The market for Business Development Services (BDS)

in Sri Lanka

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

ContentsContents

1. Introduction

2. The BDS market in Sri Lanka – results of a market survey

3. Conclusions: What do we learn

from the survey?

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

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. Introduction1. Introduction

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!

Let‘s 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?

Context of the studyContext of the study

2. The BDS market in Sri Lanka – results of the market survey2. The BDS market in Sri Lanka – results of the market survey

2.1. The study – what did we do?2.1. The study – what did we do?

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

The services studied (18)•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

• 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

N = 696 interviews with MSMEsN = 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

2.2. The sample structure 2.2. The sample structure

The sample compositionThe sample composition

9.8%9.8%

18.8%

9.3%9.3%

9.8%10.6%

7.3%

9.2%

6.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

20.0%

Col Gamp Kandy Matale K'gala Galle Matara H'tota Ra'pura Trinco

LocationsLocations

23.40% 24.7%25.4% 26.6%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

agriculture manufact services trade

Economic sectors Enterprise size groups

29.7%44.4%

25.9%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

micro <5 small 5-20 medium >20

2.3. An overall picture of the BDS market in Sri Lanka:2.3. An overall picture of the BDS market in Sri Lanka:

Awareness, trial and retention of BDS by individual services

retentiontrial

awareness

adve

rtis

ing

acco

un

tin

g ..

.

leg

al

com

mu

nic

atio

n

trad

e f

airs

bu

s in

fo

trg

fin

/acc

trg

hrd

trg

en

tre

trg

mk

t

trg

en

erg

y

trg

pro

d

con

s f

mg

t

con

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rd

con

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us

pla

n

con

s m

kt

con

s e

ne

rgy

con

s p

rod

0

10

20

30

40

50

60

70

80

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

Total spending on all services

(last 12 months/ fin. year)

Rs. 52 million(N = 696)

Total spending on all services

(last 12 months/ fin. year)

Rs. 52 million(N = 696)

Average spending (spenders only: N=621)Average spending (spenders only: N=621)

75 people (10.8%) did not spend at all (last 12 months) 75 people (10.8%) did not spend at all (last 12 months)

Total spendingTotal spending

Rs. 75,266per business per year

Rs. 75,266per business per year

Average spending (incl. non-spenders)Average spending (incl. non-spenders)

Rs. 84,356per business per year

Rs. 84,356per business per year

Extrapolation: total market (9 districts) in 2000/ 01: Rs. 10.9 bnExtrapolation: total market (9 districts) in 2000/ 01: Rs. 10.9 bn

Total (sample) market by type of BDS (8)

7.6%

7.2%

3.0% 0.4%3.4%

14.2%

42.5%

21.6%

communication/ corr

advertising

accounting/ auditing

legal

training

consultancies

trade fairs

business info

Average spending per BDS (8), last 12 months (Rs.)

16,306

10,699

5,749

2,584 2,259285

32,976

5,439

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

com

munic

atio

n

adverti

sing

acco

unting

legal

train

ing

consu

ltanci

es

trade fa

irs

business

info

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)

2.4. Market penetration and „market distortion“2.4. Market penetration and „market distortion“

ever got for free %

ever purchased %

ever used %

ad

vert

isin

g

acc

ou

ntin

g/ a

ud

itin

g

leg

al

com

mu

nic

atio

n/ c

orr

tra

de

fair

s

bu

sin

es

s in

fo

tra

inin

g

con

su

ltan

cie

s

0

10

20

30

40

50

60

70

80

‚ever used‘ – ‚ever purchased‘ – ‚ever got for free‘ (%) (8)

Those provided on commercial terms

Those with a strong or majority share of free or subsidized service provision: consultancy, training, information

2 groups of services2 groups of services

2.4. Market segmentation:

Who buys BDS?

2.4. Market segmentation:

Who buys BDS?

By location

0

50,000

100,000

150,000

Col Gamp Kandy Matale K'negala Galle Matara H'tota Rat'pura Trinco

By economic sector

0100002000030000400005000060000700008000090000

commagric

manuf services trade

By respondent education

0

50000

100000

150000

200000

250000

300000

<"O" L "O" L "A" L techdipl

univgrad

postgrad

Average spending on all BDS, last 12 months/ fin. year, in Rs. (N=696)

Average spending on BDS, continuedAverage spending on BDS, continued

0

20000

40000

60000

80000

100000

120000

140000

160000

micro small medium

By sizeBy size

By business ownershipBy business ownership

0

20000

40000

60000

80000

100000

120000

Sinhala Tamil Moor

Average spending on individual BDS, last 12 months, by enterprise size (8)

micro

small

medium

ad

vert

isin

g

acc

ou

nti

ng

/a

ud

it

leg

al

com

mu

nic

/ co

rr

tra

de

fa

irs

bu

sin

ess

in

fo

tra

inin

g

con

sult

an

cie

s

0

10000

20000

30000

40000

50000

60000

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.

2.6. The service providers2.6. The service providers

individualsmall firmlarge firm

adve

rtis

ing

acco

un

t/ a

ud

it

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com

m/ c

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mg

mt

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tg

trg

en

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/ wat

/ was

te

trg

pro

d

con

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rg/ w

at/ w

aste

con

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rod

0

10

20

30

40

50

60

70

Types of providers used

Service provision mostly dominated by larger firms/ organizations.

Individuals and small firms play a stronger role in advertising, accounting, and legal services.

Sources of information about service providers, % (N=2,121 answers)

Sources of information about service providers, % (N=2,121 answers)

11.5 2.0

2.0

47.7

21.8

15.1

colleague/ friend

newspaper/ radio/ tv

assoc/ chamber

gvt office

leaflet/ newsletter

tel directory/ yellowpages

Reasons for choosing service provider, % (N=2,138 answers)

Reasons for choosing service provider, % (N=2,138 answers)

9.8 11.2

2.6

20.7

25.9

3.33.2

6.6

8.2

8.6

good name in market

comp price/ cheapest

colleagues/ friends/competitors

tailored to needs

comp professionals

free service

only ones I know

close to workplace

used before/ comfortable

provider is friend/ relation

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).

2.7. Reasons for not purchasing BDS 2.7. Reasons for not purchasing BDS

Reasons for not buying BDS, summarized, % ( N=8,107 answers)

Reasons for not buying BDS, summarized, % ( N=8,107 answers)

7.4

6.3

24.4

55.2

0.76.0

don't need it

get it done inhouse

too expensive

need it but don't knowwhere to get

got it for free

other

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.

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.

3. Conclusions: What do we learn from the survey?3. Conclusions: What do we learn from the survey?

1. A fresh look at things! We see many things (services,

providers, demand) which we did not see before.

2. There is a market – MSME spend on BDS – and there are providers for various types of BDS.

3. The market is divided into a purely commercially functioning part and a sector with a lot of non-market interference or ‚distortion‘.

4. An overview of the BDS market – it can inform the design of project interventions, but it does not provide us with a prescription.

5. We are just starting to learn from international comparison of BDS markets.

6. Data can also inform BDS providers: which market segments to target for what service?

7. 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.

8. 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.

Thank you

for your attention!

Thank you

for your attention!