Tuesday, December 31, 2013

Want to help micro-enterprises? Teach them something about business

Anyone who has ever visited a low-income country notices the very large number of very small enterprises that generate very little net income.  Would training in basic business concepts help these small firms?  To find out, three economists conducted a randomized study of 900 entrepreneurs in Zacatecas Mexico.  Half were invited to take a 48 hour course in business skills spread over six weeks.  They received instruction on costs, pricing, legal rights and organizations, product mix, marketing and sales skills.  Then the economists studied the experimental and control groups for the next 2.5 years.

The most striking finding is that those invited had more customers, higher sales and more profits than those who were not invited.  They also reduced costs and changed their product mix away from lower to higher margins.  The good news: profits grew by 20 percent; the sobering news, profits were initially $11 per day for all concerned.  

My take: it is hard to demonstrate the value of business education.  Simple comparisons of income by major or degree level are difficult to interpret because higher income of MBAs or business majors may be due to other factors such as diligence or skill.  The value of this study is that it provides experimental evidence that business training provides a genuine competitive advantage. 

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