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A typology of mobile uses among small and informal businesses

Submitted to the Pre-Conference on Mobile Communication at the Annual Meeting of the


International Communication Association, Montreal, Canada

Extended Abstract – Rough/Working Draft


version 1.0 -- 20 May 2008
Please check www.jonathandonner.com/jdonner_microstypology.pdf for updates,
or contact author before citing

Jonathan Donner
Microsoft Research India
jdonner@microsoft.com

Abstract/Summary

Small and informal businesses in the developing world are rapidly adopting mobile
telephony; many have access to mediated communication technologies for the first time. There is
a great deal of enthusiasm in the popular press and in the development literature about how this
adoption can/will lead to increased productivity or revenue for these small businesses. In
addition, in the past few years, a number of academic studies have begun to explore the uses of
mobile telephony among small and informal businesses.
This paper is a step back, primarily a meta-analysis, of the studies released to date. It
proposes that reliance on the basic terms ―mobile phone use‖ and ―small and informal business‖
hides the actual processes by which individual enterprises take advantage of particular functions
of mobile telephony.
The paper‘s core synthesis is a matrix, proposing a set of enterprise types (trade,
manufacturing/production, fixed retail and services, roaming retail and services, and transport)
crossed by common business processes. Studies from the academic and development literature
populate the cells in the matrix. The pattern of current evidence suggests that within the small and
informal business (MSE) sector, benefits of mobile use accrue mostly (but not exclusively) to
existing enterprises, in ways which amplify and accelerate material and informational flows,
rather than fundamentally transforming them. Further, it seems that most of the benefits
associated with mobile use by this population center on communication at a distance (shared with
landlines) rather than individual addressability or ‗perpetual contact‘ (unique to mobile and
wireless devices).

© 2008 Jonathan Donner Working Draft, Extended Abstract 1


The paper suggests future quantitative work to assess the relative size of the cells and the
robustness of the model.

Background

1. Prestigious mainstream sources carry stories about how mobiles will close the digital divide
or enable economic growth, and use the successful microenterprise as an anchor theme.
(Economist, 2005a, 2005b; Ewing, 2007; Hancock, 2005; LaFraniere, 2005). The theme is
also common in the applied ‗economic development‘ literature, widely read by practitioners
and policymakers in the field (Ulfelder, 2002; USAID, 2004).

2. These stories exist because the examples are just so striking. Whether in the heart of a capital
city or deep in the bush, reporters, researchers, and policymakers are sure to come across
examples of small and informal businesses, energized by mobile telephony. ‗The math‖ –
makes it so: across most of the developing world, the majority of businesses have less than 10
employeesi. Of the over 3 billion mobile subscriptions on the globe, 58% are in the
developing world (UNCTAD, 2008). Once the urban elites and professional classes acquired
phones, small and informal businesspeople were virtually next in line on the adoption curve,
and have acquired mobiles for a combination of business and personal motivations (Donner,
2006)

3. Yet at this stage, there is a risk of taking the ‗benefits‘ of the mobile to this population at face
value. As evidence from the research community mounts—as a set of studies have emerged
which look specifically at the phenomenon of mobile use among Micro Enterprises—it is
worth stepping back and examining the process ease by which mobile phones actually are
employed by these businesses. To do so, we can look to the existing economic development
literature for an understanding of the variety of firms and process ease associated with the
small and informal business segment. And, we can look to the emerging literature on the
social and economic uses of mobile telephone to distinguish between various uses of the
mobile itself. The natural result of crossing of these two gradations is a matrix, populated
with studies conducted to date, which suggests that not all firms use the same elements of
mobiles, in order they do so to the same degree, or to the same ends.

