jdonner microstypology

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2008 Jonathan Donner Working Draft, Extended Abstract 1

A typology of mobile uses among small and informal businesses

Submitted to the Pre-Conference on Mobile Communication at the Annual Meeting of theInternational Communication Association, Montreal, Canada

Extended AbstractRough/Working Draftversion 1.0 -- 20 May 2008

Please checkwww.jonathandonner.com/jdonner_microstypology.pdffor updates,or contact author before citing

Jonathan DonnerMicrosoft Research [email protected]

Abstract/Summary

Small and informal businesses in the developing world are rapidly adopting mobile

telephony; many have access to mediated communication technologies for the first time. There is

a great deal of enthusiasm in the popular press and in the development literature about how this

adoption can/will lead to increased productivity or revenue for these small businesses. In

addition, in the past few years, a number of academic studies have begun to explore the uses of

mobile telephony among small and informal businesses.

This paper is a step back, primarily a meta-analysis, of the studies released to date. It

proposes that reliance on the basic terms mobile phone use and small and informal business

hides the actual processes by which individual enterprises take advantage of particular functions

of mobile telephony.

The papers core synthesis is a matrix, proposing a set ofenterprise types (trade,

manufacturing/production, fixed retail and services, roaming retail and services, and transport)

crossed by common business processes. Studies from the academic and development literature

populate the cells in the matrix. The pattern of current evidence suggests that within the small and

informal business (MSE) sector, benefits of mobile use accrue mostly (but not exclusively) to

existing enterprises, in ways which amplify and accelerate material and informational flows,

rather than fundamentally transforming them. Further, it seems that most of the benefits

associated with mobile use by this population center on communication at a distance (shared with

landlines) rather than individual addressability or perpetual contact (unique to mobile and

wireless devices).
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The paper suggests future quantitative work to assess the relative size of the cells and the

robustness of the model.

Background

1. Prestigious mainstream sources carry stories about how mobiles will close the digital divideor enable economic growth, and use the successful microenterprise as an anchor theme.

(Economist, 2005a, 2005b; Ewing, 2007; Hancock, 2005; LaFraniere, 2005). The theme is

also common in the applied economic development literature, widely read by practitioners

and policymakers in the field (Ulfelder, 2002; USAID, 2004).

2. These stories exist because the examples are just so striking. Whether in the heart of a capitalcity or deep in the bush, reporters, researchers, and policymakers are sure to come across

examples of small and informal businesses, energized by mobile telephony. The math

makes it so: across most of the developing world, the majority of businesses have less than 10

employeesi. Of the over 3 billion mobile subscriptions on the globe, 58% are in the

developing world (UNCTAD, 2008). Once the urban elites and professional classes acquired

phones, small and informal businesspeople were virtually next in line on the adoption curve,

and have acquired mobiles for a combination of business and personal motivations (Donner,

2006)

3. Yet at this stage, there is a risk of taking the benefits of the mobile to this population at facevalue. As evidence from the research community mountsas a set of studies have emerged

which look specifically at the phenomenon of mobile use among Micro Enterprisesit is

worth stepping back and examining the process ease by which mobile phones actually are

employed by these businesses. To do so, we can look to the existing economic development

literature for an understanding of the variety of firms and process ease associated with the

small and informal business segment. And, we can look to the emerging literature on the

social and economic uses of mobile telephone to distinguish between various uses of the

mobile itself. The natural result of crossing of these two gradations is a matrix, populated

with studies conducted to date, which suggests that not all firms use the same elements of

mobiles, in order they do so to the same degree, or to the same ends.

Small and informal firms

4. The definitions for small and informal firms vary from country to country. Most definitionscomprise firms with less than five or ten employees. A common term is micro-enterprise.

Some include small scale agriculture, others do not. In most cases, small and informal firms

are differentiated from more dynamic productive small enterprises in the small and medium

enterprise space. Sometimes, Micro Enterprises and SNA use are spoken about in the same

breath as the MSE sector (micro and small enterprises). Formality is the other distinction -


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there's no clear-cut line between what makes a firm informal vs. formal. Some have

proposed an index of various activities (ownership structure, tax registration, employee

contracts, separation of funds between personal and business, and the keeping of financial

records) all of which can help distinguish informal firms from formal. Informal sector as a

proportion of overall employment varies from country to country, but can be as high as 70%

in some urban areas in cities in the developing world. (ILO). 69% of urban households

earning less than $2 day engage in some form of petty entrepreneurialism (Banerjee &

