1

Prepared by: Richard T. Bliss

and Lidija Polutnik

Babson College

And by:Lejla Dragnic

SEED

September 2001

SMEs' Demand for Business Development Services

in Bosnia and HerzegovinaPrepared for:

Southeast Europe Enterprise Development (SEED)

Richard Bliss and Lidija Polutnik gratefully acknowledge support received through the Glavin Center at Babson College, Wellesley, MA. They also thank

Gary Gau for his invaluable research assistance.

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CONTENTS

SMEs' Demand for Business Development Servicesin Bosnia and Herzegovina

Executive Summary 7Introduction 11Section 1: Methodology 13

1.1 Selection of Industries and Companies to Study 13

1.2 Selection of Critical Business Development Services (BDS) 13

1.3 The Interview Approach 14

1.4 Characteristics of the Final Sample 14Section 2: Findings for BDS 17

2.1 Awareness and Use of BDS in Bosnia and Herzegovina (BiH) 17

2.2 Important Factors in BDS Purchase Decision 19

2.3 Spending on BDS 19

2.4 BDS - Needs and Willingness to Pay 20

2.5 Perception of Availability and Quality of BDS 24

2.6 Focus on Specific BDS Used in 2000 24

a) Business Consultants 24

b) Professional Services Outsourcing 25

c) Training 26

2.7 Cooperation and Subcontracting Practices 27

2.8 Importance of Professional/Business Associations in BiH 28

2.9 Evaluation of the Importance of Sources of Information 29

2.10 Perceived Importance of Lack of BDS as a Constraint for

Firm's Successful Operations 30Section 3: Analysis by Industry and Size 31

3.1 Analysis by Industry 31

3.2 Analysis by Size 34Section 4: Conclusions and Recommendations 39Bibliography 43Appendix - Tables 45

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CONTENTS

TABLES

Number Title Page

Table 1.4A Year of Establishment and Start of Operations 14

Table 1.4B Firm Size- Number of Employees 15

Table 1.4C Highest Education Level of Firm's Managers 15

Table 1.4D Firm Size- Annual Sales Revenue 15

Table 1.4E Expected Sales Growth 15

Table 1.4F Forecasted Investment Spending 16

Table 1.4G Changes Introduced in the Last Three Years 16

Table 2.1A Awareness/Use of Consulting/Advising BDS 18

Table 2.1B Use of Consulting/Advising BDS 45

Table 2.1C Awareness/Use of Training 18

Table 2.1D Use of Training 45

Table 2.2A Factors in the Decision to Purchase BDS 19

Table 2.2B Factors in the Choice of BDS Provider 20

Table 2.3A Estimated Spending on Consulting and Training 20

Table 2.4A BDS Needs- Training 21

Table 2.4B BDS- Most Needed Consulting/Advisory 21

Table 2.4C BDS- Least Needed Consulting/Advisory 22

Table 2.4D BDS- Needs and Willingness to Pay 46

Table 2.4E The 10 Most Needed Services 22

Table 2.4F The 10 Least Needed Services 23

Table 2.5A Perceived Availability and Quality of BDS 23

Table 2.6A Factors in the Decision not to Hire any Consultants 24

Table 2.6B Characteristics of Consulting Engagements 47

Table 2.6C Characteristics of Consulting Engagements by Type 48

Table 2.6D Factors in the Decision Whether to Provide Training 26

Table 2.6E Factors in the Decision Not to Provide Training 26

Table 2.6F Distribution of Training Programs by Type 49

Table 2.6G Training Providers 49

Table 2.6H Number of Participants from Respondent's Company 49

Table 2.6I Characteristics of Training Programs by Type 50

Table 2.7A Current and Future Cooperation within Industry 51

Table 2.7B Current and Future Subcontracting Activity 51

Table 2.7C Reasons Given for Subcontracting 51

Table 2.7D Activities Subcontracted To Sample Firms 52

Table 2.8A Chamber of Commerce Services 52

Table 2.8B Valuable Services not Currently Offered by the Chamber of Commerce 53

Table 2.8C Services Offered by Non-Chamber of Commerce Business Associations 53

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CONTENTS

Table 2.8D Valuable Services not Currently Offered 53

Table 2.9A Importance of Information Sources by Area 54

Table 2.10A Rating of Constraints to Success in Industry 55

Table 2.10B Problems in the Sales and Marketing Area 55

Table 3.1A Distribution of Firms by Location and Industry 31

Table 3.1B Estimated Spending on Consulting and Training 32

Table 3.1C BDS Usage Rates by Industry 32

Table 3.1D Professional Services Outsourcing by Industry 32

Table 3.1E Firm Size- Number of Employees by Industry 32

Table 3.1F Manager's Education by Industry 33

Table 3.1G Workforce Gender by Industry 33

Table 3.1H Three-Year Growth Expectations 33

Table 3.1I Firm Size - 2000 Sales Revenue 33

Table 3.1J 2001 Investment Plans by Industry 33

Table 3.2A Distribution of Firms by Size and Location 35

Table 3.2B Distribution of Firms by Size and Industry 35

Table 3.2C Estimated Spending on Consulting and Training 35

Table 3.2D BDS Usage Rates by Company and Size 35

Table 3.2E Professional Services Outsourcing by Company Size 36

Table 3.2F Manager's Education by Firm Size 36

Table 3.2G Workforce Gender by Firm Size 36

Table 3.2H Three-Year Growth Expectations 36

Table 3.2I 2000 Sales Revenue by Firm Size 36

Table 3.2J 2001 Investment Plans by Firm Size 37

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The SEED has commissioned this studyto improve the growth and develop-ment of Small and Medium Enterprises(SMEs) in Bosnia and Herzegovina. Asa result of this study SEED has more

detailed knowledge of the needs of SMEs forbusiness development services (BDS). BDS aredefined for the purpose of this report as an arrayof non-financial services critical for SMEs andtheir ability to compete, survive, and grow intheir respective industries. This study collected valuable data about thepast experience and future needs of SMEs in BiHfor consulting and training services in the fol-lowing areas:· Development/Strategy· Marketing· Accounting/Audit/Finance· Information Technology· Production Technology/Operations· Safety/Environmental· Human Resources Management · Legal/RegulatoryWhile the focus of this report is consulting/advi-sory and training services, we also asked ques-tions about where firms get important informa-tion, their cooperation and subcontracting activ-ities, and their interest in business associationmembership.Researchers interviewed 130 managers in smalland medium size privately owned companies.These companies were in four different indus-tries: agribusiness (19% of the sample), con-struction (43%), information technology (19%),and road transport (19%). Companies that were

included in the sample were located in theFederation of Bosnia and Herzegovina (FBiH -54%) and in Republika Srpska (RS - 46%). Theaverage sample company had 39 full-time and10 part-time employees and annual sales rev-enue of 2.8 million KM in 2000. These compa-nies are generally optimistic about the next threeyears, as 80% expect moderate or rapid rev-enue growth. On average they plan to invest791,000 KM in working capital and 538,000KM in fixed assets during 2001. We found a high degree of awareness for a widerange of consulting services among the samplefirms. The fewest respondents knew aboutBusiness Development/Strategy consulting servic-es (77.5%) while the most were aware of market-ing-related consulting services (99.2%). Usagestatistics are lower, ranging from 30% forBusiness Development/Strategy to 66.2% formarketing-related services. While usage and pur-chase percentages are comparable for most cat-egories, approximately half of the firms that usedBusiness Development/Strategy services did notpurchase them, i.e., they presumably got them atno cost. IT and Legal/Regulatory services are theleast likely to be offered for free. High levels ofrepeat usage are reported for all services.We found a similarly high degree of awarenessfor training programs. These range from a lowof 84.5% for Environmental Training to 95.3%for both IT and Occupational Safety Training.Environmental Training is used by just 26.2% ofthe firms, this percentage being less than halfthat of every other category. The most important factors in a firm's decision to

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Executive Summary

purchase the consulting service or training are alegal requirement and its prior experience withthe service, both cited as "Very Important" by36.9% of respondents. 60.0% of respondentssay a competitor's decision to purchase a serv-ice or training is not important and almost half(47.7%) don't feel whether the service is offeredfor free is important. In choosing the BDS provider three factors arethe most important: the provider's reputation, theappropriateness of the service, and whether thefirm has used the provider previouslyThe average spending by all firms on consult-ing/advisory services is around 10,700 KM, andis consistent over the two years (2000 and2001). The average spending on training serv-ices was 8,394 KM in year 2000, and is expect-ed to be 9,166 KM in year 2001. About 63% ofthe enterprises in the sample say these outlaysare itemized in their 2001 budget, indicatingthat for almost two thirds of the sample theseexpenditures are planned. Training in leadership is cited by 33.8% of thefirms as "most needed", training in HRManagement by 27.7% , and training inBusiness Development/Strategy by 19.2%.Training in Marketing, Promotion, and Sales iscited as the most needed only by 13.8% ofrespondents. For consulting/advisory services,Marketing, Promotion and Sales has the highestpercentage of "most needed" responses andAccounting, Audit and Finance the least. Regarding willingness to pay it is interesting tonotice that for all services almost all respondentswho ranked a service as moderately or mostneeded expressed their readiness to pay for theservice.The most cited reason for not hiring any con-sultants is the inability to find consultants for aspecific need, which is a major factor for 36.1%of the respondents. One-third of the respon-dents said that expense for consultants is amajor factor. However, more than half (53.4%)said a lack of funds is "no factor", and 60.3%seem to need consulting services. The majority of the consultants (54.3%) hired in2000 were from local or domestic firms.Production Technology / Operations (42.4%)and Accounting/Audit/Finance (26.1%) are themost frequently used consulting services. Thefewest number of consulting engagements were

in the areas of Safety/Environmental (8.7%) andHuman Resources Management (0.0%). Almostthree-fourths (74%) of the consulting engage-ments were self-financed. Enterprises appear tobe quite satisfied with the consultants they hired.On average, firms were willing to pay about560 KM more than the cost of the service, avalue 12% higher than the average cost. Approximately one-third of the firms (30.8%)have hired external help to prepare their state-ments and a similar proportion (32.3%) havetheir statements audited by a chartered account-ant, presumably as part of the outsourcing. Alarger proportion of the sample (56.9%) say theyhave hired outside legal counsel at some point. We have asked firms to rate the importance offour factors in the decision of whether or not totrain their employees. The most important factoris "evidence of clear benefits from training",which 92.1% of the respondents say is moder-ately or very important. Only 22% of the firmssay that having free training available is a veryimportant factor. Only a "lack of external train-ing" is considered a major factor by more than30% of the respondents that did not provide anytraining for their employees. A large majority of training programs used in2000 were self-financed (84.5%). The averagecost of training was 4,512 KM. The most com-mon type of training provided is in the areas ofProduction Technology/Operations (32.4%) andInformation Technology (27.7%). Least likelywere programs in Import/Export (2.0%),Corporate Governance (3.4%), and Researchand Development (5.4%). Most of the trainingwas done by external parties, specifically bytraining institutions (42.6%) and individual train-ers (25.0%). Companies sent an average of 9.4trainees to each program. Business needs werebehind 68.2% of the programs, legal reasonsaccounted for 15.5% of the training, and 16.2%were motivated by both business and legal con-siderations. The quality of the training programswas high as not a single respondent said theywere dissatisfied with a program. Most of the sample firms (105 or 81%) belong tothe Chamber of Commerce. Almost all of thefirms (100 or 95.2%) pay annual membershipdues averaging 647 KM. The most frequent serv-ice was the provision of information (78.5%), fol-lowed by trade fairs and business linkages, both

EXECUTIVE SUMMARY

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utilized by about half of the respondents. Morethan half (54.5%) of the respondents said theywere "dissatisfied" with the services provided bythe Chamber of Commerce. There are 35 business association membershipsother than the Chamber of Commerce. . Thereis a high level of dissatisfaction among respon-dents for the services provided by these associ-ations. The most important source of market informa-tion is the firm's clients/customers. This is fol-lowed by exhibitions/trade fairs and then bysuppliers. The least important sources, and thepercentage of respondents that consider them"not important", are academic institutions(65.1%), government agencies (63.6%) and theInternet (50.4%). Clients/customers are also theprimary source of information in the productiontechnology/operations area, with 45.7% of therespondents rating them "most important". Thisis followed by suppliers (36.2%) and then byexhibitions/trade fairs (30.7%). Publications andgovernment agencies are highly ranked assources of legal and regulatory information. It is important to remember that BDS are onlypart of the solution to the challenges facingSMEs as they strive to grow and prosper. In fact,the most frequently cited barriers to success forthe sample firms - a lack of access to capitaland government regulations/taxes - have little todo with BDS. Nevertheless, companies includedin the sample rated lack of high quality consult-ing services and training as the third importantconstrain to their success.High quality customized BDS are needed if SMEsector in BiH is to evolve and continue to grow.Enterprises in BiH are willing to pay for BDS andhave already allocated the funds in their 2000budgets. Although each respondent has individ-ual needs, the following conclusions/recom-mendation should help SEED enhance the pro-vision of BDS to all of the SMEs in BiH:· High rates of awareness among respondent

firms means that SEED's efforts can befocused on building capacity in the BDSmarket rather than educating potential cus-tomers. Marketing efforts should be focusedon small and medium sized firms and shouldhighlight the tangible benefits that theadvice/training will bring to the firm.

· Firms frequently could not find the consultant

or specific training program they were seek-ing. SEED may benefit from assessing thesupply side of the BDS market to ensure thereare not large, unmet needs.

· BDS providers can be separated into thosethat provide mandatory or legally regulatedservices - commodity BDS - and those offer-ing higher value-added services. SEED canenhance both areas by working to make surethe commodity services are provided effi-ciently and at low cost. This will allow firms toconcentrate their resources on growing andadding value to their businesses.

· Local capacity is concentrated in the com-modity type consulting services. SEED couldtarget foreign, value-added BDS providers inan attempt to build local capacity in theseareas. In the long-run, this will reduce costsand improve the quality of the services, whilekeeping more resources in the local economy.

· Most enterprises participate in training pro-grams with the small number of participants.SEED may find it useful to form alliances withBDS training providers or other local organi-zations and provide aid in developing cus-tomized programs that cater to larger mar-kets. This would spread the high fixed cost inthe program offerings and provide an oppor-tunity to develop a variety of programs cater-ing better to the needs of enterprises.

· There is a high level of dissatisfaction with theservices provided by most business associa-tions in BiH. Part of this may be due to a mis-perception about what such organizations canrealistically provide and SEED may have arole in educating members about reasonableexpectations. At the same time, there are def-inite needs for new/enhanced associations,especially in the area of advocacy. Due to thespecialized nature of such activities, theseorganizations may be industry specific.

