Global Innovation in the Digital Age: The Case of the Mobile Money Industry
Global Innovation in the Digital Age: The Case of the Mobile Money Industry
In Brief In the digital age, startups in developing countries have a surprising ability to bring innovation to other nations.
Why This Matters Many investors and policymakers still assume that multinationals and startups in developed countries are the primary drivers of global innovation.
The Takeaway Now that innovation no longer requires a lot of capital, small firms can play a much bigger role in fostering innovation around the world.
In Depth
Ever since Adam Smith penned The Wealth of Nations in 1776, most industry evolution scholars have maintained that large firms are the primary drivers of innovation. After all, the big guys benefit from numerous advantages such as economies of scale, whereby they can produce goods much more cheaply and efficiently than the little guys. But in the digital age, this received wisdom may no longer apply. “In the heyday of the auto companies, firms needed a ton of capital to be a pioneer, but with today’s new industries, the situation is a lot different,” says Audra Wormald, a doctoral candidate in the Department of Management and Organization at the University of Maryland.
To learn more about how innovation is spreading across the globe in the 21st century, Wormald decided to write her dissertation on the mobile money industry, which enables individuals to deposit, send or withdraw funds through a smart phone. And based on her dissertation research, Wormald—with support from her faculty advisors—has recently authored a 50-page empirical paper, “David Overshadows Goliath: Specializing in Generality for Internationalization in the Global Money Industry,” which is now under review with a leading management journal.
To design her study, Wormald created a unique database out of multiple sources that captures the population of mobile money firms and the platforms they launched from 1997 to 2017. She divides the pioneering firms into three categories—multinationals (which she calls “Goliaths”), developed country startups (“David 1s”) and developing country startups (“David 2s”). In her statistical analysis, she examined the degree to which these pioneers “internationalized”—that is, brought their innovation to other countries. Her key finding is that of the three groups, David 2s have been the most successful. For example, in 2017, of the 91 countries where there was mobile money, 56% had David 2s, whereas 26% had Goliaths and only 11% had David 1s.
Wormald traces the surprising power of David 2s to spread innovation to their unique ability to tailor their platforms to the particular needs of other countries through alliances with large, established firms. These partner firms were able to provide the critical help needed to bring mobile money platforms to new markets, while David 2s could focus on creating and deploying customizable technology for each partner.
In contrast, David 1s pursued a go-it-alone strategy, which proved to be difficult and often unsuccessful, given the resource constraints these smaller firms faced.
The Goliaths saw mobile money platforms largely as a way to add customers to their own mobile networks. And while they had enormous resources and sometimes partnered with David 2s, Goliaths chose to launch mobile money platforms only in the countries in which they already had operations as telecommunication providers. “In the early stages of an industry, there is a lot of uncertainty about what to do,” says Wormald. “The multinationals were actually self-limiting by only going to countries where they already had businesses. But developing country startups, in contrast, saw the whole world as open to them, and they were able to figure out what works best.”
To flesh out her argument, Wormald introduces a few case studies. She discusses the experience of Vodafone as her illustrative Goliath. In 2007, this United Kingdom-based multinational launched M-PESA, its first mobile money platform, in Kenya. For assistance with technology development, Vodafone enlisted the help of another U.K.-based firm, Sagentia. The Kenya launch was highly successful, and Vodafone went on to launch the M-PESA platform in several other countries where Vodafone already had a presence.
Obopay, which was founded in 2005 in the United States, exemplifies David 1s. Obopay ended up gaining little traction in either the United States or in three other countries—India, Kenya and Senegal—where it was launched between 2008 and 2010. During the pre-smartphone era, Obopay found that since potential customers in the Unites States already had easy access to banks and credit cards, they were not interested in the product. Then Obopay lost a major investor and was unable to continue operations as a mobile money platform in any country due to a lack of funding. While the name has been retained, Obopay today no longer offers any services to consumers, but instead focuses exclusively on providing technology assistance to companies.
The business history of Fundamo, a South African company founded in 2000, shows how David 2s can emerge to become multinationals in their own right. From the get-go, the firm focused on low-income people. After a successful launch in Zambia in 2002, Fundamo soon moved into Democratic Republic of Congo, South Africa and Pakistan. In each case, Fundamo collaborated with a different partner that helped the firm navigate particular regulatory and technological challenges. By 2011, when Fundamo was acquired by Visa for $110 million, the firm had deployed 50 platforms in 40 countries.
Dig Deeper:
https://www.vodafone.com/what-we-do/services/m-pesa/m-pesa-faqs
https://www.americanbanker.com/news/obopay-plans-to-shift-its-focus-to-bank-transfer-segment