Duflo, 2006). For overview, see (Mead & Leidholm, 1998; Mead & Morrison, 1998). The

term enterprise, and particularly the term entrepreneur, maybe a bit of a misnomer; if we can

distinguish firms by domain and by legal status, so to can we distinguish between a small

minority of dynamic firms, poised for growth, and a much broader set of trundlers or

survivalists, who struggle to survive, and yield a low return on labor and capital. (Duncombe

& Heeks, 2001)

5. As with any enterprise, purveyors of small and informal enterprises combine a set ofinvestments in capital and materials with some labor, often just their own, but sometimes

joined by their family, or employees, hopefully to yield a product or service that exceeds the

cost of those inputs, and turn to profit, the higher the relative profit, the higher the

productivity of the enterprise, and the more successful we can argue it is. Needless to say,

there has always been a thread in the ICT for development literature which seeks to

understand how various information and communication technologies could be applied by

small firms in ways which enhance their productivity. A lengthy quote from Duncombe and

Heeks is the best summary of what we knew, prior to the widespread introduction of the

mobile into the developing world:

Phones are the information-related technology that has done the most to reduce costs,increase income and reduce uncertainty and risk. Phones support the current reality ofinformal information systems, they can help extend social and business networks, andthey clearly substitute for journeys and, in some cases, for brokers, traders and otherbusiness intermediaries. They therefore work with the grain of informality yet at thesame time help to eat into the problems of insularity that can run alongside. Phones alsomeet the priority information needs of this group of communication rather thanprocessing of information

6. The quotation is excellent. It zeroes in directly on the essentials of running a businessproductively (reducing costs or increasing income, plus managing risk), and links them tocore functions of mediated communication technologies, particularly around substituting for

journeys. The magic is productivity, and in the subsequent analysis we will want to focus

on that.


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Recent studies on mobiles and small enterprises

7. Since 2001, a few studies have emerged which directly address how mobile phones, ratherthan basic landlines, are used by small enterprises. The studies are not as numerous as the

enthusiasm from the popular literature might suggest. They are a tiny fraction of the toll toll

literature on mobile phones in the developing world, let alone mobile phone usage

worldwide. They have a merge from different disciplines, and, having emerged basically

simultaneously with each other, often do not cite each other. Thus the opportunity exists to

put the studies side by side, to arrived at a meta-analytical understanding of what we know,

to date. Elevenii of the more prominent studies are detailed below.

8. One study which has been particularly well received and broadly cited is by Robert Jensen(Jensen, 2007). Working with five year time series data at three fish markets in coastal

Carolina, India, Jensen and his team found that the adoption of mobile phones by fishermen

and wholesalers was associated with a dramatic reduction in price dispersion, the complete

elimination of waste, and near-perfect adherence to the Law of One Price. Both consumer and

producer welfare increased. fishermen were found to have a list of up to 100 buyers stored

on their phones; while they were still at sea, they would be calling a whole range of possible

landing points and buyers, trying to ascertain the best price and best place to land their catch.

(p. 879)

9. Another study with similar methodological and theoretical perspectives comes from (Aker,2008). She interviewed 395 grain traders in Niger (with an avg. 3.9 employees, some

banked), describing how they use mobiles to get prices, travel long distances 5-800km, and

exploit price differences. She describes how in Niger, grain traders operating in markets

with cell phone coverage search over a greater number of markets, have more contacts and

sell in more markets. This underscores the fact that the primary mechanism by which cell

phones affect market efficiency us a reduction in search costs and hence transaction costs

(p10-11).iii In her study, mobiles lowered price dispersion by 21% (p. 20), and were more

effective as more cities got coverage and phones become more likely to be useful. Mobiles

increased trader profits (not volume per se) by 29% or $182 (p 40). And, not paradoxically,

reduced food prices in areas with cell phone coverageenough to buy 8 days of adult

servings of millet (grain).

10. In both the Jensen and Aker studies, the assumption implicit in the economic model is that thetrader or producer sequences search and travel; that by staying put and using the phone

instead of a physical journey to ascertain a better price, and then and only then electing to

move goods towards the buyer offering that price, the actor has reduced the cost of search and

improved the overall productivity of his endeavour. By contrast, Overas (Over, 2006)

Interviews with 100 traders (of various commodities including yams and onions) in Ghana

focus on traders' as middlemen, working both supply contacts and buyer contacts in order to


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secure the best product, and the right amount of it, as well as to find the right prices. She

found that after the mobiles introduction, onion wholesalers could maintain a broader

network of growers, coordinating growing timing, moving to market. On the customer time,

she portrays Availability as comparative advantage, and argues that this availability and

more frequent interaction can help build trust between supplier and customer more quickly.

