How Context Impacts Developing Country Digital Start-Ups

As the digital economy grows in developing countries, is it part of a “weightless economy” that floats free from the local context?  Or is it still heavily embedded within that context?

Recent research from Manchester’s Centre for Development Informatics investigates this. The paper, “Digital Start-Ups in the Global South: Embeddedness, Digitality and Peripherality in Latin America” looks at the experience of digital start-ups in the four largest economies of Latin America: Argentina, Brazil, Colombia and Mexico.  It does so through the lens of the Triple Embeddedness Framework (see below).

The Triple Embeddedness Framework

Far from being free-floating, these young enterprises are strongly-rooted in local supply chains, social institutions, and policy environments.  But they also experience “hybrid embeddedness”, meaning they lie at the intersection of different domains:

1. Product/Digital Hybridity. Digital start-ups are shaped by their product sector: the sector of the goods or services they sell – the financial services sector for an online investment start-up; the recruitment sector for a web-based employment exchange. But – unlike traditional enterprises – they are also embedded in an emergent digital sector.  Where their level of embeddedness in each sector is “just right” – what we called “Goldilocks embeddedness” – they can cross-fertilise ideas between the sectors, draw finance and staff from both sectors, and are not so heavily-embedded that their investment in the status quo constrains innovation.
2. Local/Global Hybridity. Digital start-ups are also hybridly-embedded in both a local and a global industry regime. Local laws and social networks and capabilities are an essential part of these digital enterprises’ operations.  But they also take business models, start-up methodologies, social norms and policy priorities from the global North; primarily from Silicon Valley in the US.  Their position on the relative periphery of the global economy also seems helpful: it allows these ideas and other resources to flow in from the US but offers some relative protection from external competition.

Governments and firms in the global South need to recognise this pattern of embeddedness:

• Governments must do more to build up local digital sector institutions which act as key intermediaries both within the local digital economy and between local and global digital economies.
• Digital start-ups must self-analyse the constraints and freedoms imposed by their embeddedness. And they must customise models and methods from the global North; for example, rescoping the Lean Start-Up methodology to take a broader bi-sectoral and socio-political remit.

In research terms, we need to understand more about how the digitality and peripherality of these start-ups affects their development trajectories.  This and other items will form part of the DIODE Network discussions on future research agendas around development implications of digital economies.