A new paper on Digital Business Models of Digital Enterprises in a Developing Economy has been published by the DIODE Ghana Team.
This study aims to explore the business models and strategies of digital enterprises in a developing economy context to understand the nature of their operations, as well as their survival tactics. A review of literature on digital enterprise models led to the adaptation of a 16 business model archetype for analyzing digital enterprises in Ghana. Using a critical realism perspective, survey data from a sample of 91 digital enterprises were used for the study.
The findings suggest that among human, physical and intangible assets, financial assets were the least used assets in the operations of the digital enterprises. This stems from the fact that the online financial business sector is still in its nascent stages in most developing economies. The findings further suggest that all digital enterprises leverage accessible and low-cost social networking services as part of their operations and use them as an avenue to engage with their target customers. The findings from this study provide guidelines to entrepreneurs who wish to venture into the digital ecosystem of Ghana, particularly with regard to the economic, financial and technological factors that enable digital enterprises to survive in the competitive digital economy.
The findings also suggest that it is important for governments to realize that there is an increasing rise in digital enterprises in the developing economies and these enterprises are creating jobs and providing business solutions locally that would hitherto be sought from developed economies. There is therefore the need for the requisite legal infrastructure and financial support that will cushion these enterprises from the fierce competitions that stagnate their growth.
The study provides a mapping of the digital business models of Ghanaian digital enterprises. This knowledge is arguably the first of its kind in the context of a developing economy. Hence, it serves as a stepping-stone for future studies to explore other areas in the digital economy, especially from a developing economy perspective.
There are several types of IT/IS policies which govern the appropriate and acceptable use of information technologies in organizations. However, in the age of new digital business models and the upsurge of the digital economy, is there a need for specific policies to address the recent trends?
Questions we might need to ask include:
Is there any recent research on the digital policies in organizations?
What categories of policies will enable organizations to efficiently take advantage of opportunities in the digital economy? And how will these policies differ across industries/sectors?
What digital policies (micro, meso and macro-level) will enable organizations to positively impact on development needs in their communities and countries?
In effect, how do organizational policies catch up with the rapid growth and changes in the digital economy?
Indonesia aims to become the biggest digital economy nation in ASEAN by aiming to reach 130 million US$ of e-commerce transaction in 2020. This may sound ambitious, but the fact that a majority of Indonesians are digitally oriented makes the government strongly believe that the target can be achieved. The latest data from Asosiasi Penyedia Jasa Internet Indonesia (APJII) and We Are Social revealed that there are 143,26 million internet users in Indonesia in 2017, and a majority of them use mobile devices to access the internet. Moreover, the total number of mobile connection has exceeded the Indonesian populations, with each citizen have approximately 2 to 3 SIM cards.
What are the underlying factors that drive this enormous growth? I would argue that there are at least four factors:
Technological advancement particularly in the telecommunication sector. Initially, we can only use a mobile phone for voice call and SMS. These days, both services are not popular anymore as people prefer to use instant messaging and Voice over Internet Protocol (VoIP). This also applies for the handset that we use today, as it becomes smarter and capable of doing a wide range of tasks compared to a classical feature phone.
Increase coverage of a mobile network. There is a fierce competition among operators to become the best in the country through massive infrastructure deployment. As a result, more and more people now have an access to the internet.
Price of ICT is getting cheaper. There is a price war between each operator by lowering the price of internet services in order to maximize network utilization. Also, we can easily find a high-quality smartphone with an affordable price. As a result, telecommunication is not a luxury good anymore.
Social media and instant messaging as “killer apps”. The introduction of Blackberry Messenger (BBM), Facebook and Twitter in Indonesia played a key role in boosting data penetration in the country.
Despite the growing trends of digital in Indonesia, we still face a significant challenge in narrowing the digital divide. Around 77 per cent of internet users are centred in Java and Sumatra, and less than half of citizens in eastern part of the country do not have access to the internet. As a result, Indonesia still lags behind our neighbour countries like Thailand and Malaysia when it comes to global indexes such as Networked Readiness Index (NRI) or GSMA Mobile Connectivity Index.
The development impact of the digital economy
The aforementioned infrastructure challenges apparently do not hamper the promising growth of the digital economy in Indonesia. At the time of writing, Indonesia has nearly 2,000 start-ups and only behind USA, India, UK and Canada. Interestingly, the majority of those start-ups are led by “millennials” that are passionate to create social impact by harnessing the power of digital technologies. This can be seen from how Nadiem Makarim is successfully growing Go-Jek to empower not only “ojek” drivers but also SMEs and consumers. Go-Pay, mobile wallet system developed by Go-Jek, even contributes in promoting financial inclusion in Indonesia. Another example is evident from how William Tanuwijaya initiates Tokopedia as a platform to enables everyone in starting their own business for free. Both Go-Jek and Tokopedia, together with Traveloka and Bukalapak, are known as start-up unicorn in Indonesia.
So, how does the digital economy contribute to economic growth?
