News
March 29, 2013

NCR-09 [Economy]: The Disruptive Innovation of Peer-to-Peer International Trade


Gwendolyn Floyd’s text for NCR-09 [Economy]

In emerging economies around the world, hundreds of millions of small-scale producers are currently making valuable goods. However, these producers cannot access the worldwide consumer demand for their unique, low-cost, largely handmade products because they, like over 70% of the world’s population, are living and working on the other side of the digital divide, unable to benefit from the innovation and economic opportunities provided by the Internet.

Women, who account for over 70% of the world’s poor, also make up the majority of these small-scale producers. Over 85% of women in sub-Saharan Africa are self-employed in the informal economy. Many turn to the production of crafts and handmade goods to earn or supplement meagre incomes. Their sales, however, are limited to the local economy, with inconsistent demand and high personal costs for transportation and marketing of their goods. From another perspective, however, the costly and inaccessible export supply for developing world goods is fertile ground for disruptive innovation that could open up this enormous untapped market of high-quality goods to the global marketplace.

Emerging economies hold a leading position in the craft sector, accounting for 60% of global export of creative goods. However, despite the developing world’s share of production, individual craftspeople have no direct access to this worldwide consumer demand. Most imported goods today are mediated by middlemen and costly logistics. The complex multi-stage supply chain for global goods requires mass production and cheap inputs to sustain profits. In the conventional market arrangement, the economies of scale are difficult to achieve without wholesale aggregation; therefore, the sector is dominated by powerful intermediaries supplied by larger factories. Vendors see the potential in selling their goods abroad, but every step strips away potential profit for the vendor and funnels money away from the local economy and towards self-interested international agents with facilities of a sufficient size to compete in the conventional market for creative goods.

Due to this costly, complex supply chain, international consumers pay up to 20 times the cost of production, and artisan-vendors receive only a fraction of the profit that could be earned if they had the tools and opportunity to competitively enter the global marketplace as independent entrepreneurs, often from a lack of computer hardware, personal Internet access, and appropriate visibility in an international forum.

Still, these producers are not without resources: what they do have access to are mobile phones—there are 5.2 billion mobile phone subscribers worldwide, and in Africa over 75% of the population has one. In emerging economies, the roughly 17% Internet penetration pales in comparison to 80% mobile phone penetration; in countries like Kenya, there are 2000 mobile phone users for every Internet user. This condition, unusual by Western standards, has catalysed novel forms of societal production in such fields as daily news: Liberia’s Alfred Sirleaf has for several years used his mobile phone network to distribute his Daily Talk news updates to followers without an Internet connection. If the same could be done for the goods trade—if the boundaries of the web economy would expand to include the ubiquitous mobile phone—artisans could gain direct access to international consumers online and open up a new marketplace of high-quality, handmade goods to a new audience.

Yet this hypothetical situation is already being put into practice by such initiatives as Sasa Africa, an e-commerce platform that connects offline artisans to online consumers using a simple mobile phone, giving small-scale producers and entrepreneurs the tools to participate in international trade through a proprietary mobile technology. Artisans use an SMS-based query system to create personal online storefronts, which can then be accessed directly by global consumers. This revolutionises the traditional top-down supply chain into a flexible peer-to-peer (P2P) exchange. Sasa’s second innovation is facilitated payment and delivery, transferring international credit purchases into mobile money and using product-tracking to assure the consumer of the security of their purchases.

Traditional e-commerce platforms such as eBay and Etsy have operated, at least initially, on the premise that sellers and buyers fit into the same socioeconomic bracket, that real trading could take place between peers (in multiple senses of the world). Interestingly enough, what once was an innovative business model has begun to resemble, more and more, the conventional marketplace, with large-scale vendors that can store and ship huge volumes of stock. Meanwhile, examples like Sasa hew far closer to the original ethos of this commercial mode, leveraging existing communication technology and infrastructure to pioneer a new marketplace. With increasing participation at both ends, such approaches to international trade have enormous potential to evolve the way that money and goods are exchanged, generating significant savings and diverse options for consumers, and removing the barriers to economic opportunities and profits for artisans who previously had limited agency in the matter.

share

Leave a Reply

You must be logged in to post a comment.