Upskilling SMEs: How Governments Fund Training and Consulting
Recognizing their importance in the overall economy, countries around the world have established programs to boost the performance of small and mediumscale enterprises (SME); many of these revolve around the provision of training and/or consulting services. Government intervention is justified by market failures: enterprises may not invest sufficient resources in training/consulting services because they fear poaching of trained employees, incomplete or asymmetric information on the quality of training and the return on training investment, high transaction costs in purchasing training services and the nonavailability of services. While the factors apply to all firms, various studies have shown that small firms are less likely to invest in training/consulting services than larger enterprises.
Governments have numerous policy instruments at their disposal to address these market imperfections, including the adoption of certain laws, development of national skills qualification systems, provision of tax incentives, and grants to subsidize training and consulting services. The aim of this study is to develop a better understanding of the ways in which grants to subsidize training and consulting services to SMEs have been financed and executed, including their relative advantages and disadvantages. Four schemes have been reviewed as part of this study, each different in their set-up and funding.