The Global Platform Economy: A New Offshoring Institution Enabling Emerging-Economy Microproviders

Abstract

Global online platforms match firms with service providers around the world, in services ranging from software development to copywriting and graphic design. Unlike in traditional offshore outsourcing, service providers are predominantly one-person microproviders located in emerging-economy countries not necessarily associated with offshoring and often disadvantaged by negative country images. How do these microproviders survive and thrive? We theorize global platforms through transaction cost economics (TCE), arguing that they are a new technology-enabled offshoring institution that emerges in response to cross-border information asymmetries that hitherto prevented microproviders from participating in offshoring markets. To explain how platforms achieve this, we adapt signaling theory to a TCE-based model and test our hypotheses by analyzing 6 months of transaction records from a leading platform. To help interpret the results and generalize them beyond a single platform, we introduce supplementary data from 107 face-to-face interviews with microproviders in Southeast Asia and Sub-Saharan Africa. Individuals choose microprovidership when it provides a better return on their skills and labor than employment at a local (offshoring) firm. The platform acts as a signaling environment that allows microproviders to inform foreign clients of their quality, with platform-generated signals being the most informative signaling type. Platform signaling disproportionately benefits emerging-economy providers, allowing them to partly overcome the effects of negative country images and thus diminishing the importance of home country institutions. Global platforms in other factor and product markets likely promote cross-border microbusiness through similar mechanisms.

ICTs and the Urban-Rural Divide: Can Online Labour Platforms Bridge the Gap?

“…We argue that this is because online labour platforms have started to provide formal and informal cooperation enforcement mechanisms that extend over distance. Although ICT-mediated reputation systems and remote monitoring bring their own problems (Agrawal et al, 2016;Lehdonvirta et al, 2018;Wood et al, 2018b), they enable work to be contracted and delivered across distance. Accordingly, the rural Americans in our sample used the platform to obtain work online.…”

“…Besides allowing parties to find each other and communicate, online labour platforms provide diverse mechanisms for enforcing cooperation, most notably reputation, escrow, remote monitoring, and online dispute resolution systems (Pallais, 2014;Pallais and Sands, 2016;Pelletier and Thomas, 2018;Wood, Graham, Lehdonvirta, and Hjorth, 2018a). Both workers and employers can perform 'due diligence' checks on each other based on platform-verified and platform-generated signals that are not merely a 'cheap talk' (Lehdonvirta, Kässi, Hjorth, Barnard, and Graham, 2018). Many users also use associated online forums and networks to exchange information about bad actors and to promulgate informal norms of good conduct (Lehdonvirta, 2016;Shevchuk and Strebkov, 2018;Wood, Lehdonvirta, and Graham, 2018b).…”

“…Many users also use associated online forums and networks to exchange information about bad actors and to promulgate informal norms of good conduct (Lehdonvirta, 2016;Shevchuk and Strebkov, 2018;Wood, Lehdonvirta, and Graham, 2018b). Although these new ICT-mediated systems of control are by no means perfect (Agrawal, Lacetera, and Lyons, 2016;Lehdonvirta et al, 2018), they seem good enough to enable users to hire and find work across vast geographic distances.…”

“…Details in(Lehdonvirta et al, 2018). 2 https://www.census.gov/geo/maps-data/data/cbf/cbf_description.html…”

Do digital skill certificates help new workers enter the market?

“…show that platform-generated information on work experience has a greater effect on earnings than employer feedback ratings and skill certificates, and that freelancers from lower-income countries benefit from all these signals more. Lehdonvirta et al (2018) show that platform-generated information on work experience has a greater effect on earnings than employer feedback ratings and skill certificates, and that freelancers from lower-income countries benefit from all these signals more. This suggests that employers initially have more difficulty evaluating the quality of freelancers from developing countries compared to developed countries.…”