This study represents one of first steps in theprocess of building an effective BDS network inBiH. The results make it clear there is a demandfor such services and that SMEs already using BDSare generally satisfied. At the same time, there is aneed for additional consulting and training servic-es that provide clear benefits and good value.Using the data and recommendations from thisresearch, SEED can greatly improve the develop-ment and future success of SMEs in BiH.

EXECUTIVE SUMMARY

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The ultimate objective of SEED is toimprove small and medium size enter-prise (SME) performance in SoutheastEurope, as a means to achieve highereconomic growth and employment,

reduce poverty, and meet social objectives.Improving SME development requires manyingredients, including a policy environment con-ducive to enterprise competitiveness, ensuringaccess to financial and non-financial services,and expanding markets for SME products, andservices. It also requires better BusinessDevelopment Services (BDS). BDS include awide array of non-financial services important tothe creation, entry, survival, growth, productivity,and competitiveness of the enterprise. Theyinclude consultancy and advisory services, train-ing, marketing assistance, information, technol-ogy development and transfer, and businesslinkage promotion.SEED's mandate includes three major focuses:investment services to SMEs, capacity buildingof SMEs and of different type of serviceproviders, and enhancement of businessenabling environment.This report supports SEED's mandate to buildcapacities of SMEs as well as the local consult-ants and professional service providers forSMEs. In order to achieve a better understand-ing of the demand side of the market, SEEDdecided to survey SMEs needs for businessdevelopment services (BDS) in Bosnia andHerzegovina (BiH). The goal was to assess thedemand for BDS by SMEs, and to identify howSEED can intervene in the market to promote

the development and usage of services that aremost needed. Specific objectives included thefollowing: a) identify the importance of BDS to BiH SMEsb) identify the willingness of SMEs to pay for

BDSc) assess SMEs satisfaction with the quality of

used BDSd) asses SMEs perception of availability of BDS

availablee) find out the major characteristics of services

used by firmsf) identify the key BDS that would make the

most competitive difference to BiH SMEsThis report provides detailed information aboutthe following:· profiles of companies in the sample· awareness, use and willingness to pay for

BDS· importance of various factors in decision to

purchase BDS· information about spending on BDS· ranking of various BDS according to need

and information on willingness to pay· perception of availability and quality of BDS· the use of business consultants· outsourcing of professional services out-

sourcing· the participation in training programs· cooperation and subcontracting activities of

companies in the sample· the importance of business associations for

the operations of companies in the sample· perceived sources of information most impor-

tant to companies

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Introduction

INTRODUCTION

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Findings presented in this report are intended toform the foundations for the design of technicalassistance to the SMEs and service providers inorder to improve effectiveness of the BDS mar-ket. The report concludes with several recom-mendations for SEED's interventions into themarket for BDS. This is the first survey of its type in this region, andSEED considers it a pilot for future efforts. Assuch, this project provides valuable informationabout the structure and design of an effective

questionnaire and an efficient methodology forimplementation in the field. Our results - basedon a final sample of 130 firms - cover a broadspectrum of BDS. The questionnaire has enabledcollection of large number of data that could beanalyzed in many ways and could provideinsights in different aspects of SMEs' demand forand experiences with BDS. We believe that read-ers and practitioners in the field of BDS will findtables presented in the Appendix very usefulsource of detailed information on specific BDS.

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1.1 Selection of Industries and Companies to Study

In selecting priorities for intervention, SEEDused the following criteria: · The importance of the industry to the BiH

economy· Industries comprising mostly private sector

segments of the economy· The prominence of the industry in the SEED

portfolioBased on these criteria, agribusiness, construc-tion, information technology, road transport,tourism, and the herbal sector were selected aspriorities for SEED's interventions. For the pur-pose of this study, sample companies were cho-sen from the following four sectors: · Agribusiness· Construction· Information technology· Road transportTaken together these industries are critically impor-tant for BiH's future economic growth and devel-opment*. Tourism sector companies were not con-sidered due to a very low number of SMEs in thissector in BiH. The herbal sector was not includedbecause of a lack of registered, formal companies.

Apart from belonging to these four specific sec-tors of the economy, the firms in the sample hadto satisfy the following criteria:· They were in business more than three years.· The number of full time employees in year

2000 was between 5 and 200 people.· Total annual revenue for the year 2000 was

greater than 100,000 KM**.· They were 100 percent privately owned.· The sample had to include firms in both the

Federation of Bosnia and Herzegovina (FBiH)and in Republika Srpska (RS).

Because of the lack of any official, comprehen-sive database of enterprises, we developed aninitial list with very basic information on an enter-prise: name, sector and location. We then veri-fied that an enterprise satisfied the above criteriaby direct contact. While difficult and time con-suming, this was the only way to ensure the finalsample met our criteria as closely as possible.

1.2 Selection of Critical BDS

Through discussion and consultation, theresearch team chose to focus on the followingcategories of BDS: · Business Development/Strategy· Marketing· Accounting/Audit/Finance

Section1:

Methodology

* Economic statistics for Bosnia & Herzegovina are unavailable. The World Bank estimate of GNP in 1998 was US$4 bil-lion. Official US sources estimate GDP at $6.2 billion in 1999 with services comprising 58% of this, manufacturing 23%,and agriculture 19%. Source: http://www.tradepartners.gov.uk/bosnia_&_herzegovina/profile/02_keyfacts/** Unit of Currency is Convertible Mark (KM), equivalent to 1:1 to Deutsche Mark where 1KM = US $0.43 on July 1, 2001.

· Information Technology· Production Technology/Operations· Safety/Environmental· Human Resources Management · Legal/RegulatoryIn each category, questions were asked aboutboth consulting and training activities. While thefocus of this report is consulting/advisory andtraining services, we also asked questions aboutwhere firms get important information, theircooperation and subcontracting activities, andtheir interest in business association member-ship. All of this information will help SEED formbetter recommendations in the future.

1.3 The Interview Approach

The survey was drafted by researchers at BabsonCollege in close consultation and collaborationwith Lejla Dragnic of SEED in Sarajevo. The sur-vey was pilot tested in May of 2001 at three dif-ferent companies. These companies were cho-sen on the basis of the following criteria: theywere financially successful, they were in businessfor more than five years, and they belonged tothe industries of interest to SEED. These compa-nies were in the agricultural, construction, androad transport sectors of the economy. Pilotinterviews resulted in a survey instrument thatwas significantly reorganized to address theissue of its length as well as topic flow. The inter-view approach was chosen in order to increasethe response rate, as well as to help the partici-pants with completion of the lengthy and com-plex survey.A local consulting company was hired to collectthe data. A one-day training seminar for theinterviewers was offered to increase the responserate, and to improve the quality of informationcollected. The interviewers also attended one ofthe three pilot interviews. Pilot interviews wereconducted by the local consulting company inthe presence of and with cooperation from theBabson College consultants and SEED's staff.Pilot interviews were used to refine and finalizethe survey instrument. All of the interviews for thisstudy took place in June of 2001.

1.4 Characteristics ofthe Final Sample

The final sample consists of 130 firms. The vastmajority of them (120 or 92.3%) are private, with100% domestic ownership. Seven (5.4%) aremajority-owned private domestic, with a minorityforeign stake. One firm reported 100% foreignownership and two firms (1.5%) said they were100% state-owned.* Almost all of the private com-panies (96.1%) are registered as D.O.O. firms,while the balance (3.9%) are D.D. companies.**Table 1.4A shows that over three-fourths of thesample companies was established and beganoperating after 1991. Approximately 40% of thefirms were established after 1995.

The firms come from four industries and two geo-graphic locations. The industries include Agri-business, Construction, Information Technology (IT)and Road Transport. The number of firms in eachindustry is shown below. Construction firms accountfor the largest proportion of sample firms (43.1%),with the balance equally spread over the other threeindustries. The lack of reliable economic datamakes it impossible to confirm that constructionfirms represent 43.1 % of all enterprises in BiH, butit is reasonable to suspect that construction compa-nies are an important segment of the post-wareconomy. The Federation of BiH contains 70(53.8%) of the sample firms, and the other 60 firms(46.2%) are located in the Republic of Srpska.

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METHODOLOGY

Industry Number of Firms % of SampleAgribusiness 25 19.2%Construction 56 43.1%IT 25 19.2%Road Transport 24 18.5%TOTAL 130 100.0%

YEAR OF ESTABLISHMENT AND START OF OPERATIONS

Year Established Began operating

Before 1991 23.1% 22.3%

1991 to 1995 37.7% 35.4%

After 1995 39.2% 42.3%

Table 1.4A

* Inclusion of these two state-owned firms does not significantly affect any of the results presented in this report.** D.O.O. companies are limited liability or Ltd. firms. D.D. firms are joint stock companies.

We measured firm size using both number ofemployees and annual sales revenue. The aver-age sample company had 39 full-time and 10part-time employees in 2000. The sample con-tains several larger companies, and the samplemedians for 2000 are 22 full-time and 5 part-time employees.* Definition of size classifica-tions and more data is shown in Table 1.4B.Males represent an average of 76.7% of theemployees at the sample firms. Only 8.5% ofthe firms have a majority of women employees,and fully 42% of the sample has a workforcethat is at least 90% male.Table 1.4C provides data on the highest educa-tion level achieved by the company's managers.Eighty four percent of the firms have managerswith a university degree or higher. We also askedwhat percentage of the company's employees

had a university degree or higher, with an aver-

age (median) response of 17.9% (10.0%).Mean annual revenue for the sample firms in 2000was 3,562,401 KM, but as with the number ofemployees, the sales numbers were skewed by sev-

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METHODOLOGY

Full-time employees (2000) Number of firms % of totalless than 10 (micro enterprises) 12 9.2%10 - 49 (small enterprises) 89 68.5%50 - 200 (medium enterprises) 29 22.3%

FIRM SIZE - NUMBER OF EMPLOYEES(Based on 130 respondents)

1999 2000average median average median

Full-time employees 33.4 20 38.7 22

Part-time employees 9.6 5 10.1 5

Table 1.4B

HIGHEST EDUCATION LEVEL OF FIRM'S MANAGERS

(Based on 130 respondents)Highest Education Levela) less than high school Noneb) high school 9.2%c) more than high school and

less than university 6.9%d) university 75.4%e) more than university degree 8.5%

Table 1.4C

FIRM SIZE - ANNUAL SALES REVENUE(Based on 130 respondents)

1999 2000average median average median

Annual Sales (KM) 2,813,450 1,200,000 3,562,401 1,475,000

Table 1.4D

EXPECTED SALES GROWTH(Based on 130 respondents)

Expected Sales Growth 2001 Next Three Yearsa) rapid growth (> 10%/year) 30.0% 28.9%b) moderate growth (5 - 10%/year) 41.5% 50.8%c) slow growth (0 - 5%/year) 15.4% 18.8%d) declining sales 13.1% 1.6%

Table 1.4E

* The median value is the sample observation that falls in the middle of the distribution, that is, there are an equal numberof observations above and below the median. For example, in the sample 2,5,8,12, and 17, 8 is the sample median sincethere are two observations above and two below.

eral large firms. The median firm had annual rev-enue of 1,475,000 KM in 2000. Comparabledata for 1999 is provided in Table 1.4D.In addition to actual revenue, companies wereasked about their future expectations for salesgrowth. Table 1.4E shows that approximately28% of the sample firms predict slow or declin-ing sales growth in 2001. However, the compa-nies are generally optimistic about the next threeyears, as 80% expect moderate or rapid rev-enue growth. Data on estimated spending for the capital andexpense items shown in Table 1.4F providesinformation on how firms are planning to allo-cate their financial resources in 2001. While the averages are large for working capi-tal and capital expenditures, it is important tonote the median values are considerably small-er and that a significant portion of the sample -ranging from 8.5% for working capital to 37.0%

for R&D - is not planning to spend anything fora number of the investment categories.However, a large proportion of companiesplans to invest in advertising and promotion, aswell as in training. Only 5 companies (less than4% of the sample) did not specify any type ofinvestment. These investments are critical if firmsare going to develop and grow. Three-fourths of our sample firms say they intro-duced significant changes in their business inthe last three years. Detail on the types ofchanges and the proportion of firms undertak-ing each is shown in Table 1.4G.In spite of a large proportion of companies thathave introduced new quality control, only eightof the respondents (6.2%) hold ISO certification;five of those are ISO 9001 certified. However,interest of companies for this type of service andtheir readiness to pay are very high as discussedin Section 2.4.

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METHODOLOGY

FORECASTED INVESTMENT SPENDING(Based on 130 respondents)

Investment Category2001 Estimated Spending (KM)

% Saying ZeroAverage Median

a) working capital 791,436 200,000 8.5%b) capital expenditures (fixed assets) 537,841 150,000 16.7%c) HR training 15,582 6,000 18.9%d) advertising and promotion 21,037 10,000 12.9%e) research and development 9,595 4,000 37.0%

Table 1.4F

CHANGES INTRODUCED IN THE LAST THREE YEARS(Based on 130 respondents)

Innovation % introducing*a) new products/services 79.6%b) new production processes 66.3%c) new management techniques 52.0%d) new quality controls 66.3%

Table 1.4G

* - Column total is greater than 100% since respondents could select more than one item.

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The following section discusses the find-ings from the 130 interviews conduct-ed, and summarizes results regardingthe general use of BDS. Our analysisfocuses on two categories of BDS:

1) Consulting/Advisory2) Training.

2.1 Awareness and Use of BDS in BiH

In order to get a general understanding of thedemand for BDS services we have assesed com-panies awareness of specific services,** andhave asked whether they ever used the service,have they purchased it and have they used itmore than once. Results related to the consult-ing services are present in the table 2.1A and2.1B and results related to the training are pre-sented in the table 2.1C and 2.1D. Table 2.1A shows a high degree of awarenessfor a wide range of consulting services amongthe sample firms. The fewest respondents knewabout Business Development/Strategy consultingservices (77.5%) while the most were aware ofmarketing-related consulting services (99.2%).Usage statistics are lower, ranging from 30% forBusiness Development/Strategy to 66.2% formarketing-related services. Not surprisingly thereis a high correlation between usage and aware-ness. In fact, the correlation coefficient is 0.93.Number of companies that are aware of the

service but have never used it is the largest forBusiness Development/Strategy consulting serv-ice category - only 39% of respondents that areaware of this service have ever used it, as shownin table 2.1B. These findings indicate that theinterventions on the demand side of the BDSmarket should be focused on the increase of usemore than on the increase of awareness. Usage and purchase percentages are compara-ble for most categories, although approximate-ly half of the firms that used BusinessDevelopment/Strategy services did not purchasethem, i.e., they presumably got them at no cost.This could indicate the larger provision of thisservice by donor organizations compared toother services provided by donor organizations.Demand for other services is mainly satisfied onthe market by purchasing them. IT andLegal/Regulatory services are the least likely tobe offered for free. High levels of repeat usage are reported for allservices, as shown in table 2.1A and 2.1.B. ForLegal/Regulatory (100% of companies that everused it), Accounting, Audit, Finance and Taxation(90.5% of companies that ever used it), andOccupational Safety and Protection (88.2% ofcompanies that ever used it) at very high levels isused these services at a high level probably dueto compliance and filing requirements associatedwith these categories. There is also a very highdegree of repeat usage (95.3% of companiesthat ever used it) for Marketing/Promotion/Salesservices, an indication of the importance of these

Section 2:

Findings for BDS*

* Tables referenced in this section that do not appear in the text can be found in Appendix A.** Awareness was assessed based on company's understanding what a specific service should consist of.