Admittedly, the contribution of the ICT sector to GDP in Indonesia is still not significant with only 7.2 per cent. However, the GDP growth from this sector is the highest compared to other sectors with 10 per cent of GDP growth. In fact, this number is much higher than average GDP growth of Indonesia that only reached 5 per cent.
In other report published by Oxford Economics (2016) revealed that by 2020 every one per cent increase in mobile penetration can contribute in creating additional 640 million US$ to Indonesia’s GDP as well as opening up 10,700 additional job opportunities. Hence, it is no surprise that the government has put significant attention to the digital economy sector.
Speaking of the digital economy, there are at least three emerging trends that are currently happening: on-demand services, financial technology, and e-commerce.
On-demand services. It is impossible to talk about this sector without mentioning Go-Jek, one of the most influential tech start-up in Indonesia. They not only managed to revolutionalize “ojek”, but they also successfully influence behavioural change in our society. Essentially, they facilitate almost everything on-demand, from logistics, food delivery, car wash, and even beauty services. They are now in the process of preparing their own streaming service, which could cement Go-Jek’s position in providing anything that Indonesians need.
Financial technology. There is a clear challenge in bringing financial services to everyone in Indonesia. Only about one in three adults in Indonesia have access to financial services. In this regard, Financial Technology (Fintech) played an important role not only as an enabler for the digital economy but also promoting financial inclusion through technology. This is evident particularly within the case of a peer-to-peer lending platform that enables small business to get access to financial capital. Another example is how the mobile payment serves as a mean to promote a cashless society in Indonesia.
E-commerce. More than 8 million Indonesians loved to shop online, and the numbers are expected to increase in the near future. This is driven by both consumptive and online behaviour of Indonesians as well as the increasing market reach thanks to social media and technology. As a result, many stores are now trying to sell their products through both online and offline channel. People can now buy almost anything easily through their smartphone without having to go to the actual stores, and we can receive our products within hours with the help of instant courier. In the future, we can expect further innovation such as an unmanned store that will transform the way we shop.
Indonesia has a great potential to become the biggest digital economy nation in ASEAN, even in the world. But, achieving this target requires various stakeholders involved to overcome the following challenges:
Narrowing the digital divide. Infrastructure is an important enabler in maximizing the benefit of the digital economy, so the government must ensure that everyone can have an equal access to technology. Palapa Ring project is a great starting point, and the quality of our infrastructure will surely get better by the time the project is finished in 2019. But the infrastructure deployment cannot stop there and should focus on providing access to rural areas in Indonesia.
Digital talent. There is still a mismatch between the supply of university graduates and the demand from tech start-up. This leads to talent war, in which many start-ups have to compete in securing high-quality talents that are lacking in the market. Hence, a collaboration between industry and academia is important to ensure the production of high-quality digital talent that meets the needs of the digital industry.
Regulations. It is no secret that regulations are always behind technological advancement, as can we see from the case of Go-Jek and Grab. What we need is a guiding principle in designing regulations for those emerging technology. It should be designed in such a way that it will not hamper creativity and innovation in tackling societal challenges. Several cybersecurity issues should be taken into account, particularly about consumer protection of personal data.
This post is written by Christopher Foster and Shamel Azmeh (University of Manchester). It was originally posted on the GEG Africa blog
The global economy is experiencing important technological shifts with the rise of digital technology a key driver. These changes are likely to intensify in the coming years with new technologies that are emerging such as artificial intelligence, cloud computing, and autonomous vehicles.
For developing and emerging economies, the digital economy provides an opportunity to achieve economic and technological catching-up through using digital technologies and building capacities. But, technological shifts may also widen the technological divide with advanced economies weakening the position of developing economies in global value chains and making ongoing catching-up efforts ineffective.
To explore these issues further, we have recently be undertaking research which aims to offer direction in terms of constructing overall policy strategy in developing and emerging economies, in partnership with the Global Economic Governance Africa project, focussing on South Africa.
Policy models for digital
Drawing on our analysis of digital policy, we highlight two important directions that countries have taken around digital policies. This model extends a previous working papers by Bukht & Heeks produced as part of the DIODE project.
Broader liberal strategies for enabling markets for digital trade highlight the importance of developing the national regulation and conditions to maximise diffusion and impacts of digital products and services into the country. This includes, for instance, creating conditions to attract foreign digital firms and ensuring that benefits are evenly distributed by increasing the digital participation of marginalised groups.
On their own, however, market enabling policies might not necessarily produce the desired economic objectives in terms of technology learning and localization. As such, we also consider a more selective approach which we refer to as digital catch-up policy. This second approach is more interventionist and strategic in nature and it requires higher political capital and knowledge in the policy-making process.
As shown below, the two directions are not mutually exclusive and potentially can be complementary.
The cases of Brazil and Indonesia
To expand and think about implications of such a policy model, we undertook two case studies of Brazil and Indonesia. These studies provide insights for how policy makers can regulate and deal with the challenges of the emerging digital economy.
Overall, directions of digital policy in these two countries have lots in common. Both countries already have core digital regulation and infrastructure in place and policy makers are working to refine policy to ensure that it fits with the rapidly evolving needs of the digital economy and digitalisation.