Small and informal firms

4. The definitions for small and informal firms vary from country to country. Most definitions
comprise firms with less than five or ten employees. A common term is micro-enterprise.
Some include small scale agriculture, others do not. In most cases, small and informal firms
are differentiated from more dynamic productive small enterprises in the ―small and medium
enterprise‖ space. Sometimes, Micro Enterprises and SNA use are spoken about in the same
breath as the MSE sector (micro and small enterprises). Formality is the other distinction -

© 2008 Jonathan Donner Working Draft, Extended Abstract 2


there's no clear-cut line between what makes a firm informal vs. formal. Some have
proposed an index of various activities (ownership structure, tax registration, employee
contracts, separation of funds between personal and business, and the keeping of financial
records) all of which can help distinguish informal firms from formal. Informal sector as a
proportion of overall employment varies from country to country, but can be as high as 70%
in some urban areas in cities in the developing world. (ILO). 69% of urban households
earning less than $2 day engage in some form of ‗petty entrepreneurialism‘ (Banerjee &
Duflo, 2006). For overview, see (Mead & Leidholm, 1998; Mead & Morrison, 1998). The
term enterprise, and particularly the term entrepreneur, maybe a bit of a misnomer; if we can
distinguish firms by domain and by legal status, so to can we distinguish between a small
minority of dynamic firms, poised for growth, and a much broader set of ‗trundlers‘ or
survivalists, who struggle to survive, and yield a low return on labor and capital. (Duncombe
& Heeks, 2001)

5. As with any enterprise, purveyors of small and informal enterprises combine a set of
investments in capital and materials with some labor, often just their own, but sometimes
joined by their family, or employees, hopefully to yield a product or service that exceeds the
cost of those inputs, and turn to profit, the higher the relative profit, the higher the
productivity of the enterprise, and the more successful we can argue it is. Needless to say,
there has always been a thread in the ICT for development literature which seeks to
understand how various information and communication technologies could be applied by
small firms in ways which enhance their productivity. A lengthy quote from Duncombe and
Heeks is the best summary of what we knew, prior to the widespread introduction of the
mobile into the developing world:

Phones are the information-related technology that has done the most to reduce costs,
increase income and reduce uncertainty and risk. Phones support the current reality of
informal information systems, they can help extend social and business networks, and
they clearly substitute for journeys and, in some cases, for brokers, traders and other
business intermediaries. They therefore work ―with the grain‖ of informality yet at the
same time help to eat into the problems of insularity that can run alongside. Phones also
meet the priority information needs of this group of communication rather than
processing of information‖

6. The quotation is excellent. It zeroes in directly on the essentials of running a business


productively (reducing costs or increasing income, plus managing risk), and links them to
core functions of mediated communication technologies, particularly around substituting for
journeys. The magic is ―productivity‖, and in the subsequent analysis we will want to focus
on that.

© 2008 Jonathan Donner Working Draft, Extended Abstract 3


Recent studies on mobiles and small enterprises

7. Since 2001, a few studies have emerged which directly address how mobile phones, rather
than basic landlines, are used by small enterprises. The studies are not as numerous as the
enthusiasm from the popular literature might suggest. They are a tiny fraction of the toll toll
literature on mobile phones in the developing world, let alone mobile phone usage
worldwide. They have a merge from different disciplines, and, having emerged basically
simultaneously with each other, often do not cite each other. Thus the opportunity exists to
put the studies side by side, to arrived at a meta-analytical understanding of ‗what we know‘,
to date. Elevenii of the more prominent studies are detailed below.

8. One study which has been particularly well received and broadly cited is by Robert Jensen
(Jensen, 2007). Working with five year time series data at three fish markets in coastal
Carolina, India, Jensen and his team found that ―the adoption of mobile phones by fishermen
and wholesalers was associated with a dramatic reduction in price dispersion, the complete
elimination of waste, and near-perfect adherence to the Law of One Price. Both consumer and
producer welfare increased.‖ fishermen were found to have a list of up to 100 buyers stored
on their phones; while they were still at sea, they would be calling a whole range of possible
landing points and buyers, trying to ascertain the best price and best place to land their catch.
(p. 879)

