The multi-million pound gap-year industry is in danger of damaging Britain's reputation abroad and raising fears that the west is engaged in a new form of colonialism, according to a leading thinktank.

Young people planning a gap year should focus on what they can offer their hosts in order to discourage the view that volunteering is merely a new way of exercising power, says a new report by Demos.

Those who carefully select the projects in which they take part are likely to make the most of their time, while doing the most to dispel the belief that their trips are merely self-interested, says the report.

Nine out of 10 young people surveyed by YouGov for Demos said they had improved their self-confidence, self-reliance and sense of motivation following a stint of volunteering in a developing country.

However, the gap-year industry is a £6bn business for western companies, costing volunteers between £1,500 and £4,500 for a mere two-month experience. One in five people who took a gap year said they believed their presence in the place they visited made no positive difference to the lives of those around them.

Jonathan Birdwell, author of the Demos report, said there was even evidence that an ill thought-out gap year could be bad for local communities and Britain's relations with other countries. "There is a risk of such programmes perpetuating negative stereotypes of western 'colonialism' and 'charity': a new way for the west to assert its power," he said.

Birdwell added that "projects that do not appear to have benefits or make a difference for communities abroad leave volunteers unmotivated and disillusioned".

One respondent to the survey's report said: "I felt that the local community could have done the work we were doing; there were lots of unemployed people there. I'd have preferred to work with local unemployed and helped them in some way to benefit their community."

The study comes in the wake of the government's launch of the International Citizen Service which, in the words of the prime minister, is designed to "give thousands of our young people, those who couldn't otherwise afford it, the chance to see the world and serve others".

The scheme is means tested, allowing those who come from families with a joint income of less than £25,000 the chance of a gap year for free. The pilot of the scheme will involve 1,080 young people visiting 27 different countries.

The Demos report found that 64% of 3,000 parents surveyed want their children to take part in the ICS scheme. However, Demos's research indicated that there were key factors which make a gap year successful and the report recommends the ICS should incorporate them.

There should be post-placement support, which allows the young person to continue the work they started abroad once back home, it claims.

The report says there should be pre-departure training to ensure that young people are able to offer relevant skills. It says placements which are short are just as likely to have positive outcomes in personal development and civic participation as long-term ones. Young people who live with a host family are also more likely to report positive outcomes in "skills, identity and values".

The report found that the typical UK overseas volunteer tended to be young, affluent, white and female, although those with few qualifications and those from low-income backgrounds reported the most positive experiences.

Birdwell said he hoped the ICS would grow to help around 3,000 young people a year and that these would be the least well-off in society. He said: "The new International Citizen Service is an exciting opportunity for young British people to experience the world and gain invaluable experience and skills while helping to contribute to the UK's international development goals.

"However, the ICS is competing with an already crowded gap-year market. In order to be successful, it must ensure that activities benefit communities abroad and it must target recruitment to young people who couldn't afford commercial gap year programmes."