Moving beyond solely market enabling policies, we see that both countries focus on a number of strategic areas through interventionist policies. Not all of these initiatives have been effective and some carry costs, but in certain areas they have been associated with more vibrant local sectors that are helping build capacities and increase local economic value-added.
The two tables below expand on our findings, highlighting the broad range of instruments being used in the areas of the policy model (click for more details)
Policy instruments: Enabling digital markets
Policy instruments: Digital catch-up
Implications for policy makers
South Africa (and other emerging and developing countries) faces similar challenges in trying to bridge the technological and industrial gap with more advanced economies in a rapidly changing landscape. At the same time there is a need to ensure that digital policy is inclusive to achieve broader societal outcomes.
A number of policy lessons can be learnt for South Africa from the cases of Brazil and Indonesia. Policies to enable growth in digital trade are important to provide the framework for the expansion of the digital economy. Underlying this, there must be substantive investments in broadband infrastructure and appropriate regulation. An emphasis on inclusion policies will lead to more broad-based benefits from the digital economy.
To support local firms, digital ecosystem policy is a crucial consideration in grounding the benefits of the digital economy. This includes policies to support the growth and scaling-up of start-ups, and the higher participation of MSMEs in digital trade. Furthermore, encouraging global digital firms to localize some of their activities and to build domestic linkages is an important policy objective. As the ‘disbenefits’ of the digital economy become clear, policy makers need to legislate to reduce challenges in areas such as tax, data protection and the platform economy. Reflecting the importance of scale, regional integration is crucial in terms of digital policy. Broader markets, interoperability and national-regional strategic alignments are key to expanding markets, attracting foreign firms, and potentially increasing their commitment to a region.
Digital catch-up policy provides an important direction for supporting digital growth. Our work reveals a broad range of potential catch-up policy instruments in the digital economy (e.g localisation, incentives, and national digital projects). Future examination should explore the specific catch-up policies that could be fruitful in the case of South Africa.
For further information, see two recent GEG policy papers which expand on these issues:
Policy model – Azmeh, S. & Foster, C. (2018) Bridging the Digital Divide And Supporting Increased Digital Trade: Scoping Study, Discussion Paper, GEG Africa, Pretoria, South Africa. Discussion paper | Policy brief
Case studies of Brazil and Indonesia – Azmeh, S. & Foster, C. (2018) Bridging the Digital Divide And Supporting Increased Digital Trade: Country Case Studies, Discussion Paper, GEG Africa, Pretoria, South Africa. Discussion paper | Policy brief
Digital platforms are used in the business models of many of the world’s biggest companies and they impact people across the globe in various ways. A survey conducted in 2015 identified 176 platform companies in the world, with an estimated global market capitalisation of $4.3bn — about the same as Sierra Leone’s gross domestic product. Areas such as employment opportunities, social interactions and transportation are increasingly organised through these platforms. Traditionally, most of the platforms and their main markets have been in the global North, yet companies and people from the global South are also adopting and using digital platforms to run their businesses and daily lives.
This raises important questions on the developmental implications of digital platforms. Recently, valuable research has looked into important areas of digital platforms, such as work conducted within the DIODE Network on digital labour, or on innovation ecosystems of open data platforms. As digital platforms continue to have ever-wider significance, further research is needed. A new DIODE working paper – Digital Platforms in the Global South: Foundations and Research Agenda – suggests that, in order to conduct meaningful research in the area, it is necessary to understand the foundations of digital platforms and the key factors of their functioning, as well as discussing their developmental implications.
Definitions matter: two types of digital platforms
The working paper distinguishes between two main types of digital platforms: transaction and innovation platforms. Transaction platforms, or exchange platforms, facilitate interactions between users by reducing transaction costs. They base their functioning on either direct or indirect network effects, where the former refer to a network (or platform) becoming more valuable to each member as more users join, and the latter to the value created when increasing the base of users in groups that are complementary to each other. Common transaction platforms are M-Pesa, Uber or AirBnB. The second type of digital platforms are innovation platforms, whose distinctive feature is to provide technological building blocks for developers to build services and products on top of them. Common innovation platforms are Android or Apple’s iOS.
A research agenda to study digital platforms in the global South
Building on digital platforms’ typology and how they operate, the working paper puts forward and discusses four different research areas for studying the developmental role of digital platforms in the global South:
How to better release the developmental potential of innovation platforms, be that in the form of platform design, development or usage.
How digital platforms in the global South differ from the ones in the global North, and what kinds of institutional implications these platforms may have in a developing country context.
Do digital transaction platforms exacerbate or help to diminish existing inequalities in the global South?
What are the alternatives for current digital platforms, especially in cases when they function less than optimally in enabling development?
All of these areas aim to cover different aspects of digital platforms and development. Overall, digital platforms are likely to have both positive and negative implications for people in different locations of the world, and the impacts may come in various forms and differ from one context to another. Research on the topic is therefore crucial to understand these matters better and to help to steer the creation and functioning of digital platforms towards better developmental outcomes. The working paper provides a foundation for this type of research for scholars and other actors interested in the topic.