The market for Business Development Services BDS in Sri Lanka

1
The market for Business Development Services
(BDS) in Sri Lanka
Dr Chris Reichert, Verni Vijayarajah, Maria
Vitores Presentation to the National BDS
Conference, Colombo February 11, 2003
2
Contents
2.1. What did we do? 2.2. The sample 2.3. An
overall picture of the BDS market 2.4. Market
penetration and market distortion 2.5. Market
segmentation - who buys or uses BDS? 2.6. The
service providers type, source of information
about and reasons for choosing them 2.7. Reasons
for not purchasing BDS

• 1. Introduction
• 2. The BDS market in Sri Lanka results of a
  market survey
• 3. Conclusions What do we learn
• from the survey?

3
1. Introduction
4
Context of the study

• Frustration about the results of 30 years of SME
  projects, and about the record of public sector
  interventions
• The international discussion on SME promotion and
  BDS market development
• Can markets play a bigger role? And what do we
  know about BDS markets? Not much!
• Lets better understand BDS markets!
• And use established market research tools!
• Questions Is there a market for BDS in Sri
  Lanka?
• Demand side Do MSME spend? Who spends? How much?
  And for what services? What reasoning?
• Supply side Are providers available? And what
  do they offer?

5
2. The BDS market in Sri Lanka results of
the market survey
6
2.1. The study what did we do?
7
a modified Usage Attitude - Image (UAI) market
survey on BDS in Sri Lanka
Objective to get an overview of the demand for
and supply of various BDS in Sri Lanka
modified UAI included many services rather than
1 less in-depth information designed to get a
first overview of the market
8
The services studied (18)

• Training on energy, water and waste
  management
• Training on production, productivity
  technical skills
• Consultancy on finance
• management, accounting
• taxation
• Consultancy on human resource development
• Consultancy on business planning and management
• Consultancy on marketing
• sales
• Consultancy on energy, water and waste management
• Consultancy on production,
• productivity technical matters

• Advertising services
• Accounting auditing services
• Legal paralegal services
• Communication (phone, fax,
• e-mail, internet) correspondence services
• Participation in trade fairs
• Business market information
• Training on finance management,
• accounting taxation
• Training on human resource development
• Training on entrepreneurship business planning
• Training on marketing sales

9
N 696 interviews with MSMEs
Micro 1 4 full-time employees (incl.
owner) Small 5 20 full-time employees Medium
21 200 full-time employees in 10 districts of
Sri Lanka conducted by Key Research, in
2001 funded by GTZ CEFE and ESSP and
Swisscontact quota sampling procedure (for
locations, enterprise size, economic sector) not
representative for enterprises in Sri Lanka in
general however, major groups and places are
represented, and extrapolations are possible
10
2.2. The sample structure
11
The sample composition
Locations
Economic sectors
Enterprise size groups
12
2.3. An overall picture of the BDS market in Sri
Lanka
13
Awareness, trial and retention of BDS by
individual services
14

• Limited awareness and understanding of most
  services
• High trial rates for communication, advertising,
  accounting
• Relatively low trial rates for all other services
• High retention only for communication,
  accounting, marketing consultancies
• i.e. even if people tried a service, repeat use
  is not very probable for most services
• 2 groups of services
• the ones used often and regularly by many people
• the ones tried occasionally and often not used
  again

15
Total spending
Average spending (incl. non-spenders)
Total spending on all services (last 12 months/
fin. year) Rs. 52 million (N 696)
Rs. 75,266 per business per year
Average spending (spenders only N621)
Rs. 84,356 per business per year
75 people (10.8) did not spend at all (last 12
months)
Extrapolation total market (9 districts) in
2000/ 01 Rs. 10.9 bn
16
Total (sample) market by type of BDS (8)
17
Average spending per BDS (8), last 12 months (Rs.)
18

• There is a BDS market
• with moderate spending
• and relatively low awareness and trial rates
• strong concentration on a few services, namely
  communication/ correspondence, advertising,
  accounting
• quite small market for services traditionally
  promoted by public sector agencies and donors
  (training, consultancies, information)

19
2.4. Market penetration and market distortion
20
ever used ever purchased ever got for
free () (8)
21
2 groups of services

• Those provided on commercial terms
• Those with a strong or majority share of free or
  subsidized service provision consultancy,
  training, information

22
2.4. Market segmentation Who buys BDS?
23
Average spending on all BDS, last 12 months/ fin.
year, in Rs. (N696)
By location
By respondent education
By economic sector
24
Average spending on BDS, continued
By business ownership
By size
25
Average spending on individual BDS, last 12
months, by enterprise size (8)
26

• Regional variations
• Muslim owners spend double.
• There is no relationship between economic sector
  and the size of spending on BDS.
• The training market is stronger in manufacturing
  and services than in other sectors.
• Trade and services seem to be more
  communication-intensive than other sectors.
• Strong positive correlation of BDS spending with
  education (R.29/.000) and business size
  (R.4/.000).
• Larger enterprises do not only spend more, they
  also spend on a larger range of services.
• The BDS budget of microenterprises seems to be
  basically their telephone bill.

27
2.6. The service providers
28
Types of providers used
29

• Service provision mostly dominated by larger
  firms/ organizations.
• Individuals and small firms play a stronger role
  in advertising, accounting, and legal services.

30
Sources of information about service providers,
(N2,121 answers)
31
Reasons for choosing service provider, (N2,138
answers)
32

• Word of mouth/ recommendations are the most
  important information sources about service
  providers.
• Mass media and information through organizations
  (chambers, government offices) are also relevant.
• Directories and newsletters are not much used.
• In selecting service providers, quality and price
  considerations compete.
• Most arguments (56) are related to quality (good
  name, competence, tailored service, recommended)
• The second biggest group (29) is related to
  price (competitive, cheapest, free service).

33
2.7. Reasons for not purchasing BDS
34
Reasons for not buying BDS, summarized, (
N8,107 answers)
35

• The perception that a service is not needed or
  that it can be done inhouse are the most
  important reasons for not buying BDS.
• On the one hand realistic
• Not everybody needs all the services all the
  time.
• On the other hand constraint to BDS market
  development.
• Market development will have to overcome the
  relatively low awareness levels and the
  perception, that outsourcing and using of BDS are
  not useful or worthwile.

36
3. Conclusions What do we learn from the survey?
37

• A fresh look at things! We see many things
  (services, providers, demand) which we did not
  see before.
• There is a market MSME spend on BDS and there
  are providers for various types of BDS.
• The market is divided into a purely commercially
  functioning part and a sector with a lot of
  non-market interference or distortion.
• An overview of the BDS market it can inform the
  design of project interventions, but it does not
  provide us with a prescription.
• We are just starting to learn from international
  comparison of BDS markets.
• Data can also inform BDS providers which market
  segments to target for what service?

38

• Market data can suggest demand as well as supply
  side interventions.
• Weak awareness and demand could justify
  interventions to generate awareness and stimulate
  demand (business education, social marketing and
  marketing of BDS).
• Constraints in provision would result in product
  development and supplier qualification
  interventions.
• This survey is a first step and learning
  experience.
• Other market research instruments can be applied
  to generate more specific information for
  matching demand and supply in the BDS market
• Focus Group Discussions
• Product Concept Tests, etc.

39
Thank you for your attention!