• Background

What’s an MSE?

(Note, we shared an earlier version of this post on Medium.)

Apart from agriculture, Micro, Small, and Medium Enterprises (MSMEs) are the greatest source of employment in much of sub-Saharan Africa. Long a focus of interest to the development community1, as digitization transforms the nature of work — from gig economies to international supply chains — the links between MSMEs and information and communication technologies (ICTs) are increasingly important.

We’d like to share the results of an exercise we conducted to help focus our research. It’s basically a 2×2, but in this case we think it’s durable and useful to share.

The first dimension in our table is the size of the firms in question. In our discussions, we found that the definition of MSME was quite broad; accordingly, we distinguish ‘Micro’ from ‘Small and Medium.’ However, there is no hard and fast rule for drawing this line. Some countries define microenterprises as firms with <10 employees, others draw the line at <5 employees. For sub-Saharan Africa, where firm sizes tend to be smaller (and the majority of firms are sole proprietorships), we think the <5 delineation makes more sense.

Firms with fewer than five employees — both sole proprietorships and microenterprises—are the most common type of enterprises. Many are informal, and most struggle to grow. Microfinance rose as a community of practice specifically to address the needs of these tiny businesses. The literature on microenterprises, their use of ICTs, and their challenges is now quite robust.

By contrast, Small and Medium Enterprises(SMEs) are usually formal, registered businesses that pay taxes. These firms also face challenges vis-a-vis financial services, but they are not so much challenges of access as of suitability or affordability — loan terms might be too short, bank fees too high, etc.

The second dimension refers to the nature of the enterprises’ relationships to the digital economy. As Duncombe and Heeks have explained, there’s a key distinction between small firms that benefit from ICTs and small firms that produce ICTs. We see a durable conceptual split between “the broader economy,” which benefits from and is being transformed by digitization, and the subset of firms with “digital DNA”, which are making the products, delivering the services, and writing the code that underpins that digitization.

A related but distinct category of firms are the platforms themselves — the handful of multinational superplatforms as well as a larger set of local and regional electronic marketplaces — that are transforming sectors of the economy in real time. This is what we mean by “the platform era”: platform logic has become central to the ways in which digitization and the internet are changing economies, and this platformization is a major theme for our work in the year ahead. Our typology is more clear if we place platforms in a different section of our framework.

The result is a 2×2 with a modified adjunct for the platforms themselves. As you can see, the research topics that emerge are distinct enough to clarify the most relevant research questions:

  • Box 1 involves the largest number of firms in any economy. Here we are dealing with the struggle of the everyday, how firms—from small restaurants and fix-it shops to retail establishments—might utilize national and global platforms in new ways. Research here would explore how the traditional clients of microfinance institutions are adapting to the platform era. So, in this project, we focus on the ways in which micro-entrepreneurs appropriate social media and the personal Internet to fit their needs, even when the lines between the entrepreneur and their enterprise are blurred.
  • Box 2 is quite different in that in this case some platforms are providing new opportunities for small-scale economic organizations with “digital DNA” to offer products and services in entirely new ways. The best, and perhaps most controversial, example of this might be gig work whereby individual proprietors or small firms utilize the infrastructures of labor platforms to earn livings in the cloud, mediated completely by the platform.
  • Box 3 involves a country’s established, formal SME class. How are these firms adapting to the platform era? Thanks to digitization a host of innovations, from inventory and product management to advertising and financing, can be offered at lower cost and higher value to these firms. How, precisely, are platforms involved with these new offerings?
  • Box 4 involves digital startups: the stuff of businesses coming out of accelerator programs and preparing to take off. Many digital startups write the software or design the new hardware that is customizing the global Internet and other digital technologies for African markets. There’s a great deal of enthusiasm around these businesses, but the research necessary  to understand a digital startup differs from the research needed to understand the motorcycle repair shop down the street. Both are enterprises but, structurally, they occupy very different places, both in terms of their local economies and their international visibility.
  • Box 5 is our floating adjunct to the 2×2, an acknowledgment that the platforms themselves deserve and require significant scrutiny. From Jumia to Sendy to WhatsApp for business, the terrain of platform-related digital services is shifting and expanding. Insight2impact, together with Research ICT Africa have identified over 280 platforms active in sub-Saharan Africa.2

All in all, there’s a lot of work to be done. The point of this post is to sensitize readers to the importance of a bit of specificity regarding terms so that a generalized enthusiasm for platforms and/or MSMEs does not get in the way of refined research questions that can uncover new insights. Our work, in this project, focuses mostly on “Box 1” with a bit of “Box 2” (the side hustle) mixed in.

 

  1. Richard Duncombe and Richard Heeks, “Enterprise across the Digital Divide: Information Systems and Rural Microenterprise in Botswana,” Journal of International Development 14, no. 1 (January 2002): 61–74, https://doi.org/10.1002/jid.869; Donald C. Mead and Carl Liedholm, “The Dynamics of Micro and Small Enterprises in Developing Countries,” World Development 26, no. 1 (January 1, 1998): 61–74, https://doi.org/10.1016/S0305-750X(97)10010-9.

  2. Insight2impact Facility and Research ICT Africa, “African Digital Platforms and the Future of Digital Financial Services,” i2ifacility.org, accessed December 27, 2018, http://i2ifacility.org/insights/articles/african-digital-platforms-and-the-future-of-digital-financial-services.