Why do micro, small and medium enterprises (MSMEs) struggle with using digital marketplaces such as Amazon or Facebook for their operations? How can we make digital marketplaces more advantageous for smaller players? In this blogpost, I reflect on some of the key findings of a study that I conducted titled “Beyond platform integration – Unpacking the true promise of digital inclusion for MSMEs in India”. This was part of a multi-country project on MSMEs and digital integration in the Global South, led by IT for Change.
Key Findings
- Digital integration is becoming interchangeable with Bigtech dependency. Bigtech platforms such as Amazon, YouTube, and Meta were found to be functioning as essential infrastructures for accessing new markets and scaling up businesses. The fear of obsolescence coupled with the need for discoverability, and the sheer lack of alternate market access pathways meant that MSMEs had no option but to be present on these platforms, often at considerable cost and effort, with little concrete gains in sight.
- Bigtech platforms are less likely to address structural precarities of micro-enterprises. A majority of the MSMEs in India tend to be informal in nature, struggling with access to capital / credit, physical infrastructure, ability to maintain high inventory, etc. Bigtech platforms on the other hand, by enforcing a set of standards across the supply chain, veer towards privileging size and scale, thus rendering themselves unfavourable for the smaller players who cannot always keep up with these standards. MSMEs, for example, reported not being able afford the “packaging” that Amazon mandated, or not having access to an Amazon warehouse because they were located in a remote geography that the platform did not service.
- Platform algorithms entrench power asymmetries. Algorithms of platforms such as Instagram tend to be opaque and mystified the selling processes – most MSMEs were left “guessing” about the potential actions that could boost their presence, and subsequently, economic returns. Further, many could not afford to “pay” their way to visibility, and for those who had the financial prowess, there was never any guarantee of visibility. With advertising revenues being the key business driver of Bigtech platforms, only large firms with deep pockets stood a chance of being “seen” by the algorithm, with most of the smaller players being pushed to a virtual bottom shelf that was rarely visible to the customer.
- Key levers of institutional support continue to be missing. MSMEs reported a mixed outlook on the extent to which the current policy landscape supported their efforts towards digital integration. Lack of access to credit, bureaucratic bottlenecks such as lengthy approval times for loans, lack of capacity to register for and manage the tax compliance required for digital integration, inadequate support for licensing, certification and other avenues for economic upgrade, emerged as some of the key barriers to digital integration.
The e-commerce that we need: What needs to change?
Broadly speaking, the findings point to a picture of institutional and structural deficits going hand in hand with the dominance of a few large digital platforms that have monopolised key levers of the e-commerce ecosystem. It appears that even as some value propositions are realized through digital integration (increased discoverability and visibility, new efficiencies, expansion of customer base), these come at the cost of significant resources and investments, many of which are not always feasible for MSMEs to make. Moreover, the monopolisation of the e-commerce landscape by Bigtech also has implications for fair market regimes, given that platforms such as Amazon have used data from the sellers on their platform to build their own product lines, and steered algorithms towards these products during customer searches. These practices have been recognised as anti-competitive and are directly antithetical to values of public good. All in all, in the current scenario, the net positive to digital integration remains questionable from the perspective of MSMEs.
In order to make the digital marketplace a level playing field, we need a combined approach of steering economic policy and digital regulation, as well as investing in public institutional infrastructures and alternate marketplaces. Towards this, four key focus areas are proposed:
- Strong platform regulation to break monopoly market power and anti-competitive regimes. Regulating the monopolistic power of Bigtech is of utmost priority. This includes but is not limited to banning anti-competitive conduct such as self-preferencing and developing competing products, as well as mandatory provisions on algorithmic disclosures.
- Digital trade regulation that protects national sovereignty and domestic policy space. Trade regimes continue to be a key battleground for e-commerce. The ongoing push for free trade regimes in the World Trade Organisation, for example, includes a ban on algorithmic source code disclosures, and also mandates doing away with domestic preferential procurement policies, both of which are key economic support tools for MSMEs. Developing countries need to come together and push for alternate trade provisions that protect their sovereignty and ability to implement public interest regulation.
- Investments in public e-commerce pathways. Provisioning upstream (warehouse access, procurement, logistics, and transport support) as well as downstream (product cataloguing, payment integrations) support at subsidized rates is important for MSMEs. Open Network for Digital Commerce (ONDC) is an important initiative from the Government of India to move e-commerce away from a platform-centric monolithic model to an interoperable decentralized network, which connects buyers, suppliers, payment, and logistics providers through open-source specifications and protocols. The promise of ONDC to truly democratise e-commerce for smaller players needs to be crucially monitored in the years to come.
- Support for alternate platform models rooted in solidarity and co-operative logics. Meso-level organisations such as farmer producer groups, worker unions and co-operatives can be catalysed to set up marketplaces that are MSME centric. This can be done through the provision of an enabling ecosystem that allows these organisations to access seed funding, as well as infrastructural, technical, and capacity-building support.
Concluding remarks
As it currently stands, the core promise of digital integration is being reduced to Bigtech led e-commerce. For MSMEs, this creates the classic conundrum of “opt in or be left out”, leading to a sub-optimal holding pattern that is difficult to break out of. Evidently, there is a real danger in conflating the ad-driven, algorithmified marketplaces of Bigtech as market access pathways for MSMEs – given that these are designed to consolidate marketplace power and profits, that too in unethical and anti-competitive ways. Ultimately these practices need to be countered by strong digital regulation that secures a fair marketplace and rights of all players, economic tools that allow developing countries to shape public interest policies, and investments in public innovation infrastructure across the e-commerce value chain.
The article was originally published on ICT's for Development