Development Informatics Working Paper Series



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Development Informatics
Working Paper Series
The Development Informatics working paper series discusses the broad issues surrounding information, knowledge, information systems, and information and communication technologies in the process of socio-economic development




Paper No. 29
Mobile Telephony and Developing Country Micro-Enterprise: A Nigerian Case Study
ABI JAGUN, RICHARD HEEKS & JASON WHALLEY

2007





Published by:

Development Informatics Group

Institute for Development Policy and Management

University of Manchester, Arthur Lewis Building, Manchester, M13 9PL, UK

Tel: +44-161-275-2800/2804 Email: idpm@manchester.ac.uk

Web: http://www.sed.manchester.ac.uk/idpm/dig




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Table of Contents


Table of Contents 2

Abstract 1

Introduction 2

A. Literature Review and Research Focus 3

A1. Information, Trade and Developing Country Micro-Enterprise 3

A2. The Potential Impact of Mobile Telephony 5

A3. Research Methods 7



B. Analysing the Case Industry Supply Chain 9

B1. The Structure of Trade 11



C. Findings on Mobile Telephony and the Supply Chain 14

C1. Access to Mobile Telephones 14

C2. Supply Chain Process Impacts of Mobile Telephony 15

C3. Supply Chain Structure Impacts of Mobile Telephony 17



D. Conclusions 20

References 24




Mobile Telephony and Developing Country Micro-Enterprise:

A Nigerian Case Study

Abi Jagun1, Richard Heeks2 & Jason Whalley3


2007

Abstract

Informational challenges – absence, uncertainty, asymmetry – shape the working of markets and commerce in many developing countries. For developing country micro-enterprises, which form the bulk of all enterprises worldwide, this shapes the characteristics of their supply chains. It reduces the chances that business and trade will emerge. It keeps supply chains localised and intermediated. It makes trade within those supply chains slow, costly and risky.


Mobile telephony may provide an opportunity to address the informational challenges and, hence, to alter the characteristics of trade within micro-enterprise supply chains. However, mobile telephony has only recently penetrated. This paper therefore presents one of the first case studies of the impact of mobile telephony on the numerically-dominant form of enterprise, based around a case study of the cloth-weaving sector in Nigeria.
It finds that there are ways in which costs and risks are being reduced and time saved, often by substitution of journeys. But it also finds a continuing need for journeys and physical meetings due to issues of trust, design intensity, physical inspection and exchange, and interaction complexity. As a result, there are few signs of the de-localisation or disintermediation predicted by some commentators. An economising effect of mobile phones on supply chain processes may therefore co-exist with the entrenchment of supply chain structures and a growing "competitive divide" between those with and without access to telephony.

Introduction

There has been a rapid growth in the spread of mobile telephony worldwide, including a particular growth in recent years in developing countries. To take one comparative example, the average growth rate in mobile subscribers in Africa from 2000-2005 was 54% per annum while the figure for Europe was 19% (ITU 2007). 95% of African mobile subscribers are digital subscribers and they make up 83% of all phone subscriptions (figures for Europe are 92% and 68% respectively). Yet, despite the fact that developing country citizens make up 80% of the world's population and the majority of the world's mobile phone users, research on mobile telephony in developing countries has been relatively limited to date (Donner 2007).


Our understanding of mobile telephony is thus uneven and heavily skewed towards those countries and users that are now in a global minority. As Castells et al (2007:4) illustrate:

"we know a good deal about Norway because of the quality of Norwegian research in this field, while we know little about Nigeria because of the scant reliable evidence on this important country."


Castells and others warn that we should not take a "year zero"-type approach to understanding mobile telephony, but can build on pre-existing telecommunications research. In this case, within the literature with a specific focus on telecommunications and developing countries one can identify two particular clusters of work. One set has taken an "upstream" perspective focusing on diffusion of telecommunications and attendant policies or strategies (e.g. Mureithi 2003, Courtright 2004, Rouvinen 2006).
A second set has taken a "downstream" perspective focusing on impact of telecommunications. This literature has typically been economic and macro-level. Following from the original ideas of Jipp (1963), such work has posited a positive relationship between diffusion of telecommunications and national economic development (Bedi 1999, Forestier et al 2002, Waverman et al. 2005).
More micro-level analysis of telecommunications impacts in developing countries has been less extensive. Some of it has been criticised for either extrapolating from studies in industrialised countries and/or for relying on economic calculations of the benefits that would accrue in theory, based on questionable assumptions (Saunders et al 1994, Bedi 1999). What developing country fieldwork there is, has tended to rely on survey data that provides insights into users and purposes of telephony, but not actual impacts (Saunders et al 1994, Tucker 2007). In addition, field studies of telephony in developing countries have tended to focus mainly on social rather than business uses because they find the former dominates the latter (e.g. Bayes 2001, Bertolini 2002, Souter et al 2005). Thus we may find detailed anthropological studies of telephony's role in social and political development (e.g. Rafael 2003, Ureta 2004) but little work appears to have been done on telephony and micro-enterprise in developing countries (Donner 2005). This despite the fact that, numerically, such enterprises (defined as those that employ up to ten people (Devins et al 2002)) form by far the bulk of all enterprises worldwide, that they provide the most significant part of income generation and employment in many developing countries, and that they are "a key ingredient in poverty reduction." (Palmer 2004:31; see also Albu and Scott 2001, ILO 2001). Hence, there have been calls for more research on this area (e.g. Gamos 2003).
In part, the lack of research is predictable given the relatively limited access that such enterprises – the bulk of which are operated in the informal sector by those from poor communities – have historically had to telephony (Scott et al 2004). Since the turn of the 21st century, though, this has been changing, largely thanks to the diffusion of mobile telephony. This once-elite but now mass-market technology is intersecting with the organisations that make up the major form of income- and employment-generation in the "majority world" of developing countries.
It is therefore an appropriate moment to investigate the gap in knowledge that has to date existed. This paper argues a need for greater understanding of the impact that mobile telephony is having on micro-enterprise in developing countries. It answers this need through an in-depth case of the role of mobile telephony in the supply chains of one micro-enterprise sector: the cloth-weaving sector in Nigeria.
The case study is preceded, in Section A, by a review of the way that information shapes micro-enterprise supply chain processes and structures, and a review of ideas and evidence to date about the potential impact of mobile telephony. Following an outline of research methods, the focal case study sector is described and then analysed in Section B in terms of participants, processes and structures. A similar pattern is then employed in Section C to describe the way in which mobile telephony is accessed by supply chain stakeholders, and to analyse its impact on supply chain processes and structures. The final section then draws a set of conclusions.


