And lessons on what it takes to help small firms thrive
| Oluseye Jegede | Nigeria’s Otigba Computer Village is arguably the biggest information, communications technology (ICT) market in Africa. It started off as a one-man business on a street called “Otigba” in Ikeja, the capital of Lagos State. Within a short time it grew to a few thousand businesses occupying a vast area in the state. It represents an ICT solution centre for Nigeria as well as West Africa.
Three years ago Nigeria’s National Bureau of Statistics estimated that the informal sector had accounted for as much as 41% of the country’s economy in 2015. The informal sector in Nigeria continues to grow for numerous reasons. These include: limited ability of the formal economy to absorb surplus labour (largely dominated by people aged between 15 and 50 years), barriers to entry into the formal economy by young entrepreneurs who have ideas but little capital to compete with large firms in the formal sector, weak government institutions (regulatory bodies), and poor economic conditions which are forcing many consumers to demand cheap goods and services.
The Otigba cluster is no exception. It remains largely informal despite its size, the volume of economic transactions being done daily and the technical knowledge put to use in the market. Numerous studies have been done to evaluate the size and capacity of the cluster, its evolution, mode of operation, performance, sustainability and constraints. But before my research there had been no studies on how businesses within the cluster identified new and useful knowledge and how they applied that knowledge to innovation to increase their performance and profitability by scaling-up their operations.
Research across the world shows there is bound to be an exchange of knowledge when businesses cluster together. This can be through spillovers or conscious transfers. With more than 4000 businesses, Otigba should be no exception. So, I set out to test this by surveying 200 business units, representing about 5% of the size of the cluster. I wanted to understand how knowledge is being identified, acquired, developed, used and diffused in the cluster.
The study also sought to understand how the spread of knowledge within the cluster led to innovation and the scaling of business operations. Innovation here refers to significant technical changes in the product, services, production processes or delivery method.
To measure the scaling up of businesses, the study examined: inputs (access to more finances, number of employees), activities (sub-contracting, outsourcing and collaborations), outputs (turnover, quality, quantity) and impacts (compliance to international standard, technology upgrading and net export).
The study used these indicators because they are yardsticks for measuring growth in firms in the formal sector.