18

services in a newly developing market economy.High level of repeated use of services indicatesgood satisfaction of the companies with the ben-efits they got from the use of the services. Thisaspect is analyzed in Section 2.5. The data on consulting services presentedabove indicate that major weaknesses on thedemand side of the BDS market are related tothe use of services. It could be expected thatintervention that would stimulate companies touse services for the first time would result withthe increased number of the market transac-tions. The largest market opportunities are relat-ed to the Business Development/Strategy,Environmental Regulations/Compliance andProduction Technology/Operations.Table 2.1C shows a similarly high degree ofawareness for training programs. These rangefrom a low of 84.5% for Environmental Trainingto 95.3% for both IT Training and Occupational

Safety Training, the latter most likely needed forregulatory compliance. This is supported by thehigh percentage of respondents actually usingOccupational Safety Training (66.2% of allrespondents) and the level of repeat usage(56.9% of all respondents). IT Training - unlike-ly to be required - is the second most widelyused at 63.1% and also has a high rate ofrepeat usage (61.5%). Environmental Training isused by just 26.2% of the firms, a percentageless than half that of every other category.As with consulting services, there is a high cor-relation between usage and awareness for train-ing (correlation coefficient is 0.94). The numberof companies that are aware of the training buthave never used it is the largest forEnvironmental training. Only 31% of companiesaware of this training have ever used it.Relatively low level of usage is also evident forProduction Technology/Operations with only

FINDINGS FOR BDS

AWARENESS/USE OF CONSULTING/ADVISORY BDS (percentage of 130 respondents answering "Yes"; ranked by degree of awareness)

Aware Did you ever Did you use this Type of Consulting Service of service? use this service? Ever purchased? service more

than once?Marketing, Promotion, Sales(including Market Research) 99.2% 66.2% 61.5% 63.1%Accounting, Audit, Finance and Taxation 98.4% 65.4% 56.9% 59.2%Information Technology (Computer Hardware and Software, Data Maintenance) 98.4% 63.1% 60.8% 57.7%Occupational Safety and Protection 95.3% 65.4% 60.8% 57.7%Legal/Regulatory 92.2% 64.6% 61.5% 64.6%Production Technology/Operations 88.3% 44.5% 39.8% 40.6%Environmental Regulation/Compliance 87.5% 39.8% 31.3% 32.8%Business Development/ Strategy 77.5% 30.0% 17.7% 26.9%

Table 2.1A

Table 2.1C

AWARENESS/USE OF TRAINING(percentage of 130 respondents answering "Yes"; ranked by degree of awareness)

1.1. Aware 1.2. Did you ever 1.3. Ever 1.4 Did you useType of Training of service? use this service? purchased? this service more

than once?

Information Technology 95.3% 63.1% 60.8% 61.5%

Occupational Safety 95.3% 66.2% 60.8% 56.9%

Management (for Personnel, Finance, Marketing, etc.) 91.5% 56.9% 49.2% 50.8%

Production Technology/Operations 86.8% 47.7% 39.2% 40.0%

Environmental 84.5% 26.2% 20.8% 21.5%

55% of companies aware of this training haveever used it, as shown in Table 2.1.D.In addition, there seems to be consistency in therankings across the two tables. For example,Information Technology is ranked high for bothconsulting services and training, whileEnvironmental is at the bottom of both rankings.*The data on training services presented aboveindicate that, similarly to the consulting services,major weaknesses on the demand side of themarket are related to the use of services. Thelargest market opportunities are related to theEnvironmental training courses and ProductionTechnology/Operations.

2.2 Important Factors in BDS Purchase Decision

Table 2.2A provides data on which factors areimportant to firms when they decide to purchaseBDS. The most important factors in a firm's deci-sion to purchase are a legal requirement and itsprior experience with the consulting service ortraining, both cited as "Very Important" by 36.9%of respondents. This high importance of the priorexperience is in accordance with the high per-

centages of repeated use of services presented inthe section 2.1. These are followed by a lack ofin-house experience (31.5%) and the advice of afriend or colleague (24.6%). It is interesting tonote that 60.0% say a competitor's decision topurchase a service or training is not importantand almost half (47.7%) don't feel whether theservice is offered for free is important. **Table 2.2B assesses the importance of selectedfactors in choosing the BDS provider. Three fac-tors stand out - the provider's reputation, theappropriateness of the service, and whether thefirm has used the provider previously - and areconsidered "Very Important" by 58.5%, 52.3%,and 41.5% of the respondents respectively.Factors rated as least important include priceand use by competitor, which are respectivelyrated as "Not Important" by 64.6% and 56.2%of the respondents. ***

2.3 Spending on BDS

Enterprises in the sample were asked what weretheir estimated expenditures on consulting/advi-sory services and training for the years 2000and 2001. The results are presented in Table2.3A below.

19

FINDINGS FOR BDS

* We are not able to make detailed comparisons of consulting services and training programs since we have specified dif-ferent types of these services. ** Ranks based on average rates for a specific factor are approximately the same as ranks based on percentages of respon-dents selecting "Very Important". Average rates were calculated by rating "Not Important" as 1, "Important" as 3 and "VeryImportant" as 5. Only two factors ("Not available for free" and "My competitors purchase such services") have average ratesbelow 3 (rates are 2.3 and 2) *** In this case also the ranks based on average rates for a specific factor are approximately the same as ranks based onpercentages of respondents selecting "Very Important". Average rates we calculated by rating "Not Important" as 1,"Important" as 3 and "Very Important" as 5. Three factors ("The provider is recommended by colleagues/friends", "Price isthe lowest" and "My competitors are also using them") have average rates below 3 (rates are 2.9, 1.9 and 2.0).

FACTORS IN THE DECISION TO PURCHASE BDS (percentage of 130 respondents selecting specific choice"; ranked by percentage saying "Very Important")

Rank each of the following Not Important Important Very Important

Need such service/training as a legal requirement 10.8% 52.3% 36.9%

I used this service before and it was useful 4.6% 58.5% 36.9%

Lack of in-house experience for the function 15.4% 53.1% 31.5%

Advice of friend/colleague about service 12.3% 63.1% 24.6%

The cost is less than doing it in-house 21.5% 56.2% 22.3%

Not available for free 47.7% 37.7% 14.6%

My competitors purchase such services 60.0% 32.3% 7.7%

Table 2.2A

The results in Panel A show that the averagespending by all firms on consulting/advisoryservices is around 10,700 KM, and is consistentover the two years. The average spending ontraining services was 8,394 KM in year 2000,and is expected to be 9,166 KM in year 2001.However, the median figures for consulting/advi-sory and training services for both years are sig-nificantly lower than the averages and aboutone-quarter of the firms do not spend anythingfor consulting or training.* Specifically, themedian estimated expenditure for consult-ing/advisory services is 5,000 KM for the year2000, and 3,000 KM for the year 2001. Themedian estimated expenditures for training are3,000 KM in year 2000, and 4,000 in year2001. Panel B of Table 2.3A provides compara-ble data for only the firms that had positivespending for consulting/advisory and trainingservices. As expected, these values - both means

and medians - are significantly larger. Data pro-vided in Panel B indicate that demand for train-ing has significant rate of increase in year 2001(14% based on average and 20% based onmedian). Demand for consulting services doesnot show any significant increase. About 63% of the enterprises in the sample saythese outlays are itemized in their 2001 budget,indicating that for almost two thirds of the sam-ple these expenditures are planned.

2.4 BDS - Needs and Willingness to Pay

We assess the sample firms' BDS needs acrossthe following eight functional areas:1. Accounting, Audit, and Finance2. Business Development/Strategy3. Human Resources Management (HR)

FINDINGS FOR BDS

20

FACTORS IN THE CHOICE OF BDS PROVIDER(percentage of 130 respondents answering "Yes" ; ranked by percentage saying "Very Important")

Rank each of the following Not Important Important Very Important

The provider has a good reputation in the market 0.7% 40.8% 58.5%

Service/training is appropriate for our needs 1.5% 46.2% 52.3%

Have used before and am comfortable with their service 3.8% 54.6% 41.5%

Price is competitive 15.4% 53.1% 31.5%

The provider is recommended by colleagues/friends 17.7% 67.7% 14.6%

Price is the lowest 64.6% 24.6% 10.8%

My competitors are also using them 56.2% 35.4% 8.5%

Table 2.2B

Table 2.3A

ESTIMATED SPENDING ON CONSULTING AND TRAININGPanel A - All Respondents

Estimated BDS 2000 % saying zero 2001 % saying zero

spending (all in KM) average median average median

Consulting/Advisory 10,718 5,000 23.5% 10,702 3,000 25.8%

Training 8,394 3,000 22.7% 9,166 4,000 25.8%

ESTIMATED SPENDING ON CONSULTING AND TRAININGPanel B - Only Respondents that Reported Spending

Estimated BDS 2000 2001spending (all in KM) average median average medianConsulting/Advisory 14,016 5,500 14,430 5,500Training 10,805 5,000 12,358 6,000

* More firms said they plan to spend zero in 2001 than in 2000, but this difference is small and not statistically significant.

4. Information Technology (IT)5. Legal/Regulatory6. Marketing, Promotions, and Sales7. Production Technology/Operations8. Safety/EnvironmentalFor each category, separate questions wereasked about training and several categories ofconsulting/advisory services. Data on training needs is shown in Table 2.4A.Training in leadership is cited by 33.8% of thefirms as "most needed", training in HRManagement by 27.7% , and training inBusiness Development/Strategy by 19.2%.Training in Marketing, Promotion, and Sales iscited as the most needed only by 13.8% ofrespondents. For consulting/advisory services, we report twosets of results. In Table 2.4B, the eight cate-gories are ranked based on the averageresponses as "most needed" across the specificitems in each category, excluding training.

Marketing, Promotion and Sales has the highestpercentage of "most needed" responses andAccounting, Audit and Finance the least. It isinteresting to note that training services in thearea of Marketing, Promotion, and Sales areamong the least needed, while consulting/advi-sory services in this area are among the mostneeded and the most widely used and have oneof the highest rates of repeat use, as shown insection 2.1. We can similarly rank the broad categoriesusing the average percentage of "not needed"responses and this data is presented in Table2.4C. These results confirm the previous findingthat Advising on Hiring of Employees,Legal/Regulatory and Safety/Environmental arethe least needed categories of consulting/advi-sory services. To learn more about the BDS needs of the sam-ple firms for specific types of services, we mustlook at the detailed data. Table 2.4D reports on

FINDINGS FOR BDS

21

BDS NEEDS - TRAINING(percentage of 130 respondents rating category as "most needed")

Category of Training % "most needed" Average rating*

1. Leadership Training 33.8% 3.22. Human Resources Management (HR) 27.7% 3.03. Information Technology (IT) 21.7% 3.04. Business Development/Strategy 19.2% 2.85. Legal/Regulatory 17.7% 2.66. Production Technology/Operations 17.7% 2.57. Accounting, Audit, and Finance 16.2% 2.78. Safety/Environmental 14.6% 2.69. Marketing, Promotions, and Sales 13.8% 2.6

Table 2.4A

BDS - MOST NEEDED CONSULTING/ADVISORY(average percentage of 130 respondents rating the category as "most needed")

Category % "most needed"1. Marketing, Promotions, and Sales 25.2%2. Production Technology/Operations 24.7%3. Information Technology (IT) 19.6%4. Legal/Regulatory 18.1%5. Safety/Environmental 17.9%6. Advising on Hiring of Employees 17.8%7. Business Development/Strategy 16.9%8. Accounting, Audit, and Finance 15.4%

Table 2.4B

* Average rates were calculated by rating "Not Important" as 1, "Important" as 3 and "Very Important" as 5.

the firms' BDS needs for each specific consult-ing/advisory and training service. By consider-ing the number of "most needed" and "not need-ed" responses for each item, we can compiletables of the most and least needed services(Tables 3.4E and 3.4F). In addition, for eachtable, we include data on the willingness of thefirms to pay for these services. Services stated as most needed by respondentsare mostly consulting/advisory services that fallinto two broad categories: Marketing,Promotions, Sales and ProductionTechnology/Operations. Table 2.4E indicates ahigh degree of correlation between specificservices most needed and respondents' willing-ness to pay for these services. Specific servic-es most needed in the area of HumanResources Management are leadership andhuman resources management training.Specific services most needed in Marketing,Promotions, Sales, are in the areas of advertis-

ing and promotion, marketing research/analy-sis, and marketing strategy with training beingof lesser importance. In the arena ofProduction Technology/Operations specificservices most needed fall into three categories:productivity improvement, quality control andimprovement, and quality systems. Specificservices in all broad categories indicate theneed to develop BDS that are more finelyaligned with a functioning and operations ofenterprises in the newly developing marketeconomy. Services stated as least needed by respondentsare also consulting/advisory services and mostof them fall into two broad categories:Safety/Environmental and Legal/Regulatory. Regarding willingness to pay it is interesting tonotice that for all services almost all respondentswho ranked a service as moderately or mostneeded expressed their readiness to pay for theservice.

