Across the region as a whole, 61 per cent of firms that have introduced a new product in the last three years also hired a consultant during that period, compared with 20 per cent of firms that did not innovate. Consultants also assisted 63 per cent of firms that introduced new or improved organisational management practices.

These relationships do not appear to be driven by particular industries or specific types of firm. Even when firm-level characteristics are taken into account, there remains a positive and highly significant correlation between the use of consultants and all types of innovation – product, process, organisational and marketing innovations. This is consistent with evidence that external consultants can help small and medium-sized firms to improve their productivity.40

Despite these apparent advantages, many firms choose not to use consultants when developing new products or processes. One reason for this is that every consultancy contract involves transaction costs, which may take resources away from the innovation itself. Firms may also be concerned about leaking information regarding new products and processes, particularly in countries where intellectual property rights are poorly enforced.41

However, the main reason why firms in the transition region do not hire consultants is that they simply see no need for them. Interestingly, exposure to consultancy services seems to change this belief: once firms have employed consultants once, they typically do so again. Indeed, BEEPS firms that use external consultants have done so an average of four times in the last three years. Moreover, where clients of the EBRD’s Small Business Support team have never worked with a local consultant before, nearly half of these clients then undertake a second consultancy project independently within a year. Since firms that hire consultants also tend to be more innovative, their exposure to external know-how seems to be an important channel in the fulfilment of their innovation potential.