven, 2. Of poor quality, with insufficient awareness of cost control. 3. Low program coverage since both the quantity and quality of publicly pro vided or publicly funded services are limited by the amount of subsidies availab le, typically only five to ten percent of the target population of SMEs. 4. Systematic monitoring and evaluation of program impacts are rarely done, but all too often, SMEs report that the programs are irrelevant to their needs. 5. Sustainability: - Financial institutional impact: In many instances most of the business enterprises set up fail to become sustainable in the long run e specially when the subsidies run out. This is due to lack of defined organizati onal structure whereby the enterprise can stand on its own especially after the funding ceases. Sustainability focus may bias towards larger enterprises thereby excluding small enterprises. 6. Lack of established procedures - Small to medium-sized companies often d oes not establish procedures for business development, instead relying on their existing contacts. Other times they assume that because they know people in high places that their business development problems are solved and that somehow new business will come to them. The ramifications of such thinking can be significa nt in the event they are unable to leverage those relationships, which very ofte n are personal or weak. 7. Business development services not adapted to real needs of clients 8. Ability to focus on market development. Development of supply and demand for their products. 9. Focus on products not just institutions. 10. Ability to access the right information and be able to act on it at the right time. 11. Outreach: Limited scale in reaching target groups