FINDINGS FOR BDS

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BDS - LEAST NEEDED CONSULTING/ADVISORY(average percentage of 130 respondents rating category as "not needed")

Category % "not needed"1. Advising on Hiring of Employees 51.2%2. Legal/Regulatory 45.4%3. Safety/Environmental 44.9%4. Accounting, Audit, and Finance 41.4%5. Information Technology (IT) 34.0%6. Production Technology/Operations 31.9%7. Marketing, Promotions, and Sales 28.9%8. Business Development/Strategy 23.1%

Table 2.4C

THE 10 MOST NEEDED SERVICES(ranked by percentage of 130 respondents saying the service is "most needed")

Type of Service % saying "most needed" % willing to pay1. Quality Systems 39.5% 68.2%2. Advertising and Promotion 34.6% 84.6%3. Leadership Training 33.8% 70.8%4. Quality Control and Improvement 27.7% 70.8% 5. Training in HR Management 27.7% 69.2%6. Market Research/Analysis 26.4% 73.1%7. Bookkeeping/Financial Reporting 26.2% 54.6%8. Productivity Improvement 25.2% 71.5%9. Production Technologies 24.6% 58.5%10. Job Safety and Protection 24.6% 73.1%

Table 2.4E

FINDINGS FOR BDS

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THE 10 LEAST NEEDED SERVICES(ranked by percentage of 130 respondents saying the service is "not needed")

Type of Service % saying "not needed" % willing to pay1. Waste Management 62.3% 32.3%2. Production Planning 53.8% 41.5%3. Employment Law 53.1% 40.8%4. Intellectual Property 51.5% 44.6%5. Advisory: Hiring of Employees 51.2% 41.9%6. Corporate Governance 50.0% 43.8%7. Environmental Advisory: Introduction of Standards 47.7% 45.4%8. Product Design 46.9% 53.1%9. Export Procedures 46.2% 49.2%10.Auditing of Financial Statements 44.6% 49.2%

Table 2.4F

Table 2.5A

PERCEIVED AVAILABILITY AND QUALITY OF BDS(percentage of 130 respondents selecting each choice; ranked by perceived availability)

Type of Service Available? Quality of Service?(% of "yes" responses) Bad Average Good

Accounting/Audit/Finance Training 92.2% 9.3% 58.5% 32.2%Consulting/advisory 93.0% 10.3% 53.0% 36.8%

Information Technology Training 85.9% 10.0% 53.6% 36.4%Consulting/advisory 85.2% 9.2% 53.2% 37.6%

Marketing/Promotions/Sales Training 73.6% 20.8% 55.2% 24.0%Consulting/advisory 78.3% 19.6% 56.9% 23.5%

Legal/RegulatoryTraining 68.2% 22.2% 48.9% 28.9%Consulting/advisory 74.4% 20.2% 48.5% 31.3%

Human Resources ManagementTraining 62.5% 21.2% 52.9% 25.9%Consulting/advisory 60.2% 19.5% 58.5% 22.0%

Safety/EnvironmentalTraining 50.0% 22.9% 52.9% 24.2%Consulting/advisory 53.1% 24.0% 53.3% 22.7%

Production Technology/OperationsTraining 44.2% 24.2% 54.8% 21.0%Consulting/advisory 44.2% 29.5% 49.2% 21.3%

Business Development StrategyTraining 40.6% 31.0% 48.3% 20.7%Consulting/advisory 43.0% 27.4% 50.0% 22.6%

2.5 Perception of Availability and Quality of BDS

In addition to BDS needs, we collected data onthe perceived availability and quality of the eightBDS categories (for both consulting/advisoryservices and training) described in Section 3.4.Table 2.5A presents the results of these ques-tions. The most available BDS - based on thenumber of "yes" responses to the availabilityquestion - are Accounting/Audit/Finance (92%),IT (85%), and Marketing/Promotion/Sales(75%), while perceived availability is lowest forBusiness Development/Strategy (40%) andProduction Technology/Operations (44%) serv-ices and training. The typical quality rating is "average" as about50-60% of the responses fall into this categoryfor each category. The perceived availability ofa BDS and its quality appear to be correlated. Infact the proportion of "yes" responses to theavailability question and the number of "good"responses to the quality question have a corre-lation coefficient of 0.85.

2.6 Focus on Specific BDS Used in 2000

In other to gain better understanding of firms'experiences with BDS, we have asked moredetailed questions about consulting services,outsourcing and training services used in2000.

a. Business ConsultantsLess than half (41.5%) of the sample firms hiredany business consultants in 2000. Those thatdid not hire any consultants (76 firms or 58.5%)were asked about the factors behind this deci-sion and the results are shown in Table 2.6A.The most cited reason for not hiring any con-sultants is the inability to find consultants for aspecific need, which is a major factor for 36.1%of the respondents. One-third of the respon-dents said that expense of consultants is a majorfactor. However, more than half (53.4%) said alack of funds is "no factor", and 60.3% seem toneed consulting services. There seems to be aclear willingness of respondents to pay for con-sulting advice, in spite of the fact that one-thirdsaid that expense is a major factor. At the sametime, the biggest reason for not hiring any con-sultant was the inability to find one to meet aspecific need. Our conclusion is that thereappears to be a market opportunity for consult-ants that target specific firm needs and providegood value.There were 53 enterprises in the sample thatused consulting services in 2000. Of the 53respondents, 23 (43.4%) are located in the RS,and 30 (56.6%) in the FBiH. These statistics aresimilar to the 46.2% and 53.8% proportions inthe full sample. Total number of consultingengagements used by these 53 companies in2000 was 92. The analysis in this section isrelated to these 92 observations.Table 2.6B presents data on the 92 consultingengagements. The majority of the consultants(54.3%) were from local or domestic firms.Production Technology/Operations (42.4%) andAccounting/Audit/Finance (26.1%) are the mostfrequently used consulting services. The fewestnumber of consulting engagements were in the

FINDINGS FOR BDS

24

FACTORS IN THE DECISION NOT TO HIRE ANY CONSULTANTS(percentage of 76 respondents selecting each choice; ranked by importance)

Rank each of the following No Factor Minor Factor Major Factor

Could not find consultants for a specific need 37.5% 26.4% 36.1%

Consultants are too expensive 38.9% 27.8% 33.3%

I don't need a consultant 60.3% 9.6% 30.1%

No funds available for consultants 53.4% 20.6% 26.0%

Don't know the benefits consultants provide 56.2% 17.8% 26.0%

Table 2.6A

areas of Safety/Environmental (8.7%) andHuman Resources Management (0.0%).Respondents were asked about three methodsof finding consultants: through their ownresearch (76.1%), based on the recommenda-tion of a professional organization (20.7%), anduse of the consultant by their competitors(3.3%). Examples of firms' own research includeinformation gathered from colleagues, suppli-ers, clients/customers, publications, exhibi-tions/trade fairs, informal social occasions, theInternet, etc. Almost three-fourths (74%) of the consultingengagements were paid by the firms that usedthe service. These percentages are very differentfor foreign and for local consultants. In case offoreign consultants, firms paid 59% of totalnumber of services provided by them. In case oflocal consultants, firms paid 86% of total num-ber of services provided by them. The average (median) cost of all engagementswas 3,722 KM (2,000 KM). The median value islower due to the significant number of observa-tions with zero cost. For only paid engagements,the comparable average and median costs are4,767 KM and 2,500 KM respectively. Enterprises appear to be quite satisfied with theconsultants they hired. Only 1.1% said theywere dissatisfied, and close to one-quarter(22.8%) were very satisfied with the quality ofservice provided. This high level of satisfaction isalso reflected in the respondents' willingness topay more for services than the actual cost. Onaverage, firms were willing to pay about 560KM more than the cost of the service, a value12% higher than the average cost.*Table 2.6C presents data by type of consultingengagement for all 92 consulting engagementsin the sample. This data points to some interest-ing differences. While companies most often hireconsultants in the area of ProductionTechnology/Operations (33 services in this sam-ple) and Business Development/Strategy (18services), these consultants tend to be foreigntwo-thirds of the time. For the least-frequent con-sulting engagements in our sample(Safety/Environmental, Legal/Regulatory andMarketing/Promotions/Sales) the consultants aremost likely to be domestic. TheAccounting/Audit/Finance category of consulting

falls in the middle in terms of use and is com-pletely domestic. Across all consulting categories,companies locate consultants through their ownresearch and in the smallest percents by observ-ing their competitors choices. The smallest num-ber of companies in the sample paid for BusinessDevelopment/Strategy consulting service(44.4%), and the most companies paid forLegal/Regulatory, Safety/Environmental Services(100% for both categories) and Accounting/Auditing/Finance (88%). Cost varies by consult-ing category as well. Companies that hireLegal/Regulatory, Production Technology/Operations and Accounting/Audit/Finance serv-ices pay the most (in average 8,00, 4,800 and3,600 KM per service), and companies that hirebusiness Development/Strategy pay the least (onaverage 1,200 per service). Willingness to pay ishighest in Legal/Regulatory, Production Technolo-gy/Operations and Information Technology. Thedegree of satisfaction across different services isconsistently high.

b. Professional Services OutsourcingRespondents were asked about their use of out-sourcing for the preparation of financial state-ments and for legal advice. All 130 firms saythey prepare financial statements every year,and 66.2% use International AccountingStandards (IAS). Surprisingly, 34% of the firmsdo not use IAS, although they are legally obli-gated to apply these standards. Approximatelyone-third (30.8%) has hired external help toprepare their statements and a similar propor-tion (32.3%) has their statements audited by achartered accountant, presumably as part of theoutsourcing. A legal requirement is cited by 60%of the respondents as the reason for hiring achartered accountant; the other 40% said thedecision was driven by business reasons. Theseservices carry an average (median) cost of 456KM (330 KM) per month. About 20% of thoseoutsourcing were dissatisfied (9.3%)or very sat-isfied (9.3%) with the quality of service, withmost (81.4%) saying they were satisfied.A larger proportion of the sample (56.9%) saythey have hired outside legal counsel at somepoint. Business reasons were behind most of thehiring (71.2%), with a legal requirement drivingthe rest (28.8%). Firms paid an average of

FINDINGS FOR BDS

25

* These comparison figures are based on paid engagements only

2,700 KM per legal service, but the median isconsiderably lower at 900 KM.

c. TrainingAlmost two-thirds of the sample provided sometraining to their employees in 2000. We haveasked firms to rate the importance of four fac-tors in the decision of whether or not to traintheir employees and results are presented inTable 2.6D. The most important factor is "evi-dence of clear benefits from training", which92.1% of the respondents say is moderately orvery important. Only 22% of the firms say thathaving free training available is a very importantfactor. Firms seem more concerned with thebenefits of the training than the costs. Forty-six firms (35.4%) provided no training toany of their employees in 2000. These firmswere asked about the factors that may havecontributed to this and the results are presentedin Table 2.6E. A significant number of the fac-tors appear to be unimportant. Only a "lack ofexternal training" is considered a major factor bymore than 30% of the respondents. Two items -the affordability of the training and the risk thattrained employees might leave - are rated as "no

factor" by more than half of the firms.Eighty-four firms (64.6%) provided some form ofemployee training in 2000. Forty firms had onetraining program, 26 firms offered two, and 19companies had three trainings, yielding a samplewith 149 observations. Of the 84 respondents,39 (46.4%) are located in the RS and 45 (53.6%)in the FBiH. These statistics are close to the46.2% and 53.8% proportions in the full sample. Almost two-thirds (62.2%) of the training pro-grams take place outside of the respondent'scompany. A large majority of these programsare self-financed (84.5%), with the balance ofthe funding coming from business associations(6.8%) and donors, non-governmental organi-zations (NGOs), etc. (8.8%). The average(median) per program cost of training was4,512 KM (1,500 KM). The training representsa significant time commitment for the respon-dents, with a mean (median) program content of57.3 hours (24 hours) over 17.9 days (7 days)for each program.Table 2.6F provides data on the types of train-ing programs in the sample. The most commontype of training provided is in the areas ofProduction Technology/Operations (32.4%) and

FINDINGS FOR BDS

26

FACTORS IN THE DECISION WHETHER TO PROVIDE TRAINING(percentage of 130 respondents answering "Yes"; ranked by importance)

Factor Not Important Moderately Important Very Important

Evidence of clear benefits from training 7.9% 45.7% 46.4%

The cost of worker injury/replacement if we don't provide training 26.0% 40.2% 33.8%

The inability to find skilled workers 18.9% 49.6% 31.5%

Availability of free training 29.2% 48.8% 22.0%

Table 2.6D

FACTORS IN THE DECISION NOT TO PROVIDE TRAINING(percentage of the 46 respondents choosing each ranking; ranked by importance)

Rank each of the following No Factor Minor Factor Major Factor

Lack of offer of external training 38.6% 29.5% 31.9%

No need - employees can train on the job 47.7% 27.3% 25.0%

Have not defined/prioritised training needs 45.2% 31.0% 23.8%

Cannot afford training 54.6% 22.7% 22.7%

Cannot identify competent trainers for Training delivered in-house 41.9% 39.5% 18.6%

No need - can hire qualified employees from Other firms 50.0% 31.9% 18.1%

Too risky - trained employees may leave 61.4% 27.3% 11.3%

Table 2.6E

Information Technology (27.7%). Least likelywere programs in Import/Export (2.0%),Corporate Governance (3.4%), and Researchand Development (5.4%).Table 2.6G shows that most of the training wasdone by external parties, including training insti-tutions (42.6%) and individual trainers (25.0%).Company personnel, e.g., dedicated internaltrainers (16.2%), managers, (12.2%) and fore-man (3.4%), were used less often.Across the entire sample of 149 training pro-grams, 1,394 people from our sample compa-nies participated, with the number of samplecompany participants in each program rangingfrom one to 100. Companies sent an averageof 9.4 trainees to each program. However, mostinvolved fewer people, and half of the trainingprograms involved three or fewer company par-ticipants. Table 2.6H provides detail on thenumber of trainees sent to the programs.Respondents were also asked about the reasonfor each training program. Business needs werebehind 68.2% of the programs, legal reasonsaccounted for 15.5% of the training, and 16.2%were motivated by both business and legal con-siderations.The quality of the training programs was high asnot a single respondent said they were dissatis-fied with a program. Most (65.5%) were satis-fied, and a significant portion (34.5%) was verysatisfied with the training. These results meanthat expectations for new training programs willbe high.Table 2.6I provides us with the information onindividual program characteristics by programtype. Most of the training programs took placein the area of ProductionTechnology/Operations (41) and InformationTechnology (37). The fewest number of trainingprograms took place in the area ofMarketing/Promotion/Sales (4) andLegal/Regulatory (3). This is consistent with thefindings in Table 2.4A where training inMarketing/Promotion/Sales was rated as the"least important". Human ResourcesManagement and Safety/Environment trainingprograms were most likely to take place inhouse while Legal/Regulatory andAccounting/Audit/Finance were most likely tobe done externally. Overall, 84.5% of expendi-ture on training within enterprises was self-

financed with the rest of the expenditure beingfinanced by donors, NGO's and business asso-ciations. Production Technology/Operationsand Information Technology are the two trainingprograms for which companies in our samplepaid the highest price. While most companiesparticipate in training programs for businessreasons, training in the Safety/Environment,Accounting/Auditing/Finance and Legal/Regulatory areas is often mandated.