Note it does not replace trust, but does accelerate the trust building process.

11. (Molony, 2006), too, looks at the role of trust, vis--vis mediated communication. Hisethnographies draw on three small enterprise communities, foodstuffs wholesalers, black

wood carvers (artisans for the export market) and day-laborers in the construction industry.

In the case of the traders and the artisans, in particular, mobiles were used two coordinate

transactions from afar, or to maintain a sense of camaraderie or trust between a vendor and a

foreign buyer. But these mediated linkages could not create that trust, and could not create a

transactional relationship. Rather than radically restructuring these marketplaces, mobile

phones can be seen as a facilitating technology for existing, trust-based relationships (p. 78)

12. (Jagun, Heeks, & Whalley, 2007) Also explore market structure, examining the mobiles rolein mediating supply chains in a market for traditional hand-woven ceremonial cloth in

Nigeria. Like Overa, they find a process benefit to mobile use, as calls at a distance can

reduce the time of trades and replace costly journeys. They also find a structural impact, but

this impact is not the disintermediation of traders, but rather an intensification of their role.

The traders were far more likely to have mobiles than the less prosperous weavers in the

supply chain, and were thus better position to you coordinate with a wider range of

downstream customers and to maintain a more dynamic and responsive set of relationships

with weavers. (for example, weaver's who would previously have to pay cash to get their

supplies, could count on a telephone call from a traitor two of the fabric vendor, who would

assure the vendor of the veracity of the order, and cover the cost of the fabric on credit before

the work was finished.

13.Like Jagun, Souter (Souter et al., 2005) Find little evidence for a radical restructuring ofsupply chains thanks to mobiles. Their studies are mostly of rural telephone use in India,

Mozambique and Tanzania, and thus mix landline telephone booths with informal mobile

payphones, with private mobile telephone ownership. Nevertheless, the household surveys

are extensive and zero in directly on the question of livelihoods. By speaking to households

and individuals, rather than micro entrepreneurs per se, a broader picture of what mobiles areused for emerges. The key uses four telephones in rural areas where emergencies and social

networking. Saving time (by substituting for non-livelihood related travel) was behind those

two, making money was rated lowest. There is little evidence in the survey data that

telephony has helped respondents increase their financial capital, whether through improves

access to financial services or through more efficient and profitable businesses operations.

even among those who have invested in acquiring a telephone, only around one in three


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feels that it has benefited her/his financial activities. (p 121) A subset of respondents,

primarily prosperous ones, were making use of the mobile for livelihoods, However, the

telephone is an important business tool for a minority of respondents who make more

intensive use of it. This is seen clearly in the India study, for example, where the impact on

better market process is not considered important by the sample as a whole but is highly

valued by intensive users (p 122).

14.Echoes ofSouters findings, which do not reveal a broad-based improvement in livelihoodsassociated with the adoption of phones, are found in Host and Millers work in Jamaica. In an

explicit response to the kind of enthusiastic mainstream literature mentioned above, miller

(Miller, 2006) argues that there is no new spirit of enterprisebased on the phone (p 43)

With exceptions of imagined success in getting music gigs and real success in starting taxi

services a business so integrally linked to the phone as to form a vital part of what we would

call their communicative ecology. (p 43) the vast majority of low income individualsdid

not use the phone for entrepreneurial activities, unless these were already in place prior to the

spread of the phone. Similarly the phone was not important in obtaining employment (p 43).

Nevertheless, the mobile is at the heart of economic survival for households in Jamaica, by

allowing individuals to better leverage broad interlocking networks of informal social and

financial support the phone is not much used for making money,but is vital for getting

money (p 44).

15.Other studies rely on survey/self-report, broad populations of microenterprises. (Opiyo &K'Akumu, 2006) explore ICTSs in informal market in Nairobi. Informal MSE businesses

including trader shops, eating places, leather dealer shops, curio sellers, tailoring, car

washing, automotive garages, honey sellers and readymade clothing sellers, Africans sandals

dealers, cobblers, plastic container dealers, among others top answers for ICTS (which in

terms of ownership 88% of the 230% who owned an ICT owned a mobile) were: 1) get orders

from outside the local market cluster 35%, 2 ) save time and transport 25% and 3) be

reachable past working time 9% and 4) monitor work at a distance 9% 5) useful in sealing

business deals 6%. (P 254)

16. (Samuel, Shah, & Hadingham, 2005). Surveys small businesses in Cairo and rural and urbanSouth Africaand show different rationale for use. In Egypt, the top-two unprompted

responses were faster communication, and increased efficiency. Top-two in South Africa

were being available to clients all the time, and reduced travelling time. Unlike Miller andSouter, they saw evidence of new businesses originated due to the mobile, 29% of RSA and

26 % of Egypt businesses listed availability of mobiles in starting business; 59% Egypt and

62% in RSA says mobiles increase profits. They conclude: Mobiles have reduced travel

needs, assisted job hunting and provided better access to businesses information (p 52).