9. Another study with similar methodological and theoretical perspectives comes from (Aker,
2008). She interviewed 395 grain traders in Niger (with an avg. 3.9 employees, some
banked), describing how they use mobiles to get prices, travel long distances 5-800km, and
exploit price differences. She describes how in Niger, ―grain traders operating in markets
with cell phone coverage search over a greater number of markets, have more contacts and
sell in more markets. This underscores the fact that the primary mechanism by which cell
phones affect market efficiency us a reduction in search costs and hence transaction costs‖
(p10-11).iii In her study, mobiles lowered price dispersion by 21% (p. 20), and were more
effective as more cities got coverage and phones become more likely to be useful. Mobiles
increased trader profits (not volume per se) by 29% or $182 (p 40). And, not paradoxically,
reduced food prices in areas with cell phone coverage – enough to buy 8 days of adult
servings of millet (grain).

10. In both the Jensen and Aker studies, the assumption implicit in the economic model is that the
trader or producer sequences search and travel; that by staying put and using the phone
instead of a physical journey to ascertain a better price, and then and only then electing to
move goods towards the buyer offering that price, the actor has reduced the cost of search and
improved the overall productivity of his endeavour. By contrast, Overa‘s (Overå, 2006)
Interviews with 100 traders (of various commodities including yams and onions) in Ghana
focus on traders' as middlemen, working both supply contacts and buyer contacts in order to

© 2008 Jonathan Donner Working Draft, Extended Abstract 4


secure the best product, and the right amount of it, as well as to find the right prices. She
found that after the mobile‘s introduction, onion wholesalers could maintain a broader
network of growers, coordinating growing timing, moving to market. On the customer time,
she portrays ―Availability as comparative advantage‖, and argues that this availability and
more frequent interaction can help build trust between supplier and customer more quickly.
Note it does not replace trust, but does accelerate the trust building process.

11. (Molony, 2006), too, looks at the role of trust, vis-à-vis mediated communication. His
ethnographies draw on three small enterprise communities, foodstuffs wholesalers, black
wood carvers (artisans for the export market) and day-laborers in the construction industry.
In the case of the traders and the artisans, in particular, mobiles were used two coordinate
transactions from afar, or to maintain a sense of camaraderie or trust between a vendor and a
foreign buyer. But these mediated linkages could not create that trust, and could not create a
transactional relationship. Rather than radically restructuring these marketplaces, ―mobile
phones can be seen as a facilitating technology for existing, trust-based relationships‖ (p. 78)

12. (Jagun, Heeks, & Whalley, 2007) Also explore market structure, examining the mobile‘s role
in mediating supply chains in a market for traditional hand-woven ceremonial cloth in
Nigeria. Like Overa, they find a ―process‖ benefit to mobile use, as calls at a distance can
reduce the time of trades and replace costly journeys. They also find a structural impact, but
this impact is not the disintermediation of traders, but rather an intensification of their role.
The traders were far more likely to have mobiles than the less prosperous weavers in the
supply chain, and were thus better position to you coordinate with a wider range of
‗downstream‘ customers and to maintain a more dynamic and responsive set of relationships
with weavers. (for example, weaver's who would previously have to pay cash to get their
supplies, could count on a telephone call from a traitor two of the fabric vendor, who would
assure the vendor of the veracity of the order, and cover the cost of the fabric on credit before
the work was finished.

13. Like Jagun, Souter (Souter et al., 2005) Find little evidence for a radical restructuring of
supply chains thanks to mobiles. Their studies are mostly of rural telephone use in India,
Mozambique and Tanzania, and thus mix landline telephone booths with informal mobile
payphones, with private mobile telephone ownership. Nevertheless, the household surveys
are extensive and zero in directly on the question of livelihoods. By speaking to households
and individuals, rather than micro entrepreneurs per se, a broader picture of what mobiles are
used for emerges. The key uses four telephones in rural areas where emergencies and social
networking. Saving time (by substituting for non-livelihood related travel) was behind those
two, making money was rated lowest. ―There is little evidence in the survey data that
telephony has helped respondents increase their financial capital, whether through improves
access to financial services or through more efficient and profitable businesses operations.
…even among those who have invested in acquiring a telephone, only around one in three

© 2008 Jonathan Donner Working Draft, Extended Abstract 5


feels that it has benefited her/his financial activities.‖ (p 121) A subset of respondents,
primarily prosperous ones, were making use of the mobile for livelihoods, ―However, the
telephone is an important business tool for a minority of respondents who make more
intensive use of it. This is seen clearly in the India study, for example, where the impact on
better market process is not considered important by the sample as a whole but is highly
valued by intensive users‖ (p 122).