2.7 Cooperation and Subcontracting Practices

We asked firms about cooperation in theirindustry, both current and prospective, in orderto assess existing business linkages/networking.Table 2.7A shows the most common form ofcurrent cooperation is in purchasing inputs, apractice used by two-thirds of the firms. Theactivity with the lowest level of current coopera-tion is attracting investment (40.6%), althoughthree-quarters of the respondents are interestedin working together in this area.We also asked firms about their current andprospective subcontracting activities. Table 2.7Bshows the most common subcontracted activi-ties are repairs/maintenance (65.3%), market-ing/advertising (61.8%), legal services (57.7%),and training (55.1%), all currently subcontract-ed out by more than one-half of the samplefirms. The number of firms subcontracting fortraining is about 70, which matches our resultsfrom the previous section. Table 2.6F shows thatapproximately 83% of the 84 firms that provid-ed training, or 70 firms, used outsiders to deliv-er the program. The activities least likely to besubcontracted include waste management(16.1%), security (19.4%), cleaning/laundry(23.8%) and data processing (25.6%). Table2.7B also shows a high correlation (coefficient= 0.88) between the activities firms currentlysubcontract and those they are interested in sub-contracting.Table 2.7C presents several possible reasonsbehind the decision to subcontract. The mostfrequent reason given is irregular demand(61.3%), followed by lower cost (41.5%). Less

FINDINGS FOR BDS

27

important was an inability to hire comparableskilled labor (27.4%) and the subcontractor'sability to pay a lower wage (19.8%), althoughthe latter may be contributing to the lower cost.Finally, Table 2.7D provides information aboutthe activities that the sample firms were under-taking as subcontractors for other companies.Two activities - repairs/maintenance (62.5%)and the production of intermediate goods(51.9%) - are performed by more than half ofthe respondents as subcontractors. The least-likely activities are waste management (4.8%),legal services (6.7%), public relations, (6.7%),cleaning/laundry service (7.7%), personnelmanagement services (7.7%), andaccounting/financial management (9.6%), allperformed by less than 10% of the respondents.This is not surprising in light of the industriesrepresented by our sample firms (Agribusiness,Road Transport, IT, and Construction).

2.8 Importance of Business Associations in BiH

Most of the sample firms (105 or 81%) belongto the Chamber of Commerce. In addition tothe Chamber of Commerce, there is data on 35additional association memberships, 31 firmsbelonged to a second association and four firmsto a third. We report results on the Chamber ofCommerce memberships first and then the other35 observations. Membership in the Chamberof Commerce is mandatory in BiH, but a signif-icant number of enterprises (25) do not pay themembership fee and therefore did not classifythemselves as members.Of the 105 respondents that belonged to theChamber of Commerce, 47 (44.8%) are locat-ed in RS and 58 in FBiH. Almost all of the firms(100 or 95.2%) pay annual membership duesaveraging 647 KM with a median value of 300KM. Table 2.8A provides data on the servicesprovided by the Chamber of Commerce. Themost frequent service was the provision of infor-mation (78.5%), followed by trade fairs andbusiness linkages, both utilized by about half ofthe respondents.More than half (54.5%) of the respondents said

they were "dissatisfied" with the services provid-ed by the Chamber of Commerce, and only2.0% were "very satisfied". Given these results, itis not surprising that a significant number offirms choose not to pay membership fees. Thelarge percentage of dissatisfied Chamber ofCommerce members may also explain the for-mation of voluntary business associations andthe willingness of the firms in our sample to payfor membership in these alternative organiza-tions. When asked what services would be valu-able but are not currently offered, firms gave theresponses shown in Table 2.8B. Advocacy topsthe list, with almost 80% of firms saying thatsuch a service would be valuable.Most of the Chamber of Commerce serviceswere included in the annual membership dues,however, 14 of the firms said they paid addi-tional fees for the services they received.Although few in number, these firms paid anaverage (median) of 1,900 KM (500 KM) forthe services. There are 35 business association membershipsother than the Chamber of Commerce. Of these35, 12 (34.3%) are located in RS and 23 inFBiH. The four firms that belonged to threeassociations in total are all located in FBiH, sug-gesting more options for membership there.Membership dues are paid by 26 of the 35firms, with annual membership dues averaging469 KM and a median value of 240 KM. Table2.8C provides data on the services provided bythese other business associations. The data inthis table is very similar to the data on servicesprovided by the Chamber of Commerce (Table2.8A).Only five respondents said they paid for servic-es and just three provided data on the amount.There was one firm that paid 2,000 KM, andtwo that paid 5,000 KM. Respondents wereslightly more satisfied with the services theyreceived from these associations, as 14.7% saidthey were "very satisfied" (versus just 2.0% for theChamber of Commerce). However, there are asignificant number (41.2%) of "dissatisfied"respondents. Towards this end, data was col-lected about what services would be valuableand the results are shown in Table 2.8D. As withthe Chamber of Commerce, advocacy again isthe most-desired missing service. There is a high level of dissatisfaction among

FINDINGS FOR BDS

28

respondents for the services provided by boththe Chamber of Commerce and other associa-tions. At the same time, firms seem willing to payfor membership in these organizations. Thisseems to be an opportunity to improve the serv-ices offered by existing associations, or to createnew associations and services that better meetthe needs of SMEs in BiH. The most-desiredservice is advocacy. Further research should beconducted to determine exactly what firms meanby this. Some may want the direction and man-dates provided by the Chamber of Commerce(or its equivalent) in the former socialist econo-my. In this case, education about the operationof a free-market economy may be needed.Other firms may understand that advocacyinvolves lobbying, networking, etc. For thesefirms, new organizations - probably specific toeach industry - may be necessary to providesuch services. In either case, there is clearly anopportunity for the development and improve-ment of new and existing business associationsin BiH.

2.9 Evaluation of the Importance of Sources of Information

Firms in our sample were asked to rate theimportance of various sources of information inthe following areas:1. the markets for the firm's products or services2. the firm's production technology/operations

processes3. the legal processes and regulations affecting

the firm's operations Table 2.9A of Appendix presents the responsesto these questions. We will discuss the areasindividually and then offer some general obser-vations. By a margin of almost two to one, the mostimportant source of market information is thefirm's clients/customers. This is followed by exhi-bitions/trade fairs and then by suppliers. Theleast important sources, and the percentage ofrespondents that consider them "not important",are academic institutions (65.1%), government

agencies (63.6%) and the Internet (50.4%). Clients/customers are also the primary source ofinformation in the production technology/oper-ations area, with 45.7% of the respondents rat-ing them "most important". This is followed bysuppliers (36.2%) and then by exhibitions/tradefairs (30.7%). Academic institutions and govern-ment agencies are again at the bottom, with66.9% and 64.6% of the respondents ratingthem "not important". It is not surprising that publications and govern-ment agencies are highly ranked as sources oflegal and regulatory information. However, forpublications, the percentage of the respondentsrating it as "most important" is lower than the topsource for marketing and production technolo-gy/operations information (36.9% versus 65.1%and 45.7%). The Internet and academic institu-tions are at the bottom, with 74.6% and 52.3%of the respondents rating them "not important". It appears that firms rely on external sources -clients/customers, suppliers, andexhibitions/trade shows - for information onmarkets and production technology/operations.BDS providers may benefit from this knowledgeand use it to market their services. If training andconsulting services improve the firm's relation-ships with its customers and suppliers, they mayalso lead to better information for the firm andultimately create value. The firms' reliance onexhibitions and trade shows for informationpresents BDS providers with a natural forum toeducate interested potential customers abouttheir services. Although a small number ofrespondents consider the Internet a "mostimportant" source of marketing and productiontechnology/operations information, this number- currently about 20% is certain to grow.Presumably firms using the Internet are moresophisticated and more likely to use BDS, andtherefore this avenue should not be ignored. Itwould however appear less effective for BDSproviders to devote resources to developingrelationships with academic institutions andgovernment agencies - at least where marketingand production technology/operations informa-tion is concerned.This is not true for legal and regulatory informa-tion, where government agencies are an impor-tant source of information. For providers ofthese BDS, relationships and alliances with the

FINDINGS FOR BDS

29

government may be an important way to raiseawareness and usage of their services.Publications are the most important source oflegal and regulatory information for our respon-dents, suggesting that print advertising may bean effective way to sell such services. A verysmall number of firms appear to use the Internetfor legal and regulatory information.

2.10 Perceived Importance of Lackof BDS as a Constraint for Firm's Successful Operations

Firms were asked about the constraints - bothBDS and non-BDS - to being successful in theirindustry. This is important since BDS may be onlyone part of the solution to any firm's problems.Our goal is to see how a lack of quality BDS -specifically, consulting/advisory services andtraining - relates to the other constraints facedby our sample firms. From Table 2.10A in Appendix, we see that themost critical constraints are "lack of access tolong-term capital" (71.5%) and "governmentregulations and taxes" (47.7%). These con-

straints have been rated as severe constraintsmuch more frequently than either a "lack of highquality business services" (9.2%) or a "lack ofhigh quality training (10.0%). These two BDSitems are not unimportant - 60% feel that lackof quality training is a moderate or severe con-straint, while 65% said the same for qualitybusiness services. At the other end of the spec-trum, the following are considered "no con-straint" by a large percentage of the companies:· hard currency issues (87.1%)· the high cost of labor (81.4%)· legal restrictions on hiring and firing workers

(65.4%)We also asked about problems facing firms inthe area of sales and marketing and theseresults are presented in Table 2.10B ofAppendix. The most common problems arerelated - insufficient market data and a lack ofdemand information. These are consideredmajor problems by 32.3% and 27.7% of therespondents respectively. The least likelyresponses relate to product quality and offer-ings. Only 10% of the firms said product quali-ty is of concern and 75% said there is no prob-lem with their product/service offerings. It isinteresting that firms readily admit that they needmore market data and information about theircustomers, but don't feel there are any problemswith their product line either in terms of breadth,quality, or pricing. We might expect that if goodmarket data were available, this optimistic viewmight change.

FINDINGS FOR BDS

30

31

Section 3:

Analysis by Industry and Size

3.1 Analysis by Industry

This section presents our findings on the foursectors included in this survey. Table 3.1A showsthe distribution of the sample firms by industryand by location.Tables 3.1A and 3.1B present data on the firms'awareness and use of BDS. When we look atthis data by industry, the following resultsemerge:· The average level of awareness for BDS -

both consulting services and training - is con-sistently high across sectors, ranging from88% for Road Transport firms to 95% forAgribusinesses.

· Usage figures are lower, but also consistent.Road Transport had the lowest average usageof BDS at 49%, while in Agribusiness theaverage usage rate was 59%.

· There were no significant differences byindustry in the frequency of purchase or inci-dence of repeat usage for BDS.

Table 3.1B shows the breakdown of actual (2000)and planned spending on BDS by industry.

· Average total spending in 2000 for consult-ing and training ranges from 12,743 KM forRoad Transport to 31,067 KM for IT.

· IT is the only industry where training expendi-tures - both actual and projected - aregreater than the amounts for consulting/advi-sory services.

· Only 12% of the IT firms did not spend any-thing on training in 2000.

There were significant differences in the propor-tion of firms in each industry that hired a con-sultant or offered training to their employees in2000 as shown in Table 3.1C. IT firms weretwice as likely to hire consultants as firms in theRoad Transport industry. They were also the mostlikely to offer training programs.While all firms in the sample say they prepareannual financial statements, there are industrydifferences in the standards applied and their useof external help. We also provide data in Table3.1D on usage rates of outside legal counsel. The amounts paid by firms for these services arefairly consistent across industries and in line withthe overall sample values and therefore notreported here.We have also looked at the size of the firm byindustry. The data is presented in Table 3.1E

DISTRIBUTION OF FIRMS BY LOCATION AND INDUSTRYIndustry (# of firms)

Location Agribusiness Construction IT Road Transport TotalsFBiH 10 39 10 11 70Rep. Srpska 15 17 15 13 60Totals 25 56 25 24 130

Table 3.1A

ANALYSIS BY INDUSTRY AND SIZE

32

ESTIMATED SPENDING ON CONSULTING AND TRAINING(Averages and Medians Based Only on Respondents That Reported Spending)

Estimated BDS 2000 % saying 2001 % saying spending (all in KM) average median zero average median zero

Consulting/Advisory

Agribusiness 15,194 6,000 16.0% 20,139 5,000 20.0%

Construction 16,628 7,000 19.6% 15,297 7,000 26.8%

Information Technology 11,867 5,000 28.0% 12,531 5,250 28.0%

Road Transport 7,267 5,000 25.0% 8,235 4,000 16.7%

Training

Agribusiness 9,806 5,000 24.0% 12,531 6,500 24.0%

Construction 9,298 5,000 25.0% 10,383 5,500 30.4%

Information Technology 19,200 12,500 12.0% 21,425 12,500 16.7%

Road Transport 5,476 2,000 16.7% 5,712 4,000 16.7%

Table 3.1B

BDS USAGE RATES BY INDUSTRY% hiring at least one % offering at least one

Industry consultant in 2000 training in 2000Agribusiness 36.0% 60.0%Construction 41.1% 62.5%Information Technology 60.0% 79.2%Road Transport 29.2% 62.5%

Table 3.1C

PROFESSIONAL SERVICES OUTSOURCING BY INDUSTRY% using IAS % hiring % audited by % using outside

Industry external help chartered accountant legal counselAgribusiness 76.0% 16.0% 44.0% 44.0%Construction 55.4% 30.4% 37.5% 55.4%Information Technology 72.0% 40.0% 16.0% 84.0%Road Transport 75.0% 37.5% 25.0% 54.2%

Table 3.1D

FIRM SIZE - NUMBER OF EMPLOYEES BY INDUSTRY2000 full-time 2000 part-time

Industry average median average medianAgribusiness 45.3 31 7.3 5Construction 50.4 27 15.8 10Information Technology 16.0 15 5.4 3Road Transport 28.1 19 4.3 -

Table 3.1E

· IT firms are the smallest and are approxi-mately one-third the size on average of firmsin the Construction industry.

· Both IT and Construction firms have a signifi-cant number of part time workers (approxi-mately 25% of the total number of employees).

Table 3.1F presents information about employ-ee education by industry.· There is a high level of education among the

managers of Agribusinesses, but very littleamong the employees.

· IT has the highest proportion of managerswith advanced (beyond university) degrees.

· Road Transport has the lowest proportion ofuniversity-degreed managers and employees.

· IT has the highest proportion of employeeswith a university degree by a wide margin(51.5%).

Table 3.1G shows the distribution of workers bygender across industry. · The Construction and Road Transport sectors

are dominated by men.· Women are almost half of all employees in

the Agribusiness sector.· There is no difference across industries in the

year firms were established or started opera-tions.