17.A much broader survey of SMEs, including 1/3 tiny microenterprises, was conduced by(Esselaar, Stork, Ndiwalana, & Deen-Swarra, 2007), across 13 countries and 3600


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respondents. Mobile phones are used more often for keeping in contact with customers and

clients (p 92). Despite this statement, the paper does not differentiate between the

productivity impacts of mobiles versus those of other ICTs such as fax machines or PCs.

Rather, their general assertion is that p98 ICTs play a role in reducing transaction costs

(thereby increasing efficiency) and increasing market access (p 98). They are generally

enthusiastic about the further adoption of mobiles by small enterprises, but note that mobiles

cannot be used to track inventory, provide cash flow and income statements, or even more

basically, produce formal letters, marketing campaigns, or brochures (p 99). They

recommend application development here, as well as policy interventions to reduce the cost

so mobile ownership and use.

18.Last survey - (Donner, 2006) explores shift from early adaptors (for business) to personaluseseven among microenterprises in Kigali, Rwanda. Descriptive results of call-log

analysis suggest that even microentrepreneurs use phones more for personal uses than for

business uses (only 30% of the calls by mobile-only owners were with customers, clients,

employers or business partners). He finds some evidence for higher proportion of new

customers among those who own only a mobile vs. a mobile and a landline, and suggests that

this is one way to see that mobiles amplify social relationships while enabling new business

relationships.iv

19. (Donner, 2004) employs a different methodology, Q-sorts, which are designed to capturedifferent perspectives (voices) among respondents. With 31 small business owners, The

exercise identified four distinct perspectives on mobile useOne perspective sees the mobile

as an instrument for the pursuit of business goals. A second uses the mobile to satisfy

emotional or intrinsic needs. Two others mix instrumental and intrinsic elements, seeing

mobiles as productivity enhancers, or as simply indispensable. (p.1)

Synthesis

20.Across these 11 studies, distinct business processes emerge as impacted by mobile use. (1)Serve existing customers, (2) Get price information (3) Coordinate with partners (4) Find new

customers (5) Cut out middlemen (6) Start new businesses. The data table (matrix)

underlying these processes is below:


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Author Title Pop.

Impact

Existing

Customers

Priceinfo.

Coord.

w/

Partners

NewCust

Middlemen

NewBiz

Aker 08 The impact of cell phones on grain markets in Niger Grain Traders Y

Jensen 07Information (Technology), Market Performance, and

Welfare in the South Indian Fisheries SectorFishermen Y

Opyo & KAkumu

06

The Case of the Kariokor Market MSE Cluster in

NairobiVarious Y

Samuel et. al 05Africa, Tanzania, and Egypt: Results from Community

and Business SurveysVarious Y Y Y

Esselaaret. al 07 ICT usage and its impact on profitability of SMEs Various Y Y

Molony 06Trust and Information and Communication

Technologies in Tanzanian MSEs

Day Workers,

Artisans, Prod.Y Y

Jagun et. al 07The Impact of Unequal Access to Telephones: Case

study of a Nigerian Fabric Weaving Micro-Enterprise

Weavers,

WholesalersY Y N

Overa 06 Networks, distance, and trust: Telecom Developmentand changing trading practices in Ghana

Traders (Yam,Onion)

Y Y Y

Donner 06The use of mobile phones by microentrepreneurs in,

Rwanda: Changes to social and business networksVarious Y Y

Miller 06 The unpredictable mobile phone. Households N

Souteret. al 05The economic impact of telecommunications on rural

livelihoods and poverty reductionHouseholds N N

21.Note the red Ns are active arguments against a role/impact, as opposed to simply non-mention of that possible role.

22.Note also the stronger cluster of evidence for functions which amplify the current businessprocesses and structure (work with existing customers, strengthen relationship with trusted

partners, get price information) than to transform them (new customers, bypass middlemen,

start new business).

23.When compressed, we see this matrix: with heterogeneity intact. Traders clearly benefit fromprice information, producers can do so as well, if they can act on that information (Fishermen

in Jensens study are different than the weaver Jagun speaks to). We do not have evidence in

all the cells, more work is necessary.

