Upskilling SMEs: 5 things we learned about the effectiveness of SME training schemes
In most countries, the majority of workers work in a small or medium-sized enterprise (SME). Unfortunately, once employed, the staff of these SMEs rarely receive formal training. As a result, a large proportion of the population are not regularly refreshing their skills in order to remain productive and employable as they age.
With this in mind, many governments have set up programmes to incentivize SMEs to invest in training, including more than 100 countries that run national training levy schemes. Despite the investment, there is little evidence as to whether these schemes are spurring more training. Anecdotal evidence suggests that some training schemes have succeeded in delivering demand-driven services in a business-friendly way, while others have developed a poor reputation for being bureaucratic and inefficient.
In the ILO’s Sustaining Competitive and Responsible Enterprises (SCORE) Programme, we partner with public and private SME training schemes in many countries. How does one design a good training scheme? We reviewed the set-up, funding and functioning of four established SME training schemes in Singapore, Malaysia, Ireland and the United States, and it was clear that there is no single right way to run such a programme. Different countries found success with different solutions. Our new study, “Upskilling SMEs: How governments fund training and consulting”, deliberates the pros and cons of different design choices, extracting some key learnings from each:
1) Advantages and disadvantages of different funding models: Most SME training funding schemes are funded either by general tax revenues or by training levies. The advantage of funding schemes from general revenues is that funds can be allocated more flexibly. Training levies require setting up dedicated funding procedures to collect contributions from employers. Their advantage is that once they are in place, they are more likely to insulate training funds from competing demands that arise in the normal public budgetary process. However, the instrument is less appropriate for countries with weak economies, large informal sectors, and poor administrative capabilities. Where training schemes are not effective, they become unpopular with employers and some have been abandoned as a result.
2) Reaching large numbers of SMEs is challenging: The SME training funding schemes reviewed in this study reach between 7,000 to 20,000 SMEs per year. Despite the sizable reach, this still only represents 2 to 10 percent of SMEs in each country. At such a scale, outreach is determined by availability of funding and marketing efforts. With a substantial investment in resources required, working through intermediary institutions like employer organizations can facilitate business outreach.
3) Investments per enterprise vary considerably: Two schemes reviewed in this study priced their services at market rates, one scheme offered a small subsidy while one scheme fully subsidized its services. The right strategy will depend on the objective of the scheme. It can be helpful to undertake research to determine how enterprises are likely to react to different prices. The cost of training per business of schemes covered in this study range between 800 USD (for programs funding training) to 24,000 USD (including consulting) per enterprise in a year.
4) Pros and cons of working via intermediary institutions: Two schemes reviewed in this study interact with enterprises directly while two schemes work through intermediary institutions. Schemes interacting directly with enterprises need dedicated staff to reach out and interact with enterprises which can be challenging for bureaucracies (bureaucrats don’t always like to admit that). Schemes that fund intermediary institutions outsource this function to third parties that are more accustomed to interact with businesses. However, intermediaries need to be managed as well and come with their own administrative costs.
5) There are different paths to ensure quality of services: All four schemes reviewed in this study offer services to enterprises via specialized training and consulting service providers. Two schemes select providers through competitive bidding processes which helps ensure that service providers are qualified and cost-effective. One scheme leaves it up to firms to select the training provider, while one scheme registers and certifies training providers to ensure quality. The latter might be more effective assuming that standards are well designed, certification procedures are reliable and transparent, and the system is understood and accepted by enterprises. Building such a system comes with considerable cost for development and maintenance.