We have also analyzed differences in the expec-tations about the degree of growth across indus-tries in the sample. The data is presented inTable 3.1H.· More than one-third of all IT and

Agribusiness firms expect rapid growth in thenext three years.

· Growth prospects appear the slowest in theConstruction industry.

ANALYSIS BY INDUSTRY AND SIZE

33

THREE-YYEAR GROWTH EXPECTATIONSIndustry Rapid growth Moderate growth Slow growth Declining salesAgribusiness 36.0% 48.0% 16.0% -Construction 21.8% 52.7% 21.8% 3.7%Information Technology 36.0% 52.0% 12.0% -Road Transport 30.4% 47.8% 21.8% -

Table 3.1H

MANAGER EDUCATION BY INDUSTRYHighest Education Level of Company's Managers

High school Two-year University More than % of Employees withIndustry university degree university university degreeAgribusiness 8.0% 4.0% 84.0% 4.0% 8.0%Construction 8.9% 3.6% 82.1% 5.4% 12.4%Information Technology - 4.0% 72.0% 24.0% 51.5%Road Transport 20.8% 20.8% 54.2% 4.2% 6.6%

Table 3.1F

WORKFORCE GENDER BY INDUSTRYIndustry % men % womenAgribusiness 51.7% 48.3%Construction 87.5% 12.5%Information Technology 69.4% 30.6%Road Transport 84.9% 15.1%

Table 3.1G

3.2 Analysis by Size*

Table 3.2A and Table 3.2B present our findingson the breakdown of our sample firms by size,location, and industry. Only one micro enterprise was located in theFBiH, and 11 were located in RS, while the dis-tribution by size was rather uniform across smalland medium size enterprises. Most companiesin the sample were in Construction with the rest

being evenly distributed in the other three sec-tors of industry.Table 3.1.2C shows the breakdown of actual(2000) and planned spending on BDS by firmsize. Actual and planned spending on consult-ing and training is directly related to the sizeand assumed resources as well as needs offirms in the sample. Actual spending on con-sulting is ten times higher in medium enterpris-es compared to micro enterprises. Actualspending on training is between three to fourtimes higher in medium size compared tomicro enterprises.

ANALYSIS BY INDUSTRY AND SIZE

34

FIRM SIZE - 2000 SALES REVENUE2000 Sales (KM)

Industry average medianAgribusiness 3,847,000 1,450,000Construction 4,339,127 2,000,000Information Technology 2,112,750 1,000,000Road Transport 2,920,716 850,000

Table 3.1I

Table 3.1J

2001 INVESTMENT PLANS BY INDUSTRY(Averages and Medians Based Only on Respondents That Plan to Invest)

Working Capital % saying Capital Expenditures % saying Industry average median zero average median zero

Agribusiness 839,545 250,000 4.0% 1,056,818 350,000 12.0%

Construction 1,016,490 300,000 7.1% 661,326 300,000 19.6%

Information Technology 438,000 250,000 8.0% 261,368 100,000 20.0%

Road Transport 972,500 125,000 12.5% 529,286 200,000 8.3%

HR Training % saying Advertising & Promo % saying Industry average median zero average median zero

Agribusiness 15,976 10,000 12.0% 46,292 12,500 4.0%

Construction 20,488 10,000 21.4% 14,249 10,000 19.6%

Information Technology 26,857 10,000 8.0% 24,881 10,000 8.0%

Road Transport 10,094 7,500 20.8% 18,120 5,000 8.3%

R&D % saying - -Industry average median zero - -

Agribusiness 16,618 10,000 32.0% - - -

Construction 10,975 5,000 42.9% - - -

Information Technology 31,867 10,000 28.0% - - -

Road Transport 4,933 5,000 20.8% - - -

* Size categories discussed in this section are as defined previously in Section 1.4.

There were significant differences by size catego-ry in the proportion of firms that hired a consult-ant in 2000. The small and medium enterpriseshire consultants at a significantly higher rate thanmicro firms. In conjunction with the spendingplans in Table 3.2C, this seems to narrow the tar-get market for BDS consulting/advisory servicesto firms with more than 10 employees. Howeverthe proportion of respondents providing training

is consistent across the size categories and evenmicro firms may be candidates for BDS trainingactivities. The data is presented in 3.2DIn contrast to consultants, micro enterprisesrelied on external help much more (41.7%) thansmall and medium size enterprises (10.3%) aspresented in Table 3.2E. Whether the companyhired an accountant to do an audit seemed tobe independent of the number of employees.

ANALYSIS BY INDUSTRY AND SIZE

35

DISTRIBUTION OF FIRMS BY SIZE AND LOCATIONSize (# of firms)

Location micro small medium TotalsFBiH 1 52 17 70Rep. Srpska 11 37 12 60Totals 12 89 29 130

Table 3.2A

DISTRIBUTION OF FIRMS BY SIZE AND INDUSTRYSize (# of firms)

Industry micro small medium TotalsAgribusiness 1 16 8 25Construction 3 35 18 56IT 5 20 - 25Road Transport 3 18 3 24Totals 12 89 29 130

Table 3.2B

Table 3.2C

BDS USAGE RATES BY COMPANY SIZE% hiring at least one % offering at least one

Size consultant in 2000 training in 2000Micro enterprise 25.0% 66.7%Small enterprise 43.8% 62.9%Medium enterprise 41.4% 69.0%

Table 3.2D

ESTIMATED SPENDING ON CONSULTING AND TRAINING(Averages and Medians Based only on Respondents that Reported Spending)

Estimated BDS 2000 % saying 2001 % saying spending (all in KM) average median zero average median zero

Consulting/Advisory

Micro enterprise 2,500 2,000 25.0% 2,278 2,000 33.3%

Small enterprise 11,383 5,000 25.9% 12,110 5,000 25.3%

Medium enterprise 25,773 20,000 15.4% 27,000 15,000 24.0%

Training

Micro enterprise 5,422 3,000 25.0% 5,222 2,000 25.0%

Small enterprise 10,091 5,000 22.6% 12,087 5,000 26.2%

Medium enterprise 15,550 11,000 20.0% 16,861 15,000 25.0%

Medium size enterprises on average employmanagers that are more educated. 82.8 % ofmanagers in medium size enterprises have uni-versity degree while the same percent for microenterprises is only 58.3 %. These results are pre-sented in Table 3.2F.Table 3.2G indicates that the micro, small, andmedium size enterprises hire approximately thesame proportion of women. Micro enterprises have overall less optimistic

expectations about their growth in the next threeyears, while no medium enterprise expects adecline in sales in the three-year period asshown in Table 3.2H. Tables 3.2I and 3.2J point to significant differ-ences in sales and in investment plans by sizeas expected. For most of the categories inTable 3.2J, the micro firms are most likely tosay they are planning to spend zero in thecoming year.

ANALYSIS BY INDUSTRY AND SIZE

36

PROFESSIONAL SERVICES OUTSOURCING BY COMPANY SIZE% using IAS % hiring % audited by % using outside

Size external help chartered accountant legal counselMicro enterprise 100.0% 41.7% 33.3% 66.7%Small enterprise 61.8% 36.0% 30.3% 55.1%Medium enterprise 65.5% 10.3% 37.9% 58.6%

Table 3.2E

THREE-YYEAR GROWTH EXPECTATIONSSize Rapid growth Moderate growth Slow growth Declining salesMicro enterprise 16.7% 58.3% 16.7% 8.3%Small enterprise 30.3% 49.4% 19.1% 1.1%Medium enterprise 29.6% 51.9% 18.5% -

Table 3.2H

MANAGER'S EDUCATION BY FIRM SIZEHighest Education Level of Company Managers

Size High school Some University University More than universityMicro enterprise 16.7% 16.7% 58.3% 8.3%Small enterprise 10.1% 6.7% 75.3% 7.9%Medium enterprise 3.4% 3.4% 82.8% 10.3%

Table 3.2F

WORKFORCE GENDER BY FIRM SIZESize % men % womenMicro enterprise 76.2% 23.8%Small enterprise 76.2% 23.8%Medium enterprise 78.2% 21.8%

Table 3.2G

2000 SALES REVENUE BY FIRM SIZE2000 Sales (KM)

Size average medianMicro enterprise 735,500 406,000Small enterprise 2,108,075 1,200,000Medium enterprise 9,240,786 7,000,000

Table 3.2I

ANALYSIS BY INDUSTRY AND SIZE

37

Table 3.2J

2001 INVESTMENT PLANS BY FIRM SIZE(Averages and Medians Based Only on Respondents That Plan to Invest)

Working Capital % saying Capital Expenditures % saying Size average median zero average median zero

Micro enterprise 173,000 100,000 16.7% 191,000 25,000 16.7%

Small enterprise 493,070 200,000 7.8% 409,522 200,000 21.2%

Medium enterprise 2,148,462 700,000 7.1% 1,372,143 500,000 3.4%

HR Training % saying Advertising & Promo % saying Size average median zero average median zero

Micro enterprise 7,667 5,000 25.0 12,556 10,000 25.0%

Small enterprise 16,060 10,000 18.3% 19,968 5,000 11.8%

Medium enterprise 32,870 20,000 17.9% 41,583 20,000 11.1%

R&D % saying - -Size average median zero - -

Micro enterprise 2,800 2,000 58.3% - - -

Small enterprise 15,516 5,000 37.5% - - -

Medium enterprise 17,600 10,000 25.9% - - -

38

The SEED commissioned this study as part oftheir ongoing efforts in Bosnia and Herzegovina(BiH). The SEED goal is to foster the develop-ment of Small and Medium Enterprises (SMEs)as one means of achieving higher economicgrowth and employment, reducing poverty, andmeeting social objectives. Improving SME devel-opment requires many ingredients, including apolicy environment conducive to enterprisecompetitiveness, ensuring access to financialand non-financial services, and expanding mar-kets for SME products, and services. A criticalaspect of this objective is the availability of qual-ity business development services (BDS). BDScomprise a wide array of non-financial servicesimportant to the creation, entry, survival, growth,productivity, and competitiveness of the enter-prise, and include consultancy and advisoryservices, training, marketing assistance, infor-mation, technology development and transfer,and business linkage promotion. It has beenconsistently shown that quality BDS reduce fixedcosts, provide skills and quality enhancements,improve operational efficiency, provide valuablemarket information, support financial manage-ment, and provide links to both domestic andexternal markets.This study is based on the belief that quality,local BDS are critical for the growth of privatesector SMEs. The goal is to assess the need forBDS by BiH SMEs, to describe the current BDStrends in the region, and to identify how SEEDcan intervene in the market to promote thedevelopment and usage of services that aremost needed. This is the first survey of its type in

BiH, and SEED considers it a pilot for futureefforts in the region. The results - based on afinal sample of 130 firms in the Agribusiness,Construction, Information Technology, andRoad Transport industries-are meant to be thefoundation for the design of technical assistanceprograms to the SMEs and service providers inorder to improve the operations of the BDS mar-ket in BiH.

OverviewThere is a very high degree of BDS awareness -for both consulting/advisory and training servic-es - among the sample firms. Most areas hadawareness rates of 90% and higher; the lowestrate of 77.5% was for BusinessDevelopment/Strategy consulting. Actual usagerates are lower however, averaging 55%, with arange of 26.2% (Environmental training) to66.2% (Occupational Safety training andMarketing/Promotion/Sales consulting). Thesehigh awareness rates mean that for most areas,SEED can concentrate their efforts on improvingthe quality and value of BDS offerings as well asmarketing skills of existing BDS providers ratherthan educating SME managers about the defini-tions of services. The sample firms seem to be ideal candidatesfor BDS. Over 80% of them anticipate rapid ormoderate growth over the next three years, anda similar proportion has recently introduced newproducts or services. These are growing, inno-vative companies that will require outside adviceand training to facilitate their future plans. Two factors dominate the choice of BDS

39

Section 4:

Conclusions andRecommendations

provider: reputation and matching needs withofferings. Firms expressed a clear willingness topay for quality service that is appropriate fortheir needs. In fact, low price was consideredunimportant by two-thirds of the respondents,and most firms that used consultants said theywould pay considerably more than the actualcost of the service. Three-fourths of the sampleplans to purchase BDS in 2001, and the vastmajority of them have already earmarked thatspending in their 2001 budgets. As a next stepSEED should consider a parallel study to assessthe current supply side of the BDS market, thatis, what is the reputation of the firms in the mar-ket and what services are firms providing? Theresults of our study make it clear that SMEs wantservices tailored to their individual needs andhelp define those needs. However, similar dataon the status of BDS providers is needed tocomplete the picture.When deciding to purchase BDS, the mostimportant factors cited are a legal requirementfor the service and prior experience with theservice. For legally mandated services, e.g.,financial audits, safety and environmental train-ing, etc., SEED's focus should be on developingquality, low-cost providers, as these services -while necessary - provide low value-added tothe SMEs. Firms must be able to meet their legalobligations quickly and cost effectively, therebyfreeing time and resources for projects that willgrow the business and create value. For exam-ple, firms cited insufficient market data and alack of demand information as their two biggestproblems in the sales and marketing area.Consulting and advice in these areas wouldhelp increase sales and profits, allowing thefirms to grow and add employees, thus fulfillingSEED's primary objectives.

ConsultingAbout 40% of the sample firms hired businessconsultants in the year 2000. While not con-centrated in any industry, firms using consultantswere mostly small and medium sized enterprises(> 10 employees). These firms were quite satis-fied with the services. The main reason for not hiring a consultant wasan inability to find one to meet a specific need,which reinforces the prior discussion about thedisconnect between what firms need and what

the BDS market is currently providing. A slightmajority (54%) of the consultants werelocal/domestic, but there were significant differ-ences based on the type of service. For example,100% of the Accounting/Audit/Finance andLegal/Regulatory consultants were domestic,while two-thirds of the Production/TechnologyOperations consultants and 60% of the IT con-sultants were foreign. Presumably, this disparityreflects the availability of domestic providers inthese areas. The foreign/domestic consultant information isimportant for several reasons. Firstly, theAccounting/Audit/Finance andLegal/Regulatory areas are more commodity-type services and therefore mean lower marginsto the providers. Secondly, almost two-thirds ofthe engagements that involved foreign consult-ants were in Production/Technology Operationsor IT consulting. SEED should focus their effortson developing the domestic BDS capacity forthese value-added areas of BDS. However, thefact that 41% of services that were provided byforeign consultants were not paid by firms maychange this conclusion on the structure of localsupply. High level of foreign consultantsengaged in certain types of consulting servicesmay be result of the policy implemented by proj-ects that financed these engagements. Most firms that hired consultants did so basedon their own research. Examples of thisresearch include information gathered fromcolleagues, suppliers, clients/customers, publi-cations, exhibitions/trade fairs, informal socialoccasions, the Internet, etc. A much smallernumber based their decision on a recommen-dation from a professional organization.Because of this, SEED should work with BDSproviders to develop effective methods fordirectly targeting potential BDS customers sincethey are making purchase decisions themselvesbased on data they collect.

