Abstract
Sharing economy companies are proliferating across the developing world, yet we know very little about their nature, including whether and how they are different from their Western counterparts, and whether they offer new development paths as discussed in the introduction. In theory, the internet can level the playing field to allow the poor in the developing world to share information, access capital, and cooperate in joint ventures in new ways. We examine such premises through presenting the findings of a survey by region of sharing economy companies. While there are a growing number of companies, the amount varies greatly by region, and by types of services offered. Most are for profit companies, competing with traditional suppliers, rather than expanding markets. However, a handful of leading edge companies demonstrate the possibilities for sharing companies to offer a new path to development.
Introduction and Research Methods
Given the great hopes for the sharing economy to accelerate development as related in the introductory article, we decided to examine actual companies and attempt to see if such promise is being fulfilled. The hope of sharing assets, reducing transactions costs, freeing up collaborative financing, and reusing and repurposing used items all seem tailor made for improving standards of living among the bottom billion. Yet, most sharing economy companies we see in the West, such as Uber and Airbnb, are rather more oriented toward middle-class consumers. Access to the internet, a mobile phone, literacy, recognized identification, and trust in an unknown broker all represent significant barriers to accessing the sharing economy; thus it could potentially even the playing field for developing country entrepreneurs. Rip-offs are common in the internet economy, such as the now infamous selling of phony US college degrees from Pakistan uncovered in 2015. More importantly, from the supply side, the question remains as to whether entrepreneurs in the developing world can compete with the encroachment of emerging Western behemoths such as Uber, Amazon, and Airbnb. Timing seems to be key to the internet sharing economy in general, justifying the massive market estimates for the value of companies that have very limited assets. The assumption may be, à la Amazon, that once a stable user base is built, they will be reluctant to switch, and the app can be incrementally improved thus making it harder for imitators to catch up. Outside of Alibaba with a captive Chinese market aided by government support and language barriers, no developing country company has been able to compete at the same level. Even starting an internet-based business with low fixed assets still requires programing skills, finance capital, knowledge of legal regulations, and a good dose of publicity to launch such efforts. It is far more likely given these obstacles that start-ups will cater to an emerging urbanized middle class in the developing world.
While there is a growing literature of the sharing economy, generally, as reviewed in the introductory article, there is almost nothing written in the academic literature about specific sharing economy companies in the developing world. The non-academic literature generally has an optimistic, if cautionary, tone to it. Ozimek’s (2014) noted column for Forbes suggests that the internet represents key breakthroughs for developing economies. It reduces information uncertainty, allows for trust through reputation votes where government regulation fails, creates the possibility for raising investment where financial markets fail, and allows small-scale companies and entrepreneurs to find customers. A Belgian think tank published a post about a study of Indonesia suggesting that there was no substitution effect of Uber on local taxi services, rather demand far outpaced existing supply and traditional taxis were able to offer competitive fares (Liem, 2015). A World Bank brief suggests that sharing economy companies may substitute for informal workers, such as meal service, in the developing world (van Welsum 2016, p. 13), but this is outweighed by the possibility for job creation. Nonetheless, an IDRC report (IDRC [Canada], 2013, p. 11) suggests that there are major obstacles to the sharing economy thriving in the developing world, without really delving into the potential benefits and costs. These include start-up funding, technical literacy, cultural barriers such as the unwillingness of women to own a mobile, fragmentation of digital services and inadequate access to electronics payments, and weaker regulatory and trust and reputation systems.
Our review of companies here reflects a more variegated and nuanced plane of reality. Some companies fit into the mould of Western stalwarts such as Amazon, providing a platform for online purchases, such as Mercado Libre in Latin America or Souq.com in the Middle East. Yet, we also found quite innovative and less profit oriented companies in our survey that show signs of offering new avenues for collaboration in a wide variety of venues, including the possibility for those with limited assets or income to participate. We conducted our research by creating a database for all sharing companies in developing countries that we found through online searches, primarily relying on several portals related to the sharing economy in general. Our database includes 171 companies from around the developing world, including Latin America, South Asia, the Middle East, and Africa. We have less coverage of South/East Asia due to language barriers. Our database consists of information gleaned from the companies’ websites, including location, founding date, category of activities, whether profit/non-profit, and their funding model. We were less able to analyze this last category, but unexpectedly the vast majority seem not to rely on transaction/service/commission fees, a lesser proportion on membership/subscription fees, a smaller proportion still premium service fees, and a few who rely on donations. Because many rely on combinations of these and other sources, particularly advertising, it is difficult to define discrete categories for funding models. Having created the database, we then contacted each of the companies, asking them to fill out an online survey using the SFU web survey tool. One question in the survey was to ask for additional sharing companies in the developing world whom we might contact and we did so. We also asked all companies if they would be willing to do an interview via skype or phone to develop a mini case study around their business model and the lessons for the developing world. The interviews were semi-structured, with common questions, and then specific questions tailored for each of the companies. See Appendix for survey and common interview questions. At each step of the way, we promised anonymity for responses. However, for the mini case studies, we also gave the option for the companies to go on record, and all of them did.
Profile of Sharing Economy Companies in the Developing World
Our database yields some interesting insights about the sharing economy in the developing world, with the caveat noted above that East Asia (and particularly China) is probably under-represented in our database. The question we started with was where can one find the most activity. As one would expect, most of the sharing economy companies are located in rapidly growing large middle-income economies, though Pakistan and Ghana are important exceptions. We found that start-ups are concentrated in India, but surprisingly, even more so in Brazil. This is despite our conversations with start-ups in both places who decry the red tape and lack of adequate government support for such efforts. Yet there are other middle-income large countries, such as South Africa, with fewer than one would expect (only four). While we did not examine northern states such as Eastern and Southern Europe, which are less developed, a perusal of the numbers for Greece demonstrates that they are comparable to the countries in our graph, suggesting industry-specific factors must be at play. In fact, in both India and Brazil, there appears to be a nascent start-up culture in both places (concentrated in certain cities) which creates a supportive environment for parallel efforts. In addition, both countries have strong educational institutions for technical training in programing. This suggests that these two inputs may be the place to start for countries wanting to promote the sharing economy culture. Chile has also been notably pro-active in promoting the sharing economy with promising results demonstrated in Figure 1.
Our findings about Latin America’s remarkable performance are reinforced when we examine the number of companies by region. One advantage Latin America has over South Asia is greater access to the internet.
If we examine when the companies in our database were founded, we see that activity rises after 2008, perhaps spurred on by both the maturity of the business model, including successful Western companies who could be imitated, and the financial crisis which may have pushed some traditional companies out of business while also pushing consumers to seek new and cheaper providers. Curiously, we found a decline after 2014 in new companies, but it could simply be a reflection of lag time in listing the companies on the sharing economy portals that we primarily relied upon.
As in the West, most sharing economy companies are for-profit. However, the proportion is not as lopsided as one might expect in our database, with 43 percent being non-profit and 57 percent for-profit. Evidently, this does not speak to the size or viability of the ventures; it seems clear that for-profit companies are considerably larger. It also bears mentioning that several of the companies we examined seemed to have or be ready to shift between the categories, and most, not surprisingly given their recent founding, appear to be struggling to gain adequate revenues to operate and expand. It would be very valuable in future research to examine the many companies in this sector who have failed.
We also attempted to categorize the companies in our database by types of activities. This gets at the broad category that is included in “sharing economy,” as discussed in the introductory article. Some were fairly straightforward, such as companies who simply link buyers and sellers of items à la e-Bay, which we called “P2P Trading.” Another large category which has Western inspiration is the ride-share companies. Most of these appear to focus on offering other businesses, whose employees travel, services to cut down on their costs by allowing employees to share cabs and offer each other rides. The third most common category was the one we called “skill matching,” whereby the sharing company vouches for the work of skilled workers, or helps to spur collaborative projects among them, a development forward from the loose gig economy where workers bid online for work, such as Amazon’s Mechanical Turk. The well-known crowdfunding model constituted less companies, but with trading, it probably accounts for the highest dollar level of transactions. Another area that is emerging is the use of sharing companies to raise money for artists or entertainers, or to link teachers with learners (see case studies for an example of the latter). The non-profit and truly sharing efforts, including creating what we call virtual libraries—such as sharing toys and books—provide an alternative, if less common model. These efforts seem to rely upon donations, government sponsorship, or small membership fees to make ends meet. While far fewer in number, they do indicate some possibilities for the internet to expand communities seeking mutual aid, which have traditionally relied upon efforts by labor movements, community groups, ethnic organizations, and the like (and thereby limited in reach). Figure 4 summarizes the findings about types of activities.
Other categories from the graph above deserve explication. Financial services companies are the ones that facilitate the transfer of money, for example, offering an alternative to international wire transfers. Space sharing refers to renting out an office or house where entrepreneurs or those who are self-employed can meet and work together. They sometimes are quite elaborate, offering entertainment and shared meals, and suggesting that spontaneous collaboration will ensue from personal contact. In this virtual age, it is ironic that internet-based entrepreneurs want a space where they can work with each other. By tourism, we refer to companies who match up travellers with local guides and similar services. Parking companies allow owners of space to rent it out, often on an hourly basis. There is a seemingly vast set of companies that do combinations of the above or occupy niche spaces, from pet sitting to virtual spaces for artists to show and sell their work. It is curious that we did not have more companies renting out commercial or residential places à la Airbnb. This could suggest that Western companies are dominating that space, and/or limitations to our methodology. On the other hand, it may just be that people do not feel comfortable to rent out their houses in the developing world outside of well-travelled tourist areas.
Though our survey elicited only nine responses, it is worth summarizing a few noteworthy observations as the questions were quite detailed. Responses were received from Latin America, East Asia, South Asia, and Africa. The companies were small with the average number of employees being just five. Almost all respondents had just a Bachelor’s degree, with one having no formal education. Just three had degrees in business, though five claimed to have training in business. Surprisingly, none had training in computer programing. Ages of respondents ranged from 25 to 36, suggesting some career foundations are necessary, but youth also brings willingness to take risks. Almost all, 78 percent, said they wanted to change the world, and to change human values, and 89 percent wanted to work toward a more sustainable type of consumption. Two-thirds wanted to help their country develop. Despite this only 11 percent agreed that the sharing economy would extend knowledge and technology transfer to the developing world, perhaps indicating an acknowledgment of the limitations of what their companies could accomplish in macro terms. In terms of start-up capital, a full 89 percent reported that the money came from them or their family. In terms of potential benefits of the sharing economy for development, at least 67 percent suggested that it would reduce prices, require less capital, promote entrepreneurship, allow for cooperative ventures, and create more sustainable use of resources. It is interesting that none agreed that the sharing economy would reduce red tape, reflecting the difficulties of starting such a business and an area for further policy research. Two comments are particularly noteworthy in regard to motivations. One respondent said that sharing economy companies could “stimulate local economies and revive communities and the understanding of commons,” and another said they would allow “everyone to have access to a more personal service, based on trust and collaboration.”
A few parting observations about our database and survey are in order. First, the landscape for the sharing economy is highly uneven. It is uneven geographically, first of all, indicating that theories about clusters are appropriate—start-ups feed off of each other and share inputs and human capital. This may also be reflected in the spiking of companies being founded around the same time. Second, the business space is divided between behemoths such as P2P trading and crowdfunding companies who largely act in ways similar to Western counterparts, smaller start-ups who are catering to relatively neglected niche markets, and to a lesser extent, enterprises that are genuinely and literally organized around sharing and collaboration. In the rest of this article, we profile several companies from the sharing economy in the developing world, starting with the most famous case of M-Pesa.
Case 1: M-Pesa—The Financial Revolution Starts in Kenya? 1
Probably the most celebrated case of the sharing economy in the developing world is M-Pesa, a branch of Safaricom, initially owned by UK-based Vodafone. M-Pesa represents a disruptive shift in microfinance, where previous experiments focused on peer-to-peer clubs, as enshrined in the celebrated Grameen Bank. Owing to telecom reforms in Africa in the 1990s, European companies began to enter markets there for mobile telecommunications. From 2007, Safaricom began to offer mobile financial services, for people and businesses. Any individual can go to an M-Pesa agent (e.g., retail kiosk) to register and make a cash deposit. They can then transfer the money using an M-Pesa app and their PIN number, receiving a text verification of the transfer. A transfer of approximately US$100 costs US$0.63. Reportedly 25 percent of Kenya’s GDP now flows through M-Pesa, helping 50 percent of the population without access to a bank account (Mugambi, Njunge, & Yang, 2014). As of 2011, there were 32,000 M-Pesa outlets as opposed to (as of 2009) 491 bank branches, 500 postbank branches, and 352 ATMs (Mbiti & Weil, 2013). It is important to note that the M-Pesa system was developed with the help of the UK Department for International Development. There are also challenges to mobile payment systems. The first is that if there is more than one mobile payment company, it is unlikely that payments can be made between them. The second is that such systems tend to be poorly regulated, so that the safety and reserve requirements of normal banking may be lost (besides losing market share from the disruption). The third is that while it is much more difficult to withdraw cash than deposit it (Kshetri & Acharya, 2012).
Thus far, Safaricom’s adept management has avoided such issues in Kenya; however, they likely have played a role in limiting the spread of the model to other countries (Heyer & Mas, 2011). Moreover, to our knowledge, there is no interest accrued on savings; thus the revolution is in transactions costs rather than in creating a substitute financial system. A large survey of M-Pesa users therefore concludes that it is a complement, rather than a substitute to banking (Johnson & Arnold, 2012). There is also the possibility that the very poor will not have the money or knowledge to obtain a cell phone account. According to company reports, as of 2015, the Kenyan government owns 35 percent of the company and Vodafone, 40 percent. Revenues were US$1.6 billion of which 20 percent were from M-Pesa. The number of users was over 20 million for a 67.1 percent market share. There were 4,192 direct employees. What we see is that some basic regulatory infrastructure is needed for the M-Pesa model to spread to other countries.
Case 2: RideIT—Sharing Assets
RideIt is a ridesharing company operating out of Hyderabad, India. It was set up by Rahul M. Jacob in 2009. Mr. Jacob is a mechanical engineer who was working for an outsourcing firm on software development at the time. He noticed that traffic was worsening and that auto-rickshaws were often shared by the same hiring company to save money. When he discussed his ideas with a friend who had a business background, the partnership was struck. The team got seed money from personal contacts and from winning an annual competition put on by local IT companies for the best new business models. Mr. Jacob says that he learned how to run the business through his partner, experience, and using common sense. He worked part time on the venture for about 1.5 years until the prototype was ready in 2013. Once the pilot was ready, the founders chipped in money to make it operational. In 2014, they continued to work on the program, and entered several business competitions, winning seed money from Microsoft India and Alleviating Poverty Through Entrepreneurship (APTE) at Ohio State University. The company was officially formed in 2015 with help from Angel Investors. His platform is superior to ones that are openly available. The company is non-profit for the moment, but he is hopeful that a transaction fee can be charged once demand grows. One of the challenges to such is the fact that the transactions between the driver and rider are cash based.
In terms of security concerns, the service is only open to employees of a company who are subscribed to RideIt. The idea is to save company’s money for employees travelling in the same direction. Travelling with fellow professionals in groups improves security. RideIt allows ratings of both the drivers (“lift givers”) and the passengers; both are considered customers of the service that matches them up. Mr. Jacob believes that collaborative consumption could have vast implications for developing countries in terms of improving sustainability through shared assets. Transport systems are overburdened and unreliable, so he thinks sharing can make a big difference. While the Indian government has proposed policies to support nascent entrepreneurial companies, implementation has not yet occurred. In terms of resistance from traditional sectors such as taxis, Mr. Jacob believes a separate set of regulations are needed to manage sharing economy companies.
RideIt is a somewhat typical case in classic sharing economy fashion. It reduces the need for ownership and expands the capacity used of fixed assets. It potentially has a big environmental payoff. However, the users of such companies remain largely in the professional middle class. Developing countries should not only facilitate sharing asset companies, but also consider how to expand access to more people. The poor could be major beneficiaries of such services. One place to start would be to focus on providing cut rate access to the internet through mobiles. This could have the effect of expanding the market base and spurring on new companies to serve “the bottom of the pyramid.”
Case 3: Cinese, Collaborative Training Platform, a True Sharing Company
Cinese is an online “crowdlearning” platform founded in 2012 by Camila Haddad, and her sister, Anna, in São Paulo, Brazil. Cinese allows anyone to offer a class or training session for whatever they want to charge. The platform then advertises the class and links them to potential learners. Classes vary from writing workshop to cooking classes. Camila Haddad notes that a major change in business model occurred in 2014, when they moved from taking a transaction fee to allowing the student to pay the teacher directly. Cinese now relies purely on donations.
Cinese is particularly interesting for this reason—it is not designed to make money, or to end up in an IPO (though Ms. Haddad notes that a buyout was once offered), though it is technically a for-profit company. Ms. Haddad says that the number of staff has actually reduced from six to four over time. The code was developed by an outside company until a local partner came in to take it over. Cinese identifies public spaces such as restaurants, who are willing to provide low-cost venues for the classes. The donations are sufficient to cover the costs of the personnel, who work part-time. The employees work multiple jobs; Ms Haddad works as a teacher and consultant as well. Cinese reflects the vision of its founders.
Ms. Haddad says this vision has its origins in her university years. Upon graduating with a bachelor’s degree in business, she says she felt that her training did not prepare her to contribute to social impact or sustainability. She went to London to complete a master’s degree in economics and planning, where she took a course on sustainability and the environment that inspired her. She worked for a time for a think tank that researched different categories of products sold over the internet which claimed to be sustainable, but still felt that this was insufficient to address sustainability inasmuch as it still promoted consumption. She says she does not feel comfortable with seeing “people as consumers only, with just the decision to purchase or not to purchase.” She began to see the importance of trust and collaboration as the key to a sustainable future. Her sister, Anna, had a different experience that led her to the same place. Anna studied law, but started to research education independently. She began to see issues with the way education is traditionally delivered, in hierarchical fashion designed to prepare students for careers, teaching them what they need vs. what they want. She also has come to believe that a more collaborative solution to education is possible, thus creating the genesis of Cinese. The core idea is that everyone has something valuable to teach whether it is a grandmother or a physicist, “as long as someone else sees it as valuable.”
Those who deliver training set their own prices. When asked if there are ever any unhappy students, Ms. Haddad says only once, and the issue was quickly resolved by the deliverer offering a full refund. She attributes this lack of problems to the training manuals and programs offered by Cinese to those who want to deliver a good workshop, as well as the fact that people “will only sign up” if they have confidence in the teacher, whose background and expertise can be verified by some simple internet searching. Cinese and its users can flag for abusive, illegal, or dishonest content on their blog. When that happens, Cinese gets in touch with the “deliverer” to clarify the issue. This helps to identify those who do not appear to have their claimed expertise. On top of that, one imagines that the costs are fairly low, thus representing a low risk. Ms. Haddad believes that collective goods including collaborations, networking opportunities for consulting, jobs, and joint projects are even more important results than the teaching itself. She cites a house set up in São Paulo where freelancers could come and work as they pleased, using the wifi and paying for the bills all strictly by donation. Many projects began through serendipitous encounters among strangers meeting at the house.
The shift to eliminating the transaction fee reflects the strong values of the founders. Camila says she did not want to follow the usual formula of defining success as creating a start-up that is then sold for a lot of money. She wants to promote a more horizontal collaboration. For that reason, Cinese has not taken on more lucrative forms of expansion, from recruiting famous speakers to offering premium content. Therefore, she says her goal is to allow the users of Cinese to deal directly with each other, including setting up a forum where some can answer questions from others, thus “minimising the central office role and people’s dependency on us.” While counterintuitive, she believes that in the future, people will have a wide variety of jobs, rather than just one career, with the internet allowing for the eventual dissipation of the role of a central employer.
The role for public policy promotion of Cinese appears to be minimal. Ms. Haddad notes that creating a start-up in Brazil has become somewhat easier through tax relief changes, but it still remains quite difficult to start a company. When asked if Cinese could be used as a vehicle for income mobility, that is, training marginalized groups, Ms. Haddad says that is outside the mission, but still possible. She believes lower income groups also have a lot to teach the middle class, so it could be a two-way street.
Case 4: Fix Forward, Helping Marginalized Populations to Gain Work
Fix Forward, formerly known as Trade-Mark, is a non-profit organization in South Africa founded in 2012 by Josh Cox. Cox is a graduate of the University of Stellenbosch. It currently operates in Cape Town, but has plans for expansion elsewhere in the country. Cox was born in the UK, but states that he grew up in mixed race school in South Africa, motivating a lifelong commitment to work for social justice. He had been working for an NGO in 2007, when a tradesperson asked him for a reference letter. This was the genesis of the idea that through the internet he could scale up such a service, improving the lives of many in the process. Cox received a grant from the South African government and a smaller one from a foundation to start the social enterprise. The initial capital was used for programing and setting up the 18-month training program for tradespeople.
Cox relates that the main challenge is “finding quality people with the right fit for both the training and the service we provide.” Some trainees find it challenging to stay for the duration of the training program. The organization is looking for ways to shorten some of the modules. They try to vet carefully tradespeople who not only have the technical skills but a track record in entrepreneurship and who demonstrate detail orientation. The training program helps the lower income workers with their pricing and customer relations skills. They have partner organizations for those who are unable to enter their program, to help with remedial skills training such as literacy and numeracy. Fix Forward has public liability insurance for issues that might come up with clients.
Cox says he tries to develop a family environment among his workers, including mentorship by those who demonstrate high competency in the business side. Therefore, while Fix Forward allows customers to rate workers, the ratings are not published externally so that workers do not compete against each other. This also allows Fix Forward to send out a tradesperson who not only has the requisite skills, but also can more easily transit to the project. It discourages multiple quotes. Customers are not rated.
In terms of expansion, Fix Forward intends to stick to small contracts for now, so that the cash amounts are limited. The emphasis is to expand through increasing the number of transactions. They are also looking to a building supplies chain as a source of referrals.
Cox summarizes the important contribution of Fix Forward, as filling the gap between an affluent minority by helping to provide assurance and trust in those they hire from marginalized communities. He sees the possibility for such a model to be replicated in similar situations around the world. He also sees the possibility, down the road, for the model to include other types of services.
What we see through this case is the possibility of overcoming trust barriers, a situation that could occur in any situation involving the principal-agent problem, that is a hirer lacking expertise in the area in which they need help. They thus will have a hard time vetting and evaluating the person’s ability to provide efficiency and quality of service. In this sense, the sharing economy innovation is not in removing a middleman, but providing one to reduce transactions costs and assurances of oversight. The innovation shows the weakness of the yelp and other peer review mechanisms employed by most sharing economy companies. More importantly, such a model does not require a minority–majority situation. One can see it working as a lever of income mobility in a variety of situations where the poor can be trained in skilled trades.
Case 5: TerraCycle—Revolutionary Ideas on Reuse and Recycling?
TerraCycle does not fit into the normal mold of sharing economy companies—those tied to using the internet to cut out or minimize middlemen between buyers and sellers (Terracycle Company reports and website, n.d.; Wikipedia, n.d.). Moreover, it is headquartered in New Jersey, but because it has important subsidiaries in the developing world and its revolutionary approach, we thought it warranted special attention for its potential to address the problem of waste. TerraCycle does have a sharing economy mission—to reduce waste by recycling plastics and other materials formerly considered non-recyclable. Part of the problem is that plastics are often made of composite materials, complicating recycling. The company was founded in 2001 by Tom Szaky, a Princeton student. Mr. Szaky was inspired during a trip to Canada by the use of worms to break down compost waste to create highly effective fertilizer. He was able to gain an initial contract with Princeton University to recycle their compost into fertilizer. Using personal contacts, the company was able to raise initial capital to start producing the fertilizer on a large scale. Because the company could not afford new bottles, it began to use used plastic bottles. It received permission to use these bottles from Coca-Cola and Pepsi who saw the paybacks of being associated with sustainability. This led to the core business idea of reusing materials across the board that are usually sent to landfill, particularly plastics. Over time, other companies, such as Frito-Lay, came on board as TerraCycle expanded into the production of new products made from plastic waste and gathered by volunteer high school students who receive funds in return for boxes of waste. The company was able to secure contracts with Home Depot and Walmart in Canada in 2004 to sell their fertilizer. The fertilizer product was particularly attractive because it was organic. Scott Brands sued TerraCycle in 2007 because the appearance of the packaging was similar, and a settlement was reached out of court, including changing TerraCycle’s labeling. More importantly, TerraCycle was able to use the case to draw a great deal of publicity, including setting up a website about it. A notable event occurred in company history when a large (US$1 million) investment offer through the Carrot Capital competition was turned down because the company did not want to focus solely on the fertilizer business and bring in an outside management team (Margery, Read, & Lepoutre, 2014, p. 122). The company subsequently gained US$1 million from angel investors (Sptizek, 2011, p. 266). In 2008, Kraft offered a contract with TerraCycle to transform used juice pouches and cookie wrappers into new products such as shower curtains and backpacks. The company also uses old wine barrels from Kendall-Jackson to make rain barrels and composters (Sptizek, 2011, p. 268). TerraCycle has licensing arrangements with corporate partners so that they can approve the final use of brand name materials with purposes they find are consistent with the brand image (Anderson, 2000, p. 3). The company has expanded the development of products from other waste items, such as cigarette butts and pens. The fertilizer business has since been outsourced (Hart, 2009, n.p.).
Mr. Szaky has become something of a celebrity for his innovative ideas, receiving ample media coverage and writing three books. In his books, he promotes an idea he calls biomimicry—following nature’s example of ensuring that waste is useful and/or biodegradable, in order to eliminate it (Szaky, 2014, p. 21). As with other famous entrepreneurs, his drive is legendary. At 15, he rode his bike from Toronto to Vancouver to raise money. By the time he was 18, he had been involved in the start-up of four different companies (Seireeni, 2008, pp. 254–255). His insight is to push us to think carefully about the costs of wastes as part of the costs of production, something that is now an “externality” to costs of production. He was named the number one CEO under 30 in 2006 by Inc. There are a number of innovations tied to the company beyond the products noted above. One is the ability to enlist known brands to allow for the reuse of their products into new products. The second is the ability to recruit student volunteers and offices to help with the otherwise expensive process of separating waste. As in the first innovation this has the dual aspect of creating publicity and good will for the company. Schools receive compensation at modest levels and offices can donate the proceeds to a charity of their choice. TerraCyle produces a wide variety of post-waste products, a third innovation that makes the previous use obvious, such as by stitching together juice pouches to make a bag, thus creating a post-waste chic. This reflects a fourth innovation, namely the continuous efforts to innovate in the production process itself to make new products out of various kinds of waste. Even the fertilizer products have gone through innovation over time, such as the creation of a gel form that would release nutrients over longer periods of time. These efforts reflect an ethos around Mr. Szaky’s vision of providing a solution to waste products, namely reusing while minimizing the costs by reducing the costs of transforming them into other forms. The overall effect has been a major boost to the new sector of “upcycling,” a term referring to the re-purposing of waste products.
In 2014, Progressive Waste Solutions acquired a 19.9 percent interest in TerraCycle’s Canadian subsidiary. However the company is still privately held. It reports steady increases earnings from less than US$100,000 in 2004, US$13.5 million in 2010 to US$18.1 million in 2015. The company’s HQ is in Trenton, NJ, and has subsidiaries in Canada, the UK, Germany, Brazil, Mexico, Japan, and Australia. IT services are in Hungary. There are more than 100 employees.
In terms of vulnerabilities, TerraCycle’s business could shrink due to the rapidly falling price of oil, which will reduce the costs for producing new plastic. Already there is a shakeup in the recyclables industry (Gelles, 2016). However, the company VP, Daniel Rosen, counters that the declining price of oil reduces TerraCycle’s costs elsewhere, such as the price of energy and transport. Moreover, he notes that recycled plastic is just a small part of their business. TerraCycle relies on the partnership of student volunteers, offices, and particularly companies. So far, it has been able to manage with a small staff, including student interns, but it could be challenging both in terms of financing and management to move to a larger scale. Company officials feel confident to deal with such challenges and point to an ongoing evolution in company strategy, such as moving to production of useful post-waste goods that do not rely upon either other companies’ brand partnerships or student volunteers. In fact, the compost waste comes from large companies such as Anheuser-Busch, who also see it as a benefit to easily get rid of the waste. Similarly, it is likely that to scale up, TerraCycle would need to find additional sources of recycled products beyond the brigade system, such as buying used bottles in states that already have recycling programs (Hart, 2009, n.p.).
For developing countries, TerraCycle offers an attractive approach to deal with waste, a particularly vexing problem given low public sector capacity and severe environmental issues related to waste. To some extent, the sheer poverty of developing countries leads to de facto upcycling, as we have all seen with the legions of garbage pickers in waste piles there, but in a very inefficient and hazardous way. Rosen notes that the overall country environment is important, as TerraCycle pulled out of Argentina due to macroeconomic and political volatility. Mr. Rosen does not consider the branches in Mexico or Brazil to be in the developing world, and the company is cautious about plans for expansion at the moment. The venture into Brazil was catalyzed by an invitation from Frito-Lay to reproduce efforts there. The process takes several years to line up the management teams, brand sponsors, and local champions. When asked about the public sector’s role, Mr. Rosen emphasizes the importance of the business model—the company has to make revenues for the effort to work. The public sector can help by providing R&D funding for research to reduce the costs of producing post-consumer waste products. When asked about the possibility to change attitudes toward reducing consumption and encouraging waste, Mr. Rosen sees this as mostly outside of what the company can do, though such long-term efforts are desirable. However, the downturn in oil prices and the pressure it puts on recyclers as well as the external benefits to communities suggests that some basic support from public policies, in particular ones that encourage separation and then offer the waste product at reduced rates or free to recyclers, would accelerate the process. In particular, both the tangible and intangible costs of landfills have to be considered. In addition, public policy can encourage the use of biodegradable materials as well as push for the shift away from composite and toward material that are easier to re/upcycle.
Concluding Thoughts
Our admittedly limited survey of the sharing economy in the developing world does not adequately capture its dynamism; at any given moment, there are likely thousands of entrepreneurs hatching new ideas. The internet is like a series of waves, affecting every aspect of the economy, including in the developing world. The question is whether this new modality of economic organization and production can lead to greater global and local mobility. From our cases, we see that the sharing approach shows some incipient signs of allowing for both the middle class and those who can gain access to the internet possibilities for new forms of economic activity that were previously constrained, but clearly there are major constraints. While the costs of mobiles have declined precipitously, internet service is still uneven and costly. This is the main area for policy activism.
At the heart of the sharing economy is a theoretically easier establishment of a level of trust in linking two agents who do not know each other. The general solution for this is the ratings system; however, clearly such a system has limitations, both in terms of accounting for low vs. high volumes of ratings, and (ironically) for differences among individuals’ preferences. As illustrated by recent stories of crime by Uber drivers and Airbnb renters, trust can break down with major violations and fraudulent ratings. Sharing economy companies like to claim they are just middlemen, but such a function can only work when the middleman establishes trust both among the parties and between them and him/her. It may be that the power that companies such as Uber have are based upon reputational capital, thus trust remains a central issue even when communications and information approach minimal costs.
Trust is also at the heart of some of the most interesting experiments noted above in terms of smoothing out labor markets and allowing for collaborative funding and learning. In a sense, some sharing economy companies have allowed for agents to overcome or vastly reduce the costs of information uncertainty, which as we see in the case of Fix Forward, can have major benefits where systemic discrimination exists. Here, too, government can play a role in promoting such efforts and providing proper regulation and a propitious environment for start-ups, something we have seen scant evidence for thus far. The traditional modes of public support, such as formal education, seem antiquated and indirect, at best, vehicles for supporting the sharing economy, and more broadly the general, multifaceted, yet unpredictable way that the internet will transform all aspects of economy. One can imagine, for example, the state providing short-term financing as well as events and spaces where incubators can get started. These already happen, to some degree, through competitions, but should be vastly expanded. The initiatives to participate directly in some areas of the sharing economy, such as some municipalities creating bike share programs, may have their place, but it is more fruitful for the state to focus on other areas to support the sector and leave such activities to the private sector where possible. More importantly, the state can play a role not only in regulating the sector for safety to enhance trust, such as requiring liability insurance and basic workplace standards, but in finding ways to improve the sharing economy’s reach to the poor. One can imagine, for example, the government subsidizing licensed programing classes and supporting non-profits who are focused on increasing access to assets and employment among marginalized groups.
The potential for the sharing economy goes well beyond the fringes of what we see so far. What we see in our cases is that the foundation of a new technology can lead to quite unpredictable applications, ones that we should expect will acquire local forms based upon the environment in which they are hatched. For these experiments to lead to a larger transformation requires for the establishment of new social values. The shift in values would need to extend well beyond the present drivers of lower employment and income opportunities in the wake of economic stagnation and underserved middle-class market segments. TerraCycle’s vision of reusing materials, if accepted, would constitute a transformative shift in the way our economies are run, the very definition of supply and demand. It is hard to imagine an economy where sharing competes with consumption, but it is not impossible. Equally challenging is reacting to the dissipation of middlemen jobs such as those in brick-and-mortar retails stores with a more collaborative ownership approach to the new economy. The leading companies, such as Amazon, Uber, Facebook, and Airbnb are quite traditional in their focus on private gains and market valuation. Yet, as Cinese tantalizingly suggests, different economic models could well catch on through the reduction of transactions costs, allowing for easier cooperation among like-minded people. Such models would most likely continue to be limited to small parts of the economy, yet if the new age reflects a breakdown of traditional employer–employee relationships, they also would offer better options beyond the often casual, “flexible” relations offered by many new economy (and increasingly also traditional) companies. Expand the company shares of the IPO model of the IT sector into genuine ownership, and see what happens.
Footnotes
Acknowledgements
This article would not have been possible without funding from Simon Fraser University’s Work-Study Programme and the strong research efforts of engineering student Umair Naviwala. Vincent Hopkins of SFU and Patty Hira provided invaluable assistance in preparing the survey questions. Dr. Katherine Reilly provided valuable feedback. Interviews were conducted from January to February 2016. In accordance with ethics protocols, all interviewees were given the right to remain anonymous; however none chose to do so. I also gave each an opportunity to review the case studies. I would like to gratefully acknowledge the generosity of the interviewees for the mini case studies, who as founders shared their invaluable experiences and insights with me. Hopefully they will equally inspire others.