Maryland Smith Research / July 28, 2021

How Pioneering Startups in the Mobile Money Industry Defied All Odds

Published in the Strategic Management Journal

How Pioneering Startups in the Mobile Money Industry Defied All Odds

It’s a tale as old as time – David vs Goliath. And this classic underdog story illustrates pioneers of the global mobile money industry as well, according to new research from Maryland Smith.

Published in the Strategic Management Journal and produced by Maryland Smith’s Rajshree Agarwal, Serguey Braguinsky and PhD candidate Audra Wormald, the research investigates the emergence of the mobile money industry and its international expansion. In a world where 2.3 billion people have no bank accounts, mobile money has enabled financial access, particularly for the poor in developing economies. Mobile money is an ingenious combination of financial software and ubiquitously available mobile phones that brokers “cash-free” financial transactions through mobile money accounts.

The mobile money industry stands in stark contrast to the typical “trickle-down” model of diffusion, where innovations are first introduced in a developed country and then branch outward to developing countries.

“The industry is better described as an industry that was “born global” and in which knowledge trickled “every which way,” the researchers write. “The benefits of this pattern of industrial emergence and growth in the context of mobile money were immense: democratized and distributed innovation tailored to the needs of consumers across the economic spectrum and across the globe.”

This new pattern emerged thanks to the enterprising efforts of pioneering firms that exhibit extensive variation in capabilities, initial country of launch and subsequent global expansion patterns.

Using painstakingly developed archival data for the industry, the researchers examined which of the pioneers expanded to other countries. They classified pioneering firms that internationalized into Davids and Goliath. The Goliaths, as may be expected, represented multinational firms, most of which operated in mobile telecommunications prior to diversifying into mobile money.

The Davids on the other hand were pioneering startups who expanded internationally. The researchers additionally classified them as David 1s – startups who launched their first platform in a developed country, and David 2s, who did so in a developing country. David 2s were presumably at a double disadvantage – not only were they resource-constrained new ventures, they were also in developing countries that had significant institutional voids.

Defying all odds, however, the David 2s had twice the global impact than Goliaths on the industry. Also, three of five leading global mobile platforms in the world today trace their origins to David 2s.

Digging deeper into firm business histories, the researchers uncovered patterns that help explain this impact based on differences in firm strategies. The Goliaths relied on “internal expansion to countries where they had pre-existing physical, capital-intensive investments in mobile networks and a built-in customer base,” the researchers write.  However, rather than creating a natural case for dominance in global expansion, the Goliaths were restricted to only the countries where they already operated.

David 1s attempted a “do-it-alone” strategy, with the vision of creating a universal platform that could be used across any mobile platform in the world.  But they soon found themselves cash-strapped and unable to create a sufficiently strong client base. Developed country consumers had many alternatives to mobile money, so the David 2s simply could not establish a unique value proposition.

What helped David 2s create higher impact, the researchers note, was their “specializing in generality.” David 2s developed and deployed “bundled knowledge capital. Such bundles of knowledge consisted not merely of technological knowledge, but also problem-solving capabilities for creating and using deep contextual knowledge of developing country-specific user needs and institutions, as well as alliance management capabilities to flexibly adapt the technologies for subsequent platform launches.” the researchers write.

Thus, David 2s were “unhinged” from capital infrastructure and established user base and instead leveraged reliable partnerships with mobile network operators across the globe. The researchers note, “Not only did these firms grow through collaboration, they created and democratized access to needed financial products and services worldwide.”

The study, the researchers write, demonstrates how pioneers in mobile money created and utilized capabilities for international expansion, and also that developing country startups can overcome odds relative to their counterparts.

By providing evidence of “this novel pattern of industry emergence,” the researchers write, “we thus join others who have observed phenomena such as technological leapfrogging in suggesting that innovation can truly stem from anywhere.”

Read More: “David Overshadows Goliath: Specializing in Generality for Internationalization in the Global Mobile Money Industry,” in the Strategic Management Journal.

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