Business Practices in Small Firms in Developing Countries

Management has a large effect on the productivity of medium and large firms. But does management matter in micro and small firms, where the majority of the labor force in developing countries works? We develop 26 questions that measure business practices in marketing, stock-keeping, record-keeping,...

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Bibliographic Details
Published in:Management science 2017-09, Vol.63 (9), p.2967-2981
Main Authors: McKenzie, David, Woodruff, Christopher
Format: Article
Language:English
Subjects:
Business operations
business practices
Companies
Developing countries
Economic aspects
Entrepreneurs
Evaluation
Financial planning
Human capital
Labor force
Labor productivity
LDCs
Management
Management techniques
Marketing
Owners
Panel data
productivity
Profits
Sales
Small & medium sized enterprises-SME
Small and medium sized companies
Small business
small enterprises
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Summary:Management has a large effect on the productivity of medium and large firms. But does management matter in micro and small firms, where the majority of the labor force in developing countries works? We develop 26 questions that measure business practices in marketing, stock-keeping, record-keeping, and financial planning. These questions have been administered in surveys in Bangladesh, Chile, Ghana, Kenya, Mexico, Nigeria, and Sri Lanka. We show that variation in business practices explains as much of the variation in outcomes—sales, profits, and labor productivity and total factor productivity—in microenterprises as in larger enterprises. Panel data from three countries indicate that better business practices predict higher survival rates and faster sales growth. The association of business practices with firm outcomes is robust to including numerous measures of the owner’s human capital. We find that owners with higher human capital, children of entrepreneurs, and firms with employees employ better business practices. Data, as supplemental material, are available at http://dx.doi.org/10.1287/mnsc.2016.2492 . This paper was accepted by Toby Stuart, entrepreneurship and innovation .
ISSN:0025-1909
1526-5501
DOI:10.1287/mnsc.2016.2492