14. Echoes of Souter‘s findings, which do not reveal a broad-based improvement in livelihoods
associated with the adoption of phones, are found in Host and Miller‘s work in Jamaica. In an
explicit response to the kind of enthusiastic mainstream literature mentioned above, miller
(Miller, 2006) argues that ―there is no new spirit of enterprise based on the phone‖ (p 43)
With exceptions of imagined success in getting music gigs and real success in starting taxi
services a business ―so integrally linked to the phone as to form a vital part of what we would
call their communicative ecology‖. (p 43) ―the vast majority of low income individuals…did
not use the phone for entrepreneurial activities, unless these were already in place prior to the
spread of the phone. Similarly the phone was not important in obtaining employment‖ (p 43).
Nevertheless, the mobile is at the heart of economic survival for households in Jamaica, by
allowing individuals to better leverage broad interlocking networks of informal social and
financial support ―the phone is not much used for making money, but is vital for getting
money‖ (p 44).

15. Other studies rely on survey/self-report, broad populations of microenterprises. (Opiyo &
K'Akumu, 2006) explore ICTSs in informal market in Nairobi. Informal MSE businesses
including ―trader shops, eating places, leather dealer shops, curio sellers, tailoring, car
washing, automotive garages, honey sellers and readymade clothing sellers, Africans sandals
dealers, cobblers, plastic container dealers, among others‖ top answers for ICTS (which in
terms of ownership 88% of the 230% who owned an ICT owned a mobile) were: 1) get orders
from outside the local market cluster 35%, 2 ) save time and transport 25% and 3) be
reachable past working time 9% and 4) monitor work at a distance 9% 5) useful in sealing
business deals 6%. (P 254)

16. (Samuel, Shah, & Hadingham, 2005). Surveys small businesses in Cairo and rural and urban
South Africa…and show different rationale for use. In Egypt, the top-two unprompted
responses were faster communication, and increased efficiency. Top-two in South Africa
were being available to clients all the time, and reduced travelling time. Unlike Miller and
Souter, they saw evidence of new businesses originated due to the mobile, 29% of RSA and
26 % of Egypt businesses listed availability of mobiles in starting business; 59% Egypt and
62% in RSA says mobiles increase profits. They conclude: ―Mobiles have reduced travel
needs, assisted job hunting and provided better access to businesses information‖ (p 52).

17. A much broader survey of SMEs, including 1/3 tiny microenterprises, was conduced by
(Esselaar, Stork, Ndiwalana, & Deen-Swarra, 2007), across 13 countries and 3600

© 2008 Jonathan Donner Working Draft, Extended Abstract 6


respondents. ―Mobile phones are used more often for keeping in contact with customers and
clients‖ (p 92). Despite this statement, the paper does not differentiate between the
productivity impacts of mobiles versus those of other ICTs such as fax machines or PCs.
Rather, their general assertion is that p98 ICTs ―play a role in reducing transaction costs
(thereby increasing efficiency) and increasing market access‖ (p 98). They are generally
enthusiastic about the further adoption of mobiles by small enterprises, but note that mobiles
―cannot be used to track inventory, provide cash flow and income statements, or even more
basically, produce formal letters, marketing campaigns, or brochures‖ (p 99). They
recommend application development here, as well as policy interventions to reduce the cost
so mobile ownership and use.

