Consulting for the informal sector

Box 25.2 Private consulting services for micro-enterprises

A Philippine consulting group, established a number of years ago by ten professionals with various sorts of expertise, has chosen to work for the microenterprise sector in addition to serving formally established and registered businesses, government agencies and social organizations. Each member of the group works individually as a consultant on his or her own projects, but they also work together whenever required by the size and complexity of the assignment. Direct consulting to micro-enterprises represents only a part of the group’s activities.

The group carries out consulting for enterprises employing three to nine workers, which in the Philippines are micro-enterprises according to the official government definition. These enterprises are involved in a wide range of activities, including leather products (shoe production and repair, bags), wooden furniture, food processing (e.g. fruit preservation), processing of by-products from animal hides and skins, metal-working, etc. The micro-entrepreneurs serviced by the group often include members of the local community and personal friends.

The micro-entrepreneurs are visited by members of the group and also come to the consultants’ offices when they need help. The types of services provided include: management and technical training; assistance in bookkeeping; preparation of loan applications for banks’ feasibility studies; assistance in establishing market linkages and in organizing participation in marketing events (e.g. exhibits, fairs); advice on types of products and quality control; advice on policies and regulations; and referral to other sources of information and assistance. These services are provided to micro-entrepreneurs either directly, or indirectly through subcontracts to government agencies and nongovernmental organizations (NGOs).

Services are provided on a short-term basis or over longer periods of time, but written contracts between the consultants and the entrepreneurs are rare. Rather, services are based on verbal agreements between people who trust each other.

The micro-entrepreneurs pay fees for these services either in cash or in kind (e.g. goods produced by the micro-enterprise). Advance payments are sometimes made, but more generally the members of the consulting group are paid after the services have been rendered. In many cases, payments are made on the basis of results achieved.

The fees applied are a function of the services rendered, actual costs incurred (e.g. travel costs, time devoted to the assignment), and the size of the enterprise. Fees range from as little as a few hundred pesos (less than US$10) to several thousand pesos (US$100 or more). This level of fees represents a fraction at the revenues of the group, which come from larger consultancy contracts from government agencies, NGOs and donors.

Author: Moïse Alal.

consumer goods such as cigarettes, sweets, contraceptives and razor blades often depend on informal vendors for a large proportion of their sales, while other manufacturers sell large quantities of supplies such as welding gas, vehicle spare parts or food ingredients to micro-enterprises. Such firms will sell more of their products if their informal outlets are better managed. Sales representatives who are in contact with micro-enterprises can help both their

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own employers and their customers if they are able to provide simple business and management advice in addition to selling their products.

Some banks too have started to realize that micro-enterprises can be valuable customers for financial services, both as depositors and borrowers. These banks may employ field agents to collect savings and loan repayments; these agents can also help their customers save more and repay more reliably, by providing basic management and business advice along with financial services. Municipal inspectors have traditionally harassed micro-enterprises, but local authorities are now starting to appreciate that informal-sector business activities provide both employment and important local services to the public. It is easier for inspectors to enforce health, safety or location regulations if they are able to offer management advice while carrying out their primary responsibilities.

Voluntary organizations working with the poor used primarily to provide welfare services such as elementary education and basic health care, but many of them are now starting to help people to increase their incomes through self-help and entrepreneurship. Community development staff and social workers are turning into bankers and consultants to micro-enterprises; they too offer an indirect route through which a specialist consultant can reach the owners of micro-enterprises.

Indirect management and business consulting, as described above, is clearly very different from direct selling of business advice. A consultant may be asked to advise and assist such organizations in their work with micro-enterprises, and to train their field workers in consulting and counselling skills. In other cases, it may be appropriate to suggest involvement of this kind to a larger client company as a way of increasing the effectiveness of field representatives, or possibly as part of the client’s efforts to contribute to social development and enhance its image in the community. In these cases, the management consultant will have to assess the weaknesses and needs of the micro-enterprises with which his or her client is involved, and then suggest and demonstrate simple techniques for providing onsite management advice which can easily be taught to non-specialists.

In conclusion, it should be clear from the above that consulting for microenterprises is very different from consulting for large and even small businesses in the formal sector, both in the nature of the work itself and in the channels through which it may be necessary to reach the clients. Consultants should never fall into the trap of believing that such work is simple or beneath his or her attention, or not worth doing at all. Even though the management techniques that are needed may be very simple, the tasks of diagnosis and communication are difficult. The task is even more complex when the consultant has to reach micro-entrepreneurs indirectly, through field agents such as sales representatives or social workers who may have little or no management knowledge and perhaps misgivings about business in general.

The task is, however, well worth attempting. The number of people working in micro-enterprises is vast and their problems are often so serious as to affect the very survival of themselves and their families. For people as poor as most microenterprise operators, even a modest increase in income can significantly improve their whole lifestyle: there are few areas where management and business consulting can have such a significant impact on the welfare of so many people.

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