Oxford's Internet Institute's research paper The Global Platform Economy: A New Offshoring Institution Enabling Emerging- Economy Micro-Providers covers how online platforms are creating an alternative to traditional outsourcing. Key quote from the paper:
In recent years, a new offshoring mode appears to have emerged alongside these two established modes: one-person micro-providers that serve clients around the world in transactions conducted via online platforms.
The paper describes 3 key drivers of this trend:
Platformization is the growing use of online labor platforms such as Upwork, Fiverr, etc. that connect labor supply and demand across the Internet connected world.
The demand, generally speaking, comes from the developed world while the supply is generally located in established offshoring destinations as well as in emerging economy countries not previously associated with offshoring.
Glocalization refers to the integration of local differences in the cost and availability of skills to a standardized global structure that enables their use. This is also referred to as geoarbitrage, which is tapping into lower cost labor from lower cost countries.
The Oxford paper, for example, reports that a graphic designer in the Philippines earns an average of $8.47 per hour, while a graphic designer from the United States earns an average of $19.53 per hour.
The Oxford paper argues this wage differential helps those in developing countries. Others say the wage differential hurts workers in developed countries. From our point of view, both points of view are correct. But we don't yet know the full net impact of this form of outsourcing and more research needs to be done on this topic.
Individualization, which the paper describes as "the puzzling elimination of returns to scale, resulting in a supplier base that consists of one-person micro-providers."
While we agree that returns to scale have been reduced and in many cases eliminated, we don't find this puzzling.
As we pointed out in the 2008 Intuit report The New Artisan Economy, a combination of new technologies and business models mean returns to scale are no longer the key to success in many industries. Key quote:
… by the beginning of the 21st century, ownership of large-scale infrastructures no longer determined business success in a growing number of industries. Brick and mortar and heavy iron gave way to speed, flexibility and innovation. New technologies, collaborative supply chains and outsourced manufacturing created lightweight infrastructures – smaller, cheaper and more agile.
The paper focuses on the use of freelancers and micro firms in the developing world by businesses from developed countries.
But U.S. based freelancers and independent workers are also working for firms outside the U.S. in greater numbers. As the chart below from the 2018 MBO Partners State of Independence study shows, about 1 in 5 U.S. independent workers report having clients outside of the U.S.
The paper closes with the important point that platforms are not just enabling freelancers who provide labor, but also apply to product businesses:
Although in this study we focused on labor platforms, our theory of global platforms as institutions is likely to be equally applicable to other factor and product markets, where platforms will have similar implications. For instance, Alibaba has emerged as a significant platform for international trade in intermediate and final products, especially among SMEs and microenterprises.
The growth of platforms is a key reason we believe small, micro-businesses and independent workers are driving the next wave of globalization.
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