18. Last survey - (Donner, 2006) explores shift from early adaptors (for business) to personal
uses…even among microenterprises in Kigali, Rwanda. Descriptive results of call-log
analysis suggest that even microentrepreneurs use phones more for personal uses than for
business uses (only 30% of the calls by mobile-only owners were with customers, clients,
employers or business partners). He finds some evidence for higher proportion of new
customers among those who own only a mobile vs. a mobile and a landline, and suggests that
this is one way to see that mobiles amplify social relationships while enabling new business
relationships.iv

19. (Donner, 2004) employs a different methodology, Q-sorts, which are designed to capture
different perspectives (voices) among respondents. With 31 small business owners, ―The
exercise identified four distinct perspectives on mobile use…One perspective sees the mobile
as an instrument for the pursuit of business goals. A second uses the mobile to satisfy
emotional or intrinsic needs. Two others mix instrumental and intrinsic elements, seeing
mobiles as productivity enhancers, or as simply indispensable.‖ (p.1)

Synthesis

20. Across these 11 studies, distinct business processes emerge as impacted by mobile use. (1)
Serve existing customers, (2) Get price information (3) Coordinate with partners (4) Find new
customers (5) Cut out middlemen (6) Start new businesses. The data table (matrix)
underlying these processes is below:

© 2008 Jonathan Donner Working Draft, Extended Abstract 7


‘Impact’

Customers

Middlemen
Price info.
Author Title Pop.

New Cust
Coord. w/
Partners
Existing

New Biz
Aker ’08 The impact of cell phones on grain markets in Niger Grain Traders Y
Information (Technology), Market Performance, and
Jensen ’07 Fishermen Y
Welfare in the South Indian Fisheries Sector
Opyo & K’Akumu The Case of the Kariokor Market MSE Cluster in
Various Y
’06 Nairobi
Africa, Tanzania, and Egypt: Results from Community
Samuel et. al ‘05 Various Y Y Y
and Business Surveys
Esselaar et. al ’07 ICT usage and its impact on profitability of SMEs Various Y Y
Trust and Information and Communication Day Workers,
Molony ’06 Y Y
Technologies in Tanzanian MSEs Artisans, Prod.
The Impact of Unequal Access to Telephones: Case Weavers,
Jagun et. al ’07 Y Y N
study of a Nigerian Fabric Weaving Micro-Enterprise Wholesalers
Networks, distance, and trust: Telecom Development Traders (Yam,
Overa ’06 Y Y Y
and changing trading practices in Ghana Onion)
The use of mobile phones by microentrepreneurs in,
Donner ’06 Various Y Y
Rwanda: Changes to social and business networks
Miller ’06 The unpredictable mobile phone. Households N
The economic impact of telecommunications on rural
Souter et. al ’05 Households N N
livelihoods and poverty reduction

21. Note the red ―N‖s are active arguments against a role/impact, as opposed to simply non-
mention of that possible role.

22. Note also the stronger cluster of evidence for functions which amplify the current business
processes and structure (work with existing customers, strengthen relationship with trusted
partners, get price information) than to transform them (new customers, bypass middlemen,
start new business).

23. When compressed, we see this matrix: with heterogeneity intact. Traders clearly benefit from
price information, producers can do so as well, if they can act on that information (Fishermen
in Jensen‘s study are different than the weaver Jagun speaks to). We do not have evidence in
all the cells, more work is necessary.

Table 2: Matrix of business functions impacted by mobile telephony

© 2008 Jonathan Donner Working Draft, Extended Abstract 8


Serve Get Price Coordinate Acquire Bypass Start new
existing information with new middlemen businesses
customers trusted customers
partners

Traders Evidence Evidence Evidence

Producers Evidence Partial Evidence

Fixed- Evidence Partial Partial


location
retail and
services

Roaming
retail and
services

Transport Evidence

24. A second table illustrates how the benefits associated with mediated communication vs.
mobiles in particular are distributed across all the possible business functions. This is the
source of much of the lack of conceptual clarity in the literature and the possible discussion
about the use of mobiles by microenterprises,

Table 3: Matrix of business functions impacted by mobile telephony

Serve Get Price Coordinate Acquire Bypass Start new


existing information with new middlemen businesses
customers trusted customers
partners

Connectivity Evidence Evidence Evidence possible

Individual Evidence Partial Evidence Transport


Addressability (fishermen)

© 2008 Jonathan Donner Working Draft, Extended Abstract 9


Discussion: Theoretical implications

25. In this case, the statement that ―mobile calls substitute for journeys‖ is clearly true….yet not
sufficiently descriptive.