Table 2: Matrix of business functions impacted by mobile telephony


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Serve

existing

customers

Get Price

information

Coordinate

with

trusted

partners

Acquire

new

customers

Bypass

middlemen

Start new

businesses

Traders Evidence Evidence Evidence

Producers Evidence Partial Evidence

Fixed-

location

retail and

services

Evidence Partial Partial

Roaming

retail and

services

Transport Evidence

24.A second table illustrates how the benefits associated with mediated communication vs.mobiles in particular are distributed across all the possible business functions. This is the

source of much of the lack of conceptual clarity in the literature and the possible discussion

about the use of mobiles by microenterprises,

Table 3: Matrix of business functions impacted by mobile telephony

Serve

existing

customers

Get Price

information

Coordinate

with

trusted

partners

Acquire

new

customers

Bypass

middlemen

Start new

businesses

Connectivity Evidence Evidence Evidence possible

Individual

Addressability

Evidence Partial

(fishermen)

Evidence Transport


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Discussion: Theoretical implications

25. In this case, the statement that mobile calls substitute for journeys is clearly true.yet notsufficiently descriptive.

26.Studies have documented the important ways mobiles can enable information search and B2Cand B2B communication (service and responsiveness)yet there is little evidence of

computation needs. Voice remains the killer ap, and is used in ways which augment, rather

than replace, face-to-face ties.

27.The economic/price stories yield perhaps the most compelling data to date. ButGeneralizability remains a concern. Jenson, for example, says that his model works best for

perishable commodities like fish28.The mobile is not a single artifact; in-depth theoretical discussions of its impact, role or

utility must be carefully explicated. (This is true not just for small enterprises, but for

studies of almost any application of the device by communities. So, too, must impact be

carefully described. Contrast primary effects with spillover effects and second-order effects.

Jenson sees big fishermen got phones first, but spillover effects to smaller fishermen due to

better market functions. Also impacts on users (price/profit) vs. community (lower prices in

village for foodstuffs = welfare).

29.Current evidence suggests that within the small and informal business (MSE) sector,benefits of mobile use accrue mostly (but not exclusively) to existing enterprises, in ways

which amplify and accelerate material and informational flows, rather than fundamentally

transforming them. This general conclusion echoes early assertions by Harper (Harper,

2003), and, more deeply, Castells (Castells, 1996; Castells, Qiu, Fernndez-Ardvol, & Sey,

2007). It does not negate or diminish the positive impact and utility of mobiles to small and

informal enterprises, but it places their utility in contextthe actions of traders and retailers,

of plumbers and fishermen, vis--vis their new mobile phones, can been seen as an extension

of the information society, not its restructuring (Donner, 2008).

30.The review illustrates how not all firms benefit equally from mobiles. Jagun on unequalaccessnot all users in the supply chain, nor peers in a community, will have a mobile.

Comparative advantage of availability as per Olvera. Again worth further review.


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Implications for Research

31.Conclusions we draw about mobile use by microenterprises have depended on sub-populationand method selected: q sorts find variety of perspectives. Ethnographies of users find

interrelationship, economic time-series analyses find price effects. When you look at 400+ of

the same kind of firm, you see clear effects. When you look at a range of firms,

generalization becomes harderfirms themselves start telling you different reasons why they

purchase phones.

32.Relatively few small enterprises leverage the technologys mobility functions, yet these werethe early adopters and made good case studies (fishermen, taxi drivers, roaming traders).

Mobiles continue to be used as landline replacements, rather than as complements to

landlines (Hamilton, 2003).

33.Look back to the existing ICTD literature on landlines.34.Mathematical apportionment of impact across the MSE sector is possible, but will depend

on distribution of kinds of firms in each region. Might help inform policy and rhetoric around

mobiles and development. e.g., Jensens primary vs. community welfare, Jagun on unequal

access.

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Generation and More. Issue 7. Retrieved April 10, 2006, fromhttp://www.dot-com-alliance.org/newsletter/print_article.php?article_id=36

i Check ILO for details http://www-ilo-mirror.cornell.edu/public/english/employment/strat/kilm/noframes/ind_9.htmii Add Abraham (Abraham, 2006), possibly othersiii A two-minute call to a market 65km away cost US$1, as opposed to $2 for roundtrip travel. (plus 2-4 hrsopportunity cost time) Bigger wholesalers got phones first, followed by smaller retailers.iv Given the close reading of Overa, Jagun and Molony for this paper, becomes clear that the researchdesign was calibrated to find these new relationships but was not calibrated to find the amplification ofexisting business relationships. Later drafts of this paper may re-visit this amplification data
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