A. Literature Review and Research Focus




A1. Information, Trade and Developing Country Micro-Enterprise

We are seeking to understand the role of mobile phones in developing countries in micro-enterprise supply chains: the inter-linkages of relations that run from the original supplier of raw materials through to the final customer. Identifying mobile phones as tools for the communication of information we need to start from an information-based perspective. Our literature starting point will therefore be works on information, trade and enterprise. From this perspective, micro-enterprise supply chain relations can be understood as a series of trading activities; activities that rely heavily on information in the three main steps of trading (Norton 1992, Casson 1997):



  • information acquired prior to trading (on the existence of the other party, on their reputation and trustworthiness, on typical prices);

  • information communicated during trading (on items offered and money/other items sought, on quality of items offered, as part of negotiation);

  • information acquired after trading (on whether or not the terms of the agreed trade contract have been fulfilled).

Availability, quality, cost and other characteristics of information, and the ability to communicate that information, are thus critical foundations for all trade and all enterprise, including micro-enterprise (Porter and Millar 1985, Stiglitz 1988).
In practice, almost all real-world commerce suffers from information failures of various kinds. These problems are often particularly acute for micro-enterprise in developing countries (Albu and Scott 2001, Müller-Falcke 2001). Those seeking to trade – whether buying or selling – may suffer from an absence of information. For example, they may not be aware of whom they could trade with. They may suffer from information uncertainties. For example, they may be uncertain about an appropriate price for an item they are seeking to trade. They may suffer from information asymmetries, meaning that those they trade with have information that they lack or that they are uncertain about. For example, they may trade with someone who does know an appropriate price for an item when they do not. Finally, micro-enterprise supply chains in developing countries also suffer problems because communication has traditionally had to take place face-to-face; there being no other reliable means for the communication of information.
Informational characteristics in turn shape both the process and structure of commerce (Williamson 1975, Stiglitz 1988). Thus the informational challenges just described have led to a characteristic pattern in developing country micro-enterprise supply chains (Fafchamps 1996; Overå 2006). In terms of the trading process, we can identify three typical characteristics:

  • Trading tends to be slow. Both trading itself and gathering of background data requires physical interaction, which may in turn require journeys. Journeys are often slow because of relatively poor quality and/or lack of transport infrastructure.

  • Trading tends to be costly. There are high financial and time costs of gathering information necessary in order to trade. Journeys in particular are costly both in terms of direct costs but also indirect costs: for most micro-entrepreneurs a day spent journeying is a day on which income-generation must be foregone.

  • Trading tends to be risky. Micro-entrepreneurs are subject to (or may subject other supply chain actors to) trading risks because of information asymmetries. These include opportunism such as overcharging for goods or agreeing to a contract knowing it cannot properly be fulfilled, and adverse selection such as unwittingly selecting a trade partner or trade items of poor quality. For trading in a number of developing country contexts, one should recognise the risks of commerce-related travel. These would include the physical risks of both traffic accidents and crime.

One impact of these information-driven process challenges is that the development of commerce, of business, and of markets in many developing countries is constrained (Loasby 2000, Albu and Scott 2001). Where commerce and supply chains do develop then, in part because of these informational issues, they tend to have particular structural characteristics. One of these is that trading tends to be localised (Duncombe and Heeks 2002). Trading or data-gathering with anyone at a distance requires a – potentially slow, costly, risky – journey. Since delay, cost and risk tend to be proportional to distance, there are incentives to localisation of supply chains.


A second structural characteristic is the presence of intermediaries (Casson 1997, Bedi 1999, Chowdhury 2002). Intermediaries are supply chain actors who are neither producers nor final consumers, but who interpose between a producer and a consumer. They buy from one and sell to the other, or they may otherwise handle the trade between the two. Intermediaries have come to exist in supply chains where they address some of the negative information-related characteristics of trading. They hold both quantitative and qualitative information on buyers, sellers, products and prices. They can thus reduce the informational costs and increase the communication speed of all three stages of trading for buyers and sellers. Their broader spread of contacts allows trade to become less localised. They can make trade less risky, or at least make it perceived to be less risky, because of their informational resources and reputation.
However, intermediaries can also have a negative impact on micro-entrepreneurs. They are typically in a more powerful position than other supply chain actors, particularly due to information asymmetries – they know things that micro-producers and customers do not. As a result, they are often seen to force prices paid to producers down well below market values, resulting in reducing income for the micro-entrepreneurs (Bayes 2001). They may also, for example, be able to force loans on micro-entrepreneurs that have to be repaid at high interest rates.


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