26. Studies have documented the important ways mobiles can enable information search and B2C
and B2B communication (service and responsiveness)…yet there is little evidence of
computation needs. Voice remains the ―killer ap‖, and is used in ways which augment, rather
than replace, face-to-face ties.

27. The economic/price stories yield perhaps the most compelling data to date. But
Generalizability remains a concern. Jenson, for example, says that his model works best for
perishable commodities like fish

28. The mobile is not a single artifact; in-depth theoretical discussions of its ‗impact‘, ‗role‘ or
‗utility‘ must be carefully explicated. (This is true not just for small enterprises, but for
studies of almost any application of ‗the device‘ by communities. So, too, must ―impact‖ be
carefully described. Contrast primary effects with spillover effects and second-order effects.
Jenson sees big fishermen got phones first, but spillover effects to smaller fishermen due to
better market functions. Also impacts on users (price/profit) vs. community (lower prices in
village for foodstuffs = welfare).

29. Current evidence suggests that within the small and informal business (MSE) sector,
benefits of mobile use accrue mostly (but not exclusively) to existing enterprises, in ways
which amplify and accelerate material and informational flows, rather than fundamentally
transforming them. This general conclusion echoes early assertions by Harper (Harper,
2003), and, more deeply, Castells (Castells, 1996; Castells, Qiu, Fernández-Ardèvol, & Sey,
2007). It does not negate or diminish the positive impact and utility of mobiles to small and
informal enterprises, but it places their utility in context—the actions of traders and retailers,
of plumbers and fishermen, vis-à-vis their new mobile phones, can been seen as an extension
of the information society, not its restructuring (Donner, 2008).

30. The review illustrates how not all firms benefit equally from mobiles. Jagun on unequal
access – not all users in the supply chain, nor peers in a community, will have a mobile.
―Comparative advantage of availability‖ as per Olvera. Again worth further review.

© 2008 Jonathan Donner Working Draft, Extended Abstract 10


Implications for Research

31. Conclusions we draw about mobile use by microenterprises have depended on sub-population
and method selected: q sorts find variety of perspectives. Ethnographies of users find
interrelationship, economic time-series analyses find price effects. When you look at 400+ of
the same kind of firm, you see clear effects. When you look at a range of firms,
generalization becomes harder – firms themselves start telling you different reasons why they
purchase phones.

32. Relatively few small enterprises leverage the technology‘s mobility functions, yet these were
the early adopters and made good case studies (fishermen, taxi drivers, roaming traders).
Mobiles continue to be used as landline replacements, rather than as complements to
landlines (Hamilton, 2003).

33. Look back to the existing ICTD literature on landlines.

34. Mathematical apportionment of ‗impact‘ across the MSE sector is possible, but will depend
on distribution of kinds of firms in each region. Might help inform policy and rhetoric around
mobiles and development. e.g., Jensen‘s primary vs. community welfare, Jagun on ‗unequal
access‘.

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com-alliance.org/newsletter/print_article.php?article_id=36

i
Check ILO for details http://www-ilo-
mirror.cornell.edu/public/english/employment/strat/kilm/noframes/ind_9.htm
ii
Add Abraham (Abraham, 2006), possibly others
iii
A two-minute call to a market 65km away cost US$1, as opposed to $2 for roundtrip travel. (plus 2-4 hrs
opportunity cost time) Bigger wholesalers got phones first, followed by smaller retailers.
iv
Given the close reading of Overa, Jagun and Molony for this paper, becomes clear that the research
design was calibrated to find these new relationships but was not calibrated to find the amplification of
existing business relationships. Later drafts of this paper may re-visit this amplification data

© 2008 Jonathan Donner Working Draft, Extended Abstract 13

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