TrainingTwo-thirds of the sample firms provided sometraining to their employees in the year 2000.The most important criterion in the decision isevidence that the program provides clear bene-fits. This has obvious implications for how BDSproviders should position their services, that is,the benefits of the training should be clearly stat-

CONCLUSIONS AND RECOMMENDATIONS

40

ed and quantified where possible. Training costis much less important, and as with consultingservices, firms are very willing to pay for trainingprograms that meet their needs. Again, thereseems to be a gap between training needs andcurrent offerings; the most-cited reason for notoffering training was a lack of appropriate exter-nal training. There was a generally high level ofsatisfaction with the training, and SEED shouldwork to ensure that this quality continues in thefuture.Almost two-thirds of the training takes placeoutside the firm, highlighting the need for effi-cient, comfortable training facilities. The qual-ity of learning is significantly affected by thesurroundings and BDS providers should striveto offer well-designed classrooms and work-spaces. SEED might consider working withlocal firms to create a central training facilitysince the fixed costs are high and utilizationrates are sometimes low, at least initially. Sucha structure could offer state-of-the-art equip-ment at a reasonable cost, reaping advantagesfrom economies of scale achieved by offeringopen enrollment programs to a large numberof customers in an industry sector. This lastpoint is supported by the sample data, whichshows that half of the training programsinvolved three or fewer trainees from therespondent's firm.

Business Associations in BiHAlthough most of the sample firms belong to theChamber of Commerce - and pay membershipfees - they are mostly unhappy with the servicesprovided. The most common benefits used bymember firms are the provision of informationprovision and trade fairs. The service that is notoffered but most desired is advocacy. Fully 80%of the Chamber of Commerce members wouldlike to see this service provided. This indicatesthat SEED may contribute in this field by educat-ing associations' leaders and enhancing theirskills needed for effective advocacy on behalf oftheir members. Firms in BiH belong to business associationbesides the Chamber of Commerce. A highlevel of dissatisfaction exists with the servicesoffered by these organizations in BiH as well.At the same time, firms are willing to pay fortheir services and there seems to be an oppor-

tunity for associations that understand whattheir members want and meet those needs. Theconsistent demand for advocacy suggests thatindustry-specific associations may be the bestsolution. Part of SEED's efforts may be to edu-cate firms about what services can be efficient-ly provided by a business association and whatservices are better sourced from other BDSsuppliers.

SummaryThis study collected valuable data about thepast experience and future needs of SMEs inBiH for BDS. But, it is important to rememberthat BDS are only part of the solution to thechallenges facing SMEs as they strive to growand prosper. In fact, the most frequently citedbarriers to success for the sample firms - a lackof access to capital and government regula-tions/taxes - have little to do with BDS. But,firms want and need high quality BDS gearedtoward their specific requirements. More impor-tantly from the perspective of BDS providers,they are willing to pay for such services and inmany cases have already allocated the funds intheir 2001 budgets. Although each respondenthas individual needs, the following recommen-dations should help SEED enhance the provi-sion of BDS to all of the SMEs in BiH:· High rates of awareness among respondent

firms means that SEED's efforts can befocused on building capacity of the BDSproviders rather than educating potential cus-tomers. Marketing efforts should be focusedon small and medium sized firms and shouldhighlight the tangible benefits that theadvice/training will bring to the firm.

· Firms frequently could not find the consultantor training program they were seeking. SEEDmay benefit from assessing the supply side ofthe BDS market to ensure there are not large,unmet needs.

· BDS providers can be separated into thosethat provide mandatory or legally regulatedservices - commodity BDS - and those offer-ing high value-added services. SEED canenhance both areas by working to make surethe commodity services are provided effi-ciently and at low cost. This will allow firms toconcentrate their resources on growing andadding value to their businesses.

CONCLUSIONS AND RECOMMENDATIONS

41

· Local capacity is concentrated in the com-modity type consulting services. SEED's couldtarget foreign, value-added BDS providers inan attempt to build local capacity in theseareas. In the long-run, this will reduce costsand improve the quality of the services, whilekeeping more resources in the local economy.

· Most enterprises participate in training pro-grams in small numbers. SEED may find ituseful to form alliances with BDS trainingproviders or other local organizations andprovide aid in developing customized pro-grams that cater to larger markets. Thiswould spread the high fixed cost in the pro-gram offerings and provide an opportunity todevelop a variety of programs catering betterto the needs of enterprises.

· There is a high level of dissatisfaction with theservices provided by most business associa-

tions in BiH. Part of this may be due to a mis-perception about what such organizationscan realistically provide and SEED may havea role in educating members about reason-able expectations. At the same time, there aredefinite needs for new/enhanced associa-tions, especially in the area of advocacy. Dueto the specialized nature of such activities,these organizations may be industry specific.

This study represents a first step in the process ofbuilding an effective BDS network in BiH. Theresults make it clear there is a demand for suchservices and that SMEs already using BDS aregenerally satisfied. At the same time, there is aneed for additional consulting and training serv-ices that provide clear benefits and good value.Using the data and recommendations from thisresearch, SEED can greatly improve the devel-opment and future success of SMEs in BiH.

CONCLUSIONS AND RECOMMENDATIONS

42

Bibliography

Riddle, D. and Vu Hoai, Tran, "Business Services in Vietnam", Mekong Project Development Facility,Private Sector Discussions #5, 1998.

"Memorandum of the President of the International Development Association to theExecutive Directors on a Country assistance Strategy of the World Bank Group forBosnia and Herzegovina",Report No.: 20592 BIH, June 14, 2000.

Denis, Jean-Emile, Bullon, Antonio L., and Kamel, Sherif, "Evaluation of UNCTADEMPRETEC Programme," United Nations Conference on Trade and Development, July 13, 2000.

"Business Development Services for Small Enterprises: Guiding Principles for DonorIntervention 2001 Edition", prepared by the Committee of Donor Agencies for Small Enterprise Development, February 2001.

"Product Profile: Business and Professional Services", Discussion Document, prepared for Business Sector Round Table, Third United Nations Conference On The Least Developed Countries, Brussels, May 16, 2001.

Gibson, Alan, "The BDS Market Development Approach: Rationale and Key Issues", Presentation, April 23-24, 2001.

43

44

45

Appendix:

TablesUSE OF CONSULTING/ADVISORY BDS

(Ranked by degree of awareness)1.1. Aware 1.2. Did you ever 1.3. Ever 1.4 Did you use

Type of Consulting Service of service?* use this service?** purchased?*** this service morethan once?****

Marketing, Promotion, Sales(including Market Research) 99.2% 66.7% 92.9% 95.3%

Accounting, Audit, Finance and Taxation 98.4% 66.4% 87.0% 90.5%

Information Technology (Computer Hardware and Software, Data Maintenance) 98.4% 64.1% 96.3% 91.4%

Occupational Safety and Protection 95.3% 68.5% 93.0% 88.2%

Legal/Regulatory 92.2% 70.0% 95.2% 100%

Production Technology/Operations 88.3% 50.4% 89.4% 91.2%

Environmental Regulation/Compliance 87.5% 45.5% 78.6% 82.4%

Business Development/ Strategy 77.5% 39.0% 59.0% 89.6%

* 130 respondents = 100%, ** Respondents aware = 100%, *** Respondents ever used = 100%, **** Respondents ever used = 100%

Table 2.1B

Table 2.1D

* 130 respondents = 100%, ** Respondents aware = 100%, *** Respondents ever used = 100%, **** Respondents ever used = 100%

USE OF TRAINING(Ranked by degree of awareness)1.1. Aware 1.2. Did you ever 1.3. Ever 1.4 Did you use

Type of Training of service?* use this service?** purchased?*** this service morethan once?****

Information Technology 95.3% 66.2% 96.3% 97.5%

Occupational Safety 95.3% 69.4% 91.8% 86.0%

Management (for Personnel, Finance, Marketing, etc.) 91.5% 69.5% 86.5% 89.3%

Production Technology/Operations 86.8% 54.9% 82.2% 83.9%

Environmental 84.5% 31.0% 79.4% 82.1%

APPENDIX: TABLES

46

Table 2.4D

BDS - NEEDS AND WILLINGNESS TO PAY(percentage of the 130 respondents answering "Yes"; ranked within each category by % saying "Most needed")

Rank each of the following Not needed Moderately needed Most needed Willing to Pay?

7.1. Business Development/Strategy

Training in Business development/strategy 25.4% 55.4% 19.2% 69.0%

Advisory: Strategic planning 23.1% 60.0% 16.9% 71.3%

7.2. Accounting/Audit/Finance

Bookkeeping/financial reporting 40.8% 33.1% 26.2% 54.6%

Accounting standards (GAAP, IAS) 36.2% 47.7% 16.2% 57.7%

Training in accounting/audit and finance 30.8% 53.1% 16.2% 63.1%

Auditing of financial statements 44.6% 43.8% 11.5% 49.2%

Consulting in budgeting and forecasting 43.8% 48.5% 7.7% 49.2%

7.3. Information Technology

Training in information technology 21.7% 56.6% 21.7% 73.6%

Computerization (needs analysis and advice on hardware and software) 28.5% 50.8% 20.8% 66.2%

Network 40.0% 39.2% 20.8% 54.6%

Internet 35.4% 44.6% 20.0% 61.5%

Software Advice 24.6% 55.4% 20.0% 70.0%

Web Design 41.5% 42.3% 16.2% 53.1%

7.4. Production Technology/Operations

Quality systems (e.g., ISO 9000) 23.3% 37.2% 39.5% 68.2%

Quality control and improvement 25.4% 46.9% 27.7% 70.8%

Productivity improvement 20.0% 54.6% 25.4% 71.5%

Production technologies (e.g., improvement in processes, equipment, materials) 33.1% 42.3% 24.6% 58.5%

Equipment rehabilitation and maintenance 40.0% 39.2% 20.8% 56.2%

Research and development 27.7% 54.6% 17.7% 64.6%

Training in production technology/operations 40.8% 41.5% 17.7% 53.8%

Production planning 53.8% 29.2% 16.9% 41.5%

7.5. Safety/Environmental

Job safety and protection 24.6% 50.8% 24.6% 73.1%

Advisory: Introduction of standards (e.g., ISO 14000) 47.7% 35.4% 16.9% 45.4%

Training in safety/environmental 33.1% 52.3% 14.6% 60.8%

Waste Management 62.3% 25.4% 12.3% 32.3%

7.6. Human Resources Management

Leadership training 25.4% 40.8% 33.8% 70.8%

Training in Human resources management 23.8% 48.5% 27.7% 69.2%

Advisory: Hiring of employees 51.2% 31.0% 17.8% 41.9%

APPENDIX: TABLES

47

Table 2.4D (cont'd.)

CHARACTERISTICS OF CONSULTING ENGAGEMENTS(based on 92 observations)

Where was the consultant from?

Foreign 45.7%Local (domestic) 54.3%Services provided by the consultant % using service*

Production Technology Operations 42.4%Accounting/Audit/Finance 26.1%Information Technology 20.7%Business Development/Strategy 19.6%Legal/Regulatory 18.5%Marketing/Promotions/Sales 17.4%Safety/Environmental 8.7%Human Resources Management 0.0%How did you find this consultant?Found through my own research 76.1%Recommended by a professional organization 20.7%My competitors use them 3.3%

Table 2.6B

* - Column total is greater than 100% since respondents could select more than one item.

Rank each of the following Not needed Moderately needed Most needed Willing to Pay?

7.7. Marketing/Promotions/Sales

Advertising and Promotion 12.3% 53.1% 34.6% 84.6%

Market research/analysis 16.2% 57.7% 26.2% 73.1%

Marketing strategy 23.1% 53.8% 23.1% 67.7%

Export procedures 46.2% 31.5% 22.3% 49.2%

Product design 46.9% 33.1% 20.0% 53.1%

Training in marketing/promotion and sales 32.3% 53.8% 13.8% 62.3%

7.8. Legal/Regulatory

Import/Export regulations 39.2% 37.7% 23.1% 52.3%

Taxes 33.1% 44.6% 22.3% 60.0%

Training in legal/regulatory issues 35.4% 46.9% 17.7% 56.2%

Intellectual property 51.5% 31.5% 16.9% 44.6%

Corporate governance 50.0% 35.4% 14.6% 43.8%

Employment law 53.1% 33.1% 13.8% 40.8%

APPENDIX: TABLES

48

CH

ARAC

TERI

STIC

S O

F C

ON

SULT

ING

EN

GAG

EMEN

TS B

Y TY

PE(b

ased

on

92 o

bser

vatio

ns)

Serv

ices

pro

vide

d N

umbe

r of

H

ow d

id Y

ou

% P

aid

For

How

Muc

h by

the

cons

ulta

ntC

onsu

ltant

s%

Dom

estic

Find

Con

sulta

ntC

onsu

ltant

Cos

t in

KMW

ould

You

Be

% S

atisf

actio

nW

illin

g To

Pay

Busin

ess

Dev

elop

men

t/St

rate

gy18

38.9

%44

.4 %

pro

fess

iona

l org

aniza

tion

44.4

%Av

erag

e: 1

,166

Aver

age:

2,5

7572

.2%

sat

isfie

d11

.1 %

com

petit

ors

use

them

Med

ian:

200

Med

ian:

1,8

0027

.8%

ver

y sa

tisfie

d44

.4 %

ow

n re

sear

ch

Acco

untin

g/Au

dit/

Fina

nce

1710

0 %

18.8

% p

rofe

ssio

nal o

rgan

izatio

n88

.2 %

Aver

age:

3,6

28Av

erag

e: 4

,072

76.5

% s

atisf

ied

6.3

% c

ompe

titor

s us

e th

emM

edia

n: 1

,000

Med

ian:

1,0

0017

.6 %

ver

y sa

tisfie

d75

% o

wn

rese

arch

Prod

uctio

n Te

chno

logy

Ope

ratio

ns33

33.3

%9.

1 %

pro

fess

iona

l org

aniza

tion

72.7

%Av

erag

e: 4

,827

Aver

age:

5,8

5269

.7 %

sat

isfie

d90

.9 %

ow

n re

sear

chM

edia

n: 2

,000

Med

ian:

4,0

0030

.3 %

ver

y sa

tisfie

d

Safe

ty/E

nviro

nmen

tal

366

.7 %

100

% o

wn

rese

arch

100

%Av

erag

e: 2

,467

Aver

age:

2,7

0010

0 %

sat

isfie

dM

edia

n: 2

,000

Med

ian:

2,7

00

Mar

ketin

g/Pr

omot

ions

/Sal

es6

66.7

%16

.7 %

pro

fess

iona

l org

aniza

tion

83.3

%Av

erag

e: 2

,200

Aver

age:

5,2

0083

.3 %

sat

isfie

d83

.3 %

ow

n re

sear

chM

edia

n: 1

,500

Med

ian:

1,5

0016

.7 %

ver

y sa

tisfie

d

Info

rmat

ion

Tech

nolo

gy10

40.0

%37

.5 %

pro

fess

iona

l org

aniza

tion

80.0

%Av

erag

e: 2

,920

Aver

age:

4,8

1280

.0 %

sat

isfie

d62

.5 %

ow

n re

sear

chM

edia

n: 2

,000

Med

ian:

5,0

0020

.0 %

ver

y sa

tisfie

d

Hum

an R

esou

rces

Man

agem

ent

0

Lega

l/Re

gula

tory

510

0 %

100

% o

wn

rese

arch

100

%Av

erag

e: 8

,400

Aver

age:

20,

000

75.0

% s

atisf

ied

Med

ian:

1,8

00M

edia

n:25

.0 %

ver

y sa

tisfie

d

Tabl

e 2.

6C

APPENDIX: TABLES

49

DISTRIBUTION OF TRAINING PROGRAMS BY TYPEType of Training %choosing*

(n = 148)Production Technology/Operations 32.4%Information Technology 27.7%Accounting/Audit/ Finance 17.6%Safety/Environmental 16.9%Human Resources Management 8.8%Legal/Regulatory 8.8%Business development/Strategy 7.4%Marketing/Promotions 6.1%Research and Development 5.4%Corporate Governance 3.4%Import/Export 2.0%

Table 2.6F

* Column total is greater than 100% due to training programs that included morethan one item

TRAINING PROVIDERSTraining Provider %choosing*

(n = 148)External training institutions 42.6%External individual trainers 25.0%Suppliers, buyers, business partners 16.9%Dedicated internal trainers 16.2%Training consultants 14.9%Managers (part-time) 12.2%Supervisors (foremen) 3.4%

Table 2.6G

* Column total is greater than 100% due to training programs that used more thanone type of providers

NUMBER OF PARTICIPANTS FROM RESPONDENT'S COMPANYParticipants in Program % of total1 16.1%2 27.3%3 9.1%4 6.3%5 3.5%6-10 11.9%11-20 11.9%21-40 9.8%>40 4.2%

Table 2.6H

* Column total is greater than 100% due to training programs that used more thanone type of providers

APPENDIX: TABLES

50

CH

ARAC

TERI

STIC

S O

F TR

AIN

ING

PRO

GRA

MS

BY T

YPE

(bas

ed o

n 14

9 ob

serv

atio

ns)

Type

of T

rain

ing

Num

ber

of%

In H

ouse

Who

Pai

dC

ost i

n KM

Leng

th o

fTo

tal N

umbe

rRe

ason

%Sa

tisfa

ctio

nTr

aini

ngfo

r th

isTr

aini

ngof

Com

pany

fo

r Tr

aini

ngPr

ogra

ms

Trai

ning

(ave

rage

)Pa

rtici

pant

s

Busin

ess

Dev

elop

men

t/St

rate

gy9

22.2

%Se

lf: 7

7.8%

Aver

age:

2,0

57H

ours

: 16

Aver

age:

10

100

% B

usin

ess

88.9

% s

atisf

ied

BA*:

11.

1%M

edia

n: 5

00D

ays:

22

Med

ian:

311

.1 %

ver

y sa

tisfie

dD

onor

s: 1

1.1%

Acco

untin

g/Au

dit/

Fina

nce

234.

3%Se

lf: 8

2.6%

Aver

age:

1,6

28H

ours

: 30

Aver

age:

260

.9%

Bus

ines

s78

.3 %

sat

isfie

dBA

*: 0

.0%

Med

ian:

500

Day

s: 9

Med

ian:

239

.1%

Leg

al21

.7 %

ver

y sa

tisfie

dD

onor

s: 1

7.4%

Info

rmat

ion

Tech

nolo

gy

3718

.9%

Self:

89.

2%Av

erag

e: 5

,382

Hou

rs:

79Av

erag

e: 4

100%

Bus

ines

s70

.3 %

sat

isfie

dBA

*: 1

0.8%

Med

ian:

2,0

00D

ays:

28

Med

ian:

229

.7 %

ver

y sa

tisfie

dD

onor

s: 0

.0%

Hum

an R

esou

rces

Man

agem

ent

1190

.9%

Self:

72.

7%Av

erag

e: 1

,883

Hou

rs:

45Av

erag

e: 7

90%

Bus

ines

s77

.8 %

sat

isfie

dBA

*: 0

.0%

Med

ian:

500

Day

s: 7

Med

ian:

10

10%

Leg

al22

.2 %

ver

y sa

tisfie

dD

onor

s: 1

8.2%

Prod

uctio

n Te

chno

logy

/Ope

ratio

ns41

48.8

%Se

lf: 8

0.4%

Aver

age:

5,7

16H

ours

: 11

8Av

erag

e: 1

092

.7%

Bus

ines

s10

0 %

sat

isfie

dBA

*: 7

.3%

Med

ian:

2,3

00D

ays:

21

Med

ian:

57.

3% L

egal

Don

ors:

12.

2%

Safe

ty/E

nviro

nmen

t21

76.2

%Se

lf: 1

00.0

%Av

erag

e: 1

,552

Hou

rs:

12Av

erag

e: 2

947

.6%

Bus

ines

s66

.7%

sat

isfie

dM

edia

n: 8

00D

ays:

3M

edia

n: 2

352

.4%

Leg

al33

.3%

ver

y sa

tisfie

d

Mar

ketin

g/Pr

omot

ions

/Sal

es4

25.0

%Se

lf: 7

5.0%

Aver

age:

2,6

50H

ours

: 46

Aver

age:

15

100%

Bus

ines

s25

.0 %

sat

isfie

dBA

*: 0

.0%

Med

ian:

500

Day

s: 7

.5M

edia

n: 2

75.0

% v

ery

satis

fied

Don

ors:

25.

0%

Lega

l/Re

gula

tory

30.

0%Se

lf: 1

00.0

%Av

erag

e: 1

,650

Hou

rs:

NA

Aver

age:

266

.7%

Bus

ines

s10

0.0

% s

atisf

ied

Med

ian:

1,6

00D

ays:

47

Med

ian:

333

.3%

Leg

al

Tabl

e 2.

6I

* Bu

sine

ss A

ssoc

iatio

ns

Not

e: C

ompa

nies

in o

ur s

ampl

e re

porte

d no

par

ticip

atio

n in

Cor

pora

te G

over

nanc

e, Im

port/

Expo

rt, a

nd R

esea

rch

and

Dev

elop

men

t tra

inin

g pr

ogra

ms.

APPENDIX: TABLES

51

CURRENT AND FUTURE COOPERATION WITHIN INDUSTRY(Based on 130 respondents; ranked by rate of current cooperation)

Currently cooperate? Interested in cooperation?Activity (percentage answering "yes") (percentage answering "yes")Purchase of inputs 66.7% 74.8%Product development 54.3% 69.9%Lending/borrowing machinery 52.7% 65.9%Marketing/Market Research 49.2% 72.0%Training of workers 43.4% 68.5%Attracting investments 40.6% 74.4%

Table 2.7A

CURRENT AND FUTURE SUBCONTRACTING ACTIVITY(Based on 130 respondents; ranked by % currently subcontracting)

Currently subcontract? Interested in subcontracting?Activity (percentage answering "yes") (percentage answering "yes")Repairs/maintenance 65.3% 70.0%Marketing/advertising 61.8% 72.3%Legal services 57.7% 63.9%Training 55.1% 69.8%Accounting/financial management 47.2% 59.0%Design services 41.1% 50.0%Production of intermediate goods 38.9% 50.8%Research and Development 31.7% 60.0%Public relations 30.9% 45.9%Personnel management/organizational services 26.8% 53.7%Data processing 25.6% 43.2%Cleaning, laundry 23.8% 23.8%Security 19.4% 27.6%Waste management 16.1% 29.3%

Table 2.7B

REASONS GIVEN FOR SUBCONTRACTING(Based on the 106 firms that do subcontract)

%choosing*Reason for subcontracting (n = 106)Irregular demand 61.3%Lower costs on premises and machinery 41.5%Cannot find skilled labor 27.4%Subcontractor can pay workers lower wages 19.8%

Table 2.7C

* Column total is greater than 100% since respondents could select more than one item.

APPENDIX: TABLES

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ACTIVITIES SUBCONTRACTED TO SAMPLE FIRMS(Based on the 104 firms that act as subcontractors; ranked by % choosing)Activities subcontracted %choosing*to the respondent (n = 104)Repairs/maintenance 62.5%Production of intermediate goods 51.9%Training 31.7%Design services 26.0%Marketing/advertising 18.3%Research and Development 16.3%Data processing 12.5%Accounting/financial management 9.6%Personnel management services 7.7%Cleaning, laundry 7.7%Legal services 6.7%Public relations 6.7%Waste management 4.8%

Table 2.7D

* Column total is greater than 100% since respondents could select more than one item

CHAMBER OF COMMERCE SERVICES(Based on the 105 firms that are members; ranked by % receiving service)Service % receiving* Information 78.5%Trade Fairs 50.6%Business Linkages 49.4%Advocacy 30.4%Training 25.3%Other 17.7%

Table 2.8A

* Column total is greater than 100% since respondents could select more than one item

APPENDIX: TABLES

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VALUABLE SERVICES NOT CURRENTLY OFFERED(Based on 35 responses; ranked by % desiring service)

Service % desiring* Advocacy 60.0%Business Linkages 51.4%Information 42.9%Trade Fairs 40.0%Training 31.4%Other 17.1%

Table 2.8D

* Column total is greater than 100% since respondents could select more than one item

VALUABLE SERVICES NOT CURRENTLY OFFERED BY THE CHAMBER OF COMMERCE

(Based on the 105 firms that are members; ranked by % desiring service)Service % desiring* Advocacy 79.5%Information 67.3%Business Linkages 66.3%Training 55.1%Trade Fairs 43.8%Other 34.6%

Table 2.8B

* Column total is greater than 100% since respondents could select more than one item

SERVICES OFFERED BY NON-CCHAMBER OF COMMERCE BUSINESS ASSOCIATIONS

(Based on 35 responses; ranked by % receiving service)Service % receiving* Information 60.0%Business Linkages 48.6%Trade Fairs 42.9%Advocacy 34.3%Training 28.6%

Table 2.8C

* Column total is greater than 100% since respondents could select more than one item

APPENDIX: TABLES

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Table 2.9A

IMPORTANCE OF INFORMATION SOURCES BY AREA(Based on 130 respondents; ranked by % saying "Most Important")

Market information Not Important Moderately Important Most Important

Clients/Customers 2.3% 32.6% 65.1%

Exhibitions/Trade Fairs 19.5% 46.9% 33.6%

Suppliers 15.5% 54.3% 30.2%

Competitors 23.3% 54.3% 22.5%

Internet 50.4% 30.2% 19.4%

Informal social occasions 26.6% 60.2% 13.3%

Publications 21.7% 66.7% 11.6%

Private consultants 43.4% 51.2% 5.4%

Government agencies 63.6% 31.0% 5.4%

Academic institutions 65.1% 33.3% 1.6%

Production, operations and technology information Not Important Moderately Important Most Important

Clients/Customers 19.7% 34.6% 45.7%

Suppliers 16.5% 47.2% 36.2%

Exhibitions/Trade Fairs 20.5% 48.8% 30.7%

Internet 42.5% 37.0% 20.5%

Competitors 32.3% 48.8% 18.9%

Publications 19.7% 63.0% 17.3%

Government agencies 64.6% 28.3% 7.1%

Informal social occasions 34.6% 59.8% 5.5%

Private consultants 44.1% 50.4% 5.5%

Academic institutions 66.9% 30.7% 2.4%

Legal and Regulatory Information Not Important Moderately Important Most Important

Publications 8.5% 54.6% 36.9%

Government agencies 44.6% 31.5% 23.8%

Clients/Customers 41.5% 38.5% 20.0%

Suppliers 39.2% 44.6% 16.2%

Private consultants 41.5% 43.1% 15.4%

Exhibitions/Trade Fairs 42.3% 46.2% 11.5%

Competitors 50.0% 40.0% 10.0%

Informal social occasions 37.7% 53.1% 9.2%

Internet 74.6% 17.7% 7.7%

Academic institutions 52.3% 40.8% 6.9%

APPENDIX: TABLES

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Table 2.10A

RATING OF CONTRAINTS TO SUCCESS IN INDUSTRY(Based on 130 respondents; ranked by % saying "Severe Constraint")

Factor No Constraint Moderate Constraint Severe Constraint

Financial - Access to long-term financing 11.5% 16.9% 71.5%

Financial - overdraft protection 23.1% 28.1% 48.8%

Government regulations, taxes 16.2% 36.2% 47.7%

Financial - Access to short-term financing 24.6% 32.3% 43.1%

Financial - Access to export financing 62.4% 12.0% 25.6%

Quality of infrastructure services (power, telecom, roads, etc) 45.4% 36.2% 18.5%

Import / Export regulations 51.5% 30.8% 17.7%

Lack of high quality local inputs (e.g.: materials, parts) 57.7% 26.9% 15.4%

Lack of skilled employees 46.5% 38.8% 14.7%

Barriers imposed by foreign legal regulations 60.0% 27.7% 12.3%

Lack of machinery, equipment suppliers, and maintenance services 61.5% 27.7% 10.8%

Lack of high quality training 40.0% 50.0% 10.0%

Legal restrictions on hiring and firing workers 65.4% 25.4% 9.2%

Lack of high quality business services 36.9% 53.8% 9.2%

Financial - hard currency issues 87.1% 8.6% 4.3%

High cost of labor 81.4% 15.5% 3.1%

Table 2.10A

PROBLEMS IN THE SALES AND MARKETING AREA(Based on 130 respondents; ranked by % saying "Major Problem")

Rank each of the following No Problem Minor Problem Major Problem

Insufficient market data 21.5% 46.2% 32.3%

Lack of demand information 31.5% 40.8% 27.7%

Cannot find buyer(s) 46.9% 34.6% 18.5%

Lack of an effective marketing strategy 36.9% 49.2% 13.8%

Incomplete product/service offering 75.4% 20.0% 4.6%

Our products/services are too expensive 72.3% 23.8% 3.8%

Our product is of poor quality 90.0% 6.9% 3.1%

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