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

Area of Science:

• Business and Economics
• Information Systems
• International Business

Background:

• Global online platforms connect firms with diverse service providers worldwide.
• Microproviders, often in emerging economies, face challenges like negative country images in traditional offshoring.
• Existing research lacks understanding of how microproviders succeed on global platforms.

Purpose of the Study:

• To theorize global platforms as a new offshoring institution using transaction cost economics (TCE).
• To investigate how platforms address cross-border information asymmetries and enable microprovider participation.
• To examine the role of signaling theory in explaining microprovider success.

Main Methods:

• Developed a TCE-based model integrating signaling theory.
• Analyzed 6 months of transaction data from a leading global platform.
• Supplemented quantitative data with 107 face-to-face interviews with microproviders in Southeast Asia and Sub-Saharan Africa.

Main Results:

• Platform signaling effectively informs foreign clients about microprovider quality, overcoming information asymmetries.
• Platform-generated signals are the most impactful, helping emerging-economy providers mitigate negative country image effects.
• Microprovidership offers a better return on skills and labor compared to local employment for individuals.

Conclusions:

• Global platforms function as effective signaling environments, promoting cross-border microbusiness.
• These platforms diminish the impact of home country institutions by enabling quality signaling.
• Similar mechanisms likely drive cross-border microbusiness